One of the major issues facing McDonald’s is a decline in customers, since 2012 the chain has lost more than 500,000 visits by some estimates. While they might be gaining some foot traffic back by adding the value menu these are generally low ticket customers who aren’t adding much profit to the stores. Some more issues facing the chain is that McDonald’s is facing backlash from their franchise owners over the rules put in place that require them to reinvest their stores by way of remodeling, they are being forced to add touch screen kiosks and they feel that the $1 $2 $3 value menus are only driving down their total sales per check.
1. Thesis/Opening Statement
3. Spelling & Word Choice
5. Sentence Structure
6. Factual Knowledge
7. Application of Strategic Analytical Tools
8. Application of Case Problems/Issues
9. Identification of Case Problems/Issues
10. Generation of Alternatives
12. Business Judgment
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McDonald's is facing mixed success in the current times. The company has continued to perform well in the North American market but poorly in the Asian and European regions. The success in North American is triggered by a strong market share, provision of quality products, widespread expansion, and low buyer's power. However, high turnover rates, supplier backlash, a lack of product differentiation, and perceived unhealthy menu items by the customers have contributed immensely towards the firm's overall poor performance. To alleviate these issues, McDonald's should pursue backward integration, forward integration, horizontal integration, market development, diversification, both related and unrelated, product development, and market penetration. To work these strategies out, the firm has three core options. These options include developing new products that meet the healthy menu demands in all markets, including both high end and budget menus and initiating programs that create value for the employees.
McDonald’s case study
Whenever there are discussions about the global restaurant industry, McDonald’s is always mentioned primarily because the organization is seen as a benchmark in the sector. McDonald’s is an American fast foods company. Founded in 1940, McDonald’s is now the largest restaurant chain by customer base and revenues. At present, it is estimated that the organization serves at least 69 million customers in at least 100 countries each day across more than 37,855 outlets. McDonald’s specializes in cheeseburgers, hamburgers, breakfast items, chicken products, milkshakes, soft drinks, desserts, and wraps. Over the years, and particularly in the last ten years, the industry has witnessed a rapid change in customer preferences, with majority of buyers showing a high demand for healthy food items. In response to this threat, McDonald’s has added a set of healthy options to its menu, for example, fish, salads, smoothies, and fruit. Also part of the solution was the introduction of $1, $2, and $3 menus.
Prior to this move, McDonald’s experienced severe difficulties resulting from the unhealthy menu. For example, the organization lost an overwhelming proportion of its loyal customers, a trend thought to have begun in 2012. In this year, the chain lost more than 500,000 visits. Even though the organization has started gaining the trust of some lost customers back, a new problem is now on the fore. As such, a backlash from the franchisees has built up. Central to the hostile response is the notion that the rules are stern and they are not creating any value for them. For example, the new menus are only attracting low ticket customers, which harms the sales revenue potential. The troubles facing McDonald’s appear to work in the favor of the closest rivals, given that some firms such as KFC and Burger King are seemingly closing the gap.
This case study will analyze McDonald’s by focusing not only on the internal but also the external status of the firm. This evaluation is seminal considering that it will offer insights into the way McDonald’s could use its strengths to model the external forces such that the company is able to solve its current problem more sustainably. The external analysis will entail Porter's Five Forces and Industry Analysis. The internal analysis, on its part, will feature an RBV and Core Competencies analysis for the firm. Next, the paper will discuss the problem and issue diagnosis and then identify alternative strategies. The next two items will include strategic evaluation and selection and recommendation of solutions and implementation. The following table provides crucial details about the company.
Table 1.1: McDonald's Company Overview
Company name and name of relevant subsidiaries Name: McDonald’s
Subsidiaries: McDonald’s France, S.A. (France)
McDonald’s Deutschland, Inc.
McG Development Co.
McDonald’s Restaurant Operations Inc.
McDonald’s Franchise GmbH
MDC Inmobiliaria de Mexico S.A. de C.V.
McDonald’s Australia Limited
Boston Market Corporation
McDonald’s Restaurants Limited
Chipotle Mexican Grill, Inc.
Corporate Headquarters address 110 North Carpenter Street
One McDonald's Plaza
Chicago, IL 60607
Telephone number (630) 623-3000
Fax number (630) 623-5423
Web site address https://www.mcdonalds.com/us/en-us.html
CEO name Steve Easterbrook
Annual sales volume 2017: $22.82 billion
2016: $24.622 billion
Total number of employees 375,000
NAICS/SIC numbers and description of core NAICS/SIC area(s) SIC Code and area: 5812 Eating Places
NAICS Code and area: 722511, Full-Service Restaurants
Sources: Winmo (2019) and McDonald's Corporation (n.d.)
2. External analysis
Porter’s Five Forces and Industry Analysis
Barriers to entry
Barriers to entry refer to the prevalence or existence of high start-up costs as well as other obstacles that might serve to prevent new investors from entering a sector or an area of business easily (Karagiannopoulos, Georgopoulos, & Nikolopoulos, 2005). The presence of barriers to entry is usually a benefit to the existing firms as they are able to safeguard their revenues and profits. The following is an analysis of the barriers to entry into the restaurant industry.
It is vivid that the barriers to entry in the industry represent key opportunities for McDonald's going into the future. From the analysis above, there is a relatively marked increase in the rating of 0.86, which means an opportunity for the company. Brand image is a highly attractive factor at present and will continue being as so. This is because the brand image helps to signify the level of trust held by the customers. Product differentiation is currently neutral. This is because almost every competitor in the industry is offering the same menu. However, from the analysis, the expectation is that the product differentiation will become highly attractive in the future. The most plausible reason for this is a change towards healthy items.
The capital requirement in the restaurant industry is mildly attractive. This necessarily means that, while an investor needs to have a large capital base to operate in the industry, the demand is manageable with the right resources. However, this will not be the case going into the future. The capital requirements will burgeon such that only those investors with the ability will succeed. The new industry demands such as changing menus are potentially the ones responsible for the high capital requirements. The location is currently neutral but will grow towards the mildly attractive point. It seems that, as long as an organization is delivering value, customers are not worried too much by the location of the firm. However, this may change slightly in the future as customers will likely want a provider they are able to access with relative ease.
The economies of scale is currently mildly attractive but will become highly attractive in the future. This means that savings will accompany an expansion of the production capacity in the sector. Hence, firms that will offer more products in the future will enjoy cost efficiency when compared to their counterparts. The market share as a barrier to entry is highly attractive and this will remain the same in the future. However, marketing, which is at the neutral point, will go a level further, thus reaching the mildly attractive phase. It seems that the organizations that will invest in marketing to let the customer know of any changes they implement into their operations will achieve more success than their rivals.
Power of buyers
The power of buyers is also an important factor in Porter's Five Forces. At the heart of the buyers' power is the pressure that the consumers can assert on the industrial players aiming to get them to deliver greater product value, better customer service, and lower prices (Karagiannopoulos, Georgopoulos, & Nikolopoulos, 2005). Higher customer value is usually a threat to the organizations plying in a given industry while a lower one presents an opportunity. The following is an analysis of the power of the buyers in the restaurant industry.
The insight gained from the analysis above is that the purchasing power in the restaurant industry in which McDonald's operates is currently a threat, but the degree will decrease in the next three to five years. This is so as the rating score is 2.84 relative to the current 3.07 score. The high number of customers means that the buyers will continue exerting a lot of pressure on McDonald's strategies. Currently, the availability of the substitutes is essentially unattractive and this situation will not change in any way into the future. This is most likely due to the unavailability of products that appear as perfect substitutes.
The rivalry is mildly attractive, but the extent of competition will decrease. Therefore, customers will not have many options to buy from. Product differentiation is highly unattractive, but this will change in the future as the factor will move to the neutral level. This will serve to increase the buyer's purchasing power as they will have a greater say as to which companies they will buy from. The switching costs are highly unattractive and this will not change in the next three to five years. Therefore, this factor will not cause any changes to the purchasing...
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