Hot dog economics


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  • "Every day, more than 62 million customers around the world choose our restaurants for the McDonald's experience - great tasting, high-quality food that's affordable, convenient and served in a contemporary and inviting atmosphere.
  • McDonalds is a company with over 14,000 restaurants in the US with a total of over 32,000 restaurants worldwide. Economics for this company are a big deal! We have posted some financial statistics so to see just how big of a deal and how well the company is doing.
  • Full year 2010 highlights included: Global comparable sales increase of 5.0%, with positive comparable sales across all geographic segments for every quarter * Consolidated revenues up 6% (5% in constant currencies) to a record-high $24 billion * Combined operating margin increase of 90 basis points to 31.0% * Consolidated operating income increase of 9% (9% in constant currencies) with the U.S. up 7%, Europe up 8% (12% in constant currencies) and APMEA up 21% (11% in constant currencies) * Earnings per share of $4.58, up 11% (11% in constant currencies) * Return of $5.1 billion to shareholders through share repurchases and dividends paid Fourth quarter highlights included: Global comparable sales increase of 5.0%, with the U.S. up 4.4%, Europe up 3.4% and APMEA up 5.5% * Consolidated revenues increased 4% (5% in constant currencies) * Earnings per share of $1.16, up 5% (6% in constant currencies)Source:
  • Taste is by far the most important factor. It's naturally number one. I also have to think about sustainability. We need a controllable supply of quality product that can be guaranteed to our restaurants. I've got to think about American palates, portability, and the volume of ingredients that item would require. We also have to be customer-centric and follow trends and the way people are eating. We have to be careful we don't forget about taste and fun, and we need to offer a choice. The challenge is to create something that will taste the same in Alaska as it does right here in the Test Kitchen.-Chef Dan CoudreatSource:
  • This information is most likely the basis for why McDonalds does not sell hotdogs. McDonalds was clearly based on the hamburger. The hamburger is the primary draw for the consumer and is the primary “main event” for a meal at McDonalds. For McDonalds to introduce the hotdog on a national, long term scale, they would in essence be competing with themselves and may infact decrease sales. McDonalds consumers want McDonalds hamburgers! Source:
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  • If McDonalds chose to sell hotdogs, consumers may view this act as a breach in the unspoken relationship between them. Consumers may in fact think McDonalds was being disloyal to them. Source:
  • They look for products that will appeal to the consumers who don't adhere to traditional meal patterns and are increasingly looking for small sustenance throughout the day. A hot dog with topping is not always consumed easily on the go. It is reported that the JapeneseMcHot Dog is made on a very soft bun and includes ketchup and relish in the toppings. While reported to be very tasty it is not very portable.- McDonalds Snack Wrap:Ranch dressing was selected because it's the No. 1-rated flavor profile among U.S. consumers. Shredded cheese and lettuce make for a comforting way to eat the whole item. It was just a matter of taking ingredients already in McDonald's kitchens and creating something unique using "old favorites," according to Chef Dan Coudreaut Director of Culinary innovationIntroducing the hot dog although it would be unique would be introducing something unfamiliar to consumers and it would likely not appeal to them because it does not fit in with the traditional favorites. Source:
  • -Uses minority groups in advertising to market to the middle class white American: Minority tastes can influence mainstreamHotdogs are currently not an ethnic trend therefore they would not fit into the McDonald’s marketing strategySource:
  • Knowing which products generate the biggest profit margins is critical to building a sustainable business. It helps to determine where the business should focus resources for future growth, and where it should be trying hardest to cut costs or raise prices. Source:
  • The average price McDonald's pays for its most-used ingredients, such as chicken, wheat and cheese, is expected to go up 2% to 2.5% this year.McDonalds provides a valuable product for as low of a price as possible. By increasing a product line, such as adding hot dogs, McDonalds would have to pass those increased costs along to consumers. This would be a poor choice in light of difficult economic times.
  • McDonalds has to keep costs low in order to maintain profits. While McDonalds introduces new products frequently, at additional costs, the products are consistent with consumer demands and interests. Products introduced are healthy and novel, two things that a hot dot does not posses.
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  • Some complaints from operators were: “Too many choices on McCafé, Angus, chicken sandwiches, and too many sizes—beverages, fries, etc.” The McSkillet Burrito was singled out by others as a particularly slow-selling item. “Menu simplicity is a must for smoothies. All wraps are taking too long but I am not sure I would remove them. All slow selling items need to be reconsidered.”Source:
  • The 83 menu items that McDonalds has reported does not include beverages (soft drinks, coffees, shakes, smoothies, etc.)Adding hot dogs to the menu could further over crowd the menu, take longer to make, and require new equipment to make which may hinder the productivity of McDonaldsSource:
  • McDonalds goes through all of these steps when developing a new product. This is a very time consuming and costly process, therefore for product ideas that are not thought to be successful would most likely be abandoned in the process. Source:
  • Hot dog economics

    1. 1. Why McDonalds does not sell hot dogs?<br />Actually in certain parts of the world they do! <br />In Japan in certain restaurants hot dogs are sold for breakfast! <br />In addition, some restaurants in the US have dabbled in hot dog sales. <br />
    2. 2. The McHot Dog<br />Sold in Japan as a breakfast item for 190 yen<br />It is not uncommon in Japan to eat Hotdogs for breakfast<br />The Meat is similar to a bratwurst<br />Nutritionally healthier for you then some of the other traditional breakfast items<br />
    3. 3. Economics related to why McDonalds does not sell hotdogs<br />Financial Highlights 2010<br />Marketability<br />Relationship Marketing<br />Profit<br /> Costs<br />Pricing<br />Competition<br />Diversity<br />
    4. 4. Financial Highlights 2010<br />"As a result, we generated strong sales and delivered profitable market share growth, along with higher global revenues, operating income and earnings per share.” <br /> -Chief Executive Officer Jim Skinner<br />
    5. 5. Financial Highlights 2010<br />Year ended December 31, 2010*<br />2010 2009<br />Revenue $24,074.6 $22,744.7<br />Operating income $7,473.1 $6,841.0<br />Net Income $4,946.3 $4,551.0<br />From 2009 to 2010, McDonalds experienced a 6% increase In total revenue. <br />* Dollars are in millions. <br />
    6. 6. Financial Highlights 2010<br />McDonalds fares well despite the recession<br />Global comparable sales had an increase of 5.0%<br />Revenues hit a record high of 24 billion<br />Shareholders receive $5.1 billion via repurchases and dividends<br />
    7. 7. Marketability<br />From McDonald’s Head Chef Dan Coudreat<br />What do you take into consideration when developing a menu item?<br />Taste<br />Sustainability – palates, portability, ingredient volume<br />Trends<br />Flexibility<br />
    8. 8. Relationship Marketing<br />Why do consumers buy what they buy? <br />Consumers’ purchasing decisions are based on:<br />Personal influences<br />Social influences<br />Institutional influences<br />Consumers want to simplify their buying and consuming tasks and maintain consistency. <br />
    9. 9. Other McDonald’s Flops<br />Carrot Sticks: still available as an optional item in some US restaurants.<br />Fried chicken: This was no McNuggets. Though available in much ofAsia, it's off the menu in the US along with the corn-on-the-cob that came with it.<br />Pasta: McDonald's tried the old favorites, spaghetti and lasagna, with garlic bread. Neither is available anymore in the US.<br />Fajitas: The McDonald's version of this popular Mexican dish never took off, though it's still available in a few US restaurants<br />Pizza: The company devoted an entire annual franchise meeting to talking up this fast-food favorite. Pizza survives in Canada, but it is no longer in the US.<br /> McLean Deluxe: This low fat sandwich debuted in 1991 to woo health conscious customers.    It was erased from the menu in 1996.<br />The company has now emphasized that the heart of the company's menu will remain the same - the burger. 'We will extend our line, rather than going in more radical, different directions.'<br />
    10. 10. Relationship Marketing<br />Relationship marketing reflects a sort of commitment made by the consumer to continue to patronize the particular marketer despite numerous other choices that exists. <br />Brand loyalty is a primary measurement of the relationship between consumers and companies. <br />
    11. 11. The McSnack<br />McDonald's strategy to develop snackable items fits with today's busy<br />Convenience and portability are key considerations<br />Over 60% of sales are drive through generated<br />Simplicity also plays a large role in determining which ingredients are in and which are out.<br />
    12. 12. Ethnic Marketing<br />McDonald’s is taking cues from various ethnic groups to develop menus and advertising<br />This has already influenced new products:<br /> The fruit combinations in McDonald's latest smoothies, for instance, reflect taste preferences in minority communities<br /> Advertising for coffee drinks emphasized the indulgent aspects of sweeter drinks like mochas, a message that resonated with African Americans<br />
    13. 13. Profit <br />For McDonalds, if its not broken, don’t fix it! <br />McDonalds is doing very well with its current slate and new menu item entry. <br />Fast food chains have been doing very well despite a rough economy. <br />
    14. 14. McDonalds Costs <br />McDonalds is a primary indicator of commodity costs <br />For 2011 McDonalds will likely raise prices to offset rising ingredient costs. <br />Prices will rise 2.5 –3.5% <br />
    15. 15. Economics of a Fast-food Retailer<br />Fast food companies provide inexpensive items to be competitive. <br />Low consumer prices must equal low manufacturing costs.<br />Revenue – expenses = profits<br />Therefore expenses must be low in order to pass profits along to shareholders. <br />Major Fast food Expenses<br />Labor<br />Ingredients<br />Marketing<br />Packaging materials<br />
    16. 16. Pricing Strategies<br />Product Line Pricing<br />Product lines such as Value meals or Happy Meals <br />This is where there is a range of product or services the pricing reflect the benefits of parts of the range.<br />Penetration Pricing<br />This type of pricing allows for the business to gain market share. <br />An example is when McDonalds began to break into the coffee market. Consumers could get a free small coffee every morning. <br />
    17. 17. Pricing Strategies<br />Promotional Pricing<br />Periodic advertising for a product with discounted prices. <br />An example is Two for $2 Egg McMuffins. <br />Value Pricing <br />An approach used where external factors such as recession or increased competition force companies to alter price to retain sales. <br />An example is the Dollar Menu. <br />
    18. 18. Menu Overload?<br />Some franchisers believe that recent additions the McDonald’s menu have created overload<br />Amajority of operators feel the menu has become too big, slowing service times and brand momentum.<br />
    19. 19.
    20. 20. Product Development<br />Stage 1:Product Strategy Development<br />Stage 2:Product Design and Process Development<br />Stage 3:Product Commercialization<br />Stage 4: Product Launch and Evaluation<br />
    21. 21. Stage 1: Product Strategy Development<br />This stage ends with decisions on the type of product to develop and the viability of the project for the company<br />two main outcomes on which the decisions are based are respectively <br />the product design specifications (the product concept) <br />the project evaluation (the product report).<br />
    22. 22. Stage 2: Product design and Process Development<br />At the end of this stage the decisions to be made by management can be divided into<br />the product <br />the production and distribution<br />the market<br />the financial predictions<br />the level of risk<br />
    23. 23. Step 3: Product Commercialization<br />At the end of this stage, the top management decision is to go on or to stop before committing to the large expenditure of the launch<br />
    24. 24. Step 4: Product Launch and Evaluation<br />At the end of this stage, top management decides the future direction of the product and its acceptance into the company's product mix. <br />Management looks into whether the product will be expanded and whether addition products could be added to the product line<br />