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1. What are McDonald’s most important core competences? Why? What threats exist that might

undermine its success?

Core competences refer to activities that underpin competitive advantage and that are difficult for

competitors to imitate or obtain.1 Jobber goes further to describe core competences as the distinctive capabilities

possessed by a company which define what it is really good at.2 With these two definitions it is easier to pin point

what McDonald’s core competences are and to also understand the reason behind them.

Ray Kroc discovered the small drive-in restaurant run by the McDonald brothers in 1954 when he was

dumbfounded by their order of eight multi-mixers. Upon visiting the establishment Kroc was astonished by the

effectiveness of their operation, producing a limited menu allowing them to focus on efficiency, speed and

quality.3 Impressed by the quick service Kroc brokered a deal and bought the McDonald franchise opening up the

first restaurant in April 1955.

Ray Kroc maintained the original efficiency and effectives set out by the McDonald brothers. McDonald

Corporation is therefore built on the idea of Quality, Service, Cleanliness and Value and these are their core

competences. These are easily depicted in the quickly served, low priced, limited menu that McDonald’s offers.

One of the main reasons for these being their core competences was because it allowed them to cater to a wider

market. Consider two extremely different clientele bases, a businessman and a high school student. Choosing

these 4 core ideas, allows McDonalds to cater to them both without having to change anything. The business

customer visits McDonalds on his lunch break, for quick service and tasty food that is conveniently packaged

allowing for speedy and clean eating whereas the high school student would be attracted to McDonalds because

of their low priced food.4

By and by, other factors helped aid these core competences making them the backbone of McDonald’s

Motto and Mission Statement giving them the competitive advantage that has catapulted them to being the
1
Gerry Johnson et al, Exploring Corporate Strategy, 7th edn (Harlow: Prentice Hall, 2006) p119
2
David Jobber, Principles and Practice of Marketing, 5th edn (Berkshire: McGraw Hill, 2007) p46
3
“The Ray Kroc Story”, http://www.mcdonalds.com/us/en/our_story/our_history/the_ray_kroc_story.html [accessed 21
March 2011]
4
“Marketing at McDonalds” http://www.mcdonalds.co.uk/static/pdf/aboutus/education/mcd_marketing.pdf [accessed 21
March 2011]
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largest fast food service company.5 Societal changes have meant that it is more acceptable to eat on the run6 as

opposed to more traditional sit down or even home cooked meals thus creating a market for McDonalds. In

addition to this, innovation allows for standardization of the food preparation process maintaining the quality of

McDonald’s food worldwide. Their labour service cost savings7 have been passed on to consumers through

lower pricing allowing them to uphold value as one of their core competences.

However even with all of these aspects that strengthen their core competences, there are still threats could

and may still undermine the success of McDonalds. One threat that faces almost all businesses and even

McDonalds has not been spared is the threat of competitors. The increase of competitor corporations in the

Quick Service Industry has increased offering the same quick service and value for food as McDonald’s. Such

competitors include corporations such as Wendy’s and Burger King. Newer competition has also emerged under

the guise of ‘fast casual’ restaurants.8 These are restaurants that offer fresher healthier food but still do it in the

quick service manner that McDonald’s pioneered. An example of such a competitor is Subway who recently

managed to overtake McDonalds to become the world’s largest restaurant chain in terms of units with 33,749

stores against McDonalds 32,737.9

With McDonald’s going international various issues have come up that may be the downfall of the global

brand. First and foremost with almost 20,000 restaurants in the USA each new opening began to take business

away from the other. Thus making McDonald’s a victim of its own success through expansion.10 A second

element that might undermine the success of McDonalds especially as it goes global is the possibility of an

economic slowdown in the new country. This causes McDonalds to lose sales as a result of customers not

spending money in McDonalds or their competitors lowering their prices thus offering subsidized and much

healthier food options. Globalization has also left McDonald’s vulnerable to environmental events such as Mad

Cow Disease and even anti-American sentiments as those that were seen in France- the French felt that
5
“Investor Fact Sheet 2006” www.mcdonalds.com
6
Jobber, Principles and Practice of Marketing, p992
7
Ibid., p992
8
ibid., p994
9
Julianne Pepitone,“Subway beats McDonald's to become top restaurant chain ”,
http://money.cnn.com/2011/03/07/news/companies/subway_mcdonalds/index.htm CNNMoney.com March 8 2011 [accessed
23 March 2011]
10
Jobber, Principles and Practice of Marketing, p317
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globalisation has an American face on it and is a danger to the European and French view of society and

McDonald’s is associated with everything American.11

Another major threat that might challenge the success of McDonald’s is healthier awareness with

consumers. With the rise of levels of childhood obesity to almost 15% in USA and the airing of the documentary

Super-Size Me, showing the effects of a McDonald’s only diet, consumers are beginning to change their whole

attitude towards fast food.12

These threats though major are manageable and McDonald’s realized this and started repositioning

themselves as a brand, for example, the inclusion of the nutritional value on their packaging. A step like this to

combat the threats is what has and will continue to keep McDonald’s as a front runner in in the fast food industry.

11
David Ellwood, ”French Anti-Americanism and McDonald's” History Today USA Volume: 51 Issue: 2
http://www.historytoday.com/david-ellwood/french-anti-americanism-and-mcdonalds [accessed 24/03/2011]

12
Jobber, Principles and Practice of Marketing, p317
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2. Examine the advantages and disadvantages of the modes of entry adopted by McDonald’s in order to

internationalise their business.

As mentioned earlier McDonald’s started as a drive-in restaurant run by two brothers. It was not until Ray

Kroc joined them and opened the first link in their chain of restaurants that it became, McDonald’s Corporation,

the company we know today. When deciding to venture out and go international McDonald’s opts for one of two

modes of entry. These are franchising and own corporation.

Franchising is the main mode of entry that McDonald’s adopts in order to internationalise their business.

Over 70% of McDonalds restaurants worldwide are run by independent entrepreneurs through franchising.13

McDonalds may have opted for franchising for a simple reason, something put forth by Watson, ‘the key to

success in the international market was the same as it was in the US; local control by local-owner operators.’14

Something that was only viable through franchising.

Jobber 2007 describes McDonald’s method of franchising as business-format franchising where by the

franchisor, which is, McDonalds Corporation; specify precisely who should supply the ingredients for its fast food

products wherever they are sold to ensure consistency and quality of product in all of its outlets.15 This is done to

keep in line with the core competences of the company.

When looking at advantages and disadvantages of franchising, we can look at it mainly from the aspect of

the franchisor but we should also consider if and also how it benefits the franchisee. There are various

advantages for McDonald’s in choosing franchising as their mode of entry into the international market. First and

foremost, it allows for fast growth and the creation of a truly global brand identity. This is based on the fact that

with franchising one can venture into various markets simultaneous. In relation to this, this then creates an

opportunity for McDonald’s to reap the benefits of have an array of restaurants namely, the benefit of economies

of scale16 this is based on the fact that the franchising promotes standardization.

13
www.mcdonalds.co.uk
14
James L. Watson, Golden Arches East: McDonald's in East Asia, (Stanford: Stanford University Press) p13
15
Jobber, Principles and Practice of Marketing p959
16
www.mcdonalds.co.uk
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Secondly, franchising is a way of overcoming resource constraints. Limited financial resources mean that as

the corporation goes international it can access additional funds from the franchisee to help it set up in the new

market. Thirdly, franchising is an efficient way of overcoming producer-distributor management problems.17 This

is advantageous especially when managing a vast number of operations worldwide, through having owner

managed business, for example McDonald where becoming a franchiser is a hands on business are one is

required to be involved in the day to day running of the business.18 As a result of this criterion, the only people

invested are those who really want the business to succeed.

Fourthly, franchising allows the franchisor to gain knowledge of the foreign market. This is crucial mainly in

countries such as India or the Arab world where cultural preferences may be considerably different from those

say in America.

Fifthly, even though McDonald’s is all about Quality, Service, Cleanliness and Value obtained through a

quick-service of a limited menu, their franchising allows room for dynamic innovation allowing them to exploit

markets that were previously ignored and overlooked. With McDonald’s, items such as the Egg McMuffin and

ideas such as Play Lands and Drive-thru were all ideas of franchisees.19

Franchising however would not work if it was not beneficial to the franchisee. And there are a few reasons

why being a franchisee of a company like McDonalds is advantageous. To start with, you purchase a business

with a proven track record of success, thus almost guaranteeing you some level of success as well.20 On top of

this as a franchisee one also gets an established name and built in goodwill. This is something that usually takes

months or even years to attain. You also receive initial help and advice; McDonald’s for example have a nine

month full time training program before opening up a store. And even once set up, continual support and

guidance is always available thus saving the franchisee money that would have been spent on research and

development when trying to understand the market had they opened a business on their own instead.

17
Jobber, Principles and Practice of Marketing p959
18
FAQ’s www.mcdonald.co.uk
19
www.mcdonald.co.uk
20
Iain Maitland, ‘Franchising: A Practical Guide For Franchisors and Franchisees’ (Great Britain: Mercury Books
2000) p 85-92
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Nothing with advantages is without its disadvantages as well. That is the case with franchising as well. To

franchisors such as McDonald’s the main disadvantage is that they may be unable to maintain control the further

they expand internationally. As mentioned earlier, as they continue to grow, size may be their downfall. To add to

this, in some cases the standard that was observed at home may be hard to match or duplicate abroad.

Standardization processes have to be altered to cater to the new market and one can simple not just go with a

blanket plan and hopes the market fits into in. case in point was McDonald’s having to change their menu when

they ventures into India, substituting beef with lamb and goat and introducing new products like the McAloo Tikka

burger.21

The disadvantages of McDonald’s mode of entry to the franchisee are minimal if really any. Maitland22 puts

forth four opinions that he considers disadvantages of franchising as a wholesome of which McDonalds has

already overcome. The first being hard work and effort he suggests that although McDonald’s leases out

restaurants sites the franchisee still has to find fittings and equipment and also deal with the day to day running

of the business personally. The counter argument to this disadvantage is starting up any business is going be

hard a franchising is actually much more easy as the struggle of finding the prime property is eliminated.

The next drawback he pointed out was the constant payments to McDonald’s through rent for the premises

or through royalties for using the McDonald’s brand name and even the Golden Arches that hung outside each

outlet. When most franchise contracts are signed and set up they are seen to be iron-clad; inflexible rules and

procedures covered with strict guidelines about every part of the business. However even this argument does not

seem to hold water when looking at McDonald’s. As earlier noted, they have room for dynamic innovation that

has proved to be one of the reasons of their success.

At the end of the day it is evident that the advantages to both the franchisor and franchisee outweigh any

disadvantage brought forth against franchising. A sentiment that is further echoed by the fact, that through

franchising, McDonalds has managed to open outlets in over 119 countries worldwide and is still planning on

opening many more.

21
www.mcdonaldsindia.com
22
Maitland, ‘Franchising’: p 85-92
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3. Examine the fast-food burger industry with reference to the Product Life Cycle model. What does

your answer tell you about McDonald’s future business strategy?

When Ray Kroc bought the rights to McDonald’s and launched the chain, he made McDonald’s the first

company to create a market for fast food and specifically burgers. Any product in the market has a life-cycle, that

is, stages that products go through from development to withdrawal from the market. These stages are

introduction, growth, maturity and finally decline.

23

Each stage has its own characteristics and this is usually the same across all similar businesses. The first

stage, introduction involves advertising marketing and the actual launch of the product. It is usually characterised

with high cost and low sales. This stage is often short lived and the product quickly moves to the second stage,

growth. Growth is depicted with a remarkably visible hike in sales and in some cases even profit. The third stage

is maturity where by the product has reached its peak, at this level competition is greater but market share is also

quite large. This is the level McDonalds is currently at, whereby, the next option is to monitor the market and see

where amendments can be made and new strategies developed so as to avoid moving into the fourth stage,

decline, where the market for the product contracts and ends24. Something that is quite important to note, is that

some products do not necessarily go through the four stages of the product life cycle, or simply go through them

too quickly to be considered viable. Kroc introduced the hula burger in 1960 to cater to the catholic population

23
The Times100, ‘The Marketing Process’ www.times100.co.uk [accessed 22/03/2011] p3
24
Michael W. Maher et al, ‘Managerial Accounting: An Introduction to Concepts, Methods and Uses’, (USA:
Thompson Higher Education, 2008) p430
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during lent. Kroc quickly realized that the pineapple and cheese burger was not a success and quickly took it off

the market before it caused embarrassment.25

McDonald’s as well as other fast food burger company’s such as Burger King and Wendy’s are all in the

maturity stage of the product life cycle. The slowdown in sales may be as a result of market saturation with too

many competitors in one market, slowing economy especially with the recent recession, anti-westernization with

societies trying to hold on to or to get back their own culture and not be swallowed by the lifestyle of the

westernized world, but the major reason sales have dropped for the fast food industry and especially the fast

food burger industry is the awareness of the rise in obesity in individuals.

To avoid any further regression and the eminent move into the decline stage of the product life cycle

McDonald’s will have to change their future business strategy something that I think they have already began

doing. McDonald’s has realized that with burgers and the industry that they operate in, what is in today could be

out and discarded tomorrow.26 Their main strategy has been to consistently introduce new products and slowly

phase out those that are about to decline. The skill is doing this in such a way that the new product does not eat

into the sales of any other product as it is all about making profit at every level.

Another thing they chose to do is revitalizing products that are already on their menu instead of bringing in

something totally new. This was the case with French fries in India. Upon realizing that the sales were

plummeting, the launched a new variety of fries called ‘Shake Shake Fries’27 which were basically normal fries

serves up with chatpata spice mix. The variation in the fries increased sales almost immediately elevating the

French fries from decline.

25
Jane McGrath, ‘ 5 Failed McDonald's Menu Item’ http://money.howstuffworks.com/5-failed-mcdonalds-
menu-items.htm [accessed 24/03/2011]
26
www.mcdonalds.co.uk ‘Marketing’
27
www.mcdonaldsindia.com
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This now becomes the new PLC

for the ‘shake shake fries’

In order to maintain their stronghold as the largest corporation in the fast food burger industry
and still remain true to its core competences McDonald’s will have to keep strategizing and
revitalizing both its menu and its look so as to keep up with its customers in the global market it
operates it. Furthermore, it not only needs to keep up with customer demands but also with its
competition that is heavy of its heels.
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BIBLIOGRAPHY

 “Marketing at McDonalds”

http://www.mcdonalds.co.uk/static/pdf/aboutus/education/mcd_marketing.pdf [accessed 21 March

2011]

 “The Ray Kroc Story”,

http://www.mcdonalds.com/us/en/our_story/our_history/the_ray_kroc_story.html [accessed 21 March

2011]

 Ellwood David , ”French Anti-Americanism and McDonald's” History Today USA Volume: 51 Issue: 2

http://www.historytoday.com/david-ellwood/french-anti-americanism-and-mcdonalds [accessed

24/03/2011]

 Jobber David, Principles and Practice of Marketing, 5th edn (Berkshire: McGraw Hill, 2007) p46, 317,

959, 992

 Johnson Gerry, et al, Exploring Corporate Strategy, 7th edn (Harlow: Prentice Hall, 2006) p119

 Maher W. Michael et al, ‘Managerial Accounting: An Introduction to Concepts, Methods and Uses’,

(USA: Thompson Higher Education, 2008) p430

 Maitland Iain, ‘Franchising: A Practical Guide For Franchisors and Franchisees’ (Great Britain:

Mercury Books 2000) p 85-92

 McGrath Jane, ‘ 5 Failed McDonald's Menu Items’ http://money.howstuffworks.com/5-failed-

mcdonalds-menu-items.htm [accessed 24/03/2011]

 Pepitone Julianne,“Subway beats McDonald's to become top restaurant chain”,

http://money.cnn.com/2011/03/07/news/companies/subway_mcdonalds/index.htm CNNMoney.com

March 8 2011 [accessed 23 March 2011]

 The Times100, ‘The Marketing Process’ www.times100.co.uk [accessed 22/03/2011] p3

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 Watson L James, Golden Arches East: McDonald's in East Asia, (Stanford: Stanford University Press)

p13

 www.mcdonaldsindia.com