2013 McDonald’s Balanced Scorecard
31/01/2013
1. Introduction
Since it first opened in 1948 in San Bernardino, California, McDonald’s has encouraged a vision of quality service, products and innovation (McDonald’s Corporation, History, para.1). From the beginning, McDonald’s has worked hard to differentiate itself and adjust to a market that has become increasingly fast-paced, as many alike companies have appeared in this sector of the market. I am going to study on which keys of the balanced scorecard they’ve focused, and analyse their financial and strategic structure. Being in the fast-food industry, McDonald’s has a hard time differentiating itself from its competitors. This is likely McDonald’s biggest obstacle in its industry strategy. Competition such as Burger King, KFC, Subway and even Taco Bell (which is not very popular here in Spain, but is very known in places like the USA) provide a challenge for McDonald’s, and make it harder for profit potential, although they don’t really offer the same product (McDonald’s is specialized in burgers, while KFC for example offers fried chicken products or Taco Bell serves Mexican food. Anyhow, they’re all fast food restaurants). McDonald’s has tried to rise above them with the introduction of healthier menu items (answering to the effect of more worries about health coming from their potential clients) and a more active Ronald McDonald and cutting out characters such as the hamburger that promoted an unhealthy lifestyle of obesity. In an effort to increase differentiation and innovation, McDonald’s introduced McCafe, selling premium coffee beverages at competitive prices, rivaling coffee chains such as Starbucks, or Dunkin Donuts.1 With these new products, McDonald’s tries to draw a remarkable difference with its competitors. McDonald’s uses many suppliers around the world to provide products to all their restaurants. Suppliers from McDonald’s include Gaviña Gourmet Coffe, López Foods, Keystone foods2, and 100 circle farms, and all the restaurants use the same products and the same providers. That’s why you can go to Beijing and order the same burger you can have in Madrid or NY. If McDonald’s was to lose even one supplier it would have to change one or more of its product lines and perhaps its menu all together, sacrifice quality products or change the items that McDonald’s customers are used to. So, in some way, their providers are really powerful. But on the other hand, McDonald’s, 1 2
McDonald’s McCafé: http://www.mcdonalds.com/us/en/food/full_menu/mc_cafe.html McDonald’s “Meet Our Suppliers”
showing the importance the company gives to public image, dropped its egg supplier, because of proved animal cruelty in their installations. You can see in that case how worried about public perception they are in this company 2. SWOT Analysis STRENGTHS
WEAKNESES
1. Globalization 2. Work at charity: Ronald McDonald House 3. Adjusted product offerings to comply with upgraded health standards deemed necessary by the USDA. Also, McDonalds was the first food outlet to provide its customers with nutritional facts 4. Branded menu items such as Big Mac, McNuggets, McChicken… 5. Large partnerships with suppliers
1. Public perception: McDonald’s has been impacted by bad press, such as the documentary “Supersize Me” or other pieces of investigation 2. The employee turnover rate. Every year many of their employees are fired out of the restaurant 3. Health consciousness from their target public. 4. Some quality issues over time.
OPPORTUNITIES 1. It can open up online services for their customers so that they can easily order their desired meals sitting at home 2. Discounts given on every food item may help them gain more customers 3. They can go for a joint venture with the retailers they work with 4. They can introduce healthy hamburgers and healthy drinks for the people who are health conscious 5. In order to be environment friendly, they can use packing material which can be recycled later or material that does not create pollution 6. As McDonalds is a socially responsible firm, they can provide more benefits to the people around 7. It won’t be a bad idea if they introduce food items specially for breakfast
THREATS 1. Emerging competition of similar outlets is becoming a problem for McDonalds 2. Health issue 3. Fluctuations in the currency of other countries 4. Recession in any country would definitely affect the whole outlet world wide 5. These multinational companies take special care of the culture and traditions of the country they plan to start the business 6. People facing heart problems and obesity accuse McDonalds for not providing them with healthy food 7. They have a threat of local food outlets in different countries 8. McDonalds is operating in a fully fledged economy where competition is increasing day by day therefore they should work effectively to overcome their drawbacks because of the recession.
Let’s take a brief look at its SWOT analysis. There are some issues that I’ve not mentioned, as they affect most of the industries right now. For example, one really important threat would be the crisis which is striking world’s economics right now. The company's revenue streams are diversified, but depending on the length of this recession, they will inevitably be negatively impacted by the trickle down effect. Anyhow, they’re doing quite fine, as we’ll see later on while examining its financial data. Also, loyal employees are one of their biggest strengths. McDonald’s offers valuable training to store managers at Hamburger University in Oak Brook, Illinois3. At Hamburger University, more than 5,000 managers are trained every year. The goal of the training programs and the McDonald’s corporation is to provide consistency in service and quality in all 120 countries that McDonald’s restaurants can be found ( McDonald’s Corporation, Overview ) as it’s “the first restaurant company to develop a global training center”, and “to be the best talent developer of people with the most committed individuals to Quality, Service, Cleanliness and Value (QSC&V) in the world”. But the problem with their employees is also that they leave the company within the first year of work (fired or resigned). We’ll see this later on. Another strength of this massive corporation can be found in their speed at the moment of treating with costumers. McDonald’s has worked on improving speed and efficiency in their restaurants. After they introduced their wraps, which slowed times, as they required developing new techniques4. Another reason to increase the speed and efficiency in the restaurants was also because of slowing economic times, making it more likely that customers will choose to dine at home, rather than in a restaurant to save money (especially in recession time). By ensuring that, McDonald’s was producing the highest quality food with exceptional speed and efficiency, the restaurants were giving themselves the best chance at retaining their customers. 3. Financial Perspective
So, let’s take a look at some financial data. As we can find on its public annual report5, McDonald’s has grown globally during the 2011. Their global comparable sales growth has reached a considerable 5,6%, and their earnings per share growth has been 11%. And their total shareholder return has reached
3
About McDonalds: Hamburger University Dench, Courtney: “McDonald’s speeds orders by seconds to keep costumers”, Bloomberg.com 5 McDonald’s financial report 4
a 34,7%. We can say that they are doing quite well, but we should look at more financial data. Here’s a summary of 6 years from their financial report:
From McDonald’s Financial Report 2011.
As we can see, it has done very well over the last 6 years. Its sales have increased over these last six years in no less than 3.000$. So, we can see that economic crisis hasn’t been such a problem for them. Maybe because when people think of McDonald’s they tend to think of a cheap, qualified place, where they can have a large meal for a low price. Although we can see its debts have increased also over the years, we can also observe that its assets have increased even more. But to be seriously objective about this, we should compare these data with one of their biggest competitors’: Burger King’s. Let’s compare the company-operated sales on 2010-12-31 that we can find on SABI database for these two companies for their operating bases in this country. McDonald’s Ingresos de explotación
135.368.931,00
Burger King Ingresos de explotación
75.771.642,00
So, as we can see, McDonald’s does better than Burger King at least in this very country. Their total actives also differ. McDonald’s beats Burger King by 333.091.745€, which is a very significant number. They also have a better economic profitability (McDonald’s has a 16,22% and Burger King has 4,50%) and a better financial profitability (McDonald’s has a 23,23%; Burger King has a 6,55%) Also, McDonald’s has a smaller debt percentage (30,21%) than Burger King (31,24%). Although there’s not a really amazing difference between the two, we can see that McDonald’s doesn’t need to buy more debt to fulfil their financial needs, which leads us to the conclusion that they are capable enough to finance themselves with their own resources.
4. Clients’ perspective:
As we have said before, McDonald’s has a good relationship with clients, although this great companionship has been shadowed by health worries among its customers. As noted before, documentaries like “Super-size me” have risen great fears among clients, who blame their health problems on McDonald’s. Anyhow, this mustn’t be such a great problem, as they serve 68 million people every day. So, for the same reason, they aren’t really worried about crisis hurting their sales. We have seen their sales have increased in the last years and customers are also greater in number than before. Maybe they should thank their 1€/1$ products, very popular among clients, as they can have a nice meal for very little money. Also, a very strong positive aspect for McDonald’s is the fast response they give to their clients’ orders. As a fast food restaurant it is, it’s very important to guarantee a fast delivery to the clients, in time, to keep them satisfied. MAIN PROBLEMS
Health worries
Potential customers choosing to
POSITIVE ASPECTS
Really cheap products for economy-worried clients
eat at home to save money
Speed at delivery
Public perception, “Super-Size
Good quality
me” and other documentaries
Low prices
hurting its fame
Good service
5. Learning and growth MAIN PROBLEMS
The employee turn-over rate:
POSITIVE ASPECTS
Great coordination among all their
Though McDonad’s trains their
franchises (knowledge comes and
low-qualified employees in a
goes)
course (Hamburger University),
Well trained employees, who go
they leave their job or get fired
through an educational course
over a year. That means two
before joining the company
things: They don’t get motivated
by their job, and they go away in search of a better job, or they get fired after a year working there,
Great communication with clients and providers
Good technology
Clear instructions to all the
maybe because of the same reason
franchises and good values which reach all their premises
What should McDonald’s do to solve their problem? They should motivate their employees. Not only via salary, which is always a good reward for the employees, but via making them feel integrated and needed in the company. 6. Internal Perspective MAIN PROBLEMS
POSITIVE ASPECTS
?
Great order-delivery time Answers perfectly to competitors Globalization: It’s present all over the world Investment in new technologies and employees has provoked a great production rate
I can’t find any big problem on the internal perspective, as it is a big company which works on its smallest flaws.
After seeing all these data, it’s time for me to present to you McDonald’s Balanced Scorecard, based on the work by Terra O’Brien6:
6
O’Brien, Terra, Mcd’s Balanced Scoredcard
Let’s see which indicators we can find for each key of this balanced scorecard:
Bibliography:
McDonald’s Financial Report: http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/Inves tors%202012/2011%20Annual%20Report%20Final.pdf
McDonald’s “Meet our suppliers” http://www.mcdonalds.com/us/en/food/food_quality/see_what_we_are_made_of /meet_our_suppliers.html
About McDonald’s, Hamburger University: http://www.aboutmcdonalds.com/mcd/corporate_careers/training_and_develop ment/hamburger_university.html
Joe Bramhall “McDonald’s Corporation”: http://www.hoovers.com/companyinformation/cs/company profile.McDonalds_Corporation.d8718dc05f40ef39.html
Mcd’s balanced scorecard, Terra O’Brien
SABI database
Dentch, Courtney, McDonald’s Speeds Orders by Seconds to Keep Customers (Update3), Bloomberg.com http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGL2uS5ybOyk
McDonald’s Swot analysis, Scribd.com
McDonald’s Business Policy and strategy, http://cristinalleno.weebly.com/swotanalysis.html
