Strategic Issues and Options of McDonalds - Assignment Example

Strategic Issues and options of McDonald’s AFFILIATION: Strategic Issues and Options of McDonald’s Introduction to McDonald’s In 1954, McDonald’s fast food restaurant was started by two brothers with the aim of providing quality burgers in a hygienic restaurant in United States of America (USA). The main aim of Ray Kroc Got who came up with this idea was to provide food with best service, quality, value and cleanliness. It has grown from national brand to an international one and it is evident from the facts that McDonald’s is the leading global fast food restaurant or food service retailer that has more than 33,500 local restaurant that are serving almost sixty-eight million people in numerous countries every day (McDonalds, 2012). About 80% of McDonald’s restaurants are being owned and operated by local men and women worldwide who are running the business independently. The primary goal of McDonald’s is to become number one and favourite way and place for customers to eat and drink by providing them their core favourites such as Chicken McNuggets, French Fries, Quarter Pounder and Big Mac (Han, 2008). The strategic direction of McDonald’s is its biggest strength which is the alignment between the franchisees, company and its suppliers and it has been the key to success of the company. It is well-known fact that company’s alignment with its suppliers and franchisees which is collectively known as the System has helped McDonald’s in delivering consistent and locally relevant restaurant experience to its customers worldwide. The business model of McDonald’s enables the company to ensure that it fulfils its promise of delivering best quality products and aesthetic fast food dining and eating experience to its customers. Business Strategy of McDonald’s According to Fisher (2011), the business model of McDonald’s is to deliver customers’ experiences that are consistent and relevant to the local restaurant ambience; the aim of restaurant is to be a part of the communities that are being served by the country. The primary focus of the company is on low cost leadership and the idea behind this strategy is that it facilitates their ability for identification, implementation and innovation so that they are able to meet the changing needs and preferences of customers. The strategic direction of McDonald’s is to focus a customer-oriented approach in which the plan is to provide a common framework for its global businesses that allows the strategy to be locally adopted. McDonald’s execution of initiatives is surrounded by five elements of its Plan to Win i.e. Price, Place, Products, People and Promotion (McDonald’s System, 2012). The company’s shareholders are satisfied with strong financial results and the main reason being that Plan to Win is combined with discipline of finance. In order to follow the right strategy to adapt according to the country or region, business is divided into different geographic segments i.e. Europe, United States of America, Asia/Pacific, Middle East and Africa (APMEA) and Other Countries and Corporate (OCC) including Latin America, Canada and Corporate. In the last couple of years, McDonald’s strategy includes focusing on emerging markets so that they can be pushed towards this region (Bhasin, 2011). It has entered in China, India and other African nations and the sales have been increased by 8.1%. In order to enter the cafe industry, McDonald’s entered the market as McCafe and there are about 1,300 McCafe’s in various countries (Kimberly & Bichouki, 2003). McDonald’s has developed its image as not only snack foods and desserts but as a complete package of foods and drinks; in order to get more segments of consumers to enhance its offerings by expanding more non-traditional menu items in addition to its burgers and fries. Sustain Competitive Advantage In order to evaluate the successful implementation of McDonald’s business strategy, there are many models that can be used and analyzed; the three best ones are Porter’s competitive strategies model, Miles and Snow’s ‘strategy typology’ and Ansoff Matrix (MCD, 2012). Since the environment is getting tough and competitive, the most appropriate strategy for company is to find the best one that incorporates all factors that are being faced by it; the strategic position needs to be developed taking into account complete business so that all the challenges can be addressed. When using Porter’s competitive strategies model, there are three options that any business can use i.e. focus, lower cost and differentiation. In case of McDonald’s, it is applying low cost strategy so that it can meet the needs and demands of customers and provide them good quality of meals at lower price rates. According to Miles and Snow, cited by Vijayarani (2012), an analyzer should try to maintain business stability while doing innovation on the periphery. It should lie in between defender and prospector; some of the products will be targeted towards the environment which is stable so that efficient strategy can be designed keeping current customers on board. Other products are targeted towards environment that is new and dynamic in which growth is possible.” McDonald is applying this concept as it has perfect blend of both products that are targeted towards stable environment such as Burgers and Fries and also in the form of cafes and new and innovative products such as McArabia, Swirl Ice cream and many more. In many countries such as France and Canada, it has changed the complete outlook of fast food restaurants and sales have been boosted to a greater extent. It is an example of innovation that it tries to experiment with new ideas so that it can offer varieties to its customers. The restaurants have been remodeled by incursion of hardwood floors, comfortable armchairs, wood-beam ceiling and various other menu items such as brioche, espresso and various upscale sandwiches. Issues faced by McDonald’s McDonald’s biggest competitors are Burger King, Wendy’s and Yum Brands and it needs to handle all other strategic imperatives as well. The two major issues that are being faced by McDonald’s are related to health problems and social changes. Most of the American consumers are becoming health conscious and company cannot solely rely on its traditional menus that are centred on hamburgers as they cannot guarantee sustained growth. Secondly, increase in number of competitors makes difficult for McDonald’s to go ahead with its expansion plan. In order to sustain profitability and high performance for McDonald’s, it will have to design alternative strategies for moving ahead in the fast-food industry. People’s living standards is increasing drastically in these years as a result of the economic development; people have become concerned about their health issues. Although McDonald’s has tried to make it conveniently available for its customer, it cannot be denied that the company produces unhealthy fast food. World Health Organisation reported that food not only is the cause of obesity in children but also causes cancer in people. Customers are now shifting to healthier offering for addressing the healthy issues as it is the biggest stumbling block of McDonald’s development. Strategies for addressing the issues In order to compete successfully in today’s dynamic and ever changing environment, McDonald’s will have to ensure that it is well-aware of the changes happening in all the countries in which it has opened all its outlets. The main areas of concern are related to healthy food and social changes that are taking place at an accelerating pace worldwide. McDonald’s has addressed to healthy food trend properly and has responded to this trend by introducing healthy food such as salads and sandwiches that have no unhealthy ingredients such as cheese and mayonnaise. The recent addition by the company is salads and also lighter options to its menu along with healthy drinks and fresh juices. For instance, if a lady comes in who is also a mother, she will not only buy happy meal for her children but also buy a meal for herself too. The addition of lighter options encourages current customers to visit the fast food restaurant and select the food item from the wide range of options. In order to prove itself to be environmental friendly, the company is involved in various Corporate Social Responsibility activities so that it can ensure that it provides something to the community. Conclusion Since these days consumers have become educated on ingredients that are included in meals of McDonald’s and heavy scrutiny has been placed on fast food restaurants and its business model is solely based on providing customers inexpensive options for dining. For decades, McDonald’s has been enjoying top most position in USA in fast food industry. The company has achieved recognition as the ability to offer food items that are inexpensive as found on its one dollar menu which is quite appealing for diverse range of consumers. The company has been implementing cost effective strategy so that it can allow its customers to resist economic recession and give them opportunity of having good quality meals at affordable prices. McDonald’s has been successfully implementing new and innovative marketing strategies that are being targeted towards addressing the changes that are seen in consumer demand. The company has observed consistent growth that has helped it to have high payouts of dividends and recently, the company has highest share price as compared to its five years high. Since McDonald’s strategy has changed to incorporate health concerns and social changes, there are many chances that it will be able to prosper in fast food industry as it keeps on adding healthy options in its menu. References Bhasin, K., 2011. This Is How McDonalds Plans To Take Over The World. [Online] Available at: http://articles.businessinsider.com/2011-12-14/strategy/30515000_1_mcdonald-mccaf-markets [Accessed 21 August 2012] Fisher, S.L., 2011. The Green Arches: How McDonald’s Efforts at Communicating Their Sustainability practices affect their corporate identity. [Online] Available at: http://pure.au.dk/portal-asb-student/files/38819563/36290046.pdf [Accessed 21 August 2012] Han, J., 2008. The Business Strategy of McDonald’s. International Journal of Business and Management, 3(11), pp. 72-74. Kimberly,J.R. and Bouchiki, H., 2003. Escaping the identity trap. MIT Sloan Management Review, 44(3); pp. 20 MCD (2012, March 13). McDonald’s Better Practices Will Reward Investors. seekingalpha.com. [Online] Available at: http://seekingalpha.com/article/431981-mcdonald-s-better-practices-will-reward-investors [Accessed 21 August 2012] McDonalds, 2012. Company Profile. [Online] Available at: http://www.aboutmcdonalds.com/mcd/investors/company_profile.html [Accessed 21 August 2012] McDonalds System, 2012. McDonald’s System. [Online] Available at: http://www.aboutmcdonalds.com/mcd/our_company/mcdonalds_system/what_we_do.html [Accessed 21 August 2012] Vijayarani, N., 2012. McDondald’s Business Analysis. [Online] Available at: http://ezinearticles.com/?McDonalds-Business-Analysis&id=687438 [Accessed 21 August 2012] Read More