Analysis of McDonald’s Corporation

Abstract

This report presents a business and marketing analysis of McDonald’s Corporation, one of the biggest brands in the fast food industry. This report highlights the main business activities of the organisation, as well as provides an overview of the fast food retail industry and McDonald’s the competitive environment of McDonald’s. The market entry strategy of McDonald’s and a critical analysis of its marketing mix are also presented. In conclusion of this report, an analysis the company’s international marketing strategy and recommendations for the future are provided.

1. Introduction: McDonald’s Company Overview

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McDonald’s is one of the most well-known and biggest global corporations in the world today. It is the leading global service food retailer with over 34,000 fast food restaurants in over 119 countries. The company estimates that it serves around 69 million people each day around the world.

McDonald’s focuses its business strategies on five elements – People, Products, Place, Price and Promotion. With these in mind, the company has enhanced and tailored the restaurant experience to adapt to the needs of their customers worldwide. This business strategy, combined with sound financial management and financial discipline, has delivered strong results for the company and helped it to continue its expansion plans (McDonald’s 2013).

McDonald’s utilises a franchise business model in maintaining and expanding its operations. This business model is credit for much of the McDonald’s’ success and allows the company to ‘deliver consistent, locally-relevant restaurant experiences to customers and be an integral part of the communities we serve’ (McDonald’s 2013, p.1). The franchise business models also enables the identification, implementation and scaling of innovative ideas, which aid in meeting customers’ changing needs and preferences.

McDonald’s is primarily a franchisor. As of 2010, 80% of the company’s restaurants are franchised. Almost 59% of McDonald’s’ outlets are conventional franchises; while 21% are licensed to foreign affiliates or developmental licensees. Around 20% are directly operated by the company (McDonald’s 2013).

In 2012, total revenues reached USD$ 27.5 billion. This is a 2% growth from its 2011 figure. Based on data for the past six years, the company had the highest growth rate in 2010-2011 at 12%. However, the company experienced a steep decline the following year, with growth rate at only 2%.

Table 1. McDonald’s 6 Year Summary (Millions)

Dollars in millions, except per share data 201220112010200920082007
Company operated sales18,60318,29316,23315,45916,56116,611
Franchised revenues8,9648,7137,8427,2866,9616,176
Total revenues27,56727,00624,07522,74523,52222,787

Table 2. McDonald’s 6 Year Percentage Growth

Year on Year Percentage Growth2011-20122010-20112009-20102008-20092007-2008
Company operated sales2%13%5%-7%0%
Franchised revenues3%11%8%5%13%
Total revenues2%12%6%-3%3%

2.Industry Overview and Competitive Environment

McDonald’s operates in the fast food industry, which involves selling foods and beverages for immediate consumption either within the retail premises or as “take away.” The market may be categorized in to the following segments: QSR (Quick Service Restaurants), Leisure Locations, Mobile and Street Vendors, and Takeaways. In 2011, the global fast food market grew by 6.8%, reaching USD $253 billion in total value. The compounded yearly growth rate from 2007 to 2011 was at 5.2%. QSR is the most lucrative segment, generating over $167.8 billion in revenues; which is equivalent to 66.4% of the total market value (Research and Markets, 2013).

McDonald’s, together with other players such as Burger King, dominate the burger segment (Reynolds, 2013). The market is comprised of many independent restaurants, as well as large chain outlets. To a reasonable extent, competition is intensified by the low entry costs and the ease with which already established companies can increase volume or grow outlet numbers.

Within the restaurant industry, players focus more on fast food where profitability is dependent on high turnover activities. The degree of price competition is usually high within this industry with many companies, including McDonald’s, focusing on the same target market. Competitors range from fast food restaurants, traditional fish and chips outlets, coffee shops, and other fast food businesses (Brotherton, 2012). Key competitors to McDonald’s are other similarly large and well-established global fast food chains such as Burger King, Wendy’s Co, and Yum Brands. Although it is not actually a fast food chain, Starbucks is also considered as a major competitor of McDonald’s due to its immense popularity, especially in the US. McDonald’s McCafe chains are considered as more of a competitor to Starbucks.

Table 2. Profile of McDonald’s Top Competitors

CompetitorProfile
Burger King Corporation·Operates over 12,174 fast food outlets in the US and has others in over 76 countries across the world

·Has 1,387 company restaurants as well as 10,787 independent franchises
Domino’s Pizza Inc.·The leading pizza delivery firm in the US

·It runs a network of about 8,999 outlets, both franchises and company-owned stores in US’s 50 states and other 60 world countries.
Starbucks·A global coffee company based in the US

·It is the largest coffee shop chain in the world with over 20,800 stores in 62 countries
Wendy’s Co.·Wendy’s/Arby’s Group, arose from a merger between Wendy’s International and Triarc Companies

·Wendy’s/Arby’s group is a popular quick service restaurant operator, franchising the Wendy’s and Arby’s brand names within the US and Canada.

·The total number of franchises for this group is over 10,000.
Yum Brands Inc.·Yum runs several branded restaurant chains including Kentucky Fried Chicken, Pizza Hut and Taco Bell

·In total, it has over 39,000 restaurants spread in over 125 countries.

Source: Key Note, 2012

Figure 1. Market Share of Fast Food Chains in the US (2006-2011)

3. Market Entry Strategy

Historically, McDonald’s has experimented with a variety of market entry strategies (Hendrikse, 2008). Currently, some of the outlets are run by the company, while most of them (more than 26,000 outlets) are franchises. McDonald’s franchise arrangements comprise conventional franchise engagements, developmental license arrangements, and foreign affiliates. Of all franchises, the corporation runs 19,279 conventional franchisees, 3,574 affiliates and 3,485 developmental licenses (McDonald’s, 2013).

Currently, McDonald’s is one of the biggest franchisors in the world. The company has implemented a comprehensive framework for engaging, training, and monitoring its franchises to make sure that they abide by McDonald’s’ Values, Quality, Cleanliness and Service plans (Moschandreas, 2000). These franchisees are required to pay a fixed fee plus a certain percentage of the generated revenues. They operate basically as independent entities within a national brand structure where they purchase various inputs from the approved contractors and also determine their own prices.

The first international market expansion experiment by McDonald’s was to establish an outlet in the Caribbean with limited supervision by the company. After the failure of this first attempt, the firm experimented with a joint venture strategy in Netherlands. In this experiment, the local stores involved replaced the usual McDonald’s menu offerings with based on local preferences. The company decided to abandon its old strategy where stores would be run by local entrepreneurs and instead engaged a combination of both local and expatriate partners (Marketwatch, 2005). Unfortunately, the result was disastrous; forcing McDonald’s to revise its entry strategy. This made way for the second phase of entry, which was centred on adapting versus changing local culture.

Despite some initial failures, McDonald’s continued to experiment with market entry strategies in foreign markets. For example, in India, the company established as a 50-50 joint venture partnership. This arrangement was between McDonald’s USA and two other Indian businessmen, Vikram Bakshi and Amit Jatia, who owns Connaught Plaza Restaurants and Hard Castle Restaurants respectively (Gerhardt et al., 2012). The joint venture partnership was different from McDonald’s usual franchise business model but it was seen as the best way to successfully enter India’s highly diverse and complex restaurant industry.

4. McDonald’s Global Marketing Strategy

The marketing mix is a framework consisting of the basic, strategic components of a firm’s marketing plan. The components are referred to as the 4P’s denoting product, promotion, place, and price (Chon et al., 2012). Marketers decide the right mix to use where they can alter the final product or service offerings to customers by varying the components of the mix. This section analyses McDonald’s marketing mix to find out what the foodservice retailer has done to position its products in the market.

4.1. Product

Product is probably the most important element of McDonald’s’ marketing mix. The company has tightly controlled its products’ quality so as to induce demand from the target market (Verma, 2012). With the support of the other elements, McDonald’s has managed to develop a broad product portfolio to attract a broad market segment. The company’s products are planned carefully, considering aspects such as quality, design, shape, brand name, services, size, services, and packaging. McDonald’s also oversees the operations of all its restaurants to guarantee uniformity of standards in product quality and services offered.An important matter when it comes to international marketing relates to how a firm adapts its products across national boundaries. McDonald’s, like many other internationally recognized brands, uses standardization to ensure that its products appeal to a wide audience. This is a very important marketing aspect because the company must ensure that its global brand is preserved. Therefore, McDonald’s restaurants across the word offer a substantially standard menu. However, according to Thomadsen (2007), some variations are necessary to make sure that the different needs of consumers in different regions are addressed. As such, McDonald’s has made effort to adapt some of its products to some markets. This is necessary because consumers in different areas have diverse needs, tastes and preferences, and different consumption and buying habits.

A good example of McDonald’s adaptation strategy is the Indian market where the company, on top of trying to market its international brand, has made several modifications to its products to make sure that they are suitable for Indian consumers. The Indian market consists of a large number of vegetarians. Therefore, the company found it necessary to modify its product offerings to cater to this market segment. This led to the introduction of vegetarian foods such as McAloo Tikki and McVeggie Burgers. The company has made sure that the separation of the two food categories (vegetarian and non-vegetarian) is maintained. Also, in India where cows are considered sacred, burgers are either fish or chicken in instead of beef (Armstrong & Kotler, 2005).

McDonald’s constantly innovates its product offerings based on the changing needs and preferences of its customers (McDonald’s, 2013). Additionally, intense price competition increases McDonald’s motivation to differentiate itself from other industry players. Applying a differentiation strategy can help a company to control price competition to some extent (Thomadsen, 2007).

It can be surmised that McDonald’s is not a global retailer of exclusively American food because it offers modified menus to suit different regions. The brand and the format are globally consistent; however, certain customer-oriented components like individual menu offerings and service personnel are tailored to suit local preferences.

4.2. Price

Price is another very important element of a marketing mix. This refers to the amount that consumers are required to pay so as to obtain products and services. McDonald’s has always been dedicated to providing quality food products for reasonable prices (Datamonitor, 2012). Therefore, the company has developed a pricing structure to support this objective. Historically, the company has had several value bundling and pricing tactics such as Combo meals, Happy Meals, Family Meals, and others. The dollar menu is one of the most significant price strategies adopted by this firm.

4.3. Place

Another very important element of McDonald’s marketing strategy is place. In general terms, place refers to the mechanisms (distribution, intermediaries or channels), which enable the firm to supply its products to the final consumers (Thomadsen, 2007). McDonald’s has strategically situated its outlets to make sure that customers have easy and convenient access to its products. The best example is the United States where the walking distance to a McDonald’s outlet averages three minutes. In smaller market regions, McDonald’s locates it outlets close to the market centre; while in large markets, it chooses locations which are on the opposite sides of the market. Compared to its closest competitor, Burger King, McDonald’s locates outlets closer to optimal central locations. In a nutshell, McDonald’s is all about convenience (Datamonitor, 2010).

4.4. Promotion

In a marketing mix perspective, promotion encompasses the various marketing communication modes that McDonald’s uses to communicate information about its products in order to generate positive response from its consumers (Mishra, 2009). McDonald’s devotes a vast amount of money to global advertising, with the aim of promoting its image. It has used several advertising formats such as print publications, billboards, radio, television, and the internet. In order to increase awareness and create a lasting image in the minds of its target market, McDonald’s has creatively employed slogans such as:

“It’s a good time for the Great Taste of McDonald’s”
“Food, Folks, and Fun”
“We love to see you smile”
“I’m Lovin’ it”

McDonald’s strives to position itself as a fun family restaurant and has implemented several tactics to achieve this goal. A very effective strategy that has enabled the company to differentiate itself from other companies is invention of the Ronald McDonald character. This character was invented to symbolize the company and has become a recognizable figure. The show “The Wacky Adventures of Ronald McDonald,” produced under the sponsorship of the company, is an outstanding promotional strategy that leaves every kid craving the McDonald’s experience (McDonald’s, 2013). The company also positions itself as a family fun restaurant by setting up play areas in its outlets.

With the use of various strategies, McDonald’s has built a strong image. This has greatly helped the company not only to grow but also to stave off the competition (Chon, Pizam, & Mansfeld, 2012).

5.

McDonald’s Corporation has always been determined to remain ahead of competition. Its international marketing strategy employs several tactics, which has enabled the company to emerge as one of the market leaders in the fast food restaurant industry.

The success of a business greatly depends on the effectiveness of the strategies it adopts. McDonald’s’ strategies have proven to be effective as evidenced by the level of success that the company has achieved to date. The initial strategy for the company involved taking standardized American practices to other parts of the country. The initial resistance and failures that it experienced forced the company to change their strategy and instead adapt itself to the different preferences of its target market.

References

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Daley, J., 2013. Do you want truffle fries with thatEntrepreneur, 41(1), pp.124-29.

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Mishra, P., 2009. Sales management: Keys to effective sales.. New Delhi: Global India Publications.

Moschandreas, M., 2000. Business Economics. London: Thomson.

Research and Markets, 2013. Fast Food: Global Industry Guide. [Online] Available at: http://www.researchandmarkets.com/reports/564112/fast_food_global_industry_guide [Accessed 9 March 2013].

Reynolds, J., 2013. McDonald’s runs ad to knock rival Burger King. Marketing Magazine, 25 January.

Thomadsen, R., 2007. Product Positioning and Competition: The Role of Location in the Fast Food Industry. Marketing Science, 26(6), pp.792-804.

Verma, H.V., 2012. Services marketing: Text and cases. New Delhi: Pearson Education.

Wendy’s, 2013. The Wendy’s Company. [Online] Available at: http://www.aboutwendys.com/Our-Company/ [Accessed 9 March 2013].

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