McDonalds Corporation

A Strategic Management Case Study

Presented By
MIT-11th Batch
Masudul Haque 141111
Tahmina Sharmin 141112
Nafis Rahman - 141135
Mohammad Abdullah Al Mahmud - 141136

Institute Of Information Technology

University Of Dhaka

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Contents
Company Profile Popular Promotions
McDonalds Franchise How McDonald reach every corner of this world
Ray Kroc Formula for Success Impact on McDonald
Ray Kroc - Business Model External Environment and its effect on Strategic Marketing
Product Life Cycle Internal Analysis
Products CPM Matrix
What We Sale SWOT Matrix
Location Market Share
History Internal Factor Evaluation (IFE Matrix)
Mission Statement External Factors Evaluation (EFE) Matrix
Vision Statement The Strategic Position and Action Evaluation ( SPACE Matrix)
Values 2005-2014 Mcdonalds Revenue
External Analysis Mcdonalds Sale Alanysis
Porters 5 Forces Financial Analysis
Competitors Growth Profitability and Financial Ratios
Brand Value 2014 Sales By Segmentation
Competitive Advantage ROI (Return on Investment)
Brand Value 2014 Performance Chart
McDonalds Strategy Issues
Services Recommendation

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Company Profile
Name McDonalds Corporation
Logo
Industries served Restaurants (McDonalds, McCaf, McExpress, McStop)
Geographic areas served Worldwide (over 36,000 restaurants in 119 countries)
Approximate Customer 69 million
Headquarters Oak Brook, Illinois, United States
Current CEO Don Thompson
Revenue $28,106 billion (2013) 2% increase over $27,567 billion (2012)
Profit $5,586 billion (2013) 2.1% increase over $5,465 billion (2012)
Employees 440,000 (2014)
Main Competitors Burger King Worldwide, Inc., Darden Restaurants, Inc., Doctor's
Associates, Inc., Dominos, Inc., Yum! Brands, Inc., Starbucks
Corporation, Wendys Company and many other companies in the fast
food industry.

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McDonalds Franchise
Most Owner/Operators enter the System by purchasing an existing restaurant,
either from McDonalds or from a McDonalds Owner/Operator.
Financial Requirements/Down Payment
Initial down payment is required when purchasing a new restaurant (40%
of the total cost) or an existing restaurant (25% of the total cost).
The down payment must come from non-borrowed personal resources, which
includes cash on hand, securities, bonds.
Generally require a minimum of $300,000 of non-borrowed personal resources
to consider you for a franchise.
Remaining balance of purchase price must be paid off with in 7 years.
McDonalds does not offer financing but they work with many national lending
institutions.
McDonalds owns all buildings and properties.

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Ray Kroc Formula for Success

Quality
Service
Cleanliness
Value

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Ray Kroc - Business Model

Ray Kroc - Developed a business model

known as The Three Legged Stool.
Owner/Operator, Suppliers and Employees

Just as all three legs of a stool need to be

equal to support the weight, all three
elements of the McDonalds system are
equally important partners in McDonalds
success.

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Product Life Cycle

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Products
Beverage :Cold Coffee, Ice Tea ,Hot Serves,Mcshakes

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Non-Vegetarian Menu: Filet-O-Fish, , Chicken
McCurry Pan, McChicken.

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Vegetarian Menu: Crispy Chinese, McALOOtikki, Mc
Veggie, Pizza McPuff, Paneer Salsa Wrap.

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What We Sale

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Location

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History
1940 First McDonalds
1952 Attempts at franchising
1954 Milk Shake Machine
1955 prototype opens in Des Plaines, IL
1956 14 McDonalds
1961 McDonald brothers sell rights
1965 McDonalds go public
1968 Introduction of Big Mac and shift to Network Television
1970 1600 restaurants
1980 6000 McDonalds Restaurants
1990 record sales
1994 Kuwait City, Kuwait
2001: Faced with a class-action lawsuit for advertising its fries and hash
browns as vegetarian, even though they include beef flavoring.

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History (cont)
2001: About 50 new stores are opened in Mexico. McDonalds announces its
intent to invest $67 million in the Philippines by 2005.
2002 Forty seven years after
30,000 locations
2000 new restaurants
World Wide Web
McDonalds a recognized Brand Name
2002: McDonalds apologizes for not listing beef flavoring as an ingredient in
its hash browns and fries and offers to donate $10 million to vegetarian
groups.
2003: Post their first quarterly loss in over 40 years. Slash spending by 33%,
and new store openings are reduced from 1,000 the previous year to 360.

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History (cont)
2004: Introduces the Go Active! Happy Meal, consisting of a salad, water, stepometer,
and an exercise booklet.
2005: Net income increases 14% to $2.6 billion, with record annual sales of $20.46
billion.
2005: Chipotle Mexican Grill Inc., in which McDonalds has a 92 percent ownership
stake, files an initial public offering with the Securities and Exchange Commission.
2006: Plans are established to open 125 restaurants per year in China, bringing the total
locations there to 1,000 by 2008.
2007:Packaging Update-Mcdonalds New packaging features 24 faces from first ever
global casting call
2008: Global Packaging Redesign
2009: McCafe goes national
2010:Intruduced McCafe Real fruit smoothies and Frappers
2011:McDonald opens in 119 countries
2012:Shamork Shake offered nationally

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Mission Statement

McDonald's brand mission is to "be our customers' favorite place and

way to eat.

Our worldwide operations have been aligned around a global strategy

called the Plan to Win centering on the five basics of an exceptional
customer experience People, Products, Place, Price and Promotion.

We are committed to improving our operations and enhancing our

customers' experience.

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Vision Statement

McDonald's vision is to be the world's best quick service restaurant

experience.

Being the best means providing outstanding quality, service,

cleanliness, & value, so that we make every customer in every
restaurant smile.

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Values
We place the customer experience at the core of all we do. Our customers
are the reason for our existence. We demonstrate our appreciation by
providing them with high quality food and superior service in a clean,
welcoming environment, at a great value. Our goal is quality, service,
cleanliness and value (QSC&V) for each and every customer, each and every
time.

We are committed to our people. We provide opportunity, nurture talent,

develop leaders and reward achievement. We believe that a team of well-
trained individuals with diverse backgrounds and experiences, working
together in an environment that fosters respect and drives high levels of
engagement, is essential to our continued success.

We believe in the McDonalds System. McDonalds business model, depicted

by our three-legged stool of owner/operators, suppliers, and company
employees, is our foundation, and balancing the interests of all three groups is
key.
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 We operate our business ethically. Sound ethics is good business. At
McDonalds, we hold ourselves and conduct our business to high standards of
fairness, honesty, and integrity. We are individually accountable and
collectively responsible.

We give back to our communities. We take seriously the responsibilities that

come with being a leader. We help our customers build better communities,
support Ronald McDonald House Charities, and leverage our size, scope and
resources to help make the world a better place.

We grow our business profitably. McDonalds is a publicly traded company.

As such, we work to provide sustained profitable growth for our shareholders.
This requires a continuous focus on our customers and the health of our
system.

We strive continually to improve. We are a learning organization that aims to

anticipate and respond to changing customer, employee and system needs
through constant evolution and innovation.
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External Analysis

External Audit- Opportunities

Increasing demand for healthier food

Home meal delivery
Full adaptation of its new practices
Changing customer habits and new customer groups
New Products & Services
Beverage Market
Growth of Franchise Restaurants
Demand for Organic Products
International Expansion
Conservation (going green)

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External Audit- Threat

Saturated fast food markets in the developed economies

Trend towards healthy eating
Local fast food restaurant chains
Currency fluctuations
Lawsuits against McDonalds
Change in Commodity Prices
Food Safety and Food Borne Illness Concerns
Economic Slowdown
Growing Health Consciousness
Intense Competition (dine-in restaurants, Burger King)
Legal Challenges (McDonalds faces many lawsuits)

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Porters 5 Forces
Threat of competition HIGH
Very competitive Fast Food industry
Competitors Advertising Capabilities
Location of outlets
Major competitors- Burger King and YumBrand INC.
Threat of New Entrance HIGH
Regulation of Limit
Easy Access Market and Low start up cost
Example of SubWays market penetration
Threat of Substitutes Low-Moderate
Availability of the MCD products
Choose MCD for Easting and Entertainment
Narrows Threat of Substitutes due to introduction of local taste
products.

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Porters 5 Forces (Cont.)
Power of Suppliers LOW
Worlds largest restaurant chain in sales
High bargaining power over its suppliers
Most of them owe MCD for their own existence
LOW the power of suppliers- LOWer the cost of raw materials and
HIGH competitive price.
Power of Buyers LOW
Industry limitations
Low quantity purchases
Less chances of switching, high brand image thru differentiation
and uniqueness
Buyers dont have bargaining power

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Competitors

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Competitive Advantage

Striving to be cost leaders: prices cannot be matched by competitors.

The speedy delivery of the food.
Strong global presence and largest market share in fast-food industry.
Net competitive advantage.
They have been in the fast food business for a longer time than their
competitors.
Franchising requires less capital than other growth methods
Rapid Expansion
Market Dominance
Franchising puts a "business owner" in charge
Franchise locations may operate better and more profitably than
"company owned" units
Greater Buying Power
Increased Name Recognition

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Competitive Advantage
(Cont.)
Increased Advertising and Marketing Budget
New revenue streams are created
Franchise Fees
Franchise Royalty Fees
Advertising and Marketing Administrative Fees
Services provided to Franchises
Sales of Products & Supplies
Training Fees
Sales of Promotional Items
Rebates from Suppliers

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CPM Matrix

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Brand Value 2014

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McDonalds Strategy
Focusing heavily on emerging markets
McCaf has been a big win
Offering a wider variety of food to attract more segments
Delivering food to customers in places that demand it
Making its stores more attractive to get customers in
Increasing its offering of snack items
Shortening its menu cycle
Importing more of its successful niche products internationally

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McDonalds Strategy
(Cont)
Expanding its dollar menu to breakfast
And it hasn't been scared to take anybody on
Achieving the most powerful brand image
product innovation and development
Having the greatest market share in the ham burger industry

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Services
Gift Cards
Free WiFi
Play Place & Parties
Subscription
Coupon
Online Booking
Android App

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Popular Promotions

Toys with Happy Meals

Cars
Pirates of the Caribbean
Games- Monopoly/ Uno Win various prizes and trips
Collectibles- Coca Cola Glasses, Beanie Babies
Olympic Games- Global partner of the Olympic games- reflects our
commitment of the importance of sports and physical activities.
World Champions- 1,400 children from 51 countries had the
opportunity to meet the worlds best soccer players at the 2006 FIFA
World Cup.

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How McDonald reach every corner of
this world
Using the 7Ps of marketing mix,
McDonald earned business success
at every part of the globe.
1. Product
2. Price
3. Place (International
Distribution and Supply Chain)
4. Promotion
5. People
6. Process
7. Physical Evidence

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Impact on McDonald
REVENUES
RESTAURANT MARGINS
Franchised margins
Company-operated margins
RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
LIQUIDITY

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External Environment and its
effect on Strategic Marketing
Political/legal factors
Economic factors
Product lines and pricing
Customers preference
Competitors
Social factors
Technological factors
McMommy Blogging Society
Hamburger University

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Internal Analysis
Internal Audit-Strength

Largest fast food market share in the world

Brand recognition valued at $40 billion
$2 billion advertising budget
Locally adapted food menus
Partnerships with best brands
More than 80% of restaurants are owned by independent franchisees
Children targeting
Strong Global Presence (located in over- 100 countries)
Strong Real Estate Portfolio
Revenue Growth 9% (Above Industry Average of 7.5%)
The Ronald McDonald House (Children Charity)
Systemization and Duplication (Consistency)

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Internal Audit-Weakness

Negative publicity
Unhealthy food menu
Mac Job and high employee turnover
Public Perception (perceived as a contributor to societies obesity
problem)
Product Innovation
Advertising (targets young children)
Customer Service
Market Saturation (more difficult to add new stores)
Labor Turnover

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 SWOT Matrix
S-O strategies
Introducing new nutritious menus
Expanding to Asia market
Taking advantage of brand name
McDonalds Plan to Win
Low-cost leadership
W-O strategies
Minimizing the negative publicity
Increasing differentiation
S-T strategies
Taking advantage of brand name
Giving back to community
Providing new healthier menu
W-T strategies
Using less Trans fat
Switching from HCFC-22 into HFC
Increasing Employee satisfaction
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Market Share

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Internal Factor Evaluation
(IFE) Matrix

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 External Factors Evaluation
(EFE) Matrix
Key External Factors Weight Rating Weighted
Score
Opportunities
Low-Price Menu that will attract low-income 0.15 3 0.45
consumers Increasing sales by Low price
Demand for healthier and more creative products 0.05 3 0.15 menu & McCaf.
Competitors lack of McCafe service 0.15 4 0.6
Expansion in other countries ( China, India) 0.07 2 0.14
Brand loyalty 0.05 2 0.1 Creating more diversified menu
Demand for free Wi-Fi versus competitor charges 0.09 3 0.27
with low price.
Demand for more salad choices on menu 0.09 3 0.27
Weaknesses
Having negative heath issues for consumers such 0.06 3 0.18 Having more competitive
as obesity and heart attack
Having negative attention from media because of 0.04 2 0.08
advantages and opportunity
marketing toward children.
Price wars between competitors will cause 0.07 2 0.14
McDonald lose customers. Biggest weaknesses is healthier
High turnover rate 0.03 2 0.06 issue and lawsuit issue.
Rising costs 0.06 2 0.12
Calorie counts & nutritional value posted 0.09 2 0.18
Total 1 2.74

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 The Strategic Position and
Action Evaluation ( SPACE
Matrix)
Financial Strength Rating Environmental Stability Rating

Return on investment. 3 Rate of inflation -3

McDonalds should:
Leverage 4 Demand Changes -3

Net Income 3 Price Elasticity of demand -1

Forward integration
EPS 3 Competitive pressure -3
Product development
ROE 2 Barriers to entry new markets -3

Cash Flow 4 Risk involved in business -2

Average 3.17 Average -2.5 F

Y-axis 0.67 Conservati S Aggressive
ve
Competitive Advantage Rating Industry Strength Rating

Market share -4 Growth potential 3

Product Quality -4 Financial stability 5
0.
Customer Loyalty -2 Ease of entry new markets 4 C 5 IS
A 0.6
Control over other parties -2 Resources utilization 4 7
Profit potential 2
Defensive Competitiv
Demand variability 3 e
Average -3 Average 3.5
X-axis 0.5 E
S

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2005-2014 Mcdonalds
Revenue

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Mcdonalds Sale Alanysis

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Financial Analysis

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Financial Analysis (Cont)

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Growth Profitability and Financial
Ratios
Financials
2012-12 2013-12 2014-12 TTM
Revenue USD Mil 27,567 28,106 27,441 27,441
Gross Margin % 39.2 38.8 38.1 38.1
Operating Income USD Mil 8,605 8,764 7,949 7,949
Operating Margin % 31.2 31.2 29 29
Net Income USD Mil 5,465 5,586 4,758 4,758
Earnings Per Share USD 5.36 5.55 4.82 4.82
Dividends USD 2.87 3.12 3.28 3.28
Payout Ratio % 53.6 56.2 68 68
Shares Mil 1,020 1,006 986 986
Book Value Per Share USD 15.25 16.16 13.35 13.37
Operating Cash Flow USD Mil 6,966 7,121 6,730 6,730
Cap Spending USD Mil -3,049 -2,825 -2,583 -2,583
Free Cash Flow USD Mil 3,917 4,296 4,147 4,147
Free Cash Flow Per Share USD 3.84 4.27 4.2
Working Capital USD Mil 1,519 1,880 1,438

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Sales By Segmentation

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ROI (Return on Investment)

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Performance Chart

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Issues
Nutritional issues
MCD taking away the traditional nutrition values
Replace the fresh and healthy food by mass production
Projection the product nutrition values
Comparison of daily consumption and MCD products
Serves 30million people daily
Advertising Issues
2billion dollars for Advt annually
Concentrated on Children- Parental Concerns
MCD has a better advertising than its customers
Follows the advertising codes of each country
Making aware of MCDs charity activities, events and learning
programs

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 Employment ethics and issues
Criticized as low paid jobs- named McJobs
Low paid, non-union, part time jobs with low rights and conditions
Giving importance on individual goals than organizational goals
Fact of 1.5million workers with above 70% job satisfaction rate
Introduction of collective tips system

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Recommendation
Long-term Strategy
Expanding influence and presence in Asia market

Specific Strategy
Opening at least 1 restaurant per day in China
Having diversity menu in India
Receiving feedbacks

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Thank You

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