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The McChoice Menu Experience:
Addressing the Millennial Generation and McDonald’s Corporation
McDonald’s Corporation
Consultation By:
The Lighthouse Group, LLC.
12/04/14
Lighthouse Team:
Madison Capo
Ryan Geary
Kyle Kruse
Vasily Semenikhin
Shenlei Yi
Maura Zipf
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Dear Mr. Donald Thompson,
It is with great pleasure that we, The Lighthouse Group, LLC, address you today. We have been
commissioned as consultants for McDonald’s Corporation (Referred to as “MCD”). Based on
extensive analysis of market and company internal data, we have detected that the firm is not
reaching its potential in appealing to and capturing the millennial generation (ages 18-34) in the
United States specifically. Millennials seek and value freshness, variety, customization and an
experience, according to Forbes and the New York Times. While MCD has made attempts to
appeal to this demographic with the Premium McWraps, the firm should now focus its attention
to the blossoming generation. By 2020, Millennials will become the nation’s largest buying group,
reported Forbes. Yet, according to the NPD Group, hamburger chains have seen a substantial
decline in millennial traffic in the past 8 years. Likewise, the percentage of 19 to 21 year olds who
visited MCD monthly has fallen since 2011 according to Technomic Inc. Overall, the decline in
foot traffic and revenue from this pivotal demographic is an alarming harbinger for the future of
MCD and must be addressed with haste.
In response to this looming challenge, we have devised a multi-faceted solution that will ensure
MCD an improved perception among health conscious millennials and continued success in an
ever-changing quick-service industry. The McChoice Menu Experience is an interactive ordering
system that features a step-by-step sandwich customization process with all natural ingredients.
The Menu can be experienced in-store with a touchscreen kiosks or mobile platform with a
McChoice smartphone application platform. Both allow MCD customers to personalize
sandwiches with a main protein selection, bun selection, choice of cheese, addition of sauces
toppings, and additional protein additions. The McChoice Menu tracks price and calorie count at
every step of ordering. The new menu will be targeted to male students, ages 18-24, who lead a
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physically and mentally active lifestyle. Our target customer is concerned with his image, involved
in many forms of social media, a sports fan. The supply chain must be altered to secure the new
ingredients. MCD will partner with United Natural Foods Incorporated (UNFI) to achieve the
ingredient quality that Millennials seek. We will launch the new McChoice Menu Experience in
the following U.S. major cities: Boston, Chicago, Dallas, Los Angeles, New York City,
Philadelphia, Seattle, and Washington, D.C..
Based on our research, the McChoice Menu Experience will positively impact revenue and
improve MCD perception. The McChoice Menu vastly improves the consumer perception of MCD
products, specifically the questions pertaining to ingredient quality. Likewise, it will increase
customer satisfaction among users, especially the target market. With MCD’s current widespread
and complicated menu, customers have options but not personalization. The McChoice Menu will
allow customers to create food in their own unique image. Building the sandwiches will grant
patrons the experience they crave. Meanwhile, the calorie and price tracking systems will ensure
that the customer is in control of his or her meal. With proper implantation of our six-step timeline,
the McChoice Menu Experience will not only have immediate returns but long continued success
at MCD across the country.
With utmost respect and warm regards,
The Lighthouse Group, LLC
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Table of Contents
I. Firm Overview……………………………….……………...………..……….…….…….5
II. Ratio Analysis………………………...…………………...………………….………….8
III. Identified Business Challenge……….………………....…….………….………...…...13
IV. Market Analysis……………….……………….………….………....………………...15
V. Proposed Response ....………………………....…….……..…………………………...19
VI. Conclusion……………………………………………….…..………………………...24
VII. References…………..………………………...………………..……….………….....26
VIII. Appendix…………………………………...……………...…………………………28
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I. FIRM OVERVIEW
MCD offers a variety of food and beverage products to its customers in the global restaurant
industry. The primary sources of revenue for MCD Corp. are sales from Company operated
restaurants and conventional and licensed franchises. According to Hoover’s Company Profile
Database, MCD generates 67% of revenue from Company-operated restaurants with 33% of
revenue stemming from franchise revenues.
Conventional franchises provide a portion of initial investments in the equipment, signs, seating,
and décor of a restaurant. MCD retains property rights to both the land and building. Conventional
franchises contribute to corporate revenue through payments of franchising term fees, rent, and
royalties based on a percentage of sales.
Conversely, licensed franchises contribute all necessary initial investments without any
contributions from MCD. As a result, licensed franchises pay only initial fees in addition to
royalties as a percent of sales.
As stated on the Company website, over 80% of MCD restaurants worldwide are franchised
locations with 57% conventional and 24% licensed. According to Hoover’s Company Profile
Database, MCD has 28,619 franchised and 6,738 Company operated locations, totaling over
35,000 total locations in over 100 countries worldwide as of year-end 2013.
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See Figure 1 in the Appendix for year end 2013 10-K Company and franchise revenue data as
well as the 2014 10-Q revenue status. See Figure 2 for regional revenue and storefront data.
According to Statista: The Statistics Portal, the fast food industry generated $191.03 billion dollars
in revenue in 2013, a modest .5% increase from 2012. MCD accounted for $28.1 billion of the
2013 industry revenue, or 14.7% market share.
MCD requires a variety of inputs from the agricultural industry to create its menu offerings. The
supply chain begins with farms located throughout the world. MCD has committed to consistency
in its global integration strategy, ensuring standardized products at each location throughout the
world. As mentioned on the Company website, the primary supplier relationships in North
America are with Gaviña Gourmet Coffee, Lopez Foods, Keystone Foods, and 100 Circle Farms.
Each MCD restaurant receives supply shipments from independent distribution centers. MCD
largest distributor is the Martin-Brower Company, LLC. According to a University of San
Francisco publication, the Martin-Brower Company supplies over 15,000 MCD locations in North
America. Each distribution center serves anywhere from 250 to 700 MCD restaurants.
As clearly stated in the year end 2013 10-K, MCD offers food and beverage menu products to
every consumer in the worldwide market. It does not have any restrictions on its market segment.
However, 2012 advertising data collected by Statista demonstrates MCD focus on appealing to
children ages 2-11.
See Figure 5 in Appendix for data of MCD advertising to children 2-11.
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MCD faces various challenges each year as it must adapt to changing industry and economic
landscapes. The recent adverse economic conditions caused sluggish informal eating out (IEO)
statistics for MCD in 2013. As reported in the year end 2013 10-K, MCD is experiencing
comparable guest count declines on average of 2.3% across it three main regions. In addition,
rising input pricing pressure and minimum wage standards are two other economic forces that will
challenge MCD ability to maintain profit margins in the coming years.
See Figure 4 in Appendix for a 2013 regional performance breakdown.
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II. RATIO ANALYSIS
Lighthouse Consulting has been commissioned to review your firm’s financial status. After
analyzing various financial statements and data we have discovered opportunities for your
management team to consider. Serving as a fast food industry benchmark, we have included
figures from a rival, Wendy’s Company.
Presented below are key financial indicators gathered through our analysis. Companies are referred
to using their NYSE stock ticker.
MCD’s Gross Sales Revenue totaled $28.1 billion in 2013, up 2.0% YOY, which outperformed
WEN. Gross Sales Revenue for WEN declined 0.71% YOY (from $2.51 to $2.48 billion).
MCD experienced a 2.0% increase in Sales Revenue YOY which was outpaced by a 2.3% rise in
COGS. This contributed to a decline in the Gross Margin Ratio of 0.2% YOY, dropping from
44.3% to 44.1%. SG&A expenses decreased 2.8% YOY, which contributed to a rise in EBIT, or
Operating Income, of 1.1% YOY. Thus, although the Gross Margin Ratio declined, the loss was
made up in the decrease in SG&A Expense YOY, resulting in an EBIT Margin Ratio of 30.3%,
which was the same as 2012. An increase in Interest Expense of 0.9% YOY coupled with a slight
rise in Tax Expense, 0.2%, resulted in a Net Income rise of 2.2% YOY ($5.46 billion to $5.58).
Accordingly, the Profit Margin Ratio increased 0.1%.
Conversely, WEN experienced a 0.7% decline in Sales Revenue YOY. However, COGS declined
2.9% YOY, resulting in an increase in the Gross Profit Margin of 1.7% YOY. SG&A Expense for
WEN increased 2.1% YOY. The decline in COGS outweighed the decrease in Sales Revenue and
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increase in SG&A Expense to yield an impressive rise in EBIT of 18.0% YOY. Therefore, the
EBIT Margin Ratio for WEN in 2013 increased 1.4% YOY. A decrease in Interest Expense of
30.0% YOY and a rise in Tax Expense of 167.3% YOY resulted in an astounding rise in Net
Income in 2013 of 540.8% ($7.1 million to $45.5).
Bottom Line comparison between MCD and WEN reveals the rise in WEN Net Income of 540.8%
YOY trumping the slight 0.1% increase in MCD Net Income. This is a testament to the rising
popularity and market penetration of WEN as compared to the market share leader MCD.
Although MCD saw growth in Gross Sales Revenues while WEN experienced loss, WEN realized
a massive gain in Net Income compared to MCD. This can be a result of COGS, which is the
largest expense for each firm and decreased for WEN while rising for MCD.
Concerning efficiency matters, MCD’s Asset Turnover has been stagnant for some time, 0.8 each
of the past five years. Similarly, MCD’s Day Sales in Inventory has been quite unchanging as well,
improving only 0.1 since 2009 (2.9 from 3.0). WEN’s Asset Turnover remained the same as 2012
and has declined 0.1 since 2009 (0.6 from 0.7). However WEN’s 2013 Day Sales in Inventory
ratio is the lowest over the comparable period. WEN’s DSI has been steadily declining since 2009,
progressing from 3.1 in 2009 to 2.0 in 2013, a 1.1 improvement.
In Marketing Effectiveness however, MCD outshines WEN in Return on Assets (15.3% versus
1.0%), Return on Equity (34.9% versus 2.4%), and Return on Invested Capital (5.3% versus 3.5%)
in 2013, despite MCD worsening its position in all three categories YOY while WEN improved.
MCD’s Interest Bearing Debt rose 3.6% totaling $14.1 billion for FYE 2013, up from $13.6 billion
in 2012. However, the 3.6% rise was the lowest increase in Interest Bearing Debt over the
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comparable period. WEN’s Interest Bearing Debts have slightly increased YOY by 0.4%, up to
$1.464 billion compared to $1.458 billion in 2012. Even though Interest Bearing Debt has
increased, MCD’s Debt-to-Cap ratio has slightly decreased YOY from 47.1% to 46.9%, partially
due to the rise of 4.7% in Owner's Equity. WEN’s Debt-to-Cap has increased from 42.3% to 43.1%
YOY as the result of a 2.8% decrease in Owner’s Equity. As a result of EBIT increases YOY
outpacing Interest Expense YOY changes, both firms experienced Interest Coverage ratio
increases in 2013, demonstrating that debts hold no significant threat. Quantitatively, MCD’s
Interest Coverage ratio grew from 15.7% to 15.8%, while WEN’s grew from 1.9% to 3.2%. MCD’s
Effective Interest rate is 6% whereas WEN’s experienced a rise of 3.6% YOY, both being
attractive for capital loans, however banks will make a larger return loaning to MCD.
Both firms have increased their Market Caps in 2013. MCD’s Market Cap increased to $96.1
billion from to $88.4 billion in 2012. Likewise, WEN’s Market Cap increased YOY to $3.4 billion
from $1.8 billion.
Prices of stock increased YOY 10% for MCD and 85% for WEN. MCD remains a steady
investment, however, WEN investors have made a major return this past year.
MCD’s liquidity is healthy and stable, showing slight improvement. Operating Cash Flow
increased 2.2% for MCD. Meanwhile, WEN's increased Operating Cash Flow significantly in
2013 by 73.2% YOY.
MCD budgeted Capex of $2.8 billion, or 7.4%, has declined $3 billion in, or 11.7% in 2012.
MCD Share Repurchases have declined 32.0% YOY ($2.6 billion to $1.7). At the same time,
Dividend payments have increased steadily over the comparable period totaling $3.1 billion in
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2013. In absolute amounts, the total payment for Share Repurchases and Dividends from 2009 to
2013 was $23.5 billion. WEN did not repurchase any shares in 2012 but spent $69.3 million on
Share Repurchases in 2013. WEN has also been steadily increasing Dividend payments nearly
doubling its total YOY. Together, Shares Repurchases and Dividends for WEN yields $671
million.
Compared to Total Capex, which totals $12.7 billion since 2009, MCD’s has chosen to return cash
to investors ($23.5 billion) rather than expand operations. Conversely, WEN has favored
reinvestment as opposed to return to shareholders, spending $818.5 million on Capex versus $671
million on Share Repurchases and Dividends since 2009.
MCD’s Payout ratio has averaged 50.8% over the last five years, meaning on average MCD pays
dividends around 50% of its yearly Net Income. WEN’s Payout ratio has averaged 187.8% over
the same period, as the result of much lower Net income figures compared to MCD.
The global economic conditions is outside management’s projections. MCD is experiencing
stagnant sales versus WEN’s explosive growth YOY. Although MCD is the larger firm and
beginning to experience the effects of a saturated market, WEN is experiencing more robust
margin growth, possibly because of greater opportunities for market penetration.
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Based on common size vertical analysis of each company’s income statement, MCD had a Net
Income ratio of 19.9% to WEN’s 1.8%. This means that Net Income as a percent of Net Sales was
19.9%, while WEN’s Net Income was only 1.8% of Sales Revenues. COGS for WEN was at a
five year low as a percentage of Sales Revenues (73.4%) along with a five year low in Interest
Expenses of 2.8%. Together these items contributed to a five year high in Net Income for WEN of
1.8%.
Based on common size vertical analysis of each company’s balance sheet, the most astonishing
discrepancies existed in Net PP&E and Total Intangible Assets. 70.3% of MCDs Total Assets was
from Net PP&E, which was well above WEN’s figure of 26.7%. Conversely, WEN’s Total
Intangible Assets accounted for almost half of its Total Assets, 49.2%, while MCD’s was only
7.8%. Cash was at five year for WEN, accounting for 13.7% of Total Assets. Similarly, MCD was
also experiencing its highest Cash as a percentage of Total Assets over the past five years (7.6%).
This may help explain MCD’s generous return of $4.9 billion back to shareholders in 2013.
In conclusion, market saturation is a threat to MCD future growth. Accordingly, MCD must
develop strategies outside market development and penetration to be successful. Lighthouse
Consulting suggests creating greater customer value and by reinvigorating relationships with
former customers.
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III. IDENTIFIED BUSINESS CHALLENGE
The challenges that MCD is currently facing include appealing to the U.S. millennial demographic,
pressure on profitability margins, and market saturation. There is also a challenge where there is
increasing consumer demand for customization and a preference towards healthiness. MCD faces
constant questioning amongst consumers about the production and appearance of menu offerings.
Documentaries such as Super Size Me by Morgan Spurlock exasperated concerns about the
treatment of livestock that MCD uses in production. In turn, MCD must constantly market their
USDA approved ingredients. Millennials especially are favoring the fast casual restaurant
experience that offers greater customization, variety, and taste. As a result, MCD future
profitability is in jeopardy. A July 2014 Consumerreports.org survey ranked MCD as the worst
fast food burger, citing ingredient taste and cleanliness as two areas of highest concern.
Another challenge can be seen through the analysis of 2013 financial statements which show that
MCD experiencing comparable guest count declines on average of 2.3% across it three main
regions. With over 35,000 restaurants in over 100 countries worldwide as reported on the 2013 10-
K Filing, it is reasonable to believe that MCD is approaching market saturation. According to
Statista: The Statistics Portal, revenues for the fast food industry in 2013 were $191.03 billion with
MCD accounting for $28.1 billion, or 14.7%.
The challenge that Lighthouse Consulting has chosen to address is appealing to the US millennial
demographic’s (ages 18-34) desire for customization and preference for healthiness. It is
imperative that MCD appeals to the millennial demographic because the millennial demographic
is expected to overtake ‘Baby Boomers’ as the nation’s largest consumer buying group by 2020,
as reported on Forbes.com. According to the United States Census Bureau, there are over 73
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million Americans between 18 and 34 years old. A somewhat overlooked characteristic of the
millennial demographic is their potential to influence other generations. 21% of millennials are
married, as reported from Pew Research Center, and the percentage is assumed to increase as the
younger portion of the demographic enters their mid to late twenties. As a result, it is expected that
the millennial parents will have a profound influence on the value system of their children who
will make up the echo millennial demographic.
Successful marketing to millennials will require a different approach that previous campaigns. The
NPD Group (formerly the National Purchase Diary), hamburger chains have experienced a 16%
decline in millennial customer traffic since 2007. The percentage of 19 to 21 year old people who
visited MCD monthly has fallen 12.9% since 2011 according to Technomic Inc., a food industry
facts insight consulting firm. During the same period, fast-casual restaurants experienced a 2.3%
increase.
According to recent reports in Advertising Age and Forbes, millennials seek fresh products,
variety, and customization. MCD can create value for this demographic by personalizing its
customer experience. Presently, MCD is appealing to millennials with new menu items and new
restaurant decor. The most successful menu addition has been the McWrap. According to
Advertising Age, 22% of the millennial demographic chose MCD because of the McWrap,
otherwise they would have visited Subway.
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IV. MARKET ANALYSIS
Taking a panoramic view of the fast food industry that MCD pertains to, we discover that
“worldwide sales revenues for the fast food industry in 2013 were $191.03 billion and are expected
to grow 2.1% in 2014 to $195.05 billion and 2.2% in 2015 to $199.34 billion”(Statista: The
statistics portal). MCD earned $28.1 billion in sales revenue during 2013, accounting for a fast
food industry market share of 14.7%. Compared to Subway, which finished second in sales
revenues in the fast food industry in 2013 with a total of $18.1 billion that accounts for 9.5% of
the market share, MCD has the absolute advantage in terms of market occupancy. Another
competitor Yum! Brands, which is the parent company of KFC, Pizza Hut, and Taco Bell,
experienced sales revenues of $13.1 billion, or 6.9% market share. Chick-fil-A and Chipotle
Mexican Grill round off the top five with 2.7% and 1.7% market share respectively. Above all,
MCD has the absolute numeric as well as percentage advantage in terms of the market share in
fast food industry. See Figure 5 for market share data.
As clearly stated in the year end 2013 10-K, MCD offers food and beverage menu products to
every consumer in the worldwide market. It does not have any restrictions on its market segment.
The Company’s business is not dependent upon either a single customer or small group of
customers. Current market segments for MCD appear to include the following:
● Children: Boys and girls between the ages 4 and 11 focused on a fun experience
and good tasting food.
● Teenagers: Segment Profile: 12 through 19 year old boys and girls sensitive to
social pressures and interested in perceptions.
● Tradesmen: Segment Profile: A tradesman 18 years or older needing a quick meal
in between service jobs.
● Parents/Guardians: Segment Profile: A parental figure looking to treat their
dependents with a tasty and nutritional meal.
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● Travelers: Segment Profile: People en route to a location interested in a
convenient meal.
● Retirees: Segment Profile: Brand loyal individuals 65+ years old seeking value.
The segment that Lighthouse Group is choosing to target is the front half of the millennial
demographic, specifically males individuals 18-24 years old. According to the United States
Census Bureau, 10 percent of the population in the United States is between the ages 18-24, which
is roughly 31 million people. Thus, about 16 million males are within this market segment.
Lighthouse Group believes that MCD is currently not creating superior value for this segment
when compared to competitors. The new market segment Lighthouse Group advises MCD to target
is described below:
● Students: A perception conscious male student between the ages 18 and 24
interested in sharing a meal with his friends and maintaining a healthy diet.
A description of the target segment is also presented below:
Robert is a 20 year old male student at University of California at Los Angeles. He comes from a
middle class family. As a single male, Robert loves to go out and hang out with his friends. He
pursues an active lifestyle in every aspect of his life. For instance, he is an avid tweeter and
fanatical NFL fan. Being part of the millennial demographic, Robert favors trendy restaurants with
particular consciousness about food ingredients. His abundant dining experience makes him a
burger connoisseur who has been tired of standardized menus and desires for some customizations.
MCD currently positions itself as a provider of high quality food and superior service in a clean,
welcoming environment, at a great value. The introduction of the McCafé was designed to expand
MCD position to compete with the atmospheres of Starbucks, Dunkin Donuts, and Panera Bread.
However, in order to compete in today’s marketplace MCD must focus more on customer
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experiences and the “coolness” elements of its brand perception. Lighthouse Group is planning to
adjust the position of MCD to include greater customization for consumers who want meals
tailored to their specific needs. Rolling out a “Build Your Own Entrée” kiosk interface will create
greater value for customers and make a meal at MCD an experience once again.
The position map presented in Figure 6 displays MCD current position among its competitors in
the fast food industry as well as the direction it seeks to move towards. For right now, we consider
that MCD is high on legacy and convenience but lack of coolness and experience which are two
factors that attract our target market (age 18-24 male millennials) the most. When viewing MCD,
we noticed that one company’s market share does not necessary have the correlation with its profit
margin. It’s all about how effective the chosen target markets are and how effectively the company
serves them. Therefore, Lighthouse group advises that MCD needs to move towards the experience
and coolness direction gradually considering its current big market occupancy. Through adopting
the solution that our group suggests, MCD would walk out of the pure quick service zone and
incorporate an enjoyable dining experience.
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Product Mix- “4 P’s”
Product- The menu categories that MCD offers are burgers, chicken, fish, salads, wraps, breakfast,
snacks/sides, McCafé, beverages, desserts & shakes. Each menu item is packaged with the famous
“Golden Arches” logo and MCD brand name. The offerings are designed for efficiency and
standardized production procedures mitigate variances in quality.
Price- MCD prides itself on consumer value. However, this low prices of MCD can adversely
affects its perception to consumer who may correlate price to quality. Most meals are under $6
dollars, which includes a sandwich, fries, and a drink.
Place- According to Hoover’s Company Profile database, MCD has over 35,000 locations in over
100 countries worldwide.
Promotion- In 2013, advertising costs for MCD totaled $808.4 million, a 2.7% YOY increase from
2012. Primary promotional outlets include television, radio, and printed material. MCD is major
sponsor of the Olympic Games in 2012, which increased the scope of its campaigns to include all
participating nations. It also recruits celebrity endorsements most recently LeBron James, NBA
player for the Cleveland Cavaliers.
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V. PROPOSED RESPONSE
1. Dinner Box
In order to appeal to millennials, our first proposed response was revamping MCD current Bundle
Boxes, specifically the Dinner Box. By changing the Dinner Box, the target segment attracted
would be guardians and parents of children between the ages of 25 and 34, the upper range
millennials. In certain cities, the current Dinner Box combo includes two Big Macs, two regular
cheeseburgers, 10-piece Chicken McNuggets and four small fries for $9.99. The first alteration
made to the “Dinner Box,” would be to make them customizable for each customer and offering
healthier options, appealing to millennials’ desire for variety. The second alteration would be
expanding the boxes to more restaurants. Currently, the boxes are offered at 6,500 restaurants, but
the proposal would increase the availability. The response would increase family traffic through
restaurants as well as create value for every family, making MCD a family restaurant like in
decades past. The response was not chosen because the expected revenue impact was too small,
and it would be easily imitable by competitors.
2. Share-to-Win Plan
The second proposed response, we named the “Share-to-Win” alternative. The target segment
chosen was student employees ranging from 18 to 34. Through creating a Share-to-Win program,
MCD would be appealing to millennials desire to see businesses contribute to social change. Share-
to-Win, would have been a program to increase employee motivation to deliver a positive
experience to customers, reduce high employee turnover, and financially help student employees
attend college. According the 2013 MCD 10-K, total return to shareholders totaled $4.9 billion
dollars. The response would redirect some of these funds to current employees looking to attend
college, needing financial help. An employee would apply for a MCD scholarship, becoming part
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of the program. The student would have to work through their time in college. In addition to giving
funds, MCD would also create internships for these students toward the end of their college career,
so they could begin learning about the corporate side of McDonalds, or learn about running a
franchise. The response would create happier employees, providing a better customer experience.
Also, the response would decrease employee turnover. The response was not chosen because it
may upset shareholders by decreasing their total annual return, and it could cause complications
logistically with university coordination.
3. McChoice Menu Experience
Our recommended response is the “McChoice Menu Experience.” The target segment attracted
would be a 18 to 24 year old, perception conscious male student, interested in sharing meals with
friends and maintaining a healthy diet. According to the United States Census Bureau, the target
segment has approximately 16 million in the U.S. The McChoice Menu Experience, has two
factors, a new menu consisting of natural ingredients supplied by United Natural Foods
Incorporated (UNFI), and the ability to Build-Your-Own-Entrée (B.Y.O.E). Customers can build
their own sandwiches by using a new touch screen interactive kiosk in restaurants or using a mobile
application in which they choose what they want and then they can pick up their orders. See Figure
7 for a choice layout. The kiosks will be a standalone addition to current checkout station. The
McChoice menu will take the place of current premium menu items, not including the wraps, as
well as featured burgers such as the “Jalapeño Double.”
Potential problems with the proposed response would be the complication of the new supply chain,
and some customer dissatisfaction. The McChoice Menu experience will complicate the supply
chain due to the addition of UNFI to MCD current supplier list. Also, the discontinuation of some
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current offerings could hurt supplier purchases. The experience could potentially slow down the
dining experience, however with the majority of the menu unaltered, MCD will still have quick,
fast options for customers who are on the go. The price of the new sandwiches could potentially
be a turn off for customers, however with higher perceived product quality, individuals will be
willing to pay more.
Benefits of the proposed response are increased appeal to the millennial desire for customization
and health, as well as reduced menu size and confusion. The McChoice Menu will better the
consumer perception of MCD products, specifically the questions pertaining to ingredient quality.
Millennial’s desire for customization will be met with a new “coolness” factor. The new menu
experience allows customers to customize their sandwich both in restaurant and from home for a
quick pick up. The experience also allows customers to control the price of the sandwich and the
nutrition content as well as calorie count. Due to the fact our target segment is very health
conscious, the calorie tracking feature will be attractive. The menu readability and
understandability will be improved through taking away extraneous unpopular sandwiches. The
new experience will leave the creative process to the customers while still leaving the classic
products.
Competitors will probably take a “wait-and-see” approach in reaction to the new menu experience.
Other restaurant chains will want to see the reaction of consumers to the price change as well as
the new ingredients. After waiting to see reactions, some restaurants may create new promotions,
improve their ingredients, add more variety to their menus, remove add-on prices, or market to
salad fanatics or traditionalists. Slow reactions by competitors will allow MCD to increase its
market share while creating a more efficient cost structure.
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MCD has already renovated over 60% of their restaurants and franchises. Along with the new
experience, our target segment will want to sit down and enjoy their meal with friends. We expect
that MCD will become a constantly busy restaurant, with every table full, but turning over quickly.
When one walks in the restaurant, they will notice it is packed with males from our target segment,
wearing their college hoodies, and with backpacks leaning against the chairs. Almost everyone
will have their phones out checking and posting to Social Media sites. The most noticeable aspect
of this new experience, is seeing the diversity and size of others’ sandwiches. All sandwiches are
different but the same in the fact they are stuffed with different ingredients. There will be at least
two standalone kiosk systems that have the function of either scanning the receipt number if one
ordered on the mobile app, or “Build-Your-Own-Entrée.”
The marketing and advertising campaign proposed is a Social Media and television campaign.
Social media advertising on Twitter, Facebook, Instagram and Snapchat provide high potential for
interaction between consumers as well as between the consumer and McDonalds. Television
advertising include, specifically a commercial during the 2015 Super Bowl and repeated
advertisements during NCAA March Madness, has high national exposure and will reach a large
portion of our target.
We are proposing to launch the McChoice Menu Experience in 750 locations in eight cities across
the country. We chose the cities of Boston, Chicago, Dallas, Los Angeles, New York City,
Philadelphia, Seattle and Washington D.C. based on their proximity to UNFI distribution centers.
Our implementation plan begins at the end of December 2014 and spans the next 18 months.
Between December and March 2015, McDonalds will reach agreements with the restaurants and
UNFI, purchase and develop the new equipment, test the experience with real consumers and run
23. 23
the Super Bowl and March Madness Advertisements. In April and May, there will be training
sessions held for MCD restaurant employees. The sessions will be held once a month at one
location in each of the launching cities. Employees will be trained in both using the interface and
mobile application, as well as creating the new customizable sandwiches. Beginning in June 2015,
MCD will begin rolling out and unveiling the experience to the launching locations. After a
successful 12 months, MCD will be ready to begin expanding to new cities in June 2016. See
Figure 8 for an in depth break down of the timeline.
We have estimated costs in six areas: Ingredients, product testing, interface equipment, training,
marketing, and maintenance. Ingredients will have the highest cost of roughly $27.7 million.
Product testing is expected to be $2.5 million. Interface equipment will be $5.8 million, including
the cost of each kiosk running $1,470 each. Training for the first year will cost $960,000 with each
training session costing $1,000. The proposed marketing campaign will cost $2.4 million. We will
use 9.3% of our current advertising and marketing budget and redirect current advertising.
Maintenance for each year is expected to be $500,000. The total amount of costs will be around
$39.8 million. However, we expect to have nearly $50 million in additional revenues, so we expect
MCD to not only break even, but also have improved profit during the first year. See Figure 9-11
for detailed cost analysis workbook data.
24. 24
VI. CONCLUSION
McDonald’s Corporation is an international leader and benchmark in the fast-food and quick-
service industries. The firm’s menu offerings are numerous and the firm follows a strict global
integration strategy. Overall, we feel that MCD incredible size and lack of new potential markets
may lead to brand maturity and market saturation.
Brand maturity and decline are not yet manifested in our ratio analysis of MCD but the firm is
facing heavy competition. The firm has seen steady increases in Total Gross Sales Revenue (2%)
and Net Income (2.2%) with minor increases in SG&A and Interest Expense. However,
Wendy’s—a leading competitor—saw an astounding and alarming 540.8% increase in Net Income
from 2012 to 2013. This cannot be ignored. Furthermore, Wendy’s stock prices increased 85%
YOY compared to MCD 10%. Ultimately, the growth and expansion of competitive firms present
numerous challenges for MCD Corporation.
MCD is currently facing a mounting and critical challenge in appealing to the millennial
generation. This demographic desires an experience. They want customization, healthy options,
and interaction. MCD and the fast-food industry are experiencing declines in millennial customer
traffic over the past 5 years. In order to capture and maintain this demographic, considerable
changes must be made by MCD. Among our devised responses, we propose the McChoice Menu
Experience. It is an interactive ordering experience both through an in-store kiosk and mobile
application platform. With McChoice, customers build every aspect of their perfect sandwich. We
believe that the McChoice Menu will appeal to millennials desire for customization and ingredient
quality while reducing MCD current menu’s size and confusion.
25. 25
The target market for our proposed solution is male students, aged 18-24. In order to appeal to
these mentally and physically active consumers, we will advertise the McChoice Menu line in
major sporting events and on social media platforms. This will allow MCD to newly position itself
as healthy, cool and trendy. We believe major competitors such as KFC of YUM! Brands,
Wendy’s, and Chipotle Mexican Grill will not react immediately to our changes. They may adjust
their own menus or create promotions based on success of the McChoice Menu. However, we feel
that our strategic marketing mix and proposed advertising approach will ensure long and continued
achievement in the fast-food and quick-service industries.
26. 26
VII. REFERENCES
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Bartlett, Jake, John Glass, and Courtney O'Brien, CFA. "MCD Corporation: October SSS: Improved,
But Still Challenged." Thomson ONE. Morgan Stanley, 10 Nov. 2014. Web. 12 Nov. 2014.
Berfield, Susan. “Why the McWrap Is So Important to MCD.” Bloomberg Businessweek. 03 July.
2013. Web. 14 November. 2014.
Berr, Jonathan. "5 Reasons MCD Has Indigestion." CBSNews. CBS Interactive, 12 Aug. 2014. Web.
12 Sept. 2014.
Fast Food Industry. www.statista.com. Statista: The Statistics Portal, 2014. Web. Sept.-Oct. 2014.
Ivankoe, John, Amod Gautam, and Jason W. Price. Investext (Thomson One). Rep. Thomson Reuters,
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Jargon, Julie. "MCD Says Its Restaurants Got Too Complicated." The Wall Street Journal. Dow Jones
& Company, 23 Jan. 2014. Web. 07 Nov. 2014.
Jargon, Julie. “MCD Faces ‘Millennial’ Challenge.” Wall Street Journal-Business. Dow Jones &
Company. 24 August 2014. Web. 19 November 2014.
Julie, and Lindsay Howden. “Age and Sex Composition: 2010.” United States Census Bureau. May.
2011. Web. 16 November. 2014.
Kowitt, Beth. "Fallen Arches: Can MCD Get Its Mojo back?" Fortune. Time Inc., 12 Nov. 2014. Web.
14 Nov. 2014.
Lepkowska-White, Elzbieta, and Jessica Samph. "Serving the Millennial Generation: Advertising
Appeals and Consumer Attitudes Towards Services." ProQuest. University of Zagreb, Faculty of
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27. 27
MCD Corporation : Foodservice - Company Profile, SWOT & Financial Report. Basingstoke:
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McDonalds Prices. Fast Food Menu Prices. N.p., n.d. Web. 4 Nov. 2014.
McDonalds.com/CorporateInformation. MCD, n.d. Web. 09 Sept. 2014.
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Patton, Leslie. "MCD Monthly Sales Slump Worst Since 2003." Bloomberg.com. Bloomberg, 09 Sept.
2014. Web. 12 Sept. 2014.
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28. 28
VIII. APPENDIX
Figure 1 (in millions)
Revenue Year End 2013 ($) Six Months End June 30, 2014 ($)
Company operated-sales 18,875 9,276
Franchise revenues 9,231 4,606
Total Revenue $ 28,106 $ 13,882
Source: MCD Corporation SEC Filings Annual Report 2013 pg.9 and 2014 Qtr. 2 10-Q pg.4
Figure 2
Source: Statista: The Statistics Portal
29. 29
Figure 3
Source: Statista: The Statistics Portal
Figure 4 (comparable values)
Region 2013 Guest Counts (%) 2013 Sales (%)
US -1.6 -0.2
Europe -1.5 0
APMEA (Asia Pacific Middle East
and Africa)
-3.8 -1.9
Source: MCD Corporation SEC Filing Annual Report 2013 pg.11
