The golden arches of McDonald’s are a universally recognized symbol of fast food, enjoyed by people from diverse backgrounds and age groups around the world.
This report will analyze the factors that affect the company’s success in both external and internal sectors. The external analysis will uncover opportunities and threats, while the internal analysis will identify strengths and weaknesses. The report will also cover critical issues, strategic alternatives, recommendations, and implementation. The case being studied can be found in Appendix 2 of Mary Coulter’s book “Strategic Management in Action.”
External Analysis With the abundance of fast-food chains present globally today, it is evident that competition poses a significant threat to the McDonald’s Corporation. Each of these establishments has the potential to develop strategic plans to gain an advantage without the knowledge of their competitors. As stated in the case, Coulter acknowledges that the rapid growth of the fast food industry is slowing down due to the preference of the aging population for “full service” dining experiences, rather than opting for a quick but unhealthy meal. The low switching costs further contribute to this competition, as competitors like Burger King or Wendy’s offer similar burger offerings.
According to the “rule of three,” if it is inevitably true, then potential competitors would be limited and not pose a threat to McDonald’s. Therefore, the burger industry would be dominated by Wendy’s and Burger King. In McDonald’s case, customers have high bargaining power due to undifferentiated products, low switching costs, and a majority of customers coming from low income groups.
Low-income customers seek ways to minimize expenses, which often involves reducing the costs of buying goods. McDonald’s demonstrated this idea by introducing a value menu that offers essential products for $1. In late 2003, the bargaining power of suppliers impacted McDonald’s when the first case of mad-cow disease was found in the United States. Another threat depicted in Porter’s five forces model is the presence of substitute products like fried chicken from KFC or tex-mex from Taco Bell.
McDonald’s Corporation is affected by external factors in the general environment, which can present both threats and opportunities. Demographics play a crucial role in consumers’ dining preferences. Full-service restaurants are favored by higher-income individuals, whereas fast food chains are more popular among low-income individuals. Moreover, McDonald’s has an advantage with its Happy Meals specifically designed for children.
It has been personally observed that many senior citizens, typically aged 60 or older, choose to have breakfast at McDonald’s among different age groups dining there. In recent years, customers’ attitudes towards food and health have changed significantly, posing a sociocultural threat to McDonald’s. In response, McDonald’s improved their salads and introduced pedometers and health guides with their “healthy value meals.” To capitalize on this opportunity presented by the threat, McDonald’s began offering premium salads and fruit yogurt parfaits in order to attract customers.
Legal issues arose due to lawsuits filed against obesity during the recent years’ big movement towards healthier eating. To evaluate the strengths and weaknesses of the McDonald’s Corporation, we will analyze its internal functional areas. The numerous McDonalds’ trucks prominently displaying a delicious burger or breakfast sandwich indicate both operational and marketing efforts. I cannot recall a time when McDonald’s did not possess an adequate supply of what I ordered.
Initially, the company’s marketing strategies focused on children. However, in 2003, they broadened their target audience to include teenagers and adults. This change was evident through a decrease in “Ronald McDonald” commercials and an increase in advertisements featuring teenagers and middle-aged adults on TV and internet pop-up ads as part of McDonald’s sponsorship. Similar to Coulter’s idea of chefs collaborating to improve the classic Big Mac Special Sauce, McDonald’s conducted research and development efforts to enhance the quality of its Big Mac burger. These efforts also led to the introduction of new products like premium chicken sandwiches and chicken strips made with 100% all-natural white chicken, which are priced higher than other chicken offerings.
Management’s initiative to further employee development has been recognized and praised in various countries. In Brazil, it was recognized as “Brazil’s Best Employer”, while Sweden awarded it the title of “Best Competence Company”, and in Australia, it earned the title of “Employer of the Year” in 1999. One of the weaknesses that management addressed was the old system of restaurant scoring. Under CEO Cantalupo, this outdated system, known as “Project Innovate,” was eliminated and replaced with a new plan. This new approach involved engaging external survey firms to send mystery diners who would evaluate the restaurants. By combining this new information system with internet technology, store managers were able to compare their store’s performance with others.
From these turnarounds, McDonald’s transformed its weaknesses into strengths. A critical issue that led to a decline in the ratings of McDonald’s Corporation over the years was the food quality. The company had invested in restaurants to allow for product customization, but the improvement in quality was only slight. Additionally, while focusing on meeting customers’ specific preferences, service time had also been decreased.
Customers find slow service to be a significant inconvenience, especially when they anticipate quick service from a fast food restaurant like McDonald’s. This can deter customers from choosing McDonald’s for a quick meal. Additionally, the old salads at McDonald’s were not given much consideration and were stored in small refrigerators on the counter. These salads were plain and comprised mainly of unappealing lettuce.
“Customers also expressed dissatisfaction with the temperature of the food, ranging from warm to cold. I recall a specific incident when I ordered two breakfast burritos and both had a cold interior. This one experience made me vow to never buy them again. Additionally, another major concern was the shift in American’s sociocultural movement towards healthier eating habits.”
The documentary “Super Size Me” criticized the unhealthy offerings of the McDonald’s Corporation. In the film, a young man solely consumed McDonald’s food for a month. At the end of this period, doctors and nutritionists discovered that he had developed serious health conditions.
Under the leadership of the new CEO, the company’s research and development team enhanced their salads by adding a mix of iceberg lettuce along with more nutritious greens and premium chicken. This led to increased success for McDonald’s, attracting new customers including women who had previously avoided their food. The positive response to the salads had a ripple effect on other products, such as grilled chicken sandwiches and Happy Meals, as more moms would purchase something for themselves in addition to their children when visiting a McDonald’s restaurant.
Management under CEO Cantalupo has successfully implemented strategic alternatives to enhance product quality. Through marketing efforts aimed at adults, the company now has a newer and refined image, leading to increased customer retention and willingness to pay more for superior products. The introduction of deluxe chicken sandwiches and upgraded salads has provided customers with a more sophisticated taste, but these items come at a higher price. This would mean that maintaining high quality for all other menu items, including those on the value menu, would be costlier for McDonald’s. As a result, customers would have to bear the additional expenses.
With a variety of premium and regular value products, the company can cater to a diverse customer base. The majority of lunch and dinner customers are low-income families, leading to higher sales of lower priced items compared to premium ones. The company’s recent efforts to offer healthier food choices have yielded positive results. From my own experience, when I occasionally purchase premium salads, I have observed an increase in chicken quantity and can discern the difference in quality due to the use of 100% natural all-white chicken.
Instead of eating fries with trans fat, one can opt for freshly cut fries similar to those served at In-N-Out food chains in the west coast. To achieve this, a small investment in kitchen supplies is needed to cut potatoes as required. Additionally, operations managers can establish a new distribution channel to ensure a steady supply of potatoes to the restaurants. By increasing the frequency of potato shipments, the storage space required can be reduced.
Instead of utilizing trans fat, which is detrimental to health, for longer storage and distribution of pre-cut french fries, it is advisable for the company to provide freshly cut fries without this unhealthy component. This modification will not only eradicate trans fat but also improve the overall quality of the product, highlighting its freshness and healthiness. In-N-Out burgers have gained popularity on the west coast because of their usage of fresh meat and freshly cut fries.
McDonald’s could experience a ripple effect similar to the success of premium salads when introducing healthier and freshly cut fries. This has the potential to boost sales of various menu items, including Happy Meals as families flock to McDonald’s. However, implementing this change requires substantial modifications in operations, distribution, and restaurant kitchens. The company must locate a potato supplier and devise a method for delivering potatoes alongside other menu items to their restaurants.
If there is not enough storage space, then more frequent deliveries of potatoes would be required, which could result in the potatoes being delivered separately from the trucks that carry the banners of the popular Big Macs and breakfast sandwiches. The restaurant kitchens would need to be equipped with potato peelers if McDonald’s decides to continue serving their French fries without the potato skins, and they would also need a fry-cutting machine. Additionally, this machine might have the capability to slice hash browns for breakfast as well. With the change in storage requirements, the sizes of current refrigerators could potentially be reduced as there would be no need to store frozen fries in the same way as previously.
The fry-cutting machine will require additional training, especially in terms of safety since it is potentially the most hazardous machine in the kitchen. At McDonald’s, most foods are already pre-cut and pre-prepared, so the chefs only need to heat and assemble them. However, new promotional advertisements should highlight the healthier aspect of the fries, which contain zero trans fat, while also emphasizing their freshness.
