Report on mac donald final
- 1. Table of Contents 1. INTRODUCTION AND COMPANY BACKGROUND ................................................... 2 1.1. MISSION & VALUES................................................................................................... 2 PART I: EXTERNAL ANALYSIS ............................................................................................. 2 1. THE MACRO-ENVIRONMENTAL ANALYSIS ......................................................... 3 2. THE INDUSTRY ANALYSIS.......................................................................................... 6 2.1. COMPETITION ANALYSIS ...................................................................................... 6 PART II: THE INTERNAL ANALYSIS ................................................................................... 9 I. PRIMARY VALUE CHAIN............................................................................................. 9 II. SECONDARY VALUE CHAIN ACTIVITIES: SUPPORT ACTIVITIES............... 10 2.1. PRIMARY ACTIVITIES............................................................................................ 11 PART III: STRATEGIC ISSUES, PROBLEMS AND CHALLENGES .............................. 17 1.1. MCDONALD'S ANSOFF MATRIX.......................................................................... 20 Part IV: COMPANY BUSINESS STRATEGY....................................................................... 22 1. LOW PRICE AND LOW VALUE ADDED (POSITION 1) ....................................... 22 2. LOW PRICE (POSITION 2).......................................................................................... 23 3. HYBRID (POSITION 3) ................................................................................................. 23 4. DIFFERENTIATION (POSITION 4)............................................................................ 24 5. FOCUSED DIFFERENTIATION (POSITION 5) ....................................................... 24 6. RISKY HIGH MARGINS (POSITION 6) .................................................................... 24 7. MONOPOLY PRICING (POSITION 7)....................................................................... 24 8. LOSS OF MARKET SHARE (POSITION 8)............................................................... 25 9. EVALUATING STRATEGIC POSITION USING THE BOWMAN’S CLOCK..... 25 Part V: EVALUATION OF THE STRATEGIC OPTION FOR GROWTH AND IMPLEMENTATION ................................................................................................................ 26 1. SFA MATRIX .................................................................................................................. 26 1.1. SAF Model of MacDonald’s ........................................................................................ 26 1.2. CONCLUSION............................................................................................................. 28 PART VI: REFERENCE ........................................................................................................... 29
- 2. 1. INTRODUCTION AND COMPANY BACKGROUND McDonald's is an American fast food company, founded in 1940 as a restaurant operated by Richard and Maurice McDonald, in San Bernardino, California, United States. They rechristened their business as a hamburger stand, and later turned the company into a franchise, with the Golden Arches logo being introduced in 1953 at a location in Phoenix, Arizona. McDonald's is the world's prime restaurant chain by revenue, attending over 69 million customers daily in over 100 countries across the world approximately 36,900 outlets. McDonald’s opened its first restaurant in the UK in 1974. It is still there today in Woolwich, London. There are now 1,270 restaurants across the UK. The first McDonald’s in the UK opened in Powis St, Woolwich in south east London. The first three McDonald’s in UK are all former Burton’s shops. McDonald’s is not the biggest food chain in Britain. There are now 1,249 McDonald’s in UK – not as many as either Costa (1,831) or Greggs (1,671). Although McDonald's is best known for its hamburgers, cheeseburgers and French fries, they also feature chicken products, breakfast items, soft drinks, milkshakes, wraps, and desserts. In response to changing consumer tastes and a negative backlash, the company has added to its menu salads, fish, smoothies, and fruit. The McDonald's Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as well as sales in company-operated restaurants. According to a BBC report published in 2012, McDonald's is the world's second-largest private employer (behind Wal-Mart) with 1.9 million employees, 1.5 million of whom work for franchises. 1.1. MISSION & VALUES McDonald's brand mission is to be our customer’s 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 customer’s experience. The objective of this report is to critically analyze and evaluate the strategic decisions that McDonald’s India has taken since it began operations in UK. PART I: EXTERNAL ANALYSIS McDonalds has made a great comeback after having performed poorly for the last several years. For the last several years its financial performance had been below expectations. However, as soon as CEO Easterbrook took charge, the McDonalds story started reversing. Now, the fast food brand’s performance is back on track and moving fast. McDonalds is targeting the Millennials. However, its menu might need to be updated to suit their preference. Still, McDonalds is the king of fast food world. Things might improve further given it focuses on its target market. Now we analysis those external factors which effects the company at two levels such as listed and enumerated below.
- 3. 1. The Macro-Environmental Analysis 2. The Industry Analysis 1. THE MACRO-ENVIRONMENTAL ANALYSIS This is a PESTEL analysis of McDonalds. Since the fast food giant operates in a global environment, its brand is influenced by several factors. These factors have an important bearing on the brand’s sales and image. Factor Main impacts Comments Political The global operations of McDonald’s are tremendous under authority of a policy of the separate state put into practice by each government. The Company operates its separate. The definite markets concentrate on various areas of anxiety like various areas of health and environment. All these elements are noticed keenly in the state control of licensing of restaurants. But with the passage of time McDonald’s is also affecting by the government tensions between countries. For instance, the United States’ relationship with the United Kingdom has been strained as of late. McDonald’s is an American company. Complications amongst governmental parties could shift current trade agreements, creating a hostile environment for McDonald’s to function overseas. Economic The organizations in the fast food industry have the separate problems concerning business factors. It is required to take out problems of effects of economic environment. In an estimation of operations of the company, the food chains as McDonald’s be likely to import the largest part of the raw materials to certain territory if there is a delivery lack. The recent economic recession was incredibly disruptive for firms in many industries, reducing revenues and profits across the board, and decreasing consumer demand for many goods and services. However not all firms and industries were adversely affected – some actually saw revenue and profit opportunities increase during the economic downturn due to higher demand – these tend to be firms and industries that are seen to provide ‘value for money’, of which the fast food industry is one. Fast food restaurants can be seen as imperfect substitutes for more traditional restaurants; McDonald’s continued to focus on its more expensive standard menu options, and actually increased marketing spend by 7%, as many companies cut back.
- 4. Factor Main impacts Comments Socio-cultural McDonald’s indulges a special diversity of customers with definite types of persons. Also it is noticed that the company has given the markets like the United Kingdom. McDonald’s early stages considerably valued set of meal which offers a certain degree of excellence for the corresponding market where it works. The growth of the coffee industry has led McDonalds to develop a McCafe menu to provide an alternative to Starbucks Changing customer demographics mean that McDonalds needs to meet the changing demands such as the health and price conscious nature of millennials. In order to sustain demand and to increase its sales, McDonalds will need to adapt their menu choices accordingly to include low fat choices The continued concerns regarding obesity have also meant that McDonalds has needed to provide healthier choices for all of its customers, and particularly children. Technological 1) The impact of Technological factors: Less tech but stronger impact. They also track their orders online and make payments from their smart phones. Companies have developed smart apps that customers can use to shop from their favorite brands 2) With the growing importance of technology for the business world is well known. Technology is virtually everywhere. Because it is at the counter; it is inside people’s pockets. Apps have become especially famous among the companies to attract customers and sales. They have also become a great tool to provide extra ordinary customer service.
- 5. Factor Main impacts Comments 3) McDonald’s makes a demand for its own commodities. There are some needs that McDonald’s is tending to concern the younger population more. Game stains and also toys in the meal are offered by the company. Other expression of such marketing strategy is noticeable in advertising they use. Operations of McDonald’s have significantly been infused with new technology It is true that any brand can reach millions of customers and engage them using the social media. The brands like McDonalds have a huge line of fans and followers that follow it on the social media. Other big brands have also developed great social media strategies to engage their customers Ecological/Environm ental factors Influencing McDonalds 1. All around the globe, governments are now focusing on environmental protection. The focus is now on sustainability. It is not just a trend but a change with a long term impact. The focus is not just on brands but on their supply chains too. Brands like Starbucks and McDonalds are focusing on having environment friendly and sustainable supply The environment friendly brands also have a larger customer base. Such brands are more popular among their customers. Many of such brands that did not focus on their environmental liability have suffered a loss of reputation. It is why all the major brands have a well-developed customer sale recognition policy to handle their environment related concerns. Environment is a concern for all. McDonalds too focuses on framing policies that are more environments friendly.
- 6. Factor Main impacts Comments chains. 2. They may involve charges of harm to environment. Some groups in Hong Kong have made activities to make McDonald’s privileges in Hong Kong conscious of the rather abundant use of containers of prolonged polystyrene and resultant abusing by environment. Legal factors Influencing McDonalds: Because of these factors McDonald’s is faced to apply more secure examination on their corporate social liability. As a whole it has addressed to necessity of the company to generate its corporate position to a more positive responsible company. If the legal environment of a nation is favorable brands operate both safely and profitably. Otherwise taxes and compliance related factors can make it so difficult that the brands find it impossible to do business profitably. Slowly, the Asian countries have started relaxing their laws to invite foreign brands. Such an environment will make it easier for brands like McDonalds to earn their profits and deliver their services. Poor state of law also leads to the difficulties. Several nations still do not have well development employment laws. In such environments employees may find themselves at the receiving end 2. THE INDUSTRY ANALYSIS To discuss the industry analysis, we have to view the competitive analysis such as 2.1. COMPETITION ANALYSIS Analyzing competition is an important part of strategic position analysis. It is also important to assess the strength of competition in a market, and try to understand what makes the competition weak or strong. I. A company should also monitor each of its major competitors, because in order to obtain a competitive advantage, it is essential to know about what competitors are doing.
- 7. Porter’s Five Forces model provides a framework for analyzing the strength of competition in a market. It is not a model for analyzing individual competitors, or even what differentiates the performance of different firms in the same market. In other words, it is not used to assess why some firms perform better than others. Here we discuss the theory to take the understanding about the external analysis by discussing the Porter’s theory. According to the Porter’s theory there are five factors playing the vital role which are listed and enumerated below. 2.2. THE FIVE FORCES Michael Porter (‘Competitive Strategy’) identified five factors or ‘forces’ that determine the strength and nature of competition in an industry or market. These are: 1. Threats from potential entrants 2. Threats from substitute products or services 3. The bargaining power of suppliers 4. The bargaining power of customers 5. Competitive rivalry within the industry or market. The Five Forces model is set out in the following diagram.
- 8. When competition in an industry or market is strong, firms must supply their products or services at a competitive price, and cannot charge excessive prices and make ‘supernormal’ profits. If they do not charge the lowest prices, firms must compete by offering products that provide extra value to customers, such as higher quality or faster delivery. When any of the five forces are strong, competition in the market is likely to be strong and profitability will therefore be low. Analyzing the five forces in a market might therefore help strategic managers to choose the markets and industries for their firm to operate in. 2.3. THE FIVE FORCES MODEL SUMMARIZED The Five Forces model is summarized below, showing some of the key factors that help to determine the strength of each of the forces in the industry or market. These forces determine an industry structure and the level of competition in that industry. The stronger competitive forces in the industry are the less profitable it is. An industry with low barriers to enter, having few buyers and suppliers but many substitute products and competitors will be seen as very competitive and thus, not so attractive due to its low profitability. Force Main impacts Strength New Entrants 1) The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down). Weak2) The threat of new entry is quite high. If anyone looks as if they're making a sustained profit, new competitors can come into the industry easily, reducing profits. Suppliers The ability of suppliers to drive up the prices of your inputs. Moderate Buyers 1) The strength of your customers to drive down your prices. Weak, slowly getting stronger 2) Buyer Power is strong, again implying a strong downward pressure on prices. Substitutes The extent to which different products and services can be used in place of your own. Strong Rivalry The strength of competition in the industry. Strong 2) Competitive rivalry is extremely high. If someone raises prices, he or she will be quickly undercut. Intense competition puts strong downward pressure on prices. By thinking about how each force affects you, and by identifying its strength and direction, you can quickly assess your position. You can then look at what strategic changes you need to make to deliver long-term profit. 2.4. CONCLUSION:
- 9. The global environment is full of possibilities. However, the after effects of economic recession are still looming large. Dollar has grown stronger since the recession. Due to it the situation is not very profitable for brands like McDonalds. However, it must make better use of technology to serve its customers. Moreover, the social factors are to be paid attention too. The health changes sweeping through the society have also made it necessary that the focus is placed on menu. If the menu is simpler, the millennial customers would be more satisfied. Otherwise, the threat of obesity is another major problem that has changed the attitude of the customers towards brands like McDonalds. The legal and economic factors might not be under McDonalds’ control but the brand must still focus on sustainability. This is an important area where the brand’s focus must remain. It would handle the CSR part responsibly since not just the government but the customers are also looking keenly for who is friendlier to the environment. PART II: THE INTERNAL ANALYSIS To understand the internal analysis about the MacDonald’s UK the following things are under debatable which are enumerated below. 1. THE CONCEPT OF THE VALUE CHAIN A framework for analyzing how value can be added to a product or service has been provided by Porter. Porter (‘Competitive Strategy’) grouped the activities of a business entity into a value chain. A value chain is a series of activities, each of which adds value. The total value added by the entity is the sum of the value created by each stage along the chain. Strategic success depends on the way that an entity as a whole performs, but competitive advantage, which is a key to strategic success, comes from each of the individual and specific activities that make up the value chain. Within an entity: I. There is a primary value chain; and II. There are support activities (also called secondary value chain activities). I. PRIMARY VALUE CHAIN Porter identified the chain of activities in the primary value chain as follows. INBOUND LOGISTIC OPERATIONS OUTBOUND LOGISTIC MARKETING AND SALES SERVICES
- 10. This value chain applies to manufacturing and retailing companies, but can be adapted for companies that sell services rather than products. Most value is usually created in the primary value chain. 1. Inbound logistics. These are the activities concerned with receiving and handling purchased materials and components and storing them until needed. In a manufacturing company, inbound logistics therefore include activities such as materials handling, transport from suppliers and inventory management and inventory control. 2. Operations. These are the activities concerned with converting the purchased materials into an item that customers will buy. In a manufacturing company, operations might include machining, assembly, packing, testing and equipment maintenance. 3. Outbound logistics. These are activities concerned with the storage of finished goods before sale and the distribution and delivery of goods (or services) to the customers. For services, outbound logistics relate to the delivery of a service at the customer’s own premises. 4. Marketing and sales. Marketing involves identifying, informing and attracting customers within the target market(s) in which an organization competes. Marketing involves coordinating the 4 P’s of the marketing mix in order to satisfy customer needs. ‘Sales’ describes the transactional process of customers placing orders for goods or services and organizations fulfilling those orders. 5. Service. These are all the activities that occur after the point of sale, such as installation, warranties, repairs and maintenance, providing training to the employees of customers and after-sales service. II. SECONDARY VALUE CHAIN ACTIVITIES: SUPPORT ACTIVITIES In addition to the primary value chain activities, there are also secondary activities or support activities. Porter identified these as: 1. Procurement. These are activities concerned with buying the resources for the entity – materials, plant, equipment and other assets. 2. Technology development. These are activities related to any development in the technological systems of the entity, such as product design (research and development) and IT systems. Technology development is an important activity for innovation. ‘Technology’ also includes acquired knowledge: in this sense all activities have some technology content, even if this is just acquired knowledge. 3. Human resources management. These are the activities concerned with recruiting, training, developing and rewarding people in the organization. 4. Corporate infrastructure. This relates to the organization structure and its management systems, including planning and finance management, quality management and information systems management.
- 11. 2. MCDONALDS VALUE CHAIN ANALYSIS 2.1. PRIMARY ACTIVITIES 1. Operations McDonald’s operates Company-owned and franchised restaurants. About 80% of McDonald’s restaurants are owned and operated by independent franchisees. 2. Conventional franchising involves franchisees paying rent and royalties on the percentage of sales along with the payment of initial fees when opening a new restaurant. In this type of franchising, McDonald’s Corporation owns the land and building or secures a long-term lease for the restaurant location and the franchisee pays for equipment, signs, seating and décor. 3. Developmental license involves licensees providing capital for the entire business, including the real estate interest. In developmental license agreement no capital invested by McDonald’s Corporation. Royalty is paid by licensee on the percentage of sales in addition to initial fees upon the opening of a new restaurant or grant of a new license. This structure of developmental license ownership is used by McDonald’s in more than 70 countries with a total of 5,228 restaurants. 4. Affiliates as another form of franchising refers to a limited number of foreign affiliated markets. McDonald’s receives royalties from affiliates on the percent of sales. Japan accommodates the largest numbers of affiliates with close to 3,100 restaurants. SUPPORT ACTIVITI ES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUN D LOGISTI C OPERATIO NS OUTBOUN D LOGISTIC MARKETIN G AND SALES SERVIC ES PRIMARY ACTIVITIES
- 12. 5. Outbound logistics. Macdonald’s restaurants operate in the following formats: sit-down restaurants, drive-thru, counter-service outlets in food courts and ski-thru. The process of obtaining meals in sit-down restaurant format is conventional process of dining out in a restaurant and it involves a waiter or waitress taking order and delivering the food. McDonald’s counter-service outlets, on the contrary, involve self-service. 6. Marketing and sales. McDonald’s uses print and media advertising extensively in order to communicate its marketing message to the representatives of the target customer segment. Company’s advertising budget in the US alone equaled to USD 1.42 billion in 2014. Along with print and media advertising, this amount was spent on sales promotions, events and experiences and public relations. 7. Service. High speed of the provision of customer service is one of the main competitive advantages of McDonald’s. However, attempts of the company to provide excellent customer services contradicts its practice of paying minimum or slightly above minimum wages to its employees…. 3. MCDONALD’S COMPETENCY FRAMEWORK THRESHOLD COMPETENCY CATEGORY DISTINCTIVE /SPECIFIC COMPETENCIES CORE COMPETENCIES 1. Change Orientation 2. Communicates Effectively 3. Continuous Learning 4. Customer Focus 5. Drives to Excel 6. Holds Self and Others Accountable 7. Problem-Solving and Innovation 8. Teamwork and Collaboration Company operated resturents 19% Licensed to forign affiliates 10% Developmental Licensing 14% Conventional franchising 57% Operational formats of McDonald’s restaurants Company operated resturents Licensed to forign affiliates Developmental Licensing Conventional franchising
- 13. THRESHOLD COMPETENCY CATEGORY DISTINCTIVE /SPECIFIC COMPETENCIES 9. Values and Respects Others LEADERSHIP COMPETENCIES 1. Coaches and Develops 2. Maximizes Team Effectiveness 3. Maximizes Business Performance 4. Strategic Perspective FUNCTIONAL COMPETENCY MENU (ELECTIVE) 5. Job Knowledge 6. Leverages Resources 7. Decisiveness 8. Gathers and Uses Information 9. impact and Influence 10. Negotiation and Conflict Resolution 11. Uses Technology Appropriately 12. Vendor Management 4. VRIO FRAMEWORK STRENGTH VALUAB LE RAR E INIMITA BLE ORGANIZE TO CAPTURE VALUE COMPETITIV E IMPLICATION S PRODUCT PRICING/ Mix Yes No Yes Yes Sustainable competitive advantage Brand Name Yes Yes No Yes Sustainable competitive advantage SUPPLY CHAIN Yes No No Yes Temporary competitive advantage Advertisement Yes No Yes Yes Temporary competitive advantage Customer service Yes Yes Yes Yes Sustainable competitive advantage STANDARDIZED ROCESSES/CONSIST ENCY Yes No Yes Yes Sustainable competitive advantage Network infrastructure Yes Yes No Yes Temporary competitive advantage DELIVERY /DISTRIBUTION Yes No No Yes Temporary competitive advantage
- 14. STRENGTH VALUAB LE RAR E INIMITA BLE ORGANIZE TO CAPTURE VALUE COMPETITIV E IMPLICATION S TECHNOLOGY Yes No No Yes Temporary competitive advantage Leading market position Yes Yes Yes Yes CHILDREN CENTRIC MENU & ENVIRONMENT Yes Yes Yes Yes Sustainable competitive advantage Three of McDonald’s Resources / Capabilities give them a sustainable/sustained competitive advantage: Product Pricing Standardized Processes and Consistency of their product Children Centric Menu and Environment Product Pricing Standardized Processes and Consistency of their product Children Centric Menu and Environment Product Pricing Standardized Processes and Consistency of their product Children Centric Menu and Environment 5. SWOT ANALYSIS Even though McDonalds is the world's largest fast food restaurant chain and is ranked as ninth on the world's most valuable brands but even then analysis must be acknowledged such as given below. MCDONALDS CORPORATION STRENGTHS WEAKNESSES OPPORTUNITIES THREATS McDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving Core product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot Joint ventures with retailers (e.g. supermarkets). Social changes - Government, consumer groups encouraging balanced meals, 5 a day fruit and vegetables.
- 15. MCDONALDS CORPORATION STRENGTHS WEAKNESSES OPPORTUNITIES THREATS burgers and fries in almost 120 countries.. food and burgers. Good innovation and product development. It continually innovates to retain customers in the business. Seasonal Consolidation of retailers likely, so better locations for franchisees. Focus by consumers on nutrition and healthier lifestyles. The McDonalds brand offers consumers choice, reasonable value and great service Quality issues across the franchise network. Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning. Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S. Large amounts of investment have gone into supporting its franchise network, 75% of stores are franchises. Intimidating market saturation that may also lead to problems in advertising new products Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modelling and profiles of shoppers) and prevent brand switching. Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors. Loyal staff Fast rising Strengthen its Pressure
- 16. MCDONALDS CORPORATION STRENGTHS WEAKNESSES OPPORTUNITIES THREATS and strong management team. and competitive market due to which company has to face income problems. value proposition and offering, to encourage customers who visit coffee shops into McDonalds. groups - environmental . The Income problems and large competition do not let the spectrum of manufacture rise into value ones but it makes to expand a range of low-cost and speedily made ones. The new “formats”, McCafe, having Wifi internet links should help in attracting segments. Also installing children’s play- parks and its focus on educating consumers about health, fitness. McDonald’s is also a low inventive company. Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages. International expansion into emerging markets of China and India. In analyzing this company, the strengths, weaknesses, opportunities, and threats were inevitably explored to better understand the current situation. This SWOT analysis shows us that although there are numerous threats against the fast-food industry, McDonald’s occupies a relatively
- 17. strong position in the global marketplace. According to the five forces model, the strongest competitive force is between rival sellers in the industry. This SWOT analysis shows the many strengths that Mc Donald’s employs to keep itself at the top of the fast-food industry. Although there are various weaknesses, these can all be turned around following the McDonald’s Plan to Win. PART III: STRATEGIC ISSUES, PROBLEMS AND CHALLENGES In recent time McDonald’s has underperformed in comparison to previous year’s achievement. Its revenue growth has been in the decline and prior to April 2003 store sales fall for 12 straight months. It is believed that this situation is a result of several aspects that include an increase in competition, poor management, bad marketing and lack of response to the changes in the needs of franchises and customers. In the early 1970s, the UK was the only market left untapped by McDonald's in Western Europe. The reasons for the company's late entry into the country were high real-estate costs and the prices of raw materials such as beef. Besides, the unpopularity of drive-in restaurants, which were relatively unknown in Britain till the 1970s, delayed McDonald's entry into the UK... ISSUES AND CHALLENGES FACED BY MACDONALD’S UK REASONS STRATEGY Rising Issues- Customer Service 1. As years have progress many issues have arisen for McDonald’s but the greatest is probably its poor customer service. McDonald’s has the lowest the customer service ranking in the fast food industry and is ranked even lower on customer service than the IRS. 1. McDonald's chief financial officer Matt Paull said the issues in the UK 'may take longer to resolve'. 2. He added that the company was seeking growth in UK through new menu items and improved communication on food quality, and said there were no plans to cut marketing spend. 3. McDonald's plans to refranchise 50 of its outlets, which had been franchised in the past before being bought up by the company. It also aims to revamp up to 70 other restaurants this year 4. The company reported a 6% fall in quarterly global profits to $735m (£415m). 5. It is in the third year of a 2. One reason for this is a high employee turnover rate. McDonald’s has the highest employee turnover rate among its competitors. 3. Another contributing aspect to the poor customer service is slow service at the drive- through window. Opposing Viewpoints While McDonald’s feels positive about its newly implemented changes the critics are rather skeptical. Health Factor 1. All fast-food hamburger chains, McDonald’s included,
- 18. ISSUES AND CHALLENGES FACED BY MACDONALD’S UK REASONS STRATEGY are forced to respond to the shift in customer preferences from high-calorie burger and fries to healthier items such a deli sandwiches and baked potatoes. turnaround plan that has seen it attempt to refocus its business around healthy eating options, such as its Deli Sandwich range, in answer to criticism that it has fueled the obesity crisis in the West. 2. All the chains are expected to be struggling for several years to come to meet new consumer health expectations without compromising the original menu items. Competition 1. One of the major issues for McDonald’s is it competitors. Burger King is the second largest hamburger fast-food chain in the world and is the number one competitor for McDonald’s. 2. Wendy’s is the third largest fast-food chain with 9,000 stores in 33 countries worldwide. Wendy’s offers several unique items including the Frosty and Spicy Chicken Sandwiches as well as healthier items such as salads, baked potatoes and chili. 3. Hardee’s is the fourth largest fast-food chain in the nation. It holds 2,400 locations in 32 states and 11 countries. In 2002 it reported 1.8 billion in sales. Hardee’s greatest strength is in its breakfast menu which brings in 35 percent of its revenue.. 4. Jack in the Box, another major competitor in fast-food industry, has of 1,850 restaurants in 17 states. In the
- 19. ISSUES AND CHALLENGES FACED BY MACDONALD’S UK REASONS STRATEGY fiscal year 2002 Jack in the Box reported revenue of 2.2 billion dollars, which is up 4.7 percent from the previous year. 5. Sonic yet another major competitor owns 2,700 locations and reported in 2003, 2.4 billion in revenue which is 6.2 percent increase. Competitive Forces The quick-service sandwich industry faces competitive pressures from a number of forces Substitute Products In addition to competition from rival sellers in the industry, sandwich firms also face intense competitive pressure from firms in other industries selling substitute products. The substitute products for the fast-food industry are probably some of the most diverse in the world. New Entrants The threat of potential new entrants and the bargaining power of suppliers is not a significant competitive force in the fast-food industry. Occasionally, new entrants will come along and compete with firms in the fast-food industry and offer substitute products. Driving Forces There are a number of driving forces which have molded the current state of the fast-food industry. In the beginning, fast-food companies typically focused on being the low- cost provider and sought to expand into as many markets as possible. New Menu Items Fast-food restaurants have, for the most part, always been related to an unhealthy lifestyle. Strategic Moves A number of competitors in the fast- food industry have expanded beyond
- 20. ISSUES AND CHALLENGES FACED BY MACDONALD’S UK REASONS STRATEGY their traditional offering of generating revenues from their fast-food restaurants. Strategic Groups The fast-food industry is primarily composed of national chain brands. As a result, there are just a couple of strategic groups associated with the fast-food market. The major national chain brands such as McDonald’s, Burger King, Wendy’s, Hardee’s, and Jack in the Box compete in markets throughout the United Kingdom and around the world. Fast-Service Over the past couple of years there has been a growing trend in the restaurant industry to provide customers with a higher quality product in a short amount of time. These restaurants are typically referred to as ‘fast casual’ or ‘quality quick service.’ 1.1. MCDONALD'S ANSOFF MATRIX Existing Products New Products Existing Markets Market Penetration Product Development Consolidation Withdrawal Efficiency gain hamburgers, cheeseburgers, chicken products, French fries, breakfast items, soft drinks, milkshakes and desserts. More recently, it has begun to offer salads, wraps and fruit. Innovation in all products, Introduction of new products (Brands) Basic idea is to get more money from existing customer. Can be particularly good if using existing resources, distribution channels etc. New products could arise from R & D, joint, ventures, buying in others peoples products or licensing. New Market Development Diversification
- 21. Existing Products New Products Markets Uruguay Venezuela Yemen This involves findings new markets for existing products. These could be new segments in current markets (e.g. new age group) or overseas markets. CSF is markets attractive would the firm have a competitive advantage in the new markets , can barriers to entry be overcome? Pret A Manger Chipotle Mexican Grill This could be related to what we do at the moment.(e.g. vertical integration ) or unrelated (conglomerate diversification). McDonald Corporation often uses Ansoff Matrix’s growth strategies, to focus on the firm's present and potential products and markets & customers by considering ways to grow via existing products and new products, and in existing markets and new markets.
- 22. Part IV: COMPANY BUSINESS STRATEGY In order to elaborate the company business strategy, we have to understand some theories regarding this in which one of the theory of “Bowman's Strategic Clock (Strategic Positioning)” which is given below. Bowman’s Strategic Clock is a model that explores the options for strategic positioning – i.e. how a product should be positioned to give it the most competitive position in the market. The purpose of Bowman's Strategic clock is to illustrate that a business will have a variety of options of how to position a product based on two dimensions – price and perceived value. Differentiation Focused Differentiation HIGH Hybrid Low price Risky high Margins Low prices & Low added value Monopoly pricing LOW Loss of market share LOW HIGH 1. LOW PRICE AND LOW VALUE ADDED (POSITION 1) Not a very competitive position for a business. The product is not differentiated and the customer perceives very little value, despite a low price. This is a bargain basement strategy. The only 1 8 7 6 5 4 3 2 Perceivedvaluetotheconsumer
- 23. way to remain competitive is to be as “cheap as chips” and hope that no one else is able to undercut you. 2. LOW PRICE (POSITION 2) 3. HYBRID (POSITION 3) Not a very competitive position for a business. The product is not differentiated and the customer perceives very little value, despite a low price. This is a bargain basement strategy. The only way to remain competitive is to be as “cheap as chips” and hope that no one else is able to undercut you. Businesses positioning themselves here look to be the low-cost leaders in a market. A strategy of cost minimization is required for this to be successful. Profit margins on each product are low, but the high volume of output can still generate high overall profits. Competition is usually intense – often involving price wars. Involves some element of low price (relative to the competition), but also some product differentiation. The aim is to persuade consumers that there is good added value through the combination of a reasonable price and acceptable product differentiation. This can be a very effective positioning strategy, particularly if the added value involved is offered consistently.
- 24. 4. DIFFERENTIATION (POSITION 4) 5. FOCUSED DIFFERENTIATION (POSITION 5) 6. RISKY HIGH MARGINS (POSITION 6) 7. MONOPOLY PRICING (POSITION 7) A differentiation strategy aims to offer customers the highest level of perceived added value. Branding plays a key role in this strategy, as does product quality. A high quality product with strong brand awareness and loyalty is perhaps best-placed to achieve the relatively prices and added-value that a differentiation strategy requires. This strategy aims to position a product at the highest price levels, where customers buy the product because of the high perceived value. This the positioning strategy adopted by luxury brands, who aim to achieve premium prices by highly targeted segmentation, promotion and distribution. Done successfully, this strategy can lead to very high profit margins, but only the very best products and brands can sustain the strategy in the long-term. A high risk strategy that likely to fail eventually. Business sets high prices without offering anything extra in terms of perceived value. If customers continue to buy at these high prices, the profits can be high. But, eventually customers will find a better- positioned product that offers more perceived value for the same or lower price. Other than in the short-term, this is an uncompetitive strategy.
- 25. 8. LOSS OF MARKET SHARE (POSITION 8) 9. EVALUATING STRATEGIC POSITION USING THE BOWMAN’S CLOCK Where there is a monopoly in a market, there is only one business offering the product. The monopolist doesn’t need to be too concerned about what value the customer perceives in the product – the only choice they have is to buy or not. There are no alternatives. In theory the monopolist can set whatever price they wish. Fortunately, monopolies are usually tightly regulated to prevent them from setting prices as they wish. This position is a recipe for disaster in any competitive market. Setting a middle-range or standard price for a product with low perceived value is unlikely to win over many consumers who will have much better options (e.g. higher value for the same price from other competitors). Three of the positions (6, 7 and 8) are uncompetitive. These are the ones where price is greater than perceived value. Provided that the market is operating competitively, there will always be competitors that offer a higher perceived value for the same price, or the same perceived value for a lower price.
- 26. Part V: EVALUATION OF THE STRATEGIC OPTION FOR GROWTH AND IMPLEMENTATION 1. SFA MATRIX The SFA matrix was developed by Gerry Johnson and Kevan Scholes and is a tool to analyse strategic possibilities. The acronym SFA stands for: Suitability: this is the extent to which the strategic opportunity is suitable for the company. Feasibility: this is the extent to which the strategic option is feasible. This involves looking at strengths and weaknesses that arise from an internal analysis. Acceptability: the acceptability of a strategic choice arises by examining at two criteria: financial aspects and the extent to which the choice fits in with stakeholders. 1.1. SAF Model of MacDonald’s An analytical and planning method, Situation Analysis Framework (SAF) is adapted from the Logical Framework Approach (LFA) and the Objective Oriented Project Planning (OOPP "The major components of SAF are the following: i. Stakeholders (traditionally referred to as beneficiaries); These are the people the project is trying to involve and assist through its activities ii. Development problem; Also sometimes labelled the grand-problem, this defines a major undesired and negative situation affecting a large number of people. Thus, a
- 27. development problem can include a number of different problems and issues being tackled by various projects. iii. Project goal; This is a statement of the overall aim of the project. It describes what the project aims to achieve by addressing the development problem. iv. Main problems: These are major specific problems or the undesired situation the project is specifically addressing. Main problems are derived from the development problem. They are the major causes of the development problem, or issues related to it. v. Project objectives: Also known as immediate objectives, these indicate what the project aims to specifically accomplish in relation to the main problems and as a contribution to the achievement of the project goal. vi. The problem tree: This important tool assists in the cause-effect analysis of a situation. The problem tree is the starting point of SAF as all the other components of the framework are derived from it. vii. Focal problems: Often referred to as root-problems, these are factors causing part or most of the main problem. viii. Communication objectives: These indicate what the communication intervention aims to accomplish, specifically in relation to the focal problem and as a contribution to the achievement of the project goal. ix. Communication Mode Design: This includes a series of steps through which the Interaction groups, communication approaches, design specifications, media and activities are selected and refined. x. Outputs: These are the measurable results of one or more activities. These are what the project activities are expected to produce so that the project can achieve its objective. In order to define them more effectively outputs have been divided into two categories: quantitative and qualitative outputs. Quantitative outputs. These are the physical results of the activities such as the number of workshops held and of people trained, quantity of communication materials produced, for example, number of booklets and flipcharts. Qualitative outputs, On the other hand, are the expected results to be achieved as a result of the physical outputs. These are intangible but still measurable results, for example, participants' satisfaction and level of awareness reached. For instance, if the output is 20 extensionists trained in interpersonal skills, the quantitative output will be the actual number trained and the qualitative one will be measured by how well the trained extensionists have learned communication interpersonal skills. Activities: These are the tasks/actions to be performed in order to produce the output needed to achieve the project’s immediate objectives. Inputs: These are the human and material resources (such as money, equipment, materials, personnel and training facilities) necessary to carry out project's activities meant to produce the outputs thus assisting to achieve the objective. Indicators: These can be compared to road signs that indicate to a driver whether he/she is on the right road and how far he/she is from the final destination.
- 28. Means (or sources) of verification: These are the sources and nature of information required to measure the indicators. External factors (sometimes also referred to as Assumptions): These are variables that are outside the control of the project management, but may determine the success or failure of the project. The diagram below summaries the logical linkages of the SAF components "Use this logical relationship 'sequential chain' among SAF components as a checklist to ensure that no element of the process is omitted and that all the linkages are consistent with one another..." The company needs to take several strategies for the improvement of the business. The strategies are product development strategy, market development strategy and diversification strategy. The SAF model can help to analyze whether the strategies are profitable for the company or not. SUITABILITY ACCEPTABILITY FEASIBILITY The new strategy can help to overcome the situations which are faced by the company. The objective of the shareholders is to grow the business and more amount of business. the strategies will work in the reality and it will improve the business of the company. The company is not able to meet the requirement of the customer. New product development strategy can help to attract more customers. Net strategies can fulfill the expectation of shareholders by growing and improving the business The company need not bear huge amount of cost for the implementation of strategy The risk is also associated with the implementation of strategies is minimum because the company has already strong in the market. It has already experienced employees and strong suppliers which can help to implement the strategies successfully. 1.2. CONCLUSION From the above discussion and according to the market and analysis McDonalds’ have its worth to do its objectives by own. It is capable to launch and offer new products plus services to the public, McDonalds’ can enlarge its share by observing its worth. Following are the points for strategies and Objectives, such as: McDonalds should have “Order via Digital Screens” (On/Near Tables) McDonalds should increase “Social Media Marketing Campaigns” McDonalds focuses on “Vegetarian Meals and Salads” McDonalds should focus “More Economical Price Products” McDonalds should lunch “Order Customization” McDonalds should focus on “Wheels on Meal” Development Problem <===> Goal <===> Main Problem <===> Immediate Objectives <===> Problem Tree <===> Focal Problems <===> Communication Objectives <===> Communication Mode Design <===> Outputs <===> Activities<===>Inputs
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