Business-Level and Corporate-Level Strategies: McDonald and KFC - Case Study Example

McDonald Business-Level Strategy The world’s fast food industry is one of the most booming yet competitive industries in theworld. It’s an industry that will never be faced out since it provides a human being’s most basic need. The fast food industry is dominated by many companies, many of which are from the United States such as McDonald, Yum, KFC and Burger King. We shall discuss the business level strategy of McDonald company, the leading fast food chain company in the USA and globally. McDonald has over 35,428 restaurants in more than 115 countries globally. The company has a diverse franchise operation of over 26,691, constituting over 81% of the total restaurants so as to facilitate and ease its global expansion need. The company is divided into 5 main geographical segments namely, United States, Europe and Asia, Middle East and Africa. The US and Europe account for over 75% of their revenue and thus the key geographical markets for McDonald (McDonalds Annual Report 2013). McDonald’s business level Strategy Many companies venture in two main business level strategies, namely, low-cost strategy or the differentiation strategy. Companies that use the low-cost approach are those that seek to specialise in those operations that maximise their profits and reduce cost of products that are not key, such as KFC. However, the differentiation approach needs companies that have the ability to come up with new products, have a diverse customer base and a lot of competition. McDonald is one of the few companies that have been able to balance between the two approaches (Alan, 2011). McDonald has embraced the low-cost strategy by having a diverse and efficient franchise system that ensures there are McDonald outlets in all locations in the countries it Is based in. Also, the franchise strategy increases its profit margins since it leads to lower operation costs as over 81% of McDonald restaurants are run through the franchise system. McDonald only runs 19% of the restaurants globally. Under its franchise contracts, the franchisees provide some of the capital by providing the equipment, the décor and seating of the restaurant. McDonald then owns the building and land and regulates the running of the franchise. Secondly, as part of its low cost strategy, McDonald also produces and owns its raw materials; by owning cattle in countries such as Brazil (Alan, 2011). McDonald has invested heavily in its differentiation business strategy since it is the heart of McDonald’s prolonged dominance in the food industry. The franchise system has helped McDonald adapt to the different customer preferences and needs throughout all the locations globally. . McDonald has a ‘PLAN TO WIN’ to optimize its customer loyalty and expand its reach. The ‘PLAN’ is based on five pillars, namely, People, Place, Products, Price and Promotion, which are used to adapt to the evolving customer needs Also, McDonald uses sophisticated marketing strategies like catchy advertisements to set itself apart from other food chains and be in all locations in the world (Jing, 2008.). McDonald is world renowned for its trademark Big Mac, chicken nuggets and beef burgers. However, as the company started to expand to other countries from 1967, they have had to diversify its product line-up so as to attract foreign customers. In the US, McDonald introduced a range of new products such as Egg White Delight Muffins to enhance its relevance and try increasing its profits. When McDonald was venturing into China, they had a problem at first since the Chinese are more inclined to chicken products than beef products. As a result, McDonald produced products such as the white burger and other chicken menus to appeal to them. Also, they introduced the gazpacho in Spain and changed the décor and seating arrangements in France due to the French’s dislike for fast-food restaurants. McDonald has the QSC&V trademark of (quality, service, cleanliness and values) to give their customers an experience different from all its competitors (Jing, 2008). McDonalds has also strived to differentiate its products due to the immense competition it faces by introducing more lower cost products, the ‘Happy Meal’ for children and McDonald’s coffee so as to retain its customers. In addition, with the concerns raised about the negative health implications of fast foods especially in children, people are seeking more healthy friendly alternatives. McDonald responded to the concerns and launched products that are sugar free and low fat (Alan, 2011). McDonald’s customer base consists mainly of children. As a result, they have invested millions of dollars buy building the ‘happy land’ and launching the ‘happy meal’ for them. McDonald’s focus on children will ensure sustainable growth and success in the future and is its current strategy to expand its market globally. The strategy is what will pave the way for McDonald to establish its dominance once more despite the losses experienced in the past two financial years. It is evident that these three strategies will ensure the long-term success for McDonald Company. The fast food industry is also known as the Quick Service Restaurant (QSR) and is characterized by many companies that operate through franchise networks. The fast food industry also focuses on low cost and very fast production of foods with precooked food being served to people. The competitive environment in the fast food industry has heightened over the recent years due to the sudden influx of many fast food chains and also the health concerns raised about fast food. With the focus shifting from quantity of food produced to quality of food, many fast food companies are in the race to establish relevance by improving their products and offering more healthy foods (Jing, 2008). McDonald’s oldest market is in the USA and is also the location for its biggest competitors such as Yum Brands and Burger King. As a result, McDonalds has been having a big challenge maintaining their dominance in the industry with their customer now switching to other major competitors such as Burger King, Yum and Wendy’s. Customers believe these companies offer better quality and cheaper foods than McDonald. Evidently, there is no room for growth for McDonald in the US and has been experiencing a drop in prices as of 2013. Companies such as KFC have gained a competitive edge of McDonald overseas like in China due to their wide array of chicken products unlike McDonald who offer more of beef. The two major competitors for McDonalds are Burger King and KFC. Compare their strategies at each level and evaluate which company is most likely to be successful in the long term In the USA, only few brands are able to dominate the fast food industry with the main brands being McDonalds, KFC and Burger King. Bothe KFC and Burger King have had to do major rebranding so as to maintain relevance with the changing trends. KFC was once called Kentucky Fried Chicken and Burger King replaced its old burger king with new young mascots to attract the younger population (Jordan, 2012). Whereas McDonald has balanced between low-cost strategy and differentiation strategy, KFC took the low cost strategy by choosing to specialize in chicken products and meals only. Specialization might be KFC’s undoing in the near future since customer preferences are constantly evolving and they need to adapt to the change. On the other hand, Burger king was once McDonald’s strongest competitor, but over the years they lost relevance and were overtaken. However, over the last five years, Burger King has taken steps to catch up, such as diversifying their menu. They decided to take the differentiation strategy just like McDonalds and refranchised all the company-run restaurants; therefore reducing costs and expanding their location bases.In addition, they plan on expanding its target market from just young men to all genders and all ages Secondly, all the three companies invest a lot of money for marketing and advertising. McDonald is known for its trade mark slogans that are catchy and attract customers. However, for companies such as KFC and Burger King that are competing to gain more market share, celebrity endorsements have been the best approach to attract young people. Celebrities such as Beckham have endorsed KFC and Mary J. Blidge has endorsed Burger King (Lindsie, 2007). Currently, KFC has an upper hand over McDonald in Japan and China and is one of the most popular eating joints in Asia because of its ability to adapt to customer preference faster than other brands. KFC is becoming a major competitor for McDonald since it is partnering with other companies for market penetration. . Pepsi and Tricon are subsidiary companies in KFC and offer a very good complement to it.KFC’s major disadvantage is that they do not have a wide option of products that can satisfy the customer’s diverse need. So as the people become more health conscious, they might lose market if they don’t diversify to other non-chicken products (Lindsie, 2007). Burger king used to be McDonald’s strongest competitor but due to many years of losses, McDonald became over 100% ahead of it in 2010. This was mainly due to the mis-management of its franchise network. However, Burger King has invested over 750 million dollars to make a come-back through expansion of its menu benchmarked from McDonald. Despite these efforts, it is evident that McDonald still has an upper edge over these two companies and its success is more promising (Jordan, 2012). Determine whether the choice would differ in the slow-cycle and fast-cycle markets In Slow-cycle markets, resources are hard to imitate and a company may have a protected resource position. A company might be having a monopoly of resources or very unique products. A company that operates in a slow-cycle market can maintain a competitive advantage over a long period of time. If the fast food industry was indeed a slow-cycle market, McDonald would still be successful over both KFC and Burger King since it has established a monopoly in customer loyalty and highly efficient franchise networks. In Fast-cycle markets, a company cannot maintain a competitive advantage using only one form of resource. Companies are required to take small steps in all areas to maximize on their advantage since the advantage would be short lived. Fast-cycle markets are characterized by intense competition and a company can only dominate for a short period of time. If the fast food industry was a fast-cycle market, KFC and Burger could overtake McDonald in the long run since their rebranding convinces the customers they are offering fresh and better products. In a Fast-cycle market, all the three companies have a chance of dominating the industry. References Alan, G. 2011. Business Level Strategy. N.J: Pearson/Prentice Hall. Print Jing, H. 2008. Journal of Business Management: The Business Strategy of McDonalds. pp 115-118. Kun Ming.print Jordan, M. 2012. Long Live the King. Retrieved from: http://www.qsrmagazine.com/reports/long-live-king Lindsie, H., & Edgar, J. 2007. Kentucky Fried Chicken and the Global Fast-Food Industry. New York Press. Print. McDonald newsroom.McDonald’s Report Fourth Quarter and Full Year 2014 Result. Retrieved from: http://news.mcdonalds.com/Corporate/Press-Releases/Financial-Release?xmlreleaseid=123060 McDonalds Annual Report 2013. Retrieved from: http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDs2013AnnualReport.pdf Read More