BUSINESS CASE STUDY 2019 - Resource Factory 2019 Sample.pdf · BUSINESS CASE STUDY 2019 A...

Christine Kassar Williams, A.J. Stanshall and G.H. WilliamsFOR BUSINESS STUDIES/BUSINESS MANAGEMENT STUDENTS

BUSINESS CASE STUDY 2019

A comprehensive case study of McDonald’s

Covering

9 Operations 9 Marketing 9 Finance 9 Human Resources

SAMPLE

valid until 1/11/2019

BLAC

KLINE MASTER

BUSINESS CASE STUDY - McDonald's

24© Copyright C.K. Williams, A.J. Stanshall and G.H. Williams 2018 www.resourcefactory.com.au

1.12 Outputs

The final output for McDonald’s is food.

Customer ServiceCustomer service is a critical factor of good business and is important in developing brand loyalty. McDonald’s believes that customer engagement and good service are fundamental to the role of a crew member. In recruiting staff, McDonald’s expects its members to be friendly and to put the customer first.84 The 2015 Standards of Business Conduct - The Promise of the Golden Arches states:

“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 QSC&V [Quality, Service, Cleanliness & Value] for each and every customer, each and every time”85

McDonald’s values its customers and seeks customer feedback via in-store questionnaire or via its website.86 This allows for a direct link between the business managers and its customers and even offers customers free products for their feedback.

Operations Strategies

How does McDonald’s actually achieve its objectives?

Operations is the engine room of any business. It is the function that executes the vision of marketing within the budgets set by the finance team and with the support of human resources. Without operations, a business cannot coordinate the acquisition of inputs and the processes involved in transforming these into outputs. The operational strategies used by McDonald’s demonstrate that this is a company that continues to remain relevant in ever-changing markets.

There are several strategies that operations can implement in order to meet broader company goals. It is important that businesses invest energy and resources to focus on areas of operations that are appropriate. For example, fast-food outlets focus on speed, whereas a high-end jeweller would preference quality.

The information already presented on the inputs, transformation processes and outputs for McDonald’s has highlighted some of its strategic focus areas. There is a direct link between operational processes and strategies. For example, in selecting inputs, McDonald’s prefers to use locally-sourced ingredients. This process choice influences its supply chain management strategy. Understanding the link between processes and strategies is important.

One of the major strategies McDonald’s uses is new product design and development. Many other key operations strategies assist with achieving their specific performance objectives.

McDonald’s menu items and meal bundles.

SAMPLE


BLAC

KLINE MASTER



2.6 Ethical Considerations

Advertising to childrenIn 1997, the judgement from the landmark “McLibel” case26 found that McDonald’s UK was guilty of exploiting children with its advertising. Since then, McDonald's advertising has been under the spotlight and in 2015, the company was accused of producing a television advertisement that focused on the “premium” (the toy) rather than the product (food).27 The American Children’s Advertising Review Unit (CARU) issued a warning to McDonald’s to “take care to assure future advertising directed to children.....focus on the advertised food product and not on the premium.”28 As a consequence of this investigation McDonald’s removed the advertisement and issued a statement that said that while the company believed that the ad largely focuses on the product, out of respect to the self-regulatory process, McDonald’s would consider the CARU’s findings in producing future advertisements.29

In 2009, McDonald’s Australia and other fast-food restaurants launched a self-regulatory body – the Quick Service Restaurant Initiative for Responsible Advertising and Marketing Communications to Children.30 Where food and beverages are promoted to children under fourteen years of age, McDonald’s Australia agreed to only use foods that were considered to be healthier options.

Fast-food contributing towards obesityThe World Health Organisation (WHO) asserts that there is a global obesity epidemic.31 The availability, popularity and increased consumption of processed foods has sparked some countries, such as the UK, to ban the advertisement of foods high in fat, salt and sugar to children.32 Advertising limits extend to the programmes and times that commercials could air. This has prompted a change in the menu and ingredients used by McDonald’s UK.

McDonald’s Australia voluntarily works with accredited dieticians to improve the quality of its food. For example, McDonald’s Australia has reduced the sugar content in burger buns to 5%, reduced the sodium content of McDonald’s signature cheese by 20%33 and has introduced healthier options to its menu. The traditional Happy Meal34 now includes options such as seared chicken wraps, sliced apples, flavoured milk and water. Meal component choices extend to the regular menu where fries can be replaced with a garden salad.

Happy Meal box

McDonald's traditional food offering is changing.

SAMPLE

55 © Copyright C.K. Williams, A.J. Stanshall and G.H. Williams 2018



BLAC

KLINE MASTER

www.resourcefactory.com.au

How do foreign currency forwards actually work?

It is quite a simple contract to purchase a specified amount of FX at a specified date for a specified price. For example, say McDonald’s need to pay for goods in Australia in 3 months (AU$100,000). The current exchange rate = AU$1.00 = US$0.75

McDonald’s wants certainty - they want to lock in the FX rate.

So they approach a bank. They sign a contract which obliges them to buy AU$100,000 at the rate of AU$1.00 = US$0.78 at a date three months into the future

Why AU$1.00 = US$0.78?

This rate reflects the banks view of exchange rate movements and no doubt a profit margin for the bank. McDonald’s now has complete surety over the cost of this transaction.

Financial modelling by McDonald’s suggests that neither a 1% p.a. increase in interest rates nor a 10% adverse change in foreign currency rates would have a material impact on the business.

Implementing Financial Controls Implementing effective financial controls in such a large organisation as McDonald’s can be a challenge. McDonald’s uses an external auditor (Ernst and Young) to assess the effectiveness of its financial controls annually.21 In the 2017 Annual Report, the auditor made the following statement:

“Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting. In our opinion, McDonald’s Corporation maintained, in all material respects, effective internal control over financial reporting…”

Although McDonald’s Australia’s financial system ultimately feeds into that of McDonald’s Corporation, it also has its financial controls independently assessed each year by an external auditor, thus adding a further level of assurance.

Debt and Equity Financing – Advantages and DisadvantagesMcDonald's has substantially increased debt in recent years. It sees this as “optimising” the capital structure – “enhancing financial value.” The company clearly believes the advantages of this strategy outweigh the disadvantages. "We've fundamentally enhanced the strength and stability of our business by shifting our ownership structure" said Chief Financial Officer Kevin Ozan.22

SAMPLE


BLAC

KLINE MASTER



Profitability (Gross profit ratio)

McDonald’s (Company Stores)

Yum! Brands Inc. (Company Stores)

2017 2016 2015 2017 2016 201568% 68% 66% 69% 70% 69%

Gross profit is measured by taking sales and subtracting the cost of goods sold. The figures above have been taken from McDonald’s and Yum! Brands Inc. company-owned stores. The cost of goods sold represents the cost to the company of the food and packaging that a customer takes away with them after purchase.

McDonald’s company stores gross profit remained stable in 2017 and is marginally lower than Yum! Brand’s Inc..McDonald’s recognises that many of its food inputs (chicken, beef, etc.) are commodities subject to price fluctuations, while the selling price in restaurants usually remains stable (due to high levels of competition and consumer choice). This means that it is doing well to achieve consistent gross profits and management acknowledges that maintaining this will be a difficult task in the future.

According to ATO figures, comparable takeaway stores in Australia achieved a gross profit of 63% in 2016 (the most recent figures published). McDonald’s company stores (worldwide) are doing better than this.24

Note – this information comes from the income statement.

Gross profit Sales

Note – At a gross profit margin of 68%

Meal sale price = $9.00 (100%)

Cost of ingredients = $2.88 (32%)

Gross profit = $6.12 (68%)

SAMPLE

79 © Copyright C.K. Williams, A.J. Stanshall and G.H. Williams 2018



BLAC

KLINE MASTER

www.resourcefactory.com.au

4.8 Ethics and Corporate Social Responsibility

McDonald’s is recognised globally as a leader in employing a diverse workforce – a reputation that it actively pursues as part of its corporate social responsibility.

In 2015, concerns were raised about McDonald’s using zero-time contracts with casual employees. A zero-time contract essentially obliges an employee to work for McDonald’s for anywhere between zero and full-time hours in a given week. Unions raised concerns that these contracts are restrictive on employees – tying them to McDonald’s without any guarantee of work.49 As a result of a union campaign, McDonald’s in New Zealand agreed to discontinue the practice.50 In 2017, McDonald’s in the UK offered their 120,000 staff the choice between zero-tome contracts and fixed term contracts – with 80% of staff reportedly opting to stay with zero-time.51

In Australia, McDonald’s employs approximately 70% of staff on a casual basis.52 Many of these are young people (85% of all employees are aged between 14 and 18)53 working in their first job who are not part of a trade union.50 This creates a potential power imbalance, with managers having the upper hand. To prevent this, McDonald’s provide a number of confidential communication channels where employees can attempt to get issues resolved.

As many of its employees are still completing secondary school, McDonald’s Australia also has a Responsible Student Employment Policy. This “ensures that young full time students will usually work no more than two shifts per week during term time and in the case of students 17 years of age or younger they will not work beyond 11pm or before 5am on a school day.” 51

McDonald’s also facilitate a range of separate employee networks, including those specifically for women, gay and lesbian, young professionals, working parents, Hispanic and African Americans.55

McDonald’s employ many young people.

SAMPLE

BUSINESS CASE STUDY 2019 - Resource Factory 2019 Sample.pdf · BUSINESS CASE STUDY 2019 A...

Documents

Transcript of BUSINESS CASE STUDY 2019 - Resource Factory 2019 Sample.pdf · BUSINESS CASE STUDY 2019 A...