McDonalds Analysis

Professor: Chris Miller

Due date: May 20, 2013

Team members Keuka ID
Nguyen Bang Nhat 435390
Pham Phuoc Linh 435394
Doan Thi Thai Hang 435364
Nguyen Tuan Hung 435386

McDonalds

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Table of Contents
I. Summary ................................................................................................................................... 2
II. External environment analysis.................................................................................................. 3
1. Porter 5-forces model of the fast food industry. ................................................................... 3
A. The intensity of rivalry among competitors in an industry ............................................... 3
B. Threat of new entrants ....................................................................................................... 3
C. Threat of substitutes .......................................................................................................... 3
D. The bargaining power of buyers........................................................................................ 4
E. The bargaining power of suppliers .................................................................................... 4
2. Key factors in the general environment that have a significant impact on the fast food
industry ......................................................................................................................................... 5
A. Demographic segment ....................................................................................................... 5
B. Socio-cultural segment ...................................................................................................... 5
C. Economic segment ............................................................................................................ 5
D. Global issues segment ....................................................................................................... 6
III. Internal environment analysis ............................................................................................... 6
1. Tangible Resources ............................................................................................................... 6
A. Financial resources ............................................................................................................ 6
B. Physical resources ............................................................................................................. 7
C. Technological resource ..................................................................................................... 7
2. Intangible resources .............................................................................................................. 7
A. Organization ...................................................................................................................... 7
B. Human resources ............................................................................................................... 8
C. Innovation and creativity ................................................................................................... 8
D. Reputation ......................................................................................................................... 9
3. Organization capabilities ...................................................................................................... 9
IV. Differentiation Strategy ........................................................................................................ 9
V. Conclusion .............................................................................................................................. 11
Works Cited ................................................................................................................................... 12

McDonalds

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I. Summary
McDonalds is known for being a fast food restaurant since it was founded more than
50 years ago. At the beginning, McDonalds had only a single outlet in remote Chicago
suburb. However, the firm had the outstanding development and become a leader in the fast
food industry with more than 30,000 stores worldwide in 119 countries that served for over
50 million people each day. Although McDonalds had market dominance, but the intensity
of rivalry among competitors is more and more strong in this industry. Therefore,
McDonald should concern about both external and internal environment that affects to fast-
food industry to find the solutions to deal with those problems and all of them are outlined
below.

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II. External environment analysis
1. Porter 5-forces model of the fast food industry.
A. The intensity of rivalry among competitors in an industry
The fast food industry is highly dynamic and competitive, thus, McDonalds had
numerous companies to compete in price and quality services with including: Burger King,
Wendys, In and Out, Taco Bell, and Jack in the Box. In our opinion, to gain and maintain
completive advantages in that industry, McDonalds should focus on creating new and
unique brand products such as Chicken Selects, Newmans Own a well-known higher
end brand as well as products created to suit the taste of each customer in different ages
and locations, which make McDonalds different from their rivals. To sum up, McDonalds
should build a menu that has not only distinct product but also affordable price to compete
with other existed companies in that industry.
B. Threat of new entrants
According fast-food facts from Supersize Me website, on average, there is one-fifth
of the population of the USA (45 million people) eat in a fast-food restaurant each day
(Vivavegie). Therefore, fast-food is potential market, there are so many companies want to
participate in this market. However, it is not easy for new fast food restaurants to enter the
industry because they must be faced with high entry barriers from existed big companies as
McDonalds. McDonalds controlled this market for a long time and owned 30,000 outlets
around the world. In addition, it is continuously expanding its outlets through franchising
that makes new business which enters that industry may spend a lot of time to create its
own brand recognition to compete with McDonalds. Therefore, the threat of new industry
entrants for McDonalds and fast-food industry is negligible.
C. Threat of substitutes
From our points of view, the threat of substitute products or services is very high in
the fast-food industry because of growth of convenience food. Many food stores provide
other options for customers like sushi and burritos. Besides that, there is competition that
has been coming from quick meals of all sorts that can be found in supermarkets,
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convenience stores, and even vending machine. Nevertheless, if McDonald provides not
only diversified but also good for health in its menu, it would have an opportunity to
expand market and increase sales. For example, McDonalds would get a lot of value from
providing alternative products on its affordable Dollar Menu When people are seeking
value, these guys have a very powerful component (Jarmal Shamsie, 2009).
D. The bargaining power of buyers
The buyers have more power over buying McDonalds products because customer
tastes have great influence on what company sells. Therefore, to keep and gain new
customers, the company must pay attention to the demands of consumers. After the
documentary Supersize Me, made by Morgan Spurlock, there is increasingly becoming
concern about the food harmed their health. Therefore, McDonalds also provided more
offerings that is being healthier as Chicken Selects with white meat, Newmans Own salad
with premium ingredients and Apple Dippers with apple slices instead of French fries.
Additionally, according to Supersize Me program, McDonald's and its products as well as
one of the causes of obesity in the USA. As the result, to avoid lawsuits from some of its
loyalty customers, McDonalds started to provide nutrition information on the packaging of
its products and remove the artery-clogging trans-fatty acids from its French fries.
Furthermore, McDonalds supplied new beverages such as lattes, cappuccinos, ice-blended
frappes, and fruit-based smoothies that are good for health to its customers.
E. The bargaining power of suppliers
The bargaining power of suppliers is one of important aspect that helps McDonalds
ensure its position in fast-food industry. McDonalds should keep good relations with key
firms like Coca Cola, Minute Maid, Heinz, Newmans Own and also develop the
relationships with new suppliers that aimed to diversify its products and customers. For
example, if McDonalds tried to add fruit and vegetable on its servings, it would increase
the firms operating cost because the nature of fruit and vegetable is perishable so it rather
expensive. Hence, it would need vegetable suppliers as from farms or intermediate
suppliers.
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2. Key factors in the general environment that have a significant impact on the
fast food industry
A. Demographic segment
According to the United States Census Bureau, the percentage of people are less
than 18 and over 65 years were 27.3 percent and 12.8 percent respectively in 2009 and
more than half of population was people in the age range from 18 to 65. Therefore,
McDonalds should target young adults, teenagers, children and families and take different
forms in order to satisfy the demand of customer. Moreover, the majority of the U.S.
population was White (72.4 percent in 2010) and accounted for 17.6 percent were Black
and other races (Wikipedia/Demographics of the United States). Thus, McDonald should
target on the majority of population, but also provide options for serving foods and drinks
suitable for the tastes of minority group.
B. Socio-cultural segment
Nowadays, the life is more and more busy and hurried so people concern about
convenient and quickly products; fast-food is best solution for them. However, people also
have greater concern for fitness and health. They aware that have the high fat content of
most of the products offered by fast-food restaurants and want more healthy options from
McDonald's. Hence, they also should introduce more healthy products by adding fruits and
vegetable on its servings and removing the artery-clogging trans-fatty acids from the oil
that is uses to make French fries. In addition, the firm also should provide nutrition
information that included calories, fat, protein, carbohydrates and sodium on the packaging
of its products to tell customers about what is in their food and then, they can choose
suitable products for themselves.
C. Economic segment
In the last half decade, the trend of global economy is slowdown; it creates a
numerous economic crises in many fields. It can lead to high rate of unemployment, thus,
consumers have to cut down their spending. This change which have greatly influenced the
purchasing power of customers and profit creation of fast-food companies. At that time,
McDonald has been setting up plan to increase sales by improving menu, redecorating the
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outlets and extending hours. And Skinner has been controlling both of prices of menu and
the firms profit margins. As the result, during 3 years from 2006 to 2008, the revenue of
McDonald increased dramatically from 21 to 23 billion dollar.
D. Global issues segment
Globalization creates both opportunities and challenges for fast-food industry.
Globalization helps fast-food companies reach larger potential markets and source or
supply from which benefit is produced. Thereby, fast-food companies can sell more goods,
make more profit and make more jobs. However, when it enters foreign market, it will face
with competition of local competitors and different regulations, tariffs, and policies from
local government; thus, they must clearly understand the market to ensure that their
products suit the taste and culture of local people. Additionally, globalization causes
unemployment in United States because fast-food firms move their factories to places
where they can get cheaper workers and it is a risk for the growth of economy.
III. Internal environment analysis
1. Tangible Resources
A. Financial resources
According to balance sheet, there is a gradually decrease in the cash and cash
equivalents from 2006 to 2007 and then increased slightly to $ 2,063,400,000 in 2008. In
addition, McDonalds sales have increased sharply from 21,586,400 to 23,522,400
thousand dollars between 2006 and 2008 (Jarmal Shamsie, 2009). Although the trend of
global economy is slowdown and consumers cut down their spending, but McDonald's
sales still growing because the core of its Plan to Win strategy was increase sales at
existing locations by improving the menu, refurbishing the outlets and extending hours.
On the other hand, although the trend of equity ratio is obviously downward from
0.53 to 0.47 between 2006 and 2008 but it still produce good results for stockholders, as
long as the company earns a rate of return on assets that is greater than the interest rate paid
to creditors. From our points of view, McDonalds had a healthy financial situation (Money
Zine).
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B. Physical resources
The total number of McDonalds outlets increased slightly from 30,496 in 2004 to
31,967 in 2008. Among them, the owned outlets of company experienced a decline sharply
from 8179 in 2004 to 6502 in 2008. And the franchised outlets rose dramatically from
22,317 to 25,465 during 5 years. More than 75 percent of its outlets are now in the hands
of franchisees and other affiliates (Jarmal Shamsie, 2009). Thereby, McDonalds can save
money and reduce the risk of investment when it expands the chain of restaurant in the
world. However, it can build its brand recognition in the world and also raise its profit from
the royalties of selling off the outlets that it owned.
On the other hand, the turnaround strategy of McDonalds is also focused on the
company owned outlets. McDonalds tried to refurbish or reimage the decoration of all its
outlets around the world that aimed to attract customer. The interiors can feature armchairs
and sofa, modern lighting, large television screens, and even wireless internet access. The
firm is also developing new features for its drive through customers that include music
aimed at queuing vehicles and a wall of windows on the drive-through side of the
restaurant (Jarmal Shamsie, 2009).
C. Technological resource
One of the parts of innovation strategy of McDonalds is developed a touch-activated
screen that is very convenient and comfortable for customers. It allows customers to punch
in orders without queuing. In addition, McDonalds also developing new features for its
drive through customers that include music aimed at queuing vehicles and a wall of
windows on the drive-through side of the restaurant that allows customers to have a look at
their meals being prepared right from their cars windows. Inside of restaurant,
McDonalds also provides the wireless Internet access that creates a comfortable space for
customers.
2. Intangible resources
A. Organization
McDonald choose one of common operating structures that is functional structure
which is headed by CEO and the boards of directions and divided into separate units based
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on role, such as accounting, marketing, research and development or distribution networks.
The organization structure of McDonalds helps enhance coordination and control and
make decisions easily.
McDonald had over 30,000 outlets already operating around the world of which over
25,000 are franchises that serves from 56 million to 58 million a day. Each of franchise is
like a subsidiary that also had a general manager who will manage and guide employees.
Employees are delegated to suitable tasks and responsibilities. The organization structure
of McDonalds helps company take advantage managerial and technical talent efficiently.
However, it may lead to short-term thinking, managers should enhance atmosphere of
corporation and teamwork to foster employees performance.
B. Human resources
McDonalds has provided thousands of jobs for American population. By the end of
the decade, the chain ran into more problems because of the tighter labor market.
McDonalds began to cut back on training as it struggled hard to find new recruits, a policy
that led to a dramatic falloff in the skills of its employees. Therefore, McDonalds should
invest more money on training employees to provide necessary skills for employees. For
example, after the consumer surveys at the beginning of 2003, McDonald face with
deteriorating performance, McDonalds franchisees and employees needed to be inspired
as well as retrained in their role of putting the smile back into the McDonalds experience.
C. Innovation and creativity
The innovation of products is one of the top concerns of McDonald's. To make profit
and attract customers, McDonald tried to provide many healthier products that dont have
trans-fatty acids in the oil that is used to make French fries. In addition, McDonalds
provide McGriddles breakfast sandwich that consisted of a couple of syrup-drenched
pancakes or a sandwich filled with eggs, cheese, sausage, and bacon in three different
combinations. Besides that, McDonald introduces new beverages as lattes, cappuccinos,
iced-blended frappes, and fruit-based smoothies to its customers. On the other hand,
McDonalds upgrade its technological equipment in its outlets as touch-activated screen
that allows customers to punch in orders without queuing. It will bring a convenient and
comfortable space for customers.
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D. Reputation
McDonalds is known for being a fast food restaurant since it was founded more than
50 years ago. It rose from a single outlet in a nondescript Chicago suburb to one of the
largest chain of outlets spread around the globe.
To improve the reputation with customers, McDonalds should improve the quality
of food and introduce healthier foods to satisfy the demands of customers. For instance,
McDonald should provide fresh and high-quality ingredient to make products suitable for
the tastes of customers.
Moreover, McDonalds should focus on fast and friendly service that can build the
good image of company for customer. For example, McDonalds should train employees
and refurbish outlets to make relevant to customers. When customers want to eat fast-food,
they will enter McDonalds restaurant.
3. Organization capabilities
Organizational capability of McDonalds is to combine tangible and intangible
resources to operate business efficiently. With financial stability, human resources and
management skills, McDonald can maintain and develop its values and satisfy the
expectation of customers. McDonalds focused on quality of leaders, and then it trains
them to improve their skills. Based on that, it can build a good management model that
helps companies exploit managerial and technical talent efficiently. Hence, McDonald will
gain and maintain their core competencies to compete with the intensity of rivalry among
competitions in fast-food industry.
Furthermore, to achieve the goals, company should pay attention to the change of
demographic and technology. If McDonalds understands the market, it will ensure their
products suit the taste and culture of local people. Based on it, McDonald gain and
maintain its competitive advantages.
IV. Differentiation Strategy
At the beginning, McDonald chose the low-cost strategy to serve customer, so they
can easily gain a competitive advantages. However, when the fast-food industry grows,
there are so many companies participate in this market and they imitated McDonalds
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strategy. McDonalds owned Dollar Menu with the lowest cost ($1), but other companies
started to provide low-cost menu as Burger King ($1.39) and Wendy ($0.99)
(Wikipedia.org /Value menu). Therefore, low-cost strategy is not efficient solution in the
future. To maintain the leader position in fast-food industry, McDonalds should create the
differentiation strategy. McDonalds decide to base on nutrition food, technology, quality
of outlet and management style to gain their differentiation strategy.
Nowadays, according to National Master Statistic recently, obesity is becoming a
global epidemic and the highest number of people suffered obesity is the United State (30.6
percent) (Nationmaster). After the Supersize Me documentary, McDonald's and its
products as well as one of the causes of obesity in the US, thus, McDonald's has made
changes in accordance with the customer's health. For instance, McDonald tried to add fruit
and vegetable in servings of customers.
Technology is one of the most important factors especially in fast-food industry like
McDonalds. So McDonald should use modern technology to help customers access to
products and services effectively. For example, McDonalds developed a touch-activated
screen and focused on drive-through customers that help customers order products
conveniently and quickly.
Moreover, instead of increase the num of outlet, McDonalds also focused on the
quality of their outlet such as employees attitude, decoration. Additionally, location also is
one of the most important factors to improve McDonalds quality of outlets because
choosing the best location will helps customers save time when moving. On the other hand,
McDonald had McCafe with many new beverage highlighted by new coffee-based drinks
that helps customers conveniently if they want to beverage and delicious meal.
In the fast-food industry, attitude and skill of the staff that helps companies gain and
maintain the loyalty customers. Thus, McDonalds always focus on training employee to
know how to serve and satisfy their customers fast and friendly.


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V. Conclusion
Both of internal and external environment factors play important roles in the
existence and development of company. Although McDonalds had market dominance, but
McDonald should learn and understand those factors. Therefore, while maintaining the
suitable price of product, McDonald should focus on other factors, namely product/food,
modern equipment/facility and management style. This can helps McDonalds expand its
brand recognition and dislodge other competitors from the fast-food industry

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Works Cited
Jarmal Shamsie, A. b. (2009). McDonald's. Michigan State University.
Viewed on May 16,2013, from
<http://www.vivavegie.org/101book/text/nolink/social/supersizeme.htm>
Viewed on May 16,2013, from
<http://en.wikipedia.org/wiki/Demographics_of_the_United_States>
Viewed on May 16,2013, from
<http://www.money-zine.com/definitions/investing-dictionary/equity-ratio/>
Viewed on May 16,2013, from <http://en.wikipedia.org/wiki/Value_menu>
Viewed on May 16,2013, from <http://www.nationmaster.com/graph/hea_obe-health-obesity>