McCafe: SWOT analysis

SWOT Analysis of McCafe

McCafe has a number of strengths as it is a part of McDonalds which is the number one fast food company in the US and offers diverse services in 121 countries around the world, with annual sales of $ 14.7 billion and highest industry profit margin of 12.4%.  McDonalds is a powerful brand known for innovation and caters to multi segments. It is the market share leader in quick service industry in Canada. McCafe has a strong leader in Mr. Ralph Sagro who is highly experienced.

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McCafe offers a full selection of specialty coffee and tea conveniently, quickly and very cost effectively and has been very well received in Burlington. It has a strong partnership with its suppliers and the franchisees. The employees are very well trained and highly motivated. The major weakness of McCafe is that it has a low, 7.1% market share in the coffee consumption sector with a poor reputation for coffee.

The company has number of opportunities that it can take advantage of. The Canadian food industry accounts for $ 32.1 billion (4.3% of Canadian GDP) in annual sales. There has been an explosive growth of the retail coffee industry in Canada over the past five years with a 15% growth annually. At the same time McCafe faces stiff competition from strong coffee competitors including Tim Hartons. There has also been a decline in the market share of breakfast market as McDonalds has been unable to keep pace with the industry growth in the snack business segment. There is also an emergence of substitutes to coffee.

Major environmental factors of the case

Value and convenience are of high priority for the customers in the quick service industry and the availability of large number of restaurant choices has resulted in very low customer loyalty. There is an intense fight for high traffic locations amongst the competition. Increase in franchise activity, mergers, acquisitions and distribution alliances between different quick service operators and coffee competitors are continuously impacting industry structure.

There has been an increase in the concerns related to consumer’s obesity and health. There is also an increase in the awareness about the impact of the waste disposed by the quick service industry on the environment. This has enhanced the impact of the legal and political forces on the business.

Major Concerns about McCafe

The major concern of the company is whether McCafe concept would help McDonalds regain its dominance in breakfast and snack time sales and help the company rebuild its competitive advantage. There is also a feeling that McDonalds Canada is not allocating the necessary operational and marketing expertise to develop its coffee business.

The management is also concerned about the high skill and training that is necessary to produce high quality and tasty coffee consistently. The company is also concerned about the response of major competitors like Tim Hartons towards McCafe.

Alternative actions that McDonalds should consider

McDonalds should explore the possibilities of introducing McCafes through alternative distribution alliances, as coffee is not always consumed along with meals and snacks. Markets can be segmented for Canadian Coffee drinkers to synchronize with their different coffee drinking experiences at different times of the day. The morning experience requires a convenient, dependable coffee source, the afternoon experience requires an atmosphere of relaxation and the night experience is to finish evening meals. Alternative McCafe outlets should cater to the specific needs of the above segments.

Recommendations

McCafe should provide value priced specialty coffee to the different target segments. The company should introduce more ‘combo’ offers to promote coffee sales. McCafe outlets should be expanded quickly before competition responds to its strategies. The company should keep pace with the technological changes in the environment. For example with the advent of internet technology more and more work is being carried out by executives outside their offices. McCafe outlets should provide wi-fi technology to attract coffee drinking executives to stay connected and web links can be provided to customize customer orders. And above all the company should recycle its waste to minimize environmental impact through its actions.

Works Cited

Carpenter and Sanders. Ed “McDonalds and the McCafe Coffee Initiative." Concepts and Cases, Strategic Management: A Dynamic Perspective.., Pearson Prentice Hall, 2007. p. 528.

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