Robert Godsey
BUNS 412
DeVry University
1/27/19
My case analysis is over McDonalds restaurants. McDonalds was founded in 1948 in San Bernardino, California by two brothers, Richard, and Maurice McDonald. The first restaurant had a menu of hamburgers, French fries, and milk shakes.
In 1955 Ray A. Kroc opened a franchise McDonalds in Des Plaines, Illinois. Kroc was a distributer of milkshake mixers. His intention and hope were that through running the McDonalds restaurant he could sell several milkshakes and his mixers. He continued to franchise McDonalds and installed his milkshake mixers in everyone. In 1961 Kroc buys out the McDonalds brothers for $2.7 million.
Today McDonald has over 37,000 restaurants in over 100 nations, most of the locations are franchised. Although the design and layout of the restaurant has changed over the years, the concept still is the same, you get a satisfying meal at a fair price. The company reported revenue of $228 billion in 2017 and its market cap as of November 2018 was $89.2 billion. The global presence of McDonalds continues to grow with more restaurants opening every year.
When doing an analysis of McDonalds, it is important to understand the threat of substitute products is real. People are always trying to find unique ways to copy McDonalds and try to do so at a cheaper price as well. These threats can cost McDonalds lots of lost revenue and if done the right way can become not just a threat but a rival to the success of the company. McDonalds must constantly be aware of these threats and ready with an alternative plan of attack for whatever may arise.
Rivalry is another big problem for McDonalds. The company needs to know how many potential rivals there are, who they are, and how does their products compare to those of McDonalds. A serious rival can attract customers from McDonalds by offering cheaper prices and with high impact advertising campaigns. McDonalds faces threats from restaurants like Wendy’s, Burger King, Taco Bell, and Kentucky Fried Chicken. Not all are burger joints but all of them are fast food restaurants and are threats to McDonalds business. So as a company McDonalds must always be searching for new menu items and ways to stay a step ahead of the competition. The biggest rival threat to McDonalds comes from YUM Brands, Inc. Yum Brands runs several franchise restaurants that are part of Taco Bell, KFC, and Pizza Hut. They own over 45,000 restaurants in more than 140 countries and 97% are franchise. In 2017 the company’s revenue was over $5.9 billion and as of November 2018 their market cap was $27.8 billion.
The next threat of new entrants against McDonalds is moderate according to the Porter’s analysis. There is a low switching cost with new entrants which can sway consumers away from buying at McDonalds to save money. This means a new business will usually have lower costs per meal than McDonalds will. Variable capital costs also make it possible for new restaurants to enter the global market more easily which can also be harmful to McDonalds. The downside for new entrants entering the market is the cost to create a strong brand name. The advertising and marketing expense to get a new restaurant name out on the market globally to complete with McDonalds would be astronomical. Most new companies would not have the kind of resources necessary to complete a task that big.
Suppliers have an impact on McDonalds as well. With the Porter’s Five Forces analysis it shows that about McDonalds, the suppliers bargaining power is weak. There is a market full of suppliers which makes it easier for McDonalds to get a cheaper price for their raw materials and makes their profitability higher. Having so many suppliers and not much integration among them as far as working together makes it difficult for them to have any positive leverage towards getting a decent price from McDonalds for their materials.
The McDonalds customer has an enormous impact on their business. According to the Five Forces analysis the bargaining power of the customer is strong. The things that give consumers use on McDonalds are some major threats to the company. Low switching costs are one way the consumer has power. This allows the customer to impose suggestions and ideas on McDonalds and the company must make some effort to listen to keep them happy and not switch to buying from a competitor. Going on that same idea, McDonalds must keep customers happy and comping back due to the substantial number of competitions. The company also faces the threat of substitutes. There are thousands of cheap,