MCDONALD'S CASE ANALYSIS
Executive
Summary
The
business began with two brothers. In 1937, Dick and Maurice McDonalds
opened a small drive-in restaurant east of Pasadena, California. They served hotdogs and shakes. This led to the creation of a bigger drive-in
which operated successfully and by 1948, the brothers had a made a fortune they
never expected. The brothers realized
that hamburgers comprised of 80 percent of their sales and closed their doors
to re-evaluate their business model. The
same year, in 1948 the model was about affordable dining for family who wanted
to eat out. The “Speedy Service System” was also implemented that included an
assembly line of sorts, a nine-item menu, and an all male staff. The operations were proven successful in 1952
ad the first franchise was sold to Neil Fox who opened a restaurant in Phoenix,
Arizona and created the well-known golden arches of McDonalds. Fox had huge success with the store and the
brothers were reluctant at first to begin a national franchise system, but soon
realized that too many copycats were creeping up and they needed an advantage
and a head start. Ray Croc joined the
team as the exclusive franchise agent in the United States.
Some of the
problems and challenges facing the company is the increase in competition, poor
management, bad marketing, and lack of response to the changes in the needs of
franchises and customers. This resulted
in the strategic issues that needed to be implemented to continue growing
success for the company. Going global is critical in the expansion of
McDonalds. Over the past couple of
decades, the major chains have also begun to expand into the global marketplace
and have opened franchises up around the world.
McDonald’s currently operates in over 120 countries around the world
with over 30,000 stores.
In
analyzing this company, the strengths, weaknesses, opportunities, and threats
were inevitably explored to better understand the current situation. This SWOT
analysis shows us that although there are numerous threats against the
fast-food industry, McDonald’s occupies a relatively strong position in the
global marketplace. According to the
five forces model, the strongest competitive force is between rival sellers in
the industry. This SWOT analysis shows
the many strengths that Mc Donald’s employs to keep itself at the top of the
fast-food industry. Although there are
various weaknesses, these can all be turned around following the McDonald’s
Plan to Win, which was implemented with the hiring of Jim Cantalupo.
Keeping in
mind, the core competencies of this company is what makes it so successful
today. For the past ten years, one of
McDonald’s key success factors has been its franchises, taking in approximately
60 percent of total sales. Another success factor is the “Plan to Win”
strategy. It is a plan that focuses on
five key drivers of success; people, product, place, price, and promotion. The
first factor is McDonald’s people or employees. McDonald’s is striving to do a
better job of staffing during busy periods as not to overwhelm and to reward
outstanding employees for exception work.
Based on
these facts and analysis, we have come up with alternate strategies and have
recommended the one that best fits McDonald’s current situation. The recommended strategy includes
diversification and maintaining customer service through quality training and
people development.
Vision/Mission/Objectives
Strategic
Issues, Problems and Challenges
In recent time
McDonald’s has underperformed in comparison to previous year’s achievement. Its
revenue growth has been in the decline and prior to April 2003 store sales fall
for 12 straight months. It is no surprise that as a consequence McDonald’s
reported a loss of 343.8 million dollars in first quarter of 2003. It is
believed that this situation is a result of several aspects that include an
increase in competition, poor management, bad marketing and lack of response to
the changes in the needs of franchises and customers.
Rising Issues-Customer Service
As years have
progress many issues have arisen for McDonald’s but the greatest is probably
its poor customer service. A customer service index done in 2003 found that
McDonald’s has the lowest the customer service ranking in the fast food
industry and is ranked even lower on customer service than the IRS. One reason
for this is a high employee turnover rate. McDonald’s has the highest employee
turnover rate among its competitors. Another contributing aspect to the poor
customer service is slow service at the drive-through window. McDonald’s
currently ranks fifth in speed at the drive-through window and 19th
in accuracy. If you compare its speed and accuracy to its competitors and keep
in mind that McDonald’s generates 60 percent of its revenue from its
drive-through and assume it is losing one percent of revenue for every six
seconds that its behind, than McDonald’s is loosing approximately 97,000
dollars annually.
Opposing Viewpoints
While McDonald’s
feels positive about its newly implemented changes the critics are rather
skeptical. It was stated that long-term they believe that it will be tough to
sustain growth and margin expansion. Specific concerns include McDonald’s
ability to maintain it current level of product innovation and competitors’
ability to copy those ideas. The critics even went as far to question if
McDonald’s recent improvement was more of a reflection of the market and the
dollar rather than its newly implemented strategy. In response, McDonald’s
officials stated that they will need to deliver on their stated goal of
sustaining increases in sales and operating income. Following with the most significant
question of weather or not the new changes will sufficiently provide McDonald’s
with core competencies necessary to build a sustainable competitive advantage
in the global fast-food industry.
Health Factor
All fast-food
hamburger chains, McDonald’s included, are forced to respond to the shift in
customer preferences from high-calorie burger and fries to healthier items such
a deli sandwiches and baked potatoes. All the chains are expected to be
struggling for several years to come to meet new consumer health expectations
without compromising the original menu items.
Competition
One of the major
issues for McDonald’s is it competitors. Burger King is the second largest
hamburger fast-food chain in the world and is the number one competitor for
McDonald’s. Burger King has 11,400 locations in 58 countries and derives 55
percent of its revenue from the drive-through window. Burger King reported 1.72
billion in 2002 in revenue which is a 17 percent increase compared to a 4
percent increase reported by McDonald’s over the same period. Burger King’s
distinct assets include the unique Whopper with its one of kind charbroiled
taste and the company policy of preparing the hamburger any way that the
customer wants it. Burger King has distinguished itself over the years in many
ways including being the first in the fast-food industry to enclose its patio
seating in 1957 thereby offering customer indoor dining experience. Burger King
also differentiated itself when it installed the drive-through window in its
restaurants in 1975. In addition to the Whopper Burger King also offers a few
set items on its break-fast menu that differs it from it competitors including
the Croissan’wiches and french toast sticks. The rest of the menu also offered
the unique veggie burger and chicken Caesar salad.
Wendy’s is the third largest fast-food chain with 9,000 stores
in 33 countries world wide. In 2002 they reported 2.73 billion in revenue which
is up 14.2 percent from the previous year. Wendy’s offers several unique items
including the Frostys and Spicy Chicken Sandwiches as well as healthier items
such as salads, baked potatoes and chili. Wendy’s has also distinguished itself
through the creation of the special value menu with all items on it under a one
dollar. Wendy’s also owns several small companies including Tim Horton’s and
Baja Fresh Mexican Grill. It plans on increasingly using acquisitions of
smaller brands to further growth. In next decade Wendy’s plans to add between 2
and 4 thousand new stores worldwide. One important weakness of Wendy’s is the
lack of easily recognizable product compared to McDonald’s Big Mac of the
Burger King Whopper.
Hardee’s is the fourth largest fast-food chain in the nation.
It holds 2,400 locations in 32 states and 11 countries. In 2002 it reported 1.8
billion in sales. Hardee’s greatest strength is in its breakfast menu which
brings in 35 percent of its revenue. Hardee’s is currently remodeling all of
its restaurants inside and out into Star Hardee’s and the menu is being
expanded to include several premium offerings such as the Angus beef
Thickburger which has been well received by hamburger eaters and the innovative
Six Dollar Burger. Along with these Hardee’s offers a one-third, half pound and
three quarter-pound hamburger. These new items were implemented to demonstrate that
it is quite clear that at Hardee’s it is thought that customers are willing to
pay more for quality and taste rather than cheap and poorly made burgers.
Jack in the Box, another major competitor in fast-food
industry, has of 1,850 restaurants in 17 states. In the fiscal year 2002 Jack
in the Box reported revenue of 2.2 billion dollars, which is up 4.7 percent
from the previous year. While McDonald’s and some of the other competitors
focus on a family concept, Jack in the Box gears its menu items toward adult
consumers only. Part of Jack in the Box’s menu includes its innovative items
such as teriyaki chicken bowl and a chicken fajita pita. Along with most of its
competitors Jack in the Box offers a value menu, but the company does not to
engage in the price wars stating its intended reduction of emphasis on dollar
menus and instead has turned its efforts toward improving the quality of it
product as well as to initiate efforts to attract women and reduce its
dependency on young males which is a crowded market. Like its competitors Jack
in the Box believes that success in the future relies on broadening its product
offerings in order to maintain the same level with the other fast-food chains
and grocery stores.
Sonic yet another major competitor owns 2,700 locations and
reported in 2003, 2.4 billion in revenue which is 6.2 percent increase. They
also reported an increase of net income by 20 percent. Its unique drive-in
restaurant business is the largest in America and it broad menu and
atmosphere along with oldies music attempt to emulate an era long past. Sonic
has specialty soft drinks and frozen shakes and malts. Over the years Sonic has
tried to focus on it items that are fun and novel. Since its founding the
company has experienced non-stopped growth. In 2004 Sonic expects earning per
share to rise 16 to 17 percent due to the addition of franchises. It also
expects to open 200 new locations in 2004 and its revenue is expected to grow
between 1-3 percent.
Industry Analysis
Market
Size
Sales for the U.S. consumer
food-service market totaled approximately $408 billion in 2003. The 10 largest chains in America
accounted for about 14 percent of these total sales according to U.S.
Systemwide Foodservice Sales. The
consumer food-service market is typically broken down into eight categories
according to the type of food and the restaurant operations. The categories are as follows: sandwich,
pizza, chicken, family, grill-buffet, dinner house, contract, and hotel. McDonald’s competes with other businesses
from these other categories as substitute product competitors but primarily
competes in the quick-service sandwich market.
Experts projected that the sandwich segment was expected to grow by two
percent annually for the years ahead.
5
Competitive Forces
The quick-service
sandwich industry faces competitive pressures from a number of forces. The major competitive threats originate from
competing sellers in the industry as well as firms in other industries that offer
substitute products. McDonald’s main
competitors within the quick-service sandwich industry are continually deriving
new strategies through offensive and defensive tactics in order to gain
customers and market share. In 1989, Wendy’s
implemented the 99 cent value menu as an offensive strategy to gain customers
looking for a quality product at a value price.
In response, McDonald’s and Burger King took a defensive approach and
also instituted a value menu in their respective stores so that they wouldn’t
lose market share and customers to Wendy’s.
Firms in the quick-service sandwich industry are constantly jockeying
for better market position through offensive strategies and in response to
these strategies, other firms will take a defensive approach to guard against
that offensive move made by the rival firm.
Substitute
Products
In addition to
competition from rival sellers in the industry, sandwich firms also face
intense competitive pressure from firms in other industries selling substitute
products. The substitute products for
the fast-food industry are probably some of the most diverse in the world. These substitute products may include
products purchased from the local grocery store, food from sit-down
restaurants, or delivery foods such as pizza.
The primary issue with these substitute products is that they are
readily available to the customer and the customer tends to view them as being
comparable or better in terms of the quality of fast-food products. Another issue that faces the fast-food
industry is the availability of products that cater to the health-conscious
lifestyle. The majority of the public
tends to view fast-food restaurants as primarily serving foods that are high in
fat content and unhealthy and as a result they are likely to look elsewhere for
a healthy alternative. In response to
the product offerings, buyers also exercise a great deal of bargaining ability
through their purchasing power. While
fast-food products may not always be associated with health and quality, fast-food
restaurants to possess a major advantage over firms selling substitute products
through the price of their products and the quick, convenient service.
New
Entrants
The threat of
potential new entrants and the bargaining power of suppliers is not a significant
competitive force in the fast-food industry.
Occasionally, new entrants will come along and compete with firms in the
fast-food industry and offer substitute products. However, in order to compete on a large
scale, it will require a great deal of capital to invest in real estate and
build physical restaurant locations. In
addition, the market is already so saturated that the new competitor might find
it difficult to establish a customer base and become profitable. Suppliers in the fast-food industry do not
have substantial bargaining power due to the fact that firms in the fast-food
business tend to purchase their materials from various outlets. One company might purchase their meat
supplies from a couple different meat manufacturers, then purchase their dairy
needs from a number of different dairy companies, and also purchase their
bakery products from a variety of sources.
Since the fast-food firms divide their purchases among a diverse array
of suppliers, the suppliers tend to have little or no bargaining power or
leverage since there are multiple suppliers for the same products.
Driving
Forces
There are a number
of driving forces which have molded the current state of the fast-food
industry. In the beginning, fast-food
companies typically focused on being the low-cost provider and sought to expand
into as many markets as possible. As
these national brands have grown, the markets they are competing in have become
overly saturated with restaurant options.
As a result, the fast-food industry has begun to focus on the needs of
the customer. The buyer has a great deal
of leveraging power due to the fact that if they are dissatisfied with one
brand they can easily switch or purchase from an alternate brand with little or
no monetary repercussions. The fast-food
firms have implemented strategies to improve the quality of customer service
and the cleanliness of the restaurant locations in order to please their
customers in hopes that they will become a repeat customer.
New
Menu Items
Fast-food
restaurants have, for the most part, always been related to an unhealthy
lifestyle. As a result, customers who
are health-conscious have tended to take their business elsewhere to
restaurants that offer nutritious alternatives.
In response to the health-conscious lifestyle that people have adopted,
the majority of the national chains have created new menu items to cater to
this demographic. Customers are the main
driving force behind the daily operations of fast-food firms. They are the reason that companies have
attempted to upgrade the quality of their customer service and their needs have
lead to the creation of new products to satisfy their demands.
Strategic
Moves
A number of
competitors in the fast-food industry have expanded beyond their traditional
offering of generating revenues from their fast-food restaurants. Major chains such as McDonald’s have acquired
smaller chains Boston Market, Chipotle Mexican Grill, and Donato’s Pizza. Wendy’s has also grown by acquiring smaller
companies such as Tim Horton’s and Baja Fresh Mexican Grill. These acquisitions were executed in hopes of
generating revenue from multiple sources and also to help support the company’s
growth over the long term. Over the past
couple of decades, the major chains have also begun to expand into the global
marketplace and have opened franchises up around the world. McDonald’s currently operates in over 120
countries around the world with over 30,000 stores. Burger King has 11,400 stores in 58 countries
and Wendy’s operates 9,000 restaurants in 33 countries worldwide. These fast-food firms have seen countries
outside the U.S.
as markets that have an enormous growth potential. In order to cater to the different cultures,
companies such as McDonald’s and Burger King have offered menu items with a
distinctively local flavor.
Strategic
Groups
The fast-food
industry is primarily composed of national chain brands. As a result, there are just a couple of
strategic groups associated with the fast-food market. The major national chain brands such as
McDonald’s, Burger King, Wendy’s, Hardee’s, and Jack in the Box compete in
markets throughout the United
States and around the world. Their strategies are focused on providing a
product that is based on low-price convenience.
Their strategic group is associated with many geographic locations and low
price and quality. In competition with
these large multinational firms are local fast-food restaurants. Local fast-food restaurants focus on
providing their customers with a quick, cheap alternative to the national
brands. These businesses offer a low
price and low quality product in few localities.
Fast-Service
Over the past
couple of years there has been a growing trend in the restaurant industry to
provide customers with a higher quality product in a short amount of time. These restaurants are typically referred to
as “fast casual” or “quality quickservice.”
They aim to provide freshly prepared, made-to-order meals. Their operations combine the speed and
convenience of traditional fast food with the food quality and appealing décor
of casual-dining restaurants. There are
a number of national chains that fall into this strategic group of providing a
high quality product in many geographic locations and there are also some
businesses that function in a couple locations and provide a similar high
quality product.
SWOT Analysis
This SWOT analysis
shows us that although there are numerous threats against the fast-food
industry, McDonald’s occupies a relatively strong position in the global
marketplace. According to the five
forces model, the strongest competitive force is between rival sellers in the
industry. This SWOT analysis shows the
many strengths that Mc Donald’s employs to keep itself at the top of the fast-food
industry. Although there are various
weaknesses, these can all be turned around following the McDonald’s Plan to
Win, which was implemented with the hiring of Jim Cantalupo. Obviously all fast-food chains are going to
have to combat the new consumer health expectations, but we feel that under
Cantalupo’s leadership, McDonald’s has a strong enough consumer base to grow in
the upcoming years. The financial
analysis shows certain flaws in McDonald’s finances, but these are largely due
to the expansionary policy in place in the company.
Financial Analysis
McDonald’s has gone through a large
turnaround period in the previous two years.
This becomes very apparent when looking at McDonald’s net income between
the years 1998 and 2003. Net income rose
steadily between 1998 and 2000, then there was a drop-off in 2001 of over a$300
million. Then in 2002, net income
plummeted over $700 million. This was
due mainly to slower growth in total revenues, and large increases in operating
costs and expenditures. McDonald’s
showed a marked improvement in 2003, amassing $1.328 billion in net income, up
over $400 million from the previous year. Although this was a large gain,
McDonald’s is still not over its financial and operating troubles, and needs
strong performance in the upcoming years to stay at the top in the fast food
industry.
McDonald’s bottom-line in the first
quarter of 2003 was $324.7 million. The
dollar profit improved substantially over the next two quarters, netting $470.9
in the second quarter and $547.4 in the third quarter. As of the end of the 2003 fiscal year,
McDonald’s has enjoyed 11 months of sustained sales gains, which bode well for
the future. One mention of note is that
McDonald’s did take a ‘big bath’ in 2002 and the first quarter on 2003,
amassing a 135 million dollar loss as a result of accounting changes done to
the books.
DuPont
Analysis
A DuPont Analysis of McDonald’s
financial statements shows that McDonald’s is climbing out of their financial
troubles of 2001-2002, yet need a continued effort to reach their goals. The profit margin is low throughout
McDonald’s income statements. In 2003,
is .11. This means that for every dollar
they sell, they are only reaping 11 cents profit. This is an increase of nearly 6 cents on the
dollar over 2002 though, so this shows that the company is doing a better job
of keeping expenditures down. One reason
McDonald’s profit margin is so low is that they are continually expanding, both
domestically and internationally. They
continue pouring money made from sales into new facilities and franchises. This severely depletes net income, and
generally lowers the profit margin.
Asset
Turnover Ratio
The asset turnover ratio shows that
McDonald’s is doing a poor job producing sales from its assets. This would be a cause for concern, but
generally McDonald’s has always had a lower asset turnover ratio, even when
they were operating at the pinnacle of the industry. The return on assets, or return on investment
shows again that McDonald’s net income is low when compared to its level of
assets. As stated earlier, this is due
in large part to the expansionary policy in place at McDonalds and in turn, the
growing number of assets. One
interesting point is the large amount of cash that McDonald’s has begun to
keep. Between 1998 and 2001, the cash on
hand was around $415 million, yet in the third quarter of 2003, the company had
$647.4 million on hand. This is one
reason why the asset turnover ratio is slightly smaller in 2003 than other
years.
Return
on Equity
The return on equity at McDonald’s
is again, low. This represents the
profitability of funds invested by the stockholders in the business. Again, much of the reason for McDonald’s low
return on equity is due to the expansionary plans in the future and the fact
that they are continually looking for ways to expand into foreign markets. As stated, nearly 100 percent of profits from
company owned stores are re-invested into new enterprises.
The debt to equity ratio shows that
McDonald’s has a large amount of liabilities and debt, when compared to
shareholders equity. In 2003, debt was
1.16 higher than equity. This is not
generally a good sign, especially if McDonald’s plans to pay dividends and give
back to shareholders in the near future.
Current
Debt Ratio
The current debt ratio at McDonald’s
shows that current liabilities are higher than current assets. This is again, a bad sign, as the company is
not able to cover all of its immediate debts and loans. If creditors were to call in all debts, the
company would find it very difficult to pay.
As such, McDonald’s has little liquidity.
The
general impression we receive from McDonald’s financial situation is that the
company is slowly climbing out of a low period and making a turnaround. This can be seen in the financial ratios
between 2002 and 2003. All show a marked
improvement, and attest to the changes taking place at McDonald’s. The DuPont analysis shows major weaknesses
arising from McDonald’s level of debt and relatively low net income. In order to stay a stable company, we feel
McDonald’s will have to lower its debt levels, and strive to keep costs to a
minimum. We do realize that McDonald’s
is continually expanding, and using all manner of capital to increase its
market share, yet if McDonald’s were to fall into another hole, as it did in
2001 and 2002, it would make it that much harder to make it out unscathed. (See Appendix C)
Value Chain Analysis
The value chain at McDonald’s is
very competitive in the global fast-food industry. The following table shows the costs and
markups associated with McDonald’s signature hamburger, the Big Mac, bought at
a McDonald’s.
The
Big Mac’s average price of $2.80 compares favorably to the various signature
items at other fast food retailers, such as Burger King and Wendy’s. The royalties are paid by franchisees back to
the McDonald’s. (See Appendix B)
Key Success Factors
McDonald’s short
term financial objectives include cutting its capital expenditures by 40
percent, which will save approximately 1.2 billion dollars. McDonald’s will use
the extra money pay off debt and return some cash the shareholders by
repurchasing shares and paying out more dividends. It’s long term financial
objectives include annual sales growth of 3-5 percent with one to three percent
of this growth coming from existing stores and two percent coming from new
stores. They also include an increase in operation income capital investments.
For the past ten
years one McDonald’s key success factors has been its franchises, taking in
approximately 60 percent of total sales. McDonald’s own restaurants bring in
less than 30 percent of its sales but at the same time that money comprises a
fairly significant portion of total income because the company keeps and
applies 100 percent of those profits rather than just a portion of the
franchises profits.
McDonald’s
receives funds from its franchises in two ways. There is monthly service fee
that varies but most recently in 2002 was 4 percent of total monthly sales.
Another manner in which McDonald’s receives funds from its franchises is in
rent money. McDonald’s owns all property in which a McDonald’s outlet was built
regardless if the location is a franchise or company owned. It is estimated
that McDonald’s generates more money from its rent than from its franchise
fees.
McDonald’s also
markets excess land, property and buildings on the web.
Between rent and
profits from land sales, McDonald’s real estate represents a significant
portion of its overall company value along with ventures in earning income will
allow McDonald’s to continue to be successful and profitable in the future.
McDonald’s also
has several restaurant affiliates that in the past years have been doing quite
well for themselves. The list includes Boston Market, Chipotle Mexican Grill
and Donato’s Pizza.
McDonald’s is
currently testing new ways of raising revenue such as offering retail merchandise
for sale in some stores.
One of McDonald’s
key success factors has been its implantation of its Plan to Win. The plan
focuses on five key drivers of success; people, product, place, price, and
promotion. The first factor is McDonald’s people or employees. McDonald’s is
striving to do a better job of staffing during busy periods as not to overwhelm
and to reward outstanding employees for exception work. It is also putting more
emphasis on its hospitality training to ensure a friendlier and customer focused
support staff.
The second factor
is the customer experience. In response to a changing taste preference and
growing interest in healthy foods, McDonald’s introduced the McChicken and
McGriddles as well as offering white meat for the chicken McNuggets. In
addition McDonald’s added several premium salads.
The third factor
was restaurant appears, putting much focus on cleanliness and modern
environment. As a part of this McDonald’s has installed wireless technology and
added coffeehouses in some of restaurants. These few carried premium coffee,
muffins, and pastries at low price to enhance adult appeal. In addition to this
McDonald’s has gone as far to renovate, rebuild and even relocate some of its
buildings in order to create a fresh and friendly family atmosphere.
The fourth factor was on price, putting much
focus on productivity and value. McDonald’s has concentrated much effort on
products that appeal to price sensitive customers, thus it implantation of the
dollar menu.
The final factor
was promotion and a continuing focus on building trust and brand loyalty. In
its recent campaigns McDonald’s has advertised using the slogan “I’m lovin’ it”
which it there attempt to make McDonald’s an easy choice for families. They
have also started using popular or main stream music to attract an ever growing
youth population.
McDonald’s has
chosen to enhance it focus on its core business and sell certain aspects such
as Donato’s Pizzeria. Along with this McDonald’s has entered into a letter of
intent to exit its domestic ventures activities with Fazoli’s and discontinue
development of non- McDonald’s brands outside the U.S.
Alternate Strategies
Strategic Possibilities
1. Stay-on-the-offensive strategy – The
main goal of the stay-on-the-offensive strategy is to be a proactive market
leader. The principle of this strategy
is to continually stay one step ahead of your competitors and force them to
play catch up. McDonald’s is already the
industry leader in the fast-food industry with a market share of 33 percent
compared with the number two chain in the industry, Burger King at 13 percent
market share. They can stay out front by
implementing technological improvements in their restaurants to enhance the
production methods or to improve the ordering process of the customer. In addition, they can also introduce new or
better product offerings to satisfy the needs of their customers. The best approach that McDonald’s can take
through this strategy is to improve their customer service. McDonald’s customer service ranking was the
lowest in the fast-food industry and was even lower than the Internal Revenue
Service. To improve upon this
substandard attribute, McDonald’s should revamp their training process for
newly hired employees and introduce new educational modules for currently
employed personnel.
2. Fortify-and-defend strategy –The
purpose of this strategy is to make it harder for challengers to gain ground
and for new firms to enter. A
fortify-and-defend strategy works well with firms that have already achieved
industry dominance. Since McDonald’s is
already the industry leader in the fast-food market, they can opt for a number
of tactics using this strategy to maintain their industry position. They can continue their expansion tactics by
continuing to open more stores around the world. This expansion would help defend against and
help to discourage smaller companies from increasing their market share. In addition, they can also elect to invest
capital in R&D to aid in developing new technologies for their
operations. These new technologies will
help them remain cost-competitive and technologically progressive.
3. Global strategy. McDonald’s already holds a strong position in
the global economy. Our recommendation
is that they decrease expansion in the almost saturated domestic markets, and
continue their expansion in foreign countries, such as Asia,
and the Pacific. Companies generally
expand into foreign markets in an attempt to gain new customers and capitalize
on core competencies. McDonald’s core
competency is that they are able to produce and sell quick and cheap food to a
large number of customers. With this concept,
they have been able to expand into other countries, and they currently are the
largest global fast-food chain in the world.
Since they already hold this lucrative position, they should continue
expansion in an effort to drive out competition. One strong recommendation would be for
McDonald’s to expand into emerging markets.
Since they focus on low-priced food, it is likely that many could afford
their products, and therefore, McDonald’s could expand into a stronger company.
4. Diversification. One strategy that McDonald’s as well as many
of the other fast-food chains have embraced is that of diversification. We feel that McDonald’s should continue this
trend. With the large health-craze
hitting the United States,
many restaurants have to change to healthier, higher quality menu items. The fast-food industry is no exception. Healthier burgers, low-fat salads are all
popping up on menus across the country.
We feel McDonald’s should continue its diversification and incorporate
more healthy foods, including low-carb burgers and fries. If McDonald’s is able to stay ahead of the
competition in this aspect, they will have a strong competitive advantage over
such companies as Wendy’s and Burger King.
Recommended Strategy
Stay-on-the-offensive strategy – The
main goal of the stay-on-the-offensive strategy is to be a proactive market
leader. The principle of this strategy
is to continually stay one step ahead of your competitors and force them to
play catch up. McDonald’s is already the
industry leader in the fast-food industry with a market share of 33 percent
compared with the number two chain in the industry, Burger King at 13 percent
market share. They can stay out front by
implementing technological improvements in their restaurants to enhance the
production methods or to improve the ordering process of the customer. In addition, they can also introduce new or
better product offerings to satisfy the needs of their customers. The best approach that McDonald’s can take
through this strategy is to improve their customer service. McDonald’s customer service ranking was the
lowest in the fast-food industry and was even lower than the Internal Revenue
Service. To improve upon this
substandard attribute, McDonald’s should revamp their training process for
newly hired employees and introduce new educational modules for currently
employed personnel.
Executing the strategy and control
McDonalds has needless to say
already made a presence in the market and had made itself a household
name. It is already the largest
hamburger chain in the world. Therefore,
it needs to continue onward with its successes while being a head every time
with new product innovation, marketing schemes, technology development,
customer service, employee training. By
improving the standards and raising the bar a little higher for employee
expectations will result in success stories from stores world wide. The “Plan to Win” strategy is important in
the offensive strategy because it is about being innovative and challenging to
the competitors. It proves that
McDonalds is not just about profit only, they have made great leaps to show
appreciation for their employees. Happy employees will result in better
performance and give the reputation a whole new look on top of its current one.
One of McDonald’s key success factors has been its implantation of its Plan to
Win. The plan focuses on five key drivers of success; people, product, place,
price, and promotion. The first factor is McDonald’s people or employees.
McDonald’s is striving to do a better job of staffing during busy periods as
not to overwhelm and to reward outstanding employees for exception work. It is also
putting more emphasis on its hospitality training to ensure a friendlier and
customer focused support staff.
Conclusion
McDonalds has seen many changes,
good and bad during its creation and duration of the business. As long as the core competencies are
recognized and never forgotten, then this business will continue to
thrive. With every issue and challenge
the corporation faces, it has the opportunity to improve itself and prove
itself to the public, shareholders, and stakeholders. With every battle conquered, another one
rises and with a secure mission and vision in mind, the corporation should
never stray too far from the roots and success of the company. The recommended
strategy will strengthen this plan because it is doing what McDonalds does best
and more so. Despite the downturn the
company has seen, the general impression we receive from McDonald’s financial
situation is that the company is slowly climbing out of a low period and making
a turnaround. We must never forget the
key success factors of the business which really makes the business for what it
is today, including franchises that offer quick, efficient service in a clean
friendly environment.
Appendix A
SWOT Analysis
Strengths
|
Weaknesses
|
Opportunities
|
Threats
|
Appendix B
Value Chain
Analysis
|
|
|
McDonald's
Production Costs
|
$ 0.65
|
|
McDonald's
Overhead Costs
|
$ 0.70
|
|
Royalties
|
|
|
4%
Service Fee
|
|
$ 0.13
|
Total
Costs
|
|
$ 1.48
|
Retail
Markup
|
|
$ 1.32
|
Average
price to Consumer
|
$ 2.80
|
Appendix C
Financial Analysis
|
|
|
|
1998
|
2002
|
2003
|
|
|
Current Assets
|
|
|
|
|
Current
Debt Ratio=
|
|
Current Liabilities
|
|
0.524368
|
0.70817
|
0.727829
|
|
|
|
|
|
|
|
|
|
Net Working Capital
|
|
|
|
|
Net
Working Capital Ratio=
|
Total Assets
|
|
-0.06003
|
-0.02949
|
-0.02873
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
Return
on Equity=
|
|
Average
Stockholders' Equity
|
|
0.162282
|
0.084634
|
0.123051
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
Profit
Margin=
|
|
Sales
|
|
0.124793
|
0.057964
|
0.109852
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
Earnings
Per Share=
|
Shares Outstanding
|
|
1.135355
|
0.701437
|
1.087298
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
Assets
Turnover Ratio=
|
Average Total
Assets
|
|
0.609376
|
0.636869
|
0.507014
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
Debt
to Equity Ratio=
|
Total Stockholder's
Equity
|
|
1.090336
|
1.331557
|
1.166277
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
Return
on Assets=
|
|
Average Total
Assets
|
|
0.076046
|
0.036916
|
0.055697
|
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