Mcdonalds Case Analysis Essay
McDonalds Case Analysis Business Policy /BUSN412 BUSN412 Laurel Campbell 1/23/2010 ? CASE ANALYSIS: MCDONALDS CORPORATION COMPANY NAME:McDonalds Corporation WEBSITE: www. mcdonalds. com INDUSTRY:Fast Food COMPANY BACKGROUND: HISTORY: 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.
Mcdonald’s Case Analysis Essay
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 Alternatives
The 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.
Mcdonalds Case Analysis Essay
The most important general environmental factors to be considered for the industry and McDonalds include its demographic, sociocultural, global, and physical environment segmentations. The demographic segment is important in terms of this industry because of the consumers that make up the fast-food industry. The demographic segment associated with McDonalds consists of a wide range of consumers with their new and improved menu that offers the success of the new dollar menu to healthier menu options including moderately priced salads.
Teenagers were previously the firm’s primary targeted market; however McDonald’s objective is to target the larger, more profitable family market. McDonalds is distributed globally and known as the world’s largest fast-food restaurant business. The demographic segment has a positive effect on the industry because it has expanded its targeted market for all fast-food restaurants, increase motivation among competitors and diversify product offerings. Its sociocultural segmentation is important because of the company’s new socially responsible initiatives help maintain the company’s reputation abroad.
McDonalds has chartered employee development, internal promotions, and advancement opportunities for women. The sociocultural factors have a positive effect on the industry because it has changed consumers’ negative attitudes toward the fast-food industry. Its global segment, with continuing growth, the magnitude of McDonald’s impact on national and world culture has become increasingly significant. McDonalds has established unique and customized approaches to each individual country and significant variance in strategic actions with differing cultures in different countries.
This is a positive effect for McDonalds on the industry because it is able to respond quickly. Its physical environment segment is important within the industry because there are many negative environmental associations with the fast-food industry. McDonalds has formed relationships with other organizations to understand the firm’s impacts on water pollution, waste management, and soil erosion. Its EcoProgress program enables its restaurants to decrease energy consumption by up to 11 percent. This has a positive effect on the industry and provides both defense against criticism and support of the company brand.
Important factors of the industry forces affecting both the industry and the company consist of economies of scale which has a high effect on the industry, bargaining power of suppliers with a moderate level of effect and threat of substitute products that also has a moderate level of effectiveness. The industry is rapidly changing and firms need to continually make an effort in its competitive environment. Majority of firms are well-established in the industry which makes it challenging for new entrants to join the market, making the industry unattractive for new entrants and incumbents.
Uniformity has allowed for greater cost control through greater economies of scale that in turn allow McDonald’s to maintain low prices. For McDonalds, supplier relationships are a key component in its efforts to control costs. There is a threat of substitute products since the fast-food industry is closely related and has developed similar strategies. The two major competitors for McDonald’s are Wendy’s and Burger King. Significant future action that Burger King is undertaking is its improvements in trying to keep up with changing trends and the competition.
For example, Burger King now offers coffee beverages and a new menu that is more health conscious. Wendy’s is keeping up with competition by trying to make itself unique by marketing itself away from typical fast-food preparation, marketing its salads as freshly made. Important value chain analysis factors in regards to the company consist of management information systems which is superior over competitors, marketing which is neutral towards competitors, supply chain management which is superior and distribution which is also superior over the competition.
The company has identified a set of key performance indicators centered on sustainability concepts, such as the company’s supply chain area, chartered the worldwide percentage of firms that affirm the Code of Conduct created for McDonalds suppliers. In terms of distribution, the company started utilizing local suppliers and incented local suppliers to upgrade their operations and even build plants overseas to serve stores in foreign markets. Distribution is superior over competitors because it is now a global market company, giving it a competitive advantage.
McDonalds would not be where it is today without the expertise of its top management and hard work from employees. It is continual effort for managers to compete successfully throughout the rapid and changing competitive environment of the fast food industry. By 1985, McDonalds had the largest and most powerful promotional budget of any brand and continued as becoming viewed as a pioneer when it advertised during the first Super Bowl. The McDonald’s Corporation has gained competitive advantage in both national and International fast food industry.
McDonald’s holds a strong position among its competitors. McDonald’s market value because ROI and ROE are two major ratios investors analyze when they consider capital investment. Social responsibility of the company is also significant for profitability, obtaining its brand image. McDonalds SWOT Analysis and the strengths of the company consist of: one of the best brand recognition in the world, global operations all over the world, and cultural diversity in products depending on restaurant locations.
The opportunities include opening more joint ventures with several different retailers, more responsive to social changes to healthier options, advertising the capabilities of Wi-Fi internet services in branches, expansions of business into newly developed parts of the world and diversify products to allergy-free options. Its weaknesses include increased training costs due to high turnover, minimal concentration on organic foods, large fluctuations’ in net and operating profits, impacting investors, little variation offered in seasonal products and quality concerns id due to franchised operations.
The threats associated with McDonalds includes the criticism the company receives, the vast amount of fast food restaurants (increased competition), social changes in a more balance d meal, focus on healthier dieting by consumers, and if the economy picks up and leads to a result in decreased demand for lower-priced fast food. I think the company’s competitive advantage is its global expansion into majority of countries and still continuing to expand into new markets.
Other fast food restaurants have failed to compete globally and only compete nationally. If McDonalds is able to keep up with changing lifestyles and predict consumer behavior in the other countries it operates in, then I believe this advantage will be sustainable. The company’s current business level strategy uses an integrated cost leadership/differentiation business level strategy. The firm has strategically planned to stay ahead of competitors by providing consumers with more options of healthy product offerings, low-cost prices, and better service.
McDonalds has an advantage within specific categories such as price, quality, management and employee training. Its corporate level strategy is expanding, intending to not only compete in the fast food industry by also the coffee industry and diversifying its product line to attract more health conscious consumers. The cooperative strategy of McDonalds is its several relationships into several productive relationships with non-governmental organizations in attempt to improve and better track the effects of its operations on both suppliers and customers.
Its international level strategy is based around its multi-domestic strategy, currently operating in 119 countries through its standardized business practices, leveraging standardized product offerings, clean and bright environments and American brand equity. All strategies fit in with the previous analysis because McDonalds has maintained stable strategies, however constantly keeping up with changes necessary. I believe McDonalds biggest problem is its homogeneous image and remains a Household name with offerings known for a uniform taste.
This has affected its international relationships; however the company is making changes to adapt to differing cultures. A suggested solution is to significant research in countries McDonalds operates in. The 7S’s that is most significant to McDonalds is its structure, strategy and system of operations. These factors are most important because it has led to the company’s success and its advantage over the competition. Based on this analysis, questions to the presenter would be 1. ) Do you think McDonalds is being contradicting trying to maintain a menu serving both unhealthy and healthy foods? 2. ) Would you consider McDonalds ethical?