Case Study of McDonald's including SWOT analysis

Essay by ehpopeCollege, UndergraduateA+, October 2008

download word file, 14 pages 5.0

IntroductionIn the early 1940's, two brothers opened a burger restaurant that was based on standardized preparation called the Speedee Service System. This "burger restaurant" is now globally known as McDonald's. In 1976, McDonald's introduced the breakfast menu as a way to diversify sales and product selection. Today this multinational corporation serves nearly 54 million customers every day in 120 countries around the world.

McDonald's first international venture was in Richmond, British Columbia, during 1967. Two of McDonald's main products were introduced in 1968, the Big Mac and the Egg McMuffin Sandwich. When the first McDonald's opened in Hong Kong in 1975, they were the first restaurants to consistently offer clean bathrooms, which drove customers to demand the same standards of other restaurants and institutions.

McDonald's continually builds its brand by receiving customer input. This is why McDonald's is known as one of the most recognizable brands in the world. This case study illustrates how McDonald's marketing process works and how they overcome problems in the process.

This case analysis will include a SWOT analysis of McDonald's, which looks at the internal environment of strengths and weaknesses and the external environment of opportunities and threats. It then examines alternative solutions to correct weaknesses, threats, and opportunities and concludes with recommendations with exact steps and a brief conclusion.

S.W.O.T. AnalysisThis analysis was developed from the McDonald's website and various other online sources. Other information was provided by the textbook, Organization Behavior by Robert Kreitner and Angelo Kinicki. SWOT stands for internal Strengths and Weaknesses and external Opportunities and Threats. It will illustrate the opportunities and threats in McDonald's current environment, and compare it to their internal strengths and weaknesses. We will then discuss creative strategies to align their internal environment with their external environment and provide multiple alternatives and a recommendation.

Internal AnalysisMcDonald's Corporation is a multimillion dollar global business because of the fact their strengths greatly outweigh their weaknesses. McDonalds is known globally because it is dedicated to the unparallel levels of quality service, cleanliness and values. McDonalds is also globally known because it is financially sound and recognized by the Fortune 500 and the Hoovers 500. We will provide the strengths and weakness of the McDonalds Corporation. We will also show the effect they have on their expansion throughout the globe and the direct impact it has on their financial records. This will be presented in descending order of importance throughout the strengths and weaknesses.

McDonald's SWOT AnalysisStrengths1.The Company's developed global strategya.60% of McDonald's sales and all of its top 10 restaurants, (in terms of sales & profits) are now overseas.

b.McDonald's adapts to each country's specific needs & cultural differencesi. For example: In Japan, McDonald's had to substantially adapt it's original U.S. style menu to include a McChao(a Chinese fried rice dish). When McDonald's introduced rice meals in Japan, sales jumped 30% in one year, and it continues to innovate in Japan with Teriyaki McBurger and Chicken Tatsuta.

ii.The menu price has been adapted for each country.

iii.The average Big Mac price for the U.S. is $3.00; China $1.26; Switzerland $5.64c.In 2005 McDonald's was ranked 8th out of the top 30 global brands.

2.Adaptation to cultural preferences and trendsa.Within the past 3 years, McDonald's has made several adaptations to their strategy by adding a more appealing breakfast menu, specialty coffees, and healthier menu options.

b. McDonald's has also managed to adapt their individual franchises to the current trends and concerns in their individual geographical locations, simultaneously cutting costs.

i.For example: In Europe, McDonald's discovered that children were content with a simple word puzzle on a menu tray or a small stuffed animal and did not require more expensive Happy meal promotions that they used in the U.S.

c.This year the world's largest restaurant chain, with 31,000 locations, will spend $1.9 billion to open 800 restaurants and reinvest in existing locations.

3.The company's attention to global health concernsa.McDonald's menus offer a variety of food products that can fit into balanced, active lifestyles. Restaurants typically serve several types of hamburgers, grilled and fried chicken products, and fish and, in many cases, salads, fruits, and additional sandwich options.

i.Many European countries have launched Salads Plus menus, including meal-size salad choices, a side salad, fresh fruit bag, and other options.

ii.McDonald's Canada offers Toasted Deli Sandwiches.

iii.McDonald's Hong Kong has a Fresh Choices Menu, with two salads and fruit yogurt.

iv.McDonald's Australia offers a QuickStart breakfast menu, including a choice of cereals, juices, reduced fat or nonfat milk, and yogurt.

v.McDonald's Taiwan serves a Toasted Rice Burger.

vi.Apples are served whole or with other foods in more than 20 countries around the world.

b.Many local business units are adding new salad, fruit, and vegetable offerings.

c.Local business units are also expanding Happy Meal choices to include new sandwich, side, and beverage alternatives. These reflect a System-wide goal of ensuring that Happy Meals remain a choice moms feel good about and children enjoy.

4.The Company has high environmental standards:a.Delivery Vehicles which can carry fresh, frozen and chilled food have resulted in fewer deliveries, enabling them to reduce diesel costs and fuel emissions. Also, fixed delivery schedules reduced the distance traveled in 1993 by 310,000 miles.

b.Each McDonald's restaurant is carefully designed individually to fit into its local environment. This means listening to local concerns, fitting in with local scenery and landscaping drive-thru restaurants. Over 120 McDonald's restaurants are in conservation areas and over 30 are in Grade II listed buildings.

c. McDonald's uses a minimum of 50% recycled content in corrugated cardboard boxes and ask that their suppliers do the same. All McDonald's food boxes and cartons are made from 72% recycled material, carry out bags are unbleached and made from 60-80% recycled material, while napkins and tray liners are 100% recycled paper. Additionally, all their picnic benches, drive=thru lane traffic bollards and most of the fencing panels are new restaurants are made from recycled polystyrene.

d. McDonald's have made a commitment that, by 1995, they had reduced the volume of solid waste by 50%. They achieved this by using the three R's: Reduce, Recycle and Reuse.

5.High percentage of minority employmenta.McDonald's has the largest number of minority and female franchisees in the quick service industry.

b.More than 40.7% of all McDonald's US Owner/Operators are women and minorities.

Weaknesses1.Worker shortagea.In all employment areas, there is a high demand for qualified workers.

b.A new development that is creating even more employee demand is the new immigration laws for the country and state.

2.Employee turn-overa.It is difficult to keep the employees already employed with McDonald's.

i. McDonald's has a turnover rate of about 35 to 40 percent.

b.People consider working at McDonald's embarrassing and look for employment elsewhere.

c.Minimum wage doesn't keep good workers around.

i. $5.85 per hour beginning July 24, 2007ii.$6.55 per hour beginning July 24, 2008iii.$7.25 per hour beginning July 24, 20093.Customer trends change and so do their choicesa.Quality and taste of products is declining.

b.People are generally tired of the same brands that they had been using over the years, so when they do not see the expected innovation they migrate to new brands.

c.People see McDonald's every where and this over exposure might also be a reason for abstinence. Moreover maintaining the standards of such a huge chain becomes feasible and when there is lack of quality service in one store it effects the whole brand.

External AnalysisThe constant improvements in technology and the competitive marketplace challenge McDonald's with many opportunities and threats. McDonald's has a great management team that constantly looks for new opportunities because McDonald's is the industry standard on technology. Other opportunities for McDonald's would be to expand to all developing and developed countries around the world.

Among the current and future threats, there are thousands of fast-food chains in the world, most of the new fast-food franchises are concentrating on having a healthy image, so therefore McDonald's needs to continue to improve their healthy choice menu. This will be presented in descending order of importance throughout the opportunities and threats.

Opportunities1.New Technologiesa.Computers that are also tablesi.These computers that are also tables will be very handy because people do not like standing in lines and having to wait to order. Now all customers have to do is find a table and sit down and start ordering. This will pay off even more because customers will be able to special order their food easier which will in-turn reduce the mess up orders because customers will do it themselves.

ii.These computer tables will also make it very easy for customers to pay for their food or even split the bill if they want to. All customers will have to do is lay their credit card or debit card down on the table and then pick what food you want to pay for and drag it over to where your card is laying and then click ok that is correct then use your finger to sign for the bill.

2.International Expansion and Franchisinga.There are only 17,000 McDonald's around the world and only located in 119 different countries.

i.There are 194 countries in the world and McDonald's has lost of room to expand there restaurants to new countries.

ii.McDonald's main concentration of expanding is in the ever growing in population of China. McDonald's wants to build as many drive thru's there as possible for the fast passed living. They have done research that there are 30,000 filling stations to put them in.

b.Selling corporate owned McDonald's and turning them into franchises at home and abroad.

i.Sold 18 businesses in Latin America and the Caribbean's. As a result these two countries will in turn franchise 1,600 restaurants.

3.New Food Items and New Programsa.Here in America we are accustomed to one of the programs that they are trying to add all over the world. This would be known as the dollar menu. In Europe they are calling it the "Eurosaver", China has the RMB 5, and Latin America features the McMenu.

b.In Latin America they are experimenting with something called McAhorro. This is a program of special pricing of certain products during certain times of the day or on carious days of the week.

c.In Egypt their McDonald's are trying something completely new to McDonald's and this is having a carryout. Other countries also doing this now are Turkey, Hong Kong, and Southeast Asia.

d.New food items that became popular in Latin America are the McCafe coffee and dessert concepts. Which are Expanding to other McDonald's in other countries to see how they fair.

e.New Healthy Foodsi.Toasted deli sandwiches have now been put on a couple of McDonald's menus in Canadaii.McDonald's are starting to cook their French Fries in healthier oils and finding ways to cook their hamburgers to have less grease in them.

iii.Mediterranean - inspired Pitamac, a square pita bread sandwich that is open at the top and filled with spiced beef, grilled vegetables or chicken.

iv.Introducing veggie burgers to more of their restaurants.

v.Introducing water-based instead of oil-based salad dressings for their new premium salads.

vi.Introducing healthier option with their meal instead of fries such as: salads, baked potatoes, yogurt, fruit, ect.

Threats1.The biggest threat for McDonald's domestically is the lack of growth opportunitiesa.The market in the United States is well saturated and there is not a whole lot of room for growth.

2.Healthier eating habits.

a.People are more worried about their health in today's society than they have ever been. McDonald's has introduced salads and other low fat items but it is hard for people to make the switch because the other food that McDonald's offers tastes great.

3.Fast food restaurant franchises as upcoming competition.

a.The biggest competition would be taco and burrito franchises. This would be a threat because individuals get tired of eating hamburgers and fries and they want something different.

b.McDonald's has the upper hand on most fast food restaurants because they serve breakfast. Recently Taco Bueno has added a breakfast menu and that could also be a threat for McDonald's.

4.Terrorisma.With McDonald's being a big retail food store with a lot of customers in the store daily.

b.This could be a major threat not only to the store itself but to its customers also.

5.Global Competitiona.Through out the globe McDonald's is facing more and more competition because of other fast food chains entering the global markets.

i.Burger King is the number two burger chain. It is located in over 65 countries now. In the US alone it has more then 11,200 locations.

ii.Subway is the second largest quick serving restaurant. It has an astonishing 27,700 location abroad spanning over 85 countries. Another huge threat that this makes is that it now has more locations in the US than McDonald's.

b.With global expansion McDonald's not only has to deal with other abroad competitors but the own countries fast food chains. McDonald's also has to get accustomed to the local eating habbits and taste so they will be able to satisfy their wants and needs. This means McDonald's will have to come up with new menu items for each country to fit their customs.

i.Items that they have came up with to fit the taste and customs of consumers in Japan was to introduce the Mega Teriyaki Burger and the Triangle-shaped Mango Custard Pie.

AlternativesAlternative 1- Technology UpdateImproving and Buying New Technology - McDonald's has been improving many things at their restaurants in the past couple of years such as: remodeling, new menu items, and a drive-thru order speaker that shows you what you have ordered. McDonald's needs to make sure that they deep up with today's society and the new technology. One of the newest technology that McDonald's needs to consider purchasing is called Microsoft surface. This new technology well not only cut down on employee cost but it will help them keep up with the new way of life that time is money.

ProsA. With Microsoft Surface computer tables in place it will make business quicker.

i. People can sit down and order their food at the tablesii. There will be no waiting in lines which in turns saves people time.

iii. Customers can pay at the end of their meals incase they want more food after their first order instead of going and standing in line again.

B. Offer more things to do while waiting on your food and after you are done eating.

i. Microsoft Surface also offers things to entertain your kids such as playing music to painting with their fingers.

ii. Business people will find it handy because they can get on the internet and find thing they need or to get directions to their next destination and then can transfer it to their phones of PDA's.

iii. Will older people like the new technology because it will be something new to them and will have to learn how to use it properly.

ConsA. Microsoft Surface will be brand new technologyi. The cost of Microsoft Surface will have a very expensive price tag along with it.

ii. Since it is a new product this means it will still have a few bugs in it that have not been found or worked out.

B. How reliable with this new technology bei. Seeing how this is going to be used not only to order off of it will as be used as a table to eat and drink off of. Will the Surface be durable enough to handle messy food and drinks that will be spilled on it?Alternative 2- Improve Healthy menu OptionsMore Attention for America's Healthy Menu Options- McDonald's has been successful in adding healthy menu options around the globe. However, throughout our study we have found that the healthy menu options for Americans are quite limited, and even more limited for the children in the United States.

The PlanA.We feel that adding some healthy menu combination meals would really improve McDonald's sales. Americans don't want just a salad or chicken wrap as a meal, so why not add a combination meal that includes a salad, wrap, grilled chicken breast, or toasted deli sandwich with their choice of a healthy side, such as a fruit salad, yogurt, vegetables, or baked potato.

B.Don't forget about our children. Mom's aren't just concerned about what they are putting in their mouths, their children's health is just as important. If a mom can go to McDonald's and get a healthy meal, but there isn't anything healthy to feed her children, most likely she's going to choose a competing fast food franchise. Happy meals need to have options such as, a beef pot pie, turkey sandwich, or grilled chicken fingers. Choices of sides could include a healthy macaroni and cheese, vegetables, fruit & marshmallows, or even cottage cheese and strawberries. McDonald's could also really score some big points with parents if they added healthy lifestyle tips for kids on the happy meal sacks, or provided toys that promote exercise.

Pro'sA.American's love variety and choices. That's exactly what this plan is giving McDonald's customers. Variety and healthy choices will not only satisfy current customers, but it will attract more business.

B.One of McDonald's biggest customer bases is America. Providing these options for this customer base will also increase their profit intake.

C.This plan also shows the people in the U.S. that McDonald's cares about their customers concerns. This is just one more way to attract business.

D.Since the release of the movie "Super Size Me" McDonald's has been known as the fast food restaurant that makes Americans fat. The best way to improve this bad image is to implement the healthy menu options in America.

Con'sA.Adding more options to a menu also means adding costs for the business. It is more expensive to keep vegetables and fruits fresh than it is to keep the food they currently serve fresh.

B.Even though American's are very concerned about their health, there is a large number of people who don't want to do anything about it. People aren't looking to be healthy when they go out to eat at McDonald's, and because of that, the new healthy food options may not sell as well as other well established items on the McDonald's menu.

Alternative 3 - Increasing WagesIncrease starting wages and implement frequent raises - McDonald's has always been considered one of the worst paying jobs with the lowest skill level. Even though the working conditions are favorable, qualified workers do not want to work at McDonald's because it is embarrassing, but mainly because McDonald's does not pay their employees enough. We think starting salaries should be increased as an incentive to want to work for McDonald's and turn the job into a career.

ProsA. More dependable employees as applicants.

i. The country is experiencing a huge worker shortage, but not only a worker shortage, but qualified, dependable workers. This alternative should help remedy that situation.

ii. With higher starting wages and frequent raises for the employees, there should be a less percentage turn-over rate. If the employees are happy, they won't be looking for other positions elsewhere.

ConsA. This increase will cost the corporation more financially.

ii. This could limit the amount available in dividends to stockholders hurting future investments.

RecommendationsTechnology updateIn order to remain in competition with not only fast food restaurants, but other restaurants as well, McDonald's will have to keep up with the growing technological society. This means taking advantage of any fast food advances that pertain to their area of service. The new technology will have to keep the pace of today's fast moving society, in which time is money.

A specific technology that we recommend McDonald's take advantage of is the Microsoft Surface computer tables. This technology will be costly, if implemented in metropolitan area's it will be beneficial to not only the corporation, but also to McDonald's customers. Microsoft Surface computer tables will increase the contribution margin of the corporation by saving time, money, and order errors.

McDonald's should gradually begin the implementation of the Microsoft Office table in major cities throughout the globe. As McDonald's begins to reap the benefits, and work out the kinks of the tables, the corporation should gradually apply this product throughout smaller restaurants.

This process will be very slow moving and costly, but it is key in ensuring McDonald's continued domination in global fast food service.

ConclusionsIn today's fast paces, highly technological society McDonald's has been able to stay on top of the fast food service industry, while providing quality service, and timely deliverance of food. It is not an easy task to stay on top of technologies and changing tastes of customers. McDonald's will need to continue to research the changing eating habits and styles to attract new customers and keep the business of current customers.

McDonald's has proven it's concerns for customers and employee's by experimenting with new facilities and foods they are proving to society that they are concerned with not only their health but their prosperity. McDonald's has a very promising future ahead of them and if they continue to adapt to society and new technologies.