McDonald s   Competitor Analysis   In   Egypt  

Strengths McDonald's has been a thriving business since 1955 and 20 of

the top 50 corporate staff employees started as a restaurant

level employee. In addition, 67,000 McDonalds restaurant

managers and assistant managers were promoted from

restaurant staff. Fortune Magazine 2005 listed McDonald's as

the "Best Place to Work for Minorities." McDonalds invests

more than $1 billion annually in training its staff, and every

year more than 250,000 employees graduate from McDonald's

training facility, Hamburger University.

The business is ranked number one in Fortune Magazine's

2008 list of most admired food service companies.

One of the world's most recognizable logos (the Golden

Arches) and spokes character (Ronald McDonald the

clown). According to the Packard Children's Hospital's

Center for Healthy Weight children age 3 to 5 were given

food in the McDonalds packaging and then given the

same food without the packaging, and they preferred the

food in the McDonald's packaging every single time.

McDonalds is a community oriented, socially responsible

company. They run Ronald McDonald House facilities,

which provide room and board, food and sibling support

at a cost of only $10 a day for families with children

needing extensive hospital care. Ronald McDonald

Houses are located in more than 259 local communities

worldwide, and Ronald McDonald Care Mobile programs

offers cost effective medical, dental and education

services to children. They also sponsor Olympic athletes.

They are a global company operating more than 23,500

restaurants in 109 countries. By being spread out in

different regions, this gives them the ability to weather

economic fluctuations which are localized by country.

They can also operate effectively in an economic

downturn due to the social need to seek out comfort

foods.

They successfully and easily adapt their global

restaurants to appeal to the cultural differences. For

example, they serve lamb burgers in India and in the

Middle East, they provide separate entrances for families

and single women.

Approximately 85% of McDonald's restaurant businesses

world-wide are owned and operated by franchisees. All

franchisees are independent, full-time operators and

McDonald's was named Entrepreneur's number-one

franchise in 1997. They have global locations in all major

airports, and cities, along the highways, tourist locations,

theme parks and inside Wal-Mart.

They have an efficient, assembly line style of food

preparation. In addition they have a systemization and

duplication of all their food prep processes in every

restaurant.

McDonald's uses only 100% pure USDA inspected beef,

no fillers or additives. Additionally the produce is farm

fresh. McDonald's serves 100% farm raised chicken no

fillers or additives and only grade-A eggs. McDonald's

foods are purchased from only certified and inspected

suppliers. McDonalds works closely with ranchers,

growers and suppliers to ensure food quality and

freshness.

McDonalds only serves name brand processed items such

as Dannon Yogurt, Kraft Cheese, Nestle Chocolate,

Dasani Water, Newman's Own Salad Dressings, Heinz

Ketchup, Minute Maid Juice.

McDonald's takes food safety very seriously. More than

2000 inspections checks are performed at every stage of

the food process. McDonalds are required to run through

72 safety protocols every day to ensure the food is

maintained in a clean contaminate free environment.

. McDonald's was the first restaurant of its type to

provide consumers with nutrition information. Nutrition

information is printed on all packaging and more recently

added to the McDonald's Internet site. McDonalds offers

salads, fruit, roasted chicken, bottled water and other low

fat and calorie conscious alternatives.

Weaknesses Their test marketing for pizza failed to yield a substantial

product. Leaving them much less able to compete with fast

food pizza chains.

High employee turnover in their restaurants leads to more

money being spent on training.

They have yet to capitalize on the trend towards organic foods.

McDonald's have problems with fluctuations in operating and

net profits which ultimately impact investor relations.

Operating profit was $3,984 million (2005) $4,433 million

(2006) and $3,879 million (2007). Net profits were $2,602

million (2005), $3,544 million (2006) and $2,395 million

(2007).

Opportunities In today's health conscious societies the introduction of a

healthy hamburger is a great opportunity. They would be the

first QSR (Quick Service Restaurant) to have FDA approval on

marketing a low fat low calorie hamburger with low calorie

combo alternatives. Currently McDonald's and its competition

health choice items do not include hamburgers.

They have industrial, Formica restaurant settings; they could

provide more upscale restaurant settings, like the one they

have in New York City on Broadway, to appeal to a more

upscale target market.

Provide optional allergen free food items, such as gluten free

and peanut free.

In 2008 the business directed efforts at the breakfast, chicken,

beverage and convenience categories. For example, hot

specialist coffees not only secure sales, but also mean that

restaurants get increasing numbers of customer visits. In 2009

McDonald's saw the full benefits of a venture into beverages.

Threats They are a benchmark for creating "cradle to grave"

marketing. They entice children as young as one year old into

their restaurants with special meals, toys, playgrounds and

popular movie character tie-ins. Children grow up eating and

enjoying McDonalds and then continue into adulthood. They

have been criticized by many parent advocate groups for their

marketing practices towards children which are seen as

marginally ethical.

They have been sued multiple times for having "unhealthy"

food, allegedly with addictive additives, contributing to the

obesity epidemic in America. In 2004, Michael Spulock filmed

the documentary Super Size Me, where he went on an all

McDonalds diet for 30 days and wound up getting cirrhosis of

the liver. This documentary was a direct attack on the QSR

industry as a whole and blamed them for America's obesity

epidemic. Due in part to the documentary, McDonalds no

longer pushes the super size option at the dive thru window.

Any contamination of the food supply, especially e-coli.

Major competitors, like Burger King, Starbucks, Taco Bell,

Wendy's, KFC and any mid-range sit-down restaurants.

McDonald's is the leading global foodservice retailer with more

than 31,000 local restaurants serving more than 58 million

people in 118 countries each day. More than 75% of

McDonald's restaurants worldwide are owned and operated by

independent local men and women.

Getting to Know UsMcDonald's is the leading global foodservice retailer with more than 34,000 local restaurants serving nearly 69 million people in 119 countries each day. But that is just one part of the whole story. Learn more about our Executives, search our Frequently Asked Questions, and get a taste of McDonald’s History.Quick Facts

McDonald's MissionWe’re determined to continuously improve our social and environmental performance. We work hard, together with our suppliers and independent restaurant franchisees, to strive toward a sustainable future – for our company and the communities in which we operate.

From the beginning, we’ve been a company committed to doing the right thing. Today, our values continue to be the foundation for who we are, what we do, and how we operate,

Inclusion & DiversityAt McDonald’s we are moving from awareness to action. Our goal is to have people within our organization working and living to reach their full potential. We believe that leaders hold themselves accountable for learning about, valuing, and respecting individuals on both sides of the counter. At McDonald’s, diversity and inclusion are part of our culture –

from the crew room to the Board Room. We are working to achieve this goal every day by creating an environment for everyone to contribute their bestQuick Facts

McDonald's Case StudyIntroductionMcDonald’s, the long-time leader in the fast-food wars, faced a crossroads in the early 1990s. Domestically, sales and revenues were flattening as competitors encroached on its domain. In addition to its traditional rivals—Burger King, Wendy’s, and Taco Bell—the firm encountered new challenges. Sonic and Rally’s competed using a back-to-basics approach of quickly serving up burgers, just burgers, for time-pressed consumers. On the higher end, Olive Garden and Chili’s had become potent competitors in the quick service field, taking dollars away from McDonald’s, which was firmly entrenched in the fast-food arena and hadn’t done anything with its dinner menus to accommodate families looking for a more upscale dining experience.

While these competitive wars were being fought, McDonald’s was gathering flak from environmentalists who decried all the litter and solid waste its restaurants generated each day. To counter some of the criticism, McDonald’s partnered with the Environmental Defense Fund (EDF) to explore new ways to make its operations more friendly to the environment.

FactsMcDonald’s roots go back to the early 1940s when two brothers opened a burger restaurant that relied on standardized preparation to maintain quality—the Speedee Service System.

So impressed was Ray Kroc with the brothers’ approach that he became their national franchise agent, relying on the company’s proven operating system to maintain quality and consistency.

Over the next few decades, McDonald’s used controlled experimentation to maintain the McDonald’s experience, all the while expanding the menu to appeal to a broader range of consumers. For example, in June 1976, McDonald’s introduced a breakfast menu as a way to more fully utilize the physical plant. In 1980, the company rolled out Chicken McNuggets.

Despite these innovations, McDonald’s tremendous growth could only continue for so long. Its average annual return on equity was 25.2% between 1965 and 1991. But the company found its sales per unit slowing between 1990 and 1991. In addition, McDonald’s share of the quick service market fell from 18.7% in 1985 to 16.6% in 1991. Plus growth in the quick service market was projected to only keep pace with inflation in the 1990s.

McDonald’s faced heightening competition on several fronts. First, its traditional rivals—Burger King, Wendy’s, and Taco Bell—were eating into its margins through promotions and value pricing strategies. Taking a leaf from McDonald’s own playbook, Sonic and Rally’s were using a very limited menu approach to attract time-strapped consumers. Finally, Chili’s and Olive Garden were appealing to diners looking for something a little more enticing that the familiar Golden Arches for their families.

In the late 1980s, McDonald’s began recognizing the importance of maintaining an ecologically correct posture with the public, which was becoming more concerned about the environment. For example, in 1989, 53% of respondents in one survey revealed that they had not bought a product because they didn’t know what effect the packaging would have on the environment. Closer to home, a 1990 study showed that each McDonald’s generated 238 pounds of on-premise solid waste per day.

It’s no surprise, then, that McDonald’s sought a way to reduce its solid waste while providing a more environmentally acceptable face to the

public. Beginning in 1989, it partnered with the Environmental Defense Fund, a leading organization devoted to protecting the environment, to seek ways to ease the company’s environmental burden on the landscape.

Together, EDF and McDonald’s considered its impact on a wide range of stakeholders—customers, suppliers, franchisees, and the environment. The company gave its franchisees much autonomy in finding ways to eliminate environmental blight. The company’s hope was that from these divergent approaches, it stood a greater chance of finding solutions with broad applicability than if it had tried to pursue a one-size-fits-all approach from the outset.

Some of the environmentally inspired solutions that came out of the collaboration with EDF were the:

Introduction of brown paper bags with a considerable percentage of recycled content.

Solicitation of suppliers to produce corrugated boxes with more recycled content, which had the twin effect of reducing solid waste and building a market for recycled products.

Abandonment of polystyrene clamshell containers to hold sandwiches in favor of new paper-based wraps that combined tissue, polyethylene, and paper to keep food warm and prevent leakage.

 AnalysisMcDonald’s Sustained ProsperityThe secret of McDonald’s success is its willingness to innovate, even while striving to achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich were all examples of how the company tried to appeal to a wider range of consumers.

The company has also made convenience its watchword, not only through how fast it serves customers, but also in the location of its outlets. Freestanding restaurants are positioned so that you are never more than a

few minutes away by foot in the city or by car in the suburbs. Plus McDonald’s is tucking restaurants into schools, stores, and more.

Key ThreatsThe key threats to McDonald’s domestically are the lack of growth opportunities. The market is well saturated, and it would difficult to achieve double-digit growth. Other concerns are a newfound emphasis on healthier eating. Most of McDonald’s most popular fare probably in some small way contributes to the increasing incidence of cancer, heart disease, and diabetes among the population.

But I feel the key threat to McDonald’s continued success is its very ubiquity. Because McDonald’s are everywhere, the dining experience is never special. And as Baby Boomers age and become more affluent, it is likely that they will leave behind their fast-food ways, if only to step up to moderately priced restaurants like Olive Garden, Bennigans, and Pizzeria Uno. These chains have the added advantage of serving higher-margin alcoholic drinks. McDonald’s, meanwhile, has to continually battle Burger King and Wendy’s, which leads to an erosion of margins for everyone. Even alliances with toy manufacturers, while popular with consumers, do little for the bottom line because the cost to run these promotions can be quite expensive.

Responding to Burger King’s October 1 AnnouncementThe October 1 announcement from Burger King that it would begin offering table service is not much of a threat at all. You can try to dress up fast food, but it’s still fast food. I couldn’t imagine this being a potent draw for consumers. McDonald’s best course is to ignore this development as irrelevant. As the market leader, McDonald’s does not need to respond to every competitor’s initiative. Indeed, doing so would have the effect of making McDonald’s look reactive and less like a leader.

The advantage of not responding to Burger King’s initiative is that the company can preserve its resources for other marketing thrusts that may provide a bigger payoff. The disadvantage of not responding to Burger King’s initiative is that you allow the firm to establish itself in a unique way in the minds of consumers—that of a fast-food restaurant that provides sit-down service. But again, is this inherent contradiction of fast-food fare and upscale dining experience likely to resonate with consumers? I would say no. If Burger King’s initiative does prove popular with consumers—as evidenced by expanding sales and market share—McDonald’s would be forced into catch-up mode. But I think that this is a risk that the company should be willing to take.

Promoting Flexibility Through Its Operating StrategyThe key thing that McDonald’s operations strategy has to support is experimentation. Now somewhat long in the tooth, McDonald’s needs a breakthrough that will provide new avenues of growth. It has a long history of such experimentation, which has resulted in some new profit centers like Chicken McNuggets and the breakfast menu. Some later turn out to be duds like the McLean Deluxe, but inevitably experimentation in limited outlets offers McDonald’s a way to retain its key strengths—quality and consistency—while continuing to evolve for new palates and pocket books.

McDonald’s and the Environmental Defense FundIn some ways, partnering with the Environmental Defense Fund was a masterstroke. It brought both respectability and valued expertise to its environmental efforts. It also provided a primetime venue for EDF to make a difference. Any successes, even if only incremental improvements, would have major ramifications because of the sheer size of McDonald’s operations.

McDonald’s should continue its partnership with EDF. With ecology a growing concern among consumers, it makes sense to be a good corporate citizen and get all the public relations accolades that go along with such an

alliance. It also pays off in the bottom line by reducing shipping costs for supplies as well as garbage removal fees.

McDonald’s would do well to stay in the vanguard of corporations who have become environmentally aware. If it tries to shirk its responsibilities, it can foresee a public relations nightmare in the making. But if it does manage to come up with some breakthroughs through its collaboration with EDF, it can score a tremendous amount of goodwill with the public, which may even provide a halo effect to mitigate any other PR troubles.

How far should McDonald’s go on environmental issues? There is definitely a public relations benefit in being seen as an environmental leader, and the collaboration with EDF goes a long way in making that happen. Still McDonald’s has had a lot of success in giving its franchises some latitude in developing new solutions.

The line in the sand in determining how far McDonald’s should go with its environmental efforts is determined by the cost of the initiative relative to the hard-dollar benefits and harder-to-quantify public relations buzz it gets from being in the forefront on environmental issues. The bottom line is that environmental efforts can’t detract the company from its primary mission of providing consistent quality to consumers. If environmental efforts start to be a drag on the company’s future profits, it’s time to ease up. Ideally environmental initiatives should pay for themselves by reducing other kinds of costs.

Dealing With the Product Range ExplosionMcDonald’s had done well with a fairly limited product range. But falling per unit sales is a danger sign for the firm. With competitors gaining ground on McDonald’s, it may indicate a need to refresh its product line. Perhaps the best way to do that is by rotating in a couple highly promoted new

menu items. This would have the effect of enlivening the product menu, without the need to go head to head with competitors on price.

This slackening of per unit sales might also indicate that McDonald’s critical success factors have changed. Perhaps in the new environment, fast, convenient service is no longer enough to distinguish the firm. At this time, a new critical success factor may be emerging: the need to create a rich, satisfying experience for dinner consumers.

To maintain consistency in new products as it expands the product line, McDonald’s must rely on test marketing new menu items in pilot locations. This approach will let the firm identify which items are likely to prove popular with consumers while ensuring that the company can deliver new products with consistent quality nationwide. McDonald’s already has a history of doing this so it will not require major changes to its operations strategy—at least initially. If the product line-up gets too large, then the task of maintaining quality becomes exponentially harder. The trick is to consider how to eliminate some of the existing menu items when you introduce new ones, while making sure the staff is fully trained in how to execute these products successfully.

Because McDonald’s has pretty well saturated the U.S. market, it’s only real opportunities for growth lie abroad, where the competition is not so cutthroat or by introducing new restaurant concepts under brands other than McDonald’s. After all, McDonald’s is known for fast food. It’s not really a pleasant dining experience, just a cheap and convenient one. I feel that McDonald’s has reached the point of diminishing returns with the McDonald’s brand and now needs to roll out new types of restaurants.

Indeed, McDonald’s has the opportunity to apply its core competencies—scrupulous adherence to quality standards and continual promotion of experimentation—in new venues. Imagine, if you will, McDonald’s opening

a new casual dining restaurant under the name of Splendor. It could then franchise that concept nationwide and get some of the dollars from consumers who have grown past fast food. But its fastidious approach to operations would ensure that consumers everywhere would experience the same dining experience—a tremendous advantage for consumers who don’t want to be surprised with a bad meal.

McDonald’s could try a number of concepts simultaneous in different parts of the country. Those that seemed promising could be rolled out further. The duds could be left to die quickly. While this will be an expensive undertaking, it holds the potential to unleash new areas of growth in a maturing market.

ConclusionMcDonald’s faces some difficult challenges. Key to its future success will be maintaining its core strengths—an unwavering focus on quality and consistency—while carefully experimenting with new options. These innovative initiatives could include launching higher-end restaurants under new brands that wouldn’t be saddled with McDonald’s fast-food image. The company could also look into expanding more aggressively abroad where the prospects for significant growth are greater.

The company’s environment efforts, while important, should not overshadow its marketing initiatives, which are what the company is all about.

P.E.S.T AnalysisPolitical FactorsThe individual operations of McDonalds are influenced by the individual state and country policies by each government. E.g. there are certain some states in Europe and the US wont allow fast food due to its health implications, they have shown that fast food can cause high cholesterol levels and can also lead to obesity.Economic FactorsBranches and franchises of fast food chains like McDonalds has the tendency to experience hardship in instances where the economy is hit by inflation and changes in the exchange rates. These chains may have to put up with the effects of the economic environment.Socio-Cultural FactorsMcDonald’s indulge a particular variety of consumers with definite types of personalities. It has also been noted that the company have given the markets such as the United Kingdom, an option with regards to their dining needs. McDonalds launched sets of food that tenders a reliable level of quality for the respective market where it operates.Technological FactorsThe company’s key tool for marketing is by means of television advertisements. There are similarly some claims that McDonald’s are inclined to interest the younger populations more. The existence of play spots as well as toys in meals offered by the company shows this. This can also be seen in the commercials of they use. They use cartoons of their characters like Grimace and Hamburglar. Other advertising operations use popular celebrities to promote their products

Competitors

Who are you competing with locally? If you talk about the chains -- KFC, Pizza Hut, Hardee's -- I believe you can consider these our main competitors. But we keep an eye on everyone, even the local chains like Mo'men, Cook Door and whatever -- we keep an eye on them. 

[Type the company name]

McDonald’s company analysisTeam Project

Prepared by: Student’s Name and Surname: Edita Ivanova,

Group: 3

11/8/2011

CONTENTS

INTRODUCTION

1. COMPANY ANALYSIS

1.1 Description of the firm (history, managers, mission, vision, values, main products and

markets)

1.1.1. History

1.1.2. Managers

1.1.3. Mission. Vision. Values

1.1.4. Main Products and the markets

1.2 Financial analysis of McDonald’s

1.3 Current strategy of McDonald’s

1.4 Identification of strengths & weaknesses

1.5 Issues facing McDonald’s

2. EXTERNAL ENVIRONMENT ANALYSIS

2.1 Analysis of McDonald’s macro-environment

2.2 Analysis of industry (five forces framework)

2.3 Key strategic factors in the industry (strategic groups, market segments, critical success

factors)

2.3.1 Strategic groups

2. 3.2. Market segments

2.4. Future scenarios

2.3.3 Critical success factors

2.5 Identification of opportunities and threats

3. DEVELOPMENT and RECOMMENDATIONS FOR IMPLEMENTATION OF STRATEGIC

OPTIONS

CONCLUSIONS

INTRODUCTION

The goal of this paper work is to analyze McDonald’s Incorporated company.

During studies of International Marketing we have acquainted with the theoretical

part of International Marketing — what is the most important stage in the beginning

every time confronting with the new subject. However, only accomplishing the

practical tasks we can better understand the matter of discipline analyzing strategic

audit of a concrete operating company.

Our tasks of this paper work were to gather into equally divided groups of

students and to work on a common goal in showing the degree to which we can

collaborate together in analyzing the chosen company and building our general

management competence.

So, the broader tasks to reach the aim are:

to overview and analyze the literature concerning the subject of International

Marketing;

to describe the chosen company and the market it is operating in;

to analyze principles of a selected company and existing strategies in it.

The object of our team project is McDonald’s Incorporated recognized as a

premier franchising business around the world, leading global food service retailer

having over 32,000 local restaurants which serve its favourite foods – World Famous

Fries, Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin to more

than 64 million people in 117 countries each day.

1. COMPANY ANALYSIS

1.1 Description of the firm (history, managers, mission, vision, values, main products and markets)

1.1.1. History

Everything has started when Patrick McDonald opened “The Airdrome” in

1937. This restaurant was located at the Monrovia Airport in Monrovia, California. At

that time prices were much lower than it is today. Back to then the hamburgers were

sold only for 10cents, and all-you-can-drink orange juice cost only 5cents. After

3years, in 1940 his two sons Mac and Dick (Maurice and Richard), relocate the whole

building and open the restaurant with new name “McDonald’s Bar-B-Que Restaurant”

in San Bernardino, California. It was a typical drive-in featuring a large menu and car

hop service.

In 1948 McDonald brothers closed their restaurant temporarily. After

3months, in December the new, with a self-service drive-in, restaurant was opened.

The menu was minimized and it consisted only from nine items (hamburger,

cheeseburger, soft drinks, milk, coffee, potato chips and a slice of pie. After several

years, in 1954, a multimixer salesman Ray Kroc enters into a McDonald’s developing

stage. He realized that taking an opportunity to become a franchising agent for a

whole new concept of restaurant is an appropriate decision for his future.

On April 15th 1955 the first McDonald’s restaurant in Des Plaines, Illinois is

opened. A one year later Fred Turner (future McDonald’s Chairman) is hired as a

counter man. After a while he became the head of McDonald’s Operations which

were responsible for the quality, service and cleanliness.

The biggest event at that time in 1960’ was the statement that McDonald’s has

sold 100 Million of hamburgers in more than 100 restaurants in America. A few years

later in 1961 Hamburger University is opened. After this university students get a

Bachelor degree of Hamburgerology. 1

The Business started to expand and in 1963 there were 5times more restaurant

than in 1958. McDonald’s reaches 500 restaurants. At the 10th Anniversary (1965) of

McDonald’s it issues the first public stock selling for $22.50 per share. In 1967

McDonald’s starts the business internationally. Firstly, it goes to close neighbours, in

Canada and Puerto Rico first restaurants are opened. Therefore, nowadays we can see

McDonald’s restaurants in 119 countries around the world.

Another big change in McDonald’s history was the first Drive-thru. It was

opened in Sierra Vista, Arizona. As long as there were soldiers near Fort Huachuca

who were not allowed to leave the car in army fatigues, the McDonald’s has solved

this problem introducing a new service “drive-thru”. It became one of most successful

implementation in services field.

Later on McDonald’s started to expand its business really quickly. The

restaurants are opened in Japan then in Spain, Denmark, and Philippines. At the end

of 1983, McDonald’s has 7,778 restaurants located in 32 countries all around the

world. At the year of 1996 the Internet site McDonald’s is created. In 2009 the break

event was that McCafe goes National and later on internationally.

Nowadays McDonald’s is considered to be the leading global food service

retailer. It owns more than 32,000 local restaurants in 119 countries worldwide. The

principle of this expansion is quite simple to serve high quality, standardized products

to all customers. The restaurants are operating independent and they run by local

businessman or businesswoman.

1.1.2. Managers

McDonald’s name is well known for franchising which was the key to

nowadays success in the worldwide food industry market. There are 119 countries

where the McDonald’s is operating and more than 75%of it is set by franchising. The

managers of McDonald’s are considered to be those people who are highly qualified

business people joining their System as Owners/Operators. McDonalds are seeking

businessman/businesswoman with a business experience. It is important that those

people have some knowledge from owning or managing business/business units or

having led multiple departments as their previous job. Another factor which is being

considered is financial resources.

In McDonald’s case the top executive officers are working as managers who

direct restaurant’s staff indirectly. They use several levels of supervisors who then

direct the workers. There is a high need to be familiar with the work which now they

are managing. So, there is no wonder why they all climbed the carrier from the

bottom to the top. In such company as a McDonald’s managers may only provide

some recommendation to the next level of management whether to hire or to fire

employees.

1.1.3. Mission. Vision. Values

McDonald's brand mission statement is to "be our customers' favorite place

and way to eat." Our worldwide operations have been aligned around a global strategy

called the Plan to win cantering on the five basics of an exceptional customer

experience - People, Products, Place, Price and Promotion. We are committed to

improving our operations and enhancing our customers' experience.2

This mission includes becoming the best employer for people in each local

community independently in location. To provide the excellent service to all

customers and of course achieve growth with a profit through strengths such as

McDonald’s system innovation and technology.

The vision of McDonald’s is to be the best quick service restaurant in the

whole world. It refers to outstanding quality, cleanliness, high quality service and

high value food in order to make every customer smile.

McDonald’s company states that their values in practice are the corporate

responsibility of the company. They show values in everyday activities, when they are

achieving some goals and most importantly open lines of communication is the main

value between customer and other stakeholders. They work together with suppliers

and independent franchisees to achieve a sustainable future not only for the company

but for the communities in which they operate as well. Their strong values helped

them to become who they are, what they do and how they operate nowadays.

The one of the McDonald’s values is customer satisfaction. It is said that the

reason for McDonald’s existence are customers. They are trying to show the

appreciation by serving a high quality food and superior service. They also strive to

achieve a welcoming environment. Another value is to be committed to people who

are working to them. They believe that working in a well-trained team with

intercultural experiences and backgrounds are the core of success.

The other value is that they believe in the McDonald’s System. The business

model which is contained of “three-legged stool” (suppliers, operator and employees)

is the essential key for developing the business globally. The most important is to

keep the balance between those “stool’s legs”.

Ethic in business is also one of the values. They are trying to conduct their

business with fairness, honesty and integrity. They state that: “We are individually

accountable and collectively responsible”.3

McDonald’s obliged to grow business profitably as long as it is publicly traded

company. This requires not only focus on gaining more money but also on customers

and the health of the whole system. The changing environment, customer, employee

and systems need lead to the McDonald’s evolution and innovation as well.

1.1.4. Main Products and the markets

The products produces by McDonald’s can be divided in several groups:

Hamburgers, Chicken, fish and pork products, French fries, Soft drinks, healthy items

such as salads and Desserts.

There is no doubt that McDonald’s main products are hamburgers. There is a

high variety of this type of food. To begin with, the simplest one and the most

common is Cheeseburger (in some countries they are involved in 1Eur/1$menus),

then Double Cheeseburger (which has two ground beef patties and two slices of

cheese), McDouble, Big N’Tasty, McNifica, etc. The names and consistent varies

according to the countries.

Chicken, fish and pork products such as McChicken, Premium chicken

sandwiches, Snack wrap, Chicken McNuggets, etc. are another products in

McDonald’s restaurants.

French fries are considered to be one of the most sellable items. The main

reason for this is that no matter what other product the consumer is willing to buy, but

in every set French fries are included automatically.

Other products such as salads are relatively new in this restaurant. The first

salads were added to its menu in 1985. Nowadays more and more people are

concerned about their health so, McDonald’s puts its all efforts to achieve more and

not lose any of the potential customers.

The biggest soft drink supplier is the Coca-Cola Company. Hot and iced tea is

delivered by S&D Coffee in the US), hot chocolate, various juice and other regional

beverages such as milkshakes are available in various markets all around the globe.

Desserts are considered to be the last big group of products in McDonald’s

restaurants. It includes such items as ice-cream (McFlurry), McDonaldland cookies,

Freshly Baked cookies, Pies, Cinnamon melts, the fruit and yougurt parfait, smoothies

and other items which depending on the region and country.

Markets

The recovery of McDonald’s after the global crises seems to be surprisingly

fast and the sales growth rate continues to increase. The one of the biggest fast food

restaurant in the world declared that it is still gaining market shares its rivals. The

high rate of unemployment does not influence the convincing people to spend money

and eat at McDonald’s. It has suggested improved breakfast menu with the new

frappe drinks. It was the key success factor in recovering after the huge losses.

McDonald’s surprised everyone when it reported growth of 6.0%worldwide

while the same store sales growth was approximately 3.8%. The company is

forecasting the further growth of 5-6% worldwide. The chart below shows the

slowdown experience in 2008.

Chart 1 The McDonald’s slowdown experience in 20084

In different company’s regions there are different trends. For example, the

Europe’s growth rate is 4.1%, the Asia Pacific, Middle East and Africa region growth

rate is 8.1%. The European region holds about 40% if total sales, so this region is

most important to McDonald’s.

The Asia Pacific region includes China where number of consumers is

growing rapidly. McDonald’s is planning to reach 2,000restaurants till the 2013. In

this market the biggest competitor is Yum Brands which has 3,700 restaurants.

In the US, the introducing new menus for the breakfast and new frappe were

very successfully in gaining more customers. The following chart emphasizes the

McDonald’s market share growth in comparison with selected competitors:

Chart 2 U.S. Fast food market share5

The rising of commodity prices influenced the food industry as well. This

impact is the best seen in the coffee sector. One of the McDonald’s competitors is

Starbucks. It was not able (for Starbucks) to resist the price increase for 9% which led

that McDonald’s prices particularly for the coffee was bellow than Starbucks. This is

also the reason for the future market share gains.

If McDonald’s wants to recover faster and if it wants to be a leader in all fast

food sectors it has to improve customer metrics by which it can follow and decide

what are the changes in the customers’ needs and wants, how they can satisfy these

issues. The most important thing is to think globally but act locally. McDonald’s has

to take into account different cultures, tastes, incomes, etc. and they have to serve

slightly different food but the high service should remain the same.

1.2 Financial analysis of McDonald’s

Available financial data is used to evaluate the performance of the

organization. In this case, McDonald’s restaurants chain will be analyzed. The most

useful tools are those which show the cause-and-effect relationships. One of the most

important documents is the company’s annual reports while it is required by law to be

filled with some financial data.

This part of paperwork will include the McDonald’s 3-years data summary

which is analyzed and converted into ratios and percentages. Those ratios will be

compared to show the relationships and trends with standards of performance.

Table 2 Balance sheet 6

Period Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008

Assets

Current Assets

Cash And Cash Equivalents 2,387,000 1,796,000 2,063,400

Short Term Investments - - -

Net Receivables 1,179,100 1,060,400 931,200

Inventory 109,900 106,200 111,500

Other Current Assets 692,500 453,700 411,500

Total Current Assets 4,368,500 3,416,300 3,517,600

Long Term Investments 1,335,300 1,212,700 1,222,300

Property Plant and Equipment 22,060,600 21,531,500 20,254,500

Goodwill 2,586,100 2,425,200 2,237,400

Intangible Assets - - -

Accumulated Amortization - - -

Other Assets 1,624,700 1,639,200 1,229,700

Deferred Long Term Asset Charges - - -

Total Assets 31,975,200 30,224,900 28,461,500

Liabilities

Current Liabilities

Accounts Payable 2,916,400 2,970,600 2,506,100

Short/Current Long Term Debt 8,300 18,100 31,800

Other Current Liabilities - - -

Total Current Liabilities 2,924,700 2,988,700 2,537,900

Long Term Debt 11,497,000 10,560,300 10,186,000

Other Liabilities 1,586,900 1,363,100 1,410,100

Deferred Long Term Liability Charges 1,332,400 1,278,900 944,900

Minority Interest - - -

Negative Goodwill - - -

Total Liabilities 17,341,000 16,191,000 15,078,900

Stockholders' Equity

Misc Stocks Options Warrants - - -

Redeemable Preferred Stock - - -

Preferred Stock - - -

Common Stock 16,600 16,600 16,600

Retained Earnings 33,811,700 31,270,800 28,953,900

Treasury Stock (25,143,400) (22,854,800) (20,289,400)

Capital Surplus 5,196,400 4,853,900 4,600,200

Other Stockholder Equity 752,900 747,400 101,300

Total Stockholder Equity 14,634,200 14,033,900 13,382,600

Net Tangible Assets 12,048,100 11,608,700 11,145,200

Currency in USD

1.3 Current strategy of McDonald’s

In McDonald’s there is a strategy named “Plan to Win” since 2003. This plan

to win in the industry exist till now and it forced McDonald’s to have 32 months of

global comparative positive sales which is the longest strip for the last 25 years. To

say more, company has had a growth which in general lies above the industry average

growth.7

To get better understanding about the current strategy of the company, let take

a look what is the

“Plan to Win”? It is nothing else except 5P’s that are behind the Plan to Win, it

includes: People, Place, Product, Price, and Promotion.

The 5P’s are trying to perceive every thinkable angle of the company, and

have ways to improve everything, from refurbishing old shops, to maintenance wi-fi

for customers, setting the right mood with music and creating deli menus to cope with

the bad publicity.8

PromotionProducts

- “I’m loving it” worldwide campaign

- Billboards, internet, TV, all advertising in general

- Broaden the selections

- McDonald’s Food Studios

- Superior supplier practices

- High product standards

- McCafe

- Examples: Rice burger, fruit and walnut salad

Price

- High quality food at a reasonable price

- Value menus

- Premium selections

PlacePeople

- Refurbishing stores

- New music

- Wi-fi

- Flatscreens

- Developed training and hospitality programs to teach our people the skills they need to deliver great service

- Computer based training

-Restaurant Operations Improvement Process (ROIP)

Their main efforts are in a direction of maintenance of their unique firm

power, and creation of the additional added cost through experience to keep and

develop their shares in the American market.

Company’s newest leading addition of industrial line is the McCafe. The

McCafe have a target audience of those who would like something else than regular

soft drinks, or probably only wants some coffee.9

Using this new strategy and an industrial line McDonald’s tries to seize shares

of the market in the industry of coffee industry, which mainly operates Starbucks. It is

courageous strategy, where they have an experience minimum, but however it is

strategy which is supported by a considerable quantity of their forces. They already

have global network of suppliers and one of the most influential brands in the

world.” 10Their marketing has focused on two separate things: first, coping with the

effects of the obesity through marketing and a new healthier product category and

second, increasing brand awareness to maintain and develop market shares.

While supervising the result (outcome) of McDonald’s has carried out strategy

the last years, then the financial data speaks in own language. Development of the

incomes which are above development of the market means that they increase the

shares in the market. When supervising of their edges of total profit, then since

performance of “Plan to Win” has increased edge more than forty percent. It shows

that McDonalds till now have correct forces and strategy to outmanoeuvre any

problems of fatness.

McDonald’s should study their basic products in the future. As changing

requirements and instructions from clients and the governments appear, then at

McDonald's there would be a big advantage of being preventive on these questions.

Now they were some of the slowest in the industry to get rid of their trans-fat to make

French fries which sends a bad signal on not caring about their clients. On all

questions of public health services they, apparently, have very jet manner, still

precisely knowing what to make with a problem. If they have to change and expand

the research of these areas, the pure size and resources could give easily to them the

big push up in CSR competencies and the general image in comparison with their

competitors. But as it now, their research - some kind of weakness as they concentrate

more on research in decorating than in full healthy meal. It isn't intended these that

they should change the basic products as a cheeseburger, big Mac and French fries,

but rather placing some resources in creation of the basic of more healthy products.

Thus, they also would deal with some of their weaknesses and would construct

protection against future threats.11

1.4 Identification of strengths & weaknesses

“The resource strength, behavior, weakness, synergy and distinctive

competences are major components of the internal environment of an

organization.“12 It is all about how the company manages to use its resources and into

what outcome it brings: does the use of the resources is optimal and brings to an

advantage or it is not well managed and brings into disadvantage? There come also

companies strengths or weaknesses.

Strengths of McDonald’s

Taking into consideration that McDonald’s is a global company, working its

capital in many countries worldwide and known for almost all people in the world, we

can point out such strengths of this franchise:

McDonald’s is a strong competitor for all sit-down restaurants because of its

size, worldwide extent and famousness.

„McDonald’s is the market leader in both the domestic and international

markets”13

The size of McDonald’s, as it was mentioned before, is enormous and it has an

advantage of economies of scale, which is crucial for every business.

Diversifying business worldwide in various countries let to reduce or at least

to verify the risk of business and find best advantages of different countries

economies.

McDonald’s also takes an advantage of a long-term economic growth as an

international company.

It is also known that McDonald’s has a strong real estate portfolio, which is

also considered as strength of a company.

“The company’s outlets are located in areas that are highly known for

visibility, traffic volume and ease of access.”14

The brand of McDonald’s is easy recognised among competitors and is very

strong.

“Through aggressive market planning, MacDonald’s has been able to

recapture its youth market once again.”15

Viewing the strengths of McDonald’s form consumer eyes, the strengths can

be more focused on brand, famousness, quick supply of a food, good taste of food,

which more often lead even to an addiction of McDonald’s foods, also mostly well

perceived personnel as a polite and performing their job well.

Weaknesses of McDonald’s

Even though McDonald’s has a huge extent in the world, has a strong strategy,

well known brand and feels comfortable in a market, however, as all business it faces

some difficulties or some threats and as all business has some internal weaknesses,

which actually cannot be always visual for individual eyes, but can be identified only

by professional economists. The summary of McDonald’s weaknesses might be:

“Looming market saturation”16, which can lead to difficulties in advertising

new products.

Fast growing and competitive market. That makes company to face income

problems.

Income problems and huge competition do not let the range of production rise

into value ones but makes to diversify a range of cheap and quickly made

ones.

McDonald’s is also a low innovative company.

In more simple view the McDonald’s might have weaknesses because of huge

competition in fast food industry. Nevertheless, fast food industry is not a respected

industry in most of nowadays point of view because of rising number of various

diseases caused by fast, unhealthy food. Moreover, McDonald’s food might seem

more unhealthy and fatty food, rather then delicious. And there the price seemed as

low doesn’t help in case of quality of food.

1.5 Issues facing McDonald’s17

There are a lot of issues, which McDonald’s is facing. Here you can find some

of it:

ADVERTISING

McDonald's spend over two billion dollars each year on advertising: the

Golden Arches are now more recognized than the Christian Cross. Using collectable

toys, television adverts, promotional schemes in schools and figures such as Ronald

McDonald the company bombards their main target group: children. Many parents

object strongly to the influence this has over their own children. McDonald's argue

that their advertising is no worse than anyone else's and that they adhere to all the

advertising codes in each country. But others argue it still amounts to cynical

exploitation of children - some consumer organizations are calling for a ban on

advertising to children.

ANIMALS

Vegetarians and animal welfare campaigners aren't too keen on McDonald's -

for obvious reasons. As the world's largest user of beef they are responsible for the

slaughter of hundreds of thousands of cows per year. In Europe alone they use half a

million chickens every week, all from windowless factory farms. All such animals

suffer great cruelty during their unnatural, painful and short lives, many being kept

inside with no access to fresh air and sunshine, and no freedom of movement. Again,

McDonald's argue that they stick to the letter of the law and if there are any problems

it is a matter for government. They also claim to be concerned with animal welfare.

CAPITALISM

Nobody is arguing that the huge and growing global environmental and social

crisis is entirely the fault of one high-profile burger chain, or even just the whole food

industry. McDonald's are of course simply a particularly arrogant, shiny and self-

important example of a system which values profits at the expense of anything else.

Even if McDonald's were to close down tomorrow someone else would simply slip

straight into their position. There is a much more fundamental problem than Big Macs

and French Fries: capitalism.

EMPLOYMENT

The Corporation has pioneered a global, highly standardized and fast

production-line system, geared to maximum turnover of products and profits.

McDonald's now employ more than a million mostly young people around the world:

some say a million people who might otherwise be out of work, others however

consider that they are in fact a net destroyer of jobs by using low wages and the huge

size of their business to undercut local food outlets and thereby force them out of

business. Is McDonald's a great job opportunity or are they taking advantage of high

unemployment to exploit the most vulnerable people in society, working them very

hard for very little money? Complaints from employees range from discrimination

and lack of rights, to understaffing, few breaks and illegal hours, to poor safety

conditions and kitchens flooded with sewage, and the sale of food that has been

dropped on the floor. This type of low-paid work has even been termed 'McJobs'.

ENVIRONMENT

Conservationists have often focused on McDonald's as an industry leader

promoting business practices detrimental to the environment. And yet the company

spends a fortune promoting itself as environmentally friendly.

One of the most well-known and sensitive questions about McDonald's is if they are

responsible for the destruction of tropical forests to make way for cattle ranching.

McDonald's say no. Many people say yes. So McDonald's sue them. Not so many

people say yes anymore, but does this mean McDonald's aren't responsible?

They annually produce over a million tons of packaging, used for just a few minutes

before being discarded. What environmental effect does the production and disposal

of all this have?

EXPANSION

In 1996 McDonald's opened in India for the first time: a country where the

majority of the population is vegetarian and the cow is sacred. Can people challenge

the undermining of long-lived and stable cultures, and regional diversity? Self-

sufficient and sustainable farming is replaced by cash crops and agribusiness under

control of multinationals - but how are people fighting back?

FREE SPEECH

So, it seems as though lots of people are opposed to the way McDonald's go

about their business. So there is a big global debate going on about them right?

Wrong. McDonald's know full well how important their public image is and how

damaging it would be to them if any of the allegations started becoming well-known

amongst their customers. So they use their financial clout to influence the media, and

legal powers to intimidate people into not speaking out, directly threatening free

speech. The list of media organizations who have been sued in the past is daunting,

and the number of publications suppressed or pulped is frightening.

NUTRITION

Nutritionists, for example, argue that the type of high fat, low fiber diet

promoted by McDonald's is linked to serious diseases such as cancer, heart disease,

obesity and diabetes. The sort of diseases that is now responsible for nearly three-

quarters of premature deaths in the western world. McDonald's responds that the

scientific evidence is not conclusive and that their food can be a valuable part of a

balanced diet. Some people say McDonald's are entitled to sell junk food in exactly

the same way that chocolate or cream cake manufacturers do: if people want to buy it

that's their decision.

2. EXTERNAL ENVIRONMENT ANALYSIS

2.1 Analysis of McDonald’s macro-environment

Political factors

The international operations of McDonald’s 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 privilege McDonald’s 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.18

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

McDonald’s 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 McDonald’s 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 essential role in company’s operations.

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

reason concerning their microenvironment. The company’s 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 McDonald’s. 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 guarantees

smooth operations of McDonald’s 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.19

Socio-Cultural factors

Articles about the international strategy of McDonald’s, 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. McDonald’s 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

McDonald’s beginnings considerably valued set of meal which offers a reliable

degree of quality for the corresponding market where it works. In addition, those who

are elderly only below a bracket of thirty five as said are the most frequent consumers

of McDonald’s 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 McDonald’s 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 the

particular market.20

Technological factors

McDonald’s 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 McDonald’s 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 McDonald’s all over the world “loving’ it” campaign. Besides,

operations of McDonald’s have considerably been infused with new technology.

Elements as the system of stock and management of the value chain of company’s

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 McDonald’s tends to increase cost of their products.

Basically it is shown in improvements on its chain of creation of value. Improvement

of stock system just as its systems of deliveries allows the company to work in the

international context.21

Legal factors

There was a current roar against the fast food industry. It has forced

McDonald’s to apply more close 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 McDonald’s is obviously a huge question. Noticed on company’s 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 in predominantly Muslim countries demand, that their meat

corresponded to Halal requirements 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.22

Environmental factor

Social responsibility of McDonald’s 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

McDonald’s 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, McDonald’s Hong Kong ran through the expanded polystyrene used by

both Australia and the incorporated United States.23

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 among existing 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 Porter’s Five Forces

Framework). Michael E. Porter suggested that the intensity of competition is

determined by the relative strengths of these forces.

Figure 1 Porter’s Five Forces Framework

Source: Splash map on the five competitive forces

The Five Forces directly are interconnected with the effect on the company’s

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 Porter’s Five Forces Model, if entry into a market is easy then

rivalry is likely to be high. Considering McDonald’s 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, McDonald’s, 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, Wendy’s, 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 McDonald’s 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 McDonald’s is high because

McDonald’s restaurants use the same products from the same suppliers and it doesn’t

matter if you are in Rochester, MN or Beijing, China you can get the same Big Mac

everywhere. This is a feature McDonald’s want to keep going on by encouraging

consistency among its restaurants. Supplying these products to McDonald’s across the

globe is the whole business for the suppliers and, however, if McDonald’s would lose

even one supplier it would have to change one or more of its product lines and

perhaps the whole menu what the McDonald’s customers were used to. This gives the

suppliers of McDonald’s 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”24. Bargaining power of customers of McDonald’s 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 advertising – that 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 consumer’s switching costs are low, which means that there is

little of anything stopping the consumer from purchasing the substitute instead of the

industry’s product, then the threat of substitute products is high. Second, if the

substitute product is cheaper than the industry’s 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 industry’s 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. Another thing is that fast food

industry is unhealthy to its customers’ health. The majority of the public think that

fast food restaurants primarily serve high in fat content foods which are unhealthy and

as a consequence they tend to look elsewhere for healthier alternatives. While fast

food products are not always associated with health and quality, fast food restaurants

keeps a major advantage over other firms selling substitute products through the lower

prices of their products and a quick, convenient service.

2.3 Key strategic factors in the industry (strategic groups, market segments,

critical success factors)

2.3.1 Strategic groups

McDonald’s company is one of the leading companies in the fast food industry with

over 32000 of restaurants in 117 countries around the globe. McDonalds is also

world’s first fast food company by sales, which gives for them advantage over their

competitors in terms of profit.

The main competitors of McDonalds in the global market are:

YUM! Brands;

Burger King Holdings;

Domino’s Pizza;

Triarc Companies.

All of these companies serve fast food around the world and are focused on

providing a product that is based on low price convenience. Their strategic group is

associated with many geographic locations and low price and quality. Even though

these companies could be considered the biggest players in the global market, they

face in each country local fast food restaurants, but bigger influence on them these

local competitors are not able to do.

The Figure 2 below represents the strategic group mapping of the fast food

industry. The graph represents fast food companies, which were divided into different

groups according to their price level and product line variety. As was stated before

and we can see in the graph, all of the main and biggest fast food companies have

limited menu with low prices for their products. This way all of them can compete on

the same basis, according to these specifications.

There are always competitive pressures and driving forces which adversely

affect the firms in strategic groups. Therefore, some firms may try to shift to a more

favorably situated group. This shifting is however difficult if the entry barriers of the

target strategic group are high.

Figure 2 Fast food industry strategic group mapping.

2. 3.2. Market segments

Demographic segmentation - divides the market into groups based on

demographic variables including age, gender, family size and life cycle.25

Life cycle. McDonald’s has targeted children, youth singles and the young

urban families. It is attracting the young urban families wanting to spend some

quality time while their children have fun at the outlet.

Age. Mostly youngsters and kids are target, so to attract children McDonalds

has Happy Meal with which toys ranging from hot wheels to various Walt

Disney characters are given. Sometimes it also provides special facilities

like ‘Play Place’ where children can play arcade games, air hockey,

etc. Mostly target is under age 5-6, 12-15, 15-20 and over.

Gender. McDonalds have segmented its services to males as well as females.

Occupation. McDonalds has mostly segmented its market to the school and

college going students.

Income. McDonalds has targeted mostly middle class and upper class

urban families who can afford its luxury meal.

Psychographic segmentation. - sometimes also referred to as behavioural

segmentation. This type of segmentation divides the market into groups according to

customers’ lifestyles. It considers a number of potential influences on buying

behaviour, including the attitudes, expectations and activities of consumers. If these

are known, then products and marketing campaigns can be customized so that they

appeal more specifically to customer motivations.26

Needs-motivation. The luxury services of McDonalds fulfil the needs of self-

worth.

Personality. McDonalds mostly segments is market to extrovert people who

usually hang out with friends and family in restaurants and other enjoyment

places.

Motivation slogans. McDonalds provides motivate slogans to attract its

customers and make a good image in the minds of the customers like “IM

LOVING IT”, “EVERY TIME A GOOD TIME”, “PUT A SMILE ON”,

“ENJOY MORE”, “MY MCDONALDS” “WHAT YOU WANT IS WHAT

YOU GET” and others.

These are one of the famous slogans of McDonalds through these slogans

McDonalds is attracting its customers and making a good image in the minds

of the customers. Company has segmented on basis of making relationship

with the customers and making them believe that they are on the right place.

Region. Worldwide McDonalds is giving its services to almost more than 110

countries. This means they must much into each tradition of different cultures,

religions and views, that’s’ why in every country McDonalds has updated their

menus according to local customers, but still saves their main products.

Use-related segmentation - popular and effective form of segmentation that

categorizes consumers in terms of product, service, or brand usage characteristics,

such as usage rate, awareness status, and degree of brand loyalty.27

Use rate: medium users

Awareness status: mostly people are aware of McDonalds and are interested

to have services of McDonalds.

Brand Loyalty: McDonalds have strong loyal customers.

Use-situation segmentation - involves segmenting consumers on the basis of

time, objective, location, and person.28

Time: leisure

Objective: fun

Person: self, family members, friends, peer

2.3.3 Critical success factors

Critical success factors are limited number (usually between 3 to 8)

of characteristics, conditions, or variables that have a direct and

serious impact on theeffectiveness, efficiency, and viability of

an organization, program, or project. Activities associated with CSF must be

performed at the highest possible level of excellence to achieve the

intended overall objectives.29

The research about McDonald’s company has led to the following success factors:

Standardization

Environment oriented

Willingness to innovate

One dollar menu

Following healthy food trends

Standardization

In order to maintain the highest quality of their products McDonald’s

standardized the production methods and processes. The company just adjusts to

different culinary differences in different countries, for example McDonald’s offered

vegetarian burgers to practicing Buddhists or Asian countries preferring spicy taste

saw the introduction of spicy burgers, chicken and seasoning. This gives for people

possibility to try either original US or their local taste. McDonalds achieves balance

by maintaining standardization in products but adjusting to the local taste.

Environment oriented

One of the main company’s orientations now is the development of a strong

company-wide environmental policy declaring that McDonald’s is committed to

protecting the environment for future generations, and that it believes that business

leaders must also be environmental leaders. The policy takes a total lifecycle

approach to reducing and managing solid waste: a sizable challenge, considering that

each of McDonald’s 8,600 U.S. restaurants 3 238 pounds of waste per day and each of

its 34 U.S. regional distribution centres disposes of another 900 pounds of waste per

day.

One dollar menu

With its one dollar menu McDonald’s reaches very wide range of customers.

One dollar menu was a response to competitor’s one dollar menus and it gave very

good effect for the company, since the customers could find their loved fast food in

just one dollar price.

Willingness to innovate

McDonald’s is all the time trying to be on time with new trends, demand or

technology, even while striving to achieve consistency in the operation of its many

outlets. The breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe

sandwich were all examples of how the company tried to appeal to a wider range of

consumers.

Following healthy food trends

In response to obesity trends in Western nations and in the face of criticism

over the healthiness of its products, the company has modified its menu to include

healthier alternatives such as salads, wraps and fruit.

2.4. Future scenarios

McDonald's developed its future scenarios around three strategies — customer

convenience, customer value, and optimal operations.

More than ever, McDonald’s is focused on and committed to doing the right

thing for the local communities in which the company operates and for the customers

it serves. This philosophy of doing good and giving back has always been at the heart

and soul of the McDonald's business -like fries and hamburgers - and started with

founder, Ray Kroc. Before there was even a name for "social responsibility,"

McDonald's was setting the standard, and they’ve been the leader ever since.

As we deal with challenging economic and political climates around the world,

McDonald’s role as an employer and local business becomes even more important.

The company remains steadfastly committed to addressing various social

responsibility issues, policies, and practices within the McDonald's system that affect

local communities and customers.

McDonald’s has made significant progress toward becoming a more socially

responsible organization, but there is always work to be done. Through its 30,000

restaurants, its owner/operators and suppliers, the company continues to drive so.

2.5 Identification of opportunities and threats

McDonald’s is a huge industry of franchise companies all over the world. It is

diversified almost in all countries of the world and has a huge power in the market

because of it’s responsiveness to customers and substantial quality of a product. As it

is the only one brand in this company, it serves actually many segments of the

customers. The product diversity is quite high and serves the widest segments of a

society. The product diversifies not only for different groups of customers with

different tastes and needs but also for different groups of customers in different

countries. This makes segmentation more complex, as a matrix and contributes to

business huge successes. The example of a segmentation of McDonald’s would be

different kind of meet served in burgers in different countries. There are some Muslim

countries, where pork is not accepted and there are other European countries where

such kind of meat is really desirable. The new segment of a customer has been found

recently, when the boom of healthy food came into society, people became more

aware of unhealthy fast food, which McDonalds is serving. So its production of

“McFeast” of whole bread burgers attracted more people with different tastes and

lifestyle, not as fast food eaters.

Over the years of operation this company has achieved its recognition and

name and is a strong outstanding company from its competitors. “The business is

ranked number one in Fortune Magazine's 2008 list of most admired food service

companies.“30

Marketing efforts in McDonald’s Corporation is huge. From advertisements,

which includes television, audiovisual, posters and other, also includes sponsorships

of famous events, such as Olympic. „McDonald’s is a community oriented, socially

responsible company. They run Ronald McDonald House facilities, which provide

room and board, food and sibling support at a cost of only $10 a day for families with

children needing extensive hospital care.“31 This shows that McDonald’s tries to

achieve every spot of attention, what makes this business more successful.

However, even this company has a strong experience and recognition; there

are some threats that occur in all the markets, especially when food market is one of

the widest markets in the world. Taking McDonald’s business it doesn’t mean being

oligopoly or monopoly, it means being in a market where perfect competition takes

place. So, it is useful to consider what opportunities and threats may arise for such a

company as McDonald’s.

As we identified some characteristics of this successful company, we can draw

out the opportunities that this company can achieve in the nearest future:

The first opportunity that can be realized in this company is new segments

identification. Of course there are no limits in business to expand and there is

no business that could survive without any growth or promotion. It is a very

good opportunity to define some new needs or tastes of customers, despite all

those diet cokes or healthy bread burgers that McDonalds already included,

there are so many other different needs that people have.

The other more specific opportunity for McDonalds would be new technology

adoption. Not talking about those new high technology cash-registers that are

based on computer programs, McDonalds could include new technological

ways in product making, that could make the process itself more fast or special

products more tasty and with higher quality (like for example ice-cream or

fresh juice machines).

The internal strategy improvement has never gone to bad. As McDonalds

already has a good strategy and employees training and promotion, it can

make it more efficient and more productive by applying some new ways of

motivation or work organization. As the food is made in lines, it can be

somehow more diversified to achieve the more efficient operation.

„Provide optional allergen free food items, such as gluten free and peanut

free.“32 That would be a great success of concentration to people, who have

serious health problems and have to avoid fast food.

Also McDonalds could consider new brands development. As it is a franchise,

it doesn’t mean that it hasn’t opportunity of brands extent. It could make

another niche where it would sell some other kind of products, like chocolate

bars or other kind of sweats.

As there are many opportunities that can be fulfilled in the future, however

McDonalds has also some weaknesses and threats.

Talking about weaknesses McDonalds had some bad luck or unsuccessful

projects in the past that manifested some weaknesses and also there are some

disadvantages of fast food industry:

„Their test marketing for pizza failed to yield a substantial product. Leaving

them much less able to compete with fast food pizza chains.

High employee turnover in their restaurants leads to more money being spent

on training.

They have yet to capitalize on the trend towards organic foods.

McDonald's have problems with fluctuations in operating and net profits

which ultimately impact investor relations. Operating profit was $3,984

million (2005) $4,433 million (2006) and $3,879 million (2007). Net profits

were $2,602 million (2005), $3,544 million (2006) and $2,395 million

(2007).“33

The threats, that exist in all the markets, that have some features as perfect

competition and of course in the franchising companies, are such:

The industry of fast food restaurants is huge and so do the competition in it.

Some companies get old and boring in time and so can happen to McDonalds

if it won’t get adapt to new changes in trends and lifestyles. “Major

competitors, like Burger King, Starbucks, Taco Bell, Wendy's, KFC and any

mid-range sit-down restaurants.“34

Another huge threat is the threat of human health deterioration. The industry

of fat food is huge in the world and especially in most developed countries.

People become more aware of unhealthy additives and processed foods that

are included in McDonald’s food production. Also the extreme rate of fat

people in some countries can raise some disciplines in fast food making or

prevent it at all.

Another threat of going into franchising is reputation. It is essential to

maintain a good reputation of your name; otherwise no one will buy your

franchise.

3. DEVELOPMENT and RECOMMENDATIONS FOR IMPLEMENTATION OF

STRATEGIC OPTIONS

Strategic options:

Reduction of employee training spending (lowering employee turnover);

Taking advantage of organic food industry popularity (develop new products

for new segments);

Advantage of human health problems (improvement of products).

1. Reduction of employee training spending (lowering employee turnover).

In order to reduce of employee training spending and to lower turnover, we would

like to suggest:

To give the job just for highly motivated people. It means, that they are going

to be loyal and not to leave job so fast;

To train new employees using ’’Big Brother’’ principle. New employees

would be trained by employees, who are working longer. In this way,

company reduces training spending, new employees are trained by the people,

who are working inside the company and do the same things every day.

To motivate employees and always take care about their expectations. It can

be money premiums for good working in the end of the month (or year), some

employees parties, ’’Employee of the week (month)’’ competition and etc.;

also employer should take a look of what employee is expected from employer

and try to solve that, ex. Maybe employee is not expected to get premium

every month, but for good and loyal working he would like that the company

would pay his child studies fee after 5 years.

2. Taking advantage of organic food industry popularity (develop new products

for new segments); McDonald’s is not that company, who suggest the most

organic food, so they can try:

To make a line of organic food in their menu and take a look what is more

popular and healthy for their customers. If it is going more popular than usual

menu food, it is more worth to make all food in organic way, even it is more

expensive. First of all, people like what is natural, and then they are interested

in the price.

To be in a partnership with scientists and doctors in order to take care of their

customers heath. Everybody knows that organic food makes people feel better

and healthier; also it affects nature in a good way. McDonald’s declares that

’’everything is for customer’’, so it must take an advantage of organic food

popularity and ’’make’’ their customers to live healthier and in more natural

way.

To make big advertisement companies declaring organic food pluses and make

it more popular in such way. Many people loves McDonald’s food, so it has an

authority and can show good example of necessity of organic food in people

life and compare how organic and usual McDonald’s food effect customers’

health and all the nature about them.

3. Advantage of human health problems (improvement of products)

McDonald’s is big food supplying company, and all of us know, how food

affects our health. It is one of the main factors, what built our body and

strength our brains. Knowing that, McDonald’s should:

Suggest just high quality, improved products, which is full of vitamins and

minerals. So, it means that the company must improve their products, all the

food must be certificated and fit for all healthy food standards.

Be in a contact with suppliers, who supply products for McDonald’s food and

always check if the products is natural, high standard and healthy for all of age

customers.

Contact with doctors, scientist and improve their products to fit for all of age

customers, even they have some problems with their stomach. It means to

make measures and find what is the best for all possible customers.

CONCLUSIONS

Our team project is based on the literature of International Marketing and

Management subject and the additional information which we have found as a

reference to the proposed theme for this paper work. So, what we had to do was to

refer to the whole plan of this paper work and to cope with the tasks which were

concluded.

The whole paper work consists of three main parts which are: company

analysis, external environment analysis and development and recommendations for

implementation of at least three strategic options.

In the first part, concerning company’s analysis, there was McDonald’s as our

chosen company described (its history, managers, mission, values, main products and

markets), as well McDonald’s resources and capabilities, financial analysis, its current

strategy and identification of strengths and weaknesses, issues facing McDonald’s

were proposed.

So, describing the company it is very important that nowadays McDonald’s,

producing Hamburgers, Chicken, fish and pork products, French fries, Soft drinks,

healthy items e.g. salads and Desserts, is considered to be the leading global food

service retailer owning more than 32,000 local restaurants in 119 countries worldwide

and more than 75% of McDonald’s is set by franchising. The principle of this

expansion is to serve high quality, standardized products to all customers. The

restaurants are operating independent and they run by local businessman or

businesswoman. There are round 1.7 million employees in corporate and restaurant

positions. McDonald's brand mission statement is to "be our customers' favorite place

and way to eat." The vision of McDonald’s is to be the best quick service restaurant in

the whole world. It refers to outstanding quality, cleanliness, high quality service and

high value food in order to make every customer smile.

The financial analysis of McDonald’s says that the recovery of McDonald’s

after the global crises seems to be surprisingly fast and the sales growth rate continues

to increase. It tries to improve customer metrics by which it can follow and decide

what are the changes in the customers’ needs and wants, how they can satisfy these

issues. The most important thing is to think globally but act locally.

The later stage of the second part proposes company’s current

strategy. McDonald’s has a specific “Plan to win” current strategy since 2003. These

are 5P’s that are behind the Plan to Win, and it includes: People, Place, Product,

Price, and Promotion. As changing requirements and instructions from clients and the

government, McDonald’s should study their basic products in the future.

Furthermore, strengths and weaknesses as internal factors of a company are

crucial not only in strategic decisions making but also in strategy’s implementation.

Some weaknesses should be eliminated and strengths should be revealed and

consolidated in order to follow organization’s strategy in most efficient way.

There are a lot of issues, which McDonald’s is facing, as well. The most

important of them are: advertising, animals, capitalism, employment, environment,

expansion, free speech and nutrition.

So, in the second part we have reviewed the information associated with

external environment analysis where the analysis of macro-environment were done

which says that McDonald’s is under influence of the policy of the separate state by

each government i.e. it has a tendency to experience difficulty where countries are

amazed by inflation and changes in exchange rates.

The Michael E. Porter’s analysis of industry (five forces framework) defined

the forces which derive competition and attractiveness of a market. So,

McDonald’s competitive rivalry is intense because of many small fast food

businesses always fighting with each other. Considering the force of the threat of

entry, the economies of scale and the access of the distribution are the major barriers

that firms face in the industry. High bargaining power of suppliers of

McDonald’s says that a company uses the same products from the same suppliers

and is very dependent on them if something would go wrong or the supplier would

stop supplying raw materials to McDonald’s. The Bargaining power of customers of

McDonald’s is low because of low customer switching costs what means that

customers can easily go from one fast food restaurant to another and do not feel big

disadvantages. The competition between firms selling substitute products is

intense because of the customerwho always tends to find another product comparable

or better in terms of the quality of fast food products or even healthier for his/her

health.

Talking about key strategic factors of McDonald’s, a company representing

one of the largest segments of the food industry and also being world’s first fast food

company by sales — this all gives them advantage over their competitors in terms of

profit, focusing on providing a product that is based on low price convenience,

associating with many geographic locations and low price and quality.

The research about McDonald’s Company has led to the following key

success factors: standardization, environment oriented, willingness to innovate, one

dollar menu and following healthy food trends.

The later stage of future scenarios explains us that McDonald's developed its

future scenarios around three strategies — customer convenience, customer value,

and optimal operations. McDonald’s through its 30,000 restaurants, its

owner/operators and suppliers has made significant progress toward becoming a more

socially responsible organization.

And the last subpart of the first part of our paper work — the opportunities

and threats itself are identified through SWOT analysis of a company. “SWOT

analysis is a tool for auditing an organization and its environment. After identified

characteristics of McDonald’s, the opportunities that this company can achieve in the

nearest future and threats of this company can be drawn out. It is very important for

to know what threats exists and what opportunities are possible in a company. These

can lead company into better or worse future. It depends on how managers are able to

use the advantage of external environment.

And, the third and the last part, associating with the development and

recommendations of strategic options for McDonald’s, proposes three strategic

options and the recommendations for their implementation, as well the evaluation and

control of these three strategic options.

Strategic options are creative alternative action-oriented responses to the external

situation of an organization. Our formed strategic options are: reduction of employee

training spending (lowering employee turnover), taking advantage of organic food

industry popularity (develop new products for new segments), advantage of human

health problems (improvement of products).