The case deals with a series of challenges faced by McDonald’s in 2013 as a result of several external factors. The issues presented in the case can be divided into three categories. First, the aftermath of the 2011 economic recession impacted customer behavior and prompted them to seek better value at a lower price, as well as generally cut spending. Second, increased awareness of the adverse effects of unhealthy eating backed by the efforts of the Affordable Care Act and Patient Protection undermined the trust of the target audience and decreased the inflow of new customers. Third, the company faced criticism due to the inadequate level of service and staffing. The combination of the issues above led to the severe decline of shareholder return.
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The fast-food industry is exhibiting a steady growth, with a 15 percent growth from 2007 to 2012 and an expected continuation of the trend throughout the next five years (Arthaud-Day, Rothaermel, & Collins 2013). This suggests that the industry is in the late growth segment of its life cycle and is about to enter maturity. Its main audience, young single professionals, demonstrates strong paying capacity, and a recent shift towards healthy diets allows for a diversification of the marketing solutions.
The market segment displays high competitive rivalry from several brands that closely mimic McDonald’s strategies as well as from several marginal competitors such as fast-casual restaurants that offer attractive alternatives. The threat of substitution is also high, with the existence of nearly identical product lines as well as alternatives that are more attractive from the health standpoint, both of which have zero switching costs. The power of buyers is moderate since their increased attention to the quality of food and reluctance to spend more on eating out is mitigated with the low bargaining power. The power of suppliers is extremely low since, despite their size and importance, the current state of all suppliers is driven solely by their ability to sell their products to large corporations, and they have few options aside from those offered by McDonald’s (Schlosser 2012). Finally, the threat of new entry is low due to the factor of economies of scale and the saturation of the market with recognizable brands.
As can be seen from the information above, the general trends can be considered favorable, but the specific threats in the form of health policies and customer behavior align poorly with McDonald’s existing strategy.
The company possesses numerous strengths. Its brand name is among the most recognizable ones in the world, and it has a strong presence in the United States, with 13,381 outlets in 2013 (Arthaud-Day, Rothaermel, & Collins 2013). It also has a strong resource base, and firmly controls all key points of the supply chain, such as farms, processing plants, and distribution channels (Corporate Accountability International n.d.). Finally, it has strong R&D resources that consistently produce superior solutions and products. On the other hand, the company currently has an extremely variable menu, which decreases growth opportunities due to logistical reasons and introduces employee confusion and stress (Arthaud-Day, Rothaermel, & Collins 2013). Finally, numerous reports and media highlights indicate persistent issues with customer service and customer dissatisfaction.
Key Industry Success Factors
Aside from the overall trend of fast food market growth, several important success factors should be acknowledged. First, all of the competitors in the field focus on store and process modernization, which determines their success. Second, the inclusion of healthier menu items and whole foods leads to favorable outcomes. Third, the decreased price of restaurant foods blurs the line between quick-service restaurants and related segments. It should be noted that McDonald’s excels only in the first key success factor.
The current strategy used by McDonald’s is a “Plan to Win,” which aims at maximizing profits from existing restaurants, diversifying the menu options, and cutting corporate costs. The second option has been the least successful so far, and the strategy can be considered generally unsuccessful since it either does not solve or aggravates the identified issues.
Despite the failure to address several issues, the chosen strategy is generally acceptable. Thus, it would be sufficient to introduce several adjustments in order to ensure improvements. First, the company must improve the communication of the health benefits of its new menu options and seek ways of increasing customers’ trust in order to connect the new products with the target audience. Simultaneously, the menu diversity must be gradually reduced via elimination of less healthy options which are associated with adverse effects and are featured in the anti-fast food campaigns. Finally, resources must be allocated for staff training and service improvements, with the reasons for additional expenses and long-term benefits transparently communicated to the stakeholders.
Recent developments are partially consistent with the suggested direction. McDonald’s introduced a premium segment of healthier foods in its menu but retained familiar cheaper breakfasts. This has led to a slow yet steady improvement (Trefis 2016). However, there are no signs of service enhancements on a major scale, which may be responsible for the insufficient rate of improvement. To sum up, the recommendations above were only partially implemented, with observable yet insufficient outcomes, which may be considered proof of their validity.
Arthaud-Day, M, Rothaermel, F & Collins, J 2013, McDonald’s (in 2013): How to win again?, Web.
Corporate Accountability International n.d., McDonald’s influence on the food system, Web.
Schlosser, E 2012, Fast food nation: The dark side of the all-American meal, Houghton Mifflin Harcourt, New York.
Trefis 2016, ‘Here’s how McDonald’s is ensuring that “all day breakfast” remains a winner’, Forbes, Web.