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McDonald’s is the undisputed king of burgers. This has been the trend in the fast-food industry from their creation in the 1960’s to their massive growth in the 70’s, 80’s, 90’s, and now the new millennium. Over the past forty years, McDonald’s has fully taken advantage of their strengths but because of maturity in the fast food industry, more focus will have to be put on opportunities, weaknesses, and threats.
The first strength of McDonald’s has been their product strategy. Throughout the past three decades they have simply been a hamburger and fries Restaurant. Growing customer wants and needs along with increased competition has forced them to alter and improve their menu to better fit the environment. Factors such as growing competition and consumers becoming more health conscious have forced them to make these changes.
Today McDonald’s offers a wide variety of products that consist of 26 items. Breakfast items include biscuit sandwiches, Egg McMuffin, hotcakes and sausage, sausage McMuffin with egg, and scrambled eggs. Sandwiches include the Big Mac, cheeseburger, Crispy Chicken Deluxe, Filet-O-Fish, Grilled Chicken Deluxe, Grilled Chicken Salad Deluxe, hamburger, Quarter Pounder, and the Quarter Pounder with cheese. Dessert items include baked apple pies, chocolate chip cookie, hot fudge sundae, ice cream cone, McFlurry, and milkshakes. Other items on the menu include the apple-bran muffin, Chicken McNuggets, French fries, Garden Salad, Happy Meals, soft drinks, and other beverages.
Promotion has also been a strength for McDonald’s. They have always focused promotion around good food, friendly folks, and fun. They have also spent a considerable amount of money on promotional programs such as Monopoly, Happy Meals, and the Big Mac. In addition to these promotions, McDonald’s signed a ten-year contract with Disney combining promotions for food items with Disney movies. They also continue the successful Beanie Baby promotion that is credited as the company’s most successful promotion ever. On October 25 they introduced the American Trio Collection of Beanie Babies that celebrate the American Political Process.
In addition to promotion, McDonald’s has also been successful at placing restaurants in every available position. The increase of outlets per year has remained at 5% for the last two decades despite a falling increase in sales. In 1988 they had 10,167 restaurants, of which 7,567 were located in the United States. Throughout the 1990’s they have increased that number to 28,454 restaurants in about 120 countries. The table below gives the number of restaurants and sales per geographic region as of September 2000:
Location # Restaurants Sales (in millions)
United States 12,703 $5,051.4
Asia/Pacific 5,989 1,820.2
Europe 5,243 2,449.9
Latin America 1,983 456.2
Other Regions 2,536 734.7
Total 28,454 10,512.4
By expanding quickly into international markets, McDonald’s was able to arrive before competition and secure a plan for future growth opportunities. They recognized that the fast food industry was becoming diluted and began expansion into international markets before any one else. Being first in the international markets makes them first in the minds of international consumers. This is obviously important now that increasing sales are falling in the United States. Chairman and Chief Executive Officer Jack M. Greenberg said of their expansions, “Moving forward, we will pursue additional growth by intensifying our focus on building sales at existing restaurants.”
Along with expanding internationally, McDonald’s is moving into other brands of food and restaurants. They’ve acquired Chipotle Mexican Grill, Aroma Ltd., a coffee shop chain in the UK, Donatos Pizza, and Internet food-delivery service Food.com. These acquisitions will allow McDonald’s to move into growing non-hamburger markets while increasing product selection.
Even though McDonald’s has been extremely successful, there are still some weaknesses that exist within the company. Those weaknesses include past product and promotion concepts, performance of international divisions, and it’s U.S. expansion strategy.
For McDonald’s, the creation and implementation of new products costs millions of dollars. These millions of dollars have been spent on products such as the Arch Deluxe and McPizza, which no longer exist. Along with failed products is the constant change of promotions and slogans. Recently McDonald’s has launched its Made For You food preparation system designed to allow franchise operators to serve up fresher food with less waste. The problem has been that customers are complaining about longer waits in line. This definitely does not coincide with the fast-food image. The new cooking system is being introduce through McDonald’s $500 million “We love to see you smile” ad campaign.
Another weakness for McDonald’s has been with expansion in the United States. In the early 90’s they were expanding into airports, malls, and hospitals. This was in an effort to move from cities and suburbs that were already saturated. These new ventures proved to be unsuccessful and many have closed due to poor profitability.
Along with expansion in the U.S., some international markets have not been as successful as projected. Weaker foreign currency has impacted international divisions profitability. For example, European operating income fell to $313.5 million from $324.8 one year ago. This is a drastic decrease when compared to the drop in sales, which was down slightly to $2.45 billion, from $2.46 million. Luckily for McDonald’s the weaker international performance was offset by domestic sales.
The two greatest opportunities for McDonald’s are their expansion into other brands and international markets. First the expansion into markets like Mexican entries and pizza delivery allow them access to the fastest growing restaurant segments. This will allow them to have a better product selection and provide future domestic growth. Internationally, McDonald’s has the opportunity of penetrating further markets before competition. Their plan is to add about five restaurants each day as new restaurants are posting strong initial results and returns.
Another opportunity is with concept testing in domestic McDonald’s restaurants. The most recent are new diner and deli concepts that are to be tested in western United States. They will open three diner-style restaurants sometime after Jan. 1, 2001. The prototype will be built at existing McDonald’s but distinct from its existing fast-food offerings. This new concept will allow customers to order their food and then have it brought to their table by a server. The other concept is a deli-style menu, which will be added to the traditional McDonald’s menu. This concept will add deli sandwiches and soups to familiar Quarter Pounders, Big Macs, and other sandwiches.
The most obvious threats for McDonald’s are with their competitors. Now that they have expanded into other brands this list has grown greatly. Direct competitors with McDonald’s restaurants include Burger King, Dairy Queen, Hardee’s, Jack in the Box, and Wendy’s. Each of these competitors has expanded menu offerings that compete directly with McDonalds. Burger King is the number two hamburger restaurant and is developing a new strategy in hopes of taking the number one position from McDonald’s
Our first recommendation is to continue expansion into international markets. This is becoming more important now that competitors like Burger King and Wendy’s are beginning to expand overseas. For example, Burger King has restaurants in 57 other countries. McDonalds needs to continue to be first in international markets so that they remain first in the minds of international consumers. Although they need to continue this expansion, they need to focus on more developed countries that have a better ability and need to buy their products. This will help them against fighting weak foreign currencies and ethnicity problems. One entry method that could be used would be joint ventures with already existing foreign restaurants. This will help them better incorporate their product message with cultural and ethnic trends.
Another recommendation for expansion is to establish product and brand awareness in other brands. This includes their recent acquisitions of Chipotle, Donatos Pizza, and Boston Market. These restaurants have the ability to be expanded throughout the United States and provide a large amount of sales domestically. This will be growingly important as sales in current McDonald’s restaurants flatten. These restaurant chains may also have the ability to be expanded internationally depending on their success in the U.S.
An opportunity that McDonald’s has not been taking advantage of is their environmental concerns. Recently McDonald’s was honored by the U.S. Environmental Protection Agency for their conservation and recycling efforts. The EPA cited McDonald’s as the industry leader because of its continual review and evaluation of packaging materials. This is something that could be used in a promotional effort to better their image in consumers’ minds. It could be positioned directly against competitors to show that McDonald’s does care about the environment.
McDonald’s has done well with establishing a plan for future growth and expansion. As long as they continue to build awareness for their other brands, expand internationally, and better manage product introduction in existing McDonald’s restaurants, they will continue to be number one.
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