macDonalds corporation strategies

1. McDonald's Corporation
Authors:
Adrian Magopet
Kevin A. Sanders
Armand Koti
Northeastern Illinois University | MGMT 393- Strategic Management | March 2013

2. Introduction
• McDonald's Corporation is the world's largest chain of fast food restaurants, serving
nearly 69 million customers daily through more than 34,000 restaurants in 119 countries
worldwide.
• The business began in 1940, with a restaurant opened by brothers Dick and Mac
McDonald in San Bernardino, California.
• The present corporation dates its founding to the opening of a franchised
restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955
• Each McDonald's restaurant is operated by a
franchisee, an affiliate, or the corporation itself.
The corporations' revenue comes from the rent,
royalties and fees paid by the franchisees, as
well as sales in company-operated restaurants.
• Year End 2010– 80% of McDonald’s
Restaurants were franchised worldwide.
59% Conventional Franchises
21% Licensed to Foreign affiliates
20% Company owned

3. Vision, Mission & Values
Vision
• To be the leading fast food provider around the globe
Mission
• McDonald's brand mission is “to be our customers' favorite place and
way to eat. 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.”
Values
• Enhancing customer experience, summarized
in "Q.S.C. & V.“
Q- Provide good QUALITY
S- SERVICES to customer.
C- Have a CLEAN environment when
customer enjoys their meal
V- The VALUE of products

4. Critical Facts Affecting Firm Strategic
Directions and Performance
• Standardization: This is the most important concept,
consisting of two important dimensions:
Time and Space
For example, Customers get the same experience
regardless of when or where
• Three-legged stool : This is Ray Kroc’s philosophy, still
applies to McDonald’s today, consisting of a 3-way
relationship between Employees, Owner/Operator, and
Suppliers.

5. General Environment Analysis
Segments Effect How it influences
Demographic Positive
• Most important for fast food industry that
depends highly on people
• World population growing which yields a
higher demand for food.
Economic Positive
• Developing countries’ economies are
growing.
• Buying power of people from developing
countries are increasing.
Global Positive
• Global markets are open to every firm and
industry.
• Countries have tendency to join the global
economy.

6. Industry Analysis - Porter`s 5 Forces
Force Influence Factors
Threat of New
Entrants
HIGH Economies of scale do exist but limited because of
market saturation. Ease of Start-up. Low switching
costs. Not much product variation.
Bargaining Power
of Suppliers
LOW Many fast food chains with thousands of suppliers.
Switching done easily. If firm buys large portion of
supplier revenue – power is severely limited. (typical
of fast food industry)
Bargaining Power
of Buyers
HIGH Minimal to zero switching cost (customer
unforgiving). CBS reports in 2009 $110 BILLION spent
on fast food. 25% of US population eat fast food daily
Threat of Substitute
Products
HIGH Grocery stores, deli’s and in-house cafeterias, instant
food like chicken, sandwiches, pizza and coffee
Intensity of Rivalry HIGH Major industry participants compete to maintain or
increase market share. Competition is based on price
because demand is constant

7. Industry Analysis Conclusion:
ATTRACTIVENESS FOR NEW ENTRANTS:
• The fast-food industry is NOT attractive for new market entrants who
wish to compete on cost. New entrants may succeed because of low
start-up costs and massive market demand but differentiation strategy is
critical. (Gourmet/All Natural Fast Food Ex: Epic Burger)
ATTRACTIVENESS FOR INCUMBENTS:
• The market is attractive for existing firms who have established market,
brand name and economies of scale to compete.

8. Competitor Analysis
Current
Strategies
BUSINESS LEVEL • Cost Leadership and
Differentiation
Strategy
• Integrated Cost leadership/
differentiation.
(good fit for Fast Food
Industry)
• Integrated Cost leadership/
Differentiation.
• Higher emphasis on quality than
competitors. (Good Fit for Fast
Food Industry)
CORPORATE
LEVEL
• High Level of
Diversification with
Related-Constrained
• High Diversification • Currently changing corporate
strategy from Related-linked
diversification to low
diversification.
COOPERATIVE
LEVEL
• Joint ventures in Japan
• 51% owned in Russia
• Developmental in
South America.
• Marketing alliance with
DreamWorks (movie
promotions).
• BK & Pepsi have struck a
China alliance.
• Seattle's Best Coffee
• Teamed with Arby’s to form
Strategic Sourcing Group (save
costs, energy, and gain better
competitive contracts for
supplies)
INTERNATIONAL • Multi-domestic
strategy. Emphasis on
aligning with local
taste.
• Multi-domestic Strategy • Multi-domestic Strategy

9. Competitor Analysis
Competitive
Advantage
• Brand Recognition
• Flame Broiled
Burgers/sandwiches
• Inexpensive
• Convenience
• Brand Recognition
• Marketing
• Perceived as higher quality
• Premium food made fast
• Inexpensive
• Convenience
Sustainable
Competitive
Advantages
NONE NONE
Competitor
Future
Assumptions
• Changes in customer
preference
• Customer Satisfaction = Value and
Quality
Competitor
future Objectives
• Offer Oatmeal, real fruit
smoothies. Focus on more
global markets.
• 5000 of 12500 stores outside
US with 90% of Company
growth from outside US.
• Enhance customer experience by
introducing new furniture such as
fireplaces and comfortable seating in
their establishments

10. CAPABILITIES
• Positive Publicity
• Effective marketing
campaigns
• Development of exciting new
food and beverage offers
• Ability to offer industry
leading low-prices that are
unmatched by competition.
• Ability to offer consistency in
value at any location at
anytime.
Core
Competencies
Valuable Rare
Costly to
Imitate
Non-
substitutable
Sustainable,
Temporary, Parity
SUPPLY CHAIN
MANAGEMENT
YES YES YES YES
SUSTAINABLE
COMPETITIVE ADVANTAGE
MARKETING YES YES YES YES
SUSTAINABLE
COMPETITIVE ADVANTAGE
TANGIBLE
 Financials
 Locations
-cities
-Airports
-Gas stations
 Trade Secrets
& Recipes
 Control/Evalua
tion
(consistency)
 Human
Resources
INTANGIBLE
 Value of
Brand name
 LOGO
 Marketing
Contracts
 High
Customer
Satisfaction
 Innovation &
Product
Development

11. Internal Analysis: Value Chain
Distribution
Superior - #1 in fast food industry.
Financially strong. Intellectual
property.
Inferior Inferior
Operations Superior – Standardized processes Inferior Inferior
Marketing &
Sales
Superior – Known as industry
marketing leader
- New upscale restaurants
- McCafe, Free Wi-Fi
- Economies of scale passed on to
customers ($1 Menu)
Inferior Inferior
Supply Chain-
Management
Superior
• major advantage to lock in
prices from suppliers.
• Own many of their own
sources of inputs. (cattle herds
in Brazil)
Inferior Inferior

12. Internal Analysis
Financial Factors
McDonald’s Wendy’s Burger King
Industry
Average
Operating Margin
ratio
0.30 0.07 0.27 .08
ROA 15.44% 16.46% 2.11% 11.34%
ROE 35.73% 35.67% 10% 27.13%
Non-financial Factors
McDonald’s Wendy’s Burger King
Brand Image / Name Very Attractive Attractive Attractive
Location Accessibility + 33,000 + 6,500 +12,500
Market Share 49.6% 12.3% 12.2%

13. Stock Analysis for McDonald’s, Burger King, and Wendy’s

15. Current Strategy Analysis
Strategy Type Analysis
Business Level
Integrated Cost
Leadership-
Differentiation
• McDonald’s stays ahead of competition by providing
customers with more options of healthier meals,
cheaper prices and fast service.
• Product innovation and existing property upgrades.
(McCafe, smoothies, free WI-FI Internet)
Corporate
Level
High Levels of
Diversification
with Related-
Constrained
• Use synergy between other local McDonald’s stores
to maximize savings (previously owned Boston
Market and Chipotle)
Cooperative/
Alliance
Vertical Strategy
• Alliance with major oil companies to set up shops at
stations (also using this strategy in China)
• McDonald’s owns some rental properties that they
develop and rent to other businesses
International Global
• Their multi-domestic strategy allows McDonald’s to
respond better to the dynamic environment. Local
restaurants are sensitive to society`s culture values.
(wine served in France, no beef in India)

16. Global Markets
France
• Quality menu options:
• P`tit Plaisir (mini snack)
• Little Mozza (tomato and mozzarella
salad)
• Jambon Beurre (ham and butter on a
crusty baguette)
• Stand-alone McCafes, oferring fruit tarts
and serving beverages in ceramic mugs
Germany
• Serve alcohol
• Most popular restaurant brand to Germans
aged 12-18
• McDonald's marketing identified a German
fascination with Mexican culture & spicy
foods.
China
• First Fast Food provider to offer a drive-up
lane.
• Firms are grouped by district, based on the
income of local consumers- McDonald's
food is expensive for the average citizen in
China.
Russia
• McDonald’s took a risk buying real- estate
in low-growing areas that would eventually
become prime property. This strategy paid
off over time because of property
appreciation, resulting in considerable
profits.

17. SWOT Analysis
• S pursue O, but limits T: s1-o1 while s1-T2; s2-o2 while s2-T2; s3-04 while s3-T1; s4-o3 while s4-t2
• W limit O, but enhance T: w1-o2 while w1-t2; w2-o3 while w2-T3; w3-o4 while w3-T1
STRENTGHS OPPORTUNITIES
1. Well-known brand name, image and
global presence as a market leader
2. Strong financial performance
3. Specialized training for managers
(Hamburger University)
4. Multi-domestic approach: new
products such as McCafe, P`tit Plaisir
and yogurt fruit parfaits
1. Expansion to Asia (especially countries
such as India and China)
2. Diversification and acquisitions of smaller
restaurants
3. Attract new clients
4. Franchise sales
WEAKNESSES THREATS
1. Saturated nature of the fast-food
business
2. Unhealthy food image; the food is
abundant in trans-fat
3. High staff turnover, including
management
1. The relationship between McD Corp and
franchisees, NO more franchise sales
2. Loss of market share, both globally and
in US
3. Consumer awareness towards food
quality, health concerns

18. Critical Strategic Issues
 How should McDonalds re-gain lost domestic market share and
revenue?
 How can McDonald's address consumer awareness
and negative perception of unhealthy fast food?
 What can McDonald’s do to appeal to health
conscious consumers while still delivering
the value McDonald’s is known for?
Adrian Magopet

19. New Strategy Formation
Feasible
Alternatives
Strategic
Capabilities
Core
Competencies
Sustainable
Competitive
Advantage
Exploit
Opportunities &
Limits Threats
Pursue
Industry
Leading
Green
Initiatives
• Producing effective
marketing
campaign to
promote initiatives
Industry Leader in
Marketing
Marketing
contracts
already
established
Ads on TV, Billboards.
Trains/buses
Reduce chance of
negative publicity
Introduce
All-Natural/
Organic
Menu Item
Offers
• Established
suppliers
• Industry reputation
Value leader
because of
economies of
scale
Supply chain
can offer All-
natural/organic
items at lowest
price.
New market for ‘all-
natural’ Burger
Late Mover = Lost
market opportunity
Contract
with Local
Schools to
provide
nutritional
lunches
• Industry leading
Operations &
supply chain
management
Leader in low cost
and speed of
operation.
Ability to supply
low cost
nutritional
meals to all-
income level
Ability to find new
domestic revenue
Limit market share
loss in US

20. Predicted Competitor Response
Pursue industry Leading
Green Initiatives
• Respond with greater
marketing emphasis on
promote current green
practices called “Burger King
Green Sessions”
• Marketing campaigns
featuring its new LEED
restaurants. LEED buildings
meet criteria requirements
for having a sustainable,
environmentally friendly and
energy-efficient design.
Introduce All-
Natural/Organic Menu
Items
• BK has goal for “cage free
eggs and pork” by 2017.
• Will need to try to infuse
menu with more organics.
• More honesty with
ingredients. (Ex – New
natural French fries)
Contract with local
schools to provide low-
cost lunches for all
income levels
• Unable to compete with
McDonalds' Value chain
• low-cost lunches not an
option.
• Focus on college campus
contracts.
• Unable to compete with
McDonalds` Value Chain.
• Fast food delivery market
could be an option. (Jimmy
Johns)

21. New Strategy Selection:
Introduce all-natural organic menu items to
compete with new ‘gourmet’ burger market trend.

22. Current Strategy Changes
Level Strategy Reasons
Business Integrated Cost Leadership/
Differentiation
Recent consumer trends show
people WANT and WILL pay more
for high quality, low fat and
nutritional meals.
Corporate High Levels of Diversification
with Related-Constrained
Depending on success level of the
Organic Menu, possible Upscale
Burger Bar spin off franchise.
Cooperative Vertical Strategy Find organic sourcing at minimal
cost or possible backwards
integration into organic supplier
industry
International Global May be able to implement different
style organic menu in different
regions tailored to local taste.

23. • Systems – McDonalds must find an efficient source of organic inputs to
enable them to offer high quality at low price.
• Strategy – McDonald’s needs to plan for external environment changes
such as consumer taste. New ‘Gourmet’ Fast Food is a new and up
coming market trend.
• Structure – Decentralized structures give McDonald’s the ability to adapt
and address any issues that may appear in their global operations.
The 7 ‘S’ Model

24. (2013) Market Study,
R&D, Consumer testing
(2013) Search for
organic suppliers
Contracts
(Mid 2014) Introduce
new line of ‘All-natural
organic’ menu items
(2015) Look for
feedback on social
networks and media
outlets
(2015) Conduct market
survey to view
opinions on new
organic menu items
(2015) Make any
necessary
improvements
(2016) Expand or
Retract depending on
new strategy success.
Strategy Implementation Timeline
START 2013
END 2016

25. We hope you are hungry by now!
THANK YOU FOR YOUR
ATTENTION!
Adrian Magopet Adrian Magopet