Mcdonalds Is the Number One Quick Service

McDonalds is the number one quick service restaurant brand in the world, and by far and away the market leader in the U.S. While it would be reasonable to assume that a company so large and powerful could simply do whatever it wanted in terms of strategy, that is not necessarily the case. David took the basic SWOT analysis concept, an old diagnostic tool that is used frequently in strategic management, and built upon it, basically developing what would be considered an applied SWOT. This technique begins by gathering information about the company, and understanding this information in terms of strengths, weaknesses, threats and opportunities -- the classic SWOT. The application part is when the strengths are examined within the specific context of exploiting opportunities, or specifically to defend against threats. Weaknesses are examined in terms of reducing the ability to take advantage of opportunities, and weaknesses that expose the company to threats (Torlak & Sanal, 2007). This method of analysis will help the organization make sense of the SWOT, contextualizing the findings and helping management to prioritize actions on the basis of the SWOT findings. This exercise will be applied to McDonalds here.

SWOT

The basic SWOT analysis focuses on getting a baseline level of understanding of the company and its operating environment. The first thing we have to establish is that McDonald's is good. It's the #1 company in its industry, almost triple the size of the #2 (Subway), and is rivalled by very few in terms of key metrics like average sales per unit, and has done this with a much higher level of saturation than anybody else doing $2 million per unit (Oches, 2014). So right away, we know that McDonald's has more strengths than weaknesses -- if it didn't it wouldn't dominate its industry.

Strengths for McDonalds include its brand, which is ranked 9th in the world by Interbrand. The only competitors in the top 100 are KFC at 68th, Starbucks at 76th and Pizza Hut at 96th (Interbrand, 2014). So McDonalds has a globally-dominate brand in its industry. It has the 2nd-most number of stores in the U.S., double the next-largest burger chain. Its stores do $2.5 million per year on average, better than just about anybody else in quick service, and with a much higher level of saturation. With $35 billion in sales in the U.S., McDonalds has nearly three times the sales levels of the #2 firm, Subway, and four times the number of sales of the #2 burger chain, Wendy's. It is worth noting that McDonald's total revenues are $28.1 billion -- the discrepancy is that the QSR number includes franchises, which only pay to McDonalds the franchise fee. It is the latter -- an expense for the franchises -- that McDonalds Corp records (MSN Moneycentral, 2014). The value of the QSR figure is that it provides a better sense of how strong the brand actually is, rather than just the way that sales accrue to head office -- it's a figure more comparable throughout the industry.

This is not to speak of McDonalds' other strengths -- its management team, its rock solid balance sheet, its distribution systems and supply chain excellence, and its operational efficiency. There are few things that McDonald's is not good at.

This does not mean that McDonalds has a total lack of weaknesses. It has come under criticism for many things. Staffing is one -- the company is literally a meme, the McJob. It's a company that has no trouble attracting high-level managerial talent, but has a lot of turnover, and a poor employer brand at the lower levels (Prokopeak, 2011). The brand has also become associated -- rightly or wrongly -- with a litany of abuses, including contribution to obesity (Baerlein, 2013), marketing unhealthy food to children (Jargon, 2014), environmental problems (Gray, 2009), not paying a living wage to its employees (Patton, 2014), even facing criticism about its creepy clown mascot (Crain's, 2014). Basically, one of the company's biggest weaknesses -- aside from the causal factors behind these complaints, is that it has become a symbol of all that is wrong about corporate America, corporations in general, America in general and a general lightning rod for abuse. This creates a lot of negative publicity; the CEO and the rest of the company expend a lot of energy dealing with this publicity and trying to counter its effects.

The remain opportunities. While the company has more or less been typecast as a fast food burger joint, famously flaming out of pizza let alone its struggles with Chipotle, McDonalds still has many burger competitors and other fast food companies to crush. It may be the biggest elephant on the Seregenti, but the Seregenti is a very big place and no one elephant runs the whole thing. So there's a lot of room for internal growth with McDonalds. Furthermore, the world is a big place. McDonalds has 34,492 restaurants, meaning that 58.6% of its restaurants are outside the United States, in 116 countries (2013). That leaves 100 or so countries with no McDonalds. Some are non-starters like Cuba (though I'm sure they have a plan to open about three hours after Castro dies), but it also leaves some decent markets for future growth. A quick search reveals untapped potential in SE Asia (Myanmar, Cambodia, Laos), in Africa (Nigeria is in the works), in central Asia (Kazakhstan is penciled in for 2015), in addition to filling in markets like India and China that are presently underserved.

There are threats as well. The company's reputation is an external threat, though one created by internal weaknesses. Still, perception of problems could easily outweigh actual problems, and therefore needs to be considered a distinct issue. The company is in a highly competitive environment, and competition is always going to be a threat. McDonalds is also threatened by its position as a proxy for America -- it had to leave Bolivia because of this. The economy is a threat -- McDonalds saw its revenues decline 3.3% in 2009 during the depths of the recession (MSN Moneycentral, 2014). While most major domestic corporations do not face a lot of political risk, McDonald's has faced bans on super-sizing, threats to ban added salt and political scrutiny for its marketing to children, all of which threaten different elements of the company's revenue streams.

Putting It Together -- the Factor Matrix

The factor matrix concept leads to specific policy decisions. For example, the company can leverage its strong brand and enviable financial position to continue to expand into new markets and penetration further into existing markets. There are few if any companies where a McDonalds would be unknown -- having a market know who you are before you arrive is a powerful advantage in marketing, and McDonalds found out when it went into Moscow at the end of the Soviet era. Because McDonald's is dealing from a position of strength, the SO pairing is probably where much of its strategy will be focused, to take advantage of growth opportunities. For example, you cannot simply enter the Vietnamese market -- you saturate it with dozens of stores.

Another SO tactic that the company can utilize is to acquire some competitors. Typically, McDonalds does not use acquisition as a means of expansion. There are certain anti-trade issues with buying competitors with the intent to close them down or convert them to McDonalds, but the relatively diffuse nature of the market means that McDonalds can do this to a certain extent, maybe acquiring a competitor that has great real estate assets but is operationally weak.

The ST matrix offers up some policy ideas as well. McDonalds can try to disassociate its brand from being a proxy for America by adopting a strategy that places greater emphasis on localization, and local franchise ownership. It already has localized some of its menus, so there is opportunity to further become a localized chain and reduce some of the associations other than those that the company can control through its own actions. The company has such strength in its promotional machine and its financial resources that it can take more steps to counter the negative reputation as well. Some of the reputation is not really associated with the company's actions, and that is certainly something the company can counter with additional investment in public relations campaigns.

The company also has to realize that some of its weaknesses are hurting it with respect to leveraging opportunities. If McDonald's wants to expand into more countries, it has to reduce its negative reputation, in particular as a source of environmental problems, a bad employer and a symbol of cultural imperialism. If it shores up some of these weaknesses McDonalds can not only enter new countries more easily, to exploit new opportunities. Further, expansion depends on finding good people to work for you. In many places McDonalds has a poor employer brand, so it is important that the company improves its employer brand, to get access to better people at the lower levels, in order to continue to expand around the world, even in markets where employees have higher bargaining power.

Reducing the weaknesses associated with reputation will also reduce the threat posed by political risk. A lot of the political actions that the company faces are due to its high visibility, which makes it an easy target for a politician looking to get his/her name in the papers. Nike has in the past faced similar problems, but it cleaned up its act internally, did a better job of communicating this, and today faces far fewer assaults on its reputation as a result. McDonalds should take a page out of the Nike playbook with respect to eliminating reputation weakness.

Action Plan

The SWOT reveals that McDonalds has a number of items that it can use in its action plan. The company may, for example, feel that the threats are not all that significant, and therefore focus on the opportunities that it can exploit. It is argued here that McDonalds can unlock a lot more value by focusing on new markets internationally, including increased penetration of larger, underserved markets. The secondary element of the action plan has to be to improve the company's reputation at home. Obviously, McDonalds makes so much money that it can take this as evidence most people do not care about the different reputational factors surrounding the company, but ultimately reputation affects the brand. A look at the U.S. automobile industry shows what happens when a company allows outsiders to control the dialogue with respect to its brand. It can be difficult to resuscitate a damaged brand once that damage has been allowed to settle in for generations. So in the short-run, the action plan should focus on continuing to expand in international markets and for the long-run McDonalds needs to take a proactive approach to managing its brand against external assaults -- right now it is putting out fires, as opposed to reducing the risk of fires in the first place.

Boid Analysis

A boid analysis is about finding three fundamental rules that guide the industry. These are cost leadership, differentiation and brand-building. On the surface level, fast food chains are about cost leadership in the restaurant industry. Within this context, a company like McDonalds is actually a differentiated player. It is not the cheapest company in the industry by any means, but competes on the basis of its products, its branding and its density of locations. So with a great brand, and a high level of differentiation within a low cost context, McDonalds has hit upon three of the critical boids in this industry. The company consistently delivers on a low cost structure, something that has allowed it to have high profits, which it can plow into advertising for example.