Business Plan:
The Corporate Environment and Future Strategies of McDonald’s Corporation
McDonald’s Corporation is a leader in the fast-food industry. This business report includes an in-depth analysis of the present marketing environment of McDonald’s Corporation including a LePEST, SWOT, Stake Holder, and Five Forces Analysis in addition the second section will consist of a proposal for possible future strategy for the organization.
Environmental Audit:
LePEST analysis:
Political Factors:
The political environment within the 120 countries in which the McDonlad’s corporation has established restaurants is a constantly changing dynamic yet, for the most part the political climate in the respective countries is stable as it applies to the ability of the McDonald’s corporation to run effectively. The distribution network of the organization does pose some challenges in some countries as the food and packaging of each restaurant must be obtained through approved and specific channels that attempt to and succeed in making the McDonalds experience a universal one, e.g. The big mac that is served in Detroit will look and the taste the same as the one served in Beijing (Hoover’s online McDonald’s Corporation Capsule). Each individual political environment and how it effects McDonalds needs to be analyzed for corporate success. Largely the corporation is effective in doing so through communication and cooperation with government entities prior to the company investing in a particular country for the first time.
The political climate in the United States is relatively static, effecting current operations. Yet, to some degree future expansion can be hampered by local governments, in circumstances where public use permits must be obtained and public opinion is in conflict with a corporate or private entities wish to increase operations through additional locations. Public and sometimes private citizens have a certain degree of influence over the acceptance of a new location in some communities. Opposition can be associated with current or future traffic issues, public opposition to business type based on regional culture and composition, and/or regional market saturation. The local government has the ultimate deciding force on these situations of opposition.
Economic factors:
The current interest rates in the United States are in favor of real estate expansion as they have recently met record lows due to the international and local economic situations. The current high levels of unemployment favor the type of employment that the McDonald’s corporation offers, as they are also historically high. McDonalds offers entry level and low-level management positions that can be filled by people who would possibly be employed by other markets if the economy were better. The market for the type of product that McDonald’s Corporation offers tends not to decrease to any extreme degree during times of economic strife, as the offering is low cost and convenient and may be chosen over other restaurant offerings because the cost is lower in perception and reality.
Long-term economic development seems to be on the upswing as the two-year slump associated with the 2001 terrorist attacks and their aftermath seems to be coming to an end. Market trends are expected to enter into a growth phase by the end of 2003. The GDP of $36,300, in 2002 is expected to increase moderately through 2004 (rising to 2.5% and increasing by 0.3%). Level of inflation is 2.8% (2001). Unemployment rate for 2002 was 5% but is greater or lesser in some regions throughout the country. (CIA World fact book 2002)
Sociocultural Factors:
The dominant religion within the largest McDonald’s Corporation market, the U.S. is Christian, yet the government is secular in nature and most people do not practice religious dietary restrictions. The attitude toward foreign market products and services in the United States is open. The market expresses free trade interests and consumers tend to purchase based on price rather than origin of product. The issue of foreign products acceptation is a much greater issue in the other 120 countries where McDonald’s offers services. For the most part McDonalds has been embraced by the international community as a welcome American export. In those countries and regions where the predominant religion does not embrace the eating of red meat McDonalds has had a more limited influence.
Language and weights and measures have had some influence upon international marketing of McDonald’s services. Some products require renaming as the dominant system of language and/or weights and measures does not translate into the same product meaning which is traditionally associated with a certain product. Yet, to a large degree the services provided are streamlined and the packaging and products are universalized through distribution practices of the corporation.
A decrease in leisure time in the U.S. has influenced the growth of the McDonald’s market as the less time an individual or family possesses the more often they will partake in convenience offerings like fast food. McDonald’s niche has clearly focused on trying to serve an economical, desirable and appetizing product to people in a hurry. Consumers therefore increase their utilization of services that McDonald’s is clearly a trendsetter for, like drive thru restaurants with timed delivery. As the industrial and market influence of the 24-7 economy of the industry of the United States spreads to other countries, through corporate investment and international employment from companies like McDonalds this trend will also increase the growth of the corporate interests of McDonald’s corporation internationally. The population with in the United States is living longer and the elderly population often has a greater degree of expendable wealth and occasionally a lower degree of functioning associated with aging increases the reliance upon convenience and prepared or packaged food.
Technological factors:
The technology of delivery and communications was crucial to the historical growth of the McDonald’s corporation and is integral to its future growth. The ability for a McDonald’s restaurant in a distant nation to receive products that allow it to operate, much the same as one that is just a few miles from a distribution house is foundational to the consistent reputation of the company. Also the technology of rapid and mechanized food preparation, much of it pioneered by the McDonald’s Corporation is integral to the functioning of a McDonald’s restaurant. The continued increase technology that allows fewer employees to more rapidly produce a consistent product will continue to increase the competitive edge of the McDonald’s corporation. The benchmark development of the drive through restaurant service has increased the number of customers one location can serve tenfold and the rapidity continues to increase.
The restaurant lobby can be smaller and the employee base can serve both the lobby customer and the drive through customer. Payment technology has also increased the rapidity that customers can be served as the use of in-store ATMs and rapid access Credit and Debit systems decrease the time that transactions take to be completed. Additionally, the computerized ordering systems also increase the time it takes for an order to reach the preparation areas.
SWOT analysis:
Strengths:
Marketing of both new and old standard products continues to draw customers, with cost incentives and also promotional products, such as happy meal toys that are current with the desires of children. The international expansion of McDonalds, both corporate owned franchises constituting 30% of the total restaurants and private owned franchises is in a constant growth pattern. (Hoover’s Online) The leading edge system for the constant trial of new products and services also lends greatly to the companies successes.
Weaknesses:
Though new technology is integral to the success of the corporation, individual independent franchise owners are often at a disadvantage for obtaining and implementing new technology and services. Though McDonald’s Corporate attempts not to challenge the business of the independent owners it is a constant struggle to maintain the structure without private and corporate services being each other’s largest competitors in some markets.
Opportunities:
McDonald’s Corporation is internationally recognized for it consistent service and quality product. It is on the leading edge for the type of service it provides and the market it serves. The image of the golden arches is a recognized symbol that ensures a customer the ability to receive quality at a fair price and in a rapid manner. Continued international growth is inevitable and is not completely determined by the economy of one or another nation but by the broader, global economy.
Threats:
McDonald’s Corporation has been under constant competition from other competitive market providers. The maintenance of quality and ingenuity is integral to future success and continued market leadership. Without the technology that allows the rapid distribution and product service to happen each McDonald’s restaurant would operate as a completely separate entity and might not satisfy the corporate ideal. Clearly the largest threat to the organization is from without and maintaining a constant eye on internal weaknesses is crucial to continued growth and success.
Stake Holder Analysis:
The corporate stock rating for MCD is set at hold, which delineates expected continued steady growth. Quarterly financial report follows:
All amounts in millions of U.S. Dollars except per share amounts.
Quarter
Ending
Quarter
Ending
Dec 02
Quarter
Ending
Quarter
Ending
Jun 02
Quarter
Ending
Revenue
Cost of Goods Sold
Gross Profit
Gross Profit Margin
SG&A Expense
Operating Income
Operating Margin
Total Net Income
Net Profit Margin
Balance Sheet
Dec 02
Jun 02
Cash
Net Receivables
Inventories
Total Current Assets
Total Assets
Short-Term Debt
Total Current Liabilities
Long-Term Debt
Total Liabilities
Total Equity
Shares Outstanding (mil.)
http://www.hoovers.com/quarterlies/4/0,2167,10974,00.html
In addition to slow and steady growth that can be shown by the above financial statement estimated growth charts can also give the shareholders a good idea of the constancy of their purchase. Expected earnings report compares quarterly data from the same quarter in the previous year to the current pattern of growth for the corresponding quarter in the present year.
Last Updated: June 21, 2003
Earnings Snapshot
Period
End
Mean EPS of Estimates
Year Ago
Actual
Q1
Jun 03
Q2
Q3
Dec 03
Q4
P/E Ratio
Consensus Recommendation
Hold
Year Growth Rate
Data Provided by First Call/Thomson Financial. On Hoover’s online. (http://quotes.hoovers.com/thomson/analyst.html?c=10974&templ=4&t=MCD&e=NYSE&n=McDonald%26%2339%3Bs+Corporation)
Five Forces Analysis:
Though a five forces analysis is often associated more with individual business entities a corporate multi-location store with private franchise owners could benefit from its use. Individual franchise entities may be better served with this sort of business analysis, and 70% of McDonald’s restaurants are privately owned. According to an online interactive Michael Porter’s Five Forces Analysis survey, available through Strategic Advantage Incorporated, the industry/market that McDonald’s dominates has these summary characteristics:
CUSTOMERS
Buyers/customers are a weak force in the industry. Powerful buyers drive down profitability because they bargain for lower prices, demand better product features for the same price, and play one competitor against another. Weak buyers are not likely to be as price-sensitive or to impose demands on companies in the industry.
COMPETITORS
Rivalry among competitors in the industry is moderate. Competitors can drive down industry profitability by cutting prices or offering more product features for the same price. When rivalry is most intense, competitors often compete head-to-head on price. When competition is disciplined and constrained by industry norms, rivalry is weak.
SUPPLIERS
Suppliers are a moderate force in the industry. Powerful suppliers drive down the profitability of companies in the industry because they can charge higher prices for the products and services they sell. Weak suppliers are not likely to bargain on price or impose demands on companies in the industry.
SUBSTITUTE PRODUCTS substitute product provides the same functionality but is not identical to potentially competitive products. For instance, train travel is a substitute for air travel since both are a means of traveling long distances; movies are a substitute for television since both provide visual entertainment. Substitute products are a moderate force in the industry. Substitute products constrain industry profitability by limiting the selling price companies in the industry can charge. If air fares rise too high, people will start using trains. Moreover, if the quality of the substitute is higher, buyers will switch to the substitute. That’s why more people fly than take the bus across country.
NEW ENTRANTS
New entrants are potential competitors. New entrants are a moderate force in the industry. The easier it is for new companies to enter the industry the greater the competition in the industry. New entrants will often attempt to break into the industry with low prices, innovative products, or new features and benefits. When it is difficult to enter an industry, the threats of new entrants is low. (strategic Advantage, 2003)
Recovery Recommendations:
Some recommendations that might serve the McDonald’s Corporation in both the short- and long-term can be found in response to the five forces online survey.
Customer force:
Find new ways to differentiate your product/service that have value to the customer. Even if your product is a commodity, there are ways to differentiate it in terms of the services that surround it. Differentiation can occur from the very first time customers becomes aware of your product to the time when they must dispose of it.
Offer additional services or support to customers in exchange for a larger share of their total purchases. Develop services that make it easier for them to work with your company as a single source supplier. Fill in gaps in your portfolio of goods so they don’t have to look elsewhere for related products.
Competitor Force:
Find new ways to differentiate your product/service that have value to the customer. Even if your product is a commodity, there are ways to differentiate it in terms of the services that surround it. Differentiation can occur from the very first time customers becomes aware of your product to the time when they must dispose of it. Develop new ways to control and minimize inventory levels. Unless managing inventory is a core competency (i.e., you’re better than any of your competitors) outsource it to companies who excel in that area. Find ways to have your supplier or customers carry inventory for you.
Customer Force:
Be on the constant lookout for alternative raw materials to use instead of your current raw materials. What could you use as a substitute that has similar characteristics but is more of a commodity?
Acquire one or more key suppliers if they are adding more value to the end product than you are. Move down the value chain if you want to reap more profits. Turn a cost center into a profit center. If your suppliers are making more than you are, you need to be doing what they do.
New Entrants Force:
Find new ways to differentiate your product/service that have value to the customer. Even if your product is a commodity, there are ways to differentiate it in terms of the services that surround it. Differentiation can occur from the very first time customers becomes aware of your product to the time when they must dispose of it. (Strategic Advantage, 2003)
The best advice that could be offered to an international giant, such as McDonald’s Corporation is to continue to formulate and utilize best practices that will continue to provide consistent products for the customer and continued steady profit for the investors. The United States economy is in recovery and will continue to cause the growth of spending for the market. Unemployment rates may decrease, reducing the available pool of employees but will also offer more spend able cash to the industry.
Works Cited
CIA World Fact Book (2002). Retrieved June 23, 2003, at http://www.cia.gov/cia/publications/factbook/geos/us.html
Hoover’s online.(2003) McDonald’s Corporation Facts Pages. Retrieved June 23, 2003, from www.hoovers.com.
Strategic Advantage. Michael Porter’s Five Force Analysis. Retrieved June 23, 2003, at http://www.strategy4u.com/assessment_tools/info.php?s=2
