McDonalds’ vs. Wal-Mart’s Strategic Choices

McDonald is one of the fast food industry’s most popular franchise systems. With the current number of over two thousand four hundred franchise operators who are responsible for the almost thirteen thousand McDonald restaurants.

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McDonald’s success as a franchise has been strengthened by its good track record of profitability, the fact that it’s built around a unique business concept; the company has several outlets across the U.S and a lot of other factors like management expertise are all added advantages.

Wal-Mart is a forty five year old company struggling to sustain the growth it had as a ‘young’ company. The company had at the beginning emerged from the Ozark backwoods and ended up dominating in retailing. It was founded in 1965 and managed to rise to prosperity through banking on retailing’s ‘back-end’ mechanics (Bianco, 2007).

The isolation of Ozarks made the company to create a distribution system which helped in the moving of goods from the factory’s loading dock to the store cash register within shorter periods and a lot cheaply than their competitors.

The idea behind Wal-Marts strategy was that low costs begat low prices (Bianco, 2007). Back then it registered speedy growth rates compared to the1.9% gain of 2006 from its United States division of same-store sales which sources say is its worst performance ever.

Wal-Marts competitors seem to be getting extremely better gains and the slow growth it ended up experiencing can be attributed to the extreme dominance of other larger companies in the market and other factors like the great size of the company and the age of the company.

Richard Hastings who is a senior analyst for the retail rating agency of Bernard Sands, is for the view that the slow growth all adds up to the age of the organization (Bianco,2007).

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According to AcNielsen, the organization controls 20% of dry grocery, 29% of nonfood grocery, 30% of health and beauty aids and 45% of the general merchandise sales (Bianco, 2007). The company’s CEO says that the company has intentions of sustaining the growth pace which has all along enabled it boost the total U.S revenues by a rate of 7.2% and also seen the company open up several stores and still planning to open other four thousand Supercenters across the U.S.

However the Wal-Marts outlets are alleged to be aging and the explanation behind this is that same-store sales rates slow with maturity. The company has resulted to relying on store-building so as to compensate for the declining same-store sales. But the Supercenters might not be in a position to pull in sufficient sales which will enable the full offsetting of the costs incurred in building them. The other problem is that the stores are within proximity which means that they end up being their own competitors (Bianco, 2007).

Many analysts are for the opinion that Wal-Mart should concentrate on enhancing the value acquired from the existing stores considering that the store has already revealed the failure of 25% of its stores to meet the minimum expectations of cleanliness, product availability etc. The company greatly exaggerated its recommended cost base through expansion beyond its Southern stronghold for the reason that its very expensive to buy land and build, staff the stores and operate them in larger cities that are way above the farm towns which were the starting point of Wal-Mart.

This led to the company suffering resistance in the various cities it wants to put up new stores and to prevent that it retains lawyers and lobbyists whose main duty is to help the company fight its way into the Northeast area, the Midwest and the West Coast regions.

The Wal-Mart chain has always appealed to its customers through its low prices. This was from Walton’s philosophy of ‘price it low, pile it high and watch it fly’ which was later modified by regulators (Bianco, 2007). The customers who are mostly low-income Americans have with time become frequent and loyal. Recently these customers’ collective purchasing has reduced drastically due to the stagnation of hourly wages and the soaring costs of housing and energy.

This means that the company’s strategy of selling for less is no longer an advantage due to the changing times and with it the living standards of its consumers. The reason for this is that to some consumers, what matters is not the price but the quality, service, style and the stores aesthetics (Bianco, 2007). The company had once blamed its losses on the increased prices of gas but with time the executives were able to focus on increased competition as a major threat.

McDonalds the leading food service retailer in the world with over thirty thousand franchise restaurants and serving more than fifty two million people in over a hundred countries in the world, the company is known for its ability to extract more value from its stores which vary in their performance. The person credited for McDonald’s successful franchise is Raymond Kroc who started out as an equipment supplier to restaurants. He later acquired a legal structure to run his franchises and later the McDonald brothers sold Kroc business rights and went public about the issue. The McDonalds franchise success can be attributed to consistent commitment to standards of “Quality, Service, Cleanliness and Value” which could be relied on by customers wherever they traveled. This can be referred to as one of the Strengths of the company.

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It was one way they were able to build and retain the loyalty of their customers. Another cause of the success of the franchise chain is its innovation and adaptation to market conditions. The company kept adjusting so as to cater for the changing tastes and demands of its customers. Almost all of the new products introduced apart from what McDonalds previously offered were through the franchises. McDonald’s franchise business has sailed through boom times and recessions and still been able to react to consumer trends successfully (Arndt, 2007).

Recently, McDonald displayed an integrated worldwide marketing and timing by collaborating with DreamWorks Animations. The company as the official food service sponsor in the Olympics in Beijing, treated children in all their outlets to a Happy meal program by giving them a toy of one of the characters in the movie with each purchase of a happy meal. This was one among various other activities for children like online promotions which teach them about their environment.

The company also aims at emphasizing consumption of healthy foods. All this shows McDonalds prowess in integrated and coordinated marketing.

McDonalds since going 24/7 in Garner, in April of 2005 has boosted its products through the extension of store hours. It is able to provide service to those who work at night and their customers who are early birds. The company has adjusted accordingly from the two-meal place that it was with the introduction of breakfast as a fast food (Arndt, 2007).

The previous tradition was one that had been held for more than twenty years. This is among the things which have continued strengthening McDonald that is, increment or extension of working hours beyond the 6 am to 11pm per day to 24/7. This according to the Business Week reflects a shift at McDonalds where for a long time, growth was just about more locations and this was successful until the late 1990s. With time the new sites were competing with the old sites ‘stealing’ their customers.

The focus according to James skinner, in the Business Week had been lost while investing so heavily on real estates. The new strategy was thus adopted with an aim of increasing the financial results by realizing more profits from the already existing outlets.

The new focus looks into all the elements of the business that is product development, restaurant design and technology (Arndt, 2007). The move has led to the rebranding of the company with obvious changes and results. McDonalds have also changed the mode of service and with it increased the number of customers which are estimated to be nearly half of the Americans.

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The company has opportunities of increasing its sales and customers through the service of breakfast to its customers and the management still believes that there is plenty of room in the morning for the company’s expansion because breakfast is a meal that a lot of Americans are more likely to eat at home.

Their competitors are fast gaining speed with Starbucks making sandwiches for breakfast and targeting almost 6,500 outlets in the United States. But analysts still see McDonald as the most likely winners of the breakfast battle (Arndt, 2007).

In conclusion, McDonald’s success can be attributed to product development, generation of new ideas where new products are made and tried out in one market for six weeks. The company monitors the ease, margins and costs of preparation of new products instead of just assessing its sales. This together with the expansion of the working hours and refurbishing of its stores are what may have strengthened the consumers’ loyalty and it looks like that will continue for a long time to come. On the other hand, analysts urge Wal-Mart to follow the example of McDonalds, instead of expanding the number of outlets, to focus on improving the current number and closely monitoring product development and increasing the number of and quality of their services to suit the needs of the consumers.

References

Arndt, M. (2007). McDonald’s 24/7; By focusing on the hours between traditional mealtimes, the fast-food giant is sizzling. Business Week. New York, Issue 4020.

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. New York, Issue 4032.

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