Strategic Management of McDonalds vs. Burger King - Report Example

Strategic Management Report: McDonald’s vs. Burger King Module 16th March Table of Contents Table of Contents 2 EXECUTIVE SUMMARY 3 Industry Overview 4 Company Overview 5 McDonald’s Corporation 5 Burger King Corporation 5 ANALYSIS 5 PESTLE ANALYSIS 7 Political factors 8 Economic Factors 8 Social Factors 8 Technological Factors 9 Legal Factors 9 Environmental Factors 10 ANSOFF MATRIX 10 Market Penetration 10 Product Development 11 Market Development 11 Diversification 11 Conclusion and Recommendations 13 References 14 Bachmeier, K. (2009) Analysis of Marketing Strategies Based on ANSOFFs Theory Munich: GRIN Verlag. 14 Schlosser, E. (2011) Fast Food Nation: The Dark Side of the All-American Meal. New York: Kirkus Reviews. 14 EXECUTIVE SUMMARY Management strategies are vital for all business irrespective of the industry they operate in or the products/services they offer. This report is aimed at presenting a strategic management analysis that compares the management strategies of two of the leaders in the World’s fast foods industry. These are McDonald’s and Burger King Corporation. These are the most prominent players in the industry and have been in close competition for decades. This industry is also dominated by other big names such as KFC (Kentucky Fried Chicken), Red Roosters, YUM Brands, Pizza Hut among others (Schloser, 2011). This report considers the management strategies of the two companies and presents an analysis generated using past and present data derived from various sources. This report concludes by identifying the company, among the two, with the best management strategies and provides recommendations based on the findings. Introduction Strategies are vital in determining the success of an organization thus should be developed with caution. In the fast foods industry, various management strategies and operations are being established with the aim of increasing profits, improving customer loyalty and/or improving a company’s market position. Industry Overview The Fast Foods industry is made up of numerous big players running over 300, 000 restaurants in almost all corners of the world. In 2010, these restaurants generated revenue estimated to be about $184 Billion. This industry is labor intensive, employing over 3.9 million people, with the average annual revenue per employee being about $40, 000. As a result of change in the consumers’ lifestyles and needs, key players are been forced to adopt new strategies (Ritcher, 2011). McDonald’s and Burger King have engaged in neck – to – neck competition for decades. However, McDonald’s has always maintained its position as the leader of the industry. Both companies have adopted various management strategies to increase both their profits and customer base. The two companies have thousands of restaurants in various countries that are owned and operated by independent franchises. Company Overview McDonald’s Corporation According to Richter (2011), McDonald’s Corporation is the ultimate leader in the fast foods industry. Established in 1954, the company has grown to be one of the most successful brands in the world. It serves over 44 million people daily in its 28,000 plus outlets located in over 120 countries, spread out over 6 continents. As of 2010, the company had a market share of 19%, leading other top brands such as Yum! Brands which came in second with a market share of 9.7%. Despite facing various setbacks, as discussed later in this report, the company has still maintained its market position as well as increased its customer base. Burger King Corporation Since its establishment in 1954, this company has evolved and now runs over 11,000 outlets in over 60 countries. Its impressive growth is attributed to the success of its franchisees. The low cost of starting a franchise and the variety of food options offered have triggered its growth over time (Daszkowski, 2010). However, Burger King still lies in a weaker financial position unlike McDonald’s. ANALYSIS This report utilizes various tools namely SWOT analysis, PESTLE forces and ANSOFF MATRIX to analyze the management strategies of the two companies. SWOT Analysis Strength Opportunities McDonalds Corporation Strong Brand image, name and reputation Largest market share (19%) Globalization (over 31,000 outlets in 120 countries) Successful partnership with other top brands such as Coca Cola Large customer base and overall target group Strong management team and loyal staff Successful advertisement campaigns McDonalds Corporation Has slowed down expansion of outlets in order to refurbish the existing ones Expansion into other countries Low cost meals Diversity in the needs and taste of the customers New and healthier food menus Providing allergen free products Burger King Corporation Popular brand name and high brand loyalty Ability to serve burgers that are not available in other restaurants Huge growth model that is not capital intensive Strong brand equity Burger King Corporation Home delivery services More advertisements and increased public awareness Improving the range of products to serve the diverse taste of customers around the world Weakness Threat McDonalds Corporation Saturated fast food industry making it difficult for McDonald’s to set up new outlets. Increased competition that is reducing its sales and customer base. Lack of product innovation Association with unhealthy foods Law suits and various legal cases High rate of employee turnover Dissatisfied franchisees due to the increased cost of using the brand name (Yuece, 2012). McDonalds Corporation Global economic recession Increased environmental issues that may make it loose customers should it continue using HCFC-22 Fluctuations in world currencies Emerging competition Bad press due to the increase in health concerns Burger King Corporation Has mainly concentrated its operations in the US (66% of its outlets are in the US) Relies mainly on its franchisees to execute its promises and expectations Increased reliance on long term customers Burger King Corporation Increasing threat posed by competing joints and restaurants Increased food costs Dynamic changes in consumers’ eating habits Slow recovery of the economy after the global financial crisis PESTLE ANALYSIS This section analyzes the external factors ((P) Political, (E) Economical, (S) social, (T) Technological, (L) Legal and (E) Environmental factors) and their effect on the operations of the two companies (Bangs, 2002). Political factors The operations of both companies have been affected by various state policies enforced by the governments of certain countries they operate in. McDonald’s has been affected more as it has outlets in many different countries unlike Burger King which has outlets mainly in the US. For instance, certain groups in the US and Europe have called for state actions regarding the health implications of the foods served by McDonald’s. Moreover, the companies have been affected by the government control of the licensing of outlets in certain states. For example, legal disputes erupted in India after there were infringement of rights and violation of various religious laws regarding the contents of food to be served. Economic Factors Both companies always experience hardships when the economies of the various states they operate in are hit by inflation or economic recession. One major cause of this is changes in currency exchange rates. For major companies such as McDonald’s which imports its raw materials, changes in exchange rates affects its operations greatly. To reduce the effects of economic factors, Burger king is focusing on controlling its prices and packaging its meals. Moreover, it is set on venturing into countries that have good profit opportunities and are less prone to the effects of inflation such as those in the UAE. Social Factors The two companies have been noted to strategize mainly on specific fields to guarantee good returns. For instance, McDonald’s mainly targets consumers below the age of 35 years. On the other hand, Burger King is mainly focusing on business people and school children. For this reason, it is setting up most of its outlets in malls and business centers to attract business people. To attract more children, they have introduced various back-to-school promotions and created special zones designed for kids (Bangs, 2002). McDonald’s has also implemented similar tactics to attract more kids whereby, they give away free toys along with meals. It has also designed kids’ zones and playgrounds for the same purpose. Technological Factors The two companies are been forced to implement various new technologies in order to keep up with the technological changes. For instance, both companies have introduced retail tills for billing and set up internet websites which customers can access any time and review the packages, menus, promotions, etc. Burger King has established home and office delivery services in order to serve customers who order online or via phone. McDonald’s is also using technology to increase demand for its products. It has launched several television advertisements with animated characters and celebrities in order to add value to their products. Legal Factors Over the past few years, the fast foods industry has faced opposition due to the quality of food offered. McDonald’s has been hit most by the legal issues. After various law suits were filed against it, McDonald’s was forced to provide its customers with all the information regarding the nutritional contents of their products (Royle and Towers, 2002). The operations of the two in Muslim and Middle East Countries have also been affected as they have been obliged to conform to the Halal law requirements. Environmental Factors Both companies are developing environment-friendly products and using production methods that least pollutes the environment. For instance, Burger King has adopted special cleaning programs and set up recycling plants for waste management purposes. Likewise, McDonald’s has started using non-biodegradable products for their drink glasses as well as Styrofoam coffers for their meals. ANSOFF MATRIX This section presents the products offered by the two companies and the market choices available to each of them (Proctor, 2000). Market Penetration The penetration strategy has been applied by both companies as they seek to sell existing products to existing customers (Bangs, 2002). This is been achieved by adding minor features to the existing products. McDonald’s is way ahead of Burger King in terms of market penetration. To bridge the gap, Burger King has to employ this strategy in order to attract its existing customers more and earn their loyalty (Proctor, 2000). McDonald’s has invested greatly in advertising; as a result, it has attracted a lot of customers unlike Burger King. Burger King should advertise its products more and take advantage of the fact that their prices are lower than McDonald’s and that they have been proven to serve healthier foods. Product Development These two companies are constantly releasing new products in order to control the existing market. For instance, McDonald’s introduced salads and other healthy foods to their menus after their existing customers became health conscious. Burger King won the consumer’s taste of burgers. As a result, it is constantly offering new varieties of burgers in order to protect its overall market share (Bacheimer, 2009). Market Development Both companies have adopted strategies aimed at selling their products to new markets. Both companies have opened thousands of outlets overseas to increase their market share. For instance, Burger King has ventured into the Middle East market where it aims at winning this market by offering healthy Halal meat products. After conquering the US market, McDonald’s is now set on conquering the International market (McDonald, 2008). It is now focusing on the interest of consumers in the international market and offering them wholesome foods and different premium products. Diversification These two companies are also keen on introducing new products to new markets (Bacheimer, 2009). The two are releasing new and innovative products to match the changing needs of the consumers. For instance, McDonald’s has incorporated salads and other healthy foods into its menu while Burger King has launched light meals, salads and a variety of sea foods for the Islamic and health conscious customers. Conclusion and Recommendations McDonald’s and Burger King employ almost similar management strategies. However, based on their current performance, McDonald’s has implemented its strategies better thus has grown to be successful and the market leader. In order to maintain this position, it should focus on maintaining a long lasting relationship with its clients and also ensure that is keen on recognizing any changes in consumer behavior (Proctor, 2000). On the other hand, Burger King comes in second in this highly competitive market. In order to remain competitive, it should establish a diverse product line and differentiate itself from its competitors. It is also advisable for it to venture into new markets, apart from focusing mainly on the US, and take advantage of the new openings. As it is already known for quality products and high standard service, it should maintain this global perspective and proceed with establishment of new markets. References Bachmeier, K. (2009) Analysis of Marketing Strategies Based on ANSOFFs Theory Munich: GRIN Verlag. Bangs, D. (2002) Market Planning Guide, New York: Kaplan Publishing. Daszkowski, D. (2010) Burger King Franchise Review, [Online], Available: http://franchises.about.com/od/fastfoo1/fr/burger-king.htm, [March 15, 2013]. McDonald, M. (2008) Malcolm McDonald on Marketing Planning. London: Kogan Page Publishers. Proctor. T. (2000) Startegic Marketing: An Introduction London: Routledge. Richter, F. (2011) Statistics and Facts on Fast Food, [Online], Available: http://www.statista.com/topics/863/fast-food/ [March 15, 2013]. Royle, T. and Towers, B. (2002) Labour Relations in the Global Fast Food Industry. London: Routledge. Schlosser, E. (2011) Fast Food Nation: The Dark Side of the All-American Meal. New York: Kirkus Reviews. Yuece, I. (2012) SWOT Analysis of McDonald’s and Derivation of Appropriate Strategies, Munich: GRIN Verlag. Read More