Influence of McDonald's Company on the State of the US Economy - Essay Example

McDonald's Company Case Study The McDonald’s Corporation is the world’s largest fast food restaurant chain, with more than 30,000 locations worldwide. According to the company, more than 52 million customers in over 100 countries are served on daily basis (“About McDonald's”). McDonald’s is best known for its consumer products, which include hamburgers (e.g. Big Mac®), cheeseburgers (e.g. Quarter Pounder® with Cheese), chicken products (e.g. Chicken McNuggets®), french fries, breakfast items (e.g. Egg & Cheese McGriddles®), coffee, soft drinks, salads (e.g. Southwest Salad with Grilled Chicken), salad dressings and desserts (e.g. McFlurry® with M&M'S® Candies) (“McDonald's USA Food Exchanges”). The company also markets a wide range of licensed merchandise, such as children’s toys with the popular Happy Meal promotion. Also offered are credit cards (Arch Card) and gift certificates (“Arch-Credit Card”; “Marketing and Advertising”). Franchising and operating restaurants represent the corporation’s primary business. Only qualified individuals who can put down a minimum of $250,000 of non-borrowed personal resources are considered for ownership, though the total franchise cost varies according to restaurant location. Franchises are sold in both the US and international markets. McDonald’s collects a monthly service fee and rent for each of its franchised locations (“Purchasing Your Franchise”). Although a hamburger business named after the owners, brothers Dick and Mac McDonald had already been established in San Bernardino, California, the founding of the present corporation dates back to 1955 when salesman Ray Kroc opened the first McDonald’s franchise location in Des Plaines, Illinois. The company continued to expand, and went public with is its first stock offering on Wall Street in 1965. Signature sandwiches began to be introduced, with the Big Mac® debuting in 1968 followed by the Egg McMuffin® in 1973. The hot selling Happy Meal arrived in 1979. More growth took place when McDonald’s Express placements began to appear in non-restaurant locations like Amoco and Chevron gasoline stations. Customers eagerly awaited international expansion plans, with approximately 15,000 lining up for the first restaurant opening in Kuwait City, Kuwait in 1994 (“McDonald's History”). Since Nov. 2004, the McDonald’s Corporation has been led by Vice Chairman and Chief Executive Officer Jim Skinner, whose career with the company began in 1971 as a restaurant trainee in Carpentersville, IL. He possesses a vast amount of international business experience, previously being tasked with management responsibilities over operations in Asia, the Middle East and Africa. (“Jim Skinner”). Ralph Alvarez was appointed President and Chief Operating Officer on Aug. 23, 2006. He previously served as President, McDonald’s North America, and was responsible for over 15,000 restaurants (“Top Management Appointments”; “Ralph Alvarez”). Financial matters are handled by Peter J. Bensen, Executive Vice President and Chief Financial Officer, appointed on Jan. 1. He administrates over Accounting, as well as other divisions such as Information Services and Investor Relations (“New Chief Financial Officer”). Worldwide restaurant operations are overseen by Jeff Stratton, Corporate Executive Vice President and Chief Restaurant Officer. He influences over 31,000 locations around the globe with his Restaurant Solutions Group (“Jeff Stratton”). Mary Dillon leads the company’s global brand strategy as Executive Vice President - Global Chief Marketing Officer (“Mary Dillon”). Section Two The primary challenge currently facing McDonald’s is the worsening state of the US economy, as concerns mount about a possible recession. In late January, the company reported a $1.2 billion fourth-quarter profit, but warned of weakness in the US market. Same-restaurant sales were essentially flat in Dec. 2007, sparking fears that the one-month result might portend a trend. It was the growth in international sales that allowed for the company’s overall gains. The American market is the company’s largest and most crucial, with over 14,000 locations (“McDonald’s Posts Profit”). A Feb. 8 company press release reinforced the concerns about the domestic market, with US comparable sales only up 1.9 percent, while for Europe and the Asia/Pacific, Middle East and Africa bloc, sales were up 8.2 and 7.8 percent, respectively (“Strong Global Results”). If the current US slowdown leaks into the global marketplace, companies like McDonald’s may no longer by able to count on foreign sales to bolster the bottom line. The economic woes in America are tightening many pocketbooks and forcing even habitual fast food customers to cut back. After decades of economic expansion and ever-growing consumer expenditures, signs are legion that the days of easy credit are over and that belt-tightening measures are becoming more the norm than the exception across the American landscape. The unfolding housing bubble collapse has had a major impact, as have continued nationwide job contractions. Even value-oriented businesses like McDonald’s are likely to be hit by potential customers staying home rather than coming out to their restaurants (Goodman 1). In addition, food prices have been rising steadily as have oil and gasoline costs, putting a severe squeeze on the average American consumer. In February, consumer confidence fell to its lowest level since 1992, according to a closely watched national survey. All of this is causing consumers to cut back on non-essential items (Grynbaum 1). Food is not a non-essential item, but the challenge to McDonald’s management is to revive stagnant domestic sales by convincing more potential consumers that they are better served by visiting their local restaurant as opposed to making meals at home. Once a significant enough number of people become convinced of this, it would help to break same-restaurant sales in the US out of its current flat-growth pattern. Section Three While solving a national recession is beyond the scope of one corporation, McDonald’s can certainly do more to make itself as “recession-proof” as possible. No matter how bad the US economy gets, food is a basic necessity and the best plan to combat same-restaurant weakness is to ensure that more potential customers see McDonald’s as their best value option to procure meals. The familiar McDonald’s Dollar Menu is a step in the right direction, but should be expanded to include more choices, such as premium sandwiches (e.g. Quarter Pounder®) and the inclusion of the large french fries order size. The ultimate goal is to convince enough potential customers that it is more beneficial for them to visit their local McDonald’s restaurant than to prepare food in their own homes. That might sound like a tall task, but given the tight schedules that most American families operate under, any opportunity to save time is certainly appreciated. Not only should the Dollar Menu be expanded, but should also be made standard across the nation. As it stands, franchisees have a degree of latitude as to how much to charge for various items. The end result is that the low price menu is not consistent from restaurant to restaurant, causing confusion for customers. McDonald’s has been very successful with the Dollar Menu campaign, which was introduced in late 2002. As a result, the double cheeseburger sandwich has become one of its most popular offerings, especially among value-oriented customers like teenagers (Warner 1). Now, with general food prices on the rise coupled with a weak economy, marketing more aggressively to families that they could save the time needed to prepare home meals, and have a chance to purchase a premium sandwich for a lower price would place McDonald’s firmly ahead of the curve in the coming high value menu wars. The long-term gains from effecting such a strategy would more than offset any temporary losses on marketing more expensive items for a lesser price. Franchisees who might complain about the move would need to be enlightened as to how it would positively impact their bottom lines in the coming years. Works Cited “About McDonald's.” McDonald’s Corporation. 26 Feb. 2008 < http://www.mcdonalds.com/corp/about.html>. “Arch-Credit Card.” McDonald’s Corporation. 26 Feb. 2008 . Goodman, Peter. “Economy Fitful, Americans Start to Pay as They Go.” The New York Times. 5 Feb. 2008. 26 Feb. 2008 . Grynbaum, Michael M. “Data Shows Struggling Manufacturers, Costly Imports and Gloomier Consumers.” The New York Times. 16 Feb. 2008. 26 Feb. 2008 . “Jeff Stratton.” McDonald’s Corporation. 26 Feb. 2008 . “Jim Skinner.” McDonald’s Corporation. 26 Feb. 2008 . “Marketing and Advertising.” McDonald’s Corporation. 26 Feb. 2008 . “Mary Dillon.” McDonald’s Corporation. 26 Feb. 2008 . “McDonald’s Continues to Deliver Strong Global Results - January Comparable Sales Rise 5.7%.” McDonald’s Corporation. 26 Feb. 2008 . “McDonald's History - 1954 to 1955.” McDonald’s Corporation. 26 Feb. 2008 . “McDonald’s Names Peter J. Bensen as New Chief Financial Officer.” McDonald’s Corporation. 26 Feb. 2008 . “McDonald’s Posts Profit but Issues Warning.” The New York Times. 29 Jan. 2008. 26 Feb. 2008 . “McDonald's Top Management Appointments Announced.” McDonald’s Corporation. 23 Aug. 2006. 26 Feb. 2008 . “McDonald's USA Food Exchanges.” McDonald’s Corporation. Jan. 2007. 26 Feb. 2008 “Purchasing Your Franchise.” McDonald’s Corporation. 26 Feb. 2008 . “Ralph Alvarez.” McDonald’s Corporation. 26 Feb. 2008 . Warner, Melanie. “Salads or No, Cheap Burgers Revive McDonald's.” The New York Times. 19 Apr. 2006. 26 Feb. 2008 . Read More