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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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INTRODUCTION

McDonald's is one of the first things that comes to mind when fast food is mentioned. It has become a well-known and well loved quick stop shop for hungry patrons on a time crunch. McDonald's started in 1940 with a location in San Bernardino, California. The location, named McDonald's Bar-B-Q, was opened by Dick and Mac McDonald and featured a large menu with car hop services. The brand name that is known around the world was founded in 1948, when the brothers shut down the location for renovations and re-opened with a new self-serve business complete with a 9 item limited menu. Their best seller quickly became the 15 cent hamburger. French fries made their way onto the menu a year later in 1949. The second McDonald's location opened in Illinois in 1955, and by 1965 there would be over 700 locations.By 1958 alone, the company had sold its 100 millionth burger, showing just how quickly the company made a name for itself. Up until 1962, all McDonald's locations were drive-in style, but a store in Colorado changed this when they became the first location to offer indoor seating for patrons. The company first offered public stock on their 10th anniversary, selling shares for $22.50 each. In 1967 McDonald's went international with stores opened in Canada and Puerto Rico; nothing in comparison to the 119 countries they operate in today. McDonald's today has a wide variety of menu items including (but not limited too) the Big Mac, Quarter Pounder, Buttermilk Chicken Tenders, Apple Pie, Milkshakes and Happy Meals for children. The company works tirelessly to operate in an ethical manner, providing internal training on career development, hiring 70% women/minority employees, 45% women/minority franchisees, creating the Global Women's Initiative and being sustainable through environmentally friendly buildings of their Ronald McDonald House Charities housing units.

VISION

McDonald's vision is to be the leader in the fast food industry. They try to gain their leadership through expansion and by providing customers with what they consider to be superior quality and service.

MISSION

McDonald's  mission is to provide customers with quality products, at the lowest prices in the industry. They aim to provide these products at the lowes prices in a safe, friendly and clean restaurant environment.

GOALS & OBJECTIVES

Increase in automation (kiosks)

Increase in sustainability (packaging & sourcing)

In 2018, bring EOTF strategy to 1,000 stores each quarter

2020 beef sustainability mission

2030 gas emission reduction plan

PROBLEMS & ISSUES

Focal Problem:

The focal problem of McDonald's is to remain the number one leader in the global fast food industry by being the low cost leader. They plan to maintain this position but face competition in the global market from companies such as KFC, Burger King, Taco Bell and other fast food companies in the global market. McDonald's has seen great success in recent years by being the low cost leader but now the trend is changing. Consumer's preferences are increasing in quality and McDonald's is struggling to maintain their leadership.

Other Problems & Issues:

Other issues include having a menu that caters to more health conscious people. Preferences for consumers are changing, leaning more towards health-conscious options which in recent times has caused a decline in patrons for the fast-food giant. They have struggled to create low-calorie and overall healthier options, and are continuously trying to improve their menu options to cater to this issue. Another potential problem is making a diversified menu that will be adopted and well liked by each market being sold to. McDonald's operates in 119 countries worldwide, and in attempts to differentiate themselves in the global market they have created menu items to cater to the culture in each environment. For example; they offer burritos in Arizona, Soups in Japan and even vegetarian options in Europe where the market naturally leans toward more organic food preference. McDonald's must also be strategic about where they open new locations; while they may be a low-cost leader, they must carefully choose where to open, as economic events may sway their customers to either enter their locations or to avoid them altogether. Remaining the low-cost leader in areas of average incomes helps to drive customers into their stores because it is faster and cheaper than other options in the areas. Overall, McDonald's biggest and most prevalent issues all relate to their focal problem of maintaining their #1 status in the global fast food industry.

FINANCIAL ANALYSIS

Overall in this industry there seems to be a lower form of financials in comparison to McDonalds averages. Mcdonalds blows away the competition when it comes to their quick ratio, as theirs is about three times as much as the industry average. This shows the amount of cash and cash equivalents you have compared to its current debt. This shows that McDonald's has much more availability to overcome liquidating and covering debts. McDonald's also in recent years has taken an initiative to use less slices of cheese for certain items, which resulted in a multi-million dollar profitable cutback.

FIVE FORCES OF COMPETITION

Rivalry - High:

Rivalry in this industry is at an intense level. While the supply sources are plentiful and span the globe, the rivalry for pricing is intense. Corporations in this industry want to be the cheapest and are constantly finding ways to cut costs and sell items for cheaper. It is imperative for corporations to maintain competitive prices to stay on top as a popular place to grab a quick bite. Also many of these global fast food chains are fighting for market shares all around the world.

Barriers to Entry - High:

There can be many different entry barriers in the global market. First off, there will be a lot of competition from already existing global corporations that have established supply chains, locations, and customer bases. Corporations need to find geographic locations that suits their needs and also has a consumer base they can sell to. Also corporations need to have favorable rules and regulations that won't impede business. Examples could be tariffs on certain products, quality and health requirements, taxes, and rulings on business deals.

Degree of Substitution - High:

Substitution is very high in this industry. Any means of eating is a substitution for corporations in this industry. Consumers could make food at home, eat out at another restaurant, or even order take out. There are so many different options for people to choose from in this industry. Companies in this industry understand that they will most of the time be substituted and drive home the factor of obtaining cheap food quickly.

Power of Suppliers - Low:

Suppliers have low power in this industry. Large global corporations in this industry get ingredients from many different suppliers all over the world. Corporations could very easily get their ingredients from a different source since what they are buying are very standard and mass produced globally which means suppliers can be substituted easily. Also the quantities that these corporations are buying are so large that it would be ludicrous for suppliers to lose their contracts.

Power of Customers - Low:

Customers have very little power in this industry. The selling points of products in this industry are the cheap prices and the convenience of obtaining whatever is bought. Customers are also buying in very low quantities at a time. Food in this industry is very standard. Loyalty by the customers is not the focus as most of the time people will find other places to eat or. If a customer doesn't like the products sold, they can easily find a place to eat elsewhere or make food themselves. Customers come from people who have little time and need food quickly or for those who don't want to pay for a meal.

ALTERNATIVE GENERATION & EVALUATION

Alt 1: Market Development

One of the other alternatives that McDonald's has is market development. According to Market Business News, market development is a marketing strategy in which a company tries to sell an existing product to a new group of consumers. McDonald's wants to develop their markets by entering into a new geographical area to reach out to an entirely new consumer base. Over the history of the company, Mcdonald's has been opening restaurants in new countries constantly. This strategy in the past has increased the company's sales while building their brand image in a positive manner.

As previously mentioned, McDonald's operates in a majority of the countries in the world. There is a small  list of countries in which they don't operate in, have been banned from or been forced to close due to instability in the country. One country on this list with market development potential is Kenya. Kenya boasts a diverse range of attractions including pristine beaches, a reputation for wildlife viewing and developed safari network. The Kenyan diet mostly consists of filling and inexpensive dishes. These dishes typically contain corn, maize, potatoes, and beans. Tourism in Kenya runs through Kenya's International Airport just outside of Nairobi. Tourism is on the rise in Kenya, it grew from 1,342,900 in 2016 to 1,474,700. That means there about a million and a half people traveling through Nairobi could be potential customers along with the 6,547,547 residents of Nairobi. The city is home to thousands of Kenyan businesses and over 100 major international companies and organizations. This creates potential for McDonald's because the city is filled with business officials who are looking for a quick place to eat for lunch in the middle of their work day. McDonald's would have success from opening locations in Kenya due to their already established brand image.

Alt 2: Product Development (Healthy)

Another alternative that McDonald's could implement would product development. The Cambridge Dictionary defines product development as the process of creating or improving a product or service and managing it during all stages from design through marketing. The Fast Food and Restaurant industry is facing a turning point due to changing consumer preferences.  This trend can be seen in many food industries. Consumers are starting to care more about what they eat. The trend has put many companies at a crossroads, they are stuck between improving the quality of their food and have a price increase or stick with their brand identity designed around creating value for the customer.

McDonald's has the potential to be one of the leader's in this movement. The company typically has the reputation for selling food that is not the healthiest for their consumers. Even though McDonald's has already done minor product development to make their menu healthier by adding salads and healthier sides, but there is a lot more that can be done. One thing McDonald's could do is acquire or hire healthier suppliers. The freshness of their beef and meat is constantly in question, McDonald's can reassure their consumers that their meat is as fresh as possible by improving the quality of their suppliers and the way their meat is processed. Another way the company can make their menu healthier is by providing higher quality sides. As of now they don't provide many fruit or vegetable options for the consumer. This will increase the health image of McDonald's in a positive manner.

Alt 3: Product Development (Ethnic)

The last alternative that McDonald's has is another form of product development. McDonald's operates in many countries and every country has different food preferences that the company has to adapt to. One market that McDonald's has struggled in over the past years is Latin America. The company was facing issues with their brand image of being an unhealthy fast food company. The consumers in Latin america are hesitant to try McDonald's because they fear the health issues it may cause. They faced a lot of competition on the local level from other restaurants and the informal market. The way McDonald's can combat their competition in this market is to adapt their menu to the diet preferences of the consumers. People in Latin America don't tend to go out to lunch and eat burgers. Their diet mostly consists of large meals that contain corn, fish, potatoes, peanuts, beans and beef. McDonald's has potential to create new menu items that are tailored to this market. Overall this alternative has good potential but in the end it might be too costly for Mcdonald's.

RECOMMENDATION

When choosing a strategy, it is essential that the company chooses a solution that is aligned with the vision and mission of the company while helping the focal problem. It is recommended that McDonald's chooses the healthy product development to maintain its leadership of the global fast food industry. This strategy aligns with McDonald's mission of providing quality products, at the lowest prices in the industry. Consumers are already calling for healthier food options and McDonald's has the opportunity to do just that. This alternative wouldn't be as costly as the others and it will help them further build their brand image.

IMPLEMENTATION

Marketing:

In order for McDonald's to implement a healthier food selection, they will have to utilize the marketing mix. The marketing mix is the four P's of marketing: product, price, promotion, and place. Without this their implementation strategy would be unsuccessful. The marketing mix is a crucial tool to help understand what the product or service can offer and how to plan for a successful product offering. The marketing mix is most commonly executed through the 4 P's of marketing. The “four P's” being; product, price, promotion, and place. When using this concept to look at Mcdonalds we can see that a new healthy approach at McDonalds will be adding new products to their menu. This product of an health menu item can be as simple as a chicken salad, to even including egg whites as apart of there breakfast menu.

Mcdonalds can market these healthier products using print advertisements and commercials, which is also known as promotion.

Mcdonalds being a promotional phenom will be able to advertise towards a more health conscious customer. Being adaptive towards the new target market can be used as a strategy to draw them away from the stereotype of an unhealthy image.  When it comes to price, McDonald's has options. They can offer each healthy item separately for low costs, or could bundle the healthier options together into a meal deal where they discount individual items overall for one price. Place is extremely important to the company, however choosing to offer these healthier options in ALL McDonald's locations would be their best choice, as there is a global movement towards healthier living. If they market the product effectively, this new product line will drastically benefit the company.

Product:

For health food options we suggest McDonald's begin with breakfast options. McDonald's offers breakfast options including (but not limited too) egg sandwiches, pancakes, and coffee drinks. We suggest they implement offering dairy free milk options for consumers in the mornings; this will satisfy many customers whom have lactose intolerance, a common ailment across the country. We also suggest they offer fresh fruit and vegetable side options for customers, as the current pre-sliced and bagged apples are often unappealing. The current apple side option frequently comes out soggy and browned from oxygen exposure in the bags. By offering fresh apples (whole), carrots, celery and even broccoli provides customers with a healthier alternative to french fries or soggy apple slices. McDonald's could also offer more low calorie options for customers, such as providing the option to turn their normal sandwiches into low-cal wraps, instead of serving them on buns! While McDonald's does currently sell salads on their menus, those offered are often times as high if not higher in calories than their burgers and sandwiches due to their dressings, fried protein options and toppings. We suggest McDonald's offer a more “stripped down” salad option; or one where customers can build their salad themselves to offer better control of intake amounts.

Customers:

When adding healthy food options to the menu such as a ceasar wrap, it can open up the market to a larger variety of customers. When adding these items to the menu more of the customers who just go past a McDonalds for something healthier, may begin to stop now for one of the new healthier options. By catering to a new demographic of customers they will be able to increase sales and enhance their brand image globally.

Corporate Social Responsibility:

McDonald's as a company could be more forward thinking in many aspects.  One aspect that the company could improve in is their suppliers. McDonald's could improve the quality of their food by working with more organic farmers in their backwards integration strategy. This would help the company appeal to a more health conscious consumer. Another aspect McDonald's can improve upon is their sustainability. The company has many opportunities to cut energy costs. McDonald's has thousands of locations spanning worldwide. The company could capitalize on this opportunity by installing solar panel on each location to produce energy for the company as a whole and for the location itself.

McDonald's participates in numerous social programs in local communities that they operate in. One of their most well-known programs in the Ronald McDonald House and Charities. This charity provides housing, livil assistance and potential financial assistance for parents who have to travel far for the treatment for their child. On top of the charities McDonald's founded, they are involved in many scholarship programs and mentoring programs which establishes the company as a major entity in their local communities.

Appendix 1

Strategy

Vision #1

Focal Problem

Cost

LT Profit

Ease of Implementation

Total

Mkt Dev

+

+

-

+

-

+:3

-:2

Prod. Dev. Health

+

+

-

+

+

+:4

-: 1

Prod. Dev. Ethnic

+

+

-

+

+

+:4

-: 1

Appendix 2

Strengths

Known world wide

Reputation for being cheap

Brand image/equity

Low costs

Food geared towards cultures of the countries they operate in

Strong market leadership

Efficient cash flows

Weaknesses

Competition

Food quality/sourcing

Product development

Involved in many lawsuits for various reasons

Opportunities

Global market

Technology as a means to lower costs

Health movement

Expansion in national and global markets

Growing market for hot drinks  in the US

Threats

Health movement

Competitors

Food regulation increases

Labor wage increases in the US

Appendix 3

INDUSTRY ANALYSIS:

Definition: Companies in this industry operate restaurants in which customers order and pay at a counter.

Key competitors:

Burger King, Taco Bell, KFC, Pizza Hut, Chipotle

Past & Present strategies

past→ cheaper resources leads to cheaper food

present→ increase in quality of products leads to increase in prices = $$$

Past: few options/unhealthy

Present: expanded menus/healthy options

Importance of innovation

Kiosks at stores

Automatic soda machine

Industry Dynamism

Not much change

Health options (slow)

Concentration

Fast food

Simple ordering

A lot of competitors

Stage in life cycle

Mature industry

Government impact

FDA regulations

Tariffs on produce

Corporate tax rate

Key customers/suppliers

Busy families/little time

People looking for cheap food

Supplied by farmers

Other important groups

Farmers

PETA

Current problems/opportunities

Rising minimum wages

New technology

Healthier item options

Expanding GLOBAL market

Future direction

Health movement on the rise

New menu items possibly

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