Case 15: McDonald’s
McDonald’s, the largest fast food restaurant in the world, is continuing to face challenges due to both their internal and external environment. McDonald’s currently serves more than 70 million people daily at their 35,000 restaurant locations. With consumers’ tastes changing, McDonald’s must determine how they will evolve in the fast food market. McDonald’s continues to expand in locations, their menu, and their operating hours. However, during 2012 McDonald’s saw the first monthly same-store sales decline in nine years. Is James R. Cantalupo’s, former McDonald’s CEO, “Plan to Win,” still winning?
McDonald’s rose from a single location to become one of the largest chains to spread across the world. McDonald’s has been setting the bar from fast food chains from the very beginning. The key for their competitive success was their commitment to their customers. However, McDonald’s continues to fall behind their competitors in terms of service and they are failing to provide the all around experience for their customers.
The major issue posed by the case is whether or not McDonald’s has lost sight of their consumer’s wants and needs. By trying to serve a wide variety of customer segments, McDonald’s might be stretching themselves too thin. Does McDonald’s know their consumer? Do they have a strategy that will help them achieve a sustainable competitive advantage? If not, what strategy should they adopt?
Statement of the Problem
By using Porter’s five forces framework, one will be able to break down McDonald’s challenges currently facing them. First, the threat of new entrants will be examined. This threat is low since McDonald’s is such a large corporation with a strong brand identity. Also, the fast food market is saturated with other large corporations such as Burger King, Wendy’s, and restaurants under the Yum! Brands umbrella. Start up costs may be low in the industry but new entrants will be faced with stiff price competition from existing chain restaurants.
Second, the bargaining power of buyers is moderate. The McDonald’s consumer makes low quantity purchases when they visit a restaurant, and they are not likely to visit everyday. Due to the high brand image of McDonald’s, consumers are less likely to switch. However, buyers can influence others through bad word of mouth or by posting comments on various social media platforms about their negative experience. Therefore, McDonald’s should pay attention to what their buyers are saying, and be sure to maintain their positive brand reputation.
Next, the bargaining power of suppliers is low. McDonald’s is the largest chain restaurant in sales and many of their suppliers owe them for their success. Many of McDonald’s top suppliers have been with the restaurant for years. McDonald’s has high expectations for their suppliers and their suppliers must continually improve in order to help McDonald’s get “better, not just bigger.” By establishing long lasting relationships with their suppliers, McDonald’s knows that their suppliers will have what they need, exactly when they need it. The only way suppliers would have a sense of bargaining power is if there was a shortage of a certain item, then they could charge more. Also, having local suppliers is crucial for McDonald’s, as they then do not have to pay as much in transportation costs. Since it is more expensive to ship perishable food items such as fruits and vegetables, it is imperative that McDonald’s to maintain solid relationships with local suppliers.
Following the bargaining power of suppliers, the threat of substitutes is high. Fast foods items are discretionary purchases and can be easily substituted. Burgers King and Wendy’s would be direct substitutes for consumers on the go, and other chain restaurants such as Panera Bread and Noodles and Company would also be substitutes. Further, cooking a meal or restaurants that offer delivery are other types of...
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