How Did McDonalds Lose the “Hot Coffee” Lawsuit?
McDonald’s coffee case was a 1994 product liability lawsuit that became a flashpoint in the debate in the United States over tort reform.
“There was a person behind every number, and I don’t think the corporation was attaching enough importance to that,” juror Betty Farnham told the Wall Street Journal. This was the answer to McDonald’s defense, that said “the number of complaints was statistically insignificant.”
One of the main goals of jurors in this lawsuit was protecting the humans rights and interests in relations with big corporations. And this is why they decided to punish McDonald by paying a big sum. “The only way you can get the attention of a big company [is] to make punitive damages against them,” said juror Marjorie Getman. “And we thought this was a very small punitive damage.”
And because of that huge sum of punishment, many people think that the Liebeck vs. McDonald’s Restaurants lawsuit looks ridiculous.
But big punitive damages had led to the departure from the heart of the matter. That’s why Liebeck commented it: “I was not in it for the money. I was in it because I want them to bring the temperature down so that other people wouldn’t go through the same thing I did.”
The result is that McDonald’s now serves its coffee at a temperature that is 10 degrees lower. And it proves that the juror’s decision was correct.
In my opinion, McDonald loses the coffee lawsuit because of paying not enough attention to the quality of its restaurants service and products. And an additional reason for losing was a latency ignoring of customer’s rights, counting them just like statistic numbers.
Wikipedia. (November 3, 2015) Liebeck v. McDonald’s Restaurants. Retrieved on August 22, 1997 from https://en.wikipedia.org/wiki/Liebeck_v._McDonald%27s_Restaurants.
Hot Coffee documentary film (adapted by Andy Simmons). (March 2014) Remember the Hot Coffee Lawsuit? What Really Happened. Retrieved on August 22, 1997 from http://www.rd.com/culture/hot-coffee-lawsuit/2/
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|Founded||May 15, 1940|
|Industries served||Restaurants (McDonald’s, McCafé, McExpress, McStop)|
|Geographic areas served||Worldwide (36,899 restaurants in 120 countries)|
|Headquarters||Oak Brook, Illinois, United States|
|Current CEO||Steve Easterbrook|
|Revenue (US$)||24.622 billion (2016) 3.1% decrease over 25.413 billion (2015)|
|Profit (US$)||4.687 billion (2016) 3.5% increase over 4.529 billion (2015)|
|Main Competitors||Burger King Worldwide, Inc., Darden Restaurants, Inc., Doctor's Associates, Inc. (Subway), Domino’s, Inc., Dunkin' Brands Group, Inc., Yum! Brands, Inc. (KFC), Starbucks Corporation, Wendy’s Company and many other restaurant chains.|
McDonald’s Corporation’s business overview from the company’s financial report:
The Company operates and franchises McDonald’s restaurants, which serve a locally-relevant menu of quality food and drinks sold at various affordable price points in more than 100 countries. McDonald’s global system is comprised of both Company-owned and franchised restaurants. McDonald’s franchised restaurants are owned and operated under one of the following structures - conventional franchise, developmental license or affiliate. The business relationship between McDonald’s and its independent franchisees is of fundamental importance to overall performance and to the McDonald’s Brand. This business relationship is supported by an agreement that requires adherence to standards and policies essential to protecting our brand.
The Company views itself primarily as a franchisor, with the vast majority of McDonald’s restaurants (approximately 85%) owned and operated by independent franchisees. Franchising enables an individual to own a restaurant business and maintain control over personnel, purchasing, marketing and pricing decisions, while also benefiting from the strength of McDonald’s global brand, operating system and financial resources.
Conventional franchisees contribute to the Company’s revenue stream through the payment of rent and royalties based upon a percent of sales. The conventional franchise arrangement typically lasts 20 years, and franchising practices are generally consistent throughout the world. Over 70% of franchised restaurants operate under conventional franchise arrangements.
McDonald’s restaurants offer a substantially uniform menu, although there are geographic variations to suit local consumer preferences and tastes. In addition, McDonald’s tests new products on an ongoing basis.
McDonald’s menu includes hamburgers and cheeseburgers, several chicken sandwiches, wraps, french fries, salads, oatmeal, shakes, desserts, sundaes, soft serve cones, pies, soft drinks, coffee and other beverages. In addition, the restaurants sell a variety of other products during limited-time promotions.
McDonald’s restaurants in the U.S. and many international markets offer a full or limited breakfast menu.
Quality, choice and nutrition are increasingly important to our customers and we are continuously evolving our menu to meet our customers' needs.
The Company’s business is not dependent upon either a single customer or small group of customers.”
McDonald's SWOT Factors
1. The second-largest restaurant network serving customers in more countries than any other competitor in fast-food industry
As of 2017, McDonald’s operates the second-largest restaurant network in the world. In total, the company and its franchisees operate 36,899 restaurants in 120 countries.
Source: The respective Companies’ financial reports and official websites 
In terms of sales, McDonald’s outrivals any other QSR chain in the world with US$24.622 billion in sales in 2017 alone. The sheer size of the company’s restaurant network is a strength that provides many advantages over competitors, including:
- Economies of scale. The company can share its fixed costs over many restaurants locations, which makes McDonald’s one of the cheapest places to eat at.
- Huge gains from implementing best practices. The company can identify better ways of performing tasks, managing restaurants or hiring new employees and can achieve huge gains by implementing these best practices in its vast network of restaurants.
- Market power over suppliers and competitors. Due to its size, McDonald’s can exercise its market power over suppliers by requiring lower prices from them. The company clearly demonstrates this with The Coca Cola Company. Because of McDonald’s and The Coca Cola Company’s agreement, no other restaurant chain can sell Coca Cola drinks for lower prices than McDonald’s, even if it means losing the business to PepsiCo. The Coca Cola Company could easily get out of such agreement if McDonald’s wouldn’t be so huge and would generate less income for The Coca Cola Company.
McDonald’s can also use its size to affect the competition by underpricing some of its items or driving them out of the best locations.
- Wide audience reach. McDonald’s restaurant network allows the chain to reach more customers than most of its rivals could reach. According to the Company’s CEO, in five of its largest markets, 75% of population lives within 3 miles of McDonald’s restaurants. Wide audience reach does not only help the company to target more customers and increase brand awareness, but also to introduce new services, such as home delivery.
2. The most recognizable brand in restaurant industry
McDonald’s opened its first restaurant in 1940. Since then, the company has become the world’s largest restaurant chain in terms of revenue with the most recognizable brand in the market. According to Forbes and Interbrand, McDonald’s brand is 9th and 12th most valuable brand in the world, worth US$40.3 billion and US$39.381 billion, respectively. No other restaurant brand, except Starbucks, is included in the list of the top 50 most valuable brands.
The brand value is closely related to the brand recognition and reputation. Usually, the more valuable a brand is the better it is recognized worldwide. McDonald’s, which operates in 120 countries, where billions of people live, enjoys some of the greatest brand awareness among all global corporations. Only KFC operates in more countries (128) than McDonald’s and can compare in brand awareness with it. Brand awareness also helps to introduce new products or sell the current ones faster as the company needs to spend less money on advertising.
While, McDonald’s reputation has suffered a lot during the years, the company is still recognized for its innovations in fast-food industry and the American business values it brings to other countries.
Figure 2. McDonald’s brand value 2000-2016
Source: Interbrand 
Few direct competitors have such a valuable and recognizable brand, which strengthens the company.