Olena Slipenko
McDonalds Case Evaluation
McDonalds Corporation is the world’s largest fast food chain with more than 36,000 stores in 119 countries. Everyday customer traffic is 62 to 68 million customers.
Started by McDonald brothers in 1940 in San Bernardino, CA as a small restaurant with menu limited to burgers, drinks & French fries - today it’s a world largest franchise network with 25.41 billion dollars in annual revenue in 2015.
It’s not only a fast-food place, it’s a “natural style”, comfortable restaurants with children playgrounds in some locations & 120 menu items to choose from. It’s a globalization symbol that spread “American life-style” world-wide.
During all times, restaurant industry was an attractive field for investments. McDonalds was a first mover in Fast-food market in 1940’s, but since then, competition was growing exponentially, shifting from traditional quick-service restaurants (like Wendy’s, Burger King & Taco Bell) to fast-casual restaurants with high-quality food & even coffee shops like Starbucks & Dunkin Donuts.
Despite of those changes the general strategy of McDonalds remains the same. They are competing on cost leadership with limited differentiation (like McCafé products) minimizing expenses by economy of scale & long-term relationship with their suppliers.
Strategy diamond can be used to analyze & summarize their strategy.
Arenas can help clearly indicate segments where McDonalds is active. It’s a global brand with a target market segments on mothers with children & young adults. Main product categories are burgers/sandwiches, French fries, salads & McCafé items. With distribution through corporate & franchise owned stores, 40% of which opened 24/7, they employ an “intensive distribution strategy”, making product available through all possible channels. McDonalds invest in technologies, like more efficient drive-thru, smart-phone apps, improved cooking equipment, “Build Your Own” tablets to enhance customers experience, increase sells & cut the cost of operations.
With focus on a low cost, McDonalds also successfully differentiate itself from other fast-food brands.
As a global fast-food chain McDonalds is adapting to local culture giving franchises freedom to offer relevant menu items (vegetarian, halal, kosher) to bring “cuisine-sensitive” customers to their stores.
It also experimenting with customization options, like “Build Your Own” tablets, where customers can choose from over 30 options of meat, buns & toppings to create unique sandwiches. And offering “All Day Breakfast” menu & “Happy Meal” Menu to target two most important customer segments: kids & young adults.
Thanks to worldwide presents & number of operating stores, McDonalds has a better brand recognition than its largest global competitors. And even though today customers became less loyal to this fast-food chain, anyway they appreciate McDonalds brand reliability & expect to receive the same service & menu selection no matter where on Globe the store is located.
So, how it is possible for McDonalds to compete based on a cost leadership strategy & also differentiate itself from closest competitors on a fast-food restaurants market? Which vehicles drive them to chosen arenas?
First one is they expansion thru franchise network, that allowed them to grow quickly to the world largest fast-food brand, keeping in mind that around 17% of corporate owned stores give them enough power to keep control on franchises operations & ensure that same basic standards are implementing on both domestic & global markets.
Since 2000’s McDonalds choose to concentrate on a brand and find the ways to increase revenue, so they strategy shifts from acquiring expensive real estate & opening numerous of new stores to increasing sales in existing locations. McDonalds believe that even small changes, like gentle color scheme & added amenities (TVs, Wi-Fi, fireplace) can help to attract more business.
Speed & sequences of those strategic moves can be easily displayed with Staging portion of Strategy Diamond.
With the focus on improving product quality, implementing more efficient operations, decreasing supply cost & resolve all staffing issues in corporate & franchise owned stores, company is planning to decrease percentage of company run restaurants even further, to 5% only.
Even though US quick-service restaurant industry is expected to grow year after year due to decreasing unemployment rate & rising per capita income, resent researches show that customers give they preferences to more expensive restaurants that can ensure a higher quality of meals. Competing on a cost leadership is becoming more & more challenging. With the focus on a price-sensitive customer, healthier menu items mean increased supply cost & thinner per-unit margin.