Strategic management is an important aspect for all businesses regardless of the product or services they offer. Through strategic management and operations, firms can find new and effective solutions to the challenges faced by their business operations. As a result, the strategies turn things around for companies that were almost facing their extinction or promote a business even further by increasing sales and profits.
Additionally, through strategic management, businesses can create a more stable market position and improve customer loyalty to their brand. The fast food industry is no different. Leading companies including Mc Donald's, Burger King, and KFC just to mention a few are coming up with business strategies to achieve similar effects. In this report, the strategies used by the companies and how they impact the business operations of the companies will be analyzed. Case analysis of Mc Donald's will provide insight into how the firm's strategies have affected its sales and profits over the years.
Brief Overview of McDonald's
McDonald's is a fast food company based in Chicago, United States, founded by two brothers, Maurice and Richard McDonald in 1940. Initially, the brothers started their business as a hamburger stand and expanded it into a restaurant. By 1953, the company had grown so much that it ran several local franchises. In 1955, the company was incorporated after the two brothers brought Ray Kroc as a franchise agent. During the same year, he purchased the company from the founders. Currently, McDonald's is the largest fast-food franchise by revenue. As of 2017, the company had over 37,900 outlets in over 100 countries which serve approximately 69 million customers daily. A report by Carvell, Steven, and Sherwyn, identified the corporation as the second largest private employer in the world (5). Despite the huge success, Mc Donald's has for the last several years faced significant problems that caused sales to decline significantly.
Identification of the Problems Faced by Mc Donald's
Increased Concerns for Healthier Food Items
In 2004, Morgan Spurlock directed the documentary Supersize Me. The film follows Spurlock on a 30-day period during which he only eats McDonald's foods. It shows the dire effects the food causes his physical and psychological health. From the film explores how the fast food industry has encouraged poor nutrition behavior among the Americans, particularly the millennials for its own benefit. While the film was meant to uncover the fast food industry as a whole, Mc Donald's was the worst hit company because it featured in the documentary (Crawford 11) Jim Skinner, the CEO, was prompted to change the bad image of the company's food items due to the increased awareness of its fat content. The film created even more problems. The loyal customers did not only drop the company but also went as far as suing Mc Donald's. Skinner had to come up with new food items for his menu and do it fast.
Lack of Flexibility
Since its incorporation, Mc Donald's established a concept of consistency and based its whole operation on it to attract more customers. Most of the company's customers have always known exactly what they will get when they order a Big Mac, a Hamburger, cheeseburger, or McNuggets. But now, there are fast food restaurants such as Chipotle that is letting people tailor their orders. This strategy is appealing to people making even the loyal customers of Mc Donald's defect. In response to customization of orders, the CEO created tablet-like kiosks where customers can customize everything about their burger including the bun, the toppings, and sauces. The campaign dubbed "Create Your Taste" was rolled out. Unfortunately, the costs of the burger had to increase significantly to adopt this motion. Again, the company is finding this idea hard to implement in all its outlets citing increased costs of operations. Most of the franchisees feel that these moves will be a move away from the concept of consistency which Mc Donald's is built on.
The increased awareness of the fat content of Mc Donald's food items necessitated changes in the menu. For instance, adding more fruits and vegetables has resulted in increased costs of operations as they are expensive to ship and store due to their perishable nature. Such charges can only be transferred to the customers. Unfortunately, raising prices for their foods without driving away the customer is a tricky move for Mc Donald's as the consumers are price sensitive (Carvell Steven and Sherwyn 5). The company is forced to look for alternative ways to maintain prices. For instance, the popular Dollar Menu included a Big N' Tasty made with a quarter-pound of beef. Over the years, the costs of beef and cheese have risen forcing Mc Donald's to swap out some items. Recently, the firm had to revamp its Dollar Menu and called it the "Dollar Menu and More" with its prices going up to $5.
Analysis of Business Strategies Employed by Mc Donald's
Introduction of New Food Items
The company started experiencing problems starting in the late 1990s especially when the labor market became tighter making it hard to find new talents and skills. By 2003, service and quality of foods served by the chain were way behind those of its rivals. When the problem persisted, the company had to bring back its former Vice-Chairman James R. Cantalupo. To restore the company back to its former glory as a trendsetter in the fast food industry, Cantalupo introduced new products in the menu. This business strategy has been employed by several CEOs of the company after it proved to be working when Cantalupo tested it. The strategy has had a fair share of both successes and failures.
In the first instance, the strategy was introduced, the price levels for most of the items used by the company were relatively low. As a result, increasing food items in the menu added insignificant costs of operations. This made it possible for the company to attract more customers to their outlets increasing profitability. Again, as Crawford noted, when Cantalupo implemented this strategy, health concerns for food items from the industry was still low (11). However, in the later periods of 2008 and above, this move alone was not enough to keep the business running. First, by 2014, the food items in the menu had increased to 121 from the initial 33. This extensive menu list implied increased costs regarding purchasing, shipping, and shipping. Additionally, preparation times were increased with over an average of 5 minutes per food item. Increased costs and longer preparation times moved Mc Donald's away from the attributes that it was built on.
Adoption of a New Business Model
In response to the declining performance, Mc Donald's has attempted to move away from its traditional business model by testing new approaches to operations that include improving the in-house experience as well as outside premises food deliveries. Strategies to improve conditions of the outlets include remodeling of the chains to bring in "experience tomorrow" layout, the introduction of kiosks, and optional table services. The adoption of the Starbucks coffee business by Mc Donald's in the recent pass is another strategy. The company's U.S. segment President Chris Kempezinski believes that coffee is a "$30 million business in the U.S" stating that tapping into this market would improve Mc Donald's sales significantly. While franchisees find the new drinks as controversial as they take too long to prepare, executives reported that McCafe initiative was already paying off (Ghobadian et al. 95)
Alternative Solutions to the Problems
Training the Staff
Much of the company's efforts have focused on the food items it offers the customers including its how healthy it is, preparation time, and method. Unfortunately, less attention is paid to the arguably the best resource of the company; the staff. In the textbook, Strategic management: Text and cases, Dess and colleagues argue that in restaurant industry food is only as tasty as the person serving it. Therefore, they recommend that the staff play an important role in ensuring that the customer is satisfied not only by the food but also the experience they get in the outlets. As seen in the case study, Mc Donald's' problems started when it failed to recruit new talent and instead resulted in recycling. It is therefore vital that the firm trains the old staff while looking out for fresh talent.
The executive now that many people still view McDonald's as a seller for unhealthy junk food despite the various efforts and actions to provide healthier options. The problem was initiated by the documentary Supersize Me and exacerbated further by the food factory scandal in China. Unfortunately, the marketing department has failed to make corrective advertising about the healthier food items added to the menu as well as stricter measures for the company's suppliers (Crawford 11). A global audit of the marketing department is necessary to strengthen creative messages in their marketing strategies. The emphasis on marketing should be on the quality of food Mc Donald's offers so that an emotional connection is established with the customers.
Delivery of Foods
The fast foods are increasingly adopting the concept of delivering food to their customers. Mc Donald's have for the longest time lagged behind in this strategy which would pay-off. Subway and Pizza Hut continuously increase their market share for products sold by Mc Donald's such as fries and burgers and consequently taking away its customers. To implement food delivery, the company can make a strategic partnership with UberEATS to attract new younger customers in more urban regions.
Carvell, Steven A., and David Sherwyn. "It is time for something new: A 21st-century joint-employer doctrine for 21st-century franchising." Am. U. Bus. L. Rev. 5 (2015): 5.
Crawford, Alice. "McDonald's: A Case Study in Glocalization." Journal of Global Business Issues 9.1 (2015): 11.
Dess, Gregory G., G. Tom Lumpkin, and Alan B. Eisner. Strategic management: Text and cases. McGraw-Hill Education, 2014.
Ghobadian, Abby, and Nicholas O'Regan. "A case study and interview with Jill McDonald CEO and President of McDonald's Northern Europe Division." Journal of Strategy and Management 7.1 (2014): 87-100.
Raghavendra, A. N., and G. Nijaguna. "Supply chain management in the hospitality industry: impact on service quality in Mcdonald's restaurants, Bangalore." Global Journal Of Commerce And Management Perspective. GJCMP 4.2 (2015): 22-29.
Frequently Asked Questions (FAQ) for Essay:
What problems did McDonald's face in recent years?
In recent years, McDonald's faced various problems including increased customer demand for healthier items, limited customization options, and price sensitivity issues. Furthermore, "Supersize Me" shed light on fast food's health consequences, particularly at McDonald's locations. Furthermore, adapting to customer preferences for customization options was challenging as was maintaining affordable pricing while including healthy ingredients was another obstacle the chain was up against.
How did McDonald's respond to the problems it faced?
McDonald's employed various strategies in response to these obstacles. New food items were introduced in response to consumer preferences while quality offerings improved as part of an overhauled business model with renovated outlets, kiosks, optional table services and remodeling kiosks installed for convenient table service. Furthermore, Starbucks-esque elements could be introduced within stores to add another experience layer and boost coffee market sales and improve in-house experience for McDonald's customers.
What alternative solutions were recommended for McDonald's?
Two possible solutions have been suggested for McDonald's: they should focus on training their staff to enhance customer experiences; secondly, focus should also be put towards expanding distribution channels to reach more potential clients; Recruitment and training new talent as well as ongoing employee education is critical in maintaining high-quality service delivery. Furthermore, revitalizing marketing strategies to combat any negative perceptions associated with unhealthy fast food is also key. McDonald's can create stronger bonds with customers by emphasizing food quality, encouraging healthier options, addressing supply chain issues and offering delivery services through UberEATS or another partner service such as DoorDash. Implementation of such services could draw in new customers while competing against similar fast food chains.
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