McDonalds has been well known since 1940 as the standard for ultra convenient family friendly meals. According to the company’s website, the fist restaurant opened in San Bernardino, California as a barbeque restaurant but eight years later Dick and Mac McDonald restyled the restaurant and streamlined the menu to nine convenient items including their famous 15 cent hamburger.
In 1954, a mixer salesman saw potential in the business and opened the first McDonalds franchise in Des Plaines, Illinois. In four short years the chain had grown to at least 100 restaurants.
Today, McDonalds is an international corporation with stores in as many as 100 different countries. CEO: Jim Skinner began as the current president and CEO of McDonalds in 2004. He worked his way up from restaurant manager in 1971 without ever receiving a college degree. (McDonalds History, 2010) His “Plan to Win” strategy has increased world wide restaurant sales 41. percent from $50. 1 billion to $70 billion in 2008, making it one of only two Dow Jones Industrial Average stocks to end the year with a gain.
(Chief Executive Magazine, 2009). Today it appears resilient to the current economic downturn. McDonalds recently released its 2009 4th quarter earnings results which show that overall revenue rose 7 percent to $5. 97 billion with a net income of $1. 22 billion or $1. 11 per share. (Berr, 2010) SWOT ANALYSIS: STRENGTHS: McDonalds has a large market share, strong brand name, image and reputation.
CEO Jim Skinner and the previous CEO James Cantalupo quickly and efficiently enacted a strategy that allowed the company to recover from its first loss ever in 2003. (Dess, 2007) The “Plan to Win” strategy focuses on people, place, price and promotion. Their willingness to please customers with new and healthier menu items and their reputation for convenient, friendly service in a family friendly environment are a recipe for success. McDonalds has established a strong global presence. Improved sales in Europe are evidence of their ability to perform in the global marketplace.
WEAKNESSES: Less control over franchised stores has affected the cleanliness, speed and service at some locations and negatively impacted McDonald’s reputation for quality. Cutbacks in staff training and high turnover affected customer service. Media criticism led to customer concerns and even legal action over McDonald’s unhealthy food image and especially their use of trans-fats in cooking. (Dess, 2007) Although the chain has had a positive response to its increased emphasis on healthier foods, the healthy food options has proven to have higher costs for the company.
They also suffered a series of failures of new menu items due to poor promotional efforts and a lack of proper customer research. OPPORTUNITIES: The growing trend for healthier foods offers McDonalds an opportunity to develop new menu options to meet customer concerns and still remain a favorite option for the growing number of busy families who rely on the convenience of fast food. Pullbacks in consumer spending have had little effect on sales for McDonalds and have even been a benefit as consumers look for inexpensive eating options.
Other opportunities for McDonalds include expanding their global presence in countries like China and India. Global efforts focused on franchising allow expansion to new locations with little overhead and cost to the company. (McDonalds MCD, 2010) THREATS: Naturally one threat to McDonalds is its competitors such as Burger King, Wendy’s and others as they compete for market share both internationally and domestically. Globally they have to endure anti-American sentiments and the effects of global recession and fluctuating currencies.
Domestically they have to maintain a relationship between the corporate level and their franchise dealers in order to ensure that high standards are met by all stores with the McDonalds name. (Dess, 2007) The fast food industry as a whole is struggling to meet the expectations of customers toward health and environmental issues. Health professionals and consumer activists accuse McDonalds of contributing to the county’s health issue of high cholesterol, heart attacks, diabetes and obesity. PORTER’S FIVE FORCES MODEL:
THREAT OF NEW ENTRANTS: Although McDonalds has a strong brand identity that is hard to compete and is the leader of the fast food industry in terms of revenues generated and restaurants established, it faces competition from new entrants to the fast food industry as well as other established chains offering new products. BARGANING POWER OF BUYERS: Consumer preferences that gravitate toward more nutritional food could decrease the appeal of eating at McDonalds. BARGANING POWER OF SUPPLIERS: McDonald’s earnings are sensitive to prices of commodities such as beef, corn, cheese and poultry.
Competition prevents McDonalds from passing the rising costs on to consumers. SUBSTITUTE PRODUCTS OR SERVICES: McDonalds must also compete with other non-hamburger based fast food restaurants that offer convenient choices for consumers like pizza or sub shops, coffee shops, supermarkets or even street vendors. INTESE RIVALRY: Fast food customers can easily be swayed from one chain to another if a competitor can offer better quality, healthier choices a better value or a convenient family friendly environment.
McDonalds keeps ahead of the competition with a strong brand image and variety of quality products. STRATEGY USED: McDonalds “Plan to win” strategy focuses on quality and allows them to create and sustain a competitive advantage with fast, friendly service and an all around enjoyable experience for the whole family. CEO Jim Skinner’s efforts have focused around retraining employees and franchisees for better customer service and updating older stores. His plans include cutting back on opening new outlets, trimming non-burger acquisitions and even kicking ut underperforming franchisees. McDonalds continues to change its unhealthy image by developing and promoting healthier menu options. Marketing focuses on multiple customer segments and franchisees are asked for input about the markets they serve. These efforts are a good model for other fast food chains in the maturity stage of the product life cycle where the emphasis is on managing costs, marketing to many segments and defending market share amidst intense competition in a saturated market. Dess, 2007) ISSUES AND CHALLENGES: McDonalds is in a mature phase of its product life cycle. Their image and products are easily recognizable to consumers but in order to maintain a competitive advantage they must uphold their image and quality of products and service in a fiercely competitive market. Today’s consumers are more health conscious and concerned for the environment. McDonalds has to change the perception that their products are full of calories, fat and cholesterol and will contribute to poor health.
McDonalds must appeal to multiple segments of the consumer population, from busy, working adults to children as well as consumers in global markets. Franchise outlets must be monitored to assure they are meeting standards for cleanliness, quality and customer service. COURSE OF ACTION RECOMMENDED: Under the direction of CEO Jim Skinner, McDonalds seems to be taking the right steps to maintain their competitive advantage. I can however make the following recommendations: 1. Increase marketing toward children and promote the Ronald McDonald and friends characters.
Families are influenced by the prospect of an enjoyable eating experience that keeps children entertained. Remember that this segment is responsible for much of McDonald’s success so far and should not be overlooked. 2. Research the needs of consumers to develop new products. Market accordingly for various products to multiple segments of consumers. Continue to look at environmentally friendly packaging and healthy food options to appeal to modern consumers. 3. Change the perception that McDonald’s food is unhealthy.
Phase out trans-fats and use lean meats, possibly even a “tofu” burger. Advertise using a direct comparison between McDonald’s products and its competitors that portrays McDonalds as a healthier option. 4. Inspire team spirit among employees and foster excellent customer service. Monitor franchise stores to see that they meet standards for service, quality and cleanliness. OPINION: I found it interesting to study McDonalds because it is such a well established and successful company.
I particularly enjoyed researching the history of the products and ideas that have been promoted over the years and recognizing these events as part of my own childhood. McDonalds is a success story and should be studied as an example of what works. If fact, I am really interesting in continuing to follow the progress of the company to see how new attitudes about fast food are dealt with and the success of their expansions to global markets. REFERENCES: Berr. (2010, January 22). McDonald’s Beats Expectations, Upbeat for 2010 – Daily Finance.
Retrieved January 25, 2010, from http://www. dailyfinance. com/story/investing/mcdonalds-beats-expecations-is-it-enough/19327439/. Chief Executive Magazine Names McDonald’s CEO Jim Skinner “CEO of the Year” | Articles | Articles | Chief Executive – The magazine for the Chief Executive Officer. (2009, May 12). . Retrieved January 25, 2010, from http://www. chiefexecutive. net/ME2/dirmod. asp? sid=0CC7FBE04E534C16922586F98AF9AEB3&nm=Articles&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=DD3ED12F23814CAAAF29D37044AC2C0F.
Dess, G. , Lumpkin, G. , & Eisner, A. (2007) Strategic Management (3rd ed. ). Boston: McGraw-Hill Irwin. Jim Skinner – About McDonald’s. (n. d. ). . Retrieved January 25, 2010, from http://www. aboutmcdonalds. com/mcd/our_company/bios/jim_skinner. html. McDonald’s (MCD). (n. d. ). . Retrieved January 25, 2010, from http://www. wikinvest. com/stock/McDonald%27s_(MCD). McDonald’s History – About McDonald’s. (n. d. ). . Retrieved January 25, 2010, from http://www. aboutmcdonalds. com/mcd/our_company/mcd_history. html.
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