Strategic Development and Challenges for McDonald’s
Strategy addresses the why and what of marketing activities. Marketing involves satisfying needs and wants of the customer. The task of any business is to deliver customer value while being socially responsible. In a highly competitive economy with increasingly intelligent buyers, a company can win only by fine tuning its value delivery process and providing superior value. In January 2011, McDonald’s announced that its earnings of fourth quarter in the previous year rose 2.1 percent despite of a slump in December due to extreme weather in U.S. and Europe. The analysts attributed the success of McDonald’s to the “Plan to Win” strategy which was first introduced by James R. Cantalupo in 2003 after overexpansion caused the chain to suffer heavy losses. The core of the plan was to increase sales at existing locations by enhancing the menu, redesigning the outlets and extending hours. In 2012, the chain’s total franchised sales stood at $69,687.Increase of 3% from its previous year.
Sources:
Kotler, Phillip. Keller Kevin L. Marketing Management 4th ed. Washington. Pearson, 2011. Print.
Eisner, Alan. Shamsie,Jamal. Michigan State University, 2011. Print
McDonald’sCorporation.(2012).AnnualReport.Retrievedfrom: http://www.aboutmcdonalds.com/mcd/investors/annual_reports.html
The chain started adding snack and drinks, two of the few places where sales were still growing. As per Jim Skinner, C.E.O,2005 “We do so well because our strategies have been so well planned out”. McDonald’s was aware that it was facing rapidly fragmented market where consumers were looking for healthier options. Many experts believed that the chain must work on its turnaround strategy in order to meet these challenges. Skinner had been monitoring things in order to make sure that its menu stays reasonable and affordable without hurting its profits. Analysts emphasized the attractiveness of the firm’s affordable Dollar menu. In 2003, with his intentions largely directed at a turnaround strategy for McDonald’s, Cantalupo had decided to sell off the non burger chains that his predecessor had bought. When Jim skinner took over as the chief of McDonald’s in 2004, he expressed his desire to pursue Cantalupo’s various growth avenues. McDonald’s phased out supersizing in 2004 which allowed customers to get a larger order of French fries and bigger soft drink by paying extra. It began providing nutrition information on the packaging of its products. McDonald’s also removed an artery-clogging Trans fats from the oil it used to prepare French fries.
Sources:
Jargon.J. Zioboro. McDonald’s Cup runs over. Wall Street Journal. 2010. Print.
Warner.M. You want any fruit with that Big Mac? New York Times. 2011. Print.
The rollout of beverages in 2011 highlighted by new coffee-based drinks represented the company’s biggest menu expansion in three decades. Mc Café section was planned to be added to nearly 14000U.S outlets. As a part of its turnaround strategy, McDonald’s sold off the outlets that it owned and started operating on a Franchisee based model. One of the analysts pointed out “McDonald’s wants to be seen as lifestyle brand, not just a place to go and have a burger”. The current C.E.O of McDonald’s, Don Thompson, has been aggressively pushing the brand to compete with players like ‘Starbucks’ by emphasizing on its beverage offerings. Apart from these initiatives and strategies, there are some challenges that the company is currently facing. One of them is its ‘unhealthy’ image. People in U.S and other countries have started thinking that McDonald’s is not a healthy option. It faces tough completion from Subway which surpassed McDonald’s as the fast food chain with most U.S outlets in 2001. Other big problem is the slow sales in its largest market, the United States. The company reported a dismal quarterly performance in January 2014. This has even affected the stock performance of the company.
Sources
Rutter,Tamara. http://www.fool.com/investing/general/2014/01/31/inside-the-coffee-wars-mcdonalds-new-strategy-to-t.aspx The Motley Fool n.d. Web 04.Feb.2014
Analysis of Strategic Capabilities of McDonald’s and its values
Strategic capability refers the ability of a firm to successfully implement competitive strategies that allow it to sustain itself and increase its value over time. Strategic capabilities can be classified into Organisation’s Assets, Resources, Position in the Market and Financials. As on 2012, the total revenues of the chain were $18,603. The total number of outlets (sum of company-related restaurant and franchised restaurant) stood at 34,480, an increase of 2.9% from 2011. The strength of the partnership between the chain and its franchisees has been the key to McDonald’s success. This business model enables Mc Donald’s to consistently deliver relevant restaurant experience with a local flavour to its customers. It also facilitates the ability to identify, implement and bring innovative ideas that meets customer’s ever changing needs and habits. Mc Donald’s customer-centric ‘Plan to Win’ strategy provides a common vision to its global business while allowing for local adaptation. It relies on five pillars, People, Products, Place, Price and Promotion. This strategy, combined with its financial targets has given strong results to its stake holders since its inception. Mc Donald’s have following long term financial targets:
- Sales growth of 3% to 5%
- Operating Income Growth of 6% to 7%
In 2013, the world wide revenue growth stood at 2% and operating income increase was also 2%. Constant economic headwinds, competitive and inflation impacted the results. Looking at the downsides, the company’s biggest market, the U.S, produced less than average results. This was due to fewer footfalls and heightened competitive activity. The chain had reported a global comparable sales decrease of 0.1% in the fourth quarter of 2013.
Looking at the chain’s annual results and performance, it can be inferred that it was able to execute its strategy of offering affordable value in most of the places in the world. In 2013, the company’s top and bottom line pressures which were most driven by external environment like inflation and hyper competition. However, their ‘franchisee model’ continues to do well as rent and royalties obtained from them are stable source of income and is low-cost.
Source:
McDonald’sCorporation.(2012).AnnualReport.Retrievedfrom: http://www.aboutmcdonalds.com/mcd/investors/annual_reports.html
Hartman, Dennis. What is strategic capability? n.d. Web.Feb.10.2014
Robinson,Nicholas (2012) McDonald’s reports first sale slum in almost 25 years. Retrieved from:
http://www.globalmeatnews.com/Industry-Markets/McDonald-s-reports-first-sales-slump-in-almost-10-years
Adamy,J.(2009) McDonald’s to expand, posting strong results. Wall Street Journal. Retrieved from:
online.wsj.com
McDonald’s Reports Fourth quarter and Full year 2013 results .Retrieved from
http://news.mcdonalds.com/Corporate/news-stories/McDonald-s-Reports-Fourth-Quarter-And-Full-Year-20
Competitive Analysis of Mc Donald’s and how can Mc Donald’s sustain its performance?
It is important to analyze the company’s strategic capability with competition. The competitive advantage of McDonald’s over its competitors can be realized by applying a competitive analysis model. A porter’s model is a powerful tool for understanding where power lies in any particular industry or business. It helps the businesses to understand their position in the market, the steps they need to take to improve their sales by beating the competition and become the market leaders.
THREAT OF NEW ENTRANTS
McDonald’s tries to maintain lower selling costs by offering its affordable ‘one dollar’ menu. It tries to adapt to the local culture and alter its marketing strategies by targeting customer of different segments. The brand is positioned differently in different locations. For a new player, competing with a behemoth that enjoys a huge customer loyalty can be a challenge. Moreover, established chains can easily beat smaller competitions by increasing the value of their offering and by increased promotions. Thus, the threat from new entrants is not very high.
THREAT OF SUBSTITUTES
It is very easy to find a substitute for fast food as food can be purchased and packed from a restaurant, cafe, hotel, mall or a convenient store. However, the unique selling point of Fast food chain is its availability to have it in a short span of time. The threat from the substitutes can be rated at 3 on a scale of 1 to 5.
COMPETITIVE RIVALRY
The competition in the fast food industry is pretty intense with McDonald’s, Yum brands (parent company of KFC and Taco Bell) and Burger King holding the top three positions in the market share respectively. Apart from these, the market is fragmented with many other fast food chains. Price-wars, advertising across several mediums and quick service are some of the factors that affect the competition in fast food industry
POWER OF BUYERS
With an increase in competition, the power of buyers has increased, and customers often make their buying choices based on the pricing of the product. One of the best examples of this is McDonald’s ‘Dollar Menu’ which generates almost 15 % of its total sales. In spite of rising costs, McDonald’s has maintained a $1 price for its double cheeseburger. However, due to strong brand value of McDonald’s, the power of Buyers has slightly reduced as the number of loyal customers who would only dine at a ‘McDonald’s’ has increased.
POWER OF SUPPLIERS
OPPORTUNITIES IN THE ENVIRONMENT THAT MIGHT AFFECT McDONALD’S FUTURE:
The introduction of ‘Mc Cafe’ section to all of its 14000 US outlets can be seen as a great opportunity for the fast-food giant as it can tap the huge consumer base of ‘coffee lovers’. In this way, customers who just want to have coffee based drinks like lattes and cappuccinos can be targeted. It can introduce more ‘healthier options’ in its menu as people are becoming more health conscious these days. Also, the brand has to be positioned differently in different locations at different times of the day and target different customer segment. This will further increase the brand loyalty of McDonald’s and will ensure better profitability in the coming years. The biggest opportunity, however, is to keep its established customer base from bolting to other competitors by adapting to the rapidly changing consumer behaviour.
THREATS IN THE ENVIRONMENT THAT MIGHT AFFECT McDONALD’S FUTURE:
The biggest threat to McDonald’s is the ‘unhealthy’ image given the rise of obesity in United States due to which the firm even faced lawsuits from some of its loyal customers. The company needs to improve on its ‘unhealthy’ image if it wants to compete with brands like ‘Subway’. Another threat that the company faces is losing its true identity. Also, how it keeps all of its outlets under the traditional symbol of its golden arches. The company has to accept that it is primarily a Burger Chain that also offers other options to its customers and not the other way. After all, that’s America’s food and people love hamburgers!
Sources:
http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/Investor%202013/2012%20Annual%20Report%20Final.pdf Web. 06. Feb.2014
Gogoi.P.& Arndt,M.(2003) Hamburger hell. Business Week.07.Feb.2014
How Can McDonald’s improve its current level of performance?
McDonald’s long term success will depend on its ability to compete with rival burger chains and by making sure that keeps and expands its loyal customer base by providing value for their money and variety. Some of the steps that it needs to take to improve its current level of performance are:
- Improve sales in the U.S. Market:
Although the company has posted a healthy overall growth in terms of sales and opening of new outlets, the sales in US has been less than inspiring. The chain is facing several challenges in U.S such as competing and inflation. It needs to focus on the Mc Cafe section and expand its customer base by competing with chains such as Starbucks. With this, it can also target the beverage consumers and expand its brand loyalty. It needs to stick to its classic ‘plan to win’ strategy to ensure that the customer gets maximum value for money in form of quality, quantity, variety and taste.
- Focus on its Brand Building initiatives :
McDonald’s must promote its brand aggressively with different campaigns in line with the local sentiments and preferences. McDonald’s worldwide slogan, “I’m loving it” which was delivered by pop idol Justin Timberlake through a set of TV commercials proved to be a major hit.
- Satisfying the customer:
This must be the number one priority of the food chain by serving tasty, high-quality food in its outlets and restaurants. The focus on customer is important in the present uncertain environment, where volatility continues to impact customer spending and sentiment.
- Try to retain the ‘Burger Chain’ Tag:
The chain must try to focus on its core products such as ‘One dollar menu’ or ‘Big Mac’, at the same time including newer products like Mc Bites, Iced beverages and big Mc Wraps. The long term success of the firm may well depend upon its ability to compete with rival burger chains like Burger King.
- Engage in new initiatives, to remove ‘Unhealthy’ tag:
In September 2016, McDonald’s partnered with an alliance founded by Clinton Foundation and American Heart Association for a healthy generation, and to increase customer’s access to fruits and vegetables.
Source:
Retrieved from: http://news.mcdonalds.com/Corporate/news-stories/Alliance-for-a-Healthier-Generation-and-McDonald%E2%80%99s
References
Kotler, Phillip. Keller Kevin L. Marketing Management 4th ed. Washington. Pearson, 2011. Print.
Eisner,Alan. Shamsie,Jamal. Michigan State University, 2011. Print
McDonald’sCorporation.(2012).AnnualReport.Retrievedfrom: http://www.aboutmcdonalds.com/mcd/investors/annual_reports.html
Jargon.J. Zioboro. McDonald’s Cup runs over. Wall Street Journal. 2010.Print.
Warner.M. You want any fruit with that Big Mac? New York Times. 2011.Print.
Rutter,Tamara(2014) Retrieved from: http://www.fool.com/investing/general/2014/01/31/inside-the-coffee-wars-mcdonalds-new-strategy-to-t.aspx The Motley Fool n.d.
Hartman,Dennis. What is strategic capability? n.d. Web.Feb.10.2014
Robinson,Nicholas (2012) McDonald’s reports first sale slum in almost 25 years. Retrieved from:
http://www.globalmeatnews.com/Industry-Markets/McDonald-s-reports-first-sales-slump-in-almost-10-years
Adamy,J.(2009) McDonald’s to expand, posting strong results. Wall Street Journal. Retrieved from:
online.wsj.com
Gogoi.P.& Arndt,M.(2003) Hamburger hell. Business Week.07.Feb.2014
Kotler,Phillip.Lee,Nancy. Corporate Social Responsibility 5th Edition, John Wiley and Sons, 2005.Print
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