McDonalds SWOT Analysis 2016

A SWOT Analysis of McDonalds  (2016)

Introduction:

McDonalds is a leading brand in the fast food industry with global presence. For the last few years, it was seeing declining sales and a shrinking customer base. The situation had kept growing poor and so, CEO Steve Easterbrook was charged to bring the situation under control. He has been successful at turning the company’s fortunes around and results show that.

In 2015, McDonalds reported a strong comeback. The results were better than expectations for the entire year. The introduction of ‘All Day Breakfast’ proved successful at attracting customers in larger numbers. The best thing was that it successfully attracted new customers. Most of the customers ordering breakfast during the non-traditional hours were new.

Apart from it, some change in marketing strategy and improved conditions in Japan and China also provided the company with the much needed boost.  The change in strategy has not just improved the company’s customer base, it also boosted its revenue by increasing sales of other items on the menu. McDonalds saw improved per customer expenditure this year. From its 110th rank in the Fortune 500 list, the brand has climbed a rank above to 109th. After the recession, the situation had been difficult for the international fast food giant. However, the performance from 2015 onwards shows that CEO Easterbrook has been successful at pulling it out of the deep recess. The improved financial performance of the brand shows that the strategic changes by its new leader have  successfully produced expected results. Here is a detailed SWOT analysis of McDonalds:

Name of the CEO: Stephen J Easterbrook

Industry: Food Services

Employees: 420,000.

McDonalds SWOT analysis 2016
McDonalds SWOT analysis

Strengths of McDonalds:

  • A well known brand name in fast food industry ( brand image and brand equity)
  • Strong position domestically and globally
  • Market leadership
  • Financially strong
  • Food quality
  • Marketing and customer engagement
  • McDonalds is a strong brand which shows in its extensive global presence and financial strength. It’s a well-known brand name in the fast food industry which has enjoyed a high level of popularity. Its position might have grown weak in the recent years but the brand has performed better in the past. Globally, the brand runs more than 36,500 restaurants. Out of these, more than 80% are franchisee owned. McDonalds’ position both domestically and globally has remained strong. Even in the US market, the brand holds a larger market share as compared to the other fast food brands. In US, it holds nearly a 17% market share followed by the Yum Brands! (Yum owns the KFC, Taco Bell and Pizza hut).
  • McDonalds is the leading fast food brand globally which is evident from its large market share and the number of restaurants it operates. Apart from these things, the company is in a financially strong position. In 2015, the brand reported a revenue of $25, 413 million as well as a net income of $4,529 million. Apart from that the brand is focused at maintaining excellent food quality. However, its products are calorie heavy which might need some change as per the changing consumer preferences. Apart from it, the new CEO has also made other strategic changes that have benefited the brand in the short run. The “All Day Breakfast” strategy proved a hit. It proved to be an excellent marketing strategy that successfully attracted new customers. Moreover, it has profited the brand by increasing the sales of the other food items too. These small changes in its marketing strategy have helped McDonalds engage customers better and expand the falling market share. Given that the brand is able to sustain this situation, the company could further strengthen its position.

Weaknesses:

  • Lack of product innovation
  • Calorie heavy menu
  • Declined reputation due to HR issues and legal hassles
  • Dissatisfied franchisees

McDonalds has some major weaknesses that it must not overlook. Despite being a strong brand globally it cannot ignore these weaknesses. It can prove costly. The situation of slump it faced a few years ago might repeat. First of all, when it comes to product innovation, McDonalds has moved a little slower than competitors. The millennial generation loves to dine. However, The McDonalds menu is not crafted according to their preference.  Millenials want customizable options plus healthier and more sustainable items.

McDonalds is badly lacking in this area. It has been unable to innovate its menu per the preferences of new generation. Moreover, to keep everyone happy, it made changes to its menu, making it more complex. This is what happens when you try to make everyone happy. McDonalds is famous for its calorie heavy items. The modern generation wants its food quicker and healthier.

It is a health conscious generation, drawn most by low cost and good quality items. Over the last few years, McDonalds has tried to draw young customers by expanding its menu but none of these programs worked. There are other issues too that have led to a loss of reputation for the fast food giant. The brand is also known for paying its staff less which has resulted in a high staff turnover rate. McDonalds really needs to address its bad PR. Lawsuits have also continued to hurt the image of the fast food giant.

Recently, NLRB had held McDonalds responsible for labor violations where Mc D was found responsible as a joint employer at one of its franchisee locations. Moreover, in 2015 some former employees filed a lawsuit against the company for racially motivated action by one of its franchisees who fired many colored employees without a reason. McD continues to face franchisee issues. The chain’s complex menu has become a major problem for its restaurant owners worldwide. They are dissatisfied with the company’s top officials who cannot alter the menu. Due to the failing sales, the franchisees are frustrated and pessimistic about their future.

Opportunities:

  • Expansion in the Asian markets
  • Innovative and healthier menu
  • Partnership with other brands
  • Marketing opportunities born of changing customer demographics

Despite the continued fall in sales during the recent years, McDonalds has some opportunities that could help it rise and flourish. The brand seems bullish about the Asian markets where it expects  its sales to grow. It is planning to expand its market in China where it is planning to open 1000 more restaurants. The brand expects China to become its second most profitable  market after US.

It is also planning to increase the number of restaurants in Hong Kong and South Korea.  Apart from the aggressive expansion, the brand must innovate its menu to grow its market share in a saturated market. Changing the menu can be highly profitable. The current menu is so complex that McDonalds must focus on simplifying it.

This will not just satisfy the franchisees but will also attract customers of all generations in larger numbers. Customers now want healthier food items that are less costly. Mc D could slim down its menu and make less of the calorie heavy items. This will profit the brand by making it a favorite of the health conscious customers. It would also help McDonalds bring the customers back whom it has kept losing to its competitors.

The customer demographics are changing. In order to remain highly competitive and to not lose customers, it must adjust its marketing strategy to target millennials. Partnering with the other brands and especially the retailers would help bring in more sales. McDonalds must focus on exploiting these opportunities to increase its sales, market share and profits.

Threats:

  • Intensifying competition
  • Poor economic situation globally
  • Strengthened dollar
  • Increased health consciousness

Main threat for McDonalds comes from the intensifying competition. There are a large number of brands in the fast food industry. McD has continued to lose its customers to the competitors during the last several years. If the brand has to reverse this trend, it will need to focus upon quality, and customers’ taste.  Yum! is a close follower of McDonalds in the US market. Even Chiptotle and other fast casual contenders have continued to eat into McD’s customer base.

Lawsuits and food quality scandals are another threat to the brand’s reputation and sales. All of these threats are important and require attention. Moreover, the poor economic conditions globally and a strengthening dollar have also affected the brand’s sales and profits.  Another important threat that has affected its sales most heavily is the sweeping health consciousness. McDonalds has never remained a favorite of the health conscious customers. Unless the brand can change its menu and make it healthier, it will continue to lose customers and sales too.  These are the most important threats the brand needs to address.

Recommendations:

There are two or three factors that are important for McDonalds. Reputation and the changing customer demographics are two factors the brand must immediately attend to. As the customer demographics are changing, the brand needs to alter its marketing strategies to target the millennial generations better. The new generation is health conscious and would love a healthier menu. However, even important thing is that the items must be priced attractively. Pricing and product quality are important areas that the fast food giant must focus upon. The brand must also focus upon its reputation and address the staff salary issues.

This will improve the brand’s image. Moreover, food quality is something that directly affects its image. So, all the issues related to unhealthy food and food ingredients need to be addressed on priority.  Food scandals in China have weakened its image. If McDonalds is ready to address all these factors, it could successfully save its market share and customer base from further erosion. While Easterbrook has addressed some of the weaknesses very well, further improvements need to be made before McDonalds becomes the customers’ most favorite once again.

[Check out  a SWOT analysis of Dominos]

[‘SWOT’ is an acronym for Strengths, weaknesses, opportunities and threats. It is a powerful strategic management tool that can help to know one’s important strengths and weaknesses and to exploit the opportunities. It can also help counter the threats. Strengths and weaknesses are internal factors and opportunities and threats external. So basically, SWOT is a tool designed to help you reduce your weaknesses and counter the threats. This can improve the business’ chances of success.  Companies conduct a SWOT before they embark on a new strategy or before they make an important business move like investing in a new project.]

Sources:  [time] [Business Insider] [Business Insider]

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.