Impact of the Micro Environmental Factors on McDonalds - Book Report/Review Example

Marketing Environment Table of Contents Table of Contents 1 Introduction: McDonalds 2 Marketing Environment 3 Impact of the Micro environmental Factors on McDonalds 8 Impact of Micro Environmental Factors on Marketing Mix Element 10 Recommendations 12 15 Reference List 16 Introduction: McDonalds McDonalds is regarded as one of the world’s largest food restaurants serving in more than 120 countries with a customer base of 20 million (McDonald, 2013j). The company operates in more than 34000 local restaurants and more than 80 percent of the restaurants are owned though franchising methods (McDonald, 2013g). The food products of McDonald’s include hamburgers, cheeseburgers, chicken wraps, French fries, milkshakes and desserts of varied flavours (McDonald, 2013i). Gradually with time the company has expanded its menu by including fish wraps, smoothies, fruit salads etc. McDonald’s maintains a diverse workforce by hiring executives and workers belonging to varied nations where 70 percent of the workforce is women employees and over 25 million leaders are women or belong to the minority class (McDonald, 2013b). McDonald’s provides quality coaching, workshops and training facilities to enhance the technical and non technical skills of the employees (McDonald, 2013e). The company is headquartered at Oak Brook, Illinois with its office branch located in Chicago Loop (McDonald, 2013c). The company has won several awards like the Most Innovative Food Company in the year 2011 by Fast company, World’s Powerful Brand by Forbes and the Best Global Brands in the year 2012 by Interbrand (McDonald, 2013d). McDonald’s has maintained external relationship with communities like National Urban League and Organization for Chinese Americans (McDonald, 2013f). Most of the McDonald restaurants offer fast food through counter and drive through services (McDonald, 2013a). These are also known as McExpress and McStop. Most of the McDonald restaurants are located in convenience stores and gas stations and are target mainly for travellers and passerby. The main aim of McDonald is to offer a wide range of high quality and nutritious fast food and superior quality service to individual and corporate clients (McDonald, 2013h). Marketing Environment The marketing environment constitutes of factors which influence the company in a direct and indirect way. The marketing environment can be divided into macro and micro environment. The macro environmental factor affects the company activities directly and the micro environmental factor affects the company activities indirectly. Micro environment factors and forces comprise suppliers, distributors, competitors etc. Macro environment comprise demographic, socio cultural, economic, physical, economic, political and legal actors and forces. There are various tools for determining the micro and macro environmental analysis which include PESTEL (Political, Economical, Social, Technological, Environmental and Legal) and Porter’s Five Forces Model. The PESTEL and Porter’s Five Forces Model help in identification of external and internal threats. We will now analyze the various external threats faced by the fast food industry in United Kingdom (UK). Political Corporate Tax Rate Presently, the corporate tax rate in UK for Multinational Corporation is 30 percent (KPMG, 2013). The UK government has been gradually increasing the corporate tax rate to recover from the present economic slowdown. The increasing corporate tax has posed to be a bane for the established and novice fast food corporations for further penetration into the UK markets. However, the UK government has announced plans to lower the tax rate by the end of the year 2014. This will help the fast food restaurants like Wendy’s, KFC and McDonalds to further expand into UK markets and attract a wider customer base. Value Added & Service Tax Rate The sudden increase in the value added tax rate (20 percent) and service tax rate by the UK government signifies that the customer would have considerable amount of money on the purchase of wine, cocktails etc. This also means that the fast food restaurant operators will also incur huge amount of expenditure on the purchase of fruits and vegetables from the wholesale markets. National Health Guidelines It is mandatory for the UK fast food restaurants to comply with the national health and safety guidelines (UK Government, 2012). The fast food restaurants should utilize the genetically modified organism in their food products. This will ensure that the UK customers are provided with healthy and nutritious fast food. According to NPD, a leading market research firm the UK customer visits to the fast food restaurants was around 5.54 billion (WKRG, 2013). Legal There has been stricter legislation against fast food in UK and most of the legal laws revolve around the nutritional content of the fast food. The cola drinks and fast food served in schools and colleges are monitored by the health department and it is ensured that the sugar content of tea, smoothies and coffee are less than 5 percent. Artificial sweeteners are permitted to a certain extent in the cold drinks and juices. Regulatory As per the Food Safety Act in the year 1990 and Food Hygiene Act 2006 the fast food restaurants are supposed to manufacture food which has the essential and additional nutritional requirements. The purpose of these rules is to ensure that the fast food is in compliance with the UK governmental laws and regulations. Training is provided by the UK government to ensure that standardized hygiene rules and regulations are enforced in the restaurants. The government has enforced stricter regulations and laws in UK schools and colleges to prevent the increasing rate of obesity and health diseases. Social Majority of the people in UK prefer eating out in fast food or fine dining restaurant. They prefer restaurants with quick serving ability, excellent customer service and food quality at affordable prices. Majority of the restaurants in UK have packaged food and takeaway food services for the convenience of customers. The busy and hectic schedule of the UK commoners has compelled them to eat out most of the time rather than dining in home. The easy availability of fast food through online food ordering, SMS etc and low price range have allowed customers to make frequent purchases. However, the consumer spending on fast food has increased considerably also because of increased vegetarianism among individuals that has increased the frequency of visits in the fast food restaurants. The fast food restaurants serve an array of options in vegetarian food. Technological The fast food industry in UK is largely dependent on technology for food processing and innovation. Customers are also dependent on technology for online food ordering through SMS and internet facilities. Internet also acts as an important facilitator between the customer and the company and helps in dissemination of product information. Technology also plays a crucial role in facilitating communication between the company management and suppliers. Procuring bulk raw material, tracking and maintenance of inventory is done through software and internet facilities. Technological advancement is prerequisite for food innovation capabilities which help in addition of nutritional ingredients in the fast food for the betterment of the common people. Economic As mentioned before that the UK economy is recovering from the economic slowdown however, the future for the restaurant industry is lucrative. The fast food restaurant and takeaway industry has been suffering during the past five years due to the degrading economic conditions which has prompted customers to cut down their expenditure on fast food and other items. The consumer spending on restaurant dining would increase by the end of 2014 which would benefit the UK restaurant industry (Rayner, 2010). Competitive Forces Before developing a business strategy the company needs to determine the profitability of the industry by determining the external forces. The external competitive forces are as follows: a) Threat of new entrants: If an industry is witnessing high profits then it will attract new entrants. The fast food restaurant industry in UK is booming and in spite of the economic slowdown the industry is expected to witness an increase in the number of customers by the end of 2014 -2016. The number of restaurant operators is also expected to grow with the decrease in the price of the fruits and vegetables from the wholesale and retail markets. The threat of new entrants is high in this industry. b) Bargaining power of buyers: There is large number of restaurant operators in UK serving variety of cuisines at affordable prices. The bargaining power of buyers is high in UK fast food restaurant industry. c) Bargaining power of suppliers: Suppliers form an integral part of the fast food company is and their timing of delivery can pave the path of success for the fast food restaurants. The success of the fast food restaurant operators has attracted large number of suppliers in this industry. The bargaining power of suppliers is high in the fast food restaurant industry. d) Threat of substitutes: It is seen that the fast food restaurant operators in UK are receiving continuous threats from fine dining cuisines. The success of the UK food industry has attracted several fine dining restaurant operators who specialize in serving traditional cuisines with a western influence. Moreover, the customers trust the nutritional content of the fine dining food. e) Intensity of rivalry among competition: The success of the UK fast food restaurants has led to intense competition among the established restaurant operators. This has compelled the existing restaurant operators to devise new marketing strategies which will help them in retain their market position. Impact of the Micro environmental Factors on McDonalds The above PESTEL and Porter’s five forces model has helped us in determining the external threats faced by the UK restaurant industry. These may have a mild or profound impact on the sales of McDonald. It can be observed that the UK political scenario is not favourable for the fast food restaurant industry at the present moment, Political The increase in the corporate tax rate will have a significant impact on the net sales of McDonalds. This is because the current economic slowdown in UK and other European regions McDonalds has been incurring losses in the past three quarters of 2011. In the year 2011 the net sales of McDonald decreased by 0.2 percent. Apart from increasing corporate tax rate the company also witnessed a decrease in sales due to the fluctuating foreign currency rates. In the first quarter of the year 2009 the company generated non-operating after tax gain of $0.03 to $0.04 per share. The McDonald restaurants in the European region have not been able to witness increased savings because unlike the USA government the UK government does not provide a tax relief to these companies. The McDonald restaurants in USA are provided with American Tax Relief and this helped the company to save around $50 billion in the year 2012. The increase in the VAT rate could lead to a decrease in consumer spending on fast food, beverages, wine, cocktails etc. UK customers prefer spending on fast food because of their easy availability and affordable prices but the increase in VAT rate would lead to an overall increase in the food products. This could lower down the frequency of customer visits to McDonald joints. Apart from the increasing tax rates the company is also being accused of the growing health concerns like obesity, heart risks etc and the reason being so is the high calorie and low nutritional content in the fast food. Regulatory McDonald’s has to adhere to strict health guidelines which have been developed by the UK National Health Department for the betterment of the common people. McDonalds not only maintains standardized hygiene standards but also ensures that lesser amount of artificial food and colouring content is added to their food products. Adhering stringently to the food standards has led McDonald’s to the alteration of the core value of food products which has also resulted in customers complaining about the taste and quality of the food. Criticism regarding the non benefits about the fast food has also led to reduction in sales of the fast food products. Legal The legal laws imposed by the government were responsible for the alteration in the core value of the product. The company had to modify its several food products and change the nutritional content of the product for school and college going children. This is a time consuming process and requires intensive consideration. Social Since, even the economic slowdown would not hamper the sales of the company McDonald should try to develop innovative methods which can improve the food quality and the manufacturing process to attract potential customers. Technological Globalization has compelled technological advancement which can improve the existing food manufacturing and innovation process further. Competitive Forces It can be observed that the intensity of competition in the restaurant industry is very high and it forces the company to constantly lay emphasis on the manufacturing and innovation process for improvisation. The intensity of the competition has forced McDonald to manufacture a unique range of non vegetarian and vegetarian food. Impact of Micro Environmental Factors on Marketing Mix Element The marketing mix elements also known as tool kit of marketing are considered as an asset of controllable variables. The marketing mix helps the management in deciding the elements to be used in the manufacturing and development of the product. The impact of the macro and micro environmental factor on the element of product marketing mix will be analyzed. Political The increasing corporate tax rate would compel the company to lay emphasis on the size and servings of the fast food. Due to increase in the cost of expenditure the management would be serving fast food in economical sizes and standard prices. Legal There have been legal laws imposed on McDonald’s like modification in the core value of the product by adding nutritional requirements for the betterment of the school and college going children. Since, the manufacturing procedure is continuously monitored by the government, McDonalds need to consider and evaluate their food innovation procedure continuously. Social The expected increase in the consumer spending on fast food would allow the management of McDonald to develop functional procedures which would cater to the needs and wants of the customers. The food innovation procedure would enable the company to develop an array of food options in vegetarianism food. This is because there has been a sense of increased vegetarianism among the common people for health reasons. Regulatory Compliance with the food safety and food hygiene act is a time consuming process and requires a lot of research work and investment. Training and development is imparted by the UK government to the fast food restaurants to make them understand the procedures. Management of McDonalds is forced to adhere by the rules and regulations and they don’t have the freedom to exercise their creative and independent thinking. Technological Technological advancement will permit the company to experiment with food processing and innovation procedure to manufacture varied range food of high quality. The innovation of advanced software would enable the company to keep in constant touch with the customers and also analyze their purchasing behaviour. Economic The current economic scenario will allow the company to revamp their marketing strategy and develop food products as per the customer taste and preferences. The competitor strategy needs to be studied in order to develop unique food products. Competitive Forces As per the Porter’s five forces model it is seen that there is an existence of intense rivalry among the established competitors and also the threats to substitutes is high. This indicates that McDonald has to keep the price range of their products affordable to gain competitive advantage over its competitors. Recommendations Political Although, measures against the increase in corporate, vat and service tax are inevitable McDonalds should further penetrate into the UK markets by the end of 2014 when the tax rates are lower. This would lower the market expenditure of the company and devise marketing strategies that would yield profitability for the company. Regulatory McDonalds should make strong attempts to understand the procedures, rules and regulations laid down by the UK National Health Department. The training provided to the supervisors by the UK health department is focused on making the fast food restaurant to abide by the laws and regulations to manufacture healthy and nutritious food. McDonald should attempt to gain certification from the UK national health department. This method would help in customer retention of existing customers and also attracting potential customers. Social Since, the UK common people are health conscious and there has been a sense of increased vegetarianism among the people McDonald should focus on developing healthy food products which are high in nutritional and low calorie content. The food range should be varied and different from its competitors. Technological A special department should lay emphasis on the development of the technological process which would enhance the food innovation and processing methods. The department would solely lay emphasis on the development of fast food range with a distinctive flavour which would set it apart from its competitors. Apart from the technological advancement in the manufacturing process, the company should also lay emphasis on the up gradation of the web technologies and internet facilities. The company should also enhance the official website which would help them to be in constant touch with the customers and also provide them with product and process information. Economical McDonald should try to manufacture food by adhering to the UK National Health Guidelines and the availability of the fast food should be in economic sizes and standardized prices. By providing fast food at standardized prices and economical sizes the company would be able to attract potential customers and yield profitability. Competitive Forces It is observed that profitability of the fast food industry would attract potential substitutes and novice companies who would specialize in manufacturing fast food. These companies have the possibility of acting as a potential threat to McDonalds. Thus, McDonald needs to develop marketing strategy which can help in the development of a unique selling proposition and a unique marketing process for the development of high quality food products. Thus, we can observe that at the present moment the company is yielding profits from the US region and not from the European region. The macro and micro environmental analysis will help in the determination of the external threats of the fast food industry that have the possibility of crippling the functionality for McDonalds. It is advisable for McDonalds to analyze the present changing marketing environment and develop plans accordingly. Reference List KPMG, 2013. Corporate Tax Rates Table. [online] Available at: < http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx > [Accessed 04 June 2013 ]. McDonald, 2013a. McDonald's System. [online] Available at: [Accessed 04 June 2013 ]. McDonald, 2013b. Inclusion & Diversity. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company/inclusion_and_diversity.html > [Accessed 04 June 2013 ]. McDonald, 2013c. McDonald's History. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company/mcdonalds_history_timeline.html > [Accessed 04 June 2013 ]. McDonald, 2013d. Awards & Recognition. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company/awards_and_recognition.html > [Accessed 04 June 2013 ]. McDonald, 2013e. What We Do. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company/mcdonalds_system/what_we_do.html > [Accessed 04 June 2013 ]. McDonald, 2013f. External Partnerships. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company/inclusion_and_diversity/external_partnerships.html > [Accessed 04 June 2013 ]. McDonald, 2013g. US Franchising. [online] Available at: < http://www.aboutmcdonalds.com/mcd/franchising/us_franchising.html > [Accessed 04 June 2013 ]. McDonald, 2013h. Mission & Values. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company/mission_and_values.html > [Accessed 04 June 2013 ]. McDonald, 2013i. Brands. [online] Available at: < http http://www.mcdonalds.com/us/en/food.html > [Accessed 04 June 2013 ]. McDonald, 2013j. Getting to Know Us. [online] Available at: < http://www.aboutmcdonalds.com/mcd/our_company.html > [Accessed 04 June 2013 ]. Rayner, J., 2010. Legislating against fast food makes sense, but without better education it might not be enough. The Guardian, [online] 28 February. Available at: < http://www.guardian.co.uk/lifeandstyle/2010/feb/28/jay-rayner-takeaways > [Accessed 04 June 2013 ]. UK Government, 2012. Food Law. The Guardian, [online] 28 February. Available at: < http://www.food.gov.uk/multimedia/pdfs/codeofpracticeeng.pdf > [Accessed 04 June 2013]. WKRG, 2013. Takeaway & Fast-Food Restaurants in the UK Industry Market. [online] Available at: < http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx > [Accessed 04 June 2013 ]. Read More