Group Preliminary Report - The McDonald's

Group Preliminary Report – The McDonald’s

McDonald’s Description

McDonald's Restaurants (Hong Kong) Limited was established in 1975. The first McDonald's restaurant, which offered customers the very first American Big Mac Meal in Hong Kong, was located at Paterson Street, Causeway Bay. Today there are over 200 McDonald's restaurants in Hong Kong, and more than 10,000 McDonald's staff. In addition to the McDonald's restaurants, McDonald's also opened McCafe and Grab'n Go Sandwiches outlets in Hong Kong, in a bid to meet the needs of different customers.

SWOT Analysis

Industry Analysis

The economic downturn of 1997 and 1998 adversely affected most sectors of the Hong Kong economy as consumers encountered inflation, job insecurity and unemployment, often for the first time in a generation. However, many of these recessionary conditions have turned out to be to the benefit of the fast food and organized restaurant chains with retail rents falling, consumers seeking value for money and cheaper establishments as opposed to independent restaurants. With the upturn in the economy in 1999 and 2000, the fast-food chains have gained some momentum, helped by a growth in visitor arrivals in 2000. The fast-food chains are actually expanding.

Computer-Based Training:

There is a rising popularity of using information technology to offer training, Computer-Based Training (CBT), for employees in the quick-service industry.

The occurrence of this trend is due to the increasing number of young people in the foodservice industry who grew up with computers, CBT is more welcomed by them than traditional training program. Also, restaurant operators are searching for cost-effective ways to offer employees uniform instruction that will improve customer service and performance. Massive production of CBT CD-ROMs is much cheaper than hiring trainers to train employees that keep on joining. Moreover, many research indicated that people learns in games retains more. Furthermore, employees can learn in their own paces. Higher quality of service and higher retention of workers would be the result of better training.

Computer-based training in many aspects benefits the restaurant operators. It is believed that using CBT for training would be a long-lasting trend in the fast food industry.

Food safety:

After the mad cow disease breakout and the advance in genetic technology, many customers become more concerned about the origin of food in the fast food shops. They are more and more health-conscious and food safety becomes a must in food serving industries. This provides an implication in the fast food industry that just ensuring food safety inside the restaurant, like diligent hand washing, proper temperature control, and avoiding cross-contamination, is not enough. They have to make sure that the food supplied to their restaurant is in good quality and would not make people ill.

Customer Analysis:

McDonald’s covers many different kinds of customer segments. Most of their customers are children, teenagers and also people in rush. On the other hand, traditional Chinese, elderly and middle-aged people only cover a small part of their customers relatively.

Why will some of the people buy McDonalds’ food but some will not?

Most of the children love junk food and meat which are the food mainly provided by McDonald’s. Also, the attractive and colourful packaging and gifts from McDonald’s will attract them. In addition, McDonald’s has its own representing characters, likes Ronald, Grimace, Birdie or etc., for promotion and attracting the children.

For most of the teenagers, they can afford the meals at low price. Also, the locations of McDonald’s are readily available and it is a good place for the teenagers and their friends to gather. McDonald’s is now constantly put many new products into the market which follow the trend ...

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Whenever people are in rush, the services provided by McDonald’s are very fast and save lots of time. With the packaging of the food which is suitable for taken-away and the high accessibility of the locations of McDonald’s, dining in McDonald’s saves a lot of time for them.

Traditional Chinese, Elderly & Middle-aged usually keep the thought that it is not healthy to eat so much junk food. Because of traditional cultures, some of them are not willing to change their eating habits. Most of the food provided by McDonald’s is western food which is not accepted by them.

Major Trends of McDonald’s:

They will put more attention to the following group in the near future:

Elderly:

McDonald’s has turned their attention towards the eating habit of some more traditional elderly. They have introduced rice in their menu and also some Chinese style food. Also, elderly can also enjoy discount on selected food from the menu. These acts improve the image of a western fast food company to the elderly and can widen their market.

Vegetarian:

They have started serving salad, more choices besides apple pie, and drinks to give more choices to the vegetarians.

Health concerned people:

One of the major focuses of McDonald’s is to improve the nutrition factors of their food, which are being called “junk food”. McDonald’s have tried to improve their way of food preparation and ingredients. They are now using low-fat vegetable oil and genetic modified ingredients to improve the nutrition values of their food.

However, there are a lot of people against the use of GM food and refuse to consume product from McDonald’s. This is another problem raised after the improvements of ingredients are made.

Competitor Analysis

The competitor of McDonald can be simply defined as all fast food restaurants in Hong Kong. It can further divide into two groups primarily: one group which mainly sells western menu and another group which sells mainly set dinners with rice and soups. Apart from these two main groups, there are some other small competitors, such as snacks shop at the street side and also some typical Chinese restaurants which sell tea with milk and coffee. The group of western menu includes Hardees, Kentucky Fried Chickens, Oliver Super Sandwich, Pizza Hut and Dominos.

The major disadvantage of this kind of fast food is unhealthy. Choice Magazine in 1999 revealed that local hamburgers that come with just one or fewer toppings were, on the whole, rated "acceptable" to "good" in respect of their fat content. But those with more toppings were rated "poor" or "very poor". The advantage of this kind of fast food is reasonable retailing prices. The price of a set meal among this restaurants ranged $20 to $35. McDonald’s is the cheapest one among them. As for the services provided, KFC, Pizza Hut and Dominos provide fast food delivery services but the others do not. Though McDonald’s accept ordering food by phone, only few of them provides delivery services. The working hours of Hardees, KFC and McDonald are from breakfast to dinnertime. But Pizza Hut and Dominos only serve mainly lunch to dinnertime.

Another main group which sells mainly set dinners includes Maxims, Café de Coral and Fairwood, along with some smaller restaurants which do not have many branches. The main advantage of this group over the previous group is that they serve more types of customers. Also, the food they sell is generally accepted by most of the people in Hong Kong since the food is mainly with rice, which is the main dish of Chinese. Nevertheless, this group also has disadvantages. The main disadvantage is that their variety is much less than the burger group.

Company Analysis

McDonald’s is famous for its burgers. It offers a large variety of burgers to increase its market share. For example, there are over 10 different kinds of burgers offered. Also, it offers chicken filet burgers and fried chicken wings to increase its market share over its major competitor, KFC, which is famous for its fried chicken and chicken burgers. And the price of food is lower than most of its competitors (e.g. KFC, Hardees).

The “fast food culture” of Hong Kong provides a great opportunity for the McDonald’s to grow its market share in the overall catering service market. Since having a meal of hamburgers, French Fries and Coke does not need any table services, people, especially office workers, prefer to have the McDonald’s meal as their lunch to evade the trouble of using table services. Also, this can help the company to save an amount of money of purchasing the table services.

The company puts a lot of effort on advertising. It promotes through the TV ads, newspapers and magazines, MTR trains and the posters. The advertisements are always creative and attractive. It can help the company to make its market position stable and distinctive.

Marketing Strategy

Marketing-Product Focus:

Among the dining-out industry, McDonald’s plays a leading role since the establishment in Hong Kong in the year 1975. The success can blame the unique marketing strategy made by McDonald’s.

Target Market:

Although McDonald’s provides food to fulfill customers of all ages, it tries to get special attention from a specific group of customers.

Children segment – McDonald’s paid much effort on the children segment. This is because children nowadays are little emperors and empresses in a family. They have great influence on deciding where to have their meals. McDonald’s offers Happy Meal which targets this segment. In a Happy Meal there is a small toy which attracts many children to buy this meal. Apart from the Happy Meal, children can have birthday party at McDonald. In the party, children will receive McDonald's Gift Pack and play wonderful games.

Youth segment – McDonald’s food is meat based and mainly tasty. It offers a number of different sauces for french fries and Chicken McNuggets. Youths like fresh feeling. Providing different sauces to them gives them a different feeling even to the same french fries. Also, youths are in growing stage and they have to intake a large amount of food. McDonald’s provides extra value meals which satisfies their consumption needs. In addition, there is an option of supersize the meal by adding $2 only. Many youths are attracted by the meals because the meals can fill up their stomach.
Elderly segment – In every McDonald’s restaurant there is a free tea/coffee refill service and newspaper borrowing service. Many elderly likes to have their breakfast in McDonald’s because they can enjoy reading newspaper and having tea in the comfortable environment.

Point of Difference:

In order to differentiate among the competitive industry, McDonald’s makes its service, product and image special and unique.

Service - McDonald’s promises a quality service. Many campaigns such as the “59 Seconds” ensure its customers a fast and punctual service. In addition, the McDonald’s numerous outlets provide convenience for customers, which other fast food shops cannot achieve. Moreover, McDonald’s provides services for organizing birthday party, which other fast food shop does not.
Product - McDonald’s is famous for its burgers. It is the leader in the burger field. Also, the Big Mac is famous for its bigness. Teenagers like to have the Big Mac meal to fill up their stomach. Also, McFlurry is different from traditional ice cream that is offered by most fast food shop. The addition of Smarties and chocolate biscuits chips into the ice cream differentiate itself from other ice creams.
Image - McDonald’s has successfully created a friendly image which impressed most of the customers and people. Characters are created to promote the warm image to the public. Ronald McDonald, Birdie, Hamburglar, Grimace are deep in the heart of every child. The histories of these characters are very long and other fast food shops do not have such kind of representative characters. Furthermore, the sharp colour of “M” logo, which is called the Golden Archers, of McDonald’s is easy to recognize and remember. Everyone sees a restaurant with the logo “M” will doubtlessly think it is a McDonald’s restaurant.

In addition, McDonald’s commits itself to organize the charity functions that make Public have a positive image on McDonald’s which the competitors would never put emphasis in doing such a meaningful things.

Company positioning:

McDonald’s is now playing a leading role among all the fast food restaurants. It has the largest number of outlets among other fast food shops in Hong Kong. McDonald’s positioning strategy is to maintain a comfortable but cheap service to their customers. Due to the comfortable environment and reasonable price provided, customers are willing to go to McDonald’s frequently and even routine visit. Loyalty is set up among the customers.

However, McDonald’s is reaching the maturity stage of its product life cycle. Being a leader for several decades, some customers might get bored with the McDonald’s hamburger. Also with more and more competitors getting involved in the industry, McDonald’s is now facing the hardest moment since the establishment. McDonald’s is required to reposition its market position so as to maintain its high revenue.

Marketing Program

Product

In effect McDonald’s does not provide a product but a whole service concept. Whilst this obviously includes the food that is served, this is not all there is. This can be summed up by 3 words: quality, service and cleanliness.

Quality - The quality of food is guaranteed by its advanced machinery. Its standardized production routine and packing provides food with equally high standard. For example, French fries are required to be fried within a certain amount of time. In addition, McDonald’s uses vegetable oil French fries which enhances food quality. Also, in a McDonald’s burger it covers a number of levels in the food pyramid. In Big Mac, it includes cheese, vegetables, bread and meat which give a balance diet to customers.
Service - As McDonald’s is a fast food restaurant serving a high volume of customers in the shortest time possible, the food is designed to be prepared and cooked quickly. As mentioned above, the cooking time of food is standardized by advanced machinery. Moreover, the path of getting the food to the counter from the kitchen is very short. Within a minute food can be served in front of the customer. This provides fast food offering to the customers.
Besides, the company uses a form of scientific management; all employees are given a strict script to follow when talking to their customers. They are even told when to smile. This means that the customer always knows what to expect and that they will always receive the same level of customers care worldwide.
Cleanliness - McDonald’s provides eat-in service. The restaurants are air-conditioned and are cleaned by workers regularly. This provides a clean and comfortable environment for customers to have their meals satisfactorily. In addition, kitchens are regularly cleaned by workers every night. Furthermore, all McDonald’s restaurants are smoke-free. This gives confidence to customers to have clean food in McDonalds’ restaurants.

In addition to the above three, McDonald’s also offer new food at regular time to attract customers. For example, chicken cutlet burger and strawberry crunchie McFlurry.

Price

McDonald’s strategy on pricing is penetration pricing. The price of food provided by McDonald’s was low in the past such that it was relatively cheap to have a meal in McDonald’s rather than other fast-food restaurants. So, many customers are attracted by the low price and choose to have a McDonald’s meal. However, the price has risen by a relatively high amount for these few years although the income of many Hong Kong families has decreased. It is because McDonald’s starts repositioning. McDonald’s wants to give the customers a new image that McDonald’s is selling high quality food and is providing high quality services. Just like the vision of McDonald’s, “Our vision is to be the world’s best quick service restaurant experience.”

As the price has increased, some customers may switch their choice to other fast food restaurant. So, the demand would move downward along the demand curve.

At the meanwhile, McDonald’s provides a price-cutting campaign called “234”. This program offers ice cream for $2, burger for $3 and apple pie for $4. This campaign covers customers lost by raising the other products’ prices.

Promotion

One of the reasons that McDonald’s has come to success is its well-developed advertisement, sales promotion and public relation programs. It has used many methods to promote their products and the company. The main methods used are as follows:

Media - McDonald’s has fully used the media for its promotion. It is a good idea to use it as a promotion channel because it can reach a large amount of potential customers and raise their awareness. Some of the examples are TV, radio, newspaper and magazine. The advertisements are changed frequently. It can remind the customers to continue purchase the company’s products.
Internet - McDonald’s Hong Kong has an official web site. The web site (http://www.mcdonalds.com.hk/)provides a lot of information to the customers. For example, the customers can get the information about the new products and information of the company. In addition, the web site provides information to not only Hong Kong people but also to people from any countries.
Transportation - In order to facilitate the promotion, McDonald’s will also uses different kinds of transportation to encourage its sales. For example, there are many posters posted in the MTR stations. Also, some train compartments and buses are designed with the theme of McDonald’s products.

Sales Promotion:

Providing discounts and giving out coupons are very important to attract customers so as to increase the sales. McDonald’s always provides discounts to stimulate the demand for some products such as the “234”.
Special offer - In order to enlarge its range of customer, McDonald’s has provided some special offers to its target segment. There is a Senior Citizen Discount Scheme. All aged-people can get a free drink for any purchase.
Personal selling - McDonald’s has trained their staff to provide high quality services. Once a customer goes to the counter to buy food, the staff will also promote and persuade the customer to buy some new products. They will introduce the new products to the customers.

Public Relation Programs:

Charity - McDonald’s has involved in many charity functions such as McDonald’s McCharity and World Children’s Day at McDonald’s. These programs raise funds to help people in need. It helps the company to establish a good image of the company. Some customers would like to purchase more in order to help other people.
Sponsorship - McDonald’s provides sponsorship for many worldwide events such as the Olympic and the World Cup. Sponsorship of such large events is an excellent way of reinforcing their brand. For example, by being an Olympic sponsor McDonald’s gains the right to use the Olympic rings in their marketing efforts, the sponsorship of the National Olympic Teams and the official status as the official partner. In addition to such rights, sponsorship also provides further opportunities in the promotional mix. The McDonald’s website explains that the Olympic connection can be further exploited by adapting it for use in food focused promotions, in-store games, brand advertising and public relations.
Special functions - McDonald’s has used some special functions to enhance the image of the company and its products such as McDonald’s Youth Football Scheme, McDonald’s Learning Programs. These programs provide opportunities for people to join the functions and improve the relationship between the company and customers. It can increase the customers’ loyalty.

Distribution

It is very obvious that there are a large number of outlets in Hong Kong. Over 200 outlets are distributed in different districts of Hong Kong. In addition, most of the outlets locate in high population density area, for instance big shopping malls. McDonald’s number of outlets is much larger than its competitors, KFC or Hardees. This provides much convenience to customers. Meanwhile, more customers are exposed to McDonald’s. This in turn increases sales of McDonald’s.

Besides, it offers delivery service which also attracts more customers to buy McDonald’s food. This service targets to customers who are unable to get to the McDonald’s restaurants.

Recommendations:

Offering of vegetarian food – The food offered by McDonald’s now is mainly meat based. Its food does not cover vegetarians. Therefore, there is a new market segment for McDonald’s, the vegetarians. This new market segments not only attracts more customers, but also gives a healthy image. It is because vegetarian food is generally healthier than meat food. If this is to be done, the major difficulty to overcome is to buy new machinery to make the vegetarian food.
Development of new tastes – Other than burgers, McDonald’s can try to offer new kind of product. For example, McDonald’s can offer spaghetti. This is because the image of McDonald’s food is burger only. Offering new product can change its image to a restaurant that offers a diversity of food. Also, offering new product can give customers a fresh feeling. This in turn attracts new customers and maintains customer loyalty. Besides, McDonald’s can try to offer burgers that ingredients can be customized which can also attract new customers.
Tickets for recording purchases – Now, there is no relationship between customers and McDonald’s. It is suggested that McDonald’s can try to offer tickets recording how many times the customer have purchased meals in McDonald’s. After a certain amount of credits or scores, customers can get a free meal or a free burger. In this way, customers feel them as a member of McDonald’s since if they purchase more they can get more benefit from it. Customer loyalty thus is established.

Appendix: Bibliography

Kelly Luchtman, International business [videorecording]: McDonald's, Hazel Crest, IL: MacLean Media ; Olathe, KS : Distributed by RMI Media, c2000.

Love, F. John, McDonald’s: Behind the Arches, Bantam Books, 1995

James L. Watson, Golden arches east: McDonald’s in East Asia, Stanford University Press, 1997

Kroc , Ray, Robert Anderson, Grinding It Out: The Making of McDonald’s, St. Martins Mass Market Paper, 1990

Roger A. Kerin, Eric N. Berkowitz, Steven W. Hartley, William Rudelius, Marketing, McGraw-Hill, 2003

McDonald’s Homepage

http://www.mcdonalds.com

http://mars.wnec.edu/~achelte/mcd1tc.ppt

http://www.mcspotlight.org

http://www.rense.com/general7/whyy.htm

http://www.hkma.org.hk/qa/past_winner/summary_pdf/mcdonald.pdf

Appendix II: Company Information

The Founder of McDonald’s:

Raymond Albert Kroc (1902-1984)

Company Slogan:

Every time a good time

http://aloveonline.com/chinapdfs/McDonaldsinchina.pdf