McDonalds Sources of Competitive Advantage

Sources of Competitive Advantage for McDonalds (Global fast food chain)

McDonald's

INTRODUCTION :-

McDonald’s is a famous fast food brand with operations around the world in more than 100 countries. It is both popular and successful as a fast food chain. The company mainly operates its business through franchisees. Independent franchisees own and operate more than 90% of McDonald’s restaurants around the globe. The success of McD’s can be attributed to several factors including food quality, menu diversity, flavour, customer service and the ability to adapt to fast changing consumer trends. Over the long term, McD’s aims to manage 95% of the restaurants in its system through franchisees. Its restaurants serve a substantially uniform menu except for minor regional variations. The main items on its menu include hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, wraps, french fries, salads, oatmeal, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafé beverages and other beverages. 

Competition in the fast food industry has grown intense due to the rise of several local and international brands. There are several major international fast food brands including Dominos, KFC, Burger King, SubWay, Wendy’s and similar more that are competing for market share with McDonald’s. It is why McD’s spends a significant sum on marketing every year. However, it is still a leading fast food chain and has achieved a strong and leading position in the industry. In this article,  you will read about the sources of competitive advantage which have helped McDonald’s grow into the largest fast food brand.

Global Presence:

One major source of competitive advantage for McD is its extensive global presence. McDonald’s restaurants are mainly run through independent franchisees in more than 100 countries. The franchisees own and operate more than 90% of McDonald’s restaurants globally. United States are the largest market for McDonald’s accounting for more than 30% of the company’s revenue. In 2017, its revenue from U.S. was more than 8 Billion dollars. However, McD’s has continued to grow its presence in the other significant markets too. Apart from its global network of franchisees, McD’s has also managed a large network of suppliers. The total number of McDonald’s restaurants globally rose to 37,241 in 2018. Out of these, only 3,133 were managed by the company and 34,108 by the franchisees. Its franchisees achieved net sales of 78.2 Billion dollars and the company’s revenue from the company managed restaurants and franchisee fees was 22.8 Billion dollars. Global presence has led to higher sales and revenue for the brand.

Product range & quality:

While McD’s mainly serves a uniform menu globally with no substantial variations except for small regional ones, its menu is still quite large and diversified. The main items included on its menu are hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, wraps, french fries, salads, oatmeal, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafé beverages and other beverages.  A large and varied product range is meant to cater to the taste and needs of various groups of customers. While the customers of McDonald’s are mainly the millennial generation, they are only the largest group. The number of baby boomer customers of McDonald’s is also large.

Apart from it working professionals who need a quick bite also rely on McD’s for it offers the right food at the right prices. The U.S. based McD’s restaurants and in several international markets too offer a full or limited breakfast menu. Breakfast offerings include Egg McMuffin, Sausage McMuffin with Egg, McGriddles, biscuit and bagel sandwiches and hotcakes mainly. Quality, choice and nutrition are highly important to the modern customers who are health conscious people. McD’s is continuously evolving its menu to meet its customers’ needs and choices. In this way, a large menu becomes a source of distinct advantage for McDonald’s which is the favourite fast food brand of a very large group of customers from all generations.

Brand equity:-

Brand equity is also a major source of advantage for a fast food brand. Today’s customers are both quality and health conscious. They want their food to be good in terms of quality and low on calories. Their taste has changed a lot and they would rely only upon brands that ensure good quality. McDonald’s has built a strong image as a fast food brand that only offers great quality. It has also managed a large supply chain to ensure the availability of good quality raw material. As a fast food brand, it is trusted by millions around the world. However, apart from food, it has all focused on customer service. High customer convenience and a good customer experience inside the stores have also helped the brand build strong equity. It helps retain customers as well as attract new ones and manage a healthy bottom line. Brand equity is an important competitive strength that helps businesses even in economically challenging situations. Otherwise, rising competition is leading to higher operational and marketing costs.

Customer loyalty:-

Creating customer loyalty is difficult in the 21st century. Apart from intense competition and pricing pressure, there are other reasons too that businesses have to struggle to retain their existing customers and build strong customer loyalty. Moreover, customers have higher bargaining power and it is not very costly for them to switch brands. In such a case there are some important factors fast food businesses should mind to build strong customer loyalty. Brand equity, food quality, customer service, in-store environment as well as marketing are all important to building higher customer loyalty than your competitors.

McDonald’s has focused on all these things. Strong brand equity has resulted in high customer loyalty but the brand still invest in R&D and marketing for higher customer engagement. Even as a fast food brand, it has to retain heavy focus on customer service so as to retain them. Apart from a varied and healthy menu, better in-store customer experience also helps retain customers. Today, McDonald’s is the favourite fast food joint of millions globally which is a distinct advantage helping the company get ahead of its rivals.

Supply chain:-

A strong supply chain is the backbone of a large and global business. To run a major fast food chain, you need to ensure regular supply of good quality raw materials. McDonald’s and its franchisees buy food, packaging, equipment and other goods from several independent suppliers. The Company has established and enforces high quality standards and product specifications. It has quality centers around the globe which ensure that the high standards company has set are consistently met. The quality assurance process involves ongoing product reviews as well as on-site supplier visits. A Food Safety Advisory Council, made up of McDonalds’ technical, safety and supply chain specialists, as well as suppliers and outside academia, provides strategic global leadership for all aspects of food safety.

Apart from that McD’s works closely with suppliers for encouraging innovation, best practices and to drive continuous improvement. Leveraging scale, supply chain infrastructure and risk management strategies, it also collaborates with its suppliers for achieving competitive, predictable food and paper costs over the long term (McDonald’s Annual Report 2017) . In this way, the company has managed a strong supply chain which helps it manage high food quality and a tasty menu.

Marketing:-

Due to intense competition in the fast food industry, marketing has become more important than ever. It is essential to keep the customers engaged and retain them so that they do not switch brands. McDonald’s uses a mix of traditional and digital channels for advertising and promotions. In 2017, McDonald’s incurred advertising expenses of 532.9 Million dollars and other marketing related expenses of around 100 million dollars. However, this is not its entire expense because the franchisees also bear and contribute to the costs of advertising and promotions. The focus of McDonalds’ marketing and promotional efforts is on value, quality, food taste, menu choice, nutrition, convenience and the customer experience. However, apart from promoting the brand and its products and offers, marketing also tries to achieve higher user engagement and retention. It has helped McDonald’s build a distinct brand image and identity among the fast food brands which works as a source of competitive advantage achieving higher brand recall and sales.

Customer service:-

McDonald’s has always tried to achieve higher customer satisfaction. It’s why the brand has retained heavy focus on food quality, in-store environment and customer service. It also uses digital channels to collect customer feedback and to address complaints and issues. Higher focus on customer service has become more essential than ever for businesses around the globe. It is because apart from helping them build higher customer loyalty and driving customer retention rate high, it also helps the business maintain a strong image and grow its popularity. Several brands like Starbucks have become famous by focusing exclusively on customer service.  Businesses also use it for differentiating themselves from others. McDonald’s has also maintained heavy focus on customer service which has helped it engage customers and achieve a competitive advantage.

Conclusion:

McDonald’s is the leading  and one of the most popular fast food brands of the world. It has achieved strong global growth and is largely managed by franchisees. However, the company plans to increase the percentage of franchisee managed restaurants from 90 to 95% in near future. McDonald’s is most popular for its diverse menu. However, apart from that it has  some other sources of competitive advantage too. Its focus on quality and customer service has resulted in strong brand equity. It has managed its supply chain well which helps it ensure continuous supply of good quality raw material and  hygienic food for its customers. It is enjoying high customer loyalty and is in a position to achieve faster growth in future. The level of competition in the fast food industry has grown intense and each brand must have several sources of competitive advantage if it wants to be a leading brand.

  • Sources:
  • McDonald’s Annual Report 2017
Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.