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McDonalds Corporation Strategic Management Analysis

1. 1. McDonalds Corporation A Strategic Management Case Study


2. 2. Presented By MIT-11th Batch Masudul Haque 141111 Tahmina Sharmin 141112 Nafis
Rahman - 141135 Mohammad Abdullah Al Mahmud - 141136 Institute Of Information
Technology University Of Dhaka 2
3. 3. Contents Company Profile McDonalds Franchise Ray Kroc Formula for Success
Ray Kroc - Business Model Product Life Cycle Products What We Sale Location
History Mission Statement Vision Statement Values External Analysis Porters 5
Forces Competitors Brand Value 2014 Competitive Advantage Brand Value 2014
McDonalds Strategy Services 3 Popular Promotions How McDonald reach every corner
of this world Impact on McDonald External Environment and its effect on Strategic
Marketing Internal Analysis CPM Matrix SWOT Matrix Market Share Internal Factor
Evaluation (IFE Matrix) External Factors Evaluation (EFE) Matrix The Strategic Position
and Action Evaluation ( SPACE Matrix) 2005-2014 Mcdonalds Revenue Mcdonalds Sale
Alanysis Financial Analysis Growth Profitability and Financial Ratios Sales By
Segmentation ROI (Return on Investment) Performance Chart Issues
Recommendation
4. 4. Company Profile 4 Name McDonalds Corporation Logo Industries served Restaurants
(McDonalds, McCaf, McExpress, McStop) Geographic areas served Worldwide (over
36,000 restaurants in 119 countries) Approximate Customer 69 million Headquarters Oak
Brook, Illinois, United States Current CEO Don Thompson Revenue $28,106 billion (2013)
2% increase over $27,567 billion (2012) Profit $5,586 billion (2013) 2.1% increase over
$5,465 billion (2012) Employees 440,000 (2014) Main Competitors Burger King Worldwide,
Inc., Darden Restaurants, Inc., Doctor's Associates, Inc., Dominos, Inc., Yum! Brands, Inc.,
Starbucks Corporation, Wendys Company and many other companies in the fast food
industry.
5. 5. McDonalds Franchise Most Owner/Operators enter the System by purchasing an
existing restaurant, either from McDonalds or from a McDonalds Owner/Operator.
Financial Requirements/Down Payment Initial down payment is required when purchasing
a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost).
The down payment must come from non-borrowed personal resources, which includes cash
on hand, securities, bonds. Generally require a minimum of $300,000 of non-borrowed
personal resources to consider you for a franchise. Remaining balance of purchase price
must be paid off with in 7 years. McDonalds does not offer financing but they work with many
national lending institutions. McDonalds owns all buildings and properties. 5
6. 6. Ray Kroc Formula for Success Quality Service Cleanliness Value 6
7. 7. Ray Kroc - Business Model Ray Kroc - Developed a business model known as The
Three Legged Stool. Owner/Operator, Suppliers and Employees Just as all three legs of a
stool need to be equal to support the weight, all three elements of the McDonalds system
are equally important partners in McDonalds success. 7

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8. Product Life Cycle 8


9. Products Beverage :Cold Coffee, Ice Tea ,Hot Serves,Mcshakes 9
10. Non-Vegetarian Menu: Filet-O-Fish, , Chicken McCurry Pan, McChicken. 10
11. Vegetarian Menu: Crispy Chinese, McALOOtikki, Mc Veggie, Pizza McPuff, Paneer Salsa
Wrap. 11
12. What We Sale 12
13. 13 Location
14. History 1940 First McDonalds 1952 Attempts at franchising 1954 Milk Shake
Machine 1955 prototype opens in Des Plaines, IL 1956 14 McDonalds 1961 McDonald
brothers sell rights 1965 McDonalds go public 1968 Introduction of Big Mac and shift to
Network Television 1970 1600 restaurants 1980 6000 McDonalds Restaurants 1990
record sales 1994 Kuwait City, Kuwait 2001: Faced with a class-action lawsuit for
advertising its fries and hash browns as vegetarian, even though they include beef flavoring.
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15. History (cont) 2001: About 50 new stores are opened in Mexico. McDonalds announces
its intent to invest $67 million in the Philippines by 2005. 2002 Forty seven years after
30,000 locations 2000 new restaurants World Wide Web McDonalds a recognized
Brand Name 2002: McDonalds apologizes for not listing beef flavoring as an ingredient in
its hash browns and fries and offers to donate $10 million to vegetarian groups. 2003: Post
their first quarterly loss in over 40 years. Slash spending by 33%, and new store openings
are reduced from 1,000 the previous year to 360. 15
16. History (cont) 2004: Introduces the Go Active! Happy Meal, consisting of a salad,
water, stepometer, and an exercise booklet. 2005: Net income increases 14% to $2.6 billion,
with record annual sales of $20.46 billion. 2005: Chipotle Mexican Grill Inc., in which
McDonalds has a 92 percent ownership stake, files an initial public offering with the
Securities and Exchange Commission. 2006: Plans are established to open 125 restaurants
per year in China, bringing the total locations there to 1,000 by 2008. 2007:Packaging
Update-Mcdonalds New packaging features 24 faces from first ever global casting call
2008: Global Packaging Redesign 2009: McCafe goes national 2010:Intruduced McCafe
Real fruit smoothies and Frappers 2011:McDonald opens in 119 countries 2012:Shamork
Shake offered nationally 16
17. Mission Statement McDonald's brand mission is to "be our customers' favorite place
and way to eat. Our worldwide operations have been aligned around a global strategy
called the Plan to Win centering on the five basics of an exceptional customer experience
People, Products, Place, Price and Promotion. We are committed to improving our
operations and enhancing our customers' experience. 17
18. Vision Statement McDonald's vision is to be the world's best quick service restaurant
experience. Being the best means providing outstanding quality, service, cleanliness, &
value, so that we make every customer in every restaurant smile. 18
19. Values We place the customer experience at the core of all we do. Our customers are
the reason for our existence. We demonstrate our appreciation by providing them with high
quality food and superior service in a clean, welcoming environment, at a great value. Our
goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each

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and every time. We are committed to our people. We provide opportunity, nurture talent,
develop leaders and reward achievement. We believe that a team of well- trained individuals
with diverse backgrounds and experiences, working together in an environment that fosters
respect and drives high levels of engagement, is essential to our continued success. We
believe in the McDonalds System. McDonalds business model, depicted by our threelegged stool of owner/operators, suppliers, and company employees, is our foundation, and
balancing the interests of all three groups is key. 19
20. We operate our business ethically. Sound ethics is good business. At McDonalds, we
hold ourselves and conduct our business to high standards of fairness, honesty, and integrity.
We are individually accountable and collectively responsible. We give back to our
communities. We take seriously the responsibilities that come with being a leader. We help
our customers build better communities, support Ronald McDonald House Charities, and
leverage our size, scope and resources to help make the world a better place. We grow our
business profitably. McDonalds is a publicly traded company. As such, we work to provide
sustained profitable growth for our shareholders. This requires a continuous focus on our
customers and the health of our system. We strive continually to improve. We are a learning
organization that aims to anticipate and respond to changing customer, employee and
system needs through constant evolution and innovation. 20
21. External Analysis 21 External Audit- Opportunities Increasing demand for healthier food
Home meal delivery Full adaptation of its new practices Changing customer habits and
new customer groups New Products & Services Beverage Market Growth of Franchise
Restaurants Demand for Organic Products International Expansion Conservation
(going green)
22. External Audit- Threat 22 Saturated fast food markets in the developed economies
Trend towards healthy eating Local fast food restaurant chains Currency fluctuations
Lawsuits against McDonalds Change in Commodity Prices Food Safety and Food
Borne Illness Concerns Economic Slowdown Growing Health Consciousness Intense
Competition (dine-in restaurants, Burger King) Legal Challenges (McDonalds faces many
lawsuits)
23. Porters 5 ForcesPorters 5 Forces Threat of competition HIGHThreat of competition
HIGH Very competitive Fast Food industry Competitors Advertising Capabilities
Location of outlets Major competitors- Burger King and YumBrand INC. Threat of New
Entrance HIGHThreat of New Entrance HIGH Regulation of Limit Easy Access Market
and Low start up cost Example of SubWays market penetration Threat of Substitutes
Low-ModerateThreat of Substitutes Low-Moderate Availability of the MCD products
Choose MCD for Easting and Entertainment Narrows Threat of Substitutes due to
introduction of local taste products. 23
24. Porters 5 Forces (Cont.)Porters 5 Forces (Cont.) Power of Suppliers LOWPower of
Suppliers LOW Worlds largest restaurant chain in sales High bargaining power over its
suppliers Most of them owe MCD for their own existence LOW the power of suppliersLOWer the cost of raw materials and HIGH competitive price. Power of Buyers LOWPower
of Buyers LOW Industry limitations Low quantity purchases Less chances of switching,

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high brand image thru differentiation and uniqueness Buyers dont have bargaining power
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25. Competitors 25
26. Competitive Advantage Striving to be cost leaders: prices cannot be matched by
competitors. The speedy delivery of the food. Strong global presence and largest market
share in fast-food industry. Net competitive advantage. They have been in the fast food
business for a longer time than their competitors. Franchising requires less capital than
other growth methods Rapid Expansion Market Dominance Franchising puts a "business
owner" in charge Franchise locations may operate better and more profitably than
"company owned" units Greater Buying Power Increased Name Recognition 26
27. Competitive Advantage (Cont.) Increased Advertising and Marketing Budget New
revenue streams are created Franchise Fees Franchise Royalty Fees Advertising and
Marketing Administrative Fees Services provided to Franchises Sales of Products &
Supplies Training Fees Sales of Promotional Items Rebates from Suppliers 27
28. 28 CPM Matrix
29. Brand Value 2014 29
30. McDonalds Strategy Focusing heavily on emerging markets McCaf has been a big
win Offering a wider variety of food to attract more segments Delivering food to
customers in places that demand it Making its stores more attractive to get customers in
Increasing its offering of snack items Shortening its menu cycle Importing more of its
successful niche products internationally 30
31. McDonalds Strategy (Cont) Expanding its dollar menu to breakfast And it hasn't
been scared to take anybody on Achieving the most powerful brand image product
innovation and development Having the greatest market share in the ham burger industry
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32. Services Gift Cards Free WiFi Play Place & Parties Subscription Coupon Online
Booking Android App 32
33. Popular Promotions Toys with Happy Meals Cars Pirates of the Caribbean GamesMonopoly/ Uno Win various prizes and trips Collectibles- Coca Cola Glasses, Beanie
Babies Olympic Games- Global partner of the Olympic games- reflects our commitment of
the importance of sports and physical activities. World Champions- 1,400 children from 51
countries had the opportunity to meet the worlds best soccer players at the 2006 FIFA World
Cup. 33
34. How McDonald reach every corner of this world Using the 7Ps of marketing mix,
McDonald earned business success at every part of the globe. 1. Product 2. Price 3. Place
(International Distribution and Supply Chain) 4. Promotion 5. People 6. Process 7. Physical
Evidence 34
35. Impact on McDonald REVENUES RESTAURANT MARGINS Franchised margins
Company-operated margins RESTAURANT DEVELOPMENT AND CAPITAL
EXPENDITURES CONTRACTUAL OBLIGATIONS AND COMMITMENTS LIQUIDITY
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36. 36. External Environment and its effect on Strategic Marketing Political/legal factors
Economic factors Product lines and pricing Customers preference Competitors
Social factors Technological factors McMommy Blogging Society Hamburger
University 36
37. 37. Internal Analysis Internal Audit-Strength Largest fast food market share in the world
Brand recognition valued at $40 billion $2 billion advertising budget Locally adapted food
menus Partnerships with best brands More than 80% of restaurants are owned by
independent franchisees Children targeting Strong Global Presence (located in over- 100
countries) Strong Real Estate Portfolio Revenue Growth 9% (Above Industry Average of
7.5%) The Ronald McDonald House (Children Charity) Systemization and Duplication
(Consistency) 37
38. 38. Internal Audit-Weakness Negative publicity Unhealthy food menu Mac Job and
high employee turnover Public Perception (perceived as a contributor to societies obesity
problem) Product Innovation Advertising (targets young children) Customer Service
Market Saturation (more difficult to add new stores) Labor Turnover 38
39. 39. SWOT Matrix 39 S-O strategies S-T strategies Introducing new nutritious menus
Expanding to Asia market Taking advantage of brand name McDonalds Plan to Win
Low-cost leadership Taking advantage of brand name Giving back to community
Providing new healthier menu W-O strategies W-T strategies Minimizing the negative
publicity Increasing differentiation Using less Trans fat Switching from HCFC-22 into
HFC Increasing Employee satisfaction
40. 40. Market Share 40
41. 41. 41 Internal Factor Evaluation (IFE) Matrix
42. 42. External Factors Evaluation (EFE) Matrix 42 Key External Factors Weight Ratin g
Weighted Score Opportunities Low-Price Menu that will attract low-income consumers 0.15 3
0.45 Demand for healthier and more creative products 0.05 3 0.15 Competitors lack of
McCafe service 0.15 4 0.6 Expansion in other countries ( China, India) 0.07 2 0.14 Brand
loyalty 0.05 2 0.1 Demand for free Wi-Fi versus competitor charges 0.09 3 0.27 Demand for
more salad choices on menu 0.09 3 0.27 Weaknesses Having negative heath issues for
consumers such as obesity and heart attack 0.06 3 0.18 Having negative attention from
media because of marketing toward children. 0.04 2 0.08 Price wars between competitors
will cause McDonald lose customers. 0.07 2 0.14 High turnover rate 0.03 2 0.06 Rising costs
0.06 2 0.12 Calorie counts & nutritional value posted 0.09 2 0.18 Total 1 2.74 Increasing
sales by Low price menu & McCaf. Creating more diversified menu with low price. Having
more competitive advantages and opportunity Biggest weaknesses is healthier issue and
lawsuit issue.
43. 43. The Strategic Position and Action Evaluation ( SPACE Matrix) 43 Financial Strength
Rating Environmental Stability Rating Return on investment. 3 Rate of inflation -3 Leverage 4
Demand Changes -3 Net Income 3 Price Elasticity of demand -1 EPS 3 Competitive
pressure -3 ROE 2 Barriers to entry new markets -3 Cash Flow 4 Risk involved in business
-2 Average 3.17 Average -2.5 Y-axis 0.67 Competitive Advantage Rating Industry Strength
Rating Market share -4 Growth potential 3 Product Quality -4 Financial stability 5 Customer
Loyalty -2 Ease of entry new markets 4 Control over other parties -2 Resources utilization 4

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Profit potential 2 Demand variability 3 Average -3 Average 3.5 X-axis 0.5 Conservati ve
Aggressive Competitiv e Defensive F S ISC A E S 0.6 7 0. 5 McDonalds should: Forward
integration Product development
44. 2005-2014 Mcdonalds Revenue 44
45. Mcdonalds Sale Alanysis 45
46. Financial Analysis 46
47. Financial Analysis (Cont) 47
48. Growth Profitability and Financial Ratios 48 Financials 2012-12 2013-12 2014-12 TTM
Revenue USD Mil 27,567 28,106 27,441 27,441 Gross Margin % 39.2 38.8 38.1 38.1
Operating Income USD Mil 8,605 8,764 7,949 7,949 Operating Margin % 31.2 31.2 29 29
Net Income USD Mil 5,465 5,586 4,758 4,758 Earnings Per Share USD 5.36 5.55 4.82 4.82
Dividends USD 2.87 3.12 3.28 3.28 Payout Ratio % 53.6 56.2 68 68 Shares Mil 1,020 1,006
986 986 Book Value Per Share USD 15.25 16.16 13.35 13.37 Operating Cash Flow USD Mil
6,966 7,121 6,730 6,730 Cap Spending USD Mil -3,049 -2,825 -2,583 -2,583 Free Cash
Flow USD Mil 3,917 4,296 4,147 4,147 Free Cash Flow Per Share USD 3.84 4.27 4.2
Working Capital USD Mil 1,519 1,880 1,438
49. Sales By Segmentation 49
50. ROI (Return on Investment) 50
51. Performance Chart 51
52. Issues Nutritional issuesNutritional issues MCD taking away the traditional nutrition
values Replace the fresh and healthy food by mass production Projection the product
nutrition values Comparison of daily consumption and MCD products Serves 30million
people daily Advertising IssuesAdvertising Issues 2billion dollars for Advt annually
Concentrated on Children- Parental Concerns MCD has a better advertising than its
customers Follows the advertising codes of each country Making aware of MCDs charity
activities, events and learning programs 52
53. Employment ethics and issuesEmployment ethics and issues Criticized as low paid
jobs- named McJobs Low paid, non-union, part time jobs with low rights and conditions
Giving importance on individual goals than organizational goals Fact of 1.5million workers
with above 70% job satisfaction rate Introduction of collective tips system 53
54. Recommendation Long-term Strategy Expanding influence and presence in Asia market
Specific Strategy Opening at least 1 restaurant per day in China Having diversity menu in
India Receiving feedbacks 54
55. 55 Thank You

[BUS444-Strategic Management] McDonald's Case Study Analysis


32,804

[BUS444-Strategic Management] McDonald's Case Study Analysis


1. 1. VIETNAM NATIONAL UNIVERSITY INTERNATIONAL SCHOOL CASE STUDY
McDonalds MEMBERS: DOAN QUYNH TRANG ID: 436007 HOANG THI HAI YEN
ID: 435370 LE MAI ANH ID: 435373 TRAN NGOC HUONG GIANG ID: 435450
CLASS: VISK2010D
2. 2. May 20, 2013 Contents
Contents...................................................................................................................
...................................2 1.External environment
analysis..................................................................................................................3
A, A Porter 5-forces model of the fast food
industry...............................................................................3 The threat of new
entrants..................................................................................................................3
The bargaining power of
buyers..........................................................................................................4 The
bargaining power of
suppliers.......................................................................................................4 The
threat of substitute products and
services...................................................................................5 The intensity of
rivalry among competitors in an
industry..................................................................5 B, Key factors in the general
environment that have a significant impact on the fast food industry......6
Demographic............................................................................................................
...........................6 Sociocultural.....................................................................................................................
..................6
Economic..................................................................................................................
...........................7 Global
issues.......................................................................................................................
.................7 2.Internal environment
analysis .................................................................................................................8
Tangible
Resources.................................................................................................................
.................8
Financial...................................................................................................................
............................8
Physical....................................................................................................................
............................8
Technological............................................................................................................
...........................9

Organizational..........................................................................................................
............................9 Intangible
Resources.................................................................................................................
.............10
Human.....................................................................................................................
..........................10
Innovation................................................................................................................
..........................11
Reputation................................................................................................................
.........................11 2
3. 3. Organizational
Capabilities..............................................................................................................
......12 Organizational capability of McDonalds is to combine tangible and
intangible resources to run business efficiently. First, making use of time and
capital and human resources combining with sustain leadership skills, McDonalds
can keep its value and satisfy customers needs. They put emphasize on
leadership in all level of management such as teamwork and have a clear
requirement for their employees works. They also give more concerns on the
quality of leaders, and then educate and train them to improve their missing
skills. As a result, company can maintain a consistent corporate culture between
managers and employees, and provide the best quality products and services to
their customers. McDonalds can gain and maintain their core competencies to
compete with the intense of rivalry among competitions in fast-food
industry....................................................................................................................
..................12 3. Differentiation
Strategy....................................................................................................................
.....13
References...............................................................................................................
..................................14 (2013, March 14). Retrieved May 15, 2013, from United
States Census Bureau:
http://quickfacts.census.gov/qfd/index.html............................................................
................................14 Joan, V.G. (2011, November 1). Human Resource
Management in McDonald's. Retrieved May 16, 2013, from:
http://jpkc.szpt.edu.cn/english/article/Human%20Resource
%20Management.htm......................14 Leadership Best Practices from Ronald
McDonald. Retrieved May 15, 2013, from:
http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronaldmcdonald........14 Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from
Scribd: http://www.scribd.com/doc/28290117/Mcdonalds-MiniReport.............................................................14 1. External environment analysis
A, A Porter 5-forces model of the fast food industry The threat of new entrants
The infant businesses which first enter into the fast food industry may have to
face some challenges regarding to economies of scale, brand loyalty, capital
required and government regulation. Nevertheless, these challenges do not pose
a large threat to the existing companies. Thus, the threat of new entrants within
this industry to the existing companies is not high. In terms of economies of
scales, because of the high volume of production and the number of 3
4. 4. outlets, big business may easily achieve economies of scales; whereas, those
small business get difficulty in gaining economies of scales due to the low
volume of production. Furthermore, big organizations have gained a large base of
loyal customers while new entrants have to spend more time on building brand
recognition and customer base. Additionally, a start-up company may face a lack

of capital, management and networking resources, so they cannot compete with


those existing companies. Last but not least, government may pose some threats
to infant companies by regulating strictly in some categories such as health,
safety, hygiene and facilities. The bargaining power of buyers As there are lots of
substitute products within this industry, McDonalds will have to pay much
attention to customers demands to gain new customers while maintaining a
base of loyal customers. Customers pay much concern about their health and the
rise of obesity in the U.S., fast-food companies like McDonalds will have to
provide healthier food such as salads and fruits and remove trans-fatty acids
from the oils used to make foods. Additionally, fast-food companies may face
lawsuits from loyal consumers when their health is affected by these foods. For
instance, with a rising concern about the unhealthy food of McDonald and these
concerns has been emphasized by the release of Super Size Me, this made
McDonald face some lawsuits from loyal buyers. Thus, McDonalds would have to
provide nutrition information on food packages to show the calories, fat, and
sodium in each portion. The bargaining power of suppliers In the fast food
industry, companies needs to have a stable and continuous raw material supply
to run the business to satisfy the high demand of the large number of customers.
Thus, building a strong relationship with suppliers is important to maintain good
quality of raw 4
5. 5. materials. The source of fast food companies main products comes from
bread, chicken, potatoes, vegetables, and fruits. Thus, they need to build a
strong connection with farmers who supply these materials. Moreover, the
relationship with key beverage companies such as Coca Cola and Minutes Maids,
and sauce supply companies like Heinz should be taken into their considerations.
Nevertheless, regarding to McDonalds, they are their own suppliers for their
products, for example, potato, so McDonalds does not rely mostly on suppliers.
The threat of substitute products and services The threat of substitute products
in the fast food industry is very high. Due to globalization, many foreign food
companies have made an entrance into local market and change the taste of
local buyers. In fast food industry, customers have a wide range of options to
choose for their meals. For instance, the chain is facing a rapidly fragmenting
market, where changes in the tastes of consumers have made foreign foods like
sushi and burritos everyday options. Additionally, they may face a threat from
quick meals of all sorts that can be found in supermarkets, convenience stores,
vending machines and hotdog stands. Moreover, due to the changing trend in
lifestyle, the menus with more vegetable are much more favorable than the ones
with fat as McDonalds. Therefore, these substitute products may threaten
McDonalds food. The intensity of rivalry among competitors in an industry The
intensity of rivalry among competitors within the fast food industry is the most
powerful factor among those five forces. The competition in this industry is very
strong because there are lots of brands competing in price and quality services
such as KFC, Wendys, Burger King and Pizza Hut. Therefore, the firms should
provide an affordable price, improve quality of 5
6. 6. customer and delivery services, and build a strong brand awareness to survive
in this strong competitive industry. B, Key factors in the general environment that
have a significant impact on the fast food industry. Demographic More than half
of American population (78.1 percent in 2011) was white people whereas black
persons accounted for 13.1 percent and Asian people made up only 5 percent in
2011 (http://quickfacts.census.gov/qfd/states/00000.html). Therefore, fast-food
companies should not target on the majority but also the minority ethnics and
offering foods and drinks that suit with their tastes. In addition, according to the

United States Census Bureau, the percentage of people are less than 18 and
over 65 years were 23.7 percent and 13.3 percent respectively in 2011 and more
than half of population was people in the age range from 18 to 65. Thus, fastfood companies will have to focus their marketing on young adults, teenagers
and working adults and diversify their products to satisfy the need of different
groups. For example, McDonalds has also been trying to include more fruits and
vegetables in its well-known and popular Happy Meals. In many locations, the
firm is offering apple slices called Apple Dippers in place of french fries in the
childrens Happy Meal. Socio-cultural American people nowadays take greater
concern for physical fitness and healthy diet. Thus, most fast-food customers
start to change their taste to food that is much healthier and better tasting.
Hence, the fast-food companies like McDonalds should introduce more products
that are nutritious but less fat. For instance, they need to introduce more kinds of
salads with premium quality. They should also remove the artery-clogging transfatty acids from the oil that 6
7. 7. is used to make french fries. Additionally, all of the nutrition information should
be provided on the package of their products to make people aware of the
calories that they take every day. Economic The economy has a great effect on
every industry from firms that supply raw materials to those that manufactures
finished goods and services and that is, fast-food industry is certainly no
exception. Since the economy is slowing down and facing a high unemployment
rate, the Americans have to cut down their spending. Hence, the slow-down
economy put a strong threat on profit creation of fast-food companies. Thus,
companies should base on the growth of economy to change their strategy
effectively and flexibly. Global issues Thanks to globalization, it helps companies
have an approach to larger potential markets and valuable production factors
such as cheap labor, better source of raw materials and skilled managers from
other countries. Furthermore, fast-food companies can take advantage of
globalization to enter into many different countries all over the world.
Nevertheless, it poses some threats to fast-food industry. For instance, foreign
foods such as sushi and burrito will have opportunities to enter into the U.S. local
market and threaten fast-food companies. Customers will tend to change their
tastes to these foods and neglect fast food because of its unhealthy ingredient.
Thus, fast-food companies need to change the ingredients of their food to make it
appeal to customers. Additionally, since companies tend to seek for a cheap
labor force in countries such as China and Vietnam, the United States will have to
cope with a high unemployment rate and that is a risk for the growth of economy.
Due to high unemployment rate, it will also have an effect on profit creation of
fast-food industry since people will try to cut down their spending and they will
choose to have meals at home rather than eating out. 7
8. 8. 2. Internal environment analysis Tangible Resources Financial Firms cash and
cash equivalents during the period of 2006 and 2008 decreased slightly from
2,136,400 to 2,063,400 thousand dollars. Thanks to Skinners effort, McDonalds
sales have increased sharply from 21,586,400 to 23,522,400 thousand dollars
between 2006 and 2008. Although during this period the economy was slowing
down and people were trying to cut down their spending, McDonalds sales still
grew because of its Plan to Win strategy which emphasized on increasing sales
at exiting locations by improving the menu, refurbishing the outlets and
extending hours. Moreover, Skinner tried to control the price and keep it at an
affordable price without hurting the profit margins. Despite of an increase in cost,
McDonalds has maintained the pricing on its Dollar Menu, which generates
almost 15 percent of total sales. Therefore, with the healthy finance situation of

McDonalds, they can have capacity to raise equity and make profits. Physical
The total number of McDonalds outlets increased slightly from 30,946 in 2004 to
31,967 in 2008. However, the number of outlets owned by McDonalds decrease
steadily from 8,179 to 6,502 while the number of franchised outlets rose sharply
from 22,317 to 25,465 between 2004 and 2008. More than 75 percent of its
outlets are owned by franchisees and other affiliates. This will help McDonalds
build their brand recognition in all over the world while saving money for
establishing new business but still earn lots of money from franchising. Moreover,
in order not to be left behind by its competitors, McDonalds tried to refurbish its
outlets all around the world to make it more attractive to customers. The interiors
feature 8
9. 9. armchairs and sofas, modern lighting, large television screens, and even
wireless Internet access. The firm also provides features for its drive-through
customers and that include music aimed at queuing vehicles and a wall of
windows on the drive-through side of the restaurant, allowing customers to see
meals bring prepared from their cars. Technological The biggest innovation of
McDonalds came from their drive through section with a touch- activated screen
that made it easier for customers when ordering. When ordering foods,
customers only need to punch in their orders without queuing. They also provide
features include music aimed at queuing vehicles and a wall of windows on the
drive-through side of the restaurant to allow customers to have a look at their
meals being prepared right from their cars windows. Moreover, inside of their
outlet, they also provide free wireless internet access so that their customers can
easily browse internet while eating. Additionally, thanks to the presence of an
online website mcdonalds.com, customers are provided information about menu,
nutrition facts, promotion, and store locations, and they can order foods right on
this website. Besides, it is a channel for potential employees to get information
about company and recruitment campaigns. Organizational In terms of functional
structure, McDonalds has a multi-level organizational structure, which is headed
by CEO and the boards of directions in each region such as Greece, Asia and
Pacific. CEO is in charge of managing the overall business of the company as
well as employees, finance and customers. They are also responsible for
managing business asset and company resources to make profits and have a
tight control of the firm. Moreover, the CEO leads a group of junior managers who
are responsible for different fields of McDonalds namely, marketing and human
resources. 9
10. 10. The total number of outlets of McDonalds around the world is more than
30,000 stores and serving around 52 million customers in over 100 countries per
day, and most of these outlets are operated by franchising. Each outlet has one
business manager, first assistant and shift manager such as breakfast shift
managers, daytime shift managers, closing shift managers and over-night shift
managers. McDonalds has over 1.5 million people and divided by many groups
of crew members. The organization structure of McDonalds is consistent in all
stages to ensure business to run 24 hours. Employees are delegated to suitable
tasks in different shifts by shift managers to complete jobs smoothly in a fast
manner. In our opinion, managers should enhance atmosphere of corporation and
teamwork to foster employees performance. Intangible Resources Human
McDonalds has provided thousands of jobs for American population. Employees
of McDonald's divided into three groups including restaurant workers, corporate
staff, and franchise owners. McDonald's usually hires between 50 and 65 people
in each local restaurant and most of these positions are part-time workers.
Nevertheless, the chain ran into more problems because of the tighter labor

market. McDonalds began to cut back on training as it struggled hard to find new
recruits, a policy that led to a dramatic falloff in the skills of its employees.
Therefore, McDonalds should invest more money on training employees to
provide necessary skills for employees. For example, they need to have a training
room in each outlet and instruction video to help staff understand how to satisfy
customers needs. Furthermore, workers in McDonalds often are paid low, so the
morale of employees is not high. The managers salary is slightly higher than the
crew members one. Employees are not paid extra money even when they work
longer hours. As a result, they feel unsatisfied with their 10
11. 11. low wage and lack of commitment to the company because their pays do not
deserve their scarification and contribution. That is, this leads to high staff
turnover rate. It is recommended that McDonalds should concern thoroughly
about employees with frequently motivational support to retain skillful and expert
staffs who are willing to move to other competitor companies. Moreover, it also
helps reduce recruitment and training expenses. Innovation The innovation of
products is the priority concern of McDonalds to increase the revenues and
maintain a base of loyal customers. For instance, they remove the trans-fatty
acids in the oil that is used to make french fries and salt content of its products
that without changing the taste of their food. Moreover, they also introduce the
McGriddles breakfast sandwich, offering a couple of syrup-drenched pancakes
and a sandwich filled with eggs, cheese, sausage, and bacon in three different
combinations. It is suggested this change may help McDonalds attract more
customers and satisfy the demands of different consumers. Additionally, in order
not to be left behind by its rival, McDonalds applies innovative technology in
doing business. For instance, a touch- activated screen is provided in drivethrough area, permitting customers to punch in orders without queuing. This
renovation will bring interests to customers, especially children as well as save
time in ordering food. Reputation McDonalds is famous for selling hamburgers
and cheeseburgers under the traditional symbol of a golden arch. Since it was
established, the number of McDonalds outlets has risen significantly, from a
single outlet in a nondescript Chicago suburb to one of the largest chain of
outlets spread around the globe. 11
12. 12. To improve the reputation with customers, McDonalds should improve the
quality of food and introduce healthier foods to satisfy the demands of
customers. The website of the company is a channel for consumers to give
feedbacks or comments on their services and delivery systems and this is the
fastest way to receive feedbacks from consumers. Moreover, they need to put
emphasize on the hygiene and safety of food to bring the best quality to
customers and enhance their images. Besides, they also do some charity works
for community such as Ronald McDonald Charity program because McDonalds
want to bring positive impacts on children, so they donated $400 million dollars
for children all over the world. The company also makes an annual global
fundraising on World Childrens Day and they participate in some children
fundraisings such as the Ronald McDonald House Charities. By doing community
projects, they can build nice image in customers eyes. Organizational
Capabilities Organizational capability of McDonalds is to combine tangible and
intangible resources to run business efficiently. First, making use of time and
capital and human resources combining with sustain leadership skills, McDonalds
can keep its value and satisfy customers needs. They put emphasize on
leadership in all level of management such as teamwork and have a clear
requirement for their employees works. They also give more concerns on the
quality of leaders, and then educate and train them to improve their missing

skills. As a result, company can maintain a consistent corporate culture between


managers and employees, and provide the best quality products and services to
their customers. McDonalds can gain and maintain their core competencies to
compete with the intense of rivalry among competitions in fast-food industry.
Additionally, because of fast changing in technology, demographic and
globalization, to achieve their goals, McDonalds must adapt to those changes.
Thanks to large network of outlets 12
13. 13. all over the world, McDonalds can make different teams in different locations
to investigate in the tastes and preferences of local people. Thus, they can
change their menu and create special ingredients to suit with the interest of
various consumers. 3. Differentiation Strategy It is recommended that McDonalds
should apply differentiation strategy by providing stand-out services. It will
protect McDonalds against rivalry from its competitors in a very strong
competitive industry such as KFC, Wendys, and Pizza Hut. First, McDonalds will
have to make their products differentiate from their competitors by offering new
healthier foods and beverages for consumers. For example, they can offer new
kind of foods that their competitors have not done yet such as milkshake, fresh
breads and cookies in their McCafes. They can offer new menu to new targeted
customers such as customers who are vegetarians or those who likes eating lowcarb. They also need to improve the delivery and customer service to become
the best in delivery and customer service. The faster delivery speed is, the higher
customer loyalty is. Moreover, McDonalds can promote sales by giving discounts
and coupons for customers in special occasions. As a result, the brand name of
McDonalds will be enhanced in customers minds. To summarize, when
McDonalds apply differentiation strategy, it will help them build a strong base of
customer and win back customers from its competitors. Plus, it will create a
higher barrier for the new entrants and make them get more difficulty to
compete with McDonalds. 13
14. 14. References (2013, March 14). Retrieved May 15, 2013, from United States
Census Bureau: http://quickfacts.census.gov/qfd/index.html Five forces analysis
of the fast food industry. Retrieved May 15, 2013, from Scribd:
http://www.scribd.com/doc/30964168/8/Five-forces-analysis-of-the-fast-foodindustry Joan, V.G. (2011, November 1). Human Resource Management in
McDonald's. Retrieved May 16, 2013, from:
http://jpkc.szpt.edu.cn/english/article/Human%20Resource %20Management.htm
Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from:
http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronaldmcdonald Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd:
http://www.scribd.com/doc/28290117/Mcdonalds-Mini-Report Resources and
Capabilities of McDonald. (2010, February 2). Retrieved May 14, 2013, from:
http://ivythesis.typepad.com/term_paper_topics/2010/02/resources-andcapabilities-of- mcdonald.html 14
Recommended

CASE ANALYSIS
McDonalds, Inc.
COMPANY NAME: McDonalds, Inc.
INDUSTRY: Food Service
COMPANY WEBSITE: www.mcdonalds.com
COMPANY BACKGROUND:
As a company, McDonalds was first introduced in Des Plaines, Illinois in 1955. This was the very
first McDonalds restaurant, which all started in San Bernardino, California in 1954 when Ray
Kroc approached the McDonald brothers with a business proposition to start a new company. In
1965 McDonalds went public and was later, in 1985 added to the Dow Jones Industrial Average.
(www.mcdonalds.com) The company has gone through quite a few changes with its changing
CEOs over the years, but the company seems to be on track with CEO Jim Skinner, named in
2004. Skinner was named the new CEO just in time to clean up after McDonalds first ever
quarterly loss. He succeeded by showing that McDonalds revenue had climbed 11% during 2006
and net profits had climbed 36%. (Dess, Case 40 Pg. 1)
SWOT ANALYSIS:
STRENGTHS: Jim Skinner had to clean up a big mess after the 2003 slump, and did so by
coming up with a strategy to turn everything around. His strategy had to consist of staying
competitive with the numerous other fast-food restaurants popping up all over the world. In order
to maintain this, they had to reorganize the way they presented themselves to the community. Jim
Skinner did so by cleaning up the customer service, cleaning up and modernizing the physical
buildings, and changing the menu to the changing tastes of their customers. McDonalds also
introduced their slogan Im Loving It to reach out to the younger customers. The advertising is
very much targeted toward teens and young adults. (Dess, Case 40)
WEAKNESSES: The first weakness was the changing of three different CEOs in only one year.
These were unexpected changes, but all had to be dealt with by the newest CEO Jim Skinner,
and directly after McDonalds first ever quarterly loss in 2003. The second weakness is an issue
with trying to find new and exciting things to put on the menu to bring in new customers. Many of
todays fast-food customers are making different kinds of foods, like Chinese and Mexican food,
normal to the everyday menu.
OPPORTUNITIES: McDonalds has many opportunities to change its look, menu, and customer
service. McDonalds started building newer building incorporating the arch, along with more
modern furnishings. The menu has changed by adding more breakfast items and introducing the
McCafe in certain areas. It has also added more health concerned items such as the Asian salad
and Premium white chicken. (Dess, Case 40)
THREATS: McDonalds biggest threat is competition. Wherever there is a McDonalds, there are
at least 3 other fast-food restaurants near it. It constantly has to advertise what makes them
unique to other fast-food places, which means there always has to be something different about

them than anybody else. Just the fact that McDonalds was the first company to go big with their
burgers does not necessarily help them today. Every customer is looking for a new experience
and new products to keep them excited with what they are eating and where they are going to eat,
and with so many choices, it is hard for McDonalds to compete with. (McDonalds 2007)
ANALYSIS VIA PORTERS FIVE FORCES MODEL:
THREAT OF NEW ENTRANTS: The threat of new entrants for McDonalds and the fast-food
industry is low. With so many different kinds of fast-food restaurants already in the industry,
entering at this point would cause struggle for the new entrant. (McDonalds 2007)
BARGAINING POWER OF SUPPLIERS: According to Siehoyono (2005), there are 3,700 new
outlets being built each year in the U.S., meaning the power of suppliers is not an issue for
McDonalds.
BARGAINING POWER OF BUYERS: Consumers have more power over buying McDonalds
products because they can demand what type of products they want to see from them. Today,
consumers are demanding healthier food and beverage choices from fast-food restaurants such
as McDonalds. After the documentary film Supersize Me by Morgan Spurlock came out in
2004, McDonalds had to reclaim its name by showing America that their company cares about
the health of their customers and cut out their supersize program.
SUBSTITUTE PRODUCTS/SERVICES: In the fast-food industry, including McDonalds, the threat
of substitutes is greater now more than ever with the convenience food industry growing. More
convenience food stores are offering similar products as the fast-food restaurants. The
convenience store / gas station, Quik Trip, sells many food items such as hot dogs, egg rolls,
pizza stuffed breadsticks, and countless beverage choices. (Siehoyono 2005)
COMPETITIVE RIVALRY: According to Siehoyono (2005), fast casual food chains such as
Subway are tougher competition to the fast-food chains in both the U.S. and international
industries. Some franchisers were also complaining that McDonalds was granting too many
franchisees too close to each other and actually stealing business away from each other.
STRATEGY USED: McDonalds has tried both cost leadership and differentiation as strategies to
outdo the competition. McDonalds is known for their low price product line and has been
competitive with other businesses in the industry. A representation of differentiation is their dollar
menu. They were one of the first in the industry to do a very low-cost smaller menu of items on
their product line that cost only $1. As soon as this came out and was advertised, many of the
other fast-food businesses started something similar to compete. There is only so much a
business can do with a low-cost strategy before it starts losing money. This only leaves
differentiation or a focus strategy to use. Focus strategies would not work as well in this industry
mainly because their product line is similar in all areas of the world because that is what they are
known for. McDonalds has to stay true to what it started as and not fly too far away from its roots.
McDonalds has also tried a differentiation strategy with different products like the McRib or the
Big Mac. (Dess, Case 40)
ISSUES AND CHALLENGES: McDonalds competitive advantage is their differentiation. Their

products flavors and names are exclusive to them and the brand of McDonalds is distinguished
by the looks and tastes of their foods. If somebody set a row of burgers and fries each from a
different restaurant, I could pick out exactly which one is McDonalds burgers and fries. They have
distinguished themselves this way for years and this will continue, but the tastes of the customers
may change. This will be the problem. McDonalds will have to answer to the needs and wants of
their customers to keep them satisfied and coming back for more. Right now in the industry life
cycle, McDonalds is a mature company focusing on competition and their product lines survival.
The culture of McDonalds is keeping their customers happy and to do whatever they can to
create a wider customer base along with a product line that satisfies any taste. I think McDonalds
customer service is not consistent. I have personally experienced many different stores and some
have very good customer service and some are not very good at all. The stores cleanliness and
overall appearance also is not consistent. (Siehoyono 2005)
COURSE OF ACTION RECOMMENDED: If I were in a position to make a decision for this
company, first I would require all management and supervisory positions to go through company
training. They would then be required to test their employees on customer service and sales
skills. In doing this kind of training all branches would have a better chance of happy customers
and exceptional customer service. Employees also need to be treated with respect and
importance for them to want to do well in their position. Some kind of incentives plan needs to be
put into action for their employees. Older buildings need to be updated so customers feel
comfortable and clean while dining in.
OPINION: I think reading case studies is already interesting because it teaches you how the
company works and how it became what it is today. Anybody can tell just from reading a case
study whether it is a successful business and what their issues are. I thought that writing a case
study analysis helped understand how a company operates considering all challenges and
opportunities.
References
Dess, G., Lumpkin, G. & Eisner, A. (2008). Strategic Management (4e). Boston:McGraw-Hill
Irwin.
Siehoyono, L. (2005). The McDonalds Case: Strategies for Growth.
McDonalds History. (2007). Available on www.mcdonalds.com. Accessed on September 17th,
2008.

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