Key challenges McDonald’s faced were associated with the sales growth dropping by 1.8 percent and the 2012 annual system-wide sales growth barely meeting the 3% goal. While stock prices remained high, the company was not successful in convincing customers to be more active with their purchasing, which significantly harmed McDonald’s free cash flows. Along with this, the decline in the global economy also had negative implications for domestic and foreign sales (Whipp, 2016) due to the dollar’s strength making the company’s trademark products even more expensive. Moreover, the threat of competition from quick-service chains such as Burger King and semi-upscale restaurants such as Chipotle posed a significant challenge for McDonald’s.
To evaluate the company’s external environment, Porter’s Five Forces Analysis was conducted to show the intensity of effects the external factors have on McDonald’s. A weak force is associated with the bargaining power of suppliers while moderate force comes from threats from new entrants (Gregory, 2017). However, the strongest intensity of the external factors’ effects is associated with competitive rivalry, the threat of substitutes, and the bargaining power of customers (Gregory, 2017).
McDonald’s remains the world’s largest chain of fast-food restaurants that serve up to 50 million customers a day and employ more than 1.5 million workers (Chowdhury, n.d.). The company continues to adapt cultural tastes, lifestyles, and value systems to the products it offers to customers around the world. Furthermore, close relationships with valuable suppliers and distributors allowed McDonald’s to achieve consistent quality and product taste across the globe, which is a significant advantage (Chowdhury, n.d.). The company manages to maintain its stock prices relatively high and uses economies of scale to reduce its costs (“McDonald’s SWOT analysis,” 2010). Among the positive internal factors, McDonald’s developed an efficient food preparation and serving system for which customers return to the company’s restaurants.
Key Industry Success Factors
Key industry success factors of the fast-food industry in which McDonald’s operate are differentiated into four categories: branding, location, speed, and efficiency. About branding, McDonald’s leads the industry with its logo being the most recognizable across the globe. Locating fast-food restaurants in high-traffic areas is a significant success contributor, while the speed with which customers are served is what makes customers come back every time. Lastly, functioning efficiency is necessary for companies to minimize the waste of food, benefit from scale economies when buying supplies, and hire employees at a minimum wage (Xaxx, n.d.).
McDonald’s Business strategy is defined as the “three-legged stool” (Nielson, 2013, para. 4) in which “the power of franchisees, suppliers, and employees are working together toward a common goal” (McDonald’s, 2017, para. 1). The alignment of employees, suppliers, franchisees, and the company sometimes allowed McDonald’s to identify and develop innovative ideas to cater to the customers’ needs. Nevertheless, the implemented strategy has been unsuccessful in managing relationships with workers who were demanding the increase in wages, even though the company identified its employees as being key contributors to success. The company adopted a Market Development strategy to expand into the economies that are on the rise, especially in the Asian region (“Corporate strategy,” 2014). Franchising is a component of the expansion strategy that contributes to a total of $7,437 million of franchised margins and a total of 83.0% percent of revenues (Nielson, 2013). Overall, the company’s combination of franchised and owned restaurants has been proven to be profitable for McDonald’s investors; however, when granting licenses or franchises, the company is very selective (Nielson, 2013).
With regards to options the company can take to address the challenges, the key strategy is standing out from its competitors and following the latest trends that prevail in the modern food industry. Having more vegetarian options for customers that do not eat meat or fish will set McDonald’s apart from rival fast-food chain restaurants. It can also be recommended to reduce the menus in all restaurants to cut serving times and minimize costs. Moreover, the implementation of the turnaround strategy announced by the company’s CEO has tremendous potential in improving the lackluster performance and reset the business, as mentioned by Peterson (2015). Because McDonald’s has been dealing with inefficiency and lack of clear accountability, the company needs to start focusing on the needs of its customers and raise wages for employees that have been unsatisfied with their income.
As already mentioned, the recent development in the company’s external operation is associated with the adoption of the turnaround strategy that will encourage the company to deliver “great-tasting, high-quality food with better service” (Peterson, 2015, para. 7). On the internal level, McDonald’s united its efforts to adopt a stronger financial discipline, a faster process of decision-making, and enhanced accountability (Peterson, 2015). However, McDonald’s franchisees have so far been unimpressed by the implemented changes, stating that the system was broken and that there was no respect for key investors. This resulted in many investors selling their shares and trying to look for other options that could be more profitable in the long run.
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Peterson, H. (2015). McDonald’s CEO reveals his massive plan to save the business. Web.
Whipp, L. (2016). McDonald’s steps up expansion in Asia. Web.
Xaxx, J. (n.d.). Key elements of success fast food industry. Web.