Mcdonald\'s Company Name: Mcdonald\'s Industry:

McDonald's

Company Name: McDonald's

Industry: Fast food

Company Website: www.mcdonalds.com

Company Background: McDonald's started as a small restaurant in San Bernardino, CA, and began its growth into a global powerhouse brand when Ray Kroc, a multimixer salesman, joined the company in 1955. The company went public in 1965 and opened its first international location in 1967. Today there are McDonald's in 118 countries (McDonalds.com, 2010). The company's latest fiscal year saw sales of $22.744 billion and a net income of $4.555 billion. The company's market cap is $75.20 billion and the company has a strong balance sheet. McDonald's has been ranked as the world's #6 brand with an estimated brand value of $32.275 billion (Interbrand, 2009).

SWOT Analysis

Strengths: McDonald's has a number of strengths from which to draw. The first is the brand itself, which is instantly recognizable in most of the world, even in countries where McDonald's does not operate. This brand visibility makes for ready-made markets, where consumers are instantly attracted to the company even when it first starts business. The record-breaking success of the first McDonald's restaurants in the Soviet Union is an example of the impact of having such a strong brand on global expansion ambitions (CBC, 1990). Another strength is the company's adaptability, where it alters menus to local tastes. This has enabled it to enter difficult markets such as India, where Hindus do not eat beef and Muslims do not eat pork (Chatterjee, 2009). Another strength is the company's operational excellence -- it attracts customers with its consistency and its cleanliness (Chatterjee, 2009).

Weaknesses: McDonald's has few internal weaknesses, although it does suffer reputation issues from time to time over some of its food content. The company can also be viewed as having too much debt for what is largely a mature business at $10.5 billion or roughly 1/3 of assets (MSN Moneycentral, 2010). In addition, McDonald's operations are widely diffused, making it difficult for head office to oversee day-to-day management.

Opportunities: McDonald's still has significant room for overseas growth. This is not only in the largely, industrializing BRIC nations but also in smaller nations as well. There are growth opportunities in the Middle East, Southeast Asia, Latin America and Eastern Europe in particular. The company has the opportunity to streamline its operations and trim some of its debt, which would enhance shareholder wealth.

Threats: McDonalds is under significant threat from competitors, particularly in mature, cash-cow markets where the fast food industry is saturated. The company is also under threat for some of its food content and environmental practices -- a push to sustainability and healthy eating may be bad for the bottom line. In addition, the company must guard against marketing to children, as fast food has become a focal point in a public relations and potential legal war against childhood obesity (Woodward, 2010).

Five Forces: A key to McDonald's success is its strong pricing power. The brand's strength gives it some pricing power over buyers despite strong price-based competition. The company has strong pricing power of its suppliers by virtue of its size and the fact most suppliers are dependent on McDonald's for their survival. The threat of new entrants is very high, and most McDonald's restaurants face strong competition as a result. There is also a high threat of substitutes from all manner of other restaurants, grocery stores and sundry dining options. The intensity of rivalry in the industry is very high, and there is only a marginal degree of differentiation between the major players. The industry overall, therefore, is unfavorable. To some extent, McDonald's saturation and high brand power, supported with massive advertising campaigns, has allowed it to retain some pricing power despite the difficult operating environment.

Strategy Used: Using Porter's generic strategy typology (QuickMBA, 2007), McDonald's uses a combination of cost leadership and differentiation. The company is often not a cost leader in the fast food industry, but is a cost leader in the restaurant business overall. This allowed it to carve out the fast food niche into an industry in its own right. Within fast food, McDonald's operates as a differentiated provider, using its brand, the renown of its more famous products and its advertising to help differentiate it from its rivals. McDonalds also places strong emphasis on marketing to children, including the use of playgrounds in its restaurants. As a result, McDonalds is able to maintain some pricing power over its customers and to attract customers to its restaurants despite strong competition from a wide number of sources.

Issues and Challenges: McDonald's operates in a number of mature markets, where growth is slow. Growth is now focused not only on overseas markets but for the most part on less desirable overseas markets, the China and India excepted. This has slowed the pace of growth for the company in recent years. Another challenge has been the economic downturn that saw many customers reduce their meals away from home. The result of these two challenges has been that McDonald's saw a reduction in its revenue in fiscal 2009 (MSN Moneycentral, 2010).

The childhood obesity issue is the latest in a string of challenges faced by McDonalds from a variety of health and environmental activists. This particular challenge has come with class action lawsuits (Holguin, 2003) and has forced McDonalds to face bans on toys in Happy Meals, which had previously served as an inducement for children to eat at their restaurants (Allen, 2010). There are also negative public relations consequences for these legal actions as well, that could convince some parents to keep their children away from McDonalds.

Course of Action Recommended: McDonald's cannot please all the people all of the time. They are a natural target for activists and the obesity challenges are just another in a string of similar risks faced by the company. A legal fund should be set aside to fight the claims, but the company should also be prepared to make subtle changes to its menus to ward off such future claims. Dramatic action, however, is not needed.