The Global Business Strategy of McDonald
McDonald's Corporation
The
McDonald's Corporation is the world's largest chain of hamburger fast food
restaurants, serving around 68 million customers daily in 118 countries.
Headquartered in the United States, the company began in 1940 as a barbecue
restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized
their business as a hamburger stand using production line principles.
Businessman Ray Kroc joined the company as a franchise agent in 1955. He
subsequently purchased the chain from the McDonald brothers and oversaw its
worldwide growth.
A
McDonald's restaurant is operated by a franchisee, an affiliate, or the
corporation itself. McDonald's Corporation revenues come from the rent, royalties,
and fees paid by the franchisees, as well as sales in company-operated
restaurants. In 2012, McDonald's Corporation had annual revenues of $27.5
billion, and profits of $5.5 billion.
McDonald's
primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast
items, soft drinks, milkshakes, and desserts. In response to changing consumer
tastes, the company has expanded its menu to include salads, fish, wraps,
smoothies, and fruit.
McDonald's
restaurants are found in 118 countries and territories around the world and
serve 68 million customers each day. McDonald's operates over 32,000
restaurants worldwide, employing more than 1.7 million people. The company also
operates other restaurant brands, such as Piles Café.
Focusing
on its core brand, McDonald's began divesting itself of other chains it had
acquired during the 1990s. The company owned a majority stake in Chipotle
Mexican Grill until October 2006, when McDonald's fully divested from Chipotle
through a stock exchange. Until December 2003, it also owned Donatos Pizza. On
August 27, 2007, McDonald's sold Boston Market to Sun Capital Partners.
Notably,
McDonald's has increased shareholder dividends for 25 consecutive years, making
it one of the S&P 500 Dividend Aristocrats. In October 2012, its monthly
sales fell for the first time in nine years.
BUSINESS
STRATEGIES ADOPTED BY MC DONALD
MCD has diversified its locations by operating over 32,500 restaurants in 118 countries, which
decreases the company’s exposure to the intensely competitive fast food industry in the United
States. Also, MCD serves an average of 68 million consumers each day. This per
day figure has increased by $14 million (30%) since 2001 and $2 million over the past year.
MCD currently divides its revenues into four segments: the United States, Europe, the APMEA
(Asia, Pacific, Middle East, and Africa segment), and other countries (i.e. Canada and Latin America and corporate sales). Almost 65% of MCD sales are derived internationally. MCD focuses both on penetrating emerging markets and expanding in developed markets.
*
SOURCE:
McDonalds ANNUAL REPORT 2012
But just being McDonald's isn't enough — it's doing a lot,
domestically and globally, to stay ahead. Here are ten strategies that are
keeping McDonald's barreling forward:
§ Focusing heavily on emerging markets
McDonald's
may seem like it's already everywhere, but it hasn't quite saturated the world
yet. Over the past few years, McDonald's has made a heavy push toward emerging
markets. And not just trendy markets like China and India, but places
previously devoid of the Golden Arches, like some African nations. Sales are up
8.1% from last year in Asia/Pacific, Africa and the Middle East. Still, China
is McDonald's most important international front, where it's battling Yum
brands whole heartedly. It plans to have a whopping 2,000 stores there by 2013.
§ McCafé has been a big win
The McCafé
has been demolishing expectations ever since the company started revving up its
marketing machine for it in 2002. Now, there are 1,300 McCafé's worldwide in
dozens of countries, and it just keeps growing. Its latest moves have been to
Ukraine, along with a national rollout in Canada. The McCafé menu has been
growing as well, adding non-coffee items like smoothies over the past couple
years.
§ Offering a wider variety of food to attract more segments
It's not
just snack foods and desserts that it's expanding into — there's a whole lot
more. McDonald's is trying to get more consumer segments to chomp up its
offerings by expanding non-traditional menu items, while keeping its core base
of burgers-and-fries eaters. Many of the new items help combat McDonald's ever-present
negative image of unhealthiness, though it will likely never shake it fully.
For instance, oatmeal has been a big hit for McDonald's, serving as a
replacement for high-calorie breakfast sandwiches. Additional types of salads
have worked too, for people looking for a somewhat healthier option.
§ Delivering food to customers in places that demand it
Though not
traditional in the US, McDonald's delivers in many markets around the world,
and the company cites it as one of the reasons it has been so successful in
those markets. Delivery is a common practice, even for fancy restaurants, in
many Asian and Middle Eastern cities, so McDonald's is just meeting the
cultural norms of its surroundings.
§ Making its stores more attractive to get customers in
McDonald's
is improving its physical locations to make them more appealing to customers,
and it seems to be working. In China, it's trying out a "Less is
More" concept design, which goes with softer colors and cushioned seats.
Also, over 95% of McDonald's locations have extended their hours now, and it
has several thousand stores that are open 24/7. Free Wi-Fi is now available in
McDonald's restaurants across the world, and lately it has made a big push to
get flat screen TVs in the stores. It's even starting up its own TV channel
with original programming, called McTV.
§ Increasing its offering of snack items
Americans
love to snack on stuff, and McDonald's has recognized that demand and answered
with a plethora of new products. Smaller items like wraps, along with an
expansion into desserts (which it plans to ramp up soon), have made their way
onto the menu and have done well.
§ Shortening its menu cycle
The most
prominent example of this is the McRib, making an unprecedented second national
appearance in two years. It took front and center this fall and was incredibly
successful, driving a 4.9% gain in same store sales. Special edition McFlurries
have been in and out of menus too, along with limited time smoothies. This sort
of menu cycle is a move toward a more European model, which swaps out new menu
items every six-to-eight weeks, reports Nation's Restaurant News.
§ Importing more of its successful niche products
internationally
McDonald's
has an incredible variety of culture-specific food items across the planet, and
most wouldn't stand a chance internationally. But some are winners, and the
company has started to test them out in other markets. One example is
Australia's Chicken McBites (think popcorn chicken), which are now being tested
in Detroit, Michigan. Then there are full-size wraps, common in Europe, which
are being tested in new markets like the U.K. They have so many of these
products that some are bound to be hits, it just has to find the correct area
to expand them to.
§ Expanding its dollar menu to breakfast
McDonald's
fired up a breakfast dollar menu in 2010 as the economy continued to slump,
which supplemented its existing dollar menu for its usual fare. It has been
working well thus far, capitalizing on Americans' attraction to the super-cheap
in times like these. But even before that, its breakfast business was growing,
just at a lower rate than normal. Competitors like Burger King and Dunkin'
Donuts have made their own types of dollar menu, but nobody has had the
widespread success that McDonald's has enjoyed.
§ And it hasn't been scared to take anybody on
Many of these expansions drew looks
from brand new competitors, because McDonald's was encroaching on their
territory. In most cases, McDonald's leveraged its size and brand to attack
head on. McCafé is the most obvious example, and it has performed admirably
against Starbucks and Dunkin' Donuts. Its upcoming expansion into desserts is
likely to concern Dunkin' even more, along with niche dessert chains like Dairy
Queen. But there's plenty of risk in doing this. As it opens itself to more
fronts than ever, it has more big, powerful brands breathing down its neck, and
even more complexity to worry about in its internal operations.
The new strategy
In 2003 McDonald’s switched to
generating more sales from its existing restaurants. In 2013 around 90% of the company’s
growth is expected to come from incremental sales at its existing restaurants.
Capital expenditures for new restaurants decreased $544 million in 2013 because
the company opened fewer restaurants and focused on growing sales at existing
restaurants including reinvestment initiatives such as restaurant reimaging in
several markets around the world.
Source: Company’s Financial Report 2012
Using the 7P’s of marketing mix,
McDonald earned business success at every part of the globe.
1. Product
McDonald’s strives to offer a standardized
service worldwide. However, the company is embedded with an ‘entrepreneurial
spirit’ giving franchisees some local control and creativity, providing the
service offering is of a high standard. Some of the most famous products
including the Fillet o’ Fish, the Egg McMuffin and the Big Mac were created
through franchisee innovation. Franchisees are given autonomy to adapt the
products whilst the corporation maintains a high degree of standardization
through quality control. The majority of well-known products are usually
offered in all markets unless they do not suit local customs and religion. For
instance, Big Macs are not sold in Indian outlets as the population is
primarily Hindu. However, even ‘iconic’ products are adjusted to local taste
such as providing spicier food in most Asian countries, allowing the company to
overcome a variety of cross-cultural barriers.
2. Price
McDonald’s has positioned itself as a
fast-food outlet offering low-cost food and drink. The affordable menu has been
adapted worldwide whilst maintaining their core goal of quality assurance.
Ongoing innovation has allowed new pricing strategies such as the ‘Dollar Menu’
or its equivalent ‘Saver menu’ in the UK. In response to increasing food costs,
McDonald’s opted to increase prices by less than 1%, adopting the change
gradually to the menu in order to retain price-sensitive customers (Lockyer, 2011).
3. Place (International Distribution and Supply
Chain)
Although McDonald’s product offerings
differ between countries, they operate a standardized global supply chain. This
lean operation is 100% outsourced with no back-up system. The chain comprises
of two tiers. Tier 2 suppliers are primarily food producers, whilst Tier 1
suppliers are processors. For example, a Tier 2 potato farm supplies a Tier 1
processing firm who turn the potatoes into French-fries and potato wedges.
Produce is transported to distribution centers before allocation and delivery
to individual restaurants. The success of the supply chain is attributed
primarily to their commitment to outsourcing non-core activities to expert
firms. McDonald’s supplier terms are rigorous; suppliers are expected to be
accountable until the food is consumed and the end customer is satisfied.
Legally-signed contracts with suppliers are not used; all deals are made on a
handshake because they operate a ‘one supplier - one product’ policy and
maintain long-term relationships regardless of the external environmental
conditions.
McDonald’s has 30 – 35 stock-keeping units
at the supply side, creating a streamlined operation. Sole distribution
partners are responsible for the entire logistics process in designated
geographical areas, whether it be the daily hamburger order, or a replacement appliance.
McDonald’s continuously scrutinizes these partners to ensure they are meeting
goals and benchmarks to improve efficiency. The ‘pull strategy’ allows
individual restaurants to place orders with distribution centers, which then
re-issue orders to suppliers who only produce the quantities ordered. This
means suppliers hold little surplus stock, optimizing efficiency.
4. Promotion
McDonald’s achieved 6th position on “Best Global Brands 2011” as a result of
continuous promotional activities. The iconic “Golden Arches” are used in
promotions globally. The “i’m lovin’ it” campaign, launched in 2003 used
celebrity endorsement to increase their appeal to younger consumers. Justin
Timberlake was used for vocals and the campaign was launched in 86 English-speaking
countries and was adapted for non-English speaking countries. Recently, the
“what we’re made of” campaign increased transparency and was used to fight
against negative publicity regarding ingredients.
5. People
At McDonald’s, service employees represent
the brand at the frontline where customers have their first interaction with
the organization. It is important that staff give a good impression and
therefore, training is of paramount importance. Employees undergo rigorous
on-the-job training in customer service, food handling and preparation. In
addition, McDonald’s provides opportunities for managers and would-be
franchisees to develop and hone their management skills through a dedicated
facility - the Hamburger University (HU). HU has campuses worldwide and
provides training for employees to improve their proficiency in managing the
restaurant.
McDonald’s aim is to create a vibrant
working environment for staff and managers. This creates a chain effect whereby
customers are positively influenced and are more likely to return. To re-create
this chain effect in different markets, the recruitment and training processes
are standardized globally. McDonald’s is always on the look-out for lively team
players who are trained according to guidelines.
6. Process
McDonald’s prepares and serves food
rapidly. Strict guidelines and regulations are followed in food preparation to
ensure high standards of hygiene and food safety. Customers can usually see the
kitchen while being served, allowing transparency, so customers can eat in
confidence. Food is mass-cooked and hot-held until service. However, due to the
continual stream of customers, it does not deteriorate before consumption. To
maintain its foothold as market leader, McDonald’s maintains a high degree of process
standardization across all outlets to increase efficiency. This ensures that
they have high standards of hygiene and food safety in all outlets.
7. Physical Evidence
McDonald's has a homogenous ‘look’ across
their outlets from décor to staff uniform. Their global re-branding strategy
furthers standardization, allowing consumers to areas, there are indoor
playgrounds to satisfy customers. The company ensures that all franchisees
comply with regulation regarding hygiene to maintain their reputation for
cleanliness. Staff training is standardized globally to ensure customers are
treated consistently.
Impact
on McDonald
§ REVENUES
The Company’s revenues consist of sales by Company-operated
restaurants and fees from restaurants operated by franchisees. Revenues from
conventional franchised restaurants include rent and royalties based on a
percent of sales along with minimum rent payments, and initial fees. Revenues
from franchised restaurants that are licensed to foreign affiliates and
developmental licensees include a royalty based on a percent of sales, and
generally include initial fees.
Source: McDonald Annual Report 2012
Technological
factors
Technological factor’s main elements are R&D,
computerization, technology motivation and technological change rate.
Technological movements affect expenditures, excellence, and innovation and
machine made food is more hygienic. McDonald's employee’s quick service and
quality food standards are the result of its high-tech operating procedure.
Customized database management system and computers and smart cashiers are used
in McDonald's to speed up serving and operating excellence.
