Académique Documents
Professionnel Documents
Culture Documents
Faculty of Business
Strategic Management
“McDonald's”
Case Study
STRATEGIC MANAGEMENT
Prepared By
Fathi Salem Mohammed Abdullah
2009
Table of Contents
Topics Page
Introduction 3
History analysis 3
Vision, Mission, Value 4
The Five Forces Framework 5
PESTEL Framework 6
External Audit 7
CPM-Competitive Profile Matrix 8
External Factor Evaluation (EFE) Matrix 9
Financial Ratio Analysis 10
Internal Audit 12
Internal Factor Evaluation (IFE) Matrix 13
SWOT Matrix 14
SPACE Matrix 15
Grand Strategy Matrix 16
The Boston Consulting Group (BCG) Matrix 17
The Internal-External (IE) Matrix 17
The Quantitative Strategic Planning Matrix 18
(QSPM)
Recommendations 20
Introduction:
2
McDonald's Corporation is the world's largest chain of fast food restaurants,
serving nearly 47 million customers daily through more than 31,000 restaurants
in 119 countries worldwide. McDonald’s sells various fast food items and soft
drinks including, burgers, chicken, salads, fries, and ice cream. Many
McDonald's restaurants have included a playground for children and advertising
geared toward children, and some have been redesigned in a more 'natural' style,
with a particular emphasis on comfort: introducing lounge areas and fireplaces,
and eliminating hard plastic chairs and tables.
History analysis:
The original mascot of McDonald's was a man with a chef's hat on top of
a hamburger shaped head whose name was "Speedee." Speedee was
eventually replaced with Ronald McDonald in 1963.
The present corporation dates its founding to the opening of a franchised
restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955 , the
ninth McDonald's restaurant overall. Kroc later purchased the McDonald
brothers' equity in the company and led its worldwide expansion and the
company became listed on the public stock markets in 1965.
1
http://en.wikipedia.org.
3
With the expansion of McDonald's into many international markets, the
company has become a symbol of globalization and the spread of the
American way of life. Its prominence has also made it a frequent topic of
public debates about obesity, corporate ethics and consumer
responsibility.2
Vision
To be the best and leading fast food provider around the globe
Mission
McDonald's brand mission is to be our customers' favorite place and way to eat,
and improve our operations to provide the most delicious fast food that meet our
customers' expectations.
Values
Our values summarized in "Q.S.C. & V.". Provide good quality, services to
customer. Have a cleanliness environment when customer enjoys their meal.
The value of food product makes every customer is smiling.
Potential
entrants
Buyers
Competitive
Suppliers rivalry
2
http://en.wikipedia.org.
4
Substitutes
The Threat of Entrants
Bargaining power of suppliers within the fast food industry would be relatively
small, unless the main ingredient of the product is not readily available.
Threat of Substitutes
This could range from a competitive fast food restaurant to family restaurant to
a home cooked meal.
5
Competitive Rivalry
The strength of competition in this industry is very high; the main rivals are
BKC, YUM, and WEN. They compete with international, national, regional,
local, retailers of food products (restaurants, quick service, pizza, coffee shops,
and supermarkets).
PESTEL Framework:
Political:
Economic:
Social:
Technological
6
Legal:
External Audit:
Opportunities Threats
1. Growing health trends 1. Health professionals and
among consumers consumer activists accuse
McDonald's of contributing to the
2. Globalization, expansion in other country’s health issue of high
countries (especially in China & cholesterol, heart attacks, diabetes,
India). and obesity.
3. Diversification and acquisition of 2. The relationship between
other quick-service restaurants. corporate level McDonald's and its
4. Growth of the fast-food industry. franchise dealers.
5. Worldwide deregulation. 3. McDonald’s competitors
6. Low cost menu that will attract the threatened market share of the
customers. company both internationally and
7. Freebies and discounts. domestically.
4. Anti-American sentiments.
5. Global recession and fluctuating
foreign currencies.
6. Fast-food chain industry is
expected to struggle to meet the
expectations of the customers
towards health and environmental
issues.
7
CPM-Competitive Profile Matrix
McDonald's Burger King Yum Brands Wendy's
Critical Success Weight Rating Weighted Rating Weighted Rating Weighted Rating Weighted
Factors Score Score Score Score
Price 0.15 4 0.60 3 0.45 3 0.45 3 0.45
Financial 0.08 4 0.32 3 0.32 3 0.24 2 0.16
Position
Consumer 0.10 4 0.40 3 0.40 3 0.30 2 0.20
Loyalty
Advertising 0.10 3 0.30 3 0.30 4 0.40 2 0.20
Product Quality 0.10 4 0.40 3 0.40 4 0.40 2 0.20
Innovation 0.15 3 0.45 3 0.45 3 0.45 2 0.30
Market Share 0.10 4 0.40 2 0.20 3 0.30 2 0.20
Management 0.07 4 0.28 3 0.21 3 0.21 3 0.21
Global 0.15 4 0.60 2 0.30 3 0.45 1 0.15
Expansion
Total 1 3.75 3.03 3.20 2.07
8
External Factor Evaluation (EFE) Matrix
Low cost menu that will attract the customers. .08 2 0.16
Threats
Health professionals and consumer activists 0.10 3 0.30
accuse McDonald's of contributing to the
country’s health issue of high cholesterol, heart
attacks, diabetes, and obesity.
9
Financial Ratio Analysis 12/2007
Growth Rates % McDonald's Industry S&P 500
Sales (Qtr vs year ago qtr) -3.30 4.20 -3.80
Net Income (YTD vs YTD) 84.70 47.90 8.40
Net Income (Qtr vs year ago qtr) -22.60 -59.90 -94.80
Sales (5-Year Annual Avg.) 6.53 8.14 13.26
Net Income (5-Year Annual Avg.) 23.39 15.30 14.45
Dividends (5-Year Annual Avg.) 32.36 22.36 12.30
Price Ratios
Current P/E Ratio 14.7 14.2 13.0
P/E Ratio 5-Year High N/A 9.5 12.5
P/E Ratio 5-Year Low N/A 4.7 2.0
Price/Sales Ratio 2.62 1.88 1.47
Price/Book Value 4.62 3.54 3.00
Price/Cash Flow Ratio 11.20 10.00 9.00
Profit Margins %
Gross Margin 36.7 32.1 39.4
Pre-Tax Margin 26.2 17.2 13.2
Net Profit Margin 18.3 12.0 9.1
5Yr Gross Margin (5-Year Avg.) 33.9 33.3 39.1
5Yr PreTax Margin (5-Year Avg.) 19.8 14.2 16.6
5Yr Net Profit Margin (5-Year 13.7 9.8 11.45
Avg.)
Financial Condition
Debt/Equity Ratio 0.76 .80 1.03
Current Ratio 1.4 1.2 1.4
Quick Ratio 1.3 1.1 1.1
Interest Coverage N/A 1.2 29.9
Leverage Ratio 2.1 -5.3 1.9
Book Value/Share 12.00 10.00 19.75
Investment Returns %
Return On Equity 32.2 44.4 27.9
Return On Assets 14.9 11.3 8.1
Return On Capital 17.0 13.7 11.2
Return On Equity (5-Year Avg.) 19.7 22.8 20.6
Return On Assets (5-Year Avg.) 10.0 8.98 8.5
Return On Capital (5-Year Avg.) 11.4 11.0 11.5
10
Management Efficiency
Income/Employee 10,783 9,401 91,499
Revenue/Employee 58,806 98,207 1,000,000
Receivable Turnover 23.7 44.7 15.8
Inventory Turnover 125.7 98.7 12.3
Asset Turnover 0.8 1.1 1.0
11
Net Worth Analysis 12/2007 (in millions)
Internal Audit
Strength Weakness
12
Internal Factor Evaluation (IFE) Matrix
Weaknesses
Unhealthy food image. 0.08 1 0.08
High Staff Turnover including Top 0.04 1 0.10
management
Customer losses due to fierce 0.04 1 0.04
competition.
Legal actions related to health issues; 0.04 2 0.08
use of trans fat & beef oil.
McDonald's uses HCFC-22 to make 0.04 2 0.08
polystyrene that is contributing to
ozone depletion.
Ignoring breakfast from the 0.06 1 0.06
menu.
14
Strengths Weaknesses
1. Strong brand name, image and 1. Unhealthy food image.
reputation. 2. High Staff Turnover including
2. Large market share. Top management.
3. Strong global presence. 3. Customer losses due to fierce
4. Specialized training for managers competition.
known as the Hamburger 4. Legal actions related
University. to health issues; use
5. McDonalds Plan to Win focuses on of trans fat & beef
people, products, place, price and oil.
promotion.
6. Strong financial performance and 5. Uses HCFC-22 to make
position. polystyrene that is
products. depletion.
6. Ignoring
8. Customer focus (centric).
breakfast from
9. Strong performance in the the menu.
global marketplace.
C IS
Defensive Competitive
ES
16
Rapid Market Growth
Quadrant II Quadrant I
Weak
Competitive Strong
Position Competitive
Position
MCD
Stars Question Marks
Industry
Sales
Growth
Rate
Cash Cows Dogs
17
Strong Average Weak
3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
I II III
High
3.0 to 3.99
IV V VI
VII VIII IX
Low
1.0 to 1.99
Strategy 1 Strategy 2
18
Strong financial performance and position 0.08 4 0.32 4 0.32
Strategy 1 Strategy 2
Threats
Health professionals and consumer activists accuse 0.10 1 0.10 4 0.40
McDonald's of contributing to the country’s health
issue of high cholesterol, heart attacks, diabetes, and
obesity
The relationship between corporate level 0.09 4 0.36 1 0.09
19
McDonald's and its franchise dealers
McDonald’s competitors threatened market share of 0.12 4 0.48 4 0.48
the company both internationally and domestically
Anti-American sentiments 0.07 - - - -
Global recession and fluctuating foreign currencies 0.04 - - - -
Fast-food chain industry is expected to struggle to 0.04 1 0.04 4 0.16
meet the expectations of the customers towards
health and environmental issues
SUBTOTAL 1.00 2.10 2.01
SUM TOTAL ATTRACTIVENESS SCORE 4.44 4.41
Recommendations
Expand further into Asia markets over a 2-year period by adding 500
restaurants per year at a cost of $4 billion annually, and applying 0 grams
Trans fat in all worldwide McDonald's restaurants.
References
1. www.mcdonalds.com
2. www.moneycentral.msn.com
3. www.mcdonalds.ca
4. Strategic Management concepts and cases by Fred David 12 edition
5. Exploring Corporate Strategy text & cases 8th edition
6. U.S. Environmental Protection Agency
20