Case Analysis:

McDonald’s Corporation

Haochen Cao

caoh1@ufl.edu

December 6, 2019
• Executive Summary

McDonald’s, under the environment where customers are turning to healthier options and

millennials account for the majority of the target customers, have to struggle to make

improvements in order to maintain the top position in the fast food industry. McDonald’s has

operated with franchising strategy to expand business all over the world, while allowing

franchisees to develop own menus. McDonald’s also made renovation in its menus, food

quality, and digitization. This paper includes analysis on McDonald’s business model, history

and background, synergies, environment, internal resources, competitors, leadership,

international strategies, and future development.

• Business Model

1. Profit formula

The profit formula of McDonald’s corporation is described as below:

𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 − 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡, where revenue comes from

the sales of fast food products, the sales of McCafe coffee, and franchising

income; variable cost comes from the cost generated when each burger or every

cup of coffee is made and sold; fixed cost comes from the rents, utility, and

equipment of every owned or franchised store.

2. Revenue streams

McDonald’s revenue comes from the sales of fast food and coffee, and franchising

operations.

3. Cost structure

McDonald’s costs include variable costs and fixed costs. The variable cost for

each product is the producing and selling cost assigned to one burger or one cup

of coffee. The fixed costs include rents, utility, and costs of equipment.
 4. Value proposition

The value proposition of McDonald’s can be described as “quality, service,

cleanliness, and value.” McDonald’s is showing their competitive edge, by

determining to offer fast food of better quality, more friendly customer service,

cleaner environment, and healthier food (compared to fast food provided by

competitors.)

5. Strategic resources

To expand business to the whole world, McDonald’s has been using franchising

as an effective operation model. They raised salary to encourage employees to

provide more friendly customer services. They also allowed franchisees to

develop their own menus, to satisfy different customer needs. They also

developed improved food quality by providing relatively healthier fast food to

millennials.

6. Dynamic capabilities & processes

McDonald’s has been going forward by adjusting to the environment. When first

started, McDonald’s used franchising to expand the business. With so many stores

all over the world, McDonald’s have the ability to adjust their menus to satisfy the

needs of customers from different cultures and in different areas.

• Background and History

McDonald’s Corporation, started by the McDonald brothers in 1940 in San Bernardino,

California, is now the biggest fast food chain brand in the world. By franchising to

franchisees all over the world, McDonald has expanded rapidly over the past 80 years.

McDonald’s has been through different managers, while it also experienced changes in

strategies and tactics. After the great recession, McDonald’s significant drop in

profitability forced the CEO Thompson to resign. Under the lead of the new CEO
 Easterbrook, McDonald’s started a turnaround. However, McDonald’s and the new

leadership team is still faced with many challenges.

• Target markets/ customers

Breakfast accounts for the largest proportion of sales, while noon lunch hour is the

busiest and most profitable time of day. McDonald’s are paying more attention to these

time areas. What’s more, the three main target market segments are mothers, children,

and young adults. While the key demographic group for other fast food restaurants is

comprised of young, single professionals who consume fast food every day, McDonald’s

pay more attention to millennials, who emphasize ingredient quality and demonstrate an

awareness of social issues like environmental sustainability.

• Analysis of synergies

1. SWOT analysis

•All-over-the-world •Complex menu

expansion offerings
•Capital •Distrustful of
•History and reputation igredients
•Healthy food •Unsatisfying
developoment customer service

Strength Weakness

Opportunites Threats

•Digitization to appeal to •Global recession

Millennials •Foot safety issues
•Growing international market •Healthy concerns
•Healthy food renovation •Increasing supply costs
•Aggressive competitors
 2. Contributing factors and facts

There are many factors and facts affecting McDonald’s strategies and tactics. In

other words, many issues are to be solved, and many goals are to be achieved by

McDonald’s. Global expansion, menu offerings, product quality (including food

safety and health issues), interest of Millennials, and customer loyalty are all the

contributing factors and facts that McDonald’s needs to develop strategies and

tactics to deal with.

3. Strategies and tactics

To achieve rapid global expansion, McDonald’s used the franchising strategy.

85% of the McDonald’s restaurants in the world are franchised, and the

percentage is expected to reach 95% in the future. To respond customers’ requests

of changing menus, McDonald’s has allowed the franchisees to develop own

menus in different countries, so that they can adjust to local habits and traditions.

McDonald’s itself also added more items into the menu. McDonald’s declared

improving food quality as one of its top priorities. In addition to using antibiotic in

the chicken supply, McDonald’s also sells dairy products from growth-hormone-

free cattle. To reduce obesity rate in children, and therefore attract more youth

customers, McDonald’s start to add healthier ingredient and to use meat of less

oil. To appeal to Millennials, McDonald’s hired a former Google executive to lead

the digitization, to develop a smartphone app, and to test mobile payment systems.

What’s more, to improve customer loyalty, McDonald’s increased employee

salary to ensure a more friendly service.

• Environmental Analysis

1. Political/ legal Analysis

 Regulations in the fast food industry have been requiring fast food companies to

achieve transparency, which means opening information of ingredient to

customers. However, McDonald’s has been plagued by perceived deceptions,

such as adding small amount of beef tallow to its vegetarian food products.

Healthy issue is also a legal problem. Though not successful, some have sued

McDonald’s for making its customers fat, pushing McDonald’s to renovate its

menu and develop relative healthier fast food products.

Apart from health regulations, due to the political problems in Russia, some

international markets have been deteriorated.

2. Economic Analysis

While the US economy continues to recover from the 2008 great economic

recession, more customers have more money to eat out, being an opportunity for

McDonald’s. As is shown in Exhibit 1, the sales of US quick service restaurant

industry has been increasing over the past twenty years. On the other hand, with

more disposable income, more customers want to shift to higher priced food

options, providing challenges to McDonald’s as well. At the same time, because

of the recent droughts occurring to McDonald’s suppliers, the price of beef and

many agricultural products are rising, increased the supply costs.

3. Technological Analysis

While many of McDonald’s competitors are leading the digitization, it seems

necessary for every fast food brand to have its own mobile app. McDonald’s hired

a technological manager to develop a mobile app, improve the social media

presence, and test the mobile payment systems. By 2017, McDonald’s was also

pursuing an aggressive technology upgrade to allow interactivity to both reduce

waiting times and improve customer experience.

 While McDonald’s is actively developing its menu, and while many new items are

added, McDonald’s is faced with a technological problem when a huge amount of

existing equipment have to be upgraded. In the past, a limited menu ensures most

food products can be made with the same equipment, while upgrading the

equipment in franchisees all over the world will generate a huge amount of costs.

4. Social/ Cultural Analysis

The increasing health concerns are likely to have the greatest impact on the

company’s competitive advantage. Because youth are one of McDonald’s main

customer segments, it is never easy if McDonald’s lose loyalty from youth.

Because youth are considered obesity prone, marketing to them directly is

difficult. To respond to this trend, McDonald’s has adjusted its menu to make

Happy Meal and other products relatively healthier, so that McDonald’s can still

keep the customer loyalty.

Another factor is the global cultural environment. International customers have

different tastes and customs in fast food consumption. To fit into global markets

better, McDonald’s allowed its franchisees in Israel and India to develop own

menus.

While the society is worried about McDonald’s food safety, McDonald’s

announced a media campaign to counterattack the naysayers, with a video series

entitled “Our food, your questions” was launched to demonstrate the company’s

food safety.

• Internal Resources

1. Stakeholders
 In 1961, Ray Kroc brought out the McDonald brothers’ shares. Then in 1965, the

company held its first public offering, debuting at $22.5 per share. The public

shareholders are attracted to buy and own shares because McDonald’s performed

well in the fast food industry. During the great recession, McDonald’s was the

number-one performing stock in the Dow 30 with a 34.7 percent total shareholder

return. However, in 2012, McDonald’s dropped to number 30 in Dow 30 with a

-10.75 percent shareholder return. Therefore, though the turnaround has started,

McDonald’s has been under some doubts and challenges from shareholders.

2. Corporate connection

McDonald’s has made many acquisitions, by buying different restaurant chains

from other companies, including Chipotle Mexican Grill, Donatos Pizza, Boston

Market, and Aroma Café coffee shops, in order to diversify the company’s

portfolio. McDonald’s also cooperated with many international companies, which

helped McDonald’s to speed up the franchising operation.

3. Finance

From the financial data (shown in Exhibit 2,) it is obvious that from 2012 to 2016,

McDonald’s assets kept decreasing, while liabilities kept increasing, showing the

troubles McDonald’s was experiencing. However, in 2016, earnings per share

increased, showing the positive effect Easterbrook had brought to the company.

4. Employees

From 2015 to 2019, Easterbrook was the CEO of McDonald’s. According to the

McDonald’s official website, the current precident and CEO is Chris

Kempczinski. Lucy Brady isSenior vice President in charge of corporate strategy

and business development. Francesca DeBiase is Chief Supply Chain and

Sustainability Officer. Jerry Krulewitch is Executive Vice President and General

 Counsel and Secretary. Kevin Ozan is Executive Vice President and Chief

Financial Officer. Mason Smoot is Senior Vice President, Strategic Alignment

and Chief of Staff, and is in Office of the CEO. Daniel Henry is Executive Vice

President and Global CIO. Piotr Jucha is Senior Vice President in charge of

Global Restaurant Development & Restaurant Solutions Group. Colin Mitchell is

Senior Vice President in Global Marketing. Michael Gonda is Vice President in

Global Communications. With every senior staff member assigned to a specific

area of operation, McDonald’s is currently going forward with a clear and

effective organizational structure.

5. Operations

McDonald’s both owns and operates its own restaurants, as well as, franchisees

them to others. McDonald’s has used three primary franchise ownership

structures: (1) conventional franchisee, (2) developmental license, and (3)

affiliates. Franchisees can vary significantly in size, so that as many franchisees as

possible can McDonald’s attract, maximize its global expansion.

• Competitor analysis

Main competition for McDonald’s has come from other fast food restaurants, like Burger

King and Subway. McDonald’s has positioned itself as of best food quality and most

satisfying customer service. For example, McDonald’s has been making effort to develop

its menus so that the food can be healthier as compared to the competitors. Since

McDonald’s also expanded business to coffee drinks, coffee shops such as Starbucks and

Dunkin’ Donuts are also the competitors of McDonald’s McCafe division.

• Leadership role
 The CEO Easterbrook played a role as a renovator. He stopped some products which had

been proved as failures, to achieve a turnaround for McDonald’s. He pointed out the

challenges for McDonald’s about menu, product quality, appealing to millennials, labor,

and international market, and then took successful actions to deal with them. McDonald’s

has more attributes of an integrator than a differentiator. During McDonald’s franchising

process, McDonald’s gave franchisees all over the world the freedom to develop their

own menus, as integrating the company value with local cultures of certain countries. The

development of its healthier fast food can be viewed as learning from competitors such as

Chipotle, while the introduction of the smartphone happened after Burger King had

theirs.

• International Strategy

McDonald’s has taken a differing strategy to different markets. On the one hand, it

allowed international franchisees to develop own menus which fit to the local culture

better. On the other hand, McDonald’s sold stakes to international companies in certain

countries, so that franchising can be operated in a more effective way, taking political

issues into consideration. McDonald’s international strategy has been effective, because

the international markets including China, Italy, Korea, Poland and others, have been

proved as high growth markets, as is shown in Exhibit 3.

• Future development (after Easterbrook resigned)

According to The New York Times, after Easterbrook was fired after relationship with

employee, the former president of McDonald’s USA Kempczinski replaced him as the

new CEO. The New York Times journalist reported that as Americans were turning to

healthier options, Kempczinski had realized the importance of healthy food, and this
 could be a signal of a good transition in Easterbrook’s renovation in healthier fast food.

Therefore, McDonald’s will keep going forward, without too many changes to the current

corporate strategies and the value proposition.

• Appendix and bibliography

(1) Kim, J., Rothaermel, F. (2017). McDonald’s Corporation. McGraw Hill

Education.

(2) McDonald’s Leadership. (2019). www.corporate.mcdonalds.com

(3) Bellany, D. (2019). McDonald’s Fires C.E.O. Steve Easterbrook After

Relationship With Employee. The New York Times.

Exhibit 1. Sales of U.S. Quick Service Restaurant Industry ($ billion). 2002-2020

 Exhibit 2. McDonald’s Financial Data ($ millions, except EPS data)

Exhibit 3. McDonald’s Revenues by Regions and Market Segments, 2013-2016.