Marketing Management (GSM 5200) 1

McDonald’s Case Study

Marketing Management (GSM

5200)
A Case Study of McDonald’s
Corporations: SWOT Analysis &
Business Strategies

PREPARED FOR:
(Professor Dr Khalifah Othman)
GROUP 3
Chan Shi Yun GM
04045
Hemamalini GM
04071
Navena Thambirajah GM
04036
Wong Siew Yen GM
04232
Zarizi Ismail GM
04054

Table of Contents
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McDonald’s Case Study

Table of Contents............................................................................................................................1

1. Company Background ................................................................................................................3

1.1. The Brand..............................................................................................................................3

1.2. McDonald’s Corporation: A Brief History...........................................................................3

1.3. McDonald’s Growth..............................................................................................................4

2. Situational Analysis (SWOT Approach).....................................................................................5

2.1. Strengths................................................................................................................................5

2.2. Weaknesses...........................................................................................................................6

2.3. Opportunities.........................................................................................................................7

2.4. Threats...................................................................................................................................7

3. Problem Statement.......................................................................................................................8

4. Solutions to Case Study Questions & Recommendations...........................................................9

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1.Company Background
1.1. The Brand

McDonald’s Corporation is the world's largest chain of hamburger fast food restaurants,
serving more than 58 million customers daily. In addition to its signature restaurant chain,
McDonald’s Corporation held a minority interest in Prêt A Manger until 2008 was a major
investor in the Chipotle Mexican Grill until 2006 and owned the restaurant chain Boston Market
until 2007. A McDonald’s restaurant is operated by either through a franchisee, an affiliate,
or the corporation itself. The corporation's revenues come from the rent, royalties and fees paid
by the franchisees, as well as sales in company-operated restaurants. McDonald’s revenues grew
27% over the three years ending in 2007 to $22.8 billion, and 9% growth in operating income to
$3.9 billion.

McDonald’s primarily sells hamburgers, cheeseburgers, chicken products, french fries,

breakfast items, soft drinks, shakes, and desserts. In response to obesity trends in Western
nations and in the face of criticism over the healthiness of its products, the company has
modified its menu to include alternatives considered healthier such as salads, wraps and fruit.

1.2. McDonald’s Corporation: A Brief History

In the late 1940’s, Dick and Mac McDonald’s were searching for a way to improve their little
drive-in restaurant business in San Bernardino, California. Rather than tinker with the business,
which was bringing in a very comfortable $200,000 yearly, they invented an entirely new
concept based upon speedy service, low prices, and big volume. They ditched their 25-item
barbecue menu in favor of a limited menu of just nine items: hamburger, cheeseburger, three
soft-drink flavors, milk, coffee, potato chips, and pie, with french fries and milkshakes added
soon after they resumed operations. They re-engineered their stainless steel kitchen for mass
production and speed with assembly-line procedures. And they slashed the price of their
hamburger from a competitive 30 cents to just 15 cents. When the new McDonald’s re-opened in
December of 1948, business took a while to build. But it soon became apparent that they had
captured the spirit of post-war America. By the mid-1950s, their little hamburger factory enjoyed
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annual revenues of $350,000 – almost double the volume of their previous drive-in business at
the same location. It was not unusual for 150 customers to crowd around the tiny hamburger
stand during peak periods. Word of their success spread quickly, and a cover article on their
operations in American Restaurant Magazine in 1952 prompted as many as 300 inquiries a
month from around the country. Their first franchisee was Neil Fox, and the brothers decided
that his drive-in in Phoenix, Arizona would be the prototype for the chain they envisioned. The
resulting red-and-white tile building with a slanting roof and the “Golden Arches” on the sides
became the model for the first wave of McDonald’s restaurants to hit the country, and an
enduring symbol of the industry.

For as little as a thousand dollars, franchisees would receive the McDonald’s name, a basic
description of their Speedy Service System, and the services of Art Bender, their original
counterman at the new restaurant, for a week or two to get them started. But then, in 1954, a
milkshake machine salesman named Ray Kroc saw the McDonald’s operation first-hand. The
fast food industry was about to take off.

1.3. McDonald’s Growth

McDonald’s growth in the United States soon became a series of milestones in sales, numbers of
restaurants, numbers of hamburgers served, and in establishing standards of quality, service,
cleanliness and value (QSC&V) previously unknown in the growing fast food restaurant
industry. The first national meeting of franchise owners was held in Hollywood, Florida in 1965,
celebrating the chain’s 10th anniversary with the theme, “The Sky’s the Limit.” It was also in
1965 that McDonald’s became a public company, selling its shares over the counter for $22.50
each – a price that sky-rocketed to $49 within a few weeks.

McDonald’s broke the billion dollar sales mark in 1972 and the stock split for the fifth time,
making 100 shares of the original 1965 stock equal to 1,836 shares. By 1990, our sales had
grown to $18.7 billion, passing the milestone of 80 billion hamburgers sold. McDonald’s 11,800
restaurants were in 54 countries. And top leadership changed for just the third time in our history
in 1990 – with Fred Turner becoming senior chairman and passing the baton to Mike Quinlan,
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who had begun working for McDonald’s in 1963 as a part-time mail clerk. In 1999, Jack M.
Greenberg took over the top job, which was passed to Jim Cantalupo, former Vice Chairman and
President, when Greenberg retired in December of 2002. McDonald’s was the only company in
the Standard & Poor’s 500 to have publicly reported 100 consecutive quarters of year-to-year
combined increases in revenues, income, and earnings per share since 1965. Not surprisingly,
Better Investing magazine ranked McDonald’s as the most popular and widely held common
stock by individuals and investment clubs. Out of respect for local cultures, McDonald’s
restaurants in Arab countries maintain “Halal” menus, which signify compliance with Islamic
laws for food preparation, especially beef. In addition, restaurants in Saudi Arabia do not display
statues or posters of Ronald McDonald’s, since the Islamic father prohibits the display of “idols.”
And the first kosher McDonald’s opened in early 1995 in a suburb of Jerusalem. It does not serve
dairy products, and is closed on Saturdays, the Jewish Sabbath.

The growth of McDonald’s to date – domestically and internationally – has proven the validity
of the first thought through Ray Kroc’s mind when he initially saw McDonald’s in operation:
“This will go anyplace.”

2.Situational Analysis (SWOT Approach)

2.1. Strengths
McDonald’s is the market leader in fast food franchise with huge customer base around the
world. Approximately 85% of McDonald’s businesses are owned by franchisee operating full
time in more than 23,500 restaurants in 109 countries. One of the main competitive advantages
of McDonald’s is strategic locations; these restaurants have global locations in all major
airports, cities, along the highways, tourist locations and shopping malls. The McDonald’s brand
is the most well known house-hold brand, the golden arches and spokes character (Ronald
McDonald’s the clown) is most recognizable logo in the globe. McDonald’s marketing has
successfully created a brand image of fast food delivery speed, cleanliness and customer care
in the minds of millions of consumers. Strong and marketable product which comes with
affordable price are able to captivate children and youth society, also the low and mid-range
income community who forms the majority of the consumer power in fast food industry.
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Customer knows what to expect when walking into McDonald’s restaurant. Innovation is a key
emphasis for McDonald’s to produce new product and diversifies its business venture to suit to
the changing trends and tastes of people and culture around the globe. McDonald’s is easily
adapted their global restaurants to appeal to cultural indifferences around the world. Its products
are localized to the people’s culture and taste in the country. For example, in Islamic
countries, McDonald’s restaurants maintain “Halal” menu, signify the compliance with Islamic
laws of food preparation. In China, the McDonald’s menu is adapted to local Chinese culture for
which soups and vegetables are included in the all menu.

McDonald’s has good governance of its operating line, following strictly food safety guidelines
to provide nutritional values in the food. There were more than 2000 inspections checks in the
food preparation processes. McDonald’s runs through 72 safety protocol days to ensure food is
maintained in clean and contaminate-free environment. Nutrition information is provided to
customer and it is printed on all packaging including in McDonald’s internet web-sites.

McDonald’s is a community oriented and socially responsible company. The famous Ronald
McDonald’s Houses provides accommodation, food and sibling support for families with
children needing extensive hospital care.

2.2. Weaknesses
Over the years, McDonald’s had created successful branding and image in the heart of children
and teenage group. The market segment is too focusing on kids. McDonald’s must start to
change its marketing strategy and expand their business into other segment to remain
competitive. McDonald’s brand is often related to unhealthy food and obesity, such as
hamburger, french fries. Little has been done by McDonald’s to counter these claims. One of
the fastest growing trends in recent year is organic food. McDonald’s has yet to capitalize on the
trend towards organic food.

Like any other organization in the hospitality industry, McDonald’s is also faced with high
employee turnover rate, which leads to more money spent on recruitment and training.
McDonald’s has problem with fluctuations in operating and net profits which impact its
investor relations. The operating profit has declined 19% from year 2000 (USD3330 mil) to year
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2001 (USD2697 mil), net profit was USD 1637 mil in year 2001 compared to USD 1977 mil in
year 2000.

2.3. Opportunities
The company has more strengths than its weaknesses. With a good management and product
development, the company will survive all the changes and competition in these day and future.
Health consciousness is the market trend around the globe; McDonald’s can introduce healthy
food such as low calorie combo choice, putting more effort in the R&D on introducing healthy
food and eating habit. McDonald’s can expand its product offering into organic food. These
strategies will allow McDonald’s to ensure their place in top spot above all others. The
management can improve the company fluctuating operating profit with better cost control to
reduce food wastage and better manage its production and frontline offices with lean
management.

McDonald’s can tapped on outsourcing to reduce resources spent on administration and also
food delivery, leverage on off shoring for 24 by 7 customer care hotline and internet online
technology for taking orders. McDonald’s also needs to cope with the fast changing consumer
needs and trends to ensure sustainability and competitive advantages. The marketing and
product R&D will need to work on offering more varieties to entice existing and new
customer base. For example, besides “fast food”, the business can be expanded to offer “fast
beverages” such as coffee varieties, milk tea series. Currently McDonald’s have industrial,
Formica restaurant settings. One of the strategies that McDonald’s can venture into is expanding
its restaurant varieties to capture different market segments such as business executives, internet
café surfer. Such recent business innovative is Mc Café.

2.4. Threats
McDonald’s faces major competition from the fast food industry and hamburger business.
The greatest competitor for McDonald’s is KFC and Burger King. Other competitor in the
franchise and fast food industry are Starbucks, Taco Bell and Wendy’s. McDonald’s is
benchmark for “cradle to crave” marketing by enticing children as young as one year old into
their restaurant with special meals. McDonald’s had faced critics from parent advocate
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groups for their marketing practices and ethicality. McDonald’s has been sued multiple times
for “unhealthy food” allegedly with addictive additives contributing to obesity epidemic in the
US. As a leader in the global food service retailing business, McDonald’s needs to strategize on
its business, market, product R&D to minimize and overcome these threats.

3.Problem Statement
McDonald’s Corporation or rather the CEO, Mr. Greenberg realized there was a major problem
arising within their corporation when their earnings declined in the late 1990s till the early
2000s. Their net income not only shrunk to 17%, but also suffered from slow sales growth below
the industry average during that period of time. Although their market share was well above their
competitors such as Burger King and Wendy’s nevertheless there was a slow share growth.

Therefore the question of what caused the Big Mac Attack is raised. It is observed that there was
a growing trend of customers moving to non hamburger meals which is being offered by
indirect competitors such as KFC, Subway (dominating the market with more than 13,200 US
outlets) and Pizza Hut as an alternative choice. Sandwiches and a variety of microwaveable
meals are being offered at supermarkets, convenience stores and even at petrol stations. This
convenience has caused many patrons to switch away from the fast food outlet.

Besides that, there seems to be an increasing trend in fast casual dining which has affected
sales for McDonald’s. Patrons are now more willing to spend extra for the traditional fast serving
but with a better and classy ambience. Due to this ‘phenomenon’, the growth for fast casual
segments grew from 15 to 20% compared to only 2% growth from fast food chains. Taco Bell
for instance had an outstanding 19% increases in their profit which proves that higher priced
outlets are still in demand.

McDonald’s is also facing a stiff competition among the hamburger eateries such as Wendy’s
and Burger King. These major competitors are catching up fast by recognizing the importance of
drive-through customers. In order to rope in the 65% of sales which is derived from drive-
through delivery, these competitors are enhancing their preparation methods as well as the
facility and speeding up their delivery process. Innovative approaches such as windshield
responders that automatically bill customers are being introduced, to achieve the estimated 10%
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efficiency increase in drive-through which brings in an average sale by $54,000. Besides

upgrading the drive-through services, these competitors have also understood the market
preferences and have taken the risk as hamburgers outlets to offer new product lines ranging
from healthy salads to chicken based products prepared in a healthy manner.

Furthermore, the eating trend among the youth and the older generations has undergone
significant changes. Many patrons are becoming more health conscious and tend to be picky in
determining their daily consumptions. This group of people has also expressed their
dissatisfaction on the quality of food which is being served by both McDonald’s and Burger
King. It is an obvious fact that burgers served soaking with fat and oil is bound not only to affect
patron’s health but their conscience as well. Besides health reasons, many Americans’ eating
habits have changed towards the concept of eating out. Recession during that era has taken a
heavy toll on many citizens causing them to be thrifty and have returned to home cooked meal
instead.

Upon analyzing the causes to the problem, it is noted that these problem are vital to be addressed
in order to sustain the life span of McDonald’s. The decline of sales within McDonald’s in USA
can lead to a chain reaction and in the long run and cause declines in the group’s worldwide
annual sales and growth. Once the root cause has been identified, McDonald’s will be able to re-
strategies and develop new and innovative product line, promotions, facilities and even to
venture into new market segments. In order to re-capture the lost patron segments, the need to
shed the cheap and greasy image with a revamped store design may arise. However the drawback
of this is when additional cost may be incurred in order to compensate the eating trends.

4.Solutions to Case Study Questions &

Recommendations
Q1. How are customer's tastes changing? What Impact these changes have on McDonald’s?

The Changes in Customers Tastes

Customer tastes are changing in line with maturing markets and the change of lifestyle. It does
not just affecting McDonald’s alone, but to the entire players in the industry.
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• The demand for non hamburger fast food had grown faster than ever. Companies like
McDonald’s, Burger Kings , Wendy’s and Hardees’s are losing business to the other fast
food operators that are selling non hamburger type of food like Pizza Hut, KFC, Taco
Bell etc. Trend of eating sandwiches—Subways.

• The demand for speedy services at a drive-through section has gone up, prompting huge
investment to by the players in order to retain or grow the section business. Its 65% sales
contributions are too much and to be taken lightly.

• People are moving away from “cheap and greasy” image to a fast-casual segment and are
willing to pay more for a more comfortable and nicer surrounding.

• The changing of eating habit toward a healthier choice continues to drive customer away
from Fast Food operators. People are getting tired of fast food and are thinking about
their health. People are looking for a better alternative.

• There is a growing trend of not dining out and it is supported by an emerging new way of
eating for busy people like a quick self service, straight to microwave solution as
provided by most of supermarket products.

The Impacts of Changes to McDonald’s

• The decline in group annual sales and growth worldwide

• Extra cost to compensate the change of taste through product innovation (new products
offerings), better facility (setup and design to improve the restaurant looks and processing
time), promotions (discounted items, replacing old idea of free toys to a new idea, using
stickers), trainings (to increase efficiency and speed) and advertising (paradigm shift).

• Venturing into a new market segment such as Gourmet Coffee Shop (Mc Café) in an
attempt to boost sales and generate new business.

• Had to step up efforts into Research & Development in order to innovate of nutritious but
tasty foods
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• Additional cost to educate customer in terms of a healthy diet, myths and facts about
McDonald’s

Q2. How Well These Changes Reflected In the Industry’s Competitive Strategies?

The company realizes the changes and immediately counter act with their own strategies to re-
capture the loss interest in their customer. Many of them, including McDonald’s use the same
methods by:

• Expediting product innovations. They have created a series of new offerings to entice the
market and to draw back their customers’ base. Lots of new lines up are introduced
between them; some even came up with special promotional price for a limited period.
These had helped them to remain in the radar and generate interest again.

• Advertisement is used to change the perception of the mass. For example, McDonald’s
uses this approach to create a message of a tasty and nutritious foods, friendly folks and
full of fun dining experience. This type of advertisement is a very powerful tool to create
a new notion of its customer and more often than not, counter weight the changes of taste
among its customer. It will at least create a positive image of the company and its
product. Good enough to buy the interest back.

• Special promotions are used by the company to draw the sales revenue. A limited time
offer or specially priced items are introduced to bait customer’s interest. This will help
the business to generate sales and remain competitive in light of change and hefty
competition.

• McDonald’s approach in its Corporate Social Responsibility will help them to win
support from its existing customer. The customer will feel that by supporting
McDonald’s, they will be part of this very dedicated and responsible corporate who are
giving back some of its profit to the society. This strategy will harness a loyalty amongst
its customer and the company.
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• Measures taken to outsource some of its direct segment, indirectly lowering the
operational cost related to every McDonald’s outlet.

• Investment undertaken to create an effective assembly line and layout e.g. special kitchen
and ordering point for drive through customers.

Q3. McDonald’s Future with Its Current Strengths and Weaknesses

The company has more strengths than its weaknesses. With a good management and product
development, the company will survive all the changes and competition in these day and
future. What the company needs to do is that they should establish themselves with a healthier
image. They should be having more research and development in order to provide the best
food in terms of taste and benefit. This will ensure their place in the top spot above all others.
McDonald’s also must turn their weaknesses into strengths and further cutting unrelated cost
down. From time to time, they must also introduce more varieties in food and beverage section,
to entice customer and to show a fast response to customer change of needs and trend.

Q4. Does McDonald’s require Separate Strategies for Its Heavy User?

We do believe that current approach is sufficient to tie the heavy users since they will also be
benefited from any other strategies currently implemented such as promotions and discounts. It’s
their loyalties that bind them with McDonald’s and as long as the quality is there, the price is
correct; the heavy user will not drastically change to others. However, the Management should
closely monitor its rival’s pricing and products so that it will be able to match anything that is
offered.

At the same time, looking at a sizeable drop of percentage on new born baby in most of
developed countries, McDonald’s do need to revise some of their current strategies for future
grow. And with a fast technological modernization, they should seriously consider to go online,
utilizing e-payment services and mobile ordering technology. These will create value for
growth and securing long term plans.
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Different strategy should also be implemented to lure healthy food advocates to retain their
interest in McDonald’s. Some products need a redo. This to include a reduction amount of salt,
grill meat rather than fried, less usage of fats and more on vegetable. But with all this changes, it
should retain the original recipes and the traditional way of producing the food in a way not to
lose customer affection towards it.

Some other important strategies that can be incorporated are on a strategic location (consumer
density vs. income level), strategic marketing (free music album), extending product to
include breakfast set (market niche) and an introduction of huge TV screen or other
interactive medium (for entertainment). This could improve the business by having more
customers and lure them to their interest, creating an anosmatic charisma where food and
entertainment is one of the greatest combinations.

Q5. What the CEO Should Do To Grow Sales, Profit and Market Share at McDonald’s?

Strengthening the Brand to Provide a Top Quality Product

It will help McDonald’s to lead the market by generating higher demands and sales. This can be
achieved when the products underwent improvement in response to the demand it has. For
example, an improved taste of double cheese burger and a new long cut of its french fries. These
are the basic products in which have tremendous increases in term of sales growth after going
through such improvement. In order to grow sales, profit and market share, McDonald’s needs to
identify its potential long run opportunity, riding on its market experience and core
competencies.

Product Convergence

McDonald’s should rampant into product convergence by combining both hamburgers and non
hamburgers products to obtain better market opportunities. McDonald’s can build customer share
by offering a larger variety of goods to existing customers.

Measuring Its Marketing Effectiveness

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McDonald’s cannot be complacent with its current market position. It should continuously
market its product effectively and create a positive image in its marketing plan. Promotional and
discounts should enter the market at the right time to maximize the return.

Driving New Product Development Based On Customer Needs

The product needs to be desired and must be set within a correct price range. The product should
have it cycle lifetime and to be review/improved as and when is needed. This will in turn grow
McDonald’s customer base and generate profit.

Gathering Meaningful Customer Insight

The Company must move according to the positive insight provided by the customer. This will
help the company fix its image and products according to the right perspective and demand.

Utilizing New Marketing Technology

Nowadays, a lot of new techniques are invented which are more effective and cheaper. The
Company need to fully utilize this advancement in technology to grow its business and attract
new market while at the same time putting the cost lowest possible. For example, by going
“online”. Online marketing activities play and increasingly prominent role in building brands and
selling products and services. McDonald’s can use the internet as a powerful information sources
and sales channel, augmenting their geographical reach to inform customers and promote their
businesses and products worldwide. By establishing more websites, McDonald’s can list their
product and services, history, its business philosophy, job opportunities and other information of
interest to visitors. McDonald’s can send advertisement, coupons, samples and information to
customers who have requested them or have given to company permission to send them via
internet. McDonald’s can now assemble information about individual customer’s purchases,
preferences, demographics and profitability.

Choosing Communication Options That Reinforce and Complement Each Other

McDonald’s can selectively employs television, radios, printed advertising, public relations and
events, PR and websites communications, so that each contributes on its own well as to
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improving the effectiveness of the others. Each communication must also deliver a consistent
brand image to customers at every brand contact.

Relationship with Its People and Customers

McDonald’s needs to develop deep, enduring relationships with people and organizations that
could directly or indirectly affect the success of the company. The four keys constituents from
relationship marketing that McDonald’s needs to develop are customers, employees, marketing
partners (suppliers) and members of financial community (shareholders, investors and analysts).
McDonald’s should also have the customer retention program.

This is one of the most important tools to create loyalty among its existing customers. Attracting
a new customer may cost five times as much as doing a good enough job to retain and existing
one.

Marketing must skillfully conduct not only customer relationship management (CRM) but
partner relationship management (PRM) as well. Company is depending on their partnering
arrangements with key suppliers and distributors, thinking of these intermediaries not as
customer but as a partner in delivering value to final customers so everybody benefits.

Cost Control
Every dollar of cost saved is equal to every dollar of profit generated. Cost control is very
important to ensure a correct pricing to its products. Every product with a correct price is a
potential sale to the company. McDonald’s can consider subcontracting or outsourcing those sub
processes which has significant reduction in while retaining the core processes.

Robust Sales Strategies

Good sales strategies can create competitive advantages to McDonald’s. The Company should
plan its sales activities according to specific situation e.g. 24 hour operations to certain outlets,
methods of reaching its clients (customers and franchisee), outline its competitive differences
and indentify available resources. The advantages to these are too compelling to be ignored.

Effective Supply Chain Design And Management

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In a race to lower down the cost while maintaining top quality, an effective Supply Chain Design
and Management can create a competitive advantage by enabling to get raw products to reach the
franchisee reliably quicker and cheaper. This will ensure zero abruption to the outlet’s operations
and maximize returns.

Acquisition through Vertical Channel in Every Country

McDonald’s needs to capture a higher percentage of supply chain’s value delivery system, e.g.
engage reliable supplier, supplier who can support JIT (Just In Time) approach to avoid too
much of inventories and affecting company cash flow. If these failed, McDonald’s should
consider moving through vertical acquisition, imitating KFC to seriously control the supply of its
raw material. Whatever items that are locally produced will cost less and acquiring these
suppliers will be a good integration to the company’s needs.

Managing Development

McDonald’s needs to manage all possible touch points-store layouts, package designs, product
functions, employees training, shipping and logistics methods. To create strong marketing
organization, the McDonald’s marketer must think of executives in other departments, and
executives in other departments must think mere like marketers. Every employee has an impact
on the customer and must see the customer as the source of the company’s prosperity.
Emphasizing on the interdepartmental teamwork to manage core business processes, such as new
product realization, customer acquisition, retention and order fulfillment. McDonald’s also trains
their employees in cross-selling and up-selling.

Think About Its Rival in the Industries

McDonald’s needs to think of effective way to compete with actual and potential rival offering
and substitutes a customer might consider. The customer has choice of opting for other fast food
providers besides McDonald’s e.g. Kings Burger, Wendy’s, Pizza Hut, KFC, etc. McDonald’s
needs to have competitor’s information and understand the competitor’s success factors before
they can provide better marketing strategy plan to compete with the competitors.

Public Image
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McDonald’s has to carefully consider their role in the social context especially on obesity and
health issues. McDonald’s can expand their “societal marketing concept” into obesity and health
conscious target markets and deliver the desired satisfaction more effectively and efficiently than
competitors in a way that preserves or enhances the consumer’s and society’s long term well
being. McDonald’s is striving for a “socially responsible supply system” encompassing
everything from healthy fisheries to redesigned packaging. This is an important strategy to boost
McDonald’s public images and to compete in fast food industry.