Leading strengths and weaknesses of McDonald’s: An Introduction:
McDonald’s is the leading fast food chain globally based on net sales and its international footprint. It is the most valuable brand in the QSR industry. According to Statista, McDonald’s was the most valuable brand in the QSR industry in 2020 with an estimated brand value of $129.3 million followed by Starbucks. The company has managed a strong global presence. Despite being largely a franchise based business, its business model has proved highly profitable. In 2020, the company generated more than $85 billion in the form of systemwide sales. The QSR industry faced a challenging phase during the pandemic. However, while several QSR brands experienced a growth in sales even during the pandemic, McDonald’s experienced a decline. Its net revenue for 2020 fell to $19.2 billion compared to $20.4 billion in 2019. There are several challenges before McDonald’s in the future. The company is investing in technological resources to strengthen its market position and grow its market share. Since the pandemic, there has been a major change in consumer behavior worldwide and digital channels are now attracting higher sales compared to physical channels. Apart from expanding its physical presence worldwide, the company is also investing in menu transformation and the use of digital resources to grow sales and to achieve higher customer engagement.
Most valuable QSR brand:
McDonald’s is the most valuable brand in the QSR industry with the highest brand value of all the QSR brands. According to Statista, it is leading the QSR industry in terms of brand value followed by Starbucks. As of 2020, the brand value of McDonald’s stood at $129.3 billion. However, Starbucks, which is the second largest of all the fast food brands, had a brand value worth only $47.8 billion in 2020. KFC, Subway, Domino’s and other competitors of McDonald’s including Burger King are trailing far behind it in terms of brand value in 2020.
Strong competitive advantage:
McDonald’s has strengthened its competitive advantage in the global market over time, which has helped it achieve the market leadership position it continues to enjoy globally. Apart from its diverse and competitively priced menu, marketing and technological resources, its global presence is also a strong source of competitive advantage for the brand. The company has maintained a strong competitive edge and thus minimized the threat from rivals.
Large and diverse menu:
McDonald’s offers a large and diversified menu to cater to various customer segments worldwide. It offers a uniform menu globally. However, there are various changes made regionally to cater to the different tastes and preferences of customers across various geographical areas. The company has continued to grow the number of healthy offerings in its product portfolio to attract health conscious customers in larger numbers.
High popularity across the globe:
McDonald’s is an easily recognizable and highly popular brand globally. Its logo, the Golden Arches and the primary mascot, Roland McDonald clown make it distinct from the other fast food brands. Apart from its focus on marketing and branding, the company has been excellent in terms of product quality and customer service. These factors have driven higher popularity and faster growth for the fast food brand globally.
The company has continued to increase its investment in technology to improve its competitive edge and grow sales, as well as, customer engagement. Over time, apart from investing in digital technology for sales, marketing and customer service, the company has also invested in the acquisitions of technology brands to grow its competitive edge against its rivals. In 2019, the company completed the acquisitions of ‘Dynamic Yield’ and ‘Apprente’ to strengthen its technological capabilities. With the pandemic, the focus of fast food brands on technological resources and digital technology has grown as customers are now favoring digital channels over physical channels. McDonald’s investments in technology are expected to pay off well in the near future.
Issues related with franchise based business model:
While running a largely franchisee-operated business model has generally proved profitable for McDonald’s, this model has its inherent challenges and problems that may sometimes weaken performance. McDonald’s is also dealing with several such challenges and issues in its franchisee-operated business model. Employee management related issues are a major challenge before the company since it has less control over the restaurants operated by the franchisees.
Supply chain management related problems:
Supply chain related challenges are a major problem before fast food brands. Shortages are common across fast food stores and happen frequently. McDonald’s has also frequently battled with supply chain shortages. Apart from shortages of various products, the company also battled logistics issues during 2021.
Pandemic destroyed the breakfast menu:
McDonald’s all day breakfast menu has remained a popular product across its global network. However, during the pandemic the company stopped the sales of its all day breakfast menu. In March 2020, the company stopped serving its all day breakfast products. In 2020, the company also experienced a drop in sales and revenues. Its net revenues in 2020 dropped by more than $2 billion compared to the previous year.
Employee harassment related challenges:
Employee management becomes a major challenge for the companies that have adopted a franchisee based operating model. McDonald’s has also come across several reports of sexual harassment in its US operations which are more than 90% are franchisee operated. The problem is that while it damages the company’s reputation, the franchisees hardly bear any of the risk.
Focus on digital technology:
The pandemic has brought major changes to consumer behavior globally. People’s use of digital technology has grown worldwide. A larger number of people are ordering food online using digital channels and mobile apps. This led to solid growth in fast food sales from digital channels during the pandemic. Investing in strengthening its digital capabilities will help the company acquire customers and compete effectively against its leading rivals in the global market.
Cost effective menu items:
The fast food industry experiences heavy price competition. There are several companies in the global market that have introduced a large range of competitively priced products. McDonald’s has also introduced a large and diverse menu of competitively priced products to grow its customer base and sales worldwide. However, during the pandemic, the company was forced to stop selling some of the lower cost items on its menu. Introducing more lower cost items will improve the company’s sales and customer base worldwide. This is mainly because of the growth in the number of price conscious consumers worldwide.
Focusing on HR management is also expected to yield great results for the company, which is facing a large range of HR issues. Apart from creating an organizational culture that focuses on employee happiness, it must invest in achieving higher employee satisfaction and employee engagement.
Focus on mobile technology:
A larger number of consumers around the world are using their smartphones for ordering food online. Along with that, mobile advertising trends have also grown since a vast number of consumers can be accessed through online platforms. McDonald’s must grow its focus on mobile apps and mobile advertising to increase sales and marketing ROI.
Intense competition in the QSR industry:
While the QSR industry has experienced strong growth in size over the past decade, the level of competition in the industry has also increased a lot leading to price wars and higher investment in marketing. There are several competitors of McDonald’s in the global QSR industry including Burger King, Subway, Wendy’s, KFC, Domino’s and several more. The company has to place a higher focus on product quality, marketing, and customer service to maintain its competitive advantage and leadership position in the QSR industry. With growing competition, while the operating costs have grown for McDonald’s, the company is also experiencing higher price related pressure.
The fast food industry is also facing higher regulatory pressure. Some of the key areas where the companies in the QSR industry are required to remain fully compliant include food quality, labor, and sustainability. Compliance related pressures add to the operating costs. Companies will have to bear hefty fines if they are found to be non compliant causing heavy financial losses.
Growing costs of labor and raw materials:
The costs of labor and raw materials have continued to grow for McDonald’s over time. These factors have caused the operating costs to grow and profit margins to reduce. Apart from store operations, supply chain operations and logistics have also grown costlier for the company. The pandemic also added to the various types of costs for the company including labor expenses, supply chain expenses and technology related costs.
Founded in 1955, McDonald’s has enjoyed strong growth in its history. The company has continued to expand its physical presence globally. The total number of McDonald’s restaurants around the globe grew to 39,198 in 2020 from 38,695 in 2019. The leading QSR brand is investing in technology to grow sales and revenue. With the pandemic, the use of digital technology for ordering food has grown. A larger number of people are ordering food online using their smartphones. McDonald’s needs to place a higher focus on the digital channels and especially mobile apps. Its net revenues fell during the pandemic compared to the previous year while its several rivals enjoyed impressive growth in sales during the same time.
The company also needs to focus on employee management as the cases of employee harassment have continued to bother the management and hurt the brand’s reputation. The franchisee-operated business model of McDonald’s has some inherent strengths and has generally proved profitable for the brand. However, there are also some related challenges the company needs to address. Currently, McDonald’s is the largest QSR brand based on brand value. It is also popular worldwide for its food quality and variety. However, the company was forced to discontinue several popular products in recent years, which it must consider reintroducing. The pandemic has brought a set of new challenges before the fast food brands. Businesses like McDonald’s have managed to largely overcome the impact of the pandemic by making changes to their existing operating models.