A merger is a business expansion strategy in which two or more companies combine to form one new company. On the other hand, an acquisition is a business venture in which one company purchases another one without formation of a new company. In general, a merger and an acquisition entail consolidation of two or more corporations to form a competitive joint synergy.
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In this paper, McDonald and Carl’s Jr. Corporations have been chosen to illustrate the effectiveness of mergers and acquisitions as business expansion strategies. McDonald’s Corporation is one of the leading fast food restaurants that have gained global competitive advantage through acquisitions. Unlike McDonald’s, the competitive advantage of Carl’s Jr. is product differentiation and effective customer service. Carl’s Jr. operates mainly in the United States of America.
McDonald’s is the largest chain restaurant in fast food industry. The company started in 1940 as a barbecue restaurant in California. Its main products are hamburgers, breakfast items, cheeseburgers, and soft drinks. Today, McDonald’s Corporation serves over 65 million customers on a daily basis in 120 countries around the world. Its main expansion strategies are competitive customer service, high quality products at affordable prices, product differentiation, effective marketing and acquisitions (Mujtaba & Patel, 2007).
During its initial business expansion phase, McDonald’s Corporation employed high quality customer service and product differentiation as strategic marketing tools to gain a strong market presence in the United States of America. By mid 1980s, McDonald’s was among the biggest fast food restaurants in the United States of America.
This strong market presence prompted the need to explore overseas markets. A stronger domestic market presence was essential in propelling the fast food leader to the international scene. Acquisitions were among the effective strategies that would ensure quick expansion of McDonald’s Corporation.
Acquisitions were also thought to be strategic management tools that would help McDonald’s overcome the challenges of new markets. McDonald’s Corporation hoped to use the already established market presence and successful business models of existing companies in new market environments (Mujtaba & Patel, 2007). In response to these needs, it acquired Donatos Pizza, Chipotle Mexican grill, and Boston Market between 1998 and 2000 (Derdak & Pederson, 2004).
The above acquisitions made McDonald’s the biggest chain of fast food restaurants in North and South America. The acquisitions were strategic because they increased the product line and domestic market presence of McDonald’s Corporation. Donatos pizza is based in Columbus, Ohio with over 200 outlets in the United States of America. Its acquisition made McDonald’s Corporation the dominant fast food restaurant in Ohio with an entry in the pizza industry.
Chipotle Mexican grill had over 1200 restaurants in 43 states and countries in the world. Among its market strongholds are Canada, England France, and Russia. It specializes in tacos and burritos as the main products. Its acquisition by McDonald’s in 1998 made the latter the biggest fast food restaurant in Canada and England (MarketLine, 2012). It also extended McDonald’s product line by inclusion of tacos and burritos.
By the year 2000, McDonald’s Corporation was the leading fast food restaurant in Washington, DC, Ontario, Toronto, Quebec, and Paris thanks to the acquisition of Chipotle Mexican grill. McDonald’s Corporation acquired Boston Market (Formerly known as Boston Chicken) in 2000.
Boston Market had 550 restaurants in 28 states in the United States of America, Australia, Sydney, and Canada prior to its acquisition by McDonald’s Corporation. Thus, the acquisition of Boston Market by McDonald’s Corporation expanded the market presence of the latter in Australia and Canada. McDonald’s was able to use human resources and the success story of Boston Market to enter into new market environments without incurring establishment and administrative costs.
In general, the decision to acquire the above three fast food restaurants by McDonald’s Corporation was strategic. This is because it enhanced quick expansion into international markets without incurring establishment and administrative costs. According to MarketLine report (2012), many organizations fail to establish themselves in new markets because of the inability to adapt to new consumer cultures. Thus, acquisitions are effective tools of overcoming cultural shocks in new market environments.
Carl’s Jr. Corporation
Carl Karcher and Margaret Karcher started Carl’s Jr. as a hamburger restaurant in California in 1941. It was initially called Carl’s Drive-In barbecue until 1956. The stiff market competition of the 1990s made it difficult for Carl’s Jr. Corporation to establish itself in Texas and Arizona.
Its expansion has been slow due to its management strategies that discourage mergers and acquisitions. The major challenge to its expansion is the competition from McDonald’s Corporation, which has the largest market presence in the United States of America. Currently, Carl’s Jr. is planning to expand its operation into international markets. The first proposed destinations are Singapore, Russia, Australia, New Zealand, Denmark, and Brazil among others.
The most effective and profitable company for a merger or acquisition for Carl’s Jr. is Starbucks Corporation. This is because of its wide international market presence that makes it the third biggest chain restaurant in the world. Starbucks Corporation is the leading coffeehouse restaurant in the world with over 20300 stores in 61 countries. Its strongest international market presence is Japan, Canada, China, the United Kingdom, Mexico, Taiwan, Philippines, and India among others.
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Besides hot and cold coffee, Starbucks Corporation also deals in snacks, sweet pastries, salads, and cold sandwiches. The joint venture of Carl’s Jr. and Starbucks Corporations will be profitable for the former because of expanded product line. Carl’s Jr. will also benefit from the international market locations of Starbucks without incurring extra administrative and establishment costs.
The business and corporate strategies of McDonald’s Corporation
The mission of McDonald’s Corporation is to be the customers’ favorite place to eat in the world. The business strategy for McDonald’s is market led, and customer focused innovations. To achieve this, McDonald’s undertakes extensive market research to establish its customers and their needs.
It then designs its products to meet the needs of all age groups. The prices are also varied to meet the needs of people from all social classes. The wide market presence ensures that McDonald’s is the restaurant of choice for majority customers in the world (Mujtaba & Patel, 2007). McDonald’s corporate strategy is business diversification and international expansion. McDonald’s employs related diversification by proving various meals that meet all customer needs.
Recommendations for improvement
The most effective recommendation for McDonald’s Corporation is vertical integration. This is a cost cutting strategy, which is achieved by using an organization’s own inputs and distribution channels. McDonald’s Corporation should produce its own inputs and develop its own transportation and distribution systems. This will reduce overall costs and increase the company’s profitability.
Proposed business and corporate strategies for Carl’s Jr.
The most effective business level strategy for Carl’s Jr. is high quality product branding. Effective branding of Carl’s Jr. Corporation and its products will attract the attention of new customers in new market environments (Gussoni & Mangani, 2012). This will offer it a competitive advantage against other market players. For corporate level strategy, the most effective recommendation for Carl’s Jr. is international expansion. This will provide the company with a global market for its products (Stoy & Kytzia, 2004).
Derdak, T. & Pederson, J.P. (2004). “McDonald’s”. In Derdak, T & Pederson, J.(Eds.), International directory of company histories. 3rd Ed (pp. 108-109). New York: St.James Press.
Gussoni, M. & Mangani, A. (2012). Corporate branding strategies in mergers and acquisitions. Journal of Brand Management, 19, 772-787.
MarketLine (formerly Datamonitor), Financial Deals. (2012). McDonald’s Corporation – Mergers & Acquisitions (M&A), Partnerships & Alliances and Investment Report Nov 27, 2012. New York, NY: Alacra Store.
Mujtaba, G.B. & Patel, B. (2007). McDonald’s Success Strategy And Global Expansion Through Customer And Brand Loyalty. Journal of Business Case Studies, 3(3), 55-66.
Stoy, C. & Kytzia, S. (2004). Strategies of corporate real estate management: Strategic dimensions and participants. Journal of Corporate Real Estate, 6(4), 353-370.