Case study McDonalds Business Plan

In view of the current issues facing the company as well as the result of the SWOT analysis and Porter’s Five Forces Analysis, McDonald’s may find it compelling to enter new offshore markets. Consequently, the Asia-Pacific region, more particularly China has been considered a promising market for McDonald’s. The SWOT analysis revealed that McDonald’s has the internal capabilities to enter new market and that external threats make it imperative for the company to enter new markets. In addition, Porter’s Five Forces Analysis also confirms that McDonald’s initiative to expand to China could benefit the company to a large extent. Finally, the PESTEL Analysis also suggest that China is potentially a good new market for McDonalds.

1.0 Introduction

A news article by Nicholas (2010) featured McDonald’s voluntary recall of tumblers sold in its store. As revealed in the article, the tumblers were sold at McDonald’s as part of the promotional tie up with a new film. According to the news article, the tumblers contained cadmium, which is a toxic substance that is extremely dangerous to the developmental health of children (Nicholas 2010). In response to the issue, the Consumer Product Safety Commission called on fast food companies for a stricter and thorough review of domestic and international supply chains in order to prevent products with potentially dangerous elements to reach its stores (Nicholas 2010). Consequently, this issue could add to the list of challenges being faced by the company. To recall, McDonald’s has also been held responsible for obesity among children in the US and the UK (Kilkenny, 2010), which may so far be considered as the most disastrous issue facing the company. In view of the issues facing the company, McDonald’s may find it vital to launch new business initiatives. This paper presents a business plan for McDonald’s, which centers on the strategic issues facing the company and on the result of the SWOT (strengths, weaknesses, opportunities, and threats) Analysis, Porter’s Five Forces Analysis, and PESTEL (political, economic, social, technological, environmental, and legal) Analysis conducted on the company.

2.0 McDonald’s Company: Business Overview

According to Adams (2007), McDonald’s is a popular destination for fifty million customers every day, making the company one of the largest fast food restaurants in the world. McDonald’s is considered as the world’s leading fast-food Company in terms of revenues and

number of restaurants. At present, there are about 32,500 McDonald’s stores in over 100 countries across the globe, employing a total of 385,000 employees worldwide (McDonald’s 2010). The company is headquartered in Oak Brook, Illinois, but its operations span from the United States to Europe to the Middle East and to the Asia Pacific region (McDonald’s 2010).

McDonald’s stores sell a standardized menu, but there are slight variations depending on the country where the store operates. For example, aside from its standard menu, McDonald’s sell coconut water in Brazil, rice burgers in Taiwan, and porridge in the UK to suit the local taste of the customers (Adams 2007). The key or standard products served at McDonald’s stores include hamburgers and cheeseburgers, chicken sandwiches, French fries, wraps, chicken nuggets, salads, desserts, sundaes, soft served cones, pies, as well as cookies. Furthermore, McDonald’s also serves a wide range of beverages including milk shakes, soft drinks, coffee, and flavored tea. In addition, McDonald’s also sells breakfast items especially in the US and many international markets, whereby breakfast offerings include muffins, biscuits, hotcakes, and bagel sandwiches. McDonald’s markets its products under the following global brands: Big Mac, Big N’ Tasty, Filet-O-Fish, McNuggets, McFlurry, McMuffin, and the McGriddles (McDonald’s, 2010).

McDonald’s Head Quarters

3.0 SWOT Analysis

3.1 Strengths

Strong Brand: As mentioned in Leong and Lwin (2006) brands are valuable symbols that magnify the image of the company. In the case of McDonald’s, strong brands may be considered one of the greatest strengths of the company. As a proof, McDonald’s was included in the list of the “best global brands” in the annual ranking of the Business Week magazine for 2009 (Holbrook, 2009). In relation, McDonald’s brand equity for 2009 was valued at around $32,000 million (Holbrook, 2009). As a strong global brand, McDonald’s is very well known in the informal-eating out market in almost all countries where it operates.

Strong Global Presence: Aside from a strong brand, McDonald’s strong global, diversified presence may also be considered a major strength of the company. At present, McDonald’s has more than 32,000 stores in key geographic locations, such as, the US, Europe, Asia Pacific, Middle East, and Africa (McDonald’s, 2010). Furthermore,

McDonald’s operations span across 118 countries across the globe (McDonald’s 2010). Consequently, McDonald’s operations tend to be relatively larger compared to rivals.

Large Scale of Operation and Product Customization: Given that McDonald’s is the world’s largest food service retailing chain, it could leverage on its size to compete effectively in the market. Furthermore, McDonald’s has bigger economies of scale in terms of sales or revenues to compete with rivals. For example in fiscal year 2009, McDonald’s generated revenues totaling to $22,744.7 million, which is significantly higher compared to the revenues of Wendy’s ($3,580.8 million) and Burger King Corporation ($2,537.8 million).

Low-Cost Foods: McDonald’s has been popular in the market due to its dollar menu, which includes fruit and yogurt parfait, cheeseburger, and fries (Dunlop, 2009). McDonald’s low cost food has been considered a major strength to the extent that the company still managed to increase sales by 6.8 percent over the previous year in spite of the economic downturn. Aside from the regular menu, McDonald’s also sell specialty coffee such as those sold at Starbucks but a lower cost. To illustrate, Huglett (2009) noted that prices of espresso-based coffee sold at McDonald’s costs about 75 cents cheaper than Starbucks’ coffee. Generally, Holbrook (2009) noted that fast food companies flourished even in a struggling economy due to its cheap menu items.

Good Community Reputation: McDonald’s sponsors the Ronald McDonald House of Charities, which is an integral aspect of the company’s corporate social responsibility programs. As part of the program, McDonald’s sponsors various community outreach programs that aim to benefit children especially those who come from poor families in various communities where McDonald’s operates (Adams, 2009). For example, the Ronald

McDonald Care Mobile aims to provide free screenings and treatments to children all around the United States (McDonald’s, 2010). McDonald’s corporate social responsibility program has helped create a positive company image. McDonald’s mascot, Ronald McDonald has become a symbol of goodwill among customers, most especially to the children.

Progressive External Orientation: As part of the company’s commitment to total customer satisfaction, McDonald’s offers free Wi-Fi services in over 15,000 stores across the globe (McDonald’s, 2010). The free Wi-Fi access is intended to meet the personal and professional needs of McDonald’s customers (McDonald’s, 2010).

3.2 Weaknesses

Health Issues: One of the weaknesses of McDonald’s is that its core products were considered unhealthy (Adams, 2009). For example, McDonald’s French fries was feared to have more Tran’s fat, which could cause obesity among consumers.

Legal Suits Filed Against the Company: McDonald’s is party to several litigations around the world. McDonald’s have faced charges of violation of state consumer fraud acts, unfair competition or deceptive trade practices acts, strict liability, failure to warn, negligence, breach of express and implied warranties, fraud and fraudulent concealment, negligent misrepresentation and concealment, unjust enrichment, and false advertising (Brown, 2003). Additionally, McDonald’s have admitted to 20 offenses of illegally employing children aged 15 and 16 at two restaurants in Surrey, UK (Brown, 2003). Furthermore, the company also received more than 2,750 recorded customer complaints of food poisoning a year (Brown, 2003). Consequently, these issues have tarnished McDonald’s reputation in the market.

3.3 Opportunities

Adding Healthy Food Options: Studies reveal that consumers are becoming more particular of the health implications of their consumption, whereby consumers now tend to demand healthy food options (Taylor, 2006). For McDonald’s, this trend could create an opportunity for McDonald’s to expand its menu to include healthy food varieties such as salads and fruits.

Improving the Transaction and Service Delivery Processes: Improvements in technology provide a way for more efficient ordering and paying processes. Technologies that could improve transactions at fast food restaurants include the following: touch-screen ordering system, which makes order taking faster and more efficient; timing systems, which aims to monitor meal progress and hence ensure that orders are delivered accordingly; reservation systems, which aims to maintain good flow of traffic within the restaurant; inventory management system, which allows restaurants to effectively track supply levels and reduce wastes from over stocking and spoilage; and hand-held point of sale devices, which allows servers to place orders and print checks at the tableside.

3.4 Threats

Slowing Economy: As mentioned in Horovitz (2009), businesses, including fast food restaurants are vulnerable to economic downturns. Generally, the economic slow down has negative implications to the business reflected in slightly depressed sales growth of restaurants.

Consumer Eating Out Less: Surveys reveal that consumers are beginning to eat out less relevant to the economic downturn. In relation, a survey conducted by the Nielsen Company revealed that about 46 percent of American households have begun to eat out less (Panian, 2010).

Increasing Competition: Competition in the fast food industry has intensified over time, thereby putting pressure on McDonald’s. McDonald’s does not only compete with rival companies in the industry, but also with formal restaurants and easy-prepare meals sold at supermarkets (Zwolak, 2010).

Increasing Regulations: The fast food industry is under strict regulation from the government due to health issues associated to products sold at fast food restaurants. For example, some states in the US have required fast food restaurants to print calorie and nutrition information on their menu and at the same time placed restrictions on selling snack food and soda (Hirsh, 2009).

4.0 Industry Analysis

4.1 Size and Growth

According to Data Monitor industry report, the US fast food market generated total revenues of $68.2 billion in 2008, equivalent to a compound annual growth rate of 5.5% for the periods between 2004 to 2008. Furthermore, the industry is highly fragmented, with the four top players holding only 35 percent of the available market share (Zwolak, 2010). Furthermore, 48 percent of establishments are small business operators with nine or fewer employees, while the other 52 percent have between 10 and 99 employees.

4.2 Trends

The fast food industry is in the mature phase of its industry life cycle (Zwolak 2010). In this regard, growth may still be expected but at a slower pace and has the possibility of reaching saturation point in the domestic market. For the fast food industry, annual growth is expected to be around 2.5% over the next five years (Zwolak, 2010).

5.0 Porter’s Five Forces Analysis

5.1 Buyer Power

Buyer power is assessed as moderate to the extent that buyer power within the fast food market is weakened by the fact that while not everyone enjoys fast food, large numbers of people are patronizing fast food. Buyer power is strong as such fast food companies are compelled to offer low prizing scheme.

5.2 Supplier Power

Supplier power is assessed as strong to the extent that the supplier market is quite consolidated whereby few supply companies have substantial market shares and have other customers in the cost foodservice sector and in other segments of the profit food sector, hence decreases their dependence on fast food companies.

5.3 New Entrants

Entry to the fast food market does not require huge capital outlay, allowing small business owners to establish single, independent fast food outlets. Furthermore, franchising agreements are common in the industry. As a proof, franchisees run the majority of McDonald’s outlets in the US. In this regard, there is a strong likelihood of new entrants.

5.4 Substitutes

Generally, substitutes present a strong threat to companies operating in the fast food industry. At present, substitutes for fast food include other forms of profit food service, and also food retail such as ready meals or easy-to-prepare meals (i.e., frozen meals) for home cooking.

5.5 Rivalry

Rivalry in the fast food industry is relatively strong, given that the industry is highly fragmented. As mentioned before, the top four players in the industry hold only 35 percent of the total market share.

6.0 Business Expansion Plan: Entering New Market

In view of the current issues facing the company as well as the result of the SWOT analysis and Porter’s Five Forces Analysis, McDonald’s may find it compelling to enter new offshore markets. Consequently, the Asia-Pacific region, more particularly China has been considered a promising market for McDonald’s. In relation, the Data Monitor market research found that the Asia-Pacific fast food market has posted strong, generating total revenues of $47.1 billion in 2008, equivalent to a compound annual growth rate of 10.3 percent for the period spanning 2004 to 2008, with the Chinese and South Korean markets having compound annual growth rates of 14.5% and 5.6% respectively.

7.0 PESTEL Analysis

The PESTEL analysis will be used to validate the attractiveness of China as the target market for McDonald’s. The goal of the PESTEL analysis is to analyze how political, economic, social, technological, environmental, and legal factors will interfere with the organization in entering the Chinese market.

7.1 Political Factors

China adopts the “open door” reform policy, which aimed to decentralize the economic system and to attract overseas investment. In this regard, McDonald’s would not have difficulties in entering the Chinese market, as the political structure of the economy supports foreign direct investment.

7.2 Economic Factors

China is one of the fastest growing economies in the world today and growth forecasts for the subsequent years are fairly high. For McDonald’s the booming economy and increasing gross and disposable income of the population in China suggest higher revenues in the future.

7.3 Social Factors

The population of China was estimated at 1,328,020,000 as of 2008 and is expected to grow at a slower pace, given the one-child policy being adopted by the country. For McDonald’s the large number of population in China opens opportunity for higher sales potentials.

7.4 Technological Factors

Chinese government has placed significant investments on science and technology, leading to significant improvements in technology in the country. For McDonald’s, improvements in technology could offer significant opportunities for businesses in managing different aspects of the business. Companies could leverage on newly introduced software to increase productivity and efficiency.

7.5 Environmental Factors

The Chinese government has committed to reducing its carbon footprint in the future. In this regard, stricter environmental restrictions on businesses may be expected.

7.6 Legal Factors

The Chinese labor force is highly regulated compared with other countries in the Asian region, whereby regulations are tighter for dismissing workers than on hiring.

8.0 Customer Analysis

The target market segment of McDonald’s in the new market includes mostly of busy, working people, to the elderly and young. Convenience may be considered as the main factor that attracts busy, working people to fast food as well as to the elderly and the young. Additionally, value for money may be considered as the greatest factor that would attract low to middle income households to fast foods. Finally, the children’s meal offered at McDonald’s would appeal to children.

9.0 Competitor Analysis

McDonald’s major competitors in the international fast food market are: Wendy’s International and Yum Brands Inc. Focusing first on Wendy’s International, the company is engaged in the operation, development, and franchising of restaurants, operating a total of 6,645 restaurants in the US and in 19 other countries and territories (Data Monitor, 2009). Same with McDonald’s, Wendy’s also offer a standardized menu, comprised of hamburgers and chicken sandwiches, as well as chicken nuggets, chili, baked and French fried potatoes, freshly prepared salads, milk, frosty dessert, floats, and kids meals. In FY 2008, the company reported revenues totaling to $1,822.8 million and net losses amounting to 413.6 million (Data Monitor, 2009).

Meanwhile, Yum Brands Inc., similarly develops, operates, franchises, and licenses a system of restaurants. The company operates under five branded restaurant concepts, namely KFC, Pizza Hut, Taco Bell, LJS, and A&W (Data Monitor, 2009). Yum Brands operates a total of 36,000 restaurants in more than 110 countries. Yum Brands generated total revenues of $11,279 million in the financial year ended December 2008, equivalent to an 8.3% compared to the previous year.

10.0 Conclusion

McDonald’s is considered as the world’s leading fast-food company in terms of revenues and number of restaurants. However, in view of the current issues facing the company as well as the result of the SWOT analysis and Porter’s Five Forces Analysis, McDonald’s may find it compelling to enter new offshore markets. Consequently, the Asia-Pacific region, more particularly China has been considered a promising market for McDonald’s. In relation, the PESTEL analysis confirms that China is potentially a good new market for McDonalds.