Competitive Advantage Competitive advantages are conditions that allow a company or country to produce a good or service at a lower price or in a more desirable fashion for customers. These conditions allow the productive entity to generate more sales or superior margins than its competition. Competitive advantages are attributed to a variety of factors, including cost structure, brand, quality of product oerings oerings,, distribution network, network , intellectual property and customer support.
Fig: Competitive advantage analysis
Cost Leadership: Supply chain: McDonalds buys supplies in bulk and, to get
lower prices Real Estate: McDonalds leases land and property they own to
franchises Marketing: McDonalds is such a well!known brand name and "onald McDonald such a well!known mascot McDonalds has to do much less advertising than many other chains to maintain awareness of their brand.
Strategic/predatory customer selection (see Supersi!e Me"## McDonalds purposefully aims their brands at kids who can
be taught to over!eat fast food and, in addition, serves things like ultra!fatty sauces with salads and fatty foods in general with sugar baked into breads and often soda!only drink selections, all designed to make McDonalds customers unhealthily addicted to compounds in their food.
$i%erentiation McDonalds does not believe in opening its restaurant without any knowledge of the local culture and tastes. The company caters to a large customers market with varying tastes and thus cant aord to introduce products without familiari$ing itself with provincial presences in food. %or 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. This is an e&tremely intelligent distribution method because on the one hand, it doesnt create rifts between governments and McDonalds o'cial, and on the other hand, it helps in providing people with the kind of products they desire. (t is important to understand that McDonalds doesnt change its basic product range for any country but tries to introduce certain changes in secondary products in order to make them suitable for local tastes. McDonalds predominantly sells hamburgers, various types of chicken sandwiches and products, %rench fries, soft drinks, breakfast items, and desserts. (n most markets, McDonalds oers salads and vegetarian items, wraps and other locali$ed fare. )n a seasonal basis, McDonalds oers the Mc"ib sandwich. *ome speculate the seasonality of the Mc"ib adds to its appeal. +arious countries, especially in sia, are currently serving soup. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos -such as the religious prohibition of beef consumption in (ndia or
to make available foods with which the regional market is more familiar -such as the sale of Mc"ice in (ndia.
&alue Chain Analysis 'rimary Activities: n)ound Logistics:
/ 0McDonalds purchases raw vegetables and other raw materials from its 1&ed, pre! de1ned suppliers only, therefore by increasing capital and labor, their production will increase proportionately. 0McDonalds has practiced a backward vertical integration, by replacing most of its suppliers. (t has done so for two reasons# To reduce costs, and To ensure that its products are of top quality.
These supplies include beef and milk to be used in its products, which it gets from its farms. )ther suppliers include local grocery stores that supply McDonalds with fresh vegetables. *oft drinks are supplied e&clusively by Coca!Cola. McDonalds supplies also include raw material such as 2our, sugar, yeast etc. 3 McDonalds own information# McDonald import some beef raw materials from ustralia and 4ew 5ealand.
*perations :
6efore the McDonalds brothers invented their fast!food operations system, some restaurants did make food pretty quickly. These restaurants employed short!order cooks, who speciali$ed in making food that didnt require a lot of preparation time. 6eing a short!order cook took skill and training, and good cooks are in high demand. These speeded system, however, was completely dierent. (nstead of using a skilled cook to make food quickly, it used lot of unskilled workers. The McDonalds 6rothers changed the design of restaurant kitchen. (nstead of having lots of dierent equipment and stations for preparing a wide of variety food, the *peeded kitchen had# 7
very large grill where one person could cook lots of burgers
simultaneously 7
dressing station where people added the same condiments to every
burgers 7
fryer where one person can made french fries
7
soda fountain and milkshake machine for desserts and beverages
7
counters where customers placed and received their orders.
Fig: &alue chain analysis
+he 'rocess: The mass!production process requires each restaurants chain to have a distribution network to carry the food to every restaurant. 8arehouses store enormous amounts of everything a restaurant needs. (ncluding foods, paper products and cleaning supplies. The warehouses the ship supplies to each restaurant by truck. 8arehousing and distribution, 9ust like the management of chain, is centrali$ed rather than handled by each restaurant.
(n some chains, managers track the restaurants inventories of food, wrappers, cups, and other necessary items. They often order everything the restaurant need from the distribution center, which ships it to them. (n other chains, it is automated, which means, a computer keeps track of what the restaurants have and should have on hand, or the distribution center ships the necessary items on a regular schedule instead of waiting a request from the restaurant. McDonalds is always keen to take the charge of crucial task of turning the company around to meet customer demands. )ne of the 1rst steps that it propose has been to innovate the process of manufacturing and logistics. This had been done with the view to increase e'ciency of the supply chain in terms of capacity, technology selections, and buying policies.
*ut)ound Logistics McDonalds is committed to providing the highest quality food and superior service, at a great value, in a clean and welcoming environment. Thats why we work with our employees, franchisees, and suppliers to serve a balanced array of food choices and provide the nutrition information needed for customers to make sound decisions. t the restaurant level, McDonalds is focused on energy conservation, sustainable packaging, and waste management. 8e are dedicated to innovation and improving our operations in order to build an even more sustainable, environmentally friendly, and pro1table business. nd we will continue to optimi$e our menu, moderni$e the customer e&perience, and broaden accessibility to our brand, so that consumers will always en9oy the ma&imum McDonalds e&perience.
Marketing and Sales McDonalds restaurants are found in //: countries and territories around the world and serve ;< million customers each day. McDonalds operates over =/,>>> restaurants worldwide, employing more than /.; million people. The company also operates other restaurant brands, such as ?iles Caf@. %ocusing on its core brand, McDonalds began divesting itself of other chains it had acquired during the /::>s. The company owned a ma9ority stake in Chipotle Me&ican Arill until )ctober 3>>B, when McDonalds fully divested from Chipotle through a stock e&change. ntil December 3>>=, it also owned Donatos ?i$$a. )n ugust 3, 3>>, McDonalds sold 6oston Market to *un Capital ?artners. 4otably, McDonalds has increased shareholder dividends for 3; consecutive years, making it one of the *E? ;>> Dividend ristocrats (n )ctober 3>/3, its monthly sales fell for the 1rst time in nine years. Advertising
McDonalds has for decades maintained an e&tensive advertising campaign. (n addition to the usual media -television, radio, and newspaper, the company makes signi1cant use of billboards and signage, sponsors sporting events ranging from Fittle Feague to the )lympic Aames, and makes coolers of orange drink with its logo available for local events of all kinds. 4onetheless, television has always played a central role in the companys advertising strategy. To date, McDonalds has used 3= dierent slogans in nited *tates advertising , as well as a few other slogans for select countries and regions. t times, it has run into trouble with its campaigns.
Services Free ,i-Fi . Mc$onalds:
McDonalds meal now comes with complimentary 8i!%i. Aet some work done, check email, and connect with friends for free. 8ith free 8i!%i at more than //,;>> participating restaurants, customers can access the (nternet using their laptops or ?Ds at no charge. Arch Card
The rch Card is a pre!paid card that gives customers a quick and convenient way to pay at McDonalds. rch Cards also make the perfect gift for holidays or any special occasion. rch Cards come in denominations of G;, G/>, G3;, and G;>. They can be purchased for the 1rst time or reloaded later at participating McDonalds restaurants nationwide. They are also available at retailers including *afeway, Hroger, *uper+alu and hold. McDonalds rch Cards never e&pire, and there are no penalty or dormancy fees. 'lay 'laces 0 'arties
(f anyone bring their kids then McDonalds make the party. *uper!fun for the kids, stress!free for the customers theyve got this party thing down to a science# Iappy Meals, cake, decorations, party favors. Talk to your local McDonalds manager to make arrangements. Depending on location, anyone can have their childs party at a McDonalds ?lay ?lace for even more funJ
Support Activities
Firm n1rastructure
McDonalds (nfrastructure is modern an sophisticated, they using the advanced (T and yet theyre still maintaining the green activities.
2reener +han Ever
McDonalds strives to provide eco!friendly workplaces and restaurants that re2ect our sustainability goals and demonstrate environmental stewardship in the workplace. (n ugust 3>><, McDonalds * opened its 1rst corporate!owned pilot green restaurant and received Feadership in Knergy and Knvironmental Design -FKKD Aold certi1cation in pril 3>>:. *ome of the green attributes of the Chicago restaurant include energy!e'ciency equipment and lighting, high e'ciency plumbing 1&tures, and permeable pavement and rainwater collection for irrigation. Areen building strategies arent limited to McDonalds restaurants. sing the FKKD rating system developed for K&isting 6uildings -FKKD K6, we recently tackled our Alobal Ieadquarters in )ak 6rook, (llinois. )ur 3>!year!old Campus )'ce 6uilding -aectionately known as the C)6 was granted ?latinum Certi1cation, the highest level possible. The C)6 is one of the oldest buildings to receive this certi1cation. The sustainable building enhancements made during the certi1cation process have resulted in clear 1nancial and environmental bene1ts. Knergy use is at its lowest level in 1ve years, helping to oset rising utility costs. Knhanced recycling eorts have diverted over ;
3uman Resource Management
The work oered by McDonalds may have some positive elements, but workers are often choosing employment at McDonalds in the conte&t of having few other attractive options. lmost regardless of what people think of the work itself, working at McDonalds could be said to oer advantages for some employees who want 2e&ible hours and are engaged in other
activities and responsibilities. %or those marginalised in the labour market who have few chances of a 9ob elsewhere, McDonalds oers much needed work. Iowever, the employees dependence on McDonalds andor their tendency to see their employment as a short!term strategy makes them vulnerable to management manipulation. Those with minimum interest simply leave if they do not like it, and this is clearly re2ected in high labour turnover. ?erhaps they are attracted by the combination of fairly secure employment, familiar Nfamily surroundings created by a highly paternalistic approach to management and lots of employees of similar age or temperament. This may help to e&plain how the corporation sometimes retains individuals who could probably obtain better paid and more skilled work elsewhere. s -/:
Kven as consumer con1dence stagnates domestically and in Kurope, McDonalds will focus on moderni$ing restaurants, evolving the menu and engineering value, said Don Thompson, the companys president and chief operating o'cer, in an earnings call on %riday. McDonalds net income rose ; percent and same!store sales increased .= percent for the quarter, and the brand gained market share in the nited *tates and abroad, according to the companys 1rst!quarter earnings report. The call marked a transition from McDonalds Corp. chief e&ecutive Pim *kinner, who will retire Pune =>, to incoming leader Thompson, but both e&ecutives stressed that the companys strategy going forward would remain as focused as ever on the brands ?lan to 8in. sked what he thought his legacy would be after taking over for *kinner, Thompson responded that he would preach fundamentals 9ust like *kinner. Thompson gave a few hints toward McDonalds near!term strategy. McDonalds enters 1ve!year (T support deal with %u9itsu. The services provider plans to roll out 0user!e&changeable partsQ to McDonalds /,3>> branches throughout H and (reland %u9itsu has signed a 1ve!year deal with fast food chain McDonalds to supply (T support to the companys /,3>> branches in the H and (reland. The (T outsourcer will oer support for point!of!sale systems and back o'ce operations to both company!owned and franchise outlets, replacing various incumbent suppliers. %u9itsu plans to make McDonalds (T systems more reliable by deploying systems built on 0user!e&changeable partsQ, the company said in a statement. This will allow sta to 1& minor (T problems themselves by replacing faulty units such as card readers, it claimed. The provider said success would be 9udged on whether it simpli1ed (T support for branch sta, reduced of on!site engineering visits and drove
down the total cost of ownership of McDonalds (T equipment over its lifetime. %u9itsus business unit director Pon 8olfe said that keeping tills open and operating was the most important 9ob for (T support. 0Iowever the role moving forward is as much about the customer e&perience and supporting new technologies that ensure agility in meeting customer demands, such as touch!screen ordering and contactless payments 7 both areas that McDonalds is already deploying,Q 8olfe claimed. (n Panaury 3>//, McDonalds announced that it will use +isas contactless payments infrastructure.
'rocurement
McDonalds K!?rocurement *ystem McDonalds K!?rocurement *ystem is basically a main reason for their successful supply chain management. (t is so e'cient that it provides the backbone not only to all the logistics but the whole McDonalds supply chain management. Iow McDonalds ses K!procurement *ystems Kmac Digital#-(nternet procurement site designed for McDonalds Corporations 3,>>> franchisesKmac Digital Company is K!?rocurement website which is 9ointly owned by McDonalds and ccel!HH" (nternet Co. (t is a procurement hub launched in 3>>/ allow all of McDonalds franchises across the globe to buy everything needed to run their restaurants. %rom uniform to Iam6urger side from being faster and more convenient for franchisees, the procurement site also allow business owners to buy supplies and materials at a discounted price, ultimately reducing costs for McDonalds. K!?rocurement allows <;L cut in costs according to McDonalds supply chief Kdwards. 6ene1ts for the *uppliers McDonalds works with two types of suppliers. Ma9or *uppliers and *mall *uppliers
S,*+ Analysis
Fig: S,*+ analysis
Strengths:
- Strong )rand name4 image and reputation
McDonalds has built up huge brand equity. (t is the no / fast food company by sales, with more than =/,>>> restaurants serving burgers and fries in almost /3> countries. The image of McDonalds is recogni$ed everywhere. This brand is in top ten of the most powerful brand names in the world with Coca!Cola, 4okia or AM. - Large market share
McDonalds is considered as the largest player in si$e and global reach. 8hen 8endys or 6urgers Hing are losing market share in 3>>B, McDonalds still increases its market share. Market share of McDonalds in the recent time is about /:L while RumJ6rands is :L and both 8endys and 6urger Hing is 3L. - Speciali!ed training 1or managers
McDonalds is very serious on training managers. This company has its own program to train managers the most professionally, which is called Iamburger niversity. s a result, McDonalds has many good managers who can help company development well. - Mc$onalds 'lan to ,in
McDonalds customer 7 focused ?lan to 8in provide a common framework for its global business yet allows for local adaptation. Through the e&ecution of initiatives surrounding the 1ve elements of its ?lan to 8in 7 ?eople, ?roducts, ?lace, ?rice and ?romotion 7 McDonalds has enhanced the restaurant e&perience for customers worldwide and grown comparable sales and customer visits in each of the last eight years. This ?lan, combined with 1nancial discipline, has delivered strong results for companys shareholders. - ntroduction o1 ne5 production
McDonalds is considered the 1rst one enter to fast food industry. (t initiates to other brand to enter this industry. s a result, when think about fast food, customers always remember McDonalds 1rst. (n fact, in some big countries, especially in *, McDonalds is the 1rst choice of a large number of customers. - +echnology nnovative:
McDonalds is keeping at the forefront of technology around the globe. %or e&le, (n 6ra$il McDonalds is currently studying the installation of (nternet access terminals in some outlets as well as enabling customers to
order online. This will create a more e'cient process that will reduce the amount of lag time between a customers orders and pick up of the order. - 2ood marketing strategies:
4o matter the continent, children and adults know the face of "onald McDonald is synonymous with the colossus restaurant chain. This results in wonderful marketing strategies among management which conducts a very thorough market analysis, resulting in much success around the globe.
,eaknesses: - 6nhealthy 1ood image
McDonaldSs has been impacted by negative press like the documentary *upersi$e Me by Morgan *purlock in which he contributed our societys obesity to McDonaldSs and other fast food chains. (n fact, each McDonalds dishes provides large amount of calories but not too much nutrition. - Customer loses due to 7erce competition
McDonalds has to compete with many strong brand name in fast food industry such as 8endys, 6urger Hing or RumJ6rands. This 1erce competition makes McDonalds loose a large number of customers who prefer favor of other brands. - 'ro)lem related to health issue
McDonalds use Trans ! fat and beef oil in their food. lthough it is not illegal, it aects badly on customers health because Trans 7 fat is causes of some kind of cancer. Consequently, a number of customers who care about their health stop eating at McDonalds restaurants. (t makes revenue of company decrease. - Legal action:
McDonalds has been involved in a number of lawsuits and other legal cases in the course. %or e&le, there are many case which involved with trademark issue. McDonalds force many others restaurant, company of 9ust a coee shop to change their brand name because of keeping 0McQ letters. - 6n)alance meals:
lthough McDonalds tries to update its menu by healthy criteria, McDonalds meals are still unbalance. %or e&le, there are many dishes with chicken
-both grilled and fried, bacon, beef, rib or egg. 6esides, 9ust several dishes are salad with vegetable and fruit. Moreover, amount of fruit or vegetable is not much. - 3igh employee turnover rate
lthough McDonalds has many good managers as well as skillful employees, the turnover rate is still high. Kvery year many of their employees are 1red out of the restaurants. Moreover, many others quit their 9obs, especially part time employees because of low salary as well as too high working pressure. - Action related to environmental issue
McDonalds uses IC%C 7 33 to make polystyrene that is contributing to o$one depletion. The company has to repair this weakness if doesnt want to be critici$ed. - $issatis7ed Franchisees:
%ranchisees are beginning to become very dissatis1ed with the fees that McDonalds are forcing them to pay. s the company continues to e&pand, they are also increasing the amount of fees franchisees have to pay for the use of the notorious fast!food brand. Many people are not very happy about this and as a result many franchisees are selling their businesses.
*pportunities: - 2ro5th o1 the 1ast 1ood industry
%ast food industry now is developing signi1cantly. The change of lifestyle leads to the change in people eating habit. (n the past, if 9ust workers, drivers or someone who had to work busily and didnt have enough time for a home meal choose fast foodU nowadays, almost people eat fast food and a ma9or of them like fast food very much. (t is a huge chance for fast food brand to increase their revenues, especially McDonalds. - Conservation:
McDonald should research green energies and green packaging solutions and incorporate these 1nding as a part of their marketing strategies and advertisements.
! 2lo)ali!ation4 e8pansion in other countries McDonalds has more than =/,>>> restaurants serving in almost /3> countries. )f the =/,>>> restaurants, at least /O,>>> are in *. Iowever, now, because the care of McDonalds about favors and cultures in each countries it enters, McDonalds can open more restaurant in new areas such as China or (ndia 7 the countries which culture in2uences on people lifestyle deeply. They are very potential markets. The e&pansion of these areas is big opportunities %or McDonalds. - Lo5 cost menu is pre1erred )y large num)er o1 customers
8ith low cost menu, McDonalds can attract customers who 9ust have low income. This segment makes up a fairly remarkable part, especially in the recent time, when global economic is struggling. (t is not di'cult for McDonalds to apply low cost menu on all restaurants. - Appearance o1 1ree)ies and discounts
Discounts given on every food item may help them gain more customers. Moreover, a new trend is rising among customers that they like freebies and discounts, even when they dont need it or dont use these freebies after. - $iverse tastes and needs o1 customers
Customers tastes now become more diverse. s a result, they require new format of service in order to satisfy them. McDonalds, with new format of business such as McCafe, it can attract new segment of customerU for instance civil service, who prefer coee as well as want to use 8i!%i to work when drink coee. - 2ro5ing health trend among the customers:
lthough people concern about how McDonalds in2uence badly on their health, it is also a chance for McDonalds. This company can develop new products, speci1cally fresh burger or healthy dessert.
+hreats: - ntensity competitors
long with the development of fast food industry, there are many new fast food brand enter to the market. (t is nothing to say if there is no strong brand
which can compete with McDonalds. Iowever, in fact, there are some and they are stronger gradually, for e&le RumJ6rands, 8endys or 6urger Hing. lthough market share of these brand are lower than McDonalds, they try to gain more customers from McDonalds. Moreover, more casual dining restaurants increase their burger oering and decrease the price. (f we are not really hurry, we may choose this kind of restaurant instead of fast food restaurants. They also become the competitors of McDonalds. - 'u)lic health crisis
8ith a growing number of obesity cases among mericans, fast food chains like McDonalds will continued to be overshadowed by their previous products oerings, for e&le *upersi$ed Meal, no fruit or yogurt, slim salad selection. 6esides, people nowadays are facing heart problem more seriously. s a result, they require nutritious and healthy food as well as lifestyle. - Economic recession
The companySs revenue streams are diversi1ed, but depending on the length of this recession, they will inevitably be negatively impacted by the trickledown eect. "ecession or down turn in economy may aect the retailer sales, as household budgets tighten reducing spend and number of visitors. - Serious environmental issue:
Knvironment is one of the hottest topics all over the world. ny action which in2uence on the earth and human life is critici$ed strongly. Consequently, if McDonalds keep using IC%C !33, it may lose customers, especially who really care about the earth.
