McDonald's began in 1940 as a small hamburger restaurant in California. It has since grown to become the world's largest chain of hamburger fast-food restaurants, serving around 86 million customers daily in 119 countries. McDonald's strategic goals include sustaining its leadership position and providing value to shareholders. However, it faces challenges from increasing competition and concerns about unhealthy products. Its business strategy includes analyzing competitors and the industry environment to adapt its menu and improve customer service.

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Name: Le Thi Thu Huong
Keuka ID: 362702
Class: 14BSM2 – Group 3
Course: Strategic Management
Code: BUS444
Date: August 23, 2017
Title: Final Project Analysis Essay – McDonald’s Corporation

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Contents:
A. Executive Summary
B. Introduction
C. Historical Performance Review vs. Goals
D. Strategic & Financial Goals
E. Business Strategy
1. Environmental analyses.
2. Competitor analysis.
3. Strategic alternatives.
4. Strategy selected.
5. Competitor reaction.
6. Key functional strategies/ tactics.
F. Financial Summary
G. Conclusion
References

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A. Executive Summary:
McDonald's originally began in 1940 as a small hamburger restaurant in Bernardino, California,
opened by Dick and Mac McDonald. After that, Dick and Mac McDonald closed their restaurant
for alternations in three months, they re-opened it on December 1948 as a self-service drive-in
restaurant which served only nine items: hamburger, cheeseburger, potato chips, milk, coffee,
and slices of pie. In 1955, Ray Kroc bought the chain and supervised its worldwide that we can
see how much McDonald’s has changed throughout the years.
Currently, McDonald’s becomes the world’s largest chain of hamburger fast-food restaurant
which employs over 1.7 million people, serving around 86 million customers every day in 119
countries. In addition, McDonald's restaurants in the worldwide are owned more than 75% and
operated by independent local business. Their menu typically includes hamburgers,
cheeseburgers, chicken products, fries, breakfast items, soft drinks, milkshakes, desserts and
happy meals. McDonald’s also offers salad and vegetarian items for their customers. The
company provides many types of products depending on a country where they are doing the
business.The certain values of McDonald’s is to offer better choices for customers such as quality
of the food and services, cleanliness, convenience environment as well as their products and
service should make each customer smile.
McDonald’s engaged in the fast-food industry that has a highly competition. Furthermore,
McDonald’s has to face with many competitors such as: Burger King, KFC, Taco Bell, Jack in the
Box, Sonic and Wendy's. Although, the fast food industry is a tough market to be successful at
because of many reasons such as the threat of new entrance are low for the fast food industry
while the threat of competition are truly high or purchasing decision of customers depending on
price and convenience. However McDonald's still overcome it.
Despite the fact that McDonald’s is one of the most thriving restaurant fast-food chain in the
international marketplace, there are still several of problems and challenges from McDonald’s
such as competition, bad marketing, poor management and lack of response in the needs of
customers. For example, McDonald’s is reported that they have a poor customer service.
According to our research, in 2003, a customer service index of McDonald's stood in the lowest

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of the customer service ranking in the fast-food industry and even lower than the IRS. It is
because McDonald's has slow service at the drive-through window as well as the highest
employee turnover rate among competitors. They have also found that the ranking in speed at
the drive-through window currently is fifth and nineteenth in accuracy. As a result, it leads the
company’s revenue losing annually. Another problems for McDonald’s is about their competitors.
McDonald’s has to face with numerous competitors from largest fast-food chains to small local
restaurants like Chipotle (newer player), Burger King, Wendy’s and Taco Bell (longtime rivals). It
also means that McDonald’s has to overcome with many rivalry and challenges.
According to McDonald’s facts and their problems, I have come up with some recommended
strategies which currently will suitable for the firm situation. As the fast-food market become
more popular that any business can do it, McDonald’s should find out something news for
product innovation as well as diversification and quality enhancement in order to make them so
different and separated among its competitors. For example, McDonald’s instead of making
burgers or fries like traditional fast-food restaurants, they can pop up some healthier or low-carb
items on their menu. Also, the company should understand their market that they are doing in
like having the right product with the suitable price. If McDonald’s can keep this trend and stay
ahead in this field, they can gain more competitive advantages and customers will have more
choice on their products. Furthermore, in order to satisfy the need of customers, making
customer service better also becomes an essential part of the firm strategy. The company should
pay more attention about their customer service to sustain valued customers. To improve this
thing, McDonald’s should reform allthe training systemas well as educational modules for newly
and current employees. Motivating, sustaining and rewarding talent employees who can
generate excellentresults. Every email complaining about serviceor customer’s problems should
be instantly replied and be solved as soon as possible.
B. Introduction:
McDonald’s mainly targets on parents with young children, kids from three to seven years old,
teenagers, and business customers. At the beginning, McDonald’s focus on children as a critical

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part of their ongoing business. Those parents would like to visit McDonald’s because they have a
treat for their kids such as playground, happy meal with toys and birthday party. In addition,
McDonald’s also targets on business customer as a part of their core business. During the
workday, customers may “grab and go”, or they can take-away coffee from the restaurant.
Another major target of McDonald's is to teenagers. They enjoy McDonald’s as a cool place to
meet their friends.
Although McDonald’s is considered as a convenient restaurant with quick service and suitable
price, there are many negative aspects of the business. As we know that, McDonald’s produces
a largenumber of products every day. And under the impact of this mass production, McDonald’s
created new methods and systems such as using frozen beef rather than fresh beef or using a
genetically-modified potato instead of using locally grown one in order to make sure that all
McDonald’s products have the same taste. As a result from a public health perspective, all of
McDonald’s products raises the possibility of contamination from unknown origin. In addition,
besides doing a business, McDonald’s also has a charity fund which helps children with life
threatening illnesses. Despite the fact that they make effort to support children with fatal
disease,their products offered for customers can alsolead to heart disease,obesity, asthma, and
possibly mad cow disease.
McDonald’s vision statement and mission statement are conducts for the firm’s leadership in the
global fast-food industry:
McDonald’s vision statement is officially stated as follows: “Our overall vision is for McDonald’s
to become a modern, progressive burger company delivering a contemporary customer

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experience. Modern is about getting the brand to where we need to be today and progressive is
about doing what it takes to be the McDonald’s our customers will expect tomorrow. To realize
this commitment, we are focused on delivering great tasting, high-quality food to our customers
and providing a world-class experience that makes them feel welcome and valued.”
McDonald’s mission statement is “Our mission is to be our customers’ favorite place and way to
eat & drink. We’re dedicated to being a great place for our people to work; to being a strong,
positive presence in your community; and to delivering the quality, service, cleanliness and value
our customers have come to expect from the Golden Arches – a symbol that’s trusted around the
world.”
C. Historical Performance Review vs. Goals:
 Industry performance:
Although, McDonald’s company is not the first franchised restaurant in the worldwide, they still
have their own business model for itself.Generally, McDonald’s has growth over 36,000 locations
in 119 countries.
Through many years, due to the observation and innovation of the firm, a lot of products have
been ableto developed and changed depending on customer’s tastes. A few examples of product
that were launched after being developed by McDonald's franchisees are Happy Meal, Filet-O-
Fish, Big Mac, Hot Apple Pie, and Egg McMuffin. By doing that, their profit becomes better and
at the same time, they spend time for taking a great treat in order not to effect the consumer
experience after launching a new product.

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In March 2015, McDonald’s used only source chicken raised without antibiotics. And regarding
to their expectation, they would take them until 2017 to achieve the goal, nevertheless, they had
changed the plan sooner that they would use their transition to applying only cage-free eggs.
In general, McDonald’s franchises were growing from 2014 to this year. In details, we have:
From 2014 to 2015:
- Company owned: reduced from 6,689 to 6,444 units.
- Franchises outside U.S were rose from 16,237 to 17,182 units.
- U.S franchises were increased from 12,757 to 12,899 units.
From 2015 to 2016:
- Company owned: decreased from 6,444 to 6,137 units.
- Franchises outside U.S were increased from 17,182 to 17,389 units.
- U.S franchises were slightly increased from 12,899 to 12,978 units.

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 Financial measures:
In 2014:
Don Thompson – the company’s president and chief executive, said that in 2014, it was a
“challenging year” in “each of McDonald’s geographic segments. He warned that McDonald’s,
which serves 69 million customers at more than 36,000 outlets across the world, “continues to
face meaningful headwinds”.
The financial performance in 2014 was very depressed which had 1% dip in consolidated
operating income despite a marginal rise of 0.5% in global comparable sales and 1% growth in
consolidated revenues. In addition, sales in 2014 decreased by 7% and annual profits plunged by
15%. All everything about company’s financial in 2014 is on the downwards trend and making
the year one of the most terrible in the firm’s history: net income dropped sharply 15% to $4.7
billion, diluted earnings per share declined by 4% to $1.21, global sales declined by 7% to $6.5
billion compared to $7.1 billion in 2013 below analysts’ expectations of $6.7 billion.

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In 2015:
McDonald’s in this year has positive changes in order to restore their position and business as
well as maintain their profitable growth.
The result in 2015:
- Diluted earnings per share of $4.80, flat (increase 10% in constant currencies).
- Global comparable sales increase of 1.5%.
- Consolidated revenues decrease of 7% (increase 3% in constant currencies).
- Consolidated operating income decrease of 10% (flat in constant currencies).
The company repaid $2.3 billion to shareholders through dividends and share repurchases in the
fourth quarter and $9.4 billion for the full year. By doing this, the company can gain the
cumulative return to shareholders to $15.8 billion against their targeted return of about $30
billion for the three-year period ending 2016.

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In 2016:
Starting in 2016, McDonald’s U.S business becomes as a customer-led organization, they alsopay
more attention by offering an excellent service for their customers. In November 2016, the
company had promulgated financial goals in conjunction with their business turnaround plan.
Their target is to return about $30 billion to shareholders, plans to refranchise about 4,000
outlets by the end of 2018, and decrease net annual G&A spending by $500 million. This plan is
created to improve their long-term shareholder value as well as the business results.
D. Strategic & Financial Goals:
If McDonald’s want to maintain the market leader position and leverage their company as a
strong business in global market, it will be a necessary for setting organizational goals clearly and
flexibility. Initially, strategic goals of McDonald’s including: sustaining the leadership in fast-food
chains; bringing good quality of products with convenient environment for their customers;
providing a good return for its shareholder as well as being a socially responsible and ethical
company.
For financial goals of McDonald’s company, Don Thompson – the company’s president and chief
executive said that “Today, the plan to win continues to guide the evolution and execution of our
global growth priorities as we strive to become even better and bigger”. McDonald’s asserted
the targets for long-term annual of constant currency as the systemsales growth from 3% to 5%;
operating income increase from 6% to 7% and the return on investment should be on high level.

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E. Business Strategy:
1. Environment analyses:
a. Industry structure & analysis:
Porter’s 5 forces:
Threat of competition – High: As the rivals in the fast-food market is high and many
companies operating business in this field is increasing in different countries. It also means
that allkind of products willbe the same. McDonald’s has to facewith numerous competitors
among the fast-food industry like Burger King and YumBrand, so McDonald’s company should
pay more attention about products and customer service in order to sustain the market
leader position.
Threat of new entrance – Moderate: As fast-food industry become a massive growth in the
world, the entry in this field is not a difficult task to participate in. Although, at the beginning
it have a low setup cost to compete with, and yet, on the global scale, the biggest business
like McDonald’s still remain many advantages. Besides that, it is totally difficult to launch a
chain as the same level of McDonald’s because they might lack of ability to compete with
McDonald’s such as customer awareness or cost efficiency.
Threat of substitutes – High: Fast-food is an optional item that is simply replaced by other
types of foods such as meals prepared at home, restaurants, convenient stores or even by
deliveries. And since customers have their own awareness of the healthy food, other
substitutes become more appropriate and appealing. Therefore, to improve the image
customers have, McDonald’s should develop and enhance their brand awareness a lot.

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Bargaining power of suppliers – Low: Since McDonald’s becomes the world largest fast-food
chain in sales, suppliers attempt to add their names in the list of McDonald’s brand because
the company has a high frequency in their orders. As a result, when the company have a low
power of suppliers which means they will have lower the cost of raw materials and high
competitive price.
Bargaining power of buyers – High: Bargaining power of buyers of McDonalds is high because
the customer has multiple choices on the fast-food chains.Thus, McDonald’s company should
maintain a suitable price as well as customer value proposition.
b. SWOT analyses:
Strengths: McDonald’s company is a well-known brand name with the world’s largest chain
of fast-food restaurant. Moreover, McDonald’s financial performance is very potent which
owns 34,000 restaurants and serves around 119 countries. And their revenue make over $27
billion for a year. As a biggest restaurant, McDonald’s main aims to children as a critical part
of their ongoing business by providing playground and toys for kids. Located in many
countries, the company also changes their menu adaptively regarding in different regions in
order to match with variety cultures. Another strength is that the firm collaborates other
brands such as Coca Cola, Heinz ketchup and Dannon Yogurt …
Weaknesses: Even though the firm aims to children, however, it is a sensitive and injured
objective. Furthermore, the company is reported that they have low paying and low training
skill for staffs which lead to high employee turnover and low performance. Their menu also

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provides unhealthy food which causes many diseases such as obesity, a heart disease or
asthma… Thus, it becomes the worst brand image.
Opportunities: using environmentally friendly packaging such as recycled bags or paper bags
which will make customer a good impressed. Also, broaden internationally especially in Asia
market is very crucial for McDonald’s. They can upgrade several outlets to make it more
luxury in order to appeal customer’s attention. Adding more healthy items on menu to make
it diversity and create more options for consumers. Besides that, offering some coupons of
healthy menu like sandwich, fat-free milk or ice-cream could be a very useful way to
encourage people to come to McDonald’s more often. Lastly, improving on customer’s
relationship management in order to increase customers’ satisfaction.
Threats: Basically, the appearance of many fast-food restaurants locally and internationally
become a big threat for McDonald’s. The company may lose some potential customers
because of strong competitive environment including healthier menu, cheaper price, or good
service. Another threat is health problems that might affect to McDonald’s products
especially that many young generations tend to increase their healthy lifestyle nowadays.
Also, the target aims to children of McDonald’s is turning into the public health crisis. Lastly,
McDonald’s should be careful to avoid potential problems about the investment on
promotional campaigns including TV, online activities or outdoor activities …

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c. Value chain analysis:
Primary activities:
- Inbound logistics: McDonald’s purchases raw materials such as vegetables from its fixed,
pre-defined suppliers only. Therefore, by increasing capital and labor, their production
will increase proportionately.
- Operations: The kitchen of McDonald’s had a big grill, a dressing station where people
can add the same relishes to every product, a fryer where can made french-fries, a soda
fountain and milkshake machine for beverages and desserts. In addition, their
manufacturing process requires a distribution network to handle the food to every
restaurant.
- Outbound logistics: Macdonald’s outlets operate in the following patterns: sit-down
restaurants, drive-thru, counter-service outlets in food courts. However, McDonald’s
does not have delivery service yet.

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- Marketing and Sales: Operating more than 36,000 restaurants and serving 119 countries
around the world. McDonald’s Corporation use billboard, signage and common media
such as TV, radio and newspaper …
- Service: Having free Wi-Fi access, toys, playground for kids and birthday parties…
- Procurement: it has a procurement hub launched in 2001 that permit McDonald’s
franchises across the globe to purchase everything needed to run their business.
- Technology development: focusing on improved restaurants, including the menu and
engineering value.
- Human resource management: the working condition at McDonald’s can bring several
advantages for employees who want to work in flexible time and are participated in other
activities and duties.
- Firm infrastructure: their infrastructure is very modern. Moreover, the company alsooffer
eco-friendly atmosphere in many restaurants and workplace.
2. Competitor analysis:
In the competitive market, we choose Burger King as the best rival to compete with
McDonald’s.
Strengths: Burger King is also a biggest player in fast-food industry and stands 2nd after
McDonald’s. Having a strong brand image in global can make them easy to launch a new
outlet and products as well. Regarding to the numerous restaurants in the globe they have,
the ability to enter into a market is also very high. With variety products but still to ensure
the uniqueness of its products (grilled burgers).

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Weaknesses: Although their products have a differentiation, however it also becomes the
weaknesses that it is very easy to copy. Besides that, the company also has their limited
product mix which able to deter the customer’s decision. Another weakness is that with a
huge number of franchised outlets, it is totally hard to handle all the operation systems while
they need to ensure the conformance of quality.
3. Strategic alternatives:
Doing in the fast-food industry is extremely competitive. It need to be flexible and innovative
to survive in the market. Hence, McDonald’s achieves this through strategic alternatives that
help the firm to sustainthe competitive edge over its competitors. There are 3 strategicwhich
should be suitable for McDonald’s corporate:
- Stay-on-the-offensive strategy: the goal of this strategy is aim to be a first mover –
growing faster and taking market share from competitors. The principle of this strategy is
to remain one step of our rivals and then force them to scramble to keep up. Also keep
continue to pursue innovation and improvement. Generally, McDonald’s is already the
market leader in the fast-food chain (having a market share of 33%). With the technology
innovation likedeveloping the ordering process or production methods, McDonald’s truly
stands out among its rivals.
- Fortify-and-defend strategy: this strategy aims to provide a high level for current
competitors as well as for new business to enter. The strategy just work well with any firm
that have already obtained industry dominance. And McDonald’s has already done it so
that they just use this strategy to sustain their position. Base on their reputation, the

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company can expand more outlets constantly and keep prices reasonable with good
quality. By doing so, it will help prevent another business from increasing market share.
Moreover, they can choose to invest capital on R&D to improve new technologies for
their business.
- Diversification: this strategy should have in any businesses. As doing in the fast-food
industry, it is impossible to avoid the health public crisis when people nowadays tend to
live in healthy lifestyle. Thus, McDonald’s should follow its diversification by adding more
healthy foods such as salads, low-carb burgers and fries…
4. Strategy selected:
As I said above, standing in a high level of competition in the globe fast-food chains,
McDonald’s should point out their strategy clearly and flexibility that will help them to
compete with rivals. Personally, I think the best strategy for McDonald’s is stay-on-the-
offensive strategy. As we all know that nowadays, there are a large number of new fast food
brands that are launched eachyear. Thus, those strategies require that McDonald’s can adopt
to stay ahead of its new and current rivals rather than react to them.
Generally, McDonald’s has already a strong brand in the globe, so they just need to improve
and expand their brand awareness as long as possible. Stay-on-the-offensive strategy
typically invest in R&D as well as new distribution technology. For instance, McDonald’s can
apply this strategy for those activities such as increasing the use of technology. They alter the
way to ordering to make it modern and quick like using mobile apps for customers …
However, their innovation need to be different from competitors, or they can invest in other

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activities such as developing in substitute products, becoming an aggressive low-cost leader
as well as diversifying into appealing markets.
On the other hand, one major problem of this strategy is that itis very costly. Therefore, when
McDonald’s use these strategies that are highly leveraged or low on cash and then it could
be carry more risks to McDonald’s and its shareholders.
5. Competitor reaction:
McDonalds and Burger King are very popular in fast-food industry. Both of these restaurants have
been in the business for many years. However, Burger King is holding up reasonably better. Sales
rose in Burger King's second quarter with comps rising in all four of its geographical territories.
Even in the U.S where the average McDonald's location is increasing in sales than it did a year
earlier, we're seeing Burger King moving in the right direction. Burger King believes its success on
its strategy of launching fewer, more impressive products. In contrast, McDonald's is doing as it
continues to broaden its menu, launching plentiful of products into the market to seewhat sticks.
Burger King's empire consists of franchisee, but McDonald's is only 80% franchised. This explains
why Burger King has higher operating and profit margins than McDonald's.
6. Key functional strategies / tactics:
a. Marketing Mix (4Ps):
Product: McDonald’s improves their menu depending on their customer’s need, market research
and testing. The company need to follow and adapt any change that take place in the industry
because food industry is an instability market. At any time, the firm need to have their portfolio
of products with different platform.

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Promotions: The main aim of advertising are to make consumers aware of the brand as well as
products. Using messages to gain the customer’s attention and keep their interest. The right
messages should be aimed at the right customer and by applying the right media. McDonald’s
creates with the lines like “I am loving it” to keep customers interested with McDonald’s brand
name.
Price: Using reasonable price for each country they located. For example, in India, the company
main aims to the middle class. Moreover, McDonald’s came up with many ideas about products
which people in India could very easily afford.
Places: Most of McDonald’s outlets generate its sales revenues and it spreads throughout every
country that make them easily to approach.
b. Operations:
The operation system of McDonald’s support the firm’s position as the biggest fast-food
restaurant chain in the world. The company maintain their strategies in order to maximize its
productivity and performance.
- Design of goods and services: McDonald’s strategic decision area of operations
management is to provide affordable products. McDonald’s products and prices are
based on the popular consumer expectation.
- Quality management: McDonald’s main aims to maximize product quality within
constraints, such as costs and price limits. McDonald’s uses a production line method to
maintain product quality consistency. Consistency satisfies consumers’ expectations
about McDonald’s and its brand in this strategicdecision areaof operations management.

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- Maintenance: McDonald’s lets restaurant managers or franchisees select maintenance
service providers. However, for kitchen/production equipment, McDonald’s Corporation
also has certified/approved maintenance providers. Thus, the company addresses this
strategic decision area of operations management through local and corporate control.
- Scheduling: McDonald’s uses corporate conventions for scheduling, based on local
market conditions and laws, as well as supply chain needs. For example, the company’s
strategy involves regular and seasonal schedules to address fluctuations in local market
demand. Thus, in this decision area of operations management, McDonald’s is flexible
and adapts to local market conditions.
c. Human Resources:
McDonald's Corporation which is the largest fast food supply company, serves about 86 million
customers in 119 countries every day. To support this business, 761,000 employees are working
for McDonalds in 2013. The goal of this report is to assess the effectiveness of McDonald’s HR
policy in a business view. Motivation at work is viewed increasingly as being a significant factor
in contributing to a company’s overall success in achieving corporate goals.
McDonald’s Workforce: McDonald's ensures healthy, practical and safe work environment for all
employees which will force the employees motivated as they are giving their best performances.
In addition, employees with high level involvement can enable them to improve their
productiveness and improve team work performance. McDonald's ensures eco-friendly
workplaces and thus enhances the employee's pride and satisfaction.

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F. Financial Summary:
As the largest fast food restaurant, McDonald's gains 12% profit annually and it directly jumped
to 23% in the last quarter of 2009. With the annual profit is 1.216 billion dollars and the revenue
raised their profit with the improvement of the sales by 7%. Generally, the average revenue of
McDonald's is showing up in the good progress. In the future, McDonald's expects to generate
the growth of rates of their products from 3% to 5% and the profits from 7% to 8%.
G. Conclusion:
To sum up, although McDonald’s Corporation is still the world largest fast-food restaurant and
gain large profits every year, they also have their own concerns. The firm has to encounter many
tough challenges andproblems around their business.As long as the core capabilities are noticed,
then the company will continue to flourish. Moreover, McDonald’s should focus on the high
standards of food and service in order to satisfy the customer’s need. Lastly, the firm should
attempt to develop more aggressivelyinother countries where the expectations for considerable
growth are better.

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