Retail World of McDonald's - Essay Example

Current Trends In The Retail Food Industry (Mc Donald’s) The current trends in the retail food industry are characterized by continuous price cutting and expanding menus to attract customers from rival concepts and menus. The result is unfocused concepts for many of the players. Service has declined (service is defined by speed of delivery and consistency of product) as costs are cut in each unit. Franchised stores characterize this industry. This means that each restaurant chain (each player) has two major product lines to offer- restaurants and food. Still, it is an expensive game to play requiring up-front capital of $500K to $1,500K to open a unit The McDonalds Corporation primarily franchises and operates McDonalds restaurants. Of the 31,377 restaurants in 118 countries at year-end 2007, 20,505 are operated by franchisees (including 2,781 operated by developmental licensees), 3,966 are operated by affiliates and 6,906 are operated by the Company. The Company continues to focus its management and financial resources on the McDonalds restaurant business as it is believed that the opportunities for long-term growth remain significant. Accordingly, during the third quarter 2007, the Company sold its investment in Boston Market. In 2006, the Company disposed of its investment in Chipotle Mexican Grill (Chipotle) via public stock offerings and a tax-free exchange for McDonalds common stock. As a result of the disposals during 2007 and 2006, both Boston Markets and Chipotles results of operations and transaction gains have been reflected as discontinued operations for all periods presented. The unique business relationship among the Company, its franchisees and suppliers (collectively referred to as the System) has been key to McDonalds success over the years. This business model enables McDonalds to play an integral role in the communities they serve and consistently deliver relevant restaurant experiences to customers. In addition, it facilitates their ability to implement innovative ideas and profitably grow the business worldwide. Since implementing the customer-centered Plan to Win several years ago, their focus has been on being better, not just bigger. Their strategic alignment behind this plan has created better McDonalds experiences through the execution of multiple initiatives surrounding the five factors of exceptional customer experiences - people, products, place, price and promotion. While the focus has remained the same, they have adapted and evolved their initiatives based on the changing needs and preferences of their customers. McDonalds has 10 challenges: 1 Customer satisfaction - McDonalds has been ranked the worst company for customer satisfaction in America for a decade. 2 Franchisee monitoring standards - The Company has no system for monitoring standards, so as to avoid trouble with the franchisees. 3 Investor relations - McDs share price has underperformed the S&P500 for several years. Investors want a tighter, more centralized McDonalds. Instead of aggressive expansion, investors want the company to concentrate on the profitability of existing stores, The Economist (2001). 4 Threat of substitutes - The future of fast food may be congee, tofu and roast duck as Chinese will displace the burger and pizza, says The Economist (2002a). The Economist (2002b) reports that sales at McDonalds and Burger King are declining and fast casual gourmet sandwich, salad and soup chains are taking market share. McDonalds offering looks increasingly outdated. 5 Changing customer eating habits - “The world has changed. Our customers have changed. We have to change too", says McDonalds CEO, Jim Cantalupo, in The Economist (2003). There are too many confusing meal choices and variety will be reduced and salads, yoghurts and sliced fruit introduced. 6 Growth - The Company no longer aims to be bigger than everybody else in the fast food industry, just better. A decade of stagnant US store sales was followed by declining sales in 2002 like Coca-Cola or Disney, McDonalds is in the maturity stage of its life cycle and, as a cash cow, needs milking. 7 Capital investments - The Company massively misallocated capital for decades, according to The Economist (2003), and slashed capital spending by a third, to USD1.2 billion, for 2003. 8 Out-of-date strategies - The Economist (2003) quotes an analyst as saying that McDonalds top management, shaped by previous out-of-date strategies, lacks the vision or stomach to make the necessary changes." 9 Decentralization - The company decentralized operations in 1998 to rebuild tattered relationships with franchisees. However, this caused reduced service, quality and cleanliness standards. McDonalds new CEO promises improvements in franchisee restaurant management. 10 Franchisee alienation - The poorly executed and imposed Made for You kitchen initiative had an adverse effect upon franchisee revenue growth and profits. Due to the strong rivalry among competitors in the fast food industry, McDonald’s has been working really hard to set itself apart from the completion and introduce something different to its customers. The fast food giant has been adding new food items and introducing healthier menus including salads over the past three years. The sources of McDonald’s business innovation and competitive advantage can be identified using Hamel’s Business Concept Innovation (BCI) frame work. The Core Strategy of McDonald’s is based on differentiating itself from other fast food retailers (Basis for differentiation). McDonald’s is trying to change the perception that people has about fast food retailers by offering healthy menus and a variety of food items. Additionally, the customer interface of McDonald’s is developed through Information and insight. Since McDonald’s is an international brand with stores all over the world, the fast food giant is keen on providing innovative food items to its customer based on their own tastes and preferences. The fast food retailer conducts market research and gathers information about its customers’ preferences in each geographic area in order to develop new food items that can attract these market segments. A good example is Mac Arabia which has been introduced by McDonald’s in the Middle East. In addition to that, introducing Mcfalafel in the Egyptian market for a very competitive price was a very smart move by McDonald’s. McDonalds is facing problems from all areas of the PEST analysis. The company is suffering from political threats from wars between countries where the company operates, as well as from governments now adding legislation to force them to put health warnings on their products. They have also become a symbol of capitalism and Americanism – meaning that they have now become the target of terrorist groups and attacks. McDonalds has no control over these political factors which are making the company suffer greatly. They can only leave war stricken countries, or places where terrorism is a threat. This means a loss in revenue, as well as the company becoming smaller and therefore weaker. McDonalds are experiencing economical problems lately too. They have found a recent slump in sales from its fast food business, suggesting customers want more freedom of choice, something which they may not get at McDonalds. To combat this McDonalds have bought out other companies, such as Pret á Manger. By diversifying the company they aim to increase sales again by offering the customer more variety, as this seems to be what consumers are demanding. Porter’s Five Forces model is often used in this assessment and covers areas such as: Level of dependency on major suppliers and product, Ability of client customers to backward integrate to supplier, Susceptibility of business to substitutes for client products, Effect of new entrants into the market place, Dependency on senior management, Variance in culture between the target client and acquirer, and Contractual arrangements with senior management and spread of expertise. Mc Donald’s has done well as far as porter’s five forces are concerned. The greatest strengths of McDonald was introducing people to the fast food and creating an image in people minds of fast food culture. McDonalds has over 30,000 branches in 120 countries and 80% of its revenues is derives from eight countries like Canada, Brazil, Germany, France, Japan, UK, Australia and US (Ezine). List of references: Technology enhancing service at MacDonalds, CHIC Hospitality Consulting Services, Retrieved: from http://www.easytraining.com. Value of Supply Chain Management Issues from the Customers Perspective, Corn Utilization and Technology Conference 2002,. Retrieved: from www.agribiz.com. The Magic of Wi-Fi, Businessweek, Retrieved: from www.businessweek.com Burger King standardizes ERP menu, Computer Weekly,. Retrieved: from www.computerweekly.com. Cantalupo, J. 2003, McDonaJds eMac Digital News, McDonalds Corporate. Did somebody say a loss?, The Economist. Special Report - The slings and arrows of CRM, Akibia. . Ewalt. D. M. 2002, PDAs get more innovative, from food-service to life-saving functions, Information week,. Retrieved: from www.informationweek.com. Phased ERP Implementation instead of "The Big Bang", ERP World West, Anaheim 2000. Retrieved: from www.supgrp.com Field Report: Want Fries With Your PDA?, Worfd, 29th Retrieved: from www.computerworld.com Read More