Environmental Analysis of McDonalds in Australia - Essay Example

? Environmental Analysis of McDonalds Table of Contents Introduction 3 McDonalds Australia: A Brief Overview 3 Industry Analysis 3 Porter’s 5 forces 4 Internal Situation Analysis 6 Internal Organization Review 6 Mission and Goals of Organization 7 Finances and budgets 8 9 9 Past Marketing Activities 10 Human Resources 10 Research and Development 11 External Situation Analysis 11 PESTEL 11 Competitor Analysis 14 Direct and Indirect Competitors 15 USPs and Target Markets of Competitors 15 SWOT Analysis 15 Target Market 16 References 18 Introduction The report will mainly analyze the external and internal business environment of Australia. In this context various tools have been chosen to carry out the analysis. In the macro environment segment the report will discuss about the external factors such as legal, political, social, economical, environmental and technological. It will be accomplished through PESTEL analysis. Now the organization chosen to accomplish the study is McDonalds. In the external analysis the report will also shed light on the factors such as demographics, customers and also the cultural aspect. In the internal analysis section the study will emphasize on the missions and goals of McDonalds, its past marketing activities, human resources and research and development among the others. Furthermore the report will mainly try to uncover the strengths, opportunities, weaknesses and threats of the company. This will be accomplished with the help of a SWOT analysis. McDonalds Australia: A Brief Overview In the Australian context, the first outlet of the company was opened in the suburbs of Sydney which was known as Yagoona. With the course of time the company has been able to establish 780 stores and employs around 85,000 people across Australia. McDonalds Australia is not a listed company and is privately limited. It is basically a franchisee based venture where the restaurants are mostly owned and opera rated by individual businessman (McDonalds, n.d.). Industry Analysis McDonalds is a retail food chain restaurant and it belongs to the fast food industry. Hence in order to analyze the industry Porter’s 5 forces model has been used. The analysis is presented below:- Porter’s 5 forces 1. Threat of new Entrants New entrants are described as the companies that are presently not competing within the given industry but has the potential to compete in the industry if chooses to do so. The start up of cost for such kind of business is low and there is easy access to the markets. Furthermore owing to the fact that Australia is politically stable and offers much favourable condition, the threat of a new entrant in this industry is high. 2. Threat of substitutes products Substitute products are characterized by the availability of same category products, which performs the same function as the existing product (DePamphilis, 2011, p.143). McDonalds is specialized in serving various types of Burgers to the customers. Nevertheless in this aspect there are many substitute products such as Pizzas, Sandwiches and other fast foods. Hence the threat of substitutes is also high. 3. Bargaining power of buyers The bargaining power of the buyer refers to the capability of consumers to bargain and lessen the price of the commodity or to increase the cost of the company by demanding more quality products and services (Hill and Jones, 2012, p.58). Bargaining power depends on how quickly the buyer identifies other sources. In this context there are not many established players like McDonalds, KFC and Subway among others. Hence the bargaining power of buyers is low. 4. Bargaining Power of Suppliers Suppliers are also other organizations which provide raw materials, service to the host organization. The bargaining power refers to the capability of the suppliers to increase the price of the raw materials or to decrease the quality of goods and service with the supply of substandard quality materials for low price. There are large numbers of suppliers of raw items for fast food industry. Especially in Australia suppliers for such products can be found almost in all the parts of the country. Hence the bargaining power of suppliers is low. 5. Existing Rivalry This force reflects the competition within the industry. Rivalry among industry is about the intensity of competition among the organizations. The established players in the market include KFC, Pizza Hut, Dominos, Subway, and Burger King among many other global and local players. Therefore with a large number of players in the fast food retail chain outlets, the rivalry within the industry is high. Factors Threat of new Entrants Threat of substitutes products Bargaining power of buyers Bargaining Power of Suppliers Existing Rivalry Level of Impact High Medium Low Figure 1 (Source: Hill and Jones, 2009, p.43) Internal Situation Analysis McDonalds is an US based company which is in the business of retail chain restaurant. The company is presently headquartered at Illinois, U.S.A. It was founded in the year 1940 by Richard and Maurice McDonald. However, the company started its franchisee operation in the year 1955. Internal Organization Review The company has a worldwide presence and operates through almost 33000 outlets. The major products of the company include Hamburgers, products related to chicken, French fries, soft drinks and desserts. McDonalds is considered as the largest fast food restaurants of the world. The restaurants of McDonalds can be found in almost 119 countries of the world. The company mainly focuses on developing sophisticated network of suppliers. The company is also actives in protecting its market reputation by offering high quality products and services. Now in order to offer deeper insights of the organizations internal segments, value chain analysis has been carried out. Inbound logistics: - McDonalds supplies various raw items and foods to the restaurants through the registered logistics operator. The production and processing of foods takes place in company owned large plants that depicts the control of McDonalds in packaging and food distribution system. Operations: - In order to manufacture the products that meet the need of the customers, the company spends high amount of money for research and development purposes. The company mainly follows forward integration with the franchisees, but controls the presentation and menus of the store. Outbound Logistics: - Outbound logistics is looked after by the franchisees. The outbound logistics is totally in the hands of the franchisee members. However with the rising concern over the environmental issues, outbound logistics now plays an important role in the recycling system of the company. Sales & Marketing: - The selling of products is exclusively carried out through the retail outlets of the company. Similarly the marketing activities are also carried out by the marketing team and few promotional elements such as advertisements are outsourced. After sales Service: - The after sales service is provided by the company as per the standards of enrollments. Mission and Goals of Organization The mission of the company is to become the favorites of the customer. The company wants to make their restaurants as the favorite place of the customers. The company calls its global operations strategy as ‘plan to win’. The ‘plan to win’ strategy intends to offer extraordinary customer experience. The company also proposes to improve the quality of products and system of operation, thereby satisfying the customers. The future goals of the organization are highlighted below:- The company aims to continuously create new dishes in order to offer the customers with a wide range of products that satisfies their preferences and ensures balanced diet. Focus highly on the research and development activities in order offer quality products. The company will also strive to improve their marketing practices by incorporating various innovative marketing strategies and tools. McDonalds is also trying to enhance their international presence and therefore the company proposes to open 700 stores by 2013 in China (Staff, 2011). Finances and budgets The company has been able to achieve the highest revenue in the last 6 years. The total revenue for the year 2011 was $27,006 million, while in 2010 it was $24,075 million (About McDonalds, 2011). Similarly the sales figures were also steady. Moreover the operating incomes has also increased to a large extant. However the operating expenses was also increased highly. Nevertheless from an overall viewpoint McDonalds is in a strong financial position. Figure 2 (Source: About McDonalds, 2011) Figure 3 (Source: About McDonalds, 2011) Figure 4 (Source: About McDonalds, 2011) Past Marketing Activities In the past the company’s marketing activities included all the essential elements. Among the marketing mix of the company, promotional mixes always embraced a significant position. Advertising, sales promotion and public relation are the three major elements which the company employs for its communication purposes. However they also make use of direct marketing and personal selling as the promotional tools. The company also spends high amount of money in its overall marketing strategy. Human Resources The human resource department of McDonalds is perfuming the duties as a separate department and embraces a significant position in the overall structure of the organization. In all the major operations of the company, HR department plays a crucial role. However, all the departmental managers of the organization are responsible for hiring, training and evaluating the employees. Hence each of the managers in McDonalds plays the role of an HR. The company believes that employees are the greatest asset of the organization and it is the only factor responsible for creating a competitive advantage for the company. Some of the vital tasks that are carried out by the HRD of McDonalds are as follows:- Policy making To look after the welfare of the employees To cooperate with the employees during emergency situations Bargaining and negotiating with the employees. To carry out the administrative works. Performance management and appraisal of the employees. Research and Development McDonalds has a strong research and development team. It also invests large amounts of money towards the carrying out the function of research and development. The company always strives to offer the customers with high quality foods. Furthermore it attempts to manufacture new items by utilizing the research and development function. The research and development Laboratory of the company was primarily established for the purpose of addressing various issues related to the manufacturing process. Also things such as speeding up of food preparation, increasing the uniformity of products etc. were also considered. For the purpose of achieving the goals engineers and technicians of the company worked on everything starting from Fatilyzer a testing equipment to the dispenser that offered the exact amount of ingredients every time. Furthermore the R& D also focused heavily to lower the cost and improve the operations. External Situation Analysis In order to analyse the external environmental factors of Australia, PESTEL analysis of Australia has been carried out. PESTLE analysis is a strategic tool, which studies Political, Economical, Social, Technological, Legal and Environmental factors. The factors are highlighted below:- PESTEL Political – The political factors represent the current political stability of the host country. It includes the factors such as political changes, tax policies, changes in the restriction of trades, tariffs and the stability of the government. In the context of Australian the government is very much stable. The government follows federal system. The tax policies as well as the tariff structures are well structured. Economical – The economic factors include interest rates, gross domestic product, inflation rate, unemployment rates and growth rate of the economy. Australia ranks among the top developed countries. The GDP per person is nearly $44,000. The top performing sectors of the country includes Agriculture, Retail and tourism. Social – The social factors include trends in demographics such as population size, age, cultural factors and consumer activities. Australia ranks in the 6th place according to the total area. The population of the country nearly calculated to 19,913,144. The country generally speaks English as the major language. Australia belongs to a multi-cultural and multi faith society. There are existences of all types of consumers in the market. Some prefers to spend extra for a product which will give them satisfaction. On the other hand there are customers who like to have low brand products which offer good value. Technological – Technological factors include rate of new product development, increase in process automation and other technical infrastructures such as technology inducements, technology transfer, impact of internet and R & D activity. In Australia information and communication technology i.e. the use of internet in the household has increased rapidly. Australia also spends very high for the development of technology. Apart from the mentioned data one interacting fact is that Australians are considered as tech-savvy persons. They always love to try out new and innovative products. The products can be in any form may be as a gadget, a car or even mere toys. Environmental – The environmental factors of a country includes natural phenomenon such as natural disasters, weather patterns, climate etc. Australia mainly comprises of semi arid or desert areas. The climate of Australia varies largely from one place to the other. The climate ranges from below 0o C to place nearly 50oC. Legal – The legal factors of a country includes the laws for employment, favouritism, biasness, health and safety and antitrust. The host country has a very well structured legal framework. Some of the other external factors that have been also analysed in this study are highlighted below:- Demographic – The demographic aspect of a country is about the demographic features of the population of a country that covers the areas such as health, ethnicity, population-density, level of education, religion and economic status among the others. The demographic aspect of Australia will therefore cover the aforementioned aspects. According to the latest census report of the country the total estimated population is around 22,773,843 (Australian Bureau of Statistics, 2012). It holds the 52nd position in terms of the most populous countries of the world. Around 89 % of the total population lives in urban area and the rest in rural areas. It is therefore considered as one of the most urbanized countries of the world. One of the most interesting facts of Australia is that the country does not have any official religion and is scrupulously diverse. However Christianity is the major religion. In this aspect McDonalds can effectively use it to offer diverse range of products. Cultural – Cultural factors plays an important role for an organisation to conduct their business properly. It helps to generate a better connection with the customers of the host country. Greet Hofstede has proposed five dimensions namely Power distance, Individualism, Masculinity/Femininity, Uncertainty avoidance and Long term orientation. In Australia is characterized by diverse culture and lifestyle. It reflects the liberal democratic values and traditions (Australian Government: Department of Foreign Affairs and Trade, n.d.). Now as highlighted by Hofstede, the dimensions are presented below:- Figure 5 (Source: Hofstede, n.d.) Consumer – Fast foods are consumed by every individual, there is hardly any demographic dependencies. However the ratio of fast food consumption among the teen age population is high. The difference lies in the context of tastes and preferences of the consumers. Therefore the consumers of the company have been segmented on the basis of geographical factors. For example the company has beef products, which is not consumed in Hindu countries such as India, Nepal and others. Based on local preferences the company offers its products to the customers. Also studies show that the consumers of Australia are also highly brand loyal and like the nutritional information to be displayed on the packaging (Finnegan, 2012). Hence in this context McDonalds with its strong market reputation and clear nutritional information in their packaging holds a great chance of getting success in the market place. Competitor Analysis The major competitors of the company are Kentucky Fried Chicken (KFC), Subway, Burger King, Yum brands and many other local competitors. However among the mentioned list of competitors they can be classified as direct competitors and indirect competitors. The type of competitions is therefore highlighted below:- Direct and Indirect Competitors The direct competitors of the company are Subway, Burger King, and Yum brands. On the other hand the indirect competitors of the company are Darden Restaurants, Inc., Autogrill S.P.A., Wendy's International, Inc., KFC Corporation, Brinker International Inc., Whitbread PLC, OSI Restaurant Partners, LLC and Starbucks Corporation. USPs and Target Markets of Competitors All the competitors have their different USPs as well as target markets. As discussed earlier McDonalds belongs to the fast food industry and has large number of competitors. Now the study will try to explore the USPs and target markets of the competitors. For example Burger king distinguish itself from McDonalds by allowing the customers to choose ingredients by which they would like their burger to be prepared. Hence in simple words they offer customized burgers. On the other hand the USP of Domino’s Pizza lies in their delivery of product. Domino’s Pizza promises to deliver their products within 30 minutes from the time of placing the order. Even the customers of the company also appreciated the service. In the context of the target audience Burger king mainly targets teenagers and also average income families. Domino’s pizza targets both males and females between the ages 10 to 45 years. SWOT Analysis SWOT analysis is carried out to assess the internal strengths, weaknesses and external opportunities and threats of a company (Williams, Champion and Hall, 2011, p.108). Thus SWOT analysis plays an indispensible role towards the formulation of a strategy. It provides insights about the internal resources and how those resources can be utilized to make use of the external resources. The four factors of SWOT are presented below:- Strengths The company has a strong brand reputation and has presence in 119 countries of the world. Also holds a strong position among top companies of the world. It offers wide range of products that meets the needs of the customers. Excellent store ambience. Financially strong. The company is socially responsible as well as community oriented. Efficient and well organized way of food production. Opportunities Emerging markets. Tapping more market segments. Development of more healthy and hygienic food that offers balanced diet. Weaknesses Declining share of market Regular fast foods may cause health concerns. Weak product development process Slowed income and revenue growth. No further development of the quality of the products. Threats Excessive tax needs to be paid to the government. Saturation of industry Intense competition from KFC, Dominos & Subway. Changing demographics Recession may affect the retail sales. Target Market Now according to the findings, the strengths of the company are strong brand name, wide range of products, excellent store ambience, socially responsible and strong financials among others. Hence McDonalds based on the strengths can target the following markets in order to earn more revenue and satisfy mass customers. The company can primarily target teenagers with disposable income. The company can also target families, as they have separate family section in the outlets. References About McDonalds, 2011. Financial Highlights. [online] Available at: < http://www.aboutmcdonalds.com/mcd/investors/financial_highlights.html> [Accessed 05 October 2012]. Australian Bureau of Statistics, 2012. Population clock. [online] Available at: < http://abs.gov.au/ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/1647509ef7e25faaca2568a900154b63?OpenDocument> [Accessed 05 October 2012]. Australian Government: Department of Foreign Affairs and Trade, (No Date). People, Culture and Lifestyle. [online] Available at: < http://www.dfat.gov.au/facts/people_culture.html> [Accessed 05 October 2012]. DePamphilis, D., 2011. Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. 6th ed. Massachusetts: Academic Press. Finnegan, Y., (2012). Australians Support Nutritional Information Displays at Fast Food Joints. [online] Available at: < http://www.nielsen.com/au/en/news-insights/press-room/2012/australians-support-nutritional-information-displays-at-fast-foo.html>[Accessed 05 October 2012]. Hill, C. W. L., and Jones, G. R., 2012. Strategic Management Theory: An Integrated Approach. 10th ed. Connecticut: Cengage Learning. Hill, C. W. L., and Jones, G., 2009. Strategic Management Theory: An Integrated Approach. 9th ed. Connecticut: Cengage Learning. Hofstede, G., No Date. Australia. [online] Available at: [Accessed 04 October 2012]. McDonalds, No Date. Our Story: Where we have come from. [online] Available at: [Accessed 04 October 2012]. Staff, J. (2011). McDonalds to Add 700 Stores in China by 2013, Journal of Commerce, [online] Available at: [Accessed 05 October 2012]. Williams, C., Champion, T., and Hall, I., 2011. MGMT. Connecticut: Cengage Learning. Read More