TASK ONE
After reading the case study McDonald’s Corporation, prepare a report on the attractiveness of the fast food industry from the perspective of McDonald’s Corporation, an American fast food company founded in California, United States, best known for its hamburgers, cheeseburgers, french fries, soft drinks, wraps, and desserts now faces the challenges of increased competition. You should prepare your answer in a report format and comment on:
· The strategic issues that McDonald needs to address
· The core competencies of McDonald
· The business model of McDonald? Also, discuss on the various strategies/techniques how McDonald earns money?
The strategic issues that McDonald needs to address:
Providing product that balances quality, speed, and affordability. Complaints about speed of service have “increased significantly” in recent years, with the McDonald’s service experience described as “chaotic.”
Innovating the menu without creating unnecessary menu scope creep.
Responding to competitive threats and other quick-service restaurants such as Wendy’s, Burger king, and Yum! Brands’ Taco Bell without losing the company’s core identity. McDonald’s is roughly twice the size of its next largest global competitor (all three Yum! Brands combined), but has slightly fewer outlets.1 It controls almost half of the U.S. hamburger market, which is more than three times larger than the market share held by either Wendy’s or Burger king. Improving public perceptions of the McDonald’s brand. In July 2014, the Big Mac earned the dubious distinction of being America’s worst hamburger, placing last out of 21 in a study by Consumer Reports.2
McDonald’s also ranked lowest among peers in the 2015 American Customer Satisfaction Index. Fast food restaurants overall dropped 3.8 percent, but McDonald’s fell by six percent from 2014, holding firm in the last spot.3
Becoming more “culinary inspired” and to simplify food labels by reducing the number of preservatives.4 There are still 19 ingredients in the French fries McDonald’s serves in the United States, compared to just five in Great Britain.5
Prevention of complacency, in spite of many years of relative success. Increasing its appeal to millennials. Millenials are consistently choosing “fresh and healthy” over “fast and convenient” and “McDonald’s is having trouble convincing them it can be both.6 McDonald’s has to find interesting and engaging ways to share that information with them, not old-fashioned corporate lecturing.7
Defining a clear vision of what it wants to be and a plan for how to get there.
Resolution of the case that the National labor Relations Board’s (NlRB) general counsel has filed against it claiming that the company has enough control over franchise operations to be considered a joint employer.
Resolution of serious staffing issues if it is to improve customer loyalty. An internal survey results one out of every five customer complaints was about “rude or unprofessional employees.8
The core competencies of McDonald Corporation’s
Core competencies of Mc Donald’s can be analysed using VRIO framework.9
Various resources and capabilities that add value and make it competent in market include:
Mc Donald’s has a strong brand image all around the globe. Branding helps it to generate huge revenue and promote its marketing efforts more efficiently.
Mc Donald’s continuously follows an aggressive technology upgrade to allow Starbucks-like interactivity to both smooth out operational waiting times and improve the customer experience.
As a direct competitive response to the “better burger chains,” McDonald’s is offering “Build Your Own” tablets where customers design their own sandwich from over 30 choices of meats, toppings, and buns. This presents an interesting conundrum for a quick-serve restaurant that generates roughly two-thirds of its revenue from drive-through customers.10
To increase its appeal to millennials, Mc Donald’s has hired Google executive to lead McDonald’s “Experience of the Future,” which includes an improved social media presence, development of a Smartphone app, and testing of mobile payment systems.11
Resources and capabilities of Mc Donald’s which are rare include:
Mc Donald’s share has given a 56.26 % return to its shareholders in a period of two years from July 2015 to July 2017 as compared to Dow Jones index return of 21.91 % for the same period.
McDonald’s is roughly twice the size of its next largest global competitor (Wendy’s, Burger king, and Yum! Brands’ Taco Bell, all three combined). It controls almost half of the U.S. hamburger market, which is more than three times larger than the market share held by either Wendy’s or Burger king.
In addition to curtailing antibiotic use in its U.S. chicken supply, McDonald’s is now selling dairy products from growth- hormone-free cattle. The company has also pledged to examine its product ingredients and review its food preparation procedures. Its goal is to become more “culinary inspired” and to simplify food labels by reducing the number of preservatives.
McDonald’s is giving customers more choice in what they eat is by giving franchises more freedom to offer locally relevant menu items. Local restaurant operators can choose items from the company’s global pipeline and adjust them as needed to suit local tastes. Managers will also be granted more freedom to run their own promotions to increase store traffic.12
List of capabilities and resources of Mc Donald’s which are costly to intimate include:
In 2017, McDonald’s operated a total 37,000 restaurants globally, with 14,300 of them in the U.S. One of Easterbrook’s first major moves was to propose all-day breakfast in all U.S. restaurants, the company’s biggest initiative in six years.
Mc Donald’s is present in more than 120 countries which enables its ability to maintain the business in most efficient manner.
In China and Hong kong, the company recently sold an 80 percent stake in their 1,750 restaurants to Citic (state-owned investment group) and the U.S. private equity firm, Carlyle.13 They are currently looking for these partners to open an additional 1,500 stores in China, Hong kong, and korea.
Resources and capabilities of Mc Donald’s which are organized in a structured way tp add value to organisation include:
Mc Donald’s has strong supply chain management embedded with advanced technology to bridge the gap in the system and serve the customers to the best.
To free up space for new offerings, the company has planned to phase out underperforming features such as the snack wrap and reduce the number of extra value meals. McDonald’s menu has swollen to over 120 items. A greater variety of menu options helps to draw new customers into stores.
The company has launched a video series entitled “Our Food, Your Questions,” demonstrating how McDonald’s food items are made. The company has responded to 40,000 questions and that the increased transparency has been well received. In June 2015, Mc Donald’s has hired Robert Gibbs, former White House Press Secretary under President Obama, to serve as executive vice president and global chief communications officer, and Silvia lagnado, previously with Bacardi ltd, to serve as head of global marketing to take over the company’s media affairs.
The company grants employees the ability to accrue up to five days of paid vacation annually after one year of employment.
McDonald Corporation’s’ business model and its revenue streams
Mc Donald’s management philosophy is three-legged stool:
One leg is the parent corporation,
The second leg is the franchisees, and
The third is McDonald’s suppliers.
It has built an ever-larger network of store owners and an integrated supply-chain management system. Many new menu items, such as the Big Mac and Egg McMuffin, have been developed by the franchisees. It encouraged local owners to be entrepreneurial as long as they maintain the company’s four main principles: quality, service, cleanliness, and value. Because of the volume of McDonald’s business, it found many supply partners willing to adhere to his high standards.
McDonald’s both owns and operates its own restaurants, as well as, franchisees them to others. The large majority of restaurants are franchised (85 percent) and McDonald’s makes money by leveraging its product, fast food, to franchisees that have to lease properties, often at large mark-ups that are owned by McDonald’s. McDonald’s runs a franchising business model under which it trades access to its brand, its operating infrastructure, and its resources to restaurant operators for a hefty price. These entrepreneurs pay an initial fee at the start of their franchise. They also send in an ongoing royalty that’s based on a percentage of their sales. Finally, franchisees pay McDonald’s rent for the property that, by the way, can’t drop below a certain rate and is set on 20-year terms.
There are three primary franchise ownership structures:
1) Conventional franchisee,
2) Developmental license, and
3) Affiliates.
Under a conventional franchise agreement, the company typically owns the land and building, and leases the location to the franchisee. The franchisee pays for “equipment, signs, seating and décor.” As the equipment depreciates or new facilities or food preparation processes are required, the franchisee is expected to reinvest in the business. McDonald’s also co-invests into specific strategic initiatives to motivate franchisees to adopt changes. Franchisees pay rent and royalties based on a percentage of sales, with specific minimum rent payments and initial fees paid upon opening a new restaurant or acquiring a new franchise. The typical franchisee lease is 20 years.
The specific conditions of the franchise agreement vary on the owner’s experience, credit capacity, and the local legal environment. Franchisees can vary significantly in size.
The largest franchisee has a developmental license for 2,200 restaurants across latin America and the Caribbean.14 On the other end of the spectrum, some franchisees own and operate a single location.
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