CASE STUDY: DOING GREAT IN A WEAK ECONOMY

When most firms were struggling in $2008,$ McDonald$$s increased its revenues from $$22\mathrm{.}7$ billion in $2007$ to $$23\mathrm{.}5$ billion in $2008.$ Headquartered in Oak Brook, Illinois McDonald$$s net income nearly doubled during that time from $$2\mathrm{.}4$ billion to $$4\mathrm{.}3$ billion$$quite impressive. Fortune magazine in $2009$ rated McDonald$$s as their $16$th $$Most Admired Company in the World$$ in terms of their management and performance. McDonald$$s added $650$ new outlets in $2009$ when many restaurants struggled to keep their doors open. McDonald$$s low prices and expanded menu

items have attracted millions of new customers away from sit$-$down chains and independent eateries. Jim Skinner, CEO of McDonald$$s$,$ says, $$We do so well because our strategies have been so well planned out.$$ McDonald$$s served about $60$ million customers every day in $2009,2$ million more than in $2008.$ Nearly $80$ percent of McDonald$$s are run by franchisees $($or affiliates$).$

McDonald$$s in $2009$ spent $$2\mathrm{.}1$ billion to remodel many of its $32,000$ restaurants and build new ones at a more rapid pace than in recent years. This is in stark contrast to most restaurant chains that are struggling to survive, laying off employees, closing restaurants, and reducing expansion plans. McDonald's restaurants are in $120$ countries. Going out to eat is one of the first activities that customers cut in tough times. A rising U$.$S$.$ dollar is another external factor that hurts McDonald$$s$.$ An internal weakness of McDonald$$s is that the firm now offers upscale coffee drinks like lattes and cappuccinos in over $7,000$ locations just as budget conscious consumers are cutting back on such extravagances. About half of McDonald$$s $31,000$ locations are outside the United States. But McDonald$$s top management team says everything the firm does is for the long term. McDonald$$s for several years referred to their strategic plan as $$Plan to Win.$$ This strategy has been to increase sales at existing locations by improving the menu, remodeling dining rooms, extending hours, and adding snacks. The company has avoided deep price cuts on its menu items. McDonald$$s was only one of three large U$.$S$.$ firms that saw its stock price rise in $2008.$ The other two firms were Wal$-$Mart and Family Dollar Stores. Other strategies being pursued currently by McDonald$$s include replacing gasoline$-$powered cars with energy$-$efficient cars, lowering advertising rates, halting building new outlets on street corners where nearby development shows signs of weakness, boosting the firm$$s coffee business, and improving the drive$-$through windows to increase sales and efficiency. McDonald$$s receives nearly two thirds of its revenues from outside the United States. The company has $14,000$ U$.$S$.$ outlets and $18,000$ outlets outside the United States. McDonald$$s feeds $58$ million customers every day. The company operates Hamburger University in suburban Chicago. McDonald's reported that first quarter $2009$ profits rose $4$ percent and same$-$store sales rose $4\mathrm{.}3$ percent across the globe. Same$-$store sales in the second quarter of $2009$ were up another $4\mathrm{.}8$ percent.

Source: Based on Janet Adamy, $$McDonald$$s Seeks Way to Keep Sizzling,$$ Wall Street Journal $($March $10,2009)$: A$1,$ A$11.$ Also, Geoff Colvin, $$The World$$s Most Admired Companies,$$ Fortune $($March $16,2009)$: $7686.$

QUESTION ONE

a$)$ McDonald$$s Corporation demonstrated excellent performance in the global recession. As a new Global strategist at Mc Donald$$s$,$ analyse the competitive capabilities that McDonalds used to compete during a recession $(10$ Marks$)$

b$)$ Assuming that Mc$.$ Donalds intent to set up a store in Kenya. Analyse sustainable ways that Mc$.$ Donalds can manage sourcing to ensure global organizational success. $(10$ Marks$)$