Business Strategy and Trends at McDonald's

Q1. Briefly summarize the problem(s). (Assume we’ve read the case). Think about the problem from McDonald’s perspective.
Despite the fact that McDonald’s is one of the most famous companies in the world, the business model which was so critical to its massive success in the past is threatened. The critical success factors that led to its dominance are no longer present in the American fast food marketplace today. America is growing more diverse and consumers are demanding a wider variety of products, even from fast food restaurants. This includes not only the standard diversity of beef and chicken, but also ethnic diversity, as manifested in the dominance of franchises such as Chipotle. Yet the McDonald’s primary revenue remains derived from its burger offerings, chicken nuggets, and fries.
Even many of its direct competitors for its burgers are offering menu items of higher quality than McDonald’s. Fast casual restaurants are likewise encroaching upon its revenue, and again offer a more diverse array of food products than McDonald’s. Many of these products are also healthier than McDonald’s core offerings, and McDonald’s has yet to design a product that is as equally desirable as its burgers and fries, yet appeals to a healthier consumer. McDonald’s has been a company associated with greasy, fast, comfort food, and to shift its brand image from this means sacrificing the image which has been the core of its revenue base. On the other hand, the attractions of this type of food are no longer embraced by the majority of consumers.
Offering greater variety and healthier and fresher items is time-consuming. But while the newly desirable millennial target market may demand such qualities from the establishments they frequent, this means that McDonald’s may have to sacrifice speed and the low cost of its items to answer these demands. On the other hand, one of the core principles of any sound branding is to offer a unique value proposition to customers that competitors cannot easily replicate. McDonald’s has always stood by its value (as exemplified in its dollar menu) and speed.
Yet even in regards to speed, McDonald’s is lagging behind, as more and more companies offer online ordering, which means that the ability to get food quickly from a drive-though is less important. McDonald’s also is not the fastest fast food company, in regards to its drive-through dining. McDonald’s cannot ignore these competitive threats, but on the other hand diluting its brand image by raising its prices and increasing its premium offerings or investing in products that may not sell well (like more salads and healthy burgers, which have traditionally not been its strength, based upon historical data). Healthier foods are often more costly to maintain (such as refrigerated salads) and diversity means buying more items, but less in bulk, which can make it more difficult to keep the company’ price point low. The central problem is how can McDonald’s become a 21st company, yet still retain the essential features that make it quintessentially McDonald’s.
Q2. Which trends in McDonald’s external environment (PESTEL) are likely to have the greatest impact on the company’s ability to sustain a competitive advantage?
Political
McDonald’s, like all chain restaurants, has found itself pressured by certain external political influences upon the food industry, including the demand to post calorie counts on its menus by the FDA (2019). This makes consumers more aware of the nutritional value of the food, its ingredients, and high calorie counts. Consumers have a greater ability to compare food based upon nutritional value.
Economic
Although the economy is recovering, people still desire value when they dine out. A core component of McDonald’s customers are still attracted by its value menu. On the other hand, when consumers are trying to save money, cutting out eating out is often one of their first priorities—although for patrons of its dollar menu, eating out might be cheaper than buying ingredients for a home-cooked meal.
Social
Dining out, remains an important trend, given that consumers are increasingly limited in terms of the time they have on their hands, due to both parents working and long commutes. Parents with children are often attracted to McDonald’s because of its ability to offer kid-pleasing meals palatable to parents as well. But concerns about nutrition are driving many parents to healthier alternatives, or away from fast food entirely. It is this trend that is likely to be most influential in shaping the future of the company, given that the “nag factor” of children persuading parents to dine at McDonald’s because of their love of the company’s plastic toys was such a critical factor in securing McDonald’s its advantage.
According to a report by Johns Hopkins Bloomberg School of Health (2011), even though children do not technically hold the purse strings of the family household in regards to making food purchases, they still exert substantial persuasive power, especially when they become of school age. But if parents are resisting the nag factor and are not taking their children to McDonald’s, this not only deprives McDonald’s of a critical component of its customer base, but also means that the next generation is less apt to regard going to McDonald’s as an essential treat or part of their dining routines.
Technology
Consumers now have the ability to research a variety of fast food restaurants online, and to use services such as Uber Eats to have food delivered to their homes from various sources. Although McDonald’s is a presence on Uber Eats, so are many of McDonald’s competitors.
Legal
McDonald’s, which is aspiring to expand its operations abroad, must be mindful of the different legal requirements of expanding into different countries, which may be different than that of the US. A substantial base of international operations can be costly, due to the need to diversify the company’s offerings to suit the local palate and cultural dining patterns as well as coping with the legal obstacles and red tape that often arise when doing business abroad, particularly in the developing world. The company must also be concerned about threats of further regulation upon the industry, such as demands to limit the size of supersize drinks.
Environmental
McDonald’s has never been a friend to vegetarians, given that it was a frequent target of vegetarian groups because of its use of beef tallow frying its fries and its lack of vegetarian options. It did shift long ago from Styrofoam to paper products, but in contrast to its competitors like Chipotle (which uses GMO-free products), and Panera (whose menu is not meat-based), McDonald’s lacks the environmental clout of many key competitors.
Q3. How is McDonald’s positioned vis-à-vis its major competitors? (Hint: strategic groups.) 
Regarding improving its image of the health of its products, McDonald’s faces significant challenges in claiming an equal health halo with companies such as Chipotle and Panera Bread, which boasts ethically sourced foods and a menu with extensive vegetable and salad offerings, not simply sandwiches and sweats. McDonald’s also faces significant competition from Five Guys, In-N-Out Burger, Shake Shack, Smashburger, and Fatburger for higher-priced, higher-quality burgers, given that burgers are such a substantial source of revenue for the company. McDonald’s, in response, has attempted to offer a more extensive line of premium brands of burger, but lacks the name and cache to attract people looking for a premium burger experience. Its core value proposition remains focused upon cost, rather than upon quality.
Q4. What business-level strategy does McDonald’s employ? Is it effective? Has it changed over the last few decades, and if so, how? 
Given the dominance of the dollar menu in its ability to attract consumers, McDonald’s may be said to deploy a cost leadership approach. According to Starr (1999), cost leadership entails offering the lowest possible price to consumers, keeping tight controls on production costs (including labor, in the case of McDonald’s), and offering limited selection. Cost leadership companies also often skimp upon advertising and marketing revenue, which has not historically been the case with McDonald’s (Starr, 1999). In the past, arguably, McDonald’s positioned itself more as a unique food experience, or a differentiated business approach (Starr, 1999).
But as its competition has increased, and more companies have adopted its core menu with similar variations (children’s meals in the case of Wendy’s and Burger King, and burger and fries menus in the case of Five Guys and Shake Shack), McDonald’s has tended to brand itself more upon price than upon quality, experience, or uniqueness. A cost leadership strategy can be very difficult to sustain in a highly competitive marketplace, particularly in an industry so dependent upon advertising which does not sell a product that is necessary. After all, while everyone must eat, not everyone needs to eat out.
Q5. What do you think are the most important strategic challenges facing McDonald’s? Explain. Discuss your recommendations to address the strategic challenges, given the external and industry environment, its core competencies and its current business level strategy.
The greatest strategic challenge for McDonald’s is to maintain a cost leadership strategy in a highly competitive marketplace, while still giving consumers a reason to select McDonald’s over competitors. McDonald’s does have some strengths, such as the popularity of its breakfast sandwiches and coffee. Offering all-day breakfast has been one of its most popular initiatives. On the other hand, offering breakfast all day, and increasing the diversity of its dining options in general, results in slower service and higher cost. Its international ventures have not proven to be particularly successful, perhaps because McDonald’s all-American meal, even when modified, has not always been well-adapted to local palates. Also, concerns remain about the dubiousness of McDonald’s nutrition as well as the overall cleanliness and quality of its food.
Given these concerns, the most sensible move would be to maintain an streamline McDonald’s menu to keep costs low, but focus upon improving the quality of core menu items with better meat and a few lower-calorie options that are still popular (such as its breakfast sandwiches and premium coffees). The company should also continue to court families with children, focusing on increasing the speed of its drive-throughs and online ordering services, but maintain relatively small, lower-calorie, and more nutritious options regarding the food targeted at children.
References
The nag factor. (2011). Johns Hopkins Bloomberg School of Health. Retrieved from:
https://www.jhsph.edu/news/news-releases/2011/borzekowski-nag-factor.html
Questions and answers on the menu and vending machines nutrition labeling requirements.
(2019). FDA. Retrieved from: https://www.fda.gov/Food/LabelingNutrition/ucm248731.htm
Starr, E. (1999). Business level strategy. University of Albany. Retrieved from: https://www.albany.edu/faculty/es8949/bmgt481/lecture4.html
Uber Eats. (2019). Retrieved from: https://www.ubereats.com/en-US/