Example of A Weak CSA: BAU @McDonalds
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Challenge:
This report is presented to Steve Easterbrooks, CEO of McDonald’s Corporation upon his request
to analyse performance and to recommend strategies for the period 2018 to 2020.
McDonald’s strategies of providing fast, friendly service and low-cost meals have been successful
historically but have failed to arrest the decline in customer traffic and sales revenue, plus
profitability. Attempts to turn-around through technology upgrades, menu revitalisation and
improving public perception and food quality has improved performance in the last two years.
However, customer traffic and sales continue to decline, increasing input costs are squeezing
margins.
McDonald’s key challenge is to improve sales and profitability in a highly competitive setting
impacted by increasing health awareness, environmental concerns and millennial customers.
McDonald’s key measures of success for 2018 – 2020 will be to increase sales by 20% and
increase profit by 12%, and be the industry market leader globally by 2020.
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Alternative 1 - Subway Acquisition:
The first alternative recommends McDonald’s to focus on aligning its strategy to health-conscious
customers and invest in its food quality perceptions while still providing affordable meals.
McDonald’s will take a horizontal approach and acquire Subway. McDonald’s is aware of a need
to respond to growing customer concerns regarding foods high in fat and calories. Subway has
deeper market penetration in a key area and a brand which has a global presence and credibility
as a fresh fast food company. While keeping BAU strategies of: continuing research into customer
menu choices for broader market segments; shortening the menu; enhancing its mobile app
including ‘build your own burger’; and improved customer service during peak times.
The synergy drawn from the acquisition will increase performance and decrease costs. These
include: Subway’s staff training is currently outsourced, by learning McDonald’s practices Subway
will have more consistent and procedures consistent and attract better staff; McDonald’s
successful experience in building brand recognition will help Subway’s brand and build a bigger
loyal customer base; McDonald’s will utilise Subway’s successful branding strategies in particular
segments especially millennials.
The acquisition will give McDonald’s better leverage over its suppliers to deliver cost savings.
Example of A Weak CSA: BAU @McDonalds
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Alternative 2 - Investment in Education:
The second alternative is to invest in education to provide educational benefits for its current and
potential employees and customers. By collaborating with the educational industry, using their
Corporate Social Responsibility young consumers can be appealed merely through word of
mouth.
First, to encourage students to work at McDonald’s, partner with colleges and universities to offer
tuition assistance, start in Chicago then expand across the US. Second, McDonald’s Scholarships
to award employees who are excellent at both work and study. Both online and physical resources
should be in place for employees to learn in areas like English (for international students).
McDonald’s will partner with large educational groups and charities across the world to help
children aging from 6 to 18 to develop Generation Z’s loyalty to McDonald’s. McDonald’s will open
community schools in poor neighbourhoods teaching subjects like English and food culture, with
free study resources. Also, sponsor programs including books and toys, educational trips, and
celebrating Children’s Day at McDonald’s restaurants.
McDonald’s will attract not only Millennials (Generation Y) but also Generation Z as potential
employees and consumers, gaining a competitive advantage from its rivals. It will result in long-
term profitability and sales growth delivering a sustainable model to maintain its market
leadership. The strategy also involves opening McDonald's stores in campuses of partnered
universities and pursuing BAU mentioned in Alternative 1.
Alternative 3 Backward integration through the acquisition of farms:
With the aim of capturing the millennials segment and the plan of providing healthy and fresh food
variety, McDonald's will integrate backwards. This is aimed at ensuring control over raw material
supplies and reducing the bargaining power of suppliers. McDonald's will curtail antibiotics in
poultry, lamb and livestock, while pursuing BAU as mentioned above.
This delivers have better control of the supply chain ensuring access to critical materials even in
economic or environmental downturns. McDonald's will optimise resource utilisation by reducing
food waste, attract a broader customer base, and lift sales for the long-term.
The first step is acquiring suppliers who utilise free range techniques that guarantee healthfuller
meats with higher protein content. Secondly, McDonald's will curtail antibiotic in its meat supply,
use dairy products from growth-hormone free, and reduce preservatives in food. Thirdly,
McDonald's must allow consumers to observe the cooking process and food preparation to
demonstrate how ingredients are made. Finally, McDonald's has to improve its customer service
by contracting more people during peak times.
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Example of A Weak CSA: BAU @McDonalds
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Solution: “Alternative 3: Heading back to Farming” Any Macca’s Capabilities here?
Our SWOT analysis reveals that the sheer size of McDonald's network is a strength that provides
economies of scale, market power and worldwide brand recognition, while as weaknesses
McDonald's has weak product development and low-quality products, both of which have been
negatively affecting sales and are the main reason of its declining market share. There is an
opportunity where McDonald's can respond to social changes through healthier ingredients and
strengthen its value proposition of friendliness, cleanliness, and consistent service.
Simultaneously, it can counteract environment pressures of changing demographics and market
saturation.
Our PESTEL Analysis reveals that the Economic and Social have been changing adding a new
larger segment to the market, called millennials. There are Political, Environmental and Legal
Factors that require attention, particularly government regulations or health food legal laws. The
overall industry remains a profitable avenue. (needed a Porter’s Five Forces to determine this
conclusion)
Based on VRIN Analysis McDonald's is the only brand in the fast-food industry that is known for
its popular products at low-cost such as Big Mac and as a company with the potential of
identifying, implementing and scaling innovative ideas that allow adaptation and profit (a
Weakness above) from changing food trends, such as McCafé.
McDonald's will adopt backward integration as its competitive advantage to provide healthier and
cost-effective raw ingredients to customers continually choosing fresh over fast and convenient,
to increase revenue and customer traffic through a menu revitalisation, and remain the market
leader in the quick-service industry. McDonald's to have better control over the supply chain and
apply good practices to deliver ingredients with lower levels of preservatives.
McDonald's will identify critical suppliers, buy their farms and ranches initially in the US.
McDonald's will expand this strategy to markets, like China and India during the second year.
McDonald's have the chance to capture a bigger portion of Millennials. Running advertisements
of healthy quick-food options, presenting how the ingredients are made, and showing the protein
content of each meal McDonald's is modifying its brand reputation and promoting its value
proposition.
McDonald's will increase sales in its main markets and will hire more employees to satisfied peak
hours. McDonald's will offer healthier products, and better customer service, to positively impact
in its social and environmentally sustainable practices. The above strategy includes pursuing BAU
strategies mentioned above.
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Example of A Weak CSA: BAU @McDonalds
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Execution Plan: Where is the review, acquisition, and management of Farms?
January - June 2018
Research of crucial meat processors in the US.
Acquire of Cargill Meat Solutions Corporation and Smithfield Foods Inc.
Implement free range techniques to guarantee healthfuller meats.
Curtail antibiotics and preservatives in ingredients.
July - December 2018
Launch the first line of organic beef, lamb and chicken products.
Increase by 5% the number of employees during peak hours in leading restaurants in the US.
Advertise health-consciousness messages in the US presenting how the ingredients are made.
Upgrade mobile app to allow "Build your own" option.
Optimise resource utilisation and reduce food waste.
Evaluation and monitoring quarterly to increase sales by 6% and profitability by 3%
Keep BAU practices.
January - June 2019
Restructure menu options - Reduce menu options.
Increase customer traffic by offering special deals.
Research and purchase of crucial meat processors in China.
Advertise health-consciousness messages in China presenting how the ingredients are made.
Increase by 5% the number of employees during peak hours in leading restaurants in China.
July - December 2019
Research and purchase of crucial meat processors in India.
Advertise health-consciousness messages in India presenting how the ingredients are made.
Evaluation and monitoring quarterly to increase sales by 8% and profitability by 5%
January – December 2020
Study consumers perception Reduce frustration when ordering by reducing the number of
options.
Reduce operating expenses by 5%.
Increase profitability by 3%.
Evaluation and monitoring quarterly.
Keep BAU practices.- not necessary here – a confirmation in Solution is adequate
Contingency Plan:
If McDonald's fails to reduce its operating expenses and increase its profit by 75 % of the goal in
June 2019, then McDonald's will switch to Alternative 1.
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