Advance Strategic Management

MBA (1.5)
Semester: 2nd

Group Members:
Maria Nisar
Aiman Gillani
Waleed Rehman
Jalal ul din
Ahmed Khan

Fast Food Industry

Executive Summary:
This report provides an analysis marketing environment of the fast-food industry and evaluates
activities of McDonalds, which is considered a key player.
Firstly, the PESTLE framework is used to analyze external environmental factors influencing the
industry. The Porters Five Forces framework is utilized to analyze the competitive rivalry within
the industry, and its attractiveness for potential new entrants. Key players and their positioning
were identified using a strategic-groups model, mapping brand value against global presence.
Based on the industry analysis, McDonalds was identified as the market leader and an
examination of their market entry modes was carried out. Their international marketing mix was
evaluated to identify success factors, drawing focus upon international branding, international
distribution, international communications and standardization vs. adaptation of the service
offering. An internal analysis identified the firms strengths and weaknesses whilst an external
analysis considered the opportunities and threats posed to McDonalds as market leader.
Finally, short and long term strategic and tactical recommendations were outlined in order to
enhance McDonalds competitive position within the global fast-food industry. These
recommendations are both realistic and well supported, based upon the evaluation of their
current strategy and activities.

Introduction:
The fast-food industry is dynamic with a variety of competitors. This report identifies the current
factors influencing the industry before specifically focusing on McDonalds Corporation, who is
considered as the current market leader. The report identifies several areas for improvement and
makes strategic recommendations for McDonalds to enhance its position.

PESTEL Analysis:
The following framework provides an analysis of the external international marketing
environment, relating to the fast-food industry:

Factors

Impact of Factor

Potential Opportunity
or Threat

*Poor law and order.

* Changes in regulation
*Import restrictions
* Political stability

Threat

Economical

*Inflation rate
*High unemployment
rate

Threat

Social

*Health consciousness
and safety awareness
*Population and its
growth rate

Opportunity

*Social media outlets for

consumer
*Awareness through
obsolescence rate and
increasing comfort levels
with technology

Opportunity

Political

Technological

Environmental

Legal

1. Political:

*Lobbying for
environmentally friendly
material
*Monitor the waste
disposal
*Advertisement
regulations
*Health lawsuits

Opportunity

Major threat

The fast-food firms must comply with country-specific political requirements, such as national
minimum wage regulations, affecting costs. Hygiene and quality regulations vary significantly
between nations and may influence the quality of products provided by fast-food outlets.
Different countries set varying regulations regarding labeling and packaging.

2. Economical:
The company also has to consider the economic standing of the state on which they operate on.
The rate at which the economy of that particular state grows determines the purchasing power of
the consumers in that country. Hence, if a franchise operates in a particularly economically weak
state, hence their products shall cost higher than the other existing products in the market, and
then these franchises must take on certain adjustments to maintain the economies of scale.

3. Social:
Obtain the relevant information from the target market in addition to the individual customers of
the organization. It is imperative that before a franchise is granted to a particular market, a well
drafted and comprehensive market research should be conducted initially so as to establish the
acts that would conform to good customs, public policies, and morals of the said state. Similarly,
the company should find out the shifts in areas like the consumer behavior and purchasing
patterns of the market. Fundamentally, this is the key condition for executing a suitable customer
relationship management system.

4. Technological:
McDonalds generates a demand for their own products (2006).The companys key tool for
marketing is by means of television advertisements etc. As consumer familiarity with new
technology increases, fast-food firms are using channels such as social media websites to engage
with their customers. For example, McDonalds is the 9th most liked brand on Facebook
(CNBC, 2012).

5. Environmental:

McDonald's adopted recyclable packaging. Increased environmental awareness among

consumers provides firms with a significant opportunity to position themselves as green to
garner customer loyalty.

6. Legal:
Global operators must comply with country-specific regulations and legislation. This includes
opening hours, taxation and employment regulations such as the National Minimum Wage
Regulations (1999) in the UK. Firms are often required to meet national food standards such as
the requirements set out by the US Food and Drug Administration (FDA). Furthermore,
authorities are becoming increasingly worried about childhood obesity associated with the
industry (WHO, 2012) and have tightened regulations regarding targeting children.

Porters Five Forces: Fast-food Industry

This framework identifies the competitive forces affecting the fast-food industry:

1. Threat of New Entrants Moderate Force:

Markets which are profitable that yield high returns will attract new organizations. The market is
dominating by number of international Quick Service Restaurant. It has chains that include
McDonalds, Burger King, Pizza Hut, KFC and Dominos. These international brands are too
much valuable and have large customer base plus boosting loyalty as well and are recognized by
customers. They indicate best quality and services. Key players including McDonalds are
adapting such marketing orientation that suits the local culture and norms and values of society.
They are strengthening their brands on daily basis and are avoiding customers alienation. For
New players in the market it is sometimes too much struggling for them to compete as their
brands are unknown and other reason is that advertisements are expensive.
New entrants can impact market share of McDonalds. Moderate threat of new firms is based on
following external factors.

Low switching costs (strong force)

Moderate capital cost (moderate force)

High cost of brand development (weak force)

Due to low switching costs, customers can easily move from McDonalds towards new fast food
restaurant firms. As well as the moderate capital costs of establishing a new restaurant makes it
moderately easy for

those firms which are small or medium-size organizations to affect

McDonalds. It is difficult and expensive to build a strong brand that could match the
McDonalds brand. Thus, this element of the Five Forces analysis shows that the threat of new
entrants is a considerable issue for McDonalds.

2. Threat of Substitutions Strong Force:

Substitution is the significant concern for McDonalds. It deals with the potential effects of
substitutes on firm growth. Following are external factors that make the threat of substitution a
strong force.

High substitute availability (strong force)

Low switching costs (strong force)

High performance-to-cost ratio (strong force)

McDonalds have many substitute products like as products from artisanal food producers and
local bakeries. Customers can also cook their food at home. It is also easy to shift from
McDonalds to these substitutes (low switching costs). In addition, these substitutes are
competitive in terms of quality and customers satisfaction. In this case of McDonalds,
substitutes are a major issue that the company must address through approaches like product
quality improvement.

3. Competitive Rivalry Strong Force:

In this element, McDonalds face tough competition as the fast food restaurant market is already
saturated. This element tackles the effect of competing firms in the industry environment. In case
of McDonalds, the strong force of competitive rivalry is based on the following external factors:

High number of firms (strong force)

High aggressiveness of firms (strong force)

Low switching costs (strong force)

Fast food restaurant industry has many organizations of various sizes, such as global chains like
McDonalds and local fast food restaurants. Most medium and large organizations aggressively
market their products. McDonalds customers experience low switching costs that means they
can easily transfer to other restaurants whenever they want. This element shows that competition
is among the most significant external forces on the business. Although McDonalds and Burger

King almost hold a duopoly in the burger segment. McDonalds spent over $650 million on
global advertising in year 2009.

4. Bargaining Power of Customers/Buyers Strong Force:

They must need to address the significant power of their consumers. This element deals with the
influence and demands of customers. Following are the external factors that contribute to the
strong bargaining power of buyers:

Low switching costs (strong force)

Large number of providers (strong force)

High availability of substitutes (strong force)

Due to the ease of changing from one restaurant to another (low switching costs), consumers can
easily impose their demands on McDonalds. In relation, because of market saturation, customers
can choose from many fast food restaurants other than McDonalds. in addition with this, there
are many substitutes to firms like McDonalds. These substitutes include food outlets, artisanal
bakeries, as well as foods that one could easily cook at home. Based on this element,
McDonalds must develop strategies to increase customer loyalty that really matters for firms.

5. Bargaining Power of Suppliers Weak Force:

Suppliers also influence McDonalds. This element shows the impact of suppliers on
organizations. In their case, the weak bargaining power of suppliers is based on the following
external factors:

Large number of suppliers (weak force)

Low forward vertical integration (weak force)

High overall supply (weak force)

The large population of suppliers weakens the effect of individual suppliers on McDonalds. This
is especially due to the lack of regional or global alliances among suppliers. In relation to this

most of McDonalds suppliers are not vertically integrated. It means that they do not control the
distribution network linked to McDonalds facilities. Also, the relative abundance of materials
like flour and meat reduces suppliers influence on McDonalds.
supplier power is a minimal issue for McDonalds.

This element shows that

Critical Success Factor:

1) Location:
Fast food is about convenience, so to be successful a fast food outlet should be located in a hightraffic area. Fast food isn't considered a destination; customers won't travel into the countryside
for a bag of fries in the same way that they would for a special restaurant experience. By locating
outlets in shopping malls and on busy commercial strips, fast food companies gain business and
impulse purchases from customers who had no preplanned patronage of the restaurant.

2) Speed of Service:
Fast food that lives up to its name gains more business than fast food that is actually slow. Many
people grab fast food on the way to work or to another destination. The reason that drive-through
windows are popular is that people don't even want to take the time to get out of the car. The
faster a restaurant can deliver the ordered food, the happier the customer is. Setting up efficient
and standardized kitchens and focusing on foods that can be cooked quickly are two of the ways
that McDonald's became so successful in this competitive industry, according to Business Week.

3) Adaptation of Localization:
Localization is the process of making the content relevant to a target culture, complete with
correct spelling and the use of local and cultural references. It can involve everything from
communication style to design preferences. For example, many Asian cultures tend to prefer
more interactive, colorful websites, so videos, pop-up text, and a number of different entry points
are commonly used in those cultures. In contrast, Scandinavian and Northern European
customers prefer more minimalist, text-heavy designs.
Ideally, localization of content should be an integral part of the creation process. McDonalds
involves its international teams at an early stage of product development, ensuring it can adapt
their most effective marketing strategies to each individual culture where its campaigns are rolled
out. Its in-country translation and localization teams ensure that the content strikes the right note
in each country.

Of course, not all content marketers will have the resources for full-time marketing teams based
in each country. An alternative is hiring native-speaking translators or localization experts, as
required, to ensure the content is tailored for the target audience.

4) Quality of Food:
McDonald's, Burger King and Wendy's are examples of extremely successful fast food branding.
Their signs, logos and slogans are recognizable around the world. Fans of fast food like
predictability, and they want to know exactly what they are going to get before they go through
the doors, according to the website Customer Service Zone. By providing consistent, easily
recognizable and simple branding, a business reassures customers that nothing has changed.
Simple slogans that lodge themselves in the brain are repeated endlessly on television and radio
commercials, ensuring that when customers see the fast food outlet, they are primed to respond
because the brand is already "inside" of them.

5) Menu Selection and Pricing:

Fast food restaurants run on thin profit margins and make their money by selling lots of product,
according to the website Street Directory. In this commercial environment, functioning
efficiently is critical. This means minimizing food waste, hiring help at minimum wage and
benefiting from economies of scale when purchasing supplies. Every dollar that is unnecessarily
spent on operations is a dollar subtracted from profits. Because of high employee turnover in the
industry, training regimens for new employees need to be standardized, rapid and effective.

6) Environment:
According to the U.S. Department of Labor, approximately 7.7 million employees are working in
the food and beverage serving industry. Many of them age 16 to 19. Although working in this
industry is generally safe, employees are often exposed to hazards that threaten their health and
safety. Fast-food chains are required by state and federal laws to have internal policies to secure
the health and safety of employees. The employees and managers of fast-food restaurants are
responsible for implementing these safety regulations.

7) Kitchen Visit:
With pride and transparency, McDonalds open their doors and welcome us to tour their kitchen
and take a close look at the quality of their products. The Open Door Program is a chance for us
to be assured that they are committed to serve the best quality products, prepared with
compliance to the highest standards of safety and cleanliness by a qualified team.
High quality is their standard.

Critical Success Factors

McDonald

KFC

Burger King

Subway

Location

Speed of Service
Adaptation of Localization

10
9

7
9

8
7

9
8

Quality of Food
Menu Selection and Pricing

9
10

8
9

7
7

9
8

Environment
Kitchen Visit

9
10

9
0

8
0

7
0

12
10
8
6
4

Mcdonald

KFC

Burger King
Subway