McDonald s Rebirth Through a Low Growth Strategy Essay
McDonald s Rebirth Through a Low Growth Strategy
For several decades McDonald’s experienced uninterrupted growth in sales, profits, and number of stores opened. When the company seemed to reach maturity in life cycle, one CEO’s decision for a low-growth strategy started the rebirth of McDonald’s. In its early years, McDonald’s success was founded on principles of high quality standards and service. However, as time passed, their standards and controls slipped and same store sales began a downward trend. Some insisted that the dip in same store sales was evidence of market saturation. However, McDonald’s executives disagreed. With strong support, one McDonald’s CEO went on a new-store binge.
As McDonalds continued its unprecedented expansion, relations with franchisees deteriorated because corporate owned outlets were cannibalizing franchisee’s profits. Another CEO began to acquire other fast-food restaurants, but that model failed as it proved a drain on profits. McDonald’s was struggling to keep its growth mode. Then James Cantalupo took the reigns and began a low-growth strategy that turned the company’s fortunes around as he slashed capital expenditures by 40% by closing poorer performing restaurants and adding fewer new restaurants. Eighteen months into Cantalupo’s stint as CEO, McDonald’s stock price rose from eighteen dollars per share to just over twenty-four dollars per share. Just as McDonald’s fortunes seemed to turn, James Cantalupo died suddenly of a heart attack.
Internal Strengths & Weaknesses:
Among McDonald’s greatest strengths are its brand recognition, strong advertising, and market share. It was the most valuable fast food brand worldwide in 2013 with an estimated brand value of eighty-five billion dollars, three times its closest competitor, Starbucks [see appendix 1.1]. McDonald’s strength of brand recognition can primarily be attributed to its strong advertising and market share. This is evidenced by a 1970’s survey which revealed that ninety-six percent of children identified with Ronald McDonald, ranking him second only to Santa Clause. Furthermore, McDonald’s uses high-profile sponsorships and major advertising campaigns to maintain awareness and promote new launches (e.g. 2014 FIFA World Cup and 2014 Winter Olympics). In 2013, its advertising expenditure in the United States alone was 1.43 billion dollars [for details see appendix 1.2].
McDonald’s has won its market share via strong marketing/advertising efforts and providing convenience for its customers. When McDonald’s accelerated growth period ended, it had approximately 13,000 domestic restaurants. The belief was practical; the more stores in a city, the more per-capita transactions would result. As of 2013, McDonald’s had 35,429 restaurants worldwide- 14,276 of which are domestic (Statista, 2015). McDonald’s other internal strengths include: partnerships with big brands (e.g. Disney), international presence, localized food menus, and revenue. Now that we have examined McDonald’s internal strengths, lets examine the company’s internal weaknesses.
Among McDonald’s greatest internal weaknesses are its negative publicity, low presence of corporate social responsibility, high employee turnover, and low strategy differentiation. McDonald’s is heavily criticized for offering unhealthy foods to its customers, further exacerbating the obesity problem in America. The documentary film “Super Size Me”, which explores the health consequences of a diet based solely of McDonald’s, is one example of the negative publicity surrounding McDonald’s. Environmental groups often criticize McDonald’s for a lack of sustainable sourcing of beef products (USA Today, 2014). This reflects poorly on McDonald’s for having a weak presence of corporate social responsibility. Furthermore, McDonald’s has a high employee turnover as it offers low paying and low skilled jobs.
These jobs are often seen negatively by employees and usually result in high employee turnover. This is an internal weakness because it increases training costs and adds to McDonald’s overall costs. Lastly, McDonald’s has low strategy differentiation. It has become incredibly difficult for McDonald’s to differentiate itself from other fast food restaurants; thus, forcing McDonald’s to compete on price rather than features. This is an internal weakness because price wars reduce a company’s gross margin, which results in deteriorating profits. McDonald’s other internal weaknesses include: Declining market share, disgruntled franchisees, quality and taste of products, slowed revenue and income growth.
External Opportunities & Threats:
McDonald’s is in the unique position to rebrand itself by offering healthier menu options and increasing its corporate social responsibility. In 2006, McDonald’s newly redesigned logo and restaurant layout are being credited for 8-9% sales growth. Furthermore, McDonald’s has the unique opportunity to be the first fast food restaurant to source 100% of its ingredients from sustainable production. Younger generations are very conscientious of the impact their purchasing habits have on the environment.
The aforementioned opportunities can be done still pursuing a low growth strategy. But, McDonald’s still has opportunities for growth. Economic research suggest that China’s middle class is on pace to grow from six percent of its population to fifty percent of its population by 2020 (Business Insider, 2014). McDonald’s has historically targeted middle class families, so there is plenty of opportunity for growth in China. If McDonald’s is able to make a more localized menu and provide an atmosphere that can strike the right accord with the Chinese culture then McDonald’s has the opportunity to flourish in China.
Among McDonald’s greatest threats are the growing segment of health conscience consumers and the strength of competition. The health conscience consumer, a growing segment of society, poses both a threat and opportunity for McDonalds. The change in customer’s habits represents new needs that must be met by McDonald’s. In an attempt to cater to this market, McDonald’s has added salads, fruit, and oatmeal to their menu. Additionally, they have eliminated trans-fat oil- a product blamed for the nations obesity. Other areas of concern are the threat posed by Starbucks, which plans to offer a breakfast and lunch menu. McDonald’s strongest competitor remains Yum! Brands- owner of popular fast food chains: Taco Bell, Pizza Hut, KFC, and Wing Street [see appendix: 1.1. Other external threats include: saturated market, macroeconomic factors.
The central strategic decision that needs to be addressed is whether McDonald’s will commit to rebranding itself so that it is seen not only as an economical food destination, but as an appealing high quality one as well. The societal shift to a more health conscience consumer provides McDonald’s such an opportunity. Alternatives to Strategic Decision Making
McDonald’s has three viable options for continued success. The first two, allow McDonald’s to continue it’s low growth strategy. First, McDonald’s can create and promote an attractive menu that that will grab the attention of health conscience consumers. Second, it can focus on the stronghold it’s gained in the coffee space, as this could be an interesting new endeavor to follow (i.e. a new SBU). The third option would be to pursue a growth strategy for Asia, especially China. However, it must be noted that the growth strategy may burden the company with debt to pay for capital-intensive expenditures, but should it be successful McDonald’s revenues and profits could reach new ceilings.
It would behoove McDonald’s to fill the need of the health conscience consumer by adopting and promoting a healthier menu. This can be done without abandoning their staples (e.g. Fries, Big Mac, Happy Meal, and Egg McMuffin). If McDonald’s is able to meet the changes in customer’s needs and habits, there is no reason why they shouldn’t continue to experience growth in sales. I believe that this is the best option because it is not capital intensive, yet it could allow McDonald’s access to a new segment of the market. Furthermore, McDonald’s number of locations provides the health conscience consumer with convenience.
Implementation Evaluation and Control
The following steps are keys to a successful implementation of a strategic marketing plan: 1. Who are we? Who are our customers? What do our customers want? 2. Set strategic marketing goals: Assess internal strengths and weaknesses then compare your vision/mission to the reality of your external environment. Once you have identified the areas of need, choose specific goals to address those areas. 3. Establish strategic marketing activities/plan of actions: Once specific goals have been set, identify various activities to utilize resources and choose the best course of action to implement.
4. Establish timeline to execute goals and plan of actions: By having a clear understanding of your strategic marketing goals then you can establish common understanding of when such action plans can be reasonably accomplished. 5. Review and re-evaluate progress: By consistently reviewing and re-evaluating progress in implementing or instituting plan of actions, you can take a proactive approach in making adjustments due to changing business climate, environment, external threats and opportunities that may arise in everyday business decisions.
Brumley, James. (April 23, 2014). McDonald’s Is About To Tap Into A Huge Growth Opportunity. Retrieved from: http://www.businessinsider.com/mcdonalds-expanding-international-2014-4
Horovitz, Bruce. (April 30, 2014). McDonald’s sets 2020 sustainable goals. Retrieved from: http://www.usatoday.com/story/money/business/2014/04/30/mcdonalds-sustainability-fast-food-social-responsibility-restaurants/8513245/
Statista. (February, 2015). Retrieved from: http://0-www.statista.com.leopac.ulv.edu/topics/1444/mcdonalds/