We apply Porter’s 5 Forces as an analytical framework for assessing McDonald’s competitiveness strategies In fast food market. 1. Threat of New Entrants: Low Although It Is not too expensive to start up a fast food restaurant, but fast food Industry Is already a well-established market. Therefore, Infant businesses which want to enter into this market would have to face huge challenges: McDonald’s is one of the world’s strongest and most recognizable brands for its “world’s best quick service restaurant service experience” (Evanescence and Mark), so their products are noninsured to be one of the most famous and familiar with customers.
They have gained a huge number of loyal customers who are satisfied with their products. While new entrants have to wait for a long time to build brand recognition and customer base. In 2012, McDonald’s remained number one with $35. 6 billion in sales, almost one-quarter of all sales by the top-50 restaurants and almost three times the sales of its closest competitor. Obviously, they own a significant market share which will create difficulty In gaining economy of scale for new entrants to enter the market. New entrants also find that they are faced with price competition from existing chain restaurants.
If there Is no consumer switching cost which means consumers will not have to bear any additional cost when they switch to a new products, there are some order to make sure the menu stays affordable and trying to maintain the pricing. 2. The Bargaining Power of Customer: Moderate Since the fast food industry is well saturates the buyer are in a situation where many different suppliers are offering similar products. McDonald’s must pay more attention to customers’ needs to attract new buyers and maintain loyal customers.
Therefore, consumers have more power over buying McDonald’s products because they can demand what type of products they want to see from them. If the fast food industry does not match the demands of the buyers and the general consumer trends, the buyers can choose not to buy their product and convince others to do the same. Today, consumers are demanding healthier food and beverage choices from fast- food restaurants such as McDonald’s. After the documentary film “Supervise Me” by Morgan Spurious came out in 2004, a film displayed the health risks that were posed y traditional fast food from MAC Dona’s.
A rise in awareness of the high fat content of most of the products offered by McDonald’s from the whole market created a large change in consumer preferences and brand preferences, and this made McDonald’s face some lawsuits with loyal customers. Consequently, McDonald’s started providing nutrition information on the packaging of their products; and tried to provide more offerings that were likely to be perceived by customers as being healthier such as fruits and salads. However, because of low customer switching costs which are nearly ere.
McDonald’s are highly competitive with their product pricing compared to Burger King, Wendy, among other competitors; and they already offer selections at various price points that cater to all budgets. Thus, fast food industry does not worry about customers’ loyalty. And customers are a lot of individuals, so they will have no pressure to force company to pass on the decrease in price or accept a higher quality of product & service. 3. The Bargaining Power of Suppliers: Low According to Confession (2005), there are 3,700 new outlets being built each year in the U. S. Meaning the power of suppliers is not an issue for McDonald’s. Restaurants can simply switch to another supplier offering the same product. This means McDonald’s can put pressure on suppliers to reduce costs, offer better products, reduce delivery times or provide higher volume. For example, there are many substitute suppliers out there that can replace current suppliers (I. E. , Pepsi could replace Coca Cola) without a significant drop in quality. Furthermore, McDonald’s is also considered to be a very important customer of any of these suppliers so in contrast, it will gain influence over the suppliers. 4.
Threats of Substitute Products: High Because the consumer’s switching costs are low that means that there is a low barrier stopping the consumer from purchasing the substitute. Variety of similar products and healthier alternatives are available that people can chose. Another thing is that fast food industry is unhealthy to its customers’ health. The customer always tends to find another product comparable or better in terms of the quality of fast food products. Fast food restaurants keep a major advantage over other firms selling substitute products through the lower prices and a quick, convenient service.
However, since the market consists of many differentiated fast food companies, the customers are used to having the option of choosing the best value products. The food industry normally targets. Furthermore, it offers healthy alternatives to match the consumer needs and wishes. The threat of substitutes is greater now more than ever with the convenience food industry growing. More convenience food stores are offering similar products as the fast-food restaurants. The convenience store / gas station sells many food items such as hot dogs, egg rolls, pizza, and beverage.
The preferences between McDonald’s and their others competitive are services of delivery that is Mac Delivery that give a good service, faster and make customer easy to buy from any kind of set of menu at McDonald’s. 5. The Intensity of Rivalry among Competitors in an Industry: High When exit barriers are low, weak firms are more likely to leave the market, which will increase the profits for the remaining firms. Low exit barriers are a positive for McDonald’s; it will help eliminate small firms that cannot take market share in this industry. However, main concern that McDonald’s has to take precaution is major corporations.
Although McDonald’s serves around 68 million customers daily in 119 countries across 35,000 outlets, it has a number of fast food outlet competitors across the countries. However, Burger King and Wendy are considered as the main and biggest competitors to McDonald’s. Sustainable competitive advantage through innovation is a key factor that McDonald’s considers as main competitive advantage to compete with rivals. By attributing useful speed of services, types of products, prices of products and level of service, McDonald’s has been doing great keeping up with the industry and even leading in fast food industry.
McDonald’s have led to improvement in its sales and profits by effort of top level management include Jim Skinner, the concepts of the late Charles Bell, and the late James Cantaloupe. James Cantaloupe was a former vice-chairman who had overseen McDonald’s successful international expansion in the sass’s and sass’s. He was instrumental in developing a strategic plan called “Plan to Win” which was the starting point for the turnaround at the beginning of 2003. Today sales are strong in domestic markets and even higher in the global markets. The plan focuses on existing customers and by changing their image to promote healthier menu items.
This was the long term goal set by Cantaloupe, followed by Bell and now Skinner. B) The general environment consists of all conditions in the external environment that forms a background context for managerial decision making. In other words, general environment is the outer layer that is widely dispersed and indirectly affected on level of organizations’ success. Although a business cannot control what takes place in the general environment, evaluating the general environment can allow businesses the opportunity to predict changes and identify future opportunities. The general environment includes Demographic Trends, Socio-cultural, Economic,
Technological, Political and Legal, Global. The external environment will continue to change?and that change may be unpredictable in terms of timing and strength?a firm’s management is challenged to be aware of, understand the implications of, and identify patterns represented in these changes by taking actions to improve the firm’s competitive position, improve operational efficiency, and to be effective global competitors. 1. Demographic The number of people living in a region, their ethnicity, age, gender, race, sex and so on would be important factors to consider for any business organization.
An with invaluable pointers towards launching new products, pricing, marketing strategies, etc. Most important for fast food industry that depends highly on people: The customer base for fast food franchises and restaurants includes the entire population, every day nearly 68 million customers served by McDonald’s. ; in which the population aged between 12 and 30 years of age averages the greatest frequency of patronage in fast food establishments as they are the category with the greatest disposable income.
McDonald segmenting their services based on consumer age and consumer beliefs in certain country. Demographic segmentation divides the market into groups based on variables like gender, age, nationality, religion, family life cycle and family size. McDonald offered their services by segmented their customer based on age, religion and family life cycle. For example, McDonald’s offers different products like Happy Meal which includes a free toy for kids. 2. Coloratura.
Values and beliefs vary from culture to culture, McDonald’s have understood its customers based on their characteristics and must study the socio-cultural environment of a country thoroughly to avoid costly mistakes. Consumers around the world become more health conscious; they now substitute healthy food for a quick cheap meal, a healthy diet; it actually hurts McDonald’s profits. Under pressure to provide healthier meals, McDonald’s announced that it would no longer market some of its less nutritional options to children and said it also planned to include offerings of fruits and vegetables in many of its menu.
It plans to make the changes to its menu in 20 of the company’s largest markets, but it will take three years or more to put them into place in about half the restaurants in those markets, and which it is estimated would cost about $35 million to suit contemporary tastes and to try to address health concerns raised for years. 3. Economic Economy is important factor which is impacting McDonald’s. McDonald’s has global presence that would be affected by the changes in inflation and the exchange rates.
Hence, these chains may have to adapt to the issues and the effects of the economic environment. Company always need to thing about profitability, growth to expand of company. So, they need to consider countries demand, supply, production, distribution, exchange rate, business cycles, and differential economic growth rates round the world. Besides, the economic situation is slowing down and facing with high unemployment rate, so branches and franchises of McDonald’s have a tendency to experience a hardship when consumers have to cut down their spending.
On the other hand, McDonald’s could have potential opportunities in developing countries, developing countries’ economies are growing, and buying power of people from developing countries is increasing. 4. Global issues Thanks to globalization, the world has become smaller and closer. It provides for McDonald a good chance to approach new potential market and valuable production actors such as pool of cheaper and skilled labor, diversified sources of raw materials. However, it also brings again some threats such as new competitors such as threats from sushi and burritos.
Question 2 Internal Environment Analysis 1 . Tangible resources Finical resources over two years from 2006 to 2008 decrease slightly, the amount of money changes from 2,136,400 to 2,063,400 thousand dollar. In contrast, both the total revenue and gross profit in Exhibit 1 increase gradually from 21 to 23,522,400 thousand dollar (total revenue). In addition, gross profit also goes up from 6,984,300 to 8,639,200 thousand dollar. At that time, the McDonald’s the fast food chain’s performance impressive rivals KEF and Wendy had to have face with the spending downturn and the economic also drops.
McDonald’s keeps going and achieve a growing up thanks for the strategy of CEO Jim Skinnier ” Plan to Win”. This is an excellent and successful strategy aims to increasing sale at existing location by improving the menu, re decorating the outlets, and extending hours. Some snacks and drinks are added in their menu and McDonald’s tries to maintain the price and makes sure to give customers an affordable menu without hurting the firm’s profit margin. Cost of material still increases but Skinner does well when he keeps providing unchanged price.
As the result, in 2008 McDonald’s has a strong financial capacity and they can raise equity, revenue and profit. Physical recourse McDonald’s does great work in physical recourse. Looking at Exhibit 4, during the period 2004 to 2008, it is clear that the total of number of outlet increases step by step from 30,496 to 31 ,967. The number of outlets Company owned decreases significantly, meanwhile the total of franchise in a lot of areas around the world increases steadily from 22,317 to 25,465. There is more than 75 percent of its outlets re owned franchise and other affiliates.
This is a strength point of McDonald’s, this firm has more opportunities to highlight its brand as well as help customers recognize the brand easily. Furthermore, continuing to develop franchise is more economical than establishing a new place. In addition, as a part of turnaround strategy, McDonald’s spends time to be concentrate on refurbish all the outlets over the world to make their places more beautiful aims to attract customers such as: the interiors feature arm chairs and sofas, modern lighting, large television screen, wireless Internet access.
Skinner also creates feature include music aimed at queuing vehicle etc, customers can see meals being prepare from their cars. This is a very modern creative design and customers feel exciting about that. Technological resource As a part of innovation, McDonald’s has a good idea to design a touch activated screen which is comfortable and convenient to customers. By watching and following meal being prepared from their cars, customers can know about the component in McDonald’s production.
It allows customers can order food without queuing. Basing on the website of McDonald’s, customers can research about menu, nutrition, urination, store location and price. Moreover, inside the outlets is equip wireless internet access, it is very convenient to customers when they go to inside outlets, they can enjoy their meal and check the menu or access the internet to connect with friends, relatives or entertain. With this channel creation, Skinner has more and more royal and potential customers. 2.
Intangible recourses. Organizational resource. McDonald’s has built a good structure organization and effectively managing which is head of by CEO and the broad of director in each areas in detail such as: Greece, Asia everything concerns about finance, human, accounting etc. Under CEO, there are divided unit functional department about finance, marketing, HER etc. CEO can manage each department through manager of each department and franchise. Each department has exactly manager so manager can report all things to CEO.
McDonald’s serves about 52 million customers through 100 countries per day with over 30,000 outlets and 25,000 franchises. Each franchise operates like a subsidiary and be managed by an general manager who manages and guide employee. He/she also has task and responsibility to report to the CEO and Broad of director. This structure brings the effectiveness and the smooth interaction between department and the CEO. Human resource. McDonald’s brings thousand of Job for American population and there is a clearly kind of employee: restaurant workers, corporate staff and franchise owners.
Most of Skinner local restaurant employee are in 50 and 65, McDonald’s also hire in par time position to reduce expenses. However, the firm has to face with the problem when the labor market is tighter; Skinner tends to cut back on training as it struggled hard to find new recruit, a policy that led a dramatic falloff in the skill of its employees. As a result, Skinner has to spend money to train necessary skill for employees to take back smile from customers.
Moreover, McDonald’s payment salary does not make their employees satisfied so it has some bad impacts to employees’ morale. There is no distinguishing position and the task. Managers receive salary lightly higher than crew employee, meanwhile they have to do more complicated tasks, take more responsibilities. In addition, employees do not receive bonus when they have to do extra hours as well as done tasks perfectly. These make them disappointed and easy to q drop the Job. As the result, McDonald’s has to waste time to recruit and train.
Innovation McDonald’s has a good step innovation when Skinner put raising profit and maintaining potential customers on company top priority. For example, they make a small changing in the component of their food but they protect unchanged taste. They remove trans- fatty acids in the oil which is used for French fries. For instance, they also introduce some new meal for customers in various kinds of order such as: Miscarried breakfast sandwich, offering a couple of syrup-drenched pancakes and a sandwich filled with eggs, cheese, sausage and bacon in three different of ambition.
By this way, Mac can meet customer’s satisfaction, they would like to come to inside the restaurants to enjoy their meal easier. Furthermore, Mac provides available internet inside and smart screen attract more customers. Choosing meal and then order them online easier instead of queuing are a great innovation of Skinner. Reputation. McDonald’s is one of the most famous fast food brands with hamburger and cheeseburger over the world from time to establish to now.
Passing over 50 years, Mac has a lot of achievement and has been still famous today. Sine 1940, the number of outlets and franchises increase appreciably. At first, Mac only was a single outlet in nondescript Chicago sunburn then today Mac becomes a largest chain of outlet spread out the globe. To be built and maintained the reputation, McDonald’s should improve the quality of food to ensure that their customers will be healthy and happy customers in which Mac can update all products’ information, the customer feedbacks to response on time.
Furthermore, they also highlight their reputation by doing charity to serve and protect social, it is one kind of code of ethics. Organizational Capabilities. An organizational capability of Mac is a great combination of both tangible and intangible recourse to run business effectively. Financial stability, human recourses and management skills will be a good basic help Mac maintain and develop its value and satisfy the customer expectations. Mac also focuses and invests to train skill for managers to build a good model with high quality of leader.
When a leader is good, he/she can train their employee better. That is reason to make firm existent and keep competitive of rivalry in competition of fast food industry. In addition, to be more strong and developed, Mac should focus on technology and demography changing. The company should pay attention on the customers taste in specific country to adapt the market quickly. To achieve this goal, Mac should take a research before entering in a new market. Question 3 A combination of cost leadership and differentiation strategy.
A combination of cost leadership and differentiation are the two recommended strategies that McDonald should because of following reasons. Firstly, for cost leadership, due to the fact that McDonald had a wrestling about increasing cost in production process and the company also remained their product’s price, this would make the company in lower their profit margin in return. With low products’ price although McDonald had a competitive advantage in attracting customers with their competitors, this would also a challenges for the company in getting profits in return.
It is widely known that input costs for production process will increase more and more, therefore; if McDonald do not have a strategy in lowering its production costs, it will be a possibility for the company to run-out of fast food business industry. Secondly, it is believed that making something unique and different with competitors is also a recipe for the company’s success in outdoing competition with their strong rivalries such as KEF, Pizza Hurt. Therefore, differentiation strategy should be applied by McDonald.
McDonald should make their products healthier for their customers because fast food is widely known that it is not decent for people’ health. If McDonald can create healthier products for their customers, this will make the company different with their competitors, which is a good way for the company to attract more customers. Besides, McDonald should also improve their menu by creating new products such as cookies that their competitors do not have in their menu in order to increase customers ‘choice and to achieve competitive advantage in customers’ attraction impaired with their rivalries.
Therefore, the more and more customers come to the company, the more profits they will make. In conclusion, in my opinion, McDonald should apply the combination strategy above because when they follow the strategy, the company can create good customers’ relationship so that they can last long in the fast food industry by making more profit. Furthermore, this will be a trend for the company to compete with their rivalries and to construct a high entry barrier for new industry entrants in competing with the company in the fast food industry.