McDonalds Financial Analysis
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McDonalds
A Company Wide Analysis
EXECUTIVE SUMMARY
In 1937, Dick McDonald and Mike McDonald opened a drive-in restaurant in East Los Angeles. They offered a quality hamburger at a great price. Later, in 1955, Ray Kroc founded the McDonalds franchise naming it the McDonalds System Company (changed in 1960 to McDonalds Corporation). From its very beginning, McDonalds has been the first thing people think of when they think of fast food. Many people began their working life as an employee at a McDonalds restaurant. But as time passed, the opinion of the fast food customer changed and McDonalds began to slide. They posted their first quarterly loss in nearly fifty years at the end of 2002. However, from this point on McDonalds has improved greatly. During the case years studied (2000-2012), they have rose to the TOP in rankings of fast food chains thanks to their relentless pursuit of quality and friendly service, the principles of which the company was founded on. Currently, McDonalds has become the worlds largest fast food restaurant chain with more than 30,000 branches and 68 million customers served per day. In 2011, their total revenue reached 27 billion dollars and net income was 5.5 billion dollars.
Company Vision/Mission
In the beginning Ray Kroc placed an emphasis on quality, service, health, and economic benefits or QSC&V. This vision remains today under the categories of Nutrition & Well-Being, Sustainable Supply Chain, Environmental Responsibility, and Employee Experience and Community. As stated on McDonalds website, “McDonalds brand mission is to be our customers favorite place and way to eat. 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.”
Company Goals
Maintain alignment between the company, its franchisees, and suppliers
Maintain and improve customer-focused Plan to Win
Continue to grow comparable sales and customer visits
Continue the financial discipline
Company Policies/Values
Nutrition & Well-Being: Giving the customers the choice of quality and value
Sustainable Supply Chain: Focused on the 3Es ethics, environment, and economics
Environmental Responsibility: Doing more with less
Employee Experience: People make the difference at McDonalds
Community: Reaching out and giving back to the community
Operating Ethically: Everyone is held accountable
Corporate and Competitive Strategies Being Used
The alignment of the Company with its franchises and suppliers enables McDonalds to consistently place the food people want in front of them no matter where the store is located. They do this by constantly assessing new ideas and preferences to adhere to the customers changing preferences. (aboutmcdonalds.com/mcd/investors) For example, because health conscience consumers are being turned away from some of the unhealthy foods found on the menu, McDonalds has placed increased emphasis on nutrition. Some of the actions they have taken include increasing awareness of fruit, vegetables, and dairy options; they have also expanded food and beverage choices containing fruits and vegetables across the menu.
EXTERNAL ANALYSIS
Industry/Competition – Five Forces
Current Rivalry Opportunities
Coffee. The success of McDonalds McCafe line will depend on how well they compete with coffee powerhouse Starbucks.
Healthy entrées. With stricter health standards and aggressive national campaigning there is a greater emphasis on healthy menu items. Not many competitors offer a variety of healthy options on their menus. This can be a potential opportunity for growth.
Current Rivalry Threats
One of McDonalds largest obstacles is competing with existing firms. Burger King, Taco Bell, Starbucks, and Dominos among others offer the same or substitute products at a comparable price with comparable quality. Since each restaurant has the ability to concentrate on certain segments within the market it makes McDonalds ability to capture a market share that much more difficult. In 2008, McDonalds only held 19% of the market share, thats a significant reduction from 2000
Potential Entrants Opportunities
Stricter guidelines. Regulations effecting fat content and overall health of product. This is an opportunity to improve the health benefits of the menu using the Plan to Win principles
Government restrictions on unhealthy eating. One of the reasons McDonalds is considered unhealthy is because it is processed. If there are restrictions put in place, other potential entrants would be turned away by the increased scrutiny.
Potential Entrants Threats
Small flexible establishments. Some smaller fast food restaurants in local areas have emerged as strong competitors. Different people in different areas have different tastes; sometimes it is easier for smaller companies to adjust their menu items.
Bargaining Power of Buyers Opportunities
Growth. McDonalds has done a great job growing its franchise. It seems like it is virtually impossible to drive through the United States without seeing a number of their restaurants along the way. This is an opportunity to provide suppliers with a high degree of stability.
Price. McDonalds has the ability to provide a product that is acceptable and familiar to the customer at a price that is lower than the competition by using economies of scale and efficient production machines and processes.
Bargaining Power of Buyers Threats
Buyers have full information. This is a threat because of healthier products on the market such as subway