Reinventing the wheel, McDonalds has successfully continued its winning streak for the 5th year in a row by being more consumer focussed, evolving the brand perception and creating long term profitability. Here is a snapshot on McDonald’s business in year 2K7
STRENTHS
Major Markets, defined as US, Canada, Europe, Australia, Japan and China contribute to 60% of the business. (Annual Report 2007)The focus on international business puts additional burden on the bottom-line growth hence the route of franchising and reduction of company operated stores has resulted in better profitability index and lesser cost of capital. Besides, improving the local knowhow in day to day operations resulted in adding a personalised dimension without moving away from the evident standardisation.
The international business grew at the rate of 11% versus 6% in US; tool used to connect to a new audience was customisation. Some of the examples such as the localised menu options like the Teriyaki Mac in Japan or Breakfast meal in Europe resulted in sales improvements and will definitely help in sustaining the long term growth objectives. In the US, opening of renovated stores with improved ambience and better furnishings was warmly welcomed.
Location could be a key factor in retail success but convenience is the new buzz word. 24500 stores out of 31377 stores, 78% of total offered 24 hour service. (Annual report 2007) A new and innovative way to reach out to the consumers resonated well. New retail formats like kiosks and drive inns have helped in improving the value proposition for the consumer.
WEAKNESS
While franchising is imperative to improve profit; it could result in differential levels of service. Caution and stringent checks are difficult to monitor and the cost of maintaining brand value is imperative which Mcdonalds witnessed in the period of 1997-2002(Brand Revitalisation by Larry Knight)
Price of raw material generally forms upto 30-35% of the cost in any product. In the case of fast food industry where profit margins are about 4-6 %(www.restaurant.org), the rising cost of corn and wheat adversely affected the low margin. The grain diverted for the production of ethanol which yields better returns is termed as one of the key factors for soaring prices.
In times of uncertainty and economic slowdown the core McDonald’s consumer feels the maximum pinch. With incomes seeing a downturn, the socialising is bound to reduce and the consumer is going to turn back to the cheaper options at good quality
OPPORTUNITIES
Affordability will still continue to be a key growth driver. A large chunk of consumer base may get eroded but an equally larger chunk could be created. Investment made in renovation and better ambience in the year will help improve traffic of consumers from higher end to downgrade and makeup for the lost consumer base.
The two pronged attack to increase the footfalls and improve the average bill by exploring new business opportunity like the McCoffee, a cheap but quality beverage product will bring more consumers into its fold and will have a sustainable long term effect. Breakfast menu, snack wraps and salads are value for money options for the consumer will have savings effect on consumer wallet while fulfilling above two strategic moves.
Expansion of new products is an imperative for the ‘Major Markets’ of US, Canada, Europe, Australia, China, Japan the reliance on core products in emerging markets like Latin America, Russia, Africa and India will help the company to build a stong brand value through its core strengths retaining its value systems and standardisation process. Standard products will translate in lower investment in R&D, training and marketing improving profitability.
THREATS
The profitability index will be toughest to maintain in testing times of rising costs and retaining customers without forgoing quality or brand position.
Growth of low cost casual restaurants, which provide for a better ambience for socialising, varied menus options and catering to specific needs, can create a dent in the company consumer base.
Obesity is one of the key concerns especially in mature markets. The awareness of eating habits and exercising is resulting in consumers shifting to health foods and other non greasy options. This is a vital trend threat that could shake the very foundation of McDonalds’ core items ‘Big Mac’ and ‘Dollar Meal’.
McDonald’s management in 2K7 in short term has executed well and has devised a long term strategy to gear up for changing market conditions. Overall, it is in a very comfortable position talking to new consumers while already has a deep understanding of consumer trends and taking actions and gathering more momentum in this bid.
