Problem Case


McDonald·s Survival Strategies?

Can Gozubuyuk BU-598- Applied Business Research and Communication Skills-Spring Quarter 2010Newport Beach Campus Judith Mann April 23, 2010

McDonald·s introduced a breakfast menu as a way to more fully utilize the physical plant.7% in 1985 to 16. the long-time leader in the fast-food wars. McDonald·s was gathering flak from environmentalists who decried all the litter and solid waste its restaurants generated each day. Wendy·s.2% between 1965 and 1991. Despite these Innovations. To counter some of the criticism. Sonic and Rally·s competed using a backto-basics approach of quickly serving up burgers. in June 1976.6% in 1991. just burgers. So impressed was Ray Kroc with the brothers· approach that he became their national franchise agent. all the while expanding the menu to appeal to a broader range of consumers. Domestically. Facts McDonald·s roots go back to the early 1940s when two brothers opened a burger restaurant that relied on standardized preparation to maintain quality³the Speedee Service System. On the higher end. McDonald·s partnered with the Environmental Defense Fund (EDF) to explore new ways to make its operations more friendly to the environment. In addition. and Taco Bell³the firm encountered new challenges. While these competitive wars were being fought. the company rolled out Chicken McNuggets. Plus growth in the quick service market was projected to only keep pace with inflation in the 1990s. In 1980. which was firmly entrenched in the fast-food arena and hadn·t done anything with its dinner menus to accommodate families looking for a more upscale dining experience. Its average annual return on equity was 25. For example. relying on the company·s proven operating system to maintain quality and consistency. McDonald·s used controlled experimentation to maintain the McDonald·s experience. faced a crossroads in the early 1990s. McDonald·s tremendous growth could only continue for so long. McDonald·s share of the quick service market fell from 18. Over the next few decades. for time-pressed consumers. taking dollars away from McDonald·s.Introduction McDonald·s. Olive Garden and Chili·s had become potent competitors in the quick service field. sales and revenues were flattening as competitors encroached on its domain. In addition to its traditional rivals³Burger King. But the company found its sales per unit slowing between 1990 and 1991. .

a leading organization devoted to protecting the environment. Some of the environmentally inspired solutions that came out of the collaboration with EDF were the: y Introduction of brown paper bags with a considerable percentage of recycled content. then. suppliers. EDF and McDonald·s considered its impact on a wide range of stakeholders³customers. it stood a greater chance of finding solutions with broad applicability than if it had tried to pursue a one-size-fits-all approach from the outset. First. The company·s hope was that from these divergent approaches. polyethylene. Beginning in 1989. Sonic and Rally·s were using a very limited menu approach to attract time-strapped consumers.McDonald·s faced heightening competition on several fronts. McDonald·s began recognizing the importance of maintaining an ecologically correct posture with the public. Chili·s and Olive Garden were appealing to diners looking for something a little more enticing that the familiar Golden Arches for their families. it partnered with the Environmental Defense Fund. Finally. in 1989. Together. y Abandonment of polystyrene clamshell containers to hold sandwiches in favor of new paper-based wraps that combined tissue. and Taco Bell³were eating into its margins through promotions and value pricing strategies. which was becoming more concerned about the environment. In the late 1980s. Wendy·s. a 1990 study showed that each McDonald·s generated 238 pounds of on-premise solid waste per day. which had the twin effect of reducing solid waste and building a market for recycled products. and the environment. y Solicitation of suppliers to produce corrugated boxes with more recycled content. that McDonald·s sought a way to reduce its solid waste while providing a more environmentally acceptable face to the public. Closer to home. For example. Taking a leaf from McDonald·s own playbook. to seek ways to ease the company·s environmental burden on the landscape. franchisees. 53% of respondents in one survey revealed that they had not bought a product because they didn·t know what effect the packaging would have on the environment. It·s no surprise. its traditional rivals³Burger King. and paper to keep food warm and prevent leakage . The company gave its franchisees much autonomy in finding ways to eliminate environmental blight.

And as Baby Boomers age and become more affluent. but also in the location of its outlets. and it would difficult to achieve double-digit growth. while popular with consumers. But I feel the key threat to McDonald·s continued success is its very ubiquity. and more. Because McDonald·s are everywhere. if only to step up to moderately priced restaurants like Olive Garden. has to continually battle Burger King and Wendy·s.Analysis McDonald·s Sustained Prosperity The secret of McDonald·s success is its willingness to innovate. meanwhile. Most of McDonald·s most popular fare probably in some small way contributes to the increasing incidence of cancer. the dining experience is never special. Plus McDonald·s is tucking restaurants into schools. These chains have the added advantage of serving highermargin alcoholic drinks. For example. not only through how fast it serves customers. do little for the bottom line because the cost to run these promotions can be quite expensive. and Pizzeria Uno. and diabetes among the population. even while striving to achieve consistency in the operation of its many outlets. stores. Chicken McNuggets. it is likely that they will leave behind their fast-food ways. its breakfast menu. Even alliances with toy manufacturers. . which leads to an erosion of margins for everyone. The company has also made convenience its watchword. Bennigans. Other concerns are a newfound emphasis on healthier eating. heart disease. The market is well saturated. Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or by car in the suburbs. McDonald·s. and the McLean Deluxe sandwich were all examples of how the company tried to appeal to a wider range of consumers. Key Threats The key threats to McDonald·s domestically are the lack of growth opportunities. salads.

but inevitably experimentation in limited outlets offers McDonald·s a way to retain its key strengths³ quality and consistency³while continuing to evolve for new palates and pocket books. McDonald·s needs a breakthrough that will provide new avenues of growth. As the market leader. McDonald·s does not need to respond to every competitor·s initiative. I couldn·t imagine this being a potent draw for consumers. It has a long history of such experimentation. . Now somewhat long in the tooth. doing so would have the effect of making McDonald·s look reactive and less like a leader. is this inherent contradiction of fast-food fare and upscale dining experience likely to resonate with consumers? I would say no. The advantage of not responding to Burger King·s initiative is that the company can preserve its resources for other marketing thrusts that may provide a bigger payoff. which has resulted in some new profit centers like Chicken McNuggets and the breakfast menu. Indeed. But again. You can try to dress up fast food. but it is still fast food. If Burger King·s initiative does prove popular with consumers³as evidenced by expanding sales and market share³ McDonald·s would be forced into catch-up mode. The disadvantage of not responding to Burger King·s initiative is that you allow the firm to establish itself in a unique way in the minds of consumers³that of a fast-food restaurant that provides sit-down service. McDonald·s best course is to ignore this development as irrelevant. Promoting Flexibility Through Its Operating Strategy The key thing that McDonald·s operations strategy has to support is experimentation.Responding to Burger King·s October 1 Announcement The October 1 announcement from Burger King that it would begin offering table service is not much of a threat at all. Some later turn out to be duds like the McLean Deluxe. But I think that this is a risk that the company should be willing to take.

Any successes. McDonald·s should continue its partnership with EDF.McDonald·s and the Environmental Defense Fund In some ways. it can score a tremendous amount of goodwill with the public. and the collaboration with EDF goes a long way in making that happen. even if only incremental improvements. How far should McDonald·s go on environmental issues? There is definitely a public relations benefit in being seen as an environmental leader. partnering with the Environmental Defense Fund was a masterstroke. It also pays off in the bottom line by reducing shipping costs for supplies as well as garbage removal fees. It also provided a primetime venue for EDF to make a difference. It brought both respectability and valued expertise to its environmental efforts. But if it does manage to come up with some breakthroughs through its collaboration with EDF. . With ecology a growing concern among consumers. which may even provide a halo effect to mitigate any other PR troubles. would have major ramifications because of the sheer size of McDonald·s operations. If environmental efforts start to be a drag on the company·s future profits. The bottom line is that environmental efforts can·t detract the company from its primary mission of providing consistent quality to consumers. it makes sense to be a good corporate citizen and get all the public relations accolades that go along with such an alliance. McDonald·s would do well to stay in the vanguard of corporations who have become environmentally aware. If it tries to shirk its responsibilities. Still McDonald·s has had a lot of success in giving its franchises some latitude in developing new solutions. it can foresee a public relations nightmare in the making. The line in the sand in determining how far McDonald·s should go with its environmental efforts is determined by the cost of the initiative relative to the hard-dollar benefits and harder-to-quantify public relations buzz it gets from being in the forefront on environmental issues.

Perhaps the best way to do that is by rotating in a couple highly promoted new menu items. This approach will let the firm identify which items are likely to prove popular with consumers while ensuring that the company can deliver new products with consistent quality nationwide. With competitors gaining ground on McDonald·s. McDonald·s must rely on test marketing new menu items in pilot locations. it·s only real opportunities for growth lie abroad. Ideally environmental initiatives should pay for themselves by reducing other kinds of costs. convenient service is no longer enough to distinguish the firm. it may indicate a need to refresh its product line. market. satisfying experience for dinner consumers. This would have the effect of enlivening the product menu. At this time. I .it·s time to ease up. where the competition is not so cutthroat or by introducing new restaurant concepts under brands other than McDonald·s. After all. McDonald·s already has a history of doing this so it will not require major changes to its operations strategy³at least initially. Perhaps in the new environment. then the task of maintaining quality becomes exponentially harder. a new critical success factor may be emerging: the need to create a rich.S. McDonald·s is known for fast food. If the product line-up gets too large. The trick is to consider how to eliminate some of the existing menu items when you introduce new ones. Dealing With the Product Range Explosion McDonald·s had done well with a fairly limited product range. Because McDonald·s has pretty well saturated the U. It·s not really a pleasant dining experience. But falling per unit sales is a danger sign for the firm. while making sure the staff is fully trained in how to execute these products successfully. This slackening of per unit sales might also indicate that McDonald·s critical success factors have changed. without the need to go head to head with competitors on price. just a cheap and convenient one. To maintain consistency in new products as it expands the product line. fast.

It could then franchise that concept nationwide and get some of the dollars from consumers who have grown past fast food. Indeed. While this will be an expensive undertaking. Imagine. But its fastidious approach to operations would ensure that consumers everywhere would experience the same dining experience³a tremendous advantage for consumers who don·t want to be surprised with a bad meal. The company could also look into expanding more aggressively abroad where the prospects for significant growth are greater. while important. McDonald·s opening a new casual dining restaurant under the name of Splendor. The duds could be left to die quickly. Key to its future success will be maintaining its core strengths³an unwavering focus on quality and consistency³while carefully experimenting with new options. which are what the company is all about. Conclusion McDonald·s faces some difficult challenges. McDonald·s has the opportunity to apply its core competencies³ scrupulous adherence to quality standards and continual promotion of experimentation³in new venues. if you will. it holds the potential to unleash new areas of growth in a maturing market. Those that seemed promising could be rolled out further. should not overshadow its marketing initiatives.feel that McDonald·s has reached the point of diminishing returns with the McDonald·s brand and now needs to roll out new types of restaurants. The company·s environment efforts. . These innovative initiatives could include launching higher-end restaurants under new brands that wouldn·t be saddled with McDonald·s fast-food image. McDonald·s could try a number of concepts simultaneous in different parts of the country.

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