McDonald’s Company Analysis
The Company’s Background
McDonald’s is the world’s leading fast food company, serving about 70 million clients in about 120 countries worldwide. The company started its operation back in 1940 in the United States as a barbeque outlet operated by Maurice and Richard McDonald. Businessman Ray Kroc united the firm as a franchise agent in 1955 when he bought the chain from the McDonald brothers and worked to achieve its worldwide growth. McDonald’s operations rely either on franchise or the corporation itself. The franchise’s main menu food includes hamburgers, milkshakes, chicken, smoothes, wraps, soft drink, desserts, fruits, and wraps. McDonald’s has over 34,000 restaurants all over the world. In 1967, McDonald’s begun its international business when it opened its first branches in Canada and Puerto Rico.
Mission and Objectives
McDonald’s mission is to develop into the most excellent employer for people in every local community; to provide outstanding services to every client; and ensure expansion with a profit through its strengths such as its structure, innovation, and technology.
External Environment Assessment Analysis
The external environment analysis entails assessment of the retailing industry in which the target corporation operates. It analyzes the relationship between firm’s operations and factors outside its operations.
- Political factors
Political issues include laws and agencies that limit a company in a given country. These dimensions include government attitude to foreign markets, stability, and financial policies. Political forces affect the industry as a whole through regulatory bodies that develop policies on trading, as well as restrictions and standards within a particular field. Global operations of McDonald’s are excessively under the control of policies of different states put into practice by every government. For instance, there are particular groups in Europe and the US, which enforce acts of governmental control regarding medical norms of fast food. They have specified that toxic elements like cholesterol and depressing influences like fatness are related to consumption of fast food products. However, the corporation operates under a different policy and directives of operations. Individual markets focus on diverse areas of anxiety like the health sector, protection of employees, and the environment.
- Economic factors
Economic determinants include things that affect consumers’ buying capacity and spending patterns. Due to global business operations, McDonald’s faces a wide scale of tax and income measures in different regions. The company also faces problems because of global currency fluctuations in its international food distribution. Local economics state also contributes to the McDonald’s operations. For example, if the local economy is depressed, it is obvious that people will not spend much on food. The corporation’s international supply and existing exchange rates are just a part of general components required for McDonald’s overseas operations. For the company’s growth, the management will have to consider country’s demand, business cycles, distribution, and exchange rates.
- Technological factors
Technological skills are required to utilize a variety of promotional methods using alternative advertising media. The key marketing strategy for the company presupposes television advertisement. There are a number of ways how the company intends to interest children. Availability of games and toys in the food offered by the restaurant shows validity of this strategy. Another exhibition of such marketing techniques is observable in advertisements the company uses. Due to high competition, McDonald’s has to ensure the technological contact to influence consumers. Modern quick delivery channels, easy and speedy payment, consumer entertainment apparatus in store, and wireless internet connection in all restaurants can help McDonald’s to succeed. Integration of technologies into the company’s operations tends to increase the cost of commodities. Improvement of the stock system and systems of delivery allows the firm to operate in a global context.
- Legal factors
There has been a major challenge concerning the fast food business. This problem has pushed McDonald’s to apply additional close assessment of its corporate social accountability. As a whole, it has addressed to the requirement of the firm to become a more constructive and more socially responsible company. McDonald’s has provided its customers with corresponding data in which they stipulate nutritional properties of its food. This approach is a response to the arguments relating to obesity directed against the company’s products. In a similar way, customers have been provided freedom in the choice. It is connected with socio-cultural market symbols, which they influence. For example, operations in predominantly Muslim countries stipulate the need to have Halal food authorization. Other legal concerns like tax obligations, employment standards, and the requirement for quality are some of the important elements that the company should consider.
- Socio-cultural factors
There is always a difference changing demand in different societies. Social and cultural value of information about the existing market is necessary to consider in the company’s operations for the success of the company. McDonald’s has established a sound system in determining market needs. It applies the concept of customer individuality of conduct and decisions relating to the purchase. For example, in India only fish and chicken items are included in the non-vegetarian menu. Beef is not in the menu because it is considered as sacred. The company has also amended its products in Muslim countries since they do not consume pork. In some regions like the UK, the company has considered choices concerning the lunch menu.
- Environmental factors
Social liability of McDonald’s influences the company’s operations. It entails harm to the environment. The company is accused of such harmful behavior because some substances like drinks glasses and polystyrene used for meals are not decomposable. McDonald’s has the Rain Forest policy that states its commitment to beef purchasing practices that limit tropical de-forestation. Continuous use of natural resources can lead to an imbalance in the ecosystem.
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Porter Five Forces
- Rivalry among firms
In the fast food industry, there is a huge competition for growth in the market. Increase in the market share occurs thanks to customers who do not have spare time to cook. Even if there are many competitors, McDonald’s is presently the leader in the business with market capitalization of $39.31 billion.
- Threat of new entrants
A continuous threat of new entrants in the market is on increase due to the lack of legal hindrances that would keep them away from joining the market. The capability of making profit and distribution access are two major obstacles faced by a firm in the market. The enterprise should allocate plenty of funds for advertising and marketing to reach success in the industry since companies always compete for clients. For example, if new entrants indeed carry a significant brand value, McDonald’s existing profit and market share will be affected. Franchise options have made it easier to enter the market, whereby the starting capital is the only cost for entering the industry.
- Threat of substitute products
Competitors in the fast food business try to compete with similar products, which leads to a price war. In order to contribute to a healthier society, McDonald’s and other competitors have to make extensive menu changes to match up expectations of a concerned population. McDonald’s has introduced innovative ways to compete with other firms. Nutritionists and other experts have been hired to join McDonald’s to make sure other products are added to the menu.
- Bargaining power of customers
McDonald’s has adopted the slogan that “the customer is always right” because the company and the industry have tried to expand market capitalization by maintaining consumer satisfaction. Buyers are always powerful as without them there would be no business. For a well-maintained and progressive society, the industry should make an effort to keep a grasp on the market by meeting society’s requirements as well as maintain quality. McDonald’s has faced previous lawsuits when it has been held responsible for obesity. The latest McDonald’s concern is to prevent obesity and construct a healthier environment.
- Bargaining power of suppliers
McDonald’s spent $4.853 billion on food and paper in 2004, in the result of which it gained a substantial bargaining power in the market. Companies that McDonald’s buys raw materials from depend on McDonald’s operations to a great extent. With the increasing competition in the market along with the loss of the number of buyers, a large firm like McDonald’s can ruin any supplier. However, there still will be other firms like Wendy’s, Burger King, and a few others that can buy suppliers’ products.
McDonald’s is serving millions of clients daily. In developed countries, clients of the company enjoy excellent services, for example, quality food, free Wi-Fi, and discounts for regular customers.
They involve CEOs who are responsible for overseeing general operations of the company; employees in managerial positions of different restaurants; other employees; and government policies through related departments that develop business strategies. For example, tax policies, legal business licenses, and other requirements are under government control.
- Transformation process
Through its franchisees, McDonald’s has grown bigger and bigger globally. This process has made it easy to access its services anywhere in the world. In some countries, the company has introduced home delivery whereby consumers can order food from their workplace or home and wait for the delivery. These strategies have made it easy to maintain customers and market share.
- World vision
No doubt, the company is viewed as one of the leading fast food companies. It has become a low-cost food company in the fast food industry. The company is associated with health issues such as obesity.
The company ownership belongs to franchisors and other shareholders. By the end of 2010, 80% of McDonald’s were franchised. Of all McDonald’s restaurants globally, nearly 65% are under franchise. 21% are licensed to foreign affiliates, while the company owns nearly 20%.
- Environmental constrains
The company faces criticism for using unsafe elements, for example, non-decomposable materials for its drink glasses. Environmentalists condemn McDonald’s for using polystyrene in food packaging.
The McDonald’s mission is to become the best employer for people in each local community of the world.
Its objectives include to exploit modern industrial advantages, to dominate the market share, and to think about employees.
McDonald’s strength depends on increasing demand for fast food. The company has many food chains globally, which makes it easier to reach more customers. It is the leading fast food company enjoying the largest fast food market share globally. It serves around 70 million clients every day.
The company has franchised its operations to expand its market globally. McDonald’s uses modern advertisements and different slogans that attract customers, for example, billboards, internet, and TV. The co-branding strategy is also another tactic employed by the company for boosting sales. For example, Coca-Cola has joined McDonald’s in this respect, which has increased their sales. The company also has a marketing strategy named a “plan to win”, which checks on 5Ps that are necessary for the scheme. 5ps include people, place, product, price, and promotion.
- Capital assets
Approximately 66% of company-operated chains and over 74% of franchised restaurants were situated in the main markets at the year-end of 2012. Over 80% of restaurants were located in primary markets at the end of 2012.
- Human resource asset
McDonald’s employs approximately 1.5 million people with a big number of its employees in the US. Employees of McDonald’s may be divided into three groups: restaurant workers, corporate staff, and franchise owners. A single franchise can employ from 50 to 65 people depending on its size.
- Marketing skill
The company has decided to open outlets in petrol filling stations where they reach many clients. The company uses a lot of money for advertisements, such as TV, radio, cinema, and internet advertisements. Customer-friendly services like free WI-FI have been a marketing strategy aimed at attracting more clients. The company’s marketing strategy “Plan to win” has been critical in the company’s domination of the market. “Plan to win” deals with people, place, product, price, and promotion. The company promotes its products through advertisement. It has broadened its product selection and has developed training and hospitality programs to teach its staff skills they need to deliver quality services. The company also offers affordable prices to clients.
- Operational strengths
McDonald’s has stayed in the fast food business for over 60 years and has gained lots of skills. It has experienced employees who can manage any situation. Employees are also trained in various techniques, which are useful in the fast food industry. Restaurants are situated in busy locations such as airports, filling stations, busy streets, and shopping malls. The company’s unique business policy is named “Franchises Policy”. Franchises have increased McDonald’s market accessibility, making it the giant holder in the market. The company’s famous logo “Golden Arches” acts as a symbol of devotion and reliability.
- Competitive advantage
McDonald’s franchise policy has strengthened its market position, making it available globally and hence enjoying a significant market share. This has strengthened its competitive ability in the market. The company purchases raw materials in bulk, meaning functioning in the economies of scale. Hence, it sells its products at lower prices than its competitors.
McDonald’s has grown into a global giant fast food industry from a single food outlet in California. Expansions have been achieved through its distinctive operation policies. “Franchise Policy” has played a vital role in expanding the company’s market. Its experienced workforce has managed to introduce modern ways of promoting McDonald’s products in order to reach many consumers worldwide, making the firm the second largest fast food industry in the world.