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McDonald's Case Analysis

Nori Jayne C. Rubis and Donnavil B. Solidum

Bachelor of Science in Entrepreneurship, Quezon City University

Basic Business Finance

Prof. Alice Morales

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I. Current Situation.

A. Environment.

1. Economic

McDonald's contributed greatly to our country's economy. It created

millions of new work possibilities for the ordinary public. The company also

employs teens on a part-time basis, which enables a broader range of individuals

to work, resulting in even more employment openings. To maximize profits, the

McDonald's Corporation gives employees relatively low wages and does not

compensate them for working overtime. This is because they take food stamps

from the student, the elderly, disabled, and the homeless.

2. Cultural and social

McDonald's menu does not adhere to low-carb and low-sugar diets,

making them less appealing to health-conscious individuals. The fast-food chain

is attempting to alter its menu to appeal to a wider population. They've just

released high-protein smoothies, but customers are still grumbling about the high

sugar level. McDonald's menu must be redesigned to meet the requirements of a

worldwide audience. People are increasingly abandoning 'junk food' in favor of

low-calorie, low-salt diets.

3. Political and legal

McDonald's is subject to health and sanitary standards imposed by the

nations in which it operates. Political issues have a significant impact on the

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performance of the fast-food industry. Cross-border hostility and enmity among

the nations in which it operates might be detrimental to the restaurant.

McDonald's, on the other hand, has room to grow in growing nations such as

India. McDonald's food safety standards and cleanliness requirements are critical

to the company's success. Often, emerging nations have low restrictions, making

it appealing for McDonald's to enter these areas. Increased regulations and

government regulations, on the other hand, can be significant obstacles to growth.

As it operates, it must comply with the regulations and laws of numerous

countries.

B. Industry.

1. Definition

McDonald's Philippines, also known as McDo in the Philippines, is the

master franchise of the multinational fast food corporation McDonald's. The

Golden Arches Development Corporation, a subsidiary of Alliance Global Group,

owns the master franchise.

2. Classification

McDonald's is a subsidiary fast food restaurant, founded in Morayta,

Sampaloc, Manila (September 27, 1981) and the founders by George T. Yang

(Founder and Chairman) Kenneth S. Yang (President and CEO) Margot B. Torres

(Managing Director) Christine D. Lao (Marketing Director) while the owner is the

Golden Arches Development Corporation. Their headquarters is in the 17/F

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Citibank Centre Building, Paseo De Roxas Avenue, Salcedo Village, Makati,

Metro Manila, Philippines. Mcdo serves hamburgers, chicken, french fries, soft

drinks, desserts, pancakes, coffee, etc.

3. Technology

a. Level

The Mcdo technology level is very modernized because it helps to

speed up the food during rush hour like McDonald's self-ordering kiosks

are part of the company's modernization program called NXTGEN. The

kiosks allow customers to order and pay for their McDonald's favorites

from a touch screen.

b Rate of change

Because of the new technology that Mcdo uses the customers can

still pay in cash but they'll have to go to the front counter where they'll be

able to talk to employees. The company hopes to open 10% of its

restaurants with the new format by 2019, increasing it to 70% by 2021.

c. Technological threats to the industry.

Due to the increasing number of people, as well as the increase in

competitors and the implementation of the health protocol Mcdo thought

to use NXTGEN but of course, we can not be sure that it will work
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because sometimes technical errors also occur so that becomes a threat to

the company but can be solved if it is always checking the system.

4. Political-legal-social factors.

a. Trends and government controls

McDonald's Corporation unveils Accelerating the Arches, a new

growth plan that includes all elements of the company's operations as the

leading global omni-channel restaurant brand. The plan contains a revised

mission to nourish and develop the communities served by McDonald's

and its franchisees worldwide, updated values that drive actions and

behaviors, and growth pillars that build .

Local, state, and federal governments have enacted rules and

regulations pertaining to many areas of the restaurant industry, including,

but not limited to, franchising, health and safety, the environment, zoning,

and employment. The Company attempts to comply with all applicable

existing legislative and administrative standards, but cannot anticipate the

impact of further requirements on its operations.

b. Specific regulations

McDonald's and other companies were required by law to provide

equal pay to people of all colors and genders, to provide safe working

conditions, to hire legal workers, and to create accommodations for

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handicapped personnel. The Fair Labor Standards Act established a

minimum salary and overtime compensation for employees.

c. Social responsibility pressure.

● The Company intends to make an even greater impact on

communities through actions and communications by focusing on

four key areas: responsibly sourcing quality ingredients, driving

climate action to protect the planet, connecting with communities

in times of need, and increasing emphasis on equity by providing

opportunities for restaurant crew.

● Purchasing all fiber-based packaging from certified or recycled

sources. In nine of its largest markets, the company is serving 100

percent more fruits and vegetables, low-fat dairy, and healthy

grains. In nine of its major countries, the company is increasing

in-restaurant recycling to 50% and reducing trash.

d. Consumer perceptions of the industry.

McDonald's claims that changes in consumer perceptions

of the brand have contributed to the company's greatest sales

statistics in six years. In the fourth quarter, sales increased 5.5

percent year on year, marking the company's tenth straight quarter

of growth. In addition, full-year revenues increased by 0.3 percent,

the company's highest result in six years.

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5. Industrial guidelines and trends.

a. Pricing policies

McDonald's pricing approach combines price bundling and

psychological pricing. The company sells meals and other product bundles

at a discount through price bundling. McDonald's employs psychological

pricing by using prices that appear to be substantially more inexpensive,

such as $__.99, rather than rounding it off to the closest dollar.

Outstanding customer service and reasonable rates that everyone

can afford McDonald's employs a skimming strategy. The goal of

McDonald's pricing is to grow market share. of its product The promotion

is the most important thing for McDonald's.

b. Promotion

Among McDonald's advertising strategies, advertisements are the

most visible. Advertisements for the corporation are broadcast on

television, radio, print media, and web media. For example, in order to

attract more customers, McDonald's provides discount coupons and

freebies for specific goods and product bundles.

c. Product lines.

McDonald's menu features hamburgers and cheeseburgers, the Big

Mac, Quarter Pounder with Cheese, and Filet-O-Fish, as well as several

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chicken sandwiches, Chicken McNuggets, Snack Wraps, French fries,

salads, oatmeal, shakes, McFlurry desserts, sundaes, soft-serve cones,

pies, soft drinks, coffee, McCafé beverages, and other items.

d. Channels of distributions.

McDonald's goods can be found most prominently in its

restaurants. Other locations where the firm sells its products include:

Kiosks

Website and app for Postmates

McDonald's mobile application

As a result, the firm employs a limited distribution channel while

maintaining a push-and-pull marketing communication strategy (Meyer

2015).

(Outbound Logistics -McDonald's restaurants are available in two

varieties: sit-down and fast-food. drive-thru. counter-service.)

e. Geographic concentration.

McDonald's is a multinational fast-food corporation. In this

example, it has restaurants not only in the United States, but also in other

nations. People from various countries have very different eating habits

and cultural backgrounds. As a result, in order to maintain its global

supremacy, McDonald's must appropriately segment various areas.

McDonald's takes this into consideration. McDonald's used additional

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techniques to enhance its marketing segmentation strategy. In reality,

McDonald's menus vary from country to country. McDonald's modifies

their menu accordingly in different nations due to varying meat tastes.

f. Increases or declines in firms or profitability.

As a consequence, the firm saved roughly $5 billion since it no

longer had to pay wages, benefits, rent, or upkeep. This move to a

franchise model led to the revenue drop since McDonald's no longer

reported revenue in its books but instead recorded franchise fees.

6. Financial indicators.

a. Financial ratios.
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b. Working capital required

Most McDonald's Corp Stock investors today are seeking possible

investment possibilities by examining not just static indicators but also

numerous McDonald's Corp growth ratios. Consistent rises or decreases in

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basic ratios generally suggest the presence of a prospective pattern that

may be successfully turned into earnings. When comparing two firms,

however, knowing each company's working capital growth rates may not

be enough to determine whether a company is a superior investment. As a

result, investors typically utilize a static breakdown of McDonald's Corp

working capital as a starting point for their research.

MCD WORKING CAPITAL

c. Capital structure.

As of December 31, 2019, McDonald's stock was selling at about

$197.61. The number of outstanding shares fell from 986 million at the

end of 2014 to 765 million at the end of 2019, but the market value grew

from $90 billion in 2014 to $152 billion in 2019. This is a favorable

condition for investors since it indicates that the market value of the

company's stock has increased, but at what cost? Over the same time

period that market capitalization rose, total debt more than quadrupled.

Long-term debt grew by around $32 billion, from $15 billion on

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December 31, 2014, to $47 billion on December 31, 2019. Between 2014

and 2016, McDonald's repurchased millions of shares through a stock

buyback program, reducing the total number of shares outstanding.

d. Sources and uses of funds

McDonald's generates revenue from two sources: Restaurants

owned by the firm earned sales. • Income from franchised restaurants in

the form of rent and royalties. McDonald's keeps the whole earnings

generated by company-owned locations. As a result, franchising is one of

McDonald's primary sources of revenue. Retained revenues and profits are

frequently utilized as a source of funding.

e. Sales

In 2020, McDonald's had a total revenue of 19.21 billion US

dollars. When looking at McDonald's revenue by area that year, the

country that earned the most revenue - 7.66 billion US dollars - was the

United States.

f. Profitability

McDonald's franchisees' gross revenues in the United States are

projected to be around $1.8 million per location. The ability to offload the

costs of running the restaurants is critical to McDonald's success.

According to Wall Street Survivor, the firm earned $27.4 billion in sales in
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2014, with franchised stores accounting for $9.2 billion and company-

owned shops accounting for $18.2 billion.

7. Firm

McDonald's is the world's largest food service company, with over

30,000 locations with around 100 countries across six continents. For

several years, the firm has managed to satisfy its growth targets. The goal

is to capitalize on its capabilities in order to successfully service more

consumers in more ways, more frequently.

8. Objectives

The main objective of the company McDonald's is to give its customers

high-quality food, rapid service, and good value for money. They also provide

stockholders a fair return.

9. Constraints

● Food has a bad reputation. McDonald's started a social media

campaign this week to defend the image of its cuisine, asking

customers to ask questions about the ingredients it uses.

● Lack of adaptability.

● Service that is slow and incorrect

● Prices are sensitive.

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10. Management philosophy

Quality, Service, Cleanliness, and Value - It is an unwavering

McDonald's philosophy that our customers must always get quality goods,

delivered swiftly and with a smile, in a clean and pleasant atmosphere, and

at a reasonable price. We are committed to exceeding our clients'

expectations in each and every restaurant.

11. Strengths

● Strong brand name, image, and reputation.

● Large market share.

● Good marketing strategies.

● Technology Innovative.

12. Weaknesses

● Unhealthy food image.

● Dissatisfied Franchisees.

● High employee turnover rate.

● Customer losses due to fierce competition.

13. Target Market (s)

McDonald's primary target clientele are parents with small

children, young children, business clients, and teens. McDonald's

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marketing to youngsters and parents of small children is perhaps the most

visible.

14. Product considerations.

McDonald's menu features a combination of familiar and novel

meals and beverages. By increasing market sectors, product diversification

minimizes risk and enhances revenue stability. By being familiar with how

McDonald's products are promoted, you may use the same techniques to

your own items, whether they are food or other consumer goods.

15. Promotion considerations.

To connect with its clients, the restaurant employs television,

newspapers, magazines, the Internet, and other forms of media. The firm

also employs sales promotion - methods of sales promotion.'

16. Pricing considerations.

McDonald's can set any price it wants for any of its locations,

regardless of what you believe is fair. Prices are determined by food

supplies and are frequently regionally modified. Keep in mind that

McDonald's only has to compete with franchise stores if it wants to.

17. Channel considerations.

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In each country, McDonald's has a different distribution strategy.

In certain countries, the restaurant provides home delivery; however, this

service is not accessible in many. Many McDonald's locations are open 24

hours a day. This is an example of extensive distribution, which implies

making items accessible for sale through all conceivable distribution

channels. This benefits the restaurant and increases its sales and eventually

the total revenues.

18. Information and research considerations.

McDonald's takes a thorough approach to research and

development. This entails comprehending external elements like shifting

consumer requirements, macro trends, and the competitive landscape.

Furthermore, we examine internally to see what developments or launches

have been successful elsewhere in the world and why.

19. Managerial capabilities.

McDonald's uses division of labor and power to show Fayol's

management concepts. Classical management is the most frequent type of

management style in the fast food business. Along with McDonald's,

Burger King and KFC place a premium on traditional management.

20. Assumptions about the current situation.

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The CEO of McDonald's has declared the firm to be recession-

proof. KFC and Wendy's have struggled to keep up with the drop in

consumer spending. McDonald's is thought to have superior financial

ratios than its competitors. It is unclear, however, if the firm will be able

to continue in this manner.

II. Problems.

A. Primary problem (s) McDonald's is losing 30 stores.

1. Symptoms

Decisions are made based on Financial sustainability and expiring leases.

Last year, McDonald's Philippines closed 30 locations due to lease expirations

and worries about financial viability. Despite the epidemic, the firm established

16 new stores. Sales revenues plummeted 39% to P14.2 billion in the second

quarter, owing mostly to the impact of the tighter lockdown. McDonald's has 655

locations, down from 669 at the beginning of 2020.

2. Proof

According to GADC President and Chief Executive Officer Kenneth S.

Yang, it was one of the most hit by the shutdown last year. During the tighter

lockdown in March and April, just 38% of the fast food giant's locations were

open, and 84 percent were working at a reduced capacity by May. He anticipates

economic recovery to be hampered this year by continuing lockdown limitations.

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B. Secondary problem (s) Mcdonald’s health issues.

1. Symptoms.

McDonald's believes that consuming a lot of high-fat food might affect

gene expression and that a change in diet can cause withdrawal symptoms

comparable to nicotine and morphine withdrawal symptoms. The fast-food

corporation backs the President's HealthierUS initiative, which encourages

Americans to consume less fatty foods and exercise more.

2. Proof

McDonald's concurs with recent research results that fast food is "as

addictive as heroin." Several studies have found that consuming McDonald's food

might cause significant health problems such as heart diseases, diabetes,

hypertension, overweight, cancers, and a variety of other chronic illnesses.

III. Alternatives

A. Alternative 1. Product innovation via the development of an organic and healthier

meal

1. Strength and benefits

Product innovations can both attract new consumers and retain existing

ones. McDonald's can gain a competitive edge by offering organic and/or

healthier menu options. This will help to boost McDonald's image. If effective,

this may reduce the number of possible lawsuits filed against the firm. This will

postpone McDonald's product life cycle's apparent deterioration.

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2. Weaknesses and costs

This will necessitate considerable study into the desires and varying tastes

of McDonald's consumers in each locality or nation. This will necessitate a

significant investment in product research and development. A good organic

and/or healthy menu reception in one region does not imply a successful product

innovation in all places.

B. Alternative 2. International expansion is possible with ongoing franchise options.

1. Strengths and benefits

McDonald's can use three of its primary strengths: great brand awareness,

a worldwide presence, and a successful franchise business model. The firm will

have additional outlets as well as an increase in its consistent income source.

McDonald's may gain cost savings through economies of scale by increasing its

sales volume through worldwide expansion, therefore increasing profitability.

2. Weaknesses and costs

The franchise has little influence over its operations. One franchise's poor

performance, operations, or reputation can harm the reputation of the entire chain.

It is tough to protect and sustain the Philippines’ property.

C. Alternative 3. Build every McDonald's accommodation by including technology

and a play area.

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1. Strength and benefits

This will appeal to employees and teens who are always looking for a

method to connect to the internet. This will also create a safe environment for

parents to let their children play. Profitability will rise as more market segments

are covered.

2. Weaknesses and costs

This will necessitate the remodeling of existing eateries and may

necessitate major expenditures.

IV. Decision and Implementation

A. What.

B. Who.

C. When.

D. Where.

E. Why.

F. How.

V. Technical Appendix.

Writing the case report now entails filling out the details of the outline in prose form.

Clearly, like any other skill, it takes practice to determine the best method for writing a particular

case. However, simplicity, clarity, and precision are prime objectives of the report.
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