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Instructor
Course
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McDonalds
Strategic Analysis
Executive
Summary
McDonald’s
is a US restaurant company that operates in the fast food industry, especially
selling hamburger. The restaurant conducts its activities as a retail outlet
and it has a sizeable number of subsidiaries internationally. The firm uniquely
designs its products to retain market leadership over its rival companies
(Bassi et al. 905). Despite differentiating its commodities, competition still
exists in the market from other well-established businesses. Apart from facing
competition, the restaurant also faces other challenges such continued law
suits against the firm due to tax evasion. Additionally, the firm is currently
considering expanding its operations to the Asian market as a strategy of
improving its economies of scale (Watson 44). This paper covers the strategic
analysis of the company both internally, externally, and compares the
performance of McDonald’s across the industry.
External
Analysis
Technologies
and Development
The company
has improved its meal toys that are meant for kids over the years. The toys
were initially manufactured and designed with mechanical portable parts that
fastened the movement of toy characters. Currently, the toys have evolved and
the firm now uses digital games in conjunction with the toys. An example of the
toys is ‘’Rocking Horse’’ that displays a horse movement when children tiger it
through a rocking action. Another innovation is culinary. The innovation is
targeted to producing quality food items (Bassi et al. 926). The objective is
achieved through a Coudreaut team that prepares over 1,800 new recipes and only
a few of the meals are selected. The project ensures that the company invents an
easy and tasty meal that meets customers’ taste and preference. Currently, the
innovation has achieved producing delicious and famous Walnut Salad and Fruit
as well as a Premium Chicken Sandwich line.
More so,
the company is currently aiming at creating a green environment where its
products are not dumped but recycled. Recycling saves the resources of the
company and ensures that it operates in a healthy surrounding. The strategy is
to improve the welfare of the society through social responsibility. Also, the
firm improves food safety and ensures that they are of better quality. Finally,
the company intends to develop its operations by moving to certain events such
as FIFA 2010 Olympic Games for the youth that occurred in Singapore.
Opportunities
There
are several gaps that are available to McDonald’s to exploit. For example,
McDonald’s is considering opening new branches in Asia to diversify its
operations. Also, the company has various branches internationally. The
strategy is to diversify its operations and improve its sales and
profitability. All the same, McDonald’s is constantly seeking for information
about customers’ taste and preferences so that it can redesign its products
according to the changing needs of consumers. Similarly, the restaurant is experimenting
the market with more customizable burgers. The firm believes that it can expand
its menu to better and healthier product choices including Mc-Wraps that it
considers reverting Millennials to its doors. Finally, the restaurant is
considering offering services that are more convenient to consumers. The
services include payment technologies and mobile ordering that are intended to
make its services more appealing to tech-savvy customers.
Threats
McDonald’s
is experiencing competition from other established companies such as Chipotle
and Panera that are offering stronger appealing products to consumers. Consumes
prefer better quality, variety and natural sourcing policies from the firms.
The threat puts pressure on the restaurant to continuously review its goods and
services that they offer to ensure that they meet customers’ taste and
preferences. McDonald’s major market lies in the US where the food industry has
been constantly growing (Liddell, Sterling and DeeVon 290). Currently, there
are over 21,000 food stores across the US that has led to improved competition
within the industry. The recent trends show that dinners that are between 20
and 30 years of age are deflecting from purchasing McDonald’s products and
transferring to other rival firms such as Chipotle or Five Guys.
Moreover,
there are various substitute goods that serve the same consumers as McDonald’s.
Therefore, consumers are driven by price elasticity of demand of the services
and good that they receive. Notwithstanding, there are various companies within
the nation that serves the same purpose and customers as McDonald’s. For
instance, McDonald’s and Burger King Hamburgers serves and satisfies the same
group of customers across the country, which render them substitute products.
Similarly, the price elasticity of demand for the two firms is considered
positive (Liddell, Sterling and DeeVon 290). For instance, a slight change in
one of the companies’ commodities impacts the value of the products offered by
the other restaurant.
On the same
note, substitute products allow consumers to have a variety of options to
choose from, which forces the firms to be more innovative to raise the quality
of their goods at favorable prices.
Finally,
the cultural practices and beliefs of the target consumers should also be put
under consideration. For instance, the Muslim communities do not eat Pork.
Therefore, the problem becomes a threat where the company has branches within
such a society. Therefore, to respond to the challenge, the firms should
consider innovating and using a substitute commodity in such areas. The
substitute good should be in line with the customers’ taste and preferences.
Internal
Analysis
Company’s
Resources
McDonald’s
has both tangible and intangible assets. The tangible assets of the company
include physical wealth such as location of the building that has a capacity of
50 persons and the latest storing and cooking equipment. Apart from the two, it
also has a play place for children and one television. Also, the company has various
human resources such as the experienced employees that work at its outlets.
Labor is considered the most important resource that a company can possess. Qualified
workers ensure that employees receive the best services that they require. More
so, the company receives financial services from two wealthy banks. The banks
include MayBank and CIMB that finances its activities. The final tangible
resource of the firm is its organization (Liddell, Sterling and DeeVon 302).
The company acts as a training center where managers and crew can daily
interact. Therefore, the training acts as an important foundation that is
offered by the company.
Apart
from the tangible assets, the firm also has intangible assets such as translating
operating practices and directions into capabilities. The idea is known as systematization
and it resumes that can articulate the process as a section of its
capabilities. McDonald’s is concerned of knowledge management which forms the
basis of its system. Hence, the operating practices has become part of each
worker and gives an attention from management through training programs.
Strengths
McDonald’s
has various advantages in the market. For example, the firm’s logo is
recognizable by various people globally which helps in advertising the company
and its products to new customers. Also, the restaurant spends a lot of money
yearly in training its employees. The training ensures that its workers and
more competent and offer quality products to the consumers. Similarly, training
workers provides job security to its staff that acts as an incentive and draws competent
and skilled employees from its rivals. Strength of the company lies in its brand
reputation ("Keystone Foods LLC SWOT Analysis." 4) The firm’s
products are designed uniquely from those of its competitors. Product differentiation
makes consumers to be less price sensitive since they will believe that the
company offers quality products irrespective of the prices that they charge.
Finally, the company can adapt to various cultural practices of people
globally. For instance, the firm serves lamb burgers in India instead of pork
and meat burgers. Lamb burger is in line with the cultural and religious
beliefs within the area.
Weaknesses
Over
the years, McDonald’s have tried to market its Pizza but their effort has not
been successful. This has limited the company from competing with other fast
food pizza outlets within the nation. The challenge results in forgone profits
that the company could have attained if the pizza chain could have succeeded in
the market. Another weakness that the business experiences is high training fee
for staff members that are working on part time basis ("Mcdonald's
Corporation SWOT Analysis" 4). The temporary staff frequently moves
from the firm if they find other job opportunities which are more secure.
Finally, McDonald’s still needs to explore organic foods when promoting health
living. The research requires a lot of capital outlay to be completed
successfully.
Strategic
Positioning
Value
proportion is intended to make a firm’s products more attractive to consumers. McDonald’s
achieves value proportion by differentiating its products. The commodities are
designed uniquely from those of other rival firms. McDonald’s conducts frequent
projects intended to create a unique product that meet consumers’ taste and
preference. For instance, the company sells lamb burgers to the Indian
community which is unique to the products of other rival companies (Bassi et
al. 905). Another value proportion adopted by the company is charging lower
prices to its consumers. McDonald’s targets children as the major customers for
its commodities. Therefore, the products are sold at lower prices that are
accepted by the customers. Low prices increase sales and profitability of the
company despite the fact that its profit margin will decline it will still make
profits.
Also,
McDonald’s improves the services that it offers to consumers to make them more
certified. The company employs experience workers that ensures that the
products that are produced meets the needs of end users. Moreover, the firm
offers free delivery for takeaway services. The delivery services are available
to those who live around the region where its branches are located. To add, the
branches are spread all over the nation as well as other countries.
Finally,
the company operates in a clean environment. The firm recycles its products to
prevent pollution that may occur if the products were dumped and not recycled. In
addition, the firm is consistent in the type of products that it offers and its
services are more convenient to consumers. Similarly, the company has
maintained a better relationship with the people that live around it. Being
friendly to consumers attracts more people to become its customers.
Financial
and Operating Performance
From
the valuations given in the table below, it is evident that the company is
performing better than the industry in all the parameters such as sales, cash flows,
and dividend yield except for earnings. The statement of financial position
proves that the company has large quantities of intangible assets. The liquidity
position of the company is also high as indicated by the current liability
portion of the balance sheet. From the income statement, it is evident that the
firm makes large quantities of sales and profits.
The
operating performance of the company is evident from its cash flow statements.
The cash statements indicate that the firm has more cash inflows than cash
outflows. The cash movement within the company is also high, which means that
the firm transacts business of large quantities daily. The price to cash flow
ratio also proves that the company’s cash flow is greater than that of the
industry.
Diversification
and Internalization Strategy
McDonald’s
franchise most of the assets that it uses. Franchising enables it to expand its
operations to other nations where it had not established before. Also, the firm
is trying to diversify the types of products that it sells to reduce risk of
one product collapsing. For instance, the firm initiated McCafe intended to
capture cold and hot beverages in the restaurant industry. The menu that the
firm offers includes smoothies, lattes, hot chocolate, coffees and cappuccino
(Liddell, Sterling and DeeVon 300). The products diversify the risk which the
firm may be exposed to in case one of its products fails in the market. The
internalization strategy that the firm has adopted of franchising the
commodities that it uses enables it shares the risks and rewards with other
companies. To add, the company has invested a lot of its wealth in innovation.
Through technology, the firm will be able to produce quality goods that meet
consumers’ taste and preference.
Disruptive
Threats and Entrepreneurial Opportunities
The
firm faces disruptive threats from adverse government regulations in the other
areas where it operates. The laws include the unfair labor regulations that do
not favor the company in terms of operational cost (Sherman, Herbert, Daniel and Barry 165). The firm also
has entrepreneurial opportunities of identifying gaps that has not been
exploited. For example, the company is currently considering opening a subsidiary
in India to capture the market in the area. The firm has designed a Lamb Barger
to that is in line with the culture of Indian’s.
Recommendation
The
fast food industries are currently experiencing uncertainties in the market.
Therefore, a firm should adopt proper strategies to enable it remains in the
market. So far McDonald’s is considered the largest fast food industry
globally. However, the rival firms constantly strategies to outdo McDonald’s.
McDonald’s management need to spend more money on research and development to
ensure that its products remain relevant in the industry. This will ensure that
the company remains competitive and keeps a hedge over its rivals. The major
focus for successes lies on efficiency and competitive prices. Therefore, the
firm should give customers priority so that they do not transfer to the other
rival firms.
Works
Cited
"Keystone Foods LLC SWOT
Analysis." Keystone Foods LLC SWOT Analysis, 28 Sept. 2017,
pp. 1-7. EBSCOhost.
"Mcdonald's Corporation SWOT
Analysis." Mcdonald's Corporation SWOT Analysis, 13 Oct. 2017,
pp. 1-8. EBSCOhost.
Bassi, Matteo, et al. "Product
Differentiation by Competing Vertical Hierarchies." Journal of
Economics & Management Strategy, vol. 24, no. 4, Winter2015, pp.
904-933. EBSCOhost, doi:10.1111/jems.12115.
Liddell, Sterling, and DeeVon Bailey.
"Market opportunities and threats to the US pork industry posed by
traceability systems." The International Food and Agribusiness
Management Review 4.3 (2001): 287-302.
Sherman,
Herbert, Daniel J. Rowley, and Barry R. Armandi. "Developing a strategic
profile: the pre-planning phase of strategic management." Business
Strategy Series 8.3 (2007): 162-171.
Watson, James L., ed. Golden
arches east: McDonald's in East Asia. Stanford University Press, 2006.
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