Mcdonalds

Competitive Forces and SWOT Analysis Luz A comas Strayer University Dr. Ojie-Ahamiojie Strategic Management – BUS 599 08/07/2011 1. Discuss the trends of fast food and the impact of these trends on MacDonald's Currently, fast food is very popular, especially by teenagers. These foods contain high calories, high fat, high sodium and low in fiber. Frequent consumption of fast food will have an impact on the increasing trend of overweight; according to the Centers for Disease Control and Prevention, 70 million Americans are now considered obese. As many nations try to deal with the crisis of obesity, the fast-food industry is introducing lower-fat options to win over health conscious consumers. Fast food restaurants are offering healthier meal options and more choices. 2010 witnessed a few health-conscious trends including low calorie salad dressings, vegetarian burgers, and a number of alternatives to the greasy burger of fried chicken sandwich ("US Fast Food," 2010). With poor image associating fast food to health issue around the world, McDonalds has stood up to change its image as healthy food provider to family. It provides information on nutritional intake, calories, and balance healthy lifestyle information to customers. In its website information such as calories counter and healthy food advice available to customers who access it (Reynolds, 2005). The fast food restaurants tend to grow rapidly in big cities, with strategic locations in shopping centers, supermarkets and malls. More fast food restaurants are showing up in the strangest locations. Little Caesars is now in K-Mart and McDonald's is now in Wal-Mart. This trend will continue as increased competition and saturated markets cause fast food companies to become more creative in selecting their locations (Clark, 2010). Kids are encouraged to eat at McDonalds because influence from advertising; 30% of American children consume fast food. McDonald’s operates something like 8,000 Play lands around America. They're especially attractive to children in neighborhoods in which playgrounds are scarce. They target children because they influence how their parents spend their money. As long as the American public continues its fierce competitiveness in the workplace, working longer hours with no time to prepare food at home and continues its insatiable hunger for new restaurant concepts, the most creative and aggressive fast food companies will flourish with these trends and also create new trends (Gorodesky, & McCarron ). Design, themes and restaurant layout has changed to spot more contemporary and chic’s look such as redesign of its logo, Wi-Fi Connection, spotting less plastic and more brick and woods design, television, specialized section such as for families seating and also those who celebrate party at McDonalds, better lightings and new products introduction that suits current lifestyle or taste (Reynolds, 2005). Customers whether it is business or household buyer are important actor in microenvironment where McDonalds operates. For McDonalds it is more on household consumers, which is changing fast in the market trend. Every consumer’s trend will affect the company bottom-line performance and if McDonalds cannot change or adapt to the changes of consumer behavior it might risk losing the market. For example due to increasing trend for healthy lifestyle, McDonald’s has implemented a “Light and Healthy” menu; McDonalds launched Premium Salads and Apple Dippers which is popular in the United States. The Happy Meal, which has been a long standing child’s favorite, now has options such as fruit instead of French Fries and all white meat chicken nuggets("Fast food: global," 2010). 2. Evaluate the competitive environment of McDonald: Apply Porter's model Porter's Five Forces Models is design to assess the macro environmental forces that are present in a business. These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Thompson, Strickland, & Gamble, 2009). - Competitive Rivalry: Fast food industry has a wide range of competitors from small to big size in term of financial capabilities. Entry into the fast food industry is easy. This makes competition a major focus. In terms of existing competition there are already a large number of competitors, the dominant firm is McDonalds, serving in excess of 2.5 million customers everyday (McDonalds, 2008). McDonald’s competes with other restaurants through the quality, variety and value perception of food products offered. McDonald’s Corporation’s main competition comes from other fast-food restaurants; most notably, YUM Brands Inc, Wendy’s International and Burger King. - Threat of New Entrants: The threat of new entrants in the fast food industry is high because there are no legal barriers which would keep them from entering the industry. Local authority regulation may limit the number of new outlets of a particular type that can open, but this is a limited barrier with a new entrant may not be able to gain the cost advantage in the short term, there are few barriers to entry and consumer loyalty is low in this market. The major barriers in which a firm faces in the industry are the economies of scale and the access of the distribution. In order for a firm to enjoy success in the industry, they must spend a large amount of capital on advertising and marketing. Franchise options make easier to enter the market. There may also be difficulties in getting some prime high street locations; it has been known for some fast food chains to sign or buy leases simply to prevent a rival getting into the locations, this has been documented with Starbucks. However, the start-up costs are relatively low, and there have been many new entrants in recent years, companies such as Subways have entered and expanding their presence demonstrating the ease that new firms can enter (Reynolds, 2005). - Threat of Substitute Products: McDonald’s is known for their famous French Fries, Big Macs, and Happy Meals. Competitors of the industry also try to compete with similar products; therefore, leading to price wars. McDonald’s created a Dollar Value Menu, in response to competitors such as Wendy’s 99 cent menu. Overall, the industry has tried various product differentiations in order to accumulate greater market share, but most consumers are drawn to the classics for which the establishment is known for. However, growing concern to achieve a healthier society has led McDonald’s, as well as other competitors, to make extensive menu changes, in order to conform to a more concerned society. McDonald’s is doing more to compete with health focused restaurants like Subway. Nutritionist and other leading experts have been hired to join the McDonald’s team in order to ensure that the correct items are added to the menu, while still keeping and improving the classics that they are famous for. For example, the chicken nuggets that we all grew up on are now 100% white meat. McDonald’s is flexible in their menu to conform to the changing tastes of society (Reynolds, 2005). - Bargaining Power of Customers: McDonald’s, and the industry, has attempted to gain market capitalization, by keeping the customer satisfied, due to the fact there are relatively no switching costs. For this reason, they have adopted the slogan, “the customer is always right.” The industry must try to maintain a hold on the market by conforming to a changing society as well as maintaining high quality. One of the industry’s most recent concerns is that of creating a healthier society and prevention of obesity. McDonald’s corporation has faced previous law suits on being held accountable for obesity, similarly following the litigation process of cigarettes and tobacco companies. The courts ruled against this issue in McDonald’s favor, making this a remote future risk factor. McDonald’s has had to paid legal fees in order to defend itself in this type of litigation; however, even with this incremental cost they are still achieving a significant rate of earnings growth. In addition, McDonald’s, in its effort to be a more socially responsible corporate citizen by supporting a healthier society, has developed “light” and healthy menu items in order to give customers additional eating options and in doing so, broadening the array of its customer base while offering its existing customer base with healthier menu options(Reynolds, 2005). - Bargaining Power of Suppliers: Supplier is an important factor in the relation with McDonalds and its consumer. To have a good, continuous and no disruption supply, McDonalds must build a strong relationship with the suppliers. McDonalds must also consider that in the business market environment, it is competing with other fast food operators. Any strike, supply shortages and increasing of prices of market must be monitored closely by McDonalds to ensure it will not affect its bottom line performance. Simple economic rules, the more the input cost, the more the company's overall cost and pricing will be and thus it affect the volume of sales to customers. McDonald’s is the nation’s largest purchaser of beef, pork, and potatoes - and the second largest purchaser of chicken. 3. Discuss which environmental factor poses the most significant threat to McDonalds and what the company can do to combat it. Competitive Rivalry is the factor that poses the most significant threat to McDonalds. There is a high level of competition with the dominant firms controlling a large amount of the fast food industry and able to back up that position with a high level of marketing. McDonalds have the cost advantage and all appear to try and compete on differentiation. A key success factor in the rivalry is the locations of the fast food outlet (Reynolds, 2005). The market growth is rising because of the convenience factor and busy consumers not having enough time to cook a meal. The restaurant industry is also growing rapidly due to opportunities in other global markets. In McDonald’s case, they combat rivalry because they have already entered many different countries and are succeeding in these countries. McDonald's Corporation is the world's largest chain of fast food restaurants. McDonald’s key success factors are cost efficiency, product development, marketing, and promotions. Each firm within the food-service industry is susceptible to losing customers because there are relatively no switching costs for consumers, therefore the industry has to rely heavily on their brand image and quality of products. McDonald’s has a number of competitors; however they are currently the leader of the industry in market capitalization with a cap of $39.31 billion. The McDonald’s Corporation has become a powerful symbol of America’s service economy, which is now responsible for 90 percent of the country’s new jobs. The most popular fast food is the ready prepared sandwich market, these account of about 1/3rd of the market it is followed by the burger market where McDonald and Burger King dominate with 91% of the market. However, it is also a market where the different segments may compete directly and there is a high level of competition. McDonald’s has more than 30000 units spread in 119 countries which allow the company to take advantage of a large field of action to attract local customers. McDonald’s has the most units all over the world compared with its competitors of the fast food restaurant segment. In cities, potential customers can find easily many points of sale whereas in the suburbs, customers can take advantage of the drive through where they can order food without leaving their cars. McDonald’s is able is maintained a loyal customer base, and compete with the existing competitors by introducing variation to their menu, such as the Dollar Value Menu. The McDonald’s Corporation is the largest owner of retail property in the world. Indeed, the company earns the majority of its profits not from selling food but from collecting rent. McDonald’s operates more playgrounds than any other private entity in the United States. It is one of the nation’s largest distributors of toys. A survey of American schoolchildren found that 96 percent could identify Ronald McDonald. The impact of McDonald’s on the way we live today is hard to overstate. The Golden Arches are now widely recognized. 4. SWOT analysis McDonalds Strengths: * Risk diversity. * Larger market share. * Promoting ethical conduct. * Rigorous food safety standards. * Strong brand name, image and reputation. One of the world's most recognizable logos (the Golden Arches) and spokes character (Ronald McDonald the clown). * Strong financial performance and position. * Affordable prices and high quality products. * Nutritional information available on packing. * Strong global presence and performance in the global market place. McDonald successfully and easily adapt their global restaurants to appeal to the cultural differences. For example, they serve lamb burgers in India and in the middle East, they provide separate entrances for families and single women. * McDonalds invests more than $1 billion annually in training its staff, and every year more than 250,000 employees graduate from McDonald's training facility, Hamburger University. * Focus on quality service and customer satisfaction. * McDonalds is a community oriented, socially responsible company. They run Ronald McDonald House facilities, which provide room and board, food and sibling support at a low cost for families with children needing extensive hospital care. Ronald McDonald Care Mobile programs offers cost effective medical, dental and education services to children. * Approximately 85% of McDonalds restaurants business world-wide are owned operated by franchisees. All franchisees are independent, full-time operators. They have global locations in all major airports, and cities. Weakness * Unhealthy food image. * High staff turnover including top management leads to more money being spent on training. * Customer losses due to fierce competition. * Loyal actions related to health issues; use of trans fat and beef oil. * They have yet to capitalize on the trends towards organic foods. Opportunities * Growing health trends among consumers. * Joint ventures with retailers (e.g. supermarkets). * Consolidation of retailers likely, so better locations for franchises. * Respond to social changes innovation within healthier lifestyle foods. It's move into hot baguettes and healthier snacks (fruits) has supported it's new positioning. * Strengthen its value proposition and offering to encourage customers who visit coffee shops into McDonalds. * The new "formats", McCafe, having Wi-Fi internet links should help in attracting segments. Also installing children's play-parks and its focus on educating consumers about health and fitness. * International expansion into emerging markets of China and India. * Diversification and acquisition of other quick-service restaurant. * Growth of the fast food industry. * Worldwide deregulation. Threats * Health professionals and consumer activists accuse McDonald's of contributing to the country’s health issue of high cholesterol, heart attacks, diabetes, and obesity. * McDonald’s competitors threatened market share of the company both internationally and domestically. * Anti-American sentiments. * Fast-food chain industry is expected to struggle to meet the expectations of the customers towards health and environmental issues. * Global recession and fluctuating foreign currencies. * Any contamination of the food supply, especially e-coli. 5. Discuss how McDonalds can use it strengths and opportunities to achieve a sustained competitive advantage in the market place. A competitive advantage is essential in the operations of the fast food industry. It allows the ability to generate greater profits and retention of its customer database. McDonald’s competitive advantage is their differentiation. Their products’ flavors and names are exclusive to them and the brand of McDonald’s is distinguished by the looks and tastes of their foods. They have distinguished themselves this way for years and this will continue, but the tastes of the customers may change. This will be the problem. McDonald’s will have to answer to the needs and wants of their customers to keep them satisfied and coming back for more. Right now in the industry life cycle, McDonald’s is a mature company focusing on competition and their product line’s survival. The culture of McDonald’s is keeping their customers happy and to do whatever they can to create a wider customer base along with a product line that satisfies any taste . Another competitive advantage is technology in conceptualizing, developing and designing the tools that were required in providing this service concept i.e. the development of the rings to make the eggs for Egg Mcmuffins and also the use of the latest software technologies for scheduling, planning and ordering. McDonalds has many opportunities to change its look, menu, and customer service. McDonald’s started building newer building incorporating the arch, along with more modern furnishings. The menu has changed by adding more breakfast items and introducing the McCafe in certain areas. It has also added more health concerned items such as the Asian salad and Premium white chicken. References Clark, S. (2010, October 20). Developments in fast food - what are the trends'. Retrieved from http://www.fastfoodnation.co.uk/development-fast-food.html Fast food: global industry guide . (2010, December 1). Retrieved from http://www.fastmr.com/prod/109585_fast_food_global_industry_guide.aspx Gorodesky, R, & McCarron , M. (n.d.). Trends in the quick-service restaurant industry. Retrieved from http://www.restaurantreport.com/features/ft_trends.html Reynolds, R. (2005, April 25). McDonald's corporation. Retrieved from http://mmoore.ba.ttu.edu/ValuationReports/McDonalds.pdf Thompson, A, Strickland, A, & Gamble, E. (2009). Crafting & executing strategy: the quest for competitive advantage: concepts and cases. New York, NY: McGraw-Hill Companies, Inc. Us fast food market outlook 2010. (2010, June 1). Retrieved from http://www.htrends.com/report- 2718624-US_Fast_Food_Market_Outlook_____.html