Discussion Question Assignment
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CASE STUDY: MCDONALD’S
McDonald’s – “I’m Lovin’ it”
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Founded by Richard & Maurice McDonald in 1948, as a barbeque restaurant
Franchise agent Ray Kroc joined in 1955 and purchased the chain
Over 35,000 restaurants located in 118 countries and revenue of $27 Billion
Primarily sells hamburgers, cheeseburgers, chicken, French fries, breakfast items, soft drinks, and desserts
In response to a change in consumer taste, it has experimented with menu additions, including salads, wraps, smoothies, and coffee
Company performance has been influenced by both firm and industry effects
Maintains a competitive advantage but how sustainable is questionable!
Case Overview
McDonald’s case outlines a story about the birth of an organization with a clear management philosophy and vision of being the ‘Greatest’ and ‘Best’ quick service food chain in the world.
The case talks about McDonald’s overall strategy and approach: to continue to maintain a competitive edge against its peers in the same industry.
The case highlights how corporate changes at the top level impacted the organization’s growth, especially during the period of economic downturn in the early 2000s.
The case provides insights on how McDonald’s navigated its organization-wide, operational execution by implementing strategic framework in trying to maintain its competitive advantage during changing economic trends, increasing supply-chain costs, rising health concerns and an increased awareness of social issues (ex. environmental sustainability).
The case concludes with a reflection of its stock price, current challenges, and with CEO Don Thomson pondering how McDonald can become number one on the Dow 30 again.
In 2004, McDonald’s established a “Plan to Win” global strategy, focusing on the 5 pillars of customer experience: People | Product| Place | Price | Promotion. McDonald’s believed success was dependent on execution and innovation, not on one product or initiative. It launched the “i’m lovin’ it” campaign to feature higher quality foods . McDonald’s advantage can be categorized by 4 key areas shown below:
Competitive Advantage
Business Model
Focuses on providing a faster, more convenient, less expensive meal option
Standardized process to retain the same value proposition globally
Scale
Possess a strategy to expand globally, at the very onset of competition
Has more units worldwide than Wendy’s, Burger King, KFC, Pizza Hut, Panera Bread, and Dunkin’ Donuts
Variety
Was able to expand outside of burgers and fries, introducing breakfast items
Adding its McCafe to many locations, offering new coffee and smoothie items to customers
Market Dominance
With 36,000+ locations in over 100 countries, it has conquered the highly globalized markets, where customers have similar preferences to American customers
Has begun entering emerging markets with a more localized menu
Competitors have found it difficult to beat its prices
Current Position
McDonald’s competitive advantages do not make up for its failed attempts to cater to millennials looking for transparency and healthier options. No longer is McDonald’s ability to scale and grow enough. In an effort to compete with fast-casual chains like Subway and Panera Bread offering healthier options, McDonald’s needed to invest more in value and product. Consumers saw this attempt with its Go Active! Happy Meal (which consisted of a salad, water, stepometer and exercise booklet) in 2004, a McSalad Shaker of the ’90s and its McWrap---none of which proved to be big hits for McDonald’s. But the company is still trying to find its big “healthy hit.” Just this past month McDonald’s launched a new kale salad this month. Touting the new menu option as a “nutrient-rich lettuce blend with baby kale,” McDonald’s is facing major backlash for its deception. When paired with the salad’s Asiago Caeasar dressing, the salad contains more fat and calories than its BigMac (a four-beef patty sandwich). A few days later, McDonald’s came under fire for a different new menu item, its mozzarella sticks. Consumers took to Twitter posting photos of the heavily breaded sticks and expressed their anger, asking if the item contains any cheese at all. As McDonald’s aims to cater to consumers’ desire for healthier and more “honest” menu offerings, its current competitive disadvantage can be attributed mainly to firm effects and management’s actions.
Fourth Quarter
Earnings 2015
Global comparable sales rose 5%
U.S. comps surged 5.7% higher
Recent Success
Credited to all-day breakfast menu
Introduction of healthier menu items for children
Can it sustain
the success?
Buzz around all-day breakfast menu will eventually taper
Cannot yet find a “healthy hit”: its new kale salad contains more fat & calories than a BigMac and is facing customer scrutiny
Best quarterly performance since 2013
Even with its “Our Food. Your Questions” campaign, McDonald’s continues to struggle with consumer transparency
Because 2/3 of sales come from outside the U.S., the impact of currency exchange rates must be considered
Traffic decline: customer counts down more than 3% Q1-Q3 of 2015 with Nation's Restaurant News estimating it has lost about 8.5% of its traffic since 2012
A rebounding economy gives way to consumers able to upgrade meal options
Recent Financial Performance
Although McDonald’s does not show rapid growth in revenue, it is able to provide shareholders with dividends that are unmatched by competitors.
Recent Financial Performance – Cont’d..
No longer can hold competitive advantage with just growth & scale
Can maintain competitive advantage by continuing to focus on value
Industry effects faced by McDonalds have negatively impacted performance:
Consumer demand for transparency
Consumer support of firms showcasing social responsibility
Consumer demand for higher-quality, healthier food
Competitors touting non-GMO menus
The economic recession of the 2000s led to McDonald’s being labeled as “recession proof2” because consumers lacked disposable income to afford healthier, pricier meals. But McDonald’s is now seeing the opposite effect: a rebounding economy is shaping consumer value on quality, rather than just price
Firm effects faced by McDonalds have negatively impacted performance
Leadership turnover
Rapid expansion
Failed product introductions
McDonald’s overall competitive advantages described in slide 4 – their business model, economies of scale, variety and market dominance are primarily driven by firm effects. However, industry effects and firm effects both have the ability to negatively impact performance. The strength of the competitive advantages will determine whether these negative effects are short term or if they continue to erode the competitive advantage.
Stakeholder Analysis – Overall Strategy
Stakeholder – Vested claim/interest in the performance and continued survival of a firm
McDonald’s Internal and External stakeholders are sizeable
Strategy
Stakeholder strategy is an integrative approach to managing a diverse set of stakeholders effectively, in order to gain and sustain competitive advantage.
Satisfied stakeholders are cooperative in providing insights that can create value, reduce negative outcomes, and create more predictability.
Trust lowers the cost of firm transactions.
Effectively managing stakeholders can assist in managing the complexity.
Improves public perception
Internal Stakeholder
Stockholder
Franchises
Employees
External Stakeholder
Customers
Government
Communities
Suppliers
Powerful stakeholders can get a company to do something it otherwise would not do.
Stockholders – Market cap of $105.96B
Customers – 60M customers served daily across the globe
Employees – Over 420,000 employees worldwide
Legitimate stakeholders have a legally valid or appropriate claim.
Government compliance
Urgent stakeholders have an urgent claim that requires attention.
Lawsuits – From employees, customers, suppliers and franchisees
Stakeholder Analysis - Impact
Stockholders/Investors
Return on investment / profit
Sustainable Value
Employees
Income
Career development/training
Culture of respect
Safe/clean environment
Communities
Taxes / employment
Help building strong communities
Corporate Social Responsibility
Suppliers
Profitable relationship
Customers
High quality food
Quick service (convenience)
Clean restaurant
Value
Dependable/consistent in the above
Corporate Social Responsibility
Governments
Taxes
Food / Employee Safety
Franchisee
Assistance with business development
Freedom to run the business
Profitable relationship
Stakeholder Analysis - Interests
Threats
Trends toward healthy food
Public perception e.g. obesity concerns
Unfavorable economics – people eat out less; majority of customers order off value menu; increase supply costs
Legislation/Regulations – labeling requirements, food safety regulations, labor standards
Lawsuits
Intense competition from other chains, fast casual, and convenience foods
Currency exchange rates
Market saturation
Local fast food restaurants – easy access to market due to low cost of entry, low start up costs
High employee turnover
Poorly trained unfriendly servers
Labor unions
Opportunities
Diversify menu options to provide more healthy choices
Include options to appeal to millennials
Be more transparent about menu items/sources
Provide local menu options
Offer Non-GMO and organic food options
Leverage standardization strength to improve cost and ensure consistency
Provide delivery services
Leverage the franchise model to gain revenue – growth in number of stores, fees, etc.
Conservation – utilize green initiative to satisfy stakeholder interests
Leverage buying power with suppliers to drive CSR and price
Stakeholders are also customers – employees, suppliers, etc.
Leverage strength in training resources to ensure servers consistently provide quick, friendly service
Stakeholder Analysis - Opportunities and Threats
Leverage competitive advantages
Business model, scale, variety, locations
Improve wages and benefits
Wage increases were announced mid-2015
Employee education and training is a priority including Hamburger University with thousands of hours of training daily and support for completion of high school diplomas and college degrees
Increase local ownership
Especially globally with increase franchise opportunities
Eliminate bureaucratic costs
Aggressive strategy to reduce waste in G&A and non-customer facing functions and improve efficiency across the board
Hi -Tech menu boards
Moving pictures, temperature sensors to market based on temperature, flexibility
Extensive participation in CSR efforts
Animal welfare, fair labor standards, conservation, and health initiatives
Continued support for Ronald McDonald House
344 houses, 187 family rooms, and 50 mobiles in the U. S.
Implement Plan to Win 2.0 (late 2015)
McDelivery
Improved food quality
Butter instead of margarine, fresh-cracked eggs
Artisan chicken
Antibiotic free chicken, cage free eggs by 2017
24-hour breakfast
Streamlined Healthy Menu
Leverage success of McCafe’
Increase customization/personalization
“Customer obsessed and insights driven”
Stakeholder Analysis – Steps Taken to address concerns
McDonalds began implementation of the “Plan to Win 2.0” in 2015. While this strategy is proving successful, the question remains as to whether it is sustainable. Team Topaz believes that to sustain its competitive advantage McDonalds needs to go further in trying to reach millennials with improved transparency in food options and continued efforts to provide healthy menu options.
PESTEL Analysis
The PESTEL Analysis above, is derived from the” McDonald’s: How to Win Again?” case study. The PESTEL framework includes six segments: political, economic, sociocultural, technological, ecological, and legal. You will find the most pertinent segments relating to the McDonald’s case study, included in the analysis above. Take note of common themes presented earlier in the Stakeholder Analysis, that are also highlighted here in the PESTEL Analysis. Also, zooming in to 150%, helps enlarge the slide, to compensate for the small print.
Restek, a chromatography consumables manufacturer, is very much in-tune to the hum of external forces that impact our business. A PESTEL analysis of Restek would prove that factors such as economy, political/legal actions, and technological advances are some of the greatest external factors that impact our business. Specifically, during the 2008 recession, I witnessed a healthy and stable company “batten down the hatches” to protect our assets and ultimately, the future of our company. We conservatively padded our finances and cut expenses left and right, including annual raises for all employees. As a Sales Rep, our travel budgets were limited to just a few trips a year; we were essentially a glorified telesales team until we could justify the added expense of travel. Beyond the recession, economic factors are a top concern as we expand globally into international markets. The strength or weakness of the US dollar, as well as exchange rates, influence customer spending across the world and in turn, company profitability.
As for Restek’s task environment, the chromatography industry is no stranger to acquisitions, mergers, and buyouts. What makes Restek unique is that we are employee owned; therefore, we are protected from the threat of being bought by a competitor. We are essentially in a bubble that keeps the future of Restek, in the hands of employee owners! The Restek bubble still fragile however, as it is exposed to the external forces that impacts our business.
Practical Example 1
Amazon, a company that has traditionally considered Walmart its top competitor, has for the first time just citied logistics and fulfillment companies FedEx and UPS as potential competitors. While I have no insider information, there have been reports that Amazon has considered competing directly with shipping companies to reduce its reliance on third-party providers. While Amazon has proven a competitive advantage over other retail giants because of its delivery methods and unique ways to lower costs to customers, having its own delivery infrastructure could offer a long-term financial advantage. It could end up offering the delivery services to other companies at the same time it serves its own needs. If Amazon finds a way to reduce its shipping costs, it can continue to offer customers the lowest prices for the products it sells on its platform.
While Amazon’s shipping logistics doesn’t affect my day-to-day job or my team’s, it’s the first company I’ve worked for that had a major competitive advantage in one industry (retail) and is now rumored to be trying to gain an advantage in a completely different, yet related, industry (shipping fulfillment). It’s a smart choice, if true, because more and more ecommerce companies are trying to enter the market. If Amazon can compete with them on selection and convenience but continuously innovate around ways to lower costs, it will continue to have a competitive advantage.
Practical Example 2
Mourdoukoutas, Panos (2013), “Is McDonald’s Losing Its Competitive Edge?”, Forbes, retrieved from http://www.forbes.com/sites/panosmourdoukoutas/2013/09/11/is-mcdonalds-losing-its-competitive-edge/#27ab5f5c5f00
Rothaermel, Frank T. (2015). Strategic Management: Second Edition.
Soergel, Andrew (2015), “Does McDonalds Have a Plan to Win 2.0”, US News & World Report, May 4, 2015
Waterous, Monika (2015), “How McDonald’s Plans to Win Back Customers”, Food Business News, November 12, 2015
The Good Business Report, 2014 McDonalds Sustainability Report, retrieved from http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/2.0/pdfs/2014_sustainability_report.pdf?.html
McDonald’s 2014 Annual Report retrieved from http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDonalds2014AnnualReport.PDF
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