Business Strategy Report

McDonald’s Submitted by: Group 2

Adityan S – H2022002
Divya Malik – H2022014
Janhavee Kolhe – H2022019
Milanshree Mall – H2022027
Vishakha Rawat – H2022051

Strategic Management in Healthcare

 TABLE OF CONTENTS

S. No. Topic Page No.

1. Introduction 2
2. Background 2
3. Company Highlights 2
4. Goal Setting 3
• Vision & Mission
• Core Competencies & Competencies
• Key Resources
• Business History
• Product Portfolio
• Geographic Footprint

5. Strategy Analysis 6
• Business Model Overview
• Strategy Diamond Analysis

6. Internal Analysis 8
• VRIO Analysis
• SWOT Analysis
• TOWS Analysis
• Value Chain Analysis

7. External Analysis 13
• Porter’s Five Forces Analysis
• PESTLE Analysis

8. Financial Analysis 16

9. Corporate Level Strategy 20

10. Business Level Strategy 22
11. Future Strategies 24
12. Conclusion 25
13. References 26

1
 INTRODUCTION
McDonald's Corporation, founded in 1940 by Richard and Maurice McDonald as a humble California cafe, has
evolved into an iconic global fast-food giant known for its distinctive Golden Arches. With a presence in over
100 countries, McDonald's boasts an expansive network of 40,275 restaurants, with a remarkable 95% operating
as franchises. As of recent data, the company holds an astounding market value exceeding $207 billion, making
it the world's leading revenue-generating restaurant chain. Serving an astonishing 69+ million customers daily,
McDonald's strategically organizes its operations, emphasizing the United States and internationally operated
Markets, while extending its reach across 80+ countries through the International Developmental Licensed
Markets and corporate segment. McDonald's adapts its franchise ownership models to cater to regional nuances,
entrepreneurial expertise, and regulatory landscapes, ensuring optimal alignment in every market. This report
delves into the strategic intricacies that drive McDonald's global success, exploring its operational priorities,
diversity of franchise ownership, and relentless pursuit of satisfying the world's appetite for quality food and
beverages.

BACKGROUND
Our choice of McDonald's as the subject of our strategy assessment is significant due to its global prominence
and its representation of the fast-food industry. McDonald's is a renowned restaurant chain in India and
worldwide, making it a compelling case study. The fast-food industry is highly competitive and continually
evolving, making it crucial to understand how a multinational brand like McDonald's not only survives but excels
in such a saturated landscape. By exploring McDonald's strategies, we aim to gain insights into its success factors,
including adaptation to local markets, supply chain efficiency, and customer engagement. This assessment will
provide valuable insights into the fast-food sector, offering a deep understanding of the strategies that enable
global brands to thrive within this industry.

COMPANY HIGHLIGHTS
Headquarters Chicago, Illinois, U.S.A
Year of Establishment 1940
Richard and Maurice McDonald's (the McDonald’s
Founders
Brothers) and then by Ray Kroc
Sectors catered Restaurants, Food Franchise
Revenue (FY22) $23.18 bn
Valuation of the company $207+ bn

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 GOAL SETTING

Vision
To be the world's best quick-service restaurant experience. Being the best means providing outstanding quality,
service, cleanliness, and value so that every customer in every restaurant smiles.

Mission
McDonald's is committed to serving delicious, safe, and responsibly sourced food, and to being a good neighbour
in communities all around the world. Our goal is to create shared value for our customers, employees, franchisees,
suppliers, and shareholders.

Core Competency and Competencies

➢ Global Brand Recognition: McDonald's has established itself as a globally recognized brand,
representing quality, consistency, and familiarity. This recognition enables them to attract customers in
various markets, ensuring a consistent customer base.
➢ Operational Excellence: The company has developed a highly efficient and standardized operating
system that ensures consistency in food quality, service, and overall customer experience across its vast
network of restaurants.
➢ Franchising and Partnerships: McDonald's excels in managing franchise relationships, allowing them
to leverage the entrepreneurial spirit of franchisees while maintaining brand standards. This enables rapid
expansion and market penetration.
➢ Innovation and Adaptation: McDonald's continuously innovates its menu offerings, responding to
changing consumer preferences and dietary trends. This ability to adapt keeps them relevant and
competitive in the fast-food industry.
➢ Community Engagement: McDonald's commitment to the communities it serves, demonstrated through
initiatives like the Youth Opportunity program and Ronald McDonald House Charities, showcases its
dedication to fostering positive social impact.

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Key Resources
➢ Global Network: McDonald's extensive network of franchises and company-operated restaurants
provides the foundation for its worldwide presence and customer reach.
➢ Brand Equity: The McDonald's brand is a significant intangible asset, representing trust, consistency,
and quality across markets.
➢ Supplier Relationships: Strong partnerships with suppliers ensure a steady supply of quality ingredients
and materials, supporting the company's menu offerings.
➢ Human Capital: The diverse and dedicated workforce, both in corporate offices and restaurants, drives
operational excellence and customer satisfaction.
➢ Operational Systems: McDonald's standardized operating systems, technology platforms, and logistics
infrastructure enable efficient restaurant operations.
➢ Research and Development: The company's commitment to menu innovation and product development
is supported by R&D efforts that analyze consumer preferences and market trends.

Business History
➢ Origins and Innovation (1940-1948):
In 1940, Richard and Maurice McDonald established a small café in San Bernardino, California. Initially, the
restaurant had a limited menu and no traditional dining setup.
The "Speedee Service System" was introduced in 1948, revolutionizing fast food with quick food preparation,
inspired by White Castle's drive-thru concept.
➢ Ray Kroc's Transformation (1950s-1960s):
At the age of 50, Ray Kroc, selling milkshake mixers, visited McDonald's and noticed high demand.
He proposed a franchise model to the McDonald brothers and convinced them despite their initial contentment.
Kroc mortgaged his house at 52 and opened 18 new outlets in a year.
➢ Global Expansion and Achievements (1970s-Present):
McDonald's serves over 2.3 billion burgers annually and operates 39,000+ restaurants in 120+ countries.
It ranks as the fourth-largest global employer and is the largest toy distributor worldwide.
➢ Ownership Shift (Early 1980s):
Initially, Kroc had only a 2% share of profits. He borrowed funds and eventually acquired full ownership for
$2.7 million.
➢ Global Symbol and Controversies (20th-21st Century):
McDonald's became a global symbol of American culture. It has been a subject of public debates on issues like
obesity, corporate ethics, and consumer responsibility.

4
McDonalds’ Product Portfolio

Geographic Footprint of McDonald’s

McDonald’s boasts an expansive global presence, with over 40,000 restaurants spanning approximately 120
nations across the world. The United States holds a substantial share of these establishments, accounting for more
than 14,000 locations. Beyond the U.S., the brand has established a robust footprint in an array of countries
including Australia, Japan, the Netherlands, Germany, France, Sweden, the United Kingdom, China, Ireland,
India, South Korea, South Africa, and numerous nations across North and South America. This extensive network
underscores the brand's reach and popularity on a global scale.

5
 STRATEGY ANALYSIS

➢ Overview of McDonald’s Business Model

1. Marketing of McDonald's: McDonald's marketing strategy encompasses pricing, branding, and

advertising. The company values personnel training and product innovation. It regionalizes its marketing
materials to cater to the unique characteristics of each country. McDonald's adapts its menu to meet local
preferences, dietary restrictions, and cultural norms, such as not serving beef in countries with Hindu
populations. In 2003, McDonald's tried to reinvent its brand image by launching the “I’m Lovin’ It”
campaign which resulted in increased brand recognition, customer engagement and overall sales growth
through its consistent advertisement and focus on creating a positive customer experience.
2. Business Expansion and Line Extension: McDonald's global expansion involves opening new locations
worldwide. While it maintains core menu items globally, it adapts its offerings to reflect local cultures
and trends. It introduces new items to stay current with food trends and preferences while adjusting pricing
strategies for each market.
3. Human Resource Management Practices: McDonald's places a strong emphasis on human resource
management. It focuses on employee training, development, and performance evaluation. The company
aims to maintain a competent workforce, foster employee skills, and provide insights into the company's
operations, particularly for new hires.
4. Operational Practices: McDonald's operational practices prioritize product and service quality, hygiene,
and efficiency. It utilizes technology systems to streamline operations, reduce wait times, and provides
training and development programs for its staff. The company sets product standards and delegates
authority based on employees' qualifications and experience.
5. Responsible Business Practices: McDonald's demonstrates responsible corporate ethics by addressing
environmental, marketplace, people, and community responsibilities. This includes supporting local
communities, environmental protection, contributing to social activities, and maintaining a family-like
atmosphere in the workplace.

➢ Strategy Diamond Analysis

1. Arena - Product and Services and Market Presence:

Products and Services: McDonald's offers a wide range of products, including classic items like Big Macs
and Chicken McNuggets, as well as breakfast offerings and seasonal items. In recent years, they have
introduced healthier options like salads and wraps. Notably, they adapt their menu to local tastes, offering
items like the McSpicy Paneer in India.
Market Presence: McDonald's operates in over 119 countries, with a staggering 36,059 restaurants
worldwide as of 2019. This extensive global presence allows them to serve diverse markets, from urban
centres to rural areas.
2. Vehicles - Contracting:

6
 Franchise Model: Approximately 93% of McDonald's restaurants are franchised. Franchisees pay an
initial franchise fee, ongoing royalties, and rent for the properties, which provides a steady revenue stream
for the company.
Supplier Relationships: McDonald's has established long-term relationships with suppliers to ensure a
consistent supply chain. They work with suppliers worldwide to source ingredients for their menu items,
maintaining quality standards.
3. Differentiator:
Brand Image: McDonald's is known for its iconic golden arches and has consistently ranked among the
world's most valuable brands. Their brand signifies convenience and affordability, attracting a loyal
customer base.
Menu Innovation: McDonald's continuously innovates its menu globally. For instance, in 2021, they
launched the McPlant, a plant-based burger, as part of their commitment to menu diversity and
sustainability.
4. Staging:
Global Expansion: McDonald's has experienced multiple stages of global expansion since its inception.
Today, it operates on nearly every continent, adapting its menu and marketing to local cultures and
preferences.
Digital Transformation: In recent years, McDonald's has been in the midst of a digital transformation.
They've invested significantly in technology, including mobile apps and delivery services, as part of their
efforts to enhance the customer experience and adapt to changing consumer behaviours.
5. Economic Logic:
Economies of Scale: McDonald's leverages its global scale to achieve economies of scale. Their
purchasing power and standardized processes enable cost efficiencies in sourcing ingredients and
producing menu items.
Value Pricing: McDonald's economic logic centres around offering value-priced menu items. Their
famous "Dollar Menu" and promotions like the McPick 2 provide affordability, attracting price-conscious
consumers.

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 INTERNAL ANALYSIS
VRIO Analysis
Resources Value Rare Imitation Organization Competitive
Advantage
Prospects within Hold potential No Imitable The Competitive
adjacent industries value as they organization's Parity
for McDonald’s to have the complete range
capitalize on and capability to of capabilities
necessary new generate fresh has not been
resources for sources of maximized to its
industry entry revenue full extent.
Expertise in Yes No Imitable Yes Temporary
navigating Competitive
regulatory and legal Advantage
responsibilities
Synchronization of Yes No Each firm has its Yes, the Temporary
actions with own strategy company Competitive
McDonald’s possesses the Advantage
organizational organizational
strategy expertise to
extract optimal
value from it
Possibilities for Yes, new niches No, as Imitable Brand extension Temporary
expanding the are emerging competitor requires a higher Competitive
McDonald’s s are also marketing Advantage
product brand targeting budget
the same
niches
Financial resources Yes No Imitable McDonald’s Temporary
of McDonald’s maintains a Competitive
relatively strong Advantage
financial
standing.
The historical Yes Yes Non-imitable Yes Sustainable
performance of Competitive
McDonald’s Advantage
leadership team

McDonald’s Yes, a Yes, the Competitors McDonald’s is Sustainable

network and loyalty significant 23% company have attempted effectively Competitive
of customers of customers has made this, but none capitalizing on Advantage

8
 account for over investment have achieved customer
84% of the total s to the same level loyalty
sales revenue. establish a of success as
robust McDonald’s
customer
loyalty.
Leveraging current Yes, the e- No, the Difficult to This marks only Sustainable
it capabilities for commerce sector majority of imitate as it is an the beginning competitive
exploring is experiencing rivals are inhouse for the advantage
opportunities in the swift expansion, making IT technology organization
e-commerce arena and McDonald’s investment
for McDonald’s. is well- s to
positioned to penetrate
capitalize on the domain
these emerging
possibilities.
Management of Yes No Imitable Lot of potential Sustainable
McDonald’s sales for utilization of Competitive
team and the excellent Advantage
distribution sales force
channels
Availability of Yes, due to its No Imitable Not fully Competitive
cheap capital for prominent utilized to its Parity
McDonald’s. position within maximum
the industry and extent
prevailing
macroeconomic
circumstances
Effective execution Yes, lacking a No Imitable A prominent Temporary
of McDonald’s comprehensive player in market Competitive
digital strategy digital strategy Advantage
makes
competing
exceptionally
challenging
The adaptability of Yes Yes Imitable Effectively Temporary
McDonald’s supply utilized through Competitive
chain network structure and Advantage
organizational
capabilities.
Marketing Yes No Imitable Yes, Temporary
proficiency present McDonald’s is Competitive
within McDonald’s. efficiently Advantage
9
 leveraging both
its inhouse
marketing
department &
external
expertise

SWOT Analysis

10
TOWS Analysis

The TOWS Analysis methodology has been introduced to assess the competitive landscape within the market.

SO Strategy:

Leveraging Strong Brand Recognition: McDonald’s boasts robust brand recognition worldwide, a valuable asset
in its favour. Its expansion of outlets further solidifies this strength.
Creating High Perceived Value: In comparison to other fast food options, McDonald’s customers feel they receive
good value for their money, often at prices lower than competitors. The Happy Meal and Breakfast menu
exemplify this.
Offering a Diverse Menu: Unlike its peers in the fast food industry, McDonald’s distinguishes itself by serving
breakfast from 7 a.m. Its menu variety, featuring items like Fish Burger, Fish McRice, Salads, Mc Café, and Fruit
Juices, sets it apart.

WO Strategy:

Introducing Novel Products: McDonald’s continuous introduction of new products aims to enhance efficiency.
However, this strategy may also pose a risk if not executed effectively.

Embracing a Low-Cost Menu: The attraction of a low-cost menu could draw in customers. Yet, there's a potential
downside as people might associate low prices with inferior quality.

ST Strategy:

Delivering Enhanced Value: McDonald’s stands out by offering efficient and friendly service, fostering strong
customer relationships. Their commitment is evident in their 3-minute refund policy.
Adapting to Customer Needs: McDonald’s unique features such as daily 7 am opening, breakfast options,
McCafé, Wi-Fi facilities, and accessible amenities demonstrate an alignment with customer preferences.

WT Strategy:

Learning from Competitors: McDonald’s benefits from analyzing competitors' menus, using them as benchmarks
for improvement.
Addressing Limited Food Variety: McDonald’s challenge in offering variety in chicken-based foods, due to using
a single chicken fry piece for multiple products, warrants attention.
Facing Stiff Competition: McDonald’s contends with Burger King and KFC, both well-established worldwide .
Responding to Health Concerns: Health-related criticism directed at McDonald's underscores the need for
addressing nutrition and consumer health issues.

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Value Chain Analysis

The Value Chain Analysis of McDonald's deconstructs the elements that have contributed to its position as a cost
leader in the industry.

1. Inbound Logistics:
McDonald’s purchases raw materials from its fixed suppliers only, thus maintaining long-term relationships with
its suppliers, which also helps in keeping up with quality, safety, and ethical standards. For instance, OSI Food
Solutions has been the supplier of red meat products in the UK for 40 years now.
The company also practices backward integration, which helps circumvent suppliers' bargaining power. McD
has also partnered with some of the suppliers like partnership with Keystone Foods for the development of
Chicken McNuggets. Some of the suppliers are Coca-Cola for beverages, McCain for potatoes, and Tyson Foods
for chicken, beef, fish and pork.

2. Operations:
The operational process of mass production in restaurant chains necessitates a distribution network for delivering
supplies to each establishment. Warehouses stock a wide array of essential items such as food, paper products,
and cleaning materials. Centralized warehousing and distribution via trucks streamline the supply process,
replacing individual restaurant-level management.
In certain chains, managers oversee inventory management, placing orders for necessities like food, wrappers,
and cups from the central distribution centre. For other chains, automation is employed where a computer
monitors and restocks items as needed, or the distribution centre follows a predetermined schedule without
requiring restaurant requests.
McDonald's takes proactive measures to revamp its operations and meet customer demands. A pivotal aspect of
this strategy involves innovating manufacturing and logistics processes. This initiative aims to enhance supply
chain efficiency by optimizing capacity, technology choices, and procurement policies.

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3. Outbound Logistics:
McDonald's came up with the concept of the speedee kitchen, which reduces the requirement of skilled cooks and
can make use of unskilled workers too.
Unlike the previous setup with numerous equipment and stations catering to a wide array of food items, the Speede
kitchen features a notably large grill capable of simultaneous burger preparation by a single individual.
Additionally, there is a dressing station where uniform condiments are applied to each burger, accompanied by a
fryer managed by a single person for making french fries. The culinary offerings extend to desserts and beverages,
facilitated by a soda fountain and a milkshake machine. Customers' interactions, from order placement to receipt,
take place at dedicated counters within the establishment. This innovative kitchen arrangement prioritizes
efficiency and consistency in food preparation and service.
4. Marketing & Sales:
McDonald’s makes use of billboards, signages, sporting event sponsorships and television. The marketing
strategy has always been extensive for McDonald’s.

EXTERNAL ANALYSIS
Porter’s Analysis

1. Threat of New Entrants:

McDonald's is a major global fast-food leader, facing tough competition due to many players in the saturated
industry. Established brands like McDonald's benefit from size advantages, making it challenging for new
entrants. Newcomers face high initial costs to set up restaurants across the country, along with needed investments
in advertising. Customers can easily switch between different fast-food options, giving new players a chance.
Starting a food outlet isn't too expensive, letting small and medium businesses enter the market. McDonald's has
invested heavily to build a strong brand, a tough challenge for new entrants. Thus, customers can shift from
McDonald's to new options, making new entrants a significant threat. In addition, setting up new restaurants can
vary in cost, which somewhat limits new entries. Similarly, creating a strong brand like McDonald's is costly and
challenging, moderately limiting new entrants. Many smaller businesses lack the resources to compete with
McDonald's brand power.
Conclusion: The potential for new entrants to challenge McDonald's is moderate due to low switching barriers,
varying capital needs, and the difficulty of building a robust brand.

2. Threat of Substitutes:
Substitutes, like other food options, are a notable worry for McDonald's according to Porter's Five Forces analysis.
Various external factors make substitute products a significant challenge for McDonald's growth. Substitutes are
readily available, easy to switch to, and often cheaper, all making the threat strong. Many alternatives exist to
McDonald's offerings, including artisanal foods and homemade meals. People can also cook their own meals at

13
home, which is another substitute option. Moving from McDonald's to substitutes is easy due to low switching
costs. Switching might require a bit more time for cooking or slightly higher costs but generally has minimal
drawbacks. Substitutes offer competitive quality and customer satisfaction at affordable prices (low cost-
performance ratio). Homemade meals, for instance, are not only cost-effective but also seen as healthier. Dealing
with substitutes is a crucial strategic concern for McDonald's. Enhancing product quality is a way to tackle this
challenge
Conclusion: The potential for substitutes to replace McDonald's is high due to high substitute availability, low
switching costs for consumers, and low cost-performance ratio of substitutes.

3. Bargaining Power of Suppliers:

Suppliers play a role in how much McDonald's can produce based on material availability, a part of the Five
Forces analysis model. McDonald's is less influenced by suppliers due to external factors that weaken supplier
bargaining power. These reasons include numerous suppliers being available which dilutes the impact of
individual suppliers, and suppliers having limited control over the distribution network to deliver their products
to fast-food restaurants. In addition to these two, a high supply of materials for the food service industry further
weakens supplier influence
The large number of suppliers means they lack strong regional or global alliances, reducing their collective power.
Most of McDonald's suppliers aren't vertically integrated, meaning they don't control their product's distribution
to restaurants. Low vertical integration weakens suppliers' ability to bargain with McDonald's. There's a good
supply of ingredients like flour and meat, reducing the influence of individual suppliers. These factors combine
to make supplier power weak in McDonald's strategic management. McDonald's uses its corporate social
responsibility strategy and stakeholder management to handle supplier-related challenges.
Conclusion: The bargaining power of suppliers is low due to a large number of suppliers, low forward vertical
integration of suppliers, and high overall supply for food service businesses.

4. Bargaining Power of Buyers:

McDonald's strategies address how customer decisions shape business performance, a component of the Five
Forces analysis. McDonald's faces powerful customers due to specific external factors. The factors that strengthen
customer power include low switching costs for customers which amplify their influence, numerous food and
beverage choices that bolster their bargaining power, and a variety of substitutes available further reinforcing
their strength. Customers can easily switch between restaurants, giving them significant sway over McDonald's.
The market saturation effect is seen as the fast-food market is crowded, and consumers have many alternatives to
McDonald's. This saturation enhances buyers' bargaining power, influencing the broader industry. Various
substitutes like kiosks, bakeries, and home-cooked meals play a role in customer power. Business strategies must
prioritize customer loyalty, given these combined external forces. Sociocultural trends, such as the emphasis on
healthy living, further add to this challenge.
Conclusion: The bargaining power of buyers is high due to low switching costs, a large number of food and
beverage providers, and the high availability of substitutes.

14
 5. Competitive Rivalry:
The saturated fast-food market puts McDonald's in fierce competition, a vital part of Porter's Five Forces analysis.
External factors make rivalry among competitors a potent force impacting McDonald's. A multitude of food
service firms, ranging from global giants to local establishments, contribute to intense competition. Competing
firms exhibit high levels of aggressiveness in marketing and business strategies, intensifying rivalry. Low
switching costs between restaurants make it effortless for customers to switch brands, further fueling competition.
The fast-food sector houses a diverse array of businesses, magnifying the rivalry that McDonald's faces. Medium
and large firms aggressively promote their products, upping the rivalry quotient with McDonald's. Consumers
can easily shift from McDonald's to competitors like Wendy's or Burger King due to low switching costs.
Recognizing the potency of competition is crucial in McDonald's strategic management. Competing effectively
requires addressing the intensity of rivalry through innovative approaches.
Conclusion: The competitive rivalry is high due to the high number of food service firms, high aggressiveness of
firms, and low switching costs between restaurants.
Based on the intensity of these forces, we can score them as:
The Threat of New Entrants- 2
The Threat of Substitutes- 1
Bargaining Power of Suppliers- 3
Bargaining Power of Buyers- 1
Competitive Rivalry- 1
Thus, the total of this comes to 8 which is slightly lower than the cutoff (9/15) to be an attractive industry.

PESTEL Analysis

Below is the PESTEL Analysis of McDonald’s, a rating for each factor is given. The lower the rating lower the
influence of that factor and the higher the rating, the higher the influence of that factor.
1. Political Factors: 8/10
Example: Changes in minimum wage laws across different states in the US can impact McDonald's labour costs
and profitability. The political debate around healthcare reform and its potential effects on employee benefits also
showcases the influence of political factors on McDonald's operations in the US.
2. Economic Factors: 9/10
Example: Economic downturns can affect consumer spending habits in the US. During the Great Recession,
McDonald's value menu became especially popular as consumers sought affordable dining options. This
illustrates the high influence of economic factors on McDonald's sales and product strategies in the US.
15
 3. Social Factors: 9/10
Example: Growing health consciousness in the US has prompted McDonald's to expand its menu to include
salads, fruit options, and healthier choices. Additionally, the trend toward sustainability and ethical sourcing is
influencing consumer preferences and shaping McDonald's offerings in response.
4. Technological Factors: 9/10
Example: McDonald's has embraced technology in the US through mobile ordering apps, self-service kiosks, and
delivery partnerships with third-party services. The integration of technology has not only enhanced convenience
but also influenced customer expectations and the overall dining experience.
5. Environmental Factors: 8/10
Example: As environmental awareness increases in the US; consumers are showing greater interest in companies
that prioritize sustainability. McDonald's commitments to sustainable sourcing, recycling, and waste reduction
resonate with environmentally conscious consumers, indicating a significant influence of environmental factors.
6. Legal Factors: 8/10
Example: Labor laws in the US, such as regulations related to wages, working hours, and employee rights, can
impact McDonald's operations. Additionally, legal battles around issues like product labelling and advertising
may affect how McDonald's markets its products and communicates with consumers.

FINANCIAL ANALYSIS
Financial Ratios

1. Operational Expense/Sales in comparison to top 5 competitors

TABLE 1

MCDONALD’S KFC
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
Net Sales 21365 21258 19208 23223 23183 2769 1961 1801 2153 2136
COGS 8266 7761 6981 8047 7381 775 484 439 490 426
SG&A 2200 2229 2546 2708 2862 350 346 346 377 390
Net Income 5924 6025 4731 7545 6177 1685 1052 696 1230 1198
Operating
Expense 12435 12295 11884 12867 13812 1685 1439 1335 1563 1,636
Operating
Expense/Sales 58% 58% 62% 55% 60% 61% 73% 74% 73% 77%
Avg.
Operating
Exp/Sales 59% 72%

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TABLE 2

BURGER KING WENDYS

2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
Net Sales 1651 1777 1071 1356 1412 1590 1709 1734 1897 2095
COGS 67 71 65 66 74 549 597 615 612 773
SG&A 577 600 146 142 167 217 200 207 243 255
Net Income 928 994 823 1007 1021 460 135 118 177 200
Operating
Expense 1056 970 813 830 913 1340 1446 1464 1530 1742
Operating
Expense/Sales 64% 55% 76% 61% 65% 84% 85% 84% 81% 83%
Avg.
Operating
Exp/Sales 64% 83%

TABLE 3

TACO BELL
2018 2019 2020 2021 2022
Net Sales 1627 1594 1544 1686 1839
COGS 793 700 657 719 766
SG&A 177 181 158 174 191
Net Income 633 683 696 758 850
Operating
Expense 1423 1,369 1,335 1,480 1587
Operating
Expense/Sales 87% 86% 86% 88% 86%
Avg. Operating
Exp/Sales 87%

(All the values are in million US$)

17
From the tables given above McDonald's consistently maintains a lower average operating expense-to-sales
ratio (59%) compared to its competitors. This suggests that McDonald's successfully implements and maintains
a low-cost strategy in its operations. It also says that McDonalds’ is likely efficient in managing its operating
expenses, which could be attributed to streamlined processes, cost-effective supply chain management, and
economies of scale. This operational efficiency allows McDonald’s to allocate a smaller portion of its revenue to
cover costs. The lower operating expense ratio may also indicate that McDonald's has a strong focus on cost
control and resource allocation. This approach enables the company to optimize its expenditures while delivering
consistent quality and service.

Return of Assets (ROA) & Return of Shareholders Equity (ROSE)

MCDONALD’S
2018 2019 2020 2021 2022
Current Assets 4053 3558 6243 7148 5424
Net Property P&E &
Capital Leases 22842 24160 24958 24720 23773
Current Liabilities 1208 988 741 1007 980
Long-term Debt 31075 34118 35196 35622 35903
Long-term Oblig.
Under Capital Leases - 12758 13321 13021 12134
Shareholders’ Equity -6258 -8210 -7825 -4601 -6003
Total Assets 32811 47511 52626 53854 50436
Total Liabilities 2974 3621 6181 4020 3802
Total Equity -6258 -8210 -7825 -4601 -6003
Net Sales 21365 21258 19208 23223 23183
Net Income 5924 6025 4731 7545 6177
ROA 18% 13% 9% 14% 12%
ROSE -95% -73% -60% -164% -103%

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The data shows a declining trend in ROA over the five-year period. The ROA has decreased from 18% in 2018
to 12% in 2022. This suggests that McDonald's is becoming less efficient in generating profit from its assets over
time. The decreasing trend in ROA might indicate challenges in maintaining or increasing profits relative to the
growth of the company's assets. This could be due to factors such as competition, changes in consumer
preferences, or other economic conditions. A decreasing ROA could also signal potential inefficiencies in how
McDonald's is managing its operations and utilizing its resources. It might be worth investigating whether there
are opportunities to improve processes, reduce costs, or optimize asset utilization.
The data shows consistently negative ROE values over the five-year period. This indicates that McDonald's
has been experiencing periods where its net income is not enough to provide a positive return on the equity
invested by shareholders. Negative ROE values also suggest that McDonald's is facing challenges in generating
profits that exceed the cost of the capital invested by shareholders. This could be due to various factors such as
declining revenues, increasing costs, or operational inefficiencies.

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 CORPORATE LEVEL STRATEGY

The corporate-level strategy formulation approach involves McDonald's directing its attention towards a single
industry activity, aiming to establish a competitive edge compared to rivals. McDonald's has consistently
identified its sector as fast food since its inception, with no intention of altering its business scope. This focused
dedication to the industry has enabled the company to build an incredibly robust global brand reputation and a
loyal customer base. The key long-term challenge is to sustain its leadership within the fast-food sector.
McDonald's is primarily a single-business corporation, as its core revenue source comes from the fast-food
restaurant industry. While it has diversified its menu and service offerings to some extent, the vast majority of its
revenue is derived from its core business of selling fast food. While it may adapt its menu to local preferences in
various regions, its primary business is still fast food.

Products and Services Offered:

1. Fast Food: McDonald's Corporation primarily operates in the fast-food restaurant industry, specializing
in serving a menu of hamburgers, French fries, chicken products, breakfast items, and various beverages.
2. Franchise Operations: The majority of McDonald's restaurants worldwide are operated by franchisees.
McDonald's offers franchise opportunities to entrepreneurs and investors, allowing them to own and
operate McDonald's restaurants under the McDonald's brand. Franchisees pay fees and royalties to the
company in exchange for support and access to the brand, menu, and operational systems.
3. Real Estate Holdings: McDonald's owns significant real estate assets. In many cases, the company owns
the land and buildings on which its restaurants are located. This real estate investment has been a
significant part of the company's financial strategy.
4. Menu Diversification: McDonald's has diversified its menu over the years to include a wide range of items,
including salads, wraps, chicken sandwiches, fish sandwiches, breakfast items, and beverages. This
diversification allows McDonald's to cater to a broader customer base.
5. McCafé: McDonald's has expanded its beverage offerings through McCafé, offering coffee, espresso, and
speciality coffee beverages. This move competes with coffee shop chains and adds a coffeehouse element
to McDonald's restaurants.
6. Happy Meal and Children's Marketing: McDonald's targets families and children with its Happy Meal
offerings, which often include toys and promotions tied to popular movies and characters.
7. Delivery and Digital Services: McDonald's has invested in digital ordering and delivery services,
partnering with third-party delivery providers to offer home delivery. This move reflects the company's
commitment to adapting to changing consumer preferences and technology trends.
8. Global Expansion: McDonald's continues to expand its global footprint, opening new restaurants in
various countries and regions. It tailors its menu to local tastes and preferences in each market. For
instance, the company has extended its reach to Asian nations like Tokyo, India, and the UAE, enhancing
its potential for revenue generation. Moreover, McDonald's has enacted a corporate-level strategy aimed
at augmenting its market share and profitability through an encompassing transnational plan.

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 9. Sustainability Initiatives: McDonald's has made efforts to address sustainability concerns in its operations.
This includes commitments to sustainable sourcing of ingredients, reducing environmental impact, and
initiatives like recycling and waste reduction.
10. Community Engagement: McDonald's is often involved in community engagement and philanthropic
efforts, such as supporting Ronald McDonald House Charities and local community programs.
11. Digital Transformation: McDonald's has been investing in digital technologies, including self-ordering
kiosks, mobile ordering, and loyalty programs, to enhance the customer experience and operational
efficiency.

Another corporate-level strategy for McDonald’s centers around product diversification. This tactic involves
venturing into new business areas to offer novel goods and services.

Product Diversification Strategy:

1. Related Diversification: McDonald's has engaged in related diversification by introducing new products
that are related to its core fast-food offerings. While the core of its business remains hamburgers, fries,
and beverages, it has diversified its menu to include items like salads, wraps, and breakfast options. This
diversification targets different customer segments and meal occasions, expanding the appeal of
McDonald's beyond its traditional offerings.
2. Vertical Diversification: McDonald's has also adopted vertical diversification by entering various stages
of the supply chain. It operates not only as a restaurant chain but also as a franchisor. The objective of
vertical integration is to minimize costs and enhance profitability. As an example, McDonald’s opts to
produce and process its own beef, resulting in cost savings. The same model applies to the production and
transportation of spices and ingredients. By producing its items rather than depending on suppliers,
McDonald’s effectively curbs operational expenses and boosts its overall profitability.
3. Lateral Diversification: Lateral diversification is evident in McDonald's efforts to adapt to changing
consumer preferences and market trends. For example, it has introduced healthier menu options, such as
salads and fruit smoothies, in response to increasing demand for healthier eating choices. Additionally,
McDonald's has embraced technology by incorporating mobile ordering and digital payment options to
cater to tech-savvy consumers.
4. Forward Integration: McDonald's has pursued forward integration by expanding into different aspects of
the customer experience. This includes offering drive-thru services, home delivery through partnerships
with third-party delivery providers, and in some locations, the introduction of self-ordering kiosks. These
initiatives aim to enhance convenience for customers and capture a broader market share.
In conclusion, at the corporate level, McDonald's pursues a single-business strategy, centering its focus on its
core food product line. This concentration allows McDonald's to allocate resources and expertise efficiently.
However, it also exposes the company to competition and external changes.

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 BUSINESS LEVEL STRATEGY

At McDonald's, business-level strategy defines its target customers, the essential offerings to be provided, and
how those needs will be met. The significance of customers as the bedrock of organizational triumph drives the
formulation of successful business strategies at McDonald's. The company aligns its strategies with three
paradigms of achievement.
The first paradigm involves categorizing consumers by age, preferences, cultural affiliations, and other
demographic traits. Subsequent to this strategy implementation is the task of identifying people's requirements.
McDonald's caters to varied age groups with delectable, fast, and affordable meals. The company also offers an
extensive array of breakfast, lunch, dinner, drinks, and snacks for diverse global locations.
The cornerstone of McDonald's prosperity rests on "offering what customers desire and delivering it in their
preferred manner", which fosters substantial brand loyalty. McDonald's can adopt diverse business-level
strategies to augment its triumphs, such as broad target, narrow target, cost differentiation, competitive advantage,
competitive scope, integrated cost leadership, and cost-focused differentiation strategies. For McDonald's, the
most optimal business-level strategy not only entails cost reduction but also outperforms competitors.
The integrated cost leadership strategy holds the potential to be the most influential for the company's long-term
success. McDonald's has consistently aimed to provide economical, quality fast food while addressing growing
concerns about nutritional value. The company also excels in pricing, quality, and staff training, bolstering its
standing ahead of rivals.
These strategic initiatives align seamlessly with the principles of integrated cost leadership strategy. This
approach is especially advantageous, as it enables swift adaptation to changing environments and efficient
learning of new skills and technologies, leveraging core competencies against competitors. This rationale
underscores my endorsement of integrated cost leadership strategy as the most impactful business-level strategy
for McDonald's sustained long-term prosperity.
In conclusion, on the business level, McDonald's adopts a differentiation strategy, positioning itself as a unique
player in the fast-food market. It competes by delivering quality products and services at reasonable prices. This
strategy is empowered by McDonald's extensive use of franchising, with over 80% of its restaurants operated by
franchisees. This model relies on highly efficient operating procedures, enabling McDonald's to maintain cost
leadership and offer competitive prices.

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Market Diversification

Transnational Strategy of McDonald’s:

Observing the menu variations between McDonald's restaurants in different countries reveals a strategic approach
that harmonizes global consistency with local adaptability. McDonald's operates in over 119 countries and
customizes its menu to align with local tastes and cultural preferences, showcasing the company's transnational
strategy. This strategy traces its origins to McDonald's inception in 1955 in Des Plaines, Illinois, and has since
propelled it to a multinational status, serving as a prime example of a brand adjusting to the unique requirements
of each region.
Standardization: Products such as Mc Flurry, Mc Chicken, Fries, McNuggets, Filet-O-Fish or Happy Meal can
be found anywhere in the world. The taste, as well as packaging, also remains standard for any of the products
throughout the countries.
Adaptation: Adaptation can be seen in the regional strategy followed by McD. The product offerings change
according to regional preference. For instance,

• In Germany, burgers are combined with Nürnberger sausages and beef. Also, since having a beer with
food is a trend in Germany, McDonald’s outlets serve beer too.
• In Indonesia, the outlets are Halal and since the population prefers rice over bread, rice is served along
with spicy meals according to the local preference.
• In India, having beef is considered a sin in many states, so beef is replaced with chicken. Also, since the
majority population in India is vegetarian, the outlets offer Masala Grilled Veggie Burger and Mc Aloo
Tikki.
• In Morocco, McDonald’s offers a special Ramadan menu called f’tor, which consists of Big Max, dates,
milk and traditional Moroccan soup.

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 • Japanese cuisine is different from the rest of the world and to address this, the company introduced Rice
burgers, Seaweed Shaker, Teriyaki Burger, shrimp burgers, breakfast meals with hotdogs and green tea
ice cream
• In Switzerland, McRaclette is served exclusively. The beef sandwich consists of served which consists of
raclette cheese, unique raclette sauce and gherkin pickle.

This transnational strategy rests on four key components of strategy development:

1. Distinctive Competence: McDonald's capitalizes on its brand name, image, and menu to establish itself
as a global success.
2. Scope of Operations: McDonald's extensive reach enables it to cater to consumers worldwide, wherever
there's a demand for fast food.
3. Resource Deployment: The company emphasizes localized management to adapt effectively to regional
nuances and garner local acceptance.
4. Synergy: McDonald's thrives on offering a single product - fast food - and excels through this streamlined
approach.

FUTURE STRATEGIES

In the ever-transforming realm of fast food, McDonald's Corporation is strategically charting its course for future
growth. Under its "Accelerating the Arches 2.0" strategy in 2023, McDonald's is embracing key pillars that align
with shifting industry dynamics and customer behaviors.
Maximizing Marketing: McDonald's recognizes that marketing is pivotal in driving growth. Sizeable investments
in marketing campaigns like "Famous Orders" demonstrate the company's commitment to harnessing creative
effectiveness and digital platforms to enhance customer engagement. Striking the right balance between sales
activation and brand building is at the core of McDonald's efforts to optimize marketing returns. Notably, digital
sales exceeded $10 billion, nearly 20% of total systemwide sales in 2020 across its top six markets, highlighting
the power of its marketing approach.
Commitment to Core Menu: McDonald's steadfastly believes in the power of its core menu. Roughly 70% of the
company's food sales originate from these iconic offerings, which have consistently fueled growth and
profitability. McDonald's approach to menu expansion is cautious and deliberate, ensuring that new items earn
their place on the menu through thoughtful consideration. For instance, McDonald's reduced menu prices by 5%
in 2022, making its offerings more affordable, while competitors like Burger King raised prices. This strategic
pricing resonates with consumers and enhances McDonald's competitive edge. It's important to note that
McDonald's stands out as one of the only fast-food chains to decrease menu prices, aligning with consumer
preferences for affordability.

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The Four Ds: Delivery, Digital, Drive-Thru, and Development: In recognizing the transformative impact of these
four pillars, McDonald's is shaping a customer-centric experience that is faster, more convenient, and better.
These strategic areas have been pivotal, especially during the pandemic, and remain central to McDonald's future
growth plans:
1. Digital: McDonald's has witnessed the remarkable ascent of digital sales, surpassing $10 billion, nearly
20% of total systemwide sales in 2020 across its top six markets. To enhance the digital experience, the
launch of "My McDonald’s" is imminent, offering mobile ordering, payment, delivery, rewards, and
loyalty programs. This digital push is a key driver of its growth strategy. It's essential to emphasize the
significance of digital sales in McDonald's future growth, particularly as consumers increasingly opt for
digital ordering and delivery.
2. Delivery: Over the past four years, McDonald's has significantly expanded its delivery services,
encompassing nearly 30,000 restaurants globally. This expansion capitalizes on the convenience-seeking
consumer. Notably, McDonald's, along with Chick-fil-A, is a dominant player in the delivery segment,
offering favorites like french fries, chicken nuggets, and burgers for delivery, contributing to its continued
appeal. The data underlines the significance of delivery services in McDonald's growth and continued
customer patronage.
3. Drive-Thru: McDonald's is dedicated to streamlining drive-thru service times through investments in
staffing, positioning, and order assembly. Drive-thru has remained a pivotal channel, particularly during
crises. Its commitment to improving this aspect of customer service is evident in the investments made to
enhance drive-thru experiences. This data point underscores McDonald's focus on drive-thru as a key
component of its growth strategy.
4. Development: McDonald's continues to aggressively expand its global footprint, operating in over 119
countries. Expansion, coupled with the ability to adapt to local tastes, ensures McDonald's serves diverse
markets effectively. Its global presence is a testament to its commitment to development as a growth
strategy. The global reach of McDonald's is a significant factor in its continued growth and success.

CONCLUSION

In conclusion, McDonald's strategic approach encapsulates its commitment to global leadership in the fast-food
industry. Operating across 119 countries, McDonald's integrates brand recognition, efficient operations, and menu
adaptation to cater to diverse markets. At the corporate level, McDonald's franchise model and supplier
relationships drive cost efficiency. The TOWS analysis underscores strengths in brand recognition and value
creation. Leveraging its strong brand, McDonald's adapts to customer needs and learns from competitors while
addressing challenges. Porter's analysis highlights competitive forces, with McDonald's positioned as a cost
leader. Its business-level strategy emphasizes differentiation through quality offerings at reasonable prices. The
transnational strategy balances standardization and adaptation in menu offerings worldwide. Looking ahead,
McDonald's maximizes marketing, core menu focus, digital integration, delivery services, drive-thru efficiency,
and global expansion for future growth. Incorporating strategic strengths, addressing challenges, and embracing
opportunities, McDonald's strategic management exemplifies continued success in the ever-changing fast-
food landscape

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