Board of Directors *(See Below)
Doug Goare (President, Europe)
Steve Easterbrook (President and CEO)
Edgardo Navarro (President, LATAM)
Mike Andres (President, McDonalds USA)
Dave Hoffman (president, AMEA
Peter J. Bensen (Chief Administrative Officer)
Bridget Coffing (Chief Communications Officer)
Richard Floersch (Chief HR Officer)
Atif Rafiq (Chief Digital Officer)
Kevin Ozan (CFO)
Jim Sappington (VP, Operations and Tehnology Systems)
Regional Managers
Operational Managers
Supervisors
Store Managers
First Assistant
Second Assistant
Shift Manager
Floor Manager
Staff Training Crew
Crew Members
McDonalds Corporation
Middle East & Africa-Asia Pacific (AMEA)
Europe
North America
Latin America
21
McDonald's. "What We Do." McDonald's Corp.
McDonald's Corporation. "Mission & Values." Accessed March 6, 2015.
Ibid.
McDonald's 10k Report 2014.
Ghanshyam Rathi. "Global Strategy of McDonald's and How it Reached all Corners of the World."
Ibid.
Ibid.
Kate Vitasek. "Trust and Collaboration: McDonald's Supply Chain Strategy." GSC Council.
The Guardian. "McDonald's will let customers build their own burgers for the first time."
McDonald's Corporation. "McDonald's Announces 3-Year Total Cash Return Target." McDonald's Corporation.
Mario Pezzini. "An emerging middle class."
David Rohde. "The Swelling Middle."
Jennifer M. Ortman, Victoria A. Velkoff, Howard Hogan. "An Aging Nation: The Older Population in the United States." U.S. Census Bureau.
Esri. "Mnority Population Growth: The New Boom."
NASDAQ. "Crude Oil: WTI (NYMEX)."
United States: Food & drink report. United States Food & Drink Report no. 4 (October 2014): 1-153.
FAO. "Global and regional food consumption patterns and trends."
Food and Drug Administration FR Doc No: 2010-16303.
Lara L. Sowinski. "The future of food logistics: by air, land and sea, transportation innovations and developments are creating new opportunities for the global food supply chain."
Fast Company. "Apps, Video Games, And Wearables: A Vision For The Future Of McDonald's."
McDonald's 10k Report 2014.
McDonald's Corporation. "Getting to Know Us." McDonald's Corporation.
Ronald McDonald House Charities. "Mission & Values." http://www.rmhc.org/mission-and-vision
NAICS. "722513 Limited Service Restaurants." NAICS Association.
"Fast Food Industry Profile: the United States."
Ibid.
Ibid.
Ibid.
Ibid.
Statista. "Brand value of the 10 most valuable fast food brands worldwide in 2014 (in million U.S. dollars)."
Patton, Leslie. "McDonald's Seen Overhauling U.S. Menu From 145 Choices."
Burger King. "Nutritional Information."
Chipotle Mexican Grill. "It's What's Inside That Counts."
Statista. "Market share of leading brands in the United States fast food industry in 2013."
QSR Magazine. "The QSR 50." http://www.qsrmagazine.com/reports/qsr50-2014-top-50-chart
Douglas A. McIntyre. "The 2014 Customer Service Hall of Fame." USA Today.
QSR Magazine. "The QSR 50."
SAS. "A Lesson in Customer Service from Chick-Fil-A President Dan Cathy."
Azila J. "Factor Affecting Customer's Experience in Local Fast-Food Restaurant."
Douglas A. McIntyre. "The 2014 Customer Service Hall of Fame." USA Today.
Fast Company. "Chick-Fil-A's Recipe for Customer Service."
Douglas A. McIntyre. "The 2014 Customer Service Hall of Fame." USA Today.
Client Heartbeat. "How Chick-Fil-A Created a Memorable Experience (And Grows Revenue by 13% Annually)."
Caldwell, Carla. "Report: Chick-Fil-A Slowest Drive-Thru, but Most Accurate."
Consumer Reports. "Cleanest Fast-Food Restaurants in America."
Statista. "Statistics and Facts of McDonald's."
Vitasek, Kate. "Trust and Collaboration: McDonald's Supply Chain Strategy." Global Sourcing Council
Lisa Baertlein. McDonald's vows 'modern' makeover amid US sales struggles. Reuters.
Patton Leslie. "Have we Reached Peak Burger."
Choi Candice. "McDonald's CEO Steps Down as Sales Decline."
Beth Kowitt. "Fallen arches." Fortune, 2014., 106, General OneFile, EBSCOhost
Patton Leslie. "Have we Reached Peak Burger."
Mike Barrett. "The 19 Ingredients in McDonald's Fries
Aneel Karnani, Brent McFerran, and Anirban Mukhopadhyay. "Leanwashing: A HIDDEN FACTOR IN THE OBESITY CRISIS." California Management Review 56, no. 4 (Summer2014 2014):
Consumer Reports. "Best and Worst Fast-Food Restaurants in America."
Bruce Horovitz. "Thousands of Fast-Food Workers Strike; Arrests Made." USA Today.
Goh Brenda. "The McDonald's Meat Supplier Scandal in China Keeps Escalating."
R.J. Hottovy. "McDonald's Turnaround Plan Sensible but Will Take Time Amid Structural Industry and Consumer Changes." Morningstar.
Jamie Frater. "Top 10 Failed McDonald's Products." http://listverse.com/2009/05/30/top-10-failed-mcdonalds-products/
Ashley Lutz. "How the McWrap is Killing McDonald's Business." http://www.businessinsider.com/how-the-mcwrap-is-killing-mcdonalds-2015-3
Ibid.
McDonald's Corporation. 2013 Annual Report.
Beth, Kowitt. "Fallen arches." Fortune, 2014., 106, General OneFile, EBSCOhost.
Ibid.
Ibid.
McDonald's Corporation. 2013 Annual Report.
Chris Derose. "How McDonald's Can Finally Fix its Abysmal Customer Service." http://www.businessinsider.com/how-mcdonalds-can-fix-customer-service-2013-5
Candice Choi. "McDonald's CEO Steps Down as Sales Decline."
Dana Liebelson. "Will McDonald's Stop Serving Big Mac With a Side of Antibiotics?" http://www.motherjones.com/politics/2014/02/mcdonalds-antibiotics-beef
Ibid.
Board of Directors *(See Below)
Steve Easterbrook (President and CEO)
Kevin Ozan (CFO)
Jim Sappington (VP, Operations and Tehnology Systems)
Bridget Coffing (Chief Communications Officer)
Peter J. Bensen (Chief Administrative Officer)
Doug Goare (President, Europe)
Mike Andres (President, McDonalds USA)
Regional Managers
Operational Managers
Supervisors
Store Managers
Shift Manager
Floor Manager
Staff Training Crew
Crew Members
First Assistant
Second Assistant
Dave Hoffman (president, AMEA
Edgardo Navarro (President, LATAM)
Richard Floersch (Chief HR Officer)
Atif Rafiq (Chief Digital Officer)
McDonalds Corporation
Middle East & Africa-Asia Pacific (AMEA)
Europe
North America
Latin America
McDonald's Corporation Strategic Analysis
Raul Andino
April 14, 2015
Dr. John Cirone
Strategic Organizational Leadership
BA 680
Table of Contents
Company Background3
Overview2
Strategies and Objectives4
Current Challenges6
Situational Analysis7
Environmental Scanning7
Stakeholder Analysis10
Industry/Competitor Analysis12
Porter's Five Forces Model13
Perceptual Map15
Competitive Intelligence Matrix16
Best Practices Benchmarking16
Internal Assessment18
SWOT Analysis18
Company/Product Portfolio (BCG Matrix)22
Competitive Advantage Continuum23
Balance Scorecard24
Organizational Structure 27
Recommendations29
Bibliography33
McDonald's Corporation
Company Background
Overview
McDonald's is a leader in the quick-service food industry. As a leader McDonald's is committed to providing the highest quality food, superior service, great value and a clean welcoming environment (QSC&V strategy). McDonald's concentrates on a sustainable business model energy focused on energy conservation, and waste reduction.
Founder Dick and Mac McDonald opened the first McDonald's restaurant in San Bernardino California in 1948. The location opened as a self-service drive-in restaurant serving only 9 basic items including: hamburgers, cheeseburgers, soft drinks, milk, coffee, potato chips and a slice of pie. The most popular item was the classic hamburger sold for $0.15 (About $1.50 in 2015). It was not until 1 year later that McDonald's introduced their World Famous French Fries in 1949. McDonald's was reorganized as a corporation with the opening of its second location in Des Plaines, IL on April 15, 1955 by Ray Kroc. Kroc purchased the chain from the McDonald brothers and was the head of its successful growth for years to come (Until his death in 1984).
McDonald's is currently headquartered in Oak Brook, IL. Ray Kroc concentrated on expanding the private business until 1965 when it made its first initial public offering (selling at $22.50 per share). At this time McDonald's had already expanded to nearly 700 locations throughout the United States. The first international restaurants opened in Canada and Puerto Rico in 1967. Today there are more than 36,000 McDonald's restaurants located in more than 100 countries (80% of these locations are franchised).
Vision/Mission Statement
McDonald's mission is, "to be our customer's favorite place and way to eat and drink."
Values
To accomplish its mission McDonald's has also developed the following core company values:
We place the customer experience at the core of all we do. Our customers are the reason for our existence. We demonstrate our appreciation by providing them with high quality food and superior service in a clean, welcoming environment, at a great value. Our goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each and every time.
We are committed to our people. We provide opportunity, nurture talent, develop leaders and reward achievement. We believe that a team of well-trained individuals with diverse backgrounds and experiences, working together in an environment that fosters respect and drives high levels of engagement, is essential to our continued success.
We believe in the McDonald's System. McDonald's business model, depicted by our "three-legged stool" of owner/operators, suppliers, and company employees, is our foundation, and balancing the interests of all three groups is key.
We operate our business ethically. Sound ethics is good business. At McDonald's, we hold ourselves and conduct our business to high standards of fairness, honesty, and integrity. We are individually accountable and collectively responsible.
We give back to our communities. We take seriously the responsibilities that come with being a leader. We help our customers build better communities, support Ronald McDonald House Charities, and leverage our size, scope and resources to help make the world a better place.
We grow our business profitably. McDonald's is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuous focus on our customers and the health of our system.
We strive continually to improve. We are a learning organization that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation.
Strategies and Objectives
Growth Strategy
In the past McDonald's focused aggressively on expanding to new international emerging markets. These efforts were accomplished mainly through a successful franchising model. Today McDonald's serves more than 69 million customers worldwide on a daily basis. Through its presence in 118 countries McDonald's derives almost 68% of its sales from its international markets and hedges some of the risk involved with the highly competitive US market. Still McDonald's is mindful of the importance of keeping its position as a leader in the developed markets it participates in. McDonald's has stated that their current strategic focus is geared toward developing the markets where they already do business in. This is being done by reaching out to customers in the area through aggressive marketing campaigns, changing the physical image of stores, and appealing to current market trends in the population.
McDonald's goal is "to become the customer's favorite place and way to eat and drink by serving core favorites such as our World Famous Fries, Big Mac, Quarter Pounder, and Chicken McNuggets." To accomplish this goal "McDonald's 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. We are committed to continuously improving our operations and enhancing our customers' experience." The Plan to Win is described below:
People: From its beginnings founder Ray Kroc stated that "we are not in the people hamburger business, we are in the people business". McDonald's strives to serve its customers through high quality food and exceptional customer service. From the moment a customer walks in, McDonald's wants the customer to feel at home from the way they are treated to the food they taste. McDonald's also states they provide opportunities for their employees to receive on-the-job training and advance in their careers. Correctly approaching consumer relations is key to the continued success of the business.
Products: One of the key elements of McDonald's success, and in fact any quick-service restaurant, is the consistency of product offerings. By offering the same quality, and taste in the products McDonald's has been able to achieve immense brand recognition around the world. McDonald's has also been able to break cultural barriers by expanding their menu to give product offerings that appeal to the specific culture where the restaurants are located. This is done by giving different franchise operators freedom to give input on new product ideas that can be successful. Some examples include the Indian market where McDonald's offers the Maharaja Mac instead of the renowned Bic Mac for customers who do not eat meat. In the Latin American market, specifically in Honduras, McDonald's offers refried beans and tortillas since it is a popular breakfast item in the country.
Place: Global operations demand that McDonald's implement a global supply chain strategy to ensure standardized product offerings. The chain is committed to balancing the interests of suppliers, employees, and franchise owners. McDonald's treats its suppliers with loyalty and trust and expects the same back. McDonald's also oversees that the 3 E's of supply chain management are implemented in all their relationships (Ethics, Environment, and Economics). Through these efforts McDonald's works with local suppliers to increase their capacity, develop sustainable practices, and promoting environmental friendly practices. The result is a strong bond of loyalty between local chains, suppliers, and employees.
Price: Price is one of the most important factors to consider when looking at McDonald's. As a quick-service chain McDonald's has opted to adapt a low-cost leader strategy. Being a low-cost leader can be tough especially during recessions and inflationary periods. McDonald's has showed they can focus on low cost strategies with the implementation of saving menus such as the Dollar Menu. When going into new markets McDonald's needs to be aware of the price differences for different goods, and price their products accordingly.
Promotion: McDonald's has several product offerings, and has also developed seasonal products that help heighten costumer interest. Examples of these promotions are the seasonal offerings of the McRib and the Shamrock Shake. Additionally successful marketing campaigns have helped McDonald's achieve the position it is at today.
Marketing Strategy
On January 2015 United States Chief Marketing Officer (CMO) Deborah Wahl announced that McDonald's is taking new strides to meet customer demands. McDonald's is shifting from a Billions Served strategy to a Billions Heard perspective. With the Billions Heard perspective McDonald's will try to meet customer demands for change for their products. These demands will be addressed with new products offerings and having an open door policy regarding food practices.
To battle the negative customer perception McDonald's is emphasizing the Our Food Your Questions program. McDonald's is communicating with customers through blogs and educational videos to inform them of their business practices. Emphasizing healthier options like salads and wraps to please health conscious consumers is a key focus for the future of the business.
On December, 2014 McDonald's also announced a plan to develop a Create Your Taste platform. Customers in restaurants will have the option to build their own burgers from scratch without having to decide from specific items on the menu.
Wahl also highlighted the importance of McDonald's motto I'm Lovin' It. McDonald's is reminding customers that they are the life of the company, and that their satisfaction is their mission. This love for the customer will be communicated through product enhancements (Through upcoming changes to the Big Mac and Quarter Pounder with Cheese) and having open communication with consumers of where their food is coming from.
Financial Strategy
The Financial strategy McDonald's is approaching is geared towards creating a leaner organization with a focus on key business processes. In order to focus on growth initiatives and create customer value McDonald's plans to continue refranchising its restaurants. This year (2015) McDonald's plans to refranchise 400 restaurants from its 3 year plan of 1500. This refranchising plan represents a more than 50% increase compared to the prior three year period.
The 2015 capital expenditures are forecasted to be $2 billion. This figure represents nearly a $1 billion decrease from 2014. The reduction in capital expenditures is driven mainly by an $800 million reduction in new restaurant openings. The reductions will be implemented in the following markets facing challenging times: China, Russia, US, and Germany. From the $2 billion budget, half of the amount will be invested in new restaurant openings. The other half of the apportionment will be used for restaurant reinvestment, mainly restaurant reimaging.
To return value to its stockholders, McDonald's is planning to return between $18-20 billion during the 2014-2016 period. These returns will be in the form of dividends and the continuation of a stock repurchasing program.
Current Challenges
Intense competition in the restaurant industry has caused the worst sales decline of the past 10 years for McDonald's incorporated (2014 Revenue Growth -2.4%). New restaurants in the industry seem to have more attractiveness to the modern consumer (Millennials). A more health conscious and price sensitive population is shifting from McDonald's seemingly unhealthy offerings compared to other competitors with healthier options at similar price points. McDonald's needs adapt to changing customer demands. McDonald's needs to find a way to restore trust in customers regarding the origin and quality of its products. Recent supplier scandals have driven a decrease in consumer confidence for McDonald's products in Asia, which could also affect customer perspectives in the US market.
Situational Analysis
Environmental Scanning
Demographic
Emerging Economies such as India, China, and Latin America are contributing to an increase in middle class population. This creates new opportunities for US businesses to enter developing markets. According to the OECD middle class growth will surge from 1.8 Billion in 2009 to 3.2 Billion in 2020 and 4.9 Billion by 2030. Homi Kharas from the Brookings Institution estimates that European and American middle class will shrink from 50% of the global total to just 22% by 2030. By this year Asia is estimated to house 64% of the global middle class. Stagnant living conditions and declining middle class for OECD countries will influence future growth as companies look for new opportunities in developing markets.
United States Population Projections
Population growth in the US is projected to grow from 314 million in 2012 to 400 million by 2050. Population aged 65 an older will grow from 43.1 million in 2012 to 83.7 million by 2050. An aging population will bring new challenges to public welfare, Medicare, and Social Security systems in the United States with effects in businesses and health care providers.
Ethnically, the United States will continue to become more diverse in the years to come with declining non-Hispanic white population. The biggest portion of growth from 2010-2017 is expected to be from the Hispanic population. Hispanic population will grow from 12.55% of the total to 18.40% in 2017. Other ethnicities are also expected to grow but in more modest amounts.
Economic
Global economic performance can affect the price of commodities, and adversely impact McDonald's cost structure. There are positive cost reduction opportunities in 2015 related to the decrease of fuel costs. At the end of 2014 the cost of crude had fallen to a 4 year low of $66 per barrel (WTI crude). The prospects for the year also look favorable for fuel consumers; the 1-year futures prices for WTI (NYMEX) closed at $50.79 per barrel on 4/9/2015.
Global GDP growth is projected to be 3.3% 2015, an increase of 0.1% from 2014. The United States is forecasting a 2.9% GDP growth (2.4% 2014).
With improving living condition and growing emerging economies global food consumption is also expected to change in the coming years. In US food consumption is estimated to grow 4.1% per year (2014-2018).
The FAO is projecting per capita growth of meat and dairy products could increase by more than 44% by 2030 creating trade deficits. The deficit of in meat products is predicted to rise from 1.2 million tons per year (1997-1999) to 5.9 million tons by 2030. Milk products deficit will also increase from 20 million tons to 39 million tons for the same time period. These trade deficits could cause changes in the economic climate bringing an increase in the price of these commodities.
Political/Legal
The political and legal environment is extremely important for the operations of any business. Particularly for the quick-service restaurant category there are risks inherent with the possibilities of new or changing regulations. McDonald's can face risks worldwide with legal demands of different governmental institutions. The areas where McDonald's can be affected are:
Change in laws regarding packaging and accurate food labeling.
Changes regarding property, franchise, tax, and employment regulations.
Food standards imposed by regulators (FDA in the US)
Changes in accounting and financial practices can affect the financial condition of the business.
McDonald's needs to ensure compliance with regulations in the various markets where conducts its business. For example in the United States McDonald's has to comply with FDA regulations regarding food sourcing, preparation, and accurate labeling. Examples of regulations are stated below:
On August, 2010 the FDA released guidelines to food producers to accurately represent nutritional information to its customers (FR Doc No: 2010-1630).
McDonald's needs to abide by General Accepted Accounting Principles (GAAP) in the United States, and by IFRS standards in its international locations when preparing accounting statements.
Sociocultural
McDonald's is facing pressures from a changing customer perspective. There is a health-conscious movement today in the United States, and a greater concern for sustainable methods of food production. Customers are now realizing the importance of a balanced diet and are gravitating towards "healthier" options and restaurants that source their food from sustainable suppliers (ex: Shake Shack).
Technological
Technological innovations in the transportation industry open up possibilities to reduce costs in the area of fuel consumption and create a good brand image through the use of sustainable fuels. The current trend in the market is headed towards the use of Natural Gas as a main source to power trucks. In September 2014, Clean Energy Fuels Corp (US) made an agreement with Bimbo Bakeries to provide the first natural gas powered trucks reducing greenhouse gas emissions by 580 metric tons after initial deployment. This brings new opportunities for other industries in the use of natural gas powered vehicles in supply chain operations. The US Department of Energy, there are currently 15,129 (December 2014) alternative fuel stations, with more expansions planed.
McDonald's is always at the front when it comes to innovation within its restaurants. With the newly hired Chief Digital Officer Atif Rafiq McDonald's is looking to implement new technologies in their restaurants. The advent of the Smartphone era brings new technologies and possibilities for fast-food ordering. McDonald's can look to develop applications to speed ordering and even create ordering platforms to order food before the customer arrives at the restaurant. Using touch-screen technology could also speed up the process, and allow customer to order food with touch-screen kiosks instead of having to order at the counter.
Stakeholder Analysis
Internal Stakeholders
Owners/Operators (Franchisees)
Most of McDonald's locations are franchised. McDonald's needs to ensure that a positive relationship exists within its franchise system to ensure food quality and exceptional service. Successful franchise operations are crucial for creating a positive brand image. Franchisees are also interested in the well-being of their investment to achieve a positive return.
Employees
Employees have an important stake in McDonald's since this is the major source for their income. Company employees working worldwide totaled 420,000 in 2014. Total employees including franchise employees totaled 1.9 million, the second largest employers behind Walmart. McDonald's employees are looking to have a safe working environment, opportunities for advancement, and fair wages.
External Stakeholders
Customers
For McDonald's correctly engaging the customer is pivotal for successful operations. McDonald's Plan-to-Win is focused on maintaining the customer as the center of all new initiatives. For any quick-service business, customer taste, preferences, and views of the business are key drivers for success. To remain relevant to its customers McDonald's focuses on:
Optimizing its menu offerings
Modernizing the customer experience. This can be seen with the new initiatives McDonald's has taken to establish a new technology strategy with the leadership of Atif Rafiq, former head of amazon's kindle growth strategy.
Broadening accessibility to its brand (ubiquitous)
Community
The community also has a stake in McDonald's. Being the second largest employer and the largest fast-food chain, the community looks to McDonald's to enact socially responsible behaviors. One of these examples is the creation of the Ronald McDonald House Charities. The charity mission is to "find and support programs that directly improve the health and wellbeing of children." These efforts are important to show that McDonald's is placing importance in being a positive change for the community.
Suppliers
Beef/Poultry Suppliers and others have a huge stake at McDonald's. Having a positive relationship with McDonald's is important and can mean a big revenue stream for different suppliers. McDonald's is interested in creating strong relationships with its suppliers who are the backbone of their supply-chain.
Competitors
McDonald's is the biggest fast-food chain in the world, and as such several competitors look to McDonald's to assess their competitive environment and benchmark practices. McDonald's competitors are divided in the following way:
Fast-Casual Competitors like Panera Bread and Chipotle Mexican Grill.
Specialty Burger Chains Five Guys, In-N-Out Burger, Shake Shack.
International Restaurant Brands Yum Brands, Chick-fil-A, Subway, Wendy's.
Governments
Governments have a stake in McDonald's because it can the business in several ways. The Government can issue legislation that can either be favorable or unfavorable to McDonald's. McDonald's is also one of the biggest private employers and compliance with wage and working standards is an important measure governments will want to keep an eye on the company.
Stockholders
Along with social responsibility and sustainability practices providing an attractive return (ROI) to stockholders is one of McDonald's primary goals. Through excellent economies of scale and successful expansion McDonald's has been able to satisfy stockholders and provide excellent returns. However, in recent years (2012-2015) McDonald's has been struggling to keep up with market trends and has been experiencing lackluster financial performance (US Same store Sales Decline of 4% for 02/2015). Stockholders are wary of the steady decline in sales McDonald's has experienced, and are expecting a solution from the business to regain market share.
Environmental Groups
Environmental groups like PETA, and Natural Society are interested in the fast-food industry and the supply chain practices of these businesses. Environmentalists are interested in pushing legislation for the use of hormone/antibiotic free products including, poultry, meats, fruits, and vegetables. McDonald's has to consistently review its supply chain practices and consider adapting organic and sustainable sources food. Acting in a socially responsible manner will further inspire confidence in the McDonald's brand and its products for the general population.
Labor Unions
McDonald's uses the franchise model to expand its business and as such is not currently liable for the labor practice of the franchise owners. However Labor Unions are interested in the labor practices (benefits, pay, hours, and work practices) of McDonald's and its franchises. Workers of fast-food restaurants such as McDonald's would be in favor of unionizing to have greater bargaining power in the employee/employer exchange.
Industry/Competitor Analysis
Industry Definition
NAICS Classification: 722513- Limited Service Restaurants
McDonald's is classified as a fast-food restaurant under NAICS code 722513. This industry includes establishments that provide food services to customers who pay before eating. Limited service restaurants like McDonald's differ to full service establishments because customers do not order food and served by others in the restaurant.
Included in the limited service restaurant category are businesses such as: Drive-in restaurants, pizza delivery shops, and any restaurant that does not offer full service amenities (waitressing services).
Competitive Structure
McDonald's competitive structure is most closely resembled by monopolistic competition. Fast-food restaurants are characterized by different product offerings and some limited power to influence price depending on customer price elasticity. Some economists might argue that McDonald's is an oligopolistic business due to its market size and would include big players such as Wendy's, Burger King and Yum Brands (KFC). Even so the fast-food market is much larger and McDonald's also faces competition from other fast-food categories such as the fast-casual chains (Chipotle), and better burger chains (Five Guys, Shake Shack).
Industry Life Cycle
McDonald's is the biggest quick-service restaurant in the world. With its current structure and product offerings McDonald's is in the mature stage of its lifecycle. This does not mean that McDonald's will enter the decline stage anytime soon as it can continue to profit and be successful.
McDonald's is facing new challenges as it has reached the maturity stage. In order to keep market share McDonald's needs to emphasize customer service and improving product quality. In the maturity stage McDonald's can also keep increasing profits by tapping unexplored markets, new opportunities may arise as emerging economies are starting to flourish. McDonald's is also trying to revitalize the brand with new marketing approaches such as a change from the marketing campaign of "billions served" to "billions heard".
Porter's Five Forces Model
New Entrants (Low)
Initial entry to the fast-food industry is not capital intensive. Opening a single chain can be relatively accessible to many. There are also several suppliers willing to negotiate prices for materials and crate new relationships to meet the demand of new businesses. However, competing with globally established brands can be challenging. Companies such as McDonald's and YUM Brands enjoy economies of scale related to extensive and efficient supply chains. The competitive nature of the fast-food industry brings expected retaliation from incumbents. Big global companies can wage price wars in saturated markets to cut out the competition.
New entrants have the opportunity to gain advantages through new offerings and differentiating their products. As seen from the growing success of fast-casual chains, it is possible to start new trends, enter the market and threaten established competitors. To do this extensive planning and market exposure is needed. Even though restaurant customers face no switching costs the strength of new entrants is considered to be low. This is related to the global reach and retaliation from larger chains and the established economies of scale these companies enjoy.
Bargaining Power of Suppliers (Moderate)
There are two key suppliers for McDonald's and all other players in the food industry, suppliers of food and suppliers of labor. Establishing an initial relationship with suppliers can be costly and it also takes time to build an efficient supply chain. Even though suppliers have several sources for generating profits they are also looking for key relationships with major players in the food industry. These major players include global brands such as McDonald's, Yum Brands, and Wendy's. McDonald's is able to cultivate good relationships and dictate much of the supplier relationship due to its market size and influence. McDonald's relies heavily on labor to run efficient operations. Legislation regarding minimum wages in the US can affect costs and further reduce margins for the chain creating a moderate power for employees. Maintaining a good relationship with labor unions and meeting laws and regulations regarding fair pay is important for McDonald's. The power of suppliers is low to moderate because of the power of the labor supply, and the relative low bargaining power of suppliers.
Bargaining Power of Buyers (High)
The power of buyers (customers) for the industry is high. The main reason for this is that customers have non-existing switching costs. A customer can decide to go to a different fast food restaurant every day depending on what he/she feels like eating. Since customer tastes can sway from one preference to another fast-food chains have to compete in terms of offering quality menu items and price. Maintaining a loyal customer base in the fast-food industry translates to high marketing expenditures, and careful consideration in pricing strategies to be competitive. If a customer senses a price discrepancy they can simply switch to another competitor with a better value offer.
Threat of Substitute Products (High)
The force of substitute products for the fast-food industry is high. Substitute products are widely available and can consist of a customer selecting another product from a wide variety of choices. These choices can range from the customer deciding to eat home-cooked meals to purchasing frozen dinners, and choosing to eat out in other fast-food chains. The main attractiveness of fast-food is the desire for convenience, availability and value. Customers can compare the different prices between restaurant options and chose the most attractive one. Even though it does take more time, customers can also decide to make home cooked meals which can be an increasing trend do to a drive for health conscious activities. The increasing popularity of healthy and sustainability trends brings challenges to the fast-food industry and a need to reimage brands. McDonald's faces moderate to high threat from substitutes.
Intensity of Rivalry Among Competitors (High)
The fast-food market is highly fragmented with many independent restaurants and chains that compete nationally and internationally. The intense competition is also fueled by and absence of exit costs and readily available expansion in capacity. Restaurant chains can also expand easily because of the attractiveness and convenience of the franchising model. In this industry price competition is intense with high competition for value offerings (McDonald's and Burger King's Value Menu). Brand presence and promotion is also strong and is one of the main sources of driving business for fast-food restaurants. Rivalry among competitors is high due to the amount of price competition and marketing exposure needed to stay competitive.
Perceptual Map
The dimension measurements for the perceptual map (Price, Quality) were chosen because fast-food restaurants such as McDonald's generally position themselves as restaurants with low-price offerings. Quality was chosen as the next measurement because customers today care about quality and not just the price. Newer chains such as Panera and Shake Shack have tackled the quality perspective with high success, and McDonald's is battling to change negative customer views on its food quality. With the finished perceptual map it is evident that traditional fast-food chains such as Burger King and Wendy's fall closely in line with McDonald's. While newer chains such as Chipotle and Five Guys are more expensive but improve in the quality department. For the benchmarking purposes McDonald's should look at best practices from newer competitors (Five Guys, Chick-Fil-A, Chipotle, Shake Shack) in terms of quality, and at best practices of its closer counterparts (Wendy's, YUM Brands, Burger King) for pricing and organizational structures.
Competitive Intelligence Matrix
Brand Image: Based on data from BrandZ who conducts brand valuations every year, and is responsible for an annual study of the best 100 global brands. According to BrandZ and Statista McDonald's brand value for 2014 was 85.7 billion, Burger King's valuation was at 2.6 billion and Chipotle Mexican Grill brand valuation was 7.3 billion.
Value (Price): Fast food restaurants focus on value offerings, such as McDonald's $1 menu, and Burger King's value menu. Chipotle offers good value but its price offerings are still above McDonald's and Burger King.
Food Quality: Food Quality is based on consumer sentiment and perceptions of food offerings. Currently fast-food restaurants like McDonald's and Burger King are associated with lackluster quality, while new fast-casual chains like Chipotle are considered to be of higher quality.
Range of Products: McDonald's had about 145 items on its menu in 2013. From the nutritional information provided by Burger King, the menu offers around 97 different choices which is still a considerable amount. Chipotle has 16 basic ingredients, but the advantage is the customer has freedom to customize food items any way they want at the counter.
Market Share: Market share was based on US market share for 2014 only. According to Statista McDonald's held 21.7% market share, Burger King 4.1%, and Chipotle at 2.68%.
Revenue per Location: Revenue per location for fast-food restaurants average $1.2 million. According to QSR magazine McDonald's averaged $2.5 million per store. Burger King average $1.2 million, and Chipotle $2.1 million per store.
Best Practices Benchmarking
With more than $27 Billion in global sales for 2014, and 21.7% of the fast-food market in the U.S. McDonald's is the undisputed market leader. However, McDonald's has been experiencing declining sales for the past nine months with weaknesses in customer quality perceptions and restaurant experience (customer service). In terms of customer service Chick-Fil-A is the leader, being considered the fourth best chain for customer service in 2014.
Benchmarking Customer Service
Chick-Fil-A had revenues of $5 billion in 2013. Average sales per location were $2.8 billion the highest in the fast-food industry. Part of Chick-Fil-A's success can be attributed to the exceptional customer service provided by every restaurant that is franchised. Dan Cathy, Chick-Fil-A's CEO, stated in an interview that, "If anyone force you to go one mile, go with them two miles –Matthew 5:41." The chain displays this value by going the extra mile when it comes to customer service displaying behaviors that are not commonly seen at fast-food restaurants. Customer service experience can be divided into several attributes. Among these attributes the most commonly considered are: Employee Courtesy, Service Accuracy, Cleanliness, and Food Quality. Employees make the name for the company in stores and having satisfied employees is also key to providing exceptional customer service.
According to Cathy Employee Courtesy is at the heart of Chick-Fil-A and credits much of the chains success to the way the employees treat customers. Chick-Fil-A aims to treat customers with the utmost respect; the way they would be treated in a fancier establishment like the Ritz Carlton hotel. And customers seem to agree that employee courtesy improves customer service. In a survey conducted by Zagby Analytics 38.6% of respondents rated the chains customer service as excellent, compared to top rating of barely 20% for chains like McDonald's and KFC. The most common example experienced at Chick-Fil-A is the use of language of employees towards the customer. Chick-Fil-A employees do not say "you're welcome," instead they say "my pleasure" to elevate the customer experience. Other examples of employee courtesy are:
Calling customer orders by first name instead of a number.
Chick-Fil-A will carry customer's trays to their tables.
Employees go to individual tables to ensure customers are having a good experience and to meet any requests such as the need for a refill or other amenities.
Escorting customers to their cars with umbrellas when it rains.
An important aspect for customers going to fast food restaurants is the degree of Service Accuracy. It is true that fast-food drive-thru should be as fast as possible to be convenient, but accuracy is also important, and it is accuracy at which Chick-Fil-A excels. For 2013 figures Chick-Fil-A average drive-thru wait time was 203.9 second, the longest wait time of the industry. In comparison McDonald's average wait time was 189.5 seconds. However, Chick-Fil-A's order accuracy was the best in the industry in 2013 with 91.6% accuracy compared to the industry average of 87.2%. Customers do not seem to mind the long wait since they are getting the right orders most of the time. In the area of Food Quality and Cleanliness Chick-Fil-A also received the highest marks in the fast-food industry according to Consumer Reports. Training employees to always be on the lookout is important in having a clean environment. Chick-Fil-A also employees special touches that add to the clean feeling of the environment such as placing fresh flowers at each table every day.
Internal Assessment
SWOT Analysis
Strengths
McDonald's continuously places in the top spots for brand value. According to studies conducted by Statista McDonald's brand value for 2014 was about $85.7 billion. Such a high brand value shows the success the chain has had with international expansion. One key strength for the chain is the characteristic of being ubiquitous. McDonald's is the restaurant with the most locations with 14,339 U.S. locations and more than 36,000 worldwide. This helps epitomize the fast-food ideal of convenience and location. McDonald's has also been successful with its marketing campaigns. From the inception of Ronald McDonald, to the I'm Lovin' it campaign the chain has greatly benefited from the resulting market exposure to potential customers.
McDonald's has been recognized as a low-price food leader, where offerings like the value menu ($1 items) bring in cost conscious costumers. The great marketing campaigns driven by the company also help the customer perceive the value received relative to price.
Due to its size, McDonald's has been able to leverage its relationships with different suppliers and establish efficiencies in the supply-chain. Suppliers seek to establish profitable relationships with food giants. McDonald's also stresses trust and collaboration with its suppliers. 99% of suppliers signed a code of conduct agreement with McDonald's in regards to the maintenance of their facilities.
McDonald's has strong cash flow due to the successful implementation of the franchise model. With more than 80% of McDonald's locations being franchised, the chain does not worry about operating costs in these locations and collects franchise fees based on a percentage of sales. This model has been extremely successful for McDonald's and it has allowed the chain to expand globally at a fast rate.
Weaknesses
McDonald's biggest weakness is the prevalent decline in sales experienced during the 2013-2014 period. McDonald's US restaurant sales open for more than a year (Comparable Sales) declined 4% (February 2015). This turnout in US stores also contributed to the 1.7% global decline in sales. The decline was a steeper than expected by analysts (0.7% for US stores and 0.3% for global sales). February marked nine consecutive months for global decline in sales for McDonald's. Customer traffic at US stores also dropped by 4.1% in 2014 (1.6% decline for 2013). These financial results demonstrate continued weakness in performance and could be a signal that McDonald's efforts have not yet created a comeback or are not working at all.
McDonald's has been expanding its menu to include healthier options with the expectation of appealing to a newer customer that prefers "healthy" options. Expanding menu offerings has created more complexity for kitchen restaurant setups slowing down production, and causing an increase in wait times for McDonald's drive-thru. In the past decade the company said it added more than 100 items to its menu. To increase customer satisfaction in drive-thru operations McDonald's needs to focus on food quality (freshness), preparing the correct order, and speed.
Source: http://fortune.com/2014/11/12/can-mcdonalds-get-its-mojo-back/Source: http://fortune.com/2014/11/12/can-mcdonalds-get-its-mojo-back/An increase in the price of consumer goods is a weakness to McDonald's structure. McDonald's offers lower priced items in its $1.00 value-menu with the hopes of customers purchasing higher value items when they go to the restaurant (Such as the McWrap, and Big Mac). McDonald's increases prices yearly to adjust for inflation just like any business would, but keeps the value-menu priced at $1.00 with other value meals priced higher than a dollar. The issue with this model today is the fact that there is a widening gap between the value menu and premium offerings. In 2002 a Big Mac cost $2.49, in 2014 a Big Mac's cost was $4.80. As prices keep rising McDonald's risks losing customers to more attractive offerings with similar prices such as Panera, Five Guys, and Chipotle.
Source: http://fortune.com/2014/11/12/can-mcdonalds-get-its-mojo-back/
Source: http://fortune.com/2014/11/12/can-mcdonalds-get-its-mojo-back/
Don Thompson announced he would be stepping down as CEO in March 1, 2015. Steve Easterbrook (Former Chief Brand Officer) replaced Thompson. A change in leadership can be positive as new perspectives are needed to advance the organization, but it also portrays the difficult challenges McDonald's is facing right now. From the Asia supply-chain scandal to competitive pressures in the US investors are wondering if the change in leadership will steer the company in the right direction.
Opportunities
McDonald's is positioned to take advantage of a growing food service market. According to the NPD group, in 2014 the consumption of burgers from fast-food and casual restaurants increased by 3%. There were 9 Billion burgers served at US restaurants. This presents an opportunity for McDonald's as the chain's main product is concentrated on different burger offerings.
The international's chain Franchise model is excellent for rapid expansion in new markets. With intense competition in the US market, McDonald's can look at continued efforts to expand operations on developing markets. Middle class growth in China, Brazil, and other developing markets offer new opportunities for McDonald's.
New technological advances in recent years bring opportunities to the fast-food industry including McDonald's. Hiring Atif Rafiq is a great move to bring technological expertise to the chain and continue expanding global initiatives to renovate and reimage restaurants. McDonald's can start to look at smartphone technology to speed up the ordering and payment process.
Threats
As the biggest fast-food chain McDonald's has been criticized by negative media reports and has impacted customer perceptions on food quality. Morgan Spurlock's documentary, Supersize me (2004), is an example that shows possible negative effects fast food can bring if consumed too often. Environmental organizations have also targeted McDonald's and its food production practices. Consumer today are increasingly interested in promoting antibiotic and GMO free foods. Organizations such as the Natural Society have published articles ranging from the way suppliers such as Purdue Farms raise their animals to the unnatural ingredients McDonald's food contains. The Natural Society posted ingredients such as polydimethylsiloxane used as an anti-foaming agent when frying, and tertiary butyl hydroquinone (TBHQ) found in McDonald's French fries as a preservative. This type of media exposure raise questions about McDonald's food quality and can further damage brand reputation and contribute to declining sales. McDonald's among other fast-food organizations have been accused of engaging in Greenwashing. Deceptively marketing healthy options, and sustainable food when in reality customers believe McDonald's does not care for the environment and sustainable practices.
According to a study conducted by Consumer Reports, McDonald's burgers were ranked the worst tasting burgers out of 20 other competitors. Customers might be starting to look to other alternatives that provide greener, and higher quality products as prices keep getting closer together and margins are shrinking.
McDonald's is facing pressures from its employees, as numerous strikes have occurred asking for increase in labor wages. In September 2014 employees from several fast-food chains protested to request a minimum wage of $15/hour. Protests for better wages have been prevalent in the fast-food industry which also creates a negative perception for McDonald's and their employee relationships. Labor wages also depend on government legislation and the decision to raise minimum wage rates.
During July 2014 a supply scandal broke out related to a supplier Chinese (Shanghai Husi Food Co Ltd). According to Forbes magazine the Chinese suppler had been processing expired meat. Workers from the plant were also spotted grabbing chicken that had fallen on the ground and put it back on the processing machines. McDonald's Japan division reported to have sourced about one-fifth of its chicken McNuggets from Shanghai Husi, and halted sales for this product. The scandal contributed to McDonald's lackluster performance for 2014, and influenced negative perceptions for consumers.
International markets are also experiencing period of political and economic instability. Russia is currently facing economic challenges related to unstable political relationships with the US and other members with the actions of President Vladimir Putin, and the decision to annex the Crimean Peninsula. The European Euro has also been weakening and Greece is facing economic turmoil. Declining productivity for the EU countries can signify a big risk for McDonald's operations and could contribute to declining profits.
Perhaps the biggest threat is the intense competition McDonald's is facing in the U.S. market. New fast-casual chains are generating growth, increasing profitability and are beginning to chip away at McDonald's middle to upper-middle class consumers. The creation of a new category restaurant category named "Better Burger" is a direct threat to McDonald's core competency as a burger joint. New competitors such as Five Guys, Shake Shack, and Smashburger threaten to take a larger size of the pie from McDonald's, and bring new challenges for McDonald's and the issues it has been having with food quality. Changing customer tastes towards healthier and fresher options are also a threat as popular chains like Chipotle and Panera are positioned to target these types of customers.
Company/Product Portfolio (BCG Matrix)
McDonald's has enjoyed years of steady growth, but the fast-food industry is reaching maturity especially in the U.S. market. With 27.1% share of the U.S. fast food industry McDonald's as a business is positioned as a cash cow. With several of its well-branded items McDonald's can now focus on increasing product quality, and using cash flows from cash cow products to finance star and question mark offerings.
Several of McDonald's products have been successful due to aggressive marketing campaigns. Products such as the Big Mac and the Egg McMuffin are so well-known that they could be a brand by themselves. Current Cash Cow products include products such as: Big Mac, Filet-O-Fish, Egg McMuffin, McGriddles, McNuggets, Fries, and desserts such as McFlurry and Sundaes. To better market these cash cow products, McDonald's needs to focus on increasing quality and making the right pricing decisions.
Stars for McDonald's include the investments done for the McCafe offerings. McDonald's needs to invest heavily in this market to effectively compete with businesses such as Starbucks, Scooter's, and Dunkin Donuts. With the right marketing strategy and sufficient investment McDonald's can gain a strong foothold in the coffee market segment.
McDonald's is always testing new products and thus can have several products in the question mark stage. Products in this stage include McCafe smoothie offerings, and the Create Your Taste campaign announces by McDonald's. Crate Your Taste is targeted towards younger consumer who want to be able to customize their food. It is not certain if the campaign will be successful, but McDonald's needs to invest heavily in the platform without the ability to ensure success. New Smoothie offerings such as the Blueberry Pomegranate flavor need to be tested in the market before ensuring profitability.
McDonald's has had products that have not been successful in the past. Products such as the Arch Deluxe, the McLean Deluxe, and McPizza are example of dogs that were discontinued. A newer item released by McDonald's that is showing signs of possibly being in the dog category is the McWrap (released 2013). Analysts are blaming part of the 4% drop in sales for March on the McWrap. Compared to burgers 10 seconds to prepare, McWraps take an average of 60 seconds, which is also contributing to the slower service experienced at the drive-thru.
Competitive Advantage Continuum
McDonald's has been able to effectively penetrate the market with the effective usage and collaboration of its different resources. The main resources that help McDonald's generate a greater advantage are its existing supply chain network and assets. In regards to its supply chain, McDonald's has been able to establish strong relationships with suppliers in each of its markets. Whenever it can, McDonald's is interested in developing relationships with local suppliers. McDonald's revenues are an important resource for the chain. McDonald's had $35 billion in sales for 2013 compared to other big competitors such as Wendy's and Burger King with $8.7 billion and $8.5 billion in 2013 sales. With revenues several times larger than its competitors, McDonald's can invest more in new product development, quality control procedures, and marketing campaigns.
McDonald's has been able to develop several Core Competencies in the fast-food industry. With the development of its efficient franchise system McDonald's was able to successfully expand rapidly into several markets. One of the important focuses for McDonald's and its franchise system, is that the owners are local owners, and can contribute to the understanding of cultural differences. McDonald's has also been able to build Strong Brand Recognition with great marketing campaigns such as Ronald McDonald and I'm Lovin' It. The Golden Arches is also part of brand recognition, and has gained popularity as the chain continues to expand in new markets. Being a fast-food location McDonald's has also been able to excel at offering a standardized product. With strict franchise operating procedures and strong supplier relationships, McDonald's is able to deliver reliable quality and consistent taste throughout its franchise system.
Recognizing cultural differences has offered new opportunities for McDonald's to expand into new markets. For example, when McDonald's expanded India, it changed its menu to offer a completely vegetarian diet. Changing popular items such as the Big Mac to the Maharaja Mac in India proved to be a successful move. Even though standardized product is important, McDonald's also recognizes the importance of meeting customer needs in different cultures. Other examples of cultural adaptations is the offering of spaghettis in the Philippines, Refried beans in Latin America, and the McArabia Chicken in the UAE. McDonald's also offers delivery services in several countries such as Korea, China, The Philippines, Japan, and Austria where the service is more common.
The strategic focus for McDonald's is to be a low-cost convenient provider. The value of McDonald's proposition is the fact that they can offer a good value, convenience, and consistency at a low price.
Balanced Scorecard
Financial Perspective
The revenue stream for McDonald's corporation consists of: The revenue from its corporate locations, franchise royalties (4% of monthly sales), and rent as a percentage of monthly sales. McDonald's sales are divided by segments are follows:
Source: Annual 10k Report 2014
With diversified global sales McDonald's is able to hedge some of the risks inherent within the U.S. market and the increasing competition. However, the global presence of its restaurants also exposes McDonald's to political and economic threats mentioned beforehand such as weakness in the European market and political instability in Russia.
In the third quarter of 2014, McDonald's same store sales in the US fell by 3%. In comparison, competitor Chipotle Mexican Grill soared at an increase of 20% for same store sales. In comparison to industry ratios McDonald's is still well above the average with Profit Margins more than four times above the industry average (MCD: 17.34%, Industry: 4.16% for 2014). Even though most of its metrics are above the industry average, a decrease in performance is evident over the past five years. Profit Margin has decreased from 20.50% in 2010 to 17.34% in 2014. For 2014 Revenue Growth was actually a -2.40%. With less revenue coming in consequently the interest coverage ratio for the company also decreased from 16.79 in 2013 to 13.95 in 2014. Even though in store revenue per employee actually increased by 2.3%, profit per employee decreased by 10.8%. These metrics show the challenges McDonald's is currently facing in controlling its cost structure and offering attractive products to its customers.
For 2014 McDonald's stores brought an average of $2.5M in sales, compared to the industry average of $1.2M in sales per store.
Internal Process Perspective
One of McDonald's main areas of focus is the quality and consistency of the products it offers. McDonald's does a good job at keeping consistency with its product offerings in every restaurant. On the other hand quality perception by customers has been an ongoing problem, and is considered to be one of the main contributors to the decrease on revenues for the chain. McDonald's is taking steps to improve the quality of its food and address customer concerns regarding products raised with antibiotics. On March, 2015 McDonald's announced they would only source chicken raised without antibiotics that are important to human medicine. McDonald's also announced they would only be selling milk products from cows that are not treated with rbST, an artificial growth hormone.
To address quality McDonald's is also focusing on technological advancements to attract more customers. Improvements in technology like charging stations for phones and self-order kiosks are a few of the ideas Atif Rafiq has brought to the table to draw in more customers, and maintain the company in the forefront of technological innovation. Regarding the allocation of its tangible resources, McDonald's will focus on reimaging restaurants to appeal to a more contemporary culture. Nearly 60% of McDonald's restaurants have been remodeled with a modern look.
Customer Perspective
Uniform value-priced menu and a consistent customer experience is essential for a quick-service restaurant. Quality is also an increasing concern for customer, especially with newer restaurant (Better Burger, Fast-Casual) that stress freshness and good quality. The prevalent customer perception is that McDonald's is low quality. Even if this was not the case, it is important to monitor and work towards changing the customer perspective on quality issues. McDonald's needs to find a way to change the current mindset of their product offerings to the customer. According to Technomic, a research firm that focuses on the fast-food industry, new customers are focusing more on natural, unprocessed, and sustainable offerings rather than on "low fat" and "low calorie". Even though Chipotle's burritos have more calories than a Big Mac, the company is seen favorably due to the customer perception of what a healthy offering is.
McDonald's is also fighting to retain customers in a highly competitive market. The challenge for the company is retaining millennials, and families with children under 12 years of age (This group's share in the chain's customer pool dropped from 18.6% in 2012 to 14.6% in 2014). Nationally McDonald's market share for the end of 2014 was 21.7%. Based on Euromonitor International, the Global market for the informal eating out (IEO) segment was of $1.2 Trillion. The IEO segment is composed of about 8 million total locations. McDonald's global operations account for 0.4% of the outlets and 8% of sales. The IEO category excludes establishments that serve primarily alcoholic beverages and full service restaurants excluding casual dining establishments. Compared to the entire restaurant industry of $2.3 Trillion and 16 million establishments, McDonald's global share amounts to 0.2% of the locations and 4% of sales.
McDonald's is focusing on generating goodwill with the general population to increase its brand strength. With its size and influence it is able to participate in socially responsible activities and create a positive wave a change for the quick-service industry. For example in 2011 McDonald's created the Global Roundtable for Sustainable Beef where it partners with major beef suppliers to set standards and practices that lead to sustainable beef production.
Learning and Growth Perspective
McDonald's has an actual Hamburger University where it trains restaurant managers on all necessary aspects needed to run an efficient restaurant operation. McDonald's shows that it is committed to train its managers to follow its recipe for success in offering Quality, Service, Cleanliness, and Value.
Regarding its employee workforce, McDonald's Corporation does not control much of the employee development as restaurant franchisees are in charge of employee development and compensation. The fast-food industry is known for its high employee turnover which can increase costs and decrease customer satisfaction. High turnover rates also imply that the company spends more time training new employees and have to work harder to maintain high quality standards. Employee turnover is also spurred by the low wages that entry level jobs pay. On average fast-food jobs are low-skill/low-wage jobs that pay just above the federal minimum age of $7.25. Recently fast-food employees, including those of McDonald's, have been striking for a wage increase to $15 dollars an hour. While this increase might not be feasible, McDonald's needs to focus on the needs of its employees as one of its top priorities.
Organizational Structure
Organizational Chart
McDonald's follows a decentralized market approach giving local and regional managers the power to make product decisions. This structure is favorable for McDonald's because it allows the chain to execute new initiatives the match customer preferences in the local area.
Board of Directors:
Andrew J. McKenna: Non-executive chairman of McDonald's Corporation since April 2004, and also non-executive chairman of Schwarz Supply Source.
Susan E. Arnold: Operating executive, Global Consumer & Retail Group of The Carlyle Group, a global alternative asset manager since 2013.
Stephen J. Easterbrook: President and CEO of McDonald's Corporation since March 2015.
Robert A. Eckert: Operating Partner of Friedman, Fleischer & Lowe, LLC, a private equity firm, since September 2014. Non-executive Chairman of Mattel, Inc., a designer, manufacturer and marketer of toy products, during 2012.
Margaret H. Georgiadis: President, Americas at Google Inc., a global technology company, since October 2011. Chief Operating Officer of Groupon, Inc., a global online local marketplace, from March 2011 to September 2011. Vice President, Global Sales Operations at Google from 2009 to 2011.
Enrique Hernandez, Jr: Non-executive Chairman of Nordstrom, Inc., and Director of Chevron Corporation and Wells Fargo & Company. Director since 1996.
Jeanne P. Jackson: President, Product and Merchandising for NIKE, Inc., a designer, marketer and distributor of athletic footwear, equipment and accessories, since 2013.
Richard H. Lenny: Non-executive Chairman of Information Resources, Inc., a leading market research firm, since 2013.
Walter E. Massey: President of the School of the Art Institute of Chicago, since 2010.
Cary D. McMillan: Chief Executive Officer of True Partners Consulting LLC, a professional services firm providing tax and other financial services, since 2005.
Sheila A. Penrose: Non-executive Chairman of Jones Lang LaSalle Incorporated, a global real estate services and investment management firm, since 2005.
John W. Rogers, Jr: Chairman and Chief Executive Officer of Ariel Investments, LLC, a privately held institutional money management firm, which he founded in 1983.
Roger W. Stone: Chairman and Chief Executive Officer of KapStone Paper and Packaging Corporation, formerly Stone Arcade Acquisition Corporation, since 2005.
Miles D. White: Chairman and Chief Executive Officer of Abbott Laboratories, a pharmaceuticals and biotechnology company, since 1999.
Departmentalization and Decision Making
McDonald's global presence advocates for the division of the business into 4 different geographic regions. Although McDonald's enforces uniform standards and policies throughout its restaurants, food offerings may differ depending on geographic regions to suit the taste of the local customers.
The geographic division of McDonald's allow for a more decentralized decision-making approach. Overall long-term strategy is always decided by top management, but different regions are given freedom to make decisions. This allows McDonald's to assimilate different cultural aspects which would not be possible if al decision making was centralized.
Organizational Culture
McDonald's has a culture that encourages creativity, fun, and innovation. McDonald's business model is based on the "three-legged-stool" approach; balancing the needs of its owners, suppliers, and company employees. McDonald's states that balancing the needs of these three groups is essential to the company's success. McDonald's also offers mentoring opportunities for its employees and special training for its managers to create successful individuals.
Recommendations
McDonald's has had a journey full of success, from the opening of its first restaurant in 1948 to more than 36,000 restaurants worldwide today. The values that drive McDonald's are a constant vigilance to its QSC&V values which place the customer experience as the number one driving factor for success. QSC&V stand for quality, service, cleanliness and value. Success can also be attributed to the franchise model early on. McDonald's is free from having to manage and provide cover infrastructure costs which has allowed the company to rapidly expand worldwide. The attractiveness of McDonald's low-cost strategy and consistent quality has also boosted the company to be the number one food-chain in terms of revenues and brand value. Today McDonald's has chosen to change its strategy and focus on reimaging its restaurants to portray a modern allure with its McCafe offerings. Being a mature company McDonald's has also chosen to invest in the quality of its products and devote marketing expenses to improve its brand image.
To ensure successful and profitable operations McDonald's needs to face several challenges in its local U.S. industry and across its global operations. The most prevalent threats McDonald's is facing today are:
Negative market exposure of its product offerings which influences customer perception and threatens market share. Negative perceptions are also related to customer service issues.
Environmental scandals which bring into questions the quality of McDonald's food and suppliers.
Increasing competition in the U.S. market, with growing chains in two main categories: Better Burger, and Fast-Casual. This threat is also related to changing customer tastes, and the increasing importance of product sustainability, freshness, and quality.
The challenges McDonald's is facing today has caused a constant decrease in sales for nine consecutive months, and a reported -2.4% revenue growth for the year ended 2014. To combat the threats mentioned beforehand McDonald's needs to change customer perspectives on their views related to the price and quality perception of their product offerings. To focus on quality and value McDonald's should implement the following recommendations: Emphasis on employee development to create a positive restaurant environment, focus menu offerings to improve quality.
Emphasis on Employee Development
McDonald's has stated that focusing in employee well-being is key to ensure the success of the company. McDonald's currently offers training programs for managers/owners in their hamburger university establishments. However, McDonald's needs to focus on increasing the knowledge and competency of its entire workforce through increased standards of living, and new training opportunities. A positive increase in customer service can also mean positive gains in customer satisfaction which can materialize in revenue gains and customer retention. McDonald's needs to focus on providing employees with opportunities for advancement, and develop training programs to improve the customer service in the drive-thru and inside the restaurant.
1a. Provide a career development program for company employees. Although wage increase certainly help, they are not the only way to increase employee commitment to company values. McDonald's should consider implementing a Career Development program that allows its employees to pursue training programs or college degrees with support from the company. Managers should also make sure to cross-train employees to provide job enrichment and increase employee motivation.
Career Development
During the course of 2015-2016 McDonald's should develop and prepare a plan that will allow company employees to participate in career development initiatives. Initially the plan will be rolled out as a test in company owned restaurants which will not affect franchisees. Although franchises would also be encouraged to follow the company developed program.
Company employees will be reimbursed either the total amount or a significant percentage of the costs of tuition (ex: 80% company covered) for attending college and working towards a degree.
Cross-Train
New policies need to be developed by management to require all managers in corporate and franchise owned restaurants to cross-train their employees in different responsibilities. Cross-training will enhance employee experience, knowledge, and competence. Cross-training will also allow management to rotate its employees to enhance working conditions and increase employee motivation.
1b. Conduct in house training sessions for company employees that emphasize customer service. A perfect example of excellent customer service is Chick-Fil-A. Being in the same industry Chick-Fil-A demonstrates completely different characteristics when it comes to customer service. McDonald's should model a new employee training program that incorporates some if not all of Chick-Fil-A's customer service ideals. The success of Chick-Fil-A can is evident with the highest revenue per restaurant in the fast-food industry at $2.8 million per store. Chick-Fil-A's service practices have also gained them in the top five businesses for excellence in customer satisfaction. McDonald's should train its employees to practice employee courtesy, and emphasize cleanliness of its facilities.
Train on Employee Courtesy
Quality of food goes hand in hand with excellent service. McDonald's needs to develop a training plan where employees are taught how to properly treat customers.
Benchmarking with the best restaurant in the business brings to mind certain practices that can enhance the customer experience. Practices such as being polite, smiling, and servicing tables can enhance the customer experience and create a positive experience for the customer.
Part of emphasizing customer service means that McDonald's should also make sure that it has the highest standards of cleanliness in its facilities. McDonald's should implement rigorous practices to ensure the best quality of its facilities.
Focus the Menu Offerings
Focus the Menu. One of the strengths that McDonald's has is the ability to innovate and introduce new products, but has the chain done too much and forgone quality standards by expanding its menu too fast? In the past decade McDonald's has added more than 100 new items to its menu and is now up to 145 offerings. McDonald's has stretched itself to thin trying to meet all market needs. In turn instead of improving quality, the chain has affected quality and customers have not changed the view they have of McDonald's. Too many items to prepare have also decreased accuracy and efficiency at the drive-thru (189.5 second average time). For Example McWraps average time to prepare is 60 seconds, compared to the average burger time of 10 seconds. Instead of tackling quality with "healthy" offerings, McDonald's should trim its menu offerings and focus on improving the quality of its core business of burgers. It is amazing to see that in a test of 21 burger chains, McDonald's burger was rated last for quality and taste.
Current CEO Steven Easterbrook has rolled out a new create your taste platform that will allow customers to custom make their own burgers. While this new technology feature is good and presents new opportunities it does not address the negative quality perception of its menu offerings. To trim down its menu and address quality issues McDonald's should do the following.
McDonald's should analyze its different products based on profit potential and needed investment for growth and cut the least profitable items. This will help create a leaner menu, and allow McDonald's to focus on high growth items, as well as allow the company to work on the quality of its burger offerings.
Emphasis on healthy offerings, and customizability is becoming increasingly popular. Instead of adding new items McDonald's should concentrate on improving the quality of its burgers.
McDonald's should consider adding bun options for its burgers. Upon ordering a burger, the customer would be able to decide on different bread options depending on what he/she is looking for. McDonald's could offer its traditional bun, a whole wheat bun, and a potato bun for example. To accomplish this, McDonald's will have to contact its bread suppliers and conduct a cost analysis on the addition of the new buns.
Conduct a feasibility study of sourcing beef from sustainable suppliers (Antibiotic Free). Customers today are looking for better quality and freshness. They are also concerned with sustainable sourcing of food products. Restaurants like Chipotle and Shake Shack have demonstrated that it is possible to source antibiotic-free beef, but with a slight cost increase. Chipotle reported an increase of 25 to 50 cents per burrito after it adopted its antibiotic-free practice. Shake Shack reported that antibiotic-free meat can cost 15-20% more than regular beef, but customers seem to be willing to pay higher prices for better quality.
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Endnotes
