McDonald’s: Opportunities for Growth in Saudi Arabia Case Study

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Table of Contents

Introduction
Analysis
Discussion
Recommendations
Conclusion
Works Cited

Introduction

There exist a number of global chains of restaurants that are known all over the world, and McDonald’s is one of them. In this paper, we will analyze the situation that McDonald’s has been facing in the market, and then we will consider the company’s growth opportunities specifically in Saudi Arabia. Based on our discussion, we will offer some recommendations for the enterprise to develop in the mentioned country.

Analysis

Nowadays, McDonald’s is one of the largest global chains of fast food restaurants. It operates as a franchisor, selling local businesspeople the rights to open a restaurant under the brand’s name and providing them with what is necessary to meet the company’s standards (“Our Business Model” n. pag.).

Even though McDonald’s is one of the most well-known brands in the world, the company suffered a major decline in its profits over the last few years. In 2014, the operating income of the fast food chain accounted for only 90.7% of its operating income in 2013 (“MCD Income Statement” n. pag.). In 2015, the company suffered even more setbacks. But it was able to recover later in the year; its net income rose to $1.21 billion in the fourth quarter of 2015, in comparison to $1.1 billion in the fourth quarter of 2014 (CNBC n. pag.).

Therefore, it is crucial for the company to use the momentum to continue its recovery and turn it into a growth. It is possible for the business to do that in two main ways: to open new restaurants, and to modify and improve the services it offers.

Regarding the second way, the company needs to better adapt to local cultures while operating in countries other than the U.S. It already does to some extent; for instance, in the Arab world, McDonald’s proposes food made from halal meat, and provides respective certificates (“Our Ingredients” par. 2), and offers some meals that are more typical of the local cuisines (“McArabia” par. 2).

One of the countries where the company might develop further is Saudi Arabia. This country has the population of approximately 30 million people, whereas the total number of McDonald’s restaurants in this country is nearly 120 (“International Saudi Arabia” n. pag.). Therefore, there is approximately one restaurant for every 250,000 people in Saudi Arabia. It means that some potential customers might simply not visit McDonald’s often due to the remoteness of the nearest restaurant.

McDonald’s also has a different image in Saudi Arabia than it has, for instance, in the U.S. The restaurant does not only propose food; it also provides the customers with the information about what the food consists of, offers a friendly atmosphere, free Wi-Fi, and so on. While this is common in the USA, it is not always the case in restaurants in Saudi Arabia (“McArabia” n. pag.).

Also, some political issues arise around McDonald’s as around an American company from time to time. For instance, when in 2000 Saudis were indignant about the USA’s support of Israel, they started boycotting American companies, which included McDonald’s. McDonald’s responded by a charity campaign; they began donating 26 cents from each meal they sold to children’s hospitals in Palestine (“Saudi Burgers to Help Palestinians” n. pag.).

In 2002, another boycott campaign against American companies was on a rise; however, in the case of McDonald’s, more harm was done to the local franchisors than to the global corporation (Mroue n. pag.). On the whole, McDonald’s tries to respond to the boycotts in a placating way, showing the local customers that the company is not to be blamed.

Discussion

As we have seen, there are some opportunities for McDonald’s development in Saudi Arabia. The fact that there is only one restaurant for 250,000 people in the country means that the company can grow by opening new restaurants.

Apparently, that the network of locations in Saudi Arabia is not dense, which means that many potential customers would gladly visit McDonald’s if a restaurant was not so remote. Consequently, opening new locations should enable them to buy the foods McDonald’s has to offer much more easily, and, therefore, more frequently.

It is also a possibility to adapt the menu to the local culture more, and to organize events and attractive offers related to the local special occasions. We have already stressed that McDonald’s in Saudi Arabia has a rather good reputation; therefore, for example, proposing to celebrate a holiday in McDonald’s might be a worthwhile offer to some of the locals. The menu can also be further diversified by including foods that are enjoyed by the Arabian population, for instance, by adding falafel burgers to it.

Recommendations

Based on the considerations above, we would offer McDonald’s to take the following three main steps to develop further in Saudi Arabia. First, some new restaurants should be opened, so that the customers would be able to visit them more often instead of simply not doing it because of the remoteness of the nearest McDonald’s.

Second, the menu should be diversified by the foods that are very popular among the population (for instance, the falafel burger). And third, the company should provide the clients with more opportunities to celebrate special occasions in the restaurants.

Conclusion

To sum up, it should be noted that McDonald’s had suffered setbacks over the years 2014-2015, but started recovering at the end of 2015. It is important for the company to use the momentum, and one of the countries where there exist opportunities for growth is Saudi Arabia. To develop further in this country, we recommend opening more restaurants, to diversify the menu to adjust it even better to the local culture, and to provide the clients with additional opportunities to celebrate special events in the restaurants.