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McDonalds Case
Alyssa Puglia

October 30, 2013

Introduction In 1940, Ray Kroc opened the first McDonalds in Bernardino, California, originally named McDonalds Barbeque. The fast food restaurant spread quickly and the hundredth restaurant was opened by 1959. McDonalds service quality was always a priority which is why Hamburger University was opened in 1960. Through training, the University provided a Bachelors degree in Hambergerology for McDonalds employees. Two years later, McDonalds expanded its services from strictly drive thru to sit down service. Hundreds of restaurants continued to open across the country until 1967 when McDonalds went international. The American menu offers multiple choices of hamburgers, chicken sandwiches, wraps, salads, breakfast options, snack and drinks including milkshakes. However, as part of McDonalds international strategy, they tailor their menu depending on the geographical location of the restaurant and preferences of its customers. The company has proven to be successful in their advertising, release of new products and target marketing. Vision McDonalds vision is to be the worlds best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness and value to that we can make every customer in every restaurant smile. Mission McDonalds brand mission is to be our customers favorite place and way to eat and drink. Our worldwide operations are aligned around a global strategy called Plan to Win, which centers on

an exceptional customer experience- People, Products, Price and Promotion. We are committed to continuously improvising our operations and enhancing our customers experience. Goals To provide high quality food and services To be customers favorite place to eat To balance the interests of stakeholders To become more environmentally friendly To optimize the menu, modernize customer experience and broaden accessibility of the brand To improve their image To align worldwide operations To give back to the community

Focal Problem McDonaldss main focus is maintaining its position as the number one in the fast food industry. Additional Problems The fast food industry is a maturing industry that features a high degree of substitution. Changes in trends and tastes, especially the recent trend in healthy eating, cause problems for McDonalds. Financial Analysis Efficiency

There are many ratios that can be used to determine how well the company is performing financially. One of the biggest reasons that McDonalds is at the forefront of the fast food industry is that they are efficient. Efficiency can be looked at through accounts receivable. While the industry average for A.R. was 17.99 days in 2012, 2.61 of McDonalds days were tied up in inventories (2). Profitability Return on sales is one of the best measures of profitability as it shows what percent of every dollar McDonalds earned is actually profit. McDonalds lead the fast food industry in 2012 with a ROA percentage of 17%, well above all of its competitors (3). This shows that McDonalds is taking advantage of their resources and maximizing profit. Liquidity Liquidity is the measure of how well a company can turns its assets into cash. This determines whether or not a company will have the money to pay off any short term debt. The quick ratio is a way to measure liquidity. A company wants their quick ratio to be over 1 and anything under 1 means that they may struggle with paying off short term debt. In 2012, McDonalds had a quick ratio of 1.09 which was well over the industry average of .58 (1). Five Forces of Competition- Fast Food Industry Power of Customers- High Customers are the general public. There is a very high degree of substitution in the fast food industry, which gives the customers the option of substituting one fast food chain for another.

The customers make the industry very price sensitive, which gives them the power to choose which chain they will choose. Power of Suppliers- Low The key suppliers are farmers, meat industry, chicken industry, soft drink distributors, and paper products. There are plenty of suppliers in the fast food industry willing to sell their product, which makes for a high degree of substitution between them. Food chains have to ability to vertically integrate backwards based on the fact that they are the major customers of their suppliers. Degree of Substitution- High The fast food industry faces a constant battle against the force of substitute products. The customers have the ability to substitute fast food products with other alternatives like restaurants, sandwich shops or grocery stores. Barriers to Entry- High The barriers to entry in the fast food industry are very high. It takes an enormous amount of resources and knowledge of the industry to try to compete with the top companies like McDonalds and Burger King. Economies of Scale and government rules and regulations also make this industry very hard to enter. Rivalry- High The low prices and high efficiency of the fast food industry makes for a high degree of rivalry. The industry competes with other food providers to gain customers. Alternative Generation and Evaluation

Alt 1: Market Development The market development strategy involves selling a companys present products in a new market. McDonalds could use this strategy by opening new locations internationally in order to maintain their number one position in the fast food industry. McDonalds is currently located in 120 countries world-wide which leaves room for even more expansion. McDonalds can bring its business to a country like Bermuda or Iceland where it is not already. However, expanding internationally brings risks and can be costly, hard to implement and risky depending on the preferences of the native people in the new country. Alt 2: Product Development (Ethic Food) Product development is the strategy of changing the features of your current products in order to enhance their life cycle. For instance, McDonalds could add some ethnic foods to their menu in order to attract more ethnicities in the United States. McDonalds has done this at many of their international locations, but they have not done so to any of their U.S. locations. It would be an easy strategy to implement as the suppliers would not change and it would generate long term profit. Also, the costs involved would not be too much to handle. This alternative would attract more customers in a costly fashion by providing ethnic options. Alt 3: Product Development (Healthy Menu) In order to maintain their position as the industry leader, McDonalds needs to focus on making a healthier menu. One of the biggest reasons that some customers turn away from McDonalds is that are health-conscious and want to eat more nutritional food. McDonalds needs to adapt to these new consumer preferences. If McDonalds targeted these customers and made changes to better their menu, it would create more profit. Similar to alternative 2, suppliers

would remain the same but McDonalds would work on improving its reputation with healthier options. The risk on this low and would most likely draw in many new health conscious customers. Recommendation After analyzing all of the strategies we believe that the product development strategy would be the best choice more McDonalds. Developing and ethnic twist or healthier options would be the easiest, safest, and cheapest way for McDonalds to attract more consumers and maintain their position as the leader of the fast food market. Implementation of Healthier Menu: McDonalds healthy menu should be implemented in all existing locations. As customer demand changes and consumers become more health conscious, McDonalds must be adapt to customer needs. The current health craze is spreading universally so implementing this strategy in only a certain region would not be as beneficial to McDonalds as it would be to implement in all locations. Consumers are beginning to avoid the typical fast food joint and steer toward healthier options. It would be in McDonalds best interest to introduce a healthier menu throughout the whole chain. Promotion: McDonalds must target health conscious consumers by advertising its new nutritious options. They should focus on promoting the fact that their new menu contains fewer calories which supports an active and energetic life for people on the run. The new menu should offer both full meal options as well as snack choices for all three meals of the day. By targeting customers who are focused on health by providing more wholesome options, McDonalds will

gain back part of the market who would normally avoid their fast food franchise. McDonalds must also highlight vegetarian, vegan and celiac options for those with specific dietary restrictions by adding meatless patties and gluten free buns to the menu. McDonalds will see their customer base grow by targeting these people who are found universally. Health Menu Options:

Introducing McDonalds Active Menu

Traditional Salad
Iceberg lettuce topped with tomato, shredded carrots, feta and low fat croutons Available with Grilled Chicken

$2.50 $3.99 $1.50

Fruit Salad
Strawberries, melon, grapes and pineapple

Grilled Chicken Sandwich

Marinated chicken with lettuce and onion on a wheat roll

$2.95 $4.95

Combo meal option: With fruit salad and all natural fruit juice

Grilled Chicken
On Whole Wheat Wrap with Lettuce and Tomato and balsamic vinaigrette. Combo meal option: With side salad and all natural fruit juice

$2.50 $4.50

Yogurt

$2.00

Vegetarian Burger
with Lettuce and Tomato on Wheat Bread

$2.95

Gluten free Bun

Additional $.75

Implementation of Ethnic Menu: The implementation of a Latino menu should begin in states with a high population of Latinos including Florida, Texas, Arizona, California, New Jersey, New York and Colorado. While those with American decent would also indulge in ethnic menu options, it would appeal most to Latinos. As for an Asian based menu, the highest percentage of Asian-Americans is located in New York, California and Hawaii. California and New York could launch a joint implementation of ethnic menus as they both have a high population of Latinos and Asians. Rather than only offering these unique options to foreign countries, McDonalds should implement these ethnic options in areas with high ethnic population as well. Promotion: McDonalds should promote their new ethnic menu options with a catchy tag line along the lines of Get a taste of home or Feel more at home at McDonalds. They should focus this promotion on targeting their ethnic population by bringing them back to their roots with homeland food options. McDonalds should advertise traditional foods at an affordable price and convenient locations. It may also be beneficial to add their tagline in the language of which costumers they are targeting. Also, to get more Americans to try ethnic food, McDonalds could offer a coupon to draw attention.

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Redeem this coupon for $1.00 off an ethnic meal at surrounding McDonlads locations.

Ethnic Menu Options:

Introducing McDonalds Ethnic Menu

Traditional Taco
Hard or soft taco shell with beef filling. Your choice of lettuce, tomato and sour cream.

Pork Sandwich $1.95

Steamed pork with Asian spices on sweet bread.

$3.95

Taco Salad

Sweet and Sour Chicken Sandwich

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Iceberg lettuce topped with ground beef, tomato, beans and a dollop of sour cream. Steamed chicken in savory sweet and sour sauce.

$2.50

$3.95

Bean Soup
A hot soup with refried beans and spices.

Rice Soup $2.00

Traditional warm rice soup.

$2.00

Quesadilla
Wheat or white tortilla with cheese and tomato filling With chicken

Fried Rice $3.25 $4.25

Pork or vegetable fried rice.

$1.95

Corporate Social Responsibility: McDonalds holds its suppliers to a code of conduct to ensure ethical behavior. They also developed an environmental scorecard with Conservation International to uphold sustainability as well as taking part in reducing, reusing and recycling. McDonalds gives back to the community with their creation of Ronald McDonald Houses which build funds for the families of sick children. They also sponsor community events such as basketball tournaments and issue college scholarships. The restaurants use low energy LED light bulbs to save energy and recycle used cooking oil to fuel over half of their delivery trucks. About 85% of the restaurants packaging is made from renewable sources. References http://www.aboutmcdonalds.com/mcd/our_company/mission_and_values.html

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http://www.aboutmcdonalds.com/mcd/investors/annual_reports.html http://www.aboutmcdonalds.com/mcd/sustainability/library/policies_programs/sustainable_suppl y_chain/Environmental_Scorecard.html http://www.ask.com/question/what-is-mcdonald-s-mission-statement http://beta.fool.com/hjcranford/2013/05/31/a-swot-analysis-of-mcdonalds/35559/ http://www.businessinsider.com/mcdonalds-needs-better-customer-service-2013-10 https://www.google.com/finance?fstype=ii&q=nyse:mcd http://www.brandchannel.com/home/post/McDonalds-2011-Sustainability-Scorecard010312.aspx http://financials.morningstar.com/income-statement/is.html?t=MCD http://framework-llc.com/mcdonalds-2011-sustainability-scorecard/ http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=5&sqi=2&ved=0 CEAQFjAE&url=http%3A%2F%2Ffinance.yahoo.com%2Fq%2Fis%3Fs%3DMCD&ei=OXWS Ur2jBc-ekQeP-ICwDg&usg=AFQjCNFid5tg9sQf0lHgdHVHxN2mUjdpQ&sig2=DbhywT4MvgN332-IGnQl2g http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=MCD&datase t=balanceSheet&period=A&currency=native http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=MCD http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=MCD http://online.wsj.com/news/articles/SB10001424052702303789604579198432499699844

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http://www.stock-analysis-on.net/NYSE/Company/McDonalds-Corp/Ratios/Liquidity http://www.strategicmanagementinsight.com/ http://www.strategicmanagementinsight.com/swot-analyses/mcdonalds-swot-analysis.html

Appendix 1
Revenues in comparison to Wendys
http://dividendmonk.com/mcdonalds-appealing-below-100/

Sales in comparison to Burger King and Wendys

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http://finance.yahoo.com/blogs/the-exchange/wendy-bacon-cheeseburger-lineup-getsbun-twist-142245632.html

McDonalds Market Share

http://www.wikinvest.com/stock/McDonald's_Corporation_(NYSE:MCD)

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McDonalds Net Income

http://ycharts.com/companies/MCD/net_income

McDonalds Profit Margin

http://ycharts.com/companies/MCD/profit_margin

http://ycharts.com/companies/MCD/profit_margin

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Profitability Summary
2009 Gross 37.5% Profit Margin Operating 26.45% Profit Margin Profit 17.9% Margin Ratio 2010 38% 30% 20.45% 2011 39.75% 31% 20% 2012 39.24% 32% 20.05% 31.09% 20.79% 2013

McDonalds ROI
http://csimarket.com/stocks/MCD-Annual-Return-on-Investment-ROI.html

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McDonalds ROA
http://csimarket.com/stocks/MCD-Annual-Return-on-Assets-ROA.html

Operating Profit Margin

http://www.fool.com/investing/general/2013/06/24/2-stealth-drivers-ofmcdonalds-global-margins.aspx

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Gross Profit Margin

http://www.fool.com/investing/general/2013/06/24/2-stealth-drivers-ofmcdonalds-global-margins.aspx

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McDonalds Alternative Evaluation Matrix

+= Good -= Bad Vision Focal Problem (Maintain #1 Position) + Cost Risk Long Term Profit Easy to Implement Total

Product Development (Ethnic Food) Product Development (Health) Market Development (New Geographic Location)

+/-

4.5 + 1.5 4.5 + 1.5 3+ 3-

+/-

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Appendix 2:
Industry Analysis Definition: Global fast food industry Key Competitors: Starbucks Corporation, McDonalds, Yum Brands Inc., Compass Group PLC, Chipotle Mexican Grill, Whitbread PLC, Tim Hortons, and Burger King Worldwide Inc. Present Industry Strategies: Continuing to update their low cost menu by adding healthier food options to appeal to the health conscious. Importance of Innovation: There is a low importance of innovation but a high importance of product differentiation. Industry Dynamism: The industry has a low dynamism because menu items do not fluctuate very often Concentration: The fast food industry has a high concentration globally. Mature Industry: The fast food industry has been around for a more than half a century and compete is an established market Government Impact: The government has a high impact on the fast food industry, implementing standards and regulations such as the Affordable Health Care Act. Key Customers/Suppliers: It is best to categorize the key customers as the general public. The key suppliers are farmers, meat industry, chicken industry, soft drink distributors, and paper products.

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Other Groups: Environmental groups believe that the production of fast food related products negatively affect the environment.

Current Problems: The fast food industry has a high degree of substitution. Another problem facing the fast food industry is the global awareness of health issues associated with routinely consuming fast food.

Current Opportunities: Changing the consumers perception by adding healthier alternatives on the menu

Future Direction: The future direction looks bright, consumes will always want fast food

Key Success Factors: o Inexpensive o Speed o Convenient locations o Brand recognition o Wide range of products o Quality o Efficiency o Friendly staff o Cleanliness o Economies of scale

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Appendix 3
SWOT Analysis Strengths Largest Fast Food Chain in the World Brand Recognition Efficient Large Advertising Budget Locally Adapted Food menus Partnership with best brands

Weaknesses Negative Publicity Unhealthy Menu Low Differentiation

Opportunities Threats Trends towards healthier eating High degree of substitution Increasing Demand for healthier food International market growth Changing customer habits and new customer groups Diversity of food and population

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