Case #1: Doing Great in a Weak Economy

Question 1:
Describe the industry that McDonalds belong to and the level of competition using the
five forces model made by Michael Porter. (NOTE: Do not limit your discussion on the
facts presented above. A key part of preparing an external audit is searching the
Internet and examining published sources of information for relevant economic, social,
cultural, demographic, environmental, political, governmental, legal, technological, and
competitive trends and events.)

Answer:

McDonald’s is a fast-food restaurant which belongs in a fast-food industry serving over

70 million consumers per day and offering quick meals that are relatively inexpensive.
As consumers tastes evolve, restaurants like McDonald’s find themselves fighting to
keep up with changes in demand. Other players made their way into the market by
offering healthier food and different choices to fast0food consumers. As the food and
beverage sector grows, McDonald’s must face an increasing number of competitions.
Its competitors are the KFC, Wendy’s, Yum Brands, Subway, Chipotle, Starbucks,
Jollibee, and Burger King as its closest competitor. It implies that the intensity of
competition among the firm in fast food industry is at a high level. Hence, we will
examine McDonald’s competition and how it affects the business using the Porter’s Five
Forces.

1.Rivalry among existing competitors – Strong

McDonald’s main source of competition derives from many other fast food chains in the
industry. The direct competition includes Burger King, which sells approximately the
same product (cheap hamburgers and fries) to the same customer group and other
competitors which were mentioned above.

2.Bargaining power of suppliers – Weak

There are many suppliers that sell raw materials such as chicken or meat that
McDonald’s could work with. For that reason, the supplier is in no position to bargain or
raise prices of products since McDonald’s can change suppliers easily.

3.Bargaining power of buyers – Strong

There are many options in the fast food industry today. As a result, buyers have a wide
range of selections to choose from. Customer loyalty is harder to attain nowadays, and
McDonald’s must keep its prices at a good level for buyers to return. Hence, buyers
have great bargaining power if McDonald’s wants to keep its customers.

4.Threat of new entrants – Moderate

Internationally, another company’s outlets would have to grow swiftly in many areas
around the globe to compete with McDonald’s fast food chain. A great investment, a lot
of time, and a great number of customers could realize this success; however, it is
difficult to achieve and raise awareness of such a project.
On the contrary, on a local level, if a few restaurants were to dominate a small town
against a few McDonald’s restaurants, it could overrun McDonald’s popularity quickly,
making it a plausible threat to consider.

5.Threat of substitute products – Strong

There are many substitutes on the market that compete with McDonald’s: homemade
cooking, bakeries, and more. These pose a threat to McDonald’s, especially in
customer satisfaction and quality. Customers are leaning towards healthier options on
the market; as a result, McDonald’s may have to rethink its product quality and make
improvements.

To sum it up, it can be concluded that in order to stay competitive, McDonald’s strategy
can be seen most appropriately as a Cost Leadership strategy– minimizing costs to
deliver products at low price. With many other direct competitors also providing value
menus, McDonald’s still remains unbeatable as they have the First Mover advantage in
global expansion, making their bargaining power with suppliers stronger. In result, it
helps to lower costs and increase profit margins. The economies of scale allow
McDonald’s to make riskier strategic moves, like launching items with extremely low to
attract customers to buy more items. However, it is unlikely that this strategy would
continue to be effective in years to come. With more competitors, both suppliers and
consumers have more substitutes to turn to if McDonald’s falls short in any
circumstances. Therefore, it may be crucial that McDonald’s adapts strategies to focus
on differentiation, such as delivery service to increase convenience for customers.

Question 2:
Suppose McDonalds will open a store in Maasin City and you are tasked to conduct an
environmental analysis. Describe the factors in the remote environment that you find
relevant to Mcdonald's plan of opening a store. Would you recommend to open a store
or not? Justify your decision.

Answer:

McDonald’s is one of the largest food service company in the world. A world-renowned
fast food company. For this task regarding McDonald’s opening a store in Maasin City,
using the PESTLE method for the environmental analysis, the result below shows that,
the advantages are greater and opportunities are present:

Political Factors
•The laws and regulations of the place is enough and just for entrepreneur/s to
established a business; the rights of both parties (buyer and seller) are equally
prioritized

Economic Factor
•Maasin City is the center of the province of Southern Leyte
•High in demand because of its huge number of population (mostly students)
•High employment rate
•High level of income
•Low level of competition (specifically, Jollibee only)

Social Factor
•People are fond of eating outside and get-togethers
•Most people tend to choose fast-food rather than “lutong-bahay” (more convenient,
saves more time)
•People loves to buy affordable yet delicious foods
•People are not particularly health-conscious
•Consumers are more likely to purchase foods similar to those served by McDonald's
(fried chicken, burgers, fries, etc.)
•Catholics make up the majority of residents and potential consumers (most of them eat
after attending mass)
•McDonald's is a well-known brand worldwide that’s why people are already familiar
with it, it wouldn’t be hard for them to open up a store in any area

Technological Factors
•The place is conducive to innovation. In fact, food deliveries are now well-known
through different applications
•Just recently, a delivery service called “Food Panda” has been introduced in the city

Ecological Factors
•No plastic for some days of the week
•Smoking is banned/prohibited in the whole City
•Protects the environment: “No to pollutions”

Based on this environmental analysis above that our group had conducted, we can
recommend McDonald’s to open a store/branch in Maasin City. We think it is a good
opportunity for them, despite the fact that the City of Maasin is just a small city
compared to the other cities in the country, however, we believe that McDonald’s will
thrive in the area because the competition is not that high, since Jollibee is the only
known fast food restaurant in here. In addition to that, population in the area is very high
since Maasin City is the center of the Province of Southern Leyte. Many people from
different municipalities keep coming in the city for employment since it has lot of
establishments, and has 2 big colleges, making the students (teenagers) the majority of
the population, which is a good thing for the business. Yes, there are still lots of risks,
we can’t deny that fact, however, risks are just a normal part of a business, it is all up to
them how they would overcome those risks. Moreover, a business wouldn’t be
successful without taking risks. As for McDonald’s, this thing wouldn’t be hard for them
since they’ve been in the industry for a long time.