McDonalds Business Strategy - Essay Example

McDonald’s Business Strategy Table of Contents I. Introduction ………………………………………………………………. 3 II. SWOT Analysis ………………………………………………………….. 4 III. Porter’s Five Forces …………………………………………………….. 5 IV. Related Key Points ………………………………………………………. 6 V. Proposed Strategic Plan for McCafès ……………………….………… 7 a. Promote Franchising Option to Business People ……… 7 b. Proposed Operational Strategies …………………………. 7 VI. Alternative Strategic Plan for McCafès ………………………………… 8 a. Merger and Acquisitions (M&A) Strategies ……………… 8 b. The Use of Organic Food Products ……………………….. 8 c. Enter into a Joint-Venture Contract ……………………….. 8 VII. Conclusion ………………………………………………………………… 9 Appendix I – SWOT Analysis: McCafè ………………………………………… 10 Appendix II – Porter’s Competitive Forces Model: McCafè ………………… 11 References ……………………………………………………………………… 12 - 13 Introduction Mc Donald’s was established back in 1940 by Dick and Mac McDonald in California. (McDonalds Corporation, 2006) In 1948, McDonald brothers introduced the idea of a modern fast-food restaurant in the market. Ray Kroc won the first franchise contract with McDonald’s in April 1955. (McDonalds Canada, 2006) Since McDonald’s brothers were not interested in going global, Kroc decided to purchase the rest of McDonald’s equity prior to implementing its global expansion. Today, McDonald’s is considered as the world’s No. 1 fast-food company with more than 31,000 restaurants across 120 countries particularly in US, Europe, APMEA, Latin America, and Canada. (Bramhall, 2008; Euromonitor International, 2004) The success of McDonald’s going global strategy is reflected with its 5.7% increase in global sales as of January 2008. (McDonalds Corporation, 2008) In line with the increasing market trend for good quality coffee, McDonald’s strategy of diversification resulted in the acquisition of London-based coffee chain Aroma coffee-shop chain in UK back in 1998. (Euromonitor International, 2004) However, this strategy did not work well for McDonald’s and eventually sold Aroma to Caffè Nero in 2002. Instead, the company introduce McCafès in Australia back in 1993. (Bison, 2001) Aside from serving its customers with a wide selection of gourmet teas, pastries and desserts, McCafè also serve Mochas, Lattes and Cappuccinos. (McCafè, 2008) Despite McDonald’s success as a fast-food restaurants, there has been a lot of debate as to whether or not McCafè could defeat Starbucks being the world’s biggest coffee retailer. In line with this matter, the researcher will identify and evaluate the possible alternative strategies that can be used in enabling McDonald’s venture on McCafè experience a substancial growth in the market. With the use of SWOT analysis and Porter’s Competitive Forces Model, the researcher will examine the business status of McCafè within the global coffee industry. Prior to the conclusion, the researcher will propose an appropriate strategic plan for McCafès. SWOT Analysis A SWOT Analysis can be used in determining the strength, weakness, opportunities, and threats of McCafè.1 The strength of the McCafè is the fact that it is owned McDonald’s – a company that has successfully established a good reputation within the domestic and international market in terms of producing high quality products and efficient delivery of services at a competitive price. As part of maintaining the efficiency of its staff’s services, McDonald’s managers spends 2,000 hours on training and development during the last four years to ensure that its employees store, handle and prepare fresh food just-in-time to meet the service satisfaction of its customers. (Liyi, 2007) With regards with the tight competition in the global market, McDonald’s started restructuring the number of its employees vs. the growth in McDonald’s restaurants. (Euromonitor International, 2004) Contrary to the strength of McDonald’s, there are also weaknesses in the company in terms of the promotion of McCafè in the market. Despite the success of McDonald’s in relation to its global performance, the company’s marketing plan on McCafè is still weak. Through proper advertising campaign, the top executives of McDonald’s could increase the public awareness of the global consumers with regards to the existence of McCafè. Basically, McCafè has not yet dominated the entire global market. As of 2007, there are only a little more than 2,000 McCafè outlets throughout 32 countries around the world (The Nation, 2007) whereas Starbucks being one of the most biggest competitors of McCafè is operating as much as 15,011 retail stores all over 42 counties worldwide. (Starbucks Coffee, 2008) In order for McCafè to enjoy the economies of scale similar to Starbucks, McDonald’s top executives should utilize its franchising business strategy in order for them to rapidly increase the number of global McCafè outlets. In line with this matter, McDonald’s should make use of a revitalization strategy as well as new global marketing campaign on McCafè is order to increase its sales and open up new business opportunities in the near future. Among the major external threats that could hinder the opportunity growth of McCafè includes the continuously increasing number of domestic and international coffee retailers who are eager to compete for the global markets of coffee retailing industry. Aside from the external forces that comes directly from its competitors; the fact that McDonald’s is often under attack by several groups related to boycotts as well as pressure from the global media with regards to the delivery of healthy foods (Euromonitor International, 2004) could significantly also affect the market potential of McCafè. (See Appendix I – SWOT Analysis: McCafè on page 9) Porter’s Competitive Forces Model Based on Porter’s Competition Forces Model, there is a high threat of new entrants within the global coffee retail industry. New competitors could easily gather financial resources in establishing a small-scale coffee shop wherein the company could go global by going public or granting franchise fee to qualified operators in order to penetrate the global retail coffee industry. It means that McCafè is expected to have a lot of competitors in terms of grabbing the retail coffee market shares. The bargaining power of buyers/consumers and threat of substitute for McCafè is also high. The presence of other domestic and foreign owned coffee shops such as Starbucks or Coffee Beanery enables the consumers to easily search for other coffee retailers in case they are not satisfied with the product and services offered McCafè. Price is another issue for McCafè customers to shift to coffee substitutes. Potential customers who are price sensitive could buy instant coffee instead of McCafè products. Due to globalization, the bargaining power of suppliers is low since McCafè could easily search for other sources of high quality raw materials. The open worldwide market makes it easier for the company to access cheaper and better coffee beans and other packaging materials. The fact that McDonald’s purchase most of the necessary packaging supplies enables the company to take advantage of economies of scale. (See Figure II - Porter’s Competitive Forces Model: McCafè on page 10) Related Key Points Business Objectives – (1) to attract new and loyal customers; (2) build brand loyalty; (3) ensure profitability of McCafès. Corporate Vision – “…to encourage people to visit and enjoy having coffee at McCafès.” Current Issues that Affects the Promotion of McCafès – Fast food restaurants are known to serve unhealthy foods. Since most people view McDonald’s as fast food restaurant, the promotion of McCafès is also negatively affected. Strong Points of McCafès – Price is relatively cheaper than Starbucks’; fast services offered to customers; offers franchising option that enables the company to expand its business fast; strong global branding awareness; and extends financial aid to charity works. Proposed Strategic Plan for McCafès Promote Franchising Option to Business People There is a strong need for McCafès to promote a more flexible franchising option to qualified business people. The main purpose of promoting the franchising option is to increase the number of global McCafès outlets to enable the company to enjoy the benefits of economies of scale. By doing so, McDonald’s will be able to have more control over the bargaining of its packaging, coffee and other related food supplies at a relatively low prices. Proposed Operational Strategies Aside from prioritizing the need to improve McCafès marketing plan, the top management of McDonald’s should equally improve the ambiance of all the existing McCafès worldwide and maintain a good customer service. The said proposed operational strategies could lead to development of customer’s loyalty. (Entel et al., 2007; Jones & Sasser, 1995) To enable McDonald’s to promote a good customer experience at McCafès, top management should focus on 5 P’s known as: people, product, promotion, place and price. For instance, (1) McCafès employees (people) should ensure that each customer leaves McCafè fully satisfied with the services they receive from the coffee shop; (2) the overall quality of coffee and food (products) offered to its customers should be appealing and satisfactory; (3) McDonalds should promote the existence of McCafès by becoming active in social works and other modern advertisements (promotion); (4) McCafès employees should maintain the cleanliness and modern designs of McCafès in order to attract more customers to drop by (place); and (5) In line with the benefit of economies of scale, McCafès should maintain the affordability of its products (price). Alternative Strategic Plan for McCafès Aside from offering franchising option to qualified business people, McDonald’s can also make use of merger and acquisitions (M&A) strategies as a way of increasing the number of global McCafè outlets over a short period of time. However, McDonald’s may end up having to face some financial problems related to the high costs of expansion as well as the reduction of its operational efficiency. The use of organic food products in McDonald’s restaurants may reverse the common mentality that fast food restaurants offer unhealthy foods. By doing so, consumers may eventually think positive with regards to the quality of food offered by McDonald’s. Eventually, this strategy may lead to a positive image on the part of McCafè. Upon expanding McCafè into the global markets, the company may decide to enter into a joint-venture contract with other existing large-scale restaurants. By doing so, McDonald’s will be able to easily expand in countries where the company has not yet expanded its business. By doing so, McDonald’s will have a much lesser problem with regards to determining the cultural aspects of the people as well as the foreign government’s restriction to foreign owned companies. Conclusion Considering that McDonald’s has already established it name in the global market, the establishment of McCafè in the world market can be easily accepted by its consumers through the proper promotion of its brand name. One way of grabbing the biggest market share in the global retail coffee industry is for McCafè to implement a massive expansion of its coffee retail outlets. The easiest and fastest way to implement a massive expansion is to utilize the McDonald’s business strategy on franchising. By maintaining a good quality customer service, McCafè could provide its customers a pleasant atmosphere wherein friends and families could meet for a fresh cup of good quality coffee experiences. *** End *** Appendix I - SWOT Analysis: McCafè Strengths Weaknesses Opportunities Threats McCafè is owned by McDonald’s – a company that has established a good reputation in the marketplace in terms of brand name, high quality food products, competitive price, and timely delivery. Despite the success McDonald’s global performance, there is still much more work to be done in order to increase the public awareness on McCafè. McCafè has not yet dominated the entire global market. McCafè under McDonald’s could be under attack by external sources such as boycotts or media in terms of healthy food products. McDonald’s has established a domestic and international market networks McDonald’s is known to deliver high quality burgers but not as a coffee retailer. McDonald’s franchise business strategy could increase the McCafè outlets worldwide. Increase in number of domestic and international competitors. McDonald’s implements Customer-Centric Initiative (CCI) as part of maintaining excellent services to its customers. (Liyi, 2007) There is a need to innovate a marketing plan that will give emphasis on the brand identity of McCafè. McDonald’s revitalization strategy as well as new global marketing campaign on McCafè is essential in order to increase its sales in the near future. Appendix II - Porter’s Competitive Forces Model: McCafè References: Bison. (2001, May 1). Retrieved March 9, 2008, from McDonalds Opens First McCafe in U.S.: http://www.bison.com/press/pr5-1mcdon.html Bramhall, J. (2008). McDonalds Company Description. Retrieved March 9, 2008, from http://www.hoovers.com/mcdonalds/--ID__10974--/free-co-profile.xhtml Entel, T., Grayson, S., & Hunter, N. (2007, January). KPL. Retrieved February 17, 2008, from The Empathy Engine: Turning Customer Service Into a Sustainable Advantage: http://www.katzenbach.com/Portals/0/uploads/documents/EmpathyEngine.pdf Euromonitor International: Global Company Profile. (2004, August). Retrieved March 5, 2008, from McDonalds Corp. - Consumer Foodservice - World: http://www2.gmid.euromonitor.com/WebDocuments/98/PDF/F-27217-5627498.PDF Jones, T., & Sasser, E. (1995). Why Satisfied Customers Defect. Harvard Business Review , November - December: 89 - 99. Liyi, G. (2007, November/December). Enterprise Today. Retrieved March 9, 2008, from McDonalds Unveils its Winning Formula for Success: Staying Ahead in Service: http://www.spring.gov.sg/et/pdf/2007_11_index14.pdf McCafè. (2008). Retrieved March 9, 2008, from McCafè: Just Like Your Barista Used to Make: http://www.wakeuptowhatsnew.com/ McDonalds Canada. (2006). Retrieved March 9, 2008, from FAQs: http://www.mcdonalds.ca/en/aboutus/faq.aspx McDonalds Corporation. (2006). Retrieved March 9, 2008, from The McDonalds History - 1954 to 1955: http://www.mcdonalds.com/corp/about/mcd_history_pg1.html McDonalds Corporation. (2008, February 8). Retrieved March 9, 2008, from McDonalds Continues to Deliver Strong Global Results - January Comparable Sales Rise 5.7%: http://www.mcdonalds.com/corp/news/fnpr/2008/fpr_020808.html Starbucks Coffee. (2008, February). Retrieved March 9, 2008, from Company Fact Sheet: http://www.starbucks.com/aboutus/Company_Factsheet.pdf The Nation. (2007, June 26). Retrieved March 9, 2008, from McCafes Thai debut in The Esplanade: Buoyed by its successes in major markets like the US and Australia, McDonalds has launched its own coffee-house business in Thailand: http://www.nationmultimedia.com/2007/06/26/business/business_30037789.php Read More