case info

Mc Donald's Case Study: each question worth 10 points. Question 1: What are Mc Donald's case objectives? If you had to verbally present the Mc Donald's case study, what would be two relevant ice breakers to start the presentation? Question 2:What are the forces of the general environment that affect the fast food industy as well as Mc Donald's competitive strategy? Question 3: Conduct a Resource Based View for Mc Donald's. Does the company have a sustainable competitive advantage? Question 4:Analyze Mc Donald's value chain. What are the activities that create the greatest value? Explain. CASES CASE 28 MCDONALD'S IN 2019 On November 3, 2019, the McDonald's beard of directors experiences for our customers, former CEO Steve dismissed Steve Easterbrook over violations of company Easterbrook said in a statement. policy regarding a relationship with an employee and McDonald's has been trying to attract more customers named Chris Kempezinski the new CEO. Kempezinski had to its restaurants by offering more customized products that experience at Kraft Foods and PepsiCo prior to joining are also healthier. It has removed high fructose corn syrup McDonald's in 2015, most recently as president of the USA from its buns changed from the use of liquid margarine to business unit.' real butter, decided to use chicken that has been raised In March 2019. McDonald's, the largest restaurant without antibiotics, and to make use of cage free eges. Mike chain, announced it will acquire artificial-intelligence Andres, former president of McDonald's USA explained startup Dynamic Yield. a company focused on personaliza why the firm has decided to make these changes: "Why take tion and decision logic technology. Access to this technol- a position to defend them if consumers are saying they ogy will allow the firm to update instantaneously its don't want them?" drive-through menus based on factors such as time of day. These changes are expected to address some of chal- weather, and trending menu items. EtcDonald's plans to lenges that McDonald's has been facing in many markets. roll out the updated drive-through menus across the United including in the United States, where it has almost 15.000 States during the year. With this acquisition, we're expand of its 38,000 mostly franchised restaurants. It has lost a lot ing both our ability to increase the role technology and data of ground with consumers, especially millennials, who are will play in our future and the speed with which we'll able defecting to traditional competitors like Burger King and to implement our vision of creating more personalized Wendy's as well as to new designer burger outlets such as Five Guys and Shake Shack. Changing tastes are also te sponsible for the loss of customers that are lining up at fast Case prepared by Jamal Slumse, Michigan Sute Liniversity with the assistance of Profes Alan Eser, Petniversity. Matatas been casual chains such as Chipotle Mexican Grill and Panera drawn from published ouront to be used for purposes of cloumi Bread, which offer customized ordering and fresh ingredi- Copyright 2019 Kamal Share and Alon B. Ent ents (see Exhibits 1 to 4). EXHIBIT 1 Income Statement Year Ending (5 millions) Dec 31, 2018 Dec 31, 2017 Dec. 31, 2016 Total Revenue $21,025 $22.820 $24.52 Operating Income 8,823 9,553 7,745 Net Income 5,924 5,192 4.687 Source Ammuul Report el McDonald's Corporation 2018 EXHIBIT 2 Balance Sheet (5 millions) Year Ending Dec 31, 2018 Dec. 31, 2017 Current Assets $ 4,053 $ 5,327 Total Assets 32,811 33,803 Current Liabilities 2,973 2.890 Total Liabilities 29,069 37,071 Shareholder Equity 16.2581 3,268 Source: Annual Report McDonald's Corporation, 2011 Annual Repert McDonald Corporation 2018 Dec. 31, 2016 $ 4,849 31,024 2.468 33.228 12.204 2017 2016 2018 $7,656 7,600 EXHIBIT 3 Breakdown of Revenues ($ millions) $8.253 $8.006 7.340 5533 1941 US International Lead Markets High Growth Markets Foundational Markets & Corporate Source Ammul Report of McDonald's Cup 3.989 7,223 6.161 2.985 1,770 2018 Chipotle Mexican Grill 79 79 Chick fl-A 87 87 EXHIBIT 4 U.S. Customer Satisfaction Index for Selected Chains Burger Taco Year McDonald's King Wendy's KFC Bell 69 76 77 72 74 2017 69 77 76 78 76 2016 69 75 75 78 75 2015 67 72 73 73 72 2014 71 76 78 74 72 2013 73 76 79 81 74 Panera Bread 81 82 Subway 80 81 78 87 81 80 83 86 80 72 78 83 Source American Customer Satisfaction Index (CSI). Over the years, McDonald's response to this growing San Bernardino, California to become one of the largest competition was to expand its men with snacks, salads. chain of outlets spread around the globe. But it gradually and new drinks. From 33 basic items that the chain offered began to run into various problems that began to slow down in 1990, the menu had grown by 2014 to 121 items. The its sales growth (see Exhibit 5). greatly expanded menu led to a significant increase in costs This decline could be attributed in large part to a drop in and longer preparation times. This forced the firm to in McDonald's oncovaunted service and quality since its crease the prices of many of its items and to take more time pansion in the 1990s, when headquarters stopped grading to serve customers, moving it away from the attributes that franchises for cleanliness, speed, and service. By the end of it had built its reputation uponMcDonald's stands for the decade, the chain ran into more problems because of the value, consistency, and convenience." said Darren Tristano, tighler labor market. McDonald's began to cut back on a restaurant industry consultant. training as it struggled hard to find new recruits, leading to a The fast food chain has been through a similar crisis be dramatic falloff in the skills of its employees. According to a fore. Back in 2002 and 2003. McDonald's had experienced 2002 survey by market researcher Global Growth Group a decline in performance because of quality problems as McDonald's came in third in average service time behind result of rapid expansion. At that time, the firm had brought Wendy's and sandwich shop Chick-fil-A Inc. James R. Cantalupo back out of retirement to turn things By the beginning of 2003.consumer surveys were indi- around. He formulated a "Plan to Win." which has been the cating that McDonald's was headed for serious trouble. basis of McDonald's strategy over the last decade. The core Measures for the service and quality of the chain were con of the plan was to increase sales at existing locations by tinuing to fall, dropping far behind those of its rivals. In improving the menu, refurbishing the outlets and extending order to deal with its deteriorating performance, the firm hours. This time, however, such incremental steps might decided to bring back retired vice chairman James R. not be enough Cantalupo. 59. who had overseen McDonald's successful international expansion in the 1980s and 1990s. Cantalupo. Pulling out of a Downward Spiral who had retired only a year earlier, was perceived to be the Since it was founded more than 50 years ago. McDonald's only candidate with the necessary qualifications, despite has been defining the fast food business. It provided mi- shareholder sentiment for an outsider. The board had felt lions of Americans their first jobs even as it changed their that it needed someone who knew the company well and cating habits. It rose from a single outlet in a nondescript could neve quickly to turn things around Cantalupo realized that McDonald's often tended to new salad offerings. McDonald's has carried out extensive miss the mark on delivering the critical aspects of consis experiments and tests with these, deciding to use higher qual- tent, fast, and friendly service and an all-around enjoyable ity ingredients, from a variety of lettuces and tasty cherry to- experience for the whole family. He understood that its matoes to sharper cheeses and better cuts of meat. It offered franchisees and employees alike needed to be inspired as a choice of Newman's Own dressings, a well-known higher- well as retrained on their role in putting the smile back into end brand. "Salads have changed the way people think of our McDonald's experience. When Cantalupo and his team brand," said Wade Thoma, vice president for menu develop laid out their turnaround plan in 2003, they stressed upon ment in the U.S. "It tells people that we are very serious getting the basics of service and quality right, in part by te about offering things people feel comfortable eating." instituting a tough "up or out" grading system that would McDonald's has also been trying to include more fruits kick out underperforming franchisees. We have to rebuild and vegetables in its well-known and popular Happy Meals the foundation. It's fruitless to add growth of the foundation It announced in 2011 that it would reduce the amount of is weak." said Cantalupo French fries and phase out the caramel dipping sauce that In his effort to focus on its core business, Cantalupo sold accompanied the apple slices in these meals. The addition off the non-burger chains that the firm had recently ac- of fruits and vegetables has raised the firm's operating quired. He also cut back on the opening of new outlets, focosts, because these are more expensive to ship and store cusing instead on generating more sales from its existing because of their more perishable nature. We are doing outlets. Cantalupo pushed McDonald's to try to draw more what we can," said Danya Proud, a spokesperson for the customers through the introduction of new products. The firm. "We have to evolve with the times." chain had a positive response to its increased emphasis on The rollout of new beverages, highlighted by new coffee healthier foods, led by a revamped line of fancier salads. The based drinks, represented the chain's biggest menu expan- Tevamped menu was promoted through a new worldwide ad sion in almost three decades. Under a plan to add a McCafe slogan "I'm loving it," which was delivered by pop idol Justin section to all of its nearly 14,000 U.S. outlets, McDonald's Timberlake through a set of MTV style commercials has been offering lattes, cappuccinos, ice-blended frappes, and fruit-based smoothies to its customers. "In many cases. Striving for a Healthier Image they're now coming for the beverage, whereas before they When Jim Skinner took over from Cantalupo in 2004, he who was responsible for the rollout. were coming for the meal," said Lee Renz, an executive continued to push for McDonald's to change its image. Skinner felt that one of his top priorities was to deal with the growing concerns about the unhealthy image of Refurbishing the Outlets McDonald's, given the rise of obesity in the United States. As part of its turnaround strategy, McDonald's also been These concerns were highlighted in the popular documen selling off the outlets that it owned. More than 80 percent tary, Super Size Me, made by Morgan Spurlock. Spurlock of its outlets are now in the hands of franchisees and other vividly displayed the health risks that were posed by a affiliates. Skinner began working with the franchisees to ad steady diet of food from the fast food chain. With a rise in dress the look and feel of many of the chain's aging stores. awareness of the high fat content of most of the products Without any changes to their decor, the firm was likely to offered by McDonald's, the firm was also beginning to face be left behind by other savvier fast food and drink retailers. lawsuits from some of its loyal customers The firm is in the midst of pushing harder to refurbish-or In response to the growing health concerns, one of the re-image-all of its outlets around the world. "People cat first steps taken by McDonald's was to phase out supersiz- with their eyes first," said Thompson. "If you have a restau- ing by the end of 2004. The supersizing option allowed currant that is appealing, contemporary, and relevant both tomers to get a larger order of French fries and a bigger soft from the street and interior, the food tastes better." drink by paying a little extra. McDonald's also announced The re-imaging concept was first tried in France in 1996 that it intended to start providing nutrition information on by Dennis Hennequin, an executive in charge of the chain's the packaging of its products. The information was easy to European operations, who felt that the effort was essential read and would tell customers about the calories, fat. pro to revive the firm's sagging sales. "We were hip 15 years ago tein, carbohydrates, and sodium that are in each product, but I think we lost that," he said. McDonald's has been ap Finally, McDonald's also began to remove the artery, plying the reimaging concept to its outlets around the world, clogging trans fatty acids from the oil that it used to make with a budget of more than half of its total annual capital its French fries and subsequently announced plans to re expenditures. In the United States, the changes costas much duce the sodium content in all of its products by 15 percent. as $650.000 per restaurant, a cost that is shared with the But Skinner was also trying to push out more offerings franchisees when the outlet is not company owned. that are likely to be perceived by customers to be healthier. One of the prototype interiors that was tested out by McDonald's has continued to build upon its chicken McDonald's has curved counters with surfaces painted offerings using white meat with products such as Chicken in bright colors. In one corner, a touch-activated screen Selects. It has also placed a great deal of emphasis upon its allows customers to punch in orders without queuing. The interiors can feature armchairs and sofas, modern sandwich types, McDonald's is hoping that such a push to lighting, large television screens, and even wireless Internet ward more customization would bring more customers into access. The firm is also trying to develop new features for their outlets, bringing the U.S. counter/drive-through its drive through customers, which account for 65 percent customer ratio closer to 50/50, up from the current 3070 of all transactions in the United States. They include music McDonald's has also been working to simplify its menu, aimed at queuing vehicles and a wall of windows on the reducing the number of value meal" promotions, groups of drive-through side of the restaurant allowing customers to items that together cost less than ordering items individually see meals being prepared from their cars. It has tweaked its "dollar menu" replacing it with "dollar value The chain has even been developing McCafs inside its and more raising the prices for many items as part of a bid to outlets next to the usual fast food counter. The McCaf con set each customer to spend more. But McDonald's had intro cept originated in Australia in 1993 and has been rolled out duced these bargain menus because its prices had risen over in many restaurants around the world. McDonald's has the years, driving away customers to cheaper outlets. Conse been introducing the concept to the United States as part of quently, as much as 15 percent of the chain's sales had been the refurbishment of its outlets. In fact, part of the refur coming from its "dollar menu where everything cost a dollar. bishment has focused on the installation of a specialty bev- Over the past year, McDonald's saw a slight jump in erage platform across all U.S. outlets. The cost of installing U.S. sales after launching an all-day breakfast at most of its this equipment is running at about $100,000 per outlet, locations. The franchises had to be convinced to invest with McDonald's subsidizing part of this expense. about $5,000 to add food preparation space in order to of- The firm has planned for all McCafes to offer espresso- fer breakfast along with the regular lunch or dinner items. based coffee, gourmet coffee blends, fresh baked muffins. However, sales from the all-day breakfast have begun to flat- and high-end desserts. Customers will be able to consumc ten out, with a gradual decline in sales from customers who these while they relax in soft leather chairs listening to Jazz. were coming in throughout the day to order breakfast. big band, or blues music. Commenting on this significant expansion of offerings, Marty Brochstein, executive editor More Gold in These Arches? of The Licensing Letter said: "McDonald's wants to be seen as a lifestyle brand, not just a place to go to have a burger. In spite of all the changes that have been made by Easter- brook. sales growth for McDonald's has continued to be sluggish. The firm docs, however, believe that sales will re- Rethinking the Business Model bound in the United States as well as in foreign markets. In In response to the decline in performance, McDonald's is order to provide a boost to its operations in China and testing a number of new concepts, including a kiosk in Hong Kong, McDonald's announced a deal with Citic, a some locations that allows customers to skip the counter state-owned conglomerate and the Carlyle Group, a private and head to tablet-like kiosks where they can customize ev. equity firm. "China and Hong Kong represent an enormous erything about their burger, from the type of bun to the va growth opportunity for McDonald's, Easterbrook said in a riety of cheese to the many, glossy toppings and sauces that recent news release. The new partnership will combine can go on it. The firm has plans to gradually expand the one of the world's most powerful brands and our unparal concept to more locations, but franchises are concerned leled quality standards with partners who have an un- about the costs, which can run up to $125,000 per restau- matched understanding of the local markets." ran to make the required changes. "Customization is not McDonald's has also been trying to grow by reaching McDonald's historic strength," said Mark Kalinowski, an out to different customer segments with different products analyst at Janney Montgomery Scott. at different times of the day. It has tried to target young Dubbed the "Create Your Taste platform, McDonald's adults for breakfast with its gourmet coffee. ese sandwiches. was hoping to attract more younger customers who may be and fat-free muffins. It attracts working adults for lunch. moving away from frozen processed food that is loaded with particularly those who are squeezed for time, with its burg- preservatives. But it realized that there were considerable ers and fries. And its introduction of wraps has drawn in risks involved with making such a change. The burgers teenagers late in the evening after they have been partying. would be priced higher at $5.49, could take seven minutes to Restaurant analyst Bryan Elliott commented: "They've prepare, and could only be ordered from inside the store and tried to be all things to all people who walk in their door.** eventually brought to your table. Franchises complained that Above all, MeDonald's is concerned about the findings this could not be offered to drive through customers that of a recent survey that showed only 20 percent of millenni make up about 70 percent of the chain's business. als had even tried a Big Mac. It is also aware that despite Furthermore, such a change ran counter to the image for its efforts to diversify its menu. 30 percent of sales come inexpensive and fast food that McDonald's has worked hard from just five items: Big Macs, hamburgers, cheeseburgers, to build over the years. Easterbrook has subsequently shifted McNuggets, and fries. It has managed to increase traffic to a more efficient and less expensive format called "Signa- during the late-night hours, but this may be hurt by their ture Crafted Recipes that would allow both in-store and recent announcement that they would offer a more limited drive-through customers to choose a bun and one of four sample of their full menu between midnight and S am. Above all, the expansion of the menu beyond the staple of burgers and fries does raise some fundamental questions. Most significantly, it is not clear just how far McDonald's can stretch its brand while keeping all of its outlets under the traditional symbol of its golden arches. In fact, industry experts believe that the long-term success of the firm may well depend on its ability to compete with rival burger chains. The burger category has great strength." added David C. Novak, chairman and CEO of Yumn! Brands, par ent of KFC and Taco Bell. "That's America's food. People love hamburgers." ENDNOTES L. PR Newswire, 2019, McDonald's Corporate Annonces Leadership Transition, https://www.prnewswire.comews-releases/mcdonalds corporationerladership transition 9009505.html November 3: Groth M 2019, Who Chris Kempinski Mcdonald's new CEO, Facts//www.fastcompany com/90436246/who chris kempezinsecdonaldstew.ceo Schings yodo Neweber 4 2. Taylor, K. 2009. McDonald's makes $300 million deal to sell things file Amazon Goes. Besider, March 30 Strom. 2016. In an McMullins with real beter. New York Time August 4. The Econet 2015. When the chips ane down January 10, 52 S. Pallavi, G. and M. Arndt. 2003. Hamburger helle March 3. p. 105. 6. Werner M 2005. You want any fruit with that Big Mact News Times February 20.. 7. Simm. S 2011 McDonald's trims is Happy Meal New Test July 26, B1 8. Ademy. 1. 2008. McDonald's celle strategy is tough. Sowet Jumal Odober 27.83 9. Paynter, B. 2010. Super styleme. Four Com October 2017 10. Grant. 1.2004, McDonald's top Kotels Financial Time February 2.14 IL. Hoovit. B. 2001. McDonald's beyond Stil Nome 12. Tabuchi, H. 2015 McDonalds Chief Promises Turdina Restructuring Now Time, My 4 13. Tsang. A. and W. Sul. 2017 McDonald China operations to be sold to locally led consortium New York Times, Jamaryp BL 14. Keit, B.2014. Fallen Archer Can McDonald's time tack Fortune Dembel.. 110 15. Jan. 1.2002 McDonald's is feeling fried Wall Street Journal November 12