McDonald’s Internal and External Strategic Analyses


‘McDonald’s’ is the most comprehensive multinational enterprise, managing 35,000 fast-food restaurants that employ nearly pair a million humans, with a capitalization of more than $100 billion. McDonald’s has become a leader in quick service, focusing on customer service, responding to competition, and marketing techniques for obtaining early growth. Under the McDonald’s brand as of 2019, there were more than 35,000 restaurants in 118 countries. A significant part (25,578) were operated by franchisees, so restaurants, size, and portion mix can vary in each country (Kee et al., 2021). McDonald’s, as stated earlier, operates in the restaurant industry, a segment – quick service (fast food). The peculiarity of this section is the weak profitability of the company, which is due to the low calculated cost of outcomes.

Understanding, despite the company’s weak damages, in special relation to the primary result of the main product, the net economic issue remains quite low. McDonald’s, in particular, has a net margin of smaller than 18%. This quality method in this market segment is one of the most successful globally and has been in business since 1940 (Kee et al., 2021). The key element of such progress is the franchise scheme, a consideration to which it is reasonable to open an enormous number of restaurants worldwide. At the same time, the main volume of loans from private users of franchises.

The Competitive Situation

McDonald’s income was $18.9 billion a year in 2020. The group remains to produce changes to improve its market percentage. For example, in 2018, the chain changed the standard ingredient recipes for seven classic burgers. At the same time, the business suffers meaningful opposition from brands such as Burger King, Wendy’s (WEN), Taco Bell, KFC, and Subway. Besides competing with the chain are restaurants such as Chipotle Mexican Grill and Panera Bread Company. Starbucks is a focused quick-service label with some of McDonald’s menu offerings. Burger King is McDonald’s most direct competitor, with its core product Whopper competing with Big Macs. Burger King had more than 19,000 locations in more than 90 countries, with approximately eleven million daily clients worldwide. The next potential rival is Wendy’s, a chain of fast-food establishments with more than 6,800 global positions. Wendy’s concentrates on burgers, french fries, and other American standards (such as Burger King and McDonald’s). In 2020, the company’s profit was $ 1.61 billion (Kee et al., 2021). However, overall operation trades were more powerful because franchisee deals were not included in consolidated revenue.

It is worth noting that Yum Brands contains many great quick-service eatery nets, consisting of Taco Bell, KFC (Kentucky Fried Chicken), and Pizza Hut. The 2020 year-end paper recorded that the organization had more than fifty thousand establishments with two hundred and ninety combinations of country brands; more than ninety-eight percent were franchised. Another potential competitor to McDonald’s is Subway. The business is one of the most comprehensive eatery chains in the system by volume, with more than 37,000 places in almost 100 lands as of August 2020 (Kee et al., 2021). The company’s card consists primarily of lunches and salads. Considering, Subway is a private corporation, exact incomes are not open.

It is essential to mention Chipotle, which is a normal chain of restaurants serving tacos, burritos, and salads. The business was organized as a small local chain, earning an important grant from McDonald’s before its initial state contribution in 2006.The company has a more expensive price position than its fast-food opponents, and its motto is ‘menu with integrity’ (Kee et al., 2021). As for Starbucks, it is the world’s largest chain of coffee shops. Starbucks serves drinks, espresso, cappuccino, tea, cakes, lunches, and other meals. The chain exchanges itself as a combination alternative at an unusual value. It is the company’s drinks that can compete with Maccafé

Figure 1. Analysis of Porter’s five forces.

Current Competitors McDonald’s faces powerful opposition from organizations such as Starbucks and Burger King. Many fast-food eateries of multiple volumes, such as Subway, KFC, Nando’s, persistently sell similar products and threaten McDonald’s. This indicates that McDonald’s is forcing a strong competitive power.
Buyer Power Customers can influence Mcdonald’s policy and organization because they can choose other fast-food restaurants. In addition, buyers can replace McDonald’s by choosing bakeries, catering outlets, home-cooked meals. McDonald’s recognizes that it lags behind its rivals, such as Starbucks and Dunkin Donuts, in digital actions and consumer bonus plans.
Supplier Power This part determines that supplier power is a secondary problem for Mcdonald’s. This is because business has many suppliers from which can receive raw materials and food. In addition, most vendors do not
manage the delivery system, so they do not pose a warning to McDonald’s. Furthermore, a large number of elements, such as potatoes, flour, and chicken, reduces the influence of suppliers on the business
The Threat of New Entry The analysis explains that McDonald’s is facing reasonable moderation in creating new competitors. The low cost of opening a business means that medium-sized companies can create a new restaurant. However, Mcdonald’s has invested significant capital, time, and resources in creating its brand style. It is difficult for new companies to achieve.
Replacement Threat There are many substitutes which customers may prefer. In addition, cooking homemade food is relatively cheaper than ordering food at McDonald’s.

Current Strategy

McDonald’s corporate strategies take into account both internal and external environmental issues. The priorities are ensuring sustainable growth, providing excellent client assistance, keeping rank as an experienced and value-driven company, and sharing expertise across borders. The steady development of the snack-food concept, promoting the expansion of latest recipes, modifications in facilities, retailing, service coordination, and technology are correspondingly precious. Through Pestel analysis, it is possible to understand the most significant trends that affect the business and its industry. First of all, it is notable that the company lends itself to criticism because of the impact of its products on the health of customers (Rajawat et al., 2020). Therefore, government nutritional recommendations are a potentially dangerous political factor for continued growth. On the contrary, the expansion of international trade, which the company adheres to, is considered a positive tendency to expand the global supply chain.

McDonald’s has a presence in countries with varying levels of development, so economic growth or decrease has a meaningful impact on profitability. The company derives a meaningful amount of its earnings from the Chinese market, and its volatility could be challenging. Based on the outer determinant of extension in available assets, McDonald’s focuses on the increasing bias of purchasers to order food instead of spending time preparing dishes. Constant improvements provide positive dynamics and make life easier. To ensure continued growth, the company’s strategy also includes developing untapped markets. The purpose is to open nearly two thousand eateries seasonally (the middle of one every five hours), partially maintained and partially under franchise. Almost ninety percent of these latest establishments are supposed to start outside the USA (Rajawat et al., 2020). This cultural diversity operates with a different set of preferences and therefore is a potential threat that must be taken into account in product development.

Another strategy is to apply technology to increase potency, grounded on the outside issues of expanding marketing mechanization. Mobile services are already being leveraged to reach more customers and make them more comfortable. It is also crucial to regard the growing number of legal regulations that govern different areas, from sanitation to wages. They can impose restrictions on the availability of goods and increase costs. At the same time, the company’s animal and environmental policies increase trust and serve as a positive factor in attracting both clients and investors.

Pestel Analysis.
Figure 2. Pestel Analysis.

Financial Results

Most markets are going through a difficult phase; despite this, McDonald’s gained approximately twenty billion dollars in profits in 2020 and more than ninety billion in systemic off-load. It was primarily preceded by advantages like McDrive and investments in digital technology and delivery capabilities. They helped to withstand the pandemic and generate positive sales momentum. What is more, the average operating cash flow of franchise restaurants hit a record high in 2020. Moreover, more numerous customers now prefer to use delivery and the mobile app, so digital sales have reached nearly 20 percent of system-wide sales in the six largest markets. The company’s business type regards maintaining the exchange part due to franchising – approximately eighty percent of all endowments following the McDonald’s trademark work, particularly below the franchise system (Rajawat et al., 2020). Another peculiarity of the company is the massive nature of the central goods – it means that the quantitative rather than qualitative approach generates the main income. Weak fecundity and profitability of principal market indicators show that income per self does not surpass $65 thousand, and the whole margin is fewer than 45%.

The pandemic was still a challenge for some establishments, so much financial spending went into supporting liquidity. Stores that have had to lessen services significantly or front ends due to state restraints have done so with incredible skill and prudence. Their capacity to respond speedily to extreme conditions is a great illustration of the efficiency of the system. The main goal now should be to solve short-term problems without sacrificing long-term ones. Despite the positive momentum, a growth strategy should be adopted to the new environmental conditions to stop restaurant closures and increase profits. Customer needs have changed significantly, so the focus should be on improving takeout, delivery, and self-checkout.

Qualitative or Quantitative Assessment of the Situation

McDonald’s is a comprehensive chain of fast-service establishments; it is worth noting that McDonald’s has a net margin of less than 18%. This quality approach in this market segment is one of the most successful in the world. An essential element of this victory is the franchising system, with which it is probable to begin a huge amount of eateries around the globe. (Rajawat et al., 2020). At the same time, the organization faces many challenges that need to be addressed, ranging from changing the menu for different countries and introducing organic products. As it is natural and harmless food is the main trend. Moreover, a lot of similar menu offerings from competitors have recently emerged in this area. Thus, the company is in a highly competitive environment and is trying to meet new challenges. The business faces such difficulties as maintaining the charter of a leading player in the market and satisfying customers’ needs

At the same time, the corporation is often the defendant in lawsuits about the quality of their product and adverse health effects. Another negative trend affecting the company holistically is frequent personnel changes, which reduces business development. Despite the contradictory assessments, though, the business remains one of the leading companies in the industry. For example, in 2020, McDonald’s revenues were almost 20 billion (Wu, 2020). McDonald’s also conducts research to help identify weaknesses and conduct new services and innovations to support its position in the market.

Figure 3. SWOT.

Strengths Weaknesses
  • Reliable market monitoring
  • Worldwide popularity
  • ‘House of Ronald McDonald.’
  • Providing detailed information of products
  • Adaptation to the characteristics of the population
  • A wide range of goods
  • Economies of scale
  • Modern technologies and quality control
  • Well-established sales network
  • High profitability
  • Promotion is directed mainly at kids
  • High staff turnover
  • The increasing prevalence of natural food components
  • Cost competition with opponents regularly threatens the company’s earnings
  • Not quite innovative goods
Chances Danger
  • Improvement of production technologies
  • The emergence of new suppliers
  • New advertising channels
  • Reduced taxes and duties
  • Unsuccessful behavior of competitors
  • Development of the information industry
  • Expansion of the range
  • The company can adapt to different cultural conditions
  • Attracting new visitors
  • Currency fluctuations
  • Food prices are standardized
  • Disruptions in the supply of products
  • Increasing competitive advantages from competitors
  • Growth in inflation rates
  • Changing consumer preferences
  • Strong legislation
  • Eating in the restaurants of the chain causes certain health problems

Potential Alternatives and Strategy Recommendations

Importance of Balanced Scorecard for Mcdonald’s Corporation

Considering that the business environment is constantly changing, balanced scorecards must also improve. From a financial perspective, McDonald’s main revenue stream receives from restaurants around the world, royalties or franchise and rental payments. With global deals from both companies and franchisees, McDonald’s Corporation can reduce market danger in various businesses and cope with improved opposition from Wendy’s, KFC, and Burger King. McDonald’s earnings fluctuate depending on global economic conditions (Rajawat et al., 2020). Moreover, from the customer’s point of view, they expect McDonald’s to introduce immediate co-operation with more weight on quality, fresh, healthy, and natural meals. In addition to bringing new clients, McDonald’s must also works hard to engage buyers in rival business conditions. In the future, high market part and low user complaints will remain the central strategy. Thus, buyers are more focused on meat class, sanitation, health, and environmental infliction. Consequently, they expect the corporation to pursue a socially responsible policy.

In terms of inside industry manners, McDonald’s remains to concentrate on character improvement business processes, product quality, and innovation. As future strategies will use technological changes such as self-service, available Wi-Fi, and rebranding, these internal business process strategies are related to customer satisfaction and achieving financial growth. In addition to the above aspects, training and increase perform a critical position in fulfilling all other possibilities. McDonald’s organization will focus even more on the needs of its employees as the best priority. If operators are satisfied, it will lead to better rules in terms of property and service, which increases buyer happiness and deals. McDonald’s workers need to provide ongoing training and reduce employee turnover. This will be accomplished through a worker compensation/reward system. Therefore, in the modern enterprise atmosphere, policies need to be reformulated in order for the business to continue racing in a challenging market conditions.

Figure 4. The balance score card analysis.

Financial Perspective
  • Increase profits to shareholders
  • Improve profitability
  • Increase in trades
  • Reduce expenses
  • Expand industry over the globe (Franchising market type)
Customer’s Perspective
  • Improve client gratification
  • Expand the buyer base
  • Buyer interest
  • Customer opinion
  • Client support and position
  • Availability for customers
Internal Business Processes
  • Improve reliability of services
  • Improve fertility
  • Develop the quality of food
  • Create new innovative services
  • Improve environmental performance
Learning and Growth
  • Improve worker satisfaction
  • Increase employee’s experience and skills
  • Organizational education
  • Training and development
  • Promote innovative menu concepts

Strategic Alternatives and Suggestions

Health and protection stay significant challenges for the company’s continued growth. In addition, the recession in many parts of the world has led to a decrease in demand for fast food, so adapting the menu to the new conditions is a necessity. Therefore, McDonald’s must first reconsiders the formulation and types of goods and focus on delivering healthy alternatives for products consumers have already come to admire (Wu, 2020). This direction will also expand the list of states in which the chain can be present because, for example, now, the goods are banned in Bermuda and Iran. The first step can be the reorientation of the company to a balanced diet for the whole family.

A large division of buyers are children, but recently governments have continued to regulate the nutrition of minors even more strictly, which could affect McDonald’s. Therefore, there is a requirement to guarantee that health products that are guided by nutritionist recommendations are produced. If taken the Happy Meal as an example, it should contain no more than 600 kcal. At the same time, only 11% of the calories can come from saturated fat and 8% from added sugar (Rajawat et al., 2020). Simple ingredients are another goal in this direction., menu items included in children’s sets should not contain artificial colors, flavors, and, if possible, preservatives. The process is quite lengthy because it requires revising the formulation and sometimes technology, and most importantly — the taste of the product must be left almost unchanged. Marketing plays an important role in promoting the recommended product groups, so the next step should be to educate the parents about a nutritious diet and advertising of useful and no less appetizing novelties.

Job turnover also continues to be one of the problems; employees often leave the company, which needs to be changed. Huge amounts of money are spent on ongoing training and internships, but the problem remains present in all regions (Rajawat et al., 2020). Evaluating the quality and productivity of a business is unimaginable without estimating the usefulness and effectiveness of each worker. Human resources is a variable of company processes, so it is valuable to guarantee the quality of ‘labor resources’ and constantly measure the team’s productivity level. Even though modern technology has been implemented and fully integrated with the training process, it is important to remember that it is not a remedy.

Dejected team motivation is the determining circumstance that harms the individual employee’s potency and productivity. Since the people are the core of McDonald’s, it is necessary to direct all efforts to maintain the team, its support, and internal communication with employees forced out of work because of the pandemic (Rajawat et al., 2020). To do this, an updated incentives and penalties system should be introduced, and funding should be redistributed so that people who are temporarily unable to work receive a certain percentage and remain in the team.

The construction of the formation model of competitive advantages should be based on certain requirements, the main of which are: openness, innovativeness, flexibility, adequacy, consistency. The competitive strategy should be aimed at improving services and existing advantages. McDonald’s is on the way to ‘following the leader’; therefore, even with such strong points, it is impossible not to reckon with the steps of competitors that can be quite unexpected (Rajawat et al., 2020). This can lead to pressing upshots for the firm: disruption concerning activities, turnover decline, and value variances.

Hence, executives should try to generate unique strengths that improve the stability of the enterprise from external intimidations. It is important to reconsider the pricing policy and conduct more promotional activities among consumers to do this (Wu, 2020). A good option would be to focus on recycling, which will save a significant amount of financial resources and be beneficial to the environment. Climate problems and pollution are now on the agenda, so the company’s effective fight against these problems will help both business development and nature conservation.

Reference List

Kee, D. et al. (2021) Critical success factors in the fast food industry: A case of McDonald’s. International journal of Tourism and hospitality in Asia Pasific, 4(2), pp. 124–143.

Rajawat, A. et al. (2020) Factors: responsible for McDonald’s performance. Journal of the Community Development in Asia, 3(2), 11–17.

Wu, F. (2020) An analysis of McDonald’s business model based on business ecosystem theory. International Research Conference, 1, pp. 1756–1763.

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