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McDonald case study

Order Description

1.Current Situation…….
2. Issue……..
3. Mission……………………… 4.Objectives…………….
PEST Analysis: Political………………… 5.Economic…………………… 6.Social…………………… 7.Technology…………………
External Analysis– Porter’s Five Forces:
8.Barriers to entry…………………………
9. The Bargaining Power of Suppliers…………… 10.The Bargaining Power of Buyers……………… 11.Competitive Rivalry………………
12.The Threat of Substitution……………… 13.Opportunities……………… 14.Threats…………………
15.Overall evaluation of the external 16.environment……
Internal Analysis:
17. Organizational strategy………………
18. Value chain analysis………………… 19.Strengths…………………… 20.Weaknesses………………
21.Market share……………………………… 22.Overall evaluation of the internal environment…………….
23. Key Success Factors……………… 24.Alternatives (Strategic Choice of Business Strategies and Corporate Strategies)
25. Criteria Matrix to Evaluate Alternatives …………………………….. 26.Recommendation………
27.Action Plan………
28.Contingency Plan ………………………

2/18/2015 Euromonitor International Analysis
http://www.portal.euromonitor.com/portal/analysis/tab 1/4
McDonald’s Corp in Consumer Foodservice (USA)
Local Company Profile | 12 Nov 2014
STRATEGIC DIRECTION
McDonald’s is the leading fast food restaurant in the US, and has only widened its lead over the
competition in the past few years, despite seeing a slight decline in profit margins for the first quarter of
2014. The restaurant’s emphasis on quality has been showcased in the past few years, notably with the
introduction of the popular McCafe element. This effort to attract customers at all times of day,
particularly breakfast, is continuing, as the restaurant tests new pastries and even offered free coffee for
some of 2014.
KEY FACTS
Summary 1 McDonald’s Corp: Key Facts
Full name of company: McDonald’s Corp
Address: One McDonald’s Plaza, Oak Brook, IL 60523, USA
Tel: +1 (630) 623 5004
Fax: +1 (630) 623 5004
www: www.mcdonalds.com
Activities: Burger fast food
Source: Euromonitor International from company reports, company research, trade press, trade sources
Summary 2 McDonald’s Corp: Operational Indicators
2011 2012 2013
Net sales US$27,006 million US$27,567 million US$28,106 million
Net profit US$5,503 million US$5,464 million US$5,603 million
Number of employees 420,000 440,000 440,000
Source: Euromonitor International from company reports, company research, trade press, trade sources
COMPANY BACKGROUND
McDonald’s Corp, headquartered in Oak Brook, Illinois, US, is a publiclyheld
company and the
leading consumer foodservice company in the US. The company has over 34,500 global restaurants,
41% of which are located within the US. Despite this concentration in the company’s domestic market,
the brand is truly global in scope, operating in 119 countries.
In the US, McDonald’s operates entirely within burger fast food, serving the iconic Big Mac sandwich
alongside a wide variety of other options. Although it began as strictly a hamburger chain, the company
has since significantly diversified its menu, offering breakfast sandwiches, chicken sandwiches, chicken
nuggets, salads, desserts, coffeebased
beverages and, most recently, oatmeal, fruit smoothies and
snack wraps.
With over 14,267 US outlets (both companyand
franchiseowned),
McDonald’s has achieved a
widespread national footprint. In addition to a large number of standalone
outlets, McDonald’s units are
located within shopping centres, airports and travel plazas, among other alternative locations.
As the largest fast food chain in the US, McDonald’s became an early target for proponents of the
healthy food movement. As such, the brand received criticism for serving food that was perceived as
unhealthy in the midst of a rising national obesity epidemic, particularly after the release of the 2004
documentary, Super Size Me, in which the documenter ate nothing but McDonald’s for 30 days. In
response, McDonald’s became an early adopter in the growing national trend towards healthier menu
items in fast food. The company has publicly stated its commitment to promoting balanced, active
lifestyles and adding healthier menu options. McDonald’s was the first fast food brand to print nutritional
information on its packaging and has greatly expanded its offer of “better for you” menu items in recent
2/18/2015 Euromonitor International Analysis
http://www.portal.euromonitor.com/portal/analysis/tab 2/4
years, which include grilled chicken sandwiches, apple slices and premium salads. In 2011, the
company added to this list, launching Fruit and Maple Oatmeal and new flavours for its Real Fruit
Smoothies line. Still, as the brand maintains iconic status as the leader in American fast food, it
continues to face negative publicity and the possibility of future legislation as a result of rising obesity
rates. In 2012, McDonald’s also implemented calorie counts alongside menu boards nationwide, doing
so before being mandated by the healthcare reform law of 2010.
McDonald’s places a strong emphasis on attracting young consumers (and their parents) to its
restaurants. The company introduced the Happy Meal in 1979, thus pioneering the concept of
marketing specifically to children by giving away toys and games alongside meal purchases. This
strategy suffered a blow in 2010 when the City of San Francisco, California, passed legislation banning
the inclusion of free toys with meals that failed to meet certain nutritional standards. McDonald’s was
able to bypass the legislation by instead offering the toys for a small fee with purchase, but the
healthiness of fast food children’s menus continues to be a government focus in many regions.
McDonald’s recent strategy can be defined as a focus on improvements to all aspects of the brand’s
offered dining experience. This includes offering everyday value to customers in the form of lowpriced
core menu items, as well as higherpriced
premium items (such as burgers with larger patties and
speciality toppings) to those looking for a more indulgent meal. It also includes upgrades to service that
maximise the accessibility of McDonald’s outlets, including extended hours (many outlets are now open
24 hours, seven days per week) and a faster, doublelane
drivethrough
system. Outlets have been
subjected to extensive aesthetic upgrades as well, as the chain has aggressively remodelled new and
existing outlets to reflect a more modern, comfortable, highend
dining experience. Finally, McDonald’s
focus has also been on menu innovation. The chain launched McCafé, its iced coffee and espressobased
beverage programme, in the US as well as other speciality beverages such as smoothies,
premium milk shakes and frozen lemonade. It also focused on adding healthier menu items, such as
salads and oatmeal, premium burgers, and those items designed to drive traffic throughout the day,
such as snack wraps, fish and chicken bites, coffee and baked goods. In 2012, the company sought to
further promote its popular discounted Dollar Menu to continue attracting consumers with a variety of
valuebased
goods, much to the dismay of some franchisees.
SUPPLIERS
McDonald’s relies heavily on a network of suppliers for both food and packaging. Supplies and
services are distributed to US outlets by over 40 independentlyowned
and operated distribution
centres, which are strategically positioned to be accessible to the 14,267 restaurants in the US. These
suppliers provide a diverse range of products and services, including baked goods, produce,
new/promotional products, training, development, chemical products and temporary services.
McDonald’s maintains close and longstanding
ties with its largest US suppliers. As the US is
McDonald’s domestic market, many of its suppliers grew with the company. As such, much of its
success is directly tied to mutually beneficial relationships with the brand. For example Simplot, now a
US$4.5 billion potato producer, first began supplying McDonald’s with frozen French fries after
company scientists invented the product in the 1950s. Likewise, boneless chicken nuggetinventor
Keystone Foods also remains a major McDonald’s supplier. McDonald’s is able to capitalise on these
loyal relationships to attain favourable pricing as well as flexibility in new product development, quality
and sourcing.
The company’s supply chain is horizontally integrated (meaning McDonald’s does not own its
suppliers), though many of its suppliers manufacture goods exclusively for McDonald’s. In addition to
these companies, McDonald’s sources from major US companies such as Otto and Sons, Inc (beef),
Tyson Foods (chicken), Sunny Fresh Farms (eggs), Fresh Express (produce), Kraft Foods (dairy) ,
Dean Foods (dairy), General Mills (dairy), Newman’s Own (salad dressings) and CocaCola
(soft
drinks).
Despite the vastness of its network, McDonald’s maintains very stringent quality and food safety
controls. Suppliers of baked goods, for example, must adhere to strict guidelines involving shape,
colour, thickness and consistency, and suppliers are encouraged and expected to share product
samples and best practices with others within the network.
2/18/2015 Euromonitor International Analysis
http://www.portal.euromonitor.com/portal/analysis/tab 3/4
Its supplier network has come under scrutiny in recent years as US consumers become more
concerned with the healthfulness and quality of its foodservice meals. In November, 2011, for example,
an animal rights group released a video alleging abusive treatment at an egg processing centre
operated by Sparboe Farms, one of McDonald’s’ egg suppliers. Amidst considerable public outcry,
McDonald’s immediately cut ties with the supplier. McDonald’s has also taken other recent steps to
improve the quality of its meat, including promising in early 2012 to discontinue the use of boneless
beef trimmings (a controversial product dubbed “pink slime” by the media) in its hamburgers. In 2014,
McDonald’s responded by releasing a video from a Canadian production facility showing how Chicken
McNuggets are actually made, starting with a chicken breast similar to those found in grocery stores.
However, response to the video debunking the “pink slime” accusations was not entirely positive.
Although the video showed that McDonald’s does in fact use relatively natural ingredients in its
products, many viewers were put off watching meat being ground and reshaped into nugget moulds
(Boot, Ball, BowTie,
Bell are the four distinct moulds). The media outlet Gawker responded with the
sentiment, “The process is not “pink slime” gross, but it’s still sort of disgusting.”
Recently, McDonald’s has vowed to replace all polystyrene beverage cups with paper cups at all of its
US outlets. The switch was prompted by a proposal filed in 2011 by a shareholder activist group called
As You Sow, demanding a switch to a more ecological cup alternative. In 2012, McDonald’s tested the
paper cups in select units to positive results. The concerted change from McDonald’s comes just in
time, as former Mayor of New York Michael Bloomberg proposed a ban on polystyrene packaging in
early 2013, which was approved by the New York City Council under Mayor Bill DeBlasio in December
of that year.
COMPETITIVE POSITIONING
McDonald’s is the leader in overall US consumer foodservice with a 7.3% value share (in GBO terms)
in 2013, more than double that of Yum! Brands, its closest competitor. The company controls 17% of
fast food value sales, and a commanding 36% of burger fast food. Due to its leading position,
McDonald’s faces diverse and intense competition from brands in various categories, including
Wendy’s, KFC, Burger King, Starbucks and Subway.
There were times in the company’s history during which it experimented with diversified concepts,
including entering into partial ownership of both the Chipotle Mexican Grill and Boston Market brands.
McDonald’s divested both in 2006, however, and has since focused exclusively on its eponymous
burger fast food brand. This focus on the core burger fast food operation has allowed the company to
be very agile in terms of innovation and new trends in US fast food. As the brand has already achieved
national coverage in terms of outlet expansion, its recent focus has been on improvements to
comparablestore
sales through service optimisation, menu innovation, and outlet remodelling with a
focus on the latter two in recent years.
Despite its loyalty to burger fast food, McDonald’s offers an expansive menu that allows it to compete
for business with a number of other consumer foodservice categories. When Starbucks became a
threat to its breakfast business in 2009, for example, McDonald’s launched its premium McCafé coffee
programme that has since become a major source of sales growth. Furthermore, the brand’s menu
includes such items as baked goods, premium salads, chicken sandwiches, fried fish sandwiches,
snack wraps, desserts and speciality beverages that appeal to a wide range of potential consumers. In
fact, McDonald’s sold more chicken than firstranked
chicken fast food player KFC at the end of the
review period and more fish sandwiches than the top fish fast food retailer, Long John Silver’s. Due in
part to its vast resources, widespread national footprint and strategic menu innovation, McDonald’s has
demonstrated the ability to dominate any category it enters.
McDonald’s current strategy for menu innovation focuses on a dual strategy in terms of menu
offerings. First, it has focused on developing quick, inexpensive foods, often highlighted on its Dollar
Menu, that boost value offerings and attract consumers who are still price sensitive. These items also
attract customers throughout the day and during offpeak
times such as midmornings
and afternoons.
Second, it offered more premium items sold at marginally higher price points, and featuring larger
portions and highend
ingredients. These items appeal to those consumers who are still trading down
from fullservice
restaurants and are looking for a premium dining experience at a value price. One
example of these offerings was its 2012 cheddar bacon onion burger.
2/18/2015 Euromonitor International Analysis
http://www.portal.euromonitor.com/portal/analysis/tab 4/4
In 2014, McDonald’s entered the race for breakfast dominance. In response to attack ads by Taco
Bell, McDonald’s CEO Don Thompson struck back, arguing on behalf of the company’s allegedly
relatively natural and healthy ingredients, saying, “We actually crack eggs in the restaurant and cook
sausage and bacon and toast muffins and we place cheese on muffins.” Waging its part in the
“breakfast war”, McDonald’s began offering free coffee for a time in spring 2014, successfully attracting
more customers, and in April 2014, posting its best month since October 2013.
Summary 3 McDonald’s Corp: Competitive Position 2013
Product type Foodservice value share Rank
Burger fast food 36.4% 1
Source: Euromonitor International from company reports, company research, trade press, trade sources, trade interviews
;
© Euromonitor International 2015
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