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Mc Donalds Corporation in the new Millennium; Case Analysis

by:

Anthony Maghirang

Executive Summary
This case study was conducted to determine and identify the problems of Mc Donalds Company during late 90s and early 2000. During that time United State encountered Economic recession, most of the younger consumers and baby boomers were looking for other better alternatives. The Mc Donalds company leads the country in fast-food industry. The Fast-food Industry includes Hamburger chain these are Burger King, Mc Donalds, Hardeess and Wendys. The Non-Hum Burger chain includes Pizza Hut, Taco Bell and KFC while the new potential entrants are Boston Market, Panera Bread Company and Atlanta Bread Company. The Industry have integrated strategies includes: discounting and offering new products, intensive training for the employee to improve faster time, food preparation and development to their facilities. At that time, Mc Donalds Company encounters large decline to their total net income, average sales growth and their market share growth down to 2.2 % only while Burger King got a market share growth of 2.7 % and 2.5 % for Wendys. The Mc Donalds developed new strategies such as Advertising wherein message focuses of nutritious and tasty products, charity, parades, games that leads them for better Corporate and Public image. On the otherside, Mc Donalds Companys introduce their first Domestic Mc Cafe to double the companys sales in the U.S for the next decade. On the otherhand, the Analyst found out that the main problem pertains to the customers taste that change from Hamburger chain to Non-Hamburger chain and other problem pertains to the young consumers and Baby Boomers which were tired of fast-food and looking for better alternatives due to thinking about their health. The Analyst suggest the implementation of alternative strategies such as Intensive strategy that offers more friendly, nutritious and tasty products and faster expansion of Mc Caf to the U.S market that will lead in increasing their Sales growth that decrease to almost 5% from their average sales growth from 1997 to 2000 and increasing their market share growth which down to 2.2% only.

TABLE OF CONTENTS Title Page i Executive Summary ii Situation Analysis.. 1 Environment... 1 Economic condition Cultural and social values Opportunity and threats Implications for Strategy Development Industry... 1 Classification and Definition Existing Competitors Potential new entrants Opportunity and threats Implication for Strategy Development Organization 2 Objectives Financial condition Management Philosophy Organizational Structure Organizational Culture Strength and weakness Implications for Strategy Development Marketing Strategy .. 4 Problems found in Situation Analysis .... 5 Statement of the Problem Primary problem and secondary problem

Strategic alternative for solving the problem 6 Statement of Selection strategy Descriptions and benefits Summary . 7 Financial Analysis. 8

IV. SITUIATION ANALYSIS A. Environment The United State encounters Economic recession. The Non hamburger food product becomes favorable to the consumers taste. Threats * Purchasing power of Americans was decrease due to Economic recession. * Many younger consumer were becomes health conscious.

B. Industry Fast-food Industry which includes Hamburger chain and non- Hamburger chain. Competitors

* Burger king the countrys No. 2 burger chain that develops more permanent marketing strategy and moving away from its tactical approach. * Hardeess the countrys no. 4 Burger chain have 15% decline in their net in the recent quarters and posted year to year quarterly declines of 4.8% in company own same store sales. * Wendys the countrys no.3 burger chain that planned 30% boost in their media outlays it is estimated that $308 million in 2002 and strong focuses on in-store operations. * Pizza Hut Dominates the segment with 22% of all restaurant Pizza sales in the country. Products launch in the U.S that featured the Pzone for $5.99 or two for $10.99 each pie. Proposed product for 2002 includes a meal with spicy Blazin crispy strips with a choice of side. * KFC - Have 5400 U.S outlet with recent strategies includes Kids Lap Top pack meal program to attract more kids and families to its food offering. * Taco Bell Have 19% increase in 2001 due to strategy shift to higher price product and planned to add more grilled product extensions with higher quality tortilla and Beef to be sell to Non- discounted price. Potential new Entrants * Boston Market * Atlanta Bread Company * Panera Bread Company -- Gives major changes in fast food industry that increase in the fast casual segment, these chains offer deli sandwiches and meals that are more upscale that traditional fast-food, it serves nicer restaurant with more comfortable surroundings but faster than traditional restaurants. Opportunity recognizing the importance of drive thru customers (65% of sales) Threat Increase of fast-casual segment which includes Boston Market, Atlanta Bread Company and Panera Bread Company. Implications for the strategy developments

* Continuing discounting and offering a variety of new products to attract customers, seek to shed their Cheap and greasy image in new store design. * provide timers to encourage employees to prepare food and deliver food faster. *Trained employees in faster food preparation method. * having separate kitchens and food preparation facilities for drive thru customers.

C. Organizations *Objective to increase sales, to increase net income, recover from their average sales growth in U.S and to expand their market share growth. * Financial condition 2001 total assets Less: 2000 total assets $22,535 million ($21,684 million) $851 million increase

2001 Net income Less: 2000 Net income

$1 637 million ($1977 million) - $340 Decrease their net income

Market share growth down to 2.2% only compared Burger King with Market share growth of 2.7% and 2.5% by Wendys.

Management Philosophy- To encourage employees to perform certain task such as faster food preparation and faster food delivery. Organizational Structure

Jack Greenberg

Organizational Culture- focused on teamwork and provides trained employees. Strength -$22,535 million, capable to provide integrated marketing strategies. Weakness no specific competitive products that would cope-up to those in fast casual segment which are potential entrants.

Strategy development * Advertising wherein message focus on tasty, nutritious and friendly products. * Charity, Christmas parade that provides better corporate and public image. * Introduction of the first Domestic Mc Caf with expectation that this will double the companys sales in the U.S by the next decade.

D. Marketing Strategy

To increase their sales or to double their sales in the U.S by next decade and to provides better corporate and public image.

$851 million increase, - $340 Decrease their net income, Market share growth down to 2.2% only compared Burger King with Market share growth of 2.7% and 2.5% by Wendys

Marketing mix variables *Products offering new products which are nutritious, friendly and tasty. *Price Offering much cheaper price by Mc Caf gourmet coffee shop. *Place - Opening First Mc Caf in the U.S market *Promotion Advertising that focuses on tasty, nutertuois and Friendly Food products and Providing charity to better corporate and public image

Implications for Strategy Development *Advertising, Charity, Public relationship, Market expansion.

V. PROBLEMS FOUND IN SITUATION ANALYSIS

A. Statement of the Primary Problem 1. How are customers taste changed in the fast-food industry from Hamburger chain to Non- Hamburger chain?

2. What impacts do these to Mc Donalds Company? 3. How well are these changes in Customers taste and preferences being reflected in competitive strategy industry? *Evidence- Sales growth in Non- Hamburger Chain becomes faster than those in the Hamburger segment.

B. Statement of the Secondary Problem 1. What are the possible reasons why baby boomers and young consumers are thinking other better alternatives for fast-food? 2. What strategy must be implemented by Mc Donalds to restrain the baby boomers and young adult to their segment? Evidence baby Boomers and young consumers are looking for better alternatives and they are being conscious with their health, sales growth in the U.S slow down to industries average.

VI. STRATEGIC ALTERNATIVES FOR SOLVING THE PROBLEMS

A. Focuses of Product Development

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* Provides more intensive strategy by offering nutritious, tasty and friendly products with comfortable facilities to reestablish those young consumers and baby boomers to patronize the products. * increasing their companywide sales. B. Focus on Business expansion *Faster expansion of Mc Caf in the U.S to cover those other consumers in fast-food market segment. * To increase the Mc Donalds Corporations Sales in US.

VII. SELECTION OF STRATEGIC ALTERNATIVE AND IMPLIMENTATION

A. Statement of selection strategy 1. What strategy must be implemented to restrain that market in their segment which were young consumers and baby boomers? 2. What effects does strategy will make to Mc Donalds?

This offer more nutritious, tasty and friendly products which are look by young consumers and baby boomers to their alternatives. This will boost or increase their sales and to reestablish their average sales growth.

Description- This offers new and improved food products.

VIII. SUMMARY The United State encounters recession; The Non-hamburger food product becomes favorable to the consumers taste. Fast-food Industry which includes Hamburger chain and non- Hamburger chain. Competitors Burger king, Hardeess, Wendys, Pizza Hut, KFC, Taco Bell

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o Potential new Entrants * Boston Market * Atlanta Bread Company * Panera Bread Company Organizations *Objective to increase sales, net income, restrain from their average sales in U.S and expand their market share growth.

Management Philosophy- To encourage employees to perform certain task such as food faster food preparation and faster food delivery. Organizational Culture- focused of their teamwork and provides trained employees. Strength -$22,535 million, capable to provide integrated marketing strategies. Strategy development * Advertising * Charity * Public relationship Problem no. 1 customers taste changed in the fast-food industry from Hamburger chain to Non- Hamburger chain? Problem no. 2. Baby boomers and young consumers are thinking other better alternatives for fast-food? Selected Alternative- To Provides more intensive strategy by offering nutritious, tasty and friendly products with comfortable facilities to reestablish those young consumers and baby boomers to patronize their product that will lead to increase their sales and cope-up to their average sales growth.

IX. FINANCIAL ANALYSIS Mc Donalds Corporation Summary of financial data 1997- 2001

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US Dollars in millions Except per Share data Franchise sale Company-operated sales Affiliated sales Total system wide sales Total revenues Operating income Income before taxes Net income Cash provided by operations Capital Expenditures Free Cash Flow Treasury stock Purchases Financial Position Year End Total Assets Total debt Total Shareholder equity Shares Outstanding in Millions Total Systemwide restaurant 22,525 8,378 9,453 1,280.7 30,093 21,648 8,474 9,204 1,304.9 28,707 20,983 7,252 9,639 1350.8 26,309 19,784 7,043 9,465 1356.2 24,513 18,212 6,463 8,852 1371.4 22,928

2001
24,838 11,040 4,752 40,630 14,870 2,697 2,330 1,637 2,688 1906 782 1,690

2000
24,463 10,647 5,125 40,181 14,243 3,330 2,882 1,977 2,751 1,945 806 2,002

1999
23,830 9,512 5,149 38,491 13,259 3,320 2,884 1,948 3,009 1,868 1,141 933

1998
22,330 8,895 4,754 35,979 12,421 2,762 2,307 1,550 2,766 1,879 887 1,162

1997
20,863 8,136 4,639 33,638 11,409 2,808 2,407 1,642 2,442 2,111 331 765

Financial Analysis Note: representations are all In Millions of US Dollars

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Total Debt ratio for 2001 = Total Debt 2001/Total assets 2001 Total Debt ratio for 2001 =

8,378 / 22,525 = 0.372 is to 1 ratio

Total Debt ratio for 2001

Return on Assets (ROA) = Profit after taxes 2001 / 2000 Total Assets = 1637 / 21648 = 0.07562 is to 1 ratio

Total System wide sales Growth in Millions of US Dollars

1998 to 2000 average sales growth of 6.11% 2001 sales growth down to 1.12% Almost 5% Decline to their sales growth.