Corporate Strategy for McDonald's Corporation

Veshal Arul Prakash, Dejan Ilic, Artiol Kouloli, Jasmin Lönnberg, Tobias
Strebel
INTRODUCTION TO INTERNATIONAL MARKETING
McDonald’s and
Obesity
CASE 2-7

Index
1 Executive Summary ..........................................................................................................4
1.1 Background Information...........................................................................................4
1.2 Case Summary ..........................................................................................................4
1.3 McDonald’s Response ..............................................................................................4
1.4 Recent and Current Challenges ................................................................................4
1.5 Analysis Frameworks ................................................................................................5
1.6 Recommendations....................................................................................................5
2 Introduction......................................................................................................................7
2.1 Background of McDonald’s.......................................................................................7
2.2 Summary of the Case................................................................................................7
2.2.1 McDonald’s Response to the Obesity Issue......................................................8
3 Analysis...........................................................................................................................10
3.1 Financial Information..............................................................................................10
3.2 McDonald’s Improving its Reputation....................................................................10
3.3 Marketing Mix ........................................................................................................11
3.3.1 Price................................................................................................................11
3.3.2 Product ...........................................................................................................12
3.3.3 Promotion.......................................................................................................12
3.3.4 Place ...............................................................................................................13
3.4 SWOT......................................................................................................................14
3.4.1 Strengths.........................................................................................................14
3.4.2 Weaknesses ....................................................................................................14
3.4.3 Opportunities..................................................................................................14
3.4.4 Threats............................................................................................................14
3.5 BCG Matrix..............................................................................................................15
3.5.1 Stars................................................................................................................15
3.5.2 Cash Cows.......................................................................................................15
3.5.3 Question Marks ..............................................................................................15
3.5.4 Dogs................................................................................................................16
4 Challenges ......................................................................................................................17
4.1 The Advertising Challenge ......................................................................................17
4.2 Advertising the Healthy Side of McDonald’s ..........................................................17
4.3 Image of McDonald’s..............................................................................................17

4.4 Market Interest in Fast-Casual Restaurant Chains..................................................19
4.4.1 Fast-casual business model conversion..........................................................19
4.5 Employee Compensation........................................................................................20
5 Recommendations..........................................................................................................21
5.1 Golden Arches ........................................................................................................21
5.1.1 Qualitative Overview ......................................................................................21
5.1.2 Case Example: Taco Bell Cantina ....................................................................21
5.1.3 Implementation..............................................................................................23
5.1.4 Menu Offerings and Pricing Strategy..............................................................27
5.1.5 Risks and Mitigations......................................................................................29
5.2 McVita ....................................................................................................................31
5.2.1 Qualitative Overview ......................................................................................31
5.2.2 Implementation..............................................................................................32
5.2.3 Risks and Mitigations......................................................................................34
5.2.4 Possible Products............................................................................................35
5.3 Further Considerations...........................................................................................36
6 References......................................................................................................................37

McDonald’s and Obesity 2019
Introduction to International Marketing 4
1 Executive Summary
1.1 Background Information
McDonald’s is the market leader of fast food restaurant chains in the world, founded by
two brothers in 1948, Maurice, also known as Mac, and Richard McDonald in San Bernardino,
California. In 1961 the company was acquired by Ray Kroc and several years later, in 1967,
McDonald’s reached Canada, and due to its drastic expansion both domestically and
internationally, it reached a total of 10,000 restaurants by 1988, and over 35,000 across 100
different countries in the early 21st century, with an astonishing 36,899 stores open
worldwide by 2016. Additionally, even though their annual revenue saw a decline of 7.6%
between 2016-2018, their Annual Net Income increased by 12.4% in the same period, which
is due to the fact that 92% of their restaurants are franchised.
1.2 Case Summary
Obesity started becoming a massive issue soon after the big success of fast food chains,
especially due to the fact that children were mainly affected by it. 40% of adults in the U.S.
are obese, with 18.5% under the age of 18. In the E.U., 51.6% of the population over the age
of 18 is considered overweight. Some argue that the advertising of junk food from famous
and well-known fast food restaurants, such as McDonald’s, was the reason obesity became
an issue, which in turn, has directed a lot negative attention to the marketing of unhealthy
food that causes obesity.
1.3 McDonald’s Response
McDonald’s response was to create campaigns, one of them called “Changes”,
promoting healthier menu choices and smaller portion sizes. The healthy options include
different salads, fruit bags, burgers with rye bread and fish and so on. These campaigns did
not show the expected results at first, but things turned around quickly and sales in Europe
saw an incline, which meant that McDonald’s had successfully and positively managed to
change people’s perspective of fast food restaurants. Furthermore, McDonald’s has tried to
improve its reputation by promoting sustainability, with their ultimate environmentally
friendly vision being to reduce the emissions of restaurants and offices 36% by 2030.
1.4 Recent and Current Challenges
The company has been on the defensive for years due to its strong global presence and
pressure from consumers, legal bodies, and competitors. The obesity public relations issue in
Europe from 2007 is not the only challenge that McDonald’s is facing. In fact, McDonald’s has
struggled with new regulations restricting their ability to advertise to kids. Also, McDonald’s
food has been compared to tobacco for their health effects by multiple parties, which has
made it challenging for the company to be effective while advertising their “healthy” options.
Furthermore, in early 2010’s, consumer preferences on fast food restaurants shifted
more towards fast-casual restaurants, such as Five Guys and Shake Shack, since they are more
up-market and urbanesque. They sell more gourmet-like burgers, rather than value-oriented
burgers that McDonald’s provides, which is what younger millennials and the Gen Z’s are
increasingly attracted to. These restaurants gained buzz and momentum because of social
media posts showing aesthetic pictures of their dishes. In contrast, McDonald’s customers
generally felt embarrassed admitting that they eat at McDonald’s. To deal with the challenge,
McDonald’s is currently running multiple culinary and operational experiments, such as using
fresh meat instead of frozen meat, testing innovative cooking techniques, and building new

technologies that can process custom burgers with high efficiency. Additionally, McDonald’s
would need to identify an appropriate branding and positioning strategy to compete here.
1.5 Analysis Frameworks
One method used to analyze McDonald’s was the Marketing Mix Analysis. McDonald’s
uses two different kind of pricing strategies, the bundle and psychological pricing strategy.
The first one refers to selling a set of products or a “package” of products for a lower price
than the cost of buying the products separately, while the second one refers to using prices
that seem more affordable (1.99 instead of round numbers). Product is the most essential
part of the company’s brand and image and McDonald’s are actively expanding their product
mix with salads, breakfast options, chicken and fish meals, desserts, fruits and other healthy
options in an effort to diversifying and adapting their products according to customers’
demand. McDonald’s tries to reach their customers in an effective way by using different
channels in promoting with advertising being the most significant form of marketing in
McDonald’s case, conducted through TV, radio, online and in magazines. Finally, to wrap up
McDonald’s marketing mix, the numerous locations of McDonald’s restaurants have enabled
the business to reach a large global market. Furthermore, the self-service kiosks and the
mobile app has played a significant role in the ease of doing business.
Additionally, we have also conducted a SWOT analysis to identify key areas of business
interest.
1.6 Recommendations
To address the long-standing obesity issue and rising challenges from fast-casual burger
restaurants, we have developed a two-pronged corporate strategy: Golden Arches, which is
a self-serve higher-end fast-casual restaurant chain that offers fresh gourmet-style and
customizable burgers, sides, and beverages; and McVita, which aims at increasing sales and
changing the perception of customers making items more visible and prominent in the
restaurants by following a rebranding and menu expansion strategy.
Golden Arches is the riskier option that requires
a longer implementation timeline, but it may result in
more sustainable bottom lines in the future.
Additionally, the rationale behind the brand name is
to retain an element of McDonald’s corporation while
differentiating itself from a standard McDonald’s
business model and service. The business model
factors in longer wait times and higher average
checks. Furthermore, one risk when implementing
this strategy is that people may struggle to connect
the idea of gourmet burgers and sides with the
McDonald’s Corporation brand, especially when
established competitors, like Five Guys, already exist. High marketing investments with

special focus on healthier menu items, and the market preference for healthy foods can
mitigate this issue. Another risk is the high capital expenditure involved with this strategy.
However, McDonald’s can mitigate this issue by reinvesting cash into this strategy instead of
paying out dividends, and it can reduce financial risks by testing with the pilot locations. There
may also be cannibalization of sales at standard McDonald’s locations, but the company can
address this issue by doing market research, distinguishing consumer segments, and
eliminating products with overlapping characteristics.
In contrast, McVita is a more risk averse solution that can be implemented in a shorter
time frame. It offers a greater variety of healthy food options to customers, such as sweet
potato fries, chicken burger with whole wheat bun, green
salad, fruit salad, variety of smoothies etc. Furthermore,
adopting a green logo, green self-service kiosks and separate
section of counter highlighted in green as the McVita station,
similarly to the McCafé, are just some of the rebranding and
menu expansion initiatives under this new strategy. One risk
involved with this strategy is the lack of consumer interest in
the new menu offerings, but McDonald’s can mitigate this
issue by initiating large marketing campaigns and highlighting
the offerings at the kiosks and counters. Another risk is the
reduction of efficiency from layout reorganizations. However,
McDonald’s will carefully research before changing layouts,
as it has done in the past, and the company will modify their
demand forecasting tools to accommodate for the changes.

2 Introduction
2.1 Background of McDonald’s
McDonald’s is the market leader of fast food restaurant chains in the world, with its
headquarters located in Oak Brook, Illinois. The first McDonald’s restaurant was established
in 1948 by two brothers, Maurice, also known as Mac, and Richard McDonald in San
Bernardino, California. They discovered a fast and efficient way of making large quantities of
food at a very low cost, by cooking burgers in advance and go on to later on wrap them and
keep them warm under the lights. Additionally, they adopted self-service counters, which as
a result eliminated the need for waiting staff and therefore reduced operating costs. As a
result, they went on to selling burgers half the price of their competitors, at only 15 cents.
On April 15th, 1955, Ray Kroc, who was the salesman the brothers contacted for
acquiring the equipment for their restaurant, opened the first McDonald’s franchise in Des
Plaines, Illinois. In the same year he also launched McDonald’s Corporation and a few years
later went on to buying McDonald’s from the brothers in 1961. In 1963, the famous clown
called Ronald McDonald was introduced and became the public face of the organization.
Within a decade, the number of McDonald’s outlets in the USA reached 1,000. Several years
later, in 1967, McDonald’s reached Canada, and due to its drastic expansion both domestically
and internationally, it reached a total of 10,000 restaurants by 1988, and over 35,000 across
100 different countries in the early 21st century.
In 2016, the total number of McDonald’s stores worldwide reached 36,899 compared
to 36,525 in 2015, an increase of 374 new stores in just one year. McDonald’s has been able
to expand consistently with hundreds of new stores opening across the globe annually.
McDonald’s has been a pioneer of process design in the fast food sector, by bringing in
innovation to the kitchen by introducing line type processes. One key characteristic of their
operations is the high volumes of limited variety of food types they provide, i.e. ability to
deliver a burger with a cycle time of less than 30 seconds from the moment an order goes
through.
2.2 Summary of the Case
Obesity is starting to be more and more common around the world. This is becoming
a huge problem especially when there are a lot of children who are either overweight or

obese. According to studies almost 40% of adults living in U.S. are obese. Obesity is affecting
18,5% (about 13.7 million children and adolescents) of the children and adolescents living in
U.S. (CDC 2018). In the most EU member states obesity is also increasing rapidly. In 2014 there
was 51,6 % of EU’s population (18 years old and over) overweight (Eurostat 2014). Obesity
among children living in Europe have been increasing for 25 years now. More and more young
adults and children suffer from health issues or is at risk to get health issues that occurs
because of obesity, like for example diabetes, hypertension, high blood pressure and physical
inactivity. (CDC 2018)
The question is, why has obesity so significantly increased in recent years? Some argue
that the answer to this question is the advertising of fast food and fast food restaurants, for
example McDonald’s. For this reason, there has been a lot more attention directed to the
advertising of unhealthy food that causes obesity. Europe has been very strict on fast food
advertising towards children that include icons such as Ronald McDonald, for trying to avoid
the same obesity problem that is occurring in America. Countries have different ways of trying
to cope with the obesity issue. Ireland is banning advertisement including celebrities that
promotes fast food aimed at children, marketers in France have to choose between including
health messages to ads or paying taxes, and UK is trying to promote self-regulation and
threaten with legislation if that does not work out well. The Nordic countries are the most
willing to come up with bans and restrictions for marketing food that is unhealthy for children.
However, they do not believe that this will fix all the issues regarding the obesity problem.
Thus, advertising unhealthy food such as fast food and food/drinks that contains a lot of sugar,
has become a widely debated issue around the whole world. This is the reason why
companies cannot continue advertising as they have done until now and they need to change
their marketing strategies. (Case 2-7 McDonald’s and Obesity)
2.2.1 McDonald’s Response to the Obesity Issue
After the documentary Super Size Me came out, McDonald’s had to take some action
regarding their menu offer. Their response was to create campaigns, for example one called
“Changes”, promoting healthier menu choices and smaller portion sizes. The healthy options
included different salads, fruit bags, burgers with rye bread, fish etc. These campaigns did not
show the expected results, which was that people would want to choose these healthier
menus instead of the traditional ones. McDonald’s are putting a lot of effort to make people
think their brand differently and make healthier choices by trying the new menus, but they

still do not want customers to forget the meaning of the Golden Arches. McDonald’s is also
still considering children as a very important target group in their marketing. They defend
themselves by arguing that they offer “healthy advice” to children.
At first McDonald’s sales went down but soon after, their sales increased in Europe.
McDonald’s has improved its reputation by doing these healthier menu changes. Even so,
people are mostly buying the traditional food, burgers and fries, and ignoring the
governments warning messages of increasing obesity. (Case 2-7 McDonald’s and Obesity)

3 Analysis
3.1 Financial Information
McDonald’s has been refranchising restaurants for a couple of years now (10-K report
2018). This has affected their revenues negatively. In fact, from the end of year 2014,
McDonald’s revenues have declined. From 2016 to 2017 the revenue declined 7,32% and
from 2017 to 2018 revenue declined 7,87%. McDonald’s revenue for 2018 was 21.025 billion
dollars. On the other hand, their net income has increased over the last few years. From 2016
to 2017 the net income increased 10,79% and from 2017 to 2018 there was an increase of
14,1%. In year 2018 the net income was 6,2 billion dollars. (Macrotrends 2019).
McDonald’s has a long-term goal which is that 95% of the restaurants will be owned by
franchisees. In 2017, they had reached 92%. This is also a part reason for cutting costs and
improved earnings. (Forbes 2018) A few things that may have an impact on McDonald’s
results are positive industry environment, refranchising restaurants, value meals and
technology initiatives. The overall environment for restaurant industry has been positive from
January to March 2018. Upscale casual dining and fine dining are continually growing. On the
other hand, fast casual dining trend have started to show growth after their struggle in 2017,
which could benefit McDonald’s in terms of our recommendation for McDonald’s to launch a
fast-casual business model. Another fact impacting future growth are the products sold at 1,
2 or 3 dollars. These products are driving growth as value-conscious customers will be more
likely buy them. Lastly, one growth possibility for McDonald’s is the effective use of
technology referring to the kiosks and mobile ordering and payment, which enables
McDonald’s to expand.
3.2 McDonald’s Improving its Reputation
McDonald’s has been trying to improve its reputation in several ways. As climate
change is a huge environmental issue currently, McDonald’s are putting efforts into
preventing that. By 2030 they want to reduce the emissions in restaurants and offices by 36%.
These efforts include changes in beef production and helping the beef industry to become
more sustainable, renovate old stores, take away antibiotics from chicken, change the buns
so that they do not include high-fructose corn syrup etc. Obviously, these environmental
efforts require cooperation of the independent franchisees. That’s why it remains unclear
how much the restaurant chain will invest in reducing greenhouse gases. (Bloomberg 2018)

According to the CEO, Steve Easterbrook, the most important factors for McDonald’s to
improve its image, is modernization of their restaurants and recipes and technology
innovations such as the mobile app and delivery via UberEATS. By improving the brand, they
can change consumers attitudes and perceptions towards McDonald’s. Due to this,
McDonald’s consumer satisfaction scores have increased in terms of better service, quality
and taste. The growth in market share has been highest in the UK. The tools for gaining higher
growth and better reputation are brand perception and operational metrics, according to the
CEO of McDonald’s. In other words, this means big investments in refurnishing restaurants,
healthier and higher quality menus, and the people. Because of the huge popularity of
McDonald’s mobile app and delivery via UberEATS, McDonald’s will invest a great deal into
marketing of these elements. (Marketing Week 2018)
3.3 Marketing Mix
McDonald’s marketing mix includes different approaches depending on the different fast
food restaurants around the world. McDonald’s has to adjust to different markets and that’s
why they have some variations in their marketing mix depending on the locations of the
restaurants. However, McDonald’s still has some corporate standards regarding their
marketing mix that are used globally.
3.3.1 Price
Pricing is an important part of McDonald’s marketing strategy. McDonald’s uses two
different kind of pricing strategies:
1. Bundle pricing strategy
2. Psychological pricing strategy
The Bundle pricing strategy means that you sell a set of products or a “package” of
products for a lower price than the cost of buying the products separately (Kotler 2000).
McDonald’s offers certain meals for discounted prices instead of buying each of the items
separately, for example a Happy Meal. Then again, using psychological pricing which means
using prices that seems more affordable (1,99 instead of round numbers). This strategy makes
the product to seem more affordable for consumers, which results in consumers buying more
products and make the buying decision easier.

3.3.2 Product
Product is the most essential part of the company’s brand and image, as burgers and fries
are their number one product. However, as seen they are actively expanding their product
mix with including salads, breakfast options, chicken and fish meals, desserts, fruits and so
on. As seen in our case, by expanding their product mix to also including healthy options,
diversifying its products and adapting the products according to the customer demand, they
have succeeded to gain growth and improve their reputation. Also, by diversifying the product
mix the business risk is spread as they do not need to rely on only a few market segments.
McDonald’s main product mix includes: (McDonald’s full menu 2019)
• Hamburgers
• Fries
• Beverages
• Breakfast
• Salads
• Chicken
• Fish
• Desserts
• Shakes
• McCafé
3.3.3 Promotion
Promotion of Marketing Mix was seen as following tools according to Kotler (1994)
1. Advertising
2. Direct marketing
3. Sales promotion
4. Public relations and publicity
5. Personal selling
McDonald’s tries to reach their customers in an effective way by using different channels
in advertising and promoting. In their promotion McDonald’s prime focus is on value, quality,
menu selection, food taste, customer experience, convenience and nutrition. (10-K report)
Since McDonald’s is in a hyper-competitive fast-food restaurant market, they invest a lot in
promotion to attract customers.

Advertising is the most significant form of marketing in McDonald’s case. Advertising in
McDonald’s case is conducted through TV, radio, online and in magazines. They invest a lot in
TV advertising (10-K) that are specifically aimed at children (Vignali 2001), as children are their
most important target segment. In terms of sales promotion, McDonald’s offer different
coupons for customers to get certain product cheaper. (McDonald’s 2019). Also, McDonald’s
website provides customers with all information needed about their products.
A global marketing strategy of McDonald’s was establishing an alliance with Walt Disney
that gave them exclusive marketing rights and this led to McDonald’s producing toys from
Disney films, for example Toy Story and Tarzan (Vignali 2001). These toys were included in
the Happy Meals. This alliance ended in 2007, and some argue the obesity issue could have
been one reason why Disney did not want to renew the contract (Case).
Also, a big part of McDonald’s investment in global marketing includes sports sponsoring,
for example FIFA World Cup, NFL and the Olympic Games since 1990’s. (The Washington Post
2018)
Ronald McDonald has been McDonald’s mascot for a long time now and another
strategy to promote their brand. McDonald’s Ronald McDonald House Charity program
is for not only strengthening their brand image but also support communities. Their
environment program “Global Best of Green” also gives the same effect for the brand and the
environmental purposes. These are also seen as a part of McDonald’s promotion.
(McDonald’s 2019)
Over the years McDonald’s have used a lot of different slogans, the latest being “I’m
Lovin’ It” which is known by everyone. Thus, McDonald’s has used these slogans to promote
the company and so that everyone remembers the name.
3.3.4 Place
This aspect of the marketing mix refers to the places and locations where products are
offered. In McDonald’s case restaurants are the most common places where consumers can
access the products. Thanks to the numerous locations of McDonald’s restaurants they are
able to reach a large number of customers each day.
In addition to this, one growing division is the self-service kiosks and the mobile app that
enables consumers to order and pay electronically, and also get more information about the
products. Through the app customers also get exclusive deals and different options for picking

up the food. (McDonald’s Mobile Order & Pay) These virtual places add convenience and are
seen as a huge growing opportunity for McDonald’s.
3.4 SWOT
3.4.1 Strengths
• Their products are well-known and successful like Big Mac, Happy Meal etc.
• They are a worldwide brand that is globally known and have restaurants in over 100
countries. (McDonald’s 2019)
• Largest market share of the fast food industry in U.S. (Statista 2019)
• American classic
3.4.2 Weaknesses
• Unhealthy menu (as said they are working on that)
• Cheap products give an image of bad quality
• Slowed revenue
• Brand image as an unhealthy fast food company
3.4.3 Opportunities
• Expansion into Eastern Europe, Middle East and Africa
• Develop and expand their menus to include healthier options
• Innovation regarding the healthy menus. They have already improved its reputation
by including products such as fruit bags and other healthy snacks
• Take part in social issues/changes by improving advertising à social media
• CSR and environmental matters (10-K)
3.4.4 Threats
• Obesity issue: in many countries’ government is getting involved regarding
advertisement etc. (case)
• Fitness trend leads to McDonald’s losing customers
• Fast casual upscale restaurants
• New advertisement regulations

3.5 BCG Matrix
BCG Matrix is a useful tool for assessing companies with different segments. This is a
framework for evaluating the company’s products considering market share and growth. This
can be done by analyzing different criteria such as geographical segments of the company.
BCG framework is divided into four dimensions which each show the different competitive
positions of each segments. By using this framework and analyzing the different segments the
company can choose the right strategy for these different segments. (Business News Daily
2018)
McDonald’s geographical segments can be divided into
1. America
2. Europe
3. Asia/Pacific, Middle East and Africa
4. Other countries (like Canada and Latin America)
3.5.1 Stars
In stars section the segments give the most market share and the market segments are
characterized of highest sales growth. There is also a high competition in these segments. In
McDonald’s case, from a geographical perspective, this segment would be Europe. (10-K and
case) The sales in Europe has been growing constantly, as France, the UK and Germany are 3
of McDonald’s top 5 markets with the most locations in Europe. Also a few other countries,
like Australia and Canada, are included in this segment. (10-K report)
3.5.2 Cash Cows
Cash cows are the segments that provides stability for the company due to a high market
share. In these segments the sales growth is slow (Business News Daily 2018). In McDonald’s
case we would put the US in this category. The US has the largest market share of 31% (10-K
report). However, there is a lot of competition in the US market because of new entrants and
other restaurants that offer healthier options as substitutes. Therefore, McDonald’s should
do something about their current strategy to not lose its position in the market.
3.5.3 Question Marks
In this segment the market share is low, and sales growth is high. In this category we
would put Asia/Pacific, Middle East and Africa and a few European countries also. In these
countries there is a lot of potential for high sales grow and higher restaurant expansion. These

countries include for example China, Korea, Poland, Russia, Italy and the Netherlands (high
grow markets).
3.5.4 Dogs
McDonald’s do not really have any segments that can be put into this segment. In this
segment there would be low market share and low sales growth, which are bad for the
company’s overall financial health.

4 Challenges
4.1 The Advertising Challenge
Advertising has always been an effective way to promote a company’s product, so it is
just normal that many people say McDonald’s ads, especially targeting children, are to blame
for the increase in obesity worldwide (Case 2-7 McDonald’s and obesity). Not only in the US
where some companies have to deal with lawsuits but also in Europe, this is shown by the
threat of several countries to prohibit figures like Ronald McDonald for example (Case 2-7
McDonald’s and obesity). As Margaret- Anne Lawlor states, children are more interested in
fun ads including grand persons or figures and also are joyful (Exploring Children’s
understanding of television advertising: Beyond the advertiser’s perspective). But how could
a company overcome such a challenge? As firms cannot just stop promoting their products to
increase their sales. There has to be another way, whether it is launching a new “healthier”
product or just changing the target group of the ads, to avoid more lawsuits or threats from
countries something has to be changed.
4.2 Advertising the Healthy Side of McDonald’s
As a response to the above-mentioned threats, McDonald’s started to make changes.
One of those was to advertise the “healthy” parts of the menus in the restaurants (Case 2-7
McDonald’s and obesity). However, due to the previous reputation of the firm, it was not easy
to make their customers aware of this side of the company, as the “picture” of the chain was
hard to change, the attention of the customers was not achieved (Case 2-7 McDonald’s and
obesity). So, the next challenge presents itself. How could they actually increase the sales of
those healthier products or make them popular amongst the clients? And of course, they have
to stick to their “main” competence, the burger and fries, so how could one combine the two
options so that the main menus will not decrease in sales and the new additions would
increase? Some more actions have already been taken, as for example the fruit and vegetable
figure called Yums (Case 2-7 McDonald’s and obesity). But surely there has to be done more
to achieve an improvement in all parts.
4.3 Image of McDonald’s
The case portrays McDonald’s in a bad, but representative way of how people think
about the fast food giant. This has to do with a lot of different challenges McDonald’s is facing
regarding their overall image. The documentary “Super Size Me” released in 2004 shows how

damaging daily McDonald’s food can be to a body. Despite it solely being a one-man
experiment, the movie caused a lot of backlash for the brand and image of McDonald’s (Forell,
2011; Super Size Me, 2004).
Comparisons to tobacco producers are more frequent and if the connection of fast food
and tobacco cannot be eradicated as soon as possible, the damage to the image of
McDonald’s could be irreversible. The tobacco industry is still a highly successful business but
in the year 2019 most people are not proud smokers. And according to the case, it is a
problem McDonald’s is aware of currently, stating, “We do not want to have closet loyalists”.
Indicating that there are loyal customers to the brand that would not tell other people about
it or share their experiences.
So how close are tobacco and the issue of obesity correlated? In 2004 obesity was
estimated to be the cause for 2.8 million deaths worldwide, tobacco still has over 5 million
(World Health Organization, 2009). In the US 22% of the population smokes whereas 16% of
the youth and 30% of adults are overweight. Therefore, similar numbers can be drawn from
that, like the yearly cost of treating patients, $115 billion for tobacco and $117 billion for
obesity (Courtney, 2006).
McDonald’s challenge therefore is to have a clear line separating the two issues of
tobacco addiction and obesity. While there are similarities, there are also a lot of differences,
mainly arguing about the point that fast food can be part of a healthy diet, as long as it is not
overused. Most people eat fast food from time to time without being obese. Therefore,
implying that McDonald’s does not make customers addicted to their product. Tobacco on
the other hand is way more prone to create an addiction and only smoking irregularly can be
a hard feat for many (Courtney, 2006).
For decades, McDonald’s has clearly been the leading brand in the fast food franchise
space. McDonald’s reimagined burgers, fast food service, and the franchising business model.
However, the company has been on the defensive for years due to its strong global presence
and pressure from consumers, legal bodies, and competitors. While the case discussed about
the obesity public relations issue in Europe from 2007, that is not the only challenge that
McDonald’s faces. On multiple occasions, McDonald’s has employed a variety of strategies to
successful counter these challenges. Despite their relative success in executing defensive
strategies, the fast food giant must fight challenges, ranging from up-market fast-casual
competitors to staff compensation issues, food safety scandals, and activist investors.

Stephen Easterbrook, appointed as the CEO of McDonald’s, is tasked with the responsibility
of solving these challenges.
4.4 Market Interest in Fast-Casual Restaurant Chains
Ever since its beginning, McDonald’s has been known for its relatively inexpensive and
value-oriented burgers, as well as its quick service. Since the late 2000’s and early 2010’s,
though, consumer preferences regarding fast food and burgers shifted more towards fast-
casual restaurants, such as Five Guys and Shake Shack. The fast-casual restaurants are more
up-market and urbanesque. They sell more gourmet-like burgers, rather than value-oriented
burgers that McDonald’s provides. Younger millennials and the Gen Z’s are increasingly
attracted to these fast-casual restaurants due to the use of better ingredients, more aesthetic
food, and trendier environments. These restaurants gained buzz and momentum because
millennials and Gen Z’s began posting aesthetic pictures of their dishes on their social media
platforms. Meanwhile, McDonald’s customers generally feel embarrassed admitting that they
eat at McDonald’s.
4.4.1 Fast-casual business model conversion
While fast-casual restaurants are growing in popularity, McDonald’s may feel the
pressure to provide new offerings that direct compete with these restaurants. In recent years,
certain fast-casual restaurants have enjoyed a 9% annual growth rate in sales, while fast-food
restaurants, like McDonald’s, have a much flatter growth trajectory that does not exceed 3%
annually. However, it is important to realize that the business model and value proposition of
McDonald’s and fast-casual restaurant chains are tremendously different. The wait times at
Five Guys and Shake Shack is approximately ten minutes. On the other hand, the expected
wait time at McDonald’s is approximately two to three minutes. That is why McDonald’s is
able to operate drive-thru's, which account for almost 70% of their business. Also, the average
check at Shake Shack is around €13, whereas the average check at McDonald’s is
approximately €5. If McDonald’s is to release a menu featuring gourmet-level burgers, the
company must find ways to maintain their core attribute of fast service at low costs. Finding
the correct balance is a fine line though. Thus, McDonald’s is currently running multiple
culinary and operational experiments, such as using fresh meat instead of frozen meat,
testing innovative cooking techniques, and building new technologies that can process
custom burgers with high levels of efficiency. In addition to experimenting with different

ingredients and culinary techniques, McDonald’s would need to identify an appropriate
branding and positioning strategy to compete with these fast-casual restaurant chain while
retaining its core attributes.
4.5 Employee Compensation
In addition to the obesity and fast-casual competitors challenges, McDonald’s is still
facing a long-standing employee compensation issue that is further damaging their company
image. Some McDonald’s employees have complained about the firm’s negligence, failure to
pay overtime and/or minimum wage, and a lack of respect regarding certain employee rights
and freedoms. As a result, current and former employees filed multiple lawsuits against the
firm. Responding to this issue, McDonald’s made a settlement with those employees outside
of court. In April 2015, Steve Easterbrook stated that all employees at corporate-owned
restaurants in the United States would be paid at least $1 per hour more than the area’s
minimum wage. As per his intuition, the wage hike resulted in lower employee turnover,
reducing training costs and time, and therefore increasing customer satisfaction. Thus, the
net income of McDonald’s increased from the first quarter of 2015 to that of 2016. However,
even as recent as 2018, there have been reports of McDonald’s breaking its minimum wage
promise. It’s clear that internal issues are hurting McDonald’s just as much as external
challenges. While McDonald’s has taken steps to improve their employee compensation
situation, questions remain of how McDonald’s would tackle this problem if the firm is to
offer better quality dishes that compete with fast-casual restaurants. Better quality dishes
that use fresh ingredients and are customizable require more skillful employees and better
training, which would inevitably drive up labor costs. Ambiguity exists surrounding the
effectiveness of the business model if McDonald’s is to enter more gourmet-style offerings -
may be necessary if McDonald’s aims to shed its negative image of causing obesity.

5 Recommendations
To address the long-standing obesity issue and rising challenges from fast-casual burger
restaurants, we have developed a two-pronged corporate strategy: Golden Arches and
McVita. Of the two options, Golden Arches is the riskier option that requires a longer
implementation timeline, but it may result in more sustainable bottom lines in the future. In
contrast, McVita is a more risk averse solution that can be implemented in a shorter time
frame.
5.1 Golden Arches
5.1.1 Qualitative Overview
The McDonald’s Corporation should consider launching Golden Arches, a self-serve
higher-end fast-casual restaurant chain that offers fresh gourmet-style and customizable
burgers, sides, and beverages. This restaurant chain would utilize fresh and all-Natural
ingredients that would positively serve the taste buds and the health of customers.
In recent years, McDonald’s has been facing stiff competition from fast-casual
restaurants, like Shake Shack, Five Guys, and The Good Burger. As mentioned earlier, these
fast-casual restaurants are generally perceived as offering healthier and tastier burgers than
McDonald’s, due to customizable ingredients and the use of fresh meats, instead of frozen
alternatives. While these restaurants are approximately experiencing a 9% annual growth in
sales, McDonald’s is witnessing a decline in its revenue.
By launching the Golden Arches restaurant chain, the McDonald’s Corporation can
compete in the upper-scale restaurant market against the likes of various fast-casual
restaurants. Also, Golden Arches could significantly improve the health-related image of
McDonald’s due to the use of fresh quality natural ingredients.
5.1.2 Case Example: Taco Bell Cantina
Taco Bell, a subsidiary of YUM! Brands Inc., is a fast-food restaurant chain that operates
in approximately 27 countries and territories. It offers a variety of Tex-Mex dishes at cheap
prices and low wait times, which are the two main attributes for McDonald’s as well.
Over the years, Taco Bell’s sales growth became stagnant due to the emergence of fast-
casual Tex-Mex restaurant chains, like Chipotle and Qdoba, and regional chains, such as Taco
Cabana and Taco Bueno. Also, Taco Bell began losing customers as they were entering their
30’s because the brand communicated “value” and “low prices”, but not necessarily “quality”.

In response, Taco Bell initiated attempts to build a more “premium” brand. Collaborating with
Lorena Garcia, a celebrity chef famous for appearances on Top Chef Masters, Taco Bell
released the Cantina Bell menu in 2013. The menu featured various dishes (e.g. bowls,
burritos, and quesadillas) with high quality ingredients (e.g. whole black beans, cilantro, steak,
and avocado), resulting in a 6% increase in same-store sales during the first quarter of 2013.
As a next step, YUM! Brands decided to launch Taco Bell Cantina, an upscale version of
Taco Bell, located in urban areas, that serves exclusive dishes and alcoholic drinks. Due to the
opening of Taco Bell Cantina restaurants, the Taco Bell division of YUM! Brands has
experienced an average annual system sales growth of 5.7% over the past three years. The
positive consumer response to Taco Bell Cantina locations is evident, especially in markets
where Chipotle and Qdoba exist. Thus, YUM! Brands has decided to expand Taco Bell Cantina
into more locations, especially in New York.
Although the idea of launching Golden Arches is inspired by Taco Bell Cantina’s success,
a couple differences must be considered. For example, Taco Bell is focused on Tex-Mex food
offerings, while McDonald’s is known for American burgers. Also, Taco Bell Cantina offers
practically everything a standard Taco Bell offers, whereas Golden Arches would have a
unique menu consisting of only a few overlaps with the offerings of regular McDonald’s. This
is mainly due to the differing objectives of the two companies. While the primary objective of
YUM! Brands in the launch of Taco Bell Cantina was to improve the “quality” perception of
Taco Bell’s food options, the idea behind Golden Arches is to not only enhance the quality of
its offerings, but also to improve the “health” positioning of the food selections. From a
branding standpoint, “Golden Arches” retains the brand essence of the McDonald’s
Corporation while replacing the “Mc- “, which helps distinguish Golden Arches as the
“premium quality” restaurant chain of the company. Separating the branding from the
traditional McDonald’s restaurants is an appropriate branding strategy since Golden Arches
would offer a different menu altogether. In contrast, retention of Taco Bell’s name and
branding for the Cantina stores is justifiable because these upscale restaurants offered
traditional Taco Bell options too.

5.1.3 Implementation
5.1.3.1 Timeline
5.1.3.2 Conceptualization of Menu Offerings and Business Model
The Golden Arches business model is vastly different from a standard McDonald’s.
Standard McDonald’s stores are based on the framework of short wait times and relatively
low average checks, whereas Golden Arches would be built on the idea of longer wait times
and relatively higher average checks due to the use of fresh, all-natural, and high-quality
ingredients. Thus, Golden Arches’ entire menu offerings must be different and prices must be
higher to accommodate this new business model and to achieve the objectives of promoting
better quality and healthy food.
Regarding the food specifically, the McDonald’s Corporation in recent years has
experimented with different ingredients and cooking methods. Although the company knew
how to cook fresh meat and make fantastic combinations of ingredients for the burgers, it
remained hesitant on implementing these ingredients and combinations since they would
significantly decrease the operational efficiency of standard McDonald’s stores. However,
with Golden Arches, the company has the flexibility to incorporate fresh premium ingredients

since customers would be expecting greater wait times. There is a set menu, but customers
can still customize their burgers. By collaborating with a celebrity chef, like Bobby Flay
(famous for inventive burgers), Golden Arches could refine its food menu, ingredients, and
cooking methods. This would be a similar tactic to the Cantina Bell menu collaboration with
Lorena Garcia. Since the McDonald’s Corporation has done many food experiments and
research over the years, the main challenge for the company is not necessarily the food idea
creation, but it is the global scaling of the menu. McDonald’s may need to identify new
regional and global suppliers, organize new distribution networks, develop a new demand
forecasting system, purchase premium cooking machines and tools, and prepare response
strategies for crisis situations.
The layout of the Golden Arches restaurant should be consistent with its positioning and
objectives. As customers enter the restaurant, they would use the self-service digital kiosks
to make, customize, and place their order. At the kiosks, the customers have the option of
paying. Others can also walk up to the cashier and place their order too. These kiosks enable
the Golden Arches restaurant to utilize their employees mainly for food preparation, which
boosts time and cost efficiency. Darker color tones, sleek tables and chairs, booths, and bar
tables against the windows would help create an urbanesque and upscale aesthetic to the
restaurant. Additionally, no drive-through option would exist due to the longer wait times
built into this business model. Moving forward, transparency is extremely important to
rebuild the “health” and “quality” customer perceptions regarding the McDonald’s
Corporation. The idea to achieve transparency is to construct open kitchens. Multiple
supporting reasons exist for implementing open kitchens. Firstly, the open kitchen provides
an opportunity for the chefs to show their culinary talents in making the dishes and for people
interested in cooking to follow the food making process. Thus, the cooking can be observed
as an attractive viewing experience. Steve Ells, the founder of Chipotle once stated, “The
sounds, the smells, and the sights of cooking can really help you work up an appetite.”
Secondly, by having an open kitchen, the customers can see with their own eyes and trust
that fresh and high-quality ingredients are used in the meal. This will also strengthen the
health image of the McDonald’s Corporation. Lastly, an open kitchen is a space saving option
that could reduce operational costs and capital expenditures.
In the food services industry, employees play an integral role in the success of the
business. The McDonald’s Corporation cannot just transfer employees at the standard

McDonald’s to Golden Arches. Since the business model of Golden Arches revolves around
more “gourmet” options at longer wait times and higher costs, its employees should at least
know some basic culinary techniques and skills rather than just focusing on efficiency. Hiring
people with these skills may be more challenging, so higher wages/salaries may be necessary
to attract individuals to work at Golden Arches. Something to remember is that the company
is already facing employee compensation issues. In addition to different skill sets, hiring
difficulty, and increased compensation, employee training needs be more intense in order to
produce these gourmet dishes.
5.1.3.3 Pilot Launch in the US and UK
Once the operational model and menu offerings are determined, McDonald’s should
launch a pilot program by opening two stores each in the United States and United Kingdom.
These stores should be opened in urban areas with a large proportion of the population being
in its 20’s and early 30’s.
The rationale behind selecting the U.S. and U.K. as pilot testing locations is that both
these locations are the two most popular burger markets. McDonald’s is a staple for the
population of both of these markets. Gourmet burgers are more likely to be accepted in these
markets than anywhere else in the world. If the pilot Golden Arches locations fail to gain much
traction in these markets, there would be a higher probability of failure in other mature,
developing, and new McDonald’s markets. In this situation, the pilot launch can help prevent
the company from further investing in Golden Arches. Also, the powerful brand of the
McDonald’s Corporation may drive loyal McDonald’s customers and the customers of
competitor fast-casual burger restaurants to the Golden Arches.
The pilot locations of Golden Arches would be corporate-owned, rather than franchised
stores. With multiple moving parts, the company can react faster to necessary changes in the
operational model at a corporate-owned store than at a franchised store. In case the Golden
Arches concept is not successful, the McDonald’s corporation can suspend or shutdown
operations with immediate effect and without any contractual repercussions. Suspending or
shutting down unsuccessful franchised stores would be a tricky process due to franchising
contracts.

5.1.3.4 Assessment and Response
Once the pilot locations are launched, two formal assessments will take place in the first
year. The first formal assessment will occur six months after the opening of the pilot stores.
Based on the assessment, the McDonald’s Corporation should make the necessary changes
to improve the customer experience and its brand. The second formal assessment would
occur one year after the opening of the pilot stores, and the process would be repeated again.
These assessments and responses are necessary to improve the quality of the offerings,
increase the efficiency of the operations, and refine costs and prices. Having said that,
continuous improvement processes will still occur at an informal level.
5.1.3.5 Franchising Golden Arches in the US and UK
After 1.5 years post the launch of the four pilot stores in the U.S. and U.K., the
McDonald’s Corporation can make franchising options available for Golden Arches in these
two countries. Registration and location selections can start immediately after the first formal
evaluation, but business operations at franchised locations cannot start until September
2022. This is so that there is sufficient time to implement changes to the business model and
evaluate its success. Also, individuals may not feel comfortable opening a franchise of Golden
Arches until reliable positive financial performance is evident, which would take at least six
months at the minimum. Franchised stores would strictly be limited to the U.S. and U.K. until
January 2024 to ensure that the franchised locations operate smoothly and replicate the
success of the corporate-owned restaurants in the most desirable burger markets.
Additionally, the initial one-time franchising fee for Golden Arches would be at least twice the
franchising fee of standard McDonald’s in that general area. The franchising fee for Golden
Arches is higher than that of a standard McDonald’s to account for the new business model,
the premium ingredients, and the more aesthetic urbanesque interior design.
5.1.3.6 140 Golden Arches Locations Across North America and Europe
If the franchised stores in the United States and United Kingdom successfully perform,
then the McDonald’s corporation should expand the number of franchised Golden Arches
locations across all of North America and Europe. By March 2026, the McDonald’s
Corporation should aim to open 140 Golden Arches locations - corporate-owned or
franchised. Franchising is helpful with quick expansion and reduction of capital expenditures.
Due to Golden Arches being part of the global McDonald’s brand and also because of the

market growth in the upscale fast-casual restaurant segment, Golden Arches would present
an attractive franchising opportunity for individuals in the North American and European
markets. Having said that, Golden Arches must be culturally aware when expanding globally,
by taking efforts to adapt the menu to local customer tastes and operating according to the
local culture’s standards.
5.1.4 Menu Offerings and Pricing Strategy
5.1.4.1 Appetizers and Sides
Options Description Price
Sweet Potato Fries Crinkle-cut sweet potato fries served with low-
fat ranch
€3.69
Lightly-Fried Okras Lightly-fried breaded and cut okra served with
low-fat ranch
€3.29
Assorted Mini
Quiches
Pastry crust filled with egg, milk, and cheese.
Vegetable, seafood, and meat fillings available in
assortment
€4.49
Grilled Chicken
Bites
Chargrilled chicken nuggets served with low-fat
honey mustard or ranch
€5.29
Falafels Egyptian-inspired fried balls consisting of
chickpeas, herbs, and spices; served with tzatziki
sauce
€4.99
5.1.4.2 Salads
Caesar Salad Romaine lettuce, grilled chicken, croutons,
Parmesan cheese, black peppers, light Caesar
dressing
€5.49
Cobb Salad Chopped salad greens, tomato, crisp bacon,
grilled chicken, hard-boiled eggs, avocado, light
red-wine vinaigrette
€5.89
Chopped Asian
Salad
Chopped salad greens, shredded green cabbage,
carrots, green onions, roasted peanuts, crunchy
noodles, light sesame ginger dressing
€6,39

5.1.4.3 Special Burgers
Golden Classic Angus beef, Wisconsin cheddar cheese, lettuce,
tomatoes, caramelized onions, pickles, light
mayonnaise on classic bread
€7.59
Golden Barbie-Q Angus beef, smoked bacon, cole slaw,
caramelized onions, Wisconsin cheddar cheese,
BBQ sauce on whole wheat bread
€8.49
Golden Matador Angus beef, grilled jalapeños, arugula, cilantro,
roasted bell peppers, caramelized onions,
tortilla crisps, Jack cheese, spicy tomatillo sauce
on brioche bread
€9.39
Golden Trailer Park Fried chicken, provolone cheese, guacamole,
pickled onions, lettuce, pickles, chopped
tomatoes, corn, light ranch on sesame bread
€7.49
Golden Gate Grilled chicken, sun dried tomatoes, caramelized
mushrooms, caramelized onions, arugula,
mozzarella cheese, cilantro-mint sauce on
brioche bread
€8.79
Golden Bandita Black bean and corn patty, avocado, goat
cheese, arugula, tomato, caramelized onion,
mushrooms, chipotle sauce on whole wheat
bread
€7.49
5.1.4.4 Customizable Burgers
Price - €9.79
Bread (Pick
1)
Meat (Pick 1)
Cheese
(Pick 1)
Ingredients (Pick 4) Sauce (Pick 1)
Classic,
Whole
Wheat,
Brioche,
Sesame
Angus beef,
fried chicken,
grilled
chicken,
smoked
bacon, black
bean and corn
patty
Wisconsin
cheddar,
jack cheese,
provolone,
mozzarella,
goat cheese
lettuce, arugula, cole
slaw, tomato, sun-dried
tomato, caramelized
onions, pickled onions,
caramelized
mushrooms, avocado,
guacamole, pickles,
corn, grilled jalapeños,
roasted bell peppers,
cilantro
Light
mayonnaise,

5.1.4.5 Beverages
Options Price
Bottled Drinks (Water, Iced Tea, Soda,
Fruit Juice, Milk)
€2.49
Fountain Drinks €1.99
Milkshakes €3.79
Fresh Smoothies €3.79
Provided above is the drafted menu with prices (subject to change) that could be offered
at Golden Arches. As seen, the dishes would use healthier and better-quality ingredients that
are all-natural to remain consistent with the objectives of Golden Arches restaurant chain.
Since more gourmet sides, salads, burgers, and beverages are offered, the offerings must be
priced higher than at a standard McDonald’s to maintain similar profit margins. Psychological
pricing (prices ending in “9”) is used throughout the menu, which is similar to the tactics used
at standard McDonald’s restaurants. Customizable burgers are an option as well because
many fast-casual burger chains enable customers to build their own burgers. Since preparing
customized burgers would require more time than “Special Burgers”, the price is marginally
greater. Also, the prices are comparable to those of the fast-casual competitors.
5.1.5 Risks and Mitigations
5.1.5.1 Acceptance of McDonald’s “upscale and fast-casual” Restaurants
When thinking about McDonald’s as a brand, the first thing that comes to mind is fast
food products that are affordable and tasty but are not necessarily healthy. By introducing
McCafé and other brand improvement efforts (introducing new products, environmental
efforts, beef production etc.), McDonald’s is trying to positively change its brand perception.
Golden Arches, by providing “gourmet” food that is healthier and more delicious than
standard McDonald’s products, is a dynamic attempt to reposition the brand and improve its
image. A risk is that people may struggle to connect the idea of gourmet burgers and sides
with the McDonald’s Corporation brand, especially when established competitors, like Five
Guys, already exist.

One mitigation could be high investments in marketing of Golden Arches. Because of
McDonald’s being a globally known brand, you can assume that people will be interested if
they come up with something totally new. On the other hand, there will still be those who
resist changes like these. Because of the current big popularity of fitness and being healthy,
the McDonald’s Corporation could take this perspective into their Golden Arches marketing
strategy and highlight how the menus in Golden Arches goes along with this fitness kind of
lifestyle. Also, the naming this upscale fast-casual chain as “Golden Arches” helps distance
itself from the standard McDonald’s attributes of cheap and convenient food.
5.1.5.2 High Capital Expenditures to Set up Restaurants with new Business Model
Starting a chain of restaurants operating with a new business model requires a high level
of capital expenditures. Additionally, the McDonald’s corporation must account for other
financial risks, such as expensive marketing costs, potentially low ROI, and heavy
supplier/distributor costs.
However, there are multiple options to address the risks stemming from financial costs.
For example, instead of paying out dividends to shareholders, the company can reinvest their
capital into starting Golden Arches. Also, the McDonald’s Corporation is only opening four
pilot locations at first to test its success in the market. For a company that has over 36,000
stores worldwide, four more restaurants are a tiny percentage. The high initial costs can be
compensated by the “upscale” menu prices and the higher franchising costs. Overall, the
financial risk is alleviated by the pilot test into the market, higher one-time franchising fees,
and the higher menu prices.
5.1.5.3 Potential Cannibalization of Standard McDonald’s Sales
Innovation in terms of new business models or products is required for companies to
thrive. Often, this means upgrading the products that already exists. As said, when the
McDonald’s Corporation introduces this new concept, it’s important to maintain the
popularity of the original products in its standard McDonald’s stores. To avoid potential
cannibalization of standard McDonald’s products, the target segments for the new business
model should be defined properly. Doing consumer research and defining detailed customer
profiles makes it’s easier to direct the marketing towards this target segment. Another
perspective that could help in mitigating the risk is to identify the differentiating
characteristics between the standard/original products and the new products. If these

characteristics overlap, the new products may cannibalize the sales of already existing
products. Thus, the new products must carry certain unique attributes that appeal to the
consumers.
5.2 McVita
5.2.1 Qualitative Overview
To challenge the obesity issue McDonald’s is facing, further modification of the menu
offerings and rebranding of the healthy dishes is an option. It has been tried before by adding
healthier foods to the menu like the Caesar salad but according to Business Insider none of
the healthier options make it into the top ten best-selling items (Jones, 2018).
To increase sales and especially change the perception of customers the
recommendation is to make the items more visible and prominent in the restaurants. There
would need to be an increase in menu items and also a new category on the menu board. It
can be compared to the McCafé system, where McDonald’s mainly sells coffee and pastries.
In Spain it is a separate part of the counter which McVita is not intended to be but McCafé
follows the brown and white color scheme in their branding and has a separate section in the
digital self-service kiosks. Similar things are expected from McVita. This not only can increase
sales and target a healthier customer base but also improve the overall image of McDonald’s
since customers see healthy options all the time even if they decide to go for the classic menu
items.
This strategy would not replace any of the current menu items but would be added to
the menu. The goal is to have the possibility of a customer visiting McDonald’s more than
once a week and have different healthy options to choose from.

5.2.2 Implementation
5.2.2.1 Timeline
5.2.2.2 Further Conceptualization of Menu Offering and Organization
During this stage the menu offering will be finalized with experts in the food industry, to
not only make them tasty but also easy to prepare. Ideally the menu can be added without
needing any restructuring of the kitchen or storing units within the restaurants.
Another part is to finalize design adjustments to the McDonald’s stores where the McVita
items are being served. Therefore, store design experts will be hired. The idea at this stage is
that the McVita branding will be a light green visualizing the healthy side. The self-serving
kiosks would offer a separate section for the McVita options. In the current kiosk system there
are items overlapping into multiple categories. For example, coffee can be found in the
“McCafé” section as well as the drinks section. This can be done for some of the McVita items
as well.
In the design of the store an idea is to color a part of the counter differently. For example,
when there are three cash registers and there are screens behind them offering the menu,
color the furthest most left one in the light green color of the McVita branding and have the
pertaining menu items on the screen behind them constantly. At the moment the screens
swipe through different items like the Big Mac, McChicken, etc. An idea would be to keep this
strategy but show healthy options on at least one of the screens permanently, also without
the red and yellow color but the light green one.
Also include healthy menu items for kids and make them visible to make parents less
worried about the health risk of McDonald’s food to their kids.

5.2.2.3 Launch McVita in 20 Stores in the UK and USA
After the conceptualization phase is done it is time to test it in the real world. 20 stores
across the US and UK should be manually picked based on their location (more urban) and
their infrastructure (newer and spacious restaurants).
These locations are chosen because people in richer urban areas are more prone to go
for a healthier substitute than working-class people in the countryside. Newer and especially
more spacious restaurants offer an easier way to incorporate the new branding and design
changes. The UK and USA are chosen because they have a big fast food consumption and are
very similar in their cultures regarding food.
Advertising the new products should not be in big media campaigns but mostly in or
directly outside of the store to make these customers aware of the new items. Bigger
advertising campaigns are a waste of money because only a fraction of McDonald’s customers
actually go to one of the test outlets.
5.2.2.4 Assessment and expansion
During the month of September, a first assessment of the success can be drawn from the
testing phase. In case of overwhelming success, no time should be wasted in expanding
further and into more restaurants. There is a big potential of having to adapt processes again
to make them suitable for the mass. In case of failure, assess the situation. Is it because of the
customer not wanting healthy food in a McDonald’s? Does it have to do with a lack of
promotion and awareness? Or are there other factors like pricing? The strategy needs to be
reconsidered if any of those are the case and a different implementation plan has to be
developed.
5.2.2.5 50% of Stores in the UK and USA with McVita Items
Despite the uncertain outcome of the step above a goal to strive for is to have 50% in the
UK and USA offering McVita products and following the branding scheme to change the
overall perception of McDonald’s into a healthier brand. In this step there can be a bigger
launch campaign with advertisements on a broader scale.
5.2.2.6 Further Developments
After successful implementation a global launch can be considered, entering new
markets and adjusting the menu offerings. This would indicate that the McVita is an

established part of the McDonald’s menu and would be handled in the same way other
products are handled and further developed.
5.2.3 Risks and Mitigations
In this section we are highlighting the possible risks when introducing a new product line.
Following the risks, we are presenting the mitigations to those risks.
5.2.3.1 No Success of the new Product Line
The most obvious and biggest risk is the fact that McDonald’s is a fast food company,
serving burgers, fries and many more foods that is considered unhealthy, so the question is if
the customers would consume the new healthier products. Due to the fact that the company,
in general, is really successful, it has to be questioned how such a new product line would
affect the consumer behavior or if it would affect it at all, as people who visit McDonald’s
restaurants usually do not want to eat something that is considered healthy. However, as
different governments and politicians ask for healthier products and advertisement, there has
to be some change.
To avoid such a failure of not selling any of the healthy products, McDonald’s would have
to start a marketing campaign, promoting the new line and introduce it to the public. Also,
some special offers at the beginning to accelerate the sales would be an option, to raise
awareness of the consumers. Important in this campaign would be television advertisements
and in- store promotions so that the company can be sure to reach as many customers as
possible. Additional to the two advertising options already mentioned, the new products
could in the beginning be highlighted at the self-service kiosk, so the clients will for sure be
aware of a new product line that is being offered.
5.2.3.2 Reorganization of the Kitchen and Employees
Another possible risk the company has to consider is that there has to be some kind of a
reorganization of the kitchen as for example, keeping the new products in one place and the
other ones at another place. The storage rooms for yogurt or salad are different than the
storage rooms for the existing products. It could be a challenge to have a smooth transition
without the customers realizing that there are changes in the kitchen so that the day to day
work will not be affected too much. Also, the employees may have to be trained to promote
and work with the new products.

To mitigate this risk, the layout reorganizations have to be planned very carefully, so that
the daily business runs smoothly, and the customers can still enjoy their food. There would
also be demand forecasting modifications to accommodate for the reorganization. Thus, the
operational efficiency would only be minimally affected, as McDonald’s has been a master in
this area for decades.
5.2.4 Possible Products
Below are items listed that can be considered to be taken under the McVita brand. This
implies that they are listed under the respective tab on the self-service kiosk as well as on the
screens. There are some current items from the McDonald’s menu, as well as newly added
ones. The prices for new items are based on current McDonald’s prices (Fast Food Menu
Prices, 2018).
Options US Prices
Sweet Potato Fries $2.29
Chicken burger with whole wheat
bun
$4.39
Chicken wrap $3.39
Beef wrap $3.59
Green Salad $4.19
Caesar salad $4.79
Potato salad $4.79
Fruit salad $3.49
Variety of smoothies $1.79
Low sugar ice tea options $1.99
Variety of oatmeal with yogurt $1.99
Variety of fruits and yogurt $1.99

5.3 Further Considerations
In addition to the above-mentioned two-pronged strategy, there were consideration for
another strategic option: McDonald’s Grocery. The concept of McDonald’s Grocery is that
McDonald’s would sell some of its products through grocery retail stores to help extend its
brand past fast food chains and improve its health-related reputation. Product lines that could
be sold include the bun, lettuce, tomatoes, cheese, yogurt, and soft-serve ice cream.
However, we determined that McDonald’s should not pursue this strategy at the moment
because selling McDonald’s products via grocery stores may cannibalize the existing fast food
locations. Also, this strategy is not directly associated with the restaurant business, which may
not help enough in addressing the obesity issue that McDonald’s faces. Thus, advancing with
either both parts or one part of the two-pronged strategy is the most strategic way forward
given the health-related PR challenge and the competition from fast-casual restaurants.

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