I would like to dedicate my capstone paper to my family, because without them, I would not be the person I am right now. The next person on the list is Ifigenia Xifre, who always supports me in any situation and for being my personal writing tutor in revising this paper. I always want to thank Linda Bohaker for her patience and willingness in guiding the class. The last but not least, I want to thank Andy Crump and Jacob Huss, for helping me revising this paper.
Many people do not know that with the revenue it generates, McDonald’s has more money than the GDP of some third world countries. It is proof of how McDonald’s is a giant company that has had a tremendous impact on the world. Its presence throughout the world is unlike any other restaurants’. Another interesting fact about the industry leader is that its iconic golden arches logo is recognized by more people than the Christian cross. This shows the power of a brand that has revolutionized the way to dine.
The reason that I chose McDonald’s as the company I wanted to research for is the uniqueness of the situation it is in. Although I mentioned that it is one of the most well-known brands (more than Jesus) in the world, it still has to go through the ups and downs of the business world. Unfortunately, McDonald’s is currently in one of the lowest points in its history. I am hoping that this paper will help us understand why the Golden Arches is suffering, and what some of the mistakes are that it could fix.
This paper will start by analyzing McDonald’s mission statement, because it is important to know what is it that McDonald’s desires to be. After we know its mission, we will learn more about the external environment. There are remote factors that affect not only McDonald’s but also many other businesses. There are also industrial factors that only impact the industry that McDonald’s is in. I used the Porter’s Five Forces method to analyze the competitiveness of the industry. After we have examined the forces that surround McDonald’s, we will have more insight into the company. The next section of this paper is the internal analysis of McDonald’s, using the SWOT model. Then, this paper will guide the reader through the strategies that McDonald’s has chosen to use and what implementation it has done. Finally, this paper will close by evaluating and analyzing the strategies.
McDonald’s is undeniably one of the leaders in the fast food industry in the world. The brand is ranked 6th in Forbes’ “The World’s Most Valuable Brand”. According to its corporate website, McDonald’s mission statement is “to be our customers' favorite place and way to eat and drink. Our worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to continuously improving our operations and enhancing our customers' experience”.
As we can see, its mission focuses primarily on the customers’ experience and it is dedicated to improve the customers’ experience continuously. Customers can see how McDonald’s wants to be the favorite place to eat by its famous slogan “I’m Lovin’ it.” The short and sweet slogan is not only easy to remember, it also emphasizes that it wants the customers to love their dining experience in McDonald’s.
It is interesting to realize that the methods and the philosophy to be the favorite place to eat are not mentioned in the mission statement. McDonald’s has built the reputation on being fast and low-cost restaurant. However, the company thinks that it is not necessary to mention this in its mission statement. It is possible that speed and low-cost are the values that are already planted in every McDonald’s employees.
In my perspective, I do not think that the mission statement gives enough guidance on how to fulfil its mission. The mission statement needs to mention how McDonald’s needs to be the favorite place to eat. By stating that, the executives would always be reminded to reflect all of the company’s actions to the mission statement.
McDonald’s has a mission statement that drives it to be the number one place for its customers to eat and drink. It is wise to learn more about the industry that McDonald’s competes in, which is the restaurant industry. There are four factors that shaped and impacted not only McDonald’s, but also the industry at large. It is important to realize that the industry does not have any power to control these four factors.
The most troublesome external factor that affects all players in the restaurant industry is the slow growth of the US economy. According to Efraim Levy, the analyst of restaurant equity, consumer spending in the US has been decreasing due to the slow growing economy (Levy 3). US Gross Domestic Product (GDP) growth was only 2.9% in 2014, only increased by 1% since 2013. It is difficult for the restaurants to have more customer traffic when the economy is still recovering from the 2008 recession. The reason for this decline in consumption was that consumers viewed dining out in restaurants as a more lavish activity.
Another important economic factor that has a direct impact on the restaurant industry is the unemployment rate. Statistics shows that the unemployment rate dropped from 7.9% in January 2013 to 7.2% in October 2013 (Levy 4). The reason for this decline was that the restaurant industry added a net 31,700 jobs in the economy. Another factor behind the decrease of the unemployment rate was workers withdrawing from the labor force (Levy 4). There is a high probability that the fast food industry will have more growth, indicated by the increasing number of employment by the industry. Most of the front-line workers in any restaurant operate at minimum wage, which was why the restaurant industry was able to create many new jobs. The statistic shows that more than 70% of the new jobs created in this recovery phase are in the restaurant industry (Berman 2).
The next factor that also influences the restaurant industry is the overall US food inflation, which undoubtedly increases the production cost for all restaurants. The price of many food products has risen by a significant amount. For example, there was a made-up word called “lymepocalipse”, which refers to the hike in the price of lime in the country, when the price of limes went up from $20 per case to $80 per case in a month (Brooks 54). Sadly, this trend did not affect only limes, but also many other goods, such as beef, which now costs 10% more, while the price of pork has gone up by 12% (Brooks 55). The result of this phenomenon was that 93% of restaurant chains were planning to raise prices by 2% in 2014 (Levy 6).
One program from the Government that helped restaurants have more customers was the SNAP program (Supplemental Nutrition Assistance Program), more well-known as the “food stamp program”. The program was designed to make a nutritionally adequate diet more affordable for low-income Americans. In regards to the slow growth in the economy, President Obama cut the budget for the food stamp program for the next decade (Levy 2). Although SNAP benefits cannot be used in restaurants, it does increase disposable income for households. This explains why the cut in SNAP program leads to a decrease in sales in the restaurant industry, since most people who were in the SNAP program had now less money to spend on eating in restaurants.
Another law that disturbed the restaurant industry was the new minimum wage law, which increased the minimum wage for the employees of federal contractors to $10.10 per hour (Levy 7). This law had a negative impact for most fast food restaurants, such as McDonald’s, Burger King, KFC, and Wendy’s. However, businesses which dwell in the full-service and casual dining restaurants actually supported this idea. An example would be the owner of Pi Pizzeria in St. Louis, who thought that the hike in minimum wage was appropriate (Jennings 10).
It is surprising that the restaurant industry actually has a huge dependency on the weather. An example to illustrate this relation was the drop in sales of most restaurants during January 2014, due to the extremely cold weather that had been happening since the last few weeks of 2013 (Levy 1). Bad weather negatively impacted the sales of the fast food industry because it created a challenge when customers attempted to leave their homes to go to the restaurants. It is understandable if many restaurant-goers thought that dining in their favorite restaurants was simply not worth the struggle. According to Levy, because of the record of cold weather that happened in the first quarter of 2014, both fast-food restaurants and casual dining restaurants struggled to increase sales, although fast-food restaurants did slightly better than casual dining restaurants.
Another factor that is related to the environmental side is the demand for restaurants to employ sustainable practices, or the green movement. This particular movement is not something new, in fact, it has been a strong presence for more than five years. What’s interesting is that the movement is growing stronger and many more people are becoming aware of this. Aaron Allen, the CEO of a restaurant consulting group called Quantify Marketing stated that environmentalism in the restaurant industry is a trend that will change how the industry works. He added that one lasting impact of this movement is authenticity, customers who care about the environment will prefer the “natural” concept, such as what Darden’s Season 52 did with its in-season menu (LaVecchia 42).
The social factor that has an impact directly and indirectly in the restaurant industry is the rising awareness of eating higher-quality food. Meanwhile, the recession which limits the purchasing power of consumers formed a group of consumers who seek value more than quality. The latter is a major threat for the quick-service restaurants, because they believe that independent restaurants (not chained restaurants) offer better and healthier meals. A recent study shows that many customers in the millennials age group turned away from dining in McDonald’s and towards more casual dining, such as Chipotle and Five Guys (Jargon, Wall Street Journal). What casual dining restaurants offer is the experience to customize your food, which you cannot get in fast food restaurants. It costs a little more to dine in these restaurants than eating in fast food chains, such as McDonald’s or KFC. However, Jargon mentioned that many people in their 20s or 30s do not mind spending more, because they believe that the food offered is better than that served in fast food restaurants.
Remote environment is the broadest external analysis, because it studies the factors that have influence on many industries. In this section, this paper will do a more thorough analysis solely on the restaurant industry. It will explain how the restaurant industry is segmented and in which segment McDonald’s fits in. This section will close with the porter’s five forces, which is a method used to know an industry better.
The restaurant industry is a complicated market formed by many different players. It is divided into three main categories: fast food, fast casual, and full service. The fast food industry has the biggest market share of the restaurant industry (NetAdvantage). This is proven by the fact that burger chains’ sales accounted for 32.7% of the restaurant industry (Levy 14). Therefore, it is not surprising to find out that most fast food outlets are the top players in this industry. McDonald’s generated the highest sales in 2012, with $35.9 billion in US sales alone (NetAdvantage).
The best definition of the industry that McDonald’s competes in is the fast food industry. What characterizes this industry is quick and fast service for customers, no servers bringing the food to the tables, and mostly quick counter service. The price of products is low, which means that they usually operate on a low profit margin. Most companies that compete in the fast food industry have low profit margins due to the intense competition. This intense competition can be seen from many big names competing in undifferentiated products. Another reason for low profit margins is the increasing cost of labor and food, as explained in the remote environment section. Another distinctive factor that differentiates fast food outlets is the tendency to specialize in a menu with limited options. For example, McDonald’s specializes on hamburgers, KFC on fried chicken, and Pizza Hut obviously on pizza. The last feature that sets the boundaries for the fast food industry is that these restaurants do not serve alcoholic drinks.
The fast casual segment is the middle level of the restaurant industry, which claims to serve better quality food than fast food restaurants, but with prices still lower than those of full- service restaurants.
The fast food industry is still not a boundary that is narrow enough to define the market McDonald’s is in, because in the fast food industry itself there are many segments, such as burger chains, beverage-snack and sandwich chains, pizza, and chicken. Since McDonald’s specialties are its burgers, such as the BigMac and Quarterpounder, McDonald’s is included in the burger chains segment.
However, it is important to realize that in these modern days the lines are becoming more blurred. This is because many chains expand the food selections in their menu, creating more choices for the customers (Levy 13). For example, McDonald’s has added Premium Wrap as its newer product. Expanding its product line is one of many methods that a fast food restaurant can use in order to remain competitive in the industry.
As mentioned earlier, McDonald’s is the leader of the restaurant industry. According to the Nation’s Restaurant News (NRN), McDonald’s is followed by Subway ($12 billion) and Starbucks ($10 billion) as the top three fast food chains with the most sales. In the same report, the nine biggest sales generating restaurants belong to the fast food industry. This shows that there are several huge key players in the restaurant industry that many fast casual and full service restaurants could not compete with easily.
In the other segments of the industry, such as the fast casual dining industry, the leaders are Panera Bread, Chipotle Mexican Grill, and Five Guys Burgers and Fries. While on the full service segments, some big names are Applebee’s Grill and Bar (owned by DineEquity.Inc) and Olive Garden (owned by Darden Restaurants Inc.).
There has been a trending social change in the way in which millennials think about restaurants. The millennials have been one of the biggest group of customers for fast food restaurants, however, recently they changed their preference to fast casual restaurants. Julie Jargon wrote in the Wall Street Journal that people in their 20s and 30s prefer to pay more to eat higher quality foods. This is troublesome news for fast food restaurants such as McDonald’s and Burger King, because they obviously get serious competition from burger joints such as Five Guys or other fast casual dining restaurants like Chipotle.
Another trend that has been significant in the industry is the increasing awareness of restaurants “going green”. The executive director of the Green Restaurant Association in Boston, Michael Oshman, believes that the main concern of restaurant customers is perhaps the food itself. The questions they ask now are “Is this fish on the brink of extinction?” or “Is this meat filled with pesticide or hormones?” (Brooks 38). Some of the most common buzzwords regarding this issue are “organic”, “local”, and “sustainable”.
Porter’s Five Forces for McDonald’s
Threat of New Entrants: Low
The reason is found in the economies of scale, which is the biggest barrier for a newcomer to enter the fast food market. Some of the big players in this segment, such as McDonald’s, Subway, KFC, and many more have the capital to execute their operations and it is not something that can be earned easily for a new player. Many of these restaurants are known nationally and globally and it will take years for a new brand to be at the same level with the main players.
Suppliers’ power: Low
Most of the raw materials needed for a fast food restaurant to operate are not very differentiated, which means that there are many similar suppliers who offer similar products. The ingredients that most fast food chains need from their suppliers are not difficult to find, such as vegetables, meat, and breads. Especially for big names that are operating in global scale, such as McDonald’s, Pizza Hut, Starbucks, and KFC, many suppliers will compete with each other to be the restaurants’ suppliers.
Buyers’ power: High
The fast food industry has a wide variety of different restaurants and many of them offer similar menus, such as Burger King, McDonald’s, and Hardee’s, all specializing in burgers. The buyers have high power because they have many options when choosing a fast food restaurant. The restaurants themselves are limited when it comes to raising their prices because of this factor. There is also a big risk of fast food restaurants losing their market share due to the improving fast casual market, because buyers now prefer dining at fast casual instead of fast food restaurants.
There is a big threat of new substitutes for fast food restaurants, mainly because of the green movement. It is very likely that more people now would prefer to eat at local and non-chain restaurants, which offer fresher and healthier food. Apart from the green movement, there are also many other restaurants that compete in the fast casual and full service segment. These can also be the substitutes for fast food restaurants.
The rivalry in the restaurant industry, especially in the fast food segment, is very high. One of the reasons is the similarity of the products offered by each chain. If the soft drink industry has Coca Cola versus Pepsi, the equivalent of that in the fast food industry is McDonald’s Big Mac vs Burger King’s Whopper. As mentioned earlier, due to growing market for the fast casual segment, the rivalry will become even more intense. For example, now the Single Shackburger (Shake Shack’s signature burger) is in the play too (Dickey 59).
Analysis on Porter’s Five Forces
It is concluded that three out of the five forces for the restaurant industry are high, which allows us to infer that the competition is likely to be high. The forces that are built by the possibility of substitute products and the intense rivalry of the key players would definitely limit the flexibility in pricing for fast food restaurants. However, there is still room to increase profitability because of the low power of the suppliers.
So far, this paper has mainly focused on the external factors that surround McDonald’s. The next section emphasizes the inside of McDonald’s business. To analyze the internal side of McDonald’s, this paper approaches it using a SWOT analysis method. The main difference from the internal environment and the external environment is that the internal factors could be controlled by McDonald’s itself, especially the strength and weaknesses.
It is undeniable that McDonald’s is the leader of the restaurant industry and has been the leader for such a long time, proven by how they created $35.9 billion in sales last year, much more than any other competitors. There are many factors that could be considered as strengths for the “golden arches.” One of the factors that most people never think of as a strength for McDonald’s is that it builds strong relationships with its suppliers. McDonald’s previous CEO, Ray Kroc, built a system that he called “The McDonald’s System,” a system which the corporation, the owner/operators, and the suppliers need to work together for their own mutual benefits. It is a three-legged stool; each leg needs to work well for the corporation to prosper (Vitasek 8). With this system, the suppliers contribute more to the corporation, which helps McDonald’s become more innovative. In fact, the suppliers deserved some credit for the innovation of the Big Mac sauce and McNuggets (Vitasek 8). Especially with the suppliers, Kroc created a trusting relationship, which made both always aim for long-term goals. With this approach, McDonald’s rarely has pricing dispute with the suppliers, because it knows it is not worth fighting over a penny, knowing there is a nickel in the future (Vitasek, Manrodt, 34).
Another main strength of McDonald’s is its ability to offer quick and fast service for its customers, which is a must for a fast food company. Since McDonald’s has been the leader for the industry, it is certainly capable of acquiring all technologies needed to give hamburgers out to the customers as fast as possible.
The second strength of McDonald’s is also possible because of how McDonald’s has such a strong brand. As mentioned earlier, McDonald’s is recognized by Forbes as the 6th strongest brand in the world. McDonald’s and Coca Cola are the only food-related brands in the top 25. The list is dominated by many technology companies (Apple and Microsoft are in the first and second spots). The list is proof of how hard it is for a restaurant brand to be in the list, yet McDonald’s managed to be one of the most known brands in the world.
One of the weaknesses of McDonald’s is the low quality of its hamburgers’ taste. Although it is obvious that people do not go to McDonald’s to eat a gourmet hamburger, McDonald’s is still in the restaurant industry, which serves food. Therefore, it would be reasonable to have a standard for the taste of its menus. Consumer Reports did a survey in July of 2014 about the tastes of hamburgers offered by chain restaurants in the US. They did the survey on 21 restaurants, and McDonald’s was ranked last (The Washington Post). McDonald’s needs to be aware that they were losing to all other fast food hamburger joints. It would be understandable if McDonald’s hamburgers did not taste as good as the hamburgers in Five Guys or In N Out, because those are in fast casual segment. However, consumers believe that the hamburgers at McDonald’s direct competitors (Burger King, Hardee’s, Jack in The Box, A&W) taste better than McDonald’s.
Another weakness that McDonald’s has is how it treats its employees. Mac Job is one of the most common phrases people associated with the employees in McDonald’s, because people have the impression that McDonald’s pays its employees minimum wage. The problem with paying very low wages is it does not motivate the employees to perform well in their jobs, which leads to underperforming, and causes high employee turnover. The negative impact of a high employee turnover is less efficiency, because the company has to spend more time training new employees and also increases training cost (Jennings 10).
McDonald’s in the United Kingdom learned from this mistake in the United States. Now, McDonald’s training system in the UK is better than the US. McDonald’s in the UK has 97,000 employees and has won many compliments about the quality of its training program (Lewis 12). The difference has been that it requires each new employee to complete a training program, after which he/she earns a McDonald’s degree. The Chief People Officer of the UK McDonald’s mentioned that his target with this new training program was to eliminate the “Mac Job” stereotype.
The next weakness that has been associated with McDonald’s for a long time now is its negative publicity. There have been many scandals that have halted McDonald’s growth, one of the most recent of which happened in China. Forbes reported that the meat supplier for McDonald’s in China was caught supplying expired meat to McDonald’s. This triggered many attacks on McDonald’s because customers lost trust on the Golden Arches.
The final weakness that McDonald’s has is its menu options. The reason McDonald’s became the leader of the fast food industry is that it offers quick service with limited menu options. It now has many more choices, which has slowed down the service. As Jargon mentioned in her article, the Golden Arches now has 121 items in its menu, which is much more than what it used to have. The same article stated that the McWrap is one of the main culprits of stalling the service. The reason is that it takes 85 seconds to put all the ingredients into the McWrap. This is just too slow for the McDonald’s standard, which is 90 seconds to deliver the food to the customers (Jargon).
Any restaurant in the fast food segment can learn from the growing market of the fast casual segment. There is a growing demand for fresher and healthier food from the consumers. Not only from the fast casual segment, but in general, there has been an increasing awareness of being healthier. This trend is a significant phenomenon that has hit the fast food segment, which has led some fast food chains to take a new strategy. For example, KFC has started new restaurants called KFC Eleven for those who want to have slower-paced—but still convenient—dining experience (Tepper). The same article also reported that KFC Eleven removes some of KFC’s traditional menu, such as the fried chicken buffet. In addition to some of the missing menus, it adds globally-oriented cuisines, such as flatbreads and rice bowls.
The increasing demand of healthier food is problematic, because not only can it be an opportunity, it is also a potential threat for all fast food restaurants. If they do not find a way to handle this appropriately, this particular trend could reduce their market share. It is obviously because fast food restaurants and healthy food are not likely to be well-suited.
Another threat that fast food restaurants need to be aware of is the possibility that their menu becomes too large to maintain (Jargon, Wall Street Journal). It is understandable for fast food chains to expand their menu selections, because that is one way they can compete with customizable products from the fast casual restaurants.
Conclusions of the SWOT Analysis
From the SWOT analysis, we can see how there are many weaknesses that McDonald’s needs to fix. McDonald’s can connect its main strengths (strong brand and almost unlimited capital) to one of the opportunities it has, which is the increasing demand for fresher and more sustainable food. McDonald’s needs to invest more in research and development to find fast foods that are also healthy.
McDonald’s can also use the same strengths to eliminate one of its weaknesses, which is the negative publicity. McDonald’s should be capable of creating a new marketing plan to improve its image and reputation.
Generic and Grand Strategies
According to Business Dictionary website, a strategy is “A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem. It is a long term plan and is suspected to bring positive results for the strategist.” Pearce and Robinson believe that a long term objective that a company has can be achieved by having a generic strategy and grand strategies. A generic strategy is described as a core idea about how a firm can best compete in the marketplace (Pearce and Robinson 200). A generic strategy is a very broad and wide strategy that breaks off into more specific grand strategy. Another kind of strategy is called the grand strategy. A grand strategy is a master long-term plan that provides basic direction for major actions for achieving long-term business objectives (Pearce and Robinson 205). In this segment, this paper will evaluate the generic and grand strategies that McDonald’s has used; it can be analyzed here if these strategies match its strength, weakness, opportunities, and threats.
As a fast food restaurant which offers speedy and quick service for its customers, one of McDonald’s generic strategies is speed. The definition for the speed-based strategy is “Business strategy built around functional capabilities and activities that allow the company to meet customer needs directly or indirectly more rapidly than its main competitors” (Pearce and Robinson 249).
McDonald’s core in its service is all based on the speed and it is one of the main reasons most of its customers go there. We can also see how McDonald’s focuses on its speedy and fast service by its capability to do this. With all of its equipment and assets, they can prepare a Big Mac in seconds. Quick service is certainly one of the competitive advantages that McDonald’s has.
McDonald’s is the leader of the restaurant industry, with sales revenue higher than any other competitor in the industry. Another generic strategy that McDonald’s has been using since its early years is its low cost approach. This strategy is a perfect fit since McDonald’s is competing in the fast food segment, which appeals the most to customers with lower income. It is an undeniable truth that the fast food segment costs less than the fast casual and the full dining segments. Taking this strategy is probably the right choice because the fast food industry is competitive and to be the restaurant that charges the least is unavoidable.
Differentiation seems to be a new path that McDonald’s tries to take in order to face the competition from the fast casual industry. McDonald’s will try this approach by being customizable, similar to fast casual.
McDonald’s seems to be applying this approach to be more attractive to different groups of customers. For example, it has released three new kinds of Quarter Pounders (Jargon). The new products are not entirely new, because McDonald’s only slightly changed their Quarter Pounder. The slight changes that McDonald’s did with the quarter pounders were adding habanero ranch and adding bacon. Another action that McDonald’s did based on their product development strategy is create healthier and more customizable menu options, such as its wrap.
Not only that, but in a few months McDonald’s will soon introduce custom burgers for its customers. This effort is to get its market share that has been stolen by fast casual competition, such as Shake Shack and Five Guys. This new service will let the customers add toppings to their burgers such as guacamole, Applewood-smoked bacon, grilled mushrooms and many other different toppings (O’Connor, Forbes). This is probably one of the biggest innovations McDonald’s will have in the recent past, and the cost is not small; it requires an extra $100,000 investment for every franchise owner to enable this new service.
The idea behind market development is to grow by selling current products a company has to a new market segment. The most used practice of the market development method in the business world is having a presence in a different country, or being global. For McDonald’s case, this strategy of growing globally has been done for a very long time, and it is still adapting this strategy until the present day. Recently, McDonald’s launched a new campaign called “Moments of Joy” in many different cities around the world. It started in Sydney, then it will take place in Manila, Ho Chi Min City, Japan, Argentina, Italy, and 18 others countries (Morrison).
Implementation is the more practical part of the business, it is the practice of the plans that a company has prepared. After a company knows what generic and grand strategies it needs to do, it needs strategies that are more narrowed and specific on what it needs to do; this is also called the functional strategy. Another part of implementing the strategies is to find the best way to structure and lead the organization.
Now that is clear that low cost and speed are the ideas that McDonald’s has at its core, this paper now will analyze how they implement these mindsets to their functional strategies. Functional strategies are the more practical and specific strategies that every company has. These are the strategies that have more relations to the daily activities that a company does.
Marketing is one of the most important departments in any business; it is important to every company in the world to market its products. McDonald’s, as one of the biggest corporations in the world knows it and therefore it takes its marketing strategy seriously. One vital piece of information that McDonald’s realizes is that marketing has changed. In this 21st century, all information has become visible and consumers have more power than ever to know about any business. Therefore, McDonald’s new marketing strategy focuses on transparency. It has been mentioned several times in this paper that more people care about eating healthier food. This trend resulted in increased curiosity about how restaurants sourced their food and processed it. This particular consumer’s behavior leads McDonald’s management to come up with new marketing campaign called “Our Food, Your Questions” (Marketing News 7). It is a marketing campaign where people can post questions about McDonald’s food in social media. For example, people can ask about where McDonald’s got its beef for the Big Mac. The next step is for McDonald’s to answer these questions by posting a video on YouTube. McDonald’s also hired Grant Imahara to host the video. Hiring Imahara is the right step for this campaign because he was the star of the show Mythbusters. The director of marketing in McDonald’s thinks that he would be a good fit because there are so many wrong myths about McDonald’s foods in the world that need to be fixed (Marketing News 7).
McDonald’s is also proven to be more focused on marketing in social media by the event that happened on Twitter. The hashtag #seriouslymcdonalds was trending on Twitter because there was a rumor that McDonald’s charged African-Americans a higher service fee.
Since low-cost is one of the generic strategies that McDonald’s has, it is very conscious about raising the price of its menu. McDonald’s gets to be more concerned about increasing its price because the market it competes in is really price sensitive and there are many other competitors. Another reason that McDonald’s does not want to have high prices for its menu is that the fast food segment is in the lowest caste in term of pricing in the restaurant industries. Therefore, what McDonald’s did when the food inflation hit the industry was to increase its prices little by little (Nation’s Restaurant News). For example, it only applied 1% rise in its price in March 2011 due to the high price of beef.
We can also find other qualities that McDonald’s wants to express in its operations, which increase its sense of responsibility to the other stakeholders. McDonald’s believes that a requirement to achieve success is to train and educate its employees, and for this reason it provides opportunity for its workers and teach them useful skills. Another component of McDonald’s philosophy is to give back to the community. This is proven in McDonald’s “Ronald McDonald’s House Charity” (RMHC). It is a charity program started in the early 1970s which provides houses for parents whose children are critically ill (Nation’s Restaurant News 68).
For dealing with the demand of being more sustainable, McDonald’s also applies this strategy to its operation. Cited from its corporate website, one of the ways McDonald’s believes it will show its seriousness about being sustainable is to use fair trade certified coffee for its McCafe. McDonald’s also promised that it would provide training for small-scale coffee farmers in Guatemala. In its website, McDonald’s claims to have invested $6 million on the coffee training program.
In the present day, 80% of all of the McDonald’s restaurants in the world are owned and operated by independent franchises. By being the biggest restaurant brand in the world makes McDonald’s as one of the most desirable franchises in the world. With many people apply to be franchisees, McDonald’s has to set up a high standard to avoid failure. Therefore, McDonald’s requires the franchise owners and executives to attend the training program in the Hamburger University. It is a campus located on McDonald’s headquarters in Oak Brook, Illinois. The cost is extremely high to join the class ($200,000), which seems to be little compared to the revenue a franchisee will generate once they start their own restaurants. McDonald’s also builds its Universities outside of the US, it has many universities in Hong Kong, London, Sydney, Sao Paulo, Munich, and Tokyo (Williams 105).
McDonald’s owns hundreds of thousands of restaurants around the world (300,000 in 120 different countries) and it needs to have a clear and precise organizational structure to manage the business. Therefore, McDonald’s adapts the geographical divisional structure to maintain its business globally (Orgdes.com). It is understandable for the company to take this approach, because each region where it conducts business will be unique and different from every other region. There is also a stronger reason why McDonald’s needs to do this, and it is because the food preferences in every single country are different. It is logical to give decision-making power to each regional office, instead of the headquarters in Illinois making every single decision for every McDonald’s restaurant around the world.
McDonald’s corporate organizational structure starts with the CEO overlooking every other division. Underneath the CEO are the legal department and the chairman of the board. All of them overlook three Chief Operating Officers who operate in different parts of the world. The COOs are divided into Asia-Middle East-Africa, Europe, and America. McDonald’s also uses horizontal communication among different departments. According to the previous CEO, Don Thompson, horizontal communication eliminates some of the disadvantages of using vertical communication (UK Essays).
Leadership is one of the most important elements in a corporation, especially in a gigantic company that has a presence all over the world like McDonald’s. Leadership is defined as the process and practice by key executives of guiding and shepherding people in an organization toward a vision over time and developing that organization’s future leadership and organization culture (Pearce and Robinson 368). At the time this paper was written, McDonald’s had recently appointed a new CEO, Steve Easterbrook, and he had been CEO for only two months. McDonald’s decided to terminate its cooperation with the previous CEO, Don Thompson, after two years of disappointing results (Berman).
The ex-CEO made history for himself as the first African-American to lead McDonald’s (O’Connor). He had worked for the Golden Arches for 25 years and worked his way up until he reached the top in 2012. However, McDonald’s performance under his leadership did not meet the expectations. Many analysts believe that the problems in McDonald’s had existed before Thompson took over. However, Thompson’s mistake was to misjudge the power of McDonald’s. Brian Sozzi, the CEO of Belus Capital Advisors, said that Thompson still saw McDonald’s as mighty (O’Connor). The statistics said different things, because during his tenure the sales at U.S. stores, which is a critical measure for a restaurant chain's health, was stagnant or declined for 13 months in a row until December, when they rose just 0.4 percent (Berman).
It was unfortunate for Thompson that he could not save the company because he realized the problems too late. McDonald’s is missing a leading figure who can turn the situation around by making tough decisions, which was found in its previous CEO, James (Jim) Skinner. When Skinner was appointed in 2004, McDonald’s was also not in a terrific state. However, Skinner came up with a plan called “Plan to Win”, which was a strategy to succeed by providing “faster, friendlier service; tastier food; a more appealing ambiance; better value; and sharper marketing.” Skinner and his team succeeded in increasing McDonalds’ total sales, rising from $50.1 billion in 2004 to $70.1 billion in 2008 (Sonnenfeld). When this plan was being implemented, Skinner decided to improve operations in existing restaurants, instead of expanding to different markets by adding new restaurants. That was a difficult decision to make but Skinner knew it would yield a positive outcome.
Culture is one of the most important aspect in implementation and it has a strong correlation with leadership. It is most likely that a good leader will plant the culture into the company’s daily operation. Dr. Vicki Little, a professor in University of Auckland Business School, says “Marketers make promises, then keep them via business processes such as supply chain and customer service. But it's the culture that enables employees to fulfil those processes and keep those promises, thus realizing the return on the marketing investment,” (Gautier).
In another article, it is mentioned that the success McDonald’s has right now came from the strong implementation of its culture. McDonald’s has a position named Vice-President of Individuality. This person is in charge of making the company feel small (Salva-Ramirez). To do this, there is a unique celebration that McDonald’s does on Ray Kroc’s (McDonald’s founder) birthday. On Kroc’s birthday, the executives would work on a McDonald’s store, doing some of the operators’ jobs, such as mopping the floor. It is a reminder for them that Kroc believes that you would not succeed if you think rolling up your sleeves is below your dignity (Salva-Ramirez).
Conclusion and Evaluation
Being one of the most valuable brands in the world does not mean that McDonald’s can stop working to achieve its mission statement. In fact, the company still needs to improve many aspects of its business to be the favorite place and way to eat and drink for its customers. McDonald’s has done a terrific job growing to be the leader of the restaurant industry since it was founded, but now it is up to the current McDonald’s generation to keep it that way.
One of the key issues that McDonald’s needs to address as soon as possible is its identity crisis, happening because of the growing fast casual segment. McDonald’s is currently trying to have 3 generic strategies, which are low cost, differentiation, and speed all at the same time. It is very complicated to offer a differentiation experience while being the lowest-priced in the same time. One of the advantages of fast casual restaurants is their ability to allow their customers to customize their food. However, this means service will be a little slower than that offered at fast food restaurants. That is exactly what McDonald’s needs to focus on. Instead of imitating the fast casual restaurants by offering customization, it needs to improve the fast and convenient service, as it had been doing since it was founded.
On the other hand, McDonald’s is doing a great job in dealing with the negative reputation which has been built up around the company. I think McDonald’s is doing the right thing by allocating some of its assets to develop a new marketing campaign, such as the “Our Food, Your Question” campaign. It is a good decision to be more transparent, because there is more demand to be sustainable and green than ever before.
Another recommendation on which I agree with most analysts is reducing the number of selections in McDonald’s menu. Adopting product development as one of its grand strategies is an excellent idea. However, the company needs to monitor the number of options in the menu because offering too many menu items has caused McDonald’s to be less effective and efficient.
McDonald’s has been adapting its strategies to the external environment. However, some of the strategies appear to be unrealistic given the firm’s current situation. I believe that McDonald’s can still hold its position as the leader of the industry if it finds a solution to its identity crisis.
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