Charles Pae Quyen Nguyen Jamie Rodman Alexander Perry BSBA 3800 February 2 !

200"

Executive Summary
The business began with two brothers. In 1937, Dick and Maurice McDonalds opened a small drive in restaurant east o! "asadena, #ali!ornia. The$ served hotdogs and shakes. This led to the creation o! a bigger drive in which operated success!ull$ and b$ 19%&, the brothers had a made a !ortune the$ never e'pected. The brothers reali(ed that hamburgers comprised o! &) percent o! their sales and closed their doors to re evaluate their business model. The same $ear, in 19%& the model was about a!!ordable dining !or !amil$ who wanted to eat out. The *+peed$ +ervice +$stem, was also implemented that included an assembl$ line o! sorts, a nine item menu, and an all male sta!!. The operations were proven success!ul in 19-. ad the !irst !ranchise was sold to /eil 0o' who opened a restaurant in "hoeni', 1ri(ona and created the well known golden arches o! McDonalds. 0o' had huge success with the store and the brothers were reluctant at !irst to begin a national !ranchise s$stem, but soon reali(ed that too man$ cop$cats were creeping up and the$ needed an advantage and a head start. 2a$ #roc 3oined the team as the e'clusive !ranchise agent in the 4nited +tates. +ome o! the problems and challenges !acing the compan$ is the increase in competition, poor management, bad marketing, and lack o! response to the changes in the needs o! !ranchises and customers. This resulted in the strategic issues that needed to be implemented to continue growing success !or the compan$. 5oing global is critical in the e'pansion o! McDonalds. 6ver the past couple o! decades, the ma3or chains have also begun to e'pand into the global marketplace and have opened !ranchises up around the world. McDonald7s currentl$ operates in over 1.) countries around the world with over 3),))) stores. In anal$(ing this compan$, the strengths, weaknesses, opportunities, and threats were inevitabl$ e'plored to better understand the current situation. This +86T anal$sis shows us that although there are numerous threats against the !ast !ood industr$, McDonald7s occupies a relativel$ strong position in the global marketplace. 1ccording to the !ive !orces model, the strongest competitive !orce is between rival sellers in the industr$. This +86T anal$sis shows the man$ strengths that Mc Donald7s emplo$s to keep itsel! at the top o! the !ast !ood industr$. 1lthough there are various weaknesses, these can all be turned around !ollowing the McDonald7s "lan to 8in, which was implemented with the hiring o! 9im #antalupo. :eeping in mind, the core competencies o! this compan$ is what makes it so success!ul toda$. 0or the past ten $ears, one o! McDonald7s ke$ success !actors has been its !ranchises, taking in appro'imatel$ ;) percent o! total sales. 1nother success !actor is the *"lan to 8in, strateg$. It is a plan that !ocuses on !ive ke$ drivers o! success< people, product, place, price, and promotion. The !irst !actor is McDonald7s people or emplo$ees. McDonald7s is striving to do a better 3ob o! sta!!ing during bus$ periods as not to overwhelm and to reward outstanding emplo$ees !or e'ception work. =ased on these !acts and anal$sis, we have come up with alternate strategies and have recommended the one that best !its McDonald7s current situation. The recommended strateg$ includes diversi!ication and maintaining customer service through >ualit$ training and people development. .

Vision/Mission/Objectives Strategic Issues, Problems and Challenges

In recent time McDonald7s has underper!ormed in comparison to previous $ear7s achievement. Its revenue growth has been in the decline and prior to 1pril .))3 store sales !all !or 1. straight months. It is no surprise that as a conse>uence McDonald7s reported a loss o! 3%3.& million dollars in !irst >uarter o! .))3. It is believed that this situation is a result o! several aspects that include an increase in competition, poor management, bad marketing and lack o! response to the changes in the needs o! !ranchises and customers.

Rising Issues-Customer Service 1s $ears have progress man$ issues have arisen !or McDonald7s but the greatest is probabl$ its poor customer service. 1 customer service inde' done in .))3 !ound that McDonald7s has the lowest the customer service ranking in the !ast !ood industr$ and is ranked even lower on customer service than the I2+. 6ne reason !or this is a high emplo$ee turnover rate. McDonald7s has the highest emplo$ee turnover rate among its competitors. 1nother contributing aspect to the poor customer service is slow service at the drive through window. McDonald7s currentl$ ranks !i!th in speed at the drive through window and 19th in accurac$. I! $ou compare its speed and accurac$ to its competitors and keep in mind that McDonald7s generates ;) percent o! its revenue !rom its drive through and assume it is losing one percent o! revenue !or ever$ si' seconds that its behind, than McDonald7s is loosing appro'imatel$ 97,))) dollars annuall$. 3

Opposing Viewpoints 8hile McDonald7s !eels positive about its newl$ implemented changes the critics are rather skeptical. It was stated that long term the$ believe that it will be tough to sustain growth and margin e'pansion. +peci!ic concerns include McDonald7s abilit$ to maintain it current level o! product innovation and competitors7 abilit$ to cop$ those ideas. The critics even went as !ar to >uestion i! McDonald7s recent improvement was more o! a re!lection o! the market and the dollar rather than its newl$ implemented strateg$. In response, McDonald7s o!!icials stated that the$ will need to deliver on their stated goal o! sustaining increases in sales and operating income. 0ollowing with the most signi!icant >uestion o! weather or not the new changes will su!!icientl$ provide McDonald7s with core competencies necessar$ to build a sustainable competitive advantage in the global !ast !ood industr$.

Health Factor 1ll !ast !ood hamburger chains, McDonald7s included, are !orced to respond to the shi!t in customer pre!erences !rom high calorie burger and !ries to healthier items such a deli sandwiches and baked potatoes. 1ll the chains are e'pected to be struggling !or several $ears to come to meet new consumer health e'pectations without compromising the original menu items.

Competition

6ne o! the ma3or issues !or McDonald7s is it competitors. =urger :ing is the second largest hamburger !ast !ood chain in the world and is the number one competitor !or McDonald7s. =urger :ing has 11,%)) locations in -& countries and derives -- percent o! its revenue !rom the drive through window. =urger :ing reported 1.7. billion in .)). in revenue which is a 17 percent increase compared to a % percent increase reported b$ McDonald7s over the same period. =urger :ing7s distinct assets include the uni>ue 8hopper with its one o! kind charbroiled taste and the compan$ polic$ o! preparing the hamburger an$ wa$ that the customer wants it. =urger :ing has distinguished itsel! over the $ears in man$ wa$s including being the !irst in the !ast !ood industr$ to enclose its patio seating in 19-7 thereb$ o!!ering customer indoor dining e'perience. =urger :ing also di!!erentiated itsel! when it installed the drive through window in its restaurants in 197-. In addition to the 8hopper =urger :ing also o!!ers a !ew set items on its break !ast menu that di!!ers it !rom it competitors including the #roissan7wiches and !rench toast sticks. The rest o! the menu also o!!ered the uni>ue veggie burger and chicken #aesar salad.

endy!s is the third largest !ast !ood chain with 9,))) stores in 33 countries
world wide. In .)). the$ reported ..73 billion in revenue which is up 1%.. percent !rom the previous $ear. 8end$7s o!!ers several uni>ue items including the -

0rost$s and +pic$ #hicken +andwiches as well as healthier items such as salads, baked potatoes and chili. 8end$7s has also distinguished itsel! through the creation o! the special value menu with all items on it under a one dollar. 8end$7s also owns several small companies including Tim ?orton7s and =a3a 0resh Me'ican 5rill. It plans on increasingl$ using ac>uisitions o! smaller brands to !urther growth. In ne't decade 8end$7s plans to add between . and % thousand new stores worldwide. 6ne important weakness o! 8end$7s is the lack o! easil$ recogni(able product compared to McDonald7s =ig Mac o! the =urger :ing 8hopper.

"ardee!s is the !ourth largest !ast !ood chain in the nation. It holds .,%))
locations in 3. states and 11 countries. In .)). it reported 1.& billion in sales. ?ardee7s greatest strength is in its break!ast menu which brings in 3- percent o! its revenue. ?ardee7s is currentl$ remodeling all o! its restaurants inside and out into +tar ?ardee7s and the menu is being e'panded to include several premium o!!erings such as the 1ngus bee! Thickburger which has been well received b$ hamburger eaters and the innovative +i' Dollar =urger. 1long with these ?ardee7s o!!ers a one third, hal! pound and three >uarter pound hamburger. These new items were implemented to demonstrate that it is >uite clear that at ?ardee7s it is thought that customers are willing to pa$ more !or >ualit$ and taste rather than cheap and poorl$ made burgers.

#ac$ in the %ox, another ma3or competitor in !ast !ood industr$, has o! 1,&-)
restaurants in 17 states. In the !iscal $ear .)). 9ack in the =o' reported revenue o! ... billion dollars, which is up %.7 percent !rom the previous $ear. 8hile McDonald7s and some o! the other competitors !ocus on a !amil$ concept, 9ack in the =o' gears its menu items toward adult consumers onl$. "art o! 9ack in the =o'7s menu includes its innovative items such as teri$aki chicken bowl and a chicken !a3ita pita. 1long with most o! its competitors 9ack in the =o' o!!ers a value menu, but the compan$ does not to engage in the price wars stating its intended reduction o! emphasis on dollar menus and instead has turned its e!!orts toward improving the >ualit$ o! it product as well as to initiate e!!orts to attract women and reduce its dependenc$ on $oung males which is a crowded market. @ike its competitors 9ack in the =o' believes that success in the !uture relies on broadening its product o!!erings in order to maintain the same level with the other !ast !ood chains and grocer$ stores.

Sonic $et another ma3or competitor owns .,7)) locations and reported in .))3,
..% billion in revenue which is ;.. percent increase. The$ also reported an increase o! net income b$ .) percent. Its uni>ue drive in restaurant business is the largest in 1merica and it broad menu and atmosphere along with oldies music attempt to emulate an era long past. +onic has specialt$ so!t drinks and !ro(en shakes and malts. 6ver the $ears +onic has tried to !ocus on it items that are !un and novel. +ince its !ounding the compan$ has e'perienced non stopped growth. In .))% +onic e'pects earning per share to rise 1; to 17 percent due to the

addition o! !ranchises. It also e'pects to open .)) new locations in .))% and its revenue is e'pected to grow between 1 3 percent.

Industry &nalysis

Market Size +ales !or the 4.+. consumer !ood service market totaled appro'imatel$ A%)& billion in .))3. The 1) largest chains in 1merica accounted !or about 1% percent o! these total sales according to 4.+. +$stemwide 0oodservice +ales. The consumer !ood service market is t$picall$ broken down into eight categories according to the t$pe o! !ood and the restaurant operations. The categories are as !ollowsB sandwich, pi((a, chicken, !amil$, grill bu!!et, dinner house, contract, and hotel. McDonald7s competes with other businesses !rom these other categories as substitute product competitors but primaril$ competes in the >uick service sandwich market. C'perts pro3ected that the sandwich segment was e'pected to grow b$ two percent annuall$ !or the $ears ahead.

5 Competitive Forces The >uick service sandwich industr$ !aces competitive pressures !rom a number o! !orces. The ma3or competitive threats originate !rom competing sellers in the industr$ as well as !irms in other industries that o!!er substitute products. McDonald7s main competitors within the >uick service sandwich industr$ are &

continuall$ deriving new strategies through o!!ensive and de!ensive tactics in order to gain customers and market share. In 19&9, 8end$7s implemented the 99 cent value menu as an o!!ensive strateg$ to gain customers looking !or a >ualit$ product at a value price. In response, McDonald7s and =urger :ing took a de!ensive approach and also instituted a value menu in their respective stores so that the$ wouldn7t lose market share and customers to 8end$7s. 0irms in the >uick service sandwich industr$ are constantl$ 3ocke$ing !or better market position through o!!ensive strategies and in response to these strategies, other !irms will take a de!ensive approach to guard against that o!!ensive move made b$ the rival !irm.

Su stitute !ro"ucts In addition to competition !rom rival sellers in the industr$, sandwich !irms also !ace intense competitive pressure !rom !irms in other industries selling substitute products. The substitute products !or the !ast !ood industr$ are probabl$ some o! the most diverse in the world. These substitute products ma$ include products purchased !rom the local grocer$ store, !ood !rom sit down restaurants, or deliver$ !oods such as pi((a. The primar$ issue with these substitute products is that the$ are readil$ available to the customer and the customer tends to view them as being comparable or better in terms o! the >ualit$ o! !ast !ood products. 1nother issue that !aces the !ast !ood industr$ is the availabilit$ o! products that cater to the health conscious li!est$le. The ma3orit$ o! the public tends to view !ast !ood restaurants as primaril$ serving !oods that are high in !at content and unhealth$ and as a result the$ are likel$ to look elsewhere !or a health$ 9

alternative. In response to the product o!!erings, bu$ers also e'ercise a great deal o! bargaining abilit$ through their purchasing power. 8hile !ast !ood products ma$ not alwa$s be associated with health and >ualit$, !ast !ood restaurants to possess a ma3or advantage over !irms selling substitute products through the price o! their products and the >uick, convenient service.

#ew $ntrants The threat o! potential new entrants and the bargaining power o! suppliers is not a signi!icant competitive !orce in the !ast !ood industr$. 6ccasionall$, new entrants will come along and compete with !irms in the !ast !ood industr$ and o!!er substitute products. ?owever, in order to compete on a large scale, it will re>uire a great deal o! capital to invest in real estate and build ph$sical restaurant locations. In addition, the market is alread$ so saturated that the new competitor might !ind it di!!icult to establish a customer base and become pro!itable. +uppliers in the !ast !ood industr$ do not have substantial bargaining power due to the !act that !irms in the !ast !ood business tend to purchase their materials !rom various outlets. 6ne compan$ might purchase their meat supplies !rom a couple di!!erent meat manu!acturers, then purchase their dair$ needs !rom a number o! di!!erent dair$ companies, and also purchase their baker$ products !rom a variet$ o! sources. +ince the !ast !ood !irms divide their purchases among a diverse arra$ o! suppliers, the suppliers tend to have little or no bargaining power or leverage since there are multiple suppliers !or the same products.

%riving Forces 1)

There are a number o! driving !orces which have molded the current state o! the !ast !ood industr$. In the beginning, !ast !ood companies t$picall$ !ocused on being the low cost provider and sought to e'pand into as man$ markets as possible. 1s these national brands have grown, the markets the$ are competing in have become overl$ saturated with restaurant options. 1s a result, the !ast !ood industr$ has begun to !ocus on the needs o! the customer. The bu$er has a great deal o! leveraging power due to the !act that i! the$ are dissatis!ied with one brand the$ can easil$ switch or purchase !rom an alternate brand with little or no monetar$ repercussions. The !ast !ood !irms have implemented strategies to improve the >ualit$ o! customer service and the cleanliness o! the restaurant locations in order to please their customers in hopes that the$ will become a repeat customer.

#ew Menu Items

0ast !ood restaurants have, !or the most part, alwa$s been related to an unhealth$ li!est$le. 1s a result, customers who are health conscious have tended to take their business elsewhere to restaurants that o!!er nutritious alternatives. In response to the health conscious li!est$le that people have adopted, the ma3orit$ o! the national chains have created new menu items to cater to this demographic. #ustomers are the main driving !orce behind the dail$ operations o! !ast !ood !irms. The$ are the reason that companies have attempted to upgrade the >ualit$

11

o! their customer service and their needs have lead to the creation o! new products to satis!$ their demands.

Strategic Moves 1 number o! competitors in the !ast !ood industr$ have e'panded be$ond their traditional o!!ering o! generating revenues !rom their !ast !ood restaurants. Ma3or chains such as McDonald7s have ac>uired smaller chains =oston Market, #hipotle Me'ican 5rill, and Donato7s "i((a. 8end$7s has also grown b$ ac>uiring smaller companies such as Tim ?orton7s and =a3a 0resh Me'ican 5rill. These ac>uisitions were e'ecuted in hopes o! generating revenue !rom multiple sources and also to help support the compan$7s growth over the long term. 6ver the past couple o! decades, the ma3or chains have also begun to e'pand into the global marketplace and have opened !ranchises up around the world. McDonald7s currentl$ operates in over 1.) countries around the world with over 3),))) stores. =urger :ing has 11,%)) stores in -& countries and 8end$7s operates 9,))) restaurants in 33 countries worldwide. These !ast !ood !irms have seen countries outside the 4.+. as markets that have an enormous growth potential. In order to cater to the di!!erent cultures, companies such as McDonald7s and =urger :ing have o!!ered menu items with a distinctivel$ local !lavor.

Strategic &roups The !ast !ood industr$ is primaril$ composed o! national chain brands. 1s a result, there are 3ust a couple o! strategic groups associated with the !ast !ood market. The ma3or national chain brands such as McDonald7s, =urger :ing, 1.

8end$7s, ?ardee7s, and 9ack in the =o' compete in markets throughout the 4nited +tates and around the world. Their strategies are !ocused on providing a product that is based on low price convenience. Their strategic group is associated with man$ geographic locations and low price and >ualit$. In competition with these large multinational !irms are local !ast !ood restaurants. @ocal !ast !ood restaurants !ocus on providing their customers with a >uick, cheap alternative to the national brands. These businesses o!!er a low price and low >ualit$ product in !ew localities.

Fast-Service 6ver the past couple o! $ears there has been a growing trend in the restaurant industr$ to provide customers with a higher >ualit$ product in a short amount o! time. These restaurants are t$picall$ re!erred to as *!ast casual, or *>ualit$ >uickservice., The$ aim to provide !reshl$ prepared, made to order meals. Their operations combine the speed and convenience o! traditional !ast !ood with the !ood >ualit$ and appealing dDcor o! casual dining restaurants. There are a number o! national chains that !all into this strategic group o! providing a high >ualit$ product in man$ geographic locations and there are also some businesses that !unction in a couple locations and provide a similar high >ualit$ product.

S'O( )nal*sis
13

This +86T anal$sis shows us that although there are numerous threats against the !ast !ood industr$, McDonald7s occupies a relativel$ strong position in the global marketplace. 1ccording to the !ive !orces model, the strongest competitive !orce is between rival sellers in the industr$. This +86T anal$sis shows the man$ strengths that Mc Donald7s emplo$s to keep itsel! at the top o! the !ast !ood industr$. 1lthough there are various weaknesses, these can all be turned around !ollowing the McDonald7s "lan to 8in, which was implemented with the hiring o! 9im #antalupo. 6bviousl$ all !ast !ood chains are going to have to combat the new consumer health e'pectations, but we !eel that under #antalupo7s leadership, McDonald7s has a strong enough consumer base to grow in the upcoming $ears. The !inancial anal$sis shows certain !laws in McDonald7s !inances, but these are largel$ due to the e'pansionar$ polic$ in place in the compan$.

Financial )nal*sis
McDonald7s has gone through a large turnaround period in the previous two $ears. This becomes ver$ apparent when looking at McDonald7s net income between the $ears 199& and .))3. /et income rose steadil$ between 199& and .))), then there was a drop o!! in .))1 o! over aA3)) million. Then in .))., net income plummeted over A7)) million. This was due mainl$ to slower growth in total revenues, and large increases in operating costs and e'penditures. McDonald7s showed a marked improvement in .))3, amassing A1.3.& billion in net income, up over A%)) million !rom the previous $ear. 1lthough this was a large gain, McDonald7s is still not over its !inancial and operating troubles, and

1%

needs strong per!ormance in the upcoming $ears to sta$ at the top in the !ast !ood industr$. McDonald7s bottom line in the !irst >uarter o! .))3 was A3.%.7 million. The dollar pro!it improved substantiall$ over the ne't two >uarters, netting A%7).9 in the second >uarter and A-%7.% in the third >uarter. 1s o! the end o! the .))3 !iscal $ear, McDonald7s has en3o$ed 11 months o! sustained sales gains, which bode well !or the !uture. 6ne mention o! note is that McDonald7s did take a Ebig bath7 in .)). and the !irst >uarter on .))3, amassing a 13- million dollar loss as a result o! accounting changes done to the books.

%u!ont )nal*sis 1 Du"ont 1nal$sis o! McDonald7s !inancial statements shows that McDonald7s is climbing out o! their !inancial troubles o! .))1 .))., $et need a continued e!!ort to reach their goals. The pro!it margin is low throughout McDonald7s income statements. In .))3, is .11. This means that !or ever$ dollar the$ sell, the$ are onl$ reaping 11 cents pro!it. This is an increase o! nearl$ ; cents on the dollar over .)). though, so this shows that the compan$ is doing a better 3ob o! keeping e'penditures down. 6ne reason McDonald7s pro!it margin is so low is that the$ are continuall$ e'panding, both domesticall$ and internationall$. The$ continue pouring mone$ made !rom sales into new !acilities and !ranchises. This severel$ depletes net income, and generall$ lowers the pro!it margin.

)sset (urnover Ratio 1-

The asset turnover ratio shows that McDonald7s is doing a poor 3ob producing sales !rom its assets. This would be a cause !or concern, but generall$ McDonald7s has alwa$s had a lower asset turnover ratio, even when the$ were operating at the pinnacle o! the industr$. The return on assets, or return on investment shows again that McDonald7s net income is low when compared to its level o! assets. 1s stated earlier, this is due in large part to the e'pansionar$ polic$ in place at McDonalds and in turn, the growing number o! assets. 6ne interesting point is the large amount o! cash that McDonald7s has begun to keep. =etween 199& and .))1, the cash on hand was around A%1- million, $et in the third >uarter o! .))3, the compan$ had A;%7.% million on hand. This is one reason wh$ the asset turnover ratio is slightl$ smaller in .))3 than other $ears.

Return on $+uit* The return on e>uit$ at McDonald7s is again, low. This represents the pro!itabilit$ o! !unds invested b$ the stockholders in the business. 1gain, much o! the reason !or McDonald7s low return on e>uit$ is due to the e'pansionar$ plans in the !uture and the !act that the$ are continuall$ looking !or wa$s to e'pand into !oreign markets. 1s stated, nearl$ 1)) percent o! pro!its !rom compan$ owned stores are re invested into new enterprises. The debt to e>uit$ ratio shows that McDonald7s has a large amount o! liabilities and debt, when compared to shareholders e>uit$. In .))3, debt was 1.1; higher than e>uit$. This is not generall$ a good sign, especiall$ i! McDonald7s plans to pa$ dividends and give back to shareholders in the near !uture. 1;

Current %e t Ratio

The current debt ratio at McDonald7s shows that current liabilities are higher than current assets. This is again, a bad sign, as the compan$ is not able to cover all o! its immediate debts and loans. I! creditors were to call in all debts, the compan$ would !ind it ver$ di!!icult to pa$. 1s such, McDonald7s has little li>uidit$.

The general impression we receive !rom McDonald7s !inancial situation is that the compan$ is slowl$ climbing out o! a low period and making a turnaround. This can be seen in the !inancial ratios between .)). and .))3. 1ll show a marked improvement, and attest to the changes taking place at McDonald7s. The Du"ont anal$sis shows ma3or weaknesses arising !rom McDonald7s level o! debt and relativel$ low net income. In order to sta$ a stable compan$, we !eel McDonald7s will have to lower its debt levels, and strive to keep costs to a minimum. 8e do reali(e that McDonald7s is continuall$ e'panding, and using all manner o! capital to increase its market share, $et i! McDonald7s were to !all into another hole, as it did in .))1 and .))., it would make it that much harder to make it out unscathed. F+ee 1ppendi' #G

Value Chain )nal*sis

17

The value chain at McDonald7s is ver$ competitive in the global !ast !ood industr$. The !ollowing table shows the costs and markups associated with McDonald7s signature hamburger, the =ig Mac, bought at a McDonald7s. The =ig Mac7s average price o! A..&) compares !avorabl$ to the various signature items at other !ast !ood retailers, such as =urger :ing and 8end$7s. The ro$alties are paid b$ !ranchisees back to the McDonald7s. F+ee 1ppendi' =G

,e* Success Factors

McDonald7s short term !inancial ob3ectives include cutting its capital e'penditures b$ %) percent, which will save appro'imatel$ 1.. billion dollars. McDonald7s will use the e'tra mone$ pa$ o!! debt and return some cash the shareholders b$ repurchasing shares and pa$ing out more dividends. It7s long term !inancial ob3ectives include annual sales growth o! 3 - percent with one to three percent o! this growth coming !rom e'isting stores and two percent coming !rom new stores. The$ also include an increase in operation income capital investments.

0or the past ten $ears one McDonald7s ke$ success !actors has been its !ranchises, taking in appro'imatel$ ;) percent o! total sales. McDonald7s own restaurants bring in less than 3) percent o! its sales but at the same time that mone$ comprises a !airl$ signi!icant portion o! total income because the compan$ keeps

1&

and applies 1)) percent o! those pro!its rather than 3ust a portion o! the !ranchises pro!its.

McDonald7s receives !unds !rom its !ranchises in two wa$s. There is monthl$ service !ee that varies but most recentl$ in .)). was % percent o! total monthl$ sales. 1nother manner in which McDonald7s receives !unds !rom its !ranchises is in rent mone$. McDonald7s owns all propert$ in which a McDonald7s outlet was built regardless i! the location is a !ranchise or compan$ owned. It is estimated that McDonald7s generates more mone$ !rom its rent than !rom its !ranchise !ees.

McDonald7s also markets e'cess land, propert$ and buildings on the web.

=etween rent and pro!its !rom land sales, McDonald7s real estate represents a signi!icant portion o! its overall compan$ value along with ventures in earning income will allow McDonald7s to continue to be success!ul and pro!itable in the !uture.

McDonald7s also has several restaurant a!!iliates that in the past $ears have been doing >uite well !or themselves. The list includes =oston Market, #hipotle Me'ican 5rill and Donato7s "i((a.

McDonald7s is currentl$ testing new wa$s o! raising revenue such as o!!ering retail merchandise !or sale in some stores.

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6ne o! McDonald7s ke$ success !actors has been its implantation o! its "lan to 8in. The plan !ocuses on !ive ke$ drivers o! success< people, product, place, price, and promotion. The !irst !actor is McDonald7s people or emplo$ees. McDonald7s is striving to do a better 3ob o! sta!!ing during bus$ periods as not to overwhelm and to reward outstanding emplo$ees !or e'ception work. It is also putting more emphasis on its hospitalit$ training to ensure a !riendlier and customer !ocused support sta!!.

The second !actor is the customer e'perience. In response to a changing taste pre!erence and growing interest in health$ !oods, McDonald7s introduced the Mc#hicken and Mc5riddles as well as o!!ering white meat !or the chicken Mc/uggets. In addition McDonald7s added several premium salads.

The third !actor was restaurant appears, putting much !ocus on cleanliness and modern environment. 1s a part o! this McDonald7s has installed wireless technolog$ and added co!!eehouses in some o! restaurants. These !ew carried premium co!!ee, mu!!ins, and pastries at low price to enhance adult appeal. In addition to this McDonald7s has gone as !ar to renovate, rebuild and even relocate some o! its buildings in order to create a !resh and !riendl$ !amil$ atmosphere.

The !ourth !actor was on price, putting much !ocus on productivit$ and value. McDonald7s has concentrated much e!!ort on products that appeal to price sensitive customers, thus it implantation o! the dollar menu.

.)

The !inal !actor was promotion and a continuing !ocus on building trust and brand lo$alt$. In its recent campaigns McDonald7s has advertised using the slogan *I7m lovin7 it, which it there attempt to make McDonald7s an eas$ choice !or !amilies. The$ have also started using popular or main stream music to attract an ever growing $outh population.

McDonald7s has chosen to enhance it !ocus on its core business and sell certain aspects such as Donato7s "i((eria. 1long with this McDonald7s has entered into a letter o! intent to e'it its domestic ventures activities with 0a(oli7s and discontinue development o! non McDonald7s brands outside the 4.+.

&lternate Strategies

Strategic !ossi ilities

1.

Stay'on'the'o((ensive strategy ) The main goal o! the sta$ on the o!!ensive strateg$ is to be a proactive market leader. The principle o! this strateg$ is to continuall$ sta$ one step ahead o! $our competitors and !orce them to pla$ catch up. McDonald7s is alread$ the industr$ leader in the !ast !ood industr$ with a market share o! 33 percent compared with the number two chain in the industr$, =urger :ing at 13 percent market share. The$ can sta$ out !ront b$ implementing technological improvements in their restaurants to enhance the production methods or to improve the ordering process o! the customer. In addition, the$ can .1

also introduce new or better product o!!erings to satis!$ the needs o! their customers. The best approach that McDonald7s can take through this strateg$ is to improve their customer service. McDonald7s customer service ranking was the lowest in the !ast !ood industr$ and was even lower than the Internal 2evenue +ervice. To improve upon this substandard attribute, McDonald7s should revamp their training process !or newl$ hired emplo$ees and introduce new educational modules !or currentl$ emplo$ed personnel.

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*orti(y'and'de(end strategy )The purpose o! this strateg$ is to make it harder !or challengers to gain ground and !or new !irms to enter. 1 !orti!$ and de!end strateg$ works well with !irms that have alread$ achieved industr$ dominance. +ince McDonald7s is alread$ the industr$ leader in the !ast !ood market, the$ can opt !or a number o! tactics using this strateg$ to maintain their industr$ position. The$ can continue their e'pansion tactics b$ continuing to open more stores around the world. This e'pansion would help de!end against and help to discourage smaller companies !rom increasing their market share. In addition, the$ can also elect to invest capital in 2HD to aid in developing new technologies !or their operations. These new technologies will help them remain cost competitive and technologicall$ progressive.

3.

+lobal strategy, McDonald7s alread$ holds a strong position in the global econom$. 6ur recommendation is that the$ decrease e'pansion in the almost saturated domestic markets, and continue their e'pansion in !oreign countries, such as 1sia, and the "aci!ic. #ompanies generall$ e'pand into !oreign ..

markets in an attempt to gain new customers and capitali(e on core competencies. McDonald7s core competenc$ is that the$ are able to produce and sell >uick and cheap !ood to a large number o! customers. 8ith this concept, the$ have been able to e'pand into other countries, and the$ currentl$ are the largest global !ast !ood chain in the world. +ince the$ alread$ hold this lucrative position, the$ should continue e'pansion in an e!!ort to drive out competition. 6ne strong recommendation would be !or McDonald7s to e'pand into emerging markets. +ince the$ !ocus on low priced !ood, it is likel$ that man$ could a!!ord their products, and there!ore, McDonald7s could e'pand into a stronger compan$.

%.

-iversi(ication, 6ne strateg$ that McDonald7s as well as man$ o! the other !ast !ood chains have embraced is that o! diversi!ication. 8e !eel that McDonald7s should continue this trend. 8ith the large health cra(e hitting the 4nited +tates, man$ restaurants have to change to healthier, higher >ualit$ menu items. The !ast !ood industr$ is no e'ception. ?ealthier burgers, low !at salads are all popping up on menus across the countr$. 8e !eel McDonald7s should continue its diversi!ication and incorporate more health$ !oods, including low carb burgers and !ries. I! McDonald7s is able to sta$ ahead o! the competition in this aspect, the$ will have a strong competitive advantage over such companies as 8end$7s and =urger :ing.

Recommen"e" Strateg*

.3

Stay'on'the'o((ensive strategy ) The main goal o! the sta$ on the o!!ensive strateg$ is to be a proactive market leader. The principle o! this strateg$ is to continuall$ sta$ one step ahead o! $our competitors and !orce them to pla$ catch up. McDonald7s is alread$ the industr$ leader in the !ast !ood industr$ with a market share o! 33 percent compared with the number two chain in the industr$, =urger :ing at 13 percent market share. The$ can sta$ out !ront b$ implementing technological improvements in their restaurants to enhance the production methods or to improve the ordering process o! the customer. In addition, the$ can also introduce new or better product o!!erings to satis!$ the needs o! their customers. The best approach that McDonald7s can take through this strateg$ is to improve their customer service. McDonald7s customer service ranking was the lowest in the !ast !ood industr$ and was even lower than the Internal 2evenue +ervice. To improve upon this substandard attribute, McDonald7s should revamp their training process !or newl$ hired emplo$ees and introduce new educational modules !or currentl$ emplo$ed personnel.

$-ecuting the strateg* an" control

McDonalds has needless to sa$ alread$ made a presence in the market and had made itsel! a household name. It is alread$ the largest hamburger chain in the world. There!ore, it needs to continue onward with its successes while being a head ever$ time with new product innovation, marketing schemes, technolog$ development, customer service, emplo$ee training. =$ improving the standards and raising the bar a little higher !or emplo$ee e'pectations will result in success .%

stories !rom stores world wide. The *"lan to 8in, strateg$ is important in the o!!ensive strateg$ because it is about being innovative and challenging to the competitors. It proves that McDonalds is not 3ust about pro!it onl$, the$ have made great leaps to show appreciation !or their emplo$ees. ?app$ emplo$ees will result in better per!ormance and give the reputation a whole new look on top o! its current one. 6ne o! McDonald7s ke$ success !actors has been its implantation o! its "lan to 8in. The plan !ocuses on !ive ke$ drivers o! success< people, product, place, price, and promotion. The !irst !actor is McDonald7s people or emplo$ees. McDonald7s is striving to do a better 3ob o! sta!!ing during bus$ periods as not to overwhelm and to reward outstanding emplo$ees !or e'ception work. It is also putting more emphasis on its hospitalit$ training to ensure a !riendlier and customer !ocused support sta!!.

Conclusion
McDonalds has seen man$ changes, good and bad during its creation and duration o! the business. 1s long as the core competencies are recogni(ed and never !orgotten, then this business will continue to thrive. 8ith ever$ issue and challenge the corporation !aces, it has the opportunit$ to improve itsel! and prove itsel! to the public, shareholders, and stakeholders. 8ith ever$ battle con>uered, another one rises and with a secure mission and vision in mind, the corporation should never stra$ too !ar !rom the roots and success o! the compan$. The recommended strateg$ will strengthen this plan because it is doing what McDonalds does best and more so. Despite the downturn the compan$ has seen, the general impression we receive !rom McDonald7s !inancial situation is that the compan$ is slowl$ climbing out o! a low period and making a turnaround. 8e .-

must never !orget the ke$ success !actors o! the business which reall$ makes the business !or what it is toda$, including !ranchises that o!!er >uick, e!!icient service in a clean !riendl$ environment.

&..endix & S'O( )nal*sis +trengths 8eaknesses 6wns one o! the world7s best #ustomer service ranking is the known brand names lowest among !ast !ood chains 2eal estate operations bring in large Man$ stores beginning to look revenues and allow McDonald7s to dated open more stores Iualit$ becoming inconsistent #ountless new innovations 6rder accurac$ is low compared to break!ast, pla$pens, etc. other chains +peciali(ed training !or managers ?amburger 4niversit$ 2einstitute the restaurant review operation FI+#G @arge market share +trongest international presence among !ast !ood chains +trong leader in 9im #antalupo McDonald7s does not need to act as !inance corporation to !ranchises McDonalds "lan to 8in !ocuses on people, products, place, price and promotion 6pportunities Threats Diversi!ication and ac>uisition o! Increased competition among rival other >uick service restaurants sellers, including price wars, product innovation, and growth @ow cost menu to attract di!!erent ?ealth conscious consumers customers demanding better >ualit$, healthier Initial public o!!erings in other menu items countries could raise revenues 1ll !ast !ood chains e'pected to 2etail merchandise potentiall$ used struggle to meet new consumer to raise revenues health e'pectations 6verall weaker econom$

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&..endix %
Value Chain Analysis McDonald's Production Costs McDonald's Overhead Costs Royalties 4% ervice !ee $otal Costs Retail Mar&u' )vera*e 'rice to Consu+er $ $ $ 0."# $ ".4% $ ".#( $ 0.65 0.70

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&..endix C Financial )nal*sis

1998 Current )ssets Current Debt Ratio= Current ,ia-ilities /et 0or&in* Ca'ital $otal )ssets /et 2nco+e Return on Equity= )vera*e toc&holders' 34uity /et 2nco+e Profit argin= ales /et 2nco+e 0."(47. # 0.057.64 0."0.%5( 0."6((% ( 0.0%46#4 0."(#05" 0.5(4#6 % 0.70%"7 0.7(7%(. 2002 2003

Net Working Capital Ratio=

10.0600#

10.0(.4.

10.0(%7#

.7

Earning! Per "#are=

hares Outstandin* ales

"."#5#5 5

0.70"4#7

".0%7(.%

$!!et! %urno&er Ratio=

)vera*e $otal )ssets $otal ,ia-ilities

0.60.#7 6

0.6#6%6.

0.5070"4

Debt to Equity Ratio=

$otal toc&holder's 34uity /et 2nco+e

".0.0## 6

".##"557

"."66(77

Return on $!!et!=

)vera*e $otal )ssets

0.07604 6

0.0#6."6

0.0556.7

.&