Javier Vasquez

Alexis Rojas Lopez

Deonte Payne
Lindsy Creamer
John Kwak
Morgan Hewett
McDonalds Case Study
The Golden Arches is one of the most globally recognized logos. Richard and Maurice
McDonald founded McDonalds on May 15, 1940 as a barbecue restaurant. Their first restaurant
as a hamburger-based operation opened in 1948 in San Bernardino, California. During the
1960s McDonalds grew extremely fast and their stock became public in 1965. The first
restaurant outside of the U.S. was opened in 1967 in British Columbia, Canada. Since founded,
the corporation has grown to over 36,000 restaurants and operates in more than 100 countries. In
2015, their total revenues totaled to $25.41 billion dollars (Market Watch). Since 1998-Present,
the company has gone through six CEO changes, which has resulted in ample multiple
upper-management restructuring.
External Challenges
Two major challenges lead to McDonalds implementing product differentiation and a
turnaround strategy. The major external challenge for McDonalds is high competitive rivalry.
McDonalds major competitors are constantly adding new menu items and strategies to improve
overall profits and establish long term growth. For example, Burger King introduced the Mac N
Cheetos and Chicken Fries to their menu. Wendys began remodeling their stores and adding

new menu items to transform their brand. The toughest competitors McDonald's faces are
Chipotle, Subway, Wendys, Burger King, and Taco Bell. Aside from high competitive rivalry,
consumers are looking for healthier or more diverse food options available. In order to maintain
their dominant position in the market, McDonald's has responded by adding several items to their
menu: McCafe, salads, and snacks.
The second external challenge has to deal with McDonalds issue on negative publicity.
The brand has a reputation for unhealthy, processed and sugary foods that it cant quite shake,
especially among millennials, no matter how much they improve the quality of their products
The fast food chain has been widely criticized for promoting unhealthy eating habits. Prior to
nutritional facts needing to be labeled on their products, McDonalds constantly promoted the
supersize option which upgraded the customers meal to an extra-large size. The high intake of
sodium, carbs, and fat negatively impacted McDonalds image even more to the general public.
As a result, many health conscious consumers did not even consider having a meal at
McDonalds, despite their efforts on introducing new healthier items, such as phasing out
caramel dipping sauce for apple slices from the Happy Meals but that process took over a year to
complete. McDonalds needs to improve their brand image into a better quality restaurant
because releasing healthier food items in the future will be a challenge with societys current
perception. With research and development expenses being very high, McDonalds has more
financial risk in implementing a new product if the consumers perception is very poor towards
their products. Once the brand image challenge has been resolved or improved, healthier food
items will have a better chance of succeeding.

Internal Challenges
Along with these external challenges, McDonalds also encountered internal challenges
which deal with their product development, customer service innovation, higher operating costs
with healthier products, and unsustainable CEO restructures.
McDonalds failed to introduce many successful new items to their menu. McDonalds
responded to customers who were searching for a variety of food options, rather than just burgers
and fries. McDonalds introduced two new burgers which were the McLean and Arch Deluxe,
but also added new additions to the menu that failed because poor product research and
development. Some of these included a pizza that could not fit through the drive thru window
and a new salad dressing holder that was so tightly packed, the dressing could not flow through
it. The two different CEOs over this time period pushed the company to introduce as many new
items as possible, most of which were unsuccessful. In 2002, McDonalds reported its first ever
decline in annual earnings. After these failures, McDonald's realized their mistakes and began to
focus on core menu items rather than constantly bringing in new items.
McDonalds has also struggled with the internal challenge of increased operating costs
through their efforts to improve their negative publicity. McDonalds response to their unhealthy
image has resulted in emphasis on improving the quality of their food. Improving their quality
included a variety of different lettuce, cheeses, meats, fruits, vegetables, and introduction of their
salads. These higher quality ingredients required better storage and cooling during transportation
to different restaurants which were more expensive than McDonalds anticipated. The company
has suffered higher operating costs from shipment and storage as a result of trying to improve
their food quality.

According to a study by QSR Magazine, the wait at McDonald's drive-thrus is the longest
in at least 15 years. At 189.5 seconds, it's also nine seconds longer than the industry average
(Lutz). McDonald's needs to implement better ways to decrease wait time. A reason McDonalds
may be taking longer than necessary is due to miscommunications between customers and
employees.
The last internal challenge McDonalds has struggled with is their CEO retention. Since
1998, McDonald's has had six different CEOs. Each CEO has focused on different ways to
improve the company, one example being Jack Greenberg. His efforts to introduce new items to
the menu, described in a paragraph above, and his purchase of hundreds of non-burger chains
contributed to the annual earnings decline and resulted in his replacement.
Strategies
Since early 2004, McDonalds Board has been led by an independent Chairman, Andrew
McKenna. He and other independent Directors meet regularly without management present to
evaluate the Companys results, plans and challenges, as well as managements performance and
the strength and development of the leadership bench (Corporate Governance). Since this board
has been led by an independent chairman, there has been no forced CEO changes due to the
board making sure the CEO's decisions are at the interest of the shareholders.
Due to McDonalds being in the maturity stage of the product life cycle, they have been
experiencing slow growth. This slow growth has led them to lean on some strategies that could
help them stay dominant and innovative in the industry. McDonald's has turned to product
differentiation to implement new ideas to help them remain competitive and stand out against
rivals. Several successful menu items McDonalds added as a result of product differentiation

are: McCafe, McGriddle, and salads. The McCafe has been a game changer as it has added a new
market to their business. McDonald's has implemented the McCafe which is something they are
using to help them stand out from just being a burger restaurant. This portfolio allows consumers
to make a one-stop shop rather than them having to go to starbucks or Smoothie King for coffee
and smoothies. The McCafe offers specialty beverages like espressos, gourmet coffee,
smoothies, and hot chocolate.
In order to increase sales they revamped their salads and introduced the McGriddle
breakfast sandwich to go along with the McCafe menu items. McDonald's has also made use of
the turnaround strategy and began to sell outlets that the company owned. In the case it mentions
that 75% of the outlets are in the hands of the franchisees and other affiliates. McDonald's is
making changes to their overall strategies to help them stay dominant while they are in the
maturity stage.
Solutions
We have found two different solutions that McDonald's could implement. The first
solution is to install touch screen self-ordering systems in all of their locations. This may be done
both inside the restaurant or by adding a new drive-through that allows the customer to order
their own customized meal. This solution will prevent miscommunication and customers can
order as quickly or as slowly as they desire. This will also lead to a higher customer satisfaction
rating and decrease their labor costs. The downsides to this solution are that it
will lead to job loss as the employees managing the cash registers will no longer be as needed as
they were, and the initial installation costs and maintenance costs will be large to McDonald's.
The second solution we found is to focus on their core menu items and product development

instead of trying to frequently expand. McDonalds has had several menu flops over the past
couple of decades, like the McLean Deluxe and a pizza that would not fit through a drive-thru
window. These failures show that instead of focusing on the menu items that actually sell,
McDonald's has instead tried to be innovative without doing proper research and development.
The downside to this solution is that McDonalds could fall behind its competitors if they, too,
choose to create innovative new menu items.
Recommendation
The solution we would most recommend is the solution to implement the self-ordering
systems in all of their locations. By placing these systems in their restaurants and in drive
throughs, customers will not have to wait in line as long and it will be easier to read the menu as
it will be right in front of them rather than seven feet away on the wall. Even though it is possible
that employees may lose their jobs, they may just be put in the back to food prep instead of
manning the register, and that saves them their employment. McDonalds will also possibly gain
a better reputation because customers will be more satisfied with their dining experience at their
restaurants.
Discussion Questions
1.) Why do you think the McLean, McPizza, and McLobster was a fail?
2.) Do you avoid Mcdonalds because of the customer service, food quality, or variety of
menu options?
3.) Would you use the touch-screen service if implemented? Why?
4.) If you were the CEO, what solution or food item would you implement or focus on?
5.) What are your thoughts on McDonald's focusing on a healthier lifestyle based menu?
How does that affect their brand image?

References
Lutz, A. (2013). McDonald's Customer Service Has Never Been Worse. Retrieved October 17,
2016, from http://www.businessinsider.com/mcdonalds-needs-better-customer-service-20
13-10
McDonald's Corp. (n.d.). Retrieved October 18, 2016, from
http://www.marketwatch.com/investing/stock/mcd/financials
McDonald's Corporation Corporate Governance (NYSE:MCD). Retrieved October 18, 2016, from
http://www.wikinvest.com/stock/McDonald's_Corporation_(NYSE:MCD)/Corporate_Gove
rnance
McDonald's Food Suppliers & Food Sources | McDonald's. (n.d.). Retrieved October 18, 2016,
from https://www.mcdonalds.com/us/en-us/about-our-food/meet-our-suppliers.html
McDonald's unhealthy image and why it can't shake it. (2015). Retrieved October 19, 2016, from
http://national.deseretnews.com/article/4486/mcdonalds-unhealthy-image-and-why-it-cant-s
hake-it.html