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Macdonals analysis

Macdonals analysis

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  • 1. McDonald s Competitor Analysis In EgyptStrengthsMcDonalds has been a thriving business since 1955 and 20 ofthe top 50 corporate staff employees started as a restaurantlevel employee. In addition, 67,000 McDonalds restaurantmanagers and assistant managers were promoted fromrestaurant staff. Fortune Magazine 2005 listed McDonalds asthe "Best Place to Work for Minorities." McDonalds investsmore than $1 billion annually in training its staff, and everyyear more than 250,000 employees graduate from McDonaldstraining facility, Hamburger University. The business is ranked number one in Fortune Magazines 2008 list of most admired food service companies. One of the worlds most recognizable logos (the Golden Arches) and spokes character (Ronald McDonald the clown). According to the Packard Childrens Hospitals Center for Healthy Weight children age 3 to 5 were given food in the McDonalds packaging and then given the same food without the packaging, and they preferred the food in the McDonalds packaging every single time. McDonalds is a community oriented, socially responsible company. They run Ronald McDonald House facilities, which provide room and board, food and sibling support at a cost of only $10 a day for families with children needing extensive hospital care. Ronald McDonald Houses are located in more than 259 local communities worldwide, and Ronald McDonald Care Mobile programs offers cost effective medical, dental and education services to children. They also sponsor Olympic athletes. They are a global company operating more than 23,500 restaurants in 109 countries. By being spread out in different regions, this gives them the ability to weather
  • 2. economic fluctuations which are localized by country.They can also operate effectively in an economicdownturn due to the social need to seek out comfortfoods.They successfully and easily adapt their globalrestaurants to appeal to the cultural differences. Forexample, they serve lamb burgers in India and in theMiddle East, they provide separate entrances for familiesand single women.Approximately 85% of McDonalds restaurant businessesworld-wide are owned and operated by franchisees. Allfranchisees are independent, full-time operators andMcDonalds was named Entrepreneurs number-onefranchise in 1997. They have global locations in all majorairports, and cities, along the highways, tourist locations,theme parks and inside Wal-Mart.They have an efficient, assembly line style of foodpreparation. In addition they have a systemization andduplication of all their food prep processes in everyrestaurant.McDonalds uses only 100% pure USDA inspected beef,no fillers or additives. Additionally the produce is farmfresh. McDonalds serves 100% farm raised chicken nofillers or additives and only grade-A eggs. McDonaldsfoods are purchased from only certified and inspectedsuppliers. McDonalds works closely with ranchers,growers and suppliers to ensure food quality andfreshness.McDonalds only serves name brand processed items suchas Dannon Yogurt, Kraft Cheese, Nestle Chocolate,Dasani Water, Newmans Own Salad Dressings, HeinzKetchup, Minute Maid Juice.McDonalds takes food safety very seriously. More than2000 inspections checks are performed at every stage of
  • 3. the food process. McDonalds are required to run through 72 safety protocols every day to ensure the food is maintained in a clean contaminate free environment. . McDonalds was the first restaurant of its type to provide consumers with nutrition information. Nutrition information is printed on all packaging and more recently added to the McDonalds Internet site. McDonalds offers salads, fruit, roasted chicken, bottled water and other low fat and calorie conscious alternatives.WeaknessesTheir test marketing for pizza failed to yield a substantialproduct. Leaving them much less able to compete with fastfood pizza chains.High employee turnover in their restaurants leads to moremoney being spent on training.They have yet to capitalize on the trend towards organic foods.McDonalds have problems with fluctuations in operating andnet profits which ultimately impact investor relations.Operating profit was $3,984 million (2005) $4,433 million(2006) and $3,879 million (2007). Net profits were $2,602million (2005), $3,544 million (2006) and $2,395 million(2007).OpportunitiesIn todays health conscious societies the introduction of ahealthy hamburger is a great opportunity. They would be thefirst QSR (Quick Service Restaurant) to have FDA approval onmarketing a low fat low calorie hamburger with low caloriecombo alternatives. Currently McDonalds and its competitionhealth choice items do not include hamburgers.They have industrial, Formica restaurant settings; they couldprovide more upscale restaurant settings, like the one they
  • 4. have in New York City on Broadway, to appeal to a moreupscale target market.Provide optional allergen free food items, such as gluten freeand peanut free.In 2008 the business directed efforts at the breakfast, chicken,beverage and convenience categories. For example, hotspecialist coffees not only secure sales, but also mean thatrestaurants get increasing numbers of customer visits. In 2009McDonalds saw the full benefits of a venture into beverages.ThreatsThey are a benchmark for creating "cradle to grave"marketing. They entice children as young as one year old intotheir restaurants with special meals, toys, playgrounds andpopular movie character tie-ins. Children grow up eating andenjoying McDonalds and then continue into adulthood. Theyhave been criticized by many parent advocate groups for theirmarketing practices towards children which are seen asmarginally ethical.They have been sued multiple times for having "unhealthy"food, allegedly with addictive additives, contributing to theobesity epidemic in America. In 2004, Michael Spulock filmedthe documentary Super Size Me, where he went on an allMcDonalds diet for 30 days and wound up getting cirrhosis ofthe liver. This documentary was a direct attack on the QSRindustry as a whole and blamed them for Americas obesityepidemic. Due in part to the documentary, McDonalds nolonger pushes the super size option at the dive thru window.Any contamination of the food supply, especially e-coli.Major competitors, like Burger King, Starbucks, Taco Bell,Wendys, KFC and any mid-range sit-down restaurants.McDonalds is the leading global foodservice retailer with morethan 31,000 local restaurants serving more than 58 millionpeople in 118 countries each day. More than 75% of
  • 5. McDonalds restaurants worldwide are owned and operated byindependent local men and women.Getting to Know UsMcDonalds is the leading global foodservice retailer with morethan 34,000 local restaurants serving nearly 69 million peoplein 119 countries each day. But that is just one part of thewhole story. Learn more about our Executives, search ourFrequently Asked Questions, and get a taste of McDonald’sHistory.Quick FactsMcDonalds MissionWe’re determined to continuously improve our social and environmental performance.We work hard, together with our suppliers and independent restaurant franchisees, tostrive toward a sustainable future – for our company and the communities in which weoperate.From the beginning, we’ve been a company committed to doing the right thing.Today, our values continue to be the foundation for who we are, what we do, and howwe operate,Inclusion & DiversityAt McDonald’s we are moving from awareness to action. Ourgoal is to have people within our organization working andliving to reach their full potential. We believe that leaders holdthemselves accountable for learning about, valuing, andrespecting individuals on both sides of the counter. AtMcDonald’s, diversity and inclusion are part of our culture –
  • 6. from the crew room to the Board Room. We are working toachieve this goal every day by creating an environment foreveryone to contribute their bestQuick FactsMcDonalds Case StudyIntroductionMcDonald’s, the long-time leader in the fast-food wars, faced a crossroads in the early1990s. Domestically, sales and revenues were flattening as competitors encroached on itsdomain. In addition to its traditional rivals—Burger King, Wendy’s, and Taco Bell—the firmencountered new challenges. Sonic and Rally’s competed using a back-to-basics approachof quickly serving up burgers, just burgers, for time-pressed consumers. On the higher end,Olive Garden and Chili’s had become potent competitors in the quick service field, takingdollars away from McDonald’s, which was firmly entrenched in the fast-food arena andhadn’t done anything with its dinner menus to accommodate families looking for a moreupscale dining experience.While these competitive wars were being fought, McDonald’s was gathering flak fromenvironmentalists who decried all the litter and solid waste its restaurants generated eachday. To counter some of the criticism, McDonald’s partnered with the EnvironmentalDefense Fund (EDF) to explore new ways to make its operations more friendly to theenvironment.FactsMcDonald’s roots go back to the early 1940s when two brothers opened aburger restaurant that relied on standardized preparation to maintainquality—the Speedee Service System.
  • 7. So impressed was Ray Kroc with the brothers’ approach that he becametheir national franchise agent, relying on the company’s proven operatingsystem to maintain quality and consistency.Over the next few decades, McDonald’s used controlled experimentationto maintain the McDonald’s experience, all the while expanding the menuto appeal to a broader range of consumers. For example, in June 1976,McDonald’s introduced a breakfast menu as a way to more fully utilize thephysical plant. In 1980, the company rolled out Chicken McNuggets.Despite these innovations, McDonald’s tremendous growth could onlycontinue for so long. Its average annual return on equity was 25.2%between 1965 and 1991. But the company found its sales per unit slowingbetween 1990 and 1991. In addition, McDonald’s share of the quick servicemarket fell from 18.7% in 1985 to 16.6% in 1991. Plus growth in the quickservice market was projected to only keep pace with inflation in the 1990s.McDonald’s faced heightening competition on several fronts. First, itstraditional rivals—Burger King, Wendy’s, and Taco Bell—were eating intoits margins through promotions and value pricing strategies. Taking a leaffrom McDonald’s own playbook, Sonic and Rally’s were using a very limitedmenu approach to attract time-strapped consumers. Finally, Chili’s andOlive Garden were appealing to diners looking for something a little moreenticing that the familiar Golden Arches for their families.In the late 1980s, McDonald’s began recognizing the importance ofmaintaining an ecologically correct posture with the public, which wasbecoming more concerned about the environment. For example, in 1989,53% of respondents in one survey revealed that they had not bought aproduct because they didn’t know what effect the packaging would have
  • 8. on the environment. Closer to home, a 1990 study showed that eachMcDonald’s generated 238 pounds of on-premise solid waste per day.It’s no surprise, then, that McDonald’s sought a way to reduce its solidwaste while providing a more environmentally acceptable face to thepublic. Beginning in 1989, it partnered with the Environmental DefenseFund, a leading organization devoted to protecting the environment, toseek ways to ease the company’s environmental burden on the landscape.Together, EDF and McDonald’s considered its impact on a wide range ofstakeholders—customers, suppliers, franchisees, and the environment. Thecompany gave its franchisees much autonomy in finding ways to eliminateenvironmental blight. The company’s hope was that from these divergentapproaches, it stood a greater chance of finding solutions with broadapplicability than if it had tried to pursue a one-size-fits-all approach fromthe outset.Some of the environmentally inspired solutions that came out of thecollaboration with EDF were the: Introduction of brown paper bags with a considerable percentage of recycled content. Solicitation of suppliers to produce corrugated boxes with more recycled content, which had the twin effect of reducing solid waste and building a market for recycled products. Abandonment of polystyrene clamshell containers to hold sandwiches in favor of new paper-based wraps that combined tissue, polyethylene, and paper to keep food warm and prevent leakage.AnalysisMcDonald’s Sustained ProsperityThe secret of McDonald’s success is its willingness to innovate, even whilestriving to achieve consistency in the operation of its many outlets. Forexample, its breakfast menu, salads, Chicken McNuggets, and the McLeanDeluxe sandwich were all examples of how the company tried to appeal toa wider range of consumers.
  • 9. The company has also made convenience its watchword, not only throughhow fast it serves customers, but also in the location of its outlets.Freestanding restaurants are positioned so that you are never more than afew minutes away by foot in the city or by car in the suburbs. PlusMcDonald’s is tucking restaurants into schools, stores, and more.Key ThreatsThe key threats to McDonald’s domestically are the lack of growthopportunities. The market is well saturated, and it would difficult toachieve double-digit growth. Other concerns are a newfound emphasis onhealthier eating. Most of McDonald’s most popular fare probably in somesmall way contributes to the increasing incidence of cancer, heart disease,and diabetes among the population.But I feel the key threat to McDonald’s continued success is its veryubiquity. Because McDonald’s are everywhere, the dining experience isnever special. And as Baby Boomers age and become more affluent, it islikely that they will leave behind their fast-food ways, if only to step up tomoderately priced restaurants like Olive Garden, Bennigans, and PizzeriaUno. These chains have the added advantage of serving higher-marginalcoholic drinks. McDonald’s, meanwhile, has to continually battle BurgerKing and Wendy’s, which leads to an erosion of margins for everyone. Evenalliances with toy manufacturers, while popular with consumers, do littlefor the bottom line because the cost to run these promotions can be quiteexpensive.Responding to Burger King’s October 1 AnnouncementThe October 1 announcement from Burger King that it would begin offeringtable service is not much of a threat at all. You can try to dress up fast food,but it’s still fast food. I couldn’t imagine this being a potent draw forconsumers. McDonald’s best course is to ignore this development asirrelevant. As the market leader, McDonald’s does not need to respond toevery competitor’s initiative. Indeed, doing so would have the effect ofmaking McDonald’s look reactive and less like a leader.
  • 10. The advantage of not responding to Burger King’s initiative is that thecompany can preserve its resources for other marketing thrusts that mayprovide a bigger payoff. The disadvantage of not responding to BurgerKing’s initiative is that you allow the firm to establish itself in a unique wayin the minds of consumers—that of a fast-food restaurant that provides sit-down service. But again, is this inherent contradiction of fast-food fare andupscale dining experience likely to resonate with consumers? I would sayno. If Burger King’s initiative does prove popular with consumers—asevidenced by expanding sales and market share—McDonald’s would beforced into catch-up mode. But I think that this is a risk that the companyshould be willing to take.Promoting Flexibility Through Its Operating StrategyThe key thing that McDonald’s operations strategy has to support isexperimentation. Now somewhat long in the tooth, McDonald’s needs abreakthrough that will provide new avenues of growth. It has a long historyof such experimentation, which has resulted in some new profit centerslike Chicken McNuggets and the breakfast menu. Some later turn out to beduds like the McLean Deluxe, but inevitably experimentation in limitedoutlets offers McDonald’s a way to retain its key strengths—quality andconsistency—while continuing to evolve for new palates and pocket books.McDonald’s and the Environmental Defense FundIn some ways, partnering with the Environmental Defense Fund was amasterstroke. It brought both respectability and valued expertise to itsenvironmental efforts. It also provided a primetime venue for EDF to makea difference. Any successes, even if only incremental improvements, wouldhave major ramifications because of the sheer size of McDonald’soperations.McDonald’s should continue its partnership with EDF. With ecology agrowing concern among consumers, it makes sense to be a good corporate
  • 11. citizen and get all the public relations accolades that go along with such analliance. It also pays off in the bottom line by reducing shipping costs forsupplies as well as garbage removal fees.McDonald’s would do well to stay in the vanguard of corporations whohave become environmentally aware. If it tries to shirk its responsibilities, itcan foresee a public relations nightmare in the making. But if it doesmanage to come up with some breakthroughs through its collaborationwith EDF, it can score a tremendous amount of goodwill with the public,which may even provide a halo effect to mitigate any other PR troubles.How far should McDonald’s go on environmental issues? There is definitelya public relations benefit in being seen as an environmental leader, and thecollaboration with EDF goes a long way in making that happen. StillMcDonald’s has had a lot of success in giving its franchises some latitude indeveloping new solutions.The line in the sand in determining how far McDonald’s should go with itsenvironmental efforts is determined by the cost of the initiative relative tothe hard-dollar benefits and harder-to-quantify public relations buzz it getsfrom being in the forefront on environmental issues. The bottom line isthat environmental efforts can’t detract the company from its primarymission of providing consistent quality to consumers. If environmentalefforts start to be a drag on the company’s future profits, it’s time to easeup. Ideally environmental initiatives should pay for themselves by reducingother kinds of costs.Dealing With the Product Range ExplosionMcDonald’s had done well with a fairly limited product range. But fallingper unit sales is a danger sign for the firm. With competitors gaining groundon McDonald’s, it may indicate a need to refresh its product line. Perhapsthe best way to do that is by rotating in a couple highly promoted new
  • 12. menu items. This would have the effect of enlivening the product menu,without the need to go head to head with competitors on price.This slackening of per unit sales might also indicate that McDonald’s criticalsuccess factors have changed. Perhaps in the new environment, fast,convenient service is no longer enough to distinguish the firm. At this time,a new critical success factor may be emerging: the need to create a rich,satisfying experience for dinner consumers.To maintain consistency in new products as it expands the product line,McDonald’s must rely on test marketing new menu items in pilot locations.This approach will let the firm identify which items are likely to provepopular with consumers while ensuring that the company can deliver newproducts with consistent quality nationwide. McDonald’s already has ahistory of doing this so it will not require major changes to its operationsstrategy—at least initially. If the product line-up gets too large, then thetask of maintaining quality becomes exponentially harder. The trick is toconsider how to eliminate some of the existing menu items when youintroduce new ones, while making sure the staff is fully trained in how toexecute these products successfully.Because McDonald’s has pretty well saturated the U.S. market, it’s onlyreal opportunities for growth lie abroad, where the competition is not socutthroat or by introducing new restaurant concepts under brands otherthan McDonald’s. After all, McDonald’s is known for fast food. It’s notreally a pleasant dining experience, just a cheap and convenient one. I feelthat McDonald’s has reached the point of diminishing returns with theMcDonald’s brand and now needs to roll out new types of restaurants.Indeed, McDonald’s has the opportunity to apply its core competencies—scrupulous adherence to quality standards and continual promotion ofexperimentation—in new venues. Imagine, if you will, McDonald’s opening
  • 13. a new casual dining restaurant under the name of Splendor. It could thenfranchise that concept nationwide and get some of the dollars fromconsumers who have grown past fast food. But its fastidious approach tooperations would ensure that consumers everywhere would experiencethe same dining experience—a tremendous advantage for consumers whodon’t want to be surprised with a bad meal.McDonald’s could try a number of concepts simultaneous in different partsof the country. Those that seemed promising could be rolled out further.The duds could be left to die quickly. While this will be an expensiveundertaking, it holds the potential to unleash new areas of growth in amaturing market.ConclusionMcDonald’s faces some difficult challenges. Key to its future success will bemaintaining its core strengths—an unwavering focus on quality andconsistency—while carefully experimenting with new options. Theseinnovative initiatives could include launching higher-end restaurants undernew brands that wouldn’t be saddled with McDonald’s fast-food image.The company could also look into expanding more aggressively abroadwhere the prospects for significant growth are greater.The company’s environment efforts, while important, should notovershadow its marketing initiatives, which are what the company is allabout.
  • 14. P.E.S.T AnalysisPolitical FactorsThe individual operations of McDonalds are influenced by theindividual state and country policies by each government. E.g.there are certain some states in Europe and the US wont allowfast food due to its health implications, they have shown that fastfood can cause high cholesterol levels and can also lead toobesity.Economic FactorsBranches and franchises of fast food chains like McDonalds hasthe tendency to experience hardship in instances where theeconomy is hit by inflation and changes in the exchange rates.These chains may have to put up with the effects of theeconomic environment.Socio-Cultural FactorsMcDonald’s indulge a particular variety of consumers withdefinite types of personalities. It has also been noted that thecompany have given the markets such as the United Kingdom,an option with regards to their dining needs. McDonaldslaunched sets of food that tenders a reliable level of quality forthe respective market where it operates.Technological FactorsThe company’s key tool for marketing is by means of televisionadvertisements. There are similarly some claims thatMcDonald’s are inclined to interest the younger populationsmore. The existence of play spots as well as toys in mealsoffered by the company shows this. This can also be seen in thecommercials of they use. They use cartoons of their characterslike Grimace and Hamburglar. Other advertising operations usepopular celebrities to promote their products
  • 15. CompetitorsWho are you competing with locally? If you talk about thechains -- KFC, Pizza Hut, Hardees -- I believe you canconsider these our main competitors. But we keep an eye oneveryone, even the local chains like Momen, Cook Door andwhatever -- we keep an eye on them. [Type the company name] McDonald’s company analysis Team Project Prepared by: Student‘s Name and Surname: Edita Ivanova, Group: 3 11/8/2011
  • 16. CONTENTSINTRODUCTION1. COMPANY ANALYSIS1.1 Description of the firm (history, managers, mission, vision, values, main products andmarkets)1.1.1. History1.1.2. Managers1.1.3. Mission. Vision. Values1.1.4. Main Products and the markets1.2 Financial analysis of McDonald‘s1.3 Current strategy of McDonald‘s1.4 Identification of strengths & weaknesses1.5 Issues facing McDonald‘s2. EXTERNAL ENVIRONMENT ANALYSIS2.1 Analysis of McDonald‘s macro-environment2.2 Analysis of industry (five forces framework)2.3 Key strategic factors in the industry (strategic groups, market segments, critical successfactors)2.3.1 Strategic groups2. 3.2. Market segments2.4. Future scenarios
  • 17. 2.3.3 Critical success factors2.5 Identification of opportunities and threats3. DEVELOPMENT and RECOMMENDATIONS FOR IMPLEMENTATION OF STRATEGICOPTIONSCONCLUSIONS
  • 18. INTRODUCTION The goal of this paper work is to analyze McDonald‘s Incorporated company.During studies of International Marketing we have acquainted with the theoreticalpart of International Marketing — what is the most important stage in the beginningevery time confronting with the new subject. However, only accomplishing thepractical tasks we can better understand the matter of discipline analyzing strategicaudit of a concrete operating company. Our tasks of this paper work were to gather into equally divided groups ofstudents and to work on a common goal in showing the degree to which we cancollaborate together in analyzing the chosen company and building our generalmanagement competence. So, the broader tasks to reach the aim are: to overview and analyze the literature concerning the subject of International Marketing; to describe the chosen company and the market it is operating in; to analyze principles of a selected company and existing strategies in it. The object of our team project is McDonald‘s Incorporated recognized as apremier franchising business around the world, leading global food service retailerhaving over 32,000 local restaurants which serve its favourite foods – World FamousFries, Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin to morethan 64 million people in 117 countries each day.
  • 19. 1. COMPANY ANALYSIS1.1 Description of the firm (history, managers, mission, vision, values, mainproducts and markets)1.1.1. History Everything has started when Patrick McDonald opened ―The Airdrome‖ in1937. This restaurant was located at the Monrovia Airport in Monrovia, California. Atthat time prices were much lower than it is today. Back to then the hamburgers weresold only for 10cents, and all-you-can-drink orange juice cost only 5cents. After3years, in 1940 his two sons Mac and Dick (Maurice and Richard), relocate the wholebuilding and open the restaurant with new name ―McDonald‘s Bar-B-Que Restaurant‖in San Bernardino, California. It was a typical drive-in featuring a large menu and carhop service. In 1948 McDonald brothers closed their restaurant temporarily. After3months, in December the new, with a self-service drive-in, restaurant was opened.The menu was minimized and it consisted only from nine items (hamburger,cheeseburger, soft drinks, milk, coffee, potato chips and a slice of pie. After severalyears, in 1954, a multimixer salesman Ray Kroc enters into a McDonald‘s developingstage. He realized that taking an opportunity to become a franchising agent for awhole new concept of restaurant is an appropriate decision for his future. On April 15th 1955 the first McDonald‘s restaurant in Des Plaines, Illinois isopened. A one year later Fred Turner (future McDonald‘s Chairman) is hired as acounter man. After a while he became the head of McDonald‘s Operations whichwere responsible for the quality, service and cleanliness. The biggest event at that time in 1960‘ was the statement that McDonald‘s hassold 100 Million of hamburgers in more than 100 restaurants in America. A few yearslater in 1961 Hamburger University is opened. After this university students get aBachelor degree of Hamburgerology. 1
  • 20. The Business started to expand and in 1963 there were 5times more restaurantthan in 1958. McDonald‘s reaches 500 restaurants. At the 10th Anniversary (1965) ofMcDonald‘s it issues the first public stock selling for $22.50 per share. In 1967McDonald‘s starts the business internationally. Firstly, it goes to close neighbours, inCanada and Puerto Rico first restaurants are opened. Therefore, nowadays we can seeMcDonald‘s restaurants in 119 countries around the world. Another big change in McDonald‘s history was the first Drive-thru. It wasopened in Sierra Vista, Arizona. As long as there were soldiers near Fort Huachucawho were not allowed to leave the car in army fatigues, the McDonald‘s has solvedthis problem introducing a new service ―drive-thru‖. It became one of most successfulimplementation in services field. Later on McDonald‘s started to expand its business really quickly. Therestaurants are opened in Japan then in Spain, Denmark, and Philippines. At the endof 1983, McDonald‘s has 7,778 restaurants located in 32 countries all around theworld. At the year of 1996 the Internet site McDonald‘s is created. In 2009 the breakevent was that McCafe goes National and later on internationally. Nowadays McDonald‘s is considered to be the leading global food serviceretailer. It owns more than 32,000 local restaurants in 119 countries worldwide. Theprinciple of this expansion is quite simple to serve high quality, standardized productsto all customers. The restaurants are operating independent and they run by localbusinessman or businesswoman.1.1.2. Managers McDonald‘s name is well known for franchising which was the key tonowadays success in the worldwide food industry market. There are 119 countrieswhere the McDonald‘s is operating and more than 75%of it is set by franchising. Themanagers of McDonald‘s are considered to be those people who are highly qualifiedbusiness people joining their System as Owners/Operators. McDonalds are seekingbusinessman/businesswoman with a business experience. It is important that thosepeople have some knowledge from owning or managing business/business units or
  • 21. having led multiple departments as their previous job. Another factor which is beingconsidered is financial resources. In McDonald‘s case the top executive officers are working as managers whodirect restaurant‘s staff indirectly. They use several levels of supervisors who thendirect the workers. There is a high need to be familiar with the work which now theyare managing. So, there is no wonder why they all climbed the carrier from thebottom to the top. In such company as a McDonald‘s managers may only providesome recommendation to the next level of management whether to hire or to fireemployees.1.1.3. Mission. Vision. Values McDonalds brand mission statement is to "be our customers favorite placeand way to eat." Our worldwide operations have been aligned around a global strategycalled the Plan to win cantering on the five basics of an exceptional customerexperience - People, Products, Place, Price and Promotion. We are committed toimproving our operations and enhancing our customers experience.2 This mission includes becoming the best employer for people in each localcommunity independently in location. To provide the excellent service to allcustomers and of course achieve growth with a profit through strengths such asMcDonald‘s system innovation and technology. The vision of McDonald‘s is to be the best quick service restaurant in thewhole world. It refers to outstanding quality, cleanliness, high quality service andhigh value food in order to make every customer smile. McDonald‘s company states that their values in practice are the corporateresponsibility of the company. They show values in everyday activities, when they areachieving some goals and most importantly open lines of communication is the mainvalue between customer and other stakeholders. They work together with suppliersand independent franchisees to achieve a sustainable future not only for the company
  • 22. but for the communities in which they operate as well. Their strong values helpedthem to become who they are, what they do and how they operate nowadays. The one of the McDonald‘s values is customer satisfaction. It is said that thereason for McDonald‘s existence are customers. They are trying to show theappreciation by serving a high quality food and superior service. They also strive toachieve a welcoming environment. Another value is to be committed to people whoare working to them. They believe that working in a well-trained team withintercultural experiences and backgrounds are the core of success. The other value is that they believe in the McDonald‘s System. The businessmodel which is contained of ―three-legged stool‖ (suppliers, operator and employees)is the essential key for developing the business globally. The most important is tokeep the balance between those ―stool‘s legs‖. Ethic in business is also one of the values. They are trying to conduct theirbusiness with fairness, honesty and integrity. They state that: ―We are individuallyaccountable and collectively responsible‖.3 McDonald‘s obliged to grow business profitably as long as it is publicly tradedcompany. This requires not only focus on gaining more money but also on customersand the health of the whole system. The changing environment, customer, employeeand systems need lead to the McDonald‘s evolution and innovation as well.1.1.4. Main Products and the markets The products produces by McDonald‘s can be divided in several groups:Hamburgers, Chicken, fish and pork products, French fries, Soft drinks, healthy itemssuch as salads and Desserts. There is no doubt that McDonald‘s main products are hamburgers. There is ahigh variety of this type of food. To begin with, the simplest one and the mostcommon is Cheeseburger (in some countries they are involved in 1Eur/1$menus),then Double Cheeseburger (which has two ground beef patties and two slices of
  • 23. cheese), McDouble, Big N‘Tasty, McNifica, etc. The names and consistent variesaccording to the countries. Chicken, fish and pork products such as McChicken, Premium chickensandwiches, Snack wrap, Chicken McNuggets, etc. are another products inMcDonald‘s restaurants. French fries are considered to be one of the most sellable items. The mainreason for this is that no matter what other product the consumer is willing to buy, butin every set French fries are included automatically. Other products such as salads are relatively new in this restaurant. The firstsalads were added to its menu in 1985. Nowadays more and more people areconcerned about their health so, McDonald‘s puts its all efforts to achieve more andnot lose any of the potential customers. The biggest soft drink supplier is the Coca-Cola Company. Hot and iced tea isdelivered by S&D Coffee in the US), hot chocolate, various juice and other regionalbeverages such as milkshakes are available in various markets all around the globe. Desserts are considered to be the last big group of products in McDonald‘srestaurants. It includes such items as ice-cream (McFlurry), McDonaldland cookies,Freshly Baked cookies, Pies, Cinnamon melts, the fruit and yougurt parfait, smoothiesand other items which depending on the region and country.Markets The recovery of McDonald‘s after the global crises seems to be surprisinglyfast and the sales growth rate continues to increase. The one of the biggest fast foodrestaurant in the world declared that it is still gaining market shares its rivals. Thehigh rate of unemployment does not influence the convincing people to spend moneyand eat at McDonald‘s. It has suggested improved breakfast menu with the newfrappe drinks. It was the key success factor in recovering after the huge losses.
  • 24. McDonald‘s surprised everyone when it reported growth of 6.0%worldwidewhile the same store sales growth was approximately 3.8%. The company isforecasting the further growth of 5-6% worldwide. The chart below shows theslowdown experience in 2008. Chart 1 The McDonald’s slowdown experience in 20084 In different company‘s regions there are different trends. For example, theEurope‘s growth rate is 4.1%, the Asia Pacific, Middle East and Africa region growthrate is 8.1%. The European region holds about 40% if total sales, so this region ismost important to McDonald‘s. The Asia Pacific region includes China where number of consumers isgrowing rapidly. McDonald‘s is planning to reach 2,000restaurants till the 2013. Inthis market the biggest competitor is Yum Brands which has 3,700 restaurants. In the US, the introducing new menus for the breakfast and new frappe werevery successfully in gaining more customers. The following chart emphasizes theMcDonald‘s market share growth in comparison with selected competitors:
  • 25. Chart 2 U.S. Fast food market share5 The rising of commodity prices influenced the food industry as well. Thisimpact is the best seen in the coffee sector. One of the McDonald‘s competitors isStarbucks. It was not able (for Starbucks) to resist the price increase for 9% which ledthat McDonald‘s prices particularly for the coffee was bellow than Starbucks. This isalso the reason for the future market share gains. If McDonald‘s wants to recover faster and if it wants to be a leader in all fastfood sectors it has to improve customer metrics by which it can follow and decidewhat are the changes in the customers‘ needs and wants, how they can satisfy theseissues. The most important thing is to think globally but act locally. McDonald‘s hasto take into account different cultures, tastes, incomes, etc. and they have to serveslightly different food but the high service should remain the same.1.2 Financial analysis of McDonald’s Available financial data is used to evaluate the performance of theorganization. In this case, McDonald‘s restaurants chain will be analyzed. The mostuseful tools are those which show the cause-and-effect relationships. One of the mostimportant documents is the company‘s annual reports while it is required by law to befilled with some financial data.
  • 26. This part of paperwork will include the McDonald‘s 3-years data summarywhich is analyzed and converted into ratios and percentages. Those ratios will becompared to show the relationships and trends with standards of performance. Table 2 Balance sheet 6 Period Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008 Assets Current Assets Cash And Cash Equivalents 2,387,000 1,796,000 2,063,400 Short Term Investments - - - Net Receivables 1,179,100 1,060,400 931,200 Inventory 109,900 106,200 111,500 Other Current Assets 692,500 453,700 411,500 Total Current Assets 4,368,500 3,416,300 3,517,600 Long Term Investments 1,335,300 1,212,700 1,222,300 Property Plant and Equipment 22,060,600 21,531,500 20,254,500 Goodwill 2,586,100 2,425,200 2,237,400 Intangible Assets - - - Accumulated Amortization - - - Other Assets 1,624,700 1,639,200 1,229,700
  • 27. Deferred Long Term Asset Charges - - -Total Assets 31,975,200 30,224,900 28,461,500LiabilitiesCurrent LiabilitiesAccounts Payable 2,916,400 2,970,600 2,506,100Short/Current Long Term Debt 8,300 18,100 31,800Other Current Liabilities - - -Total Current Liabilities 2,924,700 2,988,700 2,537,900Long Term Debt 11,497,000 10,560,300 10,186,000Other Liabilities 1,586,900 1,363,100 1,410,100Deferred Long Term Liability Charges 1,332,400 1,278,900 944,900Minority Interest - - -Negative Goodwill - - -Total Liabilities 17,341,000 16,191,000 15,078,900Stockholders EquityMisc Stocks Options Warrants - - -Redeemable Preferred Stock - - -Preferred Stock - - -Common Stock 16,600 16,600 16,600Retained Earnings 33,811,700 31,270,800 28,953,900
  • 28. Treasury Stock (25,143,400) (22,854,800) (20,289,400) Capital Surplus 5,196,400 4,853,900 4,600,200 Other Stockholder Equity 752,900 747,400 101,300 Total Stockholder Equity 14,634,200 14,033,900 13,382,600 Net Tangible Assets 12,048,100 11,608,700 11,145,200 Currency in USD1.3 Current strategy of McDonald’s In McDonald‘s there is a strategy named ―Plan to Win‖ since 2003. This planto win in the industry exist till now and it forced McDonald‘s to have 32 months ofglobal comparative positive sales which is the longest strip for the last 25 years. Tosay more, company has had a growth which in general lies above the industry averagegrowth.7 To get better understanding about the current strategy of the company, let takea look what is the “Plan to Win‖? It is nothing else except 5P‘s that are behind the Plan to Win, itincludes: People, Place, Product, Price, and Promotion. The 5P‘s are trying to perceive every thinkable angle of the company, andhave ways to improve everything, from refurbishing old shops, to maintenance wi-fifor customers, setting the right mood with music and creating deli menus to cope withthe bad publicity.8 Promotion Products - ―I‘m loving it‖ worldwide campaign - Broaden the selections - Billboards, internet, TV, all advertising - McDonald‘s Food Studiosin general
  • 29. Price - Superior supplier practices - High quality food at a reasonable price - High product standards - Value menus - McCafe - Premium selections - Examples: Rice burger, fruit and walnut salad Place People - Refurbishing stores - Developed training and hospitality programs to teach our people the skills they need to - New music deliver great service - Wi-fi - Computer based training - Flatscreens -Restaurant Operations Improvement Process (ROIP) Their main efforts are in a direction of maintenance of their unique firmpower, and creation of the additional added cost through experience to keep anddevelop their shares in the American market. Company‘s newest leading addition of industrial line is the McCafe. TheMcCafe have a target audience of those who would like something else than regularsoft drinks, or probably only wants some coffee.9 Using this new strategy and an industrial line McDonald‘s tries to seize sharesof the market in the industry of coffee industry, which mainly operates Starbucks. It iscourageous strategy, where they have an experience minimum, but however it isstrategy which is supported by a considerable quantity of their forces. They alreadyhave global network of suppliers and one of the most influential brands in theworld.‖ 10Their marketing has focused on two separate things: first, coping with theeffects of the obesity through marketing and a new healthier product category andsecond, increasing brand awareness to maintain and develop market shares.
  • 30. While supervising the result (outcome) of McDonald‘s has carried out strategythe last years, then the financial data speaks in own language. Development of theincomes which are above development of the market means that they increase theshares in the market. When supervising of their edges of total profit, then sinceperformance of ―Plan to Win‖ has increased edge more than forty percent. It showsthat McDonalds till now have correct forces and strategy to outmanoeuvre anyproblems of fatness. McDonald‘s should study their basic products in the future. As changingrequirements and instructions from clients and the governments appear, then atMcDonalds there would be a big advantage of being preventive on these questions.Now they were some of the slowest in the industry to get rid of their trans-fat to makeFrench fries which sends a bad signal on not caring about their clients. On allquestions of public health services they, apparently, have very jet manner, stillprecisely knowing what to make with a problem. If they have to change and expandthe research of these areas, the pure size and resources could give easily to them thebig push up in CSR competencies and the general image in comparison with theircompetitors. But as it now, their research - some kind of weakness as they concentratemore on research in decorating than in full healthy meal. It isnt intended these thatthey should change the basic products as a cheeseburger, big Mac and French fries,but rather placing some resources in creation of the basic of more healthy products.Thus, they also would deal with some of their weaknesses and would constructprotection against future threats.111.4 Identification of strengths & weaknesses “The resource strength, behavior, weakness, synergy and distinctivecompetences are major components of the internal environment of anorganization.―12 It is all about how the company manages to use its resources and intowhat outcome it brings: does the use of the resources is optimal and brings to anadvantage or it is not well managed and brings into disadvantage? There come alsocompanies strengths or weaknesses.
  • 31. Strengths of McDonald’s Taking into consideration that McDonald‘s is a global company, working itscapital in many countries worldwide and known for almost all people in the world, wecan point out such strengths of this franchise: McDonald‘s is a strong competitor for all sit-down restaurants because of its size, worldwide extent and famousness. „McDonald‘s is the market leader in both the domestic and international markets‖13 The size of McDonald‘s, as it was mentioned before, is enormous and it has an advantage of economies of scale, which is crucial for every business. Diversifying business worldwide in various countries let to reduce or at least to verify the risk of business and find best advantages of different countries economies. McDonald‘s also takes an advantage of a long-term economic growth as an international company. It is also known that McDonald‘s has a strong real estate portfolio, which is also considered as strength of a company. “The company‘s outlets are located in areas that are highly known for visibility, traffic volume and ease of access.‖14 The brand of McDonald‘s is easy recognised among competitors and is very strong. “Through aggressive market planning, MacDonald‘s has been able to recapture its youth market once again.‖15 Viewing the strengths of McDonald‘s form consumer eyes, the strengths canbe more focused on brand, famousness, quick supply of a food, good taste of food,which more often lead even to an addiction of McDonald‘s foods, also mostly wellperceived personnel as a polite and performing their job well.Weaknesses of McDonald’s
  • 32. Even though McDonald‘s has a huge extent in the world, has a strong strategy,well known brand and feels comfortable in a market, however, as all business it facessome difficulties or some threats and as all business has some internal weaknesses,which actually cannot be always visual for individual eyes, but can be identified onlyby professional economists. The summary of McDonald‘s weaknesses might be: “Looming market saturation‖16, which can lead to difficulties in advertising new products. Fast growing and competitive market. That makes company to face income problems. Income problems and huge competition do not let the range of production rise into value ones but makes to diversify a range of cheap and quickly made ones. McDonald‘s is also a low innovative company. In more simple view the McDonald‘s might have weaknesses because of hugecompetition in fast food industry. Nevertheless, fast food industry is not a respectedindustry in most of nowadays point of view because of rising number of variousdiseases caused by fast, unhealthy food. Moreover, McDonald‘s food might seemmore unhealthy and fatty food, rather then delicious. And there the price seemed aslow doesn‘t help in case of quality of food.1.5 Issues facing McDonald’s17 There are a lot of issues, which McDonald‘s is facing. Here you can find someof it:ADVERTISING
  • 33. McDonalds spend over two billion dollars each year on advertising: theGolden Arches are now more recognized than the Christian Cross. Using collectabletoys, television adverts, promotional schemes in schools and figures such as RonaldMcDonald the company bombards their main target group: children. Many parentsobject strongly to the influence this has over their own children. McDonalds arguethat their advertising is no worse than anyone elses and that they adhere to all theadvertising codes in each country. But others argue it still amounts to cynicalexploitation of children - some consumer organizations are calling for a ban onadvertising to children.ANIMALS Vegetarians and animal welfare campaigners arent too keen on McDonalds -for obvious reasons. As the worlds largest user of beef they are responsible for theslaughter of hundreds of thousands of cows per year. In Europe alone they use half amillion chickens every week, all from windowless factory farms. All such animalssuffer great cruelty during their unnatural, painful and short lives, many being keptinside with no access to fresh air and sunshine, and no freedom of movement. Again,McDonalds argue that they stick to the letter of the law and if there are any problemsit is a matter for government. They also claim to be concerned with animal welfare.CAPITALISM Nobody is arguing that the huge and growing global environmental and socialcrisis is entirely the fault of one high-profile burger chain, or even just the whole foodindustry. McDonalds are of course simply a particularly arrogant, shiny and self-important example of a system which values profits at the expense of anything else.Even if McDonalds were to close down tomorrow someone else would simply slipstraight into their position. There is a much more fundamental problem than Big Macsand French Fries: capitalism.
  • 34. EMPLOYMENT The Corporation has pioneered a global, highly standardized and fastproduction-line system, geared to maximum turnover of products and profits.McDonalds now employ more than a million mostly young people around the world:some say a million people who might otherwise be out of work, others howeverconsider that they are in fact a net destroyer of jobs by using low wages and the hugesize of their business to undercut local food outlets and thereby force them out ofbusiness. Is McDonalds a great job opportunity or are they taking advantage of highunemployment to exploit the most vulnerable people in society, working them veryhard for very little money? Complaints from employees range from discriminationand lack of rights, to understaffing, few breaks and illegal hours, to poor safetyconditions and kitchens flooded with sewage, and the sale of food that has beendropped on the floor. This type of low-paid work has even been termed McJobs.ENVIRONMENT Conservationists have often focused on McDonalds as an industry leaderpromoting business practices detrimental to the environment. And yet the companyspends a fortune promoting itself as environmentally friendly.One of the most well-known and sensitive questions about McDonalds is if they areresponsible for the destruction of tropical forests to make way for cattle ranching.McDonalds say no. Many people say yes. So McDonalds sue them. Not so manypeople say yes anymore, but does this mean McDonalds arent responsible?They annually produce over a million tons of packaging, used for just a few minutesbefore being discarded. What environmental effect does the production and disposalof all this have?EXPANSION
  • 35. In 1996 McDonalds opened in India for the first time: a country where themajority of the population is vegetarian and the cow is sacred. Can people challengethe undermining of long-lived and stable cultures, and regional diversity? Self-sufficient and sustainable farming is replaced by cash crops and agribusiness undercontrol of multinationals - but how are people fighting back?FREE SPEECH So, it seems as though lots of people are opposed to the way McDonalds goabout their business. So there is a big global debate going on about them right?Wrong. McDonalds know full well how important their public image is and howdamaging it would be to them if any of the allegations started becoming well-knownamongst their customers. So they use their financial clout to influence the media, andlegal powers to intimidate people into not speaking out, directly threatening freespeech. The list of media organizations who have been sued in the past is daunting,and the number of publications suppressed or pulped is frightening.NUTRITION Nutritionists, for example, argue that the type of high fat, low fiber dietpromoted by McDonalds is linked to serious diseases such as cancer, heart disease,obesity and diabetes. The sort of diseases that is now responsible for nearly three-quarters of premature deaths in the western world. McDonalds responds that thescientific evidence is not conclusive and that their food can be a valuable part of abalanced diet. Some people say McDonalds are entitled to sell junk food in exactlythe same way that chocolate or cream cake manufacturers do: if people want to buy itthats their decision.2. EXTERNAL ENVIRONMENT ANALYSIS2.1 Analysis of McDonald’s macro-environment
  • 36. Political factors The international operations of McDonald‘s are extreme under influence of apolicy of the separate state put into practice by each government. For example, thereare certain groups in Europe and the United States which demand the acts ofgovernmental power concerning medical values of meal of fast food. They havespecified that harmful elements as cholesterol and negative influences as fatness areconcerning consumption of products of fast food. On the other hand, the company operates the separate policy and instructionsof operations. The certain markets concentrate on various areas of anxiety, such asvarious area of health, protection of the worker, and environment. All these elementsare noticed in the state control of licensing of restaurants in the corresponding states.For example, there is a hung legal dispute in privilege McDonald‘s in India wherecertain infringement of rights and infringement of the religious laws concerning themaintenance of meal. Meat existence in their menu in India is obviously offensive toIndian religions in the mentioned market. There are also other researches whichspecifies in infringement of McDonalds Stores concerning existing laws onemployment in the target market. As any business enterprise, these McDonalds storesshould argue with problems of procedures of employment just as their tax obligationsto succeed in the foreign market.18Economic factors The organizations in the fast food industry arent excused from any disputesand problems. Definitely, they really have the separate problems involving businessfactors. Branches and privileges of networks of the enterprises of fast service asMcDonald‘s has a tendency to experience difficulty in cases where the economy ofthe corresponding states is amazed by inflation and changes in exchange rates. Clientshence face a survey stalemate through their separate budgets, whether they shouldspend more on these foreign networks of the enterprises of fast food. Hence, to thesechains, possibly, it is necessary to take out problems of effects of economicenvironment. Especially, their problem depends on the answer of consumers to thesemain principles and how it could influence their general sales. In an estimation of
  • 37. operations of the company, food chains as McDonald‘s tend to import the biggest partof the raw materials to certain territory if there is a delivery lack. Exchange ratefluctuations will also play an essential role in company‘s operations. As it is declared in the paragraph above, stores of McDonald should take a bigreason concerning their microenvironment. The company‘s international supply aswell as the existing exchange rates is merely a part of the overall components neededto guarantee success for the foreign operations of McDonald‘s. It is besidesobligatory, that the company has been informed on the existing tax requirementsneeded by the separate governments on which they operate. It basically guaranteessmooth operations of McDonald‘s privileges. In the same relation the company shouldconsider also a state economic situation on which they influence on. Level at whichthe economy of special state grows, defines purchasing capacity of consumers in thatcountry. Hence, if the privilege works in the especially economically weak state, thentheir products should cost above than other existing products in the market, theseprivileges should take certain regulators to support economy at the expense ofmanufacture growth.19Socio-Cultural factors Articles about the international strategy of McDonald‘s, apparently, functionon several areas to guarantee profitable returns for the organization. To illustrate, theorganization changes to the best an establishment of positive thinking from their basicconsumers. McDonald‘s indulges a special variety of consumers with certain types ofpersons. Also it has been noticed that the company has given the markets, such as theUnited Kingdom, a choice concerning their lunch requirements. Specified thatMcDonald‘s beginnings considerably valued set of meal which offers a reliabledegree of quality for the corresponding market where it works. In addition, those whoare elderly only below a bracket of thirty five as said are the most frequent consumersof McDonald‘s privileges. Many-sided character of business is reflected now in sharp value of theinformation about the existing market. This procedure is essentially identified in areaas market research. Information concerning the reference and potential areas of the
  • 38. market would double as a barrier to success of the company if this area of operationsneglected. In case of McDonald‘s they establish good system in determining ofrequirements of the market. The company uses concept of consumer individuality of aproduct of behaviour and decisions on purchase to its advantage. It is said, to have themain influence on understanding of prospective result of the organization in theparticular market.20Technological factors McDonald‘s makes a demand for their own products. The key tool of thecompany for marketing is by means of TV advertisings. There are some requirementsthat McDonald‘s is inclined to interest the younger population more. Existence ofgame stains also toys in the meal offered by the company shows this validity. Otherdemonstration of such marketing strategy is obvious in advertising they use. They userecovered descriptions of the characters as Grimace and Hamburglar. Otheradvertising operations employ popular celebrities to promote their products. Similarbecame endorsees for McDonald‘s all over the world ―loving‘ it‖ campaign. Besides,operations of McDonald‘s have considerably been infused with new technology.Elements as the system of stock and management of the value chain of company‘screation consider easy payments for the suppliers and other sellers with which theperson supplies in the corresponding agreement on the markets. Technologyintegration into operations of McDonald‘s tends to increase cost of their products.Basically it is shown in improvements on its chain of creation of value. Improvementof stock system just as its systems of deliveries allows the company to work in theinternational context.21Legal factors There was a current roar against the fast food industry. It has forcedMcDonald‘s to apply more close examination on their corporate social responsibility.As a whole it has addressed to requirement of the company to generate its corporatereputation to more positive and the more socially responsible company. The
  • 39. reputation of McDonald‘s is obviously a huge question. Noticed on company‘s website, seems, that they have got steps to take in hand the key social condemnation thatthey abused them in the last decades. The company gave to their clients thecorresponding data in which they need the relation of food essence of their products.This is to attend to the arguments of obesity charged against the products of thecompany. In the same way consumers have provided freedom in a choice, whetherthey want to buy the meal. It is connected with socio-cultural market signs which they influence. Forexample, operations in predominantly Muslim countries demand, that their meatcorresponded to Halal requirements of the law. In the same regard, those that operatein countries in the European Union should correspond to the existing laws forbiddingusage of genetically modified meat products in their meal. Other legal concepts as taxobligations, employment standards, and requirements to a degree of quality are only afew of important elements on which the company should consider. Otherwise, smoothoperations should be difficult to reach.22Environmental factor Social responsibility of McDonald‘s on the state influences to companyoperations. They involve charges of harm to environment. Among the reasons whythey are accused of such requirements, is that the work of substances is notdecomposed by microorganisms for their drinks glasses and treasury of expandedpolystyrene for meal. Some civil groups in Hong Kong have made actions to makeMcDonald‘s privileges in Hong Kong aware of the rather copious use of containers ofexpanded polystyrene and resulting abusing by environment. Further, has specifiedthat in 1995, McDonald‘s Hong Kong ran through the expanded polystyrene used byboth Australia and the incorporated United States.232.2 Analysis of industry (five forces framework)
  • 40. A business has to understand the dynamics of its industries and markets inorder to compete effectively and intensively in the marketplace. The forces whichderive competition and attractiveness of a market, contending that the competitiveenvironment is created by the interaction of these five different forces acting ona business. In addition to rivalry among existing firms and the threat of new entrantsinto the market, there are also the forces of supplier power, the power of buyers, andthe threat of substitute products or services (The Figure1 Porter‘s Five ForcesFramework). Michael E. Porter suggested that the intensity of competition is determined by the relative strengths of these forces. Figure 1 Porter‘s Five Forces Framework Source: Splash map on the five competitive forces The Five Forces directly areinterconnected with the effect on the company‘s ability to serve its customers and tomake a profit. A change in any of these forces generally requires a company to re-assess its competitive strategies.Competitive rivalry According to Porter‘s Five Forces Model, if entry into a market is easy thenrivalry is likely to be high. Considering McDonald‘s competitive rivalry, there isintense competition in fast food industry that many small fast food businesses fightwith each other to improve their customer base. This makes a competition the majorfocus between businesses. Although, McDonald‘s, with more than 32,000 localrestaurants serving more than 60 million people in 117 countries each day, has anumber of fast food outlet competitors across the countries such as Burger King, Taco
  • 41. Bell, KFC, Wendy‘s, it is currently the leader of the industry in market capitalizationwith a cap of $39.31 billion.The Threat of new entrants The threat of new entrants in the fast food industry is high because there are nolegal barriers which would keep them from entering the industry. The economies ofscale and the access of the distribution are the major barriers that firms face in theindustry. Firms must spend a large amount of capital on advertising and marketing inorder to enjoy successful existence and long life of a fast food outlet. Largeestablished companies with strong brand names such as McDonald‘s make it moredifficult to enter the market because new entrants are faced with price competitionfrom existing chain restaurants. Thus, it takes a pretty much time for a new businessto establish in the fast food industry.Supplier bargaining power The bargaining power of suppliers of McDonald‘s is high becauseMcDonald‘s restaurants use the same products from the same suppliers and it doesn‘tmatter if you are in Rochester, MN or Beijing, China you can get the same Big Maceverywhere. This is a feature McDonald‘s want to keep going on by encouragingconsistency among its restaurants. Supplying these products to McDonald‘s across theglobe is the whole business for the suppliers and, however, if McDonald‘s would loseeven one supplier it would have to change one or more of its product lines andperhaps the whole menu what the McDonald‘s customers were used to. This gives thesuppliers of McDonald‘s a high bargaining power.Buyer bargaining power Buyers, in the fast food industry, ―are those who is ordering fast food at thelocal restaurant, over the telephone, or internet or just paying or consuming the
  • 42. products‖24. Bargaining power of customers of McDonald‘s is low because of lowcustomer switching costs which are nearly zero; however, for example, one-fifth ofthe USA population eats in a fast food restaurant every day. Thus, fast food industrydoes not worry about customers‘ loyalty. Fast food products industry is differentiatedwhich are usually or almost always promoted by advertising – that is because of a vastcompetition between fast food firms. Product differentiation is very important in fastfood industry to make your product stand out against the crowded fast food industryproducts. Furthermore, quality of the product or service in the fast food industry isvery important as customers have full information of the products they buy andconsume. Furthermore, if the fast food industry does not match the demands of thebuyers and the general consumer trends, then the buyers can choose not to buy theirproduct and convince others to do the same. A good example of this is the movie‗Super Size Me‘. It is a movie showing an ordinary consumer trying to live ofMcDonalds fast food, and the purpose of the movie was to see what the traditionalfast food from McDonalds could do to your health if you were to eat their products forevery meal. This movie shows what the buyers possible reactions could be if notsatisfied or not being pleased. The reactions from the whole market were a largechange in consumer preferences and brand preferences.The threat of substitutes Several factors determine if there is a threat of substitute products in anindustry. First, if the consumer‘s switching costs are low, which means that there islittle of anything stopping the consumer from purchasing the substitute instead of theindustry‘s product, then the threat of substitute products is high. Second, if thesubstitute product is cheaper than the industry‘s product there is a high risk of threatof substitutes. Third, if the substitute product is having equal or superior quality,functions, attributes, or performance compared to the industry‘s product, the threat ofsubstitutes as well is high.
  • 43. With so many firms in the fast food industry with low switching costs, videvariety of similar products that people can chose, and healthier alternatives, the threatof substitutes is very high. As there is intense competition between rival sellers in the fast food industry,the competition between firms selling substitute products is intense as well. One veryimportant issue is that the customer always tends to find another product comparableor better in terms of the quality of fast food products. Another thing is that fast foodindustry is unhealthy to its customers‘ health. The majority of the public think thatfast food restaurants primarily serve high in fat content foods which are unhealthy andas a consequence they tend to look elsewhere for healthier alternatives. While fastfood products are not always associated with health and quality, fast food restaurantskeeps a major advantage over other firms selling substitute products through the lowerprices of their products and a quick, convenient service.2.3 Key strategic factors in the industry (strategic groups, market segments,critical success factors)2.3.1 Strategic groupsMcDonald‘s company is one of the leading companies in the fast food industry withover 32000 of restaurants in 117 countries around the globe. McDonalds is alsoworld‘s first fast food company by sales, which gives for them advantage over theircompetitors in terms of profit. The main competitors of McDonalds in the global market are: YUM! Brands; Burger King Holdings; Domino‘s Pizza; Triarc Companies.
  • 44. All of these companies serve fast food around the world and are focused onproviding a product that is based on low price convenience. Their strategic group isassociated with many geographic locations and low price and quality. Even thoughthese companies could be considered the biggest players in the global market, theyface in each country local fast food restaurants, but bigger influence on them theselocal competitors are not able to do. The Figure 2 below represents the strategic group mapping of the fast foodindustry. The graph represents fast food companies, which were divided into differentgroups according to their price level and product line variety. As was stated beforeand we can see in the graph, all of the main and biggest fast food companies havelimited menu with low prices for their products. This way all of them can compete onthe same basis, according to these specifications. There are always competitive pressures and driving forces which adverselyaffect the firms in strategic groups. Therefore, some firms may try to shift to a morefavorably situated group. This shifting is however difficult if the entry barriers of thetarget strategic group are high. Figure 2 Fast food industry strategic group mapping.2. 3.2. Market segments Demographic segmentation - divides the market into groups based ondemographic variables including age, gender, family size and life cycle.25 Life cycle. McDonald‘s has targeted children, youth singles and the young urban families. It is attracting the young urban families wanting to spend some quality time while their children have fun at the outlet. Age. Mostly youngsters and kids are target, so to attract children McDonalds has Happy Meal with which toys ranging from hot wheels to various Walt Disney characters are given. Sometimes it also provides special facilities like ‗Play Place‘ where children can play arcade games, air hockey, etc. Mostly target is under age 5-6, 12-15, 15-20 and over. Gender. McDonalds have segmented its services to males as well as females.
  • 45. Occupation. McDonalds has mostly segmented its market to the school and college going students. Income. McDonalds has targeted mostly middle class and upper class urban families who can afford its luxury meal.Psychographic segmentation. - sometimes also referred to as behaviouralsegmentation. This type of segmentation divides the market into groups according tocustomers‘ lifestyles. It considers a number of potential influences on buyingbehaviour, including the attitudes, expectations and activities of consumers. If theseare known, then products and marketing campaigns can be customized so that theyappeal more specifically to customer motivations.26 Needs-motivation. The luxury services of McDonalds fulfil the needs of self- worth. Personality. McDonalds mostly segments is market to extrovert people who usually hang out with friends and family in restaurants and other enjoyment places. Motivation slogans. McDonalds provides motivate slogans to attract its customers and make a good image in the minds of the customers like ―IM LOVING IT‖, ―EVERY TIME A GOOD TIME‖, ―PUT A SMILE ON‖, ―ENJOY MORE‖, ―MY MCDONALDS‖ ―WHAT YOU WANT IS WHAT YOU GET‖ and others. These are one of the famous slogans of McDonalds through these slogans McDonalds is attracting its customers and making a good image in the minds of the customers. Company has segmented on basis of making relationship with the customers and making them believe that they are on the right place. Region. Worldwide McDonalds is giving its services to almost more than 110 countries. This means they must much into each tradition of different cultures, religions and views, that‘s‘ why in every country McDonalds has updated their menus according to local customers, but still saves their main products. Use-related segmentation - popular and effective form of segmentation thatcategorizes consumers in terms of product, service, or brand usage characteristics,such as usage rate, awareness status, and degree of brand loyalty.27
  • 46. Use rate: medium users Awareness status: mostly people are aware of McDonalds and are interested to have services of McDonalds. Brand Loyalty: McDonalds have strong loyal customers. Use-situation segmentation - involves segmenting consumers on the basis oftime, objective, location, and person.28 Time: leisure Objective: fun Person: self, family members, friends, peer2.3.3 Critical success factors Critical success factors are limited number (usually between 3 to 8)of characteristics, conditions, or variables that have a direct andserious impact on theeffectiveness, efficiency, and viability ofan organization, program, or project. Activities associated with CSF must beperformed at the highest possible level of excellence to achieve theintended overall objectives.29 The research about McDonald‘s company has led to the following successfactors: Standardization Environment oriented Willingness to innovate One dollar menu Following healthy food trendsStandardization
  • 47. In order to maintain the highest quality of their products McDonald‘sstandardized the production methods and processes. The company just adjusts todifferent culinary differences in different countries, for example McDonald‘s offeredvegetarian burgers to practicing Buddhists or Asian countries preferring spicy tastesaw the introduction of spicy burgers, chicken and seasoning. This gives for peoplepossibility to try either original US or their local taste. McDonalds achieves balanceby maintaining standardization in products but adjusting to the local taste.Environment oriented One of the main company‘s orientations now is the development of a strongcompany-wide environmental policy declaring that McDonald‘s is committed toprotecting the environment for future generations, and that it believes that businessleaders must also be environmental leaders. The policy takes a total lifecycleapproach to reducing and managing solid waste: a sizable challenge, considering thateach of McDonald‘s 8,600 U.S. restaurants 3 238 pounds of waste per day and each ofits 34 U.S. regional distribution centres disposes of another 900 pounds of waste perday.One dollar menu With its one dollar menu McDonald‘s reaches very wide range of customers.One dollar menu was a response to competitor‘s one dollar menus and it gave verygood effect for the company, since the customers could find their loved fast food injust one dollar price.Willingness to innovate McDonald‘s is all the time trying to be on time with new trends, demand ortechnology, even while striving to achieve consistency in the operation of its manyoutlets. The breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe
  • 48. sandwich were all examples of how the company tried to appeal to a wider range ofconsumers.Following healthy food trends In response to obesity trends in Western nations and in the face of criticismover the healthiness of its products, the company has modified its menu to includehealthier alternatives such as salads, wraps and fruit.2.4. Future scenarios McDonalds developed its future scenarios around three strategies — customerconvenience, customer value, and optimal operations. More than ever, McDonald‘s is focused on and committed to doing the rightthing for the local communities in which the company operates and for the customersit serves. This philosophy of doing good and giving back has always been at the heartand soul of the McDonalds business -like fries and hamburgers - and started withfounder, Ray Kroc. Before there was even a name for "social responsibility,"McDonalds was setting the standard, and they‘ve been the leader ever since. As we deal with challenging economic and political climates around the world,McDonald‘s role as an employer and local business becomes even more important.The company remains steadfastly committed to addressing various socialresponsibility issues, policies, and practices within the McDonalds system that affectlocal communities and customers. McDonald‘s has made significant progress toward becoming a more sociallyresponsible organization, but there is always work to be done. Through its 30,000restaurants, its owner/operators and suppliers, the company continues to drive so.
  • 49. 2.5 Identification of opportunities and threats McDonald‘s is a huge industry of franchise companies all over the world. It isdiversified almost in all countries of the world and has a huge power in the marketbecause of it‘s responsiveness to customers and substantial quality of a product. As itis the only one brand in this company, it serves actually many segments of thecustomers. The product diversity is quite high and serves the widest segments of asociety. The product diversifies not only for different groups of customers withdifferent tastes and needs but also for different groups of customers in differentcountries. This makes segmentation more complex, as a matrix and contributes tobusiness huge successes. The example of a segmentation of McDonald‘s would bedifferent kind of meet served in burgers in different countries. There are some Muslimcountries, where pork is not accepted and there are other European countries wheresuch kind of meat is really desirable. The new segment of a customer has been foundrecently, when the boom of healthy food came into society, people became moreaware of unhealthy fast food, which McDonalds is serving. So its production of―McFeast‖ of whole bread burgers attracted more people with different tastes andlifestyle, not as fast food eaters. Over the years of operation this company has achieved its recognition andname and is a strong outstanding company from its competitors. ―The business isranked number one in Fortune Magazines 2008 list of most admired food servicecompanies.―30 Marketing efforts in McDonald‘s Corporation is huge. From advertisements,which includes television, audiovisual, posters and other, also includes sponsorshipsof famous events, such as Olympic. „McDonald‘s is a community oriented, sociallyresponsible company. They run Ronald McDonald House facilities, which provideroom and board, food and sibling support at a cost of only $10 a day for families withchildren needing extensive hospital care.―31 This shows that McDonald‘s tries toachieve every spot of attention, what makes this business more successful. However, even this company has a strong experience and recognition; thereare some threats that occur in all the markets, especially when food market is one ofthe widest markets in the world. Taking McDonald‘s business it doesn‘t mean being
  • 50. oligopoly or monopoly, it means being in a market where perfect competition takesplace. So, it is useful to consider what opportunities and threats may arise for such acompany as McDonald‘s. As we identified some characteristics of this successful company, we can drawout the opportunities that this company can achieve in the nearest future: The first opportunity that can be realized in this company is new segments identification. Of course there are no limits in business to expand and there is no business that could survive without any growth or promotion. It is a very good opportunity to define some new needs or tastes of customers, despite all those diet cokes or healthy bread burgers that McDonalds already included, there are so many other different needs that people have. The other more specific opportunity for McDonalds would be new technology adoption. Not talking about those new high technology cash-registers that are based on computer programs, McDonalds could include new technological ways in product making, that could make the process itself more fast or special products more tasty and with higher quality (like for example ice-cream or fresh juice machines). The internal strategy improvement has never gone to bad. As McDonalds already has a good strategy and employees training and promotion, it can make it more efficient and more productive by applying some new ways of motivation or work organization. As the food is made in lines, it can be somehow more diversified to achieve the more efficient operation. „Provide optional allergen free food items, such as gluten free and peanut free.―32 That would be a great success of concentration to people, who have serious health problems and have to avoid fast food. Also McDonalds could consider new brands development. As it is a franchise, it doesn‘t mean that it hasn‘t opportunity of brands extent. It could make another niche where it would sell some other kind of products, like chocolate bars or other kind of sweats. As there are many opportunities that can be fulfilled in the future, howeverMcDonalds has also some weaknesses and threats.
  • 51. Talking about weaknesses McDonalds had some bad luck or unsuccessfulprojects in the past that manifested some weaknesses and also there are somedisadvantages of fast food industry: „Their test marketing for pizza failed to yield a substantial product. Leaving them much less able to compete with fast food pizza chains. High employee turnover in their restaurants leads to more money being spent on training. They have yet to capitalize on the trend towards organic foods. McDonalds have problems with fluctuations in operating and net profits which ultimately impact investor relations. Operating profit was $3,984 million (2005) $4,433 million (2006) and $3,879 million (2007). Net profits were $2,602 million (2005), $3,544 million (2006) and $2,395 million (2007).―33 The threats, that exist in all the markets, that have some features as perfect competition and of course in the franchising companies, are such: The industry of fast food restaurants is huge and so do the competition in it. Some companies get old and boring in time and so can happen to McDonalds if it won‘t get adapt to new changes in trends and lifestyles. ―Major competitors, like Burger King, Starbucks, Taco Bell, Wendys, KFC and any mid-range sit-down restaurants.―34 Another huge threat is the threat of human health deterioration. The industry of fat food is huge in the world and especially in most developed countries. People become more aware of unhealthy additives and processed foods that are included in McDonald‘s food production. Also the extreme rate of fat people in some countries can raise some disciplines in fast food making or prevent it at all. Another threat of going into franchising is reputation. It is essential to maintain a good reputation of your name; otherwise no one will buy your franchise.
  • 52. 3. DEVELOPMENT and RECOMMENDATIONS FOR IMPLEMENTATION OFSTRATEGIC OPTIONSStrategic options: Reduction of employee training spending (lowering employee turnover); Taking advantage of organic food industry popularity (develop new products for new segments); Advantage of human health problems (improvement of products). 1. Reduction of employee training spending (lowering employee turnover). In order to reduce of employee training spending and to lower turnover, we would like to suggest: To give the job just for highly motivated people. It means, that they are going to be loyal and not to leave job so fast; To train new employees using ‘‘Big Brother‘‘ principle. New employees would be trained by employees, who are working longer. In this way, company reduces training spending, new employees are trained by the people, who are working inside the company and do the same things every day. To motivate employees and always take care about their expectations. It can be money premiums for good working in the end of the month (or year), some employees parties, ‘‘Employee of the week (month)‘‘ competition and etc.; also employer should take a look of what employee is expected from employer and try to solve that, ex. Maybe employee is not expected to get premium every month, but for good and loyal working he would like that the company would pay his child studies fee after 5 years. 2. Taking advantage of organic food industry popularity (develop new products for new segments); McDonald‘s is not that company, who suggest the most organic food, so they can try: To make a line of organic food in their menu and take a look what is more popular and healthy for their customers. If it is going more popular than usual
  • 53. menu food, it is more worth to make all food in organic way, even it is more expensive. First of all, people like what is natural, and then they are interested in the price. To be in a partnership with scientists and doctors in order to take care of their customers heath. Everybody knows that organic food makes people feel better and healthier; also it affects nature in a good way. McDonald‘s declares that ‘‘everything is for customer‘‘, so it must take an advantage of organic food popularity and ‘‘make‘‘ their customers to live healthier and in more natural way. To make big advertisement companies declaring organic food pluses and make it more popular in such way. Many people loves McDonald‘s food, so it has an authority and can show good example of necessity of organic food in people life and compare how organic and usual McDonald‘s food effect customers‘ health and all the nature about them.3. Advantage of human health problems (improvement of products) McDonald‘s is big food supplying company, and all of us know, how food affects our health. It is one of the main factors, what built our body and strength our brains. Knowing that, McDonald‘s should: Suggest just high quality, improved products, which is full of vitamins and minerals. So, it means that the company must improve their products, all the food must be certificated and fit for all healthy food standards. Be in a contact with suppliers, who supply products for McDonald‘s food and always check if the products is natural, high standard and healthy for all of age customers. Contact with doctors, scientist and improve their products to fit for all of age customers, even they have some problems with their stomach. It means to make measures and find what is the best for all possible customers.
  • 54. CONCLUSIONS Our team project is based on the literature of International Marketing andManagement subject and the additional information which we have found as areference to the proposed theme for this paper work. So, what we had to do was torefer to the whole plan of this paper work and to cope with the tasks which wereconcluded. The whole paper work consists of three main parts which are: companyanalysis, external environment analysis and development and recommendations forimplementation of at least three strategic options. In the first part, concerning company‘s analysis, there was McDonald‘s as ourchosen company described (its history, managers, mission, values, main products andmarkets), as well McDonald‘s resources and capabilities, financial analysis, its currentstrategy and identification of strengths and weaknesses, issues facing McDonald‘swere proposed. So, describing the company it is very important that nowadays McDonald‘s,producing Hamburgers, Chicken, fish and pork products, French fries, Soft drinks,healthy items e.g. salads and Desserts, is considered to be the leading global foodservice retailer owning more than 32,000 local restaurants in 119 countries worldwideand more than 75% of McDonald‘s is set by franchising. The principle of thisexpansion is to serve high quality, standardized products to all customers. The
  • 55. restaurants are operating independent and they run by local businessman orbusinesswoman. There are round 1.7 million employees in corporate and restaurantpositions. McDonalds brand mission statement is to "be our customers favorite placeand way to eat." The vision of McDonald‘s is to be the best quick service restaurant inthe whole world. It refers to outstanding quality, cleanliness, high quality service andhigh value food in order to make every customer smile. The financial analysis of McDonald’s says that the recovery of McDonald‘safter the global crises seems to be surprisingly fast and the sales growth rate continuesto increase. It tries to improve customer metrics by which it can follow and decidewhat are the changes in the customers‘ needs and wants, how they can satisfy theseissues. The most important thing is to think globally but act locally. The later stage of the second part proposes company’s currentstrategy. McDonald‘s has a specific ―Plan to win‖ current strategy since 2003. Theseare 5P‘s that are behind the Plan to Win, and it includes: People, Place, Product,Price, and Promotion. As changing requirements and instructions from clients and thegovernment, McDonald‘s should study their basic products in the future. Furthermore, strengths and weaknesses as internal factors of a company arecrucial not only in strategic decisions making but also in strategy‘s implementation.Some weaknesses should be eliminated and strengths should be revealed andconsolidated in order to follow organization‘s strategy in most efficient way. There are a lot of issues, which McDonald‘s is facing, as well. The mostimportant of them are: advertising, animals, capitalism, employment, environment,expansion, free speech and nutrition. So, in the second part we have reviewed the information associated withexternal environment analysis where the analysis of macro-environment were donewhich says that McDonald‘s is under influence of the policy of the separate state byeach government i.e. it has a tendency to experience difficulty where countries areamazed by inflation and changes in exchange rates. The Michael E. Porter‘s analysis of industry (five forces framework) definedthe forces which derive competition and attractiveness of a market. So,
  • 56. McDonald‘s competitive rivalry is intense because of many small fast foodbusinesses always fighting with each other. Considering the force of the threat ofentry, the economies of scale and the access of the distribution are the major barriersthat firms face in the industry. High bargaining power of suppliers ofMcDonald‘s says that a company uses the same products from the same suppliersand is very dependent on them if something would go wrong or the supplier wouldstop supplying raw materials to McDonald‘s. The Bargaining power of customers ofMcDonald‘s is low because of low customer switching costs what means thatcustomers can easily go from one fast food restaurant to another and do not feel bigdisadvantages. The competition between firms selling substitute products isintense because of the customerwho always tends to find another product comparableor better in terms of the quality of fast food products or even healthier for his/herhealth. Talking about key strategic factors of McDonald’s, a company representingone of the largest segments of the food industry and also being world‘s first fast foodcompany by sales — this all gives them advantage over their competitors in terms ofprofit, focusing on providing a product that is based on low price convenience,associating with many geographic locations and low price and quality. The research about McDonald‘s Company has led to the following keysuccess factors: standardization, environment oriented, willingness to innovate, onedollar menu and following healthy food trends. The later stage of future scenarios explains us that McDonalds developed itsfuture scenarios around three strategies — customer convenience, customer value,and optimal operations. McDonald‘s through its 30,000 restaurants, itsowner/operators and suppliers has made significant progress toward becoming a moresocially responsible organization. And the last subpart of the first part of our paper work — the opportunitiesand threats itself are identified through SWOT analysis of a company. ―SWOTanalysis is a tool for auditing an organization and its environment. After identifiedcharacteristics of McDonald‘s, the opportunities that this company can achieve in thenearest future and threats of this company can be drawn out. It is very important forto know what threats exists and what opportunities are possible in a company. These
  • 57. can lead company into better or worse future. It depends on how managers are able touse the advantage of external environment. And, the third and the last part, associating with the development andrecommendations of strategic options for McDonald‘s, proposes three strategicoptions and the recommendations for their implementation, as well the evaluation andcontrol of these three strategic options.Strategic options are creative alternative action-oriented responses to the externalsituation of an organization. Our formed strategic options are: reduction of employeetraining spending (lowering employee turnover), taking advantage of organic foodindustry popularity (develop new products for new segments), advantage of humanhealth problems (improvement of products).