Name: Cerro, Noemae C.

Deloso, Sheena
Enjambre, Maria Faith
Lubong, Lera Mie
Napuli, Jayra Nica P.
Orais, Raquel G.
Subject: Management 7: Strategic Management
Section: A
Date Submitted: March 25, 2022

Case Study

DOING GREAT IN A WEAK ECONOMY

1. Describe the industry that McDonald’s belong to and the level of competition using the five
forces model made by Michael Porter.

McDonald’s belong to the global food service industry, which specializes in selling ready-made
food to clients, along with Burger King, Yum, Tim Horton’s, KFC, Jollibee, and Wendy’s. This industry is
a segment of the much bigger food industry and include restaurants where patrons pay for quick-
service food products. This industry has spread all over the world driven by the high demand for ready-
made food. Moreover, the competition in this industry requires companies to be dynamic in their
menus, marketing, and overall services offered in order to always please their clients, make enough
profits and remain at the top of the competition at the same time. With the improvement of the global
economy, the global food service industry also grows. The rising international expansion of fast-food
chains which are based in the US are the primary driving factors of the industry’s growth as it has been
a trend for economies worldwide to demand more fast-food options. Food service accounts for about
45%-50% of total spending on food in the US, while the percentage in lesser-developed markets can be
in the range of 10%-15% or less of total spending on food. Though the ongoing COVID-19 pandemic
has affected the overall food service industry’s operations including that of fast-food facilities and
QSRs, long term prospects remain positive, presenting considerable opportunities for the food service
market. Currently, Global Industry Analysts, Inc. reports showed that it reached a value of US$800B
and accounted for a 25.1% share in the global market. McDonald’s is one of the global top players that
contribute to the continuous growth of the said industry.

LEVEL OF COMPETITION (Five Forces Model of Competition)

 RIVALRY/EXISTING COMPETITION - STRONG

McDonald’s competitive rivalry becomes high because the fast-food restaurant business is
saturated, also because, along with McDonalds, its competitors use aggressive marketing strategies in
order to gain customer sales. Since the food and beverage is rapidly growing, it becomes simple for
customers to switch between competing eateries like Wendy's and Burger King (low switching cost).
McDonald’s main competitors are:
Burger King
Burger King is McDonald's most direct opponent because it offers the Whopper, which is a
direct competitor to the Big Mac.
If you're on a budget, Burger King also sells fries, chicken sandwiches, and other products similar to
McDonald's at a lower price.
Furthermore, Burger King has over 18,000 stores worldwide and is present in over 100 countries.
Wendy’s
Wendy's and McDonald's are direct competitors because both fast-food chains specialize in
burgers, chicken sandwiches, and fries. McDonald's and Wendy's are always in competition because
both locations offer delicious breakfast sandwiches and quick drive-thru service. Wendy's also
operates in 29 countries and has more than 6,500 locations throughout the world.
Wendy's is also the third-largest seller of hamburgers, trailing only McDonald's and Burger King, while
also providing excellent salads and low-cost menu selections.
KFC
Because KFC focuses on chicken, whereas McDonald's sells both burgers and chicken, it is
considered an indirect competitor to McDonald's.
KFC and McDonald's, on the other hand, both buy a lot of chicken and compete in the chicken
sandwich market.
In addition, KFC replaced potato wedges on the menu with fries, adding another dimension to the
conflict between KFC and McDonald's.
Subway
Subway is the world's largest fast-food restaurant by number of locations in the United States
and around the world, making it a direct competitor to McDonald's.
Furthermore, Subway has more than 41,000 outlets globally, with more than 21,000 in the
United States. However, Subway has a big edge in terms of location. McDonald's, on the other hand,
has over 39,000 locations worldwide but only 14,000 in the United States.
Jack in the Box
Jack In The Box focuses mostly on hamburgers, giving McDonald's a run for its money while
also having a cult-like following. However, Jack In The Box offers a wide variety of hamburgers, some
of which have unusual names. Furthermore, you can customize your order to a degree that you won't
find at McDonald's. Jack in the Box has over 2,200 outlets in 21 states, including Guam!
Tim Hortons (Primarily Canada)
Tim Hortons is predominantly headquartered in Canada and is a coffee competitor to
McDonald's as well as a fast-food competitor in general. However, there are approximately 5,000 Tim
Hortons stores globally, with 4,000 in Canada. In addition, the United States has the second-highest
number of Tim Hortons outlets in the world.
Starbucks
Starbucks is a direct competitor to McDonald's in the coffee market, with over 32,000 locations
in 76 countries!
 Furthermore, the competition between Starbucks drinks and McDonald's McCafe products
continues to heat up, with some people preferring McDonald's coffee to Starbucks coffee.
Hungry Jack’s
Because it is a Burger King Corporation fast-food franchise, Hungry Jack's is one of
McDonald's key competitors in Australia.
Because Hungry Jack's is a Burger King franchise, you know what to expect when you walk into one
of their restaurants, and the quality is comparable to that of American Burger King outlets.
Furthermore, Hungry Jack's has over 400 sites in Australia, making it the second-largest
Burger King franchise in the world!
MOS Burger
MOS Burger is a Japanese hamburger company that competes directly with McDonald's in the
country. It is the country's second-largest fast-food restaurant, after McDonald's. MOS Burger now has
over 1,700 locations in nine countries, the most of which are in Asia.
Furthermore, MOS Burger has a larger selection of fresh burger selections on the menu than
McDonald's, making it superior to McDonald's.

 THREAT OF POTENTIAL ENTRANTS – MODERATE

Customers are drawn to new or potential entrants for a variety of reasons, such as curiosity or a
desire to try or explore new food offerings. Furthermore, the variable capital cost of opening a new
restaurant enable new companies to enter the global fast food restaurant market. Small restaurant
enterprises, for example, have lower capital cost than larger corporations in the market. This leads to
the moderate threat of potential entrants against McDonalds. However, McDonald’s has built a strong
brand over the years and building a strong brand in the industry is costly. Many small and medium
enterprises do not have the means or enough resources to develop a strong brand that can compete
with McDonald's. Thus, the threat of new entrants is something to consider but not the most important
strategic issue.
Moreover, according to Adamski, on a local level, if a few restaurants were to dominate a small
town against a few McDonald’s restaurants, it could overrun McDonald’s popularity quickly, making it a
plausible threat to consider.

 BARGAINING POWER OF SUPPLIERS – WEAK

McDonald's suppliers have weak bargaining power firstly because there is a significant number of
suppliers relative to fast food restaurants. This could mean that McDonald has high availability of
substitute suppliers. Also, a substantial majority of them are not vertically integrated, which means
 they have no influence over the distribution network that conveys their products to companies like
McDonald's. Furthermore, the relative abundance of supplies such as flour and meat weaken the
influence of particular suppliers on the company.

 BARGAINING POWER OF BUYERS – STRONG

Nowadays, gaining customer loyalty is more difficult due to the growing number of fast food
restaurants as well as due to product differentiation. The fast food restaurants is rapidly growing, as a
result, buyers have a wide range of selections to choose from, may easily force their demands on
McDonald's due to the simplicity of switching from one restaurant to another (low switching costs), and
also due to the high availability of substitutes such as those that offer a healthier meal. These motivate
McDonald’s to keep its prices at a good level for buyers to return. Hence, for McDonalds to keep its
customers, buyers had to have strong bargaining power.

 THREAT OF SUBSTITUTE PRODUCTS – STRONG

There are many alternatives to McDonald's on the market, including domestic cookery, bakeries,
and more. McDonald's faces a threat from these, particularly in terms of customer satisfaction and
quality. As stated in the bargaining power of buyers, customers may choose to go for a healthier meal
or substitute McDonalds with its main competitors. McDonald's may have to reassess its product
quality and make modifications as customers are gravitating towards healthier options on the market.

2. Suppose McDonalds will open a store in Maasin City and you are tasked to conduct an
environmental analysis. Describe the factors in the remote environment that you find relevant to
McDonald’s plan of opening a store.  Would you recommend to open a store or not? Justify
your decision.

There are certain factors in the environment that need to be considered and analyzed on deciding
whether McDonald’s should open a store in Maasin City. Such factors are listed below.
 POLITICAL FACTORS

McDonald's is a world leader in fast food. Fast food companies are always at the risk of being
targeted by the government as their primary concern is the safety of the people. So, if McDonald's
doesn’t comply with health and safety regulation, then the government will shut it down. The local
government of Maasin City is concerned with the safety of the people, with the active implementations
of the Department of Trade and Industry to ensure that eateries within the vicinity are in compliance
with the health and safety protocols. Kenneth S. Yang, the President and CEO of McDonald’s
Philippines highlighted that the fast food restaurant has always been strict and committed in terms of
ensuring food safety and quality from sourcing to serving. This protocol is applied in all McDonald’s
stores worldwide and such will be applied if there is a move for expansion here in Maasin City.

 ECONOMIC FACTORS

Economic discussion is of paramount importance as this will influence McDonald’s performance

especially in venturing into a new location. One of the things that should be taken into consideration is
the purchasing power of customers within the area. As of the latest census for 2021, among the LGUs
in the country, the employment rate of Maasin City gathered a score of 0.1758 and ranked 71 st which
is not bad at all. There is a big possibility that demands for McDonald’s products will increase when
there is a high rate of disposable income from customers having a stable source of funds.

In addition to this, the expansion of McDonald’s in a developing country is advantageous if the

economic growth is stable. Maasin is a developing city and as what we can observe as of today, it is
continuously striving towards local economic growth and is building a reputation to be a bigger center
of commerce within the province. With this, there is a chance for McDonald’s to benefit from the
arising demands of the people within the area.

 SOCIO-CULTURAL FACTORS

The social conditions of the remote environment as influenced by the consumers’ behavior can
affect McDonald’s in terms of revenue. Some aspects that are to be considered include population rate,
age distribution, health consciousness and religion. The population rate of Maasin City as of 2020 is
recorded at 87,446. The primary customers of McDonald’s include parents with young children, young
children, business customers, and teenagers. The age distribution which constitutes the children,
teenagers and adults is about 79% of the entire population. Thus, the locality can be considered as a
good market for McDonald’s. In terms of religion, approximately 50% of the population are Roman
Catholics. Only a small percentage from the non-Catholics are prohibited to eat pork as what their
religion has taught them. This is beneficial for McDonald’s since they no longer need a big adjustment
in terms of changing the ingredients of their foods. However, with respect to health consciousness,
based in our current condition, in the wrath of the pandemic, the people are more conscious with the
foods they eat. This can be a threat for McDonald’s in which most of their foods are not the best choice
for a healthy diet.
  TECHNOLOGICAL FACTORS

McDonald’s success depends on its adaptation to maximize the benefits of technological resources and
trends. The fast-food restaurant is developing a new growth strategy which is practiced in all its
branches around the world. Such strategy includes going down to 3 D’s (Digital, Delivery and Drive
Thru). This is leveraging the organization’s competitive strengths and building a powerful digital
experience growth engine that provides a fast, easy experience for our customers. Just like other
localities in the country, Maasin City is not behind in terms of technology. A lot of people here are using
most of their times in social media and prefers to do transactions online since with the presence of the
advancement in technology, it is convenient for them. It is evident as to date with the existence of Food
Panda, for instance, in which customers opt to order and pay online. McDonald’s has been adapting to
the technological trends and resources by featuring self-ordering kiosks or large touch screens where
one can just tap on their orders and pay using their Visa or Mastercard. If the customers still prefer to
pay in cash, they may still use the kiosk and just proceed to the regular cash counter for payment.
Thus, in terms of tech-challenge, McDonald’s crew are on hand to guide the customers through the
new ordering system.

 ECOLOGICAL FACTORS

The ecological factors are linked to the natural environment in which environmental safety
implementations are to be considered and such can greatly affect McDonald’s business performance.
The adaption of an environmentally friendly management approach is one of the most popular issues
that needs to be addressed. When engaging in green practices, such practices must be aimed at
effectively reducing the environmental and social problems that arises in its operations. McDonald’s
Philippines has been reinforcing its commitment towards using environment-conscious and climate-
friendly restaurant solutions. Currently, 50% of McDonald’s customer packaging comes from
renewable, recycled, or certified sources and 64% of fiber-based packaging comes from certified or
recycled sources. Also, an estimated 10% of McDonald’s restaurants globally are recycling customer
packaging. With McDonald’s ability to adapt in an environment friendly operation, it should also expand
its business in Maasin City as this is an opportunity to build a good image for its customers.

 LEGAL FACTORS

The laws and regulations imposed by the government has an impact in the business operations of
McDonald’s. Some of these regulations which can be considered when deciding to open a store in
Maasin City include health regulations and the regulation on minimum wages. With the occurrence of
the pandemic, there are certain protocols that businesses should follow for the safety of the customers.
This is not a problem for McDonald’s because of the fact that all its stores within the country are
complying with the health protocols. Such compliance can also be applied here in the city. Another one
is the minimum wage regulation. The current minimum wage here is P325 which is smaller compared to
other big cities in different regions. This can be advantageous for McDonald’s in lowering its cost as a
higher minimum wage results to higher expenses. With this, the prices can also be lower which is
favorable in the customers’ part.

Thus, it is recommended that McDonald’s will open a store in Maasin City. From the given
information above, there are existing external factors that point out threats and may affect the business
once it will venture for expansion here. However, with McDonald’s international level of adaptation and
effective strategic management, it has a huge potential to address those threats and can obtain its
success here in the city. This is because it has the capacity to comply with the political and legal rules,
it is ensuring that the safety and quality of their foods are met from sourcing to serving, it can adjust to
the customers’ demands and preferences, it is reinforcing an environment-friendly packaging, and it is
paving its way towards the advantageous use of technological resources in order to cope up with the
technological trends in the food service industry clout. However, a strong competition will be of
existence once it opens a store here because of Jollibee Foods Corporation that is already established
here in Maasin City for a long time. But McDonald’s is known for its competitive strategies. It already
ventured to a lot of areas that are considered as a great challenge, it is not impossible for it as well to
attain success here in city. Moreover, the people here are longing for quick-service restaurants and the
existence of McDonald’s in Maasin City, even as a new entrant will gather a lot of customers.

References/Sources:

IvyPanda. (2019, August 20). McDonald’s Company’s Strategy and Competition.

https://ivypanda.com/essays/mcdonalds-corporation-2/
https://www.ers.usda.gov/topics/food-markets-prices/food-service-industry/
https://www.toucaninsights.com/post/competitor-analysis-through-the-eyes-of-mcdonald-s
https://querysprout.com/mcdonalds-competitors/
https://corporate.mcdonalds.com/corpmcd/our-purpose-and-impact/our-planet/packaging-and-waste.html
https://digital.hbs.edu/platform-digit/submission/committing-to-the-core-how-mcdonalds-innovated-to-survive-and-thrive-
during-the-covid-19-pandemic/

https://www.restaurantbusinessonline.com/financing/mcdonalds-plots-its-tech-future