Economics of McDonalds
Economics of McDonalds
Economics of McDonalds
Resources
McDonalds is large fast food business that is highly regarded and successful in the market of fast food
takeaways. Like every business, McDonalds must use resources to produce or supply their goods (e.g. A
Burger). Resources are the economic inputs used by producers in the production process to create the
outputs (the goods and/or the services). These resources can be categorized into four main groups:
Capital, Human, Entrepreneur and Natural. In this report, I will be identifying and explaining how
McDonalds uses and manages these resources in New Zealand. I will also explain and link the possible
benefits to the New Zealand economy and society (Consumers, Producers, Government) of McDonalds
use of these resources.
Natural Resources
Natural resources are the gifts of nature. By this I mean that these resources are available to use through
nature. (E.g. Plants, Animals, Land, etc.) The payment for the use of natural resources is rent. Being a fast
food business, McDonalds produces mainly food to their market and to do so, they use a wide range of
natural resources in their chain of production that are sourced in New Zealand. In 2009, McDonalds
sourced the following ingredients from New Zealand producers:
5.58 million kg of beef
2.3 million kg of chicken
1.4 million kg of lettuce (to be processed)
230,000 kg of tomatoes
85 million buns, rolls, bagels and muffins
4.6 million litres of milk
15.6 million kg of potatoes for processing
1.2 million kg of cheese
10.8 million kg of eggs
300,000 kg of Hoki (fish)
To gain these ingredients, McDonalds must use natural resources. The beef is sourced through the cattle,
which is a natural resource. McDonalds claim to have 100% New Zealand beef. This comes from a number
of farms throughout New Zealand such as Taranaki, Marlborough, Waikato and Manawatu. This means
that McDonalds also uses land, this being the farmland that the animals are produced. This also applies to
the other ingredients that are sourced through the use of farming/farmland, such as the vegetables and
dairy products (like the milk).
McDonalds manages these natural resources in a variety of efficient and productive ways. To
manage the quality of these natural resources, McDonalds have a system of food safety and quality checks
that these resources run through before being used. For example, the beef patties go through 52 of these
safety and quality checks before being able to be used in the restaurant. To control and monitor the
delivery of their natural resources such as the beef patties, McDonalds utilizes the trusted McKey
Distribution Centre that ensures premium quality. With the large amount of natural resources being used,
McDonalds utilizes bulk buying to reduce costs. McDonalds also has a warehouse in Auckland that
distributes the natural resources to the McDonalds outlets. This allows them to keep track of what goes in
and what goes out.
Human Resources
Human resources are the individuals, who create the work/labour force providing their work or effort. (E.g.
staff, chefs, drivers, etc.) The payment for the use of human resources is wages. Like most businesses,
McDonalds uses human resources to provide their excellent service and assist in the chain of production.
Across the country, McDonalds employ more than 9,000 staff and annually the payroll is about $2 million.
The amount of staff is constantly increasing as McDonalds continues to expand. This may include people
with different skills and work ability, but in a local McDonalds restaurant setting, the crew is divided in 4
sections: the Drive-thru, the front counter, the back-area and the McCafe. This means that any of the staff
could be at any of these stations at a given time. Looking further down the chain of production,
McDonalds uses human resources such as freighters (to deliver other resources) and farmers (who supply
the ingredients).
McDonalds manages their human resources in a variety of ways. As stated before, the crew is
divided into the 4 sections of a standard McDonalds restaurant. McDonalds do this because its gives them
a more structured work place and therefore making it easier to control and keep track of. McDonalds also
manages their human resources through a web-based program called Promapp. This program allows
McDonalds to create and store business processes online. McDonalds uses Promapp, as it is so simple and
easy to use. Their crew also utilizes this program to keep up to date with the current processes as Promapp
updates their information live, meaning that there is never any outdated information on this program.
Entrepreneurial Resources
The entrepreneurial resources or the entrepreneurs are the individuals willing to organize the other factors
and take risks for the business. (E.g. owners, directors of firms, managers, etc.) The payment of use of
entrepreneurial resources is profit. McDonalds uses these entrepreneurs to help manage their business
along with also helping them take risks. McDonalds is a large business and to manage all of the 162 outlets
in New Zealand, McDonalds has a franchising system. 80% of these outlets are franchised. This is where
local businessmen and women get to own and operate their local McDonalds restaurant. An
entrepreneurial resource that McDonalds also uses is their national management team. This team consists
of:
Patrick Wilson- Managing Director (CEO)
Jacky Hollingsworth- Chief of Finance
Lauren Voyce- Head of HR and Talent
Katrina Gray- National Operations Manager
Brett Watson- Director of Development
Chris Brown- Director of Marketing
McDonalds manages their entrepreneurial resources through a few methods. To manage the
individuals who invest in a McDonalds franchise (Franchisee), McDonalds have an agreement and outlines
they have to follow before running the outlet. The franchisee also goes through applicant training which
last up to 10-12 months and is full-time and unpaid. The management team makes the big decisions that
affect how McDonalds operates and how they can improve that. Within an outlet, there is a structured
and hierarchical management system meaning that the outlet managers are able to keep track and control
their human resources.
Capital Resources
Capital resources or goods are man-made aids/goods that are used to produce other goods and/or
services. (E.g. Machinery, buildings, vehicles, etc.) The payment for the use of capital resources is interest.
McDonalds is a fast food business and to be in this market, McDonalds has to be efficient in doing so. To
achieve this, McDonalds use a wide range of capital goods to aid them in being efficient and help them to
produce their goods. McDonalds uses 162 outlets or the restaurants all over New Zealand to supply their
goods. This is one of their main capital resources because this allows them to supply their goods. There are
also the abattoirs (slaughterhouses) and the patty production plants used by McDonalds to source their
beef. This leads onto the transportation vehicles McDonalds uses to deliver these resources. To cook this
beef, McDonalds uses specialized two-sided hot plates that are also efficient as it produces a regular
cooked patty in 36 seconds. McDonalds also use tray-mats. (15million printed per year) Being a fast food
business, McDonalds has a Drive-Thru service that provides the customers with takeaway orders. To run
the drive-thru, McDonalds uses the inter-communication system for the ability to receive orders from the
customers. Along with this, McDonalds also uses a range of monitors to keep track of customers orders
both in the drive-thru and on the front counter. To produce other goods available on McDonalds menu,
they use capital goods such as deep fryers (for cooking French fries), ice-cream dispensers and drink
dispensers. With the addition of the McCafe, McDonalds also uses capital good such as coffee machines to
run this service. Within the restaurant itself, there are tables and chairs to provide a venue for the
customers to eat.
Since McDonalds utilizes many capital resources, they also have multiple methods of managing
these resources. Like the delivery of the natural resources through McKey distribution, the delivery
vehicles and where they go are controlled and monitored through this service also. The McDonalds outlet
managers maintain and keep track of the capital that is being not used and being used, so that they do not
waste any of the scarce resources available. On a national level, McDonalds is constantly maintaining and
upgrading to newer types of technology to improve their productivity through researching and
investigating these new types of technology. McDonalds does this because improving their productivity
means that they are able to supply more at the same or higher rate and therefore increase their profit.
Benefits to Society
There are many benefits for the NZ economy and society (Consumers, Producers, Government) of
McDonalds use of their resources.
To The Producers
McDonalds uses a large amount of natural resources, as shown in the list of natural resources
purchased in 2009. This means that the producers of these resources will have a source to
sell/supply to (as 95% of the product is NZ sourced). This is beneficial as it provides these
producers a sales opportunity. For example, the beef used by McDonalds is 100% NZ beef
sourced from NZ farmers.
The investigation of new and more efficient technology for McDonalds could also benefit other
producers in the fast food industry. This is beneficial because the other producers could use this
newer, more efficient technology. (E.g. this research could possibly lead to a new instant food
cooker that is more efficient and could be used by other businesses?)
McDonalds spends a large amount of money on natural resources. (E.g. $145 million was spent
on NZ suppliers in 2010) This is beneficial to producers because with these purchases from
McDonalds, their profits increase. This enables the producers to possibly expand, which could
also lead to a further profit increase.
To The Consumers
McDonalds uses a large amount of human resources (over 10,000 employees in NZ) and this
amount is constantly increasing due the McDonalds expansion. This is beneficial to consumers
because this use of human resources provides employment opportunities for the general public.
With the possibly of expansion of other producers due to McDonalds purchasing of resources,
this will also provide employment for the consumers which is beneficial.
McDonalds has a franchising system where local businessmen and women get to own and
operate a McDonalds restaurant. This is beneficial to consumers as it gives a business opportunity
to the local communities.
McDonalds utilizes bulk buying and due to economies of scale, the costs are less and therefore
keeping the price down for consumers which is also a benefit.
To The Government
Due to the employment opportunities created through McDonalds use of human resources, the
employment rate will go down. This is beneficial to the government because they wont have to
give out as much unemployment benefits, and with this money left over, it allows the government
to spend it in more important areas.
The increase in employment because of McDonalds use of human resources means that the
consumers that are employed now earn or earn more income. This is beneficial to the
government, as these consumers employed by McDonalds now have to pay income tax, which
provides the government with more money to spend on improving New Zealand.
McDonalds purchases large amount of natural resources such as the ingredients in the list on
page 1 and in doing so they also indirectly pay tax to the government. (The tax is paid through the
supplier that McDonalds purchased the goods from.) This is beneficial to the government as it
provides them with extra money to spend on further improving and developing the country.
Location
To McDonalds, the location of their restaurants is vital. This is a strategy that involves situating their
outlets in convenient places alongside similar businesses to create competition and attract customers their
customers to increase sales and market share. For example, McDonalds usually places their restaurants
near other fast-food restaurants such as Burger King or KFC. This is to provide convenience for the
consumers of this market (fast food takeaways) and to also possibly attract consumers of Burger King or
KFC to increase their sales and gain market share. McDonalds uses this strategy because it provides
competition and could possibly increase their market share by taking business off other fast food takeaway
firms.
Sponsorship
Sponsorship is when a firm supports an activity through donation. McDonalds utilizes sponsorship to get
involved with the community. This is to improve public perception and gain public awareness of
McDonalds image and brand. In doing so, McDonalds image/brand will be known, therefore attracting
more customers to increase sale and market share. McDonalds sponsors a variety of activities, some of
which include supporting junior sports teams, Variety (childrens charity), the summer and winter Olympics
and the Ronald McDonalds house charity. McDonalds uses this non-price strategy because through these
sponsorships, McDonalds have and will continue to greatly improve their public perception and create
more public awareness.
Promotions
Promotions involve making known a product,
organization, or venture to increase sales or public
awareness. McDonalds uses this strategy of
promotions through a variety of ways. McDonalds
occasionally holds limited time specials of a certain
product. The consumers see this as an opportunity
to buy and therefore, increasing the sales.
McDonalds also promote ventures to improve
public perception such as the use of free ranged eggs
in Christchurch and Dunedin restaurants. By
improving public perception McDonalds will attract
more consumers and in return, increase their sales.
Branding
Branding is the marketing strategy of creating a name, symbol or
design that identifies and differentiates a product from other
products. This means that branding is a way to make known a
businesss product and how it differs from other products. To
McDonalds, branding is one of their key strategies to increase
their sales and market share. This is because to brand themselves
and their image, McDonalds uses many other strategies such as
advertising, sponsorship, etc. This is so the image and brand of
McDonalds is well known. If the consumers of fast food
takeaways know the brand of McDonalds, then they will go to
McDonalds rather than other fast food businesses. This has been
TM
done effectively as McDonalds image, The Golden Arches , is
more recognized than the Christian Cross.
Product Variation
Product variation is when actual changes are made to the product itself. McDonalds uses this non-price
strategy to increase their sales, market share and also appeal to different market segments. McDonalds
have included new and different products to try to appeal to different tastes, preferences, income brackets
and health conscious consumers. Some of these include:
The McCafe/M selections range: - With the addition of the McCafe and M selections range,
McDonalds have create a menu that appeals a different market segment of people with higher
income brackets and of age. McDonalds added these menus to gain a larger consumer base,
which results in increasing their sales and market share.
The Breakfast menu: - McDonalds have created a menu for breakfast. This is to appeal to the
market segment of people who want a fast way of having breakfast. McDonalds introduced this
menu because they wanted to attract more consumers and therefore increase their sales.
Weight watchers approved meals: - Alongside the other healthy alternatives, McDonalds have
created a weight watchers approved menu that tries to appeal to the market segment of health
conscious consumers. Again, this is aimed at trying to achieve a larger consumer base to increase
sales and market share.
Upsizing: - When a consumer is purchasing a combo they are giving the option to upgrade the
size of their drinks and fries. This is called upsizing. McDonalds have included this to attract those
consumers who want more in the their meals and in return, increases the sales and market share.
benefit the other producers, as they are able to spend their new income. Producers of machinery
and repairing machinery in the fast-food industry will also benefit, as McDonalds will have need
of them in the process of expansion.
McDonalds utilizes many non-price strategies such as advertising frequently. By doing this, they
have need for more advertisement producers. This is beneficial as it provides these producers
with more sales opportunities and therefore increasing the advertisement producers profit.
By McDonalds reducing the price of their goods as part of their price competition strategies, they
are at risk of starting a price war with other producers (by undercutting a competitors price, that
firm may react by using the same tactics therefore starting this price war). This is definitely a
negative as both McDonalds and the other producers will suffer a loss and the likely outcome of
this is that the market share of both firms will remain the same and profits may be reduced.
To The Government:
By McDonalds taking market share and sales off of other fast food businesses through the use of
their price and non-price strategies such as branding, advertising, discounts, etc. could force these
producers out of business. The result of this is the staff of these businesses will lose their jobs,
adding to the unemployment rate in New Zealand. This is a negative for the government; as they
have to pay the unemployment benefit to these staff and in doing so, lose money that could have
potentially been put into something more important.
With McDonalds being more successful through their use of price and non-price strategies,
McDonalds receive increased revenue. A result of this is that McDonalds is indirectly increasing
the amount of GST (Goods and Services Tax) the Government receives. Since McDonalds are
attracting more customers through strategies such as advertising and providing services, there are
more potential customers that will pay the GST on McDonalds goods. This is beneficial for the
government as this means they will have more money to spend on improving New Zealand.
To Consumers:
For some segments of the market, such as the regular consumers of fast food takeaways, there
could be people who are eating more fast food than they should or they could be making poor
food choices. This is shown through the use of the non-price strategies such as advertising and
promotions because these strategies are aimed at attracting more customers and making their
products appear different when they are actually not. This could result in people regularly
consuming McDonalds fast food, which is bad as it can be unhealthy.
Childhood obesity is a possibility due to some prices strategies that make it easier for the younger
consumers (children/students) to get McDonalds goods. For example, the addition of the loose
change menu or value picks menu allows students/children to purchase fast food easier as they
can afford these products. This could lead into younger consumers eating fast food regularly as it
is easier for them to get which is bad as it could result in an unhealthy diet and cause problems for
them later on in their lives.
Through the use of price competition, McDonalds have made their products cheaper for their
consumers. This is a benefit as the consumers are able to save their money that is not being
spent. This is displayed in the combo meals price strategy. The consumers see this as value for
their money as they are getting more for less.
The community could benefit through McDonalds use of non-price strategies such as
sponsorship. McDonalds regularly sponsors local activities and events. For example, McDonalds
sponsor the junior sports teams to improve public perception and awareness. In doing so,
McDonalds gets more sales and the junior sports teams receive more sponsorship.
Through the use of Product Variation, the consumers of fast food may get a wider range of
products to choose from. This is a benefit for consumers as having a wider range of products gives
them a better choice of what they are willing and able to get.
The purpose of all the price and non-price strategies is to increase sales, market share and then
ultimately profit. By using these strategies McDonalds have increase their profits and this means
that a larger dividend is given out to the McDonalds shareholders, which is beneficial.
10
Profit Maximization
I believe that McDonalds number 1 goal is profit maximization because of multiple reasons.
McDonalds utilizes many price and non-price strategies that are aimed at increase sales and market share.
In doing so, McDonalds ultimately increase profits too. This is no coincidence, McDonalds have increased
their profits through the use of price and non-price strategies as that want to maximize these profits. All of
McDonalds goals are closely linked to either increasing profit or maximizing it. The non-commercial goals
such as helping the environment and community involvement are aimed at improving public perception
and therefore attract more people to purchase their goods. Commercial goals such as business expansion
also link to profit maximization as expanding could possibly mean an increase in revenue as a result of
expanding. Increased revenue means increase profits. These are the reasons why I believe that McDonalds
(NZ) number 1 goal is profit maximization, as all of the goals are closely linked and the marketing strategies
McDonalds uses are all aimed at maximizing their profit.
Conclusion
Throughout this report, I have found that McDonalds (NZ) uses and manages their resources
effectively and efficiently to avoid wastage of these scarce resources. McDonalds use of these resources
has many benefits to New Zealands society. The major benefits I have found are the large sum of money
McDonalds spends on NZ producers, the employment opportunities McDonalds gives to the public and
the franchising agreement allows for local businessmen and women to own and operate McDonalds
restaurants. McDonalds, like every business, have goals and values to drive these goals. I found that most
of these goals are closely linked to what I believe is McDonalds number 1 goal, which is profit
maximization. McDonalds utilize many price and non-price strategies to increase their sales and market
share. I found that this ultimately leads to increasing profits. McDonalds use of these strategies has
consequences that could have possibly affected New Zealands society. I found that there is a balance of
good and bad consequences to the society of NZ. In the end, McDonalds are not only feeding their
consumers, they are feeding the producers and the government of New Zealand through their production
and sales decisions.
11
Bibliography
1.
2.
3.
4.
5.
6.
7.
http://www.promapp.com/case-studies/mcdonalds/
http://mcdonalds.co.nz/careers/about-us/our-values
Resource Booklet
http://mcdonalds.co.nz/about-us/corporate-responsibility
http://mcdonalds.co.nz/
http://mcdonalds.co.nz/our-food/menu/#/
http://www.mcdonaldsparties.co.nz/birthdayparty_nz/Party
Package.jsp
12