McDonald’s represents one of the best examples of American globalization. It also exemplifies the advantages of a franchising business model. The company that started in 1940 in San Bernardino in California now has more than 40,000 stores located in North and South America, Europe, the Far East, Southeast Asia and the Pacific, and the Middle East.
Situational Analysis of McDonald’s Corporation: A Look Into Its Strengths, Weaknesses, Opportunities, and Threats
1. Strengths
Note that McDonald’s Corporation is both a multinational fast food chain and a real estate company. Its business model revolves around franchising its brand and products to retail store operators or franchises, thus creating a chain of fast food stores, as well as purchasing and developing lands to have them leased to franchisees.
The following are the strengths of McDonald’s:
• Strong Brand Identity and Brand Equity: It is one of the most recognized American brands in the world due to its tenure and its global presence. Its name and all of the trademarks associated with its brand also have a strong commercial value that represents the truest definition of a fast food restaurant. This branding has been achieved through its effective and consistent marketing efforts.
• Two-Fold Business and Revenue Model: The company generates revenues through its hybrid business model. It primarily earns from collected licensing fees and royalties from its franchisees. Furthermore, it also earns from the rent it collects from the properties it has leased from its franchisees. These two sources of revenue have made it one of the largest and most valuable companies in the world.
• Global Reach and Economies of Scale: Another strength of McDonald’s is its global presence and distribution strategy. This has allowed it to generate large revenues and profit margins needed to achieve economies of scale. Its size makes it more efficient in terms of operations and costs than smaller fast food chains and other restaurants while also lowering the bargaining power of its suppliers.
• Supply Chain Management and Vertical Integration: It also has a considerable level of vertical integration across its supply chain. The company approaches this strategy through partnerships with contracted suppliers. These partnerships give them control over how to produce the inputs needed to supplement its operations. Note that it processes its own food and manages its logistical requirements.
• Good Understanding of Its Dynamic Market: The company is adaptive and responsive. It changes its marketing messages based on specific regional markets. It even changes its menu in certain countries such as India and Japan to appeal to local customers and cultural sensitivity. The company has also adopted policies and set new directions in response to the clamor of its customers and stakeholders.
• Corporate Social Responsibility Program: It has rolled out initiatives aimed at bringing value to its stakeholders. The company has an animal welfare standard and environmental standard aimed at ensuring that its suppliers follow legal and ethical standards. The Ronald McDonald House Charity is its flagship corporate social responsibility program for less fortunate families and communities.
2. Weaknesses
The way people dine in restaurants has changed. Fast food chains remain popular because of their accessibility and relative affordability. However, a lot of options have emerged and newer trends are taking ground. Fast food restaurants cannot compete head-on against product substitutes and emerging trends because of the very nature of their products.
The following are the weaknesses of McDonald’s:
• Negative Perception About Fast Food: The consumption of fast food has been associated with the obesity pandemic and other lifestyle diseases. Fast food restaurants have this negative perception by default. They cannot completely against establishments offering healthier and fresher alternatives without changing their business model although there have been attempts to offer healthier food choices.
• Failure In Several and Certain Markets: A specific weakness of McDonald’s is that it cannot enter or prosper in certain markets. The company failed in Vietnam because it cannot compete with Vietnamese cuisine while it has struggled to compete against Jollibee in the Philippines. It has no presence in Russia. The company tried to launch other food products such as pizza but it has failed.
• Costs of Employee Turnover and Retention: The company was labeled as one of the top organizations in the world with a high employee turnover rate. This has compelled it to invest in self-ordering systems and partner with delivery service providers such as Uber Eats to reduce its dependence on in-house staff. The company has also spent on human resource programs to attract and retain employees.
• Expensive Cost of Franchising a Store: Another weakness of McDonald’s that limits its expansion is its franchising cost. Those who are planning to open their own stores need to shell out between USD 1.3 million to 2.3 million to cover franchising and licensing fees, costs of constructing the specific restaurant facility on top of purchasing all needed equipment and furnishing, and operational expenses.
3. Opportunities
Fast food can be reinvented. Several fast food restaurants have been attempting to do so. Their efforts can succeed given the right opportunity and proper timing without diminishing their general value proposition and their respective selling points. Developments in food processing and commercial food preparation present additional opportunities.
The following are the opportunities for McDonald’s:
• Taking Advantage of Mobility-As-A-Service: The company can reduce costs incurred from its in-house delivery service operations by tapping mobility-as-a-service providers. It has done so in several countries or areas where companies like Uber and Grubhub operate. The expansion of these providers to other countries or more specific areas will help restaurant operators reach more people at less cost.
• Expansion of Products and Market Segment: Its continuous pursuit to expand its menu and brand to target specific market segments and niches remains a source of limitless opportunities. The company now operates a chain of coffeehouses under the McCafé brand and upscale stores under the McDonald’s Next brand. Expanding these brands further can help expand its overall market.
• Applications of Technology and Innovation: The company has also utilized technology to improve and further add value to its operations. These include the development of mobile applications and the deployment of self-ordering kiosks. It can explore upcoming technologies such as newer payment methods and prep line automation to elevate the customer experience and improve its operations.
• Developments in Food Processing Technology: Newer technologies and processes involving food processing are emerging. McDonald’s can capitalize on emerging food processing technologies to optimize its operation, improve its food quality, and offer healthier food choices. Note that there is an emerging sector dedicated to manufacturing high-quality albeit mass-produced vegan food products.
• Further Vertical Integration and Lean Structure: Its supply chain management and vertical integration strategy can be improved further to make it a leaner organization that utilizes fewer resources while adding more value. The company can explore the practical and beneficial applications of circular economic models and close-looped systems in its supply chain and day-to-day operations.
• Maximizing and Improving Access to Capital: The company has better access to capital compared with smaller restaurants. It can maximize and improve further how it is perceived by investors through the continuous refinement of its strategic direction, better financial management, and enriching its corporate and brand image. Access to capital is crucial for the company to attain its growth prospects.
4. Threats
Operators of restaurants and specific fast food chains are exposed to different risks that affect their operations and earnings potential. They are a capital-intensive business and their performance is dependent on the purchasing power of the public. They are also dependent on market trends and the bargaining power of consumers.
The following are the threats to McDonald’s:
• Intense Competition and Threat of Substitutes: It competes with other established fast food companies such as Burger King and KFC, as well as with casual dining and specialty restaurants. Public perception of fast food products has also fueled the emergence and expansion of restaurants offering healthier food choices. The threat of substitutes is high because of intense competition.
• Notable Bargaining Power of the Consumers: Food products offered by fast food products are not essential. These businesses operate in a monopolistic market structure where there are numerous competitors offering alternatives and substitutes. This situation gives consumers a high level of bargaining power that can influence the behavior and direction of fast food restaurants such as McDonald’s.
• Same Opportunities Available to Competitors: Another threat comes from the fact that the opportunities available to this company are also available to its competitors. Competitors such as Burger King and KFC will benefit from vertical integration, developments in food processing, technological innovation, third-party food delivery service providers, and product and brand diversification.
• Dependence on Economic Conditions and Factors: Fast food restaurants are dependent on the purchasing power of mass consumers. This purchasing power is dependent on critical macroeconomic factors such as the inflation rate and unemployment rate. Economic downturns or slowdowns due to a recession affect their sales and profits, as well as their ability to access and raise capital from the financial markets.