mcdonald's case study
DESCRIPTION
This is a comprehensive case analysis of McDonald's includes :Five forces frameworkPESTELSWOTQSPMBCGand otherTRANSCRIPT
University of Jordan
Faculty of Business
Strategic Management
“McDonald's”
Case StudySTRATEGIC MANAGEMENT
Prepared By
Fathi Salem Mohammed Abdullah
2009
Table of Contents
PageTopics
3Introduction
3History analysis4Vision, Mission, Value
5The Five Forces Framework
6PESTEL Framework7External Audit8CPM-Competitive Profile Matrix9External Factor Evaluation (EFE) Matrix
10Financial Ratio Analysis
12Internal Audit13Internal Factor Evaluation (IFE) Matrix14SWOT Matrix15SPACE Matrix16Grand Strategy Matrix17The Boston Consulting Group (BCG) Matrix
17The Internal-External (IE) Matrix18The Quantitative Strategic Planning Matrix
(QSPM)20Recommendations
2
Introduction:
McDonald's Corporation is the world's largest chain of fast food restaurants, serving nearly 47 million customers daily through more than 31,000 restaurants in 119 countries worldwide. McDonald’s sells various fast food items and soft drinks including, burgers, chicken, salads, fries, and ice cream. Many McDonald's restaurants have included a playground for children and advertising geared toward children, and some have been redesigned in a more 'natural' style, with a particular emphasis on comfort: introducing lounge areas and fireplaces, and eliminating hard plastic chairs and tables.
Each McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporations' 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.1
History analysis:
The business began in 1940, with a restaurant opened by brothers Dick and Mac McDonald in San Bernardino, California.
Their introduction of the "Speedee Service System" in 1948 established the principles of the modern fast-food restaurant.
The original mascot of McDonald's was a man with a chef's hat on top of a hamburger shaped head whose name was "Speedee." Speedee was eventually replaced with Ronald McDonald in 1963.
The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955 , the ninth McDonald's restaurant overall. Kroc later purchased the McDonald
1 http://en.wikipedia.org. 3
brothers' equity in the company and led its worldwide expansion and the company became listed on the public stock markets in 1965.
With the expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also made it a frequent topic of public debates about obesity, corporate ethics and consumer responsibility.2
Vision
To be the best and leading fast food provider around the globe
Mission
McDonald's brand mission is to be our customers' favorite place and way to eat, and improve our operations to provide the most delicious fast food that meet our customers' expectations.
Values
Our values summarized in "Q.S.C. & V.". Provide good quality, services to customer. Have a cleanliness environment when customer enjoys their meal. The value of food product makes every customer is smiling.
2 http://en.wikipedia.org. 4
The Five Forces Framework
The Threat of Entrants
Large established companies with strong brand identities such as McDonald’s BKC, YUM, and WEN do make it more difficult to enter and succeed within the marketplace; new entrants find that they are faced with price competition from existing chain restaurants.
Bargaining Power of Buyers
Low bargaining power of buyers.
Bargaining power of suppliers
Bargaining power of suppliers within the fast food industry would be relatively small, unless the main ingredient of the product is not readily available.
5
SuppliersSuppliers
SubstitutesSubstitutes
BuyersBuyers
Potential entrants
Potential entrants
Competitive rivalry
Competitive rivalry
Threat of Substitutes
This could range from a competitive fast food restaurant to family restaurant to a home cooked meal.
Competitive Rivalry The strength of competition in this industry is very high; the main rivals are BKC, YUM, and WEN. They compete with international, national, regional, local, retailers of food products (restaurants, quick service, pizza, coffee shops, and supermarkets).
PESTEL Framework:
Political:
The international operations of McDonald’s are highly influenced by the individual state policies enforced by each government.
Economic:
McDonald’s has the tendency to experience hardship in instances where the economy of the respective states is hit by inflation and changes in the exchange rates.
Market leader. Very high target market. Low cost and more incomes. The rate at which the economy of that particular state grows determines
the purchasing power of the consumers in that country.
Technological
Advanced technology development. Quality standards.
6
Social:
Working within many social groups. Increase employments.
Environmental: Quality packing. Local manufacture using foreign supplies.
Legal:
Legislation for product. Sustained logo.
External Audit:
Opportunities Threats
1. Growing health trends among consumers
2. Globalization, expansion in other countries (especially in China & India).
3. Diversification and acquisition of other quick-service restaurants.
4. Growth of the fast-food industry.5. Worldwide deregulation.6. Low cost menu that will attract the
customers.7. Freebies and discounts.
1. Health professionals and consumer activists accuse McDonald's of contributing to the country’s health issue of high cholesterol, heart attacks, diabetes, and obesity.
2. The relationship between corporate level McDonald's and its franchise dealers.
3. McDonald’s competitors threatened market share of the company both internationally and domestically.
4. Anti-American sentiments.5. Global recession and fluctuating
foreign currencies.6. Fast-food chain industry is
expected to struggle to meet the expectations of the customers towards health and environmental issues.
CPM-Competitive Profile Matrix
McDonald's Burger King Yum Brands Wendy'sCritical Success Factors
Weight Rating Weighted Score
Rating Weighted Score
Rating Weighted Score
Rating Weighted Score
Price 0.15 4 0.60 3 0.45 3 0.45 3 0.45Financial Position
0.08 4 0.32 3 0.32 3 0.24 2 0.16
Consumer 0.10 4 0.40 3 0.40 3 0.30 2 0.20
7
LoyaltyAdvertising 0.10 3 0.30 3 0.30 4 0.40 2 0.20Product Quality 0.10 4 0.40 3 0.40 4 0.40 2 0.20Innovation 0.15 3 0.45 3 0.45 3 0.45 2 0.30Market Share 0.10 4 0.40 2 0.20 3 0.30 2 0.20Management 0.07 4 0.28 3 0.21 3 0.21 3 0.21Global Expansion
0.15 4 0.60 2 0.30 3 0.45 1 0.15
Total 1 3.75 3.03 3.20 2.07
External Factor Evaluation (EFE) Matrix
Key External Factors Weight Rating Weighted ScoreOpportunitiesGrowing health trends among consumers
0.08 3 0.24
Globalization, expansion in other countries (especially in China & India).
0.12 4 0.48
8
Diversification and acquisition of other quick-service restaurants.
.04 3 0.12
Growth of the fast-food industry. .10 3 0.30
Worldwide deregulation .04 2 0.08
Low cost menu that will attract the customers. .08 2 0.16
Freebies and discounts. .08 1 0.08
ThreatsHealth professionals and consumer activists accuse McDonald's of contributing to the country’s health issue of high cholesterol, heart attacks, diabetes, and obesity.
0.10 3 0.30
The relationship between corporate level McDonald's and its franchise dealers.
0.09 3 0.27
McDonald’s competitors threatened market share of the company both internationally and domestically.
0.12 4 0.48
Anti-American sentiments. .07 2 .14
Global recession and fluctuating foreign currencies.
.04 3 .12
Fast-food chain industry is expected to struggle to meet the expectations of the customers towards health and environmental issues.
.04 2 .08
Total 1.00 2.85
Financial Ratio Analysis 12/2007Growth Rates % McDonald's Industry S&P 500Sales (Qtr vs year ago qtr) -3.30 4.20 -3.80Net Income (YTD vs YTD) 84.70 47.90 8.40Net Income (Qtr vs year ago qtr) -22.60 -59.90 -94.80
9
Sales (5-Year Annual Avg.) 6.53 8.14 13.26Net Income (5-Year Annual Avg.)
23.39 15.30 14.45
Dividends (5-Year Annual Avg.) 32.36 22.36 12.30Price RatiosCurrent P/E Ratio 14.7 14.2 13.0P/E Ratio 5-Year High N/A 9.5 12.5P/E Ratio 5-Year Low N/A 4.7 2.0Price/Sales Ratio 2.62 1.88 1.47Price/Book Value 4.62 3.54 3.00Price/Cash Flow Ratio 11.20 10.00 9.00Profit Margins %Gross Margin 36.7 32.1 39.4Pre-Tax Margin 26.2 17.2 13.2Net Profit Margin 18.3 12.0 9.15Yr Gross Margin (5-Year Avg.) 33.9 33.3 39.15Yr PreTax Margin (5-Year Avg.)
19.8 14.2 16.6
5Yr Net Profit Margin (5-Year Avg.)
13.7 9.8 11.45
Financial ConditionDebt/Equity Ratio 0.76 .80 1.03Current Ratio 1.4 1.2 1.4Quick Ratio 1.3 1.1 1.1Interest Coverage N/A 1.2 29.9Leverage Ratio 2.1 -5.3 1.9Book Value/Share 12.00 10.00 19.75Investment Returns %Return On Equity 32.2 44.4 27.9Return On Assets 14.9 11.3 8.1Return On Capital 17.0 13.7 11.2Return On Equity (5-Year Avg.) 19.7 22.8 20.6Return On Assets (5-Year Avg.) 10.0 8.98 8.5Return On Capital (5-Year Avg.) 11.4 11.0 11.5Management EfficiencyIncome/Employee 10,783 9,401 91,499Revenue/Employee 58,806 98,207 1,000,000Receivable Turnover 23.7 44.7 15.8Inventory Turnover 125.7 98.7 12.3Asset Turnover 0.8 1.1 1.0
10
Net Worth Analysis 12/2007 (in millions)
1. Stockholders' Equity + Goodwill= 15,279.80+2,301.30 $17,581.102. Net income x 5 = 2395.10 x 5 $11,975.503. Share price = 58.91/EPS 2.02=$29.16 x 2,395.10 $69,849.184. Number of Shares Outstanding x Share price =
1,165x58.91$68,630.15
Method Average $42,009
Internal Audit
Strength Weakness
1. Strong brand name, image and
reputation.
2. Large market share.
1. Unhealthy food image.
2. High Staff Turnover including Top
management
11
Date Avg P/E Price/ Sales Price/ Book
Net Profit Margin (%)
12/07 26.50 3.13 4.49 10.212/06 16.10 2.66 3.45 13.712/05 15.80 2.25 2.81 13.512/04 15.60 2.20 2.87 12.212/03 17.10 1.85 2.62 8.8
Date Book Value/ Share
Debt/ Equity
Return on Equity (%)
Return on Assets (%)
Interest Coverage
12/07 $13.11 0.61 15.3 7.9 9.512/06 $12.84 0.54 18.5 9.9 11.012/05 $11.99 0.67 17.0 8.6 11.012/04 $11.18 0.65 16.0 8.2 9.912/03 $9.50 0.81 12.6 5.8 7.3
3. Strong global presence.
4. Specialized training for managers known as the Hamburger University.
5. McDonalds Plan to win focuses on
people, products, place, price and
promotion.
6. Strong financial performance and
position.
7. Introduction of new products.8. Customer focus (centric).
9. Strong MCD's performance in the global marketplace.
3. Customer losses due to fierce
competition.
4. Legal actions related to health issues; use of trans fat & beef oil.
5. Uses HCFC-22 to make polystyrene that is contributing to ozone depletion.
6. Ignoring breakfast from the menu.
Internal Factor Evaluation (IFE) Matrix
Key Internal Factors Weight Rating Weighted ScoreStrengthsStrong brand name, image and reputation.
0.12 4 0.48
Large market share. 0.10 4 0.40
Strong global presence. 0.04 3 0.12
12
Specialized training for managers known as the Hamburger University.
0.04 3 0.12
McDonalds Plan to Win focuses on people, products, place, price and promotion
0.12 4 0.48
Strong financial performance and position.
0.08 4 0.32
Introduction of new products. 0.06 4 0.24Customer focus (centric). 0.06 4 0.24Strong performance in the global marketplace.
0.08 4 0.32
WeaknessesUnhealthy food image. 0.08 1 0.08High Staff Turnover including Top management
0.04 1 0.10
Customer losses due to fierce competition.
0.04 1 0.04
Legal actions related to health issues; use of trans fat & beef oil.
0.04 2 0.08
McDonald's uses HCFC-22 to make polystyrene that is contributing to ozone depletion.
0.04 2 0.08
Ignoring breakfast from the menu.
0.06 1 0.06
Total 1.00 3.16
SWOT MatrixStrengths Weaknesses
13
1. Strong brand name, image and
reputation.
2. Large market share.
3. Strong global presence.
4. Specialized training for managers
known as the Hamburger
University.
5. McDonalds Plan to Win focuses on
people, products, place, price and
promotion.
6. Strong financial performance and
position.
7. Introduction of new products.
8. Customer focus (centric).
9. Strong performance in the global
marketplace.
1. Unhealthy food image.
2. High Staff Turnover including
Top management.
3. Customer losses due to fierce
competition.
4. Legal actions related to health
issues; use of trans fat & beef
oil.
5. Uses HCFC-22 to make
polystyrene that is
contributing to ozone
depletion.
6. Ignoring breakfast from the
menu.
Opportunities S-O Strategies W-O Strategies1. Growing health trends
among consumers.
8. Globalization, expansion in other countries (especially in China & India).
9. Diversification and acquisition of other quick-service restaurants.
10. Growth of the fast-food industry.
11. Worldwide deregulation.12. Low cost menu that will
attract the customers.13. Freebies and discounts.
1. Focus on Plan to win to attract customers and expansion in other countries (S5, O2, O6).2. Expansion in market share by more investments in Asia (S2, O2).
1. Minimize customers losses by provide low cost menu and discounts (W3, O6, O7).
Threats S-T Strategies W-T Strategies1. Health professionals and
consumer activists accuse 1. More control on franchise dealers
to maintain McDonald's reputation 1. Applying 0 grams Trans fat in
all worldwide McDonald's
14
McDonald's of contributing to the country’s health issue of high cholesterol, heart attacks, diabetes, and obesity.
2. The relationship between corporate level McDonald's and its franchise dealers.
3. McDonald’s competitors threatened market share of the company both internationally and domestically.
4. Anti-American sentiments.5. Global recession and
fluctuating foreign currencies.
6. Fast-food chain industry is expected to struggle to meet the expectations of the customers towards health and environmental issues.
and quality (S1, T2). 2. Provide new product and keep
innovation (S7, T3).
(W1, W4, O1).2. Transfer from HCFC-22 to
HFC (hydrofluorocarbon)-free (W5, T6)
SPACE Matrix
Financial Strength Rating Environmental Stability Rating
Return on investment 4 Rate of inflation -3
Leverage 4 Demand Changes -3
Net Income 6 Price Elasticity of demand -1
EPS 5 Competitive pressure -3
ROE 5 Barriers to entry new markets -3
Cash Flow 4 Risk involved in business -2
Average 4.67 Average -2.5
Y-axis 2.17
Competitive Advantage Rating Industry Strength Rating
Market share -1.00 Growth potential 5
Product Quality -1.00 Financial stability 5
Customer Loyalty -1.00 Ease of entry new markets 4
Control over other parties -2.00 Resources utilization 4
Profit potential 5
Demand variability 3
Average -1.25 Average 4.33
X-axis 3.08
Directional vector point is :( 3.08, 2.17)
15
Grand Strategy Matrix
The Boston Consulting Group (BCG) Matrix
16
Conservative Aggressive
CompetitiveDefensive
FS
ISCA
ES
Quadrant II Quadrant I
Quadrant IVQuadrant III
Rapid Market Growth
Strong Competitive
Position
WeakCompetitive
Position
Slow Market Growth
The Internal-External (IE) Matrix
Strong Average Weak 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
High3.0 to 3.99
Medium2.0 to2.99
Low1.0 to 1.99
The Quantitative Strategic Planning Matrix
17
Question Marks
Cash Cows Dogs
Relative Market Share Position
IndustrySales
GrowthRate
Stars MCD
I III II
IV V VI
VII VIII IX
McDonald's
The IFE Total Weighted Score
The EFE Total
Weighted Score
(QSPM)
Strategy 1
Expand further in Asia by adding 500 restaurants
Strategy 2
Applying 0 grams Trans fat in all worldwide McDonald's restaurants
Key Internal Factors Weight AS TAS AS TAS
Strengths Strong brand name, image and reputation 0.12 4 0.48 4 0.48
Large market share 0.10 4 0.40 2 0.20
Strong global presence 0.04 4 0.12 2 0.08
Specialized training for managers known as the Hamburger University
0.04 - - - -
McDonalds Plan to Win focuses on people, products, place, price and promotion
0.12 4 0.48 4 0.48
Strong financial performance and position 0.08 4 0.32 4 0.32
Introduction of new products 0.06 - - - -
Customer focus (centric) 0.06 1 0.06 4 0.24
Strong performance in the global marketplace0.08 3 0.24 1 0.08
Weaknesses
Unhealthy food image 0.08 1 0.08 4 0.32High Staff Turnover including Top management
0.10 - - - -
Customer losses due to fierce competition 0.04 3 0.12 1 0.04Legal actions related to health issues; use of trans fat & beef oil
0.04 1 0.04 4 0.16
Uses HCFC-22 to make polystyrene that is contributing to ozone depletion
0.04 - - - -
SUBTOTAL 1.00 2.34 2.40
18
Strategy 1
Expand further in Asia by adding 500 restaurants
Strategy 2
Applying 0 grams Trans fat in all worldwide McDonald's restaurants
Key External Factors Weight AS TAS AS TAS
OpportunitiesGrowing health trends among consumers 0.08 1 0.08 4 0.32
Globalization, expansion in other countries (especially in China & India)
0.12 4 0.48 1 0.12
Diversification and acquisition of other quick-service restaurants
0.04 - - - -
Growth of the fast-food industry 0.10 4 0.40 4 0.40
Worldwide deregulation 0.04 4 0.16 1 0.04
Low cost menu that will attract the customers 0.08 - - - -
Freebies and discounts 0.08 - - - -
Threats
Health professionals and consumer activists accuse McDonald's of contributing to the country’s health issue of high cholesterol, heart attacks, diabetes, and obesity
0.10 1 0.10 4 0.40
The relationship between corporate level McDonald's and its franchise dealers
0.09 4 0.36 1 0.09
McDonald’s competitors threatened market share of the company both internationally and domestically
0.12 4 0.48 4 0.48
Anti-American sentiments 0.07 - - - -Global recession and fluctuating foreign currencies 0.04 - - - -Fast-food chain industry is expected to struggle to meet the expectations of the customers towards health and environmental issues
0.04 1 0.04 4 0.16
SUBTOTAL 1.00 2.10 2.01SUM TOTAL ATTRACTIVENESS SCORE 4.44 4.41
19
Recommendations
Expand further into Asia markets over a 2-year period by adding 500 restaurants per year at a cost of $4 billion annually, and applying 0 grams Trans fat in all worldwide McDonald's restaurants.
References1. www.mcdonalds.com 2. www.moneycentral.msn.com 3. www. mcdonalds .ca 4. Strategic Management concepts and cases by Fred David 12 edition5. Exploring Corporate Strategy text & cases 8th edition6. U.S. Environmental Protection Agency
20