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McDonald’s Corporation: Management Consultancy Report

It is recommended that McDonald Corporation accept the Study Report of Strategic Analysis for itself prepared by Mr. XXX on dated April 17, 2009, and direct staff to begin the implementation process described herein, using the Report as a basis and the comments provided by the Marketing Director or his Board of Directors on this report.

Executive Summary

McDonald Corporation is the world’s largest fast-food retailer in the USA with a large overseas operation. Besides the domestic market, the company would like to drive for expansion of the China Market in the current fiscal year. Due to the complexity of international marketing, global financial crisis, the firm is thinking to have some imperial studies to overcome risk exposure. Marketing in a new country is much more difficult and challenging than starting a business in a new country. International marketing management implies the idea that introducing, packaging, placing, communicating, and promoting a product in a location or a country out of the boundary of the home.

The USA is a country with a large number of people interested to depend on the fast-food chain. The country has a broader gathering of tourists and has a greater fast-food retailing opportunity. Due to China has a large population and, China has a rising economy the market for fast-food chains has been expanded. On the other hand, there are both US and European fast food retailers are working for a long time. These market factors have been taken into account to prepare this report with consideration of required past data. To prepare the report this paper has been enlightened on Country and Market Analysis, Marketing Strategies & plans, Market Mixing, environmental Scanning, SWOT analysis, Positioning, Product Strategy, Pricing Strategies, segmentation, and Brand Equity.

Introduction

Golodryga, B. et al (2008) added that Americans are the hunger for fast food and 25% of the American residents eat fast food everyday where fast food chains append 35 million pounds of protein and the market volume is US $120 billion per annum. McDonald is the pioneer of fast food in the market along with major competitors like Burger King, KFC, Pizza Hut and Wendy’s. McDonald is in operation with 800 outlets in USA and planning to introduce more 150 outlets in China by the year 2009. The management of McDonald is very eager to preserve 15 % per annum growth rate annual growth.

The Current Position of McDonald’s

McDonald’s Corporation has been established in 1940 in USA, but nowadays it is served their products all over the world. It has more than 1.6 million employees to provide consumer service and it has about 200 high potential employees who trained the other employees to build future leader. In 2008, many companies had collapsed for global financial crisis but still McDonald’s holds strong position in food market. In 2003, its total revenue was only $16,154m but now it is increased $ 7368m that is in 2008, its total revenue was $23,522m. In 2008, its net income, total debts, operating profit and total assets have also increased; therefore, it has declared dividends about $1.63m for shareholders. The total assets of McDonald’s always in stable position for example in 2007, its total assets were $29,392m and in 2008, it was $28,462. McDonald’s corporation has earned a huge amount of money from their Franchise and it profits is gradually increasing for example in 2008 franchised sales were $54,132m, in 2007 it were $46,943m and in 2006 it were $41,380m.

Net income of McDonald's

SWOT analysis of McDonald’s Corporation

McDonald’s current strength, weakness, threats and opportunities has been considered in the following table

Strengths Weakness
  • McDonald’s has excellent brand awareness and quality image, which helps to increase its profit day by day.
  • It has a large popularity for their superior customer service
  • McDonald’s consider the customer’s health condition’ therefore it provides safe and healthy foods,
  • It has maintained well trained chefs and dealers,
  • They produce bread and other foods from selected wheat and flour,
  • It has select high traffic zone for distribution their products,
  • It provides territory assurance for franchisee from the beginning of the franchises.
  • Besides regular customer, new customer is also important to develop company’s market segments. In order to attract and retain new customers McDonald’s use videogames and online face book.
  • It has advanced technological support as well as administrative control,
  • Moreover, it has strong financial condition to further expansion and to save the company from recession.
  • It spend comparatively larger budget for advertisement and promotional actions,
  • It should increase the number of distribution channel to get more benefits from their business.
  • In the US market, Companies such as product of Star-Burks had built strong position in market.
Threats Opportunity
  • Total shareholders’ equity is reducing in stock market;
  • Competitors are the main threats for McDonald’s,
  • Strategies and implementation plans of the rivals franchise food companies is one of the most important factor for McDonald’s;
  • In 2009, Global Financial Crisis may reduce its sales dramatically as now people are busy to meet the necessity rather than luxury,
  • Customer demand is changing and they are now health conscious.
  • McDonald’s always provides quality foods to their customer; as a result, rising demand for equipped foods is its main opportunities,
  • Increasing consumers who have a great interest on their products,
  • Competitors are suffer from lack of technological experience or support than McDonalds,
  • From the financial report, it can be said that franchise operation is rising which help to expand its business rapidly.

Challenge of McDonald’s

Harvard Business Review (2009) argued that the retailing has a great challenge during the recession. The exaggerated home values seriously impact on the customers. During the recession the interest rate turns to zero and credits are available for free of cost. The raising unprecedented levels seriously decrease the consumer’s spending. The retailers have to have face challenges by responding uncompromisingly accumulating new outlets, introducing new concepts, driving to the international market and organizing online presence retaliates could take the challenges. As a retailer McDonald has to drive in the market with such challenges.

Golodryga, B. et al (2008) pointed out that the fast food industries are acknowledged as dead set against recession, but the present U.S. recessionary economy has sink it’s teeth into the profits of world’s prevalent restaurant chain like McDonald. McDonald’s proclaimed that its sales were downturn in December 2008 due to some of its supply chains are facing worst monthly returns among the last five years and if the situation continue any more then there is doubt to say that the biggest fast food has been impacted by recession. McDonald has also argued that elevated food prices, reduced speed of customer expenditure coupled with the downturn of housing market that resulted lower sales.

Gehmlich, K (2008) mentioned that McDonald has been overcome the punch of credit crush. Quoting the Chief Executive of McDonald Skinner, J, he also added that the company has noteworthy growth at the second quarter of 2008 particularly in Europe. The fast food chain possibly would gain an enhanced situation with no serious impact of global financial crisis as well as considerable increase in food prices and McDonald has been positioned strong against recession. Under recessionary economy people consider more than twice before spending their money about the justification of expenditure. Within this reality the U.S. consumers have stopover smaller number of restaurants when McDonald’s gain is 7% and out of the estimation of Wall Street.

Kelly, Brad (2009) reported that McDonald has gained a profit higher tan its expectation. In January 2009 McDonald announced the earnings of fourth quarter of 2008 which accounted earning per share is 87 cents and resulted as growth of 19% though under the present recessionary economy the customer self-reliance is in lower of all time, the unemployment rate hits at 7.2%. It was really significant even though the overall revenue fall 3%, which is amounted $5.57 billion.

Strategic Analysis for McDonald’s Corporation

Thompson, A. et al (2007), argued that strategic options are coordinated and interrelated set of proceedings that has been designed for exploiting the core capacities and competencies for achieving the competitive advantage. Therefore, according to the standard model, McDonald’s generate numerous strategic options by some systematic phases from business- level to co- operative strategy, which has shown in the following diagram.

Primary phases of formulating strategy.
Figure 4: Primary phases of formulating strategy.

Thus, a number of strategies at this level are as-

Business- level strategy

McDonald’s Corporation can generate this type of strategy by using Porter’s generic strategy as below-

Porter’s generic strategy for McDonald’s Corporation.
Figure 5: Porter’s generic strategy for McDonald’s Corporation.

If it follows the cost leadership strategy, McDonald’s will be able to provide coffee beverages at the lowest costs in relation to other competitors’ like- Starbucks, KFC, and Pizza Hut etc. on the other hand, if it follow the differentiation strategy, McDonald’s can deliver unique attributes and features to the target customers. Here, McDonald’s can offer the finest whole bean coffees, quality green coffees and other items as unique in nature as well as better as other competitors. The formulation of differentiation strategy can be shown as following-

Differentiation strategy of McDonald’s.
Figure 6: Differentiation strategy of McDonald’s.

Competitive dynamics

At this stage, McDonald’s can attempt to create competitive dynamics that comes from a series of competitive actions and responses among the competitors within the ready- to- drink beverage industry which may be affected by a number of reasons, like- similarity of resources, relative size of the company, innovation, quality and so on.

Corporate- level strategy

This strategy is important to decide the structure of the company and this concept focuses on diversification that involves the Mcdonald’s retail segment offers the diversified sales mix of items for the year 2007 as-

  • Beverages 55%
  • Food 30%
  • Others 15%

International strategy

Since McDonalds is operating and distributing services over 30,000 stores and 150 satellite restaurants in 100 countries, to become a successful player in the international market it should consider the following factors-

  • Issues of production,
  • Demand condition.
  • Connected and supporting industries.
  • Its strategy, structure and rivalry.

Co-operative strategies

In the light of the existing plans and situations, McDonald’s can develop various types of co-operative strategies as following-

  • Through composition of strategic alliances, McDonald’s can combine the resources, capabilities and core competencies with other firms for gaining the mutual interest in designing, distributing and producing goods.
  • By joint- ventures, it can enjoy benefits by the combination of assets as it is doing now.

However, McDonald’s should consider following things before implementing strategies and these are-

  • Internal service quality: McDonald’s internal quality has maintained by the path of higher employee selection and training process, neat and clean workplace, quality work environment, higher salary and strong support for those who are dealing with the customer’s and franchisee.
  • Satisfied and Productive Service Employees: Employees of McDonald’s are more satisfied, dependable and hard working because they draw higher remuneration then other company.
  • Greater service value: McDonald’s afford more effective and well-organized customer value creation and service delivery; as a result, McDonald’s service value is greater than many of its competitors.
  • Customer Satisfaction and Unique Customers: McDonald’s always struggle to convince all of their customers; therefore, each an every customer is significant and loyal to them. They believe that if they can satisfy them they in future they will purchase their foods and refer other customers.

Implementation Plan

This consultancy report will determine whether the strategy should change or not. It also recommends the organizational structure and corporate governance of this company. McDonald’s Corporation can implement the above projected and proposed strategies by the following dimensions –

Corporate governance

It indicates the correlation between all the stakeholders in terms of control and directive performance of McDonald’s Corporation. It has followed strong corporate governance doctrines, maintaining the straight and powerful principles of growth. in addition, offering effectual management oversight. For that issue, McDonald’s board of directors has taken rules of governance and committee for charters for directing the activities. This board of directors consists of 24 executives, minimum majorities that face all the flexible demands of NASDAQ as well as the SEC (Securities & Exchange Commission) of United States. In addition, it has installed an ethical code in respect to the CO, CF, controller and leaders of finance for a “code of ethics” indicated by the SEC rules.

Thus, the corporate governance structure can be presented as following-

  • Board of directors- This group is responsible for performing at the owner’s profits by the systematic monitoring and controlling the business. McDonald’s board of directors include Ed Brennan, Ralph Alvarez, Andy McKenna, Jose Armario, Mary Dillon, Jean-Pierre Petit as chairman, president, director, President – Europe Southern Division etc.
  • Senior officers- It includes CEO, CFO, president, executive vice president, senior vice president for marketing, global manufacturing operations, partner resources, global logistics, Asia- pacific, global procurement and coffee, Latin America, global snacks of McDonald’s, business solution etc.
  • Compensation program- McDonald’s compensation schedule is based on the performance of the employees as it philosophy to pay high amount of remuneration for better outcomes from employees. It should careful to decide director’s salary as many large companies have collapsed due to high payment of executives such as Enron, Worldcom or Bradford & Bingly.

Organizational structure and control

McDonalds should apply the SBU (M-from) the multi-divisional structure as it is a multi-product firms and its 70% of profits generates from food products. Under the moderate to high-levels of diversification, sales revenue of a firm’s is not depends on the single-product business, for example in case of related constrained and related linked less than 70% of revenue creates from dominant-business and in production process all businesses share materials, technology, marketing process and distribution channels. However, it can follow simple form as it only sales food items and it is McDonald’s main business, which indicates it is low level of diversified company. The organizational structure of McDonald’s is as following-

Strategy & structural growth pattern of McDonald’s.
Figure: 7: Strategy & structural growth pattern of McDonald’s.

Since McDonalds is the moderate to highly differentiated in its own industry, it basically follows the following functional structure-

Functional structure for implementing differentiation of McDonalds.
Figure 8: Functional structure for implementing differentiation of McDonalds.

In addition, McDonald’s can operate the controlling function for assurance of material data according to the SEC’s references for the timely decision-making.

Strategic leadership: McDonald’s should uphold such issue for anticipation, envision and flexibility of the entire planning as-

Strategic leadership & management process of McDonald’s.
Figure 9: Strategic leadership & management process of McDonald’s.

Corporate entrepreneurship and innovation: It includes about 1.6 million committed employees, 200 trainers, efficient operating team, management capability and experienced R&D of which all are responsible for the company’s handsome revenues, net income and global goodwill. McDonald’s Corporation proves its environmental concern by utilizing and selling environmentally healthy goods, taking the social concern as value of the company, and other affairs.

Recommendations

In order to become more effective and efficient, McDonald’s Corporation should concentrate on the following problems-

  • It should require to taking account the US recession and its impact on the global market to think about of difficult economic conditions for which the global effectiveness may reduce.
  • It should be alert about the expectation of market since there is a chance of reducing the stock price at an extensive and sharp rate for the recession.
  • Market can adversely affect for few reasons; therefore, McDonald’s should be monitored the increased competition, customers perception about the price of new items, down slopping trend in housing, upward interest rates, limited disposable earnings, lack of confidence of customers, reduced demand for the coffee beverages, ineffectively hedged costs of goods, like- high labor expenses, construction costs, IT and logistics costs.
  • It should impose more control on the existing supply chain since it is running on different risks, as- disruption of roasted coffee to the third- party logistics and service distortion through general vehicles within its own servicing channels.
  • It should be more concerned about war, terrorism or political fluctuation as it is global organisation.
  • As the customer choice is changing, it should introduce new products considering the market demand such as in 2008 it introduces two new items the Chicken Biscuit, and the Southern-Style Chicken Sandwich. In addition, it has introduced a new menu board design to attract more customers and it decides to serve cappuccinos & mochas from this year.
  • The competitors’ holds major shares on US market such as in 2007, about 78% of net revenue of Starburks came from US market. Since McDonald’s Corporation posses a major reliability on USA market, it should be alert about a minimum distortion of such portion, which may reduce the monetary performance and the overall financial plot,
  • At this moment, the company has to compete against the qualified restaurants in the world and the established companies are offering a great threat for McDonald’s, which may cause for switching of many customers and thus demanding more different and sophisticated service from it.
  • As McDonald’s Corporation’s another lion revenues generates from international sector, it should take in mind about several risk factors –
    • Fluctuated rate of currencies: in recession the rate of US Dollars has fall which may effect its business,
    • Worldwide uncertain economic, social and political factors may reduce its sales,
    • Interception of rigidity of laws: Government of different countries has passed different laws for health and safety, which may be creating barrier for McDonald’s Corporation such as contractual barriers.
  • It should require richer prospect and flexible contract with the government as the company is facing a major entry barrier for laws and regulations.
  • It ought to expense more money for conducting campaigns and other efforts to remove public thoughts about the negative effects of fast food on health by illness and other fatal impacts.

However, McDonald’s Corporation typically faces all of those challenges but it is somewhat possible to handle these troubles by implementing appropriate strategic planning, a proper management of it and research the market.

Conclusion

McDonald is the largest fast food chain of the globe. It has been passing through a number of complicated challenges. The explanation aspects to McDonald’s upcoming success would be keeping up at its core strengths. The firm focuses on quality and reliability of strategic analysis would carefully research with new options as well as implementation. The innovative initiatives of McDonald possibly will include initiation of wide raping fast food chain shop under famous brands that may not be weighing down with McDonald’s famous icon. McDonald would also look forward to getting bigger more forcefully out of the country where the prospects for momentous growth is superior. McDonald’s marketing initiatives, environment efforts and corporate social responsibilities are advanced then the other players.

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Appendix

Total revenues of McDonald's

Operating income of McDonald's

Total assets of McDonald's

Total Debts of McDonald's

Total shareholders' equity of McDonald's

The Value-Creating Strategies of Diversification in the multi-product firms.
Figure- 2:- The Value-Creating Strategies of Diversification in the multi-product firms.
Strategic management process of McDonald’s.
Graph: Strategic management process of McDonald’s.

Footnotes

  1. Supposed Company for which the Report has been Organized.
  2. The Consultant (Replace with your Name).