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TEAM 3

Dhani Alhamidi Lubis


Dostonbek
Huiling
Sihyun Park
Seoyeon Moon
Introduction / Overview
1-1. Intro: Firm & Industry Background &Pres Overview

McDonalds background Current events Industry background


• More than 35000 stores in over 100 • McDonalds compete in fast food industry and •In 1961 two brothers sell McDonalds for
countries coffee and local food product retailers $2.7mil to Kroc (businessman) and in 1965
• First McDonald established by two • Burger King, KFC, Subway, Wendy’s and other the company became public
local food product stores • McDonalds is the biggest restaurant chain
brothers Richard and Maurice and first
• McDonalds customers started to use plastic by revenue serving over 69 mil customers
restaurant launched in 1948 in San daily
Bernardino, California coffee lids to avoid fast food chains new paper
• McDonalds global sales growth is 6.0%
• Hamburgers, cheeseburgers, Big Mac, straw • In 1961 two brothers sell McDonalds for
• McDonalds has a Divisional organizational
French Fries, Sandwiches, McCafé $2.7mil to Kroc (businessman) and in 1965
beverage and other beverages Structure which are Global hierarchy, Performance the company became public
-based divisions and function-based groups
1-2. Analysis of Financial Performance

Industry firms:
Industry definition: KFC, Jack in box and Wendy are main rivals in same industry.
McDonalds corporation is an American fast food company
founded in 1948. KFC, Jack in box and Wendy are in fast food Does McDonalds outperform or underperform
industry. the industry average:
McDonalds is outperforming the industry average and
Is this firm being good or bad industry: McDonald the business strategy for the company is to make food
The French fries' industry’s figures shows that numbers is higher fast available to its customers at a very low competitive price but to
than average economy that means industry itself is positive and get profit as well by reducing the cost of the product and
McDonalds’s influence is much higher than industry profitability. expanding the business worldwide.

Analysis of Financial Performance)


Of ROA 6%
+4% 15%
9%
5%
Economic Industry Industry Strategy Company’s
Average Influence Profitability Influence Profitability
1-2. Analysis of Industry Average Profitability Report

Analysis of Industry Profitability


(e.g., Return on Assets)

The main rivals Mcdonals industry: +4%


Wendy, KFC, Jack in box, are the major competitors in USA burger
10%
6%
Industry.

Compute the average profitability of each of the industry’s


firms over the past 3-5 years : Economic Industry Industry
Average Influence Profitability
Using ROA (Return of assets) lets us know of how profitable each
company’s assets are. It gives  an idea about the capacity of these
assets in generating revenue. The average ROA of these four companies is 9.8%.
Average ROA of each company over past 3 years (2016-2018) Therefore, we can see this industry’s profitability is above the
McDonald’s(15.5%) Wendy’s(5.2%) Jack in box(11%) KFC(7.43%) economic average and businesses are profitable.

This industry influence rate is 3.8% (Industry profitability 9.8%


- Economic average 6%)
Analysis of
Industry Environment
1-3. Advanced 5 Forces Analysis
Extent of Rivalry
•Wendy’s, Jack in box , KFC
• Bunch of competitors in different sizes
Threat of Entry •Low switching cost
•High cost of brand development •High aggressiveness of firms
•Highly variable cost Potential •Overall: Rivalry of this industry is high as many competitors
•Low switching cost Entry exist on this market. As they compete each other as they lose
•Overall: The entry limit of this industry is high even though their bottom lines with advertisement fee and investing new
they has low switching cost, they need much capital for products
establishing brand image and high variable cost.
Power of Buyers
• Low switching cost
• High substitutes available
•lots of competitors
Industry
Suppliers Buyers •Overall: It has high level of buyer’s power
Rivalry because of many options are available.
Also, buyers have no switching cost to move
other products instead of McDonald’s.
Power of Suppliers
•High overall suppliers
•Large number of suppliers
•Low forward vertical integration suppliers
Threat of Substitutes
• High availability of substitutes
•Overall: Power of suppliers in this industry is low because a lot of • Low switching cost
population of suppliers weaken effects of individual suppliers on Substitutes • High affordability of substitute products
McDonald’s •High availability of substitute products negatively affect on the
company as customers use other products like bread ,local food,
instant food in cheap market and they have low switching cost, it
makes customers to use other products instead of McDonald’s
1-3. Advanced 5 Forces Analysis (I)

Trends & Dynamics (examples) Impact on 5 Forces


Total Impact on
Trends &• Trend
Dynamics
#1 –(examples)
Healthy food Impact on 5 Forces Industry
- Food news brings customers into • BTE
the stores (new products)
 BTE Rivalry

• Trend #1 – health food
- Complexity of service or products • Substitute
- The need to take care of one's  Rivalry
needs to be dramatically reduced.
health by eating organic products.  Substitute

• Trend #2 – substitutes • Rivalry


• Trend- #2
Focus on franchisee profitable • Buyes
– rivals
revenue growthprofitable Power
- Focus on franchisee  Rivalry
- Investing
revenue growth in growing a base of loyal  Buyes
customers
- Investing in growing a base of loyal Power
customers
1-3. Advanced 5 Forces Analysis (II)

Potential
Entry

Threat of new entry (Moderate)


- Starting a business in this industry requires high barriers and high
competency for beginner since the main players of the industry have
achieved economies of scale and possessed great brand identity.
Industry
Suppliers Buyers
Rivalry
Extent of rivalry (Very high)
- The level of rivalry in this industry is very high, it is because there are
tons of players in USA Fast-food industry. Also, there are several
problems like low switching cost to other competitors or high
bargaining power of buyer makes it more difficult.

Substitutes
1-3. Advanced 5 Forces Analysis (II)

Potential
Bargaining power of suppliers (Low) Entry
There are many suppliers in small size and they supply raw materials to
McDonalds. Among those many suppliers, McDonalds carefully choose
their suppliers as they care quality of their products. It makes their
power weak

Bargaining power of buyers (Very high)


Low switching cost and various options to other competitors make
Industry
power of buyers very high. Customers can get easily moved to other Suppliers Buyers
competitors for other options. Rivalry

Threat of substitutes (High)


The threat of substitute products mainly comes from the competitors.
Apart from the international brands, local brands also offer substitute
products. There are other restaurant and hospitality brands apart from
the fast food brands that also compete with McDonalds and offer
substitute products.
Substitutes
1-4. Assessment of Strategic Issues

• Threat of new entry : Healthy eating trends


Shifting trend towards healthy eating could pose a threat to Mcdonalds. Although they offer healthier
choices such as salads and diet cokes, it is inevitable for emerging healthier fast food outlets to
compete with the chain directly.
• Mcdonald’s unhealthy food options still contribute to majority of its sales and it will still require more time to shift
towards having a healthy-brand image
• Continue their healthy food marketing strategies – it is undeniably difficult for a well-established company to alter its
public image but marketing its healthier options could possibly reduce impacts of the trend

• Threat of buyers : Consumers are able to easily shift to other brands


Mcdonalds should innovate and have limited time promotions with not only healthy, but its
regular meal options
• This is since its main bulk of sales are still related to its regular food options – by continuously innovating and producing
new food options, it may increase brand loyalty since customers could anticipate new food options from the store
• By bringing in healthier food promotions, it could entice health-conscious customers to give those menus a try, expanding
its consumer-base
Analysis of
Firm Performance
2-1. Firm-Level Analysis (I)

Customer
Accessible Deals and Digital Technology
experience
Location Promotions Campaign Advancement
Oriented service

Employee
Main product of
Competitive Experience Growth of Young generation
Sandwich, burger,
Price Oriented Natural Food diet option
French fries
employment
2-2. Firm-Level Analysis (II)

Cost Leadership Differentiation

Broad
Market

Narrow
Market
2-2. Firm-Level Analysis (II)
1. The key drivers of WTP and Cost Mcdonalds industry
• Firm Reputation
: Mcdonald is market leader in fast food restaurant industry. It has the most number of customer either in the US or the world.
It already possess customer’s trust.

• Suppliers
: McDonald has its own suppliers for every type of raw material in order to maintain the product quality and the supplier cost.

• Employment Strategy
Hiring and training inexperienced employees to lower the wages expense. In addition, McDonald only hired small amount of
trained managers and trained chef. McDonald provide training for inexperienced employees.

2. Activities that affect WTP and Cost for Mcdonalds


- Digital marketing plays important role to enable McDonald have better brand image in which will affect the WTP itself.
Since employee wages and salaries cover more than one third of the total expenses, McDonald strategy to hire inexperience
employees will lower the operational cost of it.
2-1. Firm-Level Analysis (I)

A high number of QSR 


Regional healthier life higher-quality
chains in the : Quick Service
variations choices food
world Restaurant

over 2 million
Nutritional  custom-made adults ranging from
different sandwich Casual fast
content sandwiches ages 18 to 34
options
2-2. Firm-Level Analysis (II)

Cost Leadership Differentiation

Broad
Market

Narrow
Market
2-2. Firm-Level Analysis (II)

Step #1: Subway’s key activities


• Subways fast food varies from other fast food chains in that it is a more healthy option that is made to each person's specifications.
• Subway has been careful not to alienate any consumer's preference by offering options that include regular sub sandwiches,
low-fat options, Atkins friendly wraps, salads, snacks, and desserts.

Step #2: Subway’s activities affect Cost & WTP


• Prices are slightly higher than common fast-food price points, but justifiably so, given consumers' repeated willingness to pay a little
bit more for food they consider fresh.
• As consumer habits shift to healthier lifestyle choices, organic, fresh and non-GMO components are associated with higher prices.
So subway affect high WTP and Cost.

Step #3: Subway is less profitable that the industry average


•Subway is more less profitable that the Mcd. Subway restaurants generate less revenue than McDonald's units. A Subway
restaurant, on average, generates $417,000 in sales annually, compared to $2.7 million in average annual revenue for McDonald's
restaurants, according to QSR magazine. Subway also charges its franchisees hefty ongoing fees— 8 percent of gross sales
2-1. Firm-Level Analysis (I)

Chicken
Strong ties with
Secret Strong Brand Package Products
suppliers and
recipe Image menus (Vegan, non-
partners
vegan)

 
Technology
Crowd funding
Nutritional Regional Advancements Targets adults and
on Indiegogo;
content variations (voice-activated young audience
Innovation
training test)
2-2. Firm-Level Analysis (II)

Cost Leadership Differentiation

Broad
Market

Narrow
Market
2-2. Firm-Level Analysis (II)

Step #1: KFC’s key activities


• KFC targets families and groups of people since they offer meals for sharing

Step #2: KFC’s activities affect Cost & WTP


• KFC focuses on promoting its Original “Secret Recipe”, which may increase consumers’ willingness to pay by influencing the
perception of how consumers view their recipe to be special and unique.
• Centralisation and localized supply chains help to reduce production cost.

Step #3: KFC is more profitable that the industry average


•KFC is more profitable than the industrial average because it is able to maintain a wedge between the WTP and cost of production.
2-3. Assessment of Strategic Issues

Key Challenge : Healthy eating trends


• Although Mcdonalds have achieved profits above industry average, it should be aware that
the trend of healthy eating is the key to whether the firm is able to sustain its profits.

• There are many other fast food companies such as Subway that are perceived to be much
healthier than Mcdonalds.
Analysis of Corporate Strategy
Horizontal Scope
Mcdonalds is more horizontally diversified than the average firm in the industry.

Increasing WTP/
Reason
Decrease Cost

Mcdonalds owns a large Economies of Scale:


number, of about 13,841
restaurant outlets in the
Decrease Cost High production capacity and bulk purchases 
United States higher profit margins

Economies of Scope:
Mcdonalds have a diversified 1) This allows the company to spread its fixed costs
product line that offers a across the different product lines, enjoying higher
range of products such as Decrease Cost profit margins.
burgers, fries, shakes and 2) It also has a diversified revenue streams in the
salads. form of fast food, McCafe outlets and real estate
business (lower rental expense  variable cost)
3-1. Issues in Corporate Strategy
Horizontal Scope
 Overall, is the horizontal scope of the firm sensible?
• Do you think that the current horizontal scope of the firm helps provide the firm with advantages relative to
its rivals Why or why not?

• It provides the firm with advantages relative to its rivals in the form of having an alternate revenue stream
real estate business.
• This lowers cost in the form of variable rental cost for its Mcdonalds outlet as opposed to leasing the land.
3-2. Implications from Corporate Strategy Analysis
Horizontal Scope
 What do you think are the key horizontal scope issues facing your firm?

• Diversification of Mcdonalds’ menu range


• Mcdonalds have introduced healthier food options in its food chains, such as salad options
However, their salads actually contains approximately the same amount of calories than a Quarter
Pounder with Cheese; its salad dressing has a large amount of calories

 it is not as healthy as it seems


Issues In Corporate Strategy
Vertical Scope
Increasing
WTP/ Reason
Decreasing
Cost
Strategic Alliances: 1) Offered business advice to Mcdonalds to sell extra value meal in
Coca-Cola 1993  Increases WTP since bundle would seem to be more
Partnership to serve coke in all worth its price (Ala Carte vs set price)  Cross-selling (Bundling)
Mcdonalds’ restaurants Increasing
WTP 2) Coke delivers its syrup in stainless steel tanks that ensure its
freshness instead of plastic bags (the norm), creating what many
believe is the best Coca-Cola available  perceived increase in
quality
Agreements with food Enforces high food safety and quality standards (Quality Control)
suppliers Increasing
Examples: Lopez Food (Beef), WTP
Keystone Foods (Fish and Meat)
Real Estate Business Decrease variable cost (rental)
The company owns about 45%
of the land and 70% of the Decrease cost
buildings at their 36,000+
locations
3-1. Issues in Corporate Strategy
Vertical Scope
 Overall, is the vertical scope of the firm sensible?
• Does the firm’s current vertical scope provides it with advantages relative to its rivals? Why or why not?
• Yes. Many of its rival companies, for example, Subway, have partnership with Coca Cola. By being a
market leader and one of its largest customers, Mcdonalds managed to have a unique strategic alliance
with another huge company, Coca Cola. This provides competitive advantage as the partnership is
exclusive.

• It is difficult to completely vertically backward integrate to produce and manufacture individual


food supplies as it would not be able to specialize in each ingredient production to minimize cost.
3-2. Implications from Corporate Strategy Analysis
Overall, what are the most important recommendations can you make to the firm to
help it address its corporate strategy issues in the future?

• If Mcdonalds would like to better promote its healthier choice options in order to compete with firms in
the recent healthy eating trends, it should work on coming up with better cooking methods or healthier
recipes to encourage the health-conscious public to consume it.

• Continue having more stringent checks on suppliers.


3-2. Implications from Corporate Strategy Analysis
Vertical Scope
 What do you think are the key vertical scope issues facing your firm?

• Since Mcdonalds do not produce its own food products and purchase their from suppliers,
it may be difficult to control the quality of food provided by the suppliers
• Mcdonalds have ongoing programs to educate employees about food safety practices
• Mcdonalds closely with suppliers to encourage innovation and drive continuous improvement
• Although Mcdonalds are doing the above, there is still risk from suppliers
• Example in China Market, supplier scandal in 2014: Provided expired meat to Mcdonalds
Advanced Strategy analysis
4-2. Key Issues in Technology Strategy

• What role does innovation play in your industry?


– Introducing drive-thru and Kiosk makes customers to order fast and convenient.

• S-Curves
– Nowadays many fast food restaurant are changing their system like McDonalds considering
digital order system and drive-thru altogether

– McDonalds has been a leader of in this industry because they have introduced systemed
franchising trend giving customers more convenient methods to order and eat.
4-2. Key Issues in Technology Strategy

• Complementary Assets
– Are complementary assets important for capturing profits from innovation in your firm’s
industry?
: To capture value and be in a good bargaining position Complimentary assets are important to
our business.

– What are the key complementary assets in your firm’s industry?


: McDonalds has good fries and a strong brand image.

– Do you think that your firm is in a position to capture the profits associated with
innovations in its industry?
: It has exclusive suppliers with good negotiation and ensures for franchisee be in a good
position with media companies and advertisement agencies.
4-3. Corporate Social Responsibility

• CSR issue associated with Mcdonalds :

- McDonalds tripled the mount it pays for college tuition for employees
- McDonalds is investing $150 million over 5 years in its “Archways to Opportunity” programme
- Since 2015 eligible employees could get $700 per year for tuition.
- Now managers can get up to 3000$ while crew members 2,500$
- To qualify for this programme employees needed to work 20 hours per week for 9 months
consistently now it is decreased to 90 days and 15 hours per week
- This programme also offer online high school and college advisory service for family members
- This plan stated in May 1, 2018 and it could assistance to 400.000 employees
4-3. Corporate Social Responsibility

• Assess whether Mcdonalds behavior with respect to this issue is:


M. Friedman Ed Freeman
- Renewable energy investments: wind farm and solar Company Company
farm
- The Project estimated to supply more than 2,500 Profit Stakeholders
restaurants with electricity
- It will prevent 700,000 metric tonnes of greenhouse Shareholders Profit
gas which is equivalent to planting 11million trees or
taking over 140.000 cars of road for a year
- Progress is estimated to reduce greenhouse gas McDonalds Employees Customers
emissions by 36% from McDonalds restaurants and
offices

Communities Investors
4-4. Implications from Advanced Strategy Analyses

• What are the key issues that arise in the Technology Strategy analysis?

– Kiosk ordering: McDonalds is focusing on this new technology for boosting their sales making their services
more fast. So eaters at any McDonalds are not needed to wait unbearable long line anymore.

– 24/7 on-line ordering by smart phones : This technical issue is one of their advantage to serve their meals to
customers even in late night, so customers can enjoy McDonalds whenever they want by easy way.
Issue identification
5-1 . Issues

Customer Employee
• Unhealthy meals • Sexual harassment from manager
• Changing diet preference of • Physical violence from customer
Youth generation
Recommendations
5-2. Recommendation

• Increase the quality of core menu of Mcdonalds (l.E Bigmac)


• Providing more Healthier meal options through replacing low demand menu
• Innovative marketing of campaign
• Lower the price through maximizing self-ordering system
• More effective training on ethical conduct in work place for stake holders
• Creating equitable sanction for breaking ethical conduct
Bibliography
6. Bibliography
• Ambrosesmith, /. “McDonald's 'Think Global, Act Local' Pricing Approach.” T1 2016 MPK732 Marketing Management
(Cluster B), May 2, 2016. https://mpk732t12016clusterb.wordpress.com/2016/05/02/mcdonalds-think-global-act-local-
pricing-approach/.
 
• Bhasin, Hitesh, and Rabia. “Marketing Strategy of KFC - KFC Marketing Strategy.” Marketing91, December 16, 2017.
https://www.marketing91.com/marketing-strategy-of-kfc/.
 
• Box Around The World. “McDonald's Supply Chain Management Is The Secret to Their Success.” Box Around The World,
March 14, 2019. https://boxaroundtheworld.com/mcdonalds-supply-chain-management/.
 
• Carsten, Brenda Goh and Paul. “The McDonald's Meat Supplier Scandal In China Keeps Escalating.” Business Insider.
Business Insider, July 23, 2014. https://www.businessinsider.com/mcdonalds-china-food-supplier-scandal-2014-7.
 
• “Commitment to Quality: Our Sustainability Goals: McDonald's.” Commitment to Quality: Our Sustainability Goals |
McDonald's. Accessed December 6, 2019. https://www.mcdonalds.com/us/en-us/about-our-food/our-food-
philosophy/commitment-to-quality.html.
 
• Econsultancy. “10 Brilliant Digital Marketing Campaigns from McDonald's.” Econsultancy, January 23, 2019.
https://econsultancy.com/10-brilliant-digital-marketing-campaigns-from-mcdonald-s/.
6. Bibliography
• Jones, Meghan, and McDonald. “The 10 Bestselling McDonald's Menu Items-Ever.” Reader's Digest. Accessed
December 6, 2019. https://www.rd.com/food/fun/bestselling-mcdonalds-menu-items/.
 
• Kentucky Fried Chicken. “KFC U.S. LAUNCHES NEW CROWDFUNDING CAMPAIGN TO TURN THEIR CRAZIEST
MARKETING IDEAS INTO A REALITY.” KFC, March 5, 2019. https://global.kfc.com/press-release/kfc-us-launches-new-
crowdfunding-campaign-to-turn-their-craziest-marketing-ideas-into-a-reality.
 
• Khandelwal, Rekha. “How McDonald's Wages and Major Costs Stack Up.” Market Realist, November 15, 2019.
https://marketrealist.com/2019/11/how-mcdonalds-wages-major-costs-stack-up/.
 
• Kline, Daniel B. “Fast Food Future: Your McDonald's Experience Is about to Change.” USA Today. Gannett Satellite
Information Network, May 2, 2018. https://www.usatoday.com/story/money/restaurants/2018/05/02/your-
mcdonalds-experience-is-about-to-change/34473093/.
 
• Littman, Julie. “4 Challenges McDonald's New CEO Must Overcome.” Restaurant Dive, November 12, 2019.
https://www.restaurantdive.com/news/4-challenges-mcdonalds-new-ceo-must-overcome/567117/.
6. Bibliography
• Maze, Jonathan. “KFC Pushing New Technology for Its Workers.” Restaurant Business. Restaurant Business,
September 5, 2018. https://www.restaurantbusinessonline.com/workforce/kfc-pushing-new-technology-its-workers.

• “McDonald's Has One Supersized Challenge to Overcome in America.” Yahoo! Finance. Yahoo!, February 6, 2019.
https://finance.yahoo.com/news/mc-donalds-has-one-supersized-challenge-to-overcome-in-america-
175625959.html.
 
• Miner, Karen. “The Untold Truth of McDonald's Salads.” Mashed.com. Mashed, August 24, 2018.
https://www.mashed.com/131996/the-untold-truth-of-mcdonalds-salads/.
 
• Page, Vanessa. “What Consumers Want From McDonald's.” Investopedia. Investopedia, December 4, 2019.
https://www.investopedia.com/articles/investing/102715/what-consumers-want-mcdonalds.asp.
 
• Rigby, Mark. “McDonald's Faces Significant Challenges in Bid to Serve AI with Fries.” Phys.org. Phys.org, April 4,
2019. https://phys.org/news/2019-04-mcdonald-significant-ai-fries.html.
 
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Thank you!

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