I. McDonald’s Overview
McDonald McDonald as being ninth most valuable valuable brand in the world which has replaced the US army as the Nation’s largest job training organization &Controls the market share of more than 3 food chains taken together in America started in 1940. McDonald's Corporation (MCD) is the world's largest chain of fast food restaurants, serving nearly 47 million customers daily.McDonald's primarily sells hamburgers, cheeseburgers, chicken products, French fries, breakfast items, soft drinks, milkshakes and desserts. More recently, it has begun to offer salads, wraps and fruit. Many McDonald's restaurants have included a playground for children and advertising geared toward children, and some have been redesigned in a more 'natural' style, with a particular emphasis on comfort: introducing lounge areas and fireplaces, and eliminating hard plastic chairs and tables. Company has also expanded the McDonald's menu in recent decades to include alternative meal options like salads and snack wraps in order to capitalize on growing consumer interest in health and wellness Each McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporations' revenues come from the rent, royalties and fees paid by the franchisees, as well as three years sales in company-operated restaurants. McDonald's revenues grew 27% over the three ending in 2007 to $22.8 billion, and 9% growth in operating income to $3.9 billion
II. Histor History y 1954, 1954, a fifty fifty-tw -two-y o-year ear-ol -old d milkmilk-sha shake ke machine machine salesm salesman an saw a hambur hamburger ger stand stand in San Bernardino, Bernardino, California, California, and envisioned envisioned a massive massive new industry: industry: fast food. In what should should have been his golden years, Raymond Kroc, the founder and builder of McDonald's Corporation, proved himself an industrial pioneer no less capable than Henry Ford . He revolutionized the American restaurant industry by imposing discipline on the production of hamburgers, French fries, and milk shakes. By developing a sophisticated operating and delivery system, he insured that the French fries customers bought in Topeka would be the same as the ones purchased in New York City. Such consistency made McDonald's the brand name that defined American fast food.
World’s Oldest McDonald’s This 44 year-old site is the oldest in the worldwide chain of 20,000 restaurants and the last one with red and- white striped tile exterior. After opening in 1953, it immediately became the standard for the fast food franchises across the country. The building and its 60- foot high neon sign with "Speedee the Chef" Che f" are eligible for listing on the National Register of Historic Places. Employees wear 50's style uniforms of paper hats, white shirts and bolo ties. The restaurant serves the original menu of hamburgers, cheeseburgers, fries and old-fashioned milkshakes. Also available are more recent McDonald's items such as Big Macs and Happy Happ y Meals. McDonald's reopened the facility as it was with walkup windows and outdoor seating. They also constructed and addition housing a museum, gift shop, restrooms and more outdoor seating.
III.McDonald’s Mission
McDonald's mission is to be our customers' favorite place and way to eat with inspired people who delight each customer with unmatched quality, service, cleanliness and value every time ... we invite you to be the part of this winning team and give yourself an opportunity to grow with the family of people striving to create smiles on the faces of millions of people everyday. everyday. IV..McDonald’s Culture IV Cult ure & Value
MCDONALD’S VALUES Our values summarized in "Q.S.C. & V.". V.". Provide good quality, quality, services to customer c ustomer.. Have a cleanliness environment when customer enjoys their meal. The value of food product makes every customer is smiling. We place the customer experience at the core of all we do
Our customers are the reason for our existence. We demonstrate our appreciation by providing them with high quality food and superior service, in a clean, welcoming environment, at a great value. Our goal is QSC&V for each and every customer, each and every time. We are committed to our people
We provide opportunity, opportunity, nurture talent, develop leaders and reward achievement. achiev ement. We We believe that a team of well-trained individuals with diverse backgrounds and experiences, working together in an environment that fosters respect and drives high levels of engagement, is essential to our continued success. We believe in the McDonald’s System
McDonald’s business model, depicted by the “three-legged stool” of owner/operators, suppliers, and company employees, is our foundation, and the balance of interests among the three groups is key. We operate our business ethically
Sound ethics is good business. At McDonald’ McDonald’s, s, we hold ourselves and conduct our business to high high standar standards ds of fairne fairness, ss, honesty honesty,, and integr integrity ity.. We are indivi individual dually ly account accountabl ablee and collectively responsible. We give back to our communities
We take seriously the responsibilities that come co me with being a leader. We We help our customers build better communities, support Ronald McDonald House Charities, Ch arities, and leverage our size, scope and resources to help make the world a better place. We grow our business profitably
McDonald’s is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuing focus on our customers and the health of our system. We strive continually to improve
We are a learni learning ng organi organizat zation ion that that aims aims to antici anticipat patee and respond respond to changin changing g custom customer er,, employee and system needs through constant evolution and innovation.
V. SW SWOT OT Anal Analys ysis is Strength ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢
Risk diversity Large market share. Strong supply chain. Promoting ethical conduct Rigorous food safety standards Decentralized yet connected system Strong brand name, image and reputation. Strong financial performance and position Affordable prices and high quality products Nutritional information available on packaging Strong global presence & performance in the global marketplace. Specialized training for managers known as the Hamburger University. McDonalds Plan to Win focuses on people, products, place, price and promotion.
Weakness ➢ ➢ ➢ ➢ ➢ ➢
Unhealthy food image. High Staff Turnover including Top management Customer losses due to fierce competition. Legal actions related to health issues; use of trans fat & beef oil. Uses HCFC-22 to make polystyrene that is contributing to ozone depletion. Low depth and width of products
Opportunities ➢ ➢ ➢ ➢ ➢
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Growing health trends among consumers Joint ventures with retailers (e.g. supermarkets). Consolidation of retailers likely, likely, so better locations for franchisees. Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning. Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modeling and profiles of shoppers) and prevent brand switching Strengthen its value proposition and offering, to encourage customers who visit coffee shops intoMcDonalds. The new “formats”, McCafe, having Wifi internet links should help in attracting segments. Also installing children’s children’s play-parks and its focus on educating consumers about health, fitness. International expansion into emerging markets of China and India. Diversification and acquisition of other quick-service restaurants. Growth of the fast-food industry. Worldwide deregulation. Low cost menu that will attract the customers.
Threats 1. Health Health profession professionals als and consumer consumer activists activists accuse accuse McDonald's McDonald's of contributi contributing ng to the country’ country’s health issue of high cholesterol, heart attacks, diabetes, and obesity. obesity. 2. The relation relationship ship between between corpora corporate te level McDona McDonald's ld's and and its franchise franchise dealers dealers.. 3. McDona McDonald’ ld’ss compet competito itors rs threa threaten tened ed market market share share of the company company both both intern internati ationa onally lly and domestically. 4. Anti Anti-A -Ame meri rica can n sent sentime iment nts. s. 5. Global Global recessi recession on and and fluctua fluctuating ting foreign foreign currenc currencies. ies. Fast-food chain industry is expected to struggle to meet the expectations of the customers towards health and environmental issues. Rece Recent nt econ economi omicc cond condit itio ion n impa impact ctss on cons consum umer er conf confid iden ence ce & spen spendi ding ng,, prim primee real real esta estate te is competitiveness; the gradual increment in Limited Brands operations can hamper the MCD’s growth. In addition, possible tariffs from government over the imported materials, or minor disturbance in the long supply chain of the company are a risk. The increasing cost of labor in other countries and decline in value of US Dollars everyday ever yday can compel the company to change its way of operation.
VI.Five Forces Analysis Competition Restaurant industry is highly competitive industry. There are many small fast food businesses in the industry who fight with each other to improve their customer base; McDonalds is not an exception to this. Since its establishment in 1940, MCD has excelled in the sector. Nevertheless, to stay in the competition, it started with McCafé. This helped the company to stay in the business business as a major major fastfood fastfood business. business. Another major step came out when McDonald started Breakfast to compete with the existing business serving breakfast. Hence, this industry is extremely competitive and the MDC should be up to date with customer taste & preferences.
Ease of Entry Although it is hard to enter the restaurant business, it is hard to establish a distinct brand name. There is a high cost of entry in the market and there is \ high research and development costs. Large established companies with strong brand identities such as McDonald’s do make it more difficult to enter and succeed within the marketplace; new entrants find that they are faced with price competition from existing chain restaurants.
Substitutes There are many substitute substitutess in this industry industry.. Since there are a wide variety variety of products products that people can choose, they could either be substituted by MDC Burgers, Beverages, dairy products, and others.
Strength of Suppliers Power of suppliers within the fast food industry would be relatively small, unless the main ingredient of the product is not readily available.
Strength of Buyers Relatively strength of buyers is low in this industry
Distinctive Not i on on According to a report issued b y Business Week, McDonalds holds 9th position in top 100 brand names all over the world in 2007. Having a long history of almost 69 years, it has established a sense of closeness in the customers. This This is one of the major reasons reasons for McDonalds McDonalds is being rated one of the highest highest retention rates among customers. It is now operating 120 & above affiliated franchises & restaurants. McCafé is yet another distinctive addition to McDonald’s McDonald’s product line. It is part of our delicious lineup of new McCafé specialty coffees. Available at the front counter and drive-thru, McDonald’s can now provide provide express service to espresso espresso lovers throughout throughout the U.S. Neverthele Nevertheless, ss, it is also popular popular among youngster youngsters. s. Breakfast Breakfast product is another another specialty specialty under the portfolio portfolio of McDonalds. McDonalds. Earlier opening times, premium coffee coffee and a flavorful flavorful breakfast breakfast menu have accelerated accelerated our morning morning momentum momentum in the U.K. and U.S., growing sales and our market share at breakfast.
VII.Financial VII.Financial highlights include:
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Comparable sales grew 6.9% and guest counts rose 3.1%, building on 2007 increases of 6.8% and 3.8%, respectively. System wide sales increased 11% (9% in constant currencies).
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Company-operated margins improved to 17.6% and franchised margins improved to 82.3%.
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Net income per share from fro m continuing operations was $3.76, an increase of 16% after adjusting for the impact of the 2007 Latin America transaction. Cash provided by operations totaled $5.9 billion and capital expenditures totaled $2.1 billion.
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Returned $5.8 billion to shareholders through shares repurchased and dividends paid, including a 33% increase in the quarterly cash dividend to $0.50 per share for the fourth quarter Bringing our current annual dividend rate to $2.00 per share.
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One-year ROIIC was 38.9% and three-year ROIIC was 37.5% for 2008.
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Outlook for 2009
We will continue to drive success in 2009 and beyond by remaining focused on being better, not just bigger. bigger. We will do so by further enhancing our understanding of consumers’ needs and wants; facilitating greater sharing and adoption of best practices and new ideas worldwide; and leveraging a strategic approach to implementing initiatives to drive the best bottom-line impact. Despite challenging economic conditions, the McDonald’s System is energized by our current worldwide momentum. We will continue to build on our strength in five key areas: maintaining the balance between price and value; maximizing the benefit of available capital by improving the relevance and contemporary feel of our existing restaurants; leveraging the equity and unique tastes of core menu favorites like the Big Mac, the Quarter Pounder with Cheese and our world-famous French Fries; continuing our financial discipline and evaluation of success measures to ensure these measures are driving actions that positively impact our restaurants; and furthering operations excellence by focusing on improved execution.
VIII.PEST ANALYSIS ANALYSIS Political & Legal
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The international operations of McDonald’s are highly influenced by the individual state policies enforced by each government.
Any changes in regulations, the imposition of additional regulations, or the enactment of any new legislatio legislation n under under the Obama administra administration tion that impacts impacts employment employment/labo /labor, r, trade, trade, product product safety, safety, transportation/logistics, health care, tax, privacy, or environmental issues could have an adverse impact on our financial condition and results of operations.
Economic •
McDonald’s McDonald’s has the tendency to experience hardship in instances where the economy of the respective states is hit by inflation and changes in the exchange rates.
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Market leader.
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Very high target market.
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Low cost and more incomes.
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The rate at which the economy of that particular state grows determines the purchasing power of the consumers in that country.
Social •
Working within many social groups.
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Increase employments.
Technological •
Advanced technology development.
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Quality standards.
Environmental: •
Quality packing.
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Local manufacture using foreign supplies.
Legal:
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Legislation for product.
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Sustained logo
IX.Porter Value Chain Analysis of McDonald’s The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin for McDonalds. •
The primary value chain activities are:
Inbound Logistics: the receiving and warehousing of raw materials and their distribution to manufacturing as they are required. Operations: the processes of transforming inputs into finished products and services. Outbound Logistics: the warehousing and distribution of finished goods. Marketing & Sales: the identification of customer needs and the generation of sales. Service: the support of customers after the products and services are soldto them. •
These primary activities are supported by:
activities.The value chain model is a Technology development: technologies to support value-creating activities.The useful analysis tool for defining a firm's coreco mpetencies and the activities in which it can pursue a competitive advantage as follows: Cost advantage: by better understanding costs and squeezing them out of the value-adding activities. •
As Per the Porter's 5 Forces analysis McDonalds deals with factors outside an industry that influence the nature of competition within it, the forces inside the McDonalds influences the way in which the firms compete, and so the industry’s likely profitability profitability is conducted in Porter’s Porter ’s five forces model. A business business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. So McDonald’s rivalry in this competitive market is blooming.
X. BCG matrix matrix of of McDonald McDonald’s ’s The need for strategy in order to expand its existing product in very promising markets for McDonald’s is very essentia essential. l. McDona McDonald’ ld’ss along along with with KFC and other other major major fast fast food food chains chains have have domina dominated ted the American American continen continentt as well as elsewhere. elsewhere. BCG Matrix: Matrix: The market market growth growth rate measures industry industry attractiveness. The underlying theory for examining market growth rate is the industry life cycle. The BCG assumes that growth rates, life cycle stages affect a firm’s finances. McDonald’s US USA
?McDonalds Eu Europe
McDonald’s Asia
Americas McDonald’s
Placing products in the BCG matrix results in 4 categories in a portfolio of a McDonalds: 1. Stars Stars (=hig (=high h growth growth,, high high market market shar share) e) •
Frequently roughly in balance on net cash flow. flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept. So, McDonald’s USA is under Star position.
2. Cash Cash Cows Cows (=low (=low growt growth, h, high high marke markett share) share) •
Prof Profit itss and and cash cash gene genera rati tion on shou should ld be high high,, and and beca becaus usee of the the low low grow growth th,, investments needed should be low. Keep profits high.
3. Dogs Dogs (=low (=low growth growth,, low low marke markett share share)) •
Avoid and minimize the number of dogs in a company.
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Beware of expensive ‘turn around plans’.
4. Question Question Marks (= high high growth, growth, low low market market share) share) •
Have the worst cash characteristics of all, because high demands and low returns due to low market share
Conclusion Increase its product line. To To have more variety to choose ch oose from, to include more deserts and more items like Pizza McPuff. It should continue to provide better and quick service. By B y lower the supply chain cost so that it helps in cost reducing. MCD is willing to expand their Happy Happ y Meal choices to attract and retain customers& can also Introduction of McCafees serving premium and specialty coffees and other beve rages and other products such as cakes, pastries etc in the existing McDonald’s. Focus on gifts for all generations i.e. youth, kids’ especially senior citizen which is a completely new concept. MCD should provide special promotions during festivals. They should increase the space for provision of birthday party areas& try to sponsor college festivals. After analyzing the marketing mix of McDonald’s, it is clear that the company can b e said to be `global’, i.e. combining elements of globalization and an d internationalization. McDonald’s have achieved this through applying the maxim, `think global, act local’
