University of the Philippines Visayas Tacloban College

Division of Management

Case Study Analysis

On
McDonalds Corporation
Table of Contents
Outline of the Case Analysis

McDonald’s Corporation

TIME CONTEXT : 2015

On the 15th of September 2015, Steve Eastbrook was instated as the new CEO of
McDonald’s. At the start of his term of being McDonald’s CEO, he faced the
organization’s contemporary problems.

POINT-OF-VIEW: : CEO, Steve Eastbrook

I. Historical Background (Company)

The McDonald brothers founded McDonald's in San Bernardino in 1940. Dick
and Mac McDonald thought that they might potentially improve quality and efficiency
by restricting their menu to burgers, fries, and beverages. As a result, the brothers
began franchising McDonald's in adjacent towns. Ray Kroc joined the brothers in
1954, when McDonalds ordered eight multi-mixers. They created the McDonald's
Corporation in 1955, with the goal of expanding McDonald's franchisees across the
US. Kroc acquired the brothers' stock in 1961. During the 60s and 70s, he opened
over 700 new McDonald's locations. In 1965, the business went public at $22.50 per
share.
Quality, service, cleanliness, and value were the four guiding principles that
Kroc pushed his local owners to follow. Due to McDonald's size, Kroc discovered
numerous suppliers eager to meet his high criteria. Canada was the company's first
foreign site in 1967. In 1971, McDonald's opened in Japan and Europe. Meanwhile,
Kroc kept expanding the restaurant's menu. After the Big Mac (1968), came the
quarter pounder (1973) and the Egg McMuffin (1975) and then served complete
breakfast by 1977. The original Happy Meals came in 1979, with a circus wagon
motif. The first drive-through opened in 1975 in Sierra Vista, Arizona, to service
soldiers stationed nearby, and the concept rapidly expanded.
During the 1980s' burger wars, Burger King and Wendy's battled for market
share against McDonald's. Despite this, McDonald's has expanded to over 30
nations. In 1983, Chicken McNuggets were launched, then in 1987, fresh salads.
Meanwhile, McDonald's leveraged efficiency and new technology like microwaves to
acquire an operational edge over competitors.
Ray Kroc died on January 14, 1984, leaving behind a global McDonald's
empire of over 7,500 outlets. Three years later, his long-time colleague and CEO,
Fred Turner, retired, leaving the firm in the capable hands of Michael Quinlan who
was a shrewd businessman who aggressively expanded the firm both at home and
overseas.
The 1990s saw a slowdown in McDonald's fast domestic development,
however its foreign locations almost quadrupled from 1991 to 1998. Adding new
menu items like pizza, fried chicken, fajitas, and pasta failed repeatedly. The adult-
targeted Arch Deluxe sandwich line also fizzled. When Jack Greenberg became
CEO in 1998, he announced a regional restructuring, a new meal preparation
system, and the first ever McDonald's employment reduction, while also canceling
multiple store opening plans. The CEO instead bought restaurants such as Chipotle
Mexican Grill, Donato's Pizza, Boston Market, and Aroma Cafe. They were sold as
McDonald's strategy changed in the 2000s.
From 2003 to 2004, in terms of the administrative area, McDonald's
leadership changed hands at a rate that would have debilitated a less capable
executive bench. In 2003, Greenberg stepped down, handing the reins to Jim
Cantalupo, who died of a heart attack the following year. After Cantalupo died, the
board nominated Charlie Bell as CEO, but Bell was stricken with colon cancer and
resigned after just a few months. From late 2004, Jim Skinner, the company's former
vice chairman, was in charge of implementing its "Plan to Win." The plan had four
goals: attract more consumers, persuade people to buy more frequently, develop
brand loyalty, and boost profitability. Skinner identified the five Ps as critical to
McDonald's success.
Additionally, in the operations area, Skinner's approach, in a saturated
industry, was to raise sales from existing outlets rather than buy expensive fresh
space. Until Skinner took over, McDonald's was opening a new shop every 4.5 hours
somewhere in the world. To compensate, established stores started staying open
later at night and early in the morning. By 2007, about 40% of McDonald's outlets
were operating constantly, with some even open on holidays.
It was also noticeable how the administration took a step forward in the
marketing area. With fewer new eateries, Skinner utilized the savings to renovate
existing ones. There were also flat-screen TVs, free Wi-Fi, real plants, piped music,
and an occasional fireplace in the “new” McDonald's design. In other cases, the
incentives were as high as $1.5 million per location. After all, “nicer-looking
storefronts attract more business,” the corporation believed.
Simultaneously, Skinner tasked McDonald's cooks with creating new menu
options that reflected current health trends. With the $100 million Arch Deluxe
blunder and other flops like the McPizza, McHotDog, and McSalad Shaker, the
corporation had become lazy in product development. McDonald's also lagged
behind competitors in eliminating trans fats from recipes. Under Skinner, the
corporation devoted attention to market research and a renewed interest in numbers.
Tests for new menu items included sales, margins, expenses, time and simplicity of
manufacture. This more rigorous approach led to the creation of “Oven Selects”
sandwiches, a breakfast biscuit with fried chicken, and the McCafé coffee, smoothie,
and other beverage line.
In the finance area, on the other hand, enhancing operational efficiency
helped decrease costs. Skinner told his executives to come up with new strategies to
enhance profits. So the corporation reduced travel, hosted meetings at Hamburger
University instead of hotels, and raised personal car usage costs. It also invested in
time-saving technology such as more efficient drive-thrus and computers.
Thompson, now Skinner's COO, led the successful McCafé marketing and
looked an obvious choice to launch the next "McHit." MCD sales declined during
Thompson's leadership despite his attempts to improve the customer experience and
make McDonald's more accessible to a wider market. Thompson left his post in
January 2015, unable to bring about the intended change.

II. Statement of the Problem

The overarching problem faced by McDonald’s is a dilemma that not only a

single branch is presently hurdling. It is a concern that transcends further to the
entirety of their franchises in the quick-service restaurant industry. One might think
that the main problem McDonald’s battles is the present state of the competition in
the restaurant industry. However, this is just one of the current challenges the
company is facing that should also be provided long-term solutions and viable
strategies.

The problem developed when McDonald’s, in its attempt to be all things to all
people, it has given up ground utterly and completely to its competitors. Should this
be given a solution, the following issues will also be solved:

1. A long list of menu options including new offerings which take time to prepare
and are underperforming does not fit for McDonald's as a quick-service
restaurant.
2. Consumption of several unhealthy preservatives in food preparation which
affects product quality.
3. Outdated and less attractive approach of sharing information about services
especially to the millennial generation.
4. Staffing issues and low wages for employees resulting in low morale.

III. Statement of the Objectives

In response to the unfortunate state of the venture in the quick-service

restaurant industry and its continued business struggles, the main objective that
should be given the reality of McDonald’s Corporation is to ensure to provide a viable
strategic identity for Mcdonald’s in the 21st century. As this main objective of
bettering its growth and company vision will be pursued, the following specific
objectives are expected to be met:

1. Define a clear vision of what it wants to be and how to get there.

2. Provide a clear and sufficient variety of menu that will still draw consumers
and maintain service speed.
3. Improve branding of McDonald’s by producing good product quality and
increasing appeal to millennials through reaching out through digitization.
4. Sustain good employee morale by providing higher and reasonable pay.
 IV. AREAS OF CONSIDERATION (SWOT ANALYSIS)

OPPORTUNITIES THREATS

1. Newer locations 1. Scandals and

EXTERNAL required unique political problems
adaptations between other
2. New menu possibilities countries
more in line with current 2. Competition heated
health trends up in the “burger
3. Millennials who prefer wars”
dining out 3. Older consumers
4. Health-conscious spend more on
consumers groceries and less
on restaurant dining
4. Increased supply
costs for restaurants
INTERNAL 5. Negative public
perception

STRENGTHS SO Strategy ST Strategy

- Many product offerings - Offer menu options in line -Improve brand image
- Large market size with local tastes
- Already established - Renovate stores
company - Innovate some of the
current products

WEAKNESSES WO Strategy WT Strategy

- Slow customer
- Increase manpower - Improve public perception
service
- Less manpower - Conduct extensive through better customer
- Lack of equipment
market research service
or technology
- Lack of market - Install machines or - Level with other fast-food
research
devices for fast restaurants through faster
transactions. customer service
Provide short phrases to explain the factors as
Strength/Weakness/Opportunity/Threat because it could also be a
weakness/strength/threat/opportunity at some point and vice versa.

A. STRENGTH
1. Throughout the years, the company has composed a menu with many
product offerings that caters to almost every demographic in the market.
2. The corporation has been running for so long in the industry and is already
established in the business, earning a loyal fanbase and having a large
market share.
3. The company has been in the market since 1940 and has achieved many
milestones on their journey. They have established themselves in the market
with their product offerings that are remarkable to the public.

B. WEAKNESS
1. McDonald’s uses only a set of equipment for all kinds of viands. Because of
that, transactions and orders take more time to be finished.
2. McDonald’s has less manpower and poor customer service. Since there are
not enough employees for each shift especially during lunch and breakfast
time, employees eventually get exhausted and tired which causes them to
become irritated during work and compromise customer service in the
process.
3. As a fast food chain, the food must be served in less than 10 minutes.
However, due to lack of equipment for each viand the service time extends
up to the minimum of 30 minutes, or worst 45 minutes. It becomes
troublesome for consumers as time waiting for their orders is used instead of
time for satisfaction.
4. Over the years, the corporation had almost 140 plus viands in their menu
which caters almost all the demographics in the market. However, not every
viand will align consumer preferences, particularly millennials. One of the
possible reasons why this happens is due to the lack of market research
upon creating new products or recipes for the menu. They must have only
considered the viands without taking into account the potential innovation or
 improvement of some of their products.

C. OPPORTUNITY
1. The company’s stores in different locations should provide respective
product offerings in line with consumers having local food
preferences.
2. McDonald’s stores can offer healthy fastfood options as consumers
become more conscious of their health or wellbeing.
3. McDonald’s stores should provide a unique experience for millennials
as they prefer dining out more.
4. The company should also cater to health-conscious consumers by
providing healthy menu options in their stores.

D. THREAT
1. Sales may be gravely affected due to scandals and political
problems between countries.
2. Competitors such as Burger King and Wendy’s stealing market share
during the “burger wars” may become an issue to McDonald’s.
3. The company may not be able to cater much to older consumers as
they prefer to spend more on groceries than on restaurant dining
4. Price increase of ingredients for healthier menu items like beef,
agricultural products, and egg due to drought and high fuel costs
become costly for the company.
5. Bad press and public perception may negatively affect the image of
the McDonald’s brand.

E. ALTERNATIVE COURSES OF ACTION (indicate the advantages and

disadvantages in all the courses of actions)

A. Focus on Menu and Ambiance Development (SO Strategy)

1. Offering menu options in line with local tastes

The company sees an opportunity to open a store in a new location which

requires adaptation of culture and local taste. To pursue it with the company's
strength in terms of having many product offerings, we suggest that the
company offer menu options that are inline with local food preferences. One
of the advantages is that the company can easily clique with the locals of that
location since the taste of the products which the company offers is of
familiarity to them and would level up the flavor native to them. On the other
hand, the organization might incur great expenses starting from product
innovation which includes incorporating the culture and taste of that area into
the existing product offerings. Aside from that, like other organizations, the
new products will undergo many trials before they can actually be available
and offered in stores.

2. Renovate Stores

One of the reasons why new customers go and people come back to a fast
food chain or restaurant is the ambiance and aesthetics it gives to them.
Renovating stores or restaurants means keeping up with the latest trends and
giving existing stores a different feel. This also means bringing a different
dining experience for customers of every age. The food certainly tastes better
when people see or experience something good and appealing. Not only does
it bring a different experience to the customers but it also benefits the staff
and management in their work as service can be improved and tasks can be
easier to perform more efficiently and effectively.

3. Innovate some of their current products

The established company has been in the market since 1940. The products
they offer to the market are already familiar to the people and competitors
alike. To pursue it with the company’s opportunities to cater to health-
conscious customers and the emerging millennial market, we suggest that
McDonald’s must innovate some of its existing products. One of the
advantages of this strategy is that the company can bring customers from this
generation. The company can also bring new customers from other
demographics. Yet for this to be possible, the company will undoubtedly incur
 a significant increase in their expenses, specifically in the research and
development of the company. With this strategy, just like the first one, the
products will also need to undergo different trials to determine whether these
products will clique with the tastes of the chosen target market.

B. Focus into Brand Development (ST Strategy)

1. Improve Brand Image
It has been mentioned that the company is in the midst of its most serious
identity crisis, hence McDonald’s must know who they “actually are”.
Establishing brand values and company culture sets the company’s color and
tone as this will give direction to where the organization is headed, what goals
that are needed to be achieved in the short and long run, or what kind of
brand they want to communicate to and be perceived by the consumers. And
afterwards, consistency will now be the key in maintaining good public
perception and customer loyalty.

C. . Focus into Service and Research Development (WO Strategy)

1. Increase Manpower

One of the things that the company is lacking is manpower. Although they
have, it is not enough to cater to the surge of customers during rush hours.
Due to the emergence of technology and advancements, fast food chains
have relied chiefly on equipment and machines and less on the people who
will be working and using these machines. The advantage of adding more
people is that they will be able to provide customer service better. Aside from
that, there will be no irritated employees during rush hours as more people
are able to accommodate the orders. One of its setbacks is, of course,
increased salary expenses and training expenses for the new employees.

2. Conduct Extensive Market Research

 The corporation has conducted much research to find its position in the
market and look for the recipes that would best fit the needs and wants it
planned to cater to. However, due to lack of extensive market research, they
ended up having a lot of recipes and dishes that bombard the menu and
where some products do not align with the preference of a certain target
market. The corporation must conduct extensive research to develop a new
set of product lines to serve their target market, particularly millennials and
health-conscious customers. It will help the corporation decide whether to
dissolve product offerings that are not selling much or retain those that have
contributed verily to the corporation's profits, or either add or innovate recipes
that will cater and attract millennials and health-conscious customers. It will
also help bring more customers and, eventually, profit since the company’s
product lines are apparently selling well. The setback would be, just like the
other strategies, additional expenses would be incurred in the future trials of
new recipes and redesigning the menu. Aside from that, there will be a
significant increase in the research and development aspect of the
corporation since they will have to invest more in studying the market for
better results in the company.

3. Install machines or devices for fast transactions.

One of the concerns customers have with the current service of McDonalds is
that they have to wait for a very long time before they can take an order and be
served. Aside from the long line of people due to the rush hour, lack of equipment
in making the products, and the slow service on taking up each customer's
orders. Because of that, our team suggests that they install a device that will help
lessen the time of taking up the customers' orders—something where they can
choose the variants they want. As an advantage, the company will serve much
faster than their current service time each customer. Aside from that, it will help in
the productivity and efficiency of their branches. It will also make the millennials
stay and dine in with the fast-food chains of McDonald's Corporation since they
can avail of fast transactions through these devices. On the contrary, having this
kind of gadget or machines on their branches will incur significant expenses or
investments for technology. Aside from that, the trial and error of these devices
before the final product is launched will surely increase their costs for the year.
V. Decision Criteria

McDonalds’ poor long term financial health and financial performance

highlighted symptoms of a troubled company. Items related to short term and
long-term assets were in a downward trend. Items related to sales were also
on the decline.

Balance Sheet

The horizontal analysis shown above exhibits the relative change of

McDonald’s balance sheet items prior to 2015. Short term assets like cash,
receivables and inventory were all in decline. A saving point here is that the
short liabilities items listed under accounts payable have been paid off. This
keeps the company’s short-term liquidity fairly stable.
In terms of solvency however, long term debt has kept increasing while
long term assets have decreased during the same time period between 2011
and 2014. This means that for long-term coverage, the assets of McDonald’s
cannot cover its own liabilities.
 Income Statement

Items under the Income statement show an apparent poor financial

performance. Major items related to Sales and net income have been in
decline. Earnings per share are also in decline which further confirm the
relatively slow growth of McDonald’s stock, when compared to the S&P 500
broad-based index

The following is an analysis of why a well established brand like McDonalds’

was performing poorly.

A. Was it because of a problem with menu and avenue ambiance

a. There has recently been a push for healthier lifestyles which in
turn relates to a longing for healthier food products.
B. Was it because of poor brand image
 a. The company’s brand has been tarnished by various concerns
regarding health, obesity, product safety, and product quality.
While McDonald’s still is the biggest fast food chain, many up-
and-coming fast food brands are ready to eat away at
McDonalds’ market share. This poor brand image
C. Was it because of a problem with manpower
a. Poor performance over an extended period can cause a
negative feedback loop. Employees get the shorter end of the
stick as top management and shareholders grip tighter on
finances. As laborers get poorer working conditions and/or pay,
customer service ends up worsening, which reduces overall
revenue hence restarting the negative feedback loop.

VI. Conclusion and Recommendation

In the pursuit of finding its identity, McDonald's Corporation has lost its way and
has increased its expenses which led to continuous losses in the previous years. As
a remedy, we have planned to recommend the following strategy or ways to solve
these problems:

The company has issues with its menu and its identity. They also have concerns
regarding the time of taking up customers' orders. With that, our team recommends
implementing a strategy wherein they will offer specific products or menus explicitly
made based on the taste and culture of the people where their branch is located. It
will be supported by extensive market and product research. Also, we think it would
be beneficial if they would also innovate some of the available products not to make
more products that are not familiar to the customers. It will surely help the
organization not just with finding out their identity but also with their profitability since
identity is very vital, especially to market their business. Aside from that, having
extensive market research will help the company capture the opportunity of having
health-conscious customers since the business wants to offer them products that will
be suitable for their health status. And make or improve their weakness of market
research into a strength.
 Another thing is that the organization seems to have a problem marketing its
brand, especially to the millennials. Our team suggests that the organization apply
store renovation and improve its brand image as a remedy. Having pleasing
aesthetics and attracting colors will attract many customers, especially millennials,
whom we know as people who love to take pictures and post them on their social
media accounts. This strategy will also support the improvement of the company's
brand image. These recommendations will not just attract customers but will also
help the organization's profitability in the long run.

Lastly, with the customer's concerns on the slow service, problems on staffing,
and improving low wages of the employees, our team recommends that the
organization implement increase in workforce, install devices for fast transactions,
and conduct market research. It is to identify more strategies that will help the
efficiency and fast track their services. Although the idea of installing devices for a
quicker transaction will cost the organization a significant amount of money, they
can invest more in these since it will surely help in the profitability in the long run.
Aside from that, these strategies will help the organization improve customers due to
their efficiency and faster transactions. It will also help fit Mcdonald's on their vision
of becoming a quick-service restaurant.

In conclusion, the alternatives presented can all be applied in a short-term or

long-term fashion, however we recommend that a sturdier long-term execution be
followed instead. Improving brand image, which can also improve public perception,
increasing manpower and spearheading the real-world use of automated labor to
improve work performance and customer service, are the biggest factors that can
define McDonald’s future in the fast food industry. And to collect information relative
to these factors will depend on the company’s effort on their market research in
order to better cater the needs and wants of their chosen target market.