McDonald’s is the world’s largest chain of fast-food restaurants.
The company primarily franchises and operates McDonald’s restaurants in the food service industry.
The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc on April 15, 1955.
By developing a sophisticated operating and delivery system, there were more than 200 McDonald’s outlets across the country by 1960, a rapid expansion fueled by low franchising fees.
Fast Food Industry
The fast food industry emerged in America in the 1920s .
The industrial growth and a speedily developing automobile industry gave people no opportunity for cooking at home .
Americans now spend more money on fast food than they do on higher education, personal computers, software or new cars .
In the United states alone, customers spent about US$142 billion on fast food in 2006 (which increased from US$6 billion in 1970) .
Overview of McDonald’s Strategies
McDonald’s is growing at the rate of between 1000 and 1500 restaurants a year and by five to ten new countries a year. Today it has about 23000 restaurants worldwide .
McDonald’s spends more money on advertising and marketing than does any other brand, much of it targeted at children.
They are focusing on new innovative modifications to their menu depending upon the region’s culture, customs, and traditions.
Maintaining an extensive advertising campaign by TV, Radio, and newspaper.
company makes significant use of billboards and signage, sponsors sporting events from ranging from Little League to the Olympic Games.
History of Russia begins with that of the East Slavs.
Adopted Christianity from the Byzantine Empire in 988.
After the 13th century, Moscow gradually came to dominate the former cultural center.
By the 18th century, the Grand Duchy of Moscow had become the huge Russian Empire.
The collapse of the Soviet Union in late 1991.
Russia is the world's largest country.
Population: 149 million
Geographic size: 6.6 million square miles.
Major cities and population: Moscow, Saint Petersburg
Three quarters of the Russian population lives in the cities and towns of western Russia
About 25% of the population still live in rural areas
Society and Culture
Russian culture has a long history and tradition and Russians are very proud of it.
Russians consider themselves as a well educated nation.
They read a lot, books are cheap, and every one can afford to buy 5-10 books a month without serious damage to a family budget.
Russians are also big fan of live performances at theatres.
They enjoy attending theatres: opera, musical, ballet, drama etc.
There was no private property until Perestroika, everything used to belong to the state
During Soviet times there was a well developed system of community work.
People that were doing community work were given benefits (free or discounted travel, ability to buy deficit goods.)
The majority of Russians consider themselves as Christians
Russia's area is about 17 million square kilometers .
Its population density is about 9 persons per square kilometer (22 per sq. mi.), making it one of the most sparsely populated countries in the world. Its population is predominantly urban.
2006, Russia's population of 142,300,000
0-14 years: 14.2% 15-64 years: 71.3% 65 years and over: 14.4% (2006 est.)
Infant mortality rate: 15.13 deaths/1,000 live births (2006 est.)
Life expectancy at birth: total population: 67.08 years male: 60.45 years female: 74.1 years (2006 est.)
3.83% Tatars (5,554,601)
2.03% Ukrainians (2,942,961)
1.15% Bashkir's (1,673,389)
1.13% Chuvash's (1,637,094)
0.94% Chechens (1,360,253)
0.78% Armenians (1,130,491)
Political System an Condition
Federal Presidential Republic, where by the President of Russia is the Head of state and the Prime Minister of Russia is the Head of Government.
Executive Power is exercised by the government.
Legislative power is vested in both the government and the two chambers of the Federal Assembly of the Russian Federation.
After collapse of the Soviet Union at the end of 1991, Russia has faced serious challenges in its efforts to forge a political system.
October 1993,when President Boris Yeltsin used military force to dissolve the parliament and called for new legislative elections.
Russia has faced serious challenges in its efforts to forge a political system to follow nearly seventy-five years of Soviet rule.
For instance leading figures in the legislative and executive branches have put forth opposing views of Russia's political direction
The ecological issues have been neglected in Russia since 1995.
recently the situation has deteriorated
“ Union of Greens” according to their calculations, "some 300,000 or 350,000 people a year die in Russia because of the unfavorable environmental situation.
Many people believe that “ecology is just for rich countries and Russia will deal with it when it is rich”.
Russia is not on the brink of an ecological catastrophe, it is already developing in Russia.
Russia is a major world oil producer, some times producing even more than Saudi Arabia.
According to the Oil and Gas Journal, Russia has proven oil reserves of 60 billion barrels.
Russia has the largest natural gas reserves in the world, but the country’s aging natural gas infrastructure,
Russia holds the world’s largest natural gas reserves, with 1,680 trillion cubic feet (Tcf).
Russia has the second-largest amount of recoverable coal reserves in the world.
Russia's power sector includes over 440 thermal and hydropower plants (approximately 77 of which are coal-fired) plus 31 nuclear reactors.
Russia has 41 oil refineries with a total crude oil processing capacity of 5.4 million bbl.
Russia’s economy is heavily dependent on oil and natural gas exports, making it vulnerable to fluctuations in world oil prices. According to an International Monetary Fund (IMF) study , a $1 per barrel increase in Urals blend oil prices for a year is estimated to raise federal budget revenues by 0.35 percent of GDP.
Proven Oil Reserves (January 1, 2007E) 60 billion barrels. Oil Production (2006E) 9,674 thousand barrels per day, of which 96% was crude oil.
Oil Consumption (2005E) 2,854 thousand barrels per day. Crude Oil Distillation Capacity (2007E) 5,339 thousand barrels per day.
Natural Gas Production (2004E), (2005E) 22.4 trillion cubic feet (tcf), 22.7 tcf. Natural Gas Consumption (2004E), (2004E) 16.0 Trillion cubic feet (tcf). Recoverable Coal Reserves (2003E) 173,073.9 million short tons. Coal Production (2004E) 308.9 million short tons. Coal Consumption (2004E) 257.5 million short tons. Electricity Installed Capacity (2004E) 215.3 gig watts. Electricity Production (2004E) 881.6 billion kilowatt hours. Electricity Consumption (2004E) 804 billion kilowatt hours. Total Energy Consumption (2004E) 30.1 quadrillion Btus, of which Natural Gas (55%), Oil (19%), Coal (16%), Hydroelectricity (6%), Nuclear (5%), Other Renewable (0%) Total Per Capita Energy Consumption (2004E) 208.8 million Btus. Energy Intensity (2004E) 15,763 Btu per $2000-PPP
Russia Armed Forces
Currently, the military is in the middle of a major equipment upgrade, with the government in the process of spending about $200 billion
Active troops. 1,037,000 (Ranked 5th)
China, USA, India, N.Koria
Total troops. 3,796,100.
$32 billion USD (2007) Russian Military spending.
Air Force And Navy
It is claimed to be the greatest air force in the world in terms of military power, along with the U.S. Air Force
The Russian Air Force has a strength of 2400 combat aircraft and a total of 3365 aircraft.
Russia Has World Fast, Largest military transport, Operative fighter, Largest and Faster Bomber, Faster Multi Engine, Largest Helicopter, Faster Attack Helicopter
The Russian Navy possesses most of the former Soviet naval forces
35,000 personnel with around 270 combat aircraft in 2006.
Latvia and Estonia dare to have territorial claims against Russia .
Russia should divide that unsustainable country with China, there by stimulating China’s geopolitical interests in expanding further to the west.
Also demand the return of primordial Russian lands in northeastern Kazakhstan.
More than a decade after the collapse of the Soviet Union in 1991, Russia is trying to further develop a market economy and achieve much more consistent economic growth.
Russia ended 2006 with its eighth straight year of growth, averaging 6.7% annually
Although high oil prices and a relatively cheap ruble initially drove this growth, since 2003 consumer demand and, more recently, investment have played a significant role.
Russia's 2006 GDP was $1.723 trillion (est. PPP), the 9th highest in the world.
Oil, natural gas, metals, and timber account for more than 80% of exports
Oil and gas contribute to 5.7% of GDP
Russia has the largest known natural gas reserves of any state on Earth, along with the second largest coal reserves, and the eighth largest oil reserves.
It is the world's leading natural gas exporter and the second leading oil exporter
In January-June 2007, foreign investment in the Russian economy doubled year-on-year reaching $60.3 billion
In 2000 total investment in fixed assets was $40 billion, giving growth of 300% by 2006.
Russia has a flat income tax rate of 13 percent, one of the lowest rates in the world
The federal budget has run surpluses since 2001 and ended 2006 with a surplus of 9% of GDP
Despite restrictions on foreign investment, an improving overall business environment has led to increased inflows of foreign direct investment (FDI).
Foreign Trade Impact. Foreign trade has a huge part (70%) in GDP of Russia.
Protection of Foreign Currency Earning Enterprises
International Security Agreements.
improving the taxation system.
Russia's entry into the World Trade Organization (WTO), which is likely in 2008.
protection of intellectual property rights.
modernization of customs, transport and trade facilitation, enhanced domestic competition especially in utilities, improvements in the area of product standards, rules for public procurement, and judicial reform.
Business Sector and business companies
Gazprom (Gas Company could grow into the world's largest company in terms of capitalization, capitalization totals roughly $300 billion.
Vneshstrojimport. Russia's leading construction management company, Over 3000 projects of more than $ 26 billion value have been implemented.
RekSoft. Outsourcing professionals rank Reksoft among 30 leading offshore outsourcing services companies in The Top Off shoring Providers by IAOP.
Response to Globalization
wide range of papers and data relevant to trade and foreign direct investment policy and WTO accession are presented.
Open door foreign companies for business in Country.
Commitments to foreign investors in several business services sectors can be considerably improved
Invest in other country, such as India, Iran and others.
Joint venture start with many sector.
Become members (observer) other world and trade organization, ASAN, ARAB League
McDonalds competitive advantage over rivals
Being their own boss
All franchisee agrees to operate the restaurant in accordance with McDonald's standards of quality, service, cleanliness and value .
Selling a well established, high quality product
No expensive market research
Intensive initial training
Training for 9 months
Leadership qualities, business management, team building.
Stock control and ordering, profit and loss accounts and the legal side of hiring and employing staff
Success and profitability of McDonald's is inextricably linked to the success of all the franchises.
McDonald's trademark, the Golden Arches-most instantly recognized symbol in the world.
Huge Benefits from national marketing carried out by McDonald's .
Radio and press advertisements ,television and promotional activities are used to get specific messages across emphasizing the quality of product ingredients.
1.Moscow’s fast food market is estimated at between $ 400-700 million per year, with per annum growth of perhaps 20 percent.
2.Reasons to start business in Russia:
The rapid expansion of shopping malls creates new real estate for fast food
Russia’s broad-based, young, not-so-picky crowd.
3. According to recent market research, half of men and women between 16-50 buy fast food at least once a week.
64% considers location
54% considers cost important,
while fewer regard quality (43%) and cleanliness (25%) as important factors
McDonald's franchises operates more than 32,000 fast-food restaurants in over 100 countries.
Europe $7,072 (35%)
United States $6,955 (34%)
Australia/Asia-Pacific $2,815 (14%)
Latin America $1,327 (6%)
Canada $948 (5%)
Other $1,343 (6%)
Baskin Robbins And Marcon –small competitors
Rostik Group and Yum brands
Baskin Robbins is one of Russia’s largest franchises.
Combining the western brand name and the quality assurance of a local factory in Russia to develop their products
Franchises such as Pizza Hut, Sbarro’s, and Subway all have smaller presences and have faced more problems in the market.
Rostik’s (Russia's KFC)
Market leader in drive-through restaurants.
Rostik owns all of the 100 Rostik’s restaurants.
It will invest up to $100 million in the expansion over the next five years .
turnover of $200 million a year.
Rostik's provides franchise support services to both KFC and Rostik's restaurants in Russia and the CIS
Yum! Brands is the world's largest restaurant company in terms of system restaurants with over 34,000 restaurants in more than 100 countries and territories . Four of the company's restaurant brands -- KFC, Pizza Hut, Taco Bell and Long John Silver's -- are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories respectively.
Yum! Brands is the worldwide leader in multibranding, which offers consumers more choice and convenience at one restaurant
U.S. fast-food giant Yum! Brands is throwing the weight of its KFC brand behind local fried chicken chain Rostik’s in a deal aimed at opening 300 joint outlets in Russia and the CIS over the next five years.
Under the parties' agreements, RRL will retain day-to-day operational management of its restaurants, while Yum! Brands will provide strategic support through its experience and technologies in managing international quick-service brands .
McDonald’s is the most well know fast food chain in the world, brand recognition is there biggest strength. Their marketing campaign continues to focus on brand recognition.
McDonald’s success is its willingness to innovate, even while striving to achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich, and addition of cabbage pie along with other traditional Russian food items .
The company has also made convenience its watchword, not only through how fast it serves customers, but also in the location of its outlets .Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or by car in the suburbs. Plus McDonald’s is tucking restaurants into schools, stores etc.
The store serves 30,000 customers a day, as busy as on opening day, January 31,1990. McDonald's has served more than 1 billion customers and more than 132 million Big Macs.
The Push kin Square restaurant is important because it is the jewel in a growing real estate empire that ranks McDonald's among the largest corporate landowners in Russia .
Currently, 127 McDonald's restaurants are open in 37 Russian cities . The chain now employs 17,000 Russians in 37 cities
Their biggest weakness is the negative image of their food. Their food doesn’t have a good public image . Key to its future success will be maintaining its core strengths—an unwavering focus on quality
Profits and stock prices:
In 1990s, the company was fixated on adding 2500 stores. But by 2000, the condition of its existing locations, as well as the appeal of certain menu items, deteriorated.
The company's flawed expansion strategy was hammering its profits and stock price.
There was no manufacturer or producer in Russia who could produce products needed for the business. One of the solutions was to bring all the products from different countries, but that would be too expensive.
Despite its status as a Super- Power, Russia was far behind United States and Canadian technological development. All the equipment for the restaurant had to be brought from outside of the country, even the equipment for the food processing plant
They had to introduce their restaurant not as a “Capitalism” intruder, but as a business that will serve people’s needs when they are in hurry.
Russia ranks second out of all McDonald's' markets for the average number of consumers per restaurant.
M cDonalds will spend up to $50m to expand its chain in Russia .
McDonald’s international operations -“huge opportunity”
International operations account for 60% of McDonald’s profits
80 % of new units are expected to grow at 4 times the rate of its business in the United States
Expand local supplier base:
McDonald's has continued to expand its local supplier base.
75% of raw ingredients needed for McDonald's in Russia Restaurants are purchased from more than
130 independent Russian suppliers who have created more than 80,000 jobs in their companies and
who follow McDonald's strictly controlled quality standards in their food processing operations.
Growing dining-out market
McDonald’s sees the decline in fast-food dining .
Turn threat into opportunity.
It will devote 20% of its marketing budget to persuade Russian consumers to have breakfast in its restaurants.
The chain now serves over 10 million customers a day in Europe, which contributes 36 percent to the company's operating income , making it the chain's second most profitable region after the United State
Russian foodservice development:
McDonald's has made significant contributions to the development of Russia's foodservice and processing industries, agriculture and business practices.
The key threats to McDonald’s domestically are the lack of growth opportunities. The market is well saturated, and it would difficult to achieve double-digit growth.
Fast foods increases the incidence of cancer, heart disease, and diabetes among the population.
Doctors have established that McDonald’s salads are even more unhealthy than its hamburgers. McDonald’s Caesar salad contains 18.4 g of fat while a standard cheeseburger contains just 11.5 g of fat. It is highly likely that the salad dressing is too fat and high-calorie.
McDonald’s are everywhere, the dining experience is never special . And as Baby Boomers age and become more affluent, it is likely that they will leave behind their fast-food ways, if only to step up to moderately priced restaurants as they have an added advantage of serving higher-margin alcoholic drinks,
Threat of substitutes
substitute products may include products purchased from the local grocery store, food from sit-down restaurants, or delivery foods such as pizza.
The primary issue with these substitute products is that they are readily available to the customer and the customer tends to view them as being comparable or better in terms of the quality of fast-food products.
Another issue that faces the fast-food industry is the availability of products that cater to the health-conscious lifestyle. The majority of the public tends to view fast-food restaurants as primarily serving foods that are high in fat content and unhealthy and as a result they are likely to look elsewhere for a healthy food
Strongest and closest substitutes:
KENTUCKY FRIED CHICKEN: Equally sizeable market share, competitiveness in the pricing structure , new and changed recipe in the market , emphasis on maintenance of quality and standard of service
MCDONALDS COMPETITIVE ADVANTAGE:
McDonalds offers both beef and chicken products as part of its wide range of delicacies, KFC has limited its range to offer products made from chicken only.
Threat of new entrants:
The threat of potential new entrants is low
Company’s brands :
High customer loyalty towards a company’s brands, which is true for the differentiation strategy, can n play a vital role in discouraging potential entrants
In order to compete on a large scale, it will require a great deal of capital to invest in real estate and build physical restaurant locations. In addition, the market is already so saturated that the new competitor might find it difficult to establish a customer base and become profitable.
Bargaining power of suppliers
is not a significant competitive force in the fast-food industry
Purchase from many sources:
Since the fast-food firms divide their purchases among a diverse array of suppliers, the suppliers tend to have little or no bargaining power or leverage since there are multiple suppliers for the same products
Raw ingredients needed for McDonald's Russian restaurants are purchased from more than 100 independent Russian and C.I.S suppliers who follow McDonald's strictly controlled quality standards in their food processing operations.
"Pensensky Myasopticekombinat” is a supplier of high quality beef for McDonald’s in Russia.
Threat of intense rivalry
Rivalry within the industry is intense
Dominated by price wars led by ROSTIKS, Yum Brands – KFC
Kroshka – Kartoshka,Marcon are the other fast food restaurants in Russia
McDonald still the leader:
Industry has not yet reached perfect competition where competitors are numerous and relatively of the same size. As long as the firms continue to have differentiated offerings, they maintain their ability to set prices.
Bargaining power of buyers:
High Cost leaders-low price strategy:
Cost leaders have the unique ability to offer lower price options to large and powerful buyers..
Fast-food industry has begun to focus on the needs of the customer. The buyer has a great deal of leveraging power due to the fact that if they are dissatisfied with one brand they can easily switch or purchase from an alternate brand with little or no monetary repercussions.
McDonalds have implemented strategies to improve the quality of customer service and the cleanliness of the restaurant locations in order to please their customers in hopes that they will become a repeat customer.
Country Specific International Strategy Formulation
Corporate Level Strategy
McDonald's Corporate level strategy aligns with the country specific objective
Management practices decide how to govern through direct corporate interventions
Competitive contact is to be localized
The company should be able to reach it’s customers defining the issues of corporate responsibilities
Business Level Strategy
Strategic issues are both practical coordination of operating units and developing and sustaining a competitive advantage for the products and services that are produced
Organizations compete for a wide customer base on price.
Reconfiguration of value chain as needed
Product differentiation offering lower prices as compared to our competitors
Introducing integrated low cost and differentiation strategy
Country Specific International Strategy Implementation
World Wide Structure: Making money from franchisee’s food sales
Increasing the number of restaurants by a larger margin, mainly due to the rise in demand of hamburgers
The structure of McDonald’s in Russia is based on ‘trust’
Corporate Level Strategy: Reach target of 125 franchise restaurants every year
Open Regional offices in Moscow and St. Petersburg
Business Level Strategy: Open more restaurants in the mall since the volume of malls in Russia are big
Introduce diet food in order to maintain the customers’ diet conscious roles
Entry Mode: The coffee drinkers in Russia are increasing by 15% every year, hence it’s good time to jump into a joint venture with one of the coffee companies in Russia.