Mc Donalds Case Analysis

Bryson Frazier

McDonald's Corp.

BUS 453

Mc Donald's Corporation

During the late 1990's and the beginning of the new millennium, McDonald's found itself in a regression, the first one since its conception in 1955. The Gold Arches weren't shining like they once did, however there are in the process of being polished, figuratively speaking. In 2003 McDonald's ranked eighth out of 100 brands in the Global Brand Scoreboard assembled by Interbrand Corporation and Business Week, proving that McDonald's is one of the world's best known and most valuable brands. However, that wasn't the case during 2001 and 2002.

McDonald's prided itself on its consistency in service, atmosphere, product quality, and restaurant experience. Every McDonald's restaurant was consistently the same. However, that all changed when McDonald's finished last in a national survey among 50,000 frequent eaters. The company that was once known for it good service and product quality, was becoming synonymous with poor service and product quality. In 2003 the company reported its first quarterly loss since it went public in 1965.

What went wrong for McDonald's? First, several new product launches didn't catch on with consumers. Second, McDonald's failed to improve operations, such as fast wait times for food, and custom orders. Third, internal conflict; franchise operators blamed corporate executives and corporate executives blamed the franchise operators for the problems the company was experiencing.

External Analysis

McDonalds has been the leader in the fast-food industry for decades, literally changing the way Americans ate. Like every other business, McDonald's is subject to opportunities and threats in their specific and general environmental sectors. Let's take a look at the opportunities and threats effecting the specific and general environment:

Opportunities: specific environment

* Consumer tastes and trends are changing and McDonald's need to be able to adapt to them. There is a huge opportunity to develop new products that appeal to the health conscious customer. To be more specific, McDonald's needs to develop new products that appeal to young, health conscious women. So many women were taking their children to McDonald's and buying their kids food but not buying any for themselves, because of the lack of healthy choices on the menu. This is a huge opportunity that McDonald's hasn't been capitalizing on.

* Because consumer tastes are changing there is an opportunity to develop new product lines that appeal to the new tastes of consumers. McDonalds's last "big hit" item was when it developed Chicken McNuggets 1983. Just like how they weren't capitalizing on the opportunity to develop healthier products, they weren't capitalizing on a substantial opportunity to develop new products that satisfied consumer tastes.

* McDonald's also has an opportunity to exploit economies of scale for their benefit. Since McDonald's has over 30,000 stores in over 100 countries, economies of scale should be exploited. For example, increasing levels of activity in their functional areas can lead to cost saving because fixed costs are spread out over a larger volume, driving the cost per unit (hamburger, Big Mac, etc) down.

* Bargaining power of buyers. Since consumers only buy small amounts of food, and prices between competitors are similar, and products between competitors are differentiated, buyers (customers) have little bargaining power, thus creating an opportunity. Also, since the products McDonald's sells aren't a significant part of consumer costs, it allows McDonald's to decide on the best price for their products.

Opportunities: general environment

* The fast-food industry has a lot of growing potential because an increasing portion of consumer dollars are being spent on eating-out. According to the Department of Agriculture, consumption of food away from home accounted for 46.1% of total food expenditures in 2002. Because there is room for so much growth within the industry, McDonald's should focus on increasing its market share.

* Demographics/ Sociocultural. McDonald's spent so much time, effort, and money on appealing to children that they neglected teens, young adults, and adults. This was a huge strategic mistake on McDonald's part, not to mention a missed opportunity. They were successful in appealing to kids, all kids' love McDonald's, but as people get older a cheap Disney toy and a happy meal won't satisfy consumer trends and tastes. There is a huge market that McDonald's needs to attempt to appeal to; if they do it will result in a higher market share, and increased sales/profit.

* Technological. As the years go by society witnesses many technological advances, including the fast food industry. McDonald's should consider looking into new technologies that could improve their product quality and service. For example, HyperActive Technologies Inc, a Pittsburgh based company, "is testing technology at area fast-food restaurants designed to give kitchen workers a good indication of what customers want before the hungry souls even get close enough to place an order." (Site). The new system tell workers when they are about to get buys and even how much food to put on the grill. The system uses cameras to monitor traffic going into a restaurant's drive through

and parking lot. Right now the system is all about volume: if a minivan pulls into a drive through the system will tell employees that there is probably going to be more that one person wanting food. HyperActive expects to develop software in the next few years that will be able to decipher what type of vehicle is pulling in and even if that person would be more inclined to order a burger or a chicken sandwhich. Having a system like this would cut down on waste and costs, and increase drive-through

efficiency and customer satisfaction.

Threats: specific environment

* Consumer tastes and trends are an opportunity, but they are also a threat. A trend affecting the fast-food industry is the increasing demand for ethnic foods. Foods like sushi and burritos have been made readily available to consumers. McDonald's, known for its burger and fries could be threatened by changing consumer tastes. If consumer find McDonalds unappealing they will take their business else where (to competitors),