Running Head: McDonald Company 1

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McDonald Company 2

Table of Contents
Introduction......................................................................................................................................3
Situational Analysis.........................................................................................................................5
Overview of the firm...................................................................................................................6
Vision/Mission analysis...........................................................................................................6
Internal analysis of strengths and weaknesses, Internal Factor Evaluation (IFE) Matrix and a
Relevant Financial Analysis........................................................................................................7
External Factor Evaluation (EFE) Matrix..................................................................................14
Incorporation of Healthy Food in Its menu...........................................................................15
Cost Competition...................................................................................................................16
Fast growing fast-food industry.............................................................................................16
Globalization..........................................................................................................................17
Expansion of the Coffee Business.........................................................................................17
String Competition.................................................................................................................18
Increase in the Online Sales...................................................................................................18
Economics Recession............................................................................................................18
Politics Issues.........................................................................................................................19
Increased Obesity Rate..........................................................................................................19
McDonald’s Five Forces Analysis Chart.......................................................................................20
Strategy Assessment......................................................................................................................25
References......................................................................................................................................26
McDonald Company 3

Introduction

McDonald Corporation is one of the largest chains of fast food restaurants in the United

Kingdom. This paper depicts that McDonald remains competitive in the stiff market despite the

rising challenges through strategic management so that it determines the available niche in the

market. Part of the strategic drive of the company is aimed at increasing market edge over the

competitors through establishing better customer-business relationships. There is better

flexibility on customer service so that there is establishment of a proper business model to

address the challenges in the industry. The environment that McDonald is competitive and is

forced to operate through a strategic framework that is flexible and ensures that it cultivates and

exploits the available environment. Internal factor evaluation, IFE, matrix is used as an approach

to scrutinize the strengths and weaknesses in various area of an organization (Pioch et al, 2009).

It offers a means for classifying and assessing relationships in different capacities which are

utilized in the strategy design. In this mode cost initiative in correlation with the competitor is

undertaken and establishment of weaknesses of the company in terms of lack of exploiting the

company is established.

Coca-Cola Beverage Company and McDonalds partnered in 1955 when they opened they

opened the first restaurant due to the need of beverages (Strategic Partnering, 2017).McDonalds

uses strategic alliance in order to ensure better value proposition and offers to customers.

Strategic alliances utilize sharing of resources to promote customer expansion to increase the

financial basis of the company (Hitt, Ireland & Hoskisson, 2012). This mode of strategy is also

employed by Coca-Cola Company. The joining of the two companies will help risk and cost

management that are faced in vertical expansion to attain faster growth (Strategic Partnering,

2017). The strategy is centered on customer satisfaction with induction of better interaction
McDonald Company 4

between the two managerial sectors. Social and corporate involvement by McDonalds and Coca

Cola is a essential theme aided by their strategic alliance. The cooperative strategy is drilled to

reach better customer view point relative to sales chain employed by the two companies (Hitt,

Ireland & Hoskisson, 2012).

The firm’s position as the universal leader in the fast food restaurant sector is attributable

to its efficiency in reacting to the Five Forces within the industry sector. The first aspect that is

undertaken is identification of factors that affect the business so that the external analysis is

undertaken (Dey, 2016). Internal and external environment of the business is also determined so

that the weakness and strength of the business is determined so as to see the opportunities and

threats that are available. Internal environment is more based on management and the

relationship that it has with the staff and the customers. External environment on the other hand

is based mainly on factors that are way beyond the company’s core such as government policies,

competitors and suppliers. The environment around McDonald’s operations is based on fast food

restaurants and therefore it interacts with the business, affecting the success and potential of the

firm (Dey, 2016). The product quality is therefore directly influential in the image and strategy

that the company must adopt. The success of McDonald’s in the global market is due to

efficiency in reacting to five forces, hence countering numerous problems.

An analysis of the firm’s strategy will help in determination of viability of the plan in

countering various challenges in the market and on the same path help it in propulsion to further

financial success. McDonald establishes some of the market ideas available and therefore comes

up with some of the product that will help in propelling the company into better financial

grounds. In the year 2003 the company generated revenues of 17.1 billion dollars and this was an

increase of 11% from the previous year and therefore it had used a better strategy in terms of
McDonald Company 5

souring the market fronts. The strong bargaining power of the company in the stiff markets help

in ensuring that the products that the company introduces in the market are well advertised to

increase the product-customer relationships. The strong market also leads to stiff business

framework in terms of strategy and therefore McDonald ensures that it partners with companies

that will help in ensuring better profits through collaborations of supplying different products to

the same customer. This paper will look at the company structure of McDonald in terms of its

strategy and also evaluate its strength and weakness in terms of its interaction with internal and

external factors. The paper will also establish the general objectives, mission and vision of the

company and how the strategy of the company facilitates in reaching the set goals that are

available.

Situational Analysis

The negative consideration from the public has grown drastically not only to McDonalds

but to all other fast foods in all parts of the world. Due to the fact that McDonalds has many

outlets around United States of America and has a great urge to be one of the leading companies

in the world has been able to counter the public negativity. The sales of the company have

increased in many parts of the world. In Europe the sales have been recorded the highest with an

increase of 5.6% since the month of February. McDonalds have come up with a new style of

incorporating an apple or salad slices but earlier McDonalds have been viewed as one of the

healthiest food chains. The negative short-term effects of customers have not been able to affect

the profits but the long term effects have not been evaluated.

Overview of the firm

McDonalds serve a menu of quality food and drinks at very affordable prices in more

than 100 countries around the whole world. The system of the company operates in both
McDonald Company 6

franchised and company-owned. The restaurants offer a uniform menu although there exist few

local variations to suite the tastes and preferences of the local consumers. Being a global

company McDonalds does not depend on small group or single customers

Vision/Mission analysis
McDonald's Corporation's vision statement and mission statement acts as a guide for the

corporation's leadership within the world's fast food restaurant industry. The Corporation's vision

is being the leading as well as best fast food provider across the globe whereas McDonald's

brand mission essentially entails being the consumers' favorite place as well as way to eat, in

addition to enhancing its operations to offer the exceedingly delicious fast food to meet the

expectations of the customers. On the other hand, the Corporation's values entails maintaining

clean environment when serving their customers as well as providing value in its food product

that leaves every consumer smiling. The success experienced by McDonalds signifies the

business effectiveness when it comes to achieving the aims in the Corporation’s vision statement

as well as mission statement (Crawford, 2015).

The mission of McDonalds states; “To be our customers’ favorite place and way to eat &

drink. We’re dedicated to being a great place for our people to work; to being a strong, positive

presence in your community; and to delivering the quality, service, cleanliness and value our

customers have come to expect from the Golden Arches – a symbol that’s trusted around the

world.”

The vision of McDonalds states; “to become a modern, progressive burger company

delivering a contemporary customer experience. Modern is about getting the brand to where we

need to be today and progressive is about doing what it takes to be the McDonald’s our

customers will expect tomorrow. To realize this commitment, we are focused on delivering great
McDonald Company 7

tasting; high-quality food to our customers and providing a world-class experience that makes

them feel welcome and valued.”

Internal analysis of strengths and weaknesses, Internal Factor Evaluation (IFE)

Matrix and a Relevant Financial Analysis

Internal factor evaluation, IFE, matrix is a method preparation tool used to study the

strengths and weaknesses of an organization. The IFE Matrix is a strategy-formulation

implementation used to appraise how a company is acting in respects to recognized internal

strengths and weaknesses of an organization. Numbers are assigned onto the advantages and

weakness to facilitate construction of IFE matrix. The analysis below is an internal factor

evaluation matrix of Wal-Mart Company as postulated by McDonald’s Company.

Internal Factor Evaluation (IFE) Matrix of Wal-Mart Company

The matrix is based on weights to all strengths and weaknesses of Wal-Mart. The rating shows

Wal-Mart ability to muscle its way in the market. The weight multiplied by the grade gives us a

weighted score whose total sum demonstrates if Wal-Mart lies below or above the average of 2.5

(Bhandari & Verma, 2013).

Internal Factor Evaluation (IFE) Matrix

Company Name:

Key Internal Factors Weight Rating Weighted

Score

Strengths

1) well established brand awareness 0.59 3 1.77

(39%)

2) Cost leadership in comparison with competitors 0.34 4 1.36

McDonald Company 8

(34%)

3) Continuous growth 0.46 3 1.38

(46%)

4) Control over suppliers 0.28 2 0.56

5) Profitable organization of distribution channels 0.06 4 0.24

Weaknesses

1)Lack of presence in many developed countries 0.22 4 0.88

(22%)

2)Failure of entering foreign market 0.30 3 0.9

(30%)

3)No formal mission statement 0.17 1 0.17

(17%)

4)Continuous product recall 0.09 2 0.18

(9%)

5)Everyday low prices could be as a result of substandard 0.15 3 0.15

products (15%)

TOTAL: 1.0 3.03

The overall rating is 3.03 which mean that Wal-Marts reaction to internal strengths and

weaknesses is above average.

Wal-Mart Strengths
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The strengths are high lightened below discussing the nature of the factor, its impact, and

importance to the future strategy of the firm.

1. Well built up products awareness

With their more than 8,700 stockrooms, Wal-Mart is the figure of the main retailer

globally. Wal-Mart offers low costs of their items to purchasers which empower it to help stable

brand characteristic. As appeared in an examination, Wal-Mart is the leading retailer in the

United States. Wal-Mart conveys two brands which are individually distinguished and associated

with Wal-Mart by over 54% of every American lady (Jalan, 2004). Wal-Mart stores are well

known by the majority of residents in the United States due to the strong marketing of the

products but the various scandals that have hit the Wal-Mart have led to negative imaging of the

brand. McDonald’s plans to win customers by ensuring brand awareness which gets well

practiced by Wal-Mart. McDonalds believes that brand awareness increases sales of the products

but the various challenges in the market make allotment of this strength to 0.59 due to changing

needs and demands of people in terms of branding.

2. Cost initiative in correlation with competitors

Wal-Mart makes utilization of the cost initiative procedure which gives them a competitive

advantage. Before all else, when Wal-Mart was not that notable, they needed to create economies

of scale and find however many routes as could be allowed to decrease costs. One way was to

chop down overhead costs, keep the stock level as low as could be recognized and increase high

control over providers (Pioch et al, 2009). McDonalds in the analysis of internal factor

evaluation focuses on lowering costs than the competitors which is well practiced by Wal-Mart .

Today they can keep their idea of regular low prices' on offer which can get utilized as a future
McDonald Company 10

strategy (Bhandari & Verma, 2013). Cost advantage over competitors is a success factor, and it

calls for an average weight of 0.34 in this area.

3. Continuous development

Wal-Mart is a ceaselessly developing organization. From their establishment in 1946 up

to today they have built up a system comprising out of 895 rebate stores, 2615 supercenters, 600

Sam's Clubs and 155 Neighborhood Markets. When investigating the exclusive deals from the

year 2006 up to 2008 one can see an expansion from $345.8 billion to $400.5 billion (Bhandari

& Verma, 2013). Imperative to say for this situation is that in spite of the fact that there was

money related emergency inside these years Wal-Mart was as yet ready to continue developing.

McDonalds believes that organization growth brings impacts to its success and therefore it

should be assigned high weighted score if the business is successful as Wal-Mart. Continuous

development is an important aspect of future strategy since it prohibits overtaking by prospective

competitors. Business growth is a spice to success which calls for 0.46 weight assignment in this

area.

4. Regulation over suppliers

It is conceivable to state that a significant number of Wal-Mart's providers rely upon this

joint effort. The lion's share gets over 32% of their incomes from the giant retailer (David &

David, 2015). In light of expanding obligations and money related issues, Wal-Mart established

the supplier Alliance Program which induced individual finance choice. McDonalds shows that

supplier regulation smooth’s the operation of business and if the business considers it, it should

have high supplier regulation weighted score. With the assistance of this program, Wal-Mart
McDonald Company 11

needs to guarantee the consistent stream of stock. From the view purpose of providers, it makes

them significantly more reliant on Wal-Mart which is a significant future strategy.

5. Profitable association of dissemination channels

By making utilization of most recent innovation, Wal-Mart makes exceedingly

mechanized dissemination operations. The distribution channels enable arrangement of stock

keeping up of nearby association with their sellers. Lucrative organization of distribution

channels is a core aspect of ensuring movement of products at a low price. It is an essential

strategy for future consideration by Wal-Mart in its operation (David & David, 2015).

McDonalds puts the idea of lucrative channel as a major ingredient of success which should be

considered as strength. Profitable association of dissemination channels increases sales at a

minimal cost which leads to weight score of 0.06 by Wal-Mart.

Wal-Mart Weaknesses

1. Absence of its products in many developed nations

As of right now, Wal-Mart is principally present in mainland US and moreover different

15 countries. Mention that they are absent in Europe yet, aside from the United Kingdome (Jalan,

2004). This is a major weakness since there is lack of presence reducing the sales volume.

2. Lack of entering outside market

The unsuccessful passageway in the German market symbolizes a massive case for this

shortcoming. In the year 2006 Wal-Mart, at last, chose to offer 80 German stores to its rival

Metro (Jalan, 2004). In light of weak between the social administration and a poor way to deal

with universal advertising Wal-Mart lost a ton of cash. They needed to understand that
McDonald Company 12

fundamentally attempting to change the American method for retailing to Germany did not work

out. It is a failure in the expansion which gives Wal-Mart a weighted score of 0.3 in this area.

3. No formal statement of mission

The report of purpose should respond to the inquiry of what is our business. Inside the

Mission, individuals can distinguish the organization's primary reason and destinations (Jalan,

2004). It is particularly imperative for representatives to guarantee that everyone knows in which

perspectives the structure get occupied with and that everyone is working a similar way.

McDonalds believes in mission statement of a company and therefore its lack contributes to

weakness and thus low weighted score. In this manner an absence of a formal statement of

purpose can prompt an inward shortcoming and thus realization of 0.17 weight score which is

low.

4. Persistent Product reviews

The organization picture is continually enduring on the by the fact that it comes to item

reviews. In the year 2006, for instance, Wal-Mart needed to review a few toy items which got

delivered in China. What substantial effect this has on the picture demonstrates a client

considered made a while later. The investigation records that 37% of respondents were more

dreadful to purchase items from Wal-Mart in contrast with 23% for their rival target (Jalan,

2004). McDonald’s internal factor evaluation analysis rates lack of persistent product review as a

business weakness. When no products reviews are ordered by customers, the contribution of 0.09

overall weight score prevails.

5. Regular low costs could be because of substandard items

McDonald Company 13

There are a few people who trust that Wal-Mart offers low quality because their expenses

are so to a high degree low. Everyone realizes that if an organization dependably provides way

bring down costs than contenders, it needs cheap creation and operations (Bhandari & Verma,

2013). The notion that low priced products are substandard by the customers reduces sales. Wal-

Mart’s primary objective is to develop and increment their deals persistently. The goal gets

imperiled caused by a few viewpoints. Now of time Wal-Mart can be viewed as the unequivocal

cost pioneer inside their industry. The dominant part of their business operations gets put inside

the mainland US, and they are furthermore present in 15 different nations. One of their

significant shortcomings is the absence of quality in a few very much created countries. Except

for the UK, they are not working in any European nations whatsoever. To pick up a more

significant worldwide piece of the pie ought to be one of their primary objectives for what is to

come.

C. Industry Analysis Using Porter’s Five Forces

The firm’s position as the universal leader in the fast food restaurant sector is attributable

to its efficiency in reacting to the Five Forces within the industry sector. In the analysis of the

Five Forces, the relevant external aspects, which affect the business organization externally are

identified (Dey, 2016). In the McDonald’s case, the primary attention is directed towards the fast

food restaurant market. Therefore, the environment in which McDonald’s operates interacts with

the business, affecting the success and potential of the firm (Dey, 2016). However, McDonald’s

present success in the global market shows that the company is efficient in responding to the five

forces, thereby disabling related problems.

External Factor Evaluation (EFE) Matrix

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External Factor Evaluation (EFE) Matrix

Company Name: McDonalds

Key External Factors Weight Rating Weighted

Score

Opportunities

1) Incorporation of the healthy food in the menu 0.62 3 1.86

2) Cost Competition 0.32 3 0.96

3) Fast growing fast-food industry 0.31 3 0.93

4)Globalization 0.17 2 0.34

5)Expansion of Coffee Business 0.23 3 0.69

Threats

1)Strong Competition 0.25 3 0.75

2) Increase in Online sales 0.15 3 0.45

3)Economics Recession 0.05 1 0.05

4)Politics issues 0.08 2 0.16

5)Increase in Obesity Rate 0.12 3 0.36

TOTAL: 1.0 3.01

McDonald Company 15

A score of 3.01 implies that the performance of the company in average but there is still

room to improve further. McDonald's is the largest fast-food chain in America which was

founded in the year 1940 (Richards et al, 2015). It operates in the fast food industry. Oak Brook,

which is in Illinois, United States of America, is the place where the headquarters of this

company is located. The company's primary menu items include chicken, soft drinks, desserts,

French Fries, cheeseburgers, hamburgers, breakfast items, and milkshakes (Richards et al, 2015).

The external factors which act as opportunities for the company include:

Incorporation of Healthy Food in Its menu

McDonald's is making changes in its fast-food so as to ensure that the health of the

customers is observed. For example, the company replaced Margarine, which had been in use for

a long time, with now the real butter in the Egg McMuffins, it also added spinach and kale in the

salads to its iceberg lettuce, and also sources those chicken that is not rose with antibiotics. These

changes attract the customers and increase the confidence that the customers have for the

company as it observes the health of the customers. In future, despite the degree of competition

in the market where the company operates, it will be able to win a large customer base as

possible as customers will have built trust on its products (Richards, et al, 2015). I assign it a

weight of 0.62 and a rate of 3 because it will help the company achieve its strategy of expanding

its base of customers.

Cost Competition
McDonald’s is known for the fact that it yields low margins capable of making it

extremely difficult for the other companies to compete it in cost leadership strategy. The

company has successfully pursued this strategy by offering its fast-foods at prices that are low

relative to those of its competitors (Richards, et al, 2015). The company hires employees who are
McDonald Company 16

inexperienced and trains them instead of directly employing cooks who are trained. This also

contributes to reduced cost hence making it cost competitive in the industry. The cost is also

reduced by the fact that the company relied on a few number of managers. This factor allows

McDonald’s to offer its meals for bargaining prices something which enables the company to

accommodate all the people from the different social classes. In future, the factor will enable the

company to be the lowest cost producer in the global fast-food industry (Richards, et al, 2015). I

assign it a weight of 0.32 and a rate of 3 due to the fact that the fact that through the factor, the

company will be able to emerge as the lowest cost producer in the industry even in the future.

Fast growing fast-food industry

The fact that McDonald's operates in a fast-food industry has led to a steady growth of

the company's branches and chains in the global market (Richards, et al, 2015). The number of

the franchise willing to operate under the brand has increased increasing the revenue generated

from the franchisees to 82% which is relatively high compared to 16% which is generated from

the locations operated by the company. The steady growth of the company is brought about by

the fact that the fast-food that it sells is relatively in high demand in all the markets it operates.

The fast-growing industry has given the company the opportunity to grow at a fast rate

(Richards, et al, 2015). I assign it a weight of 0.31 and a rate of 3 due to the fact that it will allow

the company to achieve the strategy involving the wining of a large customer base in the global

market.

Globalization
McDonald’s sells its products in many countries across the globe. Through globalization,

the company manages to continually move raw materials, technology, products, and ideas from

one country to another (Vignali, 2001). Globalization has enabled the company to make its
McDonald Company 17

products known in many parts of the world just through the advertisements made through the

different advertising avenues such as the emails, social media platforms, among others.

Globalization helps the company to reach as many customers as possible in the globe and also

enables the company’s salesmen to entice as many people as possible in the world (Richards, et

al, 2017). I assign this factor a weight of 0.17 and a rate of 3 because it will enable the company

to achieve the goal of winning the largest base of customers in the future compared to its

competitors.

Expansion of the Coffee Business

Coffee is one of the raw materials that McDonald's uses in all its restaurants in the globe.

Many countries have joined the move to supply coffee to the various companies that operate in

the international markets so as to enjoy the available market and the increasing demand

(Richards et al, 2015). The increased competition has reduced the price associated with the

coffee hence enabling the company to reduce the cost used in the manufacture of coffee products

and meeting its strategy of being the lowest cost producer in the industry (Richards, et al, 2015).

I assign this factor a weight of 0.23 and a rate of 3. This is because the expanding coffee business

will help the company meeting the strategy of cost leadership; being the lowest cost producer in

the industry.

The external factors which act as the threat for the company include:

String Competition
McDonald’s faces strong competition from such fast-food restaurants as Taco Bell,

Subway, KFC, and Wendy’s. Fast-casual restaurants such as the Panera Bread Company and

Chipotle Mexican Grill, Inc. are also McDonald’s close competitors (Cummins et al, 2005).

There are also quick-service restaurants such as Starbucks Corporations that offer meals
McDonald Company 18

overlapping those that are offered by the McDonald’s. In the global market, McDonald’s faces

stiff competition from the largest chains on fast-food (Cummins et al, 2005). This stiff

competition greatly affects the ability of the company to meet its revenue objectives as it

becomes difficult to expand the customer base (Nielson 2013). I assign it a weight of 0.25 and a

rate of 3 due to the fact that it significantly influences negatively the ability of the company to

meet its strategy involving the expansion of the customer base.

Increase in the Online Sales

Increase in the online sales has led to the increase in the sales made by the companies in

the global fast-food industry. This has encouraged many companies to enter the industry so as to

enjoy the increased sales. As a result, the degree of competition in the industry has gone higher.

This high competition hampers the ability of the company to expand its services to the planned

base of customers hence reducing the revenue earned by the company relative to the planned

revenues (Nielson 2013). I assign this factor a weight of 0.15 and a rate of 3 because it hampers

the ability of the company to meet the increased revenues in the future as a result of the

expansion of the customer base.

Economics Recession
The recession is one of McDonald's bad news. Whenever there is a recession in any of

the countries that McDonald's operates, the sales of the company go down. However, the

decrease in the sales caused by the economic recessions in the countries where McDonald's

operates does not greatly influence the sales of the company and that is why I assign a rate of 1

to the factor and a weight of 0.05. This factor influences the sales of the company but the

influence is not such significant as there can be a recession in one country where the company

operates but a good economic market in the other countries (Nielson 2013).
McDonald Company 19

Politics Issues
Political issues in the countries where McDonald’s operates also affect the activities of

the company hence its sales and revenues (Nielson 2013). Politics that lead to the increase in the

tax, restrict the terms of trade through agreements and evolve public policies on health

negatively influence the activities of the company hence leading to its inability to meet its

objectives involving an increase in sales and revenues in the future (Nielson 2013). I assign this

factor a weight of 0.08 and a rate of 2 because it is not common in the countries that McDonald's

operates.

Increased Obesity Rate

Increase in the obesity rate has led the customers into the restriction of the kinds of the

fast foods that they buy (Stender et al, 2007). To avoid the loss of the customers, the company

has channeled an increasing amount of sales revenues to the research aimed at establishing only

those foods that do not lead to the increased weight of the customer. This factor has contributed

to the loss of some customers by the company in fear of having their weights increased hence

leading to the reduction of the customer base (Nielson 2013). I assign the factor a weight of 0.12

and a rate of 3 since it affects the ability of the company to increase sales and revenues in the

future due to the reduction of the customer base.

The Five Forces

The company experiences the impacts of the external forces at unpredictable multitudes

on the basis of the five forces model. Therefore, it is necessary for McDonald’s to enact

strategies that will address the external forces and reduce the adverse effects. Hence,
McDonald Company 20

McDonald’s demonstrates the following traits concerning the five forces. Foremost, the industry

has strong competition or competitive rivalry. Secondly, the industry has a moderate threat of

new entrants. Thirdly, suppliers have a weak bargaining power. Additionally, the customers have

a strong bargaining power. Lastly, there is a strong threat of substitutes (Dey, 2016).

McDonald’s Five Forces Analysis Chart

Moderate Threats of New Entrants

 Minimal switching costs
 Expensive brand development
 Moderate capital requirements

Strong Competitive
Weak Supplier Power Rivalry Strong Power of Buyer
 Numerous  Minimal switching  High substitute
suppliers costs availability.
 High rate of  Great  Numerous
supply aggressiveness providers.
 Low forward among businesses  Low switching
vertical  Numerous costs.
businesses

Strong Threats of Substitutes

 High presence of substitutes.
 Minimal switching cost.
 Great performance to cost
proportion.
McDonald Company 21

McDonald’s Strong Competitive Rivalry

The company experiences fierce competition due to the high saturation in the industry

sector. Competition reviews the impacts of competing companies within the market environment

(Dobbs, 2014). In McDonald’s example, the subsequent external aspects add to the strong

competition within the industry. Firstly, there are numerous companies within the industry, with

varying sizes. Such companies include the global chains like McDonald’s and the local small

businesses dealing with fast foods. Secondly, the large and medium companies within the

industry market their products fiercely. Thirdly, there is a low switching cost for the customers,

meaning that they can shift to other firms to get their food (Grundy, 2006). Therefore, strong

competitive rivalry within the industry depicts that competition is the most crucial aspect

affecting McDonald’s external business environment.

McDonald’s Strong Customers Bargaining Power

Customers have a high power within the fast food restaurant industry. Bargaining power

addresses the demands and influences of the consumers. Some of the external aspects, which

contribute to the robust bargaining power of customers, include minimal shifting costs (Dobbs,

2014). It is easier for a consumer to shift from one firm to another. Hence, consumers have the

capacity to impose their strong demands on the company. Thus, the low switching costs is a

strong force affecting McDonald’s external environment. Secondly, the fast food restaurant

industry has a significant number of firms, which has led to market saturation. Customers, thus,

have numerous options to select from apart from McDonald’s. Thus, the high rate of saturation is

also a strong force affecting the business’ external environment (Grundy, 2006). The current

market has numerous substitutes to McDonald’s. Some of these substitutes comprise of the fast

food outlets, artisanal bakeries, and the homemade food. The strong bargaining power of the
McDonald Company 22

customers, therefore, calls upon McDonald’s to create strategies, which will enhance the

consumer loyalty.

Weak Bargaining Power of Suppliers

McDonald’s is also affected by suppliers. Therefore, their bargaining power demonstrates

their influence on the company. Suppliers have a weak bargaining power in McDonald’s case,

firstly, because suppliers have saturated the fast food industry. There is a large population of

suppliers, which declines their impacts on the business (Grundy, 2006). The reason for the weak

impact of suppliers is because of the absence of global or regional associations among the

suppliers. Secondly, the suppliers have a reduced forward vertical integration. Henceforth, the

suppliers do not have the capacity to control the distribution system connected to the business’s

amenities. Thirdly, the fast food industry has a high rate of supply due to the high abundance of

raw materials like meat and flour, which diminishes the influence of suppliers to the business.

Therefore, the frail supplier power shows that McDonald’s does not have to pay close attention

to their influence in the external market.

Strong Threat of Substitutes

McDonald’s should highly be concerned with substitutes. The threat of substitution

examines the probable influences of alternatives of McDonald’s business growth. Hence, the

easy availability of substitutes is a strong force influencing the business (Porter, 2008). In the

fast food market, there exist numerous substitutes to McDonald’s products. Fast food outlets and

bakeries offer similar products to consumers at a subsidized price. Besides, customers can

choose to cook from their homes. Besides, the industry has reduced switching costs because it is

easier for the customer to shift to other outlets selling similar products (Dobbs, 2014). Thirdly,

the industry has a great performance-to-cost proportion. Thus, this means that the alternatives
McDonald Company 23

offer quality products, which are competitive to McDonald’s products and also exhibit customer

satisfaction. Therefore, the substitute threat is a significant matter, which McDonald’s should

respond to through strategies like improving the quality of the products.

Moderate Threat of New Entrants

The new entrants have the capacity to jeopardize McDonald’s market share. The new

entry threat addresses the impacts of new firms to the existing companies. Therefore, the

following aspects add to the moderate new entrant threat for McDonald’s company. Foremost,

the small switching costs are substantial aspects that affect the threat of entry. The reason is that

due to the low costs, customers can effortlessly migrate from McDonald’s to the new restaurants

and outlets. Secondly, the moderate capital costs required to set up a fast food business deems it

reasonably effortless for the medium and small-sized firms to impact the business (Dobbs, 2014).

Nevertheless, the high costs of brand development are a weak force that could impact

McDonald’s. The reason is that it is expensive to develop a global brand like McDonald’s.

Hence, McDonald’s has a global brand advantage over new entrants. The moderate threat of new

entrants, therefore, makes the new players a slightly significant issue for the firm.

Key Competitive Forces that Characterize the Fast Food Industry

The main competitive forces influencing businesses in the sector include the availability

of many businesses, aggressiveness of the companies, the low switching costs and the

availability of substitutes (Porter, 2008). Foremost, the fast food industry has numerous

businesses, which has led to saturation. One of the reasons for the many firms includes the small

capital investment required to start a business in the sector. Therefore, there are numerous small

and medium-sized businesses, which offer quality products at a lower price (Rothaermel, 2015).
McDonald Company 24

The availability of many businesses offering fast foods contributes to the stiff competition

experienced in the industry. Besides, raw materials are supplied at a cheaper cost.

Firms within the fast food industry have developed aggressive marketing strategies in an

effort to compete for the market share. The success of McDonald’s, for instance, is attributable to

its ability to develop global competitive marketing strategies leading to its success in the world

market (Porter, 2008). Thus, this makes it difficult for medium and small-sized businesses to

compete with established brands in the sector. The reason is that marketing strategies are

expensive for the small and medium-sized businesses.

The switching cost for consumers in the market is relatively small. Therefore, customers

can shift from one firm to another depending on the quality of products, satisfaction, and

desirability. Due to the many businesses available in the industry, customer loyalty has become a

challenge for the established brands like McDonald’s because the small and medium-sized

businesses are offering quality products. Besides, there are numerous substitutes available within

the industry such as the artisanal bakeries and other fast food outlets (Porter, 2008). Hence,

consumers will tend to buy the alternatives, which are offered at a relatively low price. Besides,

the substitutes offer quality products, contributing to the stiff competition in the sector

(Rothaermel, 2015). Moreover, a majority of the consumers might consider cooking at home as

opposed to buying ready food from the firms. Thus, the substitutes mostly undermine businesses

and stiffen competition.

Strategy Assessment

McDonald has engaged in the strategic alliance cooperative strategy. McDonalds have

partnered with Coca-Cola Beverage Company since 1955. This was instituted when McDonald

opened their first restaurant and was in need of a beverage supplier (Strategic Partnering, 2017).
McDonald Company 25

McDonalds and Coca-Cola embrace a strategic alliance that advocates for value proposition and

offers to their customers. As strategic alliances feature sharing of resources to facilitate customer

expansion, the two companies have engaged in co-developing of tailor-made offers that mutually

benefit their financial base (Hitt, et al 2012).

McDonalds and Coca-Cola share insights of global expansion, and through their

cooperative agreement, they have managed to reduce the risks and cost that vertical expansion

entails (Strategic Partnering, 2017). Also, their cooperative strategy focuses to achieve fast and

cheap growth. Additionally, due to their mutual demographic concentration, the strategy

emphasizes on the customer-end satisfaction. Without forgetting, the cooperative strategy

enables managerial expertise between the two companies due to the closeness induced. The

cooperative strategy is inclined to reach a better customer view point in relation to sales chain

implemented by the two companies (Hitt et al, 2012). Still, social and corporate involvement by

McDonalds and Coca Cola is a focal theme aided by this strategic alliance.

The cooperative strategy has positioned the two companies in a beneficial standpoint. While

market expansion is evident, product development of the two is constantly in motion (Hitt et al,

2012). They have established combined approach to advertising affairs as well as designing of

combined packages that plainly conveys the shared determination of the two. It’s no doubt that

this strategic alliance is a success. As at 2016, McDonald’s is a leading food service retailer in

the world. Venturing into more than 100 countries with more than 35000 food outlets is an

achievement capacitated by this cooperative strategy (Strategic Partnering, 2017). Moreover,

Coca-Cola is the world’s largest beverage producer serving around 1.9 billion beverages daily

and has reached a threshold of servicing 200 countries globally.

McDonald Company 26

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