Generic Strategy

McDonald’s generic strategy determines its basic approach to developing its business and
competitive advantage. As the biggest fast food restaurant chain in the world, McDonald’s
uses its intensive growth strategies to support continued business development and
expansion. The related strategic objectives dictate the company’s operational activities,
especially in responding to economic changes and the actions of competing firms. Variations
in market conditions impose pressure on the business to adapt or reform its strategies. As
such, McDonald’s generic strategy and intensive growth strategies change over time to
ensure long-term business viability.
McDonald’s primary generic strategy is cost leadership. Cost Leadership is the mechanism of
establishing a competitive advantage by having the lowest cost of operation in the industry.
This strategy is especially beneficial in a market where the price is an important factor. The
primary objective of a firm aiming to attain cost leadership is to become the lowest cost
producer in comparison to the competitors. This is usually achieved by large scale
production which enables the firm to attain economies of scale or by innovating the
production process. Acquiring quality raw materials at the lowest price is the basic goal of a
cost leadership strategy, this strategy allows McDonalds to focuses on affordability and easy
accessibility of its produce across the globe, which leads towards high brand awareness and
high sales growth and provides a strong competitive advantage basis. Other than charging
low prices by lowering production cost and maximizing supply chain efficiency, McDonalds
frequently offers discounts and coupons to achieve sales targets and handle the competitive
pressure by its closest rival. The intended outcome of these discount and promotional
campaigns is to increase brand popularity and encourage consumption. McDonald’s also
focusing on expanding the market share by targeting the middle class, which makes the
largest proportion of overall consumer market mix in most of the countries. Middle class
consumers generally place high importance to the pricing factor and cost leadership is the
best strategy to cater the needs of this consumer segment.

McDonalds’s cost leadership strategy has outlined many benefits offered by this generic
strategy, such as:
1. gaining quick brand recognition;
2. expanding the customer base;
3. encouraging consumption, and
4. achieving sales targets by emphasizing over product’s affordability and accessibility.

Vertical integration, or in explanation as a strategy whereby a company owns or controls its

suppliers, distributors or retail locations to control its value or supply chain is a strategic
objective linked to McDonald’s cost-leadership generic strategy. McDonald’s is one of the
most famous companies using vertical integration to reduce its overall costs and increase
profits. They own factories that produce mixtures of ingredients that they can then
distribute to all their stores by McDonald’s trucks. By owning both the ingredient
component and the distribution transportation units it is easier to get their product to their
restaurants by lower costs. They no longer have to pay for shipping and for assembly.  They
also raise their own cattle and process the meat and they own agricultural industries which
grow the potatoes for their French fries and their own vegetables for the hamburgers.
Unlike most restaurants who must barter and pay high prices for their own ingredients,
McDonald’s is the source of their own food manufacturing.  As further proof of vertical
integration strategy, McDonalds also owns most of the land that their stores are placed on
so they don’t have to deal with landlords or leasing costs. The use of vertical integration is
why McDonald’s is one of the cheapest fast food joints in the world.