Table of Contents
Industry Introduction
Fast food industries are increasingly expanding globally as it is a profit generating business. Over the years, the US has dominated in this business where the restaurants can be found at every corner especially at niche positions such as tourist’s sites, along highways, at shopping malls and rest shops. Increasingly, fast food restaurants are being introduced to other parts of the world and research shows that in the recent future they will have a growth of 4.20% annually. Fast food restaurants provide employment of around 12 million people globally, which is approximately 1% of the total population of the world. Fast food industries are simply restaurants that offer quick service food products to the consumer, who can either choose to eat it on site, take it away or have it delivered. These types of fast food restaurants are categorized as Quick Service Restaurants (QSRs) offering such foods products as hamburgers, hotdogs, sandwiches, pizza, Latin American, chicken. Mexican, sea-foods, and snacks. McDonand Corporation, a/k/a McDonalds is and American corporation and one of the most popular QSR’s and a leading fast food chains in the world who is mostly known for the supply of hamburgers.
Industry Description
Revenue
McDonald’s being a chain of fast food restaurants by 1988 the number of restaurants had grown to more than 10,000. As of 2018 McDonalds has over 35,000 locations operating out of more than 100 countries. Early 21st century the total outlets were above 35,000 and operating in more than 100 countries. It is also the largest private employer in the world. In 2017, McDonald’s industries total revenue had grown to 22.82 billion U.S. dollars. United States dominates in the total revenue for the industry generating 8.25 million dollars. In the United Kingdom, China, Japan and Latin America markets total revenue was $6.03 billion. The industry is estimated to increase immensely in the next two years and in 2017 sales were up 2.7% in the global market whereas, in the US sales dropped 1.4%. The industry is far much ahead of others with a brand value of over $88 billion. Research by Pizam shows that the reason behind this growth in the international market is the fast rise of China’s economy and consumer appetite for the products, including American fast food. This led to the fast food industry (McDonalds, Yum Brands, Inc., Burger King, and Subway) to gain more revenue shares in the Asian markets.
History
Since its inception in 1048, McDonald’s has grown to be one of the leading food provider in the world. Its first restaurant was set up in San Bernardino, California in 1948 by Maurice and Richard McDonald who were brothers. The concept of the original restaurant was to only offer a limited menu and focus on just a few items, burgers, fries and beverages. This allowed the brothers to provide quality products and speedy service to the consumer. In 1954 Ray Croc the San Bernardino restaurant and was impressed with its operations and success and in 1955 Ray Croc become the companies franchise agent and incorporated McDonald’s System, Inc., which is now known as McDonalds Corporation. Ray Croc is credited with creating uniform production in each restaurant that would ensure consistent quality to the consumer. He is also credited for building the framework of modern franchises by promoting franchises and three parts, the McDonald franchisee owner, McDonalds suppliers and third McDonald employees.
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In building this franchise concept, McDonalds Corporation was able to sell franchises and continue to earn profit from the selling and distributing to the franchisee owners of McDonald products, from food to packaging. In 1961 Ray Kroc purchased the remaining interest from the McDonald brothers for US $2.7 million and by 1968, he opened his 1,000 location in the U.S. In the 1970, McDonalds begins its expansion outside of the U.S. by opening locations in Costa Rica, Japan, Amsterdam, Germany, Australia, France, Sweden Hong Kong and Singapore. Over the years McDonald has continued to grow and expand in he US and into foreign markets and now can be found in 120 countries operating more than 37,000 locations and employing more than 1.9 million people around the world.
Competitors
McDonald’s industry despite being the leading food provider faces competition from several industries. In the recent past, restaurants are concerned with value convenience to the customers. For instance, online ordering by the customers, home deliveries, phone payment have become a tool by its competitors. Some of the solutions offered by the McDonald competitors are most likely to affect the future. McDonalds main competitors currently complete for the same customer in the global QSR industry. They are Burger King, Wendy’s, Taco Bell, KFC and Subway.
- Burger King is operated by Restaurant Brands International, who also own Time Hortons and Popeyes fast food restaurants. In 2017 it made over $1.2 billion in revenue. Burger King alone operates in over 100 countries with over 14,000 locations, which serve globally approximately 11 million customers daily. Burger King is a main competitor of McDonalds because its menu is similar, focusing on hamburger, fries and soft drinks. Burger King has also expanded its menu to include breakfast.
- Wendy’s menu also competes with McDonalds since it is focused on serving high-quality beef hamburgers. Wendy’s currently operating in 6,357 locations worldwide and made in 2017 $1.2 billion in revenue.
- Yum Brands, Inc. is the parent company of Taco Bell, KFC and Pizza Hut. The company currently operates in 15 countries and has over 44,000 locations. In 2017 its revenues were over $5.8 billion. Yum Brands, Inc. complete with McDonalds by serving fast food breakfast, lunch and dinner dishes:
- Subway has fast become the worlds largest fast food chain. It currently has over 44,000 locations in 110 countries, of which over 26,000 were in the U.S. The menu is focused on quick, custom sandwiches and in 2017 had a total reported revenue of $11.3 billion in the US alone.
McDonalds announced in March 2018 that to stay ahead of its competitors it was going to use fresh beef for its quarter pounder hamburgers to all its U.S. locations. It is also embracing new concepts such as app ordering, partnering with UBER for home delivery and embracing new Artificial Intelligence technology to streamline operations and reduce reliance on employees.
Performance
McDonald’s industry performance in the past has been credible and impressive. Not many industries can remain at the top for decades considering the changing nature of the economy. The first McDonalds franchise was opened in 1955 and launching of McDonald’s Corporation done the same year. The standing logo of double arch “m” was introduced in 1963.It also had relations with Pacific Rim, Brazil. Poland, Mexico and China as well became a new market for McDonald’s restaurants foods. Between 1998 and 2008, he had also engaged in Mexican Grill, Donatos Pizza and a sandwich restaurant chain but have chosen to concentrate on its brand. Today McDonald’s serves around 70 million customers in a day globally. McDonalds brand value in 2017 was estimated by Statistca.com to be US $126.04 billon, one of the most valuable fast food brands in the world.
In 2017 McDonalds reported that it made US $22.82 billion in revenue. It also had an increase 6% in more customers count than in 2016. Profits increased by 28% and this was due to an increase in franchising sales, which resulted in profit margins of up to 38% of sales in 2017, as compared to 33% in 2016. The increased jump in the profit margin helped to increase the 7% increase on McDonalds stock dividends. McDonalds was able to return US $6.3 billion to its shareholders through dividends and stock repurchases.
Challenges
At any given time, challenges will always arise in an industry. However, there are some challenges with the weight that would reduce the sales at a high rate or probably the collapse of the Industry. The success of anything will have its critics and McDonald’s success has definitely had its critics. Critics had claimed that McDonalds has greatly contributed to the increase of obesity to the consumers of its products. Responding to this McDonalds has made an effort to introduce healthy products on is menu, such as fruits, salads, fresh juices and testing of a vegan hamburger. It has also stopped using trans-fat oil in several products (French fries) in the U.S. and Canada.
McDonald employees could have gone strike demanding for increase in their wages. Employees’ failure to attend the work place especially for a fast food restaurant means zero sales. In 2017 McDonalds employees and union labor organizers has been increasing their efforts in the US to “Fight for 15” calling for higher pay and union rights for workers.
McDonalds CEO, Steve Easterbrook announced in2017 that he wants to make McDonalds a disrupter in the market as tech threatens the restaurant industry. Adapting to shift towards e commerce. McDonald’s competitors have shifted to e-commerce while it’s taking slowly to do make the changes. These changes include adding kiosks to restaurants, introducing mobile app to order and pay and partnering with UberEATS to provide home delivery services in more than 25% of its US restaurants.
Profile
McDonald’s works for the interest of the customers through finding ways to make customers more satisfied with its products, while providing fast service. For this reason, McDonalds is regarded as the leading brand of all global food providers. It is trusted for product development as well as leading edge solutions. McDonalds provides quality food products with minimal cost by standardizing the production process. Additionally, McDonald also strives to provide the best quality and most affordable prices. In an effort to remain relevant in a quickly changing tech environment, McDonalds is striving to provide its newest generation with innovative initiative such as home delivery, app ordering, in-store ordering and payment kiosks for both its US and international locations. For these reasons, this industry remaining ahead of its competition. In addition, McDonalds has a strong brand identity, though its continued use of “the golden arches” which are said to be the most recognizable brand in the world.
SWOT Analysis
SWOT Analysis: McDonalds:
Strengths:
- 2nd largest QSR restaurant chains
- Strong brand identity
- Embracing technological innovation to industry Weaknesses
- Reputation of being a cheap restaurant chain.
- Conflict with the employees.
Opportunities:
- Taking the advantage of the increased population in China.
- Offering higher quality food
- Advancing with technology for potential growth. Threats
- Competition from established chain restaurants.
- Declining US consumer interest in fast food.
Strengths
McDonalds is the 2nd largest QSR restaurant in the world. In 2017 it had over 37,000 locations in 120 countries. McDonalds in 2017 reported US $22.820 in sales, which is larger than any of its competitors. It is only second to Subway, which has over 43, 000 locations worldwide. McDonalds also has a very large audience, with over 75% of the worlds populations lives within a three-mile radius of one of its restaurants.
McDonald also has one of the most recognized brands in the world, the golden arches. It is one of the top 10 most valuable brands in the world worth US $40.3 billion dollars in the world.
McDonalds is also focused on improving its customer experience to stay competitive in the market. To attract new and younger customers McDonalds set out to embrace new technology. In 2017 it introduced the McDonalds app, partnered with UberEATS to offer home delivery services and is implementing in store kiosks for ordering and payment.
Weaknesses
McDonalds is always trying to improve the customer experience and over the years it has gained the reputation of being a cheap restaurant due to some of its marketing strategies. Originally, the idea to offer “dollar” menu items was to attract price-sensitive customers who have low income. These meals became very popular but has contributed to the ideal that McDonalds is a cheap restaurant and may not offer high-quality food products and therefore not appeal to the premium customer.
When McDonald’s first opened its doors, the company focused on selling just a low-cost products, hamburgers, French fries, and milkshakes. Over the last decade US tastes have become fore heath conscious and tastes have changed away from fast food. The TMR Report, found that both the US and European customers are leaning towards more nutritious and natural foods. McDonalds is taking notice of this customer trend and has become to implement on its menu’s natural, fresh foods such as fruit, smoothies, and salads to try and appeal to the health-conscious customer.
Opportunities
McDonalds is always looking for new markets to expand into and China is one of the largest growth markets in the industry. The primary consumer in China is the growing middle class, which is expected to account for 76% of Chinas population by 2022. The growing China consumer market has resulted in than increase n the demand for fast food. In 2017 McDonalds has expanded its locations in China to 2,631 and is looking to open an additional 2,000 restaurant locations in the county by 2022.
McDonalds is also focusing on providing higher-quality and more health-conscious foods on tis menus. To improve the freshness of its foods, McDonalds is launching campaign to offer fresh beef in its quarter pounder hamburger in 2018. In order to address its consumer concerns regarding fresh, heal-conscious food products, McDonald will need to do more to be able to off meals with higher-quality, fresh ingredients in order to attract the consumer.
McDonalds is also focused on improving technology that will allow the company to reduce overhead operating costs (employee headcount) and appeal to a new generation of tech savvy consumers. With the 2017 implementation of ecommerce initiatives, such as the McDonalds app and ordering and payment Kiosks McDonalds is leading the industry in adapting to new technologies to stay competitive win the industry.
Threats
The biggest threat to McDonalds is in the highly competitive market in which it operates both in the US and internationally. McDonalds biggest hamburger competitors, Burger King and Wendy’s are always introducing new meals that compete with McDonalds menu. Also, fast-food chains like Subway are growing faster than industry averages, taking advantage of consumer who is looking for a healthier alternative than hamburger and fries.
Another that to McDonalds is overall the US demand for fast food has seen a decline in annual sales of 3.1% from 2012 to 2017. The decline is due to changing US and international taste for fast food, the perception that McDonalds offers poor quality and cheap food that is not good for you and the fragmented market, which has many competitors competing for the same consumer.
Conclusion
McDonalds is one of the most well-known brands in the world and has helped the company grow to over 37,000 locations operating in 120 countries, that employs over 1.9 million people around the world. The key external factors that McDonalds is addressing is how to improve the customer experience, by appealing to a new generation and increasing the time it takes to order, pay and get the meal to the customer. By offering more digital solutions that increase the time it takes to order and pay for a meal, McDonalds is also attracting a new generation of customers.
If McDonalds want to stay competitive in the fast food industry it will need to focus on improving the quality of its menu items. They can achieve this by improving overall quality of ingredients and offering more healthier choice menu options, such as salads, vegan or vegetarian options appealing to a wider audience in both the US and international markets.
McDonalds biggest threat will be to stay relevant and find alternative ways of increasing its revenues in a market that has seen year over year decline in fast food sales.
