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McDonald’s Company Strategies 9
Week 8 Assignment 3: McDonald’s Company Strategies
Heather Ureno
Strayer University
BUS499 Business Administration Capstone
Dr. Grizzell
Dr. Gardner
November 24, 2019
Week 8 Assignment 3
Introduction
McDonald’s corporation is a fast food American organization that was started in 1940 and has grown tremendously over the years. Currently, the company operates in 101 nations globally and it has more than 36,000 restaurants that serve more than 69 million individuals daily. In 2018, the organization had a total revenue of $21.03 billion which indicates that it is one of the leaders in the food and beverage industry. Some of the main products of the company include snack wrap, premium salads, baked apple pie, happy mean and double cheeseburger. The following paper analyzes the business level strategies, corporate level strategies, competitive environment and the market cycles associated with the company.
Business-Level Strategies
McDonald’s utilizes the cost leadership business level strategy which entails minimizing costs in order to offer products that are cheaper compared to those of the competitors. Under the cost leadership strategy, the company utilizes the market penetration strategy to ensure it is able to expand the customer base and provide high quality products while still maintaining cheaper prices. Through the strategy, it is able to expand its customer base by reaching more consumers in the markets it is already established. The low costs and low prices empower the organization to easily penetrate markets.
McDonalds runs on low margins and provides basic fast food meals at relatively low prices. It has a division of labor that allows the recruitment of freshers rather than trained cooks and also relies of few managers (Rothaermel, 2017). The company tries to save in various processes thus it is able to reduce the price of the products they offer.
The organization has created core competencies in supply chain management which include manufacturing and distribution in order to maintain low costs. It is now focusing on establishing itself in areas such as Africa and Middle Eastern nations where it is yet to operate. Based on the cost leadership strategy, the company aims at providing low priced products in the new locations in order to attract consumers. The company pays great focus on innovation through developing additional products such healthy drinks and high-quality coffee. The company directly competes with Starbucks in offering high quality coffee, but it differentiates itself by offering the product at a low price therefore attracting more consumers (Gassmann, 2017).
The company has a cost advantage compared to the competitors because it produces products at a lower cost. This is as a result of efficiently managed operations, efficient technologies and low costs of distribution and sales. As a result, the company sets its product prices below those of the competitors in order to attract more customers and widen market shares.
Corporate-Level Strategies
McDonald’s utilizes a single business unit strategy as its corporate level strategy. A single business strategy exists when an organization gets more than 95% of its revenue from a single business activity. McDonald has specialized in a single industry which is the fast food industry and acquires all its revenue there. I believe that this strategy is very crucial for the long term success of the company because it makes it possible to easily adjust business plans due to the fact that all departments have the same operational procedures and business strategies. A single business unit strategy is very important for the expansion of an organization. McDonalds has specialized in the fast food industry and it greatly understands the aspects involved in expanding to other economies. Currently, the company is focusing on expanding into growing economies especially those of Asian nations. The company is interested in Asian markets because they have a great income potential. Some of the Asian markets the company already enjoys great success include Tokyo, United Arab Emirates and Beijing (Thompson, 2016). There are other markets in Asia that provide the promise of high sales, great market shares and profit for McDonalds. The company is also aiming at accelerating its expansion in China by raising the number of restaurants in the nation by 2,000. Through this, it will be able to greatly drive its sales leading to higher profits. Even though the company deals in a single business, it does not replicate its business models in all markets. The company extensively researches a market to identify its needs and preferences in order to offer products and services based on those needs. Recently, the company sold most of its China business to Citic and Carlyle in order to be able to greatly understand the local market. Citic took a 52% stake while Carlyle tool a 28% leaving McDonalds with a 20% stake (Schmid, 2018).
Concentrating on a single business enables an organization gain power, market share and loyalty from consumers. This is because the company runs many strategies and plans to determine the perfect ones for the needs and preferences of the consumers. However, this is very risky in the long run especially if the company is unable to adequately meet the needs and preferences of the consumers because it will not be profitable and will eventually lead to bankruptcy.
The company diversifies its operations in a variety of ways. It utilizes related diversification to develop similar products which are mainly salads and burgers but offers them in various choices such as Big Macor Mac Chicken. The company also operates in different areas but conducts the same task. It has also managed to open MC cafes globally. Through related diversification, the company has many advantages. For instance, in case there are two McDonald’s restaurants in the same city, the two can build a synergy through coordinating together to enjoy similar facilities (Rodrigues, 2016). The facilities include advertisements and charity events. By focusing on the same thing, the company is greatly able to pay attention on customer service, response to competition and utilization of marketing techniques. As a result, consumers needs and preferences are greatly met thus enhancing customer loyalty and satisfaction. McDonalds will continue being a leader in the industry due to its capacity to identify and meet the changing needs and preferences of the consumers.
Competitive Environment
The greatest competitor of McDonalds is Burger King. Burger King has entered a partnership with Seattle’s Best Coffee which is owned by the giant Starbucks in order to add premium coffee to its breakfast menu. Burger King operates in 60 nations and in 2019, it generated a total revenue of $21.6 billion. The organization acquired a slightly higher revenue than McDonalds which indicates that it is also a leader in the food and beverage industry and a great competitor of McDonalds. Despite the great competition in the fast food market, Burger King has been able to develop a strong brand position thanks to its effective growth strategies. The company utilizes a product differentiation strategy as its business level strategy. Under the strategy, the organization utilizes a product development strategy to grow by introducing new products based on the needs and preferences of the consumers. The company gradually introduces new products to the market while observing the response of the consumers. It pays great attention on product innovation in order to differentiate its products and ensure they are very unique compared to those of competing organizations. McDonalds also focuses on product differentiation but puts more emphasis on lowering cost. This may be a great strategy of acquiring and retaining customers so long as the company also focuses on producing unique products. In the long run, the organization that will be most successful is the one that will be able to provide unique products at an affordable price.
The corporate level strategy of Burger King is majorly based on growth. The organization pays greater attention on market penetration and market development. The main aim of the company is to increase its revenue from the existing markets. It often opens new restaurants in its existing markets in order to have a greater market share. It aims at increasing its franchise network in order to efficiently penetrate markets and its growth strategy is supported by the unique products offered (Lee, 2017). The company also focuses on market development which involves entering new markets. Just like McDonalds, Burger King aims at creating a strong market position in the Asian region and it is operating in various Asian countries such as Singapore, South Korea, Taiwan and Japan. Just like McDonalds, Burger King acquires 95% of its revenues from the fast food industry.
Based on the analysis of the two companies, I believe that in the long run Burger King will be more successful than McDonald’s. McDonald’s operates in 101 countries globally while Burger King operates in 60 countries and despite this, Burger King was able to acquire greater revenue than McDonald’s in 2018. Despite having less operations compared to McDonalds, the company was able to generate more revenue because of its emphasis on product differentiation (Bai, 2015). McDonalds has really been able to offer low priced products but when it comes to product differentiation, it is not that efficient. The company that will succeed more in the future is the one that will not only focus on the product cost but also the uniqueness and as per now, Burger King has more unique products.
Market Cycles
A slow cycle market is a market whereby resources are shielded and a particular company maintains monopoly over the market making it difficult for competitors to penetrate it. Currently, this kind of market cycle is very rare. On the other hand, fast cycle markets are markets whereby the competitive advantages of a company are not shielded and they can easily be imitated (Hitt, 2013).
My choice from Question 3 would not change in both slow-cycle and fast-cycle markets. Burger King has extensively invested in research and innovation therefore it is always making adjustments to the existing products and introducing other new innovating products. In a fast cycle market, even if its products are imitated, it can easily develop other unique products therefore it will always stay ahead of the competitors. In a slow cycle market, Burger King would still be successful because it offers high quality products that are unique and fairly priced. The commitment of the company in research and innovation is what makes it stand out when compared with McDonalds and in slow cycle or fast cycle markets it is still likely to emerge victorious.
Conclusion
McDonald’s utilizes the cost leadership business level strategy which entails minimizing costs in order to offer products that are cheaper compared to those of the competitors. The company has a cost advantage compared to the competitors because it produces products at a lower cost. This is as a result of efficiently managed operations, efficient technologies and low costs of distribution and sales. It utilizes a single business unit strategy as its corporate level strategy. It has specialized in the fast food industry and it greatly understands the aspects involved in expanding to other economies. Burger King is the direct competitor of McDonald’s. It utilizes a product differentiation strategy as its business level strategy. Under the strategy, the organization utilizes a product development strategy to grow by introducing new products based on the needs and preferences of the consumers. Its corporate level strategy is majorly based on growth. It focuses on market penetration and market development with a main aim of the increasing its revenue from the existing markets. Based on the analysis of the two companies, Burger King is likely to be more successful in future due to its focus on product research and innovation. The company that will succeed more in the future in the fast food industry is the one that will not only focus on the product cost but also product uniqueness.
Sources
Bai, L., Yan, S., Zheng, X., & Chen, B. M. (2015). Market turning points forecasting using wavelet analysis. Physica A: Statistical Mechanics and its Applications, 437, 184-197.
Gassmann, O., Frankenberger, K., & Sauer, R. (2017). A primer on theoretically exploring the field of business model innovation.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management: Concepts and cases: Competiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning.
Rodrigues, J., Nikhil, S., & Jacob, S. (2016). Promotional Strategies of McDonalds and Market Effects. Journal of Management Research and Analysis, 3(1), 53-55.
Rothaermel, F. T. (2017). Strategic management. New York, NY: McGraw-Hill Education.
Schmid, S., & Gombert, A. (2018). McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth?. In Internationalization of Business (pp. 155-171). Springer, Cham.
Thompson, S., Shums, A., Chan, C., Lee, A., & Tong, J. (2016). BUSINESS 478 SECTION D 600.
