Introduction
The case study features Mcdonald’s during the 2010-2014 period, which saw the company’s net income drop from 5,503 million dollars in 2011 to 4,758 million dollars in 2014 (McNamara and Lee 194). The company has been seeing a slow decline since 2010, which has been demonstrated by shrinking market share, increases in operating costs, degrading quality of service and personnel, and the rising popularity of competitors.
Companies like Wendy’s, Burger King, Chick-Fill-A, and others have been finding more success with younger customers, offering more and healthier food varieties, and imposing McDonald’s monopoly on fast service (McNamara and Lee 195). In addition, events outside of the company’s control (Chinese scandal, Russian sanctions) have undermined its position in several key markets (McNamara and Lee 195). The company would need alternative leadership solutions to emphasize its competitive advantages and maintain a stable position in the market.
Effectiveness of Company Leadership
Mcdonald’s leadership has faced a crisis on a similar scale before. From 2002-2003 the company faced problems associated with rapid expansion (Schramade). Because the franchise opened up in various places in the US and around the world, it gradually lost control to enforce quality and keep the franchisees accountable. As a result, the quality of service declined, and with it – so did the reputation of Mcdonald’s. This challenge was met by James R. Cantalupo, who created the “Plan to Win”, which Mcdonald’s has been following for the past decade (Schramade). The plan emphasized improving the menu, increasing the quality of restaurants, and having them work longer hours. Corporate leaders after Cantalupo followed his strategy without trying to adapt to the changing realities of the market.
Jim Skinner, who was elected new company president and CEO after Cantalupo died in 2004, did not introduce anything different to how Mcdonald’s operates, instead preferring to use the old plans laid out by other people (Schramade). As a result, the company was surpassed by Subway as the largest single-brand restaurant in 2010 (Schramade). It is clear that the company took a reflexive approach to leadership and answering challenges, rather than proactively addressing any of the issues Mcdonald’s has. Instead of emphasizing strengths and creating new services to entice customers, the company leadership chose to simply copy services and products found in their competition, in an attempt to become a replacement for all fast-food companies. This diversification did not work and shows a lack of initiative in Mcdonald’s leadership.
The Basis for Competitive Advantages
Mcdonald’s has numerous factors that contribute to its competitive advantages. The company’s brand name is one of the strongest competitive advantages it has, being recognizable everywhere and associated with fast food, meaning that it is capable of attracting customers that have never tried fast food before (Schmid and Gombert 156). The company has a great number of restaurants operating across the globe, meaning exposure and popularity in various markets, from the US to Asia.
The company benefits from forging ties with local suppliers in order to deliver fresh goods to the restaurants, thus ensuring a relatively high standard of quality (Schmid and Gombert 157). Finally, it has a great number of experienced employees and managers, who are familiar with the technologies of food production. Mcdonald’s also has plenty of well-recognized and well-loved recipes that are popular with the general public, as well as restaurants located in convenient places to ensure maximum coverage (Schmid and Gombert 157).
All of these aspects can lend themselves to future McDonald’s expansion and success. They have the infrastructure necessary to once more be the largest and most successful fast-food restaurant in the world. They have to utilize these strengths and play to them in order to stop the bleeding and start regaining positions in the market. To do so they have to address some of the challenges to their existing strategy and come up with new ways of selling McDonald’s to the public.
Potential Challenges to McDonald’s Strategy
As it stands, McDonald’s attempts to match its competitors in every venue of expertise. Namely, it attempts to become a brand associated with health, provide customization to its sandwiches, greatly expand the number of products offered at the restaurants, and include numerous options other than burgers (Schmid and Gombert 160). This strategy comes with a myriad of challenges and issues. The first issue is the increase in the complexity of supply and production logistics – instead of producing around 40 different products like McDonald’s did in the 1990s, the company has to manage over 110 products (Schramade). This results in increased prices, decreased revenues, and higher prices.
Additionally, the increase in product range makes the production and training more costly and strenuous. As a result, the quality of employees at McDonald’s between 2010 and 2014 plummeted (Schramade). Competition for quality employees between different companies makes it difficult for McDonald’s to replenish its ranks as quickly and efficiently as before (Schmid and Gombert 160). Further expansion would mean an even greater employee vacancy crisis, which is further exacerbated by the fact McDonald’s is not being as vigilant towards the franchisees as it used to be in the past.
The attempts of McDonald’s to rebrand itself as a healthy eating place have been ineffectual at best. This issue stems from the very nature of the products they serve – burgers and fast food have become euphemisms for unhealthy eating (Schmid and Gombert 160). Because of that, attempting to entice the youth into believing and associating McDonald’s with fresh and healthy food is a bit of an oxymoron. This is further exacerbated by the use of frozen goods and conserving agents in McDonald’s food to prolong its freshness – something their competitors in Subway and Wendy’s do not utilize (Schramade).
Finally, McDonald’s strategy, while providing a quantity of choice, does not specifically improve the quality of goods. Surveys show that McDonald’s products are rated very low, in the bottom 20 fast-food restaurants, being surpassed by smaller companies and main competitors alike (Schmid and Gombert 165). The issues associated with employee training, food quality, and supply chain mishaps in turn mean that McDonald’s produces inferior burgers at higher costs and lower rates than Burger King or Wendy’s. This is critically damaging to the company, as it was founded upon the principles of fast, affordable, and quality products. These were the main competitive advantages of McDonald’s for a very long time, and they have been lost to other fast-food companies, without being replaced by anything else that could make the company stand out.
Alternative Growth Strategies to Pursue
Mcdonald’s, despite its ailing revenues, remains the largest fast-food company in the US domestic market, with around 50% of the total market share still belonging to it (Schramade). As such, it can afford to try and pursue different growth strategies. One potential solution would be returning to the roots and focusing on what made McDonald’s superior to its competitors back in the day – speed, affordability, and quality (Schramade). It can cut back on many of the unpopular products that it currently offers, significantly simplify the existing supply chain, and instead increase the quality of the popular products – burgers, chicken products, and fish-fillet sandwiches among others.
Instead of using frozen produce like McDonald’s has been doing for several decades, the company can afford to replace them with fresh beef and vegetables. That would significantly increase the competitive qualities of the food compared to Wendy’s and Burger King, effectively putting Mcdonald’s in the same quality bracket rather than that below (Schmid and Gombert 163). This solution, however, comes with several downsides, some of which include the complete rejection of the new customers (millennials, Gen Z), and poor long-term profitability – McDonald’s will be forced to pander to new tastes eventually (Schmid and Gombert 167).
Another solution would be to expand beyond the brand and generate new ones associated with healthy eating. They could share space and logistics with the main brand (Mcdonald’s) while simultaneously promoting themselves as a healthier alternative to competitive brands (Schmid and Gombert 170). As such, it would be possible to transition from the McDonald’s brand to these new ones and claim more of the market. Finally, there is the potential solution of innovating the production process in the same way McDonald’s did during their starting years. It would require investment in the R&D department, but could potentially push McDonald’s ahead. On the other hand, a failure to make any significant breakthroughs would not solve the company’s current problems.
Conclusions
McDonald’s current slow decline is the result of following one strategy for too long coupled with a failure to capitalize on its strengths and ineffectual leadership. In order to return to the positions of undisputed dominance and increase its net gains, the company should focus on employee quality and product quality. Some of the potential other solutions include brand diversification and returning to the roots.
Works Cited
McNamara, Dess, and Eisner Lee. Strategic Management: Text & Cases. McGraw-Hill, 2017.
Schmid, Stefan, and Adrian Gombert. “McDonald’s: Is the fast-food icon reaching the limits of growth?” Internationalization of Business. Springer, Cham, 2018. pp. 155-171.
Schramade, Willem. Case study – McDonald’s. Erasmus Platform for Sustainable Value Creation, Web.