McDonalds Corporation Strategic Management Analysis

McDonalds Corporation Strategic Management Analysis 1. 1. McDonald’s Corporation A Strategic Management Case Study 2. 2. 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 3. 3. 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 4. 4. 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. 5. 5. 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 6. 6. Ray Kroc Formula for Success • Quality • Service • Cleanliness • Value 6 7. 7. 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

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8. Product Life Cycle 8 9. Products Beverage :Cold Coffee, Ice Tea ,Hot Serves,Mcshakes 9 10. Non-Vegetarian Menu: Filet-O-Fish, , Chicken McCurry Pan, McChicken. 10 11. Vegetarian Menu: Crispy Chinese, McALOOtikki, Mc Veggie, Pizza McPuff, Paneer Salsa Wrap. 11 12. What We Sale 12 13. 13 Location 14. 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 15. 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 16. 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 17. 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 18. 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 19. 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

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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 “threelegged stool” of owner/operators, suppliers, and company employees, is our foundation, and balancing the interests of all three groups is key. 19 20. • 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 21. 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) 22. 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) 23. 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 24. 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 suppliersLOWer 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,

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high brand image thru differentiation and uniqueness – Buyers don’t have bargaining power 24 25. Competitors 25 26. 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 27. 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. 28 CPM Matrix 29. Brand Value 2014 29 30. 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 31. 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 32. Services • Gift Cards • Free WiFi • Play Place & Parties • Subscription • Coupon • Online Booking • Android App 32 33. Popular Promotions • Toys with Happy Meals • Cars • Pirates of the Caribbean • GamesMonopoly/ 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 34. 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 35. Impact on McDonald  REVENUES  RESTAURANT MARGINS  Franchised margins  Company-operated margins  RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES  CONTRACTUAL OBLIGATIONS AND COMMITMENTS  LIQUIDITY 35

36. 36. 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 37. 37. 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 38. 38. 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 39. 39. 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 40. 40. Market Share 40 41. 41. 41 Internal Factor Evaluation (IFE) Matrix 42. 42. 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. 43. 43. 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

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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 44. 2005-2014 Mcdonald’s Revenue 44 45. Mcdonald’s Sale Alanysis 45 46. Financial Analysis 46 47. Financial Analysis (Cont) 47 48. 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 49. Sales By Segmentation 49 50. ROI (Return on Investment) 50 51. Performance Chart 51 52. 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 53. • 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 54. 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. 55 Thank You

[BUS444-Strategic Management] McDonald's Case Study Analysis 32,804

[BUS444-Strategic Management] McDonald's Case Study Analysis 1. 1. VIETNAM NATIONAL UNIVERSITY INTERNATIONAL SCHOOL CASE STUDY McDonald’s MEMBERS: DOAN QUYNH TRANG – ID: 436007 HOANG THI HAI YEN – ID: 435370 LE MAI ANH – ID: 435373 TRAN NGOC HUONG GIANG – ID: 435450 CLASS: VISK2010D 2. 2. May 20, 2013 Contents Contents................................................................................................................... ...................................2 1.External environment analysis..................................................................................................................3 A, A Porter 5-forces model of the fast food industry...............................................................................3 The threat of new entrants..................................................................................................................3 The bargaining power of buyers..........................................................................................................4 The bargaining power of suppliers.......................................................................................................4 The threat of substitute products and services...................................................................................5 The intensity of rivalry among competitors in an industry..................................................................5 B, Key factors in the general environment that have a significant impact on the fast food industry......6 Demographic............................................................................................................ ...........................6 Sociocultural..................................................................................................................... ..................6 Economic.................................................................................................................. ...........................7 Global issues....................................................................................................................... .................7 2.Internal environment analysis .................................................................................................................8 Tangible Resources................................................................................................................. .................8 Financial................................................................................................................... ............................8 Physical.................................................................................................................... ............................8 Technological............................................................................................................ ...........................9

Organizational.......................................................................................................... ............................9 Intangible Resources................................................................................................................. .............10 Human..................................................................................................................... ..........................10 Innovation................................................................................................................ ..........................11 Reputation................................................................................................................ .........................11 2 3. 3. Organizational Capabilities.............................................................................................................. ......12 Organizational capability of McDonald’s is to combine tangible and intangible resources to run business efficiently. First, making use of time and capital and human resources combining with sustain leadership skills, McDonalds can keep its value and satisfy customers’ needs. They put emphasize on leadership in all level of management such as teamwork and have a clear requirement for their employees’ works. They also give more concerns on the quality of leaders, and then educate and train them to improve their missing skills. As a result, company can maintain a consistent corporate culture between managers and employees, and provide the best quality products and services to their customers. McDonald’s can gain and maintain their core competencies to compete with the intense of rivalry among competitions in fast-food industry.................................................................................................................... ..................12 3. Differentiation Strategy.................................................................................................................... .....13 References............................................................................................................... ..................................14 (2013, March 14). Retrieved May 15, 2013, from United States Census Bureau: http://quickfacts.census.gov/qfd/index.html............................................................ ................................14 Joan, V.G. (2011, November 1). Human Resource Management in McDonald's. Retrieved May 16, 2013, from: http://jpkc.szpt.edu.cn/english/article/Human%20Resource %20Management.htm......................14 Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from: http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronaldmcdonald........14 Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd: http://www.scribd.com/doc/28290117/Mcdonalds-MiniReport.............................................................14 1. External environment analysis A, A Porter 5-forces model of the fast food industry The threat of new entrants The infant businesses which first enter into the fast food industry may have to face some challenges regarding to economies of scale, brand loyalty, capital required and government regulation. Nevertheless, these challenges do not pose a large threat to the existing companies. Thus, the threat of new entrants within this industry to the existing companies is not high. In terms of economies of scales, because of the high volume of production and the number of 3 4. 4. outlets, big business may easily achieve economies of scales; whereas, those small business get difficulty in gaining economies of scales due to the low volume of production. Furthermore, big organizations have gained a large base of loyal customers while new entrants have to spend more time on building brand recognition and customer base. Additionally, a start-up company may face a lack

of capital, management and networking resources, so they cannot compete with those existing companies. Last but not least, government may pose some threats to infant companies by regulating strictly in some categories such as health, safety, hygiene and facilities. The bargaining power of buyers As there are lots of substitute products within this industry, McDonald’s will have to pay much attention to customers’ demands to gain new customers while maintaining a base of loyal customers. Customers pay much concern about their health and the rise of obesity in the U.S., fast-food companies like McDonald’s will have to provide healthier food such as salads and fruits and remove trans-fatty acids from the oils used to make foods. Additionally, fast-food companies may face lawsuits from loyal consumers when their health is affected by these foods. For instance, with a rising concern about the unhealthy food of McDonald and these concerns has been emphasized by the release of Super Size Me, this made McDonald face some lawsuits from loyal buyers. Thus, McDonald’s would have to provide nutrition information on food packages to show the calories, fat, and sodium in each portion. The bargaining power of suppliers In the fast food industry, companies needs to have a stable and continuous raw material supply to run the business to satisfy the high demand of the large number of customers. Thus, building a strong relationship with suppliers is important to maintain good quality of raw 4 5. 5. materials. The source of fast food companies’ main products comes from bread, chicken, potatoes, vegetables, and fruits. Thus, they need to build a strong connection with farmers who supply these materials. Moreover, the relationship with key beverage companies such as Coca Cola and Minutes Maids, and sauce supply companies like Heinz should be taken into their considerations. Nevertheless, regarding to McDonald’s, they are their own suppliers for their products, for example, potato, so McDonald’s does not rely mostly on suppliers. The threat of substitute products and services The threat of substitute products in the fast food industry is very high. Due to globalization, many foreign food companies have made an entrance into local market and change the taste of local buyers. In fast food industry, customers have a wide range of options to choose for their meals. For instance, the chain is facing a rapidly fragmenting market, where changes in the tastes of consumers have made foreign foods like sushi and burritos everyday options. Additionally, they may face a threat from quick meals of all sorts that can be found in supermarkets, convenience stores, vending machines and hotdog stands. Moreover, due to the changing trend in lifestyle, the menus with more vegetable are much more favorable than the ones with fat as McDonald’s. Therefore, these substitute products may threaten McDonald’s food. The intensity of rivalry among competitors in an industry The intensity of rivalry among competitors within the fast food industry is the most powerful factor among those five forces. The competition in this industry is very strong because there are lots of brands competing in price and quality services such as KFC, Wendy’s, Burger King and Pizza Hut. Therefore, the firms should provide an affordable price, improve quality of 5 6. 6. customer and delivery services, and build a strong brand awareness to survive in this strong competitive industry. B, Key factors in the general environment that have a significant impact on the fast food industry. Demographic More than half of American population (78.1 percent in 2011) was white people whereas black persons accounted for 13.1 percent and Asian people made up only 5 percent in 2011 (http://quickfacts.census.gov/qfd/states/00000.html). Therefore, fast-food companies should not target on the majority but also the minority ethnics and offering foods and drinks that suit with their tastes. In addition, according to the

United States’ Census Bureau, the percentage of people are less than 18 and over 65 years were 23.7 percent and 13.3 percent respectively in 2011 and more than half of population was people in the age range from 18 to 65. Thus, fastfood companies will have to focus their marketing on young adults, teenagers and working adults and diversify their products to satisfy the need of different groups. For example, McDonald’s has also been trying to include more fruits and vegetables in its well-known and popular Happy Meals. In many locations, the firm is offering apple slices called Apple Dippers in place of french fries in the children’s Happy Meal. Socio-cultural American people nowadays take greater concern for physical fitness and healthy diet. Thus, most fast-food customers start to change their taste to food that is much healthier and better tasting. Hence, the fast-food companies like McDonald’s should introduce more products that are nutritious but less fat. For instance, they need to introduce more kinds of salads with premium quality. They should also remove the artery-clogging transfatty acids from the oil that 6 7. 7. is used to make french fries. Additionally, all of the nutrition information should be provided on the package of their products to make people aware of the calories that they take every day. Economic The economy has a great effect on every industry from firms that supply raw materials to those that manufactures finished goods and services and that is, fast-food industry is certainly no exception. Since the economy is slowing down and facing a high unemployment rate, the Americans have to cut down their spending. Hence, the slow-down economy put a strong threat on profit creation of fast-food companies. Thus, companies should base on the growth of economy to change their strategy effectively and flexibly. Global issues Thanks to globalization, it helps companies have an approach to larger potential markets and valuable production factors such as cheap labor, better source of raw materials and skilled managers from other countries. Furthermore, fast-food companies can take advantage of globalization to enter into many different countries all over the world. Nevertheless, it poses some threats to fast-food industry. For instance, foreign foods such as sushi and burrito will have opportunities to enter into the U.S. local market and threaten fast-food companies. Customers will tend to change their tastes to these foods and neglect fast food because of its unhealthy ingredient. Thus, fast-food companies need to change the ingredients of their food to make it appeal to customers. Additionally, since companies tend to seek for a cheap labor force in countries such as China and Vietnam, the United States will have to cope with a high unemployment rate and that is a risk for the growth of economy. Due to high unemployment rate, it will also have an effect on profit creation of fast-food industry since people will try to cut down their spending and they will choose to have meals at home rather than eating out. 7 8. 8. 2. Internal environment analysis Tangible Resources Financial Firm’s cash and cash equivalents during the period of 2006 and 2008 decreased slightly from 2,136,400 to 2,063,400 thousand dollars. Thanks to Skinner’s effort, McDonald’s sales have increased sharply from 21,586,400 to 23,522,400 thousand dollars between 2006 and 2008. Although during this period the economy was slowing down and people were trying to cut down their spending, McDonald’s sales still grew because of its “Plan to Win” strategy which emphasized on increasing sales at exiting locations by improving the menu, refurbishing the outlets and extending hours. Moreover, Skinner tried to control the price and keep it at an affordable price without hurting the profit margins. Despite of an increase in cost, McDonald’s has maintained the pricing on its Dollar Menu, which generates almost 15 percent of total sales. Therefore, with the healthy finance situation of

McDonald’s, they can have capacity to raise equity and make profits. Physical The total number of McDonalds’ outlets increased slightly from 30,946 in 2004 to 31,967 in 2008. However, the number of outlets owned by McDonalds decrease steadily from 8,179 to 6,502 while the number of franchised outlets rose sharply from 22,317 to 25,465 between 2004 and 2008. More than 75 percent of its outlets are owned by franchisees and other affiliates. This will help McDonald’s build their brand recognition in all over the world while saving money for establishing new business but still earn lots of money from franchising. Moreover, in order not to be left behind by its competitors, McDonald’s tried to refurbish its outlets all around the world to make it more attractive to customers. The interiors feature 8 9. 9. armchairs and sofas, modern lighting, large television screens, and even wireless Internet access. The firm also provides features for its drive-through customers and that include music aimed at queuing vehicles and a wall of windows on the drive-through side of the restaurant, allowing customers to see meals bring prepared from their cars. Technological The biggest innovation of McDonald’s came from their drive through section with a touch- activated screen that made it easier for customers when ordering. When ordering foods, customers only need to punch in their orders without queuing. They also provide features include music aimed at queuing vehicles and a wall of windows on the drive-through side of the restaurant to allow customers to have a look at their meals being prepared right from their cars’ windows. Moreover, inside of their outlet, they also provide free wireless internet access so that their customers can easily browse internet while eating. Additionally, thanks to the presence of an online website mcdonalds.com, customers are provided information about menu, nutrition facts, promotion, and store locations, and they can order foods right on this website. Besides, it is a channel for potential employees to get information about company and recruitment campaigns. Organizational In terms of functional structure, McDonald’s has a multi-level organizational structure, which is headed by CEO and the boards of directions in each region such as Greece, Asia and Pacific. CEO’ is in charge of managing the overall business of the company as well as employees, finance and customers. They are also responsible for managing business asset and company resources to make profits and have a tight control of the firm. Moreover, the CEO leads a group of junior managers who are responsible for different fields of McDonald’s namely, marketing and human resources. 9 10. 10. The total number of outlets of McDonald’s around the world is more than 30,000 stores and serving around 52 million customers in over 100 countries per day, and most of these outlets are operated by franchising. Each outlet has one business manager, first assistant and shift manager such as breakfast shift managers, daytime shift managers, closing shift managers and over-night shift managers. McDonald’s has over 1.5 million people and divided by many groups of crew members. The organization structure of McDonald’s is consistent in all stages to ensure business to run 24 hours. Employees are delegated to suitable tasks in different shifts by shift managers to complete jobs smoothly in a fast manner. In our opinion, managers should enhance atmosphere of corporation and teamwork to foster employees’ performance. Intangible Resources Human McDonald’s has provided thousands of jobs for American population. Employees of McDonald's divided into three groups including restaurant workers, corporate staff, and franchise owners. McDonald's usually hires between 50 and 65 people in each local restaurant and most of these positions are part-time workers. Nevertheless, the chain ran into more problems because of the tighter labor

market. McDonalds began to cut back on training as it struggled hard to find new recruits, a policy that led to a dramatic falloff in the skills of its employees. Therefore, McDonald’s should invest more money on training employees to provide necessary skills for employees. For example, they need to have a training room in each outlet and instruction video to help staff understand how to satisfy customers’ needs. Furthermore, workers in McDonald’s often are paid low, so the morale of employees is not high. The manager’s salary is slightly higher than the crew member’s one. Employees are not paid extra money even when they work longer hours. As a result, they feel unsatisfied with their 10 11. 11. low wage and lack of commitment to the company because their pays do not deserve their scarification and contribution. That is, this leads to high staff turnover rate. It is recommended that McDonald’s should concern thoroughly about employees with frequently motivational support to retain skillful and expert staffs who are willing to move to other competitor companies. Moreover, it also helps reduce recruitment and training expenses. Innovation The innovation of products is the priority concern of McDonald’s to increase the revenues and maintain a base of loyal customers. For instance, they remove the trans-fatty acids in the oil that is used to make french fries and salt content of its products that without changing the taste of their food. Moreover, they also introduce the McGriddles breakfast sandwich, offering a couple of syrup-drenched pancakes and a sandwich filled with eggs, cheese, sausage, and bacon in three different combinations. It is suggested this change may help McDonald’s attract more customers and satisfy the demands of different consumers. Additionally, in order not to be left behind by its rival, McDonald’s applies innovative technology in doing business. For instance, a touch- activated screen is provided in drivethrough area, permitting customers to punch in orders without queuing. This renovation will bring interests to customers, especially children as well as save time in ordering food. Reputation McDonald’s is famous for selling hamburgers and cheeseburgers under the traditional symbol of a golden arch. Since it was established, the number of McDonald’s outlets has risen significantly, from a single outlet in a nondescript Chicago suburb to one of the largest chain of outlets spread around the globe. 11 12. 12. To improve the reputation with customers, McDonald’s should improve the quality of food and introduce healthier foods to satisfy the demands of customers. The website of the company is a channel for consumers to give feedbacks or comments on their services and delivery systems and this is the fastest way to receive feedbacks from consumers. Moreover, they need to put emphasize on the hygiene and safety of food to bring the best quality to customers and enhance their images. Besides, they also do some charity works for community such as Ronald McDonald Charity program because McDonald’s want to bring positive impacts on children, so they donated “$400 million” dollars for children all over the world. The company also makes an annual global fundraising on World Children’s Day and they participate in some children fundraisings such as the Ronald McDonald House Charities. By doing community projects, they can build nice image in customers’ eyes. Organizational Capabilities Organizational capability of McDonald’s is to combine tangible and intangible resources to run business efficiently. First, making use of time and capital and human resources combining with sustain leadership skills, McDonalds can keep its value and satisfy customers’ needs. They put emphasize on leadership in all level of management such as teamwork and have a clear requirement for their employees’ works. They also give more concerns on the quality of leaders, and then educate and train them to improve their missing

skills. As a result, company can maintain a consistent corporate culture between managers and employees, and provide the best quality products and services to their customers. McDonald’s can gain and maintain their core competencies to compete with the intense of rivalry among competitions in fast-food industry. Additionally, because of fast changing in technology, demographic and globalization, to achieve their goals, McDonald’s must adapt to those changes. Thanks to large network of outlets 12 13. 13. all over the world, McDonald’s can make different teams in different locations to investigate in the tastes and preferences of local people. Thus, they can change their menu and create special ingredients to suit with the interest of various consumers. 3. Differentiation Strategy It is recommended that McDonalds should apply differentiation strategy by providing stand-out services. It will protect McDonald’s against rivalry from its competitors in a very strong competitive industry such as KFC, Wendy’s, and Pizza Hut. First, McDonald’s will have to make their products differentiate from their competitors by offering new healthier foods and beverages for consumers. For example, they can offer new kind of foods that their competitors have not done yet such as milkshake, fresh breads and cookies in their McCafes. They can offer new menu to new targeted customers such as customers who are vegetarians or those who likes eating lowcarb. They also need to improve the delivery and customer service to become the best in delivery and customer service. The faster delivery speed is, the higher customer loyalty is. Moreover, McDonald’s can promote sales by giving discounts and coupons for customers in special occasions. As a result, the brand name of McDonald’s will be enhanced in customers’ minds. To summarize, when McDonalds’ apply differentiation strategy, it will help them build a strong base of customer and win back customers from its competitors. Plus, it will create a higher barrier for the new entrants and make them get more difficulty to compete with McDonald’s. 13 14. 14. References (2013, March 14). Retrieved May 15, 2013, from United States Census Bureau: http://quickfacts.census.gov/qfd/index.html Five forces analysis of the fast food industry. Retrieved May 15, 2013, from Scribd: http://www.scribd.com/doc/30964168/8/Five-forces-analysis-of-the-fast-foodindustry Joan, V.G. (2011, November 1). Human Resource Management in McDonald's. Retrieved May 16, 2013, from: http://jpkc.szpt.edu.cn/english/article/Human%20Resource %20Management.htm Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from: http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronaldmcdonald Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd: http://www.scribd.com/doc/28290117/Mcdonalds-Mini-Report Resources and Capabilities of McDonald. (2010, February 2). Retrieved May 14, 2013, from: http://ivythesis.typepad.com/term_paper_topics/2010/02/resources-andcapabilities-of- mcdonald.html 14 Recommended

CASE ANALYSIS McDonald’s, Inc. COMPANY NAME: McDonald’s, Inc. INDUSTRY: Food Service COMPANY WEBSITE: www.mcdonalds.com COMPANY BACKGROUND: As a company, McDonald’s was first introduced in Des Plaines, Illinois in 1955. This was the very first McDonald’s restaurant, which all started in San Bernardino, California in 1954 when Ray Kroc approached the McDonald brothers with a business proposition to start a new company. In 1965 McDonald’s went public and was later, in 1985 added to the Dow Jones Industrial Average. (www.mcdonalds.com) The company has gone through quite a few changes with its changing CEO’s over the years, but the company seems to be on track with CEO Jim Skinner, named in 2004. Skinner was named the new CEO just in time to clean up after McDonald’s first ever quarterly loss. He succeeded by showing that McDonald’s revenue had climbed 11% during 2006 and net profits had climbed 36%. (Dess, Case 40 Pg. 1) SWOT ANALYSIS: STRENGTHS: Jim Skinner had to clean up a big mess after the 2003 slump, and did so by coming up with a strategy to turn everything around. His strategy had to consist of staying competitive with the numerous other fast-food restaurants popping up all over the world. In order to maintain this, they had to reorganize the way they presented themselves to the community. Jim Skinner did so by cleaning up the customer service, cleaning up and modernizing the physical buildings, and changing the menu to the changing tastes of their customers. McDonald’s also introduced their slogan “I’m Loving It” to reach out to the younger customers. The advertising is very much targeted toward teens and young adults. (Dess, Case 40) WEAKNESSES: The first weakness was the changing of three different CEOs in only one year. These were unexpected changes, but all had to be dealt with by the newest CEO Jim Skinner, and directly after McDonald’s first ever quarterly loss in 2003. The second weakness is an issue with trying to find new and exciting things to put on the menu to bring in new customers. Many of today’s fast-food customers are making different kinds of foods, like Chinese and Mexican food, normal to the everyday menu. OPPORTUNITIES: McDonalds has many opportunities to change its look, menu, and customer service. McDonald’s started building newer building incorporating the arch, along with more modern furnishings. The menu has changed by adding more breakfast items and introducing the McCafe in certain areas. It has also added more health concerned items such as the Asian salad and Premium white chicken. (Dess, Case 40) THREATS: McDonald’s biggest threat is competition. Wherever there is a McDonald’s, there are at least 3 other fast-food restaurants near it. It constantly has to advertise what makes them unique to other fast-food places, which means there always has to be something different about

them than anybody else. Just the fact that McDonald’s was the first company to go big with their burgers does not necessarily help them today. Every customer is looking for a new experience and new products to keep them excited with what they are eating and where they are going to eat, and with so many choices, it is hard for McDonald’s to compete with. (McDonald’s 2007) ANALYSIS VIA PORTER’S FIVE FORCES MODEL: THREAT OF NEW ENTRANTS: The threat of new entrants for McDonald’s and the fast-food industry is low. With so many different kinds of fast-food restaurants already in the industry, entering at this point would cause struggle for the new entrant. (McDonald’s 2007) BARGAINING POWER OF SUPPLIERS: According to Siehoyono (2005), there are 3,700 new outlets being built each year in the U.S., meaning the power of suppliers is not an issue for McDonald’s. BARGAINING POWER OF BUYERS: Consumers have more power over buying McDonald’s products because they can demand what type of products they want to see from them. Today, consumers are demanding healthier food and beverage choices from fast-food restaurants such as McDonald’s. After the documentary film “Supersize Me” by Morgan Spurlock came out in 2004, McDonald’s had to reclaim its name by showing America that their company cares about the health of their customers and cut out their “supersize” program. SUBSTITUTE PRODUCTS/SERVICES: In the fast-food industry, including McDonald’s, the threat of substitutes is greater now more than ever with the convenience food industry growing. More convenience food stores are offering similar products as the fast-food restaurants. The convenience store / gas station, Quik Trip, sells many food items such as hot dogs, egg rolls, pizza stuffed breadsticks, and countless beverage choices. (Siehoyono 2005) COMPETITIVE RIVALRY: According to Siehoyono (2005), “fast casual” food chains such as Subway are tougher competition to the fast-food chains in both the U.S. and international industries. Some franchisers were also complaining that McDonald’s was granting too many franchisees too close to each other and actually stealing business away from each other. STRATEGY USED: McDonald’s has tried both cost leadership and differentiation as strategies to outdo the competition. McDonald’s is known for their low price product line and has been competitive with other businesses in the industry. A representation of differentiation is their dollar menu. They were one of the first in the industry to do a very low-cost smaller menu of items on their product line that cost only $1. As soon as this came out and was advertised, many of the other fast-food businesses started something similar to compete. There is only so much a business can do with a low-cost strategy before it starts losing money. This only leaves differentiation or a focus strategy to use. Focus strategies would not work as well in this industry mainly because their product line is similar in all areas of the world because that is what they are known for. McDonald’s has to stay true to what it started as and not fly too far away from its roots. McDonald’s has also tried a differentiation strategy with different products like the McRib or the Big Mac. (Dess, Case 40) ISSUES AND CHALLENGES: McDonald’s competitive advantage is their differentiation. Their

products’ flavors and names are exclusive to them and the brand of McDonald’s is distinguished by the looks and tastes of their foods. If somebody set a row of burgers and fries each from a different restaurant, I could pick out exactly which one is McDonald’s burgers and fries. They have distinguished themselves this way for years and this will continue, but the tastes of the customers may change. This will be the problem. McDonald’s will have to answer to the needs and wants of their customers to keep them satisfied and coming back for more. Right now in the industry life cycle, McDonald’s is a mature company focusing on competition and their product line’s survival. The culture of McDonald’s is keeping their customers happy and to do whatever they can to create a wider customer base along with a product line that satisfies any taste. I think McDonald’s customer service is not consistent. I have personally experienced many different stores and some have very good customer service and some are not very good at all. The stores’ cleanliness and overall appearance also is not consistent. (Siehoyono 2005) COURSE OF ACTION RECOMMENDED: If I were in a position to make a decision for this company, first I would require all management and supervisory positions to go through company training. They would then be required to test their employees on customer service and sales skills. In doing this kind of training all branches would have a better chance of happy customers and exceptional customer service. Employees also need to be treated with respect and importance for them to want to do well in their position. Some kind of incentives plan needs to be put into action for their employees. Older buildings need to be updated so customers feel comfortable and clean while dining in. OPINION: I think reading case studies is already interesting because it teaches you how the company works and how it became what it is today. Anybody can tell just from reading a case study whether it is a successful business and what their issues are. I thought that writing a case study analysis helped understand how a company operates considering all challenges and opportunities. References Dess, G., Lumpkin, G. & Eisner, A. (2008). Strategic Management (4e). Boston:McGraw-Hill Irwin. Siehoyono, L. (2005). The McDonald’s Case: Strategies for Growth. McDonald’s History. (2007). Available on www.mcdonalds.com. Accessed on September 17th, 2008.