Rate of inflation
Inflation is when there is a general rise in prices for goods and services. There are two main measures of inflation, the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). They both look at the prices of goods that are commonly bought including bread, cinema tickets and pints of beer. They will track how the prices of these poducts have changed over time. Te main difference between the two is simply that the RPI includes housing costs such as mortgage interest payments and council tax whereas the CPI does not.
Inflation rates are expressed as percentages. IF CPI is 3% this means that on average, the price of products and services consumers buy is 3% higher than a year earlier. In other words, consumers would need to spend 3% more to buy the same good or services they bought 12 months ago.
The rate of inflation is a very important measure when setting economic policy. Again, the Bank of England uses it to set interest rates. If the MPC thinks that inflation will be above 2% in the next 18 months or so, they may decide to increase interest rates to try to bring it under control.
The rate of inflation currently in the UK is 5.4% (RPI) and 5.2% (CPI). Exactly 5 years ago these figures were 3.7% (RPI) and 2.4% (CPI). This shows that there has been a general increase in the level of prices of good and services. However, figures show that within the 5 year period, there has been a general increase in prices using both measures, however, in 2009 the figures showed deflation.
The rate of inflation in India is currently 10%. 5 years ago, the average inflation was 5.79%. This shows inflation rates almost doubling in a 5 year period. This means consumers in India have to spend on average 10% extra in comparison to 12 months ago. This causes a lot of other problems such as a decrease in consumer spending if customers can’t afford to buy products.
Interest rates
Interest rates are usually referred to as the cost of borrowing money. They are normally expressed as a percentage and the borrower will pay that for the use of money that they have borrowed from a lender, for example for a mortgage or a loan. The Bank of England’s monetary policy committee will set the interest rate and they would usually like to set interest rates to keep inflation low.
Currently, the interest rate in the UK is 0.5%. This has been the case for the last 27 months in a row. This downward trend in interest rates began during the credit crunch crisis in 2008 otherwise this was not the case prior to 2008. In 2006, the interest rates were on average 5%. This shows a significant change in the last 5 years. The reasons for cutting the interest rates were an attempt to boost the UK’s economy. It was primarily to encourage people from borrowing money, and spending it into the economy while the economy is still earning money from the interest that people are paying on their borrowing.
According to Trading Economics, the interest rate in India was 7.5% at the start of 2011, and 5 years ago (in 2006) was 5.25%. The reason for the increase in interest rate seems to be to control the increasing inflation rate. If the Indian economy makes it harder for people to borrow money, then less consumer spending will take place and as a result this may curb inflation.
Employment levels
This measure is to do with the number of people who are able to work, in employment. A 0% rate of unemployment would mean that all people are employed and there isn’t anyone who is able to and willing to work, not in employment.
A report published by The guardian newspaper on the 16th November claims that UK currently has the highest unemployment rate since 1994 with 2.62 million people currently unemployed, or 8.3% if expressed as a percentage. A report published in the Daily Mail in October 2011 also claimed that unemployment figures show a ‘surge to their highest in 17 years’.
The unemployment rate for India was last reported as 9.4% according to However, for the previous 5 years unemployment averaged at 7.2%. This means that if the current trend was to continue, then unemployment would be on the increase.
Consumer spending
Consumer spending is simply about how much money families are ploughing into the economy by purchasing goods and services. A report in the guardian newspaper in May 2009 claimed that ‘consumer spending falls at fastest rate since 1980’. A report published by The Telegraph in December 2011 claims that the UK economy has been ‘held back by weak consumer spending’.
Similarly, in India the consumer spending patterns paint a similar picture. The economic downturn coupled with the high inflation forced consumers to tighten their purse strings and cut unnecessary spending. However, much of the consumer spending in India is seasonal and based upon the rainfall.
Influence on McDonalds in the UK and how McDonalds has responded
The factors outlined above all play a huge part in shaping the economic growth or the economic slow down in the UK. Currently, the economy is recovering from the recession of 2008/2009. McDonalds, just like many other businesses, suffered as a result of that recession.
In July 2009, a report commissioned by McDonalds revealed how the recession impacted on the business. The report claimed that “spending on eating out falls for the first time in 40 years”. The report also concluded that the impact from the recession will be ‘long-lasting’ which will lead to a change in consumer demands over time and businesses will only recover from this if they are able to meet new customer demands.
As the inflation figures show an increase in inflation over the last 5 years in the UK, this would’ve affected the prices of McDonalds menu items too. Five years ago a Big Mac in McDonalds was costing on average £ 1.99, now it is costing on average £2.19. Of course this would have an affect on the demand for heir products as customers choose not to pay the higher price.
Due to the increase in unemployment figures within the UK in the last 5 years, the disposable income per family would’ve undoubtedly been reduced. As a result of this consumers were forced to stay at home and eat, rather that ‘eat out’.
To respond to this slow down, McDonalds introduced its new ‘saver menu’ in 2008 along with deciding on many other changes to cater for the evolving consumer demands. They decided to undergo a ‘restaurant modernisation’ programme. This included offering free WiFi in their restaurants, making new choices available on their menus, launching sustainable coffee and tea and promoting working for the business by giving its employees a boost. McDonalds invested very heavily in their employees by offering them recognised national qualifications so they have the necessary skills when the business was to emerge from the downturn.
McDonalds also took account of the lifestyle changes that consumers were shifting to, for example being more health conscious, and they launched ‘healthier’ options for that group of customers. They also ensured local sourcing of ingredients and ethical practices in the production of their food.
As a result of the above response, McDonalds was able to see through the economic downturn period and maintain consumer confidence by responding to their needs.
Influence on McDonalds in the India and how McDonalds has responded
All the factors highlighted above have influenced the economic climate for McDonalds India. However, McDonalds India have used these factors as opportunities to ensure growth of the business overall.
The consumer spending figures, the rate of inflation and the increasing unemployment figures really provide a platform for sales in McDonalds India to have slowed down, however, McDonalds India have taken advantage of research that they have carried out to ensure they stay ahead and maintain demand for their products.
The respect McDonalds India has shown for their local customs and cultural sentiments is the strategy that has enabled them to succeed in the difficult economic climate. Soon after the global financial downturn, McDonalds India introduced a menu to serve the Indian palette to sustain demand for their products. They introduced products such as the McAloo Tikki and the Pizza McPuff which were instant hits amongst consumers.
In addition to this, McDonalds India ensured their restaurant kitchens were designed to maintain sperate vegetarian and no-vegetarian food counters, again respect local customs.
McDonalds India also launched a whole new brand communication and advertising campaign to send out a clear message of ‘indian values and culture’ so that they are able to attract various segments of the market during the difficult financial time.
As the Indian customers had perceived McDonalds as an expensive eating out option, the challenge for McDonalds was to overcome this option so they responded to this by introducing the happy price menu.
The above strategies that McDonalds India used enabled them, as a business, to grow their operations and increase their branch offerings across India.
Tesco has set out its own and objectives that they wish to achieve. These aims are to ‘retain loyal people’ and ‘create value for customers and earn their lifetime loyalty’.
Firstly there is retaining loyal people. These people are not described as customers but just people. This means that this mission statement is not solely aimed towards their customers. This is aimed at staff as they need loyal staff to create a environment that thrives. No one wants to shop in a supermarket where the staff are unhappy, so keeping their staff happy adds to their customers and therefore their growth. They also wish to retain their shareholders, these are the people that keep Tesco going from the top end. Keeping these people happy is primarily by keeping money going into their pockets. This too is done by retaining loyal customers and opening new stores, which are also beneficial to customers. All of these combined are great to keep their custom base but also great ways to keep their profits rising. More profits always mean more growth and therefore a more .
Their other objective that is to create value for customers and earn their lifetime loyalty. This is done by splitting this objective into the 4 P’s.
These are - having the right product range for the customers. This differs from store to store and area to area.
Price - keeping their prices competitive.
Place - accessible locations for customers.
Public - thinking of their public. Their and social responsibility is spoken about by their PR team frequently and they do give to charity and the local out of their profits.
Tesco can see buying patterns from their Clubcard information and this gives them the insight into what people want and what is in demand which helps achieve these customer led goals.
