Topic : Business Environmental Analysis of McDonald’s

Paper Type : Coursework

Word Count : 3000 Words

Pages : 12 pages

Referencing Style : Oxford Referencing

Education Level: Masters

Business Environmental Analysis of McDonald’s

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 McDonald’s 1

Business Environmental Analysis of McDonald’s

Introduction
McDonald’s is one of the largest food chain, with its franchises located all over the world.

McDonald’s serve food to more than a 3.5 million customer’s every day. McDonald’s has

established a high profile brand image with its food, modern infrastructure, quality management,

high quality of service, cleanliness, and high level of customer satisfaction. All of these factors

has enabled McDonald’s to achieve a unique position in the market and has given them a

competitive advantage over all of its competitors1.

McDonald’s began its operation in 1948 in United States, and from the beginning

McDonald’s experienced the taste of success, in the year 1955 McDonald’s was introduced as a

part of the McDonald’s Corporation owned by Ray Kroc. McDonald’s started to expand its

operation in the year 1967, and very soon it emerged as the biggest and reputed fast food chain of

the worldwide. According to the annual report published by McDonald’s Corporation in 2008

McDonald’s is operating in 117 countries with over 32000 branches located in different parts of

the world. McDonald’s opened its first branch in London, United Kingdom in the year 1974.

McDonald’s launched a total of 1200 stores inside the United Kingdom. However, McDonald’s

has faced some strong criticism due to the high turnover rate and the quality of food served.

Sector
The sector in which McDonald’s is operating is the catering industry, their business

consists entirely of restaurants that prepare and serve a limited menu, quickly made and sold at

moderate prices. The McDonald's restaurants worldwide offer prepared foods with the highest

levels of quality and hygiene, from basic natural ingredients such as meat, fish, chicken,

1 Vrontis, D. and Vronti, P. “Levi Strauss. An international marketing investigation’, Journal of Fashion
Marketing and Management; 2004 , Vol. 8, No. 4, pp.389–398.
 McDonald’s 2

potatoes, vegetables, dairy products, etc. Their menus meet many of the needs of vitamins,

proteins, minerals, carbohydrates and fats that the body needs to develop daily activity.
McDonald's are available to its customers, in all its restaurants, a poster that includes the

nutritional value of their products so that consumers can select menus that best meet their

nutritional needs and energy intake according to the rule that a balanced diet should be varied

foods that provide the nutrients and energy values each person needs in a period of fifteen days.
McDonald's offer virtually the same menu throughout the world, consisting of burgers

(Big Mac, Quarter Pound, McRoyal Deluxe, McRib), hot sandwiches (McPollo and fried fish

fillet), Chicken McNuggets, fries, salads, beverages, sauces, smoothies, cakes, ice cream,

cookies, fruit salad. They also have a special menu for children (Happy Meal) consisting of a

hamburger, fries, drink and dessert a strawberry Petit Nestle. Some of the activities necessary for

the proper functioning of the company are developed by McDonald's2.

History of McDonald’s
The first store in the history of fast food service was inaugurated by the McDonald

brothers in 1948 in San Bernardino, California (USA). They gave a new direction to business by

offering fast food at high speed, with modern quality management system. A limited menu and a

high turnover marked the success of the new restaurant. Ray Kroc, then provider shake mixing

machine, surprised by the amount of "Multi-mixers" solicited, visited the McDonald brothers in

1954. They proposed to open more places like this. Therefore, in 1955 the first local Corporation

was opened by Ray Kroc. Between the '50s and' 60s, the visionary Ray Kroc and his

management team established the successful operating philosophy of McDonald's System which

was based on: Quality, Service, Cleanliness and Value.

The 60s could simply be termed as the expansion period for the McDonald’s. The first

step came as the inclusion of table service inside the restaurants, and the adoption of what they

2 Vignali, C., Vrontis, D. and Vranecevic, T. Marketing Planning. Analysis, Strategy and Tactics, London:
Foxwell and Davies; 2003.
 McDonald’s 3

are since the basic principles of the company: Quality, Service, Cleanliness and Value. The

success of McDonald acts as a catalyst in the emergence of a fast food industry, first nationally

and then internationally. Greasy bars and restaurants that populated the country's roads were

replaced by local families belonging to a group of strings. The atmosphere of fast-food in the 60s

attracted the attention of major corporations. Pillsbury acquired Burger King in 1967, General

Foods bought the chain Burger Chef in 1968 and Heublein did the same with Kentucky Fried

Chicken in 19713.
A unique landmark in the history of McDonald came in 1968 when Jim Delligatti, a

franchisee of Pittsburg, created a burger called Big Mac, which later went on to become the

flagship for McDonald. Curiously the Big Mac, and marking the importance of this product, the

price of Big Mac country has established itself as one of the benchmarks to determine the degree

of development of nations (the "Big Mac Index"). McDonald continued growth in the 70

supported by the demographic and economic changes, although its dominance began to be

challenged by the companies such as Burger King, and KFC etc.

Although McDonald's has done a good job to stay ahead of the industry, all is not well in

it. The burger business in particular no longer presents the exciting growth rate as it previously

did. Along, with that the customer today demand something new and innovative they are now

tired of seeing the same menus again and again. Along, with that another growing concern for

McDonald’s is quality of nutrition and the resurgence of sophisticated dinner among some

segments of society, which have thrown quite discredit on the fast-food chains such as

McDonald.
McDonald invests large sums of money on research of new products, changes in their

kitchen equipment and the implementation of new production systems. On this issue, note the

3 Vignali, C., Vrontis, D. and Vranecevic, T. Marketing Planning. Analysis, Strategy and Tactics, London:
Foxwell and Davies; 2003.
 McDonald’s 4

new computerized equipment kitchen is the key to innovation in the product, because it allows

employees to cook the dishes on request instead of developing them by the dozen and keep them

warm until they are sold. With the new system, employees could not build many different dishes

for the risk that nobody asked the security within ten minutes. With the "Made for you" system

can offer an unlimited number of dishes, as it is much easier to avoid mistakes with orders, and

allows the flexibility to introduce more variety on the menu4.

Competitors
McDonald faces stiff competition from many chains of fast food restaurants. Some of the

major competitors of McDonalds include; Taco Bell, Wendy's, Burger King, Kentucky Freud

Chicken, and Pizza Hut. All of these fast food restaurants have adopted the cost leadership

strategy, as they are offering food items similar to McDonald’s at lower prices while trying to

outdo the attractive menu and fast service of McDonald's5.These chains are distinguished by

providing consumer products of consistent quality, always available in a network of local

managed outlets mainly in the form of franchises, ensuring the same type of care in facilities that

are characterized by high quality of service, cleanliness, and high level of customer satisfaction.

In this regard, one of the cornerstones for the success of McDonald’s was the development of a

network of dealers and suppliers with sophisticated supply infrastructure, linking with the

processing industry through rigid specifications, always trying to reduce the cost of raw material.

The products of agricultural origin constitute one of the main inputs and therefore these chains

have provoked a strong impact on the food industry and primary production.

MacDonald’s Swot Analysis

4 Vignali, C. ‘McDonald’s: “think global, act local” – the marketing mix’, British Food Journal; 2001,
Vol. 103, No. 2, pp.97–111.

5 Livesey, S. M. McDonald's and the environmental defense fund: a case study of a green alliance.
Journal of Business Communication; 1999, 36(1), 5-39.
 McDonald’s 5

Strengths: Weaknesses:
 Its dominant position could be questioned.
 Corporate image  Market research shows that consumers prefer
 Profitability food restaurant as you have the feeling that it is
 Infrastructure healthier.
 Trained staff  Tardiness in attendance at peak times.
 High quality "management".
 Excellent technology and

designs.
 Very good quality food without

the consumer cares about their

health.
 Variety of menus to consumers.
 Fast service fast food with

"ready-to-eat" ("ready to eat")

system. This system provides

hot food in their exact

doneness, in just 60 seconds.

 Good distribution system.

Opportunities: Threats:
 Acquire new technologies.  Entry of new competitors, the possibility exists
 Qualified human resources. that someone create a new company of the
 Opening new branches. same type and with more economic power, can
 Introduce new products. accommodate an example our company to
improve and not make any mistakes that may
be committed in the course of penetrating the
consumer.
 Substitute products.
 Complaints

Impact of Globalization on McDonald’s

Globalization, understood as a process of internationalization of production, finance and

trade, has important implications for both political and socio-economic aspects of international
 McDonald’s 6

relations. The process sets the tone with which it will give the relations between countries, and

also has an impact on the social dynamics within each country according to its degree of

openness to the global economy. His analysis is essential for understanding the structure of

international economic relations and international political order.

The important thing about McDonald's in social and cultural terms is that it is geared

firmly in American culture. Inward US, McDonald's is central in popular culture, appearing in

numerous films and also being easy reference in matters of fast food. Also in business matters,

McDonald's is everywhere in America. The statistics for 2000 indicated that a franchise began

operations in the country every eight minutes on average, and 57% of franchises were owned by

McDonald's. McDonald's, like other fast food restaurants, use warm colours to whet the appetite,

and through their packages as the "Happy Meal" encourage the whole family to visit the

establishment. It is also through the McDonald's Happy Meal to raise awareness allows some

elements of American popular culture, offering toys of characters from movies or cartoons that

are fashionable6.
In other countries, McDonald's is also an icon of America. Due to the unification of

prices, all McDonald's products cost the equivalent in all countries where it has presence. It can

be found in all regions of the world, including beaches, snowy places. Ironically, as a result of

US victory in the Cold, War Russia and several countries of the former Soviet Union now have

local McDonald's inside.

McDonald's is largely driven by the engine of globalization, because older relations with

other countries imply that disclosed the economic, political and social models of both parties. In

these relationships, McDonald's is attractive to other countries and they begin to implement some

of its principles nationwide. Part of the reason for which began to adopt these principles in other

6 Livesey, S. M. McDonald's and the environmental defense fund: a case study of a green alliance.
Journal of Business Communication; 1999, 36(1), 5-39.
 McDonald’s 7

parts of the world is due to the perception of success in business. Due to its principles, the idea

that takes place in the business model will lead to higher profits and lower risks. The fact that

McDonald's has begun in the United States, the only current superpower, gives more reasons to

society in other countries to try to emulate the factors that allowed the American success.
Due to globalization, a major criticism that McDonald’s face is that it encourages the

destruction of endogenous socio-cultural fabric of the regions and countries where it is

implanted. With the presence of transnational corporations in various countries in Africa, Latin

America and the Caribbean, and Asia operations model based on the four principles of

McDonald’s is also transferred. By creating an "operating" model, the dynamics of local

businesses and their relationship with the local social fabric is destabilized. An example of this

can be seen in the case of Wal-Mart. Wal-Mart reaches many countries, is implanted in the towns

and as offers many products in the same place centrally located; people begin to shop there

instead of spending by small businesses like bakeries and butcher shops or specialty shops that

used visit. The initial low prices at which the products are sold cause many of the original

businesses to close because they cannot compete against corporations, and this causes them to go

untying the bonds between people by decreased local interaction. With the passing of a

generation, or even less, there may be a loss of significant relationships between people of the

town, leaving people increasingly isolated and alienated from their context7.
However, its apparent success encourages reproduction of this model in other parts of the

world, but this does not come without cost. On the one hand, a homogenizing force that does not

allow individuals and groups against this order act freely, because they are immersed in a society

dominated by the desire for efficiency, predictability, quantification and control structure is

experienced. In this era of globalization it has become imperative for McDonald’s to seek

7 Fristedt, M., Hansson, A., Huge-Brodin, M., Rehme, J., & Sandberg, E. (2012). Supply chain
management in practice: a case study of McDonald’s Sweden.
 McDonald’s 8

alternative development and new social dynamics. The search for these alternatives would be the

first step to create conditions where the individual can act more freely, and where groups with

different ideas and styles of life can interact within a framework of respect and tolerance8.

Current Position of McDonald’s

Currently, McDonald’s is ranked as number one in the food service retailer chain. To

reserve this position, the company is pursuing dynamic strategy and has adopted contemporary

approach to survive in the current competitive business environment. The company is one of the

leading foodservice retailers across the world with over 33,000 restaurants locally serving more

than 60 million people on daily basis. All the restaurants around the world are owned and run by

local people. According to the annual report of 2013 published by McDonald, the company

witnessed a strong increase in their sales by almost 5% that the past year. They have grown as

4.4% in U.S., 5.3% in Europe, and 4.0% in Asia Pacific region simultaneously.
McDonald’s has made itself to be the low cost restaurant. The restaurant has a narrow

scope for a customer base and a low cost strategy. In the last few years, it has inclined to broaden

its scope to attract more people, including families, students, young people, etc. However, the

restaurant has experienced decline in its business in recent years and it has begun to make menu

a more healthy option. Still, they try to retain their target market narrowed down to families, but

others deserve attention as well. The main focal point is on cutting delivery time and reducing

the food cost. The customers are number one priority of McDonald’s, and since its customer base

is expanding rapidly they have to be prepared to manage this change and have to come up with

new strategies in order to cope-up with changing needs of consumers9.

8 Prakash, A., & Singh, V. B. Glocalization in Food Business: Strategies of Adaptation to Local Needs
and Demands. Asian Journal of Technology & Management Research; 2011, 1(1).

9 Babić, U., Correia, N. M., Geraldes, R., & Pinheiro, E. (2011). A case study on McDonald's operations
in Russia, India and China. Ekonomija: teorija i praksa,4(3), 37-51.
 McDonald’s 9

Current Challenges and Issues Faced by McDonald’s

McDonald's Corp seems to be running out of fast strategic solutions to cope with falling

sales in its UK restaurants, caused by tougher competition for customers looking to squeeze

every penny in the context of a weak economic recovery. The world's largest restaurant chain by

revenue received its customers at Christmas and spread the limited supply of its favourite

sandwich McRib to avoid a large decline in year-end in its UK restaurants. But it seems that the

company has exhausted its reserves of tactics. McDonald's December sales report and fourth-

quarter earnings showed on average forecast a profit of $ 1.33 per share, unchanged from the last

year.
A setback late last year jeopardized the domain established by the company in the fast

food industry and increased pressure on Chief Executive Don Thompson. Analysts and investors

say that McDonald's will continue to use their size to their advantage, and it should be easier to

mid-2015, when the impact of a mild winter will vanish.

McDonald's shares ended with a slight increase to $ 92.95 in 2014, but have fallen more

than 9% over last year. The Dow Jones industrial average, which includes McDonald's, is up

more than 7% over the same period. Unusually warm temperatures helped McDonald's to get big

sales increases in December 2011 established restaurants in the United States, its second largest

market after Europe sales. This created a major obstacle to the growth of restaurant sales in

December 2013. And McDonald's is facing similar challenges in the first three months of this

year10.

Conclusion
At McDonald's, Quality, Service, Cleanliness and Value are the pillars that have enabled

it to offer a unique experience to its consumers worldwide. The company brought in this new

market concept original fast service, where details are manicured to give consumers an excellent

10 Amor, A. McDonald’s Competitive Strategy; 2013.

 McDonald’s 10

product. These high quality ingredients, premises with strict hygiene standards, superior

customer service and family atmosphere in which children, youth and adults have their own

space. McDonald’s has revolutionized the fast food industry, ever since its emergence

McDonald’s has set very high standards in fast food service. McDonald’s with its franchises

located in different parts of provides opportunities for young people and is known for offering a

new pattern in staff training system.

However, there is an urgent need to improve the line needs for customer service at

McDonald’s, the customer service process needs to be more effective and efficient. Since,

customer dealing is the final act of the business operation of McDonalds, thus they need to come

up with an influential technique in order to gain a high level of customer satisfaction. Along,

with that another factor on which McDonald’s have to focus is competitive and affordable

pricing of the products. Thus, it would be essential to conduct cost benefit analysis, as product

price is one factor that is seriously considered by customers.

Future Recommendations
In order to maintain its position as the leader of the fast food chain, McDonald’s has to

come up with unique and innovative products, and marketing strategies. Technological,

economic, and political changes can serve as an external factor, and McDonald’s can use all of

these factors as an options to formulate new strategy to conform to these transformations and

thus, the below stated strategic options for McDonald’s are proposed:

 Reduction of sending on employee development and training spending, and reduction of

employee turnover rate

 Benefit from the popularity of organic food industry and launch new food items for new

segments
 Mitigation of human health issues through the introduction of diet foods, organic food

products
McDonald’s 11
 McDonald’s 12

Bibliography

Amor, A. McDonald’s Competitive Strategy; 2013.

Babić, U., Correia, N. M., Geraldes, R., & Pinheiro, E. (2011). A case study on McDonald's

operations in Russia, India and China. Ekonomija: teorija i praksa,4(3), 37-51.

Fristedt, M., Hansson, A., Huge-Brodin, M., Rehme, J., & Sandberg, E. (2012). Supply chain

management in practice: a case study of McDonald’s Sweden.

Livesey, S. M. McDonald's and the environmental defense fund: a case study of a green

alliance. Journal of Business Communication; 1999, 36(1), 5-39.

Prakash, A., & Singh, V. B. Glocalization in Food Business: Strategies of Adaptation to Local

Needs and Demands. Asian Journal of Technology & Management Research; 2011, 1(1).
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Identifying the Common Elements Between the Current Business Model Views.

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Vignali, C., Vrontis, D. and Vranecevic, T. Marketing Planning. Analysis, Strategy and Tactics,

London: Foxwell and Davies; 2003.

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strategy’, International Marketing Review; 2006 Vol. 24, No. 1, pp.46–63.

Vrontis, D. and Vronti, P. “Levi Strauss. An international marketing investigation’, Journal of

Fashion Marketing and Management; 2004 , Vol. 8, No. 4, pp.389–398.