Analyzing the Strategy of

McDonalds

Submitted to: Submitted by:

Ms. Ritika Khurana Aman Bali
Ankit Sudan
Abhishek Haryal
(PGDM-BA)
Table of content
1. Acknowledgement
2. Introduction
3. Vision, Mission and Business Model
4. PESTEL Analysis
5. Porter’s Five Forces
6. Strategic Group Mapping
7. Strategy Clock
8. VRIO Analysis
9. Value Chain Analysis
10. Ansoff Analysis
11.References
 Acknowledgement
The satisfaction and euphoria that accompany the development of any
task would be Incomplete without the mention of the people who make it
possible, whose constant Guidance and encouragement crowned our
efforts with success.
We wish to place on record our wholehearted gratitude to our
Professor Ms. Ritika Khurana, who gave us the golden opportunity to do
this project Report On Analyzing the Strategy of McDonalds using
different frameworks/parameters.

Aman Bali
Ankit Sudan
Abhishek Haryal
(PGDM-BA)
 Introduction

McDonald's is an American fast food company, founded in 1940 as a

restaurant operated by Richard and Maurice McDonald, in San
Bernardino, California, United States. They rechristened their business as
a hamburger stand, and later turned the company into a franchise, with
the Golden Arches logo being introduced in 1953 at a location
in Phoenix, Arizona. In 1955, Ray Kroc, a businessman, joined the
company as a franchise agent and proceeded to purchase the chain from
the McDonald brothers. McDonald's had its original headquarters in Oak
Brook, Illinois, but moved its global headquarters to Chicago in early
2018.
McDonald's is the world's largest restaurant chain by
revenue,[8] serving over 69 million customers daily in over
100 countries[9] across 37,855 outlets as of 2018.[10][11] Although
McDonald's is best known for its hamburgers, cheeseburgers and french
fries, they also feature chicken products, breakfast items, soft
drinks, milkshakes, wraps, and desserts. In response to changing
consumer tastes and a negative backlash because of the unhealthiness of
their food,[12] the company has added to its menu salads, fish, smoothies,
and fruit. The McDonald's Corporation revenues come from the rent,
royalties, and fees paid by the franchisees, as well as sales in company-
operated restaurants. According to two reports published in 2018,
McDonald's is the world's second-largest private employer with 1.7
million employees (behind Walmart with 2.3 million employees).
 Vision

McDonald’s vision is to be the world’s best quick service restaurant

experience. Being the best means providing outstanding quality, service,
cleanliness, and value, so that they make every customer in every
restaurant smile.

Mission

McDonald’s brand mission is to be their customer’s favourite place and

way to eat. Their worldwide operations are aligned around a global
strategy called the Plan to Win, which center on an exceptional customer
experience �" People, Products, Place, Price and Promotion. They are
committed to continuously improving their operations and enhancing
their customer’s experience. The mission statement of McDonald's fast
food restaurants is a common mission for every restaurant, but the
McDonald's Values reflect the McDonald's experience. The mission
statement of McDonald's fast food restaurants around the world is not
much different from any restaurant chain. That broad and common
mission statement is more clearly defined by the McDonald's Values,
which reflects the experience those customers can expect when walking
into a McDonald's fast food restaurant no matter where it is located.

They place the customer experience at the core of all they do.

They are committed to their people.

They believe in the McDonald's System.

They operate their business ethically.

They give back to their communities.

They grow their business profitably.

They strive continually to improve.

McDonald’s Future Goals we aim to advance our balanced, active
lifestyle efforts by:

Continuing to develop new menu offerings that provide their customers

with a range of choices that correspond to their needs and preferences and
can fit into a balanced diet.

Develop more Happy Meal choices, including new entry offerings and
non-carbonated beverages without added sugar.

Sticking to their timetable for phasing in their new nutrition information

initiative for core packaging items.

Continuing to assess, listen, learn and evolve the policies and marketing
and communication practices so that they can continue their special
regard for young people.

Expanding their engagement with experts to ensure that they are guided
by the best scientific information and insight.

Business Model
The McDonald's Business Model Canvas
The Business Model Canvas of McDonald’s can be described as follows:
 McDonald’s is famous for its value proposition: food of a constant
quality that is served quickly and consistently across the globe.
 The main customer segments are families, youngsters, the elderly
and business people.
 McDonald’s main strategic partners are its franchise holders. At year
end 2013, more than 80% of McDonald’s restaurants were
franchised. Together with its suppliers the company's model is based
on a three-legged stool: suppliers, franchisees and McDonald’s. Each
leg must thrive for the business to be profitable.
 The key activities McDonald’s engages in is the marketing and
selling food and beverages.
 Key resources are the company’s employees and its restaurants on a-
locations.
  The customer relationship takes place online on the device preferred
by the customer.
 McDonald’s distributes its products through the restaurants.

 The cost structure consists of employee salaries, facility construction

costs, raw materials procurement and marketing costs.
 McDonald’s revenues are generated at the restaurants owned by the
company itself and those owned by its franchise holders.
By having a clear view on the complete business model, opportunities for
sustainable innovation can be discovered. An example already deployed
by the company might be a stronger partnership with suppliers in order to
create shared value. Read more about the McDonald's approach to
sustainability and shared value in the article "Sustainable framework
McDonald’s from gold to green".
 PESTEL Analysis

Political Factors

McDonald’s operates in over 100 countries, so its political exposure is all

over the board. Generally, McDonald’s, like any other restaurant, has to
comply with government regulations pertaining to health and hygiene.
Some governments have been pressuring the fast food industry, because
fast food has increasingly been seen as junk food, leading to obesity,
cardiovascular difficulties and high cholesterol. Moreover, the current
tumult in relations between the United States and Russia may threaten
McDonald’s ability to function and turn a profit in the Russian
Federation.

Economic Factors

Economic factors are of paramount importance to McDonald’s, especially

considering that it operates in over 100 countries. The decision whether
to import raw materials or buy them locally is one important factor;
another is tax rates. How much are tariffs on imported raw materials?
How much are foreign corporations taxed? What is the unemployment
rate, and how much are unemployment taxes in a given country? How
much severance pay must an employer pay an employee upon
termination?

Socio-Cultural Factors

Evolving lifestyles can have an effect on sales performance. People

increasingly are seeking more sophisticated fare when they eat out.
Hamburgers and fried potatoes are not as special as they once were.
Moreover, while people in western countries such as the United States
may enjoy hamburgers and French fries, people in Asian countries, for
example, prefer rice. A few years back, McDonald’s promoted a rice
burger in China; it is now promoting rice for dinner in that nation.
Technological Factors

While technology may seem to play a very limited role in the fast food
industry, nothing could be further from the truth. In fact, high technology
helps organizations improve their management and productivity, while
reducing wasted time and resources. It can help with scheduling,
ordering, forecasting sales and foot traffic, and easy customer payment
for food. Technology can also be used for easy, inexpensive advertising
on the Internet, providing Wi-Fi and even computing devices to satisfy
customer needs.

Environmental Factors

Today more than ever, people care about protecting the environment.
They care about problems such as air and water pollution, and the effects
waste packing are having on the environment. A few years ago,
McDonald’s found itself in the crosshairs of environmentalist wrath over
the polystyrene packaging it was using for its sandwiches. With over 60
million people buying food from McDonald’s daily, that was a great deal
of polystyrene waste packaging finding its way into landfills.
McDonald’s responded to criticism by phasing out polystyrene in favor
of paper-based packaging, which breaks down into organic ingredients
much more quickly in the environment.

Legal Factors

Regulation is always the biggest concern to a company. As a company in

the fast food industry, McDonald’s must adhere to many legal
requirements, such as the labor and employment law, corporate law and
tax requirements, to name a few.
 Porter’s Five Forces

What are Porter Five (5) Forces

In his revolutionary article - "Five Forces that Shape Strategy", Michael

Porter observed five forces that have significant impact on a firm's
profitability in its industry. These five forces analysis today in business
world is also known as -Porter Five Forces Analysis. The Porter Five (5)
Forces are -
• Threat of New Entrants
• Bargaining Power of Suppliers
• Bargaining Power of Buyers
• Threat from Substitute Products
• Rivalry among the existing players.
Porter Five Forces is a holistic strategy framework that took strategic
decision away from just analyzing the present competition. Porter Five
Forces focuses on - how McDonald's Corporation can build a sustainable
competitive advantage in Restaurants industry. Managers at McDonald's
Corporation can not only use Porter Five Forces to develop a strategic
position with in Restaurants industry but also can explore profitable
opportunities in whole Services sector.

McDonald's Corporation Porter Five (5) Forces Analysis for Services

Industry

Threats of New Entrants

New entrants in Restaurants brings innovation, new ways of doing things

and put pressure on McDonald's Corporation through lower pricing
strategy, reducing costs, and providing new value propositions to the
customers. McDonald's Corporation has to manage all these challenges
and build effective barriers to safeguard its competitive edge.

How McDonald's Corporation can tackle the Threats of New Entrants

• By innovating new products and services. New products not only brings
new customers to the fold but also give old customer a reason to
buy McDonald's Corporation ‘s products.
• By building economies of scale so that it can lower the fixed cost per
unit.
• Building capacities and spending money on research and development.
New entrants are less likely to enter a dynamic industry where the
established players such as McDonald's Corporation keep defining
the standards regularly. It significantly reduces the window of
extraordinary profits for the new firms thus discourage new players
in the industry.

Bargaining Power of Suppliers

All most all the companies in the Restaurants industry buy their raw
material from numerous suppliers. Suppliers in dominant position can
decrease the margins McDonald's Corporation can earn in the market.
Powerful suppliers in Services sector use their negotiating power to
extract higher prices from the firms in Restaurants field. The overall
impact of higher supplier bargaining power is that it lowers the overall
profitability of Restaurants.

How McDonald's Corporation can tackle Bargaining Power of the

Suppliers

• By building efficient supply chain with multiple suppliers.

• By experimenting with product designs using different materials so that
if the prices go up of one raw material then company can shift to
another.
• Developing dedicated suppliers whose business depends upon the firm.
One of the lessons McDonald's Corporation can learn from Wal-
Mart and Nike is how these companies developed third party
 manufacturers whose business solely depends on them thus
creating a scenario where these third party manufacturers have
significantly less bargaining power compare to Wal-Mart and
Nike.

Bargaining Power of Buyers

Buyers are often a demanding lot. They want to buy the best offerings
available by paying the minimum price as possible. This put pressure on
McDonald's Corporation profitability in the long run. The smaller and
more powerful the customer base is of McDonald's Corporation the
higher the bargaining power of the customers and higher their ability to
seek increasing discounts and offers.

How McDonald's Corporation can tackle the Bargaining Power of Buyers

• By building a large base of customers. This will be helpful in two ways.
It will reduce the bargaining power of the buyers plus it will
provide an opportunity to the firm to streamline its sales and
production process.
• By rapidly innovating new products. Customers often seek discounts
and offerings on established products so if McDonald's
Corporation keep on coming up with new products then it can limit
the bargaining power of buyers.
• New products will also reduce the defection of existing customers of
McDonald's Corporation to its competitors.

Threats of Substitute Products or Services

When a new product or service meets a similar customer needs in

different ways, industry profitability suffers. For example services like
Dropbox and Google Drive are substitute to storage hardware drives. The
threat of a substitute product or service is high if it offers a value
proposition that is uniquely different from present offerings of the
industry.

How McDonald's Corporation can tackle the Treat of Substitute Products

Services
• By being service oriented rather than just product oriented.
• By understanding the core need of the customer rather than what the
customer is buying.
• By increasing the switching cost for the customers.

Rivalry among the Existing Competitors

If the rivalry among the existing players in an industry is intense then it

will drive down prices and decrease the overall profitability of the
industry. McDonald's Corporation operates in a very competitive
Restaurants industry. This competition does take toll on the overall long-
term profitability of the organization.

How McDonald's Corporation can tackle Intense Rivalry among the

Existing Competitors in Restaurants industry

• By building a sustainable differentiation

• By building scale so that it can compete better
• Collaborating with competitors to increase the market size rather than
just competing for small market.

Implications of Porter Five Forces on McDonald's Corporation

By analyzing all the five competitive forces McDonald's Corporation

strategists can gain a complete picture of what impacts the profitability of
the organization in Restaurants industry. They can identify game-
changing trends early on and can swiftly respond to exploit the emerging
opportunity. By understanding the Porter Five Forces in great detail
McDonald's Corporation 's managers can shape those forces in their
favor.
Strategic Group Mapping
Strategy Clock
 VRIO Analysis

McDonald’s Corporation uses its VRIO and VRIN resources and

capabilities to keep its fast food restaurant business profitable. In this
VRIN/VRIO analysis of the company, such organizational capabilities
and resources are the strategic foundation for competitiveness.
Considering Jay B. Barney’s model, McDonald’s core competencies are
the resources and capabilities that satisfy the VRIO measures: Value,
Rarity, Inimitability (Imperfect Imitability), and Organization. These
measures build on the VRIN analysis framework, which includes the non-
substitutable (N) criterion. This internal analysis determines core
competencies within the resource-based view (RBV) of the fast food
company. Using its core competencies, McDonald’s Corporation’s value
chain imposes sustainable competitive advantages against firms like
KFC, Subway, Burger King, Wendy’s, Dunkin Donuts, and Starbucks.
The food service industry’s challenges require core competencies for
strategic positioning. In the VRIO/VRIN analysis context, McDonald’s
applies its core competencies to reinforce its value chain’s effectiveness
to deliver actual value to consumers and ensure long-term competitive
advantages in the international fast food market, despite strong strategic
hurdles in the U.S. market.

The following section discusses the VRIO and VRIN assessment of the
organizational capabilities and resources that influence McDonald’s value
chain and strategic planning processes. In the resource-based view and
the following value chain analysis results, the company utilizes its
resources and capabilities to compete against strong multinational food
service firms and address market-specific issues. However, as this
VRIN/VRIO analysis indicates, McDonald’s needs to develop additional
core competencies and sustainable competitive advantages to improve the
positioning and long-term survival of its restaurant chain business.

McDonald’s Corporation VRIO & VRIN Analysis, Table

(Resource-Based View)
McDONALD’S ORGANIZATIONAL RESOURCES & CAPABILITIES V R I O N

Moderate uniqueness of food products based on McDonald’s-specific ✔

recipes

Partnership arrangements with third-party delivery service providers ✔

New technologies for efficient order processing ✔

Effective and efficient human resource development ✔ ✔

Efficient food production systems for cost efficiency and low prices ✔ ✔

Expansive supply chain ✔ ✔

Size of international operations and restaurant franchise network ✔ ✔

Economies of scale ✔ ✔

McDonald’s Sustained Competitive Advantages/Core

Competencies:

Globally recognized iconic McDonald’s brand ✔ ✔ ✔ ✔ ✔

Portfolio of popular trademarks ✔ ✔ ✔ ✔ ✔

Non-core Competencies. McDonald’s Corporation has numerous
resources and capabilities that are non-core competencies indicated in the
VRIO/VRIN analysis table. In the resource-based view, these
competencies support the restaurant company’s value chain’s operational
effectiveness but not long-term competitive advantage. For example,
McDonald’s partnerships with third-party delivery service providers are
an organizational capability under the company’s strategic digital
initiative. Delivery service providers like Uber Eats (a subsidiary of Uber
Technologies Inc.) bring fast food to customers’ doorsteps. New order
processing technologies are organizational resources that are also part of
the company’s digital initiative considered in this internal analysis. For
example, McDonald’s mobile app integrates the Apple Pay mobile
payment processing service provided by Apple Inc. This strategic
resource improves value chain effectiveness and customers’ ease in
purchasing. Such strategic capabilities and resources, together with
McDonald’s food product uniqueness, HR development, production
systems, supply chain and associated supply chain management,
franchise network, and economies of scale are non-core competencies
that do not satisfy all of the VRIN and VRIO criteria, especially
inimitability (VRIO analysis model), and non-substitutability (VRIN
analysis framework).

VRIO Core Competencies (Long-Term Competitive Advantages) of

McDonald’s. Two core competencies are identified in this VRIO
analysis of McDonald’s Corporation. The company’s brand is an
organizational resource for profitability through brand recall (when
customers think of where to have their meal) and through positive brand
image of products. In the VRIO analysis context, McDonald’s brand has
high value and is rare in the industry. Competing restaurant businesses
cannot imitate the brand nor readily create an equally strong brand.
Moreover, McDonald’s value chain is organized around the maximum
strategic utilization of the brand as a core competency for sustainable
competitive advantage in the international food service industry. On the
other hand, the trademarks portfolio is an organizational resource and
core competency in McDonald’s fast food value chain operations. In the
VRIO analysis framework, this resource sustains the company’s strategic
ability to legally protect proprietary designs and information. For
example, McDonald’s trademarks, including food and beverage names,
are a strength that creates an image of uniqueness, even though
competitors’ products may be similar. In the resource-based view of this
core competency resource, the trademarks benefit the business through
fast food brand recall among consumers. This resource satisfies the VRIO
requirements for the long-term competitive advantage of McDonald’s
restaurant business.

VRIN Resources and Capabilities of McDonald’s Corporation. In the

resource-based view, the difference between the VRIN and VRIO
frameworks is in the “O” or “organization” (VRIO analysis) and the “N”
or “non-substitutable” (VRIN analysis) criteria. In this case, McDonald’s
Corporation’s VRIO core competencies are also the resources and
capabilities that provide sustainable competitive advantage based on the
VRIN framework. For example, the company’s brand satisfies the V, R,
and I criteria, as well as the N criterion. The McDonald’s brand is non-
substitutable because no other company can legally have the same brand.
The resulting brand-based competitive edge is unique to McDonald’s and
its value chain. The portfolio of popular trademarks also provides
sustainable competitive advantage because it is a non-substitutable
resource based on the VRIN analysis model. These trademarks are legally
protected. McDonald’s uses its trademarks to effectively promote
products and optimize its value chain to deliver these products to
saturated food service markets worldwide. Based on the VRIN test, this
resource is a main source of McDonald’s sustained competitive
advantage.
 Value Chain Analysis
The core competencies in this VRIN/VRIO analysis play significant roles
in McDonald’s value chain. Considering the resource-based view and
Michael E. Porter’s value chain conceptualization, the company’s value
chain provides affordable and satisfactory foods, beverages, related
products, and food service to target consumers. The following diagram
illustrates McDonald’s value chain and its position in the larger value
system of the fast food service industry:
McDonald’s value chain is a component of the industry’s value system.
The value system is composed of various other value chains of the
business units of all organizations involved, such as the company’s
beverage suppliers and the rest of the supply chain. In the value chain
diagram, McDonald’s owns and operates some of the processing hubs
and parts of the distribution network. For example, the company has a
distribution network for the transport of intermediary food products to
individual restaurants. In this value chain and the value system,
McDonald’s competitive advantages and competencies identified through
the VRIO/VRIN framework are significant in how the company’s
processes provide value and benefit to the end consumer. For instance,
McDonald’s recipes and production systems are resources and
capabilities for preparing and cooking foods based on consumers’ orders.
In the resource-based view, these core competencies ensure value chain
effectiveness and convenience that benefit consumers who value speedy
meal preparation, which is part of the company’s value proposition.
Ultimately, the core competencies determined through the VRIN and
VRIO frameworks are the competitive advantages that set McDonald’s
Corporation and its value chain apart from competitors, and help the
business attract consumers, even though many other fast food restaurants
offer similar and competitively priced products.

Ansoff Matrix

McDonalds currently operates in over 119 countries in more than 36000

stores. McDonalds has increased market penetration by increasing its
visibility in developed markets like UK by supporting events like
Olympics and Football to improve volunteering and grass roots
programme.

Product Development
McDonalds has also increased its menu options to include carrot sticks,
fruit bags, and drinks such as Fruitzz, semi-skimmed organic milk, and
mineral water. To improve consumer reach and offer better choice,
McDonalds UK has adopted product development approach where the
Big Mac is accompanied by high quality coffee and health drinks along
with better quality of food. The McDonald's efforts to reduce salt content
in its fries are one such option. Another clear strategy of product
development is the collaboration with Disney for Happy Meals.

Market Development

McDonalds adopted a think global act local approach to penetrate

different markets and offering new products.

Diversification

McDonalds is adopting a product diversification approach in Australia by

launching a new cafe, The Corner. The organisation is moving beyond its
fast food options to offer healthy alternatives including Moroccan roast
chicken breast, chipotle pulled pork, brown rice, pumpkin, lentil and
eggplant salads and sandwiches and healthy drinks. McDonalds considers
is a new and different product segment and has launched it in one market.

The following figure summarizes the Ansoff’s Matrix of McDonalds.

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