McDonald’s had always been an innovator in developing new fast-food products. Some of the company’s products range from the Big Mac to McGriddles Breakfast Sandwich to Chicken MnNuggets to Ice Coffee Beverages to Premium Salad etc. The company easily understand the fast-food needs of customer. It knows the kind of product to design to get the public attention. In April 2003 McDonald’s launch Premium Salads and McGriddles Breakfast Sandwich to attract health-conscious women that have stopped eating McDonald’s food due to the fat content which they claim McDonald’s food contained. One vital way through which McDonald’s differentiated itself from its rivalry is its approach to training. The aim is to improve the efficiency of its employees so as to increase its market share, gain customer’s loyalty and lower its cost of operation ( Andrew, E; Conrad, L and Rhodri, T;2000). This logical way of training all employees, line managers as well as the screws obviously differentiated McDonald’s restaurant from other fast-food restaurants. Training enables worker to gain the skills, knowledge and character necessary for high performance and increase production. McDonald’s staff training has greatly contributed to the quick-service and cleanliness of the company in rendering good service to its customers (Lashley and Rowson, 2000). The company described training as the only best way of achieving business excellence. Moreover, McDonald’s has in the world a policy of low price. Every day the company tries to lower price to enable people to eat good and healthy meal so as to live long. It has been estimated that 70% of McDonald’s sales are made over a period of four hours each day. McDonald’s has changed the pattern of eating in order to get more customers during the peak hours of the day for lower prices. An instance of this pricing policy was making the menu purchased in the evening at about 6pm much lower than the menu purchased in the morning and afternoon. The overall objective of the pricing strategy is to have the largest market share in the industry. This clearly made it a cost leader in the industry. In setting price in each country McDonald’s tries to study the elasticity of demand of their product in response to price. McDonald’s Brand image is another generic strategy that helps it to achieve competitive advantage. In 2001, McDonald’s was among the ten companies that were recognised as the most valuable companies with a good brand image (Kotler, 2003). Whenever customers see McDonald’s they also see the brand image both outside and inside restaurant, on burger wrappers and on the packaging for fries, napkins and cups. McDonald’s tries to ensure that its brand is the most advertised and well know in the world. It achieved this by localising the advertisement campaign in different countries. McDonald’s launched ‘’I’m lovin it’’ campaign on 29 September 2003 to attract young consumers. This campaign was integrated in all areas of the company, from crew training, restaurant experience to national sponsorships, promotions, television, internet etc. The attraction of McDonald’s to young kids is a source of competitive advantage. Another generic strategy of McDonald’s is its franchise system. McDonald’s operates close to 21,000 franchised outlets in different markets (Lentz and Setrakian, 1997).The company has gained business success in its franchise operations. What it does is to allow a person that is interested in venturing in to fast-food business to use its brand for a fee. The licence agreement enable McDonald’s to set the standard of cleanliness, quality and best practice that must be adhered to by the franchisees. Every franchisee must ensure it complies with the standard of McDonald’s branding, menus, design layouts and administration systems. Franchising enables McDonald’s to enjoy considerably faster growth and the creation of a global brand identity as well as increased economies of scale that has led to its competitive advantage in the fast-food industry.
INTERNAL ANALYSIS; VALUE CHAIN ANALYSIS
The term ‘value chain’ was used by Michael Porter (1985) in his book “competitive advantage; creating and sustaining superior performance”. Brown (1997),“described value chain as a tool to disaggregate a business in to strategically relevant activities”. A business could achieve competitive advantage by performing these activities more cheaply and more effectively compare to competitors. Value chain analysis tries to examine the value a company’s activity creates in producing products or services that satisfy customer needs. “The rationale behind the concept was that an organisation is not just a place where people, money, equipment, machinery etc are kept but it is the ability to put them in to productive activities to produce product which customers feel they can pay a price. As porter (1985) argues “the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage”. Figure 1: Value Chain in McDonald Company
In McDonald’s case, the key value adding activities are inbound logistics, operation, outbound logistics, marketing & sales and service. McDonald’s logistics function is to buy food on behalf of its operator (franchisee) and arrange delivery in to their restaurants. McDonald’s logistics includes; the procurement and shipment of raw materials in to suppliers, the procurement and shipment of finished goods between the suppliers and the distribution centres, together with the warehousing at each distribution centre, the ordering and the delivery to restaurants of all food, packaging and operating supplies. To improve its logistics operation, McDonald’s combines a number of food-processing plants dedicated to its operation only. The establishment of ‘’food towns’’ consisting of a distribution centre and a bakery, a meat plant, a sauce plant and a chicken plant, gives McDonald’s competitive advantage. In the aspect of marketing & sales McDonald’s adopted the concept of 7ps of marketing mix formulated by McCarthy (1975) and Gilligan & Fifield (1996). These 7ps includes; product, place, price, promotion, people, process, physical. With these 7ps McDonald’s was able to create a uniformity of items that taste the same in different countries. McDonald’s realises that although there is cost savings in standardisation but success can be achieved by being able to adapt to a specific environment. It has a pricing strategy that enables it to cope with a particular market. In setting price, McDonald’s looks at the elasticity of demand for its product in response to price. Considering the diverse range of culture, custom in different countries, McDonald’s has localised its marketing communication strategy using different promotion and advertisement. For instance McDonald’s uses the England footballer Alan Shearer as a logo to advertise its hamburgers in the UK and in France its uses Fabien Barthez, the French international goalkeeper. Obviously, McDonald’s uses a number of styles to attract customers.
The supporting activities that can be identified are procurement, human resources development and technology. McDonald’s uses electronic procurement system. It had set logistics trends for restaurants with its online ordering system. It was noted that more than 12% of McDonald’s franchisees ordered food supplier electronically. Revamping its supply chain with software and technology made it easy to respond quickly and efficiently to customers’ needs. With the online ordering system, McDonald’s had a return on investment of 23.2% in 2003. However, the human resource development at McDonald’s is excellent. McDonald’s uses a high-engagement approach to improving both their operations, leadership pipeline and employee satisfaction with their career growth. Every management staff at McDonald’s receives training at one of the regional training centres and at the national centre, Hamburger University in East Finchley. Training all employees to work in one best way (quick-service culture) made McDonald’s to gain customer’s loyalty continuously leading to a competitive advantage.
EXTERNAL ANALYSIS: FIVE FORCES
Understanding the industry’s attractiveness in terms of competitive forces led to the development of five forces model. The five forces model was developed by porter (1980) as a holistic way of looking at industry and understanding the structural underlying driver’s of profitability in competition. It helps strategic managers to understand an industry’s attractiveness and the effect they have on the firm’s ability to compete. Each force exerts influence on the firm’s potential profit and growth.
The fast-food industry is highly competitive. There is intense rivalry in the industry as each restaurants jockeying for position using tactics like price competition, product introduction and advertising slugfests. McDonald’s has been able to acquire a larger market share, larger access to distribution, strong brand loyalty and wider geographical reached. All these set it apart from its rivalry. There is also high threat of entry in to fast-food industry. The reason being that the capital requirement is low and there are no legal barriers which could keep potential entrants from entering the industry. The impact of this, on McDonald’s is relatively low because of its large economies of scale, strong brand loyalty, large market share and good marketing strategies. The bargaining power of suppliers was relatively low as there is low switching cost and McDonald’s was able to established food towns that consist of a distribution centre, a bakery, a meat plant, a sauce plant and a chicken plant. The power of buyers (consumers) however posed a significant concerned to McDonald’s. Consumers are now more concerned about the nutrition content posed by eating McDonald’s food. Menu ingredients with high fat, sodium and cholesterol are not consistent with the changing needs of consumers .As said by Stephen J. (2005) “a cheeseburger and fries will kill me for the day”. This man has stopped visiting McDonald’s restaurant. McDonald’s was taken to court by individuals who claim that eating McDonald’s food caused their poor health and oversized weight. There are other series of cases (such as youth slavery, environmental pollution etc) that affected McDonald’s profitability in (2003). The threat of substitute is relatively high in fast-food industry. Fast casual chain that is fresher than fast-food are spreading all over countries. For example café de coral (Hong Kong Chain), Sunway (American Chain) etc are increasingly popular to the extent of taken the larger market share from McDonald’s (independent 2003).
CONCLUSION
It can be deduced that there is relatively high level of coherence of the firm’s strategic aims of being better not just bigger and the strategic choices, resources, and capabilities from the period of 2001 to 2007. The strategic choice of differentiation and cost leadership enabled the firm to concentrate on the development of capabilities that contributed to the performance of those activities that added value to customer. From the analysis, McDonald’s will continue to be the leader in the fast food industry because of its large market share, product innovation, geographical reached, employee development, improvement in technology as well as its marketing strategy. The company was able to link its supporting activities such as staff training, technology (software) to the primary activities such as inbound logistics, operation, and marketing to create product customer value. Although, the firm’s franchise operation increases its business expansion but it also created rivalry among the franchisee, non HALAl food, health concerns, not targeting older customer are some of the weaknesses. The five forces analysis shows that the industry is still attractive to McDonald’s as it has been able to create larger geographical reach, good marketing strategy, staff training, brand loyalty and product innovation in sustaining competitive advantage.
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Company’s Information.
. (Accessed 25th March 2009)
Developing Competitive Strategy (Accessed 23rd March 2009)
Lecturer researches fast food industry
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