Business writing

BUS 100W

04/29/19

Table of Contents Executive Summary 1 Introduction 3 Financial Analysis 3 Income Statement 4 Liquidity Ratios 4 Market Share 5 Business Strategy 6 Advertising Strategies 7 Conclusion 10 Works Cited 11

McDonald’s is a fast food company that was initially founded in San Bernardino, California, U.S.A by McDonald brothers, Richard and Maurice MacDonald. The Success of the McDonald’s is accredited to Ray Kroc who joined the company in 1955 and eventually managing to buy it in 1961. Kroc valued marketing, and after joining McDonald’s, it spent $2.3 million in advertising which is equivalent to 1% of its shares which came as a shock to many people. The company makes 20% of its sales by focusing on advertisements towards children and toys. Financial analysis of the company shows that the company is performing exceptionally well. The company leads in the market share meaning that its brands are more preferred compared to those of its competitors. McDonald’s business strategy is focused on franchising, standardization of products and services, and maintaining local tastes and preferences which helps in boosting customer loyalty.

McDonald’s is an American fast food company that was established in 1940 by Richard and Maurice McDonald in San Bernardino, California, United States. Initially, McDonald was rechristened as a hamburger stand but later transformed into a franchise. In 1953, the company introduced the Golden Arches logo in Phoenix, Arizona. In 1955, the company welcomed Ray Kroc as a franchise agent who managed to purchase the company shares from McDonald brothers. The original headquarters of the company was based in Oak Brook, Illinois but were later transferred to Chicago in 2018.

McDonald’s company is the largest restaurant chain globally in terms of revenue generation, and by 2018 the total number of outlets amounted to 37855. These restaurants serve more than 69 million customers in over 100 countries. The company is widely recognized for its cheeseburgers, hamburgers, and French fries. However, the restaurants also provide chicken products, soft drinks, wraps, breakfast items, milkshakes, and deserts. Furthermore, the increasing demands to offer healthy foods and the changing consumer preferences have forced the company to include salads, smoothies, fish, and fruits to its menu. The revenue generated by McDonald’s company comes from rent, franchise fees, royalties, and sales made by the restaurants. Two reports produced in 2018 showed that McDonald’s is the 4th leading global employer with more than 1.7 million workers. The purpose of this report is to determine whether McDonald’s is a worthy investment venture.

There was a decrease in corporate revenues generated by McDonald’s company from 8% to $21.03 billion for the fiscal year that ended on December 31, 2018. The company recorded an increase for the net incomes before extraordinary items from 2% to $6 billion. The revenues indicated a decrease of High Growth Markets segment from 28% to $3.99 billion with the U.S segment decreasing from 4% to $7.67 billion (Wu 170).

There was a decline in the revenues generated by the company from 2016-2017 and 2017-2018. There was an increase in the operating income from 2016 to 2017, but a decline was recorded in 2017 to 2018. The incomes before the imposition of taxes increased from 2016-2017 but slightly decreased from 2017 to 2018. Finally, the company recorded an increase in net income from 2016-2017 and 2017-2018 (Wu 175).

The working capital ratio is obtained by subtracting current liabilities from current assets.

The above data shows that McDonald’s company has exceptional performance. The company’s working capital cycle refers to its ability to generate cash from its operations adequately. McDonald’s offers a discount to its franchise clients that allows the organization to generate large amounts of income by reducing its working capital cycle (Wu 180). These financial statements show that McDonald’s company is in a stable condition.

The graph below shows the market shares of the U.S fast food industries in 2015

McDonald’s held 17% of the market share which is by far the largest in the U.S in 2015. Yum! Brands Inc. which owns Taco Bell, Pizza Hut, KFC, and Wing Street emerged the closest competitor of McDonald’s. The five leading fast food industries account for more than 40% of the entire United States market share which generated revenue amounting to 198.9 billion in 2014 ("Fast Food Industry Market Share Worldwide, By Brand 2018 | Statista").

Apart from leading the United States fast food industry, McDonald’s also emerged the most valued food brand in global rating in 2016. McDonald’s had a brand value of more than $88 billion in 2016 which was more than double that of Starbucks, its closest competitor. In the same year, McDonald’s global revenue hit 24.6 billion USD with statistics showing that more than $8.25 billion was accumulated in the United States ("Fast Food Industry Market Share Worldwide, By Brand 2018 | Statista").

Fast foods account for one of the most popular commodities among the United States. In a survey conducted in November 2016, 44% of Americans indicated that they eat in fast food restaurants at least once a week. Children between 2-11 years old were found to watch more than a hundred ads for fast foods every year, and thus the popularity of these foods is perhaps something unsurprising. In this analysis, McDonald’s ranked in the first position with kids aged 2-5 years watching an average of 207.7 of McDonald’s ads, and 6-11-year-old kids watching an average of 253.6 ads in just one year ("Fast Food Industry Market Share Worldwide, By Brand 2018 | Statista").

The business strategy adopted by McDonald’s company utilizes a combination of international market expansion and cost leadership strategies. The company uses franchising and licensing forms of new market entry to a greater extent. At the heart of McDonald’s business strategy is the standardization of products and services. McDonald’s fast food restaurants provide a menu that is substantially uniform comprising of hamburgers, Big Mac, cheeseburgers, Quarter Pounder with Cheese, chicken sandwiches, wraps, salads, shakes, sundaes, and pies (Dudovskiy 1) The uniformly standardized menu also includes Filet-O-Fish, Chicken McNuggets, French fries, oatmeal, McFlurry desserts, soft serve cones, McCafe beverages, coffee, and other beverages.

Apart from the standardization of its products and services, McDonald’s also maintains a keen eye on local tastes and preferences during the process of menu development. The company’s competitive advantage comes from a variety of things. First, the main competitive advantage of McDonald’s comes from cheat prices (Dudovskiy 2). The company thoroughly utilizes the economies of scale to attain the cost advantage. Second, the McDonald’s has remained loyal in offering quality fast foods in its chain of restaurants. The company has gained its fame from its ability to provide speedy customer services without compromising the quality of its products whatsoever. Finally, the company strives to maintain a universal taste for all its similar products, and this has been a significant milestone in attaining its success. For instance, Big Mac tastes almost the same around the globe since the company embarks on using equal quantities of ingredients and a standardized method of cooking. The consistency in taste has a favorable implication on the loyalty of the customers all over the world (Dudovskiy 2).

McDonald’s focuses mostly on investing in advertising and the Franchise model as its primary business strategy. In 1957 the company spent $2.3 million which was equivalent to 1% of its sales in marketing. This was McDonald’s first national advertising company, and the vast sums of money invested surprised many people since they had never seen a fast food company invest that kind of money in advertising. The success of McDonald’s is accredited to Ray Kroc who joined the company in 1955. He started the franchising strategy and eventually bought the company from McDonald’s brothers in 1961 (Keller 1).

The available evidence indicates that Roy valued marketing and advertising “Kroc believed that advertising was an investment that would, in the end, come back many times over, and advertising has always played a key role in the development of McDonald’s corporation.” The company spends around 2 billion USD annually on advertising that targets various groups including children. The company advertises its products for three main reasons (1) to create awareness of their products and services, (2) create a positive feeling among its customers, (3) to make people remember their items with ease. (Keller 1).

McDonald’s invested heavily in an advertisement during its early days of establishment. McDonald’s ads entirely contain catchy praises and messages. The current company’s slogan is “I’m lovin’ it.” The memories of other slogans are still fresh in the mind of consumers. These include “Look for the Golden Arches,” “Do you believe in Magic?” and “Did somebody say McDonald’s?” McDonald’s adverts are mostly focused on children aged between 2-5 years and 6-11 years old. The chart below shows the number of ads viewed in 2012. As evident from the graph, McDonald’s ads were observed three times more compared to those of its closest competitor, Subway, in the advertisement sector (Keller 2).

The company is the largest distributor of toys in the world through a program known as “McDonald’s Happy Meal Toys.” The company makes around 20% of its sales by focusing on advertising towards small kids including their toys. Evidence indicates that McDonald’s distributed more than 1.5 billion toys per year global outcompeting Mattel and Hasbro. A study conducted in 2009 to examine children’s favorite fast foods and the restaurant they loved to dish most often. In this survey, 37% of the kids indicated that McDonald’s was their first choice with 87% and 80% aged 6-7 years and 8-9 years respectively stating that they love getting a toy with their meals (Keller 3). However, many people have accused McDonald’s arguing that its tactics of advertising draws more children to love fast foods which increase childhood overweight and obesity.

Based on the above analysis, one can make a unanimous conclusion that it will be viable for CM Burns to invest its capital in McDonald’s due to a variety of reasons. First, the financial statements show that the company is performing exceptionally well and investing more capital means more profits for the company. Second, the company leads in the market share meaning that its brands are more preferred compared to those of its competitors. Fourth, McDonald’s enjoys one of the best business strategies that use a combination of international market expansion and cost leadership strategies. The business strategy is based on franchising, standardization of products and services, and maintenance of local tastes and preferences which boosts customer loyalty. Finally, McDonald’s is famous for its use of catchy messages in the advertising strategy that mostly targets kids which helps it to make 20% of its sales by focusing on children and toys.