Introduction
McDonald’s is a worldwide business and one of the largest fast-food restaurant franchises in the United States. The McDonald’s Corporation established approximately 38,000 McDonald’s locations in over a hundred different nations (Opait, 2019). Mainstays of McDonald’s products include hamburgers, chicken nuggets, chicken sandwiches, French fries, soft drinks, a breakfast menu, and sweet desserts (An, 2020). PESTEL analysis is a useful tool for assessing the state of the market. More global trade agreements but stronger regulatory standards for nutrition and health represent the political element facing the fast-food business.
To summarize the economic situation, growth is gradual but steady. Although sales in the United States remain the industry’s primary revenue driver, restaurant chains stand to gain from both steady expansion and forays into emerging nations (Greenspan, 2022). Regarding social factors, fast food is becoming more popular due to changing consumer preferences toward healthier diets and the demands of fast-paced city living.
PESTEL Analysis of McDonald’s
PESTEL analysis looks at the far-reaching or macro-environment of the fast-food business and the effects of new technology and associated trends. The rise of mobile commerce and the automation of corporate processes are two indicators of the impact of technology. Natural environment trends and their impact on businesses are also included in PESTEL analyses. The positive influence of sustainable business practices on the environment and bottom lines is growing (Greenspan, 2022). The growing importance of corporate environmental initiatives and the demand for more environmentally responsible operations persist.
Meanwhile, McDonald’s is experiencing difficulties due to the impact of external societal variables. McDonald’s sought to broaden its menu and react to the new trend by providing a more comprehensive pricing range as the healthy eating movement gained traction. Consumers, however, were baffled by the new pricing system and many menu options. As a result, prices increased, turnaround times lengthened, and quality suffered. As a result, McDonald’s efforts to be more inclusive have led to a decline in earnings, the share of the market, and stock price.
Porter’s Five Forces Analysis of McDonald’s
Porter’s Five Forces is a great way to analyze the rivalry in the fast-food industry. It measures the profitability of a market to assess how competitive it is and how appealing it is to potential investors (Grant, 2018). Competition, entry barriers, the threat of substitutes, supplier bargaining power, and buyer negotiating power are the five factors identified by Porter’s framework.
Companies like Wendy’s, Starbucks, Burger King, and Dunkin’ are direct competitors of McDonald’s and hence contribute significantly to the industry’s level of competition. With a brand worth around $154.9 billion in 2021, McDonald’s was the most lucrative fast-food company in the world, demonstrating its longevity and competitive edge (Statista, 2022a). The typical launch costs for a small quick-service restaurant are $19,815 (Walls, 2023). Therefore, there is a high barrier to entry because of the high costs of entering the sector and the difficulty of establishing brand loyalty.
Fast food restaurants face a substantial threat from substitute products. Products from supermarkets, restaurants, and meal delivery services are all possible alternatives. Both the supplier and buyer bargaining power are relatively low in the fast-food industry. All of the primary constituents of the dishes are readily available on the market, limiting the suppliers’ ability to bargain. Consumers tend to have a wide range of restaurants to choose from, but fixed-price contracts in the fast-food business reduce buyers’ ability to haggle over prices.
Recommendations to McDonald’s
McDonald’s has to adopt a new strategy if it will successfully address the problems it faces. McDonald’s may maximize efficiency, knowledge, and leadership by narrowing their product focus per the specialization strategy. By streamlining their operations in this way, they can devote more time and energy to improving the healthfulness of their most popular goods while still following the trend of healthy food. McDonald’s might forego premium offerings in favor of a cost leadership and differentiation approach.
McDonald’s mission statement is to “make delicious feel-good moments easy for everyone” (McDonald’s, n.d). Lower prices have always been a significant factor in setting a company apart from the competition and aligning with its mission statement. As a result, businesses may maintain their competitive edge by minimizing expenses across the board, including manufacturing, advertising, and labor, but investing in healthier products.
McDonald’s problem is best solved by adopting a cost leadership and differentiation approach. To be competitive over the long term, according to Porter’s theory, a company needs to pursue both cost leadership and product differentiation (Raj & Singh, 2020). McDonald’s can ensure its long-term viability by tailoring its offerings to meet consumer needs.
Food, paper, salary, worker benefits, and leasehold operating expenditures were the greatest portion of McDonald’s Corporation’s reported total operating costs and expenses in 2021, reaching $12.86 billion U.S. dollars (Statista, 2022b). Reducing spending in these areas is crucial and paves the way for more investments. Investing in corporate social responsibility and sustainable agricultural practices may improve a company’s image and increase sales and earnings in the long run. Employee differentiation, as well as having qualified staff, online marketing, and home delivery, can increase revenue beyond that of the drive-thru. This reflects the efforts to maintain the business’s competitive edge in food quality, pricing, and turnaround time.
Conclusion
Businesses that want economies of scale require robust strategies that make the most of their competitive advantages. After attempting and failing to adopt a strategy to expand its menu and provide premium, healthier items, McDonald’s had severe repercussions. A cost leadership and differentiation strategy are the best way forward for McDonald’s. With this plan in place, McDonald’s could maintain its competitive advantage by providing customers with low fixed prices, maintaining its fast food model in its locations, and providing rapid service without sacrificing quality.
References
An, J. (2020). Analysis on marketing segmentation of McDonald’s. 2020 the 4th International Conference on E-Business and Internet, 122-125. Web.
Grant, R. M. (2018). Contemporary strategy analysis (10th ed.). Wiley.
Greenspan, R. (2022). McDonald’s PESTEL/PESTLE analysis & recommendations. Panmore Institute. Web.
McDonald’s. (n.d). Our mission and values. Web.
Opait, G. (2019). The McDonald’s Corporation, a „star” in the „galaxy of the businesses”. Annals of Dunarea De Jos University of Galati. Fascicle I. Economics and Applied Informatics, 25(3), 181–193. Web.
Raj, S., & Singh, N. (2020). Strategizing of fast food industries using a balanced scorecard approach: A case study of McDonald’s corporation. International Journal of Humanities, Arts and Social Sciences, 6(6), 258–273. Web.
Statista. (2022). Most valuable QSR brands worldwide 2021. Web.
Statista. (2022b). Operating costs and expenses of McDonald’s Corporation 2015-2021, by type. Web.
Walls, P. (2023). How much does it cost to start a fast-food business in 2023? Web.