McDonalds international expansion

Global Marketing Project
Market Analysis
St. Lucia is a small market, with a population of 166,000 people and a GDP per capita of $14,400 (CIA World Factbook, 2020). This makes it a relatively weak market for fast food, and there are only a few outlets in the entire country, and none for McDonalds. There is potential, however, in Castries, and in tourist areas such as Rodney Bay, or near the airport in Vieux Fort. How much potential the market had is up for debate, as locals do not eat much beef, and this was responsible for the downfall of McDonalds in Barbados and Jamaica recently (Patrick, 2020). Furthermore, the pandemic has suppressed demand for all restaurants in St. Lucia. Other outlets like KFC have barely a foothold in the country. That said, McDonalds is motivated to figure out the Caribbean market, because there is opportunity if it can figure out the right formula to counterbalance the competition from local restaurants and attract island consumers.
Environmental Analysis
There are no major political barriers to operating in St. Lucia, especially if the restaurant is owned by a local franchisee. The island ranks in the middle of the “ease of doing business” rankings (St. Lucia Times, 2019) and has slipped of late in the Corruption Perceptions Index, meaning that the political environment has deteriorated of late (Trading Economics, 2019). Corporate taxes are a flat rate 30%, so that is fairly simple (Deloitte, 2020). Otherwise, however, St. Lucia has a relatively stable political environment.
There is nothing particularly onerous about the regulatory environment in St. Lucia. The country has a legal system that is based on the British model, and this is fairly common throughout the Commonwealth. As such, there are local quirks that will require local legal advice, but the rule of law is upheld, and the court systems should be familiar both to McDonalds in general and to any St. Lucian businessperson who wishes to operate a McDonalds franchise.
The economic environment is relatively unfavorable, unfortunately. St. Lucia is dependent on tourism for around 65% of its GDP, and the tourism business is not having a very good year (CIA World Factbook, 2020. The country’s GDP is low, but overall its economic indicators are reasonably stable and healthy. It is only the small size of the economy and the high level of dependence on tourism and foreign oil that should be worrisome, especially in the age of pandemic. The currency is the Eastern Caribbean dollar, which is utilized by a number of countries in the region. The ECD is pegged to the US dollar at 0.37, which makes the currency quite stable, considering that many input costs will be in USD.
The social/cultural environment poses a challenge to McDonalds, as the company’s struggles in other Caribbean nations illustrates. Most St. Lucians eat chicken and fish, and not as much beef. There is little beef raised on the island. As such St. Lucians are less likely to eat unhealthy food, or burgers, than might be the case for people in many other countries. McDonalds will need to adapt its menu in order to make it more appealing for people of the country, and this will also put it more directly in competition with local restaurants.
The technological market is moderately favorable. McDonalds has a stronger technological marketing game than most local restaurants, but there might be an uphill cultural battle in that many St. Lucians are simply not accustomed to using technology for things like ordering meals. There is reasonable technological infrastructure on the island but it is not at the level that might exist in other countries like the US, where higher speeds are commonplace.
In terms of physical infrastructure, St. Lucia is challenged. The main port is at Castries, and the main airport at Vieux Fort. Transit times are otherwise short, but the challenge is that some of the supplies will need to be shipped in, and in a perfect world these supplies would visit many other islands with McDonalds as well. The poor penetration of the company into this part of the world represents a logistical challenge.
Nature of Demand
A lot of St. Lucians consume convenience food, but not necessarily from fast food restaurants. This is more from local restaurants as there are very few fast food outlets in the country. So consumer consumption levels of fast food are at a fairly low level in the country. There are a few outlets , for Subway and KFC, but there is no information available as to their performance. Without tourists, that performance should be expected to be relatively poor, especially in Rodney Bay. McDonalds would need to generate a lot of the demand for its food if it entered the country, as there does not appear to be much latent demand.
Structure of the Industry
The fast food industry is not well established at all in the country. There are a couple of franchise outlets, and they receive their supplies from outside of the country. McDonalds would need to utilize this approach, possibility shipping from Miami much of the supplies that would be used in its outlets in St. Lucia. Local sources of food would need to be found, and that will be difficult for things like beef. McDonalds will not be able to buy at scale or ship at scale for this location. The industry therefore faces significant structural challenges.
The level of competition is fairly strong from local restaurants. They are more established for many St. Lucians, produce food that the market likes, and have connections with the community. It will be a challenge to overcome both the menus and the cultural attachment to local restaurants. McDonalds would need to have unique offerings that nevertheless appeal to locals, and be able to come in at a decent price point as well.
Competitor Analysis
Aside from local restaurants, there are outlets for Subway, KFC and Dominos. Dominos has three outlets (Castries, Rodney Bay, Vieux Fort), KFC has four (Castries, Rodney Bay, Choc Bay and Vieux Fort) and Subway has two (Castries, Rodney Bay). This provides proof that fast food does have some demand in these areas. These are all globally successful fast food chains, and none of them are burger chains. Thus, they do not compete directly with McDonalds, but only compete indirectly. There are few competitors for McDonalds’ menu on the island, which implies that there is significant room for McDonalds to enter and build a market in St. Lucia, if it can overcome the other challenges listed above.
Objectives
Internationally, McDonalds wishes to continue to expand. This expansion will help to increase shareholder value, especially if the company can learn some important lessons about thriving in the Caribbean market that can be applied throughout the region. As there is already a McDonalds in Castries, any subsequent locations would ideally increase sales by at least 30%, if not more, but 30% is a reasonable goal given how the tourism industry has collapsed this year. Furthermore, McDonalds will see increased efficiency if it adds new locations on the island, as it will be able to gain greater economies of scale in its supply shipments and other operating costs. Thus, expansion will make the company more profitable as a whole.
Furthermore, adding restaurants can help the company take a greater market share in St. Lucia. The objective will be to get to 25% market share in St. Lucia of international fast food chains. McDonalds feels that it can do this because its locations typically make more money per location than other fast food companies (Duncan, 2019), so even with 2 locations it can get to 25% share of the four major fast food companies.
References
CIA World Factbook (2020) St. Lucia. Central Intelligence Agency. Retrieved May 29, 2020 from https://www.cia.gov/library/publications/the-world-factbook/geos/st.html
Deloitte (2020) International tax St. Lucia highlights 2020. Deloitte. Retrieved May 29, 2020 from https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-stluciahighlights-2020.pdf
Duncan, N. (2019) The QSR 50. Quick Service Restaurants. Retrieved May 29, 2020 from https://www.qsrmagazine.com/reports/qsr-50-11
Patrick (2020) McDonald’s failure in Barbados hides in plain sight. Uncommon Caribbean. Retrieved May 29, 2020 from https://www.uncommoncaribbean.com/barbados/mcdonalds-failure-in-barbados-hides-in-plain-sight/
St. Lucia Times (2019) Saint Lucia slips in ease of doing business rankings. St. Lucia Times. Retrieved May 29, 2020 from https://stluciatimes.com/saint-lucia-slips-in-ease-of-doing-business-rankings/
Trading Economics (2019) St. Lucia corruption perceptions index. Trading Economics. Retrieved May 29, 2020 from https://tradingeconomics.com/st-lucia/corruption-index