Mcdonalds Case Study Analysis Strategic Management

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1 McDonald’s Corporation A Strategic Management Case Study
Matthew O’MalleySpenser OuelletteKristi PlourdeRobert Roy

2 Overview Company Overview New Mission and Vision External Assessment
A Brief history of McDonald’sExisting Mission and VisionExisting Objectives and StrategiesCurrent IssuesNew Mission and VisionExternal AssessmentIndustry analysisOpportunities and threatsEFE MatrixCPM MatrixInternal AssessmentStrengths and weaknessesFinancial ConditionIFE MatrixStrategy FormulationSWOT MatrixSpace MatrixIE MatrixGrand Strategy MatrixMatrix AnalysisQSPM MatrixStrategic Plan for the FutureObjectivesStrategiesImplementation IssuesEPS/EBITEvaluationMcDonald’s 2008 UpdateO’Malley, Ouellette, Plourde, & Roy 2009

3 Who We Are Headquartered in Oak Brook, Illinois.
World’s largest foodservice retailing chain.Known for its burgers and fries.Offers a standard menu at all locations, though some locations may have some variation based on geographic variations in taste preference.Operates over 31,370 fast food restaurants in over 118 countries, employing 390,000 people.A majority of the restaurants are operated by franchisees.McDonald’s owns the land used for each of the franchises, then builds and secures a long-term lease for the restaurant site.Franchisees then provide a portion of capital by investing in the equipment, signs, seating and décor of their restaurant business.The company also operates restaurants under the brand name 'The Boston Market‘, acquired in May of 2000.O’Malley, Ouellette, Plourde, & Roy 2009

4 What We SellO’Malley, Ouellette, Plourde, & Roy 2009

5 Where We AreO’Malley, Ouellette, Plourde, & Roy 2009

6 HistoryDec 1948: The first McDonald’s restaurant is opened in San Bernardino, California by brothers Richard and Maurice McDonald. Offers burgers, fries, milk shakes, soft drinks, and apple pie.1954: Ray Kroc, a milkshake machine salesman, suggests nationwide franchising and acts as a franchising agent for the brothers.1955: The first restaurant run by Ray Kroc opens in Des Plaines, Illinois. Several problems arise in adapting the system used by Richard and Maurice to the new restaurant. First logo, Speedee, is introduced.1956: Kroc has to repurchase the franchise rights for the Cook County restaurant. They had been previously sold to the Frejlack Ice Cream Co. Fred Turner is hired to oversee operations.1957: Year-end sales for close to 40 restaurants- almost $4.5 million.1958: The 100 millionth hamburger is sold. Sales top $11 million. There are 34 restaurants in existence.O’Malley, Ouellette, Plourde, & Roy 2009

7 History (cont.)1959: Kroc opens 67 new restaurants, bringing the total to 100 franchises. They begin advertising on billboards.1960: Look for the Golden Arches becomes the new slogan. Fifth anniversary of the company is celebrated, and the 200th restaurant is opened. Sales reach $38 million.1961: Kroc buys out the McDonald brothers for $2.7 million and opens his first Hamburger University, for the training of franchisees1962: The Speedee logo is replaced by the Golden Arches as the company logo. Advertises nationally, for the first time, in Life magazine.1963: The 500th McDonald’s is opened. The fish filet sandwich is added to the menu. Ronald McDonald is introduced.O’Malley, Ouellette, Plourde, & Roy 2009

8 History (cont.)1965: Stock goes public in celebration of the 10th anniversary of the company. Ads start showing on network television.1966: The first public shareholders meeting is held. Sales hit $200 million.1967: The first restaurants outside the US open in Canada and Puerto Rico.1968: The Big Mac is added to the menu. The 1,000th store is opened in Des Plaines.1969: International division of the company is formed. McDonald’s is listed on the Midwest and Pacific stock exchanges.O’Malley, Ouellette, Plourde, & Roy 2009

9 History (cont.)1970: The 1,500th restaurant is opened in New Hampshire. New advertising slogan becomes, You deserve a break today, so get up and get away to McDonald’s.1971: Company headquarters are moved from Chicago to Oak Brook, Illinois. Restaurants are opened for the first time in Australia, Germany, Guam, Holland, and Japan.1972: McDonald’s is a $1 billion corporation. Surpasses the Army as the nation’s biggest dispenser of meals.1973: The Egg McMuffin is added to the menu as a breakfast item.1974: The first Ronald McDonald House is opened. Sales approach $2 billion. Fred Turner is named President and CEO.O’Malley, Ouellette, Plourde, & Roy 2009

10 History (cont.)1976: Sales exceed $3 billion, and the 4,000th store is opened. Directors declare the first cash dividend.1977: A variety of breakfast foods are added to the menu.1979: Happy Meals are added to the menu. Half of all stores have a drive-thru window.1980: The 6,000th restaurant is opened. 25th anniversary is celebrated. Mike Quinlan becomes president and CEO of McDonald’s USA, which is a new position.1981: The first restaurants are opened in Denmark, the Philippines, and Spain.1982: Dividends per share rise by 32%. Mike Quinlan becomes president and COO as well as keeping his position with McDonald’s USA.O’Malley, Ouellette, Plourde, & Roy 2009

11 History (cont.) 1983: Chicken McNuggets are introduced on the menu.
1984: Ray Kroc, founder and senior chairman of the board of directors, dies.1984: Year end sales pass $10 billion. Ed Rensi becomes president of McDonald’s USA. Open restaurants in Andorra, Finland, Taiwan and Wales, and the 8,000th restaurant is opened.1985: The McDLT is introduced, a hamburger sold with lettuce and tomato in a separate compartment to keep them cool.1986: McDonald’s offers comprehensive listings of ingredients in all its foods to the public. Mike Quinlan is elected CEO, and restaurants open in Argentina, Cuba, and Turkey.O’Malley, Ouellette, Plourde, & Roy 2009

12 History (cont.)1987:Tossed salads are added to the menu, to satisfy the public’s desire for lighter, more nutritious fast-foods.1988: An agreement is signed to build the first McDonald’s in Moscow. Sales exceed $16 billion. Restaurants are opened in Hungary, Korea, and Yugoslavia.1990: The world’s biggest McDonald’s, with seating for 700, is opened in Moscow.1991: The McLean Deluxe sandwich is introduced and added to the menu after years of research. The company diversifies for the first time, introducing indoor playgrounds, with the first in Chicago.1994: Stella Liebeck from Albuquerque, New Mexico sues McDonald’s for almost $2.9 million for burns from spilling a hot McDonald’s coffee on her lap. She receives $640,000 from the suit.1996: The first airborne McDonald’s, the McPlane, takes off from Switzerland.1996:The Arch Deluxe hamburger is introduced.O’Malley, Ouellette, Plourde, & Roy 2009

13 History (cont.)1996: Net profits over the last five years have grown at a compound annual rate of 12%. Cut cost of opening a new franchise by 30% through standardization and reliance on drive-thrus.1997: Develop plans to lower prices in order to protect market share from further encroachment, mostly by Burger King. New promotion, the Teenie Beanie Babies, is the most effective marketing plan in McDonald’s history.1998: The company diversifies outside of hamburger sales with its purchase of a minority stake in a Denver based chain of casual Mexican restaurants, Chipotle Mexican Grill.1999: Continues diversification with the purchase of Donatos Pizza Inc. This was later bought back by the original owner in 2003.2000: In its largest acquisition ever, McDonald’s purchases Boston Market, Inc. for $173.5 million. Restaurant is opened in French Guiana.O’Malley, Ouellette, Plourde, & Roy 2009

14 History (cont.)2001: Faced with a class-action lawsuit for advertising its fries and hash browns as vegetarian, even though they include beef flavoring.2001: About 50 new stores are opened in Mexico. McDonald’s announces its intent to invest $67 million in the Philippines by 2005.2002: McDonald’s apologizes for not listing beef flavoring as an ingredient in its hash browns and fries and offers to donate $10 million to vegetarian groups.2003: Post their first quarterly loss in over 40 years. Slash spending by 33%, and new store openings are reduced from 1,000 the previous year to 360.O’Malley, Ouellette, Plourde, & Roy 2009

15 History (cont.)2004: Introduces the “Go Active! Happy Meal,” consisting of a salad, water, stepometer, and an exercise booklet.2005: Net income increases 14% to $2.6 billion, with record annual sales of $20.46 billion.2005: Chipotle Mexican Grill Inc., in which McDonald’s has a 92 percent ownership stake, files an initial public offering with the Securities and Exchange Commission.2006: Plans are established to open 125 restaurants per year in China, bringing the total locations there to 1,000 by 2008.O’Malley, Ouellette, Plourde, & Roy 2009

16 Mission StatementMcDonald's brand mission is to "be our customers' favorite place and way to eat." Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience.O’Malley, Ouellette, Plourde, & Roy 2009

17 Vision StatementWe aspire to end hunger one meal at a time by providing low cost- high quality nutritional food globally.Corporate Responsibility StatementMcDonald's 2008 Corporate Responsibility ReportIt all comes down to the food. That’s what McDonald’s is all about. The food we serve…how and where we serve it…the welfare of our employees and our suppliers’ employees…where the food comes from…and so much more. Running restaurants is a multi-faceted endeavor, but ultimately, it all comes back to the food.O’Malley, Ouellette, Plourde, & Roy 2009

18 Brand Strategy“I’m Lovin’ it” is an international branding campaign by McDonald’s Corp. It was created by Heye & Partner, a longtime McDonald's agency based in Unterhaching, Germany. It was the company's first global advertising campaign.Target Market is Children/ Elderly PeopleHappy Meals and Coffee.O’Malley, Ouellette, Plourde, & Roy 2009

19 Menu http://www.mcdonalds.com/usa/eat/mcdonalds_menu.html
Nutrition InformationO’Malley, Ouellette, Plourde, & Roy 2009

20 Nutrition Information
1st restaurant to place its information in an easy-to-read graphic format on their packagingO’Malley, Ouellette, Plourde, & Roy 2009

21 Values We place the customer experience at the core of all we do
Our customers are the reason for our existence. We demonstrate our appreciation by providing them with high quality food and superior service, in a clean, welcoming environment, at a great value. We are committed to our peopleWe provide opportunity, nurture talent, develop leaders and reward achievement. We believe that a team of well-trained individuals with diverse backgrounds and experiences, working together in an environment that fosters respect and drives high levels of engagement, is essential to our continued success.We believe in the McDonald’s SystemMcDonald’s business model, depicted by the “three-legged stool” of owner/operators, suppliers, and company employees, is our foundation, and the balance of interests among the three groups is key.We operate our business ethicallySound ethics is good business. At McDonald’s, we hold ourselves and conduct our business to high standards of fairness, honesty, and integrity. We are individually accountable and collectively responsible.O’Malley, Ouellette, Plourde, & Roy 2009

22 Values Continued We strive continually to improve
We are a learning organization that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation.We grow our business profitablyMcDonald’s is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuing focus on our customers and the health of our system.We give back to our communitiesWe take seriously the responsibilities that come with being a leader. We help our customers build better communities, support Ronald McDonald House Charities, and leverage our size, scope and resources to help make the world a better place.O’Malley, Ouellette, Plourde, & Roy 2009

23 McCafé1993: First McCafé launched in Melbourne, Australia. These reflect a consumer trend towards espresso coffees.Turned out to generate 15% more revenue than regular McDonald’s.Largest coffee shop brand in Australia and New Zealand by 2003.First US location was in Chicago, opened in 2001, after 300 locations had opened worldwide.By 2002, had spread to 13 countries.O’Malley, Ouellette, Plourde, & Roy 2009

24 McCafeFeatures a relaxed adult atmosphere. Offers customers a variety of specialty coffee drinks along with muffins, pastries and sandwiches.O’Malley, Ouellette, Plourde, & Roy 2009

25 McDonald’s FranchiseMost Owner/Operators enter the System by purchasing an existing restaurant, either from McDonald’s or from a McDonald’s Owner/Operator.Financial Requirements/Down PaymentInitial down payment is required when purchasing a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost).The down payment must come from non-borrowed personal resources, which includes cash on hand, securities, bonds.Generally require a minimum of $300,000 of non-borrowed personal resources to consider you for a franchise.Remaining balance of purchase price must be paid off with in 7 years. McDonald’s does not offer financing but they work with many national lending institutions.McDonald’s owns all buildings and properties.O’Malley, Ouellette, Plourde, & Roy 2009

26 Ray Kroc Formula for Success:
QualityServiceCleanlinessValueO’Malley, Ouellette, Plourde, & Roy 2009

27 Ray Kroc- Business Model
Ray Kroc- Developed a business model known as “The Three Legged Stool.” Owner/Operator, Suppliers and EmployeesJust as all three legs of a stool need to be equal to support the weight, all three elements of the McDonald’s system are equally important partners in McDonald’s success.O’Malley, Ouellette, Plourde, & Roy 2009

28 Hamburger University Facility
In 1993, McDonald’s invested $40 million in Hamburger University, a 130,000- square foot facility on an 80-acre campus located at McDonald’s Corporate in Oak Brook, IL.13 teaching room300 seat auditorium12 interactive education team rooms3 kitchen labsState of the art service training labsO’Malley, Ouellette, Plourde, & Roy 2009

29 Hamburger UniversityHamburger University has become the company’s global center of excellence for McDonald’s operations training and leadership development.McDonald’s training mission is to be the best talent developer of people with the most committed individuals to Quality, Service, Cleanliness and Value in the world.First company to develop a global training centerO’Malley, Ouellette, Plourde, & Roy 2009

30 Hamburger University cont.
Hamburger University students can earn credit toward a college degree through their course work.Ray Kroc once said, “If we are going to go anywhere, we’ve got to have talent. And, I’m going to put my money in talent.”McDonald’s spends $1 Billion on training and development every year.O’Malley, Ouellette, Plourde, & Roy 2009

31 Ronald McDonald House Charities
The mission of Ronald McDonald Charities is to create, find and support programs that directly improve the health and well being of children.Ronald McDonald Houses are located all around the world and provide families a way to stick together in times of need when their children are ill.Service Provided:Home-cooked mealsPrivate bedroomsPlayrooms for childrenSpecial suites for children with suppressed immune systemsAccredited education programsRecreational activitiesNon-clinical support servicesSibling support servicesO’Malley, Ouellette, Plourde, & Roy 2009

32 World Children DayMcDonalds restaurants around the world celebrate world children’s day with fundraising activities. In 2006, McDonalds raised more than $25 million worldwide to benefit Ronald McDonald House Charities and other local children’s charities.O’Malley, Ouellette, Plourde, & Roy 2009

33 Mom Knows Best“Loved by kids, approved by mom” is one of McDonalds important goals. McDonalds created a global moms advisory panel of 10 mothers from 7 countries to provide input and guidance on a broad range of topics, including their food to help better serve the needs of moms and families around the world.O’Malley, Ouellette, Plourde, & Roy 2009

34 Responsible Suppliers
“Only purchase from suppliers who meet our stringent food safety standards, but who also share our commitment to social responsibility and sustainability.”-animal welfare-rain forest and antibiotics policies-supplier social accountability programO’Malley, Ouellette, Plourde, & Roy 2009

35 Going GreenMcDonald’s has taken the initiative to incorporate used cooking oil into their operations.In several countries across the McDonald’s System, restaurants are recycling their used cooking oil to sell to companies that specialize in refining the product into clean burning diesel for consumer use.In 2006, McDonalds in the U.S has began developing green restaurants.Floor Tiles with a high recycled contentEfficient Lighting Products, Skylights and Daylight controlsHigh efficient rooftopsWater conserving toiletsO’Malley, Ouellette, Plourde, & Roy 2009

36 Popular Promotions Toys with Happy Meals Cars Pirates of the Caribbean
Games- Monopoly/ Uno –Win various prizes and tripsCollectibles- Coca Cola Glasses, Beanie BabiesOlympic Games- Global partner of the Olympic games- reflects our commitment of the importance of sports and physical activities.World Champions- 1,400 children from 51 countries had the opportunity to meet the world’s best soccer players at the 2006 FIFA World Cup.O’Malley, Ouellette, Plourde, & Roy 2009

37 Supersize Me ScandalIt all started with a lawsuit against the burger giant by a group of obese teenagers, the case alleged that McDonald’s had created a national epidemic of obese children by misleading people into thinking their food was nutritiousMorgan Spurlock used this lawsuit as his inspiration for his hit film Supersize Me which proved to be scandalous for McDonalds. It was a 30 day documentary that focused on the increase in obesity in America due to McDonalds fast food.O’Malley, Ouellette, Plourde, & Roy 2009

38 Other Important Facts53% Household income is spent outside of the home2006 National Restaurant Association Quick Service Restaurant Sales increased 5%The Global “Informal Eating Out” market is expected to Grow $50 Billion in 2007 and over200 Billion the next 4 yearsBreakfast Food Industry $77.6 BillionEnd of McDonalds had 31,000 locations word-wide and opened 744 restaurants.O’Malley, Ouellette, Plourde, & Roy 2009

39 2006 Objectives Grow Market Share
Create long-terms profitable growth for share holders.Maintain current debt-to capital levels to 35-40%Reduce the percentage of company owned units.Decrease selling, general and administration expenses.O’Malley, Ouellette, Plourde, & Roy 2009

40 External AssessmentO’Malley, Ouellette, Plourde, & Roy 2009

41 Global Industry Growth
O’Malley, Ouellette, Plourde, & Roy 2009

42 U.S Industry GrowthO’Malley, Ouellette, Plourde, & Roy 2009

43 Global Segmentation by Type
O’Malley, Ouellette, Plourde, & Roy 2009

44 U.S Segmentation by Type
O’Malley, Ouellette, Plourde, & Roy 2009

45 Competitors Trademarks are property of respective brands
O’Malley, Ouellette, Plourde, & Roy 2009

46 External Audit- Opportunities
New Products & ServicesBeverage MarketGrowth of Franchise RestaurantsDemand for Organic ProductsInternational ExpansionConservation (going green)O’Malley, Ouellette, Plourde, & Roy 2009

47 External Audit-Threats
Change in Commodity PricesFood Safety and Food Borne Illness ConcernsEconomic SlowdownGrowing Health ConsciousnessIntense Competition (dine-in restaurants, Burger King)Legal Challenges (McDonald’s faces many lawsuits)O’Malley, Ouellette, Plourde, & Roy 2009

Company Background

NameMcDonald’s Corporation
FoundedMay 15, 1940
Logo
Industries servedRestaurants (McDonald’s, McCafé, McExpress, McStop)
Geographic areas servedWorldwide (36,899 restaurants in 120 countries)
HeadquartersOak Brook, Illinois, United States
Current CEOSteve Easterbrook
Revenue (US$)24.622 billion (2016) 3.1% decrease over 25.413 billion (2015)
Profit (US$)4.687 billion (2016) 3.5% increase over 4.529 billion (2015)
Employees375,000 (2017)
Main CompetitorsBurger King Worldwide, Inc., Darden Restaurants, Inc., Doctor's Associates, Inc. (Subway), Domino’s, Inc., Dunkin' Brands Group, Inc., Yum! Brands, Inc. (KFC), Starbucks Corporation, Wendy’s Company and many other restaurant chains.

McDonald’s Corporation’s business overview from the company’s financial report:

"General

The Company operates and franchises McDonald’s restaurants, which serve a locally-relevant menu of quality food and drinks sold at various affordable price points in more than 100 countries. McDonald’s global system is comprised of both Company-owned and franchised restaurants. McDonald’s franchised restaurants are owned and operated under one of the following structures - conventional franchise, developmental license or affiliate. The business relationship between McDonald’s and its independent franchisees is of fundamental importance to overall performance and to the McDonald’s Brand. This business relationship is supported by an agreement that requires adherence to standards and policies essential to protecting our brand.

The Company views itself primarily as a franchisor, with the vast majority of McDonald’s restaurants (approximately 85%) owned and operated by independent franchisees. Franchising enables an individual to own a restaurant business and maintain control over personnel, purchasing, marketing and pricing decisions, while also benefiting from the strength of McDonald’s global brand, operating system and financial resources.

Conventional franchisees contribute to the Company’s revenue stream through the payment of rent and royalties based upon a percent of sales. The conventional franchise arrangement typically lasts 20 years, and franchising practices are generally consistent throughout the world. Over 70% of franchised restaurants operate under conventional franchise arrangements.

Products

McDonald’s restaurants offer a substantially uniform menu, although there are geographic variations to suit local consumer preferences and tastes. In addition, McDonald’s tests new products on an ongoing basis.

McDonald’s menu includes hamburgers and cheeseburgers, several chicken sandwiches, wraps, french fries, salads, oatmeal, shakes, desserts, sundaes, soft serve cones, pies, soft drinks, coffee and other beverages. In addition, the restaurants sell a variety of other products during limited-time promotions.

McDonald’s restaurants in the U.S. and many international markets offer a full or limited breakfast menu.

Quality, choice and nutrition are increasingly important to our customers and we are continuously evolving our menu to meet our customers' needs.

Customers

The Company’s business is not dependent upon either a single customer or small group of customers.”[1]

McDonald's SWOT Factors

Strengths

1. The second-largest restaurant network serving customers in more countries than any other competitor in fast-food industry

As of 2017, McDonald’s operates the second-largest restaurant network in the world. In total, the company and its franchisees operate 36,899 restaurants in 120 countries.

Source: The respective Companies’ financial reports and official websites [1][2][3][4][5]

In terms of sales, McDonald’s outrivals any other QSR chain in the world with US$24.622 billion in sales in 2017 alone. The sheer size of the company’s restaurant network is a strength that provides many advantages over competitors, including:

  • Economies of scale. The company can share its fixed costs over many restaurants locations, which makes McDonald’s one of the cheapest places to eat at.
  • Huge gains from implementing best practices. The company can identify better ways of performing tasks, managing restaurants or hiring new employees and can achieve huge gains by implementing these best practices in its vast network of restaurants.
  • Market power over suppliers and competitors. Due to its size, McDonald’s can exercise its market power over suppliers by requiring lower prices from them. The company clearly demonstrates this with The Coca Cola Company. Because of McDonald’s and The Coca Cola Company’s agreement, no other restaurant chain can sell Coca Cola drinks for lower prices than McDonald’s, even if it means losing the business to PepsiCo. The Coca Cola Company could easily get out of such agreement if McDonald’s wouldn’t be so huge and would generate less income for The Coca Cola Company.
    McDonald’s can also use its size to affect the competition by underpricing some of its items or driving them out of the best locations.
  • Wide audience reach. McDonald’s restaurant network allows the chain to reach more customers than most of its rivals could reach. According to the Company’s CEO[6], in five of its largest markets, 75% of population lives within 3 miles of McDonald’s restaurants. Wide audience reach does not only help the company to target more customers and increase brand awareness, but also to introduce new services, such as home delivery.

2. The most recognizable brand in restaurant industry

McDonald’s opened its first restaurant in 1940.[7] Since then, the company has become the world’s largest restaurant chain in terms of revenue with the most recognizable brand in the market. According to Forbes[8] and Interbrand[9], McDonald’s brand is 9th and 12th most valuable brand in the world, worth US$40.3 billion and US$39.381 billion, respectively. No other restaurant brand, except Starbucks, is included in the list of the top 50 most valuable brands.

The brand value is closely related to the brand recognition and reputation. Usually, the more valuable a brand is the better it is recognized worldwide. McDonald’s, which operates in 120 countries, where billions of people live, enjoys some of the greatest brand awareness among all global corporations. Only KFC operates in more countries (128)[4] than McDonald’s and can compare in brand awareness with it. Brand awareness also helps to introduce new products or sell the current ones faster as the company needs to spend less money on advertising.

While, McDonald’s reputation has suffered a lot during the years, the company is still recognized for its innovations in fast-food industry and the American business values it brings to other countries.

Figure 2. McDonald’s brand value 2000-2016

Source: Interbrand [9][10][11][12][13]

Few direct competitors have such a valuable and recognizable brand, which strengthens the company.

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