I.

RESEARCH FINDINGS

A. THE SUBJECT COMPANY: MCDONALD’S CORPORATION

Company Profile

Headquarter: 110 North Carpenter Street, Chicago, IL 60607, United States

Sector: Consumer Cyclical
Industry: Restaurants

Description

McDonald's Corporation operates and franchises McDonald's restaurants in the United States and
internationally. Its restaurants offer various food products, soft drinks, coffee, and other
beverages, as well as breakfast menu. As of December 31, 2018, the company operated 37,855
restaurants, including 35,085 franchised restaurants comprising 21,685 franchised to conventional
franchisees, 7,225 licensed to developmental licensees, and 6,175 licensed to foreign affiliates; and
2,770 company-operated restaurants. McDonald's Corporation was founded in 1940 and is based
in Chicago, Illinois.

Brief History

The McDonald Brothers, Dick and Mac McDonald moved to California to seek opportunities they
felt unavailable in New England. Failing in the movie business, they subsequently proved successful
in operating drive-in restaurants. In 1948 they took a risk by streamlining their operations and
introducing their Speedee Service System featuring 15 cent hamburgers. The restaurant’s success
led the brothers to begin franchising their concept—nine becoming operating restaurants.

McDonald brothers San Bernardino McDonald’s restaurant 1948-1955. It was in

this restaurant that Dick and Mac McDonald perfected their Speedee Service
System featuring a limited menu including fifteen cent hamburgers, shakes and
fries

Ray Kroc, a native Chicagoan, visited the McDonald brothers in 1954 which led to him becoming
their franchise agent. He opened up the first restaurant for McDonald’s System, Inc., a predecessor
of McDonald’s Corp. in Des Plaines, Illinois in April, 1955. McDonald’s acquired the rights to the
brother’s company in 1961 for $2.7 million. Ray Kroc’s vision was that there would be 1,000
McDonald’s restaurants solely in the United States. Yet, McDonald’s continued to grow and expand
into international markets beginning in 1967 opening in Canada and Puerto Rico. Today, the
company has over 36,000 restaurants in over 100 nations. The most recent opening in Kazakhstan
in 2016.

STRATEGIC DIRECTION

The strength of the alignment among the Company, its franchisees and suppliers (collectively
referred to as the "System") is key to McDonald's long-term success. By leveraging the System,
McDonald’s is able to identify, implement and scale ideas that meet customers' changing needs
and preferences. McDonald's continually builds on its competitive advantages of System alignment
and geographic diversification to deliver consistent, yet locally-relevant restaurant experiences to
customers as an integral part of their communities.

CUSTOMER-CENTRIC GROWTH STRATEGY

Beginning in 2015, the Company made purposeful changes to execute against key elements of its
turnaround plan including a renewed focus on running better restaurants, driving operational
growth, returning excitement to the brand and enhancing financial value. The Company’s current
momentum is broad-based throughout the System and its recent performance demonstrates that
McDonald’s has completed the transition from turnaround to growth.

In 2017, the Company shifted its focus to delivering long-term growth through accelerated
execution of its customer-centric strategy - the Velocity Growth Plan. This plan outlines actions to
drive sustainable guest count growth, a reliable long-term measure of the Company's strength,
that is vital to growing sales and shareholder value.

The Velocity Growth Plan is rooted in extensive customer research and insights, along with a deep
understanding of the key drivers of the business. The Company is targeting the tremendous
opportunity at the core of its business - its food, value and customer experience. The strategy is
built on the following three pillars, all focusing on building a better McDonald’s:

 Retaining existing customers - focusing on areas where it already has a strong foothold in the
informal eating out category, including family occasions and food-led breakfast.
 Regaining lost customers - recommitting to areas of historic strength, namely food taste and
quality, convenience and value.
 Converting casual to committed customers - building stronger relationships with customers so
they visit more often, by elevating and leveraging the McCafé coffee brand and enhancing
snack and treat offerings.

In each pillar, McDonald’s has established sustainable platforms that enable execution of the plan
with greater speed, efficiency and impact while remaining relentlessly focused on the
fundamentals of running great restaurants. Additionally, through three identified growth
accelerators - Experience of the Future (“EOTF”), Digital and Delivery - McDonald’s is enhancing
the overall customer experience with hospitable, friendly service and ever-improving convenience
for customers on their terms. The Company met aggressive deployment targets for each one of
these accelerators in 2017 and continues further implementation in 2018 and beyond.
2017 FINANCIAL PERFORMANCE

The company's 2017 financial performance demonstrates that the Velocity Growth Plan is working.
By focusing on the aforementioned three pillars, and the identified growth accelerators, the
Company achieved its best comparable sales performance in six years. In 2017, global comparable
sales increased 5.3% and global comparable guest counts increased 1.9%, with positive results
achieved in all segments.

 Comparable sales in the U.S. increased 3.6% and comparable guest counts increased 1.0%.
The growth in comparable sales and guest counts was supported by the full breadth of our
menu, including national beverage value offerings, strong performance of core menu items
featured under the McPick 2 platform as well as Signature Crafted premium sandwiches
and other menu innovations.
 Comparable sales in the International Lead segment increased 5.3% and comparable guest
counts increased 2.3%, reflecting positive performance across all of the segment, led by
the U.K. and Canada.
 In the High Growth segment, comparable sales increased 5.3% and comparable guest
counts increased 1.8%. This performance reflects positive results across most of the
segment, led by China.
 Comparable sales in the Foundational Markets increased 9.0% and comparable guest
counts increased 3.3%, led by strong performance in Japan and Latin America, as well as
solid results across the remainder of the segment.

In addition to improved comparable sales and guest count performance, the Company achieved
the following financial results in 2017:

 Consolidated revenues decreased 7% (8% in constant currencies) as positive comparable

sales were more than offset by the impact of refranchising.
 Systemwide sales increased 7% (7% in constant currencies).
 Consolidated operating income increased 23% (23% in constant currencies), which
benefited from a gain on the sale of the Company’s businesses in China and Hong Kong.
 Operating margin, defined as operating income as a percent of total revenues, increased
from 31.5% in 2016 to 41.9% in 2017.
 Diluted earnings per share of $6.37 increased 17% (17% in constant currencies). • Cash
provided by operations was $5.6 billion.
 Capital expenditures of $1.9 billion were allocated mainly to reinvestment in existing
restaurants and, to a lesser extent, to new restaurant openings. • Across the System, about
900 restaurants (including those in our developmental licensee and affiliated markets)
were opened.
 The Company increased its quarterly cash dividend per share by 7% to $1.01 for the fourth
quarter, equivalent to an annual dividend of $4.04 per share.
 The Company returned $7.7 billion to shareholders through share repurchases and
dividends for the year.
 McDonald’s Corporation, Consolidated Statement of Income Data

B. THE TOP COMPETITORS IN RESTAURANT INDUSTRY

In view of the numerous competitors in the restaurant industry that are operating on a global scope, this
paper selected the two of the most prominent competitor of McDonald’s Corporation, e.i. YUM Brands,
Inc. and The Wendy’s Company.

1. YUM! Brands, Inc.

YUM! Brands, Inc., together with its subsidiaries, develops, operates, and franchises quick service
restaurants worldwide. It operates in three segments: the KFC Division, the Pizza Hut Division, and
the Taco Bell Division. The company operates restaurants under the KFC, Pizza Hut, and Taco Bell
brands, which specialize in chicken, pizza, and Mexican-style food categories. As of December 31,
2018, it had 22,621 KFC units; 18,431 Pizza Hut units; and 7,072 Taco Bell units in approximately
140 countries and territories. The company was formerly known as TRICON Global Restaurants,
Inc. and changed its name to YUM! Brands, Inc. in May 2002. YUM! Brands, Inc. was incorporated
in 1997 and is headquartered in Louisville, Kentucky.

In 2016, YUM! Brands, Inc. launched several initiatives to transform the company, centering on a
new multi-year strategy to accelerate growth, reduce volatility and increase capital returns to
shareholders. This transformation strategy is known as our “Recipe for Growth.” Four growth
drivers form the basis of this strategy to accelerate same-store sales growth and net-new
restaurant development at KFC, Pizza Hut and Taco Bell around the world. The Company is focused
on building the world’s most loved, trusted and fastest growing restaurant brands by:
 Building Distinctive, Relevant and Easy Brands, by increasing investment in consumer
insights, core product innovation, digital excellence and initiatives that strengthen the
quality, convenience and appeal of the customer experience;
 Developing Unmatched Franchise Operating Capability, strengthening how we equip and
recruit the best restaurant operators to deliver great customer experiences, and build and
protect our brands;
 Driving Bold Restaurant Development through partnerships with growth-minded
franchisees who can expand and penetrate markets with modern restaurants, strong
economics and value;
 Growing Unrivaled Culture and Talent to strengthen the customer experience and
franchise success with best-in-class people capability and culture.

YUM! Brands, Inc, Income Statement Data

 2. The Wendy's Company

As of December 31, 2017, the Wendy’s restaurant system was comprised of 6,634 restaurants, of
which 337 were owned and operated by the Company. All of the company-operated restaurants
are located in the U.S. as a result of the company completing its initiative during the second quarter
of 2015 to sell all Company-operated restaurants in Canada to franchisees. The company's
restaurants offer a range of chicken breast sandwiches, chicken nuggets, chili, French fries, baked
potatoes, salads, soft drinks, desserts, and kids' meals. Formerly, the company was formerly known
as Wendy's/Arby's Group, Inc. and changed its name to The Wendy's Company in July 2011. The
Wendy's Company was founded in 1969 and is headquartered in Dublin, Ohio.

Wendy’s operating results are impacted by a number of external factors, including commodity
costs, labor costs, intense price competition, unemployment, general economic trends and
weather. Wendy’s strategic directions includes:

 Systemwide same-restaurant sales growth through continuing core menu improvement,

product innovation, customer count growth and strategic price increases on our menu
items
 System investment in our Image Activation program, which includes innovative exterior
and interior restaurant designs for our new and reimaged restaurants and focused
execution of operational excellence, (3) growth in new restaurants, including global growth
 Increased restaurant utilization in various dayparts and brand access utilizing mobile
technology
The Wendy’s Company, Consolidated Financial Statement
II. ANALYSIS AND CONCLUSION
PARAMETERS
Industry
Year Established
Scope of Operation
Operation Segments
Net Income for Year 2017
Name of Strategy
Strategies
Checklist based on the following perspective:
Customer Orientation
Competitor Orientation
Company Strengthening
Technological Innovations
Facility Modernization
Diversifying Brands
Partnership Strengthening
Employee Development
COMPARATIVE ANALYSIS OF THE THREE TOP COMPETITORS IN RESTAURANT INDUSTRY
MCDONALD’S CORP YUM! BRANDS, INC. THE WENDY'S COMPANY
Restaurant Restaurant Restaurant
1940 1997 1969
International International International
None KFC, Pizza Hut, and Taco Bell None
$ 5,192,000,000.00 $ 2,761,000,000.00 $ 194,000,000.00
Velocity Growth Plan Recipe for Growth None
 Retaining existing customers  Building Distinctive, Relevant and  Systemwide same-restaurant sales
 Regaining lost customers Easy Brands growth
 Converting casual to committed  Developing Unmatched Franchise  System investment in thru Image
customers Operating Capability Activation Program
 Focusing on restaurant  Driving Bold Restaurant  Increased restaurant utilization
modernization and technology Development thru technology
 Strengthening its relationships  Growing Unrivaled Culture and
with customers through Talent
technology
 Expanding delivery platforms
  
  
  
  
  
 
 
 
Considering that the world arena for restaurant industry is besiege by very competitive companies, the
comparative analysis based on the different perspective of the parameters of competitiveness of the
strategies of McDonalds’s Corporation is quite convincing that their strategies are working for the time
being. The company is by far one of the longest running restaurant in world which has overcome the
difficulties imposed upon them by the changing tides of times, globalizations, innovations, global politics
and other external forces that tends to equalize global setting.

However, they must try to explore the success behind the diversification of the brands of the YUM! Brands,
Inc., which currently occupies the second place in the competition. Said strategy of Building Distinctive,
Relevant and Easy Brands is undeniably working and reaps profits for them. It creates an illusion of
additional competition in the market that are basically being directed to its competitors, especially to the
one on the top of the competition.

Another thing that is lacking among the strategies of McDonald’s is their focus on strengthening their
partnership with their franchise holder. Considering that McDonald’s 37,855 restaurants, only 2,770 of
such are being directly operated by their company. Essentially, losing a portion of their franchise holders
would be fatal to the overall image of their company, especially if they lost it to their competitors. Hence,
the said practice is being implemented by YUM! Brands, Inc., and The Wendy’s Company.

CONCLUSION

It could be concluded that the existing strategies of McDonald’s Corporation is working in as far as the
profitability of their company is concerned. However, should they be planning to keep their competitive
edge for the upcoming years or even decades to come, it is recommended that they must also consider
other perspectives that are basically external to their organization such as the perception of their target
market, especially on branding, and strengthening their partnership.
III. REFERENCES

https://finance.yahoo.com/news/domino-pizza-stock-looks-too-164749478.html
https://finance.yahoo.com/news/mc-donalds-beats-earnings-expectations-posts-14-consecutive-
quarters-of-sales-growth-130643364.html
https://finance.yahoo.com/quote/WEN/profile?p=WEN
https://markets.businessinsider.com/news/stocks/what-is-mcdonald-s-experience-of-the-future-
1002206789
https://www.annualreports.com/HostedData/AnnualReports/
https://www.businessinsider.com/the-worlds-largest-fast-food-chain-is-floundering-2015-1
https://www.irwendys.com/financials/
https://www.qsrmagazine.com/fast-food/mcdonalds-spending-6-billion-nationwide-remodels
PHILIPINE CHRISTIAN
UNIVERSITY
Graduate School of Business Education
- Master in Business Administration -

Strategic
Management 1
Learning Exercise 1
Strategy-Evaluation Report for McDonald’s Corporation

Prepared by:

JOHNMARK A. DE LEON