McDonald s Rebirth Through a Low Growth Strategy

Topics: McDonald's, Fast food restaurant, Strategic management Pages: 9 (1541 words) Published: February 28, 2015
Case Summary

For several decades McDonald’s experienced uninterrupted growth in sales, profits, and number of stores opened. When the company seemed to reach maturity in life cycle, one CEO’s decision for a low-growth strategy started the rebirth of McDonald’s. In its early years, McDonald’s success was founded on principles of high quality standards and service. However, as time passed, their standards and controls slipped and same store sales began a downward trend. Some insisted that the dip in same store sales was evidence of market saturation. However, McDonald’s executives disagreed. With strong support, one McDonald’s CEO went on a new-store binge. As McDonalds continued its unprecedented expansion, relations with franchisees deteriorated because corporate owned outlets were cannibalizing franchisee’s profits. Another CEO began to acquire other fast-food restaurants, but that model failed as it proved a drain on profits. McDonald’s was struggling to keep its growth mode. Then James Cantalupo took the reigns and began a low-growth strategy that turned the company’s fortunes around as he slashed capital expenditures by 40% by closing poorer performing restaurants and adding fewer new restaurants. Eighteen months into Cantalupo’s stint as CEO, McDonald’s stock price rose from eighteen dollars per share to just over twenty-four dollars per share. Just as McDonald’s fortunes seemed to turn, James Cantalupo died suddenly of a heart attack.

SWOT Analysis
Internal Strengths & Weaknesses:
Among McDonald’s greatest strengths are its brand recognition, strong advertising, and market share. It was the most valuable fast food brand worldwide in 2013 with an estimated brand value of eighty-five billion dollars, three times its closest competitor, Starbucks [see appendix 1.1]. McDonald’s strength of brand recognition can primarily be attributed to its strong advertising and market share. This is evidenced by a 1970’s survey which revealed that ninety-six percent of children identified with Ronald McDonald, ranking him second only to Santa Clause. Furthermore, McDonald’s uses high-profile sponsorships and major advertising campaigns to maintain awareness and promote new launches (e.g. 2014 FIFA World Cup and 2014 Winter Olympics). In 2013, its advertising expenditure in the United States alone was 1.43 billion dollars [for details see appendix 1.2]. McDonald’s has won its market share via strong marketing/advertising efforts and providing convenience for its customers. When McDonald’s accelerated growth period ended, it had approximately 13,000 domestic restaurants. The belief was practical; the more stores in a city, the more per-capita transactions would result. As of 2013, McDonald’s had 35,429 restaurants worldwide- 14,276 of which are domestic (Statista, 2015). McDonald’s other internal strengths include: partnerships with big brands (e.g. Disney), international presence, localized food menus, and revenue. Now that we have examined McDonald’s internal strengths, lets examine the company’s internal weaknesses.

Among McDonald’s greatest internal weaknesses are its negative publicity, low presence of corporate social responsibility, high employee turnover, and low strategy differentiation. McDonald’s is heavily criticized for offering unhealthy foods to its customers, further exacerbating the obesity problem in America. The documentary film “Super Size Me”, which explores the health consequences of a diet based solely of McDonald's, is one example of the negative publicity surrounding McDonald’s. Environmental groups often criticize McDonald’s for a lack of sustainable sourcing of beef products (USA Today, 2014). This reflects poorly on McDonald’s for having a weak presence of corporate social responsibility. Furthermore, McDonald’s has a high employee turnover as it offers low paying and low skilled jobs. These jobs are often seen negatively by employees and usually result in high employee turnover. This is an...

References: Brumley, James. (April 23, 2014). McDonald 's Is About To Tap Into A Huge Growth Opportunity. Retrieved from: http://www.businessinsider.com/mcdonalds-expanding-international-2014-4
Horovitz, Bruce. (April 30, 2014). McDonald’s sets 2020 sustainable goals. Retrieved from: http://www.usatoday.com/story/money/business/2014/04/30/mcdonalds-sustainability-fast-food-social-responsibility-restaurants/8513245/
Statista. (February, 2015). Retrieved from: http://0-www.statista.com.leopac.ulv.edu/topics/1444/mcdonalds/
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