MKT 302 Project 1 Mc Donalds Company Analysis PDF

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1 Part One: Company Overview The mastermind behind the success of McDonald’s is a man named Ray Kroc. Kroc was a salesman for the blender company Multimixer, which allowed him to visit many restaurants and see their inner workings. One establishment in particular stood out to Kroc while he was selling Multimixers. In 1954, Kroc visited McDonald’s in San Bernadino, California. Two brothers named Dick and Mac McDonald ran the successful restaurant with only a few items on the menu: burgers, fries, and beverages. Kroc was perplexed with how the restaurant flourished by focusing on the quality of only a few items and how this allowed for quick service. Kroc’s interest peaked when he realized McDonald’s had no franchising agent, so he took the opportunity to put his efforts into helping the restaurant. In 1955 McDonald’s System, Inc. was founded and six years later Kroc purchased the exclusive rights to the McDonald’s name and operating system. By 1958, McDonald’s sold its millionth hamburger (McDonald’s, 2017). McDonald’s had a focus on quality from the start. The goal of franchising the company was consistent quality and taste no matter where a customer would order food. This consistent environment was facilitated with the creation of Hamburger University, a training facility in Elk Grove, Illinois where franchisees could learn successful McDonald’s modeling and methodology. Hamburger University also employed a research and development lab to work on new methods for cooking, freezing, storing, and

2 serving food. The University has given college credits to its attendees, and boasts over 275,000 graduates in the form of franchisees, managers, and employees (McDonald’s, 2017). McDonald’s mission statement is “to be our customers' favorite place and way to eat and drink. Our worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to continuously improving our operations and enhancing our customers' experience.” (Jurevicius, 2013) The company’s vision statement is “to move with velocity to drive profitable growth and become an even better McDonald’s serving more customers delicious food each day around the world.” (Meyer, 2018). McDonald’s also has a set of strategic objectives. McDonald’s strategic objectives lie within a promise to provide a great experience with “unmatched quality, service, cleanliness and value every time” (McDonald’s, 2017). McDonald’s is always striving to better its company, focusing on improvements in, but not limited to, employee satisfaction and performance, communities and philanthropy, and ethical decision-making. The company created a growth strategy in 2017 called the Velocity Growth Plan, which focuses on retaining current customers, regaining those who have been lost, and converting casual customers into those with lifetime value. McDonald’s is looking to achieve these goals using future technology in digital, delivery,

3 and experience (Klein, 2017). Efforts are being focused on customers by not only improving quality, but also how customers are being reached. These improvements in future technology do not change the company’s core competencies of quality and fast service that drive customer needs, but only improve upon them. Financial Performance McDonald’s stock has historically done very well and is one of the top chains with 42 years of consecutive increased dividends (Seeking Alpha, 2018). Although the number of U.S. locations peaked in 2014 and there has been a steady decline of roughly 300 stores to date, the company is not worried (Duggans, 2018). The majority of these stores are in Walmarts and shopping malls. McDonald’s focus is instead being repositioned towards renovations in current locations, bringing the focal point back to the company’s core competency in quality. A historical stock-hiking decision for the company came when they introduced the Happy Meal in 1979. The company saw the need for families to have options for children and capitalized on that market segment. McDonald’s has also worked on the health-focused contents of the children’s meals, with cheeseburgers “only upon request, shrinking the side of french fries in six-nugget Happy Meals and reducing the amount of sugar in its chocolate milk.” (Wiener-Bronner, 2018) This change has given a steady upward look to McDonald’s stock.

4 When comparing McDonald’s stock with that of Wendy’s, another popular chain, in the past year, large amounts of fluctuation can be seen. As of September 4, 2018, McDonald’s stock is roughly at $161, while Wendy’s is at $17.5 (Nasdaq, 2018). McDonald’s looks to improve its future stock performance with its new growth strategies focusing on the company’s core competencies and use of technology. McDonald’s Stock, September 4, 2018:

Wendy’s Stock, September 4,

2018:

(Nasdaq, 2018) The fast-food market as a whole is continually growing. According to fast food industry analysis done by the National Restaurant Association, U.S. revenue for fast food exceeded $200 billion in 2015. This is a large jump from 1970’s revenue of $6 billion. Furthermore, the industry is expected to have an annual growth rate of 2.5% for the next several years (Sena, 2018). More

5 and more people are finding the convenience and price of fast food hard to compete with. McDonald’s is a household name and is becoming well known not only in the United States but also throughout the world. To further segment the industry, hamburger restaurants alone account for 30% of fast food sales (Sena, 2018). While hamburgers are common in a lot of fast food restaurants, McDonald’s continues to strive towards innovation and other ways that make the company stand out from the competition. Part Two: Environmental Analysis Demographic Environment In the 21st century, the U.S. demographic has some significant trends that motivate businesses change to survive and be favorable in the market. First, the number of Millennials, whose age ranges from 22 to 37, is approaching the number of Baby Boomers and becoming the largest generation in the U.S. society (Devine, 2018). In the near future, Millennials will be the biggest labor force in the U.S. economy. Recent studies show that Millennials acknowledge education as something that will give them more opportunities to obtain better jobs and higher salaries (Graf, 2017). However, since the majority of Millennials just graduated from schools or started a new career, they have lower income than other generations, they expect affordable prices for their foods. One of the strongest competitive advantages of the fast food chain is its low prices, giving McDonalds a big chance to be the winner in the market. However, McDonald’s has recently

6 gained a bad reputation for the quality of their food. The Daily Meal exposed that McDonald’s sandwiches were causing food poisoning. The article listed 22 confirmed cases of food poisoning that caused nausea, vomiting, and or diarrhea after consuming McDonald’s sandwiches (Rock, 2018). To reassure the public that their food is safe, and of the highest quality, the fast food chain is putting more effort into public image. They are attempting to accomplish this by press releases through major news outlets such as CNBC, CNN and Forbes. Young people in this generation also care more about healthy lifestyles than previous generations. They want foods that contain low calories, low cholesterol, and low sugar. For those who are looking for healthy and less processed food, McDonald’s claims that they are going to cut artificial preservatives out of their chicken nuggets (Malcolm, 2016). In addition, the frozen patties used in McDonald's burgers will be replaced by fresh beef (Whitten, 2018). Taking these actions will allow McDonald’s to reposition themselves in the public eye and their food will no longer be associated with the negative stigma of junk food, appealing to Millenials. The number of internet-connected mobile device users is increasing exponentially. Millennials are the first generation born into the digital age, spending a significant amount of time on their mobile devices. This gives McDonald’s, a company with an extensive budget, the chance to become champion of the online fast food market. The company also appears to be an innovator in the industry applying digital technology to their restaurants. One

7 of McDonald’s recent mobile app deals is for “$1 drink, $1 sandwiches, and free fries with $1 purchases”. This is generating enthusiastic responses from consumers. The company is also adding digital kiosks, design digital menus, giving parking spots for customers who order online, and set up multiple online payment methods (Berr, 2018). These changes make McDonald’s more appealing for the next generation of spenders. Counter to the Millennial generation, Baby Boomers are retiring if not already retired. With significant size and free time, many businesses see the Baby Boomer food market as more profitable than ever before. Recently, McDonald’s has released several new commercials for its new products specifically targeting Baby Boomers. In the “Sweet N’ Spicy Honey BBQ glaze tenders” commercial they show older ladies enjoying McDonald’s chicken tenders while reading the newspaper, knitting, and sitting outside enjoying the beauty of a rose garden. This video ends with the slogan “sweet and spicy just like grandma”, attempting to melt the hearts of viewers everywhere (Oster, 2018). Catching the Baby Boomer generation is a very clever part of McDonald's plan. This huge market can potentially bring a lot of revenue to the fast food chain. Lastly, the U.S. population is going to be more diverse than ever before. The white proportion is decreasing and the number of Hispanic and international immigrants are increasing (Flores, 2017). As the result, minorities will make up nearly half of U.S. youth. Since the U.S. population is much more diverse than other markets, McDonald’s must adapt and strategize to accommodate to these changing demographics.

8 Economic Environment According to the Bureau of Economic Analysis, the U.S. personal income has increased since April 2017 (Mutikani, 2018). This is the good news for business, allowing a more positive attitude about the economy. People who make more tend to spend more than they save. The U.S. stock market has been fluctuating, however, as a result of new trade conditions being administered by the Trump administration. Since the stock market depends heavily on economic conditions, McDonald’s wants to get claim back their reputation in the fast food market by putting more effort into improving the public image in the eyes of consumers. This action also makes McDonald’s stock more interesting, causing investors to put more money in the company’s stock. Natural Environment With the multiple thousands of McDonald’s in business, the company produces a massive amount of waste. Over the years the company has slowly been adopting more sustainable sources. In 1990, the Environmental Defense Fund and McDonald’s teamed up to improve on packaging and waste management issues. Through this partnership they eliminated the use of polystyrene foam, which was replaced with paper-based wraps for the sandwiches (EDF, 2018). In 2015, Roughly 50% of their packaging came from sustainable sources but only 10% of the franchises were recycling. In early 2018, the company created a goal to recycle in 100% of restaurants by 2025 (Carrig, 2018). McDonald’s is also currently redesigning their packaging to be more sustainable. 64% of fiber based packaging is already from recycled or

9 certified sources but they want to minimize the overall package volume and improve on environmental impacts associated with disposal (Packaging, 2018). While implementing 100% recycled packaging may be a challenge, the current efforts are not enough. Recycled napkins and cup carriers are insignificant when compared to the amount of actual cups and sandwich packaging used daily. McDonald’s has also implemented what they call the “food waste hierarchy”. This “hierarchy” allows the company to minimize food waste by avoiding it all together, donating to families in need, and recycling when possible. In 2016, about 29% of McDonald’s kitchen waste was being recycled. While the last resort for food waste is disposal in landfills, McDonald’s plans to eliminate all food and even package waste in landfills all together (Eliminating Waste, 2018). With recycling and reducing waste being one of the top goals, they actually have 17 goals all documented in their Scale for Good initiatives. This also includes beef sustainability, farmer livelihoods, and climate change (Packaging, 2018). If these goals are carried out, the company is on the right track. Some of their goals such as affordable and clean energy, beef sustainability, and eliminating waste are unrealistic short term goals. Over the next decade, implementation of these changes are more than possible and should be improved upon. McDonald’s is the first restaurant to set approved goals to reduce greenhouse gas emissions. By 2030, the company plans to reduce the greenhouse gas emissions connected to the office buildings and restaurants by 36%. On top of this goal, they are striving for a 31% decrease in

10 emissions intensity throughout the company by 2030 as well. With these goals in place, McDonald’s is on track to avert 150 million metric tons of greenhouse gas emissions by 2030. Eliminating these energy costs will in turn allow McDonald’s business to grow without their emissions increasing too (McDonald’s Corporation, 2018). To assist in eliminating these emissions, the company is committed to not only recycling, but also promoting renewable energy and sourcing their food responsibly (Baertlein, 2018). Red meat production is one of the highest energy consumptions for this industry. McDonald’s beef production is equivalent to about 64% of their total greenhouse emissions (McDonald’s Corporation, 2018). McDonald’s is setting the bar high for other companies when it comes to sustainability. While the company still has room to improve, between their recycling efforts, reduction of food waste, and search for sustainable sources, they are still ahead of other leading competitors. Technological Environment In the fast food industry, efficiency and quality are essential for growth. New technologies can pave a way for continuous growth of the various fast food competitors. Many companies have begun using virtual reality onboarding to eliminate costs and improve the first training experiences for new hires. Employees can use unique software to take full tours of the facilities and can participate in simulation training sessions without facing the pressure of being on the floor (Keane, 2018). Implementing this type of training could help guarantee consistency and overall improve the learning experience for employees. The first few weeks for a new employee generally

11 set the tone for the rest of their work experience. Improving their initial training would significantly enhance their experience and ensue confidence to these new employees. McDonald’s should avidly implement this type of training as well as continue to improve upon it. Over the past year, McDonalds has been actively modernizing their company. According to CNBC, in June 2018, the company announced plans of implementing order kiosks in 1000 stores every quarter over a period of eight to nine quarters (Whitten, 2018). These ordering kiosks increase speed of service, allow customers to view a full digital menu, and allow customers to order and pay independently. In 2017, McDonald’s launched their mobile order pay app. The app allows customers to view a full menu, check weekly deals, locate nearby restaurants, and above all place mobile orders. Unlike competitors mobile apps, when customers place orders they use geo-fencing technology which tracks customer location, ensuring that their orders are only prepared when they are near the store (Perez, 2017). Other companies are steadily improving upon and inventing new technologies to shake the industry. Momentum Machines, a San Francisco based company, has created a “robo-chef” that is essentially a robot capable of producing a burger from start to finish (Davis, 2015). Currently with the newness of this innovation, the cost would be too high to implement a machine of this nature into a McDonald’s. Innovations such as these could also possibly eliminate jobs, which McDonald’s provides a large amount of. While a robo-chef is an interesting concept, it is unrealistic for a massive brand such as McDonald’s to enact. Another futuristic invention is the 3D

12 food printer. A Barcelona company, Natural Machines, has recently began work on a 3D printer capable of printing full meals. This device is still in early stages of development, but it is still an interesting concept that could be used either as a household appliance or a new restaurant innovation (Davis, 2015). Again, a large scale brand like McDonald’s has little use for young developments such as a 3D food printer. In 10 or 20 years, these forms of technology may be used in every quick service industry and common household, but with such little development it is hard to determine. Political / Legal Environment New Proposed Laws Affecting Strategy and Tactics: FSMA: Passed Under Obama in 2011, the FSMA (FDA Food Safety Modernization Act), is known as the largest redesign of the food safety system in 70 years (What is FSMA, 2018). According to the FDA, fifteen percent of the U.S. food supply is imported (Hamburg, 2011). McDonald’s imports a small percentage of its meat products and falls under jurisdiction of this act (Peterson, 2015). The primary purpose of the FSMA is to catch possible non-meat food contamination issues before they happen, rather than merely reacting to known issues (What is FSMA, 2018). Though the act was implemented in 2011 by President Obama, it’s changes are still being implemented today, since the overhaul was so great. Changes in fast food policy continue be implemented. The FSMA subjects food produced locally and food imported to the same standards in order to enter the market for eventual consumption. This upgrade of safety measures affects McDonald’s

13 bottom line, as new measures are almost certainly more expensive. The FSMA is a complete overhaul of the food safety system, according to the “What is FSMA” article (2018), and affects the McDonald’s supply chain with new standards on transporting produce. This in turn reduces the total budgeting dollars they have, causing a shift in financial strategy for the fast food giant. Franchising Requirements Ruling: A battle that began in 2014 with complaints of McDonald’s employees claiming unfair labor treatments by McDonald’s franchise managers culminated to a loss for McDonald’s in July of 2018 when Administrative Law Judge Lauren Esposito rejected a settlement between McDonald’s and the National Labor Relations Board, which would have liberated McDonald’s from being jointly liable with its franchises legal issues (Luna, 2018). If the settlement had gone into effect only individual McDonald’s franchises would have been liable for labor violations if any were to face legal action, not corporate McDonald’s itself. This ruling could deal a potentially catastrophic blow to the company if it is decided that corporate McDonald’s is indeed liable for all suits carried out against its franchises. Currently trials are stalled, but if McDonald’s is found to be a joint employer with all of its franchises, this will fundamentally alter the franchise model as we know it (Sheiber, 2018). Furthermore, if McDonald’s is found to be a joint employer, laborers from different states and franchises will be able to band together to form unions not limited to their individual franchises (Sheiber,

14 2018). This will give McDonald’s workers much more bargaining power than they currently have, and the company would have to respond with a fundamental change in labor strategy. Moreover, a suit against an individual McDonalds becomes a suit a...