Business Strategy and Trends at McDonald's Case Study

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Q1. Briefly summarize the problem(s). (Assume we’ve read the case). Think about the problem from McDonald’s perspective.

Despite the fact that McDonald’s is one of the most famous companies in the world, the business model which was so critical to its massive success in the past is threatened. The critical success factors that led to its dominance are no longer present in the American fast food marketplace today. America is growing more diverse and consumers are demanding a wider variety of products, even from fast food restaurants. This includes not only the standard diversity of beef and chicken, but also ethnic diversity, as manifested in the dominance of franchises such as Chipotle. Yet the McDonald’s primary revenue remains derived from its burger offerings, chicken nuggets, and fries.

Even many of its direct competitors for its burgers are offering menu items of higher quality than McDonald’s. Fast casual restaurants are likewise encroaching upon its revenue, and again offer a more diverse array of food products than McDonald’s. Many of these products are also healthier than McDonald’s core offerings, and McDonald’s has yet to design a product that is as equally desirable as its burgers and fries, yet appeals to a healthier consumer. McDonald’s has been a company associated with greasy, fast, comfort food, and to shift its brand image from this means sacrificing the image which has been the core of its revenue base. On the other hand, the attractions of this type of food are no longer embraced by the majority of consumers.

Offering greater variety and healthier and fresher items is time-consuming. But while the newly desirable millennial target market may demand such qualities from the establishments they frequent, this means that McDonald’s may have to sacrifice speed and the low cost of its items to answer these demands. On the other hand, one of the core principles of any sound branding is to offer a unique value proposition to customers that competitors cannot easily replicate. McDonald’s has always stood by its value (as exemplified in its dollar menu) and speed.

Yet even in regards to speed, McDonald’s is lagging behind, as more and more companies offer online ordering, which means that the ability to get food quickly from a drive-though is less important. McDonald’s also is not the fastest fast food company, in regards to its drive-through dining. McDonald’s cannot ignore these competitive threats, but on the other hand diluting its brand image by raising its prices and increasing its premium offerings or investing in products that may not sell well (like more salads and healthy burgers, which have traditionally not been its strength, based upon historical data). Healthier foods are often more costly to maintain (such as refrigerated salads) and diversity means buying more items, but less in bulk, which can make it more difficult to keep the company’ price point low. The central problem is how can McDonald’s become a 21st company, yet still retain the essential features that make it quintessentially McDonald’s.

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Q2. Which trends in McDonald’s external environment (PESTEL) are likely to have the greatest impact on the company’s ability to sustain a competitive advantage?

Political

McDonald’s, like all chain restaurants, has found itself pressured by certain external political influences upon the food industry, including the demand to post calorie counts on its menus by the FDA (2019). This makes consumers more aware…

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…has tended to brand itself more upon price than upon quality, experience, or uniqueness. A cost leadership strategy can be very difficult to sustain in a highly competitive marketplace, particularly in an industry so dependent upon advertising which does not sell a product that is necessary. After all, while everyone must eat, not everyone needs to eat out.

Q5. What do you think are the most important strategic challenges facing McDonald’s? Explain. Discuss your recommendations to address the strategic challenges, given the external and industry environment, its core competencies and its current business level strategy.

The greatest strategic challenge for McDonald’s is to maintain a cost leadership strategy in a highly competitive marketplace, while still giving consumers a reason to select McDonald’s over competitors. McDonald’s does have some strengths, such as the popularity of its breakfast sandwiches and coffee. Offering all-day breakfast has been one of its most popular initiatives. On the other hand, offering breakfast all day, and increasing the diversity of its dining options in general, results in slower service and higher cost. Its international ventures have not proven to be particularly successful, perhaps because McDonald’s all-American meal, even when modified, has not always been well-adapted to local palates. Also, concerns remain about the dubiousness of McDonald’s nutrition as well as the overall cleanliness and quality of its food.

Given these concerns, the most sensible move would be to maintain an streamline McDonald’s menu to keep costs low, but focus upon improving the quality of core menu items with better meat and a few lower-calorie options that are still popular (such as its breakfast sandwiches and premium coffees). The company should also continue to court families with children, focusing….....

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