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The operations and business model of Mcdonalds

Mission

“McDonald's brand mission is to "be our customers' favorite place and way to eat." Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience.”

This is from - http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html?DCSext.destination=http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html#13

Vision

We envision a supply chain that profitably yields high-quality, safe products without supply interruption while leveraging our leadership position to create a net benefit by improving ethical, environmental and economic outcomes. Ethical - We envision purchasing from suppliers who follow practices that ensure the health and safety of their employees and the welfare and humane treatment of animals in our supply chain. Environmental - We envision influencing the sourcing of our materials and ensuring the design of our products, their manufacture, distribution and use minimize lifecycle impacts on the environment. Economic - We envision delivering affordable food, engaging in equitable trade practices, limiting the spread of agricultural diseases, and positively impacting the communities where our suppliers operate. We view this vision and its responsibilities holistically. As sourcing decisions are made, we consider our priorities for food safety, quality and costs, as well as our ethical, environmental and economic responsibilities. Our progress on beef and coffee sustainability illustrate how we are working to bring this approach to life.

This is from - http://www.aboutmcdonalds.com/mcd/csr/report/sustainable_supply_chain/our_approach.html?DCSext.destination=http://www.aboutmcdonalds.com/mcd/csr/report/sustainable_supply_chain/our_approach.html

Evaluation -

Blah,. Blah, blah…………..

Operations and Business Model

McDonald's is the world's largest foodservice retailing chain. It operates approximately 32,000 restaurants in over 100 countries and is one of the world's largest food service retailing chain, preparing, and serving a range of food products and beverages. All restaurants are operated either by the company or by franchisees, including conventional franchisees under franchise arrangements, and foreign affiliated markets and developmental licensees under license agreements.

The company's business is divided into four geographic segments: Europe, the US, APMEA (Asia, Pacific, Middle East and Africa), and other countries and corporate. Other countries and corporate includes Canada and Latin America, as well as corporate activities and certain investments. McDonald's restaurants offer a standardized menu, although there may be geographic variations.

McDonalds makes their revenues in three ways; Retail sales, Franchise fees and lease agreements for property they own (leasing the property back to the franchisee)

I DON”T KNOW WHERE THIS CAME FROM……..(I have this one – Clint)

This came from DataMonitor – Company Profile retrieved 6/3/10 saved in the M Drive as McDonalds Company Profile

Evaluation -

………The Ford paper was about this short with no more…….

Financial and Performance Evaluation

Outperforms the industry in revenue and net income growth

Higher profit margins than the industry and the S&P.

Liquidity within range of competitors

Less levered than the rest of the industry

Highly efficient in turning inventory

Financials have been generally trending upward

http://moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=US%3aMCD

Evaluation -

The combination of high margins and efficient inventory turnover has allowed McDonalds to outperform the rest of the industry by almost all accounts. The low debt and high interest coverage indicates that the company should not have difficulty in meeting its obligations. As a result, McDonalds was issued a credit rating of AA- by Moody’s, the highest credit rating ever given to a fast food restaurant (http://quicktake.morningstar.com/stocknet/san.aspx?id=325610). Same store revenues have been increasing quarter over quarter and year over year, assisted by strong sales in countries other than the US. Despite the recent recession, McDonalds has performed well and seems poised to capitalize on the opportunity.

Macro Environment

Key Trends

Economy

Global economic issues from the US stock market, to Greece, to China’s economic slowdown

Potential weak dollar/poor exchange rates

Varied market conditions per country

Technology

Different cultures want different foods/ menus than U.S so must invest in R&D

Political/Legal

Ever changing climates with 100 governments to deal with

Varied laws (trade, finance, safety, labor, etc.)

Socio-Cultural

The rest of the world wants what the U.S. has and food is one of the items

Pressures to have healthier foods

Demographics

More “baby boomers”

Recent higher unemployment

New demographics to deal with (Brazil, Russia, India, China)

Globalization

People say they want to loose weight, but most people are gaining it

Natural Environment

Pressures to go green (packaging, reduced carbon footprint, etc.)

Threats

Continued competition

Impression they only sell unhealthy foods

Poor economic conditions and global unrest

Opportunities

Expand in the coffee (McCafe) market

Continue with healthier foods and lifestyles

Partner with retail chains (i.e. like Starbucks has done with grocery stores and Target)

These are our thoughts, so no reference, agree!!

Evaluation –

Industry Analysis

McDonalds is in the quick service restaurant segment and it’s defined as the sale of food and drink for immediate consumption either on the premises or in designated eating areas shared with other foodservice operators, or for consumption elsewhere. Their main competitors are Burger King and Wendy’s/Arby’s. The global fast food market generated total revenues of $154.7B in 2008, representing a compound annual growth rate (CAGR) of 6.6% for the period spanning 2004-2008. The performance of the market is forecast to decelerate, with an anticipated CAGR of 5.3% for the five-year period of 2008-2013.

– Reference is the Datamonitor paper

Five Forces –

Substitutes (Moderate)

Home cooking

Convenience stores

Grocery Stores (i.e. salad bar, pre-cooked diners, etc)

Suppliers Power (Low)

No uniqueness to products

Raw materials readily available

Switching costs are low

Buyer Power (High)

Buyer Independence

Low switching costs

Tendency to switch

New Entrants (Low)

Local franchise may be impacted by competition, but not nationally/globally

Too much capital needed to compete with McDonalds

Hard to match branding power

Rivalries (High)

Little product differentiation

Little price differentiation

Many competitors

These are our thoughts, so no reference, agree!! I agree, unless you want to reference Grant textbook.

Market segment

Strategic Groups / Competitors by Market (DM)

Consumer Packages Good Industry

Food (Cargill, Inc., Nestle SA, The Proctor & Gamble Company, Japan Tobacco, Inc., Unilever)

Leisure and Arts Industry

Hotels and Restaurants (TUI AG, Jardine Matheson Holdings Limited, Compass Group PLC, Sodexo S.A,., Burger King Corporation)

Food Service (Compass Group PLC, Sodexo S.A., Loews Corporation, ARAMARK Corporation)

Fast Food Restaurants (Yum! Brands, Inc., Autogrill S.p.A., Chick-fail-A, Inc., Jack in the Box Inc., Wendy’s/Arby’s Group)

Kristie found this…..I found this at Datamart – retrieved 7/10/10

Competitor Analysis

McDonalds

Burger King

Wendy/Arby’s

Strategy

Cost leadership (low cost, industry wide) strategy

Strategy is to offer menu variety at affordable prices such as Happy Meals, budget-minded Value Menu, espresso coffee drinks, fruit smoothies, premium chicken sandwiches and salads, our premium sandwiches that come with chicken, or grilled chicken as a choice in terms of managing calories

Restaurant development strategy is to pick locations within the marketplace to expand its target customers such as restaurants in local neighborhoods as well as at airports, malls, toll ways, and colleges. (DM)

Large scale of operation and ability to customize menu provides the ability to penetrate upcoming markets with minimal effort and enhances its revenue generation capacity (DM)

De-emphasize Partner Brands concepts in order to focus on the McDonald's brand (S&P)

Cost leadership (low cost, industry wide) strategy

Strategy is to focus its product development and marketing to customers in the 18- to 34-year-old male demographic. It has added a number of premium-priced items to its menu, including the Steakhouse Burger made with Angus beef. (Hoovers)

Uses a number of online marketing techniques, including viral videos, to reach its target audience (Hoovers)

Cost leadership (low cost, industry wide) strategy (WA, DM)

Improving several core products such as sandwich buns, French fries and bacon by differentiating in quality in the QSR hamburger segment. (WA, DM)

Focus on our fresh, never frozen beef and premium chicken. (WA, DM)

Install a disciplined product development and testing process (WA, DM)

Objectives

Compete in the global fast food industry continue its "Plan to Win" corporate strategy that it commenced in 2003 (S&P)

Fixing operating inefficiencies in existing restaurants; taking a more integrated while focusing on growth, with an emphasis on increasing sales, margins and returns in existing restaurants; and ensuring the right operating structure and resources are aligned with priorities that create benefits for customers and restaurants. (S&P)

Customize product to suit tastes and preference of consumers in local markets (DM)

Well-positioned to expand global footprint, invest in reimaging program and deliver operations excellence every day.

Marketing campaigns and menu options will focus on the brand equities that provide a distinct competitive advantage -- flame-broiled taste, quality and size at affordable prices. (DM Wendy)

Long-term strategies remain on course and committed to respond to an ever-changing consumer dynamic.

Same-store sales growth by increasing transactions and average check.

Margin expansion through advanced operational execution and control of costs.

Begin a rollout of a Breakfast menu to attract market share in “day” segment.

New restaurant development with an emphasis on franchise growth.

Expand internationally in markets such as Latin America, the Middle East, and Asia- Pacific.

Assumptions

International segment has supplied much of its earnings growth over the past two decades (S&P)

Diversified geographic presence provides opportunity to gain from economic growth in emerging markets (DM)

Restaurants sub-industry is negative and will continue as high jobless ratios and an ongoing troubled housing market (S&P)

The full-service restaurant segment will be negative specifically for the restaurant locations in states where the housing markets prices are weak and unemployment is above the national average causing continued pressure on sales and customer preference for less expensive menu choices. (S&P)

Challenging consumer environment will continue due to high unemployment levels resulting in a reduction in out-of-home eating expenditures.

Resources

385,000 Employees (S&P)

Cash 1,796 Million (S&P)

41,320 Employees (S&P)

Cash 122 Million (S&P)

67,500 Employees (S&P)

Cash 592 Milliom (S&P)

Kristie found this…..everything in the boxes above

I saved the Company profiles on the M drive. I used the company profiles from Datamonitor (DM) for McDonald’s, Wendy's/Arby's Group, Inc, and Burger King Corporation retrieved 7/3/10.

Hoovers:

Burger King Holdings, Inc. (15  July). Hoover's Company Records,54531.  Retrieved July 3, 2010, from Hoover's Company Records. (Document ID: 168241971).

S&P:

McDonald’s Corp. (20  July). Standard and Poor’s NetAdvantage Company Profile.  Retrieved July 3, 2010, from Standard and Poor’s NetAdvantage Company Profile.

Burger King Holdings, Inc. (20  July). Standard and Poor’s NetAdvantage Company Profile.  Retrieved July 3, 2010, from Standard and Poor’s NetAdvantage Company Profile.

Wendy's/Arby's Group. (20  July). Standard and Poor’s NetAdvantage Company Profile.  Retrieved July 3, 2010, from Standard and Poor’s NetAdvantage Company Profile.

Evaluation –

Company/Division Analysis

WE PROBABLY NEED TO CHANGE THIS/MAKE IT OURS, NOT SO MUCH FROM THE ANNUAL REPORT.

Key Resources

Tangible

Financial (cash securities, borrowing capability)

Revenues exceed $22,700 million

2009 comparable sales increase marked the sixth consecutive year of positive sales in every geographic segment of our business.

Physical (plant, equipment, land)

Operated in over 100 countries; 32,478 McDonald’s restaurants

80% of McDonald’s restaurants worldwide owned and operated by independent local men and woman

Natural Resource

Has some agriculture operations in Russia

Intangible

Technology (software, patent, copyright, trade secrets, data)

Product/Menu Innovation

customizes its product to suit tastes and preference of consumers in local markets

company’s product line in India comprise of non-beef based burgers

Developmental license

Local entrepreneur owns the business, including control of the real estate, and uses their capital and local knowledge to build the McDonald's Brand and optimize long-term sales and profitability.

The company collects a royalty, which varies by market, based on a percentage of sales

Reputation (brands, relationships)

Well-established brand that appeals to all customers of all age groups and nationalities 1

Provides acceptability in new markets 1

2009 – 6th place in the top 100 global brands

Predictable value, family fun and familiar taste

Culture

Leadership culture that embraces change and rejects complacency

Continually focused on what is working and then leveraging our scale around the world for the overall good of their customers and their System.

Human Resources

Skill / know-how / Training at McDonalds University

Relationship

Strength of the alignment between the Company, its franchisees and suppliers (collectively referred to as the System) has been key to McDonald’s success over the years. This business model enables McDonald’s to consistently deliver locally-relevant restaurant experiences to customers and be an integral part of the communities we serve. In addition, it facilitates their ability to identify, implement, and scale innovative ideas that meet customers’ changing needs and preferences.

Motivation

McDonald’s customer-focused Plan to Win—which is centered around being better, not just bigger—provides a common framework for our global business yet allows for local adaptation. Through the execution of multiple initiatives surrounding the five

Key drivers of exceptional customer experiences—People, Products, Place, Price and Promotion—they have enhanced the restaurant experience for customers worldwide and grown sales and customer visits in each of the last six years. This Plan, coupled with financial discipline, has delivered strong results for shareholders.

Capacity for communication and collaboration

Cross-fertilization of ideas and innovations, our leaders are better able to assume new challenges and responsibilities on behalf of the Company.

Kristie found this above…Found this on McDonald’s Annual Report 2009 Retrieved 6/4 – Saved the file in the M Drive as McD_2009_AR_Final_032910..

Capabilities/Value Chain

Primary

Inbound Logistics

No difference from competition

Operations (Competitive Qualifier)

Makes food as fast as competition

Outbound Logistics (Competitive Qualifier)

Located in Metro areas, easy to drive into/out of, one on every corner (per se)

Marketing/Sales (Value Add)

Gives customers more options (hamburgers, salads, coffee, deserts, etc.) along with free Wi-Fi, and is more recognizable than competition

Secondary

Infrastructure

Did not find and advantage or disadvantage

Human Resource Management (Value Add)

Has McDonalds University for Management, others do not

Technology (Value Add)

Come out with new products first. I.e. Big Mac, Breakfast foods, coffee, now smoothies

Procurement (Competitive Qualifier)

Owns/grows little to none, buy and assembles everything

Customer Service

They have Customer Service like the competition

Our thoughts…..

Core Competencies – The bundle of resources and capabilities that add value to a customer and may serve as a source of sustainable competitive advantage. It is answered by the follow -

Established – Yes. McDonalds is a global company that started over 70 years ago and is still growing. Tremendous branding.

Sustainable – Yes. They actually grew and made profits during the recession of 2008 and continue to outpace the competition by nearly 8 fold over Wendy’s/Arby’s and 10 fold over Burger King – REFERENCE http://www.dailyfinance.com/quotes/mcdonald-s-corporation/mcd/nys

Inimitable – the products, yes, the experience no. They have come out with new products first (i.e. competitive coffee, healthier foods, etc.) and have the branding that the competitors can’t touch. Ronald McDonald is second to Santa Claus in recognition.

Our thoughts…..(one reference above)

Evaluation -

VII. Corporate Social Audit……..This was less than a page for FORD……that is because they know what they are doing and I don’t  lol.

THINK WE NEED TO SCALE THIS DOWN, APPLY TO CONCEPTS IN THE BOOK. MAKE IT NOT FROM MCDONALD’S VIEW, BUT OUR VIEW.

sustainability project to improve conditions for farm workers in the Florida tomato industry in 2007, which in turn promotes good environmental practices in its land-based agricultural supply chain and makes the farm a sustainable business. Although McDonald’s purchases only 1.5% of Florida's tomatoes annually, McDonald’s and its suppliers instituted industry-leading grower standards that improved working conditions in these farms and made the farm a sustainable business.

http://social-corporate-responsibility.suite101.com/article.cfm/corporate-social-responsibility-at-mcdonalds

Flagship Farms Initiative (FAI) in Europe. The program showcases seven “progressive farms” employing innovative farming practices across Europe and carries out research into how ethical farming practices can be incorporated into commercial farming systems.

http://social-corporate-responsibility.suite101.com/article.cfm/corporate-social-responsibility-at-mcdonalds

Sustainable Fisheries program which is in collaboration with the Sustainable Fisheries Partnership. This program defines sustainability standards that guide all of McDonalds’s purchases worldwide for wild-caught fish that goes into making those Fillet-o-Fish and make the relevant fishery a more sustainable business.

http://social-corporate-responsibility.suite101.com/article.cfm/corporate-social-responsibility-at-mcdonalds

In 2005, the Center launched a new unique educational opportunity, in partnership with fast food giant McDonald's, giving Haas MBA students first-hand exposure to the myriad CSR challenges businesses face on a daily basis. The program is known as the McDonald's Research Fellows in Corporate Responsibility (CSR) Program.

Through research, stakeholder engagement and intensive field experiences, a globally diverse team of second-year Haas MBA students conduct a deep stakeholder engagement study on McDonald's CSR activities - giving the company a fresh perspective and new insights into its business. As part of McDonald's "Open Doors" program, the main goal of the CSR Fellows program is to expose the students to McDonald's business and create opportunities for the company to engage and interact with various stakeholders.

The corporate-sponsored program provides research fellowships to each student. Recipients are known as "McDonald's Fellows". The fellows work closely with a faculty director on the study and produce several key deliverables that may be used broadly and at the discretion of McDonald's (web, company's corporate responsible reports, etc.).

http://responsiblebusiness.haas.berkeley.edu/McDonaldsCSRFellowsProgram.html

Educate and communicate with our supply system about sustainability:

Through the use of targeted communication tools, an internal website, and training opportunities, we have achieved a greater understanding of, and alignment around, sustainability, including how it drives our business.

Continue to integrate environmental considerations into our packaging design through rollout of our global packaging scorecard into our nine largest markets:

The Eco-Filter 2.0 (our packaging scorecard) has been implemented in each area of the world. Packaging designers have been trained in its use. The scorecard is being used to incorporate environmental considerations, in addition to other business criteria.

Increase the number of Hamburger University certified restaurant managers:

We continue to focus our efforts on increasing the numbers of restaurant managers who are HU graduates with positive success. The percentage of restaurants in our top nine markets with managers who were graduates of HU in 2008 was 93.3%.

Develop a comprehensive global forestry policy that will apply to all products we purchase:

We developed a global Sustainable Land Management Commitment (SLMC), using a rigorous process that included global internal, supplier, and NGO input. Initial communications efforts are focused internally and with our supplier community.

Measure environmental impacts in our supply chain :

By the concluon of 2009, the Environmental Scorecard (ES) should be completely rolled out to all of our direct suppliers of beef, poultry, pork, potatoes and buns in McDonald’s top nine markets. The ES measures water, energy, waste and air emissions metrics and promotes continuous improvement. In addition, an initial estimate of our supply chain carbon footprint is underway and will be completed in early 2010.

Further rollout of our global forestry standards for consumer packaging, expanding into other Areas of the World, specifically the U.S. and Asia Pacific, Middle East, and Africa (APMEA). :

The APMEA market has partially implemented our forestry standards for consumer packaging, with full adoption planned by the end of 2009. As of the end of 2008, the North America market had completely rolled out the standards.

Taken from McDonald’s Corporate Responsibility Online Report, PAGE 2 I saved a hard copy of the report on the M Drive. Retrieved 7/1/10

http://www.aboutmcdonalds.com/mcd/csr/report/overview.-RightParaContentTout-43872-ReportsLinkList-44436-File1.tmp/McDonald's%202009%20Global%20CR%20Report%20Overview.pdf

Innovative menu

In many markets, customers can mix and match main course, side beverage and dessert choices to create custom-tailored Happy Meals. Yogurt desserts with fruit are also available in most of the major markets, as are sugar-free soft drinks. 100% fruit juice is also on a number of menus worldwide. Market-level offerings include:

McDonald’s France offers a choice of entrées, three side dishes, fruit bags, nine beverages and four desserts. Sides include cherry tomatoes and two types of potato offerings. Beverages include bottled water, two juice options with no added sugar, and two soft drinks with no sugar. For dessert, customers may choose a drinkable applesauce, a yogurt drink or sliced fruit. Happy Meal choices in the UK include carrot sticks, bottled water, juice, a soft drink with no sugar added, along with a fruit bag side/dessert and semi-skimmed, organic milk. In Hong Kong, Happy Meal choices include whole grain corn as side and for beverages, juice, low- fat milk, or soy milk. In the U.S., Happy Meals can be ordered with Apple Dippers and 100% apple juice or 1% low-fat milk as a beverage.

McDonald’s Australia Happy Meal offerings include the Seared Chicken Snack Wrap, Apple Slices, Apple Juice, Low Fat Calcium Enriched Chocolate Milk and a Sparkling Fruit Juice Drink (Apple & Blackcurrant).

Taken from McDonald’s Corporate Responsibility Online Report, PAGE 11 I saved a hard copy of the report on the M Drive. Retrieved 7/1/10

Our Global Advisory Council (GAC) is an international team of independent experts assembled by McDonald’s to provide us with professional guidance in the areas of nutrition and children’s well- being. The GAC plays a pivotal role in helping us to continuously evolve our thinking and approach in these areas. GAC members provide us with valuable insights, direction and recommendations about how to continue delivering a more beneficial and valuable experience to children and families. Adam Drewnowski PhD, MA; Prevention & Treatment of Obesity, University of Washington at Seattle, WA Paul Gately

McDonald’s makes charitable contributions through the Ronald McDonald House Charities (RMHC) which aims to create, find and support programs that directly improve the health and well being of children.

According to Clara Carrier of Ronald McDonald House Charities, in particular, the Ronald McDonald Care Mobile attempts to ensure that children in vulnerable communities can receive state-of-the-art medical and dental treatment to improve their health and strengthen the whole family. This health care on wheels program attempts to change children’s lives and improve communities along the way.

http://social-corporate-responsibility.suite101.com/article.cfm/corporate-social-responsibility-at-mcdonalds

Accelerate and expand food and beverage choices for kids:

We remain committed to working with our suppliers and partners to test and introduce new food and beverage items for kids on a market-by-market basis. In Spain and Australia this year we expanded the choice of Happy Meal entrée items with the introduction of a new kids’ sized grilled chicken snack wrap, while in Portugal we launched carrot veggie rolls. On the beverage front, we introduced new fruit beverages across Latin America and in Australia and continue to look for other refreshing options appropriate for kids.

Continue to enhance children’s well-being through programs and initiatives that provide “fun with a

Purpose:

We have leveraged the characters from our Happy Meal promotions to encourage fruit, vegetable and dairy purchases and to inspire kids to be active and creative and will continue to do so in the coming years. In 2008, many McDonald’s markets, including Australia, Brazil, China and Japan, created robust opportunities for kids to experience the Beijing Olympics, whether it was as an athlete escort at the Games or sponsoring local athletic initiatives. Along with continuing to support local grassroots efforts, we use Ronald McDonald at restaurants to encourage kids to participate in activities that activate their body, mind and spirit.

Continue to provide useful nutrition information in ways most relevant to today’s consumers:

In many markets around the world, we have enhanced our merchandising efforts to make it easier for parents to make balanced food choices for themselves and their kids. In all of our top nine markets, we continue to invest in making nutritional information available in the store, as well as online.

Taken from McDonald’s Corporate Responsibility Online Report, PAGE 12 I saved a hard copy of the report on the M Drive. Retrieved 7/1/10

VIII. Competitive Position…….this is the box (low cost, differentiator, etc.)

Low Cost

Differentiator

Broad

Focused

I now think they are in this box. They are definitely focused of just fast food, yet they are not always the lowest. They want people to visit them because the have the best fries, the best coffee, wi-fi, etc.

I sent Bryant a message on this………….

These are our thoughts…..

IX. Corporate Strategy Clint working on

Vertical Integration

Partially or Quasi????????

Franchise provide portion of capital required by initially investing and reinvesting in the business over time

Owns the land and buildings or secures long-term debt leases for both McDonald’s – operated and conventional franchised restaurants sites

These are our thoughts…..

Geography/International Strategy ?????????????

Clint working on

Lines of Business

Extent of diversification - None

What kind of diversification - None

How do they do it - None

Experience (good/bad) - None

Future (when/where) – NA

These are our thoughts…..

Evaluation -

Structure

Org structure…….

REFERENEC - found in the 2009 annual Report…

http://www.aboutmcdonalds.com/etc/medialib/aboutMcDonalds/investor_relations0.Par.6540.File.dat/McD_2009_AR_Final_032910.pdf

Evaluation -

XI. Strategic Recommendations

Will be our thoughts….

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