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Assignment Questions
1. What are the chief economic and business characteristics of the fast-food industry?
2. What does your 5-forces analysis of the fast-food industry tell you about the
competition facing McDonald’s?
3. What forces are driving changes in the fast-food industry, both domestically and
globally?
4. What factors do you see as critical to competitive success in the fast-food industry?
5. Is the fast-food industry attractive? What factors make it attractive? Unattractive?
6. Describe how McDonald’s strategy has evolved under each of its CEOs. Did Ray Kroc
have the most influence of any CEO on McDonald’s strategy? Do you agree that
Greenberg should have resigned in response to McDonald’s loss in 2002? To what
extent do you believe McDonald’s current performance is attributable to actions taken
by Cantalupo versus those initiated by Greenberg?
7. What is McDonald’s current strategy? Which elements of McDonald’s current strategy
can be attributed to Kroc’s influence?
8. How well is McDonald’s current strategy working? Do you like the company’s
competitive position vis-à-vis other fast-food chains?
9. What are McDonald’s internal strengths and weaknesses? What are its external
opportunities and threats? Do a SWOT analysis in developing your answers.
10. What are the major strategic issues surrounding McDonald’s Plan to Win? What are the
specific areas McDonald’s is focusing on to revitalize the company? Is it using the best
metrics to measure their goal attainment?
11. Do you believe that the changes McDonald’s is making with its Plan to Win can
successfully reposition the company and provide the basis for a sustainable competitive
advantage?
12. What specific recommendations would you make to Cantalupo regarding the company’s
operations and how McDonald’s can maintain its leadership position?
The financial analysis indicates that McDonald’s position steadily deteriorated during
the 1999-2002 period but that recent efforts have improved the company’s financial
position (the first three quarters of 2003).
ROA fell from 9.3% in 1999 to 3.7% in 2002, but has recovered nicely in 2003.
ROE rose from 1998 to 2000 but fell from a high of 21.5% in 2000 to 8.7% in 2002;
it has bounced upward during 2003 to a respectable 18.8% in Q3 of 2003.
The current ratio is relatively low but improved somewhat between 2000 and 2002,
well below the 2.0 level that is traditionally acceptable.
Both the debt to assets and debt to equity ratios increased from 1998 to 2002 further
demonstrating McDonald’s weakening position.
Net revenue growth fell off substantially from 1999 through 2002, but has shown
some improvement in 2003; the same can be said for operating margins as a
percentage of revenues.
Operating expenses as a percentage of revenues increased from 1998-2002, but
have dropped significantly in 2003 (numbers that support McDonald’s continuing
emphasis on cost control and low-cost leadership). Students should recognize that
some of the increased expenses in 1999-2002 were due to Greenberg’s initiatives,
while the declines reflect Cantalupo’s turnaround effort.
Competitive Position vis-à-vis Other Fast-Food Chains
McDonald’s is still the largest competitor with 7 times the revenue of the closest
competitor (Burger King)
McDonald’s is growing more slowly than many rivals
Largest international operations
Many competitors have differentiated to successfully fill market niches left unfilled
by McDonald’s, establishing themselves as leaders in their specialties
Figure 1 of this teaching note illustrates the market position of the main players in the
quick service sandwich chain industry. This strategic group map reveals that
McDonald’s closest competitors are Burger King and Wendy’s in terms of the breadth
of product line and Pizza Hut and KFC in terms of global coverage. However, no single
competitor has developed the product line and international coverage of McDonald’s. It
is interesting to ask students to predict future moves of rivals and how their positions
may change on this map. This should reveal that several competitors are trying to take
aim at McDonald’s but that McDonald’s should maintain its position given the Plan to
Win.
Exhibit 1 Financial Analysis
*Annualized.
Figure 1 Representative Strategic Group Map, for Quick
Serve
Sandwich Chains
Epilogue
In April 2004 McDonald’s CEO Jim Cantalupo died suddenly of a heart attack while attending a
large convention of owners and operators of McDonald’s restaurants in Orlando. Less than 6
hours after his death, McDonald’s board of directors at a hastily arranged meeting, named 43-
year-old Charlie Bell, McDonald’s president and chief operating officer, to replace Cantalupo.
Cantalupo had been scheduled to address the convention at 9:30 a.m., but Bell’s quick
appointment allowed him to make the opening remarks on schedule as the new CEO. During his
16 months as CEO, Cantalupo had executed the most dramatic turnaround in McDonald’s
history. His accomplishments were seen as quite important:
Killing a $1 billion technology program to link all McDonald’s outlets worldwide to
McDonald’s HQ
Slowing “runaway” store expansion
Introducing premium entrée salads
Improving the taste of burgers with new seasonings
Speeding drive-thru service
Seeing that surly store employees were disciplined
Helping blunt attacks that McDonald’s was a purveyor of unhealthy, fat-heavy foods,
partly by killing “super size” French fries and soft drinks and partly with some new
advertising campaigns emphasizing fitness.
During Cantalupo’s tenure, McDonald’s reported 11 consecutive months of same-store sales
increases.
Bell was already in line to replace Cantalupo, who came out of retirement to lead the turnaround
effort at McDonald’s. He was expected to continue Cantalupo’s efforts and had enjoyed
considerable success in his previous jobs at McDonald’s.
In May 2004, McDonald’s announced that Charlie Bell was undergoing treatment for cancer. He
was expected to recover and to continue in his role as CEO.
For further updates, please check our periodically updated case epilogues at the password-
protected Instructor Center (www.mhhe.com/thompson) for the latest information. The online
epilogues are updated whenever we become aware of pertinent breaking news about the
company and/or developments relating to the specific issues contained in the case.