III. Identification of Alternatives
With China’s rapidly developing economy, the rising wealth of its middle-class and more Western fast-food chains infiltrating the nation, McDonald’s finds itself at a crossroads. The company must evaluate its current standing in the Chinese fast-food market and elect to either continue its present operations, hoping to maintain its second place rank to KFC, or implement new strategies to gain market share, meet the Chinese people’s expectations, and abide by governmental standards. The following alternatives will be evaluated to make a decision: 1.
Base – Status Quo
In this scenario, McDonald’s will continue operating under its current strategies. New threats from competitors in China, including long-time rival KFC, Asian fast-food companies like Hong Kong’s Café de Coral, Taiwan’s Dicos Fried Chicken and Japan’s Ajisen Ramen, and emerging Western chains like Subway and Rainforest Café, would be ignored. Since its competitors’ menus focus on Chinese preferences for chicken and noodle dishes, McDonald’s will attempt to continue to offset that advantage by emphasizing quality and service. However, in the long run, McDonald’s operations would fall victim to China’s developing economy. In particular, China’s unionized workers would call for additional pay increases and inflationary pressures would cause material costs to rise. As a result, McDonald’s would be forced to increase its prices, as it had done in the past. In all likelihood, the price point for the quality of food offered would fail to live up to public and governmental standards. With competitors progressing in tandem with China’s economy, offering more luxurious casual dining environments and healthier menu options, McDonald’s would fall behind in the market. 2.
Option 1: Efficiency, Convenience, and Environmental Responsibility. In this case, McDonald’s would augment its strategies to remain competitive with Western fast-food counterparts like KFC, Burger King and Subway, and Asian competitors like Café de Coral, Dicos Fried Chicken and Ajisen Ramen. McDonald’s would capitalize on the public’s demand for quick, convenient service at low prices and continue using its tier pricing model. The company would further exploit the wealth distribution in China by widening its target focus to include the increasing purchasing power of the lower-tier consumer in rural regions of the country. Chinese rural households account for over 60% of the total population. These households spend a larger proportion of income on food, compared to urban households, but as incomes rise, the proportion spent on food does not increase (see Exhibit 1). Thus, McDonald’s would focus on selling more products to more customers at lower prices. McDonald’s would incorporate healthier options in its menu, so to compete with Subway, a chain focused on fresh, healthy food, and to address growing governmental concerns with an obesity epidemic. McDonald’s would also secure and sustain its locally-based supply chain and joint ventures, to maintain value and its business model, keeping competitors at a disadvantage.(page 8 lihua) (ultra modern cost efficiency) Despite the lack of formal legislation on environmental issues in China, McDonald’s would further emphasize its dedication to decreasing its environmental impact by repositioning itself as a market leader in environmentally friendly packaging, going beyond the established “no straw days” instituted in Hong Kong. This will highlight McDonald’s willingness to partner with its customers to decrease the use of plastic as well as reducing packaging costs. McDonald’s long-term goal would be to dominate the fast-food market as a dependable, responsible and valued brand. 3.
Option 2 – Sophisticated Dining Experiences
This option targets the higher-income segment of the population. McDonald’s would recognize that individuals in this market have rising standards on the type of food and...
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