With Over 35000 Locations Over 100 Countries

abstract The case focuses on the strategies adopted by the world's leading fast food restaurant chain McDonald's Corporation in the, McDonald's had been expanding steadily over the world ,by providing quality, service, and value to its customers. The case details the definition of growth and pestl analysis , SWOT and strategies adopted by McDonald's in the UK including its operational, localization, promotional, In 2003, McDonald's adopted the 'Plan to Win' strategy market in order to increase sales. As part of the 'Plan to Win' strategy, McDonald's offered variety and value, tastier food, and improved service to customers. McDonald's introduced healthier options such as salads and provided nutritional information about its products on food packages. It regularly altered its menu to include new items. In order to attract customers, McDonald's tried to localize some of the items on the menu. It offered a few versions of local food on its menus. For the health conscious customers, items such as the Vegetable Deluxe burger were offered. In the desserts category, McDonald's offered as many as three kinds of donuts as these were popular with customers. The case concludes by identifying the challenges faced by McDonald's in. McDonald's faced several challenges. One of the major problems was consumers' perceptions about McDonald's as a promoter of obesity. The chain drew criticism from consumers as its products were considered to be high in fat content and hence detrimental to health. Critics alleged that McDonald's promoted unhealthy food. The company also faced intense competition from other fast food outlets in which offered healthy food along with a trendy atmosphere and many issues related to economies changes and environmental issues and rules.

Introduction With over 35000 locations over 100 countries, McDonalds (NYSE: MCD) is the world's largest fast food restaurant chain. McDonald's operates its own restaurants and franchises its brand to local businesspeople (about 70% of the world's McDonald's are franchised [1].) The company experienced a dramatic turnaround in

2003, driven by a two-pronged strategy. In the U.S., McDonald's focused on increasing sales at existing locations by renovating stores, expanding menu options and extending store hours. Internationally, McDonald's expanded aggressively, opting to franchise rather than operate its new locations which provide new .income with little overhead

Both strategies have paid dividends- despite its size, sales have grown by a third since 2003[2]. Domestically, McDonald's continues to perform strongly despite a pullback in consumer spending and is even benefiting as consumers trade-down from more expensive eating options. At the same time, international operations are driving profit growth. A growing global middle class, particularly in emerging markets like China, India and Latin America, is a massive opportunity for McDonald's. McDonald's aggressive efforts to expand its global presence- most notably in 2008 Beijing Summer Olympics- have produced strong comparable sales and profit growth.

] Business Overview Business Model McDonald's makes money by operating its own restaurants and franchising to third parties. Of the 31377 McDonald’s restaurants around the world, 20505 (65%) are operated by franchisees, 3966 (13%) are operated by affiliates, and 6906 (22%) are companyoperated. In the last few years, McDonald’s has sought to enfranchise more and more restaurants. For example, in 2007, it sold its businesses in Brazil, Argentina, Mexico, Puerto Rico, Venezuela and 13 other Latin American/Caribbean countries to one franchisee[3]. Steering in this direction has resulted in greater cash flow (which increased by 12% in 2007)[4], reduced spending on operations, and less corporate exposure to rising commodities prices.

Strengths •

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McDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11,4009 million), 5.6% sales growth[1]. Good innovation and product development. It continually innovates to retain customers in the business. The McDonalds brand offers consumers choice, reasonable value and great service Large amounts of investment have gone into supporting its franchise network, 75% of stores are franchises[2]. Loyal staff and strong management team.

Weaknesses •

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Core product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot food and burgers[3]. Seasonal Quality issues across the franchise network.

Opportunities • • •

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Joint ventures with retailers (e.g. supermarkets). Consolidation of retailers likely, so better locations for franchisees. Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning. Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modelling and profiles of shoppers) and prevent brand switching[4]. Strengthen its value proposition and offering, to encourage customers who visit coffee shops into McDonalds. The new “formats”, McCafe, having Wifi internet links should help in attracting segments. Also installing children’s play-parks and its focus on educating consumers about health, fitness. Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages. International expansion into emerging markets of China and India.

Threats • • •

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Social changes - Government, consumer groups encouraging balanced meals, 5 a day fruit and vegetables. Focus by consumers on nutrition and healthier lifestyles. Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S. Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors. Pressure groups - environmental.

PESTLE Analysis POLITICAL The operations of McDonalds are affected by the government policies on the regulations of fast food operation. Currently government are controlling the marketing of fast food restaurant because of health concern such as cardiovascular and cholesterol issue and obesity among the young and children in the country. Governments also control the license given for open the fast food restaurant and other business regulation need to follow such as for a franchise business. Good relationship with government in giving mutual benefits such as employment and tax is a must for the company to succeed in any foreign market. McDonalds should also protect its workers by ensuring all the hiring, compensation, training or repatriation is according to Malaysian Labor Law as stipulated. ECONOMICS As a business entity, McDonalds need to face a lot of economic variables outside its company or its macro environment. Dealing with international sourcing for its material McDonalds should be aware on the global supply and currencies exchange. Remember, McDonalds import most of its raw material such as beef and potatoes due to local market cannot supply in abundant to meet the demand of its product. Any upside of currencies especially dollar will be impacting its cost of purchase. Working on the local country, McDonalds must face government

regulations on tax of profit where it gains from the operation and other tax such as entertainment and restaurant service tax. Each country may have different scale or types of tax available and McDonalds should follow the regulation if it wants to continue the operation. As a franchise, McDonalds should also pay certain percentage of the revenue to the parent company in United States. The economic condition and growth of the country also is an important indicator to the demand of products that McDonalds offered. As the food priced slightly above normal foods, not many people will have the income range to consume the products. Moreover if the economy is bad and income percapita is affected, the demand of McDonalds product will certainly going down. On the other hand the good economy also means disposable income is more and people can spend more on more expensive food at fast food restaurant. SOCIAL / CULTURAL The changing lifestyles of Malaysia due to development of Malaysian economy should be also taking into consideration. While more people are able financially to eat at more expensive outlet such as fast food restaurant, they have higher expectation. They want to have quality in services and more conveniences that can differentiate one restaurant from another. Young urban consumers want technology in their life and facilities such as credit card payment, wireless internet, cozy and relaxing ambient place, and other attraction for their hangout and eating. All these needs should also be taken into consideration. There is not much difference between cultural and the purchase of products in a single country but for different countries cultural sensitivity should be upheld. For example in India people (Hindu) do not take beef, Muslim countries do not take pork, German like beers, Finnish like fish type of food menu, Chinese like to associate food with something good (for example prosperity), Asian like rice and Americans eat in big-sized menu. So far McDonalds has shown good efforts in localization of its menu to suit local taste but it should constantly survey and learn about local culture to better understand and design the best product for them. TECHNOLOGY For a fast food restaurant, technology does not give a very high impact on the company and it is not a significant macro environment variables. However McDonalds should be looking to

competitors innovation and improve itself in term of integrating technology in managing its operation. For example in inventory system, supply chain management system to manage its supply, easy payment and ordering systems for its customers and wireless internet technology. Implementation of technology can make the management more effective and cost saving in the long term. This will also make customer happy if cost savings results in price reduction or promotional campaign discount which will benefits them from time to time. LEGAL As a certified fast food operator, there are many regulations and procedures that McDonalds should follow. For example is the Halal certification that becomes a concern to Muslim consumers. McDonalds should protect its integrity and consumer confidence by ensuring all materials and process are as claimed or must followed. Other legal requirement that the business owner should follow as stipulated in laws are such as operating hours, business registration, tax requirement, labor and employment laws and quality & environment certification (such as ISO) in which the outlet has been certified. The legal requirement is important because the offenders will be fined or have their business prohibited from operating which can be disastrous. ENVIRONMENT As one of world largest consumer of beef, potatoes and chicken, McDonalds always had been critics for world environmentalist. This is because high consumption of beef causing the green house effect by methane gasses coming from the cow’s ranch. Large scale plantation has effect the environment and lost of green forest opening for plantation activities. Vegetarian environmentalist criticizes the fast-food giant for cruelty to animals and slaughtering. In Japan, once McDonalds want to introduce whale burger causing uproar because whales are endangered species. Before using paper packaging, once McDonalds also had been criticized for being insensitive to pollution because using polystyrene based packaging for its foods. Imagine millions of people purchase from fast food operator and how is the impact to world environment by throwing away those hard to recycle packaging. Our world is getting concern on environment issue and business operating here should not just care for profit, but careful usage of world resources for sustainable development and care for environment safety and health for our future generation. Critics and concern from all public

or activist should be review and support if necessary to ensure we play our social responsibility better.

Business Strategies McDonald’s has pursued two strategies since 2003. To keep up with rapidly changing consumer preferences, demographics and spending patterns, McDonald's has introduced new items (Premium Chicken sandwiches and the Angus Beef Burger) and campaigns to create more healthy foods (Premium Salads). The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key determinant of sales in the fast food industry. McDonald’s has also focused on increasing sales at existing restaurants instead of opening new ones[5]. To do so, McDonald's has remodeled many restaurants, kept stores open longer and increased menu options. Nevertheless, new McDonald’s restaurants are still opening around the world at a rapid rate - the company plans to open about 1,000 units in 2008, and continues to grow its new restaurants at a 1%-2% rate each year.[6] ] Size Matters McDonald's size has three key advantages: Uniform menu offerings can be mass produced, lowering production costs. Bargaining power with suppliers lowers input costs and boosts margins. Large advertising budget means lots of domestic and international exposure.

] International Expansion McDonald’s is well-established in Europe, Asia/Pacific Islands, the Middle East, and Africa. Its growth in Europe is mainly driven by France, Germany and the United Kingdom. In Asia, the general

management has indicated that there is significant potential in the China market. The corporation has adapted its menu items to local cultures, such as the Teriyaki Mac in Japan, variants of Filet-OFish In neighboring China, in China, and using lamb instead of beef in India McDonald’s has been selected as the Official Restaurant of the Beijing 2008 Olympic Games - an honor that will further bolster its global reputation. McDonald's International Revenues Geographic Region

Percent of Total Revenues

US

35%[7]

France, Germany, UK

21%[8]

Rest of Europe

14%[9]

Australia, China, Japan

8%[10]

Rest of Asia, the Middle East, Africa 8%[11]

Current Financials McDonald's revenue decreased by 7% to $5.65 billion in Q2 09 (ending March 31st, 2009), a decrease from $6.08 billion the previous year. However, operating income increased 2% over the previous year, from $1.65 billion to $1.68 billion. Much of the decline in revenue can be attributed to company-operated restaurants, whose revenue numbers decreased by 10% from $4.3 billion in the previous year to $3.8 billion. Revenue from franchised restaurants, on the other hand, actually increased 1% from $1.78 to $1.80 billion.[12] Since the margins on franchised restaurants are higher than those of company-operated restaurants, the higher contribution from franchised restaurants in the revenue mix positively impacted McDonald's operating margins (from 27.2% to 29.8%).

McDonald's also noted that McCafe, which they labeled as a "longterm home run", had met sales expectations and has benefited from the high level of advertising that McDonald's has committed to it. Coffee sales now make up 5% of McDonald's total sales.[13] McDonald's reported a July sales gain of 4.3%, in part due to large growth in European orders of 7.2% on the month. McCafe sales continued to increase and now make up 5% of McDonald's total revenues.[14] In August 2009, McDonald's reported sales growth of 2.2% for existing restaurants, including 1.7% growth in the United States and 3.5% growth in Europe. The U.S. numbers missed analyst projections of 2.8-3%, causing McDonald's shares to fall 1.6%. During this recession, McDonald's has benefited as an increasing amount of diners choose the lower-priced meals meals that McDonald's offers. However, McDonald's has seen less sales in its "non-essential" beverages and breakfasts segments.[15] [edit] Key Trends and Forces [edit] McDonald's looks to compete in the high-margin beverages market with "McCafe" In 2008, McDonald's introduced the McCafe to select stores, where customers can purchase espressos and cappuccinos. These drinks, which are priced in the $2-4 range, represent McDonald's foray into the high-margin caffeinated beverages market, currently dominated by Starbucks. McDonald's expects to eventually add $1 billion to annual sales through McCafe-related beverages[16] Analysts have taken notice of this threat and expect McCafe to have a negative impact on Starbucks' same-store sales.[17] While the results of this "Coffee War" are not yet set in stone, some analysts believe that the two competitors will eventually settle into separate niches, with McDonald's being the better value proposition and Starbucks offering more of a quality experience.[18] [edit] Strong International Growth is Driving Sales McDonald's has a sizable international presence; 60% of sales occur outside of the United States. In addition to developed

markets like the U.K., Canada, South Korea and Australia, McDonald's operates in fast growing emerging markets like China, India, Russia and Eastern Europe. By tapping into a growing global middle class, the company's international operations have consistently posted strong same-store sales growth. China is a particularly promising opportunity. In FY 2007, McDonald's launched the breakfast menu, extended store hours to 24 hours in major cities, and implemented drive-thru in China in its efforts to capitalize on this huge market[19]. [edit] Changes in consumer preferences could decrease sales Consumer preferences that gravitate towards more nutritional food (see Natural & Organic Foods Consumption and Health & Wellness) decrease the appeal of eating at McDonald’s. As these consumer trends continue to shift towards the mainstream, public perception of McDonald's becomes increasingly negative. These changes may climax in lawsuits or media publications like Super Size Me, which criticizes McDonald’s products for causing obesity, and Fast Food Nation, which decries McDonald's business practices. Since McDonald's is the most recognized brand name in the fast food industry, these negative publicity events have widespread impact on its brand equity. Furthermore, because there are many alternatives to fast food (such as cheap dine-in restaurants, street vendors and convenience stores), the corporation's sales depend on its ability to maintain its brand name and attract new customers. The introduction of salads and public nutrition campaigns are examples of McDonald's efforts to adapt its business model to changing trends in the market. [edit] Commodity Costs can Impact Margins McDonald's earnings are sensitive to prices of commodities such as beef, corn, cheese and poultry. Since 2005, food prices have increased substantially, but competition has prevented McDonald's from passing costs along to customers. Thus, increasing input prices have come at the expense of margins. [edit] Sensitive to the Dollar

McDonald's is also sensitive to the relative strength of the dollar. Although the company is based in the US, McDonald's does 60% of its business overseas. As foreign currencies strengthen relative to the dollar, goods sold in foreign markets are suddenly worth more dollars back in the US, boosting earnings. On the other hand a strengthening dollar reduces the value of sales from abroad. [edit] Competition Although McDonald's is the clear leader of the fast food industry in terms of revenues generated and restaurants established, it faces competition from other fast food chains, which are introducing new products themselves. Major direct competitors in the (hamburger-based) fast food industry include: 

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Burger King Holdings is the second largest hamburger fast food chain. Although more of Burger King’s restaurants are franchised than McDonald’s restaurants, Burger King franchise revenues trail behind that of its competitor, mainly due to the McDonald’s size advantage. Wendy's is the third largest hamburger fast food chain. It has a lower operating margin that McDonald’s, so it is likely to be more negatively impacted during a recession. Yum! Brands runs Kentucky Fried Chicken, Taco Bell, Pizza Hut, Long John Silver’s, and A&W All-American Food Restaurants. Currently, Yum! brands are dominating the China market, posing a challenge to McDonald's attempts to enter the market. While McDonald’s Corporation focuses on its flagship brand, Yum! splits its resources among a wide variety of restaurants.

In addition to the above competitors, McDonald’s also competes with non-hamburger-based fast food restaurants (such as Panera Bread Company (PNRA), Panda Express and Qdoba), local and national dine-in restaurants (such as Red Robin’s and Shari’s), pizza parlors, coffee shops (Starbucks), street vendors, convenience stores and supermarkets.

[edit] Market Share The major players in the fast-food market, which generates around $120B[20] in annual revenues, are: Domino's, Inc.[21], Burger King Corporation[22], Wendy's International, Inc.[23], Jack in the Box, Inc.[24], Yum! Brands, Inc.[25], Doctor's Associates, Inc.[26], and McDonald's Corporation[27]. As can be seen, the fast food industry is somewhat fragmented. The seven major competitors only account for 45% of total revenues.

The Fast Food Hamburger Restaurant industry, on the other hand, is dominated by McDonald's, who possesses approximately 90% of the market share for this component. The FFHR is a $67 billion segment. Burger King is second behind McDonalds with a 4% share of the segment. The QSR segment and FFHR category are extremely competitive because each FFHR restaurant offers similar menus and prices.

McDonald's is first in the Fast Food Hamburger Restaurant category for revenue followed by Burger King and then Wendy's.[28]