Situational Analysis
This assessment focuses to develop a strategic management plan for McDonald’s. As the companies move forward in the twenty-first century, gaining and sustaining competitive edge to be necessary to have a significant impact on market share. As stated by Liu et al. (2018), employing strategic management analysis provides forward-thinking perspectives to drive business onward as the world marketplace continues to evolve. This particular assessment requires applying strategic analysis models and findings based on McDonald’s. McDonald’s is an American fast food chain and it was started its operation in the year 1940. McDonald’s has it headquarter in Chicago and current revenue of the organisation reached US$ 22.82 billion. McDonald’s has its operation over 120 countries and it has more than 69 million customers. McDonald’s sells mainly hamburgers, French fries, chicken products, soft drinks and breakfast. McDonald’s started its journey to Ireland in 1977 and it came with drive-through restaurant in Ireland (Mcdonalds.ie 2018).
This assessment critically appraises the relevance of strategic management concept and empirically research on McDonald’s. This assessment features on developing the strategies which help McDonald’s to make position in Ireland market favourably in relation to competition. In the following section of the assessment discusses the resources and capabilities of McDonald’s in terms of ability to confer sustainable competitive advantage. McDonald’s strategies for exploiting foreign entry are discussed in this assessment.
SWOT analysis
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Strengths |
1. McDonald’s is the largest fast food network in McDonald’s. McDonald’s is the second largest restaurant chain in the world as it has more than 37,240 restaurants in more than 120 countries. McDonald’s can share its costs over many restaurants as it makes McDonald’s as one of the best and cheapest places to eat. 2. McDonald’s identified the better ways to perform the tasks as it manages the restaurant and hires new people to gain huge revenue. 3. McDonald’s exercises its market power and they bring the products from the suppliers’ very lower prices. 4. McDonald’s restaurant allows the chain to reach more customers and it is the most recognised brand in the restaurant industry of Ireland. |
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Weaknesses |
1. McDonald’s faces issue in finding the perfect locations for the stores to be opened. 2. Annual dividend hikes are likely to continue and the growth rate is slowing 3. McDonald’s has declined its income growth and revenue 4. In Ireland, McDonald’s is experiencing its declining market share to Subway |
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Opportunities |
1. McDonald’s has its opportunities in international expansion and it serves only 2% people in the world 2. Growing interest in outdoor eating can be helpful for the organisation 3. Joint Ventures with retailers will be helpful for McDonald’s 4. The organisation needs to bring social change through innovation within healthier lifestyle food 5. McDonald’s can increase the business through using CRM and it has improved in a value proposition |
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Threats |
1. High competition in the industry is obvious 2. It is in the matured or overstored industry (Euromonitor.com 2018) 3. More health-conscious consumers are in the rise 4. McDonald’s has been observing the fluctuation of foreign exchange rates in the economy 5. McDonald’s has also been observing recession in Ireland which may affect the retailer sales |
Value chain analysis
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Primary Activities |
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Inbound Logistics |
McDonald’s purchases raw materials and raw vegetables from the pre-defined and fixed suppliers. McDonald’s uses the strategy of using the same suppliers to make their food items to stop increasing labour and capital. McDonald’s has also used backwards vertical integration as they replaced some of the suppliers to reduce the cost and to ensure the products to be well priced (Jaligot et al. 2016). Inbound logistics of McDonald’s are associated with local grocery stores with fresh vegetables. |
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Operations |
McDonald’s changed their design of kitchen as they don’t use lots of equipment and stations to prepare food. McDonald’s makes their preparing operation in front of the customers so that they can make the food preparation transparent. At many of the stores of McDonald’s Ireland, the customers have self-service kiosk (Mudambi and Puck 2016). McDonald’s has a mass production process and its own distribution network so that the stores can handle the enormous amount of restaurant needs. Computer system keeps track of the billing and the stores have regular schedule instead of waiting request. |
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Outbound Logistics |
McDonald’s focuses on energy conservation and sustainable packaging along with waste management. McDonald’s is dedicated to innovation and they use environment-friendly bikes to reach the customers with food. McDonald’s continues to optimise the menu choices. McDonald’s has its own distribution channel and it has resolving conflicts among the channel entitles. |
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Marketing and Sales |
McDonald’s does an extensive advertisement campaign using social media like Facebook, Twitter and Instagram. McDonald’s males the advertisement using billboards, Signage and sponsors. McDonald’s uses the logo in the sports league. McDonald’s has its tie-up with many co-operative advertising agencies. McDonalds’s also prepares Television advertisements. |
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Service |
McDonald’s provides free Wi-Fi where the customers can get their work done McDonald’s has a self-service system McDonald’s gives Arch Card as it is a pre-paid card to the customers to use the quick and convenient way to pay at the stores (Crawford 2017) McDonald’s also provides party rooms where the customers can celebrate their occasion. McDonald’s also uses arrangement for play places for the children. |
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Support Activities |
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Firm infrastructure |
McDonald’s has one of the best infrastructures in modern days where the management has used advanced IT and they maintain green activities. McDonald’s strives to give eco-friendly stores and it reflects on the sustainability McDonald’s has come up with Digital Document Infrastructure |
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Human resource management |
In Ireland, McDonald’s has more than 32,000 employees and McDonald’s uses proper recruitment and selection policy to recruit the employees in hourly paid positions (Begum 2015). McDonald’s uses the flexible working hours and the employees are engaged in activities like responsibilities. McDonald’s has reward policies for the employees to have the current and future supplies and demands of works. |
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Technology development |
McDonald’s has entered a deal with Fujitsu regarding IT support and McDonald’s has IT outsourcer which would support point-of-sale system and back-office operations for franchise outlets. McDonald’s has started providing digital ordering platform and kiosk at the stores which can reduce the rime take for the meal. McDonald’s has been using the technologies in menu innovation, door delivery and an efficient platform. |
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Procurement |
McDonald’s uses E-procurement System which is basically the main reason for the well-maintained supply chain management. It provides the backbone of the logistics operations. Procurement hub of McDonald’s Ireland was launched in the year 2001. Procurement of McDonald’s reduced the cost also. |
Ireland is parliamentary, representative democratic republic and the real power of the nation is vested upon the leader of the government. Ireland has 15 cabinet ministers and political condition is at present stable for the nation. The average value of political stability in Ireland is 1.16 points which show good and strong politics (Chubb 2018). Political power helps the companies to grow in the domestic market.
Current GDP of Ireland reached US$ 325.83 billion and GDP growth of Ireland is 6.7%. An inflation rate in Ireland is 0.2% and the labour force of Ireland is at present 2.22 million (O’Hagan and Newman 2014). The average salary of the people in Ireland is €2,479 monthly and Ireland is ranked 17th in Ease-of-doing-business. In Ireland, the restaurant industry costs €2.1 billion and restaurant industry has its growth rate of 4.9% (Euromonitor.com 2018). In Ireland, the restaurant industry shows strong economic performance, strong tourism statistics, continued growth in employment and uncertainty over the ultimate impact of Brexit and food inflation can create profitability challenges.
In social factors, Ireland experienced rising disposable income, busy lifestyles in cities and increasing cultural diversity which would help to increase the sales of food items. In recent time, the people in Ireland started eating the healthy food and leading life healthy lifestyle trend. Buying habits of Ireland are changing with time which impacts on business activities. Disposable income of Ireland reached 233013 EUR Million in 2017 (DeVogli et al. 2018).
In technology, Ireland focuses more on online security, social commerce and advanced machine learning. In the food industry, Ireland has been experiencing changes in increasing business automation. McDonald’s will face increasing sales through a mobile app and McDonald’s can moderate the R&D activities in the industry.
Internal Analysis
In Ireland, the firms have to pay the corporation tax of 12.5% and The Finance Act of 2014 removed the requirement of accounting. The Companies Act 2014 consolidates the pre-existing companies. McDonald’s may face the issue regarding the increasing health regulations and rising minimum wages.
Ireland drives by EU policies in case of the environment. In the restaurant industry; companies may follow the issue of rising interest for corporate environmental programmes, increasing emphasis on sustainable business and changes in climate conditions.
Porter’s Five Forces Analysis
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Porter’s Five Forces |
Description |
Forces |
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Industry rivalry |
Industry rivalry is high in Ireland as there are many other fast food chains apart from McDonald’s, Supermac’s, Five Guys, KFC, Subway and Abrakebabra. Value of the fast food industry in Ireland has estimated 9 billion Euro in the year 2020 (Euromonitor.com 2018). Franchisee based business in Ireland has been observing the rapid growth in recent time. |
High |
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Threat of substitutes |
Eight major food chain companies are registered members of the Irish Franchise Association. McDonald’s substitutes are AIL Group, Supermac’s, O’Brien’s Sandwich, Bagel Factory and Abrakebabra. |
High |
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The threat of new entrants |
Fast food store opening does not need large capital; however, marketing and promotions are costly for the new entrant to compete with McDonald’s. |
Medium |
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Bargaining power of buyers |
Bargaining power of the customers is high as they have enough options in the market to switch their choices. McDonald’s Irish market is very strong and McDonald’s has loyal customers here (Nightingale et al. 2015). |
Medium |
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Bargaining power of suppliers |
Suppliers’ play important role in setting the price for the food items. However, McDonald’s has its own suppliers that provide the raw materials at very cheap prices (Hanson et al. 2016). |
Medium |
TOWS Matrix
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External Factors |
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Internal Factors |
Opportunities (O) 1. Healthy alternatives and increase menu options 2. Strengthen its presence in the mobile phone 3. Strategic expansion in the unsaturated market |
Threats (T) 1. Increase labour cost 2. Increase foreign exchange risks 3. Intense competition |
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Strengths (S) 1. International presence 2. Focus on the quality of the food items 3. Menu diversification and food items innovation |
SO Using the strength of international presence and its power of having menu diversification, McDonald’s can expand the market in Asian countries where they do not have stores or have very fewer numbers of stores. Therefore, McDonald’s needs to have the strategies which would help to increase the market share. |
ST McDonald’s needs to use their food quality to overshadow the competitors from the market. Negative publicity is an issue for McDonald’s; they can use their better food quality in order to make an impression of positive publicity in the market. McDonald’s needs to use technologies and equipment to lower down the use of labour. |
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Weaknesses (W) 1. High employee turnover rate 2. Finding issue in finding locations for stores 3. McDonald’s is facing the issue in declining income growth |
WO McDonald’s has been facing the issue of declining the income growth and revenue generation, therefore, McDonald’s can use the mobile phone platform to strengthen the presence in the market and they can reach wider customers through the mobile platform. |
WT High employee turnover in McDonald’s stores is an issue and McDonald’s has a threat in increased labour cost. Therefore, McDonald’s needs to use the training strategy so that they can retain the existing employees. |
Using strength and opportunity in the market, McDonald’s can use the growth strategy of market development. McDonald’s can try to expand the business in Asian countries and unsaturated places. Market development strategy is involved in selling existing products into the new markets (Harrington et al. 2017). McDonald’s, therefore, can enter the new geographical market with the diversified menu and human resources.
By focusing on the quality of the food items, McDonald’s can tap large numbers of customer-base. Food quality and wide international presence will help the organisation to have positive publicity. Positive publicity is a great marketing stunt for the organisation and it would help to reach a wider customer base.
It has been observing that more people use Smartphone for daily use and McDonald’s have the weakness of lower revenue generation in recent time. Therefore, McDonald’s can use the strategy of mobile marketing to aim at reaching the target audience via mobile app, SMS, Social Media and MMS.
Learning and development strategy is helpful to retain more employees as the employee turnover rate is high in McDonald’s. The aim of the training and development to make the employees skilled for the current job role and it would help to develop the skills of the employees in future responsibilities and roles.
Porter’s generic competitive advantage
As stated by Tansey et al. (2014), firm’s relative position in an industry makes the firm’s profitability and it is the fundamental basis for the average profitability and sustainable competitive advantage of the organisation. There are two basic kinds of competitive advantage for the organisation to possess; differentiation and low-cost leadership strategy. Focus strategy has its two different variations differentiation focus and costs focus.
Cost leadership strategy: Cost leadership strategy sets out the firm to become the low-cost producer in the market and the organisation has to find out the sources of the cost of advantage to depend on the structure of the industry. Low-cost production always exploits all sources of the advantage of the cost (Banker et al. 2017). McDonald’s uses the primary generic strategy of cost leadership as it helps the firm to reach large numbers of customers as the customers always find the products with lower cost and with the best quality. McDonald’s offers products which are relatively cheaper compared to another fast food chain in the industry of Ireland and across the globe. Menu diversification of McDonald’s makes in such a way so that the company can offer the product with lower cost. McDonald’s takes the raw materials from the same set of suppliers and McDonald’s has its own suppliers from the local market. Inventory system of McDonald’s is very unique and use of equipment also helps the firm to provide the food item in lower price. McDonald’s uses vertical integration as it is one of the strategies of the firm to make a combination of two stages. Low cost in the industry provides better profit and it increases the market share in the new market and existing market. Cost leadership strategy in Ireland helps to improve the sustainability of the organisation and it also creates more capital which can be used for the growth of the organisation.
External Analysis
Differentiation: Through differentiation strategy, an organisation wants to be unique in the industry which must provide value to the customers. McDonald’s uniquely positions itself through diversified menu options where the customers can also find a self-service kiosk. McDonald’s gets the reward for the uniqueness with premium positioning and McDonald’s does the strategy in a different way to target the family customers so that the broader base can be targeted. Taste and quality of the food items of McDonald’s make the organisation different from others. McDonald’s started to prepare the food items in front of the customers and it increased the transparency for the customers.
Conclusion
It has been noticed that the external environment of Ireland has been helping McDonald’s to increase numbers of stores in Ireland market. Strengths and opportunities of McDonald’s help the firm to increase the global presence. Porter’s five forces analysis also proves the fact that McDonald’s needs to consider the competitors in the market as the Ireland market is full of the fast food chain. McDonald’s can use the achievement of growth strategy through market development as McDonald’s can use their strengths and opportunities to expand the market in different sections of Ireland and in the Asian community. Competitive strategy of McDonald’s is lower cost strategy through vertical integration which would help McDonald’s to reach wider customers from all sections.
Reference List
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