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 McDonalds Restaurants were franchised worldwide. 59% Conventional Franchises 21% Licensed to Foreign affiliates 20% Company owned

Vision, Mission & Values

Vision 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 QUALITY S- SERVICES to customer. C- Have a CLEAN environment when customer enjoys their meal V- 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 Space For example, Customers get the same experience regardless of when or where Three-legged stool : This is Ray Krocs philosophy, still applies to McDonalds today, consisting of a 3-way relationship between Employees, Owner/Operator, and Suppliers.

General Environment Analysis

Segments
Demographic

Effect
Positive

How it influences
Most important for fast food industry that depends highly on people World population growing which yields a higher demand for food. Developing countries economies are growing. Buying power of people from developing countries are increasing.

Economic

Positive

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 Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products Intensity of Rivalry Influence Factors
HIGH

Economies of scale do exist but limited because of market saturation. Ease of Start-up. Low switching costs. Not much product variation. 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) 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 Grocery stores, delis and in-house cafeterias, instant food like chicken, sandwiches, pizza and coffee Major industry participants compete to maintain or increase market share. Competition is based on price because demand is constant

LOW

HIGH

HIGH

HIGH

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.

Current Strategies
BUSINESS LEVEL

Competitor Analysis

Cost Leadership and Differentiation Strategy

Integrated Cost leadership/ differentiation. (good fit for Fast Food Industry) High Diversification

Integrated Cost leadership/ Differentiation. Higher emphasis on quality than competitors. (Good Fit for Fast Food Industry) Currently changing corporate strategy from Related-linked diversification to low diversification. Teamed with Arbys to form Strategic Sourcing Group (save costs, energy, and gain better competitive contracts for supplies)

CORPORATE LEVEL

High Level of Diversification with Related-Constrained

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 Multi-domestic Strategy

INTERNATIONAL

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

Multi-domestic Strategy

Competitor Analysis
Competitive Advantage Sustainable Competitive Advantages Competitor Future Assumptions Competitor future Objectives Brand Recognition Flame Broiled Burgers/sandwiches Inexpensive Convenience Brand Recognition Marketing Perceived as higher quality Premium food made fast Inexpensive Convenience

NONE

NONE

Changes in customer preference Offer Oatmeal, real fruit smoothies. Focus on more global markets. 5000 of 12500 stores outside US with 90% of Company growth from outside US.

Customer Satisfaction = Value and Quality Enhance customer experience by introducing new furniture such as fireplaces and comfortable seating in their establishments

TANGIBLE Financials Locations -cities -Airports -Gas stations Trade Secrets & Recipes Control/Evalua tion (consistency) Human Resources

Value of Brand name LOGO Marketing Contracts High Customer Satisfaction Innovation & Product Development

INTANGIBLE

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
SUPPLY CHAIN MANAGEMENT MARKETING

Valuable
YES YES

Rare
YES YES

Costly to Imitate
YES YES

Nonsubstitutable
YES YES

Sustainable, Temporary, Parity

SUSTAINABLE COMPETITIVE ADVANTAGE SUSTAINABLE COMPETITIVE ADVANTAGE

Internal Analysis: Value Chain

Distribution Operations Marketing & Sales

Superior - #1 in fast food industry. Financially strong. Intellectual property. Superior Standardized processes Superior Known as industry marketing leader - New upscale restaurants - McCafe, Free Wi-Fi - Economies of scale passed on to customers ($1 Menu) Superior major advantage to lock in prices from suppliers. Own many of their own sources of inputs. (cattle herds in Brazil)

Inferior

Inferior

Inferior

Inferior

Inferior

Inferior

Supply ChainManagement

Inferior

Inferior

Internal Analysis
Financial Factors
McDonalds
Operating Margin ratio ROA ROE 0.30 15.44% 35.73%

Wendys
0.07 16.46% 35.67%

Burger King
0.27 2.11% 10%

Industry Average
.08 11.34% 27.13%

Non-financial Factors
McDonalds
Brand Image / Name Location Accessibility Market Share Very Attractive + 33,000 49.6%

Wendys
Attractive + 6,500 12.3%

Burger King
Attractive +12,500 12.2%

Stock Analysis for McDonalds, Burger King, and Wendys

Current Strategy Analysis

Strategy Type Integrated Cost LeadershipDifferentiation High Levels of Diversification with RelatedConstrained Analysis McDonalds 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) Use synergy between other local McDonalds stores to maximize savings (previously owned Boston Market and Chipotle) Alliance with major oil companies to set up shops at stations (also using this strategy in China) McDonalds owns some rental properties that they develop and rent to other businesses Their multi-domestic strategy allows McDonalds to respond better to the dynamic environment. Local restaurants are sensitive to society`s culture values. (wine served in France, no beef in India)

Business Level

Corporate Level

Cooperative/ Alliance

Vertical Strategy

International

Global

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)

Germany
Serve alcohol Most popular restaurant brand to Germans aged 12-18 McDonald's marketing identified a German fascination with Mexican culture & spicy foods.

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

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
McDonalds 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
STRENTGHS
1. Well-known brand name, image and global presence as a market leader 2. Strong financial performance 3. Specialized training for managers (Hamburger University) 4. Multi-domestic approach: new products such as McCafe, P`tit Plaisir and yogurt fruit parfaits WEAKNESSES
1. Saturated nature of the fast-food business

OPPORTUNITIES
1. Expansion to Asia (especially countries such as India and China) 2. Diversification and acquisitions of smaller restaurants 3. Attract new clients 4. Franchise sales

THREATS 1. The relationship between McD Corp and franchisees, NO more franchise sales 2. Loss of market share, both globally and in US 3. Consumer awareness towards food quality, health concerns

2. Unhealthy food image; the food is abundant in trans-fat 3. High staff turnover, including management

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

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 McDonalds do to appeal to health conscious consumers while still delivering the value McDonalds is known for?

Adrian Magopet

New Strategy Formation

Feasible Alternatives
Pursue Industry Leading Green Initiatives Introduce All-Natural/ Organic Menu Item Offers Contract with Local Schools to provide nutritional lunches

Strategic Capabilities
Producing effective marketing campaign to promote initiatives Established suppliers Industry reputation

Core Competencies
Industry Leader in Marketing

Sustainable Competitive Advantage

Marketing contracts already established Supply chain can offer Allnatural/organic items at lowest price. Ability to supply low cost nutritional meals to allincome level

Exploit Opportunities & Limits Threats

Ads on TV, Billboards. Trains/buses Reduce chance of negative publicity

Value leader because of economies of scale Leader in low cost and speed of operation.

New market for allnatural Burger Late Mover = Lost market opportunity Ability to find new domestic revenue Limit market share loss in US

Industry leading Operations & supply chain management

Predicted Competitor Response

Pursue industry Leading Respond with greater marketing emphasis on Green Initiatives

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. Will need to try to infuse menu with more organics. More honesty with ingredients. (Ex New natural French fries) Unable to compete with McDonalds` Value Chain. Fast food delivery market could be an option. (Jimmy Johns)

Introduce AllNatural/Organic Menu Items Contract with local schools to provide lowcost lunches for all income levels

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

Unable to compete with McDonalds' Value chain low-cost lunches not an option. Focus on college campus contracts.

New Strategy Selection:

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

Current Strategy Changes

Level
Business

Strategy
Integrated Cost Leadership/ Differentiation

Reasons
Recent consumer trends show people WANT and WILL pay more for high quality, low fat and nutritional meals. Depending on success level of the Organic Menu, possible Upscale Burger Bar spin off franchise. Find organic sourcing at minimal cost or possible backwards integration into organic supplier industry May be able to implement different style organic menu in different regions tailored to local taste.

Corporate

High Levels of Diversification with Related-Constrained Vertical Strategy

Cooperative

International

Global

The 7 S Model
Systems McDonalds must find an efficient source of organic inputs to enable them to offer high quality at low price. Strategy McDonalds 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 McDonalds the ability to adapt and address any issues that may appear in their global operations.

Strategy Implementation Timeline

START 2013
(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.

END

2016

We hope you are hungry by now!

THANK YOU FOR YOUR ATTENTION!

Adrian Magopet Adrian Magopet