McDonalds’s was first introduced in Des Plaines, Illinois in 1955. It has grown strongly to become ranked number one in fast food service on the Fortune 500 list. In recent years the company has faced quite a few changes with changing CEO’s three times in one year. As of September 30, 2012, McDonald’s has 34,010 restaurants in 119 countries. Due to increased competition, a failing economy, and a changing environment McDonalds reported a loss in sales. How can McDonald’s adapt to changing market conditions to sustain the growth it once experienced?
Michael Porter developed the five forces model for formulating organizational strategy that is applicable across a wide variety of industries. The focus is to devise a means for the company to gain a competitive advantage. An analysis via Porter’s five forces model includes: the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, substitute products/services, and competitive rivalry.
The barriers for entry are low for the fast food industry. New competitors are always on the horizon. Consumers make purchasing decisions based on price and convenience. This gives the consumer buying power.
There are new outlets being built each year. The power of suppliers should not be an issue for McDonald’s.
Consumer’s can demand what type of products they want to see from McDonald’s. Consumers are starting to trend towards healthier food and beverage choices. McDonald’s is trying to reclaim their name and show America that the company cares about the health of their consumers.
The threat of substitutes is greater now than ever due to the convenience food industry growing. Many gas stations and convenience stores now carry hot dogs, cheeseburgers, chicken and several beverage choices.
McDonald’s is suffering with their competition. Chains such as Subway are offering harder competition due to the healthier offerings.
McDonald’s has tried both cost leadership and differentiation strategies to outdo their competition. They strive to be cost leaders and offer there food at prices that cannot be matched. This is working in their favor to keep them competitive. McDonald’s was one of the first in the industry to offer the dollar menu. Many other fast food chains have now followed in their footsteps.
McDonald’s competitive advantage is their differentiation. Their flavors, names, and branding strategy are very unique to them. The culture of McDonald’s is to keep their customers happy and create a wider customer base. They try to be efficient and keep operation costs as low as possible to serve their food at lower prices. They also try to offer speedy delivery. Most of their chains now offer two drive through lanes for quicker service. They also try to make the cooking process simple for employees for the quick production and delivery of food. This complies with the vision of the company: “McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.” (www.McDonalds.com) The competitive advantages are what makes McDonald’s stand out compared to other companies and helped them become the number one fast food distributor in the world.
A major strength for McDonald’s is the alignment between the franchisees and suppliers. This enables them to deliver locally relevant restaurant experiences to customers and allows them to be an integral part of the communities they serve.
McDonald’s main concern is growing their sales and widening their customer base. They have many competitors trying to steal their spot. In 2001, system wide sales were over $40 billion yet their income shrunk 17 percent. Their market share remained above that of competitors but grew more slowly. McDonald’s has to find a way to reverse earnings declines.
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