1. What are the current forces in the external

environment that might affect McDonald's

strategy?

2.What source of competitive advantage does McDonald's have, and is that position supported by its value chain and other internal resources?

3. What other strategies could McDonald's formulate to achieve a competitive advantage?

CASES CASE 15 MCDONALD'S Although McDonald's camins for the fourth quarter of plan. The chaised to expand its menu 2012 heat expectations, the world's largest restaurant chain yours with more sandwiches and as It also started to stated that it will continue to face considerable challenges addnacks and drinks, two of the town where in 2013. During 2012, the firm reported the first monthly at sales have been sowie od the umesto sales decline in nine years, reflecting the effect downturn is addition of specialty coffee cold frappes of the shaky global economy (see Exhibits 1 and 2). On and fruit smoothies in its newly added McCafus hus helped January 23, 2013, Chief Executive Don Thompson, who hosted the average spent by each customer and lured them had stepped into the job just six months before, told inves to its outlets for sacks during of the day to "More specifically, growth in the informal cing-out Nevertheless, McDonald's is that facing industry has been relatively flat to declining around the rapidly fragmenting market, where comers are looking world and we expect that to con for healthier and even more e foodThe chain The dip in sales figures came as a surprise to mosting tougher competition from Burger King and Wendy's analysts, because McDonald's had managed to show con both of which have been adding to the menus and mod sistent performance since 2003. leading to a surge in opereling their outlets. At the same time, McDonald's is also ating profits and stock price over almost a decade. Most losing customers to chains such as Subway, Chipotle, and of this could be attributed to the Plan to Win," which was Thco Bell, which had not previly been viewed fint outlined by James R. Cantalupo, who came out of competitors. Many analysts therefore believe that the chain retirement to guide McDonald's afir Overexpansion had must continue to work on it around try in ander caused the chain to lose focus. The core of the plan was to to meet these changes increase sales at iting locations by improving the menu Thompson has been opeing in order to make refurbishing the outlets, and extending hours sure the says Bordable even though commodity to spite of management changes McDonald's has prices have been Hebelines that the chain was hurt by remained committed to pushing on various aspects of this its increased emphasis o de atrae Mentholded items priced higher than a dollar has since it is focus de PSM back to the Dollar Me, which had to go AM ttaal most 15 percent of sales Steven Koy Cars 2013 Goldman Sachs, emphasised the actives of the firm's EXHIBIT 1 Income Statements > Dec 31, 2012 Year Ending Dec 31, 2011 Dec 31, 2010 25 Go to bara Connect Case France Operating income 6 ERT cond 10.813 8.50 8.5 5.455 2008 TOT 8.628 3505 5.500 903 74 745 1941 EXHIBIT 2 Balance Sheets A Cure Dec 31, 2017 Dec 21.00 Do ten Connect to Case Curen Totes Dec 1, 2012 922 3538 3.40 20,000 15244 12.90 3.509 18.800 14390 2005 1734 US M CASE 15 MCDONALD'S affordable Dollar Menu "When people are seeking vao millions of Americans their first jobs even as it changed these guys have a very powerful.component their eating habits. It rose from a single outlet in Chicago suburb to become one of the largest chains of Experiencing a Downward Spiral outlets spread around the globe. But it gradually began to Since it was founded more than 50 years ago, McDon run into various problems which began to slow down its ald's has been defining the fast food business. It provided sales growth (see Exhibit 3) EXHIBIT 3 McDonald's Milestones 1948 Brothers Richard and Maurice McDonalt for the first restaurant in San Bermadino, California, that sells tamburgers, tres, and mistakes 1955 Ray Ako, 52. his first McDonald's in Des Planes, oc, a distributor of milkshaker figures hea self a bundle of them if he franchises the McDonald's business and installs his or in the stores 1951 Kroc buys out the McDonald brothers for $2.7 milion 1963 Ronald McDonald make his debut as corporale score down, using future NBC TV waterman Wilard Scot. During the year, the company also sell its 1 bilionburger 1965 McDonald's stock goes publicat $22.50 a share it will split 12 times in the next 5 years 1967 The first McDonald's restaurant outside the users in Richmond Brit Columbia Today there are 31,108 McDonald's in 118 countries 1968 The Big Mac. The first extension of McDonaldstudie burger makes is debut and is an immediateht 1972 McDonald's switches to the tray for its successful trunchies 1974 Fred L. Tumer succede Kroc as CEO the midst of assion, the minimum wage not to $2 per hour a big cost increase for McDonald's, which built around a model of young, we workers 1975 The first drive-through window is opened in Sera Vista, con 1979 McDonald's responds to the needs of working women by inducing Happy Meas. A burger, some fries, a soda, and a toy glve working moms a break 1987 Michael R Quinlan becomes chief couve 2991 Aesponding to the publics desire for hele foods, McDonald's introduces the low to clean Delose burget flops and is withdrawn from the market Over the ned few years, the chain shumties several times bying to spruce up its menu 1992 The company is its 90 billion burger and stops counting 1996 To attract more aut customers, the company launches bs Arch Deum, abgewandosyncratic taste. As with the low-fat burger it falls flat 1997 McDonald's launches Campaign 55, which out the cost of a Big Mac to $0.55. is a response to discounting by Burger King and Taco Bell The move, which prefigures similar price was in 2002, is widely considered a tale 1998 Jack M Greenberg becomes McDonald's fourth chief cuve. A 16-year como vento vows to suce the restaurants and their menu 1699 For the first time sales from international Operations outrodomestic revenues search of the concepts the company Soquires Aroma Cafe, Chipotle, Donate, and later Boston Market McDonald's sales in the US.peak at an average of $1.6 milionaal per restaurant a figure that has not changed sincetis, however, still more than any other fast-food chain 2001 Subway surpasses McDonald's as the fast-food chain with the most U.S. outlets. At the end of the year it had 13.247 stores, 148 more than McDonald's 2002 McDonald's posts first story loss of $33.8 million. The stocraps around $13.50, down from five years care 2003 James R. Cantalupo returns to McDonald's in January as CEO Heinmediately puls back to the company's 10%-15% forecast for per share comingsgrown Charles H. Bet takes over the firm iter the sudden death of Cantalupo. He states that he will continue with the stratopies developed by his predeces 2005 Jin Skimers Over as CEOster Betries to hear reasons 2006 McDonald's launches specialty beverages, including coffee based drinks 2008 McDonald's plans to add McCafes to each of its outlets Don Thomson succes in Sker CEO of the chain SMD 2000 2004 2012 CASE 15 MCDONALD'S CO This decline could be attributed in large part to a drop Measures for the service and quality of the chain were in McDonald's contence and quality since cong to dropping for chied those of its als expandi is the 1990s when headquarters stopped and in order to deal with is determine performance in franchises for cleanliness, speed, and service. By the the firm decided to being back to Vice Chairman end of the decade, the chain more problems becas James Ralpo, 59. who had overseen McDonald of the sighter labor market McDonald's began to cut hack cf international expansion in the 1980s and 1990 on training as it tried to find sew recruits, leading to Canal, she had retired only a year earlier was per dramatic fallet in the skills of employees. According to ceived to be the only candidate with the necessary 2002 survey by market researcher Global Growth Group cation, despite shacholder sentiment for outside The McDonald's came in third in average service time behind board felt that needed someone who is the company Wendy's and sandwich shep Chick-fil-A Inc well and could move quickly to turn things around McDonald's also began to fill wide Catalpo mained that McDonald's oftended to product introductions, such as the low.at Mclean Delme the mark on delivering the crical spects of and Arch Deluxe burgers, both of which were meant tot, fast, and friendly service and an around enjoyable appeal to adults. It did no better with its empts to desitysperience for the whole family. Henderstood that is beyond harpers often because of problems with the product franchises and employees alike needed to be inspired development process. Consultant Michael Seid, who man well as retained on their role in putting the smile back into aged a franchise coming firm in West Hartfond pointed the McDonald's experience. When Cantalupo and his team out that McDonald's offered a pia that didn't fit through and their and plan in 2003, the streding the drive through window and data were the basics of service and quality right, in part by packed so tightly that dressing couldn't flow through them ing a tool up or ording system that would lick In 1998, after McDonald's posted in first-ever decline out underperfoming franchisees. We have to build the in annual camnings CEO Michael R. Quinlan was forced foundation. It's fruities to add growth if the foundations out and replaced by Jack M. Greenberg, a 16-year ve weak Catalupo." of the firm Greenberg cut back on McDonald's expansion To begin with Cantalupo cut back on the opening of as he tried to deal with some of the growing problems. But now beer, focusing dead on penting more sales his efforts to deal with the decline of McDonald's were from its existing outdiets. He shifted the company'scmpho slowed down by his acquisition of other fast-food chains si to obtaining most of its revenue growth from inca such as Chipode Mexican Grill and Boston Market ing sales in the over 30.000 outlets that were already On December 5, 2002. after watching McDonald's operating around the world see this through 6). In stock lide 60 percent in three years, the board used part, McDonalds tried to draw more customers by intro Groesberg. He had lasted little more than two years. His ducing new products. And it seemed to be working. The short tenure had been marked by the introduction of 40 chain had a positive response to increased emphasis new menu items one of which caught on big and the on healthier foods, led by a revamped line of fascia purchase of a handful of burger chains, one of which ads. The revamped me was promoted through a world helped the firm to sell more burgers. Indeed, his critics say wide ad slogan, Tm loving it," which was delivered by that by trying so many different things and executing them pop idol Justin Timberlake through a set of MTV-style poodly, Greenberg allowed the burger business to continue commercial with its decline. According to Los Angeles franchise But the biggest success for the firm came in the Repple Webb, "We would have been better of trying fewer form of the McGriddles breakfast andwich, which was things and making them weck launched nationwide in June 2003. The popular offering consisted of a couple of syrup-drenched pas Pushing for a Turnaround cakes, stamped with the Golden Arches, which acted as By the beginning of 2003, consumer surveys were ind- the top and bottom of the sandwich to hold eggs, cheese cating that McDonald's was headed for serious trouble sausage and bacon in three different combinations EXHIBIT 4 Number of Outlets A 1 D franched Guterwy tube Connect to co Casa 3 2012 2 2011 2010 2000 2006 brott To Company Owned 34 20.510 COS 27 69 2005 EN 3190 SO 27075 25. M 25665 NO CASE 15 MCDONALD'S EXHIBIT 5 Distribution of Outlets D De to library tab Connect to US 2012 14157 7352 1054 7501 Den of 2011 14 7156 BO 2.91 1 50 2000 13.900 6.75 SCE 2008 1391 60 100 36 1:17 1156 EXHIBIT 6 Breakdown of Revenues C Brown 2011 8.529 US & Burto 5 Asia Pacific ANG Go to bary tab in Connect to access Case Financial 2012 2014 10227 6701 1.535 2010 8115 3.58 5.000 2009 700 2008 04 9.923 23 010 1.592 4337 1.190 CA SM. McDonald's has estimated that the new breakfast add information on the packaging of products to infoma tion has been bringing in about one million new custo tomers out the colores, a potem carbohydrates and or every day edium that are is each product Feat McDonald's also With his efforts largely directed at tumaround strat began to remove the anary-doping trans fatty acids from egy for McDonald's, Cantalupo decided to divest the the oil that it used to make french fries and announced boshurger chains that his predecessor had acquired. Cal plans to reduce the incontent in all of its products by lectively lumped under the Partner Brands, these have con 15 percent sisted of Chipotle Mexican Grill and Boston Market. The At the time was also putting out purpose of these acquisitions had been to find new growth offerings that women were likely to perceive to be and to offer the best franchises new expansion opportunhealthier. McDonalds has continued to build spon its ties. But these acquired businesses had not fuelled much white meat chicken derings with products such as growth and had actually posted considerable losses in Chicken Select Basso pascued its owald recent years. offerings. McDos buscarried out extensive experi- ments and tests with deciding higher qual Striving for Healthier Offerings ity ingredients, fety offers and caty cherry When Jim Skinner took over from Cantalupo in 2004, he tomatoes to share cheese and bener cuts of meat tt felt that one of his top priorities was to deal with the grow offered a choice of N O dres a well- ing concerns about the unhealthy image of McDonald's known higher and band. "Salads have changed the way given the rise of obesity in the US. These conces were people think of a banda Wale Thoma, vice presi highlighted in the popular documentary Super Se Me dent for men de clopment in the US. It tell people that made by Morgan Spurlock Spurlock vividly displayed the we are very serious hot offering this people.com health is that were posed by a steady diet of food from forble catia the fast-food chain with a rise in wareness of the high fat McDonald's basals heen trying to include more fruits content of most of the products ofered by McDonald's and vegetables in popular Happy Meals. It announced the firm was also beginning to face lows from some of in 2011 that it would be the most of French fries its loyal customer and phase out the cand dipping that accompanied In response to the growing health concerns, ce of the the apple slices at these meals The ad of fruits and first steps taken by McDonald's was to phase out persiregetables has and the firm's operating costs as these ing by the end of 2004. The supersuing option allowed are more capensive to ship store because of their more customers to get a larger onder of French fries and a big perishable nature. We are doing what said Dunya ger soft drink by paying a little extra McDonald's also Proud, a policiersce for the firm "We have to evolve announced that it intended to start providing nutrition with the times CG15 MCDONALD'S The current rollout of new beverages, highlighted by platformos Suet. The cost of installing this new coffee-based drinks, represents the chain's biggest equipment is not $100.000 per det. with men expansion is almost three decades. Under a plan McDonald's shining part of this expense to add a McCafe section to all of its nearly 14,000 US. Eventually all McCafes will offer espressed cutlets, McDonald's has been offering lattes cappucciofee, et coffee beds, fresh baked suffins, and nos ice blended frappes and fruit-based Smoothies to its high end desserts Customers will be able to consume customers. "In many cases, they're now coming for the these while they relax in leather chairs listening to beverage, whereas before they were coming for the meal jan. big hand or blues music Commenting on this sig said Lee Rena, an executive who was responsible for the ticant expansion of offerings, Marty Brochstein rollout the editor of The Lion Latsid"McDonald's wants to be seen as a lifestyle brand, not just a place to go Revamping the Outlets to have a burger As part of its turnaround strategy, McDonald's has also been selling of the outlets that it owned. More than More Gold in These Arches? 75 percent of its outlets are now in the hands of franchi Even though McDonald's covered from the drop in sees and other affiliates Skinner is now working with the monthly same sales, there were questions about the franchisees to address the look and feel of any of the future of the fast-food chai The firm was trying out a chain's aping stores. Without any changes to the corriety of strategies to increase its appeal to different seg the firm is likely to be left behind by other to savvy ments of the market. Through a mix of outlet dcor and fast-food and drink retailers. The firm is pushing harder menims, McDonald's amped to target young adults to refurbish-or reimage-all of its outlets around the tragen, dies and families. In so doing, it had to world. "People cat with their eyes first. There that it is not inte any one of these groups in its "If you have a restaurant that is appealing, contemporary efforts macho to the cher and relevant both from the street and interier, the food tus marketing campai acheted around the catchy tastes better phase loving it took on different forms in order The reimaging concept was first tried in France is to target each of the groups that it was soling. Larry 1996 by Dennis Hennequin, an executive in charge of Light, who was the head of global marketing at McDon the chain's European operations, who felt that the effort ald's the bed for this new campaign, insisted that the was essential to revive the firm's sagging sales "We were firm had to exploit its hand through posing it in many hip 15 years ago, but I think we lost that." he said different direction. The brand could be positioned a McDonald's has been applying the reimaging concept to freely in different locations at different times of the its outlets around the world, with a budget of more than day and target different customer segments. In large half of its total annual capital expenditures in the US.the was conten, McDonald's could target young adults for changes cost an average of $150,000 per restaurant, acot breakfast with its gourmet collier est sandwiches, and that is shared with the franchises when the outlet is not fat-free mus Licht explained the adoption of such a company owned multiformat strategy by saying. The days of mass-media One of the prototype interiors being tested out by marketing an McDonald's has curved counters with surfaces painted McDonald's cotis spand its men through in bright colors. In one corner, a touch sctv series offerings the performed well in test markets. Its intro allowscastomers to punch in orders without questing The duction of Cheddar coe Onion andwiches represented interiors can feature armchairs and sof, modern lighting an alternative to strap of hamburger and large television screens, and wireless Internet access. The chicken items. More recently, the chain tried out Fish firm is also developing new features for its drive through McBites, using the same Alaskan Polockas isi fish customers, which account for 65 percent of all actions wiches. Nevertheless, the of themes in the US. They include music aimed at queuing vehicles beyond the staple of beers and fries does some and a wall of windows on the drive-through side of the fundamental questions. Most significantly, it is clear taurant, allowing customers to see meals being prepared just how for McDonald's control in brand while keep from their car ing all of iets der the traditional symbol of its The chain has even been developing McCafes inside golden arches its outlets net to the usual fast-food counter. The McCade The long terms of the firm may well depend on concept originated in Australia in 1993 and has been rolled it to with a burge chains. The burger out in many restaurants around the world. McDonald's has category has great resad David Norsk chair just began to introduce the concept to the US as it refur man and CEO of Yu Band, pan of KFC and Thco bishes many of its existing outlets. In fact, part of the rear Bell That's America's food. People love lamburgers bishment has focused on installing a specialty berce Hot Thompson was under present to take more gresie CH CASE 15 MCDONALES