McDonald’s Corporation (MCD) is the world’s largest chain of fast food restaurants, serving nearly 47 million customers daily. McDonald’s primarily sells hamburgers, cheeseburgers, chicken products, french fries, breakfast items, soft drinks, milkshakes and desserts. More recently, it has begun to offer salads, wraps and fruit. Many McDonald’s restaurants have included a playground for children and advertising geared toward children, and some have been redesigned in a more ‘natural’ style, with a particular emphasis on comfort: introducing lounge areas and fireplaces, and eliminating hard plastic chairs and tables.
Each McDonald’s restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporations’ revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company operated restaurants. McDonald’s revenues grew 27% over the three years ending in 2007 to $22.8 billion, and 9% growth in operating income to $3.9 billion.
McDonalds’s success is the result of superior products, high standards of performance, distinctive competitive strategies and the high integrity of our people. Approximately 85% of McDonald’s restaurant businesses world-wide are owned and operated by franchisees .All franchisees are independent, full-time operators.
McDonalds Vision Mission Statement and Values
* Vision: To be the best & leading fast food providers around the globe.
* Mission: To be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.”
* Values: Our values summarized in “Q.S.C & V”. Provide good quality, services to customer . Have cleanliness environment when customer enjoys their meal .The value of food product makes every customer is smiling.
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Porters Five Forces(in reference to McDonalds)
According to Porter’s Five Forces Model, if entry into a market is easy then rivalry is likely to be high. Considering McDonald’s competitive rivalry, there is intense competition in fast food industry that many small fast food businesses fight with each other to improve their customer base. This makes a competition the major focus between businesses. Although, McDonald’s, with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day, has a number of fast food outlet competitors across the countries such as Burger King, Taco Bell, KFC, Wendy’s, it is currently the leader of the industry in market capitalization with a cap of $39.31 billion.
The Threat of new entrants
The threat of new entrants in the fast food industry is high because there are no legal barriers which would keep them from entering the industry. The economies of scale and the access of the distribution are the major barriers that firms face in the industry. Firms must spend a large amount of capital on advertising and marketing in order to enjoy successful existence and long life of a fast food outlet. Large established companies with strong brand names such as McDonald’s make it more difficult to enter the market because new entrants are faced with price competition from existing chain restaurants. Thus, it takes a pretty much time for a new business to establish in the fast food industry.
Supplier bargaining power
The bargaining power of suppliers of McDonald’s is high because McDonald’s restaurants use the same products from the same suppliers and it doesn’t matter if you are in Rochester, MN or Beijing, China you can get the same Big Mac everywhere. This is a feature McDonald’s want to keep going on by encouraging consistency among its restaurants. Supplying these products to McDonald’s across the globe is the whole business for the suppliers and, however, if McDonald’s would lose even one supplier it would have to change one or more of its product lines and perhaps the whole menu what the McDonald’s customers were used to. This gives the suppliers of McDonald’s a high bargaining power.
Buyer bargaining power
Bargaining power of customers of McDonald’s is low because of low customer switching costs which are nearly zero; however, for example, one-fifth of the USA population eats in a fast food restaurant every day. Thus, fast food industry does not worry about customers’ loyalty. Fast food products industry is differentiated which are usually or almost always promoted by advertising – that is because of a vast competition between fast food firms Furthermore, if the fast food industry does not match the demands of the buyers and the general consumer trends, then the buyers can choose not to buy their product and convince others to do the same.
A good example of this is the movie ‘Super Size Me’. It is a movie showing an ordinary consumer trying to live of McDonalds fast food, and the purpose of the movie was to see what the traditional fast food from McDonalds could do to your health if you were to eat their products for every meal. This movie shows what the buyers possible reactions could be if not satisfied or not being pleased. The reactions from the whole market were a large change in consumer preferences and brand preferences.
The Threat of Substitutes
With so many firms in the fast food industry with low switching costs, vide variety of similar products that people can chose, and healthier alternatives, the threat of substitutes is very high.As there is intense competition between rival sellers in the fast food industry, the competition between firms selling substitute products is intense as well. One very important issue is that the customer always tends to find another product comparable or better in terms of the quality of fast food products.
Another thing is that fast food industry is unhealthy to its customers’ health. The majority of the public think that fast food restaurants primarily serve high in fat content foods which are unhealthy and as a consequence they tend to look elsewhere for healthier alternatives. While fast food products are not always associated with health and quality, fast food restaurants keeps a major advantage over other firms selling substitute products through the lower prices of their products and a quick, convenient service.
Competitive Profile Matrix
The above matrix re-establishes McDonald’s supremacy in the fast food market. * Pricing: McDonalds certainly gets an edge on the pricing front. Its competitors like Wendy’s are rapidly proliferating high-quality burger chains like Five Guys. Wendy’s has more premium products on its menu and therefore is relatively highly priced. The line “apke zamane mein baap ke zamane kaa daam” reinforces pricing edge enjoyed by McDonalds. They follow the value based pricing strategy * Financial Position: Wendy’s sales as in 2011 was 8.5 billion dollars closely competing with Burger King at 8.4 billion dollars. However McDonalds total sales were 27 billion dollars that is more than three times of its competitors.
* Advertisement : McDonalds spends on an average 6 percent of its sales on advertisement. Slogans like “I am loving it” are really catchy and every McDonalds customer can associate with it. Also McDonalds can be seen using a marketing mixture by being there as a sponsor for Olympics to TV advertisement. However McDonalds generally doesn’t use print media.
* Market Share:
McDonalds market share is much more than its competitors and all the above factors such as pricing, quality, marketing strategy have played their role in this.
* Global Expansion: McDonalds high sales are a result of its global expansion. McDonalds has its presence in 119 countries and serves 68 million customers daily which is way more than any of its competitors.
Since its inception, McDonalds has consistently emphasized on restaurant operations procedures, service, quality and cleanliness. Here are a few milestones which the firm accomplished:
1. Hamburger University:
It is a training facility which was designed to instruct personnel employed by McDonald’s in the various aspects of restaurant management. More than 80,000 restaurant managers, mid-managers and owner/operators have graduated from this facility. It is also located in Shanghai, China.
2. The Big Mac:
The Big Mac was created by Jim Delligatti, who was operating several restaurants in the Pittsburgh area.It was introduced in 1967. The sandwich was so popular that it was added to the menu of all the U.S restaurants by 1968.
3. Happy Meal:
A Happy Meal is a form of kids’ meal specifically marketed at childrensince June 1979. A toy is typically included with the food, both of which are usually contained in a box or paper bag with the McDonald’s logo. Frequently, the packaging and toy are part of a marketing tie-in to a popular film, TV show, or toy-line.
The first McDonald’s drive-through was created in 1975 in Arizona on a military base to serve soldiers who weren’t permitted to get out of their cars while wearing fatigues.McDonald’s drive-through service is called McDrive.
McDonaldization is a term used by a sociologist, George Ritzer. It occurs when a culture possesses the characteristics of a fast-food restaurant. McDonaldization is a reconceptualization of rationalization, or moving from traditional to rational modes of thought, and scientific management. Its five components are Efficiency, Calculability, Predictability, Control and Culture.
6. Plan to Win Strategy
This strategy was adopted in 2003 with its strategic focus on being better and not just bigger. The 4 P’s of this strategy were People, Place, Price and Product.
* McDonalds holds a very strong brand name worldwide.. * It is said that McDonalds was the first food outlet to provide its customers with nutritional facts. Nutrition information is printed on all packaging and more recently added to the McDonald’s Internet site. McDonalds offers salads, fruit, roasted chicken, bottled water and other low fat and calorie conscious alternatives. * McDonald’s uses only 100% pure USDA inspected beef, no fillers or additives. Additionally the produce is farm fresh.
McDonald’s serves 100% farm raised chicken no fillers or additives and only grade-A eggs. McDonald’s foods are purchased from only certified and inspected suppliers. McDonalds works closely with ranchers, growers and suppliers to ensure food quality and freshness. * Loyal employees and management and customers is their biggest strength * McDonalds makes sure that cultural and regional barriers are kept in mind while providing food to different countries. * Clean environment and play areas for children where they can enjoy their time.
* The weakness that hits the list is the employee turnover rate. Every year many of their employees are fired out of the restaurant * Health conscious people seldom complain that they do not provide us with the organic and healthy food. This becomes their weakness when they get in the complaints.
* Discounts given on every food item may help them gain more customers. * In today’s health conscious societies the introduction of a healthy hamburger is a great opportunity. They would be the first QSR (Quick Service Restaurant) to have FDA approval on marketing a low fat low calorie hamburger with low calorie combo alternatives. Currently McDonald’s and its competition health choice items do not include hamburgers. * In order to be environment friendly, they can use packing material which can be recycled later or material that does not create pollution.
* Emerging competition of similar outlets is becoming a problem for McDonalds. They have a threat of local food outlets in different countries.
* As it is a multinational food outlet, fluctuations in the currency of other countries becomes a problem for such companies
* Political factors
The international operations of McDonald’s are extremely under influence of a policy of the separate state put into practice by each government. For example, there are certain groups in Europe and the United States, which demand the acts of governmental power concerning medical values of meal of fast food. They have specified that harmful elements as cholesterol and negative influences as fatness are concerning consumption of products of fast food.
The organizations in the fast food industry aren’t excused from any disputes and problems. Definitely, they really have the separate problems involving business factors. Branches and privileges of networks of the enterprises of fast service as McDonald’s has a tendency to experience difficulty in cases where the economy of the corresponding states is amazed by inflation and changes in exchange rates. Clients hence face a survey stalemate through their separate budgets, whether they should spend more on these foreign networks of the enterprises of fast food. Hence, to these chains, possibly, it is necessary to take out problems of effects of economic environment.
Especially, their problem depends on the answer of consumers to these main principles and how it could influence their general sales. In an estimation of operations of the company, food chains as McDonald’s tend to import the biggest part of the raw materials to certain territory if there is a delivery lack. Exchange rate fluctuations will also play an essential role in company’s operations. The company’s international supply as well as the existing exchange rates is merely a part of the overall components needed to guarantee success for the foreign operations of McDonald’s.
It is besides obligatory, that the company has been informed on the existing tax requirements needed by the separate governments on which they operate. It basically guarantees smooth operations of McDonald’s privileges. In the same relation the company should consider also a state economic situation on which they influence. Level at which the economy of special state grows, defines purchasing capacity of consumers in that country. Hence, if the privilege works in the especially economically weak state, then their products should cost above than other existing products in the market, these privileges should take certain regulators to support economy at the expense of manufacture growth.
The main reason is the consumers’ worries had greatly increased with health fears so customers now opted for healthier options like subway, which offered more of a variety for health conscious customers. Social Considerations: To ease customers concern about health issues, McDonald’s has made changes to the following; McDonalds changed its image vastly by evaluating the current menu and making changes to it from using organic products to revising the whole menu entirely by offering salads and vegetarian burgers. McDonald’s serves a range of high-quality foods that can fit into a balanced diet. The accurate and accessible nutrition information help guests make informed menu choices. Social Considerations Emphasis on food safety: McDonald’s suppliers have food safety management systems in place, including Good Manufacturing Practices (GMP), a verified Hazard Analysis Critical Control Point (HACCP) plan and crisis management, food security and other applicable programs
Technological Advantages McDonald’s has taken advantage of technology to streamline their processes and improve efficiency. Through technology enhancements such as FPI’s Help Desk Service, network and application consolidation, and other technology implementations, operations of the company are greatly improved.
* Technological Advantages Touch Order Allows You To Place Order At McDonald’s Via handset. * T The customers can place their order directly from their tables, dubbed as “Touch Order”. It’s the first self-ordering system in the world to use RFID* Technology Spotlight. * McDonald’s has also implemented technology to improve supply chain management, and allows customers to access this information to make more informed decisions about what they eat.
They strive to ensure that every step of the McDonald’s supply chain contributes positively to the safety, quality and availability of their final products. They also want their product ingredients to be produced in ways that contribute positively to the development of sustainable agricultural and food manufacturing practices. Since McDonald’s does not actually produce any of the food they ultimately serve their customers, it’s essential that they work with suppliers who share our values, and we do.
They have a large number of direct suppliers – companies that make or deliver final products for their restaurants as well as an even larger number of indirect suppliers companies and farms that grow or process the ingredients that are eventually delivered to their direct suppliers. They work closely with their direct suppliers to continuously improve the practices that impact their employees, their communities, the environment, their own suppliers and, of course, McDonald’s customers.
Profit Pyramid Model
The key is to get customers to buy at a low price, low price, entry point and move them upto high price and high margin products where the company makes its profit. For example McDonalds uses products like Mc Aloo Tikki to get the customer inside the restaurant. Once the customer establishes a taste for its products his focus is shifted to products belonging to the higher strung of the ladder such as Mc Paneer Spicy, Chicken Maharaja Wrap etc. This is where it makes it profit.
Thus McDonalds follows a Profit Pyramid Model.
Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. McDonald’s is engaged in. Mc Donald’s only deals in the restaurant business, so its corporate strategy is a single business unit strategy, likely of growth.
A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm.McDonald’s has pursued two strategies since 2003. To keep up with rapidly changing consumer preferences, demographics, and spending patterns, McDonald’s has introduced new items (Premium Chicken sandwiches and the Angus Beef Burger) and campaigns to create more healthy foods (Premium Salads). The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key determinant of sales in the fast food industry.
McDonald’s has also focused on increasing sales at existing restaurants instead of opening new ones. To do so, McDonald’s has remodelled many restaurants, kept stores open longer, and increased menu options.
McDonalds uses marketing mixture by using the different sources of media to reach the consumer: * Medium: Marketing medium of McDonalds ranges from TV advertisement to sponsoring the Olympics.It normally doesn’t use the print media for advertisement. * Branding: When someone says McDonald’s things like the golden arches ,Ronald McDonald Big Mac, etc come automatically comes to our mind. McDonald’s is loaded with brand images that are embedded into our souls from a very early age, and the company’s influence has been profound. * They Speak to the Children: McDonalds has established strong relationships in their brand by marketing directly to children, and giving them the products they want—little meals with lots of color, happy faces, and a toy (hence, Happy Meal).
The only core competency that Mc Donalds has is developing localized products. We can explain this with the example of the products that were provided to their French customers. They included beer in their menu. All their hamburgers also included a tinge of mustard to it since the French are extremely fond of mustard sauce. To overcome their unhealthy image they also began to include salads in their menu. In Thailand some of their dishes also included rice since all their meals have rice. To cater to the taste buds of Indians they have started dishes like Paneer McSpicy. McDonalds also focuses mostly on children by providing Happy Meals and toys along with it which attract the kids. There no other fast food brand which has customized its product to such an extent and therefore it is a core competency for McDonalds.
The distinctive competencies of McDonalds are as follows:
* Standardized products
* Quick service
* Value: McDonalds provides value to the customer’s because of its competitive pricing. There are not many brands which can match the same prcing, standardized product, quality which McDonalds provides therefore it does provide value to the customer’s. * Rareness: McDonald’s approach towards children is very rare and no other competitor has the same to this extent. Also localizing their products is one more rare feature of this brand. * Imitability: Designing a business model which has been successful in 119 countries with annual sales of 27 billion dollars and with so much brand recognition is definitely not easy to imitate. * Organization: They exploit their resources because they cater to the local customers in an extremely efficient manner.