|Headquarters||Chicago, Illinois, United States.|
|Net Revenue 2018||$21 Billion.|
|Net Income 2018||$5.9 Billion.|
|Competitors||Burger King, KFC, Domino’s, Subway, Wendy’s, Dunkin Donuts, Pizza Hut,|
Introduction : –
McDonald’s is a leading name in the fast food industry. The brand manages its business using a franchisee model. More than 93% of its restaurants are managed by franchisees. The company operates its restaurants across more than 100 countries. McDonald’s also enjoys strong brand awareness in most corners of the globe. It serves a uniform menu, except for minor regional variations to cater to the local taste in specific geographic markets.
The revenue of McDonald’s has kept declining steadily over the past several years. The number of challenges in the fast food industry has grown. Apart from competition, regulatory pressures are making the environment challenging. However, McDonald’s has continued to grow the number of franchised restaurants in its business model. Now, the company has adopted a customer centric growth strategy to grow its business and revenue. Number of McDonald’s restaurants operating globally reached 37,855 in 2018. United States is the largest market of McDonald’s. The road ahead is challenging for the fast food brand because of the growing competitive pressure from the rival brands. However, the company has made some important changes to its business strategy to create scope for faster growth.
Have a look at the strengths, weaknesses, opportunities and threats before McDonald’s in this SWOT Analysis.
Global network: –
One of the key strengths of the business model of McDonald’s is its international presence. The company has maintained a strong presence in more than 100 countries. Its global business includes both company owned and licensed stores. In 2018, the number of total restaurants in McDonald’s system grew to 37,855. Based upon the number of restaurants stores, McDonald’s is the second largest fast food brand in the world after Subway. United States is the leading market of McDonald’s. However, its sales from international markets were also impressive.
The company is also focusing on high growth markets apart from its established markets. The established markets of McDonald’s include U.S., UK, Australia, Canada, Germany and France. The high growth markets which hold more potential for expansion and where the company is planning to grow its presence in the near future include China, Italy, Korea, Poland, Spain, Russia, Switzerland and the Netherlands. These are the leading markets of McDonald’s. However, the company is also planning to grow its presence in the remaining markets through franchisees.
Brand Awareness :
As a fast food brand, McDonald’s enjoys a very high level of brand awareness throughout the globe. Its global presence is an important factor supporting its high brand awareness. However, focus upon marketing and customer service have also driven the brand recognition of McDonald’s higher. The company has utilized a mix of digital initiatives to grow brand awareness in leading markets. The McDonald’s logo is recognised easily in all of its markets. Customers can easily identify McDonald’s restaurants in key locations through the logo.
There are several more things that make McDonald’s different from other fast food companies. The company has run several successful advertising and promotional campaigns to grow brand awareness and attract customers. Its promotional campaigns promote individual products as well as the entire brand. In 2018, the brand invested $388.8 million in advertising. However, this was still lower than the previous year. To drive its brand awareness higher, the company also engages in a number of philanthropical activities. Apart from that, it uses a large variety of digital channels including social media and paid promotions to grow brand awareness and for promotions. Its physical stores have also played an important role in growing its brand awareness. Media publicity and word of mouth are also among major drivers of brand recognition.
Supply chain management :
McDonald’s has managed a large, responsible and sustainable supply chain. Its supply chain includes thousands of independent suppliers. The company and its franchisees source food, equipment and other things from these suppliers. However, to ensure quality, the company has enforced high food safety and quality standards. McDonald’s quality centers around the world take care of the quality and ensure that quality standards are consistently followed throughout the system. Quality assurance process includes product reviews as well as on site supplier visits. The company also has a Food Safety Advisory Council to take care of all aspects of food safety.
McDonald’s cooperates with its suppliers to ensure competitive prices. There are independently owned distribution centers to distribute food supplies to the restaurants. The brand has also managed its logistics network very well. Ever year, its logistics network covers more than 250 million miles to distribute supplies to McDonald’s restaurants. In this way, McDonald’s has managed an excellent supply chain which serves its thousands of restaurants daily and also ensures food quality and safety.
Customer service :
Customer service has remained an important focus for McDonald’s. In the 21st century, the customer is at the centre of the picture, not just in the fast food industry but nearly all industries. McDonald’s ensures proper training of its employees for best in class customer service. The company and its franchisees focus on employee training as well as in-store environment. Good customer service has been found to be the driver of demand. It is why not just McDonald’s but all fast food brands focus upon customer service to retain customers. In recent years, the company has made some strategic changes to its business model to make it more customer centric. This will help the brand retain and engage customers better.
Large and diverse menu :
McDonald’s serves a large and diverse menu throughout the globe in its restaurants. Apart from minor geographic variations, the company sells a largely uniform menu throughout the globe.
“Its menu includes 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. The McDonald’s restaurants also sell a variety of other products during limited-time promotions. In the United States and many international markets, the McDonald’s restaurants offer a full or limited breakfast menu. Its breakfast offerings generally include Egg McMuffin, Sausage McMuffin with Egg, McGriddles, biscuit and bagel sandwiches and hotcakes” (Annual Report, 2018).
Strong business model :
One of the primary strengths of McDonald’s is its business model. McDonald’s has managed excellent international presence through its more than 37,000 restaurants. There are total 37,855 restaurants in the McDonald’s system of which, 35,085 are run by franchisees and 2,770 are company operated. McDonald’s runs its system through both company owned and franchised restaurants. However, the share of franchised restaurants in its revenue has kept growing over the last several years. The company earned $21 billion net revenue in 2018. For the first time in its history, the share of the franchised restaurants in its net revenue was higher than 50%. The net revenue generated by franchised restaurants was $11 billion and that by company owned restaurants was $10 billion.
The source of revenue for the company include the sales by the company owned restaurants and the fees earned from the franchised restaurants. The fees can vary based upon the franchise model as well as the amount of investment by the company and the level of sales achieved by the franchisee.
Overdependence on franchisees :
The business model of McDonald’s is overdependent on franchisees which operate more than 90% of its business. While the business of McDonald’s is stable overall, franchisee issues still crop up from time to time. The brand is planning to operate 95% of its business through franchisees in the longer term. Currently, they are running 93% of its business. However, the problem with operating a business near wholly through franchisee operations is that your dependence on their cooperation increased.
It also gives extra control in the hands of franchisees. If the franchisees do not cooperate or if their financial performance is not very good, then the company would be able to generate profits. Sometimes, the implementation of key campaigns or an important strategic choice may become difficult if it does not find acceptance from the franchisees. So, overall, the role of the franchisees becomes central in a company run through franchisees. This leaves less scope for the original business owner to make quick changes to business strategy or to respond fast to changing market situation and customer preferences.
Overdependent on Western Markets:
As a leading fast food brand, the company is overdependent on the Western markets. U.S., UK, Canada, France etc are among the leading markets of McDonald’s and account for the largest part of its revenue. Moreover, the United States alone accounted for more than 35% of the brand’s revenue in 2018. The earnings of the brand from the Asian markets including China, Malaysia, India and Singapore is still low which signifies low market penetration. The brand is dependent on the Western markets for a large part of its revenue and decline in economic activity in these markets and especially the United States will hurt McDonald’s bottom line.
Digital marketing :
Digital marketing has helped several leading brands around the world grow their market share and increase their revenue. McDonald’s can also strengthen its competitive advantage by investing in digitalization. It is already utilizing the leading digital marketing channels for marketing. However, apart from social media, there are other channels too including the company’s own website and blogs that can be used for marketing and customer engagement. Digital marketing can help the brand grow its reach and influence both. However, it can use digital technology for customer and employee engagement as well as supplier management and managing its franchisees too.
Menu Innovation :
Customer demand and market trends have changed fast during the recent years. The millenial generation is a health conscious generation. It wants healthy and low calorie food. While the company serves a balanced menu and includes competitively priced items also, there is always enough space for menu innovation. It can help the company grow its customers among the millenials and health conscious people. Focusing on menu innovation will help expand customer base, grow popularity and also retain existing customers.
Asian markets :
The Asian markets are full of opportunities. From China to India, Malaysia and Singapore and other Asian nations, the demand for fast food has grown fast with the rise of the middle class and the millenial generation. More and more people need to grab a quick bite. The economies of the Asian countries have also flourished in recent years and it has led to growing purchasing power of the middle class customers. McDonald’s can implement strategies that help it grow its penetration in the Asian markets. This will help it grow its customer base and its revenue as well.
Competitive threats :
Competition in the fast food industry has grown fast leading to higher pressure on McDonald’s. Apart from leading players like Subway, Burger King and Wendy’s competition from local brands in several markets is also growing, This has led to higher operating costs and investment in marketing as well as product quality. To maintain its leading position, McDonald’s will need to grow its investment in marketing as well as menu and process innovation. Moreover, with growing competition, the market share of McDonald’s is also at risk. To minimize these risks, the company will need to focus upon being more customer centric as well as investing in marketing and product research.
Regulatory pressure :
Regulatory pressure in the industry is also growing, The fast food industry is facing higher government control and oversight than ever. Due to growing government oversight, the costs of operation have grown higher. The brands have grown their attention on compliance since noncompliance can result in fines and losses. There are several other problems also arising out of higher regulatory pressure. The brands can face troubles while expanding into overseas markets.
Economic fluctuations :
Economic fluctuations in key markets can also cause losses and affect the bottomline. U.S., UK, Canada, France and some other Western countries are among the core markets of McDonald’s. Economic fluctuations or decline in economic activity in any of these markets cause losses and affect the financial health of the company. Moreover, a stronger dollar is already affecting the profits of american brands. Fluctuations in currency exchange rates also affect the profitability of businesses.
McDonald’s is a leading fast food brand with a global presence and a strong business model. The business of McDonald’s is run through franchisees mainly and this has certain benefits. The share of franchised restaurants in the revenue of the company has kept rising. In the longer term, the company aims to run at least 95% of its business through franchisees. While this system has its own benefits, there are inherent risks too and it leaves the company over-dependent on the cooperation and financial success of its franchisees. Moreover, the company depends on the Western markets for a large part of its revenue. It will need to grow its presence in the Asian markets to achieve a more even distribution of market share.
Customer trends have changed fast in the 21st century and McDonald’s also needs to focus upon menu innovation to retain its market share and attract millenial customers in larger numbers. To attract them, apart from a healthier menu, it also needs to focus upon maintaining competitive prices. McDonald’s has managed an excellent supply chain and it is one of the key strengths which has led to a reduction in quality related issues. Investing in digitalization will help the brand develop better customer relationships, leverage its marketing capabilities and grow its partnership with suppliers and franchisees. McDonald’s has decided to adopt a more customer centric strategy. This will be good for the brand and its future. However, there are many more challenges which can be overcome through investing in digital technology and by growing customer connection.
McDonald’s Annual Report 2018.