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02/16/2012

McDonald's Strategic Choices


 

 

McDonald's Strategic Choices

 

 

 

 

 

 

As Dick and Mac, the McDonald brothers opened their first restaurant in 1940 in San Bernardino, California, the phenomenal growth that their business is not expected. From very beginning, the brother hit on a winning formula selling a high quality product reasonably and swiftly. Yet, it was not until Ray Kroc, a Chicago based salesman with finesse for marketing, became part of the business. As Ray Kroc joined the venture of McDonalds, he recognized that the same flourishing McDonald's formula may perhaps be exploited all through the United States and beyond. 

Because of the successful expansion and growth of McDonalds into different parts of the globe, it become a living symbol of globalization and spread the American culture in the world.

             

Figure 1.  McDonalds Branches in the World

Source: McDonalds.com 2009

Today, McDonald’s restaurants are found in 120 different counties and territories around the globe and serve 54 million customers each day. The company also operates restaurant brands such as Piles Café and Boston Market. It also has a minor stock in Pret a Manger. The company also owned majority stock in Chipotle Mexican Grill (McDonalds.com 2009).

The reason behind the success of McDonald’s is because of its proper management of innovation which is also similar of what Wal-Mart does to maintain their success. McDonald’s is always making sure that they always have something new to offer to their customers. They are using recipe and technological innovation to enhance their service to meet their customer’s satisfaction.

As for growth strategies, innovations are crucial for most companies. For this reason, Wal-Mart have joined and created several innovations centers for continues growth (morerfid.com 2009). Similarly, the Romeoville warehouse is the dwelling of the McDonald’s Innovation Centre. As stressed by Wallop, (2006), this is where the fast-food group tests most of its gimmicks and ideas.

Actually, McDonald’s established the Innovation Center, the Innovation Council and the Strategic Innovation Process to take diverse ideas from various branches of the restaurant from different parts of the globe. Those ideas that will be gathered will be put into restaurant setting and try it to 50 to 100 restaurants to see if it will work. This will enable the McDonald’s to test not only the products, but also the working platform and all the systems in the restaurant to coordinate with the other transformations (Gubman & Russel, 2006). 

Compared to the growth practices of Wal-Mart, McDonald’s was actually doing the similar strategy.  For Wal-Mart, their systems show expressive coordination. Electronic linkages with suppliers that keep the shelves well-stocked at minimal cost are part of Wal-Mart’s business success (Zook, M. & Graham, M. 2006). Their highly motivated staff, inspired by the late Sam Walton's habit of driving around in a pickup truck visiting stores, and supported by concepts like teamwork and delegation is also a contributing factor for Wal-Mart success which is also happened to be part of McDonald’s culture (Zook, M. & Graham, M. 2006). Aside from this, paying attention to customers is also crucial for both Wal-Mart and McDonalds. For the said companies, customers really do come first. And leadership, the most elusive but conceivably most compelling factor in managing cannot be disregarded. Wal-Mart represents a mixture of factors - a numerous decisions and decision - that collectively led to its remarkable triumph (Zook, M. & Graham, M. 2006).  In McDonald’s setting, leadership is also part of their growth strategies.  With this, the following are the current SWOT of McDonald’s.

 

Figure 2. McDonald’s SWOT Analysis

 

Strength

Weaknesses

• Strong brand image and reputation and strong global presence

• Great quality of product;

• Strong real estate portfolio;

• Strong market position;

• Quick response to the changing needs and demands of customers;

• Not finance corporation to its franchises;

• Specialized training for managers known as the Hamburger University;

• Good Human Resource Management and Marketing

• Disgruntled franchisees;

• Quality issues across the franchise network of the company.

• Core product line out of line with the current trends towards healthier lifestyle for children and adults. The product line focuses heavily on hot foods and burgers.

 

 

Opportunities

Threats

• Globalization (China and India);

• Diversification and acquisition of other quick-service restaurants;

• Growth of the fast-food industry

• Changing trends in eating habit;

• Low cost menu that will attract the customers;

• Application of Information Technology;

• Wi-Fi Internet can attract segments of customers

• CSR

• Changes in the global economy;

• Increasing competition in the local and global fast-food industry;

• Changing diet preferences and health expectations.

• Fast-food chain industry is expected to struggle to meet the expectations of the customers towards health and fitness;

• Pressure groups such as environmental.

 

Figure 2 shows the SWOT analysis of McDonalds. It is important to take note that McDonalds had been able to show impressive improvement in performance from the past years. Compare to the growth practices of Wal-Mart, it can be observed that the McDonalds holds the similar strengths that focuses on the strong brand image and reputation, strong global presence, real estate portfolio as well as its strong position in the overall market. As side from this, because of the Plan to Win strategy that was implemented in 2003, McDonalds show some edge compared to Wal-Mart since some of the weaknesses in later years of McDonald’s have became strengths such as the product development and innovation, quality and taste of products, marketing, management, appearance of stores as well as the response towards the changing demands and needs of the customers. Basically, Wallop (2006) argued that one of the most important strategic decisions of McDonalds in terms of health is their launching of their salad. This is to join the campaign in favor of healthy lifestyle. This is a great move, because targets those customers that are into diet and of course the vegetarian clients. This also adds a new features and flavor to McDonald’s menu that hits the heart of their patrons.  As argued by Wallop, (2006), the ability of McDonalds to think of various ways to improve and to speed up their services is one of their advantages. With the use of new technology such as the vertical hamburger grills that will speed up the cooking of the beef and other patties. The use of hinges for fridges will also help the worker to shave off their time (Wallop, 2006). Many McDonald’s franchises are now open twenty-four hours. This is to target those customers that are working in night-shift and even those families that are not that into cooking and are used in ordering to different restaurant. To try to draw people at slower hours, McDonald’s borrowed a page from Starbuck’s playbook, to improve their coffee and making is stores warmer and more accessible. This will encourage customers to linger in the afternoon or early evening (Arndt, 2007).

In terms of weaknesses, Wal-Mart doesn’t have similar problem like what McDonald’s have concerning the product of their franchises network. However, McDonald’s are now creating ways to reduce the problem regarding connection with the franchise network that reflects on the issues regarding quality; and the fact that, most of the player in fast-food industry, that the core product of the company is out of the line with the current trends and interests of the people towards healthier lifestyle, both for children and adults.

For opportunities, there are some added factors that is crucial for the success of McDonalds in the current environment such as expansion in improving economies such as China and India; application of IT that will help to enhance the quality and speed of service. Furthermore, focusing on the McCafe will help the company to gain more customers in other segments, particularly adults. Furthermore, the company must also focus on the needs of the children regarding Play Park and offer adults regarding information and facts about health and fitness.

The threats in McDonalds reflect on the growing concern of the people and other pressure groups towards the environmental impact of different processes and procedures of the company in preparing and delivering food for the customers.

Supplying about 50 million of consumers in countries around the globe and over 30,000 restaurants everyday is not an easy undertaking. McDonald’s discerns that operating its core business properly is extremely essential for success but is inadequate to maintain it growing (Gubman & Russel, 2006). It needs a lot of maintenance and management skills in order to grow and improve.

This is the explanation why McDonalds now is at the crest of their innovation process and continue to experiment and research to enhance their products and services.  In the current setting of the global economy, McDonalds, still is continuing to work to capture the heart of the world by bearing in mind all the very important factors that affects their innovation practices such as the belief, the culture, and customers’ taste.  From this, we may argue that McDonald's growth strategies is appropriate to assure continued growth given current market conditions and will continue leading the fast-food chain industry. 

References

Arndt, M. (2007). McDonald's 24/7; By focusing on the hours between traditional mealtimes, the fast-food giant is sizzling. Business Week. New York: Issue 4020; page 64.

Gubman E. & Russel S. (2006). "Think Big, Start Small, Scale Fast": Growing Customer Innovation at McDonald's. vol 29, no 3, pp 21

McDonalds.com (2009). Our Company. Accessed: Sept. 01, 2009. [Online]:<http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html>

morerfid.com (2009). Wal-Mart Joins Hong Kong Supply Chain Innovation Centre As Founding Member. Accessed: Sept. 01, 2009. [Online]:<http://www.morerfid.com/details.php?subdetail=Report&action=details&report_id=3776&display=RFID>

Wallop H. (2006). McDonald’s Salad good for the bottomline. Accessed: Sept. 01, 2009. [Online]: <http://www.smh.com.au/news/business/mcdonalds-salads-good-for-the-bottom-line/2006/02/06/1139074167870.html>

Zook, M. & Graham, M. (2006). "Wal-Mart Nation: Mapping the Reach of a Retail Colossus". in Brunn, Stanley D.. Wal-Mart World: The World's Biggest Corporation in the Global Economy. Routledge. pp. 15–25.

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