Description of the company/industry
McDonalds
McDonalds happens to be a premier global retailer of food services with presence in more than 100 countries (World Branding Forum, 2019). According to World Branding Forum (2019), the Retailer (McDonalds) has an excess of 36,000 locations globally and employs 1.8 million workers. Most of the global McDonalds franchises (approx. 80%) are operated and owned by business people operating independently. McDonalds serves various menu options with outstanding quality ingredients. The restaurant enjoys an upwards of 25 million customers each day. Close to 90% of the 14,000 McDonalds restaurants in the U.S. are operated and owned independently (World Branding Forum, 2019). There are close to 1,200 United Kingdom McDonalds restaurants serving close to 3 million people each day. The McDonalds brand employs approx. 97,000 workers in the UK and has invested more than £40 million on development and training every year (World Branding Forum, 2019).
McDonalds offers he culture of opportunity, diversity, opportunity, and flexibility to her people (World Branding Forum, 2019). The restaurant operates as an important component of the locally served community. The restaurant is involved in the support and championing of various community activities including charity events, local games, and picking of litter. McDonalds supports British agriculture and sources approx. 55% of the food ingredients from Irish and British farms (approx. 17,500 farms) (World Branding Forum, 2019). McDonalds is known for supporting local community football. For more than a decade McDonalds has encouraged and supported young people to engage in football through increasing local club standards. From 2002 the restaurant has been partnering with 4 football associations in the UK (World Branding Forum, 2019). In the time McDonalds has been able to develop more than 20,000 football coaches in the UK and assisted in the increasing football standards in more than 6,000 local clubs (World Branding Forum, 2019).
McDonalds has committed itself long-term in the Olympics. The involvement of the restaurant in Olympics began in the year 1968 when the United States athletes longed for American food. McDonalds airlifted their hamburgers for the athletes to Olympic village (World Branding Forum, 2019). McDonalds began to officially sponsor the Olympics in 1976 during Montreal games. The Olympic sponsorship by McDonalds lasted until the 2012 London Olympics (World Branding Forum, 2019).
Analysis of the operations/supply chain process
The supply chain of McDonalds details the complex nature of the indirect and direct suppliers. The complex system is managed by way of working with the direct suppliers sharing the same vision, values and aspirations of sustainable Supply as McDonalds (McDonalds, 2019). McDonalds holds their suppliers to clear sustainability, efficiency, safety, and quality standards. The expectation is that the suppliers will extend the same requirements to the entities that supply them. McDonalds also partners with suppliers for the purpose of identifying, addressing, and understanding sustainability challenges while achieving continuous process improvement (McDonalds, 2019). McDonalds alongside the suppliers collectively focus on the three fundamental areas of ethics, responsibility, economics, and environment. The focus areas of the McDonalds supply chain includes: sustainable fisheries, workplace accountability for the suppliers, welfare and health of animals, and sustainable management of land resources (McDonalds, 2019).
The sustainable supply chain vision is that profitability will yield safe products and high quality without the interruption of supply while leveraging the leadership framework for the purpose of creating overall benefit through enhanced ethical, economic and environmental outcomes (McDonalds, 2019). On ethics McDonalds envisions purchasing products from suppliers who ascribe to practices that guarantee safety and health of employees as well as the humane handling of animals through the supply chain (McDonalds, 2019). On environment McDonalds envisions influencing material sourcing and making sure that product designs, manufacture of products, their distribution and the use of those products is in such a manner that minimizes life-cycle consequences for the environment (McDonalds, 2019). On economics McDonalds envisions delivering foods that are affordable, participating in trade practices that are equitable, minimizing the growth and spreading of agriculture related diseases, as well as influencing the community within which suppliers exist positively (McDonalds, 2019).
McDonalds views their responsibilities and vision holistically. During the making of decisions on sourcing McDonalds considers costs, quality, and food safety and most importantly economic, environmental, and ethical responsibilities. McDonald’s global stand on coffee and beef sustainability is a demonstration of how the restaurant is resolute on breathing life onto this approach (McDonalds, 2019). The supply chain of McDonalds comprises various regional and local supply chains globally. These supply chains are interlinked through the policies, strategic framework and the McDonald department of global supply chain (McDonalds, 2019). As a way of guiding the oversight and creation of sustainability related issues McDonalds created a global structure of governance in 2007. The structure is referred to as the SSSC (Sustainability Supply Steering Committee) (McDonalds, 2019). SSSC has the responsibility of steering McDonalds towards the sustainability supply vision through identification of global priorities and making sure that progress is achieved in various ways which complement local efforts and priorities (McDonalds, 2019).
In addition to this each leader in global products for the purchase of products like potatoes and beef leads the way in the inclusion of sustainability initiatives for products (McDonalds, 2019). McDonalds has consistently worked with advisors, suppliers, and other relevant industries for the purpose of ensuring that the suppliers have an awareness of the relevance of sustainability. McDonalds also supports efforts for stakeholder development in order to enhance the production of raw materials with better sustainability.
Description of strategic issues/problems/challenges
In recent times McDonalds has faced tough challenges. The revenue of the restaurant has had some inconsistencies. McDonald’s has been fighting to regain its relevance and this has caused some of the foods to be thrown out and some ingredients introduced in the past few years (Ovenden, 2019). These attempts have made McDonalds to look very desperate. The restaurant is facing more challenges including pressure for upward wages, strengthening US dollar and the growing trends towards healthy eating habits. These are challenges expected to affect McDonald’s bottom line (Ovenden, 2019). Despite the challenges McDonalds has a lot to be proud of. Despite everything McDonalds has enjoyed one of the best supply chains. McDonalds has been ranked as having the second best supply chain in the top 25 Gartner’s Supply Chain for four consecutive years until 2016 (Ovenden, 2019). McDonalds handles more than 69 million global customers on a daily basis in their 36,000 restaurants found in more than 100 countries (Ovenden, 2019). The restaurant contends with the goal of never running missing an item ordered by a customer and the restrictions encompassing delivery.
McDonald’s has been an iconic global provider of food services although the challenges have also been conspicuous as well. McDonalds has had critical reviews in business pages culminating in the departure of their CEO (New, 2015). Restaurant chains such as Shake Shack, Chipotle, and Panera offer food brands that promise health, freshness and trustworthiness in the sources (New, 2015). McDonald’s is the victim of the emerging healthy eating culture. Governments and boards have made it a requirement for restaurants to explain the source of their supplies. The supplier closure and port slowdown at McDonalds occasioned safety concerns for their foods globally and resulted to shortage of supplies which impacted on sales directly (New, 2015). Many factors led to the replacement of McDonald’s CEO although the unprofessional management of supply was one amongst the many reasons that led to the replacement (New, 2015). The woes at McDonald’s provide important lessons concerning transparency of the supply chain.
One of the lessons is that problems with reputation are hard to reverse (New, 2015). There are few firms that have been faced with issues of reputation. McDonald’s has worked hard to reverse these problems. The restaurant has made substantial changes both on communication and practices (New, 2015). McDonald’s has revamped their production and sourcing processes and hired celebrity Grant Imahara to offer customers a documentary account of these processes (New, 2015). McDonald’s has made commendable efforts at revamping their image. Bad reputation woes may, however, not vanish that easily. Some cynical customers of the middle age have convinced themselves that McDonald is a brand that is tarnished. Transparency of the supply chain leads to such a challenge. Bad reputation sticks with customers but when new players come in such as Chipotle customers capitalize on these prejudices and shift their allegiances to the new players.
Reports from McDonald’s indicate that their sales figure in the United States fell by 3.3% (Emirates 24/7, 2019). This was the 4th decline for McDonald’s a leading hamburger chain. On the other hand Chipotle recorded a 19.8% rise in their sales (Emirates 24/7, 2019). McDonald’s has 14,000 locations in the USA compared to Chipotle which only has 1,700 locations (Emirates 24/7, 2019). McDonald’s acknowledges the need to fix the prevailing problems notwithstanding the difficulty involved in trying to boost their sales. Some of the problems faced by McDonald’s as earlier highlighted includes;
Growing competition: Over and above the fact that there are newer players such as Wendy’s and Chipotle who have intensified competition other restaurants are making it harder for McDonald’s to grow (Emirates 24/7, 2019). Taco Bell inaugurated their menu for national breakfast to capitalize on the expanding breakfast market dominated by McDonald’s (Emirates 24/7, 2019).
Bad food reputation: McDonald’s launched a campaign on social media with an objective of involving customers in gathering of information concerning their ingredients. The campaign revealed poor perception and image of McDonald’s foods among the people (Emirates 24/7, 2019).
Poor Flexibility: McDonald’s has been known for being consistent with their foods. These notwithstanding customers are quickly migrating and shifting allegiances to places such as Chipotle that allow customers to tailor their own orders (Emirates 24/7, 2019). McDonald’s started the prep tables in their kitchens to allow the holding of more sauces and toppings as a way of integrating better customization of foods. Recently McDonald’s also started a test program in California where customers can build their burger. People can pick up their bun, toppings, and patty of choice. These changes have been long coming and Chipotle have overtaken McDonald’s in that respect.
Inaccurate and slow service: According to McDonald’s executives own confession the restaurant introduced too many food items in 2018. This slowed down their services leading to inaccuracy in the ordering processes (Emirates 24/7, 2019). McDonald’s indicated that they would be paying more focus on simple menu items highlighting their most popular food items but no specifics were given.
Price sensitivity: It has been difficult for McDonald’s to increase menu prices without pushing customers away. Over time McDonald’s has been forced to swap items such as cheese and beef in their menu because of their escalating prices. The dollar menu was revamped by McDonald’s to include prices ranging to an upward of $5 (Emirates 24/7, 2019). Customers are finding it hard to keep up with the changing prices.
McDonald’s SWOT Analysis
McDonald’s has outperformed the market in recent years even achieving highest growth figures in 2010 (Krull, 2010). Since then there has been a downward spiral in growth although the McDonald brand value has continued to grow as indicated in figure 1 below.
Figure 1
Source: Jurevicius (2019)
Strengths:
McDonald’s has been the most conspicuous restaurant brand in the industry (Jurevicius, 2019). The first McDonald’s restaurant was opened in 1940 and ever since the company has been the largest chain of restaurants by revenue and the most noticeable brand in the restaurant market (Jurevicius, 2019).Forbes has placed McDonald’s brand as the 9th best valuable global brand with a value of US$40 .3 billion (Jurevicius, 2019). There is no other brand in the restaurant industry except for Starbucks that is in the list of the most valued top fifty brands (Jurevicius, 2019). The brand value is a close indicator of the reputation and recognition of the brand. The greater the value of a brand the better it gets recognition globally. McDonald’s has operations in 120 nations of the world currently (Jurevicius, 2019).
McDonald’s enjoys some of the best brand awareness in comparison to other global corporations. It is only KFC that has more operations globally then McDonald’s (Jurevicius, 2019). With brand awareness new products are introduced or sold faster because the company does not have to spend much in advertisement. McDonald’s reputation may have suffered a big blow in recent years although the company has a solid recognition for the innovations in the fast food niche and the business values the restaurant brings into other countries it operates in.
McDonald’s has an expanded menu range including Angus burgers, smoothies, and coffees hence increasing the range of choice for customers (Krull, 2010). The strong presence around the globe insulates the company against one fluctuating currency and/or economy. The strong offering by McDonald’s gives the company better income through recession periods recording strong increase in store sales. McDonald’s enjoys has many global operations and as the second position as one of the largest restaurants in the globe (Jurevicius, 2019). The restaurant has 37,241 franchises spread over 120 countries in the world. Figure 2 below indicates the locations held by McDonald’s globally in comparison to other top restaurant brands.
Figure 2
Source: Jurevicius (2019)
McDonald is the largest Quick Service Restaurant (QSR) globally having US$22.820 billion sales in the year 2017. The size of the network of restaurants has become a strong asset providing advantage over the competition for McDonalds. Some of the advantages include the economies of scale, market dominance over competitors and suppliers, wider customer audience, and huge advantage for the enactment of best practices (Jurevicius, 2019). McDonald’s has the ability to come up with better performance innovations, restaurant management, or hiring of new workforce. The restaurant can also achieve better gains through implementation of best practices in the vast restaurant network.
Weaknesses
The United States market is currently saturated with restaurants hence making local growth impossible. This has left McDonald’s with no choice but to explore international growth opportunities and this has occasioned many cultural challenges (Krull, 2010). The annual hikes in dividend is likely to persist but the growth in dividends has been slumping and may probably continue slowing down or leveling off.
Opportunities
Outside the United States, there are better growth and expansion opportunities and McDonald’s has continued to exploit those growth opportunities. The Chinese market is a remarkable opportunity as well (Krull, 2010). The menu innovation is also open for McDonald’s. The low rates of interest provide cheaper capital for the purpose of growth. The domination of the dollar in debt has led McDonald’s to explore the Yuan bonds in Hong Kong (Krull, 2010).
Threats
The government is considering introducing regulations on fast foods. There is also a growing health consciousness causing people to go for foods that are healthier. McDonald’s is also under strong competition from peers like Burger King, Shake Shack, Chipotle, and Panera (New, 2015). New McDonald’s product must contend with other products from established restaurant players like Jamba smoothies and Starbucks coffee. The increase in commodity price is likely to cause an escalation of costs. A weakening economy may limit the ability of McDonald’s to pass costs to their customers (Krull, 2010).
PESTEL Analysis
Political factors
· More international agreements on trade (opportunity)
· More guidelines on health and diet from governments (opportunity and threat)
· Changing policies in public health (opportunity and threat) (Greenspan, 2018)
Economic Factors
· Stable albeit slow growth in developed countries (an opportunity)
· Speedy growth of developing nations (opportunity)
· Slowing of the China economy (threat) (Greenspan, 2018)
Social Cultural
· Growing trends in healthy living (opportunity and threat)
· Increased diversity of culture (opportunity and threat)
· Busy urban environment lifestyle (opportunity)
· Increasing disposable income (an opportunity) (Greenspan, 2018)
Technological
· Increased e-commerce (opportunity)
· Better automation of business (opportunity)
· Moderate research and development in restaurant industry (opportunity) (Greenspan, 2018)
Environmental/Ecological
· Climatic change in various regions (threat)
· Increased popularization of sustainable strategies in business (opportunity)
· Increased programs in the corporate environment (opportunity) (Greenspan, 2018)
Legal
· more regulations in health both in school and workplaces (threat)
· The rise minimum wage legally hence costing McDonald’s in labor costs (threat)
· More animal welfare programs and regulations (both an opportunity and threat) (Greenspan, 2018)
Conclusion
McDonald’s has remained an attractive restaurant and a valuable holding for investors that are income oriented. McDonald’s is still performing incredibly well despite the spike in their reputation and image. The restaurant should explore healthier alternatives and offer customizable delivery menu services in order to keep up with the competition from Shake Shack, Chipotle, and Panera.
References
Emirates 24/7 (2019). 5 major problems that McDonald’s is facing. Retrieved 21 February, 2019 from https://www.emirates247.com/business/corporate/5-major-problems-that-mcdonald- s-is-facing-2014-10-22-1.567212
Greenspan, R. (2018). McDonald’s PESTEL/PESTLE Analysis & Recommendations, Panmore Institute. Retrieved 21 February, 2019 http://panmore.com/mcdonalds-pestel-pestle- analysis-recommendations
Jurevicius, O., (2019). SWOT analysis of McDonald’s (5 Key Strengths in 2019), SM Insight. Retrieved 21 February, 2019 from https://www.strategicmanagementinsight.com/swot- analyses/mcdonalds-swot-analysis.html
Krull, R. (2010). McDonald’s: Strengths, Weaknesses, Opportunities, Threats. Retrieved 21 February, 2019 from https://www.fool.com/investing/2019/02/05/what-mcdonalds-wants- investors-to-know.aspx
New, S. (2015). McDonald’s and the Challenges of a Modern Supply Chain, Harvard Business Review. Retrieved 21 February, 2019 from https://hbr.org/2015/02/mcdonalds-and-the- challenges-of-a-modern-supply-chain
Ovenden, J., (2019). McDonald’s’ Supply Chain Success Shows the Benefits of Collaboration, Innovation Enterprise limited. Retrieved 21 February, 2019 from https://channels.theinnovationenterprise.com/articles/mcdonalds-supply-chain-success- shows-the-benefits-of-collaboration
McDonalds (2019). Sustainable Supply Chain. Retrieved 21 February, 2019 from https://corporate.mcdonalds.com/mcd/sustainability- old/our_focus_areas/sustainable_supply_chain.html
World Branding Forum (2019). McDonalds. Retrieved 21 February, 2019 from https://awards.brandingforum.org/brands/mcdonalds/
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