McDonald's Corporation

Authors:

Adrian Magopet

Kevin A. Sanders

Armand Koti

Northeastern Illinois University | MGMT 393- Strategic Management | March 2013

Introduction• McDonald's Corporation is the world's largest chain of fast food restaurants, serving

nearly 69 million customers daily through more than 34,000 restaurants in 119 countries worldwide.

• The business began in 1940, with a restaurant opened by brothers Dick and Mac McDonald in San Bernardino, California. • The present corporation dates its founding to the opening of a franchised restaurant

by Ray Kroc, in Des Plaines, Illinois on April 15, 1955

• Each McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporations' revenue comes from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants.

• Year End 2010– 80% of McDonald’s Restaurants were franchised worldwide. 59% Conventional Franchises 21% Licensed to Foreign affiliates 20% Company owned

Vision, Mission & ValuesVision• To be the leading fast food provider around the globe

Mission• McDonald's brand mission is “to be our customers' favorite place and way

to eat. Our worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion.”

Values

• Enhancing customer experience, summarized in "Q.S.C. & V.“

Q- Provide good QUALITYS- SERVICES to customer. C- Have a CLEAN environment when customer enjoys their mealV- The VALUE of products

Critical Facts Affecting Firm Strategic Directions and Performance

• Standardization: This is the most important concept, consisting of two important dimensions:

Time and SpaceFor example, Customers get the same experience regardless of when or where

• Three-legged stool : This is Ray Kroc’s philosophy, still applies to McDonald’s today, consisting of a 3-way relationship between Employees, Owner/Operator, and Suppliers.

General Environment Analysis

Segments Effect How it influences

Demographic Positive

• Most important for fast food industry that depends highly on people

• World population growing which yields a higher demand for food.

Economic Positive

• Developing countries’ economies are growing.

• Buying power of people from developing countries are increasing.

Global Positive• Global markets are open to every firm and

industry.• Countries have tendency to join the global

economy.

Industry Analysis - Porter`s 5 Forces

Force Influence Factors

Threat of New Entrants

HIGH Economies of scale do exist but limited because of market saturation. Ease of Start-up. Low switching costs. Not much product variation.

Bargaining Power of Suppliers

LOW Many fast food chains with thousands of suppliers. Switching done easily. If firm buys large portion of supplier revenue – power is severely limited. (typical of fast food industry)

Bargaining Power of Buyers

HIGH Minimal to zero switching cost (customer unforgiving). CBS reports in 2009 $110 BILLION spent on fast food. 25% of US population eat fast food daily

Threat of Substitute Products

HIGH Grocery stores, deli’s and in-house cafeterias, instant food like chicken, sandwiches, pizza and coffee

Intensity of Rivalry HIGH Major industry participants compete to maintain or increase market share. Competition is based on price because demand is constant

Industry Analysis Conclusion:ATTRACTIVENESS FOR NEW ENTRANTS:

• The fast-food industry is NOT attractive for new market entrants who wish to compete on cost. New entrants may succeed because of low start-up costs and massive market demand but differentiation strategy is critical. (Gourmet/All Natural Fast Food Ex: Epic Burger)

ATTRACTIVENESS FOR INCUMBENTS:

• The market is attractive for existing firms who have established market, brand name and economies of scale to compete.

Competitor AnalysisCurrent Strategies

BUSINESS LEVEL • Cost Leadership and Differentiation Strategy

• Integrated Cost leadership/ differentiation.

(good fit for Fast Food Industry)

• Integrated Cost leadership/ Differentiation.

• Higher emphasis on quality than competitors. (Good Fit for Fast Food Industry)

CORPORATE LEVEL

• High Level of Diversification with Related-Constrained

• High Diversification • Currently changing corporate strategy from Related-linked diversification to low diversification.

COOPERATIVE LEVEL

• Joint ventures in Japan• 51% owned in Russia• Developmental in

South America.

• Marketing alliance with DreamWorks (movie promotions).

• BK & Pepsi have struck a China alliance.

• Seattle's Best Coffee

• Teamed with Arby’s to form Strategic Sourcing Group (save costs, energy, and gain better competitive contracts for supplies)

INTERNATIONAL • Multi-domestic strategy. Emphasis on aligning with local taste.

• Multi-domestic Strategy • Multi-domestic Strategy

Competitor Analysis

Competitive Advantage

• Brand Recognition• Flame Broiled

Burgers/sandwiches • Inexpensive• Convenience

• Brand Recognition• Marketing • Perceived as higher quality• Premium food made fast• Inexpensive• Convenience

SustainableCompetitiveAdvantages

NONE NONE

Competitor Future Assumptions

• Changes in customer preference • Customer Satisfaction = Value and Quality

Competitor future Objectives

• Offer Oatmeal, real fruit smoothies. Focus on more global markets.

• 5000 of 12500 stores outside US with 90% of Company growth from outside US.

• Enhance customer experience by introducing new furniture such as fireplaces and comfortable seating in their establishments

CAPABILITIES• Positive Publicity• Effective marketing

campaigns • Development of exciting new

food and beverage offers• Ability to offer industry

leading low-prices that are unmatched by competition.

• Ability to offer consistency in value at any location at anytime.

Core Competencies Valuable Rare Costly to

ImitateNon-

substitutableSustainable,

Temporary, Parity

SUPPLY CHAIN MANAGEMENT YES YES YES YES SUSTAINABLE

COMPETITIVE ADVANTAGE

MARKETING YES YES YES YES SUSTAINABLE COMPETITIVE ADVANTAGE

TANGIBLE Financials Locations-cities-Airports-Gas stations Trade Secrets

& Recipes Control/

Evaluation (consistency)

Human Resources

INTANGIBLE Value of Brand

name LOGO Marketing

Contracts High

Customer Satisfaction

Innovation & Product Development

Internal Analysis: Value Chain

DistributionSuperior - #1 in fast food industry. Financially strong. Intellectual property.

Inferior Inferior

Operations Superior – Standardized processes Inferior Inferior

Marketing & Sales

Superior – Known as industry marketing leader- New upscale restaurants- McCafe, Free Wi-Fi- Economies of scale passed on to customers ($1 Menu)

Inferior Inferior

Supply Chain-Management

Superior • major advantage to lock in

prices from suppliers. • Own many of their own

sources of inputs. (cattle herds in Brazil)

Inferior Inferior

Internal AnalysisFinancial Factors

McDonald’s Wendy’s Burger King Industry Average

Operating Margin ratio 0.30 0.07 0.27 .08

ROA 15.44% 16.46% 2.11% 11.34%

ROE 35.73% 35.67% 10% 27.13%

Non-financial Factors

McDonald’s Wendy’s Burger KingBrand Image / Name Very Attractive Attractive Attractive

Location Accessibility + 33,000 + 6,500 +12,500

Market Share 49.6% 12.3% 12.2%

Stock Analysis for McDonald’s, Burger King, and Wendy’s

Current Strategy AnalysisStrategy Type Analysis

Business LevelIntegrated Cost Leadership-Differentiation

• McDonald’s stays ahead of competition by providing customers with more options of healthier meals, cheaper prices and fast service.

• Product innovation and existing property upgrades. (McCafe, smoothies, free WI-FI Internet)

Corporate Level

High Levels of Diversification with Related-Constrained

• Use synergy between other local McDonald’s stores to maximize savings (previously owned Boston Market and Chipotle)

Cooperative/ Alliance Vertical Strategy

• Alliance with major oil companies to set up shops at stations (also using this strategy in China)

• McDonald’s owns some rental properties that they develop and rent to other businesses

International Global• Their multi-domestic strategy allows McDonald’s to

respond better to the dynamic environment. Local restaurants are sensitive to society`s culture values. (wine served in France, no beef in India)

Global Markets France

• Quality menu options:• P`tit Plaisir (mini snack)• Little Mozza (tomato and mozzarella

salad)• Jambon Beurre (ham and butter on a

crusty baguette)

• Stand-alone McCafes, oferring fruit tarts and serving beverages in ceramic mugs

Germany• Serve alcohol

• Most popular restaurant brand to Germans aged 12-18

• McDonald's marketing identified a German fascination with Mexican culture & spicy foods.

China• First Fast Food provider to offer a drive-up

lane.

• Firms are grouped by district, based on the income of local consumers- McDonald's food is expensive for the average citizen in China.

Russia• McDonald’s took a risk buying real- estate

in low-growing areas that would eventually become prime property. This strategy paid off over time because of property appreciation, resulting in considerable profits.

SWOT Analysis

• S pursue O, but limits T: s1-o1 while s1-T2; s2-o2 while s2-T2; s3-04 while s3-T1; s4-o3 while s4-t2

• W limit O, but enhance T: w1-o2 while w1-t2; w2-o3 while w2-T3; w3-o4 while w3-T1

STRENTGHS OPPORTUNITIES

1. Well-known brand name, image and global presence as a market leader

2. Strong financial performance3. Specialized training for managers

(Hamburger University)4. Multi-domestic approach: new

products such as McCafe, P`tit Plaisir and yogurt fruit parfaits

1. Expansion to Asia (especially countries such as India and China)

2. Diversification and acquisitions of smaller restaurants

3. Attract new clients4. Franchise sales

WEAKNESSES THREATS

1. Saturated nature of the fast-food business

2. Unhealthy food image; the food is abundant in trans-fat

3. High staff turnover, including management

1. The relationship between McD Corp and franchisees, NO more franchise sales

2. Loss of market share, both globally and in US3. Consumer awareness towards food quality, health concerns

Critical Strategic Issues

How should McDonalds re-gain lost domestic market share and revenue?

How can McDonald's address consumer awareness and negative perception of unhealthy fast food?

What can McDonald’s do to appeal to health conscious consumers while still delivering the value McDonald’s is known for?

Adrian Magopet

New Strategy FormationFeasible

AlternativesStrategic

CapabilitiesCore

CompetenciesSustainableCompetitiveAdvantage

Exploit Opportunities & Limits Threats

Pursue Industry Leading Green Initiatives

• Producing effective marketing campaign to promote initiatives

Industry Leader in Marketing

Marketing contracts already established

Ads on TV, Billboards. Trains/buses

Reduce chance of negative publicity

Introduce All-Natural/ Organic Menu ItemOffers

• Established suppliers

• Industry reputation

Value leader because of economies of scale

Supply chain can offer All-natural/organic items at lowest price.

New market for ‘all-natural’ Burger

Late Mover = Lost market opportunity

Contract with Local Schools to provide nutritional lunches

• Industry leading Operations & supply chain management

Leader in low cost and speed of operation.

Ability to supply low cost nutritional meals to all-income level

Ability to find new domestic revenue

Limit market share loss in US

Predicted Competitor Response

Pursue industry Leading Green Initiatives

• Respond with greater marketing emphasis on promote current green practices called “Burger King Green Sessions”

• Marketing campaigns featuring its new LEED restaurants. LEED buildings meet criteria requirements for having a sustainable, environmentally friendly and energy-efficient design.

Introduce All-Natural/Organic Menu Items

• BK has goal for “cage free eggs and pork” by 2017.

• Will need to try to infuse menu with more organics.

• More honesty with ingredients. (Ex – New natural French fries)

Contract with local schools to provide low-cost lunches for all income levels

• Unable to compete with McDonalds' Value chain

• low-cost lunches not an option.

• Focus on college campus contracts.

• Unable to compete with McDonalds` Value Chain.

• Fast food delivery market could be an option. (Jimmy Johns)

New Strategy Selection:

Introduce all-natural organic menu items to compete with new ‘gourmet’ burger market trend.

Current Strategy ChangesLevel Strategy ReasonsBusiness Integrated Cost Leadership/

DifferentiationRecent consumer trends show people WANT and WILL pay more for high quality, low fat and nutritional meals.

Corporate High Levels of Diversification with Related-Constrained

Depending on success level of the Organic Menu, possible Upscale Burger Bar spin off franchise.

Cooperative

Vertical Strategy Find organic sourcing at minimal cost or possible backwards integration into organic supplier industry

International

Global May be able to implement different style organic menu in different regions tailored to local taste.

• Systems – McDonalds must find an efficient source of organic inputs to enable them to offer high quality at low price.

• Strategy – McDonald’s needs to plan for external environment changes such as consumer taste. New ‘Gourmet’ Fast Food is a new and up coming market trend.

• Structure – Decentralized structures give McDonald’s the ability to adapt and address any issues that may appear in their global operations.

The 7 ‘S’ Model

(2013) Market Study, R&D, Consumer testing

(2013) Search for organic suppliers Contracts

(Mid 2014) Introduce new line of ‘All-natural organic’ menu items

(2015) Look for feedback on social networks and media outlets

(2015) Conduct market survey to view opinions on new organic menu items

(2015) Make any necessary improvements

(2016) Expand or Retract depending on new strategy success.

Strategy Implementation TimelineSTART 2013

END 2016

We hope you are hungry by now!

THANK YOU FOR YOUR ATTENTION!

Adrian Magopet Adrian Magopet