Competitor Analysis

Porters Five Forces Model

In order to have a clearer outlook of the industry and competitors,
Porters Five Forces Model is adopted to analyze the fast food
industry.

To start with, the competitive rivalry within the fast food industry is
high, as the products offered by each company are similar.
Competition is ferocious as there are many firms in the industry and
the customer loyalty is low, as customers are eager to try new
products. McDonalds, however, manages to retain market share by
becoming a cost leader and offering differentiated products together
with prominent marketing efforts.
In general, the barrier of entry into the fast food industry is low, as
there are no government interventions on introduction of a new fast
food provider. Thus, it is very likely for companies to enter the
industry. Indeed, countless fast food companies offer burgers and
fries around the globe, yet McDonalds has been the dominant player
with more than 32000 shops worldwide, obtaining much of the
market share. Thus, these companies are refrained from a larger
market share unless they outperform McDonalds in terms of cost
and marketing strategies.
The bargaining power of suppliers is poor as raw materials such as
beef and bread and other food are readily available in many
countries, and the supply of such materials can be considered as
perfectly competitive, where suppliers have not much power to alter
the supply conditions.
The bargaining of customers, on the other hand, is strong as there
are many companies providing similar products. Customers also
tend to try new offerings, increasing the chance of turning away to
competitors. In response, large firms like McDonalds regularly
launch marketing campaigns to promote latest products to attract
customers back to make purchases.
Since westerners are used to having burgers and sandwiches, there
are few substitutes to burger and the threat is low. The threat of
substitutes is higher in Asia-Pacific region, as there are caterers
providing fast Chinese or Japanese cuisines, such as Caf de Coral

and Yoshinoya. In response, McDonalds has attempted to capture

customers by providing rice burgers, but it was not well-received.
Profitability Analysis
Out of the many fast food companies, Yum! Brands, Inc., a mother
company of KFC, Pizza Hut and 3 other brands, Burger King and
MOS Burger were chosen. Yum! Brands, Inc. offers a wide range of
fast food worldwide, while Burger King is comparable to McDonalds
in terms of nature of operations. MOS Burger, originated in Japan, is
an emergent company expanding in Asia.
Just-In-Time Strategy
The low days of sales in inventory for companies except MOS
Burger suggested that large fast food companies like McDonalds
have already switched to Just-In-Time (JIT) inventory policy to reduce
cost of storage and maintenance on quality of food to the lowest.
High Profitability
The sales revenue obtained recorded a drop for most companies in
2009 due to the recession brought by the financial tsunami, but
McDonalds has recorded huge sales revenue, more than twice as
much as Yum! Brands Inc. and almost ten times of Burger King,
maintaining high gross and operating margin. The return on assets
and equity are also appreciable, while the huge return on equity by
Yum! Brands, Inc. is actually due to the equity deficit caused by a
huge debt from Pepsi.
Cost Leadership
McDonalds also devotes itself to cost leadership strategy,
maintaining a relatively low manufacturing cost and an even lower
non-manufacturing cost to maximize their operating income. The
large manufacturing cost to non-manufacturing cost ratio can be a
suggestion to McDonalds to seek cheaper supplies and extra
budgets to launch new products and marketing campaigns to attract
more sales.

Ansoff Matrix

Ansoff suggested that growth strategies of a company can be

summarized in this matrix, and diversification stands out from other

strategies, since it requires the company to obtain new skills,
facilities and techniques, while others can be carried out with
current capabilities.
McDonalds has come to realize that there is little room for market
development as they have already entrenched themselves
worldwide. They cannot bring along much innovation to current
product as competitors may have offered such innovated products,
such as rice burger by MOS Burger. Thus, McDonalds focused on
marketing campaigns to penetrate deeper into market, promoting a
warm image to attract different age groups of customers.
McDonalds has also diversified into the coffee business by launching
McCafe as early as in 1993, seeking alternative source of income.
This has yet to be achieved by other competitors.
Appendices
Profitability of McDonalds and its competitors in 2009
Profitability
McDonalds Yum! Brands,
Burger King
Inc.
Gross Margin
44.0%
31.0%
36.8%
Operating
30.1%
14.7%
13.4%
Margin
Return on
15.5%
15.7%
7.4%
Assets
Return on
33.2%
233.6%
22.0%
Equity
Sales Trend Analysis of McDonalds
Sales
2009
2008
Revenue
McDonalds 22745.0
23552.0
(million
USD)
Yum!
10836.0
11304.0
Brands,
Inc.
(million
USD)
Burger
2537.4
2454.7
King
(million
USD)
MOS
6064186 6230188
Burger
5
7
(thousand
JPY)

MOS Burger
45.2%
2.9%
1.3%
1.6%

and its competitors

2007
2006

2005

22787.0

20895.0

19117.0

10435.0

9561.0

9349.0

2233.7

2047.8

1940.3

5989082
3

5821691
2

5934593
9

Manufacturing Cost to Non-manufacturing Cost Analysis of

McDonalds and its competitors in 2009

McDonalds
Manufacturing
Cost as
percentage of
sales
Nonmanufacturing
Cost as
percentage of
sales
Manufacturing
Cost to Nonmanufacturing
Cost

Burger
King

MOS
Burger

56.0%

Yum!
Brands,
Inc.
69.0%

63.2%

54.8%

13.9%

16.4%

23.4%

42.3%

402.9%

420.7%

270.1%

129.5%

Days Sales in Inventory of McDonalds and its competitors in 2009

McDonalds Yum!
Burger King MOS Burger
Brands, Inc.
Days Sales 3.04
5.96
0
33.37
in Inventory
(days)
Definitions

Gross profit
Sales
Operating income
Operating margin=

Sales
Net income
Return on assets=

, where
Average total assets
Beginningtotal assets+ Ending total assets
Average total assets=
2
Net incomePreferred dividends
Return on equity=

, where
'
Average common stockholder s equity
'
Beginning common stockholder s equity + Ending common s
'
Average common stockholder s equity=
2
Ending inventory
'
Days salesinventory=
365 days

Cost of goods sold

Gross margin=