Case Analysis.mcdonalds.final

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Man as Natural Being

LYCEUM OF THE PHILIPPINES UNIVERSITY BATANGASGraduate SchoolMBA PROGRAM

case analysis

By:

Ma Chere Gracita Reyes-Bilog

strategic marketing management

Dr. Dante LubisJune 27, 2015

CASE ANALYSISMCDONALDS

VIEWPOINT Jim Skinner, Chief Executive OfficerTIME CONTEXT 2009PROBLEM STATEMENTHow can McDonalds increase its appeal to the different segments of the market without alienating others?STATEMENT OF THE OBJECTIVEIncrease same stores sales by 10% by end of 2009.AREAS OF CONSIDERATIONA. Strengths1. Powerful brand recognition. McDonalds is a leading global food service retailer and has remained to be a household name throughout the world. Its Golden Arches logo and Ronald McDonald character are well known globally.2. Strong global presence. As of 2008, McDonalds has more than 31,100 outlets scattered in major parts of the world, including United States, Europe, Asia Pacific, Canada and Latin America.3. Successful franchise business model. Approximately 80% of McDonald's restaurant businesses world-wide are operated by franchisees. Thus, McDonald's benefits from economies of scale. Financially, with franchising, McDonalds has a regular and steady source of income, in terms of rent and/or royalties.4. Well-planned and executed turn-around strategy. Cantalupos Plan to Win Strategy greatly helped McDonalds recover from the dire consequences of its overexpansion. 5. Affordable menu. McDonalds has successfully positioned itself as a fast-food outlet offering low-cost food and drink without hurting the companys profit. 6. Financial stability. In the midst of a global economic slowdown, McDonalds continued to grow. Its same store sales even increased by 7.2% during the last quarter of 2008 compared from the figures reported in 2007.B. Weaknesses1. Negative image and publicity: McDonalds is perceived have unhealthy food menu which can cause obesity and heart attack for customers. 2. Product development problems. McDonalds was not able to capitalize on the trend towards organic foods.C. Opportunities1. Rapidly fragmenting market. The tastes of the consumers are changing. McDonalds can capitalize on this by developing products other than hamburgers and French fries.2. Increasing demand for healthier food.As a demand for healthy food increases significantly, McDonalds can produce healthier alternatives to their menu.3. More people are on the go. People who are on the go mean more people who prefer to consume fast food products. 4. Increasing globalization. 5. Economic slowdown. The desire of the people not to spend too much during the economic slowdown is aligned with McDonalds strategy of offering affordable menu without hurting the companys profit.D. Threats1. Fierce competition: The competition in the fast food industry is very fierce and developed countries are overcrowded by so many fast food restaurant chains.2. New competitors. Due to the rapidly fragmenting market, the competitors of McDonalds are not only those in the fast food chain. Competition has been coming from quick meals of all sorts that can be found in supermarkets, convenience stores, and even vending machines.3. Health issue. People nowadays are becoming more conscious of what they eat. 4. Lawsuits. With a rising awareness of the high fat content of most of the products of McDonalds, the company is beginning to face lawsuits even from its loyal customers.

ASSUMPTIONSThe financial ratios of McDonalds are assumed better than its competitors given the declaration of CEO Jim Skinner that the company has continued to be recession-resistant. Two of its closest competitors, KFC and Wendys, failed to cope with the peoples spending downturn.ALTERNATIVE COURSES OF ACTION1. International expansion through continued franchise opportunities.2. Innovation of products through creation of an organic and healthier menu3. A focused strategy should be developed around the companys core business, burger, fries etc, looking to be the best in the industry, and generating incremental sales volume per store rather than diversify or innovate. 4. Enlarge menu by adding non-traditional McDonalds food items.5. Make every McDonalds a place to stay through the use of technology and having a play area.ANALYSISACA1: International expansion through continued franchise opportunitiesAdvantagesDisadvantages

McDonalds can capitalize on three of its principal strengths - powerful brand recognition, strong global presence and successful franchise business model and continue to aggressively expand in the other parts of the world, with focus on emerging markets such as China. McDonalds will thus have more stores and at the same time an increase in its steady source of income.The market share of McDonalds will continue to get bigger.In addition to growing profits more rapidly, by expanding its sales volume through international expansion, McDonalds can realize cost savings from economies of scale, thereby boosting profitability.McDonalds has the necessary experience in international expansion.Product innovation. Part ofMcDonalds franchise model is letting its franchisees have more autonomy in making menu decisions to fit the particular tastes of its customers. This will contribute to an increase in the menu of McDonalds.Limited control over the activities of the franchise.Poor functioning, operations or reputation of one franchise may damage the entire chains reputation.There is a difficulty keeping and maintaining intellectual property.

ACA2: Innovation of products through creation of an organic and/or healthier menuAdvantagesDisadvantages

Product innovations can attract new customers as well as keep existing customers.The organic and/or healthier menu can serve as competitive advantage for McDonalds.This will improve the image of McDonalds.If successful, this can lessen the potential lawsuits against the company.This will delay the perceived decline of McDonalds product life cycle.This will require extensive research into the wants and varying tastes of McDonalds consumers for each particular location or country.This will require huge capital expenditure in terms of product research and development.A successful reception of the organic and/or health menu in one area does not equate into a successful product innovation in all areas.

ACA3: A focused strategy should be developed around the companys core business burger and fries at affordable prices gearing towards being the best in the industry, and generating incremental sales volume per store rather than diversify or innovate. McDonalds should just improve the tastes of its core products and heavily advertise to counter the negative publicity.AdvantagesDisadvantages

McDonalds is already globally well-known to serve burger and fries, not salads nor gourmet coffee blends nor baked muffins, at affordable prices. This will keep its loyal customers.This does not require huge capital expenditure for research and development.This requires big expenses on advertising.This will not attract the healthy-eaters, thus effectively alienating them.

ACA 4: Enlarge menu by adding non-traditional McDonalds food items.AdvantagesDisadvantages

Product innovations can attract new customers as well as keep existing customers.This will lengthen the companys and/or its product life cycle.The introduction of non-traditional food items can serve as competitive advantage for McDonalds.This can help combat the negative image of McDonalds.This will require extensive research into the wants and varying tastes of McDonalds consumers for each particular location or country.This will require huge capital expenditure in terms of product research and development.A successful reception of new food items in one area does not equate into a successful product innovation in all areas.

ACA 5: Make every McDonalds a place to stay through the use of technology and having a play area.AdvantagesDisadvantages

This will attract employees and teenagers who always seem to want to connect to the internet.This will also provide a place for parents to allow their children a safe place to play.Additional market segment being served will increase profitability.This will require renovation of existing restaurants and may require capital expenditure.

CONCLUSIONIn determining the best alternative, the following criteria will be used, with the corresponding percentage or weight for each criterion:1. Cost-efficiency. Ability to successfully implement the course of action at minimal costs. (30%)2. Sustainability of the course of action. Capacity to endure and support the fulfillment of the identified objective. (40%)3. Timeliness of expected result. How fast this ACA can get its objective. (30%)ACACost EfficiencySustainabilityTimelinessTOTAL

International Expansion30351580

Product Innovation10351570

Core Product Improvement2010030

Non-Traditional Food Items10351570

Place to Stay20202060

Given the above Decision Matrix, the first alternative course of action, international expansion through continued franchise opportunities, received the highest score. It is more cost efficient to undertake international expansion rather than product innovation or core product improvement because McDonalds will adopt its tried and tested franchise model. Thus, the costs associated with its international expansion are minimal especially when compared to the license fees and royalties it will receive. It is also I important to note that through international expansion, McDonalds can simultaneously address the need to develop new products including healthier products. This is because the franchise model of McDonalds allows the franchisee to create new menu to fit the tastes and preferences of its customers, usually in accordance with the specific countrys culture. There will thus be simultaneous product development and innovation at little or no expense to McDonalds. In its international expansion, McDonalds can focus on emerging markets such as China which is heavily populated. Thus, through international expansion, McDonalds will be able to meet its objective of increased same stores sales by 10% by the end of 2009.PLAN OF ACTIONActivityPerson ResponsibleTime Frame

Set a Board Meeting to discuss the strategyPresident of the Board of DirectorsJanuary 2009

Activate the Franchising Team to review all pending franchise applications worldwide, scout for possible lucrative franchise locations, including interview of prospective applicants and recommend for approval applications for franchise.Finance Manager, Franchising CommitteeFour (4) to twelve (12) weeks

Approval of Franchise ApplicationCEO Jim Skinner and/or area/region managerOne (1) week from recommendation

Drafting and signing franchise agreementLegal Department Two (2) weeks from approval

Training of staffHuman Resources assigned to the area/regionOne (1) to six (6) months, depending on time of franchise

Construction. Refurbishing or renovation of building Operations; real estate division of McDonaldss assigned to the area/regionTwo (2) to four (4) months from approval

Opening of new McDonalds restaurantFranchisee; McDonalds representativeOne (1) week from occupancy of restaurant

Strategy Evaluation; Adjustments on the strategy that needs improvement and disseminateCEO Jim Skinner Every end of the month

Performance review. Monitor market reactions to any new products; monitor performance of franchiseCEO Jim Skinner; area/regional head; Every quarter

Assessment of financial returnsFinance Department; area/regional headEvery quarter

RECOMMENDATIONSMcDonalds is a well-known brand in all the major regions of the world. However, the market is rapidly being fragmented and the tastes of its consumers have been changing over the years. Coupled with this is the negative image that McDonalds has become associated with. McDonalds must be able to adapt to the new environment, increasing number of competitors in an industry that almost over-saturated and nearing the decline stage.ReferencesHill, C. and Jain, A. (2012). International Business (6th Edition). McGraw Hill Companies.How Has McDonald's Been So Successful for So Long? (accessed on June 22, 2015; http://www.franchisedirect.com/information/markettrendsfactsaboutfranchising/thesuccessofmcdonalds/8/1111/)Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy: Text and Cases. Pearson Education Limited, Essex, U.K.Global Strategy of McDonald and How it Reached all Corners of the World. https://www.academia.edu/6465022/Global_Strategy_of_McDonald_and_How_It_Reached_All_corners_of_World (accessed on June 24, 2015).

MBA: Strategic Marketing Management 2