McDonald’s Business Strategy Analysis

free essayMcDonald’s is a global corporation which is largely and widely recognized by many people around the world. It controls numerous fast food restaurants worldwide. Although its activities and operations are diversified around the globe, the corporation has its main headquarters located in the US. Initially, the company used to sell hamburgers to people in the US. After the decision to buy the enterprise, Ray Kroc saw it grow from one level to another. Right now, the company is said to serve about 70 million people on a daily basis (McDonald’s Reports, 2014). This shows the market share that they control. Over the years, their success has been determined by one major factor.

Vision and Mission Statement

The vision and mission that a company has are the major factors that determine how they are going to design their strategies. This is because one cannot decide on the steps that they need to take without knowing where they are headed. For this reason, most of the successful companies in the world have visions and missions on which they are built. This company is not an exception. They have provided a lot of knowledge about their missions and visions on their website and in other sources. First, they have the vision to ensure that they give chances to the people who seem to be excluded from the society. This is done by giving them opportunities to reach their potential. People only know this company because of the products that they sell. However, they have the vision to create employment for people all over the world. Although this is automatic, as soon as they succeeded, they have done well to document it in their statement of visions and missions. Therefore, their impact on the society is not only based on the foods that they provide. Next on the list is the facilitation of teamwork in their various outlets worldwide. The outlets may have employees who have come from different cultures. The company favors and promotes integration by ensuring that they are able to work together. This also becomes an example to the rest of the society.

The mission of this company involves them to go beyond what they offer as their products. They wish to have a positive impact of people in the society. This is a mission that shows a great bit of selflessness. There are companies that only care about the activities that they conduct, with reference to the profit value that they get from the same. However, this company looks at their activities and operations with regard to their future impact. Over the years, this company has been known to engage in community projects that do not bring any profit to them. This is because they appreciate the power and influence that is gained through an exhibition of conscious capitalism. Such a mission of the company has two major effects. First, it helps them gain support that they need from governmental organizations. Humanitarian organizations, which are concerned with the well-being of the society, also support them fully. This is because they show interest in the well-being of everyone apart from their motive for profit generation. The second advantage, which might be long-term, is that they market themselves by means of the aforementioned. The company gains a lot of trust from consumers when it declares that it is more interested in their well-being than its profit-making motive. The mission and vision of this company have been the same over years. This explains the massive success that they have experienced in comparison to their competitors.

McDonald’s has also mentioned their desire to promote choices and transparency. In this statement, there is one major factor that should be highlighted (Andersen & Poulfelt, 2014). The company declares that it values its customers more than the profit margins that it is likely to experience. This cannot be achieved by dictation. They cannot choose the products that their customers should be using. Instead, they provide many diverse products and allow their customers to make their choices on the foods that they would like to eat. In addition to this mission, the company has mentioned that it would like to learn more about food and, more importantly, sustainability. This is a word that has become a common term in the minds of environmentalists. The resources in the world are constantly getting depleted. This has created a need for people who can develop ways to avert this crisis. Sustainability involves ways through which a company can conduct its activities successfully, while not affecting the well-being of future generations. These are methods that can be sustained in many years to come.

McDonald’s intends to research and discover ways through which they can produce their hamburgers and still take care of future generations. Once again, this is a mission that considers the well-being of the society. This allows the company to succeed in the way that they have in recent years (McDonald’s Reports, 2014). In their quest for meeting all the above visions and missions, they have engaged in various activities and operations. As they have said on their websites, they are glad to ensure that they keep the society happy (Plunkett, 2013). The best way to do that is by taking care of the disadvantaged and ensuring that the fabric of unity, upon which most families thrive, is well-amended. To start with, they have charities for taking care of children who do not have anyone to attend to their needs. They give hope to the children that are in conditions that cannot favor their survival and general happiness in life (Tracy, 2014). Then, they always try to use less energy in their preparation of food. This is done to respect the need that the world has to conserve energy for the sake of future generations. Additionally, they make an effort to ensure that all recyclable materials are recycled in their company. This reduces the volume of pollutants in the environment. These are just a few of the ways that they utilize to fulfill their goals.

Industry Analysis

The foods and beverages industry is one of the most tricky to achieve and maintain success. This is because it is one that has numerous companies trying to succeed. The number of foods and beverages companies in the world cannot be exaggerated. For this reason, the achievement of success in this industry is very difficult. However, McDonald’s achieved it not only in the US but in all other nations in which it was able to invest. One of the factors that can be attributed to this is their uniformity in services. After its success in the US, this company tried to sustain its production of suitable products and quality services. This led to more people knowing about them and preferring their products. With time, the whole world knew that their products were some of the best around the globe. This is because their tastes did not vary across borders (Tracy, 2014). When one wanted a particular quality of products, they always chose their company. Over time, they achieved popularity that no other enterprise had.

Another strategy that the company used is that it adjusts its factors to ensure that they suit every country in which they operate. For example, there is the issue of pricing. The prices for their products in Switzerland are much higher than in China. This company seems to have developed a system through which they price their different products depending on the location of their outlets. This explains the reason as to why they have been accepted in many nations all over the world. Even though they have high quality products, they also take care of the customers’ interests. They know that it comprises a great value in increasing their sales.

Most of the companies in the US are known to use the strategy where they produce high quality products and then price them higher than other products. This is a strategy that has the effect of value addition. When the consumers in the US notice the higher prices, they know that the product must be better than the others. Although this may work in some industries like the consumer electronics industry, it is not the case in the foods and beverages field. Since these are products that are needed on a daily basis, there is a need to make it more affordable. This is the finding that McDonald’s made and thus adjusted its prices across borders to ensure that they are in a position to increase their sales. With the hardships that are involved in this industry, this is just a single example of the ways that McDonald’s has tried to adopt in its operations to beat the competition. One can use reason to see that the strategies that have been applied by this company are suitable for the industry. This ranges from the vision, missions, pricing, diversification, marketing, sales increment, and all other discussed factors. However, their effectiveness can simply be judged by the mere fact that McDonald’s has seen massive success due to these methods. This proves that the methods that have been used can be applied by any company with an expectation of achieving success (Andersen & Poulfelt, 2014).

Competitive Analysis

For a company with stores and retail outlets in the whole world, the competition that they face is most obvious. This is because in every country where they sell their products, there are companies that have already established themselves in these locations. If the enterprise was located in one particular area, it would be easy to know where their success has derived from. One could simply assume that they tried different strategies until they devised the one that was most suitable for the area. However, this is not what normally happens. The company serves consumers from all parts of the world. Therefore, they are always venturing into unknown markets. If their strategies were not effective, they could not be in a position to counter the competition from local companies. Therefore, they must have a standard and uniform application of measures and strategies to ensure that they maintain their competitiveness across the globe.

Every single day, there are new companies that are joining the foods and beverages industry. The reason is that this industry can be counted on for a long time to come. People will always require a faster way through which they can get food. Every day, there are busy people that require fast foods so that they can get back to their work (McDonald, (n.d.). Therefore, they shall not be in a position to make their own meals at all times. This creates relevance for such companies even though this does not mean that competition is reduced by the increase in customers. Instead, it is increased by the fact that most of the companies have an eye for this opportunity. For this reason, they choose to venture into the business, thus increasing competition (Tracy, 2014). Consequently, it can be said that the success of McDonald’s is derived from effective and efficient strategies. If it were not so, all the companies and organizations in this industry would be succeeding in the way that they have. Therefore, the analysis of their strategies is important for discovering different ways through which companies in the industry can boost their success.

Financial Analysis

This report is based on their financial services and reports for the year that ended in 2014. According to them, the sales decreased by 4%, which was not the case only in the US. In fact, it happened around the globe. This was a negative finding that should show the existence of a problem in the country. The drop in the sales also caused a decrease in the revenue, which was recorded to be 5% (McDonald’s Reports, 2014). In addition, compared to the previous financial year, the operating income was seen to decrease by 15%. Although the revenues were affected by the sales, there was another factor that influenced them. It was the tax rate which increased to 44.4%. This was mainly due to the ventures that they did on the foreign market. The earnings per share also decreased by 30%. They were mainly affected by changes in nations such as Ukraine and Russia, where the company has not yet taken root (McDonald’s Reports, 2014).

In the US, the sales were also seen to decrease by a value approaching 4%. This can be attributed to the above explained reason that the US citizens started doubting the health value of their products. In Europe, there was a decrease of 1.5%, slightly lower than that in the US. The confidence of the consumers was seen to be the lowest in nations such as Russia and Ukraine, where the decrease in sales was the largest. After these two, Germany was the next country that did badly with regard to sales and profit margins for the company.

In their annual briefings, they stated that they had underestimated the challenges that would be affecting them in this financial year. That is why the company did not do well. The financial figures are the most accurate tools for discovering how the company has performed. According to the data that have been analyzed, the company needs massive adjustments if they are to maintain their success in the future. As a matter of fact, they explain some of the adjustments that they should make. They mention that most of the decision making on the finances are done in the headquarters. They have come to learn that this is a major mistake. Instead of that, they should take the power to make these decisions back to the field. This is where different managers can use intuition and instincts for their decisions. This does not only improve the sales but also ensures that problems are tackled at the moment when they present themselves. It also guarantees that opportunities are seized as soon as they appear. Therefore, it increases the flexibility of the company. The restaurants in the local areas are the ones that know the problems of their consumers. For this reason, they are the ones that should be given the mandate to make decisions. Entrusting them with this responsibility would empower them and increase their efficiency (McDonald, (n.d.)

SWOT and QSPM Analysis

Strengths of this company are known to many people all over the world (Tracy, 2014). First, this is a company with the name having been popular over the years. The past success and consumer loyalty that they have achieved has proved to be an asset for them. If they can maintain the good name that they have always held, they can easily continue to succeed. Most of the companies in this industry may be trying to produce foods and beverages that match their quality. However, the ability to market themselves and reach the levels that have been attained by this company may be low. The other strength that McDonald’s shows is its innovative and dynamic strategies. There is no single day that this company would not have a new strategy on the way. Therefore, the consumers have never been bored by their products. The advantage is that they made this to be a culture in the company. Therefore, they are able to achieve it so effortlessly. In most cases, no new companies can develop strategies that have not been introduced and implemented by McDonald’s (Tracy, 2014).

Apart from these strengths, McDonald’s has some weaknesses that can be utilized by their competitors. The major one is the uniformity that they strive to achieve. Although uniformity is used as a strategy to ensure that the company is able to provide standard products around the globe, it can be a disadvantage. This is a company that deals with different people around the world. Therefore, it works with people from different cultural and ethnical backgrounds. For this reason, there is a great need to adjust their activities, operations, and practices with regard to their locations. For example, there may be some of their rules that do not apply to certain nations. This is due to the cultures that may be found in these countries. There is a need to try and adjust the activities that the company engages in. The training of the employees and the services that the company provides should be modified to ensure that they are able to devise different ways through which they can adapt. This is a weakness that can be dealt with by local companies. Most of these companies know how to treat locals and ensure that they do not overlook their cultures (Tracy, 2014).

There are numerous areas in the world that have not been touched by McDonald’s. This represents a huge opportunity for them. Even the most outstanding companies in the world have room for success. This is due to the fact that they cannot be perfect. Even with the market share that this company controls, it can still increase the number of consumers. This should be seen as an opportunity by their management and utilized in the best way possible. By the increase in their representatives around the world, this is a company that can ensure that it is able to spread its wings to other regions of the globe. There is another opportunity in the new software programs that are being introduced. They create a way through which this company can monitor all its activities from one location. This is a possibility in the sense that they can ensure that all their outlets retain the quality that the consumers desire. It also helps discover the areas that have low efficiency. Efficiency refers to the ratio of the input to output values. When such areas are identified, it becomes easier for the company to decide on the regions in which more input and investment should be made.

The greatest threat for McDonald’s can be seen from its home country. When food is sweet and affordable, most people in the world prefer it to others. This is why most individuals resort to fast foods as opposed to those that have been prepared in their homes. However, there has been a growing concern over the health value of this food. Problems like obesity have been linked to the use of fast food. In the US, this is an anxiety that has taken root in the media as well as in the minds of most consumers. At present, most of the diseases have been linked to the use of foods that have little nutritional value. For this reason, the number of consumers in this nation has reduced. From time to time, people have heard of the organic foods. These are foods that have been grown in ideally natural conditions. McDonald’s is a company that places a great value on the health of their consumers. However, they do not have the ability to adjust their products to ones that are perfectly healthy since they deal with fast foods. For this reason, they are under a constant pressure to modify their products to suit different changes that take place in the minds of their consumers. If this concern takes root in the minds of many consumers around the world, it has the ability to reduce the number of their customers by a large margin. This is something that they cannot afford since it would mean their downfall (Tracy, 2014).

Strategy Recommendations

The success that has been witnessed by this company is massive. It cannot be compared to most of the other companies in the foods and beverages industry. This shows one major thing, explaining that they have been in a position to introduce and implement strategies that have been efficient and effective (Plunkett, 2013). These management manipulations are the ones that has instilled in the minds of the people (Plunkett, 2013). Therefore, there is a great need for these strategies to be maintained. However, this does not show that they have reached the level of perfection that they would desire. Their success is hindered by many weaknesses and threats that surround them. These are some of the reasons why they should adjust their activities and strategy to suit the changes that have been occurring over time. The health issue is one of the major concerns. This is because it has been able to affect the market in its home country. There are two major steps through which this issue should be addressed. First, the health value of their food should be increased. They can reduce the concentration of fats in their foods to ensure that they are healthy for their consumers. They can also use vegetables and other plants that have been produced organically. This means that they should buy them from companies that have been certified to have organic foods that should not have used any chemicals in their growth and production. The advantage of this is that the foods are sweeter and more nutritional. When this happens, they can adjust their prices to ensure that they are able to cater for the prices of production (Plunkett, 2013).

The second major step in this endeavor is advertising. Clearly, this is a company that has been efficient in its advertising. Therefore, this strategy recommendation is not on general advertising. Instead, it is dependent on the fact that consumers may have the constant notion that their foods are not healthy. This does not suggest that the company should use false advertising. From the explanation provided above, it has been advised that they should, first of all, increase the health value of their products. When they have achieved this, they can devise different ways through which they can convey this to the consumers. On their websites and other marketing platforms, they should be as transparent as possible on the changes that they have made in regard to their products. This will show the consumers all the health adjustments that have been done to their products. The first thing about this is that it will be in a position to retain its original consumers. As the anxiety pertaining to health increases, consumers who are loyal to other companies will move to this organization that provides healthy foods. This is an advantage that any company would wish for.

Another strategy would be acquiring of modern software to help monitor services across the globe. There are some regions in which the company has not been successful. This is due to the manner through which activities in these areas are conducted. This can be remedied by the development of ways to centralize all their activities. There are some programs that have been introduced to this effect. They merge different sectors in the company and ensure that the enterprise is able to monitor all its activities. It can also help eliminate the discrepancies that may be observed in different outlets. Another invention that can be made to this system is the collection of consumer views on their products. For example, people in China may not wish for the same foods that are provided in Russia. This would create the need to collect the consumer views on the same. There are native fast foods that can be provided to every region in the world. This means that there are areas in which uniformity is not of the essence. In such cases, the company needs to receive feedbacks from its consumers and take necessary steps. These programs also allow to compare and determine which of the outlets are doing well, with special reference to the conditions to which they have been subjected (Plunkett, 2013).

Action Plan

McDonald’s should make the maximum use of the inventions that are being made in technology. This is where they can increase the monitoring of their activities and changes on the market with the necessary swiftness. The decrease in efficiency that has been seen in this financial year can be attributed to the fact that they do not react quickly to changes that occur on the market (McDonald’s Reports, 2014). As seen in Appendix 3, the financial ratio for the financial year presented deterioration. For example, when negative information on their products leaks to the public, it travels at a fast rate. This is due to the fastness in the communication via the Internet. They should use the same means to ensure that their operations are fast enough if they want to beat their competition. Moreover, they should centralize activities in every region and then centralize the management by connecting different management teams from various regions. This leads to the next step of the action plan.

It has been mentioned that this company deals with products in many countries in the world. For this reason, they need to devise ways through which they can be diverse. When they control their activities from a central position, this inhibits fast decision making. An individual in the US may not know about the situation in Russia. Consequently, it takes an employee in Russia to know the decisions that have to be made. Therefore, the decision making should be shifted to the people that are in the field. This has two advantages. First, it empowers these employees and managers and ensures that they become better in their jobs. Second, it guarantees that decisions are made as fast as they should (Tracy, 2014).

Conclusion

It is clear from the paper that companies that exhibit massive success are not just lucky. Instead, it takes a lot of effort and strategizing to ensure that they are profitable. McDonald’s is one of the companies that can be mentioned in this category. Different strategies employed by the company have always been effective. Apart from its strategies, the organization has a clear mission and visions that enable its workers and all the stakeholders become involved in conducting their duties effectively. They have been analyzed in the paper. The other interesting finding is that even such huge companies have threats and weaknesses. Their success is caused by their persistent and consistent adjustment of methods which ensure that they are able to maintain their competitiveness. The essay has tried to explain the strategies that should be implemented in the current situation to ensure that the enterprise can develop the best ways to maintain the same.

Annual Income Statement

McDONALD’S CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF INCOME

Dollars and shares in millions, except per share data
Quarters Ended September 30, 2014 2013 Inc/ (Dec)
Revenues
Sales by company-operated restaurants $4,596.2 $4,923.1 $(326.9) (7)%
Revenues from franchised restaurants 2,390.9 2,400.3 (9.4) 0
TOTAL REVENUES 6,987.1 7,323.4 (336.3) (5)
Operating costs and expenses
Company-operated restaurant expenses 3,874.7 4,004.4 (129.7) (3)
Franchised restaurants – occupancy expenses 431.2 408.4 22.8 6
Selling, general, and administrative expenses 575.8 554.3 21.5 4
Other operating (income) expense, net 32.9 (60.4) 93.3 n/m
Total operating costs and expenses 4,914.6 4,906.7 7.9 0
OPERATING INCOME 2,072.5 2,416.7 (344.2) (14)
Interest expense 149.3 130.5 18.8 14
Non-operating (income) expense, net 2.1 13.6 (11.5) (84)
Income before provision for income taxes 1,921.1 2,272.6 (351.5) (15)
Provision for income taxes 852.7 750.4 102.3 14
NET INCOME $1,068.4 $1,522.2 $(453.8) (30)%
EARNINGS PER SHARE-DILUTED $1.09 $1.52 $(0.43) (28)%
Weighted average shares outstanding (diluted) 983.8 1,004.2 (20.4) (2)%
n/m Not meaningful

 

McDONALD’S CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF INCOME

Dollars and shares in millions, except per share data
Nine Months Ended September 30, 2014 2013 Inc/ (Dec)
Revenues
Sales by company-operated restaurants $13,872.6 $14,129.9 $(257.3) (2)%
Revenues from franchised restaurants 6,996.5 6,882.6 113.9 2
TOTAL REVENUES 20,869.1 21,012.5 (143.4) (1)
Operating costs and expenses
Company-operated restaurant expenses 11,611.6 11,649.9 (38.3) 0
Franchised restaurants – occupancy expenses 1,275.9 1,202.7 73.2 6
Selling, general, and administrative expenses 1,825.4 1,757.8 67.6 4
Other operating (income) expense, net (41.3) (161.8) 120.5 75
Total operating costs and expenses 14,671.6 14,448.6 223.0 2
OPERATING INCOME 6,197.5 6,563.9 (366.4) (6)
Interest expense 422.7 388.4 34.3 9
Non-operating (income) expense, net (1.1) 26.2 (27.3) n/m
Income before provision for income taxes 5,775.9 6,149.3 (373.4) (6)
Provision for income taxes 2,115.6 1,960.4 155.2 8
NET INCOME $3,660 $4,188.9 $(528.6) (13)%
EARNINGS PER SHARE-DILUTED $3.69 $4.16 $(0.47) (11)%
Weighted average shares outstanding (diluted) 991.1 1,008.2 (17.1) (2)%
n/m Not meaningful

Key Ratios

Margins of Sales, % 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 TTM
Revenue 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
COGS 69.09 67.64 65.31 63.27 61.35 59.97 60.43 60.76 61.21 61.90 62.02
Gross Margin 30.91 32.36 34.69 36.73 38.65 40.03 39.57 39.24 38.79 38.10 37.98
SG&A 10.85 10.83 10.39 10.01 9.82 9.69 8.86 8.91 8.49 9.07 9.18
R&D
Other 0.40 0.93 7.28 -0.68 -1.25 -0.70 -0.88 -0.88 -0.88 0.07 1.09
Operating Margin 19.66 20.59 17.02 27.39 30.08 31.04 31.58 31.21 31.18 28.97 27.71
Net Int Inc & Other -1.56 -1.29 -1.35 -1.21 -1.56 -1.96 -1.92 -1.91 -1.99 -2.10 -2.08
EBT Margin 18.09 19.30 15.68 26.18 28.52 29.08 29.67 29.31 29.19 26.86 25.63

 

Profitability 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 TTM
Tax Rate, % 29.70 31.04 34.63 29.96 29.84 29.34 31.32 32.36 31.92 35.46 36.22
Net Margin, % 12.72 16.42 10.51 18.34 20.01 20.55 20.38 19.82 19.87 17.34 16.35
Asset Turnover (Average) 0.71 0.73 0.78 0.81 0.78 0.77 0.83 0.81 0.78 0.77 0.78
Return on Assets, % 9.00 12.01 8.20 14.91 15.51 15.90 16.94 15.98 15.51 13.42 12.74
Financial Leverage (Average) 1.98 1.88 1.92 2.13 2.15 2.19 2.29 2.31 2.29 2.67 2.82
Return on Equity, % 17.73 23.16 15.58 30.10 33.20 34.51 37.92 36.82 35.69 32.97 31.68
Return on Invested Capital, % 11.71 15.54 10.99 19.42 20.26 20.75 22.03 20.83 20.12 17.68 17.01
Interest Coverage 12.78 14.71 16.53 17.26 16.64 16.72 13.92 12.75

Liquidity and Profitability Ratios

 

Liquidity Ratios

Current Ratio
152% 159% 145% 125%
Quick Ratio
148% 155% 141% 122%
Cash Ratio
76% 88% 69% 67%
Profitability Ratios
Gross Margin
38% 39% 39% 40%
Operating Margin
29% 31% 31% 32%
Pre-Tax Margin
27% 29% 29% 30%
Profit Margin
17% 20% 20% 20%
Pre-Tax ROE
57% 51% 53% 56%
After Tax ROE
37% 35% 36% 38%

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