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McDonalds Corporation Strategic Management Analysis

This document provides a strategic management case study of McDonald's Corporation. It includes an overview of the company profile, franchise model, products, locations, history, mission, vision, values, and various analyses including Porter's 5 Forces, competitors, brand value, competitive advantages, strategies, services, promotions, global expansion, impact on performance, internal analyses, issues, and recommendations. The key information presented includes McDonald's revenues, profits, employees, competitors, emphasis on quality, service, cleanliness and value, and strategic focus on emerging markets, McCafe, international growth, and menu variety.

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McDonald’s Corporation A Strategic Management Case Study
Presented By MIT-11th Batch Masudul Haque – 141111 Tahmina Sharmin – 141112 Nafis Rahman - 141135 Mohammad Abdullah Al Mahmud - 141136 Institute Of Information Technology University Of Dhaka 2
Contents • Company Profile • McDonald’s Franchise • Ray Kroc Formula for Success • Ray Kroc - Business Model • Product Life Cycle • Products • What We Sale • Location • History • Mission Statement • Vision Statement • Values • External Analysis • Porters 5 Forces • Competitors • Brand Value 2014 • Competitive Advantage • Brand Value 2014 • McDonalds Strategy • Services 3 • Popular Promotions • How McDonald reach every corner of this world • Impact on McDonald • External Environment and its effect on Strategic Marketing • Internal Analysis • CPM Matrix • SWOT Matrix • Market Share • Internal Factor Evaluation (IFE Matrix) • External Factors Evaluation (EFE) Matrix • The Strategic Position and Action Evaluation ( SPACE Matrix) • 2005-2014 Mcdonald’s Revenue • Mcdonald’s Sale Alanysis • Financial Analysis • Growth Profitability and Financial Ratios • Sales By Segmentation • ROI (Return on Investment) • Performance Chart • Issues • Recommendation
Company Profile 4 Name McDonald’s Corporation Logo Industries served Restaurants (McDonald’s, McCafé, McExpress, McStop) Geographic areas served Worldwide (over 36,000 restaurants in 119 countries) Approximate Customer 69 million Headquarters Oak Brook, Illinois, United States Current CEO Don Thompson Revenue $28,106 billion (2013) 2% increase over $27,567 billion (2012) Profit $5,586 billion (2013) 2.1% increase over $5,465 billion (2012) Employees 440,000 (2014) Main Competitors Burger King Worldwide, Inc., Darden Restaurants, Inc., Doctor's Associates, Inc., Domino’s, Inc., Yum! Brands, Inc., Starbucks Corporation, Wendy’s Company and many other companies in the fast food industry.
McDonald’s Franchise • Most Owner/Operators enter the System by purchasing an existing restaurant, either from McDonald’s or from a McDonald’s Owner/Operator. • Financial Requirements/Down Payment – Initial down payment is required when purchasing a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost). • The down payment must come from non-borrowed personal resources, which includes cash on hand, securities, bonds. • Generally require a minimum of $300,000 of non-borrowed personal resources to consider you for a franchise. • Remaining balance of purchase price must be paid off with in 7 years. McDonald’s does not offer financing but they work with many national lending institutions. • McDonald’s owns all buildings and properties. 5
Ray Kroc Formula for Success • Quality • Service • Cleanliness • Value 6
Ray Kroc - Business Model • Ray Kroc - Developed a business model known as “The Three Legged Stool.” Owner/Operator, Suppliers and Employees • Just as all three legs of a stool need to be equal to support the weight, all three elements of the McDonald’s system are equally important partners in McDonald’s success. 7
Product Life Cycle 8
Products Beverage :Cold Coffee, Ice Tea ,Hot Serves,Mcshakes 9
Non-Vegetarian Menu: Filet-O-Fish, , Chicken McCurry Pan, McChicken. 10
Vegetarian Menu: Crispy Chinese, McALOOtikki, Mc Veggie, Pizza McPuff, Paneer Salsa Wrap. 11
What We Sale 12
13 Location
History • 1940 First McDonald’s • 1952 Attempts at franchising • 1954 Milk Shake Machine • 1955 prototype opens in Des Plaines, IL • 1956 14 McDonald’s • 1961 McDonald brothers sell rights • 1965 McDonald’s go public • 1968 Introduction of Big Mac and shift to Network Television • 1970 1600 restaurants • 1980 6000 McDonald’s Restaurants • 1990 record sales • 1994 Kuwait City, Kuwait • 2001: Faced with a class-action lawsuit for advertising its fries and hash browns as vegetarian, even though they include beef flavoring. 14
History (cont) • 2001: About 50 new stores are opened in Mexico. McDonald’s announces its intent to invest $67 million in the Philippines by 2005. • 2002 Forty seven years after  30,000 locations  2000 new restaurants  World Wide Web  McDonald’s a recognized Brand Name • 2002: McDonald’s apologizes for not listing beef flavoring as an ingredient in its hash browns and fries and offers to donate $10 million to vegetarian groups. • 2003: Post their first quarterly loss in over 40 years. Slash spending by 33%, and new store openings are reduced from 1,000 the previous year to 360. 15
History (cont) • 2004: Introduces the “Go Active! Happy Meal,” consisting of a salad, water, stepometer, and an exercise booklet. • 2005: Net income increases 14% to $2.6 billion, with record annual sales of $20.46 billion. • 2005: Chipotle Mexican Grill Inc., in which McDonald’s has a 92 percent ownership stake, files an initial public offering with the Securities and Exchange Commission. • 2006: Plans are established to open 125 restaurants per year in China, bringing the total locations there to 1,000 by 2008. • 2007:Packaging Update-Mcdonalds New packaging features 24 faces from first ever global casting call • 2008: Global Packaging Redesign • 2009: McCafe goes national • 2010:Intruduced McCafe Real fruit smoothies and Frappers • 2011:McDonald opens in 119 countries • 2012:Shamork Shake offered nationally 16
Mission Statement • McDonald's brand mission is to "be our customers' favorite place and way to eat“. • Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience – People, Products, Place, Price and Promotion. • We are committed to improving our operations and enhancing our customers' experience. 17
Vision Statement • McDonald's vision is to be the world's best quick service restaurant experience. • Being the best means providing outstanding quality, service, cleanliness, & value, so that we make every customer in every restaurant smile. 18
Values • We place the customer experience at the core of all we do. Our customers are the reason for our existence. We demonstrate our appreciation by providing them with high quality food and superior service in a clean, welcoming environment, at a great value. Our goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each and every time. • We are committed to our people. We provide opportunity, nurture talent, develop leaders and reward achievement. We believe that a team of well- trained individuals with diverse backgrounds and experiences, working together in an environment that fosters respect and drives high levels of engagement, is essential to our continued success. • We believe in the McDonald’s System. McDonald’s business model, depicted by our “three-legged stool” of owner/operators, suppliers, and company employees, is our foundation, and balancing the interests of all three groups is key. 19
• We operate our business ethically. Sound ethics is good business. At McDonald’s, we hold ourselves and conduct our business to high standards of fairness, honesty, and integrity. We are individually accountable and collectively responsible. • We give back to our communities. We take seriously the responsibilities that come with being a leader. We help our customers build better communities, support Ronald McDonald House Charities, and leverage our size, scope and resources to help make the world a better place. • We grow our business profitably. McDonald’s is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuous focus on our customers and the health of our system. • We strive continually to improve. We are a learning organization that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation. 20
External Analysis 21 External Audit- Opportunities Increasing demand for healthier food Home meal delivery Full adaptation of its new practices Changing customer habits and new customer groups New Products & Services  Beverage Market  Growth of Franchise Restaurants  Demand for Organic Products International Expansion  Conservation (going green)
External Audit- Threat 22 Saturated fast food markets in the developed economies Trend towards healthy eating Local fast food restaurant chains Currency fluctuations Lawsuits against McDonald’s Change in Commodity Prices Food Safety and Food Borne Illness Concerns Economic Slowdown Growing Health Consciousness Intense Competition (dine-in restaurants, Burger King) Legal Challenges (McDonald’s faces many lawsuits)
Porters 5 ForcesPorters 5 Forces • Threat of competition HIGHThreat of competition HIGH – Very competitive Fast Food industry – Competitors Advertising Capabilities – Location of outlets – Major competitors- Burger King and YumBrand INC. • Threat of New Entrance HIGHThreat of New Entrance HIGH – Regulation of Limit – Easy Access Market and Low start up cost – Example of SubWay’s market penetration • Threat of Substitutes Low-ModerateThreat of Substitutes Low-Moderate – Availability of the MCD products – Choose MCD for Easting and Entertainment – Narrows Threat of Substitutes due to introduction of local taste products. 23
Porters 5 Forces (Cont.)Porters 5 Forces (Cont.) • Power of Suppliers LOWPower of Suppliers LOW – Worlds largest restaurant chain in sales – High bargaining power over its suppliers – Most of them owe MCD for their own existence – LOW the power of suppliers- LOWer the cost of raw materials and HIGH competitive price. • Power of Buyers LOWPower of Buyers LOW – Industry limitations – Low quantity purchases – Less chances of switching, high brand image thru differentiation and uniqueness – Buyers don’t have bargaining power 24
Competitors 25
Competitive Advantage • Striving to be cost leaders: prices cannot be matched by competitors. • The speedy delivery of the food. • Strong global presence and largest market share in fast-food industry. • Net competitive advantage. • They have been in the fast food business for a longer time than their competitors. • Franchising requires less capital than other growth methods • Rapid Expansion • Market Dominance • Franchising puts a "business owner" in charge • Franchise locations may operate better and more profitably than "company owned" units • Greater Buying Power • Increased Name Recognition 26
Competitive Advantage (Cont.) • Increased Advertising and Marketing Budget • New revenue streams are created  Franchise Fees  Franchise Royalty Fees  Advertising and Marketing Administrative Fees  Services provided to Franchises  Sales of Products & Supplies  Training Fees  Sales of Promotional Items  Rebates from Suppliers 27
28 CPM Matrix
Brand Value 2014 29
McDonalds Strategy  Focusing heavily on emerging markets  McCafé has been a big win  Offering a wider variety of food to attract more segments  Delivering food to customers in places that demand it  Making its stores more attractive to get customers in  Increasing its offering of snack items  Shortening its menu cycle  Importing more of its successful niche products internationally 30
McDonalds Strategy (Cont)  Expanding its dollar menu to breakfast  And it hasn't been scared to take anybody on  Achieving the most powerful brand image  product innovation and development  Having the greatest market share in the ham burger industry 31
Services • Gift Cards • Free WiFi • Play Place & Parties • Subscription • Coupon • Online Booking • Android App 32
Popular Promotions • Toys with Happy Meals • Cars • Pirates of the Caribbean • Games- Monopoly/ Uno –Win various prizes and trips • Collectibles- Coca Cola Glasses, Beanie Babies • Olympic Games- Global partner of the Olympic games- reflects our commitment of the importance of sports and physical activities. • World Champions- 1,400 children from 51 countries had the opportunity to meet the world’s best soccer players at the 2006 FIFA World Cup. 33
How McDonald reach every corner of this world Using the 7P’s of marketing mix, McDonald earned business success at every part of the globe. 1. Product 2. Price 3. Place (International Distribution and Supply Chain) 4. Promotion 5. People 6. Process 7. Physical Evidence 34
Impact on McDonald  REVENUES  RESTAURANT MARGINS  Franchised margins  Company-operated margins  RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES  CONTRACTUAL OBLIGATIONS AND COMMITMENTS  LIQUIDITY 35
External Environment and its effect on Strategic Marketing  Political/legal factors  Economic factors  Product lines and pricing  Customer’s preference  Competitors  Social factors  Technological factors  McMommy Blogging Society  Hamburger University 36
Internal Analysis Internal Audit-Strength • Largest fast food market share in the world • Brand recognition valued at $40 billion • $2 billion advertising budget • Locally adapted food menus • Partnerships with best brands • More than 80% of restaurants are owned by independent franchisees • Children targeting • Strong Global Presence (located in over- 100 countries) • Strong Real Estate Portfolio • Revenue Growth 9% (Above Industry Average of 7.5%) • The Ronald McDonald House (Children Charity) • Systemization and Duplication (Consistency) 37
Internal Audit-Weakness  Negative publicity  Unhealthy food menu  Mac Job and high employee turnover  Public Perception (perceived as a contributor to societies obesity problem)  Product Innovation  Advertising (targets young children)  Customer Service  Market Saturation (more difficult to add new stores)  Labor Turnover 38
SWOT Matrix 39 S-O strategies S-T strategies • Introducing new nutritious menus • Expanding to Asia market • Taking advantage of brand name • McDonald’s “Plan to Win” • Low-cost leadership • • Taking advantage of brand name • Giving back to community • Providing new healthier menu W-O strategies W-T strategies • Minimizing the negative publicity • Increasing differentiation • Using less Trans fat • Switching from HCFC-22 into HFC • Increasing Employee satisfaction
Market Share 40
41 Internal Factor Evaluation (IFE) Matrix
External Factors Evaluation (EFE) Matrix 42 Key External Factors Weight Ratin g Weighted Score Opportunities Low-Price Menu that will attract low-income consumers 0.15 3 0.45 Demand for healthier and more creative products 0.05 3 0.15 Competitors lack of McCafe service 0.15 4 0.6 Expansion in other countries ( China, India) 0.07 2 0.14 Brand loyalty 0.05 2 0.1 Demand for free Wi-Fi versus competitor charges 0.09 3 0.27 Demand for more salad choices on menu 0.09 3 0.27 Weaknesses Having negative heath issues for consumers such as obesity and heart attack 0.06 3 0.18 Having negative attention from media because of marketing toward children. 0.04 2 0.08 Price wars between competitors will cause McDonald lose customers. 0.07 2 0.14 High turnover rate 0.03 2 0.06 Rising costs 0.06 2 0.12 Calorie counts & nutritional value posted 0.09 2 0.18 Total 1 2.74 •Increasing sales by Low price menu & McCafé. •Creating more diversified menu with low price. •Having more competitive advantages and opportunity •Biggest weaknesses is healthier issue and lawsuit issue.
The Strategic Position and Action Evaluation ( SPACE Matrix) 43 Financial Strength Rating Environmental Stability Rating Return on investment. 3 Rate of inflation -3 Leverage 4 Demand Changes -3 Net Income 3 Price Elasticity of demand -1 EPS 3 Competitive pressure -3 ROE 2 Barriers to entry new markets -3 Cash Flow 4 Risk involved in business -2 Average 3.17 Average -2.5 Y-axis 0.67 Competitive Advantage Rating Industry Strength Rating Market share -4 Growth potential 3 Product Quality -4 Financial stability 5 Customer Loyalty -2 Ease of entry new markets 4 Control over other parties -2 Resources utilization 4 Profit potential 2 Demand variability 3 Average -3 Average 3.5 X-axis 0.5 Conservati ve Aggressive Competitiv e Defensive F S ISC A E S 0.6 7 0. 5 •McDonald’s should: •Forward integration •Product development
2005-2014 Mcdonald’s Revenue 44
Mcdonald’s Sale Alanysis 45
Financial Analysis 46
Financial Analysis (Cont) 47
Growth Profitability and Financial Ratios 48 Financials 2012-12 2013-12 2014-12 TTM Revenue USD Mil 27,567 28,106 27,441 27,441 Gross Margin % 39.2 38.8 38.1 38.1 Operating Income USD Mil 8,605 8,764 7,949 7,949 Operating Margin % 31.2 31.2 29 29 Net Income USD Mil 5,465 5,586 4,758 4,758 Earnings Per Share USD 5.36 5.55 4.82 4.82 Dividends USD 2.87 3.12 3.28 3.28 Payout Ratio % 53.6 56.2 68 68 Shares Mil 1,020 1,006 986 986 Book Value Per Share USD 15.25 16.16 13.35 13.37 Operating Cash Flow USD Mil 6,966 7,121 6,730 6,730 Cap Spending USD Mil -3,049 -2,825 -2,583 -2,583 Free Cash Flow USD Mil 3,917 4,296 4,147 4,147 Free Cash Flow Per Share USD 3.84 4.27 4.2 Working Capital USD Mil 1,519 1,880 1,438
Sales By Segmentation 49
ROI (Return on Investment) 50
Performance Chart 51
Issues • Nutritional issuesNutritional issues – MCD taking away the traditional nutrition values – Replace the fresh and healthy food by mass production – Projection the product nutrition values – Comparison of daily consumption and MCD products – Serves 30million people daily • Advertising IssuesAdvertising Issues – 2billion dollars for Advt annually – Concentrated on Children- Parental Concerns – MCD has a better advertising than its customers – Follows the advertising codes of each country – Making aware of MCD’s charity activities, events and learning programs 52
• Employment ethics and issuesEmployment ethics and issues – Criticized as low paid jobs- named ‘McJobs’ – Low paid, non-union, part time jobs with low rights and conditions – Giving importance on individual goals than organizational goals – Fact of 1.5million workers with above 70% job satisfaction rate – Introduction of collective tips system 53
Recommendation Long-term Strategy •Expanding influence and presence in Asia market Specific Strategy •Opening at least 1 restaurant per day in China •Having diversity menu in India •Receiving feedbacks 54
55 Thank You