About everyone at some age, at some point or another, and in some country has gotten a sample of American’s symbol for fast food through the golden arches of McDonald’s.
This report will attempt to analyze the external and internal sectors that affect the company’s success. The external analysis will provide opportunities and threats while the internal analysis will show indicators of strength and weakness. It will then follow up with critical issues, strategic alternatives, recommendations and implementation.
The case studied is found in Appendix 2 of Mary Coulter’s “Strategic Management in Action” book.
External Analysis With the numerous fast-food chains found everywhere today, one can agree that rivalry is none other than a threat to the McDonald’s Corporation. Any one of these restaurants has opportunity to formulate strategic plans to gain advantage without the competitors knowing. From the case, Coulter notes that the industry growth is slowing for fast food restaurants as well since the aging population prefers “full service” dining as opposed to a quick, but unhealthy meal.
Switching costs are low as competitors like Burger King or Wendy’s provide the same type of burger offerings.
If the “rule of three” is inevitably a phenomenon that is true, than potential entrants will be limited and would not be a threat to McDonald’s. The burger industry then remains at the aforementioned restaurants–Wendy’s and Burger King. Bargaining power for fast-food diners are high in McDonald’s situation. This can be attributed to the products offered as being undifferentiated, low switching costs, and the majority of diners coming from low income groups.
Low-income customers will look for ways to reduce cost and that often means reducing costs of purchasing goods.This concept is proven by the company’s roll out of the value menu where most essential products are offered for $1. Bargaining power of suppliers did have an affect on McDonald’s in late 2003 when the first case of mad-cow disease was discovered in the United States. The final threat in Porter’s five forces model is the availability of substitute products such as fried chicken or tex-mex offered by KFC and Taco Bell.
There also external sectors from the general environment that pose threats or offer opportunities to the McDonald’s Corporation.Demographics definitely prevails as consumers from different income classes decide where to eat when eating out. Higher-income folks usually limit themselves to full-service restaurants while it is the low-income earning consumers who eat at fast food chains more than full-service diners. Age factor is also an opportunity for McDonald’s as its Happy Meals geared towards kids.
A personal observation among age groups dining at McDonald’s is that many senior citizens, usually age 60 or older, eat breakfast at McDonald’s.A sociocultural factor that was a major for threat for McDonald’s in recent years was customers’ changing attitude about food and health. Because of the lawsuits, and documentaries produced, McDonald’s implemented a plan to upgrade their salads and offer pedometers and health guides with “healthy value meals. ” It took this threat as an opportunity to win customers by offering premium salads and fruit yogurt parfaits.
Legal issues developed as lawsuits were filed against obesity as well during the big movement towards healthier eating in the recent years.Internal Analysis To assess the strengths and weaknesses of the McDonald’s Corporation, we will look at internal functional areas. The many McDonalds’ trucks on the road with a big juicy burger or breakfast sandwich on the side definitely shows operations in addition to marketing efforts in place. I can not remember a time when McDonald’s would not have enough of what I ordered.
The company was weak in marketing strategies as it aimed most advertising towards children but did take initiative to change this in 2003 when it began to advertise to teens and adults as well.There were less of the “Ronald McDonald” commercials and more commercials with teens or middle-aged adult persons seen on TV or in internet pop-up advertising wherever McDonald’s would be a sponsor. As Coulter had described the many chefs who gathered to improve on the once classic Big Mac Special Sauce, this was an effort of research and development to strengthen its product quality for the Big Mac burger. These efforts have expanded to offer product offerings such as the 100% all-natural white chicken found in the more expensive chicken strips and premium chicken sandwiches.
Management has also taken initiative to further employee development. This initiative was an organizational strength, in many countries outside of the United States such as Brazil where it was named “Brazil’s Best Employer”, Sweden where it was named “Best Competence Company”, and Australia where it was Australia’s “Employer of the Year” in 1999. The old system of restaurant scoring was a weakness and when Cantalupo took over as CEO, he eliminated the old system, “Proejct Innovate” and implemented a new plan of mystery diners from outside survey firms to review the many restaurants.This new information systems, combined with internet technology, allowed store managers to compare their store’s performance among others.
From these turnarounds, McDonald’s turned its weaknesses into strengths. Critical Issues A critical issue that caused McDonald’s Corporation ratings to dwindle down over the years was the quality of the food. Investments had been poured into restaurants to provide for a “customization” of its product, but quality had only been “marginally improved. And while catering to customers specific wants, service time had been reduced as well.
Slow service is a great burden to customers as they expect faster service from a fast food restaurant. Factors like this can cause customers to avoid McDonald’s when in search of a quick bite. Its old salads were also an afterthought in that they would be placed in little refrigerators on the counter. They were plain and consisted of simply “unappetizing lettuce.
” Customers also complained of warm or even cold food sometimes. I remember an instance where I ordered two breakfast burritos and both were cold on the inside.Because of that one experience, I had never vowed to ever purchase one again. The other critical issue was the changing sociocultural movement of Americans towards healthier eating habits.
A documentary called “Super Size Me” criticized the McDonald’s Corporation of how unhealthy its offerings were. In this movie, a young man consumed only McDonald’s food for a month and was shown to have developed critical health conditions when examined by doctors and nutritionists at the end of that one month.R&D efforts led by the new CEO “beefed up” salads with a blend of iceberg lettuce in addition to more nutritional greens and premium chicken, lead to part of the company’s recent success by gaining customers such as women who would not eat McDonald’s food before. The domino effect through the company’s successful promotion of the salads caused boost in sales of other products such as the grilled chicken sandwiches and Happy Meals as more moms would buy something for themselves as well as their kids when visiting a McDonald’s restaurant.
Strategic AlternativesThe alternative taken by management under CEO Cantalupo to improve product quality has been effective thus far. With a newer and refined company image due to marketing efforts aimed towards adults, more customers will come back and will be willing to pay a premium for a premium product. The new premium chicken sandwiches and premium salads do have a refined taste, but must sell for a premium price. But to make everything else such as items on the value menu to have the utmost quality, it would cost more for McDonald’s, and as a result, the customer would have to suffer the costs as well.
Thus, by staying at its current plan to offer both premium products and regular value products, the company can cater to a diverse customer database. The majority of customers for lunch and dinner are still low-income families and thus, more of these lower priced products are sold everyday as opposed to the premium products which do not result in as much sales. Recent efforts to provide more healthy foods have been successful. Having purchased premium salads sometimes, I do notice that there is more chicken on my salads than before, and that the quality of the 100% natural all-white chicken does make a difference taste satisfaction.
An alternative to the fries that contain trans fat may be to have freshly cut fries instead like those of the In-N-Out food chains on the west coast. This could be done through a small investment in kitchen supplies to cut the potatoes as needed. Operations managers can develop a new distribution channel that will be needed to bring potatoes into the restaurants. Because of storage space necessary, perhaps the frequency of potato shipments could be increased so that less storage is needed.
Recommendations More diners would probably not mind having freshly cut french fries without the artery-clogging trans fat. The purpose of the trans fat is to allow the fries to last longer during storage and delivery once cut from a whole potato. Buy eliminating the process of storage and delivery of pre-cut french fries, the corporation could eliminate the unhealthy trans fat and at the same time boost its product quality by promoting it as “fresher” and “healthier” than before.In-N-Out burgers have gained popularity among burger-eating folks in the west coast due to the freshness in their meat and fresh-cut fries.
A domino effect like that of the premium salads could once again take place as diners will flock to McDonald’s for the healthier and freshly cut fries, thereby causing boost in sales of other foods as well as families take their kids for the Happy Meals. Implementation To implement this product image with the trans fat contained in fries, there would have to be a major overhaul in operations, distribution, and restaurant kitchens.Management would have to find a potato supplier. Operations would have to figure out how to deliver the potatoes along with the other McDonald’s foods to restaurants.
If storage space is lacking, more frequent deliveries of potatoes would be necessary and so the potatoes might not even be delivered on the same trucks with the banners of the big juicy Big Macs and breakfast sandwiches. Restaurant kitchens would have to include potato peelers if McDonald’s chooses to keep its french fries without potato skins as well as a fry-cutting machine.This machine might also have an option to slice hash browns for breakfast too. Current refrigerator sizes could be reduced since the frozen fries would not need to be stored as before.
Additional training will be needed for the fry-cutting machine with additional focus on safety as this may be the most dangerous machine in the kitchen. Most foods from McDonald’s comes pre-cut and pre-prepared, only requiring the chefs to heat and assemble. New promotional advertisements should focus on healthier fries as it contains no trans fat, yet concentrate on freshness.
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