MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE

NATIONAL AVIATION UNIVERSITY

Management of Foreign Economic Activity of Enterprises Department

HOMEWORK
on the discipline “Strategic Management”
Topic: “Strategic Management of McDonald’s Corporation”

Performed by: Anna Lazarieva

Group – 418 FTML
Checked by: Kolesnyk M.V.

Kyiv – 2019
2

CONTENT
 INTRODUCTION.........................................................................................................
3 PART 1. GENERAL ECONOMIC ANALYSIS OF THE
COMPANY ..................... 4 1.1. General information about
“McDonald’s”.......................................................... 4 1.2. Economic activity of
McDonald’s Corporation............................................... 11 PART 2. STRATEGIC
STUDIES OF MCDONALD’S CORPORATION .............. 15 2.1. Strategic
analysis............................................................................................... 15 2.2. SWOT-
analysis of McDonald’s Corporation.................................................... 23 PART 3.
PROJECT PART ......................................................................................... 25 3.1. A
concept of the strategy of the enterprise........................................................ 25 3.2.
Developing strategy of the enterprise ............................................................... 29
CONCLUSIONS.........................................................................................................
36
REFERENCES............................................................................................................
38
3

INTRODUCTION
“We will drive innovation, becoming more relevant
to our customers and the communities, we serve.”
(Steve Easterbrook, McDonald’s CEO)
McDonalds Fast Food Company is among the largest food service retail
corporation. The strategic focus and organizational management have positioned
McDonalds to compete effectively in an already competitive industry and thus edge a
competitive base in the industrial environment and enjoy a market niche for its
business. Customers visit its outlet on the daily basis because of the ability of
McDonalds to create a company’s image that enhances people to get accustomed to
the culture of fast food. Together with advertising companies that leaves the brand
image in the consumer’s mind, McDonalds continue not only to penetrate the market
but also expand their market size. As a result, there are number of strategies that
McDonald builds on to remain competitive in the industry and achieve business and
organizational objective. The overall point in the strategic thinking and management
of McDonalds rests on the enhanced flexibility on its customer service, business
model, reaching and analyzing the strategic edge considering competitive advantage
and business level strategies.
The purpose of the work is to analyze the wider environment in which
McDonalds operates, competition within the fast food industry, strategic focus, and
how to address challenges that occur within the industry.
The main tasks of this work are:
➢ provide a general description of “McDonald’s”;
➢ analyze the financial and economic activity of “McDonald’s”
➢ carry out a strategic analysis of the activities of “McDonald’s”. During the
study, the principles of systematization, observation, series of dynamics, analysis,
synthesis and general scientific methods were applied. For the processing of
economic information, graphic representation used computer technology.
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PART 1. GENERAL ECONOMIC ANALYSIS OF THE COMPANY

1.1. General information about “McDonald’s”

McDonald's is an American fast food company, founded in 1940 as a restaurant

operated by Richard and Maurice McDonald, in San Bernardino, California, United
States. They rechristened their business as a hamburger stand, and later turned the
company into a franchise. In 1955, Ray Kroc, a businessman, joined the company as
a franchise agent and proceeded to purchase the chain from the McDonald brothers.
Founded in 1955 (by Kroc). Franchising since: 1955.
Table 1.1
Brief information about McDonald’s
Name McDonald’s Corporation

Logo

Industries served Restaurants (McDonald’s, McCafe, McExpress, McStop)

Geographic area served Worldwide (37,241 restaurants in 120 countries)

Headquarters Oak Brook, Illinois, United States

 Current CEO Stephen J. Easterbrook

Revenue (US$)
22.820 billion (2017)

Profit (US$)
5.192 billion (2017)

Employees 235,000 (2018)

Main competitors Burger King Worldwide, Inc., Darden Restaurants, Inc., Doctor’s
Associates, Inc. (Subway), Domino’s, Dunkin’ Brands Group,
Inc., Yum! Brands, Inc. (KFC), Starbucks Corporation and may
other restaurant chains.

(Developed by the author on the basis of [2] and [1])

Each McDonald's restaurant is operated by a franchisee, an affiliate, or the

corporation itself. Approximately 85% of McDonald’s restaurant businesses world
wide are owned and operated by franchisees .All franchisees are independent, full
time operators. The power of franchisees, suppliers and employees working together
toward a common goal is what makes McDonald’s the world’s leading quick-service
restaurant brand.
5

➢ Franchisees bring the spirit of entrepreneurship and commitment to

communities
➢ Suppliers are dedicated to highest levels of quality and safety
➢ The company facilitates learning and sharing across McDonald’s more than
36,000 restaurants
The history of “McDonald’s” restaurant is following: The siblings Richard and
Maurice McDonald opened in 1940 the first McDonald's in San Bernardino,
California, but it was not the McDonald's recognizable today. It was called “Speede
Service Restaurant”; Ray Kroc made changes to the brothers' business to modernize
it. In 1954, he visited a restaurant in San Bernardino, California that had purchased
several Multimixers. There he found a small but successful restaurant run by brothers
Dick and Mac McDonald, and was stunned by the effectiveness of their operation.
They produced a limited menu, concentrating on just a few items – burgers, fries and
beverages – which allowed them to focus on quality and quick service.
Ray Kroc wanted to build a restaurant system that would be famous for
providing food of consistently high quality and uniform methods of preparation. He
wanted to serve burgers, fries and beverages that tasted just the same in Alaska as
they did in Alabama. To achieve this, he chose a unique path: persuading both
franchisees and suppliers to buy into his vision, working not for McDonald’s but for
themselves, together with McDonald’s. He promoted the slogan, “In business for
yourself, but not by yourself.” His philosophy was based on the simple principle of a
3-legged stool: one leg was McDonald’s franchisees; the second, McDonald’s
suppliers; and the third, McDonald’s employees. The stool was only as strong as the
three legs that formed its foundation.
The clown, Ronald McDonald, appeared in advertising to target their audience
of children. Kroc later purchased the McDonald brothers' equity in the company and
begun the company's worldwide reach. Kroc was recorded as being an aggressive
business partner, driving the McDonald brothers out of the industry.
Kroc and the McDonald brothers fought for control of the business, as
documented in Kroc's autobiography. With the expansion of McDonald's into many
6

international markets, the company has become a symbol of globalization and the
spread of the American way of life. Its prominence has also made it a frequent topic
of public debates about obesity, corporate ethics, and consumer responsibility. By the
way, there is even a film, based on a true story about “McDonald’s” evolution. It is
called “The Founder” (2016) - Michael Keaton Movie. All details about foundation of
the restaurant are described there.
McDonalds is a popularly known Market Leader in the Fast food Industry or
better known as the ‘Burger’ Industry. The company has successfully established a
popular brand image. From colors of yellow and red, to advertising whenever a local
outlet has opened, to the bright menu behind the McDonalds counter, to the chairs
and tables which are polished and always in a specific layout, to the way people in a
McDonalds always behave nicely, there are many brand elements which contribute
towards making McDonalds an admired brand.
 Figure 1.1. Evolution of “McDonald’s logo”
Developed by the author on the basis of [2].

The statistic shows the brand value of the 10 most valuable fast food brands
worldwide in 2018. In that year, the brand value of Starbucks amounted to
approximately 44.5 billion U.S. dollars. McDonald's was the most valuable fast food
brand in the world with an estimated brand value of about 126.04 billion U.S. dollars.
(look at figure 1.2). According to IBISWorld, in 2014, McDonald’s had the largest
7

share in the fast food restaurant industry of 17% in the U.S. The closest competitor,
Yum! Brands (or YUM), had a market share of 11%..
It gets about 82% of its revenue from 8 different countries which include
Japan, Korea, Australia, France, Germany and USA. But the biggest achievements
got by McDonald in these countries is creating a good name and brand image in
people’s mind and hygiene cautions are the main driving advantage it has which
helps the “McDonald’s” to attract many customers.
 Figure 1.2. Brand value of the 10 most valuable fast food brands worldwide in
2018 (in million U.S. dollars)
Source: [1].

McDonald's competitive advantage is based on the following points: a cheap

price is McDonald's main competitive advantage. The company is engaged in an
extensive utilization of economies of scale to achieve the cost advantage. In
McDonald’s the business strategy for the company is to make food fast available to
its customers at a very low competitive price but to get profit as well by reducing the
cost of the product and expanding the business worldwide.

McDonald’s vision:
“To be the best and leading fast food provider around the globe”
8

Mission statement:
“McDonald’s vision is to be the world’s best quick service restaurant
experience. Being the best means providing outstanding quality, service, value, and
cleanliness so that we make every customer in every restaurant smile”.
“Our worldwide operations have been aligned around a global strategy called
the ‘Plan to Win’ centering on the 5 Ps for exceptional customer experience: People,
Products, Place, Price and Promotion.” “We are a learning organization that aims to
anticipate and respond to changing customer, employee and system needs through
constant evolution and innovation.”
 McDonald’s way:
➢ Move forward – focus on what is best for the system
➢ Contributions – recognize individual and team achievements
➢ Develop – integrity and trust
➢ Open Communications – confront and resolve problems
➢ No losers – aim for “Win Win” situation
➢ Actively listen – act the way you talk
➢ Leverage diversity – debate for the benefit of the system and customer
➢ Deliver – all commitments
➢ Support – decisions 100%.
So, McDonald’s mainly uses the strategy of competing on cost (cost
leadership). They try reducing cost with more efficient equipment. For example, in
McDonald lighting represent an important role in reducing the cost of its operations.
McDonald uses fluorescent low consumption lighting in the kitchen. Tests revealed
that each restaurant saves 11,000kWh of electricity each year. McDonald has a policy
to be in the market as a market leader. In order to keep its leadership it keeps low cost
and gets more income by selling food at cheap price. Food made with the help of
machine is considered more hygienic. [7]
McDonald’s Corporation’s organizational structure ,as we can see, in the
figure 1.3 is divided into top level executive, finance department, marketing
department, sales department and restaurant level executive. Operation management
9

strategies in McDonald are being made by made by top management. These strategies
are implemented in all the branches of the McDonald and these strategies are
distributed to all its franchise branches in the written form. So there are operational
managers in all the branches that control all operational activities.
 Fi

gure 1.3. Example of organizational structure of “McDonald’s” Source:

[8]

Generally, the concept of product includes: a good, a service, an idea The good
of “McDonald’s” is represented as food. And it includes in a menu: 1. Burgers
(Hamburger, Cheeseburger, Hamburger, Double Cheeseburger, Big Mac, Bacon
Smokehouse Burger, etc.)
2. Chicken and sandwiches (Chicken McNuggets, McChicken, Filet-O-Fish,etc.) 3.
Salads (Southwest Grilled Chicken Salad, Side Salad, Bacon Ranch Grilled
Chicken Salad, etc.)
4. Snacks (World Famous Fries, Apple Slices, Carrot Slices, etc.)
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5. Desserts&Shakes (Chocolate Shake, Strawberry Shake, Vanilla Cone,

McFlurry, Baked Apple Pie)
6. Beverages (coffee, tea, juice, fresh juice, water, Coca Cola, and other) Services
provided – Wi-Fi (more than 15,000 Wi-Fi Enabled Restaurants around the Globe).
Local service providers provide high-quality Wi-Fi service through several
convenient connection options: on-line credit card payment, subscriptions, prepaid
cards, or (sometimes) promotional coupons. Customers can enjoy surfing and
working at the restaurant. Idea – to lead quick service, and make customers smile. So,
there is a success model of “McDonald’s” restaurant (fig. 1.5), which represents right
combination of good, service and idea.

Food Wi-Fi Quick and

Friendly service

Figure 1.5. Success model of “McDonald’s” restaurant

(Developed by the author on the basis of [2])

Time is the main factor which has impact for increase or decrease the
productivity. McDonald’s works toward maximum productivity in all of its business
areas. The following are some notable productivity measures or criteria used in
McDonald’s business:
➢ Order fulfillment rate (McDonald’s restaurant productivity)
➢ Stockout rate (Intermediary/distributor productivity)
➢ Timely delivery rate (McDonald’s delivery productivity)

Figure 1.6. Productivity (in terms of time)

To control productivity “McDonald’s” uses MFY (Made for you system (JIT)).
It allows them to reach the greatest productivity rates (especially in terms of time).
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1.2. Economic activity of McDonald’s Corporation

McDonald’s released its full year results on January 30, 2019. The company
beat the consensus earnings but missed slightly on revenue for the 4th Quarter. This
is primarily due to the refranchising of its restaurants that the company has been
undertaking for a couple of years. The company’s long-term goal is for 95% of
McDonald’s restaurants to be owned by franchisees, and at the end of FY 2018, this
figure stood at 92.7%. Overall the company posted revenue of $21.03 billion with
earnings of $7.50, up 18% year on year as the strategy has also helped them in cutting
down costs and thus improving margins.
McDonald’s Corp.’s economic profit increased from 2016 to 2017 and from
2017 to 2018. Economic profit is a measure of corporate performance computed by
taking the spread between the return on invested capital and the cost of capital and
multiplying by the invested capital.

Figure 1.7. Economic profit of McDonald’s Corporation

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McDonald’s Corp.’s economic spread ratio improved from 2016 to 2017 and
from 2017 to 2018. Economic spread ratio is the ratio of economic profit to invested
capital, also equal to the difference between return on invested capital (ROIC) and
cost of capital.

Figure 1.8. Economic spread ratio of McDonald’s Corporation

McDonald’s Corp.’s economic profit margin improved from 2016 to 2017 and
from 2017 to 2018. Economic profit margin is the ratio of economic profit to sales. It
is the company’s profit margin covering income efficiency and asset management.
Economic profit margin is not biased in favor of capital-intensive business models,
because any added capital is a cost to the economic profit margin.
The demand for McDonald’s foods and beverages has been plateauing for the
last few years as rivals catch up with the company, and negative performances of
economies affect it. However, the company still registers marginal growth as the
overall demand for fast foods around the world increases. The main reason for the
increase is the rise in population and the growth of the middle-income class in many
emerging economies. A big influence for change in the demand is consumer
preference. Many people are becoming aware of the health effects of eating junk
food. Therefore, they are watching their fat and calorie intake. The negative publicity
of McDonald’s foods does not make the matter better.
13

Profit margin represents the percentage of revenue that a company keeps as

profit after accounting for fixed and variable costs. It is calculated by dividing net
income by revenue. The profit margin is mainly used for internal comparisons,
because acceptable profit margins vary between industries. In general, narrow profit
margins indicate increased volatile earnings. For companies with significant fixed
costs, wide profit margins reduce the risk that a decline in sales will cause a net profit
loss. On the figure below the McDonald’s Profit Margin is described.

Figure 1.9. McDonald's Profit Margin

The company seeks to provide consumers with the most affordable food in the
market. It offers a dollar menu item that includes the essential daily nutrition
elements for individuals. Thus, consumers who are busy and need a quick meal prefer
to pick items from the dollar menu. At the same time, those looking for the most
affordable meal associate McDonald’s with inexpensiveness and frequent its
restaurants.
This table demonstrates the income sources of fast food restaurants from
different regions to highlight their growth and profitability prospects. It shows
McDonald’s as the company with the most diversified sources of income, closely
followed by Burger King
Table 1.2.
Income sources of fast food restaurants from different regions
2018 McDonald's Yum! Brands Burger King

Income from U.S. 31,5% 18,9% 58,0%

Income from Europe 40,0% 19,3% 29,3%

Rest of the world 28,5% 61,8% 12,7%

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The current ratio is a liquidity ratio that measures a company's ability to pay
short-term obligations. It is calculated as a company's Total Current Assets divides by
its Total Current Liabilities. McDonald's has a current ratio of 0.84. It indicates that
the company may have difficulty meeting its current obligations. Low values,
however, do not indicate a critical problem. If McDonald's has good long-term
prospects, it may be able to borrow against those prospects to meet current
obligations.
Table 1.3.

The current

ratio can give a sense of the efficiency of a company's operating cycle or its ability to
turn its product into cash. Companies that have trouble getting
paid on their receivables or have long inventory turnover can run into liquidity
problems because they are unable to alleviate their obligations. Because business
operations differ in each industry, it is always more useful to compare companies
within the same industry. Acceptable current ratios vary from industry to industry and
are generally between 1 and 3 for healthy businesses. The higher the current ratio, the
 more capable the company is of paying its obligations. A ratio under 1 suggests that
the company would be unable to pay off its obligations if they came due at that point.
15

PART 2. STRATEGIC STUDIES OF MCDONALD’S CORPORATION 2.1.

Strategic analysis
Every organization including McDonald’s is influenced by environmental factors. In
business discussion, internal factors of an organization are discussed as a part of micro-
environment and external factors are treated as macro-environment. Macro analysis is
also known as PESTEL analysis and is shown on the table 2.1.

Table 2.1
PESTEL-analysis of McDonald’s Corporation
 Legal:
o Local legislation home market
o Regulatory bodies and processes
o Environmental regulations
o Employment law o Industry-specific regulations
Environmental: o Ecological
o Environmental issues
o Environmental regulations
o Customer values o Market values o Organizational
culture
o Staff engagement
16

3 Medium 6-12

months Negative Increasing Important

3 Medium 12 months Positive Increasing Important

The external factors and trends outlined in this PESTEL/PESTLE analysis

point to various threats relevant to McDonald’s. A recommendation to address the
combined threat of governmental guidelines for diet and health and evolving public
health policies is to continually improve the company’s menu. The aim is to make all
McDonald’s menu items healthful. This recommendation also addresses the threat
linked to the healthy lifestyle trend, and the threat associated with health regulations
in workplaces and schools. Regarding the threat of cultural diversity, it is
recommended that McDonald’s improve the flexibility of its international operations
to ensure that menu items match target consumers’ preferences. Also, the company
can further diversify its supply chain to address the threat of changes in climate
conditions in some regions.
There are many business growth opportunities enumerated in this
PESTEL/PESTLE analysis of McDonald’s Corporation. It is recommended that the
company increase its market penetration in high-growth markets. For example,
increasing the number of McDonald’s restaurant locations in high growth developing
countries in Asia can contribute to overall growth. This recommendation also deals
with the opportunity to grow based on rising disposable incomes in various markets
around the world. To address the opportunities that come with ecological trends, it is
recommended that McDonald’s expand its corporate social responsibility programs.
The strategic goal should include improving the environmental impact of the
business, while strengthening the brand and consumer perception about the business.
After conducting SPACE-analysis (it is given table 2.2. and fig. 2.1), we can
say that McDonald’s should implement forward integration and product
development.
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Table 2.2.
Calculation of SPACE-matrix
Financial strength Rating Environmental stability Rating Return on
investment 3 Rate inflation -3 Leverage 4 Demand changes -3 Net income 3
Price elasticity of demand -1 EPS 3 Competitive pressure -3 ROE 2 Barriers to
entry new markets -3 Cash flow 4 Risks involved in business -2 Average 3,17
Average -2,5 Y-axis 0,67
Competitive advantage Rating Industry Strength Rating Market share -4
Growth potential 3 Product quality -4 Financial stability 5 Customer loyalty -2
Ease of entry new markets 4 Control over other parties -2 Resources utilization
4 Profit potential 2
Demand variability 3
Average -3 Average 3,5 X-axis 0,5
 Figure 2.1. SPACE-analysis matrix of McDonald’s

The SPACE matrix tells us that our company should pursue an aggressive
strategy. Our company has a strong competitive position it the market with rapid
growth. It needs to use its internal strengths to develop a market penetration and
market development strategy. This can include product development, integration with
other companies, acquisition of competitors, and so on.
18

Strategic Positioning is defined as doing different activities than your

competitors or doing the same activities differently. This is the way your company
becomes a superior performer in the industry. Many people describe their positioning
based on their customer base. For example, Burger King focuses on young adult
males as their target customer. The strategy and positioning is directed to satisfy this
sector of the market. The company needs to select one or the other in both categories
or they will achieve below average results and be mediocre. We have selected one and
are doing it well. The positioning map of McDonald’s and its main competitors in
Ukrainian is shown in the figure 2.2. We choose for this analysis 2 factors – taste and
safety.

Fig

ure 2.2. Positioning map of McDonald’s and its competitors

As we can see, the main competitor of McDonald’s in the Ukrainian market is

KFC. But it has lower level of safety and taste comparing to McD. External factor
evaluation (EFE) matrix is a well-known strategic tool has been used for the
evaluation of external environment of a firm. External environment mainly consists
of political, legal, economic, social and technological factors. A firm should
determine the external factors and segregate them into opportunities and
19

threats. The opportunities are the options available for a firm to further strengthen its
position in a industry only if a firm exploit each offered opportunity. On the other
hand, threats are considered as negative factors for a firm which may harm its
position in a industry however, impact of threat could be minimized or eliminated if a
firm respond to each threat in a timely manner.
Table 2.3.
Matrix evaluations of opportunities and threats of McDonald’s Corporation
Key External Factors Weight Weighted
Score

Opportunities

Growing health trends among consumers 0,08 3,00 0,24

Globalization, expansion in other countries (especially in China 0,12 4,00 0,48

and India)

Diversification and acquisition of other quick-service restaurants 0,04 3,00 0,12

Growth of the fast-food industry 0,10 3,00 0,30

Worldwide deregulation 0,04 2,00 0,08

Low cost menu that will attract the customers 0,08 2,00 0,16

Discounts program 0,08 1,00 0,08

Threats

Health professionals and consumer activists accuse McDonald's 0,10 3,00 0,30
of contributing to the country's health issue of high cholesterol,
heart attacks, diabetes and obesity

The relationship between corporate level McDonald's and 0,09 3,00 0,27
its franchise dealers

McDonald's competitors threaded market share of the 0,12 4,00 0,48

company both internationally and domestically

Anti-American sentiments 0,07 2,00 0,14

Global recession and fluctuating foreign currencies 0,04 3,00 0,12

Fast-food chain industry is expected to struggle to meet the 0,04 2,00 0,08
expectations of the customers towards health and
environmental issues.
 Total 1,00 2,85

McDonald’s Corporation expands internationally through strategies that

account for the external factors in the industry environment, as identifiable through a
Five Forces analysis of the business. Michael E. Porter’s Five Forces Analysis model
provides valuable information to support strategic management, especially in
addressing relevant issues in the external environment of the business.
20

Table 2.4.

Matrix for the estimation of Porter’s Five Forces

Threat of Threat of
competition Significant Slight Market substitutes Significant Slight

saturation + Funds for research

and development +
Requirements for
Eating and
quality + entertainment
+
Location of outlets + requirements

Competitors Availability of
advertising McD products + Local taste products +
capabilities+

Power of buyers Significant Slight Power of

Low quantity suppliers Significant Slight Number

of
purchases +
suppliers +
Industry
Forward vertical
limitations + integration of
+
Product suppliers

differentiation + The importance of

resources supplied +

Threat of new
entrance Significant Slight Easy
access market

and low start up cost +

Market growth +
 Market penetration +

Thus, threat of competition (very competitive fast food industry; competitors

advertising capabilities, location of outlets) and threat of new entrance (regulation of
limit, easy access market and low startup cost, market penetration) have the highest
power on McDonald’s Corporation.
The Herfindahl-Hirschman Index (HHI) is a common measure of market
concentration and is used to determine market competitiveness, often pre- and post
M&A transactions. The Herfindahl-Hirschman Index (HHI) is a commonly accepted
21

measure of market concentration. It is calculated by squaring the market share of each

firm competing in a market and then summing the resulting numbers. Th Hirschman
Index of McDonald’s is 2525, its calculation is shown in the table 2.5. Table 2.5
The Herfindahl-Hirschman Index of McDonald’s
Company Market share Square of market share
(%)

McDonald's 40 1600

KFC 15 225

Subway 10 100

Domino's 10 100
Pizza

Burger King 20 400

Others 10 100

Total: 105 2525

Hirschman Index values more than 2500 represents a highly concentrated

industry. The higher the market’s concentration, the market is closer to a monopoly.
In terms of HI, this means that high values of the index indicate monopolized
industry. But talking about fast food industry, we must consider that it is growing, and
we must support and expand McDonald’s market share.
Table 2.6
Expert assessment of competitiveness of McDonald’s compared to major
 competitors
Indicators Weight McDonald's KFC Hesburger

Rating Score Rating Score Rating Score

High quality 0,20 5,00 1,00 3,00 0,60 4,00 0,80

High brand image 0,10 5,00 0,50 4,00 0,40 4,00 0,40

Range of products 0,05 4,00 0,20 4,00 0,20 3,00 0,15

Market share 0,20 5,00 1,00 4,00 0,80 3,00 0,60

Access to key suppliers 0,10 4,00 0,40 4,00 0,40 3,00 0,30

Product design 0,10 4,00 0,40 4,00 0,40 4,00 0,40

Experience and skills 0,10 5,00 0,50 5,00 0,50 3,00 0,30
in e-commerce

Management 0,05 4,00 0,20 4,00 0,20 5,00 0,25

qualification and
experience

Revenue per new product 0,10 5,00 0,50 4,00 0,40 4,00 0,40

Total: 1,00 4,70 3,90 3,60

22
 Figure 2.3. Competitive profile of McDonald’s compared to major competitors

After analyzing the competitiveness of McDonald’s in Ukrainian market we

can make a conclusion, that McD has the best practice of quality, brand image,
market share, experience and skills in e-commerce and revenue per product among its
main competitors in Ukrainian market (KFC and Hesburger).
Table 2.3
Assessment of key success factors of McDonald’s and competitors
Enterprise Key indicators of competitiveness Precast
index of
company

McDonald's High quality Market High 4,70

share brand
image

KFC Experience Range Revenue 3,90

and skills in of per new
e produc product
commerce ts

Hesburger Management Product High 3,60

and design quality
qualification
experience
 23

2.2. SWOT-analysis of McDonald’s Corporation

McDonald’s SWOT analysis reveals how the most successful fast-food chain
company of all time uses its competitive advantages to continue dominating fast-food
industry. It identifies all the key strengths, weaknesses, opportunities and threats that
affect the company the most.
McDonald’s is a leading fast food brand with a global presence and a strong
business model. The business of McDonald’s is run through franchisees mainly and
this has certain benefits. The share of franchised restaurants in the revenue of the
company has kept rising. In the longer term, the company aims to run at least 95% of
its business through franchisees. While this system has its own benefits, there are
inherent risks too and it leaves the company over-dependent on the cooperation and
financial success of its franchisees. Moreover, the company depends on the Western
markets for a large part of its revenue. It will need to grow its presence in the Asian
markets to achieve a more even distribution of market share.
Customer trends have changed fast in the 21st century and McDonald’s also
needs to focus upon menu innovation to retain its market share and attract millennial
customers in larger numbers. To attract them, apart from a healthier menu, it also
needs to focus upon maintaining competitive prices. McDonald’s has managed an
excellent supply chain and it is one of the key strengths which has led to a reduction
in quality related issues. Investing in digitalization will help the brand develop better
customer relationships, leverage its marketing capabilities and grow its partnership
with suppliers and franchisees. McDonald’s has decided to adopt a more customer
centric strategy. This will be good for the brand and its future. However, there are
many more challenges which can be overcome through investing in digital
technology and by growing customer connection. SWOT-analysis of McDonald’s
Corporation is described in the table 2.4.
24

Table 2.4

SWOT-analysis of McDonald’s
 Strengths Weaknesses
1. Strong brand equity 1. High employee
2. Global brand turnover
3. Successful advertisement 2. Unhealthy food on the
and brand name menu
4. Adding greater value 3. Weak product
through innovation development
5. Leading on all social media 4. Declining market
platforms share 5. Negative
6. High level of profitability publicity
7. Sustainable business model
8. Strong operational
capabilities

Opportunities SO Strategies WO Strategies

1. Upgrading menu and product 1. Develop new products and 1. Advertise organic
lines services for global markets products to older
2. Enhancing focus on nutritional (S1, O1) demographic (W3, O4.
menu 2. Develop green packaging for O6)
3. Home delivery of meals all stores (S6, O6) 2. Spend more money on
4. Charities 3. Integrate into new territories Research and
5. Product differentiation (S1, S4, O5) development to create
6. Dominating overseas new products and
7. Expanding globally services (W2, O1)
8. Participating in environment’ 3. Create an organic
saving programs (corporate social menu (W2, O1)
responsibility activities)

Threats ST Strategies WT Strategies

1. Competition
2. Health conscious
consumers 3. Currency
fluctuations
4. Fast food market saturation in
developed countries
1. Launch marketing campaign
for Ronald McDonald House to
increase brand recognition and
customer loyalty (S5, S3, T3,
T5)
2. Develop alternatives to
existing menu that can be
easily implemented and don’t
rely on more expensive
commodities (S6, T1).
1. Research and develop
products that quell
growing health concerns.
2. Increase spending on
customer service efforts
to decrease legal
challenges (W4, T6).

(Developed by the author on the basis of [9])

25

PART 3. PROJECT PART

3.1. A concept of the strategy of the enterprise
“Think global, act local”
The company is in the market maturity stage of the product life cycle (fig.3.1).
That’s why the features of their products might be improved by adding more items on
menu. And they should make products more appealing to the consumers in order to
sustain or increase their market share. For example, more choices for customers for
their meals: soft drinks, chicken nuggets, snack wraps or ice-cream; introducing more
salads and “healthy food”.

Figure 3.1. Product life cycle

(Developed by the author on the basis of [1])
On the stage of maturity “McDonald’s” keep:
➢ Standardization
➢ Fewer product changes, but minor changes exists
➢ Increasing stability of process
➢ Optimum capacity
➢ Long production runs
➢ Product improvement and cost cutting
Thus, the objective of the product decision is to develop and implement a
product strategy that meets the demands of the marketplace with a competitive
advantage. So, “McDonald’s” product strategy is mainly low cost. The key successful
26

factor in term of McDonald’s product Promotion strategy is “Think Global Act

Local”. There are also such product development strategies as:
1) Permanent Product Strategy. McDonald's features several products on their
menu that are permanent and do not change. Examples of this include their
basic hamburger and cheeseburger, the Big Mac. This strategy ensures that
 there is always something familiar for consumers on the menu.
2) Temporary Product Strategy. McDonald's regularly develops temporary
products. The McRib, for example, is a product that is offered only
seasonally. The Big Ocean burger is an example of a burger that was
developed as a temporary product, offered only for a few months in 2007.
The purpose of this product development strategy is to give customers
something new to experience on each visit and to experiment with new
items that may become permanent.
3) Local Product Development Strategy. In the Canadian province of Quebec,
McDonald's offers poutine, a traditional dish of French fries, gravy and curd
cheese. This strategy ensures that local customers have foods to fit their
tastes.
4) Local Adaptation Strategy. In India, for instance, the Big Mac has been
modified into the Maharaja Mac which contains no beef, in keeping with
local diets [13].
In 2017, McDonald’s revenue reached 22.82 billion U.S. dollars. In the above
BCG Matrix (figure 3.2), the star category includes burgers which are the highest
selling products since years and so they fit in here. The cash cow category includes
French fries, side starters and McD drinks which act as a complimentary product to
the star products. The question mark category includes the products which do not
generate much revenue and is less popular also. Dog category includes the extinct
products which include onion rings and other types of burgers which did not do well
in the market.
27
 Figure 3.2. BCG matrix of McDonald’s goods
Source: [15]
So, as we can see “McDonald’s should definitely invest in “star” - is Chicken
Big Mac, Big Mac, Spicy McCrispy, McRoyale and Filet-o-Fish., McNuggets;
support “cash cows” – drinks, McChicken, French fries. According to market demand
decide whether to invest in “question marks’’ – McFlurry, Hash Brown, pies or not
(for, example, in Ukraine McFlurry has a great demand, but Hash Brown - no), and
‘’dogs” (onion and other burgers) are weak in the market, so probably they should
divest it.
To analyze the concept of the strategy of McDonald’s Corporation more
deeply, let’s develop McKinsey Matrix. It is shown on the table 3.1 and figure 3.3.
There are six product groups – burgers, chicken, salads, fries, desserts and beverages.
After calculation and analyzing indicators of McKinsey Matrix we can see that we
must protect position of such product groups as burgers, fries, desserts and beverages.
They have the strongest weighting indicators of market attractiveness and competitive
strengths. The product group “chicken” has lower indicators, but we must invest in it,
because it tends to grow and be in demand. The lowest indicators of market
attractiveness and competitive strength has the product group “salads”. But
28

now it is a tendency to a healthy lifestyle, so that we should expand this group not to
lose the customers consuming the product group and stay in trend. Table 3.1.
 Calculation of McKinsey Matrix

Figure 3.3.
McKinsey Matrix
29

3.2. Developing strategy of the enterprise

McDonald's Announces 2020 Corporate Social Responsibility and
Sustainability Plans. Company introduces goals and measurable plan to create shared
value for its business and society. “McDonald’s” highly control corporate social
responsibilities (CSR):
➢ Food (products and quality control) – to ensure product safety ➢
Sourcing (raw material procurement) – relationship with suppliers and
procurement process are critical
➢ People (Employees) – support people’s growth (“Individual growth will
 create corporate growth”
➢ Community (social contribution) – “We have an obligation to give back
to the community that gives so much to us”
➢ Planet (Environment) – take environmental responsibilities with a
viewpoint of continuous optimization
From the point of community view, social contribution activities are performed
in form of:
✓ Charities
✓ Education support
✓ Sport supports
✓ Community contribution activities
Charitable activities (Support of Ronald McDonald Houses) – they are engaged
in charitable activities to support children fighting illnesses and their families with the
support of “Ronald McDonald Houses”. A “Ronald McDonald House”(DMH) is a
residential facility for children with an illness and their accompanying families. The
initiative started in Philadelphia in 1974. And now there are about 370 DMH’s in
more than 40 countries (including Ukraine). For example, in Ukraine the popular
charity program called “The palm of happiness”. The money goes to children’s
houses, or to individual children, that need financial support to fight against the
illnesses. Every visitor can buy this “palm of happiness”, but money will go to
charity.
30

Also DMH gives grants for students and McDonald’s representatives. The
Ronald McDonald Family Rooms (RMFR) are operated by the local chapters. At
Ukraine there are 3 RMFR at Lviv Regional Children Clinical Hospital
"OKHMATDIT”, Kyiv OHMATDYT National Children’s Hospital. [17]
So, the aim of Ronald McDonald Houses is keeping families with sick children
together and near the care and resources they need.
Also, hoping that children can learn how to protect themselves and master the
rules and manners necessary for daily life, they host the program “Hello Ronald”
(mostly in Japan), which involves studying together with Ronald at kindergartens,
nurseries and elementary schools. McDonald’s also participates in the program
“Clean Patrol”. The aim is to clean neighborhoods where their restaurants are located.
[18].
McDonald’s vision is to lead the industry in promoting workforce education.
To achieve this goal, they created Archways to Opportunity, a comprehensive
education program. For example, McDonald's invests $150m in the education of its
employees. It includes Tuition Assistance Program (available for restaurant managers
and crew). Besides it, in 1961, Fred Turner, McDonald’s former senior chairman and
Ray Kroc’s first grill man, founded Hamburger University. It is called McDonald's
Center of Training Excellence. Today, more than 7,500 students attend Hamburger
University each year.
Besides, above mentioned programs there are recycling programs. “Our
ambition is to use less packaging, sourced responsibly and designed to be taken care
of after use, working at and beyond McDonald’s restaurants to increase recycling and
composting and help create cleaner communities. Today we pledge that by 2025, 100
percent of McDonald’s guest packaging will come from renewable, recycled or
certified sources, with a preference for Forest Stewardship Council”.[19]
According to the main goals and objectives of McDonald’s Corporation,
described above, we can draw the tree of goals. It is show on the figure 3.4.
31

Figure 3.4. Tree of goals of McDonald’s

 Total quality management in McDonalds’ requires continuous product
improvement and the quality customer service where the needs and wants of the
customers are constantly met together. Therefore, to ensure the employees in
McDonalds that everyone is responsible for quality in their restaurants. The entire
organization of McDonalds has excelled in every part of services and products that is
crucial for their customers. It can be described to total quality management as the
constant quality improvement for the process. McDonalds also practice the strategy of
total quality management and tries to improve its affectivity and efficiency level by
working in different areas such as constant improvement, quality of goods and
training, customer satisfaction, and services. McDonald’s total quality management
consists mainly of:
1) Product quality (using HACCP system)
2) Training
3) Continuous Improvement
32

4) Customer satisfaction
5) Human Resources
McDonalds works a lot in the quality development of its goods by improving
the Ingredients and nutrients of the food stuff. Some current nutrient’s quality
improvement information is as under: For people who are concerned about food
allergies, McDonalds’ have combined all the allergen information into the ingredient
statement for every menu item so that customers can have one current foundation of
the information. The nutrition information is derived to perform the testing in
accredited laboratories, published resources, or from the information that is provided
from McDonald’s suppliers. The nutrition information is based on standard product
formulations and serving sizes. All nutrition information is found on average values
for ingredients from McDonald’s suppliers throughout the world. The continuous
improvements have fulfilled the needs of the customers according to their desires,
wants or requirements and also build its products further competitive as before. This
continuous improvement also contains some other factors like benchmarking a
quality standard, employee empowerment and sustain just in time inventory system.
So, there are 4 concepts of TQM implemented (fig. 3.5)
 Figure 3.5. Concepts of TQM in “McDonald’s”
(Developed by the author on the basis of [2])
TQM involves that employees are:
✓ Working on time& Neatly dress
✓ Delivering fast, accurate and friendly services
✓ Make sure customer receive safe food
33

McDonald’s does benchmarking to improve the quality of the new product

which is comparing to their old product. Continuous improvement reaches mainly
through franchises. And focus on the customer is McDonald’s brand mission.
If we talk about strategies in TQM, McDonald’s mainly combines users-based
(better performance, more features) and product-based strategies (specific and
measurable attributes of the product). McDonald’s also keeps environmental
strategies.
Quality management by techniques of TQM:
1) Quality circle is one of the employee participation methods. It implies the
development of skills, capabilities, confidence and creativity of the people
through cumulative process of education, training, work experience and
participation. It is represented as PDCA Model (Plan,Do,Check,Act)
(continuous improvement).
2) Six Sigma – Define, Measure, Analyze, Improve, Control (DMAIC
Approach) – non-stop loop, identifying and measuring the processes,
identifying gaps for the improvement).
3) Reduced Cycle Time – refers to steps taken to complete a company process
(such as making an order).
McDonald’s uses repetitive (modular) focus strategy, which means middle
level variety and volume (fig. 3.6)
 Figure 3.6. Matrix of process design
(Developed by the author on the basis of [12])
34

Thus, McDonald’s uses repetitive focus strategy, their facilities is organized as

assembly line; characterized by modules with parts and assemblies made previously.
It acquires flexible people and facilities. It needs special equipment that used in an
assembly line; employees are trained; they uses Just-in-Time. Fixed costs depend on
flexibility of equipment (in McD they reached Made for you system through
changing layout design and equipment). This strategy allows McDonald’s to use the
assembly line process for its operations.
McDonald’s provides their employees with manuals, where all responsibilities
and requirements are written;
➢ Employee uniforms
➢ Employee appearance
➢ Employee meals
➢ Employees loitering
➢ Employee job function
➢ Front/Customer Service Lobby Responsibilities
As we mentioned before McDonald’s uses Made For You System (MFY, Just
in Time concept).
 Figure 3.7. The main difference between DG and MFY systems
Source: [11]

Thus, McDonald’s moved to MFY system by completely changing layout

design and changing equipment used. Equipment needed for MFY system: K.V.S.
35

(Kitchen Video System); Prep table; Bun tray cart; H.L.Z (Heated Landing Zone);
U.H.C (Universal Holding Cabinet); Toaster/Steamer; Grill

Figure 3.8. Comparison of layout design

Source: [11]
So, as we can see McD optimized the process (especially, decreased resources
(mainly time and HR) on preparing an order. It allows them to decrease the level of
wastage and increase quality of products. As we consider before, suppliers plays an
important part for McDonald’s. Their transportation system is following:
➢ The distributors receive items from different parts of the country. ➢ The items
 are stored in rooms with different temperature zones and are finally dispatched to
the McDonalds restaurants on the basis of their requirements. ➢ The company has
both cold and dry storage facilities with capability to store products up to -22º C
as well as delivery trucks to transport products at temperatures ranging from room
temperature to frozen state.
➢ The specially designed trucks maintained the temperature in the storage
chamber throughout the journey.
➢ Matching supplier production with deliveries to meet schedules and restaurant
needs.
➢ Centralized distribution centers.
36

CONCLUSIONS
McDonalds is a popularly known Market Leader in the Fast food Industry or
better known as the ‘Burger’ Industry. The company has successfully established a
popular brand image. To sustain its viability in a competitive market, the McDonald’s
Corporation sets its overall goal of “making its customers happy.” To reach this broad
goal, McDonald’s mainly focuses on competitive bases of speed, cost, and nutrition.
The corporation also recently created dramatic strategy changes to its stores internal
processes by introducing the Made for You System.
Quality management at McDonalds is one of the major factors that make the
corporation one of the most successful fast food restaurants in the world. The
corporation uses computerized information systems and strict corporate quality
standards to maintain quality at their restaurants. To enforce the standards, the
corporation undertakes exhaustive inspections on each restaurant two times per year.
Also, thorough training processes ensure that all McDonald’s employees have the
proper knowledge to meet the corporation’s standards, which will in turn make their
customers happy. Many suppliers aid McDonald’s success by supplying their raw
materials efficiently and on time. McDonalds reassures that their product is fresh by
choosing suppliers near the restaurants, to minimize transport time. To ensure quality
of products and reduce cost between the restaurants and their suppliers, the
McDonalds Corporation publishes specific guidelines to ensure that the restaurants
receive the best quality materials.
McDonald’s ensures consistent products by enforcing strict standards and
frequently inspecting its suppliers. The corporation participates in a very efficient
supply chain network. The corporation also takes advantage of long-term
relationships with suppliers to ensure consistent products. McDonald’s also takes
active steps to avoid bad products and reduce overall costs.
Forecasting is in large part down by the corporation as their responsibility to
the franchisees and shareholders. McDonald’s uses qualitative forecasting methods
by gathering information from customers, employees, and experts, via written
surveys and other correspondence. Forecasting has given the corporation opportunity
37

to excel in creating new innovations, creating localized meal selections, and generally
making the customer happy. In summary, the entire McDonald’s corporation revolves
around its goal to make its customers happy. McDonald’s works toward this broad
goal with strong competitive bases, quality management, an efficient supply chain
with quality products, and continuous forecasting.
Recommendation #1. Minimizing waste, packaging and recycling. Especially
in Ukraine there are not every McDonald’s uses Make For You system, thus there is a
high level of wastage and it affects also quality. So, it’s critical to renovate all
McDonald’s, providing necessary equipment and layout design.
Recommendation #2. Reconstruction of all McD restaurants. McDonald's is
moving to a new type of restaurant (you can add some ingredient’s yourself with the
aid of specially desks). Now there are nine of them in Ukraine, and by the end of
2018 there will be twice as many. Over time, all institutions can move to such a
format, as has already been done in France, Great Britain and Poland. The new format
means an increase in the number of self-service terminals with the ability to edit their
dishes, adding or, conversely, excluding the ingredients.
Recommendation #3. Improving hygiene control. The time of washing and
disinfection of hands can be decreased from the 30 seconds to 20 seconds by using
automatic dispensers and more effective sanitizer and soap. It is critical, because for
example, every cashier must wash hands or sanitized them when he/she goes to
kitchen zone or to cashbox. And it spends too much time.
Recommendation #4. Consider product development more from the local point
of view and take into account “healthy food style” of population. Of course.
McDonald’s has some items in the menu, but healthy life style, must be encouraged
by them in order not to lose market share and brand recognition. Generally, McD
should consider market development, diversification, and product development.
38

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