McDonald's Corporation

Company Profile
Publication Date: 21 Jul 2008

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McDonald's Corporation

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TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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McDonald's Corporation
Company Overview

COMPANY OVERVIEW
McDonald's Corporation (McDonald's) is the world's largest foodservice retailing chain. The company
is known for its burgers and fries which it sells through over 31,370 fast-food restaurants in over 118
countries. A majority of McDonald's restaurants are operated by its franchisees. The company also
operates restaurants under the brand name 'The Boston Market'. The company operates primarily
in the US and the UK. It is headquartered in Oak Brook, Illinois and employed 390,000 people as
on 31st December 2007 (FY2007).
The company recorded revenues of $22,786.6 million during the FY2007, an increase of 9.1% over
FY2006. The operating profit of the company was $3,879 million during FY2007, a decrease of
12.5% compared with FY2006. The net profit was $2,395.1 million in FY2007, a decrease of 32.4%
compared with FY2006.

KEY FACTS
Head Office

McDonald's Corporation
McDonald's Plaza
Oak Brook
Illinois 60523
USA

Phone

1 630 623 3000

Fax

1 630 623 5004

Web Address

http://www.mcdonalds.com

Revenue / turnover 22,786.6

(USD Mn)
Financial Year End

December

Employees

390,000

New York Stock

Exchange Ticker

MCD

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SWOT Analysis

SWOT ANALYSIS
McDonalds Corporation (McDonalds) operates fast food restaurants all over the world. The company
has over 31,370 fast food restaurants in over 118 countries. All McDonald's restaurants offer a
standard menu, which comprise food items such as hamburgers, cheeseburgers, chicken sandwiches,
French fries, salads, milk shakes, desserts and ice cream sundaes. McDonald's has a well-established
brand that appeals to customers of all age groups and nationalities. It is ranked number one in
Fortune magazine's 2008 list of most admired food service companies. Strong brand draws customers
to the restaurants of the company and provides it acceptability in new markets. However, a renewed
threat of the spread of bird flu across various parts of the globe could lead to a slowdown in the
revenue growth of McDonald's.
Strengths

Weaknesses

Global brand
Diversified geographic presence
Strong supply chain capabilities
Large scale of operation

Fluctuating operating and net profits

Opportunities

Threats

Growth of franchisee operated restaurants

New products
Beverages market

Change in commodity prices

Food safety and food-borne illness concerns
Fresh threat of bird flu

Strengths

Global brand
McDonald's has a well-established brand that appeals to customers of all age groups and nationalities.
More than 70% of McDonald's restaurants worldwide are owned and operated by independent local
men and women. It is one of the world's most well-known and valuable brands and holds a leading
share in the globally branded quick service restaurant segment of the informal eating-out market in
virtually every country in which it does business. Some of the famous products from the company
include French Fries, Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin. These
products have become brands in their own right. McDonald's has risen from its second rank in
FY2007 to the first in Fortune magazine's 2008 list of most admired food service companies. The
annual Fortune most admired list is a widely recognized report card on corporate reputation. In
FY2006, McDonald's figured at the ninth place in the top 100 global brands ranking of Business
Week magazine and Interbrand, a branding consultancy. McDonald's makes substantial investments
in advertising and promotions to improve its brand image. McDonald's continues to be recognized

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SWOT Analysis

as a premier franchising company around the world. Strong brand draws customers to the restaurants
of the company and provides it acceptability in new markets.
Diversified geographic presence
McDonald's has a diversified geographic presence. McDonald's operations are backed by strong
supply chain capabilities. In FY2007, the company operated 31,370 fast food restaurants in over
118 countries in the following geographic segments: the US; Europe; Asia Pacific, Middle East and
Africa (APMEA); Latin America; and Canada.
Europe, McDonald's largest geographical market, accounted for 39.2% of the total revenues in
FY2007. The company's second largest market, the US, accounted for 34.7% of revenues in FY2007.
In the same period, Asia Pacific, Middle East and Africa (APMEA) accounted for 15.8% of the total
revenues. While other countries and corporate, which includes Canada and Latin America accounted
for 10.3% of revenues in the same period. Diversified geographic presence reduces the McDonald's
business risk and leads to stable revenue growth.
Strong supply chain capabilities
The company and its partners purchase food and related items from an approved group of suppliers.
The company's quality assurance process not only involves ongoing product reviews, but also on-site
inspections of suppliers' facilities. Further, a quality assurance board, composed of the company's
technical, safety and supply chain specialists, provides strategic global leadership for all aspects of
food quality and safety. In addition, the company works closely with suppliers to encourage innovation,
ensure best practices and drive continuous improvement.
McDonald's has specified quality standards to be met by the suppliers. The company enforces these
quality standards through quality assurance labs around the world. Strong supply chain capabilities
enable the company to serve food of consistent quality across the globe.
Large scale of operation
With revenue in excess of $22.7 billion, McDonald's has large scale of operation. The company is
the world's largest food service retailing chain, preparing and serving a range of foods. The company
operates its restaurants in more than 118 countries around the world. McDonald's generates revenues
through company operated restaurants and franchisee restaurants. Of the company's total restaurants,
over 6,900 are operated by the company and another 20,500 are operated by franchisees. The
remaining 3,960 restaurants are operated by affiliates. The company as a part of restaurant
development selects the best locations within the marketplace to provide its customers with
convenience. The company builds restaurants in neighborhoods as well as at airports, malls, tollways,
and colleges at a value for its customers.
Moreover, McDonald's has bigger scale, in terms of revenues, to compete with other players in the
market. McDonald's generated total revenues of $22,787 million in FY2007, which is significantly
higher than that of its competitors like Wendy's International Inc. (WII) and Burger King Corporation

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(BKC). WII and BKC generated revenues of $2,450.2 million and $2,234 million, respectively, in
FY2007. The company's large scale of operation allows it to feed upcoming markets with relative
ease and enhances its revenue generation capacity.

Weaknesses

Fluctuating operating and net profits

The company has reported fluctuating operating and net profits during 20052007 period. The
operating and net profit has registered decline in every alternate year. Operating and net profits of
the company increased from $3,984 million and $2,602 million in 2005 to $4,433 million and $3,544
million in 2006. Again in 2007, operating and net profit declined to reach $3,879 million and $2,395
million. Fluctuating operating profits and declining net profits would negatively impact the investor
confidence.

Opportunities

Growth of franchisee operated restaurants

In future, McDonald's is planning to significantly increase its count of franchisee operated restaurants.
In FY2007, the company made significant progress enhancing the mix of franchised and
company-operated restaurants, including executing developmental license strategy, to maximize
long-term brand performance and returns.
Under a developmental license, a local entrepreneur owns the business, including control of the real
estate, and uses their capital and local knowledge to build the McDonald's Brand and optimize
long-term sales and profitability. The company collects a royalty, which varies by market, based on
a percent of sales, but does not invest any capital for new restaurants or reinvestments. The company
has successfully used this structure for more than 15 years and had it in place in 59 countries at
FY2007.
In August 2007, the company completed the transition of 1,571 restaurants in Brazil, Argentina,
Mexico, Puerto Rico, Venezuela, and 13 other countries in Latin America and the Caribbean to a
developmental license structure. The company refers to these markets as Latam.
The buyers of the company's operations in Latam have entered into a 20-year master franchise
agreement that requires the buyers, among other obligations, to pay monthly royalties commencing
at a rate of approximately 5% of gross sales of the restaurants in these markets, substantially
consistent with market rates for similar license arrangements; to add approximately 150 new
McDonald's restaurants over the first three years and pay an initial fee for each new restaurant
opened; and to spend specified annual capital expenditures for existing restaurants.

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In addition, the company transitioned another five small markets in Europe with a total of 24
restaurants to the developmental license structure in 2007. The company also made progress in
franchising certain company-operated restaurants in key markets. As a result of its developmental
license strategy and franchising initiatives, the percent of franchised and affiliated restaurants
worldwide increased from 74% at year-end 2006 to 78% at FY2007. The transition of
company-operated restaurants to franchisees and developmental license structure is likely to increase
the overall profitability of McDonald's.
New products
McDonald's launched many new products during FY2007. In the breakfast category, the company
introduced new products such as the southwest salad, cinnamon melts and the McSkillet burrito, in
the US. Additionally, it also extended its snack wrap line and offered beverage choices including
premium roast iced coffee and sweet tea.
In 2008, the company's key areas of focus will be breakfast, chicken, beverages and convenience.
In 2008, the company expects to extend its leadership in the chicken category with the launch of
the southern style chicken biscuit sandwich for breakfast and the southern style chicken sandwich
for the remainder of the day. In addition, as part of a comprehensive, multi-year beverage business
strategy, it will begin introducing hot specialty coffee offerings in 2008, on a market-by-market basis.
These initiatives, along with longer operating hours and everyday value, could drive increased
customer visits and increased sales. New products could increase customer traffic to older restaurants
in developed markets and attract customers to new restaurants in developing markets.
Beverages market
According to Datamonitor estimates, the global hot drinks market was valued at $63.4 billion, in
FY2006. In 2011, the market is forecast to have a value of $71.4 billion, an increase of 12.7%
compared to FY2006. In the US alone, hot drinks market is expected to increase by 5.5, to be valued
at $9,565.8 million, in 2011. Coffee sales dominate the US hot drinks market, accounting for 70.8%
of the total value.
As part of a comprehensive, multi-year beverage business strategy designed to take advantage of
the growing beverage category, McDonald's will begin introducing hot specialty coffee offerings in
2008, on a market-by-market basis. By 2009, the company expects to recognize the full sales benefit
of its beverage opportunity. This first component of its beverage business may require construction,
new equipment, new processes and training in restaurants; all of which will serve as a platform for
the anticipated future introduction of smoothies, frappes and other beverage options. The expected
growth in beverages category will offer the company opportunities for expanding its revenue base.

Threats

Changes in commodity prices

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McDonalds, because of its nature of business may get affected by price fluctuations in beef, chicken
and cheese, which are critical ingredients of the company's menu. The company remains susceptible
to increases in food costs as a result of factors beyond its control, such as general economic
conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls
etc. The company may not be always in a position to pass on an increase in commodity price to its
customers because of competition and the nature of the business. Any increase in these commodity
prices will have an impact on the operating costs of the company.
Food safety and food-borne illness concerns
The company has to ensure that food safety and quality are of highest standards. However, there
is always a scope for food borne illnesses such as E. coli, Hepatitis A, Trichinosis or Salmonella to
occur. If such instances of food-borne illness or other food safety issues were to occur at any of its
restaurants then the company may face negative publicity, which could adversely affect its sales
and profitability or lead to more serious consequences. Additionally, the occurrence of food-borne
illnesses or food safety issues could adversely affect the price and availability of affected ingredients.
Fresh threat of spread of bird flu
The threat of bird flu has been on rise once again through out the world. For example, in January
2008, the Indian government confirmed that the latest outbreak of bird flu in poultry, in eastern part
of India, was of the virulent H5N1 strain. Further, in March 2008, Russian health officials warned
that the threat from the deadly bird flu virus is growing as countries are failing to implement effective
disease control measures to deal with the crisis. The threat is growing as the measures taken,
particularly in Indonesia and Egypt, are ineffective and the virus is constantly present in wild birds
and circulates in domestic birds, which leads to the development of the virus.
The outbreak of diseases such as bird flu and mad cow disease exerts a downward pressure on the
consumption of poultry and meat products all over the world. Chicken products such as Chicken
McNuggets are a central part of McDonald's offerings. More importantly, chicken products have
become strategically important to McDonald's in markets such as India where a majority of population
do not consume beef products. If these diseases assume epidemic proportions the revenue growth
of the company is likely to slow down.

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