McDonald’s

:
Polishing the
Golden Arches

Pauline V.
4502640834
Pun L.
4502640875

Team 11
 Strengths
•Brand Recognition
SWOT
Analysis •Leader in Quick Service Sandwich Industry
•World’s Largest Burger Chain
Situation •Over 30,000 Stores, $41 billion in sales
Analysis
•Strongest International Presence
Problems •120 Countries

•Real-Estate Holdings
Problem
Statement •Prime time high-traffic locations
•Have control over what to do with the land

Alternatives •Easily Recognizable Product

•Big-Mac as Trademark

Rec. I •Variety Sources of Income

•Franchise – Rent and %-of-Sales
Rec. 2 •Company-owned Restaurants
•Brand Portfolio of Restaurants

Q&A
•Franchise Business Model
 Weaknesses
•Customer Service Level
SWOT •Slow Service at Drive Through Windows (60%
Analysis sales)
•Poor Order Accuracy (84.41%)
Situation •Poor Management
Analysis •Management at Corporate Level (Failed
Initiatives)
Problems •Franchise Management (Poor Franchise
Relationships)
•Poor Marketing
-Not responsive to needs
Problem -Cannibalization - Tension
•Not attentive to customer’s needs
Statement
•Failed of healthy menu/low fat products

Alternatives •Struggles in Offering Value/Premium

Items•Markets abroad have not responded well
Rec. I
•High Employee Turnover
•Nature of Industry at 300%
Rec. 2
•Higher than Rivals
•Believed to be One of the Factors for Poor Service
Rankings
Q&A
 Opportunities

SWOT
Analysis •Growth in Global Food Service Industry
•International Expansion
Situation •Grow more than $200 billion (’02-’06)
Analysis
•Initial Public Offerings in Other Countries
Problems
•Success in US and Japan
•120 countries
Problem
Statement •Acquisition of Other Restaurants
•Diversifying Brand Portfolio
Alternatives
•Retail Sales of Merchandises
Rec. I •McDonald’s family characters
•License Agreements (i.e. Disneys)

Rec. 2

Q&A
 Threats
•Increased Competition from Various
•Quick Service Restaurants Industry
SWOT Industries
•Non-Traditional outlets (grocery/convenience
Analysis
stores)
Situation •Health Conscious Consumer Trend
Analysis •Decreased consumption of fried food, junk food, and
red meat
Problems •Brand Perception
•Value-Conscious Consumer Trend
Problem •Demand Quality for Good Value for Price
Statement
•Saturation of US fast-food Market
Alternatives •Aggressive Expansion no longer an option

Rec. I •Slow Growth in Sandwich

Segment
Rec. 2 •Price War Business Practices
•Weak Economy – attract value conscious consumers
•Hurt Profitability
Q&A
 Financial Analysis

SWOT
Analysis
• Not extremely liquid but capability in
Situation
Analysis Liquidity Financing short-term debt will not be
a problem
Problems
• Profitable
Problem
Statement
Profitability• Declining trend but returns to normal
level of profitability in 2003
Alternatives
Asset • High inventory turnover compliant
Rec. I Utilization to nature of industry

Rec. 2 •Normal leverage

Leverage •Has ability to cover debt obligations
Q&A
 Marketing Analysis
4 P’s Analysis
SWOT

$
Analysis

Situation
Analysis

Problems Product
Problem
•Wide variety of menu items
Statement - traditional items
- health-conscious items
Alternatives •Local flavors

Rec. I

Rec. 2

Q&A
 Marketing Analysis
4 P’s Analysis
SWOT

$
Analysis

Situation
Analysis

Problems Promotion
Problem •I’m lovin’ it campaign to attract family
Statement •Feature artists to target teenagers
•Give Ronald a more prominent place
Alternatives

Rec. I

Rec. 2

Q&A
 Marketing Analysis
4 P’s Analysis
SWOT

$
Analysis

Situation
Analysis

Problems Place
Problem •30,000 stores worldwide
Statement •Operations
-Company-owned
Alternatives -Franchise

Rec. I

Rec. 2

Q&A
 Marketing Analysis
4 P’s Analysis
SWOT

$
Analysis

Situation
Analysis

Problems Price
Problem •Traditionally - value-pricing as competitive weapon
Statement
•Now, offer products at range of price points
Alternatives -attract both price-sensitive and health-conscious consumers

Rec. I

Rec. 2

Q&A
 Management Critique

SWOT
Analysis

Situation
Analysis •Series of unsuccessful initiatives
Past •Aggressive store expansion  cannibalization
Problems •Tensions – stopped QSVC evaluation
Problem
Statement
+ Poor Customer Service Level

Alternatives

Rec. I Present

Rec. 2

Q&A
 Management Critique
Concerns
SWOT
Analysis •Sustainability of Initiatives?
•Or is it just Cyclical Trend?
Situation
Analysis
Past
Problems

Problem
Statement
+
Alternatives
•Cantalupo took over in 2003
Present •Launched initiatives aimed to
Rec. I
- internal operations
- slowing down expansion
Rec. 2 - enhancing relevancy to customers
• Shown positive progress
Q&A
 Situation Analysis

Distinctive Competencies
SWOT
Analysis
Franchise Business Model
Situation
Analysis
•Pioneer in Franchise Management
•Quick Expansion – Leader in Quick Serve Industry
Problems •“Standardization” – What McDonald’s is Known For

Problem Concern: Deteriorating Franchise Management

Statement
Sustainable Competitive Advantage
Alternatives

Rec. I Brand
•World Recognition
Rec. 2 •Presence > 120 countries

Q&A Concern: Negative Brand Perception – “JUNK FOOD”

 Issues at Hand
Problems
SWOT
Analysis ONE How can McDonald’s continue to have
Situation product innovations that meet customers’ needs?
Analysis

Problems TWO
Problem
Statement

Alternatives
THREE

Rec. I

FOUR
Rec. 2

Q&A
FIVE
 Issues at Hand
Problems
SWOT
Analysis ONE
Situation
Analysis McDonald’s has received lowest customer
Service ranking among fast-food chains, how
Problems TWO can the company improve its customer
Service level in order to stay number one
Problem
Statement in the fast-food industry?

Alternatives
THREE

Rec. I

FOUR
Rec. 2

Q&A
FIVE
 Issues at Hand
Problems
SWOT
Analysis ONE
Situation
Analysis

Problems TWO
Problem
Statement How will McDonald’s continue to perform when
THREE this batch of management who has extensive
Alternatives
experience with McDonald’s is no longer with
the company?
Rec. I

FOUR
Rec. 2

Q&A
FIVE
 Issues at Hand
Problems
SWOT
Analysis ONE
Situation
Analysis

Problems TWO
Problem
Statement

Alternatives
THREE

Rec. I
How can McDonald’s improve its employee
FOUR turnover rate?
Rec. 2

Q&A
FIVE
 Issues at Hand
Problems
SWOT
Analysis ONE
Situation
Analysis

Problems TWO
Problem
Statement

Alternatives
THREE

Rec. I

FOUR
Rec. 2

How can McDonald’s improve its deteriorating

Q&A franchise management to sustain its
FIVE reputation as a well-known franchise system?
 Problem Statement

SWOT
Analysis

Situation
Analysis

Problems“How can McDonald’s improve its deteriorating

Problem franchise management to sustain its reputatio
Statement
as a well-known franchise system?
Alternatives

Rec. I

Rec. 2

Q&A
 Problem Statement
“How can McDonald’s improve its deteriorating
franchise management to sustain its reputation
SWOT
Analysis as a well-known franchise system?
Situation
Analysis Rationale
Problems

Franchise System is the

Problem
Statement Backbone of McDonald’s
Success
Alternatives
•Distinctive Competency
Rec. I Franchises •Allow Quick Expansion
•Uniform Operation –
Rec. 2 Standardization
•Same Food Experience
Q&A
 Problem Statement
“How can McDonald’s improve its deteriorating
franchise management to sustain its reputation
SWOT
Analysis as a well-known franchise system?
Situation
Analysis Rationale
Problems Corporate Policies and Initiatives

Problem
Statement
Corporate Initiatives
only go so Far
Alternatives
•Depends on Franchise Level
Rec. I Execution
Franchises
•Franchises – point of contact
Rec. 2 •Unable to achieve Consistency
Success of Implementation
Q&A Depends on Franchisees
 Alternatives
• Stop Expansion altogether to Prevent
SWOT Future Cannibalization and Focus
Analysis
only on Same Store Sales Growth
Situation
Analysis
• Exercise Coercive Bargaining Power on
Problems Franchisees

Problem • Open More Company-Owned Restaurants

Statement

Alternatives • McDonald’s Takes over the Complete

Recruiting Process
Rec. I
• Provide more Benefits
Rec. 2

Q&A
 Alternatives
• Station McDonald’s Company-Owned
SWOT Managers at Each Franchise to Ensure Control
Analysis
of Every Store’s Performance
Situation
Analysis
• Set up QSVC Rankings to Create Competition
Problems between Franchisees
Problem
Statement • Status Quo

Alternatives •Enhancing Franchise Relationship

Rec. I
•Planned Growth
Rec. 2

Q&A
 Basis of Choosing
Recommendation
SWOT
Analysis Corporate Policies and Deteriorating
Initiatives Franchise
Situation
Analysis Management

Problems
Poor Relationship
Problem
Statement
•Cannibalization and
Failed Marketing 
Alternatives Tension
•Unresponsive to Needs
Rec. I
F •Franchisees reluctant to
F F
comply
Rec. 2
•Relationship is Key to
Implementation Success
Q&A Success of
Implementation Depends
on Franchisees
 Basis of Choosing
Recommendation
SWOT
Analysis Corporate Policies and
Initiatives
Situation
Analysis

Problems
Managing
Problem
Statement
Franchisor-
Alternatives Franchisee
Rec. I Relationship
F F F
Rec. 2

Q&A Success of
Implementation Depends
on Franchisees
 Enhancing Franchise
Recommendation I
Relationships
“Franchisee Involvement in Various Initiative Planning”
SWOT
Analysis •Arrive to a mutual understanding and
Situation Objective: increase commitment levels
Analysis •Enhance relationship and likelihood of
initiative implementation success
Problems

Problem
Statement
STRATEGY

Alternatives •Know areas franchisees require

Understanding Improvement
Franchisees’ Needs •Correct Franchise Management
Rec. I
and Capabilities Procedures where Lacking
•Attend to needs of Franchisees
Rec. 2

•Depends on how much

Q&A Involve Franchisees McDonald’s willing to open up
In Initiative/Policy involvement
Planning •From Developing KPI to product
innovation ideas
 Planned Growth
Recommendation II

Strategy
Execute planned growth strategy to capitalize opportunities
SWOT
Analysiswithout foregoing a Healthy Franchisor-Franchisee Relationship
Situation
Analysis
STRATEGY
Problems

Problem
Statement •US Market Saturation – Slow
Domestic Expansion
Alternatives
Market •Focus on Same Store-Sales Growth
and Improving Delivery Outlets
Rec. I
•High Growth
Rec. 2 International •Aggressive ‘Planned’ Expansion – to
Markets avoid conflict with current franchisee
Q&A and future franchisees
 Summary
Problem Statement
SWOT “How can McDonald’s improve its deteriorating
Analysis
franchise management to sustain its reputation
Situation as a well-known franchise system?
Analysis

Problems
Recommendation I: Enhance Franchise
Problem
Statement Relationships

Alternatives “Franchisee Involvement in Various Initiative Planning”

Rec. I
Recommendation II: Planned
Rec. 2 Growth
Execute planned growth strategy to capitalize opportunities
Q&A
without foregoing a Healthy Franchisor-Franchisee Relationship
 Conclusion

SWOT McDonald’s Focus

Analysis Corporate Policies and
Initiatives Marketing. Product
Situation Innovations, and
Analysis
Franchise Management
Problems
Policies

Problem Enhanced Relationship

Statement
Mutual Understanding
Alternatives and Raised
Commitment Levels
Rec. I
F F F Turning Initiatives into
Rec. 2 Successes
Franchise able and
Q&A Success of
willing to Deliver
Implementation Depends
Initiatives in
on Franchisees
consistent manners
McDonald’s
:
Polishing the
Golden Arches

Thank You.

Team 11
 Summary
Problem Statement
SWOT “How can McDonald’s improve its deteriorating
Analysis
franchise management to sustain its reputation
Situation as a well-known franchise system?
Analysis

Problems
Recommendation I: Enhance Franchise
Problem
Statement Relationships

Alternatives “Franchisee Involvement in Various Initiative Planning”

Rec. I
Recommendation II: Planned
Rec. 2 Growth
Execute planned growth strategy to capitalize opportunities
Q&A
without foregoing a Healthy Franchisor-Franchisee Relationship
 Q&A Slide Navigator

SWOT Presentation Slides Index Franchise-Related

Analysis Financial Ratios(1) Keeping a Cooperative Relationship
Financial Ratios(2) Concerns – Clash of Goals
Situation
Analysis Where to Expand Benefits of Franchisee Involvement
Others
Problems
Brand Perception
Employee Turnover Issue
Problem
Statement

Alternatives

Rec. I

Rec. 2

Q&A
 Presentation Slide Index

SWOT SWOT Recommendation

Analysis Strengths Alternatives
Situation Weaknesses Basis of Choosing Recommendation
Analysis Opportunities Rec. I: Enhance Relationship
Threats Rec. II: Planned Growth
Problems
Situation Analysis Conclusion
Problem Financial Analysis Conclusion
Statement Management Critique Summary
Marketing
Alternatives
Distinctive/Sustainable Advantage
Problem
Rec. I
Issues @ Hand
Problem Statement
Rec. 2
Rationale

Q&A
 Benefits from Franchisee
Involvement

SWOT •For McDonald’s:

Analysis
-Understand where its franchise management is
Situation lacking
Analysis
-Get Ideas for Future Initiatives
Problems -Enhance Future Franchise Management

Problem •For McDonald’s Franchisee:

Statement
-Attain ability to carry out franchisor’s initiatives
Alternatives -Improve commitment levels

Rec. I Can Thrive even under high pressure/competitive

environment
Rec. 2

Q&A
 Keeping a Cooperative
Relationship
SWOT
Analysis •Franchisee see benefits when Outlets are New

Situation •Need to Keep “Solid Relationship”

Analysis
Ways to Keep Cooperative Relationship
Problems •McDonald’s can ‘encourage’ franchisees to innovate
•Get on well internally and taking interest in each
Problem
Statement
other
•Offering genuine assistance
Alternatives
•McDonald’s needs to recognize good performance
•McDonald’s – Fair and setting reasonable objectives
Rec. I
and not terminating franchisees for no good reason

Rec. 2
•Formalization
•Franchisees want a certain level of autonomy –
Q&A making decisions and certain standards

“Exert Influence without Threatening

Autonomy”
 Incongruent Goals

SWOT Clashes of Goals

Analysis
•Franchisors – Seek to Increase Sales
Situation
Analysis •Franchisees – Seek to Increase Profits

Problems
Avoiding Future Cannibalization and Relationship
Problem Damage
Statement •Franchisors will likely expand – to increase sales
•Solution
Alternatives
•Give priority to franchisees nearby – ask if
existing ones would like to open new stores
Rec. I
•If not, franchisees should have the right to
refuse
Rec. 2

Q&A
 Brand Perception

SWOT Current Trend

Analysis
•Health Conscious Trend
Situation
Analysis •Social Implications: McDonald’s = “Junk Food”

Problems
Why Not Priority?
Problem
Statement •It is a Concern.
•McDonald’s will need to find ways to enhance its
Alternatives brand image
•Product Innovations
Rec. I
•Marketing Campaigns

Rec. 2 •Corporate Social Responsible Initiatives

•BUT REMEMBER,

Q&A -INITIATIVES ONLY GO SO FAR

-NEED TO REFOCUS ON DISTINCT
COMPETENCY
 High Employee
Turnover
High employee turnover
SWOT
• Nature of Industry
Analysis
• Constraint to business operations but applies to all fast-food restaurants
Situation • Competitors still outperform in customer service
Analysis

Problems Employee Turnover

Problem Examples of Improving Employee Turnover

Statement
-Hire More Regular-Time Relative To Part-Time
Alternatives -Hire Older Adults (i.e. Retired People)
-Improve Employee Welfare
Rec. I

Rec. 2

Q&A
 Where to Expand

Asia/Pacific, Middle East, and Africa – still has room for growth
i.e. JAPAN shown strong sales – should be main focus of
expansion
 Financial Analysis
Liquidity
Q3 2003 Q2 2003 Q1 2003 2002 2001 2000 1999
SWOT Current
0.7361 0.7832 0.7927 0.7082 0.8092 0.7041 0.4802
Analysis

Situation Q3 2003 Q2 2003 Q1 2003 2002 2001 2000 1999

Analysis Quick
0.6920 0.7374 0.7481 0.6621 0.7623 0.6621 0.4549

Problems
Profitability
Problem 2003 2002 2001 2000 1999
Statement GPM (forecasted)
13.86% 13.85% 14.37% 16.40% 17.69%
Alternatives
2003 2002 2001 2000 1999
Rec. I
NPM (forecasted)
10.69% 5.80% 10.09% 13.88% 14.69%

Rec. 2 2003 2002 2001 2000 1999

ROE (forecasted)

Q&A 15.39% 8.69% 15.81% 21.57% 20.21%

2003 2002 2001 2000 1999

ROA (forecasted)
7.11% 3.73% 6.66% 9.12% 9.28%
 Financial Analysis
Leverage
SWOT
2003 2002 2001 2000 1999
Analysis
Debt (forecasted)
Situation 15.39% 8.69% 15.81% 21.57% 20.21%
Analysis

Problems 2003 2002 2001 2000 1999

TIE (forecasted)
Problem 9.69 4.5597 5.8518 7.7023 9.2776
Statement

Alternatives Asset Utilization

2003 2002 2001 2000 1999
Rec. I Inventory T/O (forecasted)
92.87 88.69 89.61 88.12 94.67
Rec. 2
2003 2002 2001 2000 1999
DSO (forecasted)
Q&A
16.85 20.26 21.65 20.41 19.49