McDonald's Case Study

Introduction
McDonalds, the long-time leader in the fast-food wars, faced a crossroads in the early 1990s. Domestically, sales and revenues were flattening as competitors encroached on its domain. In addition to its traditional rivalsBurger King, Wendys, and Taco Bellthe firm encountered new challenges. Sonic and Rallys competed using a back-to-basics approach of quickly serving up burgers, just burgers, for time-pressed consumers. On the higher end, Olive Garden and Chilis had become potent competitors in the quick service field, taking dollars away from McDonalds, which was firmly entrenched in the fastfood arena and hadnt done anything with its dinner menus to accommodate families looking for a more upscale dining experience. While these competitive wars were being fought, McDonalds was gathering flak from environmentalists who decried all the litter and solid waste its restaurants generated each day. To counter some of the criticism, McDonalds partnered with the Environmental Defense Fund (EDF) to explore new ways to make its operations more friendly to the environment.

Facts
McDonalds roots go back to the early 1940s when two brothers opened a burger restaurant that relied on standardized preparation to maintain qualitythe Speedee Service System. So impressed was Ray Kroc with the brothers approach that he became their national franchise agent, relying on the companys proven operating system to maintain quality and consistency. Over the next few decades, McDonalds used controlled experimentation to maintain the McDonalds experience, all the while expanding the menu to appeal to a broader range of consumers. For example, in June 1976, McDonalds introduced a breakfast menu as a way to more fully utilize the physical plant. In 1980, the company rolled out Chicken McNuggets. Despite these innovations, McDonalds tremendous growth could only continue for so long. Its average annual return on equity was 25.2% between 1965 and 1991. But the company found its sales per unit slowing between 1990 and 1991. In addition, McDonalds share of the quick service market fell from 18.7% in 1985 to 16.6% in 1991. Plus growth in the quick service market was projected to only keep pace with inflation in the 1990s. McDonalds faced heightening competition on several fronts. First, its traditional rivals Burger King, Wendys, and Taco Bellwere eating into its margins through promotions and value pricing strategies. Taking a leaf from McDonalds own playbook, Sonic and

Rallys were using a very limited menu approach to attract time-strapped consumers. Finally, Chilis and Olive Garden were appealing to diners looking for something a little more enticing that the familiar Golden Arches for their families. In the late 1980s, McDonalds began recognizing the importance of maintaining an ecologically correct posture with the public, which was becoming more concerned about the environment. For example, in 1989, 53% of respondents in one survey revealed that they had not bought a product because they didnt know what effect the packaging would have on the environment. Closer to home, a 1990 study showed that each McDonalds generated 238 pounds of on-premise solid waste per day. Its no surprise, then, that McDonalds sought a way to reduce its solid waste while providing a more environmentally acceptable face to the public. Beginning in 1989, it partnered with the Environmental Defense Fund, a leading organization devoted to protecting the environment, to seek ways to ease the companys environmental burden on the landscape. Together, EDF and McDonalds considered its impact on a wide range of stakeholders customers, suppliers, franchisees, and the environment. The company gave its franchisees much autonomy in finding ways to eliminate environmental blight. The companys hope was that from these divergent approaches, it stood a greater chance of finding solutions with broad applicability than if it had tried to pursue a one-size-fits-all approach from the outset. Some of the environmentally inspired solutions that came out of the collaboration with EDF were the: Introduction of brown paper bags with a considerable percentage of recycled content. Solicitation of suppliers to produce corrugated boxes with more recycled content, which had the twin effect of reducing solid waste and building a market for recycled products. Abandonment of polystyrene clamshell containers to hold sandwiches in favor of new paper-based wraps that combined tissue, polyethylene, and paper to keep food warm and prevent leakage.

Analysis
McDonalds Sustained Prosperity The secret of McDonalds success is its willingness to innovate, even while striving to achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich were all examples of how the company tried to appeal to a wider range of consumers. The company has also made convenience its watchword, not only through how fast it serves customers, but also in the location of its outlets. Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or by car in the suburbs. Plus McDonalds is tucking restaurants into schools, stores, and more.

Key Threats The key threats to McDonalds domestically are the lack of growth opportunities. The market is well saturated, and it would difficult to achieve double-digit growth. Other concerns are a newfound emphasis on healthier eating. Most of McDonalds most popular fare probably in some small way contributes to the increasing incidence of cancer, heart disease, and diabetes among the population. But I feel the key threat to McDonalds continued success is its very ubiquity. Because McDonalds are everywhere, the dining experience is never special. And as Baby Boomers age and become more affluent, it is likely that they will leave behind their fastfood ways, if only to step up to moderately priced restaurants like Olive Garden, Bennigans, and Pizzeria Uno. These chains have the added advantage of serving highermargin alcoholic drinks. McDonalds, meanwhile, has to continually battle Burger King and Wendys, which leads to an erosion of margins for everyone. Even alliances with toy manufacturers, while popular with consumers, do little for the bottom line because the cost to run these promotions can be quite expensive. Responding to Burger Kings October 1 Announcement The October 1 announcement from Burger King that it would begin offering table service is not much of a threat at all. You can try to dress up fast food, but its still fast food. I couldnt imagine this being a potent draw for consumers. McDonalds best course is to ignore this development as irrelevant. As the market leader, McDonalds does not need to respond to every competitors initiative. Indeed, doing so would have the effect of making McDonalds look reactive and less like a leader. The advantage of not responding to Burger Kings initiative is that the company can preserve its resources for other marketing thrusts that may provide a bigger payoff. The disadvantage of not responding to Burger Kings initiative is that you allow the firm to establish itself in a unique way in the minds of consumersthat of a fast-food restaurant that provides sit-down service. But again, is this inherent contradiction of fast-food fare and upscale dining experience likely to resonate with consumers? I would say no. If Burger Kings initiative does prove popular with consumersas evidenced by expanding sales and market shareMcDonalds would be forced into catch-up mode. But I think that this is a risk that the company should be willing to take. Promoting Flexibility Through Its Operating Strategy The key thing that McDonalds operations strategy has to support is experimentation. Now somewhat long in the tooth, McDonalds needs a breakthrough that will provide new avenues of growth. It has a long history of such experimentation, which has resulted in some new profit centers like Chicken McNuggets and the breakfast menu. Some later turn out to be duds like the McLean Deluxe, but inevitably experimentation in limited outlets offers McDonalds a way to retain its key strengthsquality and consistency while continuing to evolve for new palates and pocket books.

McDonalds and the Environmental Defense Fund In some ways, partnering with the Environmental Defense Fund was a masterstroke. It brought both respectability and valued expertise to its environmental efforts. It also provided a primetime venue for EDF to make a difference. Any successes, even if only incremental improvements, would have major ramifications because of the sheer size of McDonalds operations. McDonalds should continue its partnership with EDF. With ecology a growing concern among consumers, it makes sense to be a good corporate citizen and get all the public relations accolades that go along with such an alliance. It also pays off in the bottom line by reducing shipping costs for supplies as well as garbage removal fees. McDonalds would do well to stay in the vanguard of corporations who have become environmentally aware. If it tries to shirk its responsibilities, it can foresee a public relations nightmare in the making. But if it does manage to come up with some breakthroughs through its collaboration with EDF, it can score a tremendous amount of goodwill with the public, which may even provide a halo effect to mitigate any other PR troubles. How far should McDonalds go on environmental issues? There is definitely a public relations benefit in being seen as an environmental leader, and the collaboration with EDF goes a long way in making that happen. Still McDonalds has had a lot of success in giving its franchises some latitude in developing new solutions. The line in the sand in determining how far McDonalds should go with its environmental efforts is determined by the cost of the initiative relative to the hard-dollar benefits and harder-to-quantify public relations buzz it gets from being in the forefront on environmental issues. The bottom line is that environmental efforts cant detract the company from its primary mission of providing consistent quality to consumers. If environmental efforts start to be a drag on the companys future profits, its time to ease up. Ideally environmental initiatives should pay for themselves by reducing other kinds of costs. Dealing With the Product Range Explosion McDonalds had done well with a fairly limited product range. But falling per unit sales is a danger sign for the firm. With competitors gaining ground on McDonalds, it may indicate a need to refresh its product line. Perhaps the best way to do that is by rotating in a couple highly promoted new menu items. This would have the effect of enlivening the product menu, without the need to go head to head with competitors on price. This slackening of per unit sales might also indicate that McDonalds critical success factors have changed. Perhaps in the new environment, fast, convenient service is no longer enough to distinguish the firm. At this time, a new critical success factor may be emerging: the need to create a rich, satisfying experience for dinner consumers.

To maintain consistency in new products as it expands the product line, McDonalds must rely on test marketing new menu items in pilot locations. This approach will let the firm identify which items are likely to prove popular with consumers while ensuring that the company can deliver new products with consistent quality nationwide. McDonalds already has a history of doing this so it will not require major changes to its operations strategyat least initially. If the product line-up gets too large, then the task of maintaining quality becomes exponentially harder. The trick is to consider how to eliminate some of the existing menu items when you introduce new ones, while making sure the staff is fully trained in how to execute these products successfully. Because McDonalds has pretty well saturated the U.S. market, its only real opportunities for growth lie abroad, where the competition is not so cutthroat or by introducing new restaurant concepts under brands other than McDonalds. After all, McDonalds is known for fast food. Its not really a pleasant dining experience, just a cheap and convenient one. I feel that McDonalds has reached the point of diminishing returns with the McDonalds brand and now needs to roll out new types of restaurants. Indeed, McDonalds has the opportunity to apply its core competenciesscrupulous adherence to quality standards and continual promotion of experimentationin new venues. Imagine, if you will, McDonalds opening a new casual dining restaurant under the name of Splendor. It could then franchise that concept nationwide and get some of the dollars from consumers who have grown past fast food. But its fastidious approach to operations would ensure that consumers everywhere would experience the same dining experiencea tremendous advantage for consumers who dont want to be surprised with a bad meal. McDonalds could try a number of concepts simultaneous in different parts of the country. Those that seemed promising could be rolled out further. The duds could be left to die quickly. While this will be an expensive undertaking, it holds the potential to unleash new areas of growth in a maturing market.

Conclusion
McDonalds faces some difficult challenges. Key to its future success will be maintaining its core strengthsan unwavering focus on quality and consistencywhile carefully experimenting with new options. These innovative initiatives could include launching higher-end restaurants under new brands that wouldnt be saddled with McDonalds fastfood image. The company could also look into expanding more aggressively abroad where the prospects for significant growth are greater. The companys environment efforts, while important, should not overshadow its marketing initiatives, which are what the company is all about.

SWOT Analysis McDonald's

Strengths

McDonald's has been a thriving business since 1955 and 20 of the top 50 corporate staff employees started as a restaurant level employee. In addition, 67,000 McDonalds restaurant managers and assistant managers were promoted from restaurant staff. Fortune Magazine 2005 listed McDonald's as the "Best Place to Work for Minorities." McDonalds invests more than $1 billion annually in training its staff, and every year more than 250,000 employees graduate from McDonald's training facility, Hamburger University.

The business is ranked number one in Fortune Magazine's 2008 list of most admired food service companies. One of the world's most recognizable logos (the Golden Arches) and spokes character (Ronald McDonald the clown). According to the Packard Children's Hospital's Center for Healthy Weight children age 3 to 5 were given food in the McDonalds packaging and then given the same food without the packaging, and they preferred the food in the McDonald's packaging every single time.

McDonalds is a community oriented, socially responsible company. They run Ronald McDonald House facilities, which provide room and board, food and sibling support at a cost of only $10 a day for families with children needing extensive hospital care. Ronald McDonald Houses are located in more than 259 local communities worldwide, and Ronald McDonald Care Mobile programs offers cost effective medical, dental and education services to children. They also sponsor Olympic athletes.

They are a global company operating more than 23,500 restaurants in 109 countries. By being spread out in different regions, this gives them the ability to weather economic fluctuations which are localized by country. They can also operate effectively in an economic downturn due to the social need to seek out comfort foods.

They successfully and easily adapt their global restaurants to appeal to the cultural differences. For example, they serve lamb burgers in India and in the Middle East, they provide separate entrances for families and single women.

Approximately 85% of McDonald's restaurant businesses world-wide are owned and operated by franchisees. All franchisees are independent, full-time operators and McDonald's was named Entrepreneur's number-one franchise in 1997. They have global locations in all major airports, and cities, along the highways, tourist locations, theme parks and inside Wal-Mart.

They have an efficient, assembly line style of food preparation. In addition they have a systemization and duplication of all their food prep processes in every restaurant. McDonald's uses only 100% pure USDA inspected beef, no fillers or additives. Additionally the produce is farm fresh. McDonald's serves 100% farm raised chicken no fillers or additives and only grade-A eggs. McDonald's foods are purchased from

only certified and inspected suppliers. McDonalds works closely with ranchers, growers and suppliers to ensure food quality and freshness.

McDonalds only serves name brand processed items such as Dannon Yogurt, Kraft Cheese, Nestle Chocolate, Dasani Water, Newman's Own Salad Dressings, Heinz Ketchup, Minute Maid Juice.

McDonald's takes food safety very seriously. More than 2000 inspections checks are performed at every stage of the food process. McDonalds are required to run through 72 safety protocols every day to ensure the food is maintained in a clean contaminate free environment.

. McDonald's was the first restaurant of its type to provide consumers with nutrition information. Nutrition information is printed on all packaging and more recently added to the McDonald's Internet site. McDonalds offers salads, fruit, roasted chicken, bottled water and other low fat and calorie conscious alternatives.

Weaknesses

Their test marketing for pizza failed to yield a substantial product. Leaving them much less able to compete with fast food pizza chains. High employee turnover in their restaurants leads to more money being spent on training. They have yet to capitalize on the trend towards organic foods. McDonald's have problems with fluctuations in operating and net profits which ultimately impact investor relations. Operating profit was $3,984 million (2005) $4,433 million (2006) and $3,879 million (2007). Net profits were $2,602 million (2005), $3,544 million (2006) and $2,395 million (2007).

Opportunities

In today's health conscious societies the introduction of a healthy hamburger is a great opportunity. They would be the first QSR (Quick Service Restaurant) to have FDA approval on marketing a low fat low calorie hamburger with low calorie combo alternatives. Currently McDonald's and its competition health choice items do not include hamburgers.

They have industrial, Formica restaurant settings; they could provide more upscale restaurant settings, like the one they have in New York City on Broadway, to appeal to a more upscale target market.

Provide optional allergen free food items, such as gluten free and peanut free. In 2008 the business directed efforts at the breakfast, chicken, beverage and convenience categories. For example, hot specialist coffees not only secure sales, but also mean that restaurants get increasing numbers of customer visits. In 2009 McDonald's saw the full benefits of a venture into beverages.

Threats

They are a benchmark for creating "cradle to grave" marketing. They entice children as young as one year old into their restaurants with special meals, toys, playgrounds and popular movie character tie-ins. Children grow up eating and enjoying McDonalds and then continue into adulthood. They have been criticized by many parent advocate groups for their marketing practices towards children which are seen as marginally ethical.

They have been sued multiple times for having "unhealthy" food, allegedly with addictive additives, contributing to the obesity epidemic in America. In 2004, Michael Spulock filmed the documentary Super Size Me, where he went on an all McDonalds diet for 30 days and wound up getting cirrhosis of the liver. This documentary was a direct attack on the QSR industry as a whole and blamed them for America's obesity epidemic. Due in part to the documentary, McDonalds no longer pushes the super size option at the dive thru window.

Any contamination of the food supply, especially e-coli. Major competitors, like Burger King, Starbucks, Taco Bell, Wendy's, KFC and any mid-range sit-down restaurants. McDonald's is the leading global foodservice retailer with more than 31,000 local restaurants serving more than 58 million people in 118 countries each day. More than 75% of McDonald's restaurants worldwide are owned and operated by independent local men and women.

What opportunities and threats did McDonald face How did it handle them What alternatives could it have chosen?
Opportunities 1) "Going green" - energy management, improving packaging efficiency, environmentally friendly refrigerants, and partnering with Greenpeace for rainforest protection 2) New store looks/styles - McCafe coffee shop, and "forever young" redesign Charity - The Ronald McDonald House provides a cheap or free place to stay for parents of sick children. Over 250 worldwide in 48 countries. 3) McDonald's has f maintained an extensive advertising campaign for decades. For popularity they use media (television, radio, and newspaper), the company makes significant use of billboards and signage, sponsors sporting events from ranging from Little League to the Olympic Games, and makes coolers of orange drink with their logo available for local events of all kinds. Television has always played a central role in the company's advertising strategy. They always advertise McDonalds much different way to their customers. Until now, McDonald's has used 23 different slogans in United States for advertising, and few others slogans for select countries and regions. 4) Recently McDonald's is actively trying to reduce their negative impact on the environment by altering their company policies. Their policy now an outline is not only the individual restaurants' behaviors, but also the ways in which they go about using their resources and acquiring them-. Since the 1990's, McDonald's restaurants have been encouraged to participate in the environmentally friendly movement by getting involved in community clean up days to cut down on the amount of litter around their stores. They have made an effort, assisted by Environmental Defense, to utilize recycling both in packaging their products and in what they use day to day which has allowed them to cut down on their waste significantly. McDonald's continues to be environmentally conscious in their business and they are currently testing a restaurant that will potentially give off less harmful pollutants by using alternatives to harmful refrigerants 5) They have the ability to add healthier lines of food. They have already gotten rid of super sizing and I think they have made their fries healthier currently. There is another personify isThe Golden Arches are now more widely recognized than the Christian cross. McDonald's operates more playgrounds - designed to attract children (and their parents) to its restaurants - than any other private entity in the US. Threats Many competitors for same costumer Subway - Burger King - KFC - Taco Bell Criticism - contribute to obesity, and other health problems Leaflet 'A Threat' to McDonalds MCDONALD'S, the biggest fast-food chain in the world, yesterday asked the High Court to stop two London environmentalists from distributing a leaflet which links the company's meals to heart disease and cancer and accuses it of despoiling the environment and exploiting the Third World. Bird flu no threat to McDonald's chicken: Advertisement strategy In a bid to save its plummeting sales of chicken products in mcdonalds, they have planned an exclusive advertisement campaign. //The campaign would ensure that the customers get the message that chicken here is safe. This has been planned by McDonald's Corp., of Oakbrook, Ill. This strategy is a risk and pressure tactic which would ensure that is a epidemic and bird flu

scare spread they can influence the customers. They have already prepared ads and would air them, as soon as needed. It is now a fact backed by scientific research that humans cannot get bird flu by eating chicken that has been cooked and prepared properly. This kills the virus. McDonald's faces up to European fears over food and job quality LONDON - McDonald's is set to admit that it has not done enough to reassure the European market on issues about the nutritional value of its food and the quality of jobs it provides, in a corporate responsibility report to be published next week. According to a report in the Financial Times, the report will admit that McDonald's has learned that "we could do better in our understanding of wider social trends and expectations". It says that the report will quote negative and positive comments given to it in a year of interviews, including accusations that McDonald's "does not value its employees" and that "working at McDonald's doesn't look like much fun". It rejects the claims, and has been working to dispel the McJob tag with which it is saddled. Burger giant faces court threat over bad language idea Fast-food giant McDonald's could be in trouble with race watchdogs for asking its staff to speak English.An outlet in Manchester put up a sign ordering employees to use English at all times in the store - including in the staffroom. But experts now believe the burger giant could have infringed workers' human rights and European employment law. HOW DID McDONALD HANDLE THEM? Mcdonalds handle these threats by by these possible steps. By delivering superior value to customers then competitors. By decreasing health problem. For better performance in Europe Mcdonald has to do a lot of work by providing the taste and dishes which have high demand in europen market. Mcdonald should increase advertisement in Europe. Mcdonald should distribute free sample in different offices and colleges. Mcdonald have to provide the job that person which can attract more customers through his stratigies. Mcdonald should make planning to avoid from bird flu and other diseases in future. Mcdonald can done better performance then his competitors by providing dishes which are a part of that culture. Mcdonald should launch some new dishes according to condition. Mcdonald should provide traditional dishes . WHAT ALTERNATIVE COULD IT HAVE CHOSEN? Mcdonald can use following alternative to increase his value: Mcdonald should stop his product where it's not doing well and take corrective action and check his quality. Mcdonald should open new restaurant in that area where fast food has important part in the culture of that area. Mcdonald has to choose that management which can easily understand the demand of all customer. Mcdonald should decrease its prices in that country where per capita is very low. Mcdonalds should make his manuals which include traditional dishes of that area. Mcdonald should it think at the level of middle customer rather then the high level

customer. Mcdonald should provide bonus to his employees for better performance.