McDonald’s Strategy Report
McDonald’s was created in 1940 as a small barbecue restaurant owned by two brothers: Richard and Maurice McDonald. It was only in 1955, when businessman Ray Kroc pitched to the brothers the idea of building a national chain, that this incredibly successful brand was developed. Now, McDonald’s has more than 34 000 restaurants, serving almost 69 million people in 119 countries every day (McDonald’s 2010). Roy Kroc introduced a three leg stool strategy – focus on the company, its suppliers and its franchisees- with the purpose of creating international standards in terms of food quality, way of preparation, cleanliness and service. McDonald’s divided its business into five main geographical areas- US, Europe, Latin America, Canada and Asia + Pacific + Middle East +Africa, strategy which ensures standardized operations and which strengthens the brand (McDonald’s 2010). Competitive strategy
If we take into consideration Porter’s classification of competitive strategy, depending on the region, McDonald’s follows a combination of low-cost and differentiation strategies. Strategy depends on local conditions and competition, so for the purpose of this report, I will highlight US, Europe and India. When it first started in California, United States, McDonald’s decided to gain market share and get ahead of competition by differentiating itself. First of all, it focused on only a few key products (burgers, fries, shakes and soft drinks) but offered them at much lower cost than the other restaurants in the food industry. While most burgers would sell for 25 to 50 cents, McDonald’s sold theirs at only 10-15 cents (Stinson and A Day). In addition, the company differentiated itself from competitors by offering fast food. While in other restaurants you would have to order and wait for your food to be prepared, McDonald’s was selling burgers and fries that were already cooked and ready to go. Finally, it was one of the first restaurants to introduce the option of drive-through. However, in order achieve these targets, McDonald’s had to develop a cost efficient business model: for example, they reduced the costs of hiring trained cooks by employing and training inexperienced staff (Smith). In the end, one could say that they adopted a combination of cost-leadership and differentiation strategies. Europe is the second profit generator for McDonald’s after the United States, which makes it an important part of the business. In this case, McDonald’s adopted a differentiation strategy when they realized that Europeans had higher expectation from fast food restaurants. As a consequence, they changed their design: they introduced six new designs, from which restaurants would choose based on location, demography and economic conditions (Foodchain, 2010). For example, In France, design included hardwood floors and comfortable armchairs. Also, they adapted their product portfolio, adding brioches and espresso to meet the new local needs. Because India is going through recession, McDonald’s had to combine low-cost and differentiation strategies in order to stay ahead of the competition. McDonald’s offers meal deals, promotions, lottery for winning their products etc. in order to lock in customers and be able to raise prices after the recession has past. However, in order to do so McDonald’s had to improve its efficiency: it took them 6 years to set up the supply chain before properly entering the Indian market and they improved in terms of inventory level, use of computer services or relationships to suppliers. The differentiation strategy in India is mainly focused on promotion (especially on the internet, television, radio): they realized people do most of the groceries during the weekend and decided to show all their ads from Thursday to Sunday. (Sancharan, 2009) Globally speaking, McDonald’s differentiates itself from competitors by switching their focus from young adults to children and...
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