McDonald’s Company’s Strategic Management

Executive summary

This report is a marketing report aimed at finding and analyzing the strategies adopted by McDonald’s to capture the market share and sustain it. In recent years McDonald’s is changing its strategy to equip it with the present market environment. The report gives a deep insight into such factors.

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The Mission Statement, strategy, and alignment

The mission state of McDonald’s is “to be the world’s best quick-service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value so that we make every customer in every restaurant smile.” (Becoming a Strategic Learner, 2001). It is clear that the company sees itself in the fast-food segment with stress on service, cleanliness, and value with added stress on making its customers happy.

The strategy of McDonald’s

McDonald’s, like similar franchising companies, had stressed expansion in a big way. But such rapid expansion proved to be costly for the company in the long run, and it began to see decreasing returns on its investments. This prompted the management to rethink its strategy and thus ended the stress on expansion. Its new strategy is focused on the ways to improve the performance of its existing outlets, and a number of substantial steps were decided to be taken up by the company in its implementation.

For this purpose, the outlets were asked to extend their working hours, and by 2003 a sizable number of them began operating from 6 am in the morning and staying open to 1.pm. or later, and almost 40 % of its remaining open 24 hours a day. The next major strategy was a totally new look for its interiors with the basic McDonalds colors or red and yellow with slight changes in tone kept intact. This move initially caused a lot of resentment from franchisees because of the investment involved, but McDonald solved this problem by agreeing to share the cost of renovation. The company also stressed the need to improve the speed of delivery, reducing inaccuracy, and improving customer-staff relationships.

The results were encouraging, and the company has touched a sales figure in excess of $ 21 billion and caters to more than 25 million people a day worldwide. The company strategy and subsequent results show that it is in alignment with its mission statement.

Introduction

This report focuses on the current growth strategy of Mcdonald’s and to analyzes whether this strategy will be beneficial to the company in the long run. Ever since the company found out about decreased returns on investment in 2002, there was a major policy shift, the details of which were outlined in the above section, strategy, and mission statement. Heavy emphasis on expansion and the resulting capital expenditure had resulted in the company incurring losses in the first quarter of 2002.

A comparison with the growth strategy of Wal-Mart is made since that company still puts emphasis on expansion, which was similar to McDonald’s prior to the year 2002. Wal-Mart also follows the policy of low margins and high volumes, something which is not relevant here since the market of both companies is different. An article in Business week about the falling profitability of the retail giant says that in spite of an apparent crisis, Wal-Mart refuses to change its policy of aggressive growth. “Over the past year and a half, though, Wal-Mart’s growth formula has stopped working. In 2006 its U.S. division eked out a 1.9% gain in same-store sales—its worst performance ever—and this year has begun no better.” (Bianco, Der Hovanesian, Young & Gogoi et al, 2007, p. 46).

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This report will further enlighten the management and stakeholders about the future growth of Mcdonald’s in the light of its present strategy along with a SWOT analysis and will conclude with a final opinion as to whether the strategy is justified or not.

Literature review

A SWOT analysis of McDonald’s can be performed as follows

Strength

One of the Strengths of McDonald’s is that the restaurant chain is one of the most respected brands in the world. This reputation of the corporate has made it develop a very good customer base. A global presence is also the strength of McDonald’s. Many items such as Fries, Happy Meal, Big Mac, and Egg McMuffin served at McDonald’s are very successful and well known in the market.

Weakness

One of the weaknesses of McDonald’s is that the food that is served by them is reported to cause severe health hazards. Public health is being less considered by the company. “From a public health point of view,” observes Michael Jacobson, executive director of the Center for Science in the Public Interest, “more people going to McDonald’s means poorer health.” (Business Week, 2007).

Almost 85% of the outlets of McDonald’s are operated by franchisees in the respective countries. So the ineffectiveness of franchisees has caused harm to the brand image as a whole. McDonald’s also faces very slow growth in their income and profits.

Opportunities

McDonald’s has expanded the working hours of their Restaurant. The expansion was on the basis of the nature of people. The corporate learned that American’s are very much fond of eating all day long. McDonald’s exploited this attitude of the people and grabbed another big market share. The opportunity for McDonald’s is to similarly revise the working hours of its Restaurant all over the world. It is another fact that McDonald’s serves only 1% of the population all over the world. So the rest, 99%, is a huge market for McDonald’s to explore.

Threats

McDonald’s faces stiff competition from Wendy’s and Burger King. Apart from the competition, the public is also getting more conscious about health. Due to the increased health consciousness, the public started reducing the usage of McDonald’s food. Since Mcdonald’s has branches in many countries, the fluctuation in foreign exchange rates casts problems in the profitability.

  • Strategic Choices made by McDonald’s: Mcdonald’s managed to sustain the present market share by adopting different strategies they adopted and practiced over the years. McDonald’s was successful by implementing its many strategies, and similarly, it also faced many failures by adopting its certain strategies. The strategies adopted by McDonald’s in various areas can be classified as under. The strategies adopted by McDonald’s in the past have been classified into product development strategies and market expansion strategies as follows.
  • Product development strategy: McDonald’s was very much successful by introducing Fries, Egg McMuffin, Happy Meals, and Big Mac. These products had gained extreme popularity in the market and have contributed to the success of the corporate. Similarly, some of the products of McDonald’s that failed in the market are McPizza, Carrot Sticks, McLean, Fajita, and Arch Deluxe.
  • Market Expansion Strategies: McDonald’s, in order to expand the market, opened up its outlet in many locations all over the U.S. This has at last led to a situation of over-expansion. The customer base did not increase in proportion to the increase in outlets. But it was very much successful in expanding globally. Global expansion of restaurants was made through franchise operations.

Similarly, the new strategies of McDonald’s can also be classified into Product development strategy, franchisee enhancement strategy, and market expansion strategy.

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  • Product development: McDonald’s has decided to give even more focus on product development. The corporate is now focusing on improving the quality of the food that is served in McDonald’s. Improvement in distribution and delivery system is also looked after by McDonald’s as an area of development.
  • Franchisee enhancement: Since the majority of the global operations of McDonald’s is carried over through franchisee the corporate has found that enhancing the relations with the franchisees will motivate the franchisee’s to do better than the past.
  • Expansion Strategy: McDonald’s has found that in order to leverage profitability expansion is the sole method. Therefore, McDonald’s is focusing more on exploring the market that is still untapped.

Growth Strategies of McDonald’s and Wal-Mart

McDonald’s and Wal-Mart is one of the best brands in the world. Both the corporate giants obtained this brand image through their better marketing strategies. The strategy of Wal-Mart is to remodel its existing retail outlets by equipping many modern facilities and designs. The objective of Wal-Mart is to change the way people shop at their stores and to give them a very good shopping experience. McDonald’s growth strategy is to expand and explore new markets worldwide. McDonald’s is giving less importance of remodeling the existing outlet rather it focus on opening up new outlets through franchisees all over the world.

Conclusion

The report has given a clear insight into the marketing strategies that helped McDonald’s to be successful in the market. The report also has shown the strategies that was a failure to McDonald’s. The strategy that was adopted by Wal-Mart was different from that of McDonald’s though the objective of the strategies was same.

Reference

Becoming a Strategic Learner. (2001). Writing your mission statement: McDonald’s mission statement is. Web.

Bianco, A. B., Der Hovanesian, M., Young, L., & Gogoi, P. (2007). Wal-Mart’s Midlife Crisis: Declining growth, increasing competition, and not an easy fix in site. Business Week, 4032. 46. New York.

Business Week. (2007). McDonald’s 24/7. Web.

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