Company Background And Market Analysis Of Mcdonalds

McDonald’s is the leading global foodservice retailer and the world’s largest chain of hamburgers fast food restaurant. It is founded in year 1955 by Ray Kroc. McDonald’s serves more than 60 million people with more than 32,000 local restaurants in 117 countries each day. It employs more than 1.5 million people. More than 75% of McDonald’s restaurants worldwide are owned and operated by independent local men and women.

Source

From the table above, since year 2004 until year 2008, even until now, McDonalds is still the number choice of customers when come to fast food follow by Burger King and Wendy’s. In year 2008, Subway took over Wendy’s place and ranked at number three.

Besides that, The Star Online stated that McDonald’s is ranked in the top 10 most valuable brands in 2010 and it is placed at number six.

Top 10 most Valuable Brands in 2010

Rank

Brand

Value ($bn)

1

Coca-cola

70.45

2

IBM

64.73

3

Microsoft

60.90

4

Google

43.56

5

GE

42.81

6

McDonald’s

33.58

7

Intel

32.02

8

Nokia

29.5

9

Disney

28.73

10

HP

26.87

Source:

Company Situation

Mission Statement:

McDonald’s vision is to be the world’s best quick service restaurant experience.  Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.

Values:

We place the customer experience at the core of all we do.

We are committed to our people.

We believe in the McDonald’s system.

We operate out business ethically.

We give back to our communities.

We grow our business profitably.

We strive continually to improve.

Management Overview

McDonald’s management is very successful as it exports its brands throughout the globe. The company operates McDonald’s restaurants as well as franchises. There are 32,478 restaurants in 117 countries at year-end 2009, and there are 26,216 were operated by franchisees and 6,262 were operated by the Company. Under franchise arrangement, a portion of the capital have to be provided by franchisees to invest in their restaurant businesses for the equipment, signs, seating and decorations, reinvesting in the business is needed from time to time.

Financial Situation

Revenues by geographic Segment:

McDonald’s largest geographical market is Europe, accounted for 41% of the total revenues in the year 2009 which is mainly driven by France, Germany and the United Kingdom. Revenues are generated through other geographic segments: United States (US), Asia Pacific, Middle East and Africa (APMEA) and other countries and corporate are 35%, 19% and 5% respectively.

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From McDonald’s 2009 annual report, we can see that its total revenues from the US reached $7,944 millions in year 2009, a decrease of 1.7% over year 2008. Revenues from Europe were $9,274 million in year 2009, a decrease of 6.5% compared to year 2008. While revenues from APMEA reached $4,337 million in year 2008, an increase of 2.4% compared with year 2008. Revenues from other countries and corporate reached $1,190 millions in year 2009, a decrease of 7.8% over year 2008.

The total operating income and assets in US shows favourable results where the figures keep increasing since year 2007 to year 2009. Total capital expenses in US show improvement as well where the expenditure is lesser in year 2009 compared to year 2008.

Market Share:

According to Jim Muehlhausen, McDonald’s had occupied 19% of the total market share in the fast food industry. While its closest competitors: Burger King and Wendy’s accounted 2% individually. Pie Chart below shows the market share of the major players in the fast food industry.

Source:

Market Situation

Sector Trends

The land size of United States’s is at 3.79 million square miles, according to U.S. Bureau of Census, with the total population of 307,006,500 in July 2009, it is the third largest both by land area and population. The table on the left shows the population in United States in July 2009 according to states.

Segmentation

The market is segmented by demographic, geographic, psychographic and behavioural.

Targeting

McDonald’s target market is people who love fast food. The demand of fast food is increasing nowadays as everyone is practicing faster paced lifestyles. Macdonald’s target market is: children, students, working adults and families who are from five to seventy years old. Students tend to spend their time to socialize with their friends in fast food restaurants compare to other restaurants as it offers affordable prices and trendy ambiences. Besides that, due to the hectic schedule, fast food restaurant is always the number one choice for working adults to have their meals as it offers quick services. Kids simply love fast food, hence, the parents will bring their children to fast food restaurants to have family meals.

Positioning

McDonald’s outlets are located mostly in high population states such as: Florida, New York, Texas, Illinois and Ohio. They were built near office buildings, schools, in shopping malls, etc., which are high visibility, traffic volume and ease of access areas.

State

July 2009 population

Alabama

4,708,708

Alaska

698,473

Arizona

6,595,778

Arkansas

2,889,450

California

36,961,664

Colorado

5,024,748

Connecticut

3,518,288

Delaware

885,122

DC

599,657

Florida

18,537,969

Georgia

9,829,211

Hawaii

1,295,178

Idaho

1,545,801

Illinois

12,910,409

Indiana

6,423,113

Iowa

3,007,856

Kansas

2,818,747

Kentucky

4,314,113

Louisiana

4,492,076

Maine

1,318,301

Maryland

5,699,478

Massachusetts

6,593,587

Michigan

9,969,727

Minnesota

5,266,214

Mississippi

2,951,996

Missouri

5,987,580

Montana

974,989

Nebraska

1,796,619

Nevada

2,643,085

New Hampshire

1,324,575

New Jersey

8,707,739

New Mexico

2,009,671

New York

19,541,453

North Carolina

9,380,884

North Dakota

646,844

Ohio

11,542,645

Oklahoma

3,687,050

Oregon

3,825,657

Pennsylvania

12,604,767

Rhode Island

1,053,209

South Carolina

4,561,242

South Dakota

812,383

Tennessee

6,296,254

Texas

24,782,302

Utah

2,784,572

Vermont

621,760

Virginia

7,882,590

Washington

6,664,195

West Virginia

1,819,777

Wisconsin

5,654,774

Wyoming

544,270

Total

307,006,550

McDonald’s target market and its market segmentation:

Children

Youth

Adults

Elderly

Demographic

Age

5 to 12

13 to 25

26-54

55-70

Occupation

Students

Students/Part-timers

Part-timer/Full-timer/Self-employed

Retired

Income

<1000

1000 to 2500

>2500

Pensions and savings

Geographic

Within United States

Psychographic

Interests

Entertainment

Entertainment, leisure

Entertainment, leisure

Enjoyment

Lifestyle

Dependent

Aggressive

Aggressive

Slow and steady

Behavioural

Occasions

Birthday party

Birthday party, gathering

Gathering, anniversary

Anniversary

McDonald’s SWOT analysis

Strengths

Strong global presence with its nearest domestic competitor being only half of its size.

The market leader in both domestic and international markets.

Strong brand recognition

Ranked number one in Fortune Magazine’s 2008 list of most admired food service companies

Having more than 32,000 local restaurants in 117 countries.

First to come out with nutrition facts information on its products.

Weaknesses

Lack of product innovation.

High cost for employee training due to high employee turnover.

Opportunities

Its outlets are located in high visibility, traffic volume and ease of access areas.

International market

Advances in technology

Threats

Saturated food industries.

Price competition between competitors.

More health conscious customers and fast food is categorized as unhealthy food.

PESTLE implications

Political

According McDonald’s 2009 annual report, foreign currency translation had a negative impact on McDonald’s consolidated operating results in year 2009 which is driven by the Euro, Russian Ruble, British Pound, Canadian Dollar and Australian Dollar. While in year 2008 and 2007, the foreign translation had positive impact on its consolidated operating results. The table below shows how the foreign currency translation affect McDonald’s consolidated operating results.

Economical

With its franchises in US, McDonald’s provide a lot of job opportunities to the US people to reduce the unemployment level in that country. McDonald’s is hiring up to 600 part-timers to work in its outlets throughout the Las Vegas area which is with 14.2% of unemployment level.

Social

Fast foods lead to obesity problems in America as they are high in fats, calories, sugar and salt. Rates of obesity in America are keep increasing obesity will leads to other diseases like heart diseases, diabetes, etc. The Coronary Artery Risk Development in Young Adults (CARDIA) said that a person will gain an average weight of 10 pounds if he or she ate fast food two or more times in a week. Pew Research Centre reported that almost 20% of Americans eat fast food at least twice a week after the survey is conducted. As the health concern is increased among the Americans, they tend not take less fast food as it have been seen as unhealthy food.

To conquer the problems, McDonald’s comes out with nutrition facts charts on selected packaging and menu information for customers to have guidelines for the food intake and meet their nutrition desires. Sample nutrition facts are shown in the pictures below.

Technology

With the technology, McDonald’s serves burgers and fries to the customers in minutes time, McDonald’s was the first to have touch-screen computers at the front counter and drive-thru to serve customers faster and easier when they ordering food. There are also touch screen self-ordering kiosks for customers to order food by themselves. Besides that, McDonald’s uses Wayport for high speed connectivity to the internet.

Legal

McDonald’s has been involved in legal cases which most of them are trademark disputes where many food businesses are using “Mc” or “Mac” because of McDonald’s strong brand recognition.

Environmental

To reduce the impacts on environment, McDonald’s uses 3Rs approaches: reduce, reuse and recycle. There is 82% of McDonald packaging are made from renewable materials at the moment. Besides that, cooking oil is recycled to be reused in variety products such as environmentally friendly biodiesel.

Competitors situation and SWOT

McDonald’s closest competitors are Burger King Corporation and Wendy’s International Incorporation.

Burger King

Burger King is founded in year 1954 by McLamore and Edgerton. It has more than 12,200 outlets in 73 countries, however, 66% of its outlets are located in United States and 90% of them are privately owned and operated. It is having more than 38,800 employees serving about 11.4 million customers in daily basis.

Strengths

Second largest fast food hamburger restaurant

Strong brand equity

Weaknesses

Heavily concentrated in US market

Relies heavily on its franchises

Opportunities

International market

Advances in technology

Threats

Changing consumer habits towards healthier food choices

Intense competition with the competitors

Increasing labour costs

Wendy’s

Wendy’s is founded in year 1969 by Dave Thomas. It is an international fast food chain restaurant which ranked as the world’s third largest hamburger fast food chain. In year 2009, there are 6,541 restaurants worldwide where 1,391 are company restaurant and 5,150 are franchise restaurants, majority of them 77 are located at North America. Wendy’s employs 46,000 people worldwide.

Strengths

Third largest hamburger fast food chain restaurant

Global brand

Strong supply chain

Weaknesses

Concentrated in North America market

Having management problems

Relies on franchises

Opportunities

International market

Advances in technology

Threats

Strong competitors

Increase in beef prices

Fast food have been seen as unhealthy food

Objectives and Assumptions

Assumptions

During the preparation of a marketing plan, there are few assumptions being made upon it where there will be no large fluctuation particularly on Foreign Exchange variance. Besides that, it is crucial to take variances such as economy crisis, natural disasters that will have impacts on McDonald’s business into consideration during the preparation of a marketing plan.

Objectives

These marketing objectives are what McDonald’s is trying to achieve on the three following years of its operations by using SMART criteria which are specific, measurable, achievable, realistic and timely:

Marketing:

Specific

To increase market share.

To increase new product awareness.

Measurable

To increase the market share by 5%.

To have an increase of 18% on new product awareness.

Achievable

Advertisements on the new product to grab customer’s attention.

More franchisees to open new franchises.

Realistic

Fast-paced lifestyle leads to higher demand as more customers prefer fast food nowadays.

Timely

To increase market share by 5% yearly start from 2010.

To have an increase in product awareness by 18% start from 2010.

Financial:

Specific

To increase overall sales revenue.

To reduce cost of sales.

Measurable

Increase sales revenue by 8%.

Reduce the cost of sales by 5%.

Achievable

Higher demand for fast food.

Realistic

McDonald’s order raw materials in bulk to get cheaper prices and reduce cost.

Advertising stimulate customers’ appetite and increase sales.

Timely

Sales revenue increases by 8% annually start from year 2010.

Cost of sales reduces by 5% yearly start from 2010.

Societal:

Specific

Provide healthier fast food.

To make product more environmental friendly.

Reduce electric and water consumption and wastage.

Measurable

R&D at 8% of sales on healthier food recipe in year 2010.

Reduce energy consumption and wastage by 3%.

Achievable

Reduce in fats, calories, sugar and salt in the products.

Electric and water consumption is reduced by using them wisely

Realistic

82% of McDonald packaging are made from renewable materials

Timely

Electric and water consumption and wastage is to be reduced by 3% monthly start from January 2010.

Strategy

Marketing Mix

Marketing mix is all about putting the right product in the right place, at the right price and at the right time to boost sales and hence generate higher profit.

Product

McDonald’s primarily sells hamburgers, chicken products, cheeseburgers, breakfast items, lunch items, french fries, soft drinks, shakes and also desserts. McDonald’s should innovates its products continuously as people tend to change their preference and tastes from time to time. Without product innovations, customer will get bored to eat the same food over and over again. With its strong brand recognition, McDonald’s serves its customers within minutes from ordering until they get their food with world class food quality by using fresh ingredients and excellent product features. Its staffs are trained to provide fast and excellent services to the customers. McDonald’s product packaging is environmental friendly and 100% recyclable to reduce the negative impacts on the environment. Questionnaires have to be prepared from time to time to get feedbacks from the customers so that McDonald’s have an idea to improve on its products and environments by following customers’ preferences.

As people starts to practice healthy lifestyles, McDonald’s includes salads, wraps and fruit into its menu. Besides that, McDonalds comes out with nutrition facts table and charts for people to have guidelines for their food intake and to meet their nutrition desires. The sample nutrition facts table for McDonald’s USA is shown below.

Source:

Price

McDonalds uses value-based pricing and psychological pricing on its products. One example for psychological pricing is $3.59 instead of $3.60 and $4.99 instead of $5. In customers’ perception of saving, they look at the items with prices ending with £0.95 or £0.99 more favourable as compare to £1.00 as example although there are only £0.05 and £0.01 difference. The prices are set where they are reasonable and affordable by the customers. It uses value pricing strategies on some of its products where they are cheaper to buy in a set compared to ala carte such as: happy meal, combo meal, family meal, breakfast and lunch sets to increase overall sales volumes. Discounts coupons should be given out from time to time to attract new customers and to boost sales in those particular periods.

Place

McDonald’s outlets are located in high visibility, traffic volume and ease of access areas. Most of its outlets consist of the distribution channels. It is important so that the product is available to the customer all the time. In United States, there are nearly 50% of McDonald’s outlets can be reached by driving within three minutes. McDonald’s gives certain level of satisfaction, fun as well as happiness each time they dine at McDonald’s as it offers better ambience, hygienic environment and also great services. Free Wi-Fi with high speed connectivity to internet is provided to customers for them to access to internet to do business and entertainment when they are dining. Besides that, children will not easily get bored when they just sit and eat as they can have fun at the playgrounds in the restaurants while their parents have some time to spend together. Every McDonald’s outlets have Drive-Thru to make customers who want to take away more convenient and fast. Besides that, quick delivery to households is provided with a little charge.

Promotion

McDonald’s uses various promotion channels to effectively communicate the product information to the customers as it has clear understanding of the customer value that helps to decide whether the promotion cost is worth spending or not. McDonald’s three main advertising objectives are to make people aware of its product, having position perception about it and remember it. It does its advertising promotions through televisions, radios, hoardings and also bus shelters. Printed ads in newspapers and magazines and television programmes are one of its important marketing medium too to stimulate customers’ appetite.

Besides that, McDonald’s is doing sales promotion too. Customers can enjoy McDonald’s breakfast and lunch sets in cheaper price in a certain period of the day. Besides that, discount coupons will be given to customers from time to time for them to enjoy McDonald’s foods in cheaper prices. Kids simply love to celebrate their birthday parties in McDonald’s. Hence, McDonald’s can give special discounts and gifts to the birthday kids so that they will come back next year and tell it to their friends.

Forecast and implications

McDonald’s three years forecasts and budgets (Dollars in millions)

2009

2010

2011

2012

Objective comment

Sales

7944

8580

9266

10007

Improve by 8% yearly

Cost

659

626

595

565

Reduce by 5% annually

Profit

7285

7954

8671

9442

Increases by around 8% yearly

It is forecasted that McDonald’s in United States will meet its financial objective where its sales increase steadily by 8% yearly start from year 2010 while its cost reduces by 5% annually. Hence, the profit will be increasing by around 8% yearly start from 2010.

Metrics

McDonald’s is using metric strategy in order to measure whether it can achieve its objectives or not.

Marketing metric:

Objectives

Metrics

To increase market share

Measure by number of new franchises opening yearly

Increase product awareness among target audiences

Calculated by the sales of the particular product after advertising promotion is done

Financial metric:

Objectives

Metrics

Increase sales revenue

Product sales is measured by dollars annually

Reduce cost of sales

Cost of sales is measured by dollars yearly

Societal metric:

Objectives

Metrics

Provide healthier fast food

Measure by the percentage of fats, calories, sugar and salt in the products

Reduce electrical and water consumption and wastage

Calculate by the electric and water bills monthly

More environmental friendly

Measure by the percentage of its packaging that using recyclable materials

Conclusion

As the conclusion, although McDonald’s is number one in fast food industry, it should keep improving its business in term of marketing, financial and social to be better in the future. McDonald’s can get feedback from the customers to know what they prefer, how they want McDonald’s to change so that McDonald’s know what action it should takes to improve itself. With new product innovations and healthier fast food, McDonald’s will be more successful.

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