A market analysis of the McDonalds corporation

A market analysis of the McDonalds corporation McDonalds is a popularly known Market Leader in the Fast food Industry or better known as the Burger Industry. Started in the year 1948, it has managed to emerge triumphant in spite of a number of companies entering the industry. The company has successfully established a popular brand image. In fact the growth of fast food has been named after the organization as McDonaldization. Marketing involves identifying what customers demand and striving towards meeting their demands. Marketing Audit involves analyzing the companys various aspects and evaluating the companys marketing strategy. It involves in bringing out the pitfalls in the organizations functioning. The following pages contain the analysis of McDonalds Corporation. We have researched the various facets of the organization functioning as to how well they have managed to reach customers. There has been an analysis of the industry aspects like the customers, competitors and the suppliers. Also the Macro Environmental analysis along with the SWOT has been performed. We have analyzed the current Marketing techniques. On analyzing the current situation of the company and the market in the fast food industry we have provided some recommendations which might prove to be useful for the organization on its successful implementation. Introduction The statistics figures show that the global fast food market reached a value of $102.7 billion in 2006, growing by 4.8%. Meanwhile, analysts forecast that in 2011, the global fast food market will have a value of $125.4 billion, an increase of 22.2% since 2006 (Fast Food: Global Industry Guide, n. d.). McDonalds is the worlds leading company in the fast food industry. It has more than 30,000 restaurants in more than 100 countries serving millions people around the global. The companys success was as a result of the policy they follow, known as the Q.S.C. V. (Quality food; Fast, Friendly Service; Restaurant Cleanliness; and a menu that provides Value). The company was first started as a drive-in restaurant in San Bernardino by the two brothers Mac and Dick McDonalds in the year 1948. It was later bought by Ray Kroc, who was their franchising agent in 1961 and opened his first McDonalds in Illinois. The companys menu initially consisted of Hamburgers, Cheeseburgers, French Fries, Sodas, Milkshakes, milk and coffee, although it has grown considerably since. The company follows a unique business model described as the three legged stool wherein the three legs are the owners/operators, suppliers and Company employees. It is an organization that develops, operates, franchises and services a worldwide system of restaurants that prepare, assemble, package and sell a limited menu of quickly prepared, moderately priced food. McDonalds has pioneered food quality specifications, marketing and training programs, and operational and supply systems, all of which are considered the standards of the industry throughout the world. Marketing Mix Every business organization must develop an effective marketing strategy. The 7 Ps is used to continually evaluate and re evaluate business activities. The seven Ps are product, price, promotion, place, packaging, positioning, and people. The 7 Ps are used to ensure that the company is on track and achieve maximum results. Product Predominantly sells Hamburgers and cheeseburgers which forms the part of the standard menu worldwide Also sells various types of chicken sandwiches and products, French fries, soft drinks, breakfasts, and desserts. They sell a variety of products during limited promotional time periods. The company tests new products on an ongoing basis. Example: Chicken Nuggets in the year 1983 DIRECTION People Focuses on Friendly and Prompt service which helps them to maintain their reputation Employees have a standard uniform. Statistics of staff composition Restaurant staffRestaurant managementOffice staffFranchisees staff44,000300050025,000They have high recruitment standards, employ local staff and proper training. PATH Process Manufacturing process is transparent and visible to customers. Customers are invited to check the ingredients used in the food. Maintain high quality control standards. Use of innovative ideas and having latest technologies installed. Drive through facility Price Have Specials, two dollar burgers Competitors find it difficult to follow Generally use a value-based approach to pricing, Aim at giving consumers the best value for money Promotions Best methods to maintain high awareness and promote their image Advertising through Billboards, Television, Radio etc. Sponsorships like Ronald House and local Basketball Sales Promotion, Examples: Two dollar burger, Happy Meal Direct Marketing through Birthday and Clubs Publicity Place Placed extensively and easily accessible Have Drive through where customers can pick up food Mc Delivery offers options for home delivery Holds a different place in the consumers mind Fun place for children Physical Evidence Means looking for aspects customer uses to assess a product and evaluate its position High quality standards are maintained Emphasizes on clean and hygienic interiors of its outlets High importance to the appearance of the staff and the service provided. ACTION Current Marketing Strategy McDonalds as a world Market Leader has certain goals which it strives to achieve 100% customer satisfaction, increase its market share and optimize profitability by reducing costs. On analyzing the companys marketing position, the following are a part of the current strategy in order to reach its customers: Healthier foods To handle the change of trend towards healthier food this McDonalds have changed the way the food is prepared. It makes sure that 100% vegetable oil is used, low fat milk is used for milkshakes and the amount of sodium has been cut down. Food Quality and Nutrition The quality and safety of food items are of paramount importance in McDonalds. This is achieved through strict product standards, strict enforcement of operating procedures and work in close relationship with the suppliers. Larger Menus McDonalds aims at achieving the other important expectation from the consumers (want for choice). To this McDonalds reacted by introducing the breakfast menu with a variety of food products. Apart from this they have also introduced a lot of other products. Restaurant Diversity The restaurants in each location are customized and their menus are according to the needs and demands of the customers in the location, the food on the menu would conform to the regional and ethnic tastes. Brand Positioning McDonalds Brand positioning is mainly carried out through sponsorship of events and sports. It sponsors events like Domes community programme and learning experience and Child Safety Week. Industry Analysis Industry analysis of an organization involves the analysis in the following categories: Customer Analysis This refers to buyer force. The buyer has a great deal of selecting power due to the fact that if they are dissatisfied with the food or service they can easily switch or purchase from an alternate product. But it is undeniable that any organization cannot satisfy the needs of all the consumers. Therefore organization divides the market into segments which display similar characteristics or behavior is necessary. McDonalds market segmentation is based on demographic variables Age and Lifestyle. The primary target markets are seniors, adults and teenagers, but the most heavily targeted segment is children. The market segmentation of McDonalds can be visualized as follows: Market Segments Seniors Adults Teenagers Children Customers are those who pay money to acquire an organizations goods or services. For many years McDonalds mostly targeted the young people, however this has changed in this decade; McDonalds has turned towards a more general market. By doing this McDonalds concentrates on the family, targeting a diverse market Competitor Analysis It was said that the Fast Food industry is highly competitive (Data Warehousing Case Study: Fast Food, n. d.). McDonalds major Competitors include that Burger King, Taco Bell, Subway, and Panera Bread. Especially, KFC, which offers chicken nuggets and fries on its menu, operates over an 11000 restaurants in more than 80 countries. Fast food, especially fries, hamburger and so on, are thought as garbage-food because of high-calorie. There are high possibilities of healthy substitutes posing a threat to these companies. Of course, McDonalds is concentrating on the health side by introduction of healthy food items in the menu. The following are the findings of the competitive position of McDonalds based on the Porters five forces: Rivalry: This involves how the company differentiates itself from its competitors. In case of McDonalds, as discussed above the major rivals are Burger King, KFC and Wendys. Though McDonalds is the Market Leader currently, with the capacity of the rivals growing the competition seems intense. The rivals are trying to increase their sales by concentrating on the health factors. New Entrants: With so many popular fast food companies in the industry new entrants are not much if a threat when seen globally. McDonalds has an edge over its competitors as it is globally spread. Buyers: With reasonable prices and quick service provided by McDonalds, there is less scope for customers to move to competitors for the products. With the introduction of the wireless facility in the some of the outlets has added to the attraction. Suppliers: Except for the cold drink from Coca Cola, the company does not have a single supplier at a global level. For meat it has its own farm and other raw materials are from local store Substitutes: There are high possibilities of healthy substitutes posing a threat to the company. Though McDonalds is concentrating on the health side by introduction of healthy food items in the menu, it might still be posed with the challenge of substitutes. Supplier Analysis Supplier is an organization that provides resources for other organizations. In McDonalds three legged stool philosophy the third leg is supplier partners. McDonalds has practiced a backward vertical integration, by replacing most of its suppliers. It has done so for two reasons, To reduce costs, and To ensure that its products are of top quality. These supplies include beef and milk to be used in its products, which it gets from its farms. Other suppliers include local grocery stores that supply McDonalds with fresh vegetables. Soft drinks are supplied exclusively by Coca-Cola, which is also its ally. McDonalds supplies also include raw material such as flour, sugar, yeast, etc. . MACRO ENVIRONMENTAL ANALYSIS Companies always operate in a larger macro environment of forces and trends that shape opportunities and post threats. These forces represent non-controllable forces, which the company must monitor and respond to. In most cases, we identify macro environmental factors by an acronym, PESTEL. P: Political System of the country. E : Economical Factors S : Social / Cultural factors T : Technological factors E : Ecological factors L : Legal factors POLITICAL FACTORS McDonalds employees and job applicants are selected, trained, promoted and treated on the basis of their relevant skills, talents and performance and without reference to race, color, nationality, ethnic origin, gender, marital status or disability. In support of this, McDonalds also has a policy on Sexual and Racial Harassment. All McDonalds restaurants work to standards which meet the highest best practice guidelines for Building and Health and Safety regulations. ENVIRONMENTAL / ECOLOGICAL FACTORS McDonalds is analyzing every aspect of its business in terms of its impact on the environment and is committed to waste minimization with a target of a 50% volume reduction. McDonalds works only in partnership with suppliers with sound environmental practices. It also has a manager responsible for environmental affairs. A revolutionary new static waste compactor is now in 60 restaurants, which reduces waste volumes by an average of 40-50%. McDonalds is committed to using recycled materials wherever possible in its packaging and business in general. Waste oil makes up 10% of a restaurants waste and is recycled via local collectors at regional refineries, into animal feedstock and other by products. In April 1988, McDonalds switched to non-CFC foam packaging which carries the CFC-Free message. McDonalds is playing an active role in global efforts to develop more environmentally friendly refrigerants. SOCIO- CULTURAL FACTORS McDonalds feels that it address public concern regarding nutrition through a combination of stringent product standards, strictly enforced restaurant operating procedures, and close working relationships with suppliers to assure that McDonalds food is safe and of the highest quality. It also discloses nutritional and ingredient information regarding its menu items through in-store posters and brochures distributed upon request. In the early 1990s, international expansion into new cultures and corresponding eating habits resulted in new product introductions in several locations. McDonalds new items generally receive no advertising and little sales promotion during the test period. TECHNOLOGICAL FACTORS McDonalds corporation has built a whole range of systems such as intranets, wireless applications or innovative kiosk systems, all based on Days Commu ­niquà ©. In their most recent initiative, the company migrated their global internet presence mcdonalds.com to our platform. An important component of McDonalds operational strategy is to anticipate customer traffic patterns and food selection based on a detailed analysis of sales history and trends. Restaurants use this information to prepare menu items in the right quantities and at the right times to have the food ready for customers when they arrive. To ensure freshness, all food not served within 10 minutes must be discarded. ECONOMIC FACTORS During the late 1990s and the beginning of the new millennium, McDonalds found itself in a regression, the first one since its conception in 1955. The Gold Arches werent shining like they once did, however there are in the process of being polished, figuratively speaking. In 2003 McDonalds ranked eighth out of 100 brands in the Global Brand Scoreboard assembled by Interbrand Corporation and Business Week, proving that McDonalds is one of the worlds best known and most valuable brands. However, that wasnt the case during 2001 and 2002. LEGAL FACTORS The legal framework includes that any company in the Food and Beverages industry must not transport commodities that are hazardous to life and property or that are contraband in nature. Example: illegal drugs and unlicensed arms and ammunition. McDonalds serves 100% beef, 100% chicken, and Grade A eggs. McDonalds food comes only from certified suppliers who are audited and inspected on a regular basis. More than 2,000 safety, quality and inspection checks surround McDonalds food as it moves from the farms to our restaurants. McDonalds requires that 72 safety protocols are conducted every single day in McDonalds restaurants. McDonaldss Strengths Weaknesses Opportunities and Threats Strong Player Global Existence and Massive Size Strong Brand Marketing Outlets easily accessible Consistency and Fast Service Weak Product Differentiation Slowed Revenue and income growth Mature Industry Strength of competition More health conscious consumers International Expansion Only serving 1% of worlds population Growing dining-out market Strengths McDonald is a strong player in international market with his competitors hardly half the business. Global existence and massive size allows him more diversification in food menu. Exceptionally strong brand recognition and aggressive marketing. A strong real estate selection makes its outlets located in the areas which are easily accessible It has the consistency in his fast food supply and success of its food items Weaknesses Lack of product differentiation. The competitors also brought about the development of similar products. Too many competitors entering the market which reduces the companys ability to increase revenue and also leads to slow income growth. Opportunities More international expansion, as it still required penetrating in many countries especially in Asia, Europe and Latin America covering only 1% of world population There has been an increase in the number of people who dine out, thus paving way for growth Threats Market saturation leaving less scope for expansion and revenue generation. Competitors are quite strong and gaining good market share with new innovations. More people are getting health conscious and switching to different eating habits. Findings and Implications Domination of the industry McDonalds Corporation services the worlds largest chain of fast food outlets and has established as a Market Leaders. It has a market share of around 7.7% in the quick service industry in the United States. It holds a market of 43.1% in the burger segment. But it may need to grow in the non-burger fast food market. Growth As far as domestic market is considered there has the growth has slowed down. The companys revenue grew by 9% to record a $21.6 Billion. The comparable sales of the organization increased to about 5.7% from the year 2005 and the system wide sales increased to 7%. Income from continuing operations per common share was $2.30 with $2.03 in 2005. The following is a five year analysis of the number of McDonalds UK retail outlets and their pre-tax profits: 1997 1998 1999 2000 2001 No of restaurants 836 928 1016 1117 1184 Pre-tax profit ( £m) 100.2 82.3 127.9 137.5 141.4 The Growth of Mc Donalds in terms of restaurants can be viewed as below: International Sector McDonalds has expanded to many countries throughout the world. It has opened 744 restaurants in 2006, ending the year with more than 31000 outlets worldwide. The company has clearly demonstrated extensive and impressive growth by expanding into markets across the globe, increasing penetration into the existing markets and stretching its product range to include exciting breakfasts. It is often conceived that McDonalds is approaching the end of its extended growth phase. But with increasing population throughout the world, assuming people consume three meals a day, it serves around 1% meal a share position that provides possibilities for plenty of growth within the industry. Competition is however aggressively snapping at the base of golden arches. A new genre of restaurants seems to have emerged in the market, dubbed as the fast casual. They are offering consumers fresher, healthier and more variety of food in a more inviting ambience. Recommendations Prospects for growth Strategy High Market Share Mature Markets Market leader in one product market Maintaining Market Share Substitutes entering the market Maintaining Dominance in the market Increase of Market size Innovative redefinition of existing markets. Expand into related product market Maintaining good relationship with customers and suppliers. If high prospects for growth then entry into substitute market Buying some of the emerging firms in order to reduce competition through expansion. McDonalds is the company with the highest market share in the Fast food industry. In order to expand and grow further it is necessary for the organization to expand the market itself. This can be done by the introduction of innovative food items in the menu in order to attract all kinds of consumers. Without innovation expanding the market size might prove advantageous to the competitors too. Mature markets can be handled by redefining the existing markets in a way that from redefining new markets are created in order to expand. In order to redefine the market they can introduce jumbo sized burger and sandwiches at reasonable price which is sure to attract more customers from all categories and hence expands the market. Since McDonalds is a Market Leader in the Fast food industry, it can continue with the expansion into other related industries. Like McCafe in the coffee industry, it can expand into another field like having their own drinks produced and manufacturing. In order to maintain its current market share it should continue to maintain good relationship with customers and suppliers by ensuring more quality to its consumers When there is a threat of healthier substitutes entering the market, McDonalds can also enter into the substitute market if it has prospects for growth and it is developing in its early stages which will avoid McDonalds from facing threats. The major substitutes McDonalds have are the healthier ones. In order to face the threat from substitutes, McDonalds can make their menu healthier, they can have a low fat menu items with sandwiches, wraps and burgers that are healthier In order for McDonalds to maintain its market dominance, it can buy small but emerging firms in the industry so that the competitors reduce in number. ANSOFFS PRODUCT EXPANSION GRID PRODUCTS CURRENT NEW M A R K E T S CURRENT Market Penetration Strategies Current Products: Big Mac, Grilled Chicken Foldovers, Beverages, French Fries etc. Current Market: Students, Working Professionals, families. Collaboration with institutes, universities Opening outlets at campuses, easily accessible places, commercial areas Investments on advertisements, vouchers, coupons etc Product Development Strategies Introducing Vegetables food Healthy and Nutritious products, e.g. Brown bread instead of white one. Successful product launches in U.S. included Premium Roast Coffee, the Asian Salad and snack wrap. Combination of continental food with local food at affordable price NEW Market Development Strategies Entering into more developing countries Offering franchise in new market More Advertisement and promotion Inaugural discounts Providing membership cards Buying some emerging firms Diversification Strategies New restaurants offering various cuisines Cake shops, bakery items Improving distribution or delivery service. The Ansoffs Matrix depicts the Market expansion strategy for McDonalds. Conclusion The extensive research of McDonalds Corporation has been pursued. The company being the major player in the fast food industry has a competitive edge over the others within the industry. It has created great popularity amongst its customers especially amongst the kids who are McDonalds key target customers. The company does face a threat of expanding in the mature market and taking over by the competitors which has been highlighted. It has several key strategies which if maintained will continue to stay as the leader in the fast food industry. The key points being its quick and fast service, quality food, easily accessible and fair pricing of the food items. The Health factor towards which the trend is moving is to be considered by the organization which will be added advantage to its growth and expansion.