McDonald Strategies.
McDonald Strategies.
Arslan Iqbal
MS-Commerce (Advanced Strategic Management)
12/20/2013
McDonalds
ACKNOWLEDGEMENT
All praise to Almighty Allah, the most merciful and compassionate, who give me skills and abilities to complete this report successfully. I take this opportunity to express my profound gratitude and deep regards to my teacher Dr.Dilshad Zafar for his exemplary guidance, monitoring and constant encouragement throughout the course of Advanced Strategic Management. The blessing, help and guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark.
McDonalds
EXECUTIVE SUMMARY
The following assignment deals about the strategic management in context to McDonalds. Strategic management is one of the critical issues to be studied by a company in order to understand its SWOT analysis, the causes and solution of the problems and hurdles in the way of the success of the business and its market growth. In todays competitive environment every company has to make effective strategies in order to survive in market place and tackle the competitors moves. Every company has to make effective strategies and plans in order to tackle the internal and the external problems faced by the company. Globalization on one hand gives benefits to the company to discover new markets and increase its customers but it also poses different problems and challenges which the company has to tackle to continue its success in the new markets. Company has to design effective strategic plans. This assignment will discuss the various strategic issues of concern for the McDonalds and plans it has designed to tackle these problems.
McDonalds Background:
The McDonald's Corporation is the world largest chain of hamburger fast food restaurants and also a pioneer in fast food chain restaurants, serving approximately 69 million consumers and customers daily in 119 countries all over the world. The business established in 1940 as a barbecue restaurant operated by Richard and Maurice known as McDonald Brothers at San Bernardino, California. In 1948 they reorganized their business as a hamburger stand using production line principles with the name of "Speedee Service System". But a Speedee name replaced with Ronald McDonald by 1967 when the company filed a U.S. trademark on a clown shaped man having puffed out costume legs. Businessman Raymond Albert Kroc joined the company as a franchise agent in 1954. Later on Ray purchased the chain of restaurant from the McDonald brothers and take over its worldwide franchises.
McDonalds
Broad Vision Statement:
Is to be the best and leading fast food provider around the globe To be the world`s best quick service restaurant experience It is committed to continuously improving their operations and enhancing their customers' experience. McDonald's brand mission is to be their customers' favorite place and way to eat and drink. Their worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience People, Products, Place, Price and Promotion. They are committed to continuously improving their operations and enhancing their customers' experience.
McDonalds Values
They place the customer experience at the core of all they do. Their customers are the reason for their existence. They depicts their dedication by providing them high quality food and elite service in a clean, attractive environment, with a great value. Their goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each and every time. Commitment to People: They are committed to their people. They provide opportunity, polish talent, develop leaders and reward achievement. They believe that a team of well-trained individuals with diverse backgrounds and experiences, working together cause a success of organization. Business Model: They believe in the McDonalds System. McDonalds business model, depicted by their three-legged stool of owner/operators, suppliers, and company employees, is their foundation, and balancing the interests of all three groups is key factors for success. Ethical Values: They operate their business ethically. Sound ethics is good business. At McDonalds, They hold their selves and conduct their business to high standards of fairness, honesty, and integrity. They are individually accountable and collectively responsible. Corporate Social Responsibility Work: They give back to their communities. They take seriously the responsibilities that come with being a leader. They help customers build better communities, support Ronald McDonald House Charities and also contribute in CSR activities all across the world where they are operating their business. Learning Experience: They are a learning from their decades experiences in organization that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation.
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McDonalds
Operation
McDonalds operating in 119 countries around the globe with 34480 restaurants having approximately 1.8 million employees serving approximately 69 million customers daily. The McDonald's business structure is based upon geographic divisions. McDonald's distribute its operations into five major geographical divisions; United States, Europe, Asia/ Pacific / Middle East / Africa, Latin America and Canada. McDonalds earn 75% revenue from its two divisions United States and Europe. These are McDonalds star divisions (according to Boston Cognitive Matrix) here its strategic approach is to maintain the market share. As the McDonalds operate around the globe so it has different customers who belong from different cultures, religions, customs, taste and heritage. So every SBU (Strategic Business Unit) of McDonald require a different strategic approach according to production, marketing in that particular region because they have to satisfy local customer. Sources of Income: McDonald's restaurant is operated by either a franchisee, an affiliate, or the corporation itself. Its operating income has two sources: Sales made by company own restaurant Rental royalties income from franchised resturantats. 1) Restaurants sales: McDonalds retains all of the profit earned by company-owned restaurants. An example Profit & Loss Statement for a restaurant is shown left and highlights how food and labor constitute a restaurants largest costs. In addition to variable costs, which increase or decrease depending on the level of sales, McDonalds also incurs costs that are largely fixed, for example utilities and advertising, which need to be paid for even before the restaurant makes any sales. Increasing sales and controlling costs are fundamental to ensuring the profit of each restaurant is either maintained or increased. 2)Franchise Rental & Royalty Income: The owner of each franchised restaurant (in all over the world where they used rental and royalty strategy), known as the franchisee, keeps all of the profit they make through sales after paying McDonalds a royalty for trading under the brand name and rent for operating in a McDonalds owned property. In 2012, McDonald's Corporation had annual revenues of $30 billion, and profits of $5.5 billion.
McDonalds
Competitive Advantage
Sustainable competitive allowing it to generate competition. According to Michael advantage. These three advantage is an advantage that a firm has over its competitors, greater sales or margins and/or retains more customers than its Porter, there are three different way to sustain a competitive different strategies are cost leadership, differentiation, and focus.
2. Differentiation: The company served to a large customers market with varying tastes and thus cant afford to introduce products without familiarizing itself with provincial preferences in food. For this reason, McDonalds distributes its products in foreign locations with the help of franchises who are well aware in of that works in their country. In this way it creates differentiation by launching products according to the requirement of that country.
Brief: These two competitive advantages comply directly with the vision of the company which is as follows: McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.
McDonalds
SWOT ANALYSIS
STRENGTH:
1. Largest fast food market share in the world: McDonalds is the largest seller of fast food restaurant chain. It is the second largest outlet operator with more than 34,000 outlets, serving 69 million consumers every day in 119 countries with 1.8 million human resource force. 2. Brand recognition valued at $40 million: Companys brand is the most recognized brand in fast food industry and is valued at $40 billion 3. $2 billion advertising budget: Advertising budget of McDonald is the largest budget in the world in the field of fast food restaurants. 4. Locally adapted food menus: The fast food chain is operating in many countries has diversified products according to the culture and local target market of that particular country. Thus ability to adapt to local tastes is one of McDonalds strengths. 5. Strategic Alliances with best brands: McDonalds offers only most popular brands in its restaurants, such as: Coca Cola, Pepsi, Nestle Yogurt, Heinz ketchup and others. 6. More than 80% of restaurants are owned by independent franchisees: Due to this McDonalds can focus more on perfecting its serving system and marketing campaigns. 7. Children targeting: The business successfully targets very young children through offering playgrounds, toys with its meals and advertisements.
Weaknesses:
1. Negative publicity: McDonalds is heavily criticized for offering unhealthy food to its customers and strong marketing focus on very young children. 2. Unhealthy food menu: Although McDonalds tries to introduce healthier choices in its menu, but the menu is not good to an extent to which customer become satisfied. Hence, decreases McDonalds popularity. 3. McDonald Job and high employee turnover: Mac Job is a low paid and a low skilled job, which is often seen negatively by its employees. This results in lower performance and high employee turnover, which increases training costs and add to overall costs of McDonalds. 4. Low differentiation: McDonalds is no longer able to substantially differentiate itself from other fast food
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McDonalds
chains (at least not enough to gain some market share) and opts to compete by price rather than by additional features.
Opportunities:
1. Increasing demand for healthier food: While demand for healthier food increases, McDonalds could introduce more healthy food to their targeted customers. 2. Home meal delivery: McDonalds could exploit an opportunity of delivering food to home and increase its reach to customers at their door step. 3. Full adaptation of its new practices: McDonalds has redesigned its logo and restaurant design in 2006. In addition, it has introduced some new practices. In a result, remodeled restaurants have seen 8-9% higher than average market growth. 4. Changing customer habits and new customer groups: Changing customer habits represent new needs that must be met by businesses. So far, the company has been successful in introducing its McCaf, McExpress and McStop restaurants to meet the changing customer habits and the needs of previously untapped customer groups.
Threats:
1. Stagnant fast food markets in the developed economies: The fast food market in the developed countries is already overcrowded by so many fast food restaurant chains and this provide a high competition for McDonald. 2. Trend towards healthy eating: Due to government and various organizations attempts to fight obesity, people are becoming more conscious of eating healthy food rather than what McDonalds has to offer in its menu. 3. Local fast food restaurant chains: Local fast food restaurants can often become a major threat .i Although McDonalds does a great job in adapting its own menu to local tastes, the rising number of local fast food chains and their lower meal prices is a threat to McDonalds. 4. Currency fluctuations: The business receives a part of its income from foreign operations. The profits that are sent back to US have to be converted into dollars and may be affected by the exchange rates, especially when the dollar is appreciating against other currencies. This cause a huge translation risk. 5. Lawsuits against McDonalds: McDonalds has already been sued for many times and lost quite a few lawsuits. Lawsuits are expensive as they require time and money. And as McDonalds continues to operate more or less the same way, there is high probability for more expensive lawsuits to come. 6. Religious and Local Factors: In some countries religious factors highly influenced the menu of McDonald like in India, Pakistan etc. Some local factors that political and local people condemn also affect the sale of organization.
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McDonalds
Power of buyer:
In this competitive environment every company is trying to produce products with better quality and at competitive prices. Bargaining power of customers of McDonalds is low because of low customer switching costs which are nearly zero. 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 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.
2.
Power of supplier:
The Company may have different suppliers for meat, food, dairy products etc. there are a number of suppliers available for a same product, it becomes easy for the companies to switch to different supplier if they are not satisfied with the one they are dealing with. Since the fast food industry has a lot of options available to decide which supplier to approach or not, therefore the suppliers have a very little or no bargaining power.
3.
4. Threat of substitutes: McDonald not only faces a tuff completion from the competitors in the fast food industry but also from the players of other industries providing substitute products to the customers. Several factors determine if there is a threat of substitute products in an industry. First, if the consumers switching costs are low, which means that there is little of anything stopping the consumer from purchasing the substitute instead of the industrys product, then the threat of substitute products is high. Second, if the substitute product is cheaper than the industrys product there is a high risk of threat of substitutes. Third, if substitute product is having equal or superior quality,
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McDonalds
attributes, functions or performance compared to the industrys product, threat of substitutes is very high. 5.
Industry competitiveness:
McDonalds face a lot of competition not only from the other competitors in the fast food industry but also from other industries producing substitute products. Although, McDonalds, with more than 32,000 local restaurants serving more than 69 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, Wendys, it is currently the leader of the industry in market capitalization with a cap of $39.31 billion.
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McDonalds
Political factors:
The international operations of McDonalds are extreme under influence of a policy of the separate state put into practice by each government. So, For example, there is a hung legal dispute in privilege McDonalds 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. the company operates the separate policy and instructions of operations.
Economic factors:
Economic factors like inflation and fluctuation in exchange rate also effect the operation and income of McDonalds and it create a translation risk. 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. It will become the weakness of organization.
Socio-Cultural factors:
McDonalds indulges a special variety of consumers with certain types of persons. In case of McDonalds they establish good system in determining of requirements of the market. The company uses concept of consumer individuality of a product of behavior and decisions on purchase to its advantage. These strategies to anticipate current people demand wins the heart of consumers and maintain its market position.
Technological factors:
The key tool of the company for marketing is by means of TV advertisings. To attract a younger people McDonalds create a game zone and play area also toys in the meal offered by the company shows their diversification in serving. It also provide a central wifi service in their privilege. In short, McDonalds is adopting technological factors.
Legal factors:
Legal factors also influenced the operating strategies like CSR activities requirement of the company to generate its corporate reputation to more positive and the more socially responsible company. For example, operations in predominantly Muslim countries demand, that their meat corresponded to Halal requirements of the law. Other legal concepts as tax obligations, employment standards, and requirements to a degree of quality etc these requirements vary from country to country.
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McDonalds
Pizza Hut:
Pizza Hut is a global fast food chain restaurant founded in Kansas, USA in 1958. Its operation in about 91 countries of the world.
Competitive advantage:
Satisfy customers by offering them the best Focus strategy Cleanliness , hospitality, accuracy, mountainous, product quality and speed (CHAMPS) 3F (fun, family and friendly) Quickest quality services Pizza innovation leader Just in time delivery service
Local Competitors:
In every country local competitors are biggest local forces who are competition with McDonald. They competitive advantage of their local cultural traits to handle the customer.
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McDonalds
McDonalds Strategies
Business Model:
McDonalds business model known as The Three Legged Stool These are owner/operator, suppliers and employees. So all three legs of stool are needed to be providing an equal support the weight. So all three ingredients of business model are equally important in order to get sustainable competitive advantage.
Business Strategy:
Per McDonald's CEO, James Skinner, the company's business strategy is Plan to Win. The organization focuses on the five P's: People, Products, Place, Price, and Promotions. By the company focusing on these factors the business continues to thrive even in a struggling economy.
Broad Departmentation:
McDonalds broad departmentation is based on geographic areas. The McDonald's business structure is based upon a geographic structure. McDonald's divided its operations into five
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McDonalds
geographical divisions; United States, Europe, Asia/ Pacific / Middle East / Africa, Latin America and Canada...75% of McDonald's revenue are generated in the United States and Europe. So to McDonald's, USA and Europe its star segment(according to Boston Cognitive Matrix) the most important strategic approach for maintaining its leading edge is to keep their major markets at the same time expanding their business into the emerging markets.
However, different customer groups in different countries may have different tastes and/or requirements. So each functional geographic unit of McDonald' was required to wholly response for producing and marketing its product in that region. Through this regional structure, McDonald's could not only satisfy the local consumers' needs in different geographical areas but also pursuing 'maximum local development'. Actually they produce and market slightly different types of products in different areas, and they even have different prices. McDonald's philosophy of quality services cleanliness, quality product and value is same for everywhere. And McDonald's targets the similar consumer segments that need fast service, affordable price and good standard hygiene. So their main products are similar in most countries, where they provide service, including beef, chicken, bread, potatoes and milk.
China:
China is a big eater of chicken in Asian region. Therefore, McDonald's business strategy is to try to adapt more Chinese tastes by adding more chicken meals into their menu to attract more customers.
India:
In India McDonald does not introduced a beef burger because of cultural and religious factor of India. So, they first time introduced there a Vege-Burger. By doing that McDonald's have successfully responded to the preferences of the local area while increasing their sales.
Pakistan:
According to Pakistan, here religion is Islam. Islam prohibit the meet of pig so after a survey before launching their business in Pakistan McDonalds researchers realized that thing and does not introduced such burger.
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McDonalds
France:
In France, McDonald's has boosted it sales by remodeling restaurants, i.e. hardwood floors, wood-beam ceilings, comfortable armchairs. Also by adding new menu items such as espresso, brioche and more upscale sandwiches. In addition, the Tours, France McDonald's has added self-service kiosk, which allows the customers to either control their kids or control their orders. By doing that McDonald's have successfully responded to the preferences of the local area while increasing their sales.
The logo of McDonald changed from time to time according to the need of business environment and change in vision of the organization. In 2003, logo of McDonalds introduced when the standard color of the mansard roof for their restaurants was changed from brown to red and appears on the McDonald's commercials that aired in2003 with slogan "We love to see you smile" and "We Love to See You Smile". 2003present
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Primary Activities:
Primary activities are basic and foremost activities in the value chain model in creating value for customers. In McDonalds value chain model following are primary activities.
1. Supply Chain:\
For making an effective supply chain McDonalds purchases raw vegetables and other raw materials from its fixed, pre- defined suppliers only, therefore by increasing capital and labor, their production will increase proportionately. It wills strength its in maintaining competitive advantage. McDonald also make a vertical integration for two reasons one to reduce cost and other to ensure that the quality of raw material should be maintained by himself and mass production causes economies of scale for organization.
2. Operations:
McDonalds Backgrounds for Operation Management. The McDonalds Brothers changed the design of restaurant kitchen. Instead of having lots of different equipment and stations for preparing a wide of variety food, the Speede kitchen had: A very large grill where one person could cook lots of burgers simultaneously A dressing station where people added the same condiments to every burgers A fryer where one person can made French fries A soda fountain and milkshake machine for desserts and beverages A counter where customers placed and received their orders.
3. Distribution:
McDonalds is committed to providing the highest quality food and superior service, at a great value, in a clean and welcoming environment. At the restaurant level, McDonalds is focused on energy conservation, sustainable packaging, and waste management. They are dedicated improving their distribution system at counter sell, restaurants and home delivery. They are modernize the customer experience, and broaden accessibility to their brand, so that consumers will always enjoy the maximum McDonalds experience.
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McDonalds
4. Marketing and Sales:
McDonalds restaurants are found in 119 countries and territories around the world and serve 58 million customers each day. Now McDonald is spending 2 billion on advertising in order to boost its sale and
Secondary Activities:
These are supporting activities to primary activities. In McDonalds value chain model following are secondary activities.
2. Technological Development:
Even as consumer confidence stagnates domestically and in Europe, McDonalds will focus on modernizing restaurants by providing e services, Wifi services, customer service, just in time delivery system create a huge value addition in competitive advantage of McDonald.
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McDonalds
BCG Matrix
Boston Cognitive Matrix has four segments. Analysis of McDonalds position depicts the McDonalds position are as follows:
and High market share) Current situation of McDonalds in an American and European region depicts Star position.
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McDonalds
Trust of Pakistani:
Today millions of Pakistanis place their trust in McDonalds every day- trusting the company to provide them with food of a very high standard, quick service and value for money. So next time you walk into one of our restaurants, please remember, McDonalds Pakistan is here now, to put a smile on your face, each and every time you visit us. McDonalds is firmly committed to giving back to the community where it operate. McDonald s also contributes in development of Pakistan through its Corporate Social Responsibility. Their contributions are discussed later in this report.
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McDonalds
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McDonalds
Conclusion:
McDonalds restaurants are found in 119 countries around the world and serve 69 million customers each day.] McDonalds operates over 31,000 restaurants worldwide, employing more than 1.8 million people. Because McDonald's has taken hard work to maintain its sustainable competitive advantage stock management, Restaurant Managers are able to spend more time focusing on delivering McDonald's high standards of Quality, Service and Cleanliness. Customers are happy because they can be sure the item they want is on the menu that day. Efficient strategic implementation on management is essential to any business. It enables the business to operate in a responsible way. As the market leader and as a pioneer of the Quick Service Restaurant concept, McDonald's has to respond to a changing business environment. It is well placed to do so. It has listened to its customers, and anticipates their emerging demands. Based on its research, it has launched McCaf, McStop and McExpress - new products conceived and designed to complement and extend what it already offers and to keep the company 'ahead of the game' in an increasingly competitive market place.
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