MacDonalds SWOT Analysis - Case Study Example

MCDONALD’S CASE STUDY Student’s Name Course code + name Professor’s name University name City, State Date of submission Introduction Following its establishment in California, USA in 1940, MacDonald’s has grown into one of the most respected and recognized brands in the world. The fast food chain traces its rapid growth to the success of its internationalization strategy. Ever since its establishment, MacDonald’s has opened over 300,000 stores in different markets on the globe. The globalization strategy has also seen the firm introduce its stores in more than 119 countries. On a daily basis, the chain serves approximately 47 million customers with annual revenue of approximately $15 billion. MacDonald’s also attributes its increased popularity to its participation in sponsoring sports and special events, and its inclusion in other social activities (Han 2009). The paper covers three sections. In the first section, the paper provides a SWOT analysis of the restaurant chain. The second section is a competitor analysis that also includes the profitability potential of the industry. The final section of the paper analyzes MacDonald’s internationalization strategy. MacDonald’s SWOT Analysis Strengths MacDonald’s greatest strength is the brand name (Schanzmeyer 2009). Men, women, and children all over the world recognize the brand. This has enabled MacDonald’s to become the ultimate choice restaurant in value and service in the fast foods industry. The MacDonald’s brand was ranked eighth in 2008 among the top 100 global brands. It is evident that having a recognizable brand name is a crucial tool in brand marketing. MacDonald’s also capitalizes on its huge economies of scale as strength. Even though Burger King and Wendy are the main competitors of the chain, the revenue generated by MacDonald’s is approximately 10 times that of its market rivals. The globally recognized brand enables the firm to enter into new markets smoothly and select restaurant locations easily. This explains why one can find the fast food restaurant almost anywhere. The huge economies of scale also give MacDonald’s an upper hand in pricing and supplier negotiations. Finally, MacDonald’s also has a diversified geographical presence that enables it to attain stable growth of revenue by capitalizing on different markets and reducing its exposure to risks. Weaknesses MacDonald’s involvement in lawsuits is a setback and weakness of the restaurant chain (Schanzmeyer, 2009). The lawsuits include false advertising, unjust enrichment, concealment, negligent misrepresentation, fraudulent concealment, and breach of implied and express warranties, negligence, and the failure to warn its customers about health issues associated with fast foods such as increased intake of calories. The other lawsuits include strict liability, practices acts, deceptive trade or unfair competition, and violation of consumer fraud acts. As a result, litigation is a weakness of the restaurant chain as it attracts unnecessary cost. Opportunities The fast foods industry encourages the growth of franchise restaurants. This presents an opportunity to MCD as it enables the restaurant chain to establish more franchise stores in the US and across the globe. In the quest to increase returns and the long-term performance of the brand, MacDonald’s has endeavored to change global franchises into master franchise agreements that last for up to 20 years. A good case is the ability of the restaurant chain to transition 1500 Latin America franchises to master franchise agreements expected to last for at least 20 years. The use of franchises as opposed to restaurants operated by the company has increased MacDonald’s profitability thereby spurring its growth across the globe. The hot beverage market is another potential area of investment following its significant growth. The market presents another opportunity to the restaurant chain. The hot drinks market has also witnessed a 13.1% increase. Coffee accounts for approximately 54.7% of the hot drinks market (Schanzmeyer 2009). In the quest to capitalize on the growth, MCD launched the espresso cold and hot specialty drinks. The new investment will contribute to the continued growth and global presence of the firm because if the increasing demand for hot drink products in the market. Threats Intensifying competition is one of the threats that MacDonald’s has to tolerate. The growth of the fast food industry has attracted new entrants into the market. Even though the revenue generated by MacDonald’s surpasses that of its rivals such as Wendy or Burger King, it is apparent that these competitors also pose a threat to the continued dominance of MacDonald’s in the industry. Casual dining restaurants also threaten fast food restaurants following their strategic decision to increase burger offering at lower prices. The public health crisis especially the rising number of obesity cases in the USA and other developed nations is the other threat to the global fast food chain. Previous product offerings of the chain such as supersized meals and slim salad selection have continued to taint the image of the chain thus reducing its popularity and the demand for its products and services. The increasing cases of heart problems have compelled customers to consider nutritious and healthy foods as compared to MacDonald’s products. The economic recession has continued to affect the demand for fast food products due to its negative influence on the purchasing power of customers. As a result, MacDonald’s will continue to encounter the adverse effect of the recession on the demand for its products until the end of the “trickledown” effect of the recession. The continued use of HCFC-22 by MacDonald’s is another threat since it gives rise to significant environmental concerns (ToughNickel 2016). Competitor Analysis The saturation of the fast food market is evidence to the competitive environment of the industry. MacDonald’s understands that the competition it faces extends beyond large chicken and burger chains to independently owned chips and fish shops. The competition also includes other take-out and eat-in establishments. Burger King is one of the greatest rivals in the fast food industry. MacDonald’s competes with Burger King in almost all of its strategic aspects such as food types, prices, food quality, customer services, and convenience. Other rivals in the industry include Wendy’s, KFC, and Subway. The minor rivals are striving to remain competitive in the industry by using limited-time offers and bacon sundaes. MacDonald’s has also experienced non-burger competition from other rivals. Some of these competitors include Starbucks, Pizza Hut, Dunkin Donuts, Domino’s Pizza, and Taco Bell. Chipotle also poses great rivalry especially in the Mexican market in the sale of burritos. Panera and Chipotle are also availing healthier product offerings (Lungyeki 2013). As a result, MacDonald’s must devote its efforts towards competing with customers that have chosen healthier food options. In essence, it is evident that the fast foods industry exhibits high levels of competition as evidenced by the high number of firms, low costs of switching and the increasing levels of the aggressiveness of firms in the industry. The Fast Food Industry and its Profitability Potential The fast food industry is a dynamic investment sector that responds almost immediately to changing customer preferences and tastes. The industry generates annual revenue of $570 billion globally. Apparently, the amount exceeds the revenue generated by most global economies. In the USA, the fast food industry has witnessed massive growth as evidenced by the dramatic increase in annual revenue from $6 billion in 1970 to $200 billion in 2015. With an expected annual growth of 2.5% over the next several years, it is apparent that the industry is promising for new entrants and existing ones that intend to increase their revenue. There are approximately 200,000 fast food restaurants in the USA alone that serve a customer base of about 50 million customers on a daily basis (FranchiseHelp 2016). The number of workers employed in the industry exceeds 4 million. Quality, price, and taste are the determining aspects for an independent restaurant or a restaurant chain that intends to operate within the industry. Restaurants, on the other hand use affordability, speed and consistency of experience as their strategic tools of success. Fast food restaurants alongside casual food restaurants make up Quick Service Restaurants (QSR). The QSR segment of the restaurant sector attracts 50% of the revenue generated from the entire restaurant industry. The other defining elements of restaurants include a simple and consistent look and feel, with soft music playing in the background. Customers place orders and make payments at a window or counter. They either take the food out or sit at a table to eat their food. Quick Service Restaurants offer short meals with centrally located condiments. The restaurants also do not offer table service. Restaurant chains offer similar menus. As a result, customers have the same experience or feeling regardless of their geographical location. Restaurant chains also offer dependable quality levels in all chains. Narrowing down to the US market, hamburgers command the greatest share of the market (30%). The other top five food products in the US fast food market include Pizza parlors (15%), Sandwich shops (12%), Chicken restaurants (8%), and Mexican restaurants (7%) (FranchiseHelp 2016). MacDonald’s International Strategy Offering the right product to customers has been one of the strategies that have guaranteed the success of the restaurant chain on the international scene. MacDonald’s grants its franchisees creativity and local control so long as they deliver the recommended quality of service (Mujtaba & Patel 2011). Franchise innovation was responsible for the introduction of some of the best performing international menu items such as Fillet o’ Fish, the Big Mac, and Egg McMuffin. Granting franchisees the much-needed autonomy enables global franchisees to adapt their menu items to the local demands. However, MacDonald’s insists on the standardization of their services by delivering high -quality services to customers. MacDonald’s also delivers low-cost food and drinks to its fast food outlets. Besides offering affordable menu items to customers across the globe, quality assurance remains to be one of its core standards in all its outlets. The restaurant chain also uses innovative pricing techniques such as the “Saver Menu” or the “Dollar Menu”. In one instance when the price of products increased, MCD increased its prices by a less than 1% margin to retain specific customers that are sensitive to prices. MacDonald’s outsources special services from expert firms, a strategy that has seen the success of its supply chain. The restaurant chain uses a standardized global supply chain. Individual outlets optimize efficiency by using the “pull strategy” where the placement of orders from individual restaurants passes through distribution centers before reaching suppliers to minimize surplus stock. The international strategy also entails subjecting customer service staffs to rigorous training in food preparation, handling, and customer service. This ensures that it delivers standardized quality service in all outlets. Finally, the firm uses its homogenous look to guarantee a familiar experience to customers from different countries. The homogenous appearance furthers the standardization of the restaurant chain. Conclusion There are several reasons behind MacDonald’s success on the international scene. Placing emphasis on the local management of outlets has played a pivotal role in the success of the restaurant chain. Local management of outlets has enabled global franchisees to create new menu items and avail food products that reflect the needs of local customers while delivering high -quality service as is the norm of the MacDonald brand. Low -cost pricing is another successful international strategy employed by MCD. MacDonald’s adjusts the prices of its products by less than 1% to retain price-sensitive customers. Finally, the firm offers rigorous training to its employees in food preparation, handling, and customer service to ensure that staffs exhibit exceptional service in its outlets. Coupling the successful international strategies with its globally recognized brand name, huge economies of scale, and significant geographical presence, MacDonald’s has managed to attain competitive advantage in the global fast food industry. Reference List FranchiseHelp., 2016. Fast Food Industry Analysis 2016-Cost & Trends. Available at: https://www.franchisehelp.com/industry-reports/fast-food-industry-report/ Han, J., 2009. The business strategy of Mcdonald’s. International Journal of Business and Management, Vol. 3, no. 11, p.72. Lungyeki, M., 2013. Category Archives: Competitor Analysis-Rivals around the world. Available at: https://bigmacvswhooper.wordpress.com/category/strategy/competitors-analysis/ Mujtaba, B.G. and Patel, B., 2011. McDonalds Success Strategy And Global Expansion Through Customer And Brand Loyalty. Journal of Business Case Studies (JBCS), Vol. 3, no. 3, pp.55-66. Schanzmeyer, J., 2009. MacDonald’s. Available at: https://business.missouri.edu/ifmprogram/reports/2009fs/McDonald's_(MCD).pdf ToughNickel., 2016. McDonald’s SWOT Analysis and Recommendations. Available at: https://toughnickel.com/industries/McDonalds-SWOT-analysis-and-recommendations Read More