Mcdonalds Swot Analysis
Mcdonalds Swot Analysis
Table of Contents
Company overview
SWOT analysis
Strengths
Weaknesses
Opportunities
10
Threats
12
Sources
15
Company overview
Name
McDonalds Corporation
Industries served
Headquarters
Current CEO
Don Thompson
Revenue
2%
Profit
2.1%
Employees
440,000 (2014)
Business description
This is McDonalds Corporation business description taken from the companys financial report:
General
The Company franchises and operates McDonalds restaurants in the global restaurant industry.
These restaurants serve a broad menu at various price points in more than 100 countries around
the world.
All restaurants are operated either by the Company or by franchisees.
The Companys operations are designed to assure consistency and high quality at every
restaurant.
Under the conventional franchise arrangement, franchisees provide a portion of the capital
required by initially investing in the equipment, signs, seating and dcor of their restaurant
businesses, and by reinvesting in the business over time. The Company owns the land and
building or secures long-term leases.
Conventional franchisees contribute to the Companys revenue stream through the payment of rent
and royalties based upon a percent of sales. The conventional franchise arrangement typically
lasts 20 years, and franchising practices are generally consistent throughout the world. Over 70%
of franchised restaurants operate under conventional franchise arrangements.
The Company and its franchisees purchase food, packaging, equipment and other goods from
numerous independent suppliers. The Company has established and strictly enforces high quality
standards and product specifications.
Customers
The Companys business is not dependent upon either a single customer or small group of
customers.
Number of employees
The Companys number of employees worldwide, including Company-operated restaurant
employees, was approximately 440,000 as of year-end 2013.[1]
SWOT Analysis
Strengths
Weaknesses
1. Diversified income
market share
tastes
differentiation
Opportunities
Threats
1. Intensifying rivalry
3. Political sanctions
6. Negative publicity
7. Declining demand for fast food
Strengths
1. Diversified income. One of the main McDonalds strengths is its diversified income. The fast
food chains revenues come from various countries, regions and products. It doesnt rely on one
key source of income, unlike some of its rivals.
McDonalds sales from the company-owned restaurants were $18,875 billion or 67.15% of the total
revenues and the revenues from the franchisees were $9.231 billion or 32.85% of the total
revenues in 2013.[1] Few other rivals receive as much revenue from its franchisees as does
McDonalds.
McDonalds Corporation SWOT analysis by Strategic Management Insight
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McDonalds[1]
Yum! Brands[2]
Burger King[3]
Wendys[4]
32.85%
14.5%
80.5%
12.9%
The numbers indicate that Yum! Brands and Wendys has to rely on their directly owned
restaurants to generate most of the income, while Burger King (and probably Subway) has to rely
on the franchisees for its income. Both situations, when a company has to rely on one source of
income, arent favorable to McDonalds competitors.
McDonalds income is also much more geographically diversified than its rivals.
Figure 2. Income from the different regions
2013
McDonalds[1]
Yum! Brands[2]
Burger King[3]
Wendys[4]
31.5%
18.9%
58%
>98%
40%
19.3%
29.3%
0%
28.5%
61.8%
12.7%
<2%
We can see that Burger King and Wendys heavily rely on sales from U.S., while more than 50% of
Yum! Brands income comes from China.
McDonalds diversified income is a strength that allows the company to grow more steadily. The
company isnt affected by major demand changes in one or another region as much as other fast
food companies.
2. Brand reputation combined with a largest market share. McDonalds brand is one of the
most valuable brands in the world. Interbrand[5] and Forbes[6] have evaluated the brand by $42.3
billion and $39.4 billion, respectively. Both companies included the brand in to the list of top 10
worlds most valuable brands, while no other company in the restaurant industry has even reached
the top 50.
McDonalds has the second largest network of restaurants (35,429 restaurants) in the world. It
serves the most people a day (70 million) and operates in more countries (119) than any other
competitor.
The benefit of a largest market share is an unmatched customer reach and reinforced brand
identity as well as reputation. Brand reputation increases customer loyalty, which results in more
returning customers. It also enables the company to sustain market leadership position. No other
rival can match such brand awareness and enjoy its benefits.
3. Food menus adopted to meet the local tastes. The fast food chain is operating in many
diverse cultures where tastes in food are very different to those of U.S. or European consumers.
Therefore, an ability to adapt the food to the local tastes is very important if McDonalds wants to
attract new customers and gain local customers recognition. The restaurant serves soup in Asia,
McRice in Indonesia, beer in most Western Europe countries, meat pies in New Zealand, Ebi
burger in Singapore and kosher food in Israel. In India, the restaurant doesnt sell any beef. Often,
the meals and their tastes are modified for different regions in the same country. [7] McDonalds is
able to adapt its menu to local tastes better than other international fast food chains.
4. Advertising budget. McDonalds has spent $883.8 million on advertising and costs related with
it in 2013.[1] According to Kantar Media,[8] the whole restaurant industry has spent only $6.449
billion on advertising over the same year. McDonalds accounted for 13.7% of the whole industrys
spending on advertising. This is more than what Yum! Brands ($607 million)[2], Burger King ($48.3
million)[3] or Wendys (<$150 million)[4] have spent combined.
In general, the more a company spends on advertising the more customers and sales it will gain.
This is also true for McDonalds. No rival can match its huge spending on advertising and gain as
much brand awareness as McDonalds have.
5. Efficient restaurant management. Even though, McDonalds sales have slowed down recently,
its restaurants still make nearly twice as much as the next big competitors restaurants. According
to BurgerBusiness,[9] on average, McDonalds restaurants were making $2.4 million a year in U.S.
At the same time Burger Kings and Wendys restaurants were making only $1.255 million and
$1.514 million a year, respectively. To manage larger flows of customers, McDonalds have to
operate more efficiently than other restaurants.
In addition, McDonalds has been working a lot to improve the performance of their drive-thru
service. A QSRs[10] study shows that McDonalds average order fulfillment time is 189.49 seconds,
which is below the average of 180.83 seconds for other fast food chains.
Average in Seconds
Burger King
198.48
Chick-fil-A
203.88
Krystal
217.89
McDonalds
189.49
Taco Bell
158.03
Taco Johns
181.19
Wendys
133.63
Summary
180.83
The increased average service time, has a lot to do with the new items that were added to the
menu. But McDonalds is working on that. In many restaurants, it has added the second lane to
drive-thru for ordering and expects to add a third line too. This should reduce the time it takes to
fulfill an order and would further increase the efficiency of McDonalds outlets.
Weaknesses
1. Inconsistent menus in different countries. While a localized menu is one of the key strengths
of McDonalds, its also one of the chains weaknesses. Wherever a customer visits a McDonalds
restaurant, he/she expects to be able to order the same type and quality of food. Its the promise
that the fast food chain emphasizes itself. The reality is different. It is possible to order a soup in
McDonalds in China, beer in Germany and McRice in Indonesia. But you wont get beer in China
or McRice in Germany, which most of the visiting Indonesians would expect in McDonalds in
Germany. For most customers, these differences are expected. More frustrating and disappointing
situation is when you cant order the same items at McDonalds restaurants in your local town. Due
to the menu differences between the different franchisees and directly owned restaurants, people
can no longer expect the same service or menu in each McDonalds restaurants. Often, you cant
order the same deli wrap or a McRib sandwich in every restaurant in your town. This leads to
disappointment, lost customers and sales.
2. Employment practices and low wages. In 2013, McDonalds has been heavily criticized over
its employment practices. Guardian[11] has exposed that 90% of McDonalds employees have
signed the 0 hour contracts in UK. Such contracts offer no guaranteed minimum hours of work or
minimum income for the employees and it significantly adds to their financial insecurity.
McDonalds is also heavily criticized for the low wages paid to its employees. Every year, the fast
food workers in U.S. (not only McDonalds employees) are receiving $7 billion worth of public
assistance (subsidies) for their low wages.[12] Which is the largest employer in a fast food industry?
McDonalds and it receives almost all of the criticism over the low wages in the fast food industry.
The company has also been criticized for offering its employees to apply for food stamps or to sell
unwanted gifts to add to their income.[13]
It is true that most of the other fast food chains follow the same practices, yet, it is McDonalds
which is almost always blamed for it. It adds significantly to the negatives publicity and harms
companys reputation.
3. Criticism and negative publicity. As mentioned earlier, McDonalds receives lots of criticism
over its employment practices. Every year, the company receives negative publicity for many
different activities. In 2014 alone, the company has been criticized for its employment practices,
low wages, tax evasion in France, using chicken that was fed genetically modified animal food,
serving pink slime meat, expired meat, rising prices and etc. All this negative publicity that
McDonalds receive each year affects its reputation and sales. According to Interbrand,
McDonalds brand value grew by only 1% in 2014,[5] down from 5% growth in 2013. [14] McDonalds
sales have also suffered in part from this.
4. Image of a cheap place to eat at. Even when the company invested heavily in its premium
menu the company is still seen as a budget place to grab a quick bite. How does this hurt the
company? First, McDonalds $1 dollar menu has lost its appeal for quite some time as most of the
meals in the menu are priced well above $1 and up to $5 or even $7 for a meal.[15] Customers
whose income is low and who are the primary McDonalds customers are especially price
sensitive. The increase of prices significantly lowers the demand from such customers.
Second, McDonalds has invested heavily in redesigning its traditional restaurants, introducing
premium menu and expanding the network of McCaf restaurants, which purpose was to attract
more premium customers that can afford to spend $5 or $7 for a meal. Yet, few customers were
attracted due to the chains association with a cheap food and poor quality services.[16]
5. Poor quality services and food. McDonalds key selling proposition was its cheap and quick
meals. Standardization of the processes, food quality, menu and services allowed the restaurant
chain to make the burgers and fries fast, with little cost and as quickly as possible. Right now,
McDonalds advantages have disappeared. With so many additional items in its menu the
restaurant cannot process the orders as fast as it used to. Customers have to wait longer in lines to
get what they want. According to the study done by QSR, the customers had to wait an average of
3 minutes to receive an order after placing it.[17]
A Consumer Report survey [18] revealed that 32,000 respondents identified McDonalds as the
worst fast food chain from the list of 21 largest fast food chains. The main complaint was about the
McDonalds Corporation SWOT analysis by Strategic Management Insight
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poor food quality. Consumers are more likely to pay more for the good quality food and according
to them, McDonalds sells the opposite of that.
McDonalds has also seen the increase of complaints about the employee unfriendliness.[17]
Traffic
$0 to $9
(1%)
$10 to $19
5%
$20 to $39
6%
$40 or more
11%
Opportunities
1. Improve public image. McDonalds could convert its negative publicity weakness into strength
by improving its public image. There are few ways McDonalds could do this:
The company could change its employment policies, raise wages, provide more career
opportunities and add other benefits that would motivate its employees. This way the chain
wouldnt receive criticism over its employment practices and may benefit from positive
publicity the same way as Target supermarket chain does.
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It could improve the quality of its food and buy the raw materials only from the responsible
suppliers.
McDonalds should engage into more corporate social responsibility programs that help
local communities and increase the charity donations.
2. Expand McCaf restaurant network and separate it from the traditional McDonalds
restaurants. McCaf is McDonalds caf-style restaurant, usually located within the current
McDonalds locations. McCaf was introduced to compete with Starbucks and to satisfy the new
trend for higher quality coffee, service and better design of the restaurant. Theres no exact
number of how many McCaf restaurants are currently opened, but the estimates show that
McCaf numbers make less than 10% of all McDonalds restaurants. Why McDonalds should
expand its McCaf restaurant chain?
First, the report done in 2003 indicated that McCaf outlets generated 15% more revenue than
regular McDonalds restaurants.[19] Therefore, having McCaf in addition to McDonalds could
increase the overall companys sales.
Second, McCaf aims at serving higher income customers that appreciate quality food, drinks and
service, which is the opposite of how most of the customers see McDonalds restaurants. By
expanding the network of McCaf outlets, the company would be able to:
Differentiate itself from its current image of a cheap place to eat at.
3. Expand McDelivery services. The company has introduced its food delivery service in 1993 in
U.S., but since then, rapidly expanded it into many Asian, Middle Eastern and Latin American
countries. McDelivery is now available in 27 countries. In U.S. McDelivery service is only available
in Manhattan.
Food delivery and takeaway industry has reached $32.2 billion market size in U.S. in 2013,
according to Statista.[20] This equals to 18% of the total $190 billion fast food industrys market
value. McDonald which has the experience in delivery services and is the largest fast food chain in
the U.S., could take an advantage of the growing delivery industry to increase companys declining
sales.
4. Expand make your own burger service. Recently, McDonalds has introduced its gourmet
burger, which you can make yourself by choosing your own bun and topping from a 19-ingredient
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list. The restaurant first offered such service in Australia, Sydney, where the owners told that this
service is offered because the customers required it.[21]
By introducing this service, McDonalds is moving one step further into adapting its menu to satisfy
customers tastes. Now the customers can make their own meal and choose the ingredients that
they like the best.
By expanding this service, McDonalds would directly challenge Subway fast food chain and could
win larger market share from its competitor.
5. Growing middle class in China. China is still a growth market and is the largest market in the
world in terms of the number of consumers. The middle class, which is the primary consumer
segment for McDonalds, is expected to account for 70% of 1 billion Chinas population in 2030.[22]
The growing middle class will increase the demand for fast food and beverages, the products that
McDonalds is offering.
In 2013, McDonalds has opened 275 restaurants in China. The company plans to open further 300
restaurants in China in 2014 alone. While this might appear a significant growth, McDonalds
growth doesnt match that of Yum! Brands or Subway growth in China.
While Chinas market is still underserved, McDonalds has the opportunity to aggressively expand
its chain in the country and expand its market share as well as brand awareness among Chinese
consumers.
Threats
1. Intensifying rivalry. McDonalds operate in a highly competitive fast food industry, where it has
to compete with international, national, regional and local rivals, which specialize to serve specific
consumer segments. As the fast food industrys growth has slowed down, the competition has
significantly intensified. The traditional McDonalds rivals like Burger King and Wendys are
constantly introducing new meals to directly compete with McDonalds offerings.[23] Their focus is to
attract breakfast eaters from McDonalds by offering very low prices on breakfast items.
Another rival, Starbucks, has also changed their strategy. The coffee chain giant is moving from
selling coffee only to becoming a destination for breakfast and lunch.[23] New rising rivals, Chick-filA and Chipotle, are growing on average by 12.7%[24] and ~20% annually in the U.S. Comparing
that to a nearly 0% growth for fast food industry in the U.S. last year, it seems that these
companies are biting a market share from McDonalds and other established restaurant chains.
Competition is growing in other countries as well, were regional restaurant chains, which are
capable of better serving local customers, are spreading fast.
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2. Rising labor wages. One of the key McDonalds competitive advantages are low prices. This
means that the fast food chain relies on its low prices to attract customers and to outcompete its
rivals. What happens when the prices rise? McDonalds loses its competitive edge and cant
properly compete with its competitors. This is whats happening to McDonalds at the moment.
Most of McDonalds employees receive a minimum wage, which currently is $7.25 per hour in the
U.S. The federal minimum wage has increased from $5.15 per hour in 1998 to $5.85 in 2008,
$6.55 in 2009 and to $7.25 in 2010. It will likely rise to $10.10 per hour soon enough.
The rising minimum wage will increase the prices of the McDonalds menu and because of the
companys low price strategy, it will find very hard to distinguish itself from other fast food chains in
the market.
3. Political sanctions. McDonalds is one of the best known U.S.-owned consumer brands in the
world, which represents U.S. culture, values and a way of doing business. The company often
suffers because of what it represents and U.S. government actions against other countries. There
are plenty of examples when McDonalds restaurants where attacked in the Middle East, when
local people were protesting against U.S. actions in their countries. Currently, McDonalds is
suffering a collateral damage from the economic sanctions imposed by U.S. against Russia.
Russian government has started investigations against 200 out of 440 McDonalds restaurants in
the country.[25] 9 restaurants are already closed by the government and many more could be
closed after the investigations.
Politically, U.S. is a very active country and its actions against other countries may further invoke
hostile actions against U.S. based businesses. Knowing that McDonalds represents U.S. values
and operates in as many as 119 countries, it becomes one of the key targets for hostile actions.
4. Strong U.S. dollar. The exchange rate affects every multinational company. McDonalds is no
exception. It has earned $19.225 billion or 68.5% of its revenues outside the U.S.[1] This means
that the company receives most of its profits in currencies other than the U.S. dollar. Other
currencies have to be converted to U.S. dollar so that the company would be able to calculate its
total revenues and send the profits back to the U.S. This is where a strong dollar, or in other words,
the rising U.S. dollar exchange rate is threatening McDonalds. Over the last two years,
McDonalds has lost $726 and $29 million, in 2012 and 2013, respectively, due to a rising dollar
exchange rate.[1]
In order to combat this, some companies raise their product prices overseas, but because
McDonalds strategy is based on low prices, raising the prices of the products is not an option. It is
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very likely that the U.S. dollar exchange rate will rise again the next year and that the profits will
suffer because of that.
5. New food safety and work regulations. According to McDonalds,[1] one of the main threats
affecting its operations, is increasing food safety and work regulations: In many of our markets,
including the United Stated and Europe, we are subject to increasing regulation, which has
increased our cost of doing business. McDonalds adds We face and must manage the impact of
new, potential or changing regulations that can affect our business plans, such as those relating to
product packaging, marketing and the nutritional content and safety of our food and other products,
as well as the risks and costs of our labeling. McDonalds also warns that workplace regulations
may affect its business as well.
The regulations add to the business costs and decrease profits. McDonalds is and will be the
subject of many regulations in the future.
6. Negative publicity. McDonalds brand has been damaged many times by negative publicity
(see the 3rd weakness) and this trend will likely continue in the future. The company may face new
nutritional, health and other food related studies and conclusions that may become very popular
and adversely affect the business.
New litigations, such as, class actions, labor, employment or personal injury claims and litigations
with franchisees can also harm McDonalds public image.
7. Declining demand for fast food. According to data from Euromonitor International, sales of
major fast food chains grew only by 1.1% in U.S. in 2013.[26] This is the lowest growth rate since
the beginning of fast food industry and it indicates that the fast food industry is nearly saturated.
Other report from NPD Group shows that the traffic to the restaurants, where an average person
spends less than $10 for their meal (mainly fast food industry), has actually declined by 1%.
Figure 4. Customer traffic growth rate
Spending
Traffic
$0 to $9
(1%)
$10 to $19
5%
$20 to $39
6%
$40 or more
11%
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Both reports reveal that McDonalds faces the most severe threat of all the declining demand for
fast, cheap and poor quality food that McDonalds is serving.
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df Accessed 20th October 2014
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20th October 2014
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20th October 2014
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http://bestglobalbrands.com/2014/ranking/ Accessed 20th October 2014
6. Forbes (2014). The Worlds Most Valuable Brands. http://www.forbes.com/powerful-brands/list/
Accessed 20th October 2014
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October 2014
8. BusinessWire (2014). Kantar Media Reports U.S. Advertising Expenditures Increased 0.9 Percent in
2013, Fueled by Larger Advertisers. Available at:
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http://www.qsrmagazine.com/content/drive-thru-performance-study-average-service-time Accessed
20th October 2014
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Available at: http://www.theguardian.com/business/2013/aug/05/mcdonalds-workers-zero-hourcontracts Accessed 21st October 2014
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13. Taylor, M. (2013). McDonald's advises own employee to apply for food stamps. Available at:
http://america.aljazeera.com/articles/2013/10/24/mcdonald-semployeehelplineadvisesfoodstampsnotwageincrease.html Accessed 21st October 2014 Accessed
21st October 2014
14. Interbrand (2014). Best Global Brands. Previous Years. Available at:
http://bestglobalbrands.com/previous-years/2013 Accessed 21st October 2014
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15. Bloomberg (2014). McDonalds Costly Burgers Send Diners to Fancier Rivals. Available at:
http://www.bloomberg.com/news/2014-10-20/mcdonald-s-costly-burgers-send-diners-to-fancierrivals.html Accessed 21st October 2014
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at: http://www.fool.com/investing/general/2014/10/19/once-cheap-always-cheap-why-mcdonaldscant-raise-i.aspx Accessed 21st October 2014
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http://www.fool.com/investing/general/2014/09/13/5-reasons-mcdonalds-is-falling-apart-before-ourey.aspx Accessed 20th October 2014. Accessed 21st October 2014
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October 2014
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2014
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23. Basu, E. at Motley Fool (2014). Is McDonald's on the Right Track to Turn Around Its U.S. Sales?
Available at: http://www.fool.com/investing/general/2014/10/22/is-mcdonalds-on-the-right-track-toturn-around-its.aspx Accessed 21st October 2014
24. Linshi, J. at Time (2014). How Chick-fil-A Totally Crushed KFC, Popeyes. Available at:
http://time.com/2993472/chick-fil-a-mcdonalds-kfc-growth/ Accessed 21st October 2014
25. Matlack, C. at Bloomberg Businessweek (2014). Putin's Latest Target: More Than 200 Russian
McDonald's. Available at: http://www.businessweek.com/articles/2014-10-20/putins-latest-targetmore-than-200-russian-mcdonalds Accessed 21st October 2014
26. Patton, L. (2014). Have We Reached Peak Burger? Available at:
http://www.businessweek.com/articles/2014-09-04/fast-food-chains-growth-in-u-dot-s-dot-may-havepeaked#p1 Accessed 21st October 2014
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