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McDonald's Corporation

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1 McDonald's Corporation
Authors: Adrian Magopet Kevin A. Sanders Armand Koti Northeastern Illinois University | MGMT 393- Strategic Management | March 2013

2 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

3 Vision, Mission & Values
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

4 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 Kroc’s philosophy, still applies to McDonald’s today, consisting of a 3-way relationship between Employees, Owner/Operator, and Suppliers.

5 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 Developing countries’ economies are growing. Buying power of people from developing countries are increasing. Global Global markets are open to every firm and industry. Countries have tendency to join the global economy.

6 Industry Analysis - Porter`s 5 Forces
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 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 Grocery stores, deli’s and in-house cafeterias, instant food like chicken, sandwiches, pizza and coffee Intensity of Rivalry Major industry participants compete to maintain or increase market share. Competition is based on price because demand is constant

7 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.

8 Competitor Analysis Current 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

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

10 Sustainable, Temporary, Parity
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 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 Imitate Non-substitutable Sustainable, Temporary, Parity SUPPLY CHAIN MANAGEMENT YES SUSTAINABLE COMPETITIVE ADVANTAGE MARKETING

11 Internal Analysis: Value Chain
Distribution Superior - #1 in fast food industry. Financially strong. Intellectual property. Inferior Operations Superior – Standardized processes Marketing & Sales Superior – Known as industry marketing leader - New upscale restaurants - McCafe, Free Wi-Fi - Economies of scale passed on to customers ($1 Menu) Supply Chain-Management Superior major advantage to lock in prices from suppliers. Own many of their own sources of inputs. (cattle herds in Brazil)

12 Non-financial Factors
Internal Analysis Financial 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 King Brand Image / Name Very Attractive Attractive Location Accessibility + 33,000 + 6,500 +12,500 Market Share 49.6% 12.3% 12.2%

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


15 Current Strategy Analysis
Type Analysis Business Level Integrated 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)

16 Global Markets France Germany China Russia 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. 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

Well-known brand name, image and global presence as a market leader Strong financial performance Specialized training for managers (Hamburger University) Multi-domestic approach: new products such as McCafe, P`tit Plaisir and yogurt fruit parfaits Expansion to Asia (especially countries such as India and China) Diversification and acquisitions of smaller restaurants Attract new clients Franchise sales WEAKNESSES THREATS Saturated nature of the fast-food business Unhealthy food image; the food is abundant in trans-fat High staff turnover, including management The relationship between McD Corp and franchisees, NO more franchise sales Loss of market share, both globally and in US Consumer awareness towards food quality, health concerns 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

18 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

19 New Strategy Formation
Feasible Alternatives Strategic Capabilities Core Competencies SustainableCompetitiveAdvantage 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 Item Offers 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

20 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)

21 New Strategy Selection:
Introduce all-natural organic menu items to compete with new ‘gourmet’ burger market trend.

22 Current Strategy Changes
Level Strategy Reasons Business Integrated Cost Leadership/ Differentiation Recent 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.

23 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 – 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.

24 Strategy Implementation Timeline
START 2013 END (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.

25 We hope you are hungry by now! THANK YOU FOR YOUR ATTENTION!
Adrian Magopet Adrian Magopet

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