Analysis of McDonalds in Malaysia

Executive Summary

The first section of this case study will introduce the background of McDonalds in Malaysia, the mission and vision of McDonalds and also the opportunity and threats of McDonalds. After the brief introduction is the external environmental analysis of McDonalds.

The next section analyses the fast food industry through Porter’s five forces model as well as the competitor analysis that consist of Burger King and KFC. Subsequently, market analysis is conducted to indentify the market trend and also the market size and growth.

Next is the analysis of the buyer analysis. The analysis is being analyzed base on the psychological factors, personal and social factors. Then followed on are the internal analysis and core competencies. This analysis is to analyzed McDonald’s strengths and also its weaknesses

The next segment will discuss the market segmentation, targeting and positioning of McDonalds in Malaysia market. The marketing program of McDonalds will then be evaluated as well as its financial performance.

Lastly, the issues and problems are brought up and recommendations are given to improve the situation.

1.0 Company Overview

McDonalds was founded by two brothers, Richard and Maurice McDonald in 1937 in California. This largest global fast food chained arrived in Malaysia 43 years later in December 1980. McDonald Corp. gave their license to Golden Arches Sdn Bhd to open McDonald’s Restaurant in Malaysia. After twenty six years they now have 185 franchise outlets nationwide. McDonalds have created over 7000 job opportunity ever since they arrive in Malaysia over the years. Their vision is “to be our customers’ favorite place and way to eat”.

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1.1 Opportunity

The fast food trend in Malaysia has benefited McDonalds as they are able to capture more market share and customers. Malaysian would like to eat outside with the increasing of number of women workers. They would like to look at convenience place to eat as McDonalds provide it for them. The technology advance has improved McDonald’s services efficiency as their customer able to order through phone and online. The growing internet users in Malaysia supported for this kind of service. 24 hours service will open a revenue window for McDonalds as customers look for quick meal at late night.

1.2 Threat

The increase of competitions from KFC, Subway, Burger King, and others has made the competition for market share in Malaysia tighter. Customers have more range of fast food being offered and they would have no brand loyalty with one brand. McDonalds need to fight back with their promotion and advertisement to gain the customers feeling. They need to spend a large amount of money on it. The health concern has become a main treat for McDonalds as most customers concern on healthy foods. Fast food is considered unhealthy because of too oily. This will reduce the number of customers to purchase McDonalds foods.

1.3 Mission and Vision

1.3.1 Mission Statement

We aim to be the leader in the Quick Service Restaurant (QSR) industry by maximizing Profits and through our Principles of QSC & V (Quality, Service, Cleanliness & Value) consistent with the needs of our Customer, Employees and Community.

1.3.2 Vision

To be out customers’ favourite place and way to eat.

1.3.3 Values

McDonald’s mission is to be our customers’ favourite place and way to eat – with inspired people who delight each customer with unmatched quality, service, cleanliness and value every time.

2.0 External Environmental Analysis.

2.1 Economic Environment.

The economic condition in Malaysia currently slowing as household incomes and business activity decelerates due to the effects of current world economic down-turn. However, Malaysia is still not in a recession period as compared to Singapore or United States. Even with the depreciation of Ringgit, real GDP growth is forecast an increase from 5.0% 2008 to 5.2% 2009.

Source- Euro-monitor International 2009 based on the World Bank.

Even with current economic condition, McDonalds remain optimistic. According to Business Times (2009) “McDonalds Malaysia expects its delivery service business to jump 40 per cent this year as its new call centre can handle more orders”. They invested over two million ringgit for setting up the new call center. In addition, the Managing Director Azmir Jafaar, said the company “plans to invest 80 million ringgit this year to open between 15 and 20 new restaurants” (2009).

2.2 Natural Environment.

Malaysia natural environment is considered good. Based on the report by Department of National Environment Energy and Resources, the Air Pollution Index is in the status of good in many areas in the country.

In relation to this, McDonalds around the world has always been a company which practice to protect the natural and community resources that support and are affected by their activities. McDonalds promotes recycling and energy conservation. “Since 1990, they had recycled 2 billion corrugated cardboard, purchased more than $3 billion in products made from recycled materials and eliminated several million pounds of packaging”(McDonalds).

2.3 Legal and Political Environment.

Malaysia is officially an Islamic nation which majority of its population is Muslim. In order to capture the market, McDonalds believe that believes in working with local businesses, government, authorities and suppliers throughout their worldwide operations.

In Malaysia, they are bound with the Syariat law which states all food served must be Halal. McDonald’s is one of the many fast food chain restaurant in Malaysia gained Muslim consumers confident. “McDonald’s in Malaysia underwent rigorous inspections by Muslim clerics to ensure ritual cleanliness; the chain was rewarded with a halal (“clean and acceptable”) certificate, indicating the total absence of pork products” (Journal).

2.4 Technological Environment

McDonalds has been adapting to the use of technology in delivering its fast food to their consumers. The use of telecommunication technology is a good strategy to begin an online service diverse from its brick and mortar concept. As explained above, McDonalds had expanded their call centre capability which “now can handle up to 70,000 calls compared to 20,000 previously” (McDonalds). In addition, McDonald’s Malaysia is also “working on allowing customers to order and pay online”. Based on the chart above, it shows that there is been a constant growth in the usage of mobile users in Malaysia from 2001 to 2006. Thus, the investment made by McDonald’s Malaysia is justifiable and relevant in terms of current trend.

3.0 Industry Analysis

To analyze the industry for McDonald’s, the Michael Porter’s five forces are used. The Porter 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place.

3.1 Rivalry among existing industry firms

The fast food industry is facing high intense of competition. Rivalry is strong because competition is focusing on providing the best service and product variety. Other competitors such as KFC and A&W create an intense rivalry among the fast food providers. Rivalry such as KFC is constantly providing more choices ranging from fried chickens to burgers and to side snack such as potato wedges and salad. Moreover, competitors equal in size and power and growth in the industry.

3.2 Threats from substitute products

Factors that caused the firm to lose its sales profit is the limited choice of product they offer. Therefore, many people will go to substitute products. The substitute products for McDonald’s will be the other fast food chain, for example: Burger King and road side burger stalls. Although McDonald’s has applied 24 hours all around, however, road side burger stall that operates until late at night and other fast food restaurant is also operating 24 hours service.

3.3 The threat of new entrants

New entrants pose threats and increase competition in the industry. The lesser the threat of new entrants, the greater will be an industry’s attractiveness as it is in the retailing industries. Due to low switching cost and lack of product differentiation, new competitors can easily enter the market. For example, McDonald’s face competition from Carl’s Junior and Wendy’s which are quite new in the Malaysian market still.

3.4 Bargaining power of suppliers

The bargaining power of suppliers is viewed as a threat because the quality of the supplied products is highly dependent on them. They can either raise the prices or lowered the quality if the suppliers are powerful. In the fast food industry case, the power of suppliers is relatively low because the inputs are standardized, low switching costs and there are a lot of substitutions of supplier.

3.5 Bargaining power of buyers

As the competition among rival become intense in attracting potential customer and maintaining loyal customer. According to Viljoen & Dann (2000), buyers play an important role in deciding the shape of the market as they can drive prices down and make unreasonable demands regarding quality, delivery and terms of payment. In McDonald’s case, buyers assert higher bargaining power because of low switching cost to other brand (Burger King). For instances, McDonald’s cannot set high prices on their products as consumer can easily opt for other burger.

4.0 Competitor Analysis

This part evaluates about the strategy that McDonald used compared with its main competitor of the similar product. It identifies whether McDonald is a market leaders, followers, nichers market challengers in its own type of products and the whole market’s position.

5.0 Market Analysis

5.1 Market Trends

Fast food culture has become a way of life or trend in the world. Malaysian adults eat at take-away restaurants around 98 percent. Philippine, Taiwan and Malaysia have the highest percentage of fast food restaurant consumers in the world compare to America which count 97 percent (ACNielsen, 2005). This is due to the busy life styles and ease of access of variety of fast food restaurant. Consumers have been spending less of their budgets on the grocery store while more and more of their food money is ending up in cash registers at the restaurants and fast food outlets (Kara, et. Al., 1999). Around 59% of Malaysian eating takes away every week. Even the state of one’s health has become primary concerns for consumers, but it does not affect the way consumers choose to eat. It has become a part of their life to eat fast food, particularly in Hong Kong, Malaysia, and United State.

McDonalds will be able to increase their target markets in Malaysia as this trend has become part of their consumers’ life. This is also inducing the competition of fast food industry as Malaysia is a prospect market for fast food industry. McDonalds can perform better than its competitors if they can fulfill Malaysian customers who prefer convenience location as it account for 54 percent of Malaysian prefer convenience location to eat (ACNielsen, 2005).

5.2 Market Size and Growth

As fast food becomes a trend in Malaysia, the number of expenditure used by the consumers has increased by nine percent and ranked third in terms of expenditure. The fast food market size is increasing from year to year and it reaches 2,058.8 in 2007. McDonalds Malaysia company share also increase in the year 2007 by 400 plus. The number of households purchase on fast food reach 356,482,100 by year 2007. The fast food sector is expected to experience the fastest growth between 20 to 30 percent per annum (Malaysia Market Opportunities Report, 2000). McDonalds already has 184 stores in Malaysia, and McDonalds plan to open ten to fifteen new outlets each year (Business Times, 2009). Even though it is still far away compare to KFC outlets in Malaysia which count for more than 390 outlets, this trends and growth is good indicators for McDonalds to increase their market share in Malaysia.

As fast food becomes a trend in Malaysia, the number of expenditure used by the consumers has increased by nine percent and ranked third in terms of expenditure. The fast food market size is increasing from year to year and it reaches 2,058.8 in 2007. McDonalds Malaysia company share also increase in the year 2007 by 400 plus. The number of households purchase on fast food reach 356,482,100 by year 2007. The fast food sector is expected to experience the fastest growth between 20 to 30 percent per annum (Malaysia Market Opportunities Report, 2000). McDonalds already has 184 stores in Malaysia, and McDonalds plan to open ten to fifteen new outlets each year (Business Times, 2009). Even though it is still far away compare to KFC outlets in Malaysia which count for more than 390 outlets, this trends and growth is good indicators for McDonalds to increase their market share in Malaysia. (refer to appendix 2)

6.0 Buyer analysis

6.1 Psychological factors

The demand for fast food industry has increased over the past twenty years. Consumers try to purchase goods or services to fulfill their own needs and wants. This is the same in the fast food industry. Household with dual income family are the social norm in Malaysia. McDonalds provide fast food to be served for the family whether they are dual income or other types of family. McDonalds provide foods that are fast and easily obtain by the consumers who are unable to cook for themselves. This is more comfortable and easier since they do not waste their time and can focus on their jobs.

Attitudes also can drive the consumer consumption of fast food as attitudes are a learned predisposition and occur within a situation (Schiffman et. al., 2008). McDonalds offer 24 hours service where some consumers will feel hungry during midnight after doing works or study. This will induce the customers to dial McDonald’s call center and order foods. The word of mouth will spread when the customers feel satisfied with McDonalds’s fast foods. they will spread the word of mouth to their relative and friends.

6.2 Personal factors

6.2.1 Age

McDonalds target market is the dual income families who have no time to prepare for their foods for their children, the workers who are having their lunch, and teenagers. The global target market fast-food industry account for 79 percent is at age 17-25 (Schroder & McEachern, 2005).

6.2.2 Income, Education and Occupation

These criteria used by marketers to measure ability of consumers’ spending. The salary earning, is related to what job the consumer holds, which is in turn rated by the level and quality of his or her received education. McDonald target consumers are upper-middle and lower income consumers. The Mac value offered by McDonalds will attract lower class consumer as long as upper-middle class consumers. McDonald RM5.95 lunch meal has boosted the products as it is attractive to upper-middle and even lower class customers (Business Times, 2009).

6.3 Social Factors

6.3.1 Family Life Cycle

Most families pass through the progression of family life cycle which is generally start from young singles, young married, parenthood, post-parenthood, and dissolution (Schiffman et. al., 2008). Different family unit seek different types of food. McDonald offer different set of foods where each family unit can choose according to their needs. The value meals are offered in different portion of foods. For the dual income families who do not have enough time to prepare breakfast for their family members, they can order breakfast meal in McDonald’s menu.

6.3.2 Social Class

McDonalds targeted to various social class which are lower-middle and upper-middle. The menu of Mac value gives more convenience for the lower middle class to enjoy McDonald’s fast food. The Big Value meal which is quite expensive can be purchased by upper-middle class family.

6.3.3 Lifestyle

Malaysia fast food market is growing which is attributed with the changing in life style such as leisure, eating out and convenience. Around 98 percent Malaysian are fast food patron (Euro Monitor, 2009). The changing role and independence of women as more of them enter the labor market and urbanization, as urban families can afford and more willing to incur higher expenditures on food such as fast food. McDonalds try to provide promotion for the value meal to personalize to their lifestyle.

7.0 Internal analysis and core competencies

7.1 Strength

The strong global present becomes one of the biggest strength McDonald’s has. It makes McDonald’s able to capture large market in other countries such as Malaysia. McDonald’s expand their market has proven successful which is supported by the brand recognition. It generated more sales and gain market share. McDonald’s product innovation is the other strength it has. The innovation of fast food which is different in every country it enters is a good strategy for localizing the taste and preference of customers. McDonald’s offers Ayam Goreng which is only available in Malaysia and McCurry Pan in India. McDonalds also offered 24 hours delivery services which enable consumers to enjoy foods during midnight if they feel hungry. This is the core competencies for McDonalds over its competitors where KFC, Subway, Burger King and others do not have 24 hours delivery service.

7.2 Weakness

McDonald’s has low width of product caused by the saturated market in food industry has make McDonald’s difficult to add new outlets in their menu lists. The last breakthrough for McDonald’s is their chicken nugget in 1983. the increase of competition such as KFC, A&W, Burger King, and Subway, has created a tight price competition. McDonald’s unable to earn much revenue from this price competition. Health concern becomes one of the major weaknesses of McDonalds where many people complaint with the oily foods that are offered.

8.0 Segmentation, Targeting, Positioning

8.1 Market Segmentation

McDonald uses hybrid segmentation approach to segment its market and the geodemographic is used. Few segmentation bases are used to divide the market segments. From the table, few segments are discovered to be McDonald’s main segments. They are children, youth and working adults.

8.2 Targeting

From the market segments discovered, the most profitable target market segment seems to be the working adults market. The working community segment is considered the largest group of consumer of McDonald compared to children and youth. There are more sensitive to trends and lifestyles in today’s culture and in almost everywhere. In addition, working adults has their own income thus able to make their own choice without too much constrain. Hence they have the tendency to determine their eating habits. Also, the McDonald provides fast services thus suit those working adults who are also always on a go and fast moving especially those in the capital cities. Also, those who consume McDonald are normally from the middle or higher class range. Furthermore, McDonald’s 24 hour operation is also targeting on working adults who work till late at night or those who are always required to be early setting off to their work place.

8.3 Positioning

It is essential for McDonalds to make perceptual map to help identifies the underlying dimensions that differentiate consumers’ perceptions of product and the position product on the dimensions (Pangupta, 2005).

In order to position itself successfully, McDonalds need to establish criteria that may allow it to differentiate itself from other competitors (Schiffman, et.al, 2008). In the fast food industry, McDonalds has positioned itself as the market leader in the sense of pricing and services. Its 24 hour services in almost all of the outlet nationwide makes them a place to look for food even it is in the middle of a night. However, it is hard for McDonalds to position itself far away from the competitors as others are also following the trend. However, it’s not up to many competitors’ outlet to be running on 24 hours to be competing with McDonald.

Positioning Perception Map

9.0 Marketing program of McDonald’s (4Ps)

9.1 Product

McDonald’s takes into account cultural factors in serving the Malaysian consumers. The food serve is halal and servers local taste as well. They have wide range choice of menu similar with burger king. Seasonally they serve the ‘prosperity burger’ for Chinese New Year. McDonald’s also serves healthy food but this will effect on the taste and consumers eating experience. For instance, saturated oil that now is replaces with Trans fat oils have change the taste of the McDonald’s famous fries.

9.2 Price

McDonald’s have more price reduction compared to KFC and Burger King. They offer a very competitive food prices. They have the “Value Mc Savers” and the “Mc Value Meal”. KFC do have their value meal called “Jom Jimat Everyday” and Burger King but in term of their price, McDonald offers the best price for fast Food. However, McDonalds, they offered only during certain period of time there-for rise the question of its availability.

9.3 Place

In terms of distribution, McDonalds have 185 restaurants nationwide. They are built or open in retail area’s like shopping malls due to a trend of all Malaysian who loves to shop in malls. They also open in some rural area’s however KFC has more restaurants in the rural area. In some strategic places, McDonalds also opens in several local gas station such as PETRONAS Mesra. They open an express café that serve some popular products. This can satisfy the hunger of consumers such as, working executives on-the-go and motorist.

9.4 Promotion

In order to achieve good profit and high customer satisfaction, promotion is one of the main factors. According to Kara, Kaynak and Kucukemiroglu (1997) fast food buyers are seeking price deal and promotions before visiting a fast food restaurant.

Events and sponsorship by McDonalds is mainly to coordinate with their social responsibility. They usually organize events for their Ronald McDonald Charity House. However, KFC doesn’t focus on charity however more related to increase their position in the market. Recently, “they organize campaign, entitled ‘Good things come together with KFC’, aims to differentiate KFC from its rivals and highlights the fast food chain’s presence and role in everyday Malaysian life”(Brand Republica,2009). Burger King has no known event in Malaysia.McDonald’s television advertisement is place on a seasonal basis which they only advertise during festive seasons and movie. Normally, their ads attract children rather than adult consumers. KFC also does TV ads similar concept to McDonalds. However, KFC have their own Television Program called the “Chicky Hour” that is on air every Saturday.

McDonald’s in Malaysia primarily focus of it marketing campaign by sending flyers to houses and attach coupon in newspapers. KFC also gives discount coupons as well as Burger King. However Burger King coupons are purchased from the store not given for free like KFC and McDonald’s.

McDonald’s also advertise their product using billboard. They place their latest advertisement on “McDonald’s Mc Value Meal” at major roads that indeed attract attention. KFC and Burger King do not use this advertisement tool to promote their brand.

McDonald’s have more price reduction compared to KFC and Burger King. They have the “Value Mc Savers” and the “Mc Value Meal”. KFC do have their value meal called “Jom Jimat Everyday” and Burger King but in term of their price, McDonald offers the best price for fast Food.

Therefore we can conclude that McDonalds spends heavily in promotion especially their advertisement to gain their market position. This is aligning with the global McDonald advertising strategy of retaining customers.

10.0 Financial Performance Evaluation

This case study will evaluate about the financial performance of McDonald’s. McDonalds is not the only fast food chain restaurant in Malaysia however they are competing with many other competitors such as KFC, Pizza Hut, Burger King and others. Therefore the financial ratios will indicate whether McDonald’s is a market leader or a follower in Malaysia by comparing with KFC. The financial statements are only available for the year ended 2007.