Competitive Advantage

Competitive advantages are conditions that allow a company or country to

produce a good or service at a lower price or in a more desirable fashion for
customers. These conditions allow the productive entity to generate more
sales or superior margins than its competition. Competitive advantages are
attributed to a variety of factors, including cost structure, brand, quality of
product offerings, distribution network, intellectual property and customer
support.

Fig: Competitive advantage analysis

Cost Leadership:
Supply chain: McDonalds buys supplies in bulk and, to get
lower prices
Real Estate: McDonalds leases land and property they own to
franchises
Marketing: McDonalds is such a well-known brand name and
Ronald McDonald such a well-known mascot McDonalds has to do
much less advertising than many other chains to maintain
awareness of their brand.

 Strategic/predatory customer selection (see Supersize

Me): McDonalds purposefully aims their brands at kids who can
be taught to over-eat fast food and, in addition, serves things like
ultra-fatty sauces with salads and fatty foods in general with
sugar baked into breads and often soda-only drink selections, all
designed to make McDonalds customers unhealthily addicted to
compounds in their food.

Differentiation
McDonalds does not believe in opening its restaurant without any knowledge
of the local culture and tastes. The company caters to a large customers
market with varying tastes and thus cant afford to introduce products
without familiarizing itself with provincial presences in food. For this reason,
McDonalds distributes its products in foreign locations with the help of
franchises who are well aware in of that works in their country.
This is an extremely intelligent distribution method because on the one hand,
it doesnt create rifts between governments and McDonalds official, and on
the other hand, it helps in providing people with the kind of products they
desire. It is important to understand that McDonalds doesnt change its
basic product range for any country but tries to introduce certain changes in
secondary products in order to make them suitable for local tastes.
McDonalds predominantly sells hamburgers, various types of chicken
sandwiches and products, French fries, soft drinks, breakfast items, and
desserts. In most markets, McDonalds offers salads and vegetarian items,
wraps and other localized fare. On a seasonal basis, McDonalds offers the
McRib sandwich. Some speculate the seasonality of the McRib adds to its
appeal. Various countries, especially in Asia, are currently serving soup. This
local deviation from the standard menu is a characteristic for which the chain
is particularly known, and one which is employed either to abide by regional
food taboos (such as the religious prohibition of beef consumption in India) or

to make available foods with which the regional market is more familiar
(such as the sale of McRice in India).

Value Chain Analysis

Primary Activities:

Inbound Logistics:

1) McDonalds purchases raw vegetables and other raw materials from its
fixed, pre- defined suppliers only, therefore by increasing capital and labor,
their production will increase proportionately. McDonalds has practiced a
backward vertical integration,
by replacing most of its suppliers. It has done so for two reasons:
To reduce costs, and
To ensure that its products are of top quality.
These supplies include beef and milk to be used in its products, which it gets
from its farms.
Other suppliers include local grocery stores that supply McDonalds with
fresh
vegetables. Soft drinks are supplied exclusively by Coca-Cola. McDonalds
supplies also include raw material such as flour, sugar, yeast etc.
2) McDonalds own information: McDonald import some beef raw materials
from Australia and New Zealand.

Operations :

Before the McDonalds brothers invented their fast-food operations system,

some restaurants did make food pretty quickly. These restaurants employed
short-order cooks, who specialized in making food that didnt require a lot of
preparation time.
Being a short-order cook took skill and training, and good cooks are in high
demand. These speeded system, however, was completely different. Instead
of using a skilled cook to make food quickly, it used lot of unskilled workers.
The McDonalds Brothers changed the design of restaurant kitchen. Instead
of having lots of different equipment and stations for preparing a wide of
variety food, the Speeded kitchen had:

A very large grill where one person could cook lots of burgers

simultaneously

A dressing station where people added the same condiments to every

burgers

A fryer where one person can made french fries

A soda fountain and milkshake machine for desserts and beverages

A counters where customers placed and received their orders.

Fig: Value chain analysis

The Process:
The mass-production process requires each restaurants chain to have a
distribution network to carry the food to every restaurant. Warehouses store
enormous amounts of everything a restaurant needs. Including foods, paper
products and cleaning supplies. The warehouses the ship supplies to each
restaurant by truck. Warehousing and distribution, just like the management
of chain, is centralized rather than handled by each restaurant.

In some chains, managers track the restaurants inventories of food,

wrappers, cups, and other necessary items. They often order everything the
restaurant need from the distribution center, which ships it to them.
In other chains, it is automated, which means, a computer keeps track of
what the restaurants have and should have on hand, or the distribution
center ships the necessary items on a regular schedule instead of waiting a
request from the restaurant.
McDonalds is always keen to take the charge of crucial task of turning the
company around to meet customer demands. One of the first steps that it
propose has been to innovate the process of manufacturing and logistics.
This had been done with the view to increase efficiency of the supply chain in
terms of capacity, technology selections, and buying policies.

Outbound Logistics
McDonalds is committed to providing the highest quality food and superior
service, at a great value, in a clean and welcoming environment. Thats why
we work with our employees, franchisees, and suppliers to serve a balanced
array of food choices and provide the nutrition information needed for
customers to make sound decisions.
At the restaurant level, McDonalds is focused on energy conservation,
sustainable packaging, and waste management. We are dedicated to
innovation and improving our operations in order to build an even more
sustainable, environmentally friendly, and profitable business. And we will
continue to optimize our menu, modernize the customer experience, and
broaden accessibility to our brand, so that consumers will always enjoy the
maximum McDonalds experience.

 Marketing and Sales

McDonalds restaurants are found in 119 countries and territories around the
world and serve 58 million customers each day. McDonalds operates over
31,000 restaurants worldwide, employing more than 1.5 million people. The
company also operates other restaurant brands, such as Piles Caf.
Focusing on its core brand, McDonalds began divesting itself of other chains
it had acquired during the 1990s. The company owned a majority stake in
Chipotle Mexican Grill until October 2006, when McDonalds fully divested
from Chipotle through a stock exchange. Until December 2003, it also owned
Donatos Pizza. On August 27, 2007, McDonalds sold Boston Market to Sun
Capital Partners.
Notably, McDonalds has increased shareholder dividends for 25 consecutive
years, making it one of the S&P 500 Dividend Aristocrats In October 2012, its
monthly sales fell for the first time in nine years.
Advertising
McDonalds has for decades maintained an extensive advertising campaign.
In addition to the usual media (television, radio, and newspaper), the
company makes significant use of billboards and signage, sponsors sporting
events ranging from Little League to the Olympic Games, and makes coolers
of orange drink with its logo available for local events of all kinds.
Nonetheless, television has always played a central role in the companys
advertising strategy.
To date, McDonalds has used 23 different slogans in United States
advertising, as well as a few other slogans for select countries and regions. At
times, it has run into trouble with its campaigns.

Services

Free Wi-Fi @ McDonalds:

McDonalds meal now comes with complimentary Wi-Fi. Get some work done,
check email, and connect with friends for free. With free Wi-Fi at more than
11,500 participating restaurants, customers can access the Internet using
their laptops or PDAs at no charge.
Arch Card
The Arch Card is a pre-paid card that gives customers a quick and convenient
way to pay at McDonalds. Arch Cards also make the perfect gift for holidays
or any special occasion. Arch Cards come in denominations of $5, $10, $25,
and $50. They can be purchased for the first time or reloaded later at
participating McDonalds restaurants nationwide. They are also available at
retailers including Safeway, Kroger, SuperValu and Ahold. McDonalds Arch
Cards never expire, and there are no penalty or dormancy fees.
Play Places & Parties
If anyone bring their kids then McDonalds make the party. Super-fun for the
kids, stress-free for the customers theyve got this party thing down to a
science: Happy Meals, cake, decorations, party favors. Talk to your local
McDonalds manager to make arrangements. Depending on location, anyone
can have their childs party at a McDonalds Play Place for even more fun!

Support Activities

Firm Infrastructure
McDonalds Infrastructure is modern an sophisticated, they using the
advanced IT and yet theyre still maintaining the green activities.

Greener Than Ever

McDonalds strives to provide eco-friendly workplaces and restaurants that

reflect our sustainability goals and demonstrate environmental stewardship
in the workplace.
In August 2008, McDonalds USA opened its first corporate-owned pilot green
restaurant and received Leadership in Energy and Environmental Design
(LEED) Gold certification in April 2009. Some of the green attributes of the
Chicago restaurant include energy-efficiency equipment and lighting, high
efficiency plumbing fixtures, and permeable pavement and rainwater
collection for irrigation.
Green building strategies arent limited to McDonalds restaurants. Using the
LEED rating system developed for Existing Buildings (LEED EB), we recently
tackled our Global Headquarters in Oak Brook, Illinois. Our 20-year-old
Campus Office Building (affectionately known as the COB) was granted
Platinum Certification, the highest level possible. The COB is one of the
oldest buildings to receive this certification.
The sustainable building enhancements made during the certification
process have resulted in clear financial and environmental benefits. Energy
use is at its lowest level in five years, helping to offset rising utility costs.
Enhanced recycling efforts have diverted over 58% of waste targeted for
landfill, helping control disposal costs. And overall, our efforts are reducing
McDonalds environmental impact.

Human Resource Management

The work offered by McDonalds may have some positive elements, but
workers are often choosing employment at McDonalds in the context of
having few other attractive options. Almost regardless of what people think
of the work itself, working at McDonalds could be said to offer advantages
for some employees who want flexible hours and are engaged in other

activities and responsibilities. For those marginalised in the labour market

who have few chances of a job elsewhere, McDonalds offers much needed
work.
However, the employees dependence on McDonalds and/or their tendency
to see their employment as a short-term strategy makes them vulnerable to
management manipulation. Those with minimum interest simply leave if
they do not like it, and this is clearly reflected in high labour turnover.
Perhaps they are attracted by the combination of fairly secure employment,
familiar family surroundings created by a highly paternalistic approach to
management and lots of employees of similar age or temperament. This may
help to explain how the corporation sometimes retains individuals who could
probably obtain better paid and more skilled work elsewhere. As (1986) puts
it, it is recruiting as means of control. As already suggested, however,
whether this is a deliberate strategy or something else is not clear (, 1994).
The employment relationship at McDonalds is managed by a complete
spectrum of controls, from simple, direct and bureaucratic controls to the
management of subjectivity. At one end of the spectrum, restaurant
managers are disciplined to accept tough work schedules and must prove
themselves up to the challenge of punishing schedules. Long hours and
loyalty are locked in, with young managers being persuaded not only to
accept as the norm many hours of unpaid work but also to gain a perverse
satisfaction from surviving these tough and uncompromising work routines.
In addition, young managers who may or may not get similar opportunities
elsewhere in the labour market are romanced by offers of promotion and
career development. At the other end of the spectrum, more direct methods
are used to maintain control. However, this still leaves unanswered the
question of how the corporation has managed to sustain the uniformity of its
employee relations practices despite major differences across societal
cultures.
Technology Development

Even as consumer confidence stagnates domestically and in Europe,

McDonalds will focus on modernizing restaurants, evolving the menu and
engineering value, said Don Thompson, the companys president and chief
operating officer, in an earnings call on Friday.
McDonalds net income rose 5 percent and same-store sales increased 7.3
percent for the quarter, and the brand gained market share in the United
States and abroad, according to the companys first-quarter earnings report.
The call marked a transition from McDonalds Corp. chief executive Jim
Skinner, who will retire June 30, to incoming leader Thompson, but both
executives stressed that the companys strategy going forward would remain
as focused as ever on the brands Plan to Win.
Asked what he thought his legacy would be after taking over for Skinner,
Thompson responded that he would preach fundamentals just like Skinner.
Thompson gave a few hints toward McDonalds near-term strategy.
McDonalds enters five-year IT support deal with Fujitsu. The services
provider plans to roll out user-exchangeable parts to McDonalds 1,200
branches throughout UK and Ireland
Fujitsu has signed a five-year deal with fast food chain McDonalds to supply
IT support to the companys 1,200 branches in the UK and Ireland.
The IT outsourcer will offer support for point-of-sale systems and back office
operations to both company-owned and franchise outlets, replacing various
incumbent suppliers.
Fujitsu plans to make McDonalds IT systems more reliable by deploying
systems built on user-exchangeable parts, the company said in a
statement. This will allow staff to fix minor IT problems themselves by
replacing faulty units such as card readers, it claimed.
The provider said success would be judged on whether it simplified IT
support for branch staff, reduced of on-site engineering visits and drove

down the total cost of ownership of McDonalds IT equipment over its

lifetime. Fujitsus business unit director Jon Wolfe said that keeping tills open
and operating was the most important job for IT support.
However the role moving forward is as much about the customer experience
and supporting new technologies that ensure agility in meeting customer
demands, such as touch-screen ordering and contactless payments both
areas that McDonalds is already deploying, Wolfe claimed. In Janaury 2011,
McDonalds announced that it will use Visas contactless payments
infrastructure.

Procurement
McDonalds E-Procurement System McDonalds E-Procurement System is
basically a main reason for their successful supply chain management. It is
so efficient that it provides the backbone not only to all the logistics but the
whole McDonalds supply chain management.
How McDonalds Uses E-procurement Systems Emac Digital:(Internet
procurement site designed for McDonalds Corporations 27,000
franchises)Emac Digital Company is E-Procurement website which is jointly
owned by McDonalds and Accel-KKR Internet Co.
It is a procurement hub launched in 2001 allow all of McDonalds franchises
across the globe to buy everything needed to run their restaurants. From
uniform to HamBurger
Aside from being faster and more convenient for franchisees, the
procurement site also allow business owners to buy supplies and materials at
a discounted price, ultimately reducing costs for McDonalds. E-Procurement
allows 85% cut in costs according to McDonalds supply chief Edwards.
Benefits for the Suppliers McDonalds works with two types of suppliers.
Major Suppliers and Small Suppliers

SWOT Analysis

Fig: SWOT analysis

Strengths:

- Strong brand name, image and reputation

McDonalds has built up huge brand equity. It is the no 1 fast food company
by sales, with more than 31,000 restaurants serving burgers and fries in
almost 120 countries. The image of McDonalds is recognized everywhere.
This brand is in top ten of the most powerful brand names in the world with
Coca-Cola, Nokia or GM.
- Large market share
McDonalds is considered as the largest player in size and global reach. When
Wendys or Burgers King are losing market share in 2006, McDonalds still
increases its market share. Market share of McDonalds in the recent time is
about 19% while Yum!Brands is 9% and both Wendys and Burger King is 2%.
- Specialized training for managers
McDonalds is very serious on training managers. This company has its own
program to train managers the most professionally, which is called
Hamburger University. As a result, McDonalds has many good managers who
can help company development well.
- McDonalds Plan to Win
McDonalds customer focused Plan to Win provide a common framework for
its global business yet allows for local adaptation. Through the execution of
initiatives surrounding the five elements of its Plan to Win People, Products,
Place, Price and Promotion McDonalds has enhanced the restaurant
experience for customers worldwide and grown comparable sales and
customer visits in each of the last eight years. This Plan, combined with
financial discipline, has delivered strong results for companys shareholders.
- Introduction of new production
McDonalds is considered the first one enter to fast food industry. It initiates
to other brand to enter this industry. As a result, when think about fast food,
customers always remember McDonalds first. In fact, in some big countries,
especially in US, McDonalds is the first choice of a large number of
customers.
- Technology Innovative:
McDonalds is keeping at the forefront of technology around the globe. For
example, In Brazil McDonalds is currently studying the installation of
Internet access terminals in some outlets as well as enabling customers to

order online. This will create a more efficient process that will reduce the
amount of lag time between a customers orders and pick up of the order.
- Good marketing strategies:
No matter the continent, children and adults know the face of Ronald
McDonald is synonymous with the colossus restaurant chain. This results in
wonderful marketing strategies among management which conducts a very
thorough market analysis, resulting in much success around the globe.

Weaknesses:
- Unhealthy food image
McDonald's has been impacted by negative press like the documentary
"Supersize Me" by Morgan Spurlock in which he contributed our societys
obesity to McDonald's and other fast food chains. In fact, each McDonalds
dishes provides large amount of calories but not too much nutrition.
- Customer loses due to fierce competition
McDonalds has to compete with many strong brand name in fast food
industry such as Wendys, Burger King or Yum!Brands. This fierce
competition makes McDonalds loose a large number of customers who prefer
favor of other brands.
- Problem related to health issue
McDonalds use Trans - fat and beef oil in their food. Although it is not illegal,
it affects badly on customers health because Trans fat is causes of some
kind of cancer. Consequently, a number of customers who care about their
health stop eating at McDonalds restaurants. It makes revenue of company
decrease.
- Legal action:
McDonalds has been involved in a number of lawsuits and other legal cases
in the course. For example, there are many case which involved with
trademark issue. McDonalds force many others restaurant, company of just
a coffee shop to change their brand name because of keeping Mc letters.
- Unbalance meals:
Although McDonalds tries to update its menu by healthy criteria, McDonalds
meals are still unbalance. For example, there are many dishes with chicken

(both grilled and fried), bacon, beef, rib or egg. Besides, just several dishes
are salad with vegetable and fruit. Moreover, amount of fruit or vegetable is
not much.
- High employee turnover rate
Although McDonalds has many good managers as well as skillful employees,
the turnover rate is still high. Every year many of their employees are fired
out of the restaurants. Moreover, many others quit their jobs, especially part
time employees because of low salary as well as too high working pressure.
- Action related to environmental issue
McDonalds uses HCFC 22 to make polystyrene that is contributing to ozone
depletion. The company has to repair this weakness if doesnt want to be
criticized.
- Dissatisfied Franchisees:
Franchisees are beginning to become very dissatisfied with the fees that
McDonalds are forcing them to pay. As the company continues to expand,
they are also increasing the amount of fees franchisees have to pay for the
use of the notorious fast-food brand. Many people are not very happy about
this and as a result many franchisees are selling their businesses.

Opportunities:
- Growth of the fast food industry
Fast food industry now is developing significantly. The change of lifestyle
leads to the change in people eating habit. In the past, if just workers, drivers
or someone who had to work busily and didnt have enough time for a home
meal choose fast food; nowadays, almost people eat fast food and a major of
them like fast food very much. It is a huge chance for fast food brand to
increase their revenues, especially McDonalds.
- Conservation:
McDonald should research green energies and green packaging solutions and
incorporate these finding as a part of their marketing strategies and
advertisements.

- Globalization, expansion in other countries

McDonalds has more than 31,000 restaurants serving in almost 120
countries. Of the 31,000 restaurants, at least 14,000 are in US. However,
now, because the care of McDonalds about favors and cultures in each
countries it enters, McDonalds can open more restaurant in new areas such
as China or India the countries which culture influences on people lifestyle
deeply. They are very potential markets. The expansion of these areas is big
opportunities For McDonalds.
- Low cost menu is preferred by large number of customers
With low cost menu, McDonalds can attract customers who just have low
income. This segment makes up a fairly remarkable part, especially in the
recent time, when global economic is struggling. It is not difficult for
McDonalds to apply low cost menu on all restaurants.
- Appearance of freebies and discounts
Discounts given on every food item may help them gain more customers.
Moreover, a new trend is rising among customers that they like freebies and
discounts, even when they dont need it or dont use these freebies after.
- Diverse tastes and needs of customers
Customers tastes now become more diverse. As a result, they require new
format of service in order to satisfy them. McDonalds, with new format of
business such as McCafe, it can attract new segment of customer; for
instance civil service, who prefer coffee as well as want to use Wi-Fi to work
when drink coffee.
- Growing health trend among the customers:
Although people concern about how McDonalds influence badly on their
health, it is also a chance for McDonalds. This company can develop new
products, specifically fresh burger or healthy dessert.

Threats:
- Intensity competitors
Along with the development of fast food industry, there are many new fast
food brand enter to the market. It is nothing to say if there is no strong brand

which can compete with McDonalds. However, in fact, there are some and
they are stronger gradually, for example Yum!Brands, Wendys or Burger
King. Although market share of these brand are lower than McDonalds, they
try to gain more customers from McDonalds. Moreover, more casual dining
restaurants increase their burger offering and decrease the price. If we are
not really hurry, we may choose this kind of restaurant instead of fast food
restaurants. They also become the competitors of McDonalds.
- Public health crisis
With a growing number of obesity cases among Americans, fast food chains
like McDonalds will continued to be overshadowed by their previous products
offerings, for example Supersized Meal, no fruit or yogurt, slim salad
selection. Besides, people nowadays are facing heart problem more seriously.
As a result, they require nutritious and healthy food as well as lifestyle.
- Economic recession
The company's revenue streams are diversified, but depending on the length
of this "recession", they will inevitably be negatively impacted by the
trickledown effect. Recession or down turn in economy may affect the
retailer sales, as household budgets tighten reducing spend and number of
visitors.
- Serious environmental issue:
Environment is one of the hottest topics all over the world. Any action which
influence on the earth and human life is criticized strongly. Consequently, if
McDonalds keep using HCFC -22, it may lose customers, especially who really
care about the earth.