groupassignment course international business strategy topic analyze mcdonalds business

Main product As a food service business, McDonald's has a product mix mainly of prepared food and beverage products.. Number of McDonald's restaurants worldwide 2005-2022, 2023 Diverse m

INTERNATIONAL BUSINESS FPT UNIVERSITY

CONTENTS

I BRIEFLY INTRODUCE THE MCDONALD’S BACKGROUND Q ST eeeeerrrer 3 1 The main activities, and product of the company 0 0.00ccc cece e eee e eee e eee e eee teee neat 3 2 Where do they operate? e - 4

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5 Compctifion in the industry (Hiph) - G31 HT e eee erent eran eee eaee eee eaaee V CAPABILITY ANALYSIS 0000 20

1 Resources to Capabilifi€s - HH eee eee eee nọ Họ HH KH 20 P ` 24

VU BRIEFCORPORATE STRATEGY (DIVERSIFICATION) OF THE COMPANY 33

VU INTERNATIONAL STRATEGY 00000000 cece ceeeeeceeeecece cece eee eee eeeeeeeaneeaneeeeeeeeeeeeeeeeseeenneeaneeeeeeeeeeeees 34 IX (J0; 9)09.02(0.907.9)0À/.9199)0/10 10 02 35

X THE OVERALL BUSINESS ACTIVITTIE - ĐT 2n HT ni 36 TL Revenue 36

2 Total Cost n6 7a ẻe 37

3 Net Income 38

4 New sfrafcgYy/aCfVIfi€S aTÏSÌHE QQQQ HH ng KH HH KH KH 39 XI kXP.).90;10)0))0.0.197.904.) 11 41

'“x‹ ttcociaỪũạ33333 41 2 Secondary Stakeholders - - - - 2 ST nh HH th KH KH hư 44

1 BRIEFLY INTRODUCE THE MCDONALD’S BACKGROUND

McDonald's is a global fast-food restaurant chain and one of the most recognizable and iconic

brands in the world Founded in 1940 by Richard and Maurice McDonald in the USA, it

originally started as a barbecue restaurant but later transitioned into a fast-food operation in 1955

1 The main activities, and product of the company

a Main activities Sale of food and beverage items: across its network of company-operated and franchised

restaurants around the world McCafeé: launched in 1993 in Australia, is a chain of cafe-style food and beverage outlets,

owned by McDonald's McDonald's offers coffee, pastries and breakfast items at McCafé McDelivery: is a McDonald's service that delivers food to the customer's door The service was introduced beginning in 1993 using motorcycle couriers

How does McDelivery™ Work? TẠI

b Main product As a food service business, McDonald's has a product mix mainly of prepared food and beverage products McDonald's is best known for its hamburgers, cheeseburgers and french

fries, although their menu also includes other items like chicken, fish, fruit, McCafé and salads Their best-selling licensed item are their french fries, followed by the Big Mac

Breakfast sali Fries® & Sides ww Beverages

= Burgers = Happy Meale Sàn $1 $2 $3 Dollar Menu*

= Chicken & Fish Sandwiches = McCafé® Coffees

ae P McNuggets® and Meals yj Sweets & Treats

Source: (McDonald's Menu) 2 Where do they operate?

McDonald's operates in 119 countries and territories including America, European Markets,

African Markets, Asian and Oceanic Markets There are more than 40,275 McDonald's

restaurants at different locations Most McDonald's restaurants are located in the United States, with over 14,000 locations Other countries with a large number of McDonald's restaurants

include Japan, China, Germany, and France (Where We Operate)

MM 1970 - 1974 << 1975 - 1979 HN 1985 - 1989

DN 1995 - 1999

HEM 2000 - present

Analyze and evaluate the scope of McDonald's worldwide as a sale of food and beverage items

1 Strength Strong brand: McDonald's is one of the most famous and globally recognized brands in the

fast food industry The brand has been built over the course of decades and is associated with

values such as convenience, quality and menu variety In 2023, market research company Kantar released the BrandZ report on the top 10 globally valuable fast food brands in 2023, McDonald's ranked first worldwide with an estimated total value of $191,109 million (Top

10 Most Valuable Global Fast Food Brands 2023, 2023)

Wide-scale and distribution: McDonald's has a wide global network with thousands of stores in more than 100 countries Their global presence allows them to reach a wide customer base and take advantage of scale to reduce costs and increase efficiency According to statistics

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from Statista, McDonald's operates and franchises a total of 40,275 restaurants worldwide by 2022 (Number of McDonald's restaurants worldwide 2005-2022, 2023)

Diverse menu: McDonald's offers a wide range of fast food products such as hamburgers,

sandwiches, salads, drinks and desserts This variety allows them to meet the needs of many

different customers and create options that suit customers’ personal tastes and preferences McDonald's also adjusts its menu to suit consumer tastes depending on the country of operation For example, in India, McDonald's does not serve beef or pork for religious reasons However, chicken and fish along with some vegetarian options are still available to customers In Asian countries and some other regions, soup is served and rice is served as a side dish McDonald's also sells beer in Germany and some other Western European countries

2 Weakness

Too dependent on the Franchise business model: McDonald's operates under a franchise

model, in which 95% of franchise restaurants and local franchise owners pay fees and royalties

to use the McDonald's brand and system Because most McDonald's restaurants are operated by local franchise owners, the company has difficulty maintaining consistency in product quality, service, and brand image Franchisees may not comply with the standards and procedures set by McDonald's, leading to dilution and loss of brand consistency

Cost control: McDonald's operates in the highly competitive fast food industry, so it is limited in its ability to increase prices significantly without affecting product appeal and customer choice This can affect the company's profits and financial performance McDonald's focus on controlling costs affects the wages and benefits of McDonald's employees, leading to high tumover rates and low morale This results in workers occasionally going on strike, leading to reduced productivity that affects service quality and customer satisfaction According to McDonald's 2022 annual report, the number of people employed was 150,000 in company-

owned restaurants, offices and headquarters at the end of 2022; down from 200,000 in 2021 (Annual report: McDonald's 2022)

Health concerns: McDonald's and fast food restaurants in general have encountered many mixed opinions and controversies related to customers' health issues with fast food, mainly

foods that are high in calories, fat, sodium and fat road Consuming too much of these foods

can contribute to weight gain, heart problems, diabetes and other medical conditions 3 Opportunities

“* Global Expansion While McDonald’s already has over 35,000 outlets operating in over 119 countries, it puts so much focus on the USA and other western countries The fast food chain has plans to

open 1,900 locations across multiple markets in 2023 alone Of those 1,900, more than 400 are planned for either the U.S or Germany, Canada, France, Australia, and the United

Kingdom, 900 openings are planned for China (Pagan, 2023) This leaves the country with a limited presence or no presence at all in several regions Therefore, there are still many untapped markets where the company can expand its

business and increase its market share

A focus on expansion beyond the western world can provide McDonald’s with access to new customers and markets By expanding into new regions and countries, the company can diversify its revenue streams and reduce its dependence on specific markets This can help to mitigate risks associated with economic and political instability in specific regions Another benefit of global expansion 1s that it can help McDonald’s to increase its brand awareness and reputation By establishing a strong presence in new markets, the company can improve its brand recognition and build its reputation as a global leader in the fast- food industry This can help to attract new customers and increase customer loyalty

“* Diversify products and aim for healthy products

McDonald's has built a strong brand around its core products, such as hamburgers (Big

Mac), French fries, and soft drinks In the minds of many of its customers, the name

McDonald's is synonymous with its french fries and hamburgers While this signifies the strength of the brand image, diversification of products can help the company to expand

its customer base and increase sales

By diversifying its product offerings, McDonald's can appeal to a wider range of customers with different tastes and dietary preferences

As the fast-food industry keeps evolving, there is an increasing demand for healthier meal options among customers McDonald’s can take advantage of this trend and use it to increase its market share Introducing healthier food options into its menu can help

MecDonald’s to attract health-conscious customers who may have previously avoided fast

food for obvious reasons This strategy helps to expand McDonald’s customer base and increases their already-declining product sales

“* Adopt technological advancements and expand into new channels Since its creation, McDonald’s has been strictly focused on its restaurant business, only

providing food for its customers to dine in its restaurants or take away, as they may choose However, with the constant evolution in the fast-food industry, it might be time for the

company to explore other channels, such as delivery services or online ordering, that can help increase its reach and revenue streams

A potential channel for McDonald’s that is worth exploring is delivery services With the rise of third-party delivery services such as Uber Eats and GrubHub, there is a growing demand for fast food delivery

Another way through which technological advancements can also help McDonald’s is to improve its supply chain and logistics systems for the benefit of its several stores around the world By using data analytics and other advanced technologies, the company can optimize its operations and reduce costs This can help McDonald’s to improve its profitability and maintain its competitive edge

Threats “+ Stiff Competition

Stiff competition from rival companies is one of the greatest threats to McDonald’s growth and development McDonald’s operates in a highly competitive market with numerous well-established fast food chains, and each of them is striving to capture the largest market share McDonald’s faces competition from both local businesses and international fast-

food franchises and chains, making the industry a fierce battlefield

One of McDonald’s major competitors is Burger King Like McDonald’s, Burger King is a global fast-food chain that operates in over 100 countries It offers a similar menu to MecDonald’s, including burgers, fries, and soft drinks Burger King has a strong brand reputation, and it uses unique marketing strategies to attract customers And some other

competitors such as Wendy's, KFC, Subway,

“* Changing consumer preferences Consumer preferences are constantly evolving, and the inability of McDonald’s to adapt to these changes threatens the company’s relevance in the market One of the major changes in consumer preferences is the shift towards healthier food options Consumers

are becoming more health-conscious, and they are seeking healthier alternatives to fast

food This has led to the emergence of new fast-casual chains that offer healthier food options and more sustainable practices If McDonald’s is unable to keep up, it will lose its customers to the new generation of fast-casual chains that offer healthier food options “* Legal and Regulatory Issues

As an international fast-food franchise, McDonald’s is subject to numerous laws and

regulations that govern various aspects of its business, including food safety, employment practices, and marketing Non-compliance with these regulations can lead to significant fines, legal liabilities, and reputational damage, which can significantly impact the company’s bottom line

One of the significant legal and regulatory challenges that McDonald’s faces is related to food safety The company is subject to stringent food safety regulations in various

countries where it operates Any issues related to food contamination, labeling, or

misbranding can lead to severe consequences, including product recalls, legal actions, and

loss of consumer confidence

IV

1 McDonald's has faced criticism related to its labor practices, including low wages, poor working conditions, and anti-union policies Such controversies can lead to negative media coverage, social media campaigns, and boycotts, which can harm the company’s reputation and sales

Negative publicity can come from a variety of sources, such as health concerns about the nutritional value of McDonald’s food, controversies related to labor practices, or negative social media campaigns targeting the company’s practices These adverse reports can

erode the trust and loyalty of customers, leading to a decline in sales

FIVE FORCES ANALYSIS Threat of new entrants (Moderate)

“+ High barrier to entry

e Massive capital investment requirements First-time restaurant owners typically exceed their capital investment by an average of about 33% The number of months to become profitable can range from 6 months to 24 months, depending on the type and size of the restaurant the owner opens (How

Much Does It Cost to Start a Restaurant?)

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Total Overall Cost

Median start-up cost per seat $3,046

Median start-up cost per square foot | $100-$800*

*Depending on type of restaurant

Construction and Equipment

Kitchen and bar equipment | $75,000-$115,000***

**Slightly over 50% of total overall costs ***S lightly over 25% of total overall costs So, after you subtract construction and equipment from the overall total cost, that

leaves you with about 20% of your budget to handle everything else

Space

First-month rent $10,000-$ 12,000 Security deposit (typically one month of rent) | $10,000-$12,000

*“““Including internet and phone service

Operations

Insurance Permits and licenses

POS technology Accounting and legal costs

Dining Room and Kitchen

Fixtures and furniture Smallwares

Initial inventory of food and beverages Janitorial Supplies

Menus

Outdoor signage

$6,000 $5,000-$6,000

$20,000

Variable

$40,000 $10,000 $5,000-$25,000 $1,000 $1,500

$15,000

These are just estimates of costs for what you’d probably consider a bare bones

opening They do not include items such as:

o Music/sound system

o Landscaping

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o Uniforms o Public relations

o Fliers or advertising in local publications e Slow market growth

The global impact of COVID-19 has been unprecedented and staggering and has seen a negative impact on demand across all regions amid the pandemic Based on our analysis, the global market had a below-average annual growth of -10.46% in 2020 compared to 2017-2019 The increased CAGR 1s due to the demand and growth of this market, which will return to pre-pandemic levels once the pandemic is over (Fast food market size, share and COVID-19 impact analysis)

The market observed a sudden drop in fast food sales due to nationwide lockdown restrictions in most countries With the lockdown imposed in major economies, its effect on the food industry was devastating in the 1st and 2nd quarters of 2020 With full-service restaurants, QSRs and pubs were closed for on-premise services; and many establishments are still struggling to keep their businesses on track With social distancing being the new normal, consumers visited restaurants only to pick up orders

made online

Foot traffic to fast food and casual dining restaurants decreased to almost 50 to 60%

since the start of lockdown efforts But in these times, food delivery services saw a

major surge in interest While online food ordering is becoming popular, the market is expected to recover between the fourth quarter of FY 2021 and the first quarter of FY 2022

“* High Brand Loyalty Loyal McDonald's customers visit McDonald's for lunch/dinner more than 30 times a

year, three times the rate of non-loyal customers In a new study of 15,000 consumers by QSR dna, McDonald's loyalty metrics

outperformed all of the top 50 chains by a wide margin At lunch and dinner time, loyal McDonald's customers account for more than 78% of lunch/dinner customers By comparison, the next group of chains is more than 20 points lower, while the average

for the top 50 chains is 41% (The Power of a Loyal Customer Base, 2011)

A strong loyal customer base has given McDonald's a resilient customer base that has stayed with them during difficult economic conditions With such a large and regular customer base, McDonald's is always an option McDonald's may not have won the

hearts and souls of their customers but they have won their minds and bodies because

those bodies go to McDonald's as often or more often than any other restaurant

McDonald's has been in the fast food industry for many years and over time, the

company has built a solid reputation and brand loyalty among its customers

Consumers are more likely to trust established brands and their products than to try

something new and unusual New entrants therefore face a significant challenge in trying to build brand awareness and attract customers to their services

Top Chains at Building Loyalty % of Total Lunch/Dinner Traffic by Loyal Customers

McDonald's SE 73% Whataburger SA s73

2 Bargaining Power of Buyers (Moderate)

The price information is widely available: The more information technology develops, the more people's lives will improve The popularity of social sites, along with the use of the Internet, has reduced the costs of collecting price information for customers, making the information readily available and publicly available The reduced costs also ensure that customers have access to a wealth of information to prices compare easily between MeDonald’s and rival organizations

Substitute products: With the saturation of the fast food market, customers can easily choose

any fast food from stores other than McDonald's The availability of substitute products increases customers' bargaining power, such as local grocery stores, microwave meals, and foods that people can cook at home or with big brands like KFC, and Burger King Similar to McDonald's, they offer food at relatively affordable prices, quick service, and a consistent menu regardless of location Customers have many choices in dining, which has given McDonald's less advantage in negotiating with customers

Health and Nutrition Concerns: People's eating behavior has been influenced by globalization and urbanization, forcing them to consume fast food meals that are high in calories, fat, and sodium With the rise in several diseases, including diabetes and coronary artery disease, it is mainly due to fast food consumption It can be argued that as consumers become increasingly health conscious, customer propensity to switch to seek healthier options for meals may increase due to increasing media coverage of fast food’s negative health implications McDonald's has responded by adding salads, fruit, and other healthier options to its menu to address these concerns They have introduced more salad options, as well as fruit and vegetable bags, orange juice, mineral water and organic semi-skimmed milk

Currently, over 90% of their core food and drink menu is under 500 calories (Nutrition &

Marketing Practices) Bundling possible: Combo meals and Happy Meals are combo meals that always appear on

posters introduced to customers every time they enter the restaurant At the same time, staff

always suggest that customers aim for combo meals because of the convenience and preferential price instead of eating individual portions For example, a 2 Cheeseburger Meal

combo includes 2 McDonald's Cheeseburgers, served with our World Famous Fries® and a

medium McDonald's soft drink costs $11.19 If purchased separately, their total would be $15.6 (McDonald’s Menu Prices, 2020)

— This can lead to cost savings, which buyers may perceive as providing more value for their

money

In summary, the bargaining power of buyers in the McDonald's industry is moderate Although customers have the advantage of choosing alternative products and having price information McDonald's continually adapts its menu and strategies to respond to changing consumer preferences, which helps mitigate the bargaining power of buyers

3 Bargaining Power of Suppliers (Low) One of McDonald's main strengths is its enormous scale, which allows the company to negotiate favorable terms with suppliers Because McDonald's orders large quantities of ingredients, it has significant purchasing power, allowing McDonald's to demand lower prices and better quality from suppliers

Standardized Inputs: Manage more than 40,000 fast food restaurant chains worldwide with millions of meals every day Any of the ingredients McDonald's purchases are standardized,

especially with fresh ingredients: meat, fish, eggs, milk , vegetables, are even more strictly

inspected, product traceability and close cooperation with suppliers through standards such as SQMS and DQMP Suppliers must establish and implement , document and maintain food safety and quality management systems, and meet all applicable laws, regulations and

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McDonald's requirements Therefore, this standardization further reduces the supplier's power

(Food Safety)

4 Threat of substitute product (High)

The threat of substitute products in the fast-food industry, including McDonald's is high Substitutes are products or services from different industries that can satisfy similar customer

needs In the case of McDonald's, potential substitutes can include:

Other Fast-Food Chains: There are numerous fast-food chains that offer similar products,

such as burgers, fries, and sandwiches These chains, like Burger King, KFC, or Texas, can be seen as direct substitutes for McDonald's

Casual Dining Restaurants: Customers looking for a different dining experience might

choose to go to sit-down restaurants, which offer a more extensive menu and a different ambiance

Home-Cooked Meals: Preparing meals at home or ordering meal kits can be considered a substitute for eating out This is especially relevant during economic downturns or when consumers prioritize cost savings

Convenience Stores and Supermarkets: Convenience stores and supermarkets offer a range of ready-to-eat or heat-and-eat options, which can serve as substitutes for a quick meal on the

go To mitigate the threat of substitutes, McDonald's has implemented various strategies, including menu diversification, competitive pricing, and marketing campaigns to highlight its unique offerings Additionally, the global brand recognition and loyalty play a significant role in reducing the impact of substitutes

5 Competition in the industry (High) Competition in the fast-food industry, in which McDonald's operates, is intense and diverse

The industry is characterized by numerous global, regional, and local competitors, each vying

for market share and customer loyalty

Burger King: Available in more than 90 countries and at over 18,000 locations, Burger King is the most direct competitor of McDonald’s and has approximately 90% of its restaurants as franchisees (Burger King Franchise, 2019)

Subway: In terms of size, the privately-owned Subway has one of the largest QSR chains, and

they have a presence in more than 80 countries at over 37,000 restaurants The company’s menu consists primarily of sandwiches and salads (Subway Location)

Chipotle: With its slogan as “Food with Integrity”, Chipotle operates more than 2,800 restaurants with none of them franchised Their fast-foods have higher prices than their

competitors, and they also serve fast-foods that are a bit different, like tacos, salads, and burritos

Yum brands (KFC, Taco Bell, Pizza Hut): Yum brands operate top fast-food restaurants, such as Taco Bell, Pizza Hut, and KFC Altogether they make up a worldwide chain of more

than 50,000 restaurants, with about 98% of them franchised (Annual Report 2022: Yum!)

Starbucks: Operates the largest coffeehouse chain in nearly 90 countries, and at over 32,000

locations They serve coffee, pastries, espresso, tea, sandwiches, cappuccino, etc And just like

Chipotle, their products have higher prices than their competitors (Starbucks Business Model, 2023)

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Vv CAPABILITY ANALYSIS 1 Resources to Capabilities

“* Tangible e Cash on hand

MCD - Cash on Hand Annual Values (Millions of US $)

$7,000 $6,000 $5,000 $4,000

$3,000 $2,000

e Physical Plant On December 31, 2022, McDonald had approximately 40,000 McDonald’s restaurants

in 110+ countries Among these stores, McDonald’s owns: 55% of land under the

locations (+ long-term leases for the rest), 80% of buildings (Phan, 2022)

To have an idea of how big is McDonald’s real estate business, as of 2021 the company reported over $41 billion in property and equipment (without counting accumulated

depreciation and amortization), which makes it a mammoth commercial real estate

owner

e Talent

Today, more than 2 million people worldwide work under the Golden Arches with 150,000 people worked at McDonald's’ company-owned restaurants, offices and corporate wing at the end of 2022

e |tellectual properties

MeDonald’s owns or is licensed to use various intellectual properties including

trademarks, service marks, patents, copyrights, trade secrets and other proprietary

information This notably includes the trademarks “McDonald’s” and “The Golden Arches Logo”

McDonald's patents relate to its:methods of preparing / cooking food; packaging; andequipment used in cooking food (McDonald's - Patents, trademarks and designs) e Contracts/Alliances

McDonald’s and Deliveroo have agreed to a new, long-term global strategic partnership, evolving their existing agreement to provide consumers and McDonald’s franchisees with the convenience and value of McDelivery through the Deliveroo

platform in markets across the world (McDonala's, 2022)

e IT Systems MeDonald”s is leveraging big data and AI algorithms to analyze historical customer

data and offer personalized services:

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In April 2019, McDonald’s acquired Israeli startup Dynamic Yield, whose

personalization systems and decision-logic technologies allow the company to personalize its outdoor drive-through menu displays based on the time of day, the weather, current restaurant traffic, and trending menu items.The technology can also

display suggestions from the menu based on a customer’s selections McDonald’s has also focused on digital voice recognition:

In September 2019, it acquired Apprente, a startup developing voice-based technology that can handle multilingual, multi-accent, and multi-item ordering That will allow for faster, simpler, and more accurate order-taking at drive-throughs, and, over time, the technology will be incorporated into mobile ordering and the kiosks inside

McDonald’s outlets (NEIL C THOMPSON, 2022)

Intangible

e Brand

McDonald's won the top 1 position in Valuable Global Fast Food Brands 2023 In 2022, McDonald's brand value reached $196,526 million million, and in 2023 it reached $191,109 million down 3%

Kantar BrandZ Top 10 Most Valuable Global Fast Food Brands 2023

Pizza 7 Pizza Hut 8,807 8,954 8 Burger King 7,676 7,134 2 Taco Bell 7,185 7,7ó9

e Loyalty Based on analysis from comparably McDonald's has a customer loyalty score of 79% (McDonald's Customer Loyalty)

am McDonald's Customer Loyalty

78% =

&, COMPARABLY

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e Positive Culture McDonald’s provide a best-in-class employee experience — where people are given opportunities to learn and develop:

o Building High-Performing and Highly Engaged Teams o Encouraging Employees to Be Their BEST

o Create annual awards: The Shining Light award goes to Corporate Staff who

have best demonstrated one of our values in action and the Ray Kroc Award for Restaurant Managers is presented for value-led behaviors, as well as for noteworthy business and financial results

o Offer motivating career incentive programs, engage in internal events such as

Stars of McDonald’s and always procure a fun environment with a friendly

team

Moreover, McDonald’s has established the Hamburger University in the region to offer their employees the best McDonald’s training, empowering them to perform their tasks optimally Hamburger University is a global training centre dedicated to developing individuals’ skills and knowledge in restaurant operation procedures:

quality, service, cleanliness, value It provides training for Company-owned restaurant employees, as well as franchisees and leaders from their organizations, and has helped to prepare thousands of students for leadership positions in the restaurant industry (Jobs, Inclusion & Empowerment)

2 Alignment

“* McDonald's Mission Statement McDonald's brand mission 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