Mcdonald’S Vs. Burger King

Situation Audit

Since 1954, McDonald’s has seemed to be invincible. They have demonstrated consistent quality throughout thousands of restaurants. McDonald’s has enforced operational standards effectively that controlled service, cleanliness, and other operating processes. They have consistently hired friendly employees that contributed to customer satisfaction. And they successfully focused upon a specific target market for over forty-two years, the family. McDonald’s has maintained an unremitting marketing strategy specifically designed to attract families that include products, pricing, site locations, and advertising and media efforts. All of these strategic initiatives have contributed to the historical success of the organization. However, despite increasing sales and organizational operating income throughout the 1990’s, domestic income has remained relatively consistent. Over the last ten years, several company and industry critical issues have challenged McDonald’s traditional strategy and its market position.

McDonald’s has demonstrated tremendous growth. Just after six years of operating, the founder Ray Kroc, had sold 200 franchises. Within seventeen years, he had become a billionaire and was responsible for the success of one thousand millionaires! Sales and income have steadily increased every year and until 1998, McDonald’s has had a positive percent gain. In 1998, McDonald’s was opening 2,400 new restaurants around the world. A confident marketing attitude prevailed that believed only one percent of the world’s population eats at McDonald’s daily, therefore, the remaining ninety-nine percent represents an untapped market. McDonald’s sustained an aggressive global growth strategy to gain market share and profitability worldwide. Standardizing materials and equipment contributed to expansion efficiency and decreased new building and construction costs. McDonald’s also grew through the purchase of 184 outlets owned by a weak competitor, Roy Rogers.

McDonald’s increased its convenience to the customer by building satellite restaurants in nontraditional places like hospitals, museums, gas stations, and retail stores such as Wal-Mart and Home Depot. In addition to physical growth associated with building, McDonald’s invested in immense advertising initiatives that included marketing deals with Disney. In 1995, advertising expenses accounted for 6 percent of sales, or $1.8 billion. Even in the early years, advertising efforts proved to be worthwhile. A survey of school age children conducted in the 1970’s found 96 percent of the children surveyed were able to identify Ronald McDonald. He was only second to Santa Claus!

With 7,012 outlets and 24,800 traditional restaurants in 89 countries throughout the world, McDonald’s aggressive growth strategy was presumably very successful. However, aggressive growth does not come without potential consequences.

McDonald’s has used aggressive growth to capture more market share, but the industry has not been without competition. Burger King enjoyed 28-29 percent of McDonald’s total sales from 1993-1998. Pizza Hut and Taco Bell are also gaining popularity and market share.

Rapid expansion is blamed, by some, for a 2.5 percent drop in same-store sales from 1994-1995, a possible sign of maturation. Also, many believed that McDonald’s restaurants no longer competed with other fast food restaurants but other McDonalds’; thus, experiencing cannibalism.

The traditional McDonald’s target market was families; however, baby boomers and the aging population are less interested in fast food restaurants offering cheap and fatty foods. McDonald’s has made efforts to attract business from this new market segment. It has attempted several new menu items designed to offer “grownup tastes” that contributed little to an increase in market share or segmentation.

McDonald’s desire for expansion led to 24,800 restaurants in 1998, an increase of 7,991 stores since 1995. This changed represents a 32 percent increase in restaurants; however, sales only increased 17 percent. In 1995, international stores represented 38.5 percent of the number of stores worldwide. And in 1996, international stores provided 47 percent of sales and 54 percent of profits. Some might think the zest for market share came at a significant cost to profit and performance in the domestic market.

Strict operational standards that controlled service, cleanliness and other operational aspects have contributed to the success of McDonald’s. Customer’s enjoyed the quality of food and the cleanliness of the restaurant. Sales associates were expected to be friendly. All of these standards contributed to high customer satisfaction

Other controls contributing to McDonald’s success include a standardized menu and building standards. The standardize menu contributed to brand recognition. Customer’s knew what to expect when they entered any McDonald’s restaurant. Building standards not only help decrease building costs but also supported brand recognition. The development of playplaces enhanced the family image and targeted the traditional market segment.

Customer perceptions of quality, value, service, and cleanliness declined significantly as confirmed in a national restaurant survey conducted in 1995. McDonald’s responded with a new quality control program. Franchising 2000 was designed to establish a new set of business practices directed at improving quality and customer satisfaction. The standards established strict standards such as product prices, service grading guidelines, secret shopper experiences, and strict consequences, including store closure, for poor performers. Unfortunately, the program had such strict guidelines that franchise relations were stressed.

The efforts associated with the market share plan (cannibalism, competition, stricter controls, etc) all contributed to declining relationships between McDonald’s and franchise owners. Franchise owners did not have a sense of empowerment. They were unable to participate in decisions affecting their restaurants. They were unable to change the menus and prices. They were also not allowed to offer any local specials. Many franchise owners desired a kinder, gentler organization. One resembling the days when Ray Kroc was in power. Now, owners feel corporate management does not respond to their concerns. Poor franchise relations could provide havoc for McDonald’s since 60-70