McDonalds

Business 188
Case Analysis

Group Members:
Meghan Dilawari
Tammy Huynh
Matt Salisbury
Isabel Soboszek
Farhan Latif

Meghan Dilawari
Tammy Huynh
Matt Salisbury
Isabel Soboszek
Farhan Latif

McDonalds
McDonald has been a well-known and valuable brand for over half a century. The
companys mission and vision is striving to be the worlds best quick service restaurant
and formalizing their beliefs into People Vision and People Promise. Quality, Service,
Cleanliness and Value (Q.S.C. and V) also became the companys motto.
(http://www.mcdonalds.com)1 The companys first McDonald store was built in 1940 by
the original McDonald brothers, Dick and Mac. Later in 1954, Ray Kroc became the first
official franchisee appointed by Dick and Mac McDonald in San Bernardino, California.
Soon after, Mr. Kroc opened his first restaurant in Des Plaines, Illinois, and the
McDonalds corporation was created.
The new franchise began to grow rapidly as a result of its success. It wasnt long
before the 100th McDonalds restaurant opened in Chicago in 1961. Less than ten years
after the opening of Ray Krocs restaurant the company began to expand all over the
United States. Ray Kroc bought all rights to the McDonalds concept from the
McDonalds brothers for 2.7 million in 1961.2
McDonalds continued to have enormous growth during the 1960s. In 1963
alone, McDonalds sold their one billionth hamburgers, opened their 500th restaurant,
Ronald McDonald made his big debut, and McDonalds net income exceeded $1
1
2

Website: http://www.McDonalds.com
Website: http://www. McDonalds.com

million.3 In 1966 McDonalds was first listed on the New York Stock Exchange, and in
1967 McDonalds went global. The company kept expanding with the introduction of the
Big Mac and the opening of its 1,000th restaurant, which was where it all started- in Des
Plaines, Illinois.
McDonalds began to mature as a successful global business toward the beginning
of the 70s. By 1970, there was at least one McDonalds restaurant in every U.S. state,
and several in different countries around the world. Countries including France, Japan,
Germany, and even Guam all had McDonalds. And in 1972 the companys assets
reached an all time high of 500 million while sales reached the billions. 4Statistics
showed that a new McDonalds was being opened each day around the world. With all
this success, the company kept expanding globally. In 1972 the 200th restaurant opened,
again in Des Plaines, Illinois. The company also continued to develop their product with
the introduction of the Quarter Pounder. And in 1975 McDonalds first drive-thru opened
in Sierra Vista, Arizona.
Along with the companys many successes, they also faced some significant
challenges. Ray Kroc made a $250,000 donation presidential campaign in 1972, a
donation which was subject to investigation during the Watergate scandal. According to
the Behind the Arches Book, which was written with the backing and assistance of the
McDonalds corporation, the donation was made during the time that McDonalds
executives were lobbying to prevent an increase in minimum wage.5 In 1984 there was a
terrible incident in San Diego, California where a man named James Huberty opened fire
3
4

Website: http://www.McDonalds.com
Website: http://www.McDonalds.com
Website: http://www.McDonalds.com

in a McDonalds restaurant and 22 people were killed. As a result, the company had a lot
of public relations to deal with along with its damaged reputation. In 1987 the Attorney
Generals of Texas, California and New York threatened to sue McDonalds under the
consumer protection laws because of an add campaign claiming that McDonalds food
was nutritious, meaning healthy and well-balanced. There have also been matters of food
poisoning, and other related law suits.
Even today the company continues to expand. More countries around the world are
opening more McDonalds. There are many restaurants in the U.K., Hong Kong,
Switzerland, and Spain and so on. The companys sales and revenues are immeasurable,
well into the billions. McDonalds employs millions of people around the world. In
America, many of the companys employees are young and Latino. In other countries,
employees seem to depend on the population of the country.
The McDonalds company has a wide range of loyal customers. Many people
feel as if they grew up with McDonalds. People trust the company, and the McDonalds
concept just seems to make people feel good. Thats why their customers are rich, poor,
old, young, black, white, Asian, and European. Though many of McDonalds competitors
are also successful, they are no match for the giant franchise. Other restaurants such as
Burger King, Jack in the Box, and Taco Bell simply dont have the same image as
McDonalds. The company focuses on marketing strategies that effectively attract a wide
variety of people. They especially appeal to children in hopes that they will become
lifelong customers.

CURRENT STATUS OF COMPANY:

"Billions served," indeed. McDonald's is the world's #1 fast-food company by
sales, with more than 30,000 of its flagship restaurants serving burgers and fries in more
than 100 countries . Today, McDonald's operates over 31,000 restaurants worldwide,
employing more than 1.5 million people. 6In terms of countries, it operates in more than
119 countries on six continents. 70% of the locations are run by franchises while the
corporation owns the other 30%. The Boston Market and Chipotle Mexican Grill fastcasual chains are also owned by McDonald's. There are some quick-service kiosk units
located in retail areas and airports; the other locations are free-standing units. On a day
to day basis, more than 47 million customers world wide are served by McDonalds. Over
the years, McDonald has brought different promotions into the market to make the
consumer purchase a fun experience. The most recent promotion was the Monopoly Best
Chance Game 2004 which lasted from October 12 November 15.7 It is also very
important for the company to have a standard reputation. Therefore, the corporation
makes sure that a Big Mac purchased in Pittsburgh tastes the same as one bought in
Beijing by using standardized procedures.
The key numbers and key people for the company are as follows:8
Key Numbers
Company Type

Public (NYSE: MCD)

Fiscal Year-End
2003 Sales (mil.)

December
$17,140.5

McDonalds FAQs
website: http://www.mcdonalds.ca/en/aboutus/faq.aspx
7
McDonalds FAQs
website: http://www.mcdonalds.ca/en/aboutus/faq.aspx
8

website: http://www.mcdonalds.com

1-Year Sales Growth

2003 Net Income (mil.)
1-Year Net Income Growth
2003 Employees
More Financials

11.3%
$1,471.4
64.7%
418,000

Key People
Chairman
President, CEO, and
Director
SEVP and CFO

Andrew J. McKenna Sr.

Charles H. (Charlie) Bell
Matthew H. (Matt) Paull

The company location and other related information is as follows: 9

McDonald's Corporation (NYSE: MCD)
McDonald's Plaza
Oak Brook, IL 60523 (Map)
Phone: 630-623-3000
Fax: 630-623-5004
Since McDonalds is such a huge corporation, serving so many customers world
wide, it greatly relies on its suppliers. McDonald's suppliers in the U.S. operate over 40
distribution centers, strategically located to be accessible to more than 12,000 restaurants
in the country. They provide a diverse range of products and services for our restaurants.
It is crucial that the suppliers reflect the diversity of our customers around the world 8
By maintaining current relationships with suppliers and also establishing new contacts,
McDonalds continues to leverage the diversity within the supplier community. According
to the corporation, the only way to serve a wide, diverse group of customers is through a
wide, diverse group of suppliers.10
9

website:http://www.mcdonalds.com
McDonalds Corporation-Diversity and Suppliers
http://www.mcdonalds.com/corp/values/diversity/suppliers.html
10

McDonalds is in the fast-food business, and nowadays, there is huge competition

for that. A competitor for McDonalds can be anywhere from an upscale restaurant to a
measly hot dog stand at a football game. The following is a list of companies that are in
the same business as McDonalds and qualify as major competitors:
Burger King
Subway
Yum
Wendys
In & Out
Taco Bell
Sonic
Jack in the Box
Carls Jr
Togos
Quiznos
KFC
Popeyes
Pizza Hut
Round Table Pizza
Dominos
Wenerschnitzel
Of those, Burger King, Subway, and Yum are listed as the top three competitors.
The company uses IT and IS in a number of ways. In fact, without the technology,
McDonalds would not be able to operate as it does today. From taking orders to
completing the orders everything involves a computer. A network system is used to take
the order which is then sent in the back also through the system in order for the food to be
cooked. The following are a few systems used by McDonalds:11 POS (Point of sale)
this system allows orders to be placed, check the amount of inventory on hand, see the
number of transactions that have occurred in the last few days or even years, see the labor
percentage, total cost of waste, check the drive thru time(TTL). KVS (Kitchen valiance

11

Interview: Rahul Sharma, Supervisor of Sharmac Corporation

system) this system allows the orders taken up front and in the drive thru to be
displayed and transferred to the monitors in the grill area. 12
The Porter Five Forces
The fast food industry is a revolutionary industry, which has taken the world by
storm. With fast food restaurants showing up, what seems like on every corner, its
interesting to analyze the competitive strategies companies in this industry use in order to
survive. McDonalds, with more than 30,000 restaurants worldwide is certainly no
exception. A good way to analyze the strategies is by using the Porter five forces
competitive model. The Porter model looks at what strategies a company uses to
effectively counter 1) the rivalry of companies in the industry, 2) the threat of new
entrants, 3) the threat substitutes, 4) the bargaining power of customers, and 4) the
bargaining power of suppliers.13
The first of the five forces looks at rivalry within the industry. For McDonalds,
this includes all other fast food businesses. McDonalds recognizes that it is up against
not only other larger burger and chicken chains but also independent owned fish and
chips shops and eat-in or take-out establishments. 14 Some of McDonalds competitors
include: Burger King, Wendys, In and Out, Taco Bell, and Jack in the Box. As mentioned
above, the fast food industry is a very dynamic and competitive industry, so it is
important for the McDonalds corporation to develop strategies which will keep them
ahead. Judging by the success of McDonalds, it is clear that the corporation has
developed some very effective strategies to stand out in the crowd.

12

Interview: Rahul Sharma, Supervisor of Sharmac Corporation

OBrien, James. 2004. Management Information system-Managing Information Technology in Business
Enterprise.
14
Website: http://www.mcdonalds.com
13

One strategy McDonalds focuses on is a differentiation strategy, partly

combining it with the innovation strategy. By creating unique brand products, (chicken
McNuggets, Big Mac, McFlurry) McDonalds is setting self apart from its competitors.
The innovation strategy is used by creating new and unique products (chicken tenders,
Newmans own salads, as well as specific products catered to specific region in the
world), special celebrity endorsements (athletes, actors/actresses),
partnerships/sponsorships (Music, Olympics, special movie toys), charities (Ronald
McDonald House), games/promotions (monopoly game, special movie toys), which
allow McDonalds to develop their unique corporate image that sets them apart from their
rivals. Another important role in staying competitive is McDonalds online presence. The
website (www.McDonalds.com) is great opportunity to connect with the customers and
stay competitive. Through the website, the company shows company facts, product
information (nutrition facts), and links to the charity website, as well as games
promotions (monopoly).
The second force that acts on the industry is the threat of new entrants.
Fortunately for McDonalds and its over 30,000 restaurants world wide, the corporation
has set itself in a position of dominance. Using a growth strategy, McDonalds is
continuously expanding its reach which makes it increasingly difficult for new fast food
restaurants to enter the industry. Through franchising, McDonalds is able to reach nearly
every corner of the globe. In addition, by using an alliance strategy, they are able to set up
operations in Wal-Marts and sports stadiums and other firms which help support the
industry.

The third force involves the threat of substitutes. For McDonalds, any other food
industry is a substitute. From classy restaurants, to hotdog stands, to grocery stores,
McDonalds faces a very large amount of substitutes. By continually offering different
products, however, McDonalds can be sure to remain on peoples list for a place to eat.
Dont forget the fact that one can get a lot of value for his/her money with McDonalds
dollar menu. Furthermore, by offering healthier alternatives, the company will be able to
enter into new segments and increase their customer base.
The fourth force acting on McDonalds is the bargaining power of buyers. This is
a very powerful force, since McDonalds relies on a strong customer base. In order to
keep and gain new customers, the company must pay attention to the demands of
consumers. With an onslaught of health books and diets, Americans are increasingly
becoming aware of their health. As a result, consumers are demanding healthier products
from the fast food industry. McDonalds leads the industry by offering salads with
organic Newmans own dressing, as well as changing the oil they cook their fries in to a
healthier substitute. In addition, they showcase all the ingredients in their foods in their
restaurants and on their website. Also because of movies like Super Size Me, and books
like, Fast Food Nation by Eric Schlosser, McDonalds is aware of consumer trends and
worries and is taking steps in that direction. An example is the removal of the super size
option. Since the movie Super Size Me, people have taken notice to how bad super
sizing is for your health. McDonalds is the first to take action.15
The fifth and final force affecting the company is the bargaining power of
suppliers. This is an important aspect of this industry. The supply chain going all the way
to the farmers needs to be kept strong and connected. Especially, relationships with key
15

website: http://www.mcdonalds.com

firms like Coca Cola, Minute Maid, Heinz, Newmans Own and others, needs to remain
strong. It is crucial that the suppliers reflect the diversity of our customers around the
world. McDonald's seeks to leverage the diversity within our supplier community
through growing our existing supplier base, as well as developing new supplier
relationships.16
McDonalds is successfully taking measures to ensure their dominance in this
food industry; they are continually growing, in size, in the products they offer and in
charity work. Its no surprise that McDonalds is number one in the fast food industry.
Strategy:
The strategy the company is using to maintain or improve its competitive position is
lowest total cost, expanded menu, having more than 30,000 stores, Hamburger
University, celebrity endorsements, partnerships/sponsorships in music and Olympics,
and Ronald McDonald Charity/Corporate responsibility. With the Ronald McDonald
Charity program the company has awarded more than $400 million dollars in grants
worldwide towards the mission to make an immediate and positive impact on as many
children as possible.17 The company also participates in for World Childrens Day, an
annual global fundraiser which benefits the Ronald McDonald House Charities and local
Childrens causes. In addition to the Ronald McDonald House Charities, corporate
responsibility is also an important factor of McDonalds heritage. The company has a
record of industry leadership in community involvement, environmental protection,
diversity, opportunity, and working with their suppliers to improve their practices. By

16
17

website: http://www.mcdonalds.com
website:http://www.mcdonalds.com

having these programs the company is doing a very good job in building a relationship
with the community.
Challenges and Opportunities:
Like many other companies, McDonald also struggles with many challenges and
opportunities. There are opportunities as in continuous deliverance of quality, cleanliness,
service, and value to their consumers. The company has to face challenges of other
competitors which include Wendys, Burger King, In and Out, Jack in the box, etc. In
addition to competitor challenges, the company also faces unionized workforce. They are
ideologically hostile to unions. They regard unions as third parties and they refuse the
legitimacy of a union as an expression of the interests of the employees that they're
dealing with. Dan Gallian who is the general secretary of IUF said, They have accepted
unions, and collective bargaining, if the alternative was to close altogether or suffer major
public relations damage. But even when they have allowed a union, they've then tried to
chip away at union recognitions.

18

The company only follows the Donalds manual,

which is their form of regulatory compliance. With this being the issue, IT/IS can
definitely help the company out in many ways. The company needs to make sure all
challenges and opportunities within the organization are easier for everyone to understand
and ensure that all employees follow the companys compliances.

IT/IS allows

employees within the corporation to communicate effectively and ensuring everyone is

on top of everything. Do to this; it is very necessary that an intranet website is made
which goes into detail about all of these concepts, that way everyone within the company
is on the same page. Information system can also allow the company in supporting

18

Interview: Dan Gallian, General Supervisor of IUF

website: http//:www.mcspotlight.org

business processes, decision making, and competitive advantage.

By utilizing

Information system it helps store managers to make better decisions and attempt to gain a
competitive advantage. For instance, what lines of merchandise need to be added or
discounted, and it helps them looks for ways to gain an advantage over their competitors
in competition for customers.

Internal Strength/Weaknesses:
They are many strengths and weaknesses in the McDonalds corporation. The first
strength is that the company can offer a meal with low prices. They also have a healthy
menu which consist of Low carbohydrates options which cost only $1.00. One of the
weaknesses the company faces is the low market share in chicken products since Wendys
is the leader with the biggest market share in chicken products. The company can further
improve their business with other IT/IS. First of all, there are many ways to use IT/IS
because it helps in business activities, resolving problems, and business opportunities. By
utilizing IT, McDonald can create an interactive marketing process which is a term used
to describe a customer focused marketing process that is based on using the intranet,
internet, and extranet to establish two-way transactions between a business and its
customers.19 By utilizing IT to create an interactive marketing, McDonald can use the
network to attract and keep customers. This also allows them to get feedback from
customers since interactive marketing encourages customers to be involved with the
companys services and delivery issues.

19

OBrien, James. 2004. Management Information system-Managing Information Technology in Business

Enterprise.

Through researching McDonalds Corporation these last few weeks we have

learned a lot about the companys responsibility and how they have contributed to the
community in childrens life. As consumers we all value how important time is, with
McDonalds offering more than 30,000 restaurants for services, it is going to surely make
getting food faster and cheaper.

Division of Labor

Isabel Soboszek:
She was assigned the task of finding background information on the company, history,
the founder, executives, and significant challenges the company may face.
Meghan Dilawari:
She did the current status of company which includes all information on sales/revenues,
share of market, company locations, and number of employees, suppliers, customers, and
competitors. She also assists in putting the reference page together.
Matt Salisbury:
He was responsible for the Porters Competitive Forces Model and doing researching on
the companys key external challenges and opportunities.
Farhan Latif:
Strategy, cost leadership, differentiation information. Researching information as well.

Tammy Huynh:
I worked on the challenges/opportunities for the company, as well as the strength and
weaknesses. I also help put the project together and ensuring that things are correct with
the help of Meghan.