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.

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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.