Strategic Management of McDonalds - Case Study Example

Strategic Management - McDonalds Name Unit Class Introduction McDonald has established themselves as world leaders in the fast food industry. The restaurant has the capability to serve more than 69 million customers globally with restaurants in 119 countries. The mode of operation of McDonalds is through franchise by independent owners. McDonald’s main goal has been to supply the fast food industry with the best services. This has made McDonalds to commit themselves to food safety and nutrition in their service delivery. MacDonalds have been annually improving and updating their menu. This is in a bid to ensure that they do not lose their customers and give them a reason to visit their restaurants. The main competitive advantage of McDonald is providing the customers with convenient fast food at competitive prices. The corporation has also been able to establish their brand making them to be recognized worldwide (Mcdonalds, 2014b). The main competitors for MacDonalds are Domino Pizza, Subway, Kentucky Fried Chicken (KFC), Pizza Hut, burger king and Hungry Jack. This report will analyze competitors and perform a SWOT analysis on McDonalds (Jack & Karabe, 2007). Competitor’s analysis Figure 1a Figure 1b Figure. 1a. The graph shows average percentage of market share among the competitors in fast food industry which are as follows: Others (55%), Mcdonalds (19%), Doctor’s Associates (10%), Yum! Brands (9%), Jack in the Box (2%), Wedny’s international (2%), Burger King Corporation (2%), and Domino’s Inc (1%) (Andreyeva, Kelly & Haris, 2012). In Figure 1b, McDonalds hs 19% of market share while the rest take 81%. KFC and Mcdonalds KFC is a chain of fast food restaurant that is based in Kentucky. The fast food chain has more than 11,000 restaurants that are based in over 80 countries. The chain main objective is giving quality services and being customer friendly. KFC have its retail branches in hospitals, malls, universities and also office buildings. One of the main competitive advantages of KFC over MacDonalds is their strong financial sources. KFC have been a multinational player for a long time enabling it to gain knowledge on multicultural business environment. The quality problems and other issues associated with multinationals are well known by the company. KFC have also been able to establish itself as environmental friendly making it more appealing. This have been through the establishment of eco-friendly green KFC in Northampton USA. This is a restaurant that KFC designed in an eco friendly manner cutting on energy consumption and CO2 emissions. The restaurant is capable of reducing its landfill waste through recycling and uses recyclable paper for packaging. As compared to McDonalds, the main weakness lies on the advertising campaign. KFC does not have a specific segment of appeal. The approach to the target market is poor as compared to MacDonalds (Darden, 2002). There have been associations of KFC name with unhealthy food. The word fry at the company name gives a notion that the food is oily and may lead to health problems. The company faces lack of a clear corporate direction. This is due to fact that it have been under ownership of four different parent companies. The different corporate functioning has affected KFC which have led lack of well established culture. Compared to McDonald, KFC lacks a proper innovation strategy. This has been a major hurdle that KFC have to face. KFC growth has been recorded to be positive during 2011. KFC estimated that they were able to sell more than 300000 hotwings every day with the best selling product being mini fillet Burger which averaged to 19 million items yearly. In the previous year, KFC had recorded sales of 53.6 m which was an increase by 8.7 %. The sales for the whole year were calculated as 223.2 million pounds (Yum, 2014). Subway (Doctor’s Associates inc) and McDonalds’ Subway is another competitor who deals with sandwiches and Salads. The company is owned by Doctor’s Associates inc. subway have been one of the fastest growing franchises in the world with more than 30, 052 restaurant in more than 90 countries. Subway comes to a close second after McDonalds. Most of the stores are located in North America. The main expansion took place after franchising was started in 1974. Subway main objective is global expansion and provision of healthy fast food. Being health conscious has won subway a lot of customers. One of major weakness with subway is their franchise plans as compared to McDonalds. The franchisers have been more concerned with profits rather than the image of the corporation. There have also been cases of new outlets being opened in close proximity to each other. This has led to a decline in profits gained by the franchisers (Shimizu, 2012). The starting costs for Subway are lower as compared to McDonalds. To franchise subway, the costs range from 69,300 dollars to 19100 dollars. This is in contrast to McDonalds, whose start up costs ranges from 432800 dollars to 715150 dollars. From 2007 to 2012, Subway has gained a growth rate of 8.2 %. During 2007, the growth rate was at 5 percent. During 2013, Subway ranked second in the most visited business after McDonalds (Shimizu, 2012). Pizza hut and McDonalds Pizza hut is also a major competitor to MacDonald’s. As at 2010, the quarterly sales were at 14.2 million dollars. Pizza hut have recorded a positive growth. The store sales were recorded to be positive at a growth of 2.6 percent. Pizza hut have recorded a same store growth of 3 percent annually. Of all the pizza chains, pizza hut have the largest market share. The estimated market share is at 46 percent of the pizza market. Pizza hut have been successful in launching new products in the market. This has made them have a strong, market due to innovation. The main weakness of Pizza hut is pricing. The fast food chain has higher prices which lead to the competitors gaining a competitive edge. The issues of environmental concern have also been a weak point. McDonald has come up with coffee that has been grown in environmental friendly areas. This has been done in a bid to ensure that they capture the market of environmental friendly group. Pizza hut have not come up with any environmental friendly products to capture the environmental conscious segment of customers. Though pizza hut have managed to command a large, market share, the food chain have faced stiff competition from Domino Pizza and Papa John’s Pizza. The total sales totaled 4,927 and a market share of 46.4 in the pizza market (Datamonitor, 2008). Domino pizza and McDonalds Domino pizza is a major competitor to McDonalds in the fast food industry. Domino pizza is located in more than 60 countries, hence have a global prominence. In 2008, domino pizza recorded a sale of 1.425 billion US dollars. One of the major successes of domino pizza is e commerce use. The company has been able to deliver almost a quarter of its deliveries in us through online orders. The worst performance was experienced in 2007 when they experienced a 9.5 % drop in the operating profit and 64.3% decrease in the net profits. In 2010, Domino pizza opened its 300th store. This was opened in India. The same year there was a recorded increase in the revenues by 8.1 %. According to the company report, there was a 10 percent increase in profits during 2013. The company was also able to acquire 39 businesses and gain a net cash flow from the acquisitions of 19,107 dollars. Compared to McDonalds, domino pizza offers them a stiff competition in the fast food market (Llanas, 2014). Though domino sales are below McDonalds, their market share has an impact on the McDonald sales in the global arena (Melton & McIntyre, 2009). Hungry jack (Burger King) and MacDonalds Hungry jack is another fast food franchise owned by the Burger king. The corporation has more than 300 outlets in Australia and is rated as the second in size as a burger king franchise. Hungry jack offers stiff competition to McDonalds in Australians due to their brand name and well established outlets. The restaurant has been able to record profits as it was evidenced in 2009-2010. The profit for that year period amounted to 32.1 million dollars over the dales of 1.043 billion dollars. As compared to McDonalds, they lack well established international presence as Hungry Jack is located mainly in Australia (Strong & Smith, 2001). Main competitors Among the competitors, burger king, Wendy’s and subway are the main competitors. Despite this, McDonalds have recorded an increase in their annual profit. In 2009, the company profit was at 12 percent and in the last quarter of the year, it was at 23 percent. The annual profit was estimated to be at 1.216 billion dollars. The sales improvement was at 7 %. This shows that despite the stiff competition that existed, McDonalds were able to maintain their market share. The company at the moment projected a profit increase between 7 to 8 %. The product growth rate was expected to be at 3 to 5 %. By comparing these statistics with the competitors, McDonalds have been able to maintain their market shares despise the challenges. The main challenge has been associated with negative publicity that MacDonald has gained due to unhealthy food (Helstosky, 2008). The figures below show the net incomes for Mcdonalds and competitors as well as their growth in terms of sales/revenues. Net Income at McDonalds Figure 2. This graph shows the increased Net Incomes of Mcdonalds from 2010 to 2012 (Market Watch, 2014a). Figure 3. Net Incomes in Millions (Dollars) (Market Watch, 2014a, Market Watch, 2014b, Market Watch, 2014c, Market Watch, 2014d) Figure 4. Growth in terms of sales/revenue billions (Dollars) (Market Watch, 2014a, Market Watch, 2014b, Market Watch, 2014c, Market Watch, 2014d) SWOT analysis Strengths McDonalds have a strong brand name as compared to their competitors. The restaurant has built its reputation making them well known than most of the competitors. In all the fast food business, McDonalds have been able to have the strongest brand name. McDonald has managed to establish their real estate in most parts globally. The company have the capability to offer cheap services and in a convenient way. The locations of McDonald’s franchises are easily assessable by the customers (Kotler & Keller, 2008).This is due to location vicinity of the outlets. Figure 5. The graph depicts quarterly growth in same store sales. The graph shows that McDonalds have been experiencing positive growth after poor performance in 4th Quarter of 2009. In the year 2010, there was a 6% percent growth (Mcdonalds, 2014b). Weakness There has been market saturation which has made it hard to introduce new branches. This has led to a situation where McDonalds faces uncertainty in increasing their revenue. Their introduction of compact meal menu by McDonald acted to increase the competition in price. The company has also been cited to advertise unhealthy food to children. This has led to their products having a negative publicity as fattening of children and obesity related cases. The connection with their customers has been poor, which have been evidenced by poor advertising which have painted a negative company image. These weaknesses have made McDonalds reputation to go down (Hollensen, 2003). (Andreyeva, Figure 6. U.S. Kids watch hundreds of fast food Ads per year. Fast food brands most advertised to US children Age 2-11 (average # of ads viewed in 2012) (Kelly & Haris, 2012) Figure 7. These graphs show that McDonalds is leading in advertising fast foods to children ahead of competitors. This has come under criticism due to unhealthy eating behaviors among children. This has earned McDonalds negative publicity (Richard, 2013) Opportunities McDonalds has high opportunities in opening new restaurants outside USA. The opening of new locations can help the restaurant to have a new market for their products. There is a great opportunity for expanding the company production into the healthy food market which is growing very fast. This has been one of the biggest weaknesses for McDonalds. There is also need to tap skills from their competitors. For example, burger king have started offering home delivery services on their pizza. This can be an avenue that should be tried by MacDonalds. This have also been tried by Pizza Hut and succeeded. There is also a great untapped market that needs to be exploited. McDonalds can try to introduce new menu like it was in the case of coffee and smoothies (Hussey & Jenster, 2000). Threats There has been a rise in health conscious restaurants such as Subway. This has affected the McDonalds business in a great way. The current McDonalds menu have not been health conscious making it hard for health conscious customers to be attracted. McDonalds have to come up with a healthy diet to enable them to capture the health conscious group. The fast food market has reached a saturation point. This has made it hard for McDonalds to achieve a double digit growth. There has been an increase in fast food restaurant internationally such as subway leading to higher competition (Bahaudin & Bina, 2007). Conclusion McDonalds have been able to hold the market despite competition. This has been achieved though their strong brand name and international presence. By comparing against their competitors, McDonalds faces a stiff competition in the fast food market. The main competitors are burger king, KFC, Subway and Domino pizza. The competitors have been able to capture a market share that have reduced McDonalds original market share. The rise of healthy fast food restaurant has been a major challenge that McDonald have faced. The major weakness has come from lack of a healthy menu. McDonalds menu have been criticized as unhealthy making them lose health conscious customers. The management has to look for ways in which they can improve their menu to ensure that they serve healthy food. McDonalds have opportunities in expanding to new locations and changing their menu. References Andreyeva, T., Kelly, I.R., & Haris, J.L. (2012). Exposure to food advertising on television: drink consumption and obesity. Cambridge, Mass: National Bureau of Economic Research. (http://www.nber.org/papers/w16858.pdf?new_window=1) Bahaudin, G. & Bina, P. (2007). McDonald’s Success Strategy And Global Expans Through Customer And Brand Loyalty, Journal of Business Case Studies – Third Quarter, 3(3): 123-144. (http://journals.cluteonline.com/index.php/JBCS/article/view/4857/4949) Darden, B. (2002). Secret recipe: Why KFC is still cookin' after 50 years. Irving, Tex: Tapestry Press. Datamonitor (2008). Pizza Hut case study: Repositioning fast food as a healthy option. London: Datamonitor. Helstosky, C. (2008). Pizza: A global history. London: Reaktion Books. Hollensen. (2003). Marketing management. A Relationship Approach, Financial Times/ Prentice Hall. Hussey, D. E., & Jenster, P. V. (2000). Competitor analysis: Turning intelligence into success. Chichester, West Sussex, England: Wiley. Kotler & Keller. (2008). Marketing Management, Pearson Education. 318-328 Llanas, S. G. (2014). Tom monaghan: Domino's pizza innovator. S.l.: Checkerboard Library. Market Watch. (2014a). McDonald’s Corp. The wall street Journal, accessed 16th April 2014 from http://www.marketwatch.com/investing/stock/mcd/financials Market Watch. (2014b). KFC ltd. The wall street Journal, accessed 16th April 2014 from http://www.marketwatch.com/investing/stock/3420/financials Market Watch. (2014c). Burger King worldwide incl. The wall street Journal, accessed 16th April 2014 from http://www.marketwatch.com/investing/stock/bkw/financials Market Watch. (2014d). Domino’s Pizza Inc. The wall street Journal, accessed 16th April 2014 from http://www.marketwatch.com/investing/stock/dpz/financials Mcdonalds (2014b). Our History, accessed 16.4.2014 from, http://www.mcdonalds.com/us/en/our_story/our_history.html Melton, D., & McIntyre, T. (2009). Hire the American dream: How to build your minimum wage workforce into a high-performance, customer-focused team: lessons from Domino's Pizza, where deliverymen become millionaires. Hoboken, N.J: Wiley. (http://books.google.co.ke/books?id=jq9DFTay7vAC&pg=PR3&lpg=PR3&dq=Hire+the+American+dream:+How+to+build+your+minimum+wage++workforce+into+a+high-performance,+customer-focused+team:+lessons+from+Domino%27s+Pizza,+where+deliverymen+become+millionaires&source=bl&ots=67FWLiL-O4&sig=dkzCIqn2BLUQTFjZ07UxZex0Yqc&hl=en&sa=X&ei=bthQU5-2MMWd0AWRmICQBw&redir_esc=y#v=onepage&q=Hire%20the%20American%20dream%3A%20How%20to%20build%20your%20minimum%20wage%20%20workforce%20into%20a%20high-performance%2C%20customer-focused%20team%3A%20lessons%20from%20Domino%27s%20Pizza%2C%20where%20deliverymen%20become%20millionaires&f=false) Richard, F. (2013). Here's How Many Fast Food Ads American Kids See Each Year. Business Insider, accessed 16th April 2014 from http://www.businessinsider.com/american- children-see-253-mcdonalds-ads-every-year-2013-11 Sacramento, J., & Karabe, H., (2007). Leadership: Featuring McDonald's. Olathe, KS: ACT. Shimizu, K. (2012). The Cores of Strategic Management. Hoboken: Taylor & Francis. (http://books.google.co.ke/books?id=ARfbYDEm4GkC&printsec=frontcover&dq=The+Cores+of+Strategic+Management&hl=en&sa=X&ei=RtlQU_CLHsKg0QXhlICIDg&redir_esc=y#v=onepage&q=The%20Cores%20of%20Strategic%20Management&f=false) Top of Form Strong, J. & Smith, J. (2001). More Mcdonalds. Harlow: Pearson Education. Yum (2014). KFC, accessed 16.4.2014, from: http://www.yum.com/brands/kfc.asp Bottom of Form Read More