McDonald Strategic management

8/11/2019 McDonald Strategic management

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Project Report

On

McDonalds

BY

Atithya Vyas, Dhruvi Bhatt, Kinjal Vaghela,

Shreya Nair, Yash Jain, Dharmaraj Wala


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1.INTRODUCTION:

1.1

McDonald: a worldwide fast food king

McDonalds has thousands of competitors, each seeking a share of the market. McDonalds

recognizes that it is up against not only other large burger and chicken chains but also

independently owned fish and chips shops and other eat-in or take-out establishments. Therefore,

a company like McDonalds has to develop competitive strategies to differentiate themselves

from their rivals. Actually, any organizations need to be in touch with their business environment

in order to make sure that what they do fits with customer expectations. Especially, that

expectations change over time and countries. Indeed, even huge corporation like them have to

watch their back in order to remain in the top of their game. Moreover, the market segment in

which McDonalds operates is becoming increasingly competitive. But how this firm stills the

number one in the global market scale? In this purpose we will look together how and why the

American multinational remain on the top of his game in three crucial regions of the world.

First of all, if McDonald is the worlds largest chain of fast food restaurants is because the

corporation serve around 68 million customers daily in 119 countries. But the secret of such

success lies on a strong strategic competitive advantage that the company still building until

now. Indeed, the impressive supply chain of the corporation is pretty well known. And it play a

key role since it permits them to offer the lowest meal. Furthermore, McDonald does not hesitate

to go to new markets with an extremely clever distribution channel.

Nevertheless, in this crowded market place, McDonalds lead came under pressure largely

because many others fast foods have either copied the trail blazing idea that was previously set

by McDonald. Besides, McDonalds recognizes the need to respond and it is looking to increase

the competitive gap by:

adding greater value through innovation

making the process of visiting a McDonalds restaurant less routine and controlled

enhancing the overall in house experience.

leading on all the social medias platforms

In addition, the following quote from Mister Don Thompson, chief executive officer ofMacDonalds, illustrates the three important aspects of the companys strategy in order to gain

and keep their competitive advantage:

While the informal eating out market remains challenging and economic uncertainty is

pressuring consumer spending, were continuing to differentiate the McDonalds experience by

uniting consumer insights, innovation and execution. said Thompson.


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In fact, McDonalds now offers late night breakfasts, a new Dollar Menu, and is advertising

vegetarian value priced meals in markets like India to attract more customers. The company also

said that a new line of quarter pounder hamburgers, including a bacon habanero ranch version,

was selling well. It has rolled out an egg white version of its popular McMuffin breakfast

sandwich and has gotten rid of slow movers such as Angus burgers and its Fruit & Walnut Salad.

Furthermore, the American corporation had changes the restaurant interior design and made it

more technological friendly and modern. But above all, what we have to underline here that

McDonald focus on the customers needs and demands which help them to see theirs flaws and

fix it right away. And even more upgrade their services and products. A strategic position which

differentiates the multinational company from her rivals. But also give them the ability to

dominate and to be a head of the industry.
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2.EXTERNAL ENVIRONMENT ANALYSIS

2.1

Analysis of McDonalds general-environment

Political factors

The international operations of McDonalds are extreme 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.

On the other hand, the company operates the separate policy and instructions of operations. The

certain markets concentrate on various areas of anxiety, such as various area of health, protection

of the worker, and environment. All these elements are noticed in the state control of licensing of

restaurants in the corresponding states. For example, there is a hung legal dispute in privilegeMcDonalds in India where certain infringement of rights and infringement of the religious laws

concerning the maintenance of meal. Meat existence in their menu in India is obviously

offensive to Indian religions in the mentioned market. There are also other researches which

specifies in infringement of McDonald's Stores concerning existing laws on employment in the

target market. As any business enterprise, these McDonald's stores should argue with problems

of procedures of employment just as their tax obligations to succeed in the foreign market.

Economic factors

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 McDonalds 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 McDonalds 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 essentialrole in companys operations.

As it is declared in the paragraph above, stores of McDonald should take a big reason concerning

their microenvironment. The companys 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 McDonalds. 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


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guarantees smooth operations of McDonalds privileges. In the same relation the company

should consider also a state economic situation on which they influence on. 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.

Socio-Cultural factors

Articles about the international strategy of McDonalds, apparently, function on several areas to

guarantee profitable returns for the organization. To illustrate, the organization changes to the

best an establishment of positive thinking from their basic consumers. McDonalds indulges a

special variety of consumers with certain types of persons. Also it has been noticed that the

company has given the markets, such as the United Kingdom, a choice concerning their lunch

requirements. Specified that McDonalds beginnings considerably valued set of meal which

offers a reliable degree of quality for the corresponding market where it works. In addition, thosewho are elderly only below a bracket of thirty five as said are the most frequent consumers of

McDonalds privileges.

Many-sided character of business is reflected now in sharp value of the information about the

existing market. This procedure is essentially identified in area as market research. Information

concerning the reference and potential areas of the market would double as a barrier to success of

the company if this area of operations neglected. In case of McDonalds they establish good

system in determining of requirements of the market. The company uses concept of consumer

individuality of a product of behaviour and decisions on purchase to its advantage. It is said, to

have the main influence on understanding of prospective result of the organization in theparticular market.

Technological factors

McDonalds makes a demand for their own products. The key tool of the company for marketing

is by means of TV advertisings. There are some requirements that McDonalds is inclined to

interest the younger population more. Existence of game stains also toys in the meal offered by

the company shows this validity. Other demonstration of such marketing strategy is obvious in

advertising they use. They use recovered descriptions of the characters as Grimace and

Hamburglar. Other advertising operations employ popular celebrities to promote their products.Similar became endorsees for McDonalds all over the world loving it campaign. Besides,

operations of McDonalds have considerably been infused with new technology. Elements as the

system of stock and management of the value chain of companys creation consider easy

payments for the suppliers and other sellers with which the person supplies in the corresponding

agreement on the markets. Technology integration into operations of McDonalds tends to

increase cost of their products. Basically it is shown in improvements on its chain of creation of


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value. Improvement of stock system just as its systems of deliveries allows the company to work

in the international context.

Legal factors

There was a current roar against the fast food industry. It has forced McDonalds to apply moreclose examination on their corporate social responsibility. As a whole it has addressed to

requirement of the company to generate its corporate reputation to more positive and the more

socially responsible company. The reputation of McDonalds is obviously a huge question.

Noticed on companys web site, seems, that they have got steps to take in hand the key social

condemnation that they abused them in the last decades. The company gave to their clients the

corresponding data in which they need the relation of food essence of their products. This is to

attend to the arguments of obesity charged against the products of the company. In the same way

consumers have provided freedom in a choice, whether they want to buy the meal.

It is connected with socio-cultural market signs which they influence. For example, operations inpredominantly Muslim countries demand, that their meat corresponded toHalalrequirements of

the law. In the same regard, those that operate in countries in the European Union should

correspond to the existing laws forbidding usage of genetically modified meat products in their

meal. Other legal concepts as tax obligations, employment standards, and requirements to a

degree of quality are only a few of important elements on which the company should consider.

Otherwise, smooth operations should be difficult to reach.

Environmental factor

Social responsibility of McDonalds on the state influences to company operations. They involve

charges of harm to environment. Among the reasons why they are accused of such requirements,

is that the work of substances is not decomposed by microorganisms for their drinks glasses and

treasury of expanded polystyrene for meal. Some civil groups in Hong Kong have made actions

to make McDonalds privileges in Hong Kong aware of the rather copious use of containers of

expanded polystyrene and resulting abusing by environment. Further, has specified that in 1995,

McDonalds Hong Kong ran through the expanded polystyrene used by both Australia and the

incorporated United States.


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2.2 Analysis of industry (five forces framework)

A business has to understand the dynamics of its industries and markets in order to compete

effectively and intensively in the marketplace. The forces which derive competition and

attractiveness of a market, contending that the competitive environment is created by the

interaction of these five different forces acting on a business. In addition to rivalry amongexisting firms and the threat of new entrants into the market, there are also the forces of supplier

power, the power of buyers, and the threat of substitute products or services (The

Figure1 Porters Five Forces Framework). Michael E. Porter suggested that the intensity of

competition is determined by the relative strengths of these forces.

The Five Forces directly are interconnected with the effect on the companys ability to serve its

customers and to make a profit. A change in any of these forces generally requires a company to

re-assess its competitive strategies.

Competitive rivalry

According to Porters Five Forces Model, if entry into a market is easy then rivalry is likely to be

high. Considering McDonalds 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, McDonalds,

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, Wendys, 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

McDonalds 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 McDonalds is high because McDonalds restaurants use

the same products from the same suppliers and it doesnt matter if you are in Rochester, MN or

Beijing, China you can get the same Big Mac everywhere. This is a feature McDonalds want to

keep going on by encouraging consistency among its restaurants. Supplying these products to

McDonalds across the globe is the whole business for the suppliers and, however, if


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McDonalds would lose even one supplier it would have to change one or more of its product

lines and perhaps the whole menu what the McDonalds customers were used to. This gives the

suppliers of McDonalds a high bargaining power.

Buyer bargaining power

Buyers, in the fast food industry, are those who is ordering fast food at the local restaurant, over

the telephone, or internet or just paying or consuming the products.Bargaining power of

customers of McDonalds 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 advertisingthat is because of a

vast competition between fast food firms. Product differentiation is very important in fast food

industry to make your product stand out against the crowded fast food industry products.

Furthermore, quality of the product or service in the fast food industry is very important as

customers have full information of the products they buy and consume.

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

Several factors determine if there is a threat of substitute products in an industry. First, if the

consumers switching costs are low, which means that there is little of anything stopping the

consumer from purchasing the substitute instead of the industrys product, then the threat of

substitute products is high. Second, if the substitute product is cheaper than the industrys

product there is a high risk of threat of substitutes. Third, if the substitute product is having equal

or superior quality, functions, attributes, or performance compared to the industrys product, the

threat of substitutes as well is high.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.


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2.3 COMPETITORS ANALYSIS

Burger King: after years of struggling

This is a business analysis on the two important public corporations: McDonalds and Burger

King. Both of them are competing in the fast food industry. To add, the fast food industry is one

of the largest food services sectors around the world and one of the most competitive industry.

This sector focuses on the lower prices strategy in order to attract customers worldwide.

McDonalds and Burger King, both compete with all types of food retailers on the basis of prices,

convenience, food qualities and customer services.

Regarding Burger King, the majority of their fast-food restaurants are locate internationally and

are privately owned franchises. Whereas the majority of those franchisees are smaller

operations, several have grown into major corporations in their own. At the end of the

companys fiscal quarter in September 2012, Burger King reported it had 12,667 outlets in 73

countries of these 66% are in the United States and 95% are privately owned and operated. The

company locations employ more than 37,000 people who serve approximately 11.4 million

customers daily.

Besides, Burger King is also redesigning it is restaurants, changing it is packaging, cleaning up it

is cooking process and changing uniforms to reflect a more modern approach to food services.

Finlay, these factors will contribute to a more desirable experience for customers. But Burger

King does look rather old school and out of touch by not having the premium chicken wraps,

salads and coffee drinks that have become the most-have in a fastfood in 2012. Not having

those items certainly has not helped in the battle to stay relevant. As far as improvement goes,

Burger Kings core question should be: how to better present the value proposition? And how to

better underscore what makes Burger King the ideal destination for fast food customers? In fact,

there must be something McDonalds and Wendys are not doing and something that can be tied

back to Burger Kings specific promise to their customers. That would present a competitive

advantage if introduced into the market. That is how Burger King will truly stand out.


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Other Competitors:

It is unnecessary to talk about the supremacy of the brand with the golden arches in the market.

However, smaller rivals such as Wendys, Burger King, KFC or Subway are upping their game

with bacon sundaes and limited-time offers. Wendys for instance is known for his square

hamburgers and thick frosty shakes but recently introduced a pretzel bacon cheeseburger thatappears to be chains best-selling new product in about ten years. And here we are only talking

about the front runners of the competition. Indeed, Five Guys, Yum! and In-N-Out and others

compose the second line of the pack.

Lets not forget also that non-burger competition has also increased. Actually, in this category

we can count Starbucks, Taco Bell, Dunkin Donuts, Pizza Hut and Dominos Pizza. Further, we

believe that Chipotles success in selling burritos may have reinvigorated the broader market for

Mexican food. On the higher-end, McDonalds has to compete with customers who are looking

to healthier options at Panera, as well as the organic offering of Chipotle. Therefore, the brand

fights back by offering more healthy menus and underline the quality of all their ingredientsthrough advertising campaigns. And the uses of local suppliers. This growing competition and

saturation on the market is a huge challenge for the number one of the fast-foods industry. The

highly globalized segment of the world economy, markets where consumers have

standardized preferences. Plus, the customers are driven with the curiosity to try news burgers

recipes and concepts. Since, they exhaust all the golden arches menus so they look to new

experiences or taste somewhere else. In addition, brands restaurants such as Taco Bell, Yum and
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KFC grew the same store sales: 7% and 4%, respectively, during the most recent quarter. Taco

Bell is the only major competitor, in our view, to McDonalds value proposition with premium

items.

PIZZA HUT:

Pizza Hut is a global fast food chain, a subsidiary of Yum! Brands Inc. , the worlds largest

restaurant company. It was founded in Wichita, Kansas, USA in 1958 and is running its

operations in about 91 countries worldwide. Its one of the major competitions of McDonalds in

the Pakistani QSR industry. It started its operations in Pakistan in 1993 with a single outlet at

Boat Basin, Clifton, Karachi. Today it operates in nine cities of Pakistan with 38 outlets. The

cities include Karachi, Lahore, Islamabad, Peshawar, Faisalabad, Multan, Rawalpindi, Sialkot

and Hyderabad. Pizza Hut serves a large variety of starters, soups, salads, sandwiches, Pastas and

deserts.

Strategic Objectives:

When we talk about strategic objectives, Pizza hut says: We want to satisfy our

customers by offering them The best. Diversification of the products that they offer

has always been a focal point of strategies at Pizza Hut. The strategies at Pizza hut are

guided by principles like Cleanliness, Hospitality, Accuracy, Maintenance, Product

quality and Speed (CHAMPS). Since its a global chain, the strategies are based upon

customizing the services, advertising and marketing activities according to the countries

that they are operating in. Customer service and satisfaction have of course always been

a vital aspect of the strategies. Another important feature of the Pizza Huts strategies

are the 3 Fs (Fun, Friendly and Familiar).

Problems and Weaknesses:

At one time, the biggest marketing problem Pizza Hut faced was lunch. As compared to

McDonalds, its restaurants had virtually no lunch time sales, and neither did any of its

pizza competitors. The reason, of course, is that it takes 20 minutes to cook a pizza from

scratch in a traditional pizza oven, and most people wont spend that long at lunch time

waiting to be served. By using a new, continuous-broiling technology adapted from

burger business, Pizza Hut developed a personal pan pizza that could be served in less

than 5 minutes. It was quick, tasty and moderately priced. And Pizza hut rolled it out to

all 4500 stores worldwide and locked up the pizza-lunch business almost everywhere,

almost overnight.

One of the weaknesses of Pizza hut that it hasnt overcome yet is its price. Local chains

are constantly springing up, offering lower prices and similar recipes. Most people dont

mind giving a lower price for slightly different taste because of which the sales at pizza

hut at are suffering.


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Growing awareness about eco-friendliness has forced a lot of the food chains to

maintain practices that conform to international environmental standards. For example

McDonalds is introducing coffee beans grown in environmental friendly conditions in

order to appeal to the people who are conscious about environmental friendliness. In the

Pizza selling restaurants, organic pizzas are the new concepts that are appealing to the

masses to these days. Its a phenomenon that highlights the health conscious attitude as

well as environmental friendliness. Pizza Hut on the other hand has not come up with

any strategy in this area and if it doesnt even in the future, it is going to lag behind the

chains that offer healthier food.

Competitive Advantages:

Pizza Hut has the first mover advantage in the pizza chains because of which it has

developed a strong customer base which is one of its strengths.

In the Pakistani QSRs industry, the delivery service of Pizza hut is clearly a competitiveadvantage that it enjoys. Pizza huts delivery service is one of quickest and the pizzas

delivered are oven hot in the real sense of the world.

Pizza Hut is often referred to as Pizza Innovation Leader because it is constantly

coming up with new varieties of pizzas to appeal the different audiences and at the same

time, people at the pizza hut have a really good idea about which varieties are appealing

to the customers and they are thus retained in the menus

The first mover advantage is an advantage that Pizza hut was born with but time, Pizza

hut has been successfully creating competitive advantages like a traditionally strong

brand name for itself and the quality service that it provides.

KENTUCKY FRIED CHICKEN (KFC):

KFC, founded and also known as Kentucky Fried Chicken, is a chain of fast food restaurants

based in Louisville, Kentucky. KFC is a brand and operating segment, called a "concept",of

Yum! Brands since 1997, when that company was spun off from PepsiCo as Tricon Global

Restaurants Inc.. KFC has more than 11,000 restaurants in more than 80 countries. KFC came to

Pakistan in 1996 with the first branch opening in Karachi and later in Lahore. The Franchisee

was a Pakistani owned and operated, Dubai-based Company the Cupola Group, which owns

licenses and its own restaurant throughout Pakistan and the middle-east.


KFC has the strategic objectives of expansion along with profits and sales growth. KFC

has also been applying its strategies at improving services and making them more and

more customer friendly. It has not only been customizing it's menu according to the

countries that it has been operating in, it has also been trying to cater to different ethnic

groups like African Americans and Hispanics. Such types of strategies are focused on


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increasing the customer base by better customization of products. Other than the

traditional eat-in restaurants, KFC has also been expanding into non-traditional facilities

like shopping malls, hospitals, universities, stadiums; office buildings etc and a number

of strategies have been formulated to aid this kind of expansion.


The advertising campaign of KFC does not specifically appeal to any segment. It

does not appear to have a consistent long-term approach. The U.S. has enormous

changes in its demographics. Only in US, single-person households increased

from 12% in 1970 to 25% in 1995. With this kind of dramatic change, KFC does

not have a proper approach to its target market.

The increased health concerns of the masses has put KFC at a great disadvantage

because of the word 'fried' attached to it's brand name which gives an instant idea

that the food would be oily and unhealthy.

Another weakness of KFC is that of the lack of a corporate direction because it

has been a part of four different parent companies till now namely, Heublein

Inc., R.J Reynolds, Pepsi Co. and Yumm! Brands Inc. The corporate functioning

of these companies has been pretty different from each other because of which a

strong culture could not be established at KFC and it had long been struggling

with it.

Because of the nature of the chicken segment of the fast food industry,

innovation was never a primary strategy for KFC. However, during the late

1980's, other fast food chains, such as McDonald's, began to offer chicken as a

menu option. During this time, McDonald's had already introduced theMcChicken while KFC was still testing its own chicken sandwich. This delay

significantly increased the cost of developing consumer awareness for the KFC

sandwich.

Competitive Advantage:

A very strong financial background is one of KFCs competitive advantages.

KFC has been functioning as a multinational corporation for several decades. As

a result, the company is familiar with the logistical and quality problems which

accompany operating an international food operation, and has demonstrated that

it can work with host countries and businesses within the host country to developa strategy which works in the most cost effective way.

With the passage of time, KFC has developed another very important

competitive advantage for itself- Environmental Friendliness. In March 2009, the

first eco-friendly green KFC was opened in Northampton USA. The restaurant is

designed according to environmental goals that include cutting energy and water

consumption by 30 percent and reducing CO2 emissions. Operations at the new

site are also expected to reduce waste and the amount of rubbish sent to landfills;


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the restaurant composts and recycles other waste, grease and used cooking oil.

Other than this, in an effort to reduce its packaging by 1,400 tons, KFC is now

switching from cardboard to recyclable and biodegradable paper wrapping for

some of its products.

Subway:

Subway is a restaurant franchise that primarily sells submarine sandwiches and salads. It is

owned and operated by Doctor's Associates, Inc. (DAI). Subway is one of the fastest growing

franchises in the world with approximately 30,052 restaurants in 90 countries as of April 2009. It

is the second largest restaurant operator globally after Yum! Brands (35,000 locations)

Subway restaurants are known for their sub sandwiches and salads. The Subway restaurant chain

is the fastest growing restaurant chain in the world surpassing even McDonald's. Subway has the

second most stores of any chain restaurant system in the world after McDonald's, and the most

locations in North America of any chain. Subway was founded in 1965, however the franchising

started in 1974.

In Pakistan, subway has restaurants at 30 locations, including Karachi, Lahore, Gujranwala,

Islamabad, Sialkot and Multan. Majority of the restaurants are located in Lahore and Karachi.


The strategic objectives of Subway focus on creating a global strategic plan to enable

Subway Restaurants to succeed internationally. Other than this subway is intent upon

introducing the concept of healthy fast food. Sandwiches of Subway have been

included in diet plans by experts. Jared Fogle, an obese college student who weighed

425 pounds introduced a weight loss plan called the subway diet and lost 245 pounds in

11 months. Subways stand regarding obesity in children is not new to its customers.

Strategies at Subway are not only about a really ambitious increase in franchises all over

the world but they are also about making the food more and more appealing to the health

conscious customers because health conscious attitudes, according to the experts, are

here to stay now.


One of the major problems that can be identified with Subway right now is

related to the franchises. Although Subway has long been named as the number

one franchise opportunity by The Entrepreneur magazine but it seems that

Subway has developed a myopic focus regarding the franchises. Subway has

regional managers who have the opening of new franchises as their sole aim and

their bonuses and incentives are tied to the opening of new franchises. These

managers at Subway even don't care if the new franchises are detrimental for the

existing ones and because of this; many of the franchises are becoming a victim

of internal competition or cannibalization. For example, in Lahore alone,


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Subway has 20 outlets. Instead of this, Subway could have targeted Cities like

Faisalabad and explored a new market. Franchise owners believe that Subway

has been irresponsible with allocating the franchises and uses bloated store sales

projections as part of their sales pitch for encouraging new franchises.

The opening up of a lot of new stores in close proximities are also resulting in

decline in sales per store because of which the franchisees are not very satisfies

with Subway.

The environment at the Subway stores cannot be compared with that of

McDonald's, KFC or Pizza Hut. The Stores are small and suffocating and do not

even provide the necessary privacy to the people eating there. Subway has no

standard size for any of its store because of which the sales oriented Franchisees

try to fix them at as smaller a place as possible. This is tarnishing the image of

Subway as an international brand.

The quality of the sandwiches and standards of cleanliness at Subway are going

down day by day due to the greater and greater autonomy that franchisees enjoy.The Subway at Rawalpindi was recently closed down due to quality issues as

well.

There is a dire need of a system to integrate the large number of Subway

franchises and to ensure that the original Subway practices are being followed

there. The management of the franchises is one part of their operations that

Subway has not handled well.

Competitive Advantage:

One of the greatest competitive advantage that Subway was born with is it's

healthy Menu. The salads and sandwiches appeal much more to the people as

compared to fried chicken, burgers, fries and pizzas. With its advertising andpromotion, Subway has long been highlighting its healthy food in advertising

and promotions and with the passage of time, it has established itself as a healthy

brand.

Another competitive advantage that subway enjoys is the fact that along with

traditional locations, Subway restaurants can be found in more than 4,000 non-

traditional locations such as food courts, health clubs, hospitals, universities,

amusement parks or just about anywhere. In fact, Subway restaurants can even

be found in automobile showrooms and Laundromats! This global presence is

indeed a sustainable advantage for Subway and needs to be managed properly.

Subway's fresh food is also a competitive advantage because unlike it's

competitors like McDonald's it allows it's franchisees to choose their own food

suppliers, to ensure they can access the freshest ingredients.


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3.INTERNAL ENVIRONMENT ANALYSIS

The internal environment assessment and analysis is conducted after the external environment

analysis. While the external environment analysis seeks to identify opportunities and threats inthe external environment, the internal environment analysis seeks to identify the strengths and

weakness of business. It focuses on factors that are internal of the business, some of which can

be easily changed or improved upon. The three models are resources, capabilities and core

competences which Influence when identifying internal factors of the business.

It is important to distinguish between the resources and the capabilities of the firm, resources are

the productive assets owned by the firm; capabilities are what the firm can do. According to

(Ivythesis, 2010), the connection between the resource and capabilities of a firm in the area of

business makes a competitive advantage. It is because the capabilities and resources allow the

organization to create value and gain some form of advantage from the rivals.

3.1

Resources

To take a wider view of a firms resources it is helpful to identify tow principal types of

resource: tangible and intangible

Tangible Resources

Tangible resources are the easiest to identify and evaluate: financial resources, human resources,

physical resources and organizational.

Physical

The physical resources of McDonalds include the restaurant location which will be at UCTI

building with an average sitting capacity of 50 persons. The restaurant is equipped with the latest

cooking and storing equipment. The restaurant has the facility of Play Place for students and has

one television.

Human resource

Human resource is most important resource of any business unit wherever in the world. The

strength of any organization is not the machine, equipment or its cash flows; rather these areemployees that make an organization great and competitive.

McDonald's recognizes that employee satisfaction is a critical component in its goal of achieving

100 percent customer satisfaction. Its employees are offered world-class, award-winning training

and the opportunity for career development.


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Financial

McDonald's is concerned, now information is available about its financing activities. McDonald's

is working with two banks namely CIMB and MayBank. These two banks are taking care of any

financial activity for McDonald's inside and outside the country and also provide short-term

loans to the company.

Organizational

McDonald serve as training center where day-to-day coaching and shoulder-to-shoulder

interaction between managers and crew are emphasized. Training begins with one-on-one

instruction before a crew-person cooks the first French fries and for new entrants to the

workforce, the company offers an important foundation:

Intangible resources

Human:

McDonalds has provided thousands of jobs for global 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.

Innovation:

The innovation of products is the priority concern of McDonalds to increase the revenues and

maintain a base of loyal customers. For instance, they remove the trans-fatty acids in the oil thatis used to make french fries and salt content of its products that without changing the taste of

their food. It is suggested this change may help McDonalds attract more customers and satisfy

the demands of different consumers. Additionally, in order not to be left behind by its rival,

McDonalds applies innovative technology in doing business. For instance, a touch- activated

screen is provided in drive-through area, permitting customers to punch in orders without

queuing. This renovation will bring interests to customers, especially teenagers as well as save

time in ordering food. Reputation McDonalds is famous for selling hamburgers and

cheeseburgers under the traditional symbol of a golden arch.

Reputation:

To improve the reputation with customers, McDonalds 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.


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Besides, they also do some charity works for community such as Ronald McDonald Charity

program because McDonalds 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 Childrens Day and they

participate in some children fundraisings such as the Ronald McDonald House Charities. Bydoing community projects, they can build nice image in customers eyes.

3.2 Capabilities

McDonald applied an essential step in translating directions and operating practices into

capabilities. The successful firms used the knowledge as part of the fundamental transformation

in their enterprises. Moreover, the McDonald pioneered the transformation through

systematization which is appropriate in their processes.

The idea of systematization presumes that the firm can more fully articulate the processes as part

of its capabilities.

With concern of knowledge management, McDonald Company is primarily implementing the

McDonalds system. The essence of systematization of knowledge is followed by every outlet

with a detailed set of rules. Therefore, the operating practices became part of every employee

and given a thorough attention from the management through the training programs.

Capabilities are highly essential in the following areas:

Inbound Logistics

Organizing the supply of food and materials to restaurants through approvedthird party logistics operators.

Production huge plants denoted exclusive to McDonald control food

Operations

R&D in field research needs of end users.

Quality development in collaboration with good suppliers

Forward integration through franchisees with control over store presentation,

menu items etc. and enhance participation in process improvement.

Outbound Logistics

It is the concern of the franchisee.

Outbound logistics are growing as a part of McDonald recycling systemintegrating in the logistics of distribution center.

Sales & Marketing

Long term marketing objectives are broken down into short term measurable

targets, which McDonalds uses as milestones.

Country teams are given autonomy in marketing mix decision.


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Services

Services provided by the companies enrollment standards

3.3 Core competencies

Core competencies are all about providing increase customer value. This numerous opportunityto the company; it can be about innovative new products or exploring the new market niche.

Same is the case with MacDonald selling burger is not their core competence instead providing

convenience and customer oriented policy is their strongest point.

Following are the McDonalds core competencies which makes it stand ahead among its

competitors in industry:

Product variety: McDonalds keeps on changing a bringing innovation in to burger, salads,

desserts, drinks and sandwiches variety.

For growth McDonalds have to experiment with new product line. It is suggested that

McDonalds should rely on test marketing to check new menu if it wants to maintain a constant

growth.


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4.STRATEGIES ADOPTED BY MC DONALDS:

Hummer of a Summer PR strategy:

In August 2006, McDonalds in US launched a

PR effort by the name of Hummer of aSummer. This was a collaborative effort of

General Motors and McDonalds and focused on

HUMMER- One of General Motors key

divisions.

To announce the program launch, McDonald's

staged a three-mile long parade down Chicago's

Michigan Avenue during lunch hour. Ronald

McDonald led the parade on the hood of a

HUMMER and was followed by the life-size versions of the trucks that will be available in theHappy Meals. The parade ended at the flagship McDonald's restaurant in downtown Chicago.

Kids at the restaurant were also invited to go inside the vehicles. The kids were then treated to

free happy meals.

There were also regional events and programs sponsored by local McDonald's restaurants and

GM dealers.

McDonald's Happy Meal and Mighty Kids Meal HUMMER line-up featured eight dynamic

vehicles, capturing the power, excitement and unique styling that make HUMMER one of the

most recognizable vehicles on (and off) the road.

One of eight toy HUMMERS were packed in each

"boy" Happy Meal ("girl" meals featured Polly

Pocket). The full HUMMER lineup was represented,

from the now-defunct H1 to the H3T Concept pickup.

This strategy proved to be quite popular with the kids

and the way people at McDonalds tried to cash the

awe and charisma associated with the brand

HUMMER was remarkable. The strategy proved to be

a win-win one for both GM and McDonalds because

it not only attracted the kids to the happy meal even more than before but also magnified the

iconic brand status that HUMMER has acquired over the years.


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McMommy Blogging Society:

In December 2007, McDonald's opened up its kitchens to an

army of mother bloggers, who will be reporting their

allegedly unedited findings on McDonald's website, and their

verifiably unedited findings on blogs around the Internet.The fast food giant's goal was to stem criticism that the

restaurant's offerings are making the country obese by

making their processes more transparent to the public.

The burger giant apparently also was hoping that the program will help contradict stories of

fattening, unhealthy food that have been detailed in books such as "Fast Food Nation" and

movies such as "Super Size Me."

McDonald's equipped six mothers with laptop computers to record their impressions of its

operations over the next few months. The moms were chosen by an independent company from agroup of 4,000 applicants, and the blogs and journals were posted "unedited" beginning June 20

2007 on McDonald's home page, where it hoped to attract other moms interested in seeing the

comments, officials said last week.

Selected moms were expected to participate in as many as three "field trips" lasting two to three

days, and received payment for "reasonable travel expenses."

Nothing like this has ever been done on the internet by a fast food company before and

McDonalds intended to exceed the customer expectations by coming up with a new strategy that

would astonish everybody and the campaign was indeed well received by the audience.

Tier Pricing Strategy:

For McDonalds, tier-pricing is becoming part of its global strategy. To stay competitive in an

era of food inflation, the US franchise is

abandoning its one price fits all

approach.

McDonald's has implemented a tier-

pricing system in Taiwan, partitioning the

island into three districts to counter the

impact of food price inflation.

The three districts are the rural south and

east; the industrial north and west (plus

three southern cities); and entertainment

and high-rent districts across the island. Future prices will be adjusted according to income

levels, the consumer price index and other factors for each district.


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In Japan, McDonalds was also the first marketer to introduce tier-pricing, according to Tsao.

Japan was a good choice of model for us to follow, he said.

The economic situation in Japan is similar to Taiwan. Both countries have crowded restaurant

sectors and face intense competition. Operating costs in Taiwan vary widely due to rent, labour

and transportation.

In Taiwan McDonalds is using the consulting firm, Revenue Management Solutions to analyze

operating costs, customer demand, price sensitivity and Government price indexes to create a

map of the price districts.

For the menu-board price changes, McDonalds is scattering price rises on different items rather

than instituting blanket increases. Tsao said the reaction from Taiwans consumers had been

mixed.

Strategy for increasing sales at existing restaurants:

McDonalds has also focused on increasing sales at existing restaurants instead of opening newones. To do so, McDonald's has remodeled many restaurants, kept stores open longer and

increased menu options. Nevertheless, new McDonalds restaurants are still opening around the

world at a rapid rate - the company plans to open about 1,000 units in 2008, and continues to

grow its new restaurants at a 1%-2% rate each year.

McDonald's executives say they're adding features that will increase sales. Mr. Alvarez showed

off a self-service kiosk where customers can place orders electronically. He recently watched

customers use kiosks at a McDonald's in Tours, France.

Mr. Alvarez says a top complaint of French customers about McDonald's is that they feelpressured to order, which keeps some families from coming in. Ordering at a kiosk, he says,

"allows them to either control their kids or control their order."

Remodeling of locations:

An estimated 7,000 U.S restaurants will be rebuilt, relocated or refreshed as part of the far

reaching plan to upgrade its public persona with updated restaurant designs intended to boost the

bottom line.

The redesign is risky and has many franchisees up in arms over the high costs of a makeover.

But company officials believe the overhaul is needed.McDonald's, whose restaurants are visited by more

than 40 million people every day, has moved

aggressively over the past three years to revamp its

menu and attract a new breed of customer.


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The traditional McDonald's yellow and red

colors will remain, but the red will be muted

to terra cotta and olive and sage green will be

added to the mix. To warm up their look, the

restaurants will have less plastic and more

brick and wood, with modern hanging lights

to produce a softer glow. Contemporary art or

framed photographs will hang on the walls.

The dining area will be separated into three

sections with distinct personalities.

The "linger" zone will offer comfortable

armchairs, sofas, and Wi-Fi connections.

The focus is on young adults who want tosocialize, hang out, and linger.

Sponsoring the report cards:

For us it seems unthinkable that companies are

allowed to extend their persuasive activities inside

the walls of elementary schools, especially if they

sell what could be called vice-products. An article

appeared in August 2007 in Ad Age Daily which

reported that McDonalds sponsors school children's

report cards in Seminole County, Fla.

The cover of the report card has the McDonalds

logo, and (here it gets nasty) a 'good' report gets

rewarded with a gift coupon for a Happy meal at

McDonalds. From the company's perspective a

very smart move: get you message to the captive

target audience (I guess kids and parents HAVE to

look at report cards), and apply two major

conditioning procedures at the same time:

- operant conditioning: the coupon is a 'reward' for performance

- Evaluative conditioning: the McDonalds brand is associated with a positive event (at least if the

rapport is good)

This strategy was however not a very good move at McDonalds part and After nearly 2,000

parent complaints about children health concerns, McDonald's ended its controversial report card

advertising in Seminole County, Florida in January 2008.
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McDonalds Coffee Strategy:

McDonald'swho took some coffee ground away from Starbucks and Dunkin' Donuts last year

announced that they'll install coffee bars with Starbucks-like baristas in 14,000 U.S. locations

this year.

Along with drip coffee, McDonald's will be serving high-end coffee drinks like lattes and

cappuccinos. Following the successful introduction of their premium drip coffee, this would

seem to be a natural, next-step line extension, especially with so many locations to offer up

product throughout the United States.

It has also been reported that the McDonald's process will use a single machine that

automatically steams the milk and combines it with the espresso, which cuts down on some of

the drama and ceremony that comes with the preparation of a really well prepared espresso. And

since selection and variety is also a category loyalty driver, McDonald's is bound to have a more

narrow selection on offer than the gabillion varieties available at Starbucks.

However, there are two reasons to think that McDonald's might find the high-end coffee market

surprisingly hard to crack.

1. The processes required to serve customized drinks are vastly

different from the processes required to serve McDonald's tightly

standardized menu. Running two distinct systems in a single retail

location can be very difficult. Lengthening lines could alienate core

McDonald's customers looking for reliably quick food.

2. McDonald's franchise model means it can't simply force thecoffee bars on retail locations. Individual franchise owners have to

decide that investing in the bars is in their best interest. While McDonald's claims that early

market tests have proved quite promising, a consultant to some of McDonald's franchise owners

told USA Today, "It is certainly the biggest potential mistake in the

history of the system."

Global Best of Green:

McDonalds has also been trying to show consumers its greenerside with a new institutional marketing effort, Global Best of

Green. McDonalds around the world has taken a number of

initiatives around the world as a part of this marketing effort which

include the following.

About 80 percent of packaging used by McDonalds Europe comes from renewable

resources.


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In Canada, switching from bleached white napkins to plain brown has saved $1.3 million

annually, while reducing energy, wood and water use.

U.S. restaurant locations recycle about 13,000 pounds of used cooking oil per year, on

average.

Using a fryer that requires less oil allows restaurants to cook the same product with 40

percent less oil, saving 4 percent in energy over other fryer models.

U.S. locations completing an energy survey identify savings of $3,000-6,000.

McDonalds USA recognizes Energy All-Stars, or store managers that have provided

examples for others.

In France, 10 restaurants that have committed themselves to an interactive software,

EcoProgress, have reduced electricity consumption 11 percent over a few months.

McDonalds Sweden is using CO2 detectors in 24 restaurants to adjust ventilationsystems to the amount of customers in the store, reducing electricity use 15 percent

annually.

McDonalds Europe is serving salads in cardboard bowls instead of plastic dishes, and

wooden coffee stirrers instead of plastic.

In the U.S., decreasing the weight of polypropylene cold cups has decreased costs by 6

percent and saved nearly 1,000 tons of resin.

Various anti-littering marketing campaigns have been implemented in Portugal, Italy,

Switzerland, the UK, Australia, Germany and other nations.

A variety of different waste and recycling bins have been tested in certain countries. A

German model achieved a 90 percent recycling rate.

Restaurants in Switzerland feature a separate receptacle for organic waste, which is sold

to Kompogas, which ferments the waste into biogas.

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