Strategic Analysis of McDonalds

February 2009

S. Saeed

and its Rivals

Strategic Business Analysis

COURSE WORK ASSIGNMENT

LONDON SCHOOL OF COMMERCE

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Table of Contents

1 TASK 1 - MCDO�ALD’S SWOT A�ALYSIS.................................................................... 1

1.1 Preface................................................................................................................... 1

1.2 Swot Analysis........................................................................................................ 2

1.3 Internal Strength and Resource Capabilities .................................................... 2

1.3.1 Strengths...................................................................................................... 2 1.3.1.1 Market Leadership........................................................................ 3 1.3.1.2 Financial Strength ........................................................................ 3 1.3.1.3 Brand Image ................................................................................. 4 1.3.1.4 Innovative Skills........................................................................... 4

1.3.2 Weaknesses ................................................................................................. 4 1.3.2.1 Weak Strategic Direction ............................................................. 4 1.3.2.2 Customer Services........................................................................ 5 1.3.2.3 Revenues Losses and Share value................................................ 5 1.3.2.4 Employees Turnover .................................................................... 6

1.4 External Market Factors ..................................................................................... 6

1.4.1 Opportunities............................................................................................... 6 1.4.1.1 Revenue Generation ..................................................................... 6 1.4.1.2 Diversification.............................................................................. 6

1.4.2 Threats ......................................................................................................... 6 1.4.2.1 Trends in Sandwich Restaurant industry...................................... 6 1.4.2.2 Intense Competition ..................................................................... 7

2 TASK 2 - PLA� TO WI� VS. SWOT A�ALYSIS .............................................................. 8

2.1 What is a Business Strategy? .............................................................................. 8

2.2 Key Elements of Plan to Win .............................................................................. 8

2.2.1 People (Focus: Customer Services & Efficiency)....................................... 9 2.2.2 Product (Focus: Taste, Healthy & Premium Products) ............................. 10 2.2.3 Place (Focus: Cleaner, Relevant, Modern Restaurants)............................ 10 2.2.4 Price (Focus: Improving productivity, Value Products) ........................... 10 2.2.5 Promotion (Focus: Build Trust and Brand Loyalty) ................................. 11 2.2.6 Focus on Core Operations ......................................................................... 11

2.3 SWOT Analysis and Plan to Win ..................................................................... 11

2.4 Comments and Conclusion................................................................................ 12

3 TASK 3 - MCDO�ALD’S CURRE�T STRATEGIES ......................................................... 14

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3.1 McDonald’s Current Business Strategy........................................................... 14

3.1.1 Aligning Plan to Win................................................................................. 14 3.1.2 Restaurant Modernization ......................................................................... 14 3.1.3 Product Promotion..................................................................................... 15 3.1.4 Customer Satisfaction and Efficiency....................................................... 15 3.1.5 Product Innovation .................................................................................... 15 3.1.6 Social Responsibility................................................................................. 15 3.1.7 Expansion in Emerging New Markets ...................................................... 16 3.1.8 Disengaging from Non-brand Operations ................................................. 16

3.2 McDonald’s Current Level of Performance.................................................... 16

3.2.1 Sales Growth ............................................................................................. 16 3.2.2 Shareholder Equity.................................................................................... 17 3.2.3 Market Leadership..................................................................................... 17 3.2.4 Financial Ranking ..................................................................................... 17 3.2.5 Performance in Recent Financial Crisis .................................................... 18

3.3 Views of Analyst and Commentators............................................................... 18

3.4 McDonald’s SWOT Analysis 2009 ................................................................... 20

3.4.1 Strengths.................................................................................................... 20 3.4.2 Weaknesses ............................................................................................... 20 3.4.3 Opportunities............................................................................................. 20 3.4.4 Threats ....................................................................................................... 21

3.5 Comparison of Analyses and Evaluation......................................................... 21

4 TASK 4 – MCDO�ALD’S COMPETITORS ...................................................................... 23

4.1 Wendy’s .............................................................................................................. 23

4.1.1 Company Overview................................................................................... 23 4.1.2 Business Strategies during 2003 ............................................................... 23 4.1.3 Business Strategies since 2003.................................................................. 24

4.1.3.1 Product Differentiation............................................................... 24 4.1.3.2 Business Divestiture Strategy..................................................... 24 4.1.3.3 Niche Market Focus ................................................................... 25

4.1.4 Impact of Business Strategies on Performance ......................................... 25 4.1.5 Wendy’s Future Business Strategies ......................................................... 26

4.1.5.1 Merger with Triarc’s Companies ............................................... 26 4.1.5.2 Future Business Strategy............................................................ 26

4.2 Jack in the Box ................................................................................................... 26

4.2.1 Company Overview................................................................................... 26 4.2.2 Business Strategies since 2003.................................................................. 27

4.2.2.1 Market Differentiation................................................................ 27 4.2.2.2 Restrains from Expansion Ambitions ........................................ 27

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4.2.2.3 Market Focus.............................................................................. 27 4.2.3 Future Business Strategies ........................................................................ 28

4.2.3.1 Growth Strategy ......................................................................... 28 4.2.3.2 Brand Reinvention...................................................................... 28 4.2.3.3 Expansion Strategy..................................................................... 29 4.2.3.4 Future Business Model............................................................... 29

4.3 Sonic Drive-in ..................................................................................................... 29

4.3.1 Company Overview................................................................................... 29 4.3.2 Business Strategy, Sonic’s 2000 ............................................................... 29

4.3.2.1 Key elements of Sonic’s 2000.................................................... 30 4.3.3 Future Business Strategy........................................................................... 30

5 TASK 5 – REFERE�CES & APPE�DICES ....................................................................... 32

5.1 References ........................................................................................................... 32

5.2 Appendices.......................................................................................................... 37

5.2.1 Figure 1: Swot Analysis ............................................................................ 37 5.2.2 Table 1: McDonald’s Operating Income 2000-3 ...................................... 37 5.2.3 Table 2: McDonald’s 3rd Quarter results.................................................. 38 5.2.4 Table 3 Fortune 500, Food Services Industry ........................................... 38 5.2.5 Table 4: Fortune 500, top 10 in Food Service Industry ............................ 39

5.3 Table of Contents ............................................................................................... 39

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1 Task 1 - McDonald’s SWOT Analysis

1.1 Preface

From its emergence as McDonald’s franchising system in 1955 by Ray Kroc,

McDonald’s have seen an era of constant growth up to 2002 both in terms of sales profits

and its reach to customers worldwide. The driving forces of its core objectives kept it at

the top of systemwide sandwich market throughout its most glorious years. McDonald’s

founding objectives of building a system of restaurants with low priced menu items

served in a fast and efficient way in a clean and pleasant environment lead it to become

world’s largest sandwich chain. (Marino, 2004. p.C213)

Throughout 1980s and 1990s McDonald’s developed its brand image, customer loyalty,

worldwide outreach and strong financial foundations to offset the impact of intense

competition by similar sandwich industry players like Burger King, Wendy’s and

Subways. During early 1990s, when MacDonald’s intensified its international operations

to balance the impact of growing competition in USA, its brand image became so popular

outside USA that on its opening in Beijing 1992 more than 40,000 customers flooded the

restaurant. Earlier in 1990, an opening of a new restaurant in Moscow drew about 30,000

people. (Marino, 2004, p.C214)

Beside its glorious years, McDonald’s have seen several years of drastic changes in its

strategic policies throughout 1990s. Especially in late 1990s most of its efforts to

overcome a falling performance, profits and customer satisfaction resulted in further

decline in sales and brand image. Late in 1999s, its management launched a plan to

further accelerate restaurant expansion and diversifying away from sandwich segment by

introducing about 40 new items in the menu. An investment of $420 millions in R&D and

kitchen upgrades was made to achieve set targets of 10-15 percent profits. Despite all

these efforts it appeared that nothing was working to put McDonald’s back on track.

(Marino, 2004, p.C215) McDonald’s posted its first ever fourth quarter loss in 2002. This

was the time when Jim Cantalupo took over the charge of the corporation and introduced

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“Plan to Win” strategy to win back the lost empire of unprecedented history of

McDonald’s. Jim Cantalupo preferred to focus company’s generic strategy on marketing

mix of the company in order to overcome the declining brand image and negative

publicity experienced just before him taking over the company. His plan focused on

offering customers a better experience of enjoying their fast food as compared to

competitors. (Marino, 2004)

1.2 Swot Analysis

To further evaluate McDonald’s performance at the beginning of 2003, it is imperative to

carry out an in-depth analysis of its internal resource strength and weakness and external

market opportunities and threats faced by the company and the sandwich industry as a

whole.

SWOT is abbreviation of strengths, weaknesses, opportunities and threats. It is the

culmination of much internal analysis and external research. Thinking about the outcome,

one can define SWOT analysis as the extent to which an organization’s current strategy,

strengths and weaknesses are relevant to the business environment that the company is

operating in. SWOT analysis is often presented in a matrix form show in Figure 1.

Strengths and weaknesses are internal aspects. They cover the four areas of marketing,

financial, manufacturing and organisational. Opportunities and threats look at the main

environmental issues such as the economic situation, social changes such as the

population getting older and technological developments. (Kotler, 1967)

1.3 Internal Strength and Resource Capabilities

1.3.1 Strengths

The evaluation of internal resources of an organization is assessed in relation to the

competitors. (Thompson & Strickland, 2003) MacDonald’s business strategy still upholds

the philosophy of Ray Crok who in 1958 said that, “the basis for our entire business is

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that we are ethical, truthful and dependable. It takes time to build a reputation. We are not

promoters. We are business people with a solid, permanent, constructive ethical program

that will be in style years from now even more than it is today.” (mcdonalds.com)

1.3.1.1 Market Leadership

McDonald’s has one of the strong international presences in fast food chains in the world,

with over 13,500 restaurants in USA and 16,500 restaurants worldwide. MacDonald, in

2002 was operating in 120 countries of the world with Burger King at number two with

only 58 countries. Its operating income from worldwide operations almost equated the

income from domestic operations. The Table 1 describe the geographic division of its

operating profits from 2000 to 2003.

In 2003 McDonald’s secured almost 33 percent of the sales of top 30 sandwich chains in

USA. About 30 percent of the sales come from its international operation. McDonald’s

leadership among restaurant chains have widely been recognised and have placed it in a

very strong position to increase and retain a major part of this market share. (Marino,

2004)

1.3.1.2 Financial Strength

McDonald’s has a policy to own all real estates for franchised or company operated

locations. This provided a huge rental income and asset base for the company. Beverley

Vasquez in his article; ‘McDonald’s Takes Bite from its Land holding’ published in

‘Denver Business Journal’ in 1998 says that “McDonald’s generate more money from its

rent than from its franchise fees”. (Denver Business Journal 50, p. B9)

McDonald’s policy to own its real estates gave it more control over what it can do with

the land. This strategy also enabled McDonald’s to select a piece of land to build a

restaurant in location to generate maximum sales. To make financial assets look better

and offset the impact of store expansion, McDonald’s keeps about 100% of profits from

company owned restaurants. (Marino, 2004)

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McDonald’s liquidity is within the industrial standards. McDonald’s current ratio in

2003 was 0.76, maintaining or improving current ratio help meet current liabilities and

short term debts with out putting further constraints on company operations.

1.3.1.3 Brand Image

In 2003 McDonald’s brand value was placed at 8th number among worlds most valuable

brand with $24.69 billions (source: interbrand). Brand image is the totality of consumer

perceptions about the brand, or how they see it. Companies have to work hard on the

consumer experience to make sure that what customers see and think is what they want

them to. (Temporal, 2002 & Marino, 2004)

1.3.1.4 Innovative Skills

In a global market place a company needs to be well aware of particular needs and

requirements of the people defined by their cultural and religious affiliations and their

particular eating habits. McDonald’s have several times improved its menus due to

changing eating habits of its customers. This was mainly due to growing health

awareness as well as innovation in food processing and cooking. (Marino, 2004) Its

menus in almost all countries reflect the local traditional elements and tastes. Kosher for

jewish people in Israel, introduction of low fat food across the chain, and menus

according to particular French, Chinese and South American tastes are a few examples.

McDonald’s has successfully integrated local eating trends and traditions across the

world by varying local menus in different regions of the world. McDonald’s have almost

always adapted to the changes in the costumers preferences despite some of its failure to

regain sales revenues in late 1990s.

1.3.2 Weaknesses

1.3.2.1 Weak Strategic Direction

In fourth quarter 2002 when McDonald’s produced its first ever loss since 1965, the

Chairman and CEO Alan Greenberg took full responsibility for its poor performance and

resigned. The failure of McDonald’s was mainly due to launching several concordant

initiatives with lack of will to fully implement them or waiting for the outcome of any

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particular initiative. Due to this poor strategic decision making, management was left

with no clear directions. Increased competition and hostility among the franchises forced

company to review its policies regarding expansion, affiliation, quality and customer

services. At one stage company announced 40 new menu items and customized cooking

system which cost company a hefty $420 million. (Marino, 2004) A week strategy or

failure to appropriately launch a strategy may result in a week performance of the overall

business. (Thompson & Strickland, 2003)

Change in business strategy may result in customer confusion. If a business employing a

low-cost strategy shifts its focus to differentiation strategy, its price-oriented customers

may switch to another low-cost leader. At the same time those customers willing to pay a

premium price may not identify the organization's strategic change. (Parnell, John A.,

2003)

1.3.2.2 Customer Services

During early 1990s McDonald’s discontinued its principal of restaurant evaluation

system (namely QSVC, Quality, Service, Value, and Cleanliness) to ease the tension

among franchises and to pave way for international expansion and to further its

partnership with leading superstores. When Greenberg reinstituted its Quality, Service,

Cleanliness inspections and mystery shopping in 2001 it was expected that the

company’s image would be regain, but in 2002 company was ranked lower than its main

competitor including Wendy’s, Burger King, KFC and even US internal revenue services.

1.3.2.3 Revenues Losses and Share value

At the beginning of 2003, McDonald’s has to face $343.8 millions in its first quarterly

loss and constant revenue decline during 12 months to April 2003. Company’s share

value dipped to all time low. At one point in March 2003 it was being traded at $12.50.

Putting further pressure on short term and long term liquidity and constraining the

company to keep equity at sustainable level.

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1.3.2.4 Employees Turnover

Quick, accurate and efficient customer service mostly relies on staff training and

experience. McDonald’s employee’s turnover is higher than industry average of 300

percent. This means McDonald’s not only have to train more than average employees but

also have to wait until they are fully functional and experienced. McDonald’s generates

almost 60 percent of its revenue from drive-thru operations despite being about 40

seconds slower than its close rival such as Wendy’s.

1.4 External Market Factors

1.4.1 Opportunities

1.4.1.1 Revenue Generation

McDonald’s strong international presence provides it an opportunity to generate revenues

from public offering which was successfully experienced in case of Japan. Public

offering could be phased out in 120 countries of the world once McDonald’s could grow

strong in each country.

1.4.1.2 Diversification

Emergence of mega-store and diversification in their operations has opened a new market

segment for McDonald’s retail products. Further new avenues include launching

McDonald’s novelty products like watches and toys to be sold across the world and going

into joint ventures with non rival companies to use MacDonald’s premises to promote

their product.

1.4.2 Threats

1.4.2.1 Trends in Sandwich Restaurant industry

New trends in eating healthier food alternatives have posed a challenge to McDonald’s

along with other industry players. Customer dietary awareness grew after findings of

various scientific researches advocating eating healthy food with lesser fats, oil and sugar

contents. In order to be concerned about customers wellbeing sandwich chains have to

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keep modifying their menu items. McDonald’s has to continue focusing on adjusting its

policy to reflect healthier aspects of menu items or it could be an easy target for negative

publicity. McDonald’s main rivals Burger King and Wendy’s have addressed current

consumer health trends more successfully. Particularly, Wendy’s has responded to this

with the introduction of their gourmet salad line. Typically 30% of those consumers

visiting Wendy’s do so specifically for the purpose of purchasing salads from their

Garden Sensations salad line. (Marino, 2004)

Soon after recognising the market, the super store jumped into sandwich industry by

offering ready made meals and sandwiches at competitive prices further increasing

competition for McDonald’s and its rivals as well.

1.4.2.2 Intense Competition

USA systemwide sandwich industry is expected to grow around only 2 percent for the

foreseeable future during and after 2003. International is shrinking due to increased

competition among traditional rivals and local industry restaurants. With many new

chains of restaurant copying McDonald’s theme, it is more difficult to increase market

share both in USA and worldwide. (Marino, 2004) Customers became more price

conscious and shifting their loyalty on low priced outlets of similar quality and service.

The ideal condition is for the strength/ competitive assets to outweigh its weakness/

competitive liabilities by an ample margin-50/50 balance is definitely not the desired

condition. (Thompson & Strickland, 2003, p120)

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2 Task 2 - Plan to Win vs. SWOT Analysis

2.1 What is a Business Strategy?

Strategy has been defined in many variable ways by all management scientist and

academicians. Strategy could be merely defined as “a plan” to reach from point A to B or

it could be as complex as the global market place. In corporate global business

environment strategy is a comprehensive and complex framework of actions formulated

after a careful analysis of the internal strengths and capabilities and environmental

impacts of external forces influencing the organization. (Elkin, 1998) Strategy can also be

defined as a framework which steer those choices that determine the nature and direction

of an organization. (Tregoe & Zimmerman, 1980)

Leadership in a highly competitive market depends on narrowing the focus of business

strategy instead of broadening it. Business strategy includes identification of

organizations operational excellence, its customer intimacy, and the product leadership.

These three elements are the powerful dynamics of a business strategy. (Treacy &

Wiersema, 1989)

To achieve objects an organization can exploit its unutilised resource strength and

capabilities or it can altogether develop a core competency. A company’s strategy is a

“plan of its management to achieve and sustain a market position, conduct its operations,

attract and please customers, compete successfully, and achieve organizational

objectives”. (Thompson & Strickland, 2003, p. 3)

2.2 Key Elements of Plan to Win

At the beginning of 2003 the newly appointed CEO of McDonald’s, Jim Cantalupo,

shifted the company’s business strategy to focus on marketing in order to reverse the

impact of negative publicly experienced by the company over last few years. McDonald’s

strategy was based on combating changing consumer trends and tackling cut throat

competition among rivals. Plan to Win revolves around product differentiation and

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addressing quality issues to recover McDonald’s from recent losses and downturn in

sales. Plan to Win placed customers at the top by offering them better food in an

environment of their expectations. (Marino, 2004, p.C228)

In a competitive environment, firms work out different strategies and approaches to

establish their competitive advantage over their rivals. These strategies are based on;

using different pricing strategies, introducing products for niches market segments,

changing the distribution strategies, changing the quality parameters as per situation and

running effective advertising campaigns etc. (Hooley & Saunders, 2004)

McDonald’s Plan to Win focuses on five vital elements of marketing i.e. people,

products, place, price and promotion. These elements are generally known as Marketing

Mix. The company estimated that it would take about four to five quarters to fully

execute the planned improvements in its marketing mix to achieve desired objectives.

Marketing strategy is essential for the success of a product in a target market, largely due

to increasing diversity in the nature of the customers and the severe competition in the

market. (Kotler, 1988)

2.2.1 People (Focus: Customer Services & Efficiency)

Customer service staff and their attitude and appearance are reflective of organizations

image perceived by customers. (Cameron, & Green, 2001) McDonald’s in its Plan to Win

planned to improve customer service skills of their staff by providing them training and

rewarding on the basis of their outstanding customer services. To address the difficulties

of the staff and reduced waiting times of the customers, McDonald’s also planed to keep

the outlets sufficiently staffed during busy hours. (Marino, 2004) Plan to win envisage

the need of hospitality training of staff in order to be more friendly service oriented.

McDonald’s believed it will reduce the number of complaints about service, staff and

speed.

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2.2.2 Product (Focus: Taste, Healthy & Premium Products)

Product does not simply refer to the actual tangible goods or service; it also refers to the

appeal, benefit and quality expected by the customer. To address changing trends and

preferences of the customers McDonald’s introduced new menu items with healthier

contents. Premium item were particularly launched in USA, Canada and Europe.

Healthier foods with white-meat contents for USA customers and sugar-free drink with

meal for children in United Kingdom and an option of fruit slices for an extra fee. In

general Plan to Win emphasised on giving a face-lift to menu in order to reflect the needs

of each group of customers in particular market.

2.2.3 Place (Focus: Cleaner, Relevant, Modern Restaurants)

This element of Plan to Win emphasised need to make restaurant cleaner, modern and

more relevant for customers. McDonald’s realised to transform their restaurant into a

place where people want to be with friends and family member. Providing wireless

connectivity in restaurants across 28 countries and introduction of McCafé in selected

restaurants are examples of McDonald’s efforts to make restaurants more relevant to

adult customer and to create customer loyalty. McDonald’s also renovated, rebuilt and (in

some cases) relocated its restaurants to make them fresher and accommodating for wider

range of customers.

2.2.4 Price (Focus: Improving productivity, Value Products)

Fourth element of the plan was price with focus on productivity and value. Consumer

behaviour plays a vital role in the designing of the marketing strategy by an organization

to either promote the sales of an existing product or for launching an existing product.

(Philip Kotler, 1988) McDonald’s offered new variety of products for people inclined to

spend less on food as well as for those who are willing to buy premium products at a

higher price.

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2.2.5 Promotion (Focus: Build Trust and Brand Loyalty)

This element focused on retaining customers through building a brand loyalty and brand

awareness. McDonald’s launched it famous media campaign of “I’m Lovin it” to create a

bond connecting McDonald’s brand to its customer and the communities in which they

live. Efforts were made to make McDonald’s an easy choice for families by improving

meals for children. To target young adult, music from leading artist was included across

the media.

2.2.6 Focus on Core Operations

McDonald’s discontinued some of its affiliated and partner brand activities during late

2003 to concentrate on its core business operations. This included sale of Donato’s

Pizzeria, closures of joint venture with Fazoli’s and Prêt a Manger chains in Japan

McDonald’s also abandoned its non brand activities outside USA.

McDonald’s indented to reduce capital expenditure by 40 percent in 2003, a decrease of

about $1.2 billions. Another action taken under Plan to Win was to use cash from 2003 to

shipshape companies stock value and reputation on stock exchange. This money was

used to pay off debt, purchasing shares from customers and increasing dividends.

2.3 SWOT Analysis and Plan to Win

Findings of the SWOT analysis emphasise the need for a comprehensive business

strategy to converge all resources of McDonald’s into one channel of long term growth

and stability by putting customer’s satisfaction at highest priority. Plan to Win also

emphasises to bring back the term of “customers is the King” at McDonald’s.

Major weaknesses and threats observed in Swot analysis carried out in Task 1 were; the

lack of a clear direction of management to lead company in times of intense competition,

severe problems with costumer satisfaction due to lack of trained and experienced staff,

changing trends in preferences of customers choice of food contents due to health, and

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well being issues, experience of enjoying food in a restaurant environment which is

relevant to customers needs, falling revenues due to lack of sales and loosing business to

competitors, all time low stock price, problem retaining employees, and above all a

falling brand image due to negative publicity.

“Plan to win” addresses these findings to converge McDonald’s business strategy around

customer satisfaction by investing on improving capabilities of staff, contents of new or

existing food items, adjusting pricing to attract each market segment, improving

restaurants buildings, promotional activities to develop brand loyalty through improving

image in media.

Plan to Win and SWOT analysis both emphasise on friendly, efficient and accurate

customer services in delivering food, training of staff and efforts to retain them by awards

and reducing waiting time of customers by employing the work force in most efficient

way. The Plan to Win and the Swot analysis agree on the issue of innovation in food to

combat changing trends in customer preferences by offering customers a choice of food

they expect from McDonald’s. This includes healthier food, like salads; food with fewer

contents of fats or salt for health conscious people; value food items to lure families,

adults and price conscious customers.

2.4 Comments and Conclusion

Swot Analysis illustrate a weak strategic direction of the company during its most

difficult time prior to 2003, as the primary barrier in rebuilding the company’s image,

controlling the loss of business to competitors, and most importantly improving customer

satisfaction. Up to 2003, management appears to be lacking the vision to devise a

strategic business policy to sort out core issues on long term basis. Previous plans

attempted to gear up sales and improve customer satisfaction by implementing various

strategies without waiting to see the out come. These successive strategies put further

pressure on company’s sales turnover and pushed customers further away from

McDonald’s restaurants.

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Cantalupo’s Plan to win focused on improving company’s internal strengths and resource

capabilities especially, the people, products, price, promotion and place. Plan to Win

emphasised on either polishing the existing capabilities or improving them instead of

jumping into new avenues. It also set forth the measures to check the progress of each

element of the plan.

SWOT analysis pointed out major areas of concern where a significant improvement

could be made. These included; improving customer training to equip restaurants with

friendly staff, accuracy and efficiency in processing food orders, reducing customer

waiting time both in drive ways and restaurants, product innovation and improvements to

reflect the need of each segment of the target market, renovating and redesigning

restaurant buildings, penetrating deep into niche markets by composing McDonald’s

relevance to wider groups of customers. (Drejer, 2002)

In general SWOT analysis and McDonald’s Plan to Win are strongly linked with each

other. Although SWOT analysis did not emphasise the need of renovating and

modernizing of McDonald’s restaurant buildings, its important can not be denied. The

core issue debated in SWOT analysis is the state of paralysis faced by McDonald’s

management due to successive depressing sales growth and negative publicity earned due

to its poor customer services and contents of food.

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3 Task 3 - McDonald’s Current Strategies

3.1 McDonald’s Current Business Strategy

By shifting the McDonald’s focus on quality and customer services instead of merely

selling cheapest and convenient food, McDonald’s have succeeded in marketing

McDonald’s image as “customer’s” favourite place and way to eat. (McDonald’s annual

report 2007)

3.1.1 Aligning Plan to Win

McDonald’s is currently aligning its operation globally while focusing on its 2003’s Plan

to win. With continuous strong growth since unveiling this plan, McDonald’s is

reinforcing its priorities to continue to brand itself as being better not just bigger. To

focus on being more relevant to customers and the communities they live in, the company

is committed to shift its resources in efforts to recruit and train employees to empower

company in developing leadership and talented management. Current strategy emphasise

the importance of being more disciplined and responsible in allocating financial resources

of the company to enable a reliable cash flows, spending on operating costs and

maintaining a mix of franchised and company owed restaurants. (McDonald’s annual

report 2007)

3.1.2 Restaurant Modernization

In order to make McDonald’s restaurants a modern and more relevant place to enjoy the

experience of having food, a plan to renovate 10,000 restaurants worldwide is being

carried out. This will improve McDonald’s acceptability as a brand with modern look and

responsive to changes in customers needs. Almost 24,500 restaurants worldwide now

open till late or round the clock to allow customers to enjoy their favourite drink or food

at almost anytime they require. (McDonald’s annual report 2007)

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3.1.3 Product Promotion

The company plans to introduce a new design for its packaging in its 13,900 restaurants

in USA and than rolling it out in 118 countries of the world. The new packaging will

make containers for french-fries and soft drinks more relevant to today's consumers.

Company also plans to use local languages across the world by translating menus items,

packaging and displays into 21 regional languages. (Vella, 2008)

3.1.4 Customer Satisfaction and Efficiency

McDonald’s is making necessary changes in making restaurants more accessible and

convenient for people of all walks of like. In some Asian cities like Singapore,

McDonald’s has launched home and office delivery for its customers. Initiatives like,

double drive thru for customers in USA and Canada and quick service kiosk in cities with

high density of population throughout world have been launched. In USA, McDonald’s

key interest is to penetrate further into breakfast, chicken, coffee, cold drinks, and

convenience segments of the market.

3.1.5 Product Innovation

McDonald’s continued its leadership in products innovation and bringing new ideas to

address the needs, tastes and preferences of the customers. Merging local taste and

culinary traditions with McDonald’s successful menu items is being integrated into its

global acceptability, for example; the Ebi (shrimp) Wrap and McGriddle in Japan, Kenco

Rainforest Alliance Certified coffee in the U.K and Espresso Pronto in Australia.

McDonald’s, in its USA operation, is launching McCafé and new espresso-based drinks

to compete in the specialty coffee market.

3.1.6 Social Responsibility

McDonald’s has been included in the Dow Jones Sustainability Index for three

consecutive years reflecting its ongoing efforts in being social responsibility. Ronald

McDonald Houses for families with seriously ill children in more than 259 local

16

communities around the world is a major social services contribution of McDonald’s.

(McDonald’s annual report 2007)

3.1.7 Expansion in Emerging �ew Markets

MacDonald’s internationals operation’s key priorities are emerging European markets

where the highest revenue growth has been observed during last few years. Focus on

enhancing the local relevance, customer and employee experience and building brand

image are company’s main areas of concentration. In Asia/Pacific, Middle East and

Africa, core menu extensions, breakfast, value products and operational excellence are

considered to deliver results. (McDonald’s annual report 2008)

3.1.8 Disengaging from �on-brand Operations

McDonald’s continues its focus on disengaging from activities that could distract the

management’s focus from its core business operation. In this regard McDonald’s sold

Boston Market and Chipotle Grill in USA. McDonald’s is disciplining its financial

practices to afford an essential support for its business strategies and sustained sales

growth. (McDonald’s annual report 2007)

3.2 McDonald’s Current Level of Performance

3.2.1 Sales Growth

McDonald's has retained its global leadership reputation in fast foot industry by

achieving strong growth in sales and operating margins. Third quarter of 2008 furnished

an unprecedented 7.1 percent comparable sales growth.

USA operations delivered highest sales increase in 2008, with third quarter comparable

sales up 4.7% and operating income growth of 9%. Europe generated strong top-line

sales in virtually every market, posting a comparable sales increase of 8.2% along with

operating income growth of 23% (14% in constant currencies) for the quarter. In

Asia/Pacific, Middle East and especially Australia and China operating income rose 28%

17

(21% in constant currencies), with a 7.8% comparable sales increase. (McDonald’s third

quarterly report, 2008)

3.2.2 Shareholder Equity

McDonald’s has long recovered from its plunged share value. Its shares are being traded

at $59.67 as of 15 January 2009. During last 52 weeks highest and lowest priced its stock

reached were $67.00 and $45.79 respectively. Up to third quarter 2008, McDonald’s

increased its dividend by 33%, bringing out annualized dividend to $2.00 per share. See

Table 2.

3.2.3 Market Leadership

In terms of its worldwide operational extent, McDonald’s with 1.6 millions restaurant

employees, 31,370 restaurants and affiliates and highest sales turnout of $23 billions

among top ten chains, it is far beyond the reach of its closest rivals. See Table 3 (Fortune

500, top ten food industries)

The Company delivered its 55th consecutive months of global same store sales growth in

last quarter of 2008. During a year when the NYSE lost one third of its value,

McDonald’s shares profited a gain of about 6 percent, making the company one of only

two in the Dow Jones industrial average whose share price rose in 2008. (Martin, A., NY

Times, 11 January 2009)

3.2.4 Financial Ranking

Currently McDonald’s is at the top of Fortune 500’s food service industries list. Its

closest rival on this list, “The yum Brand” (which comprise KFC, Pizza Hut Taco bell,

and Long John Silver) is at 253. Jack in the Box at 694, Wendy’s at 781 and Burger King

at 829. The complete list of Top 10 companies in food industry ranking of Fortune 500 is

shown in Table 4. (Fortune500.com)

18

3.2.5 Performance in Recent Financial Crisis

The only two companies in the Dow Jones industrial average who had any growth in

share price in 2008 were the golden arches and another heavily vilified company, Wal-

Mart. Claiming to serve an extra two million customers a month in near future,

McDonald's announced that it will be creating 4,000 new jobs in the UK due to its

sustained growth. McDonald’s is benefiting form recent financial meltdown as

recession-conscious consumers opt to cheaper food. (Bandyk, U. S. News, 12 January

2001).

3.3 Views of Analyst and Commentators

Andrew Martin, a Business �ews Analyst, in his article “At McDonald’s, the Happiest

Meal is Hot Profits”, published in New York Times on 11 January 2009, comments on

McDonald’s comeback as a responsible restaurant. He writes: “It wasn’t too long ago that

McDonald’s, vilified as making people fat, was written off as irrelevant. Now, six years

into a rebound spawned by more appealing food and a less aggressive expansion,

McDonald’s seems to have won over some of its most hardened sceptics”.

John Glass, an analyst at Morgan Stanley, noting the changes to the menu and the fact

that McDonald’s stopped grading restaurants on service and cleanliness he stated that

“They (McDonald’s) were just alienating people that wanted to go there, actively

dissuading people,”. (Martin, A., NY Times, 11 January 2009)

Bob Goldin, executive vice president of a food industry consultancy Technomic,

applauded the simplicity of McDonald’s business policy by saying that McDonald’s

“execute the basics, flawlessly.” He believes that McDonald’s plan is a “three yards and a

cloud of dust,” and at another point he adds “it’s not revolution stuff.” (Martin, A., NY

Times, 11 January 2009)

Kelly D. Brownell, director of the Rudd Centre for Food Policy and Obesity at Yale

University, credits McDonald’s for being more responsible as compare to its rivals. He

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says “As fast-food restaurants go, McDonald’s has been pretty progressive, and”……”If

you look at the last five years, McDonald’s has introduced some better foods and resisted

the urge to offer bigger burgers”. (Martin, A., NY Times, 11 January 2009)

Steve West, the vice president of the Stifel �icolaus Analysts, wrote in a note to

investors that McDonald's “may be able to capture more cost-conscious consumers who

may skip a trip to Starbucks for a less expensive alternative. Prices vary by market,

espresso-based drinks at McDonald's are, on average, about 65 cents to a $1 cheaper than

at Starbucks.” (Anon, BusinessWeek, January 13, 20090

In favour of McDonald’s strategy to launch McCafé coffee initiative, UBS Securities

Analyst, David Palmer said “that coffee will draw customers into restaurants during off-

peak times and bring them in more frequently as the beverage platform takes over where

the dollar menu left off,"

Judith Crown, Business Correspondent at Business Week claimed in her article in

Newsweek that “It's a strategy that McDonald's newfound competitor, Starbucks, appears

ready to emulate. Newly appointed Starbucks CEO Howard Schultz sees fewer new store

openings and the closing of some underperforming stores as a key to reviving his

company's flagging fortunes. (Crown, Judith. Business Week, 9 January, 2008)

Commenting on the McDonald's strength in concerns of strong dollar, Steven Kron, an

analyst at Goldman Sachs said “company's momentum is overpowering any

fluctuations in the U.S. currency, whose recent revival reduces the value of overseas

sales. The results soothed lingering worries that the slowing global economy would

impact the company's results”. (Gutierrez, Carl. 11 November 2008)

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3.4 McDonald’s SWOT Analysis 2009

3.4.1 Strengths

• Strong and effective strategic business policy focusing on differentiation at niche

markets segments and aligning its policies on all components of worldwide operations.

• Record revenues, operating profits and consecutive years of comparable sales growth.

• Strong financial position on shares and positive rating by financial analysts.

• Market leadership in sales turnover, sales growth, brand image and customer

patronage.

• Robust system of launching successful products for each market segment, constant

product evaluation, innovation and development across the globe.

• Systemwide extensive employee training program to generate talented teams and

management to ensure friendly customer services.

3.4.2 Weaknesses

• Core products out of line with the trend towards healthier lifestyles for adults and

children. Product line heavily focused towards hot food and burgers.

• Quality issues across the franchise network.

3.4.3 Opportunities

• Respond to social changes by innovation within healthier lifestyle foods.

• Strengthen its value proposition and offering to encourage customers who visit coffee

shops into McDonald’s.

• Continued focus on corporate social responsibility, reducing the impact on the

environment and improving community linkages.

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• International expansion into emerging markets like Eastern Europe and China.

• Developing promotional schemes to turn market opportunities in its favor during

recent credit crunch.

3.4.4 Threats

• Impact of existing competitors and superstores on pricing and products, new entrants

offering copied McDonald’s produces.

• Pressure from groups companying for obesity, nutrition, balanced meals and

environment and consumer awareness due to media campaigns.

3.5 Comparison of Analyses and Evaluation

The following paragraphs illustrate comparison of the McDonald’s SWOT analysis of

2009 with one carried out on its position in 2003. This also includes the report on

evaluation of company’s position in order to determine the success of strategic change.

The significant changes that McDonald’s have gone thru during this period are

summarised along with evaluating of its progress to regain its prominent position in the

fast-food sector.

McDonald’s strategy started showing signs of improvements when its stock prices

reaching to $24.79 in January 2004 from all time low of $12.50 in early 2003. In just one

year’s time McDonald’s achieved 11 consecutive months of sales growth with 15.1

percent in October and 10.2 percent in November 2003. At this stage McDonald’s CEO

reinstated the importance of maintaining the momentum company have gain so far in

recovery from its downturn and reiterated the importance to establish stable foundations

to sustain growth in future.

Swot analysis conducted on the McDonald’s position in early 2003 reveals a state of

uncertainty in its strategic business direction. The management was trying to reinvigorate

McDonald’s growth by planning and implementing strategies focusing cost, expansion,

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product range and relaxed rating of restaurant for quality and service, but failed to

soundly and extensively execute policies to make any difference. The lack of

understanding the core business strengths and weaknesses, and the challenges in its

external environment, pushed the company further into doldrums.

Currently McDonald’s is reaping on its Plan to win strategy, which helped the company

to regain its glory to reach at the top once again. The management while focusing on

applying differentiating strategy to customer services, and niche product line is also

rolling it out to its worldwide operations. Exploring new markets and emphasising on

markets with high sales growth is management’s primary focal point.

To generate a team of talented and efficient employees and make ways for empowering

McDonald’s with competent management various extensive plans are being carried out.

Lack of trained staff, employee turnover, slow and unpleasant customer services were

some of the factors behind McDonald’s dropped service ranking during early 2003.

During early 2003 McDonald’s market segments were being squeezed by changes in

trends in rapidly fragmenting market, consumer preferences, negative publicly of the fast

food and quick meals being introduced in supermarkets. Service and quality was lagged

far behind its rivals. Currently McDonald’s is back on top service ranking in its industry.

The management’s objective is to make McDonald’s customer’s favourite place to enjoy

food.

Instead of opening new restaurants in well saturated and matured markets, more

emphasise is being given to modernising and making McDonald’s relevant to its

customers, particularly for adult and families, to overcome the changes in society.

McDonald’s was labelled as one of the major reason behind obesity and health scares due

the contents of its products. To overcome this negative image associated with its brand,

McDonald’s has focused on modifying, evaluating and inventing a range of healthier

products.

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4 Task 4 – McDonald’s Competitors

4.1 Wendy’s

4.1.1 Company Overview

By the end of 2002 Wendy’s was operating 6,273 outlets in USA, a third biggest chains

with 11.39 percent market share among top 17 systemwide fast food chains. Its

international operations under Wendy’s International spread to 22 countries with 2,538

outlets. Company generated higher revenues as compare to Burger King during 2002

with a 14.2 percent increase from previous year. (Marino, 2004, p.C222)

Wendy’s, unlike Burger King and McDonald’s have experienced slight difficulties with

its ambitions to expand outside USA boundaries, generally because the company was

relatively slow with its expansion dreams and it was a new entrant as compare to its rival.

Company’s experience with mad cow disease during early 1990s and financial crisis of

Argentina in 2001, forced it to leave behind its international expansion plans and

concentrate more on domestic expansion. . (Marino, 2004, p.C222)

4.1.2 Business Strategies during 2003

The strategic vision is management’s observation of where the company should be in

foreseeable future. The technology, product and customer objectives it intends to achieve

and its future business opportunities are the factor behind strategic vision of the company.

(Thompson & Strickland, p6)

During 2000s Wendy’s business strategy focused on offering its customers value

products and overpowering competitors on price and customers services following a

“best-cost-provider strategy” (Thompson & Strickland, p.150). At the sometime, plans

were to expand operations in international market by acquiring food outlets serving to the

same market segment as Wendy’s. (Marino, 2004, p.C222)

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4.1.3 Business Strategies since 2003

With growing competition in the restaurant industry, especially in USA, Wendy has to

reconsider its marketing campaign to align its strategic vision with consumer’s rapidly

changing demands. Different competitors within an industry approach their target market

thorough similar products and offerings. This factor is a threat caused by substitute

products available within the industry which try to target the same market. Therefore the

companies have to adopt different strategies to overcome this problem and be

competitive. (Hooley & Saunders, 2004)

4.1.3.1 Product Differentiation

Rapid increase in competing restaurant chains during 2004, forced Wendy’s to detach

itself from its brand image as an informal, simple and country-style food restaurant and

focus more on customer’s services, trends in market segments and modernization. The

management focused on a strategy to swiftly include new menu items, taking full

advantage of recognised customer services strength and advertising to rehabilitate the

image. (Macarthur, adage.com, 2005)

Leaving behind two years of sales decline, Wendy’s, in December 2006, announced a

best quarterly performance in sales growth, motivating Wendy’s to plan to spend $60

millions to expand its breakfast menu by adding new items and improving the existing

ones. Part of this strategic plan was to promote Wendy’s core brands as better in quality

and made freshly according to the customers taste.

4.1.3.2 Business Divestiture Strategy

Wendy opted for strategic divestiture policy by abandoning its company operated

restaurant in order to boost liquidity and concentrate on core business operations. The

planned divestment was to limit company operated restaurants to a level of 1,000 over the

next three years. Company also planned to invest $100 million in buying 400 to 500

under-performing franchises over next four to five years for renovation and then reselling

them to more prudent and strong operators. Company at this stage was planning to invest

25

in product innovation to market segments and divestment to increase liquidity and

shareholders equity. (Worden, 2006)

4.1.3.3 ,iche Market Focus

At the end of 2007 Wendy’s announced a new strategy to focus on premium products and

introducing new lines of sandwiches to stimulate sales growth. The company also

planned to update its value menu items for its key market segment of customers of ages

between 18 and 34 and to further enhance its late night menus. (Wendy’s annual report,

2007)

4.1.4 Impact of Business Strategies on Performance

Wendy's has about 6,700 restaurants in the United States and 20 other countries out of

which company owns about 1,500 restaurants. The fast food outlets offer hamburgers,

fries, soft drinks and milkshakes as well as chilli and salads. Wendy's also own Baja

Fresh, a chain of about 300 Mexican restaurants. (Reeves, 2006)

Wendy's third quarter sales decreased 1.2% to $548.1 million for company-operated

restaurants and increased 2.4% to $76.8 million from franchised restaurants. Same store

sale also showed the same pattern with decline of 0.2% for company owned restaurants

and increase of 0.2% for franchised. Wendy's net loss was $30.8 million from its

operations. (Wendy’s Annual report 2007)

From the research carried out, it appears that Wendy’s is struggling to compete in an

environment of cut throat competition. One of the major factors behind Wendy’s failure

to overcome its sales decline and losses is lack of financial leverage as compare to other

competitors like McDonald’s. Wendy’s strategic direction appears to be lacking a clear

direction in differentiating its product from rivals. Overhead costs due to week economies

of scale are forcing company to divest from expansion and exploring new market to boost

profits. (Drejer, 2002)

26

4.1.5 Wendy’s Future Business Strategies

4.1.5.1 Merger with Triarc’s Companies

Wendy’s international announced its merger with Triarc Companies in September 2008.

The Triarc’s companies are the franchiser of Arby’s restaurants systems. The new name

of the company is Wendy’s/Arby’s Group. The group now have 10,000 restaurants in

USA and is third largest fast food chain on the basis of domestic system wide sales.

Arby’s and Wendy’s have planned to hold their brand identities and operate under their

individual brand names. (http://www.wendys.com)

4.1.5.2 Future Business Strategy

Wendy’s management is planning to re-establish the brand's premier quality positioning

by taking aggressive steps to accelerate sales growth. With its merger to Arby’s group

Wendy’s is planning to launch new initiatives aimed at reducing overhead cost to 2 to 3

percent and an approximately $100 millions in annual incremental store level operating

profits at Wendy’s brand by cost improvements in food, labour and general expenses.

(http://www.wendys.com)

4.2 Jack in the Box

4.2.1 Company Overview

Jack in the Box restaurant is owned by Jack in the Box Inc, which also own Qdoba

Mexican Grill and Quick stuff Convenience stores. At the beginning of 2003 company

was operating in domestic market only with 1,850 restaurants in 17 states of USA of

which 1,500 were company-operated. The company’s market shared jumped on the list of

top 17 sandwich restaurants of USA to 7th position from 9th in earlier years. Unlike its

rivals, Jack in the Box was marketing its product to target adult consumer only, with year

2002 sales totalling $2.2 billions, a 4.7 percent rise from previous year. Company’s

manoeuvred its strategy to avoid engaging in price competition during early 2003 and

instead focused on improving quality and attracting adult women and older segment to its

market. (Marino, 2004, p.C223 & Jack in the Box annual report 2003, p.51)

27

4.2.2 Business Strategies since 2003

During early 2003 Jack in the box focused its business strategies to address the needs of

changing trends in consumer expectations, off-setting the impact of intense competition

and prevailing economic circumstances by reinventing the brand. The company planned

to achieve sustainable growth by expanding company operated restaurants and increasing

the franchised network. (Jack in the Box, annual report 2003, p 51) Jack in the Box

acquired Qdoba Restaurant Corporation in 2003 to drive its growth ambitions and to keep

steady during highly competitive environment in QSR (quick service restaurants)

segment of the industry. (Jack in the Box, annual report, 2003, p.10)

4.2.2.1 Market Differentiation

Jack in the Box aligned its operational strategies to market differentiation in QSR market

by renovating restaurants and offering customers a better food experience with improved

services. Company planned to launch premium products and to remove some item with

lower profit margin. The company planned to strengthen the brand image and exploring

more segments of the existing QSR market. Company also focused its operational

strategy to improve staff training, efficiency and customer’s relationship, renovating

restaurants to provide better facilities to customers.

4.2.2.2 Restrains from Expansion Ambitions

While focusing on strengthening core business operations, company planned to slow

down expansion of its company owned restaurants and reluctantly persuading acquisition

during next two to three years. (Jack in the Box, annual report 2003, p 51)

4.2.2.3 Market Focus

Commenting on company’s business shift in promoting higher-priced premium products

and developing brand to expand market, chief executive of Jack in the Box,

Robert Nugent, said “The industry is very mature. It’s very crowded, and the opportunity

for growth is limited,” …”That’s the whole reason for getting into the strategy we’re in.”

(Anon, 2004, Los Angeles Times, May 13)

28

4.2.3 Future Business Strategies

By 2008, Jack in the Box expanded to 2,158 restaurants in 18 states, including 812

franchise-operated. Qdoba Mexican Grill, the sister brand of the company included 454

restaurants in 41 states with 111 company-operated and 343 franchised. The company

made $2.5 billions in revenues during fiscal year 2008.

Jack in the Box, unlike its earlier strategies focusing only core business operations,

shifted to a more robust strategy of expanding domestically with initiatives like

improving Jack in the Box brand, expanding franchise network and strengthening

existing business model.

4.2.3.1 Growth Strategy

The company planned to increase same outlet level sales and to increase the number of

units for both Jack in the Box and Qdoba concepts. A target of opening 40 to 45

company and franchise-operated restaurants each year was main element of this growth

strategy. More focus was given to Qdoba with targets of 60 to 80 new restaurants

including 30 to 50 franchised locations. Earlier in 2007 company opened about 77 new

restaurants of which 56 were franchised. (Jack in the Box, annual report 2008, p 10)

4.2.3.2 Brand Reinvention

Company planned to differentiate itself from competitor by offering better quality food,

good customer services and improving overall restaurant environment. Using high quality

ingredients, adding new products, improving existing items, improving level and

consistency of customer services, employing talented team members, renovation of

restaurants by redesigning the dinning and common areas on comprehensive scale will

dominate the brand reinvention strategy in future. (Jack in the Box, annual report 2008, p

10)

29

4.2.3.3 Expansion Strategy

Jack in the box adopted a less capital intensive expansion strategy by franchising instead

of operating the restaurants. The company continue to expand in this pattern to generate

higher sales growth and profits.

4.2.3.4 Future Business Model

Focusing on improving growth in sales and profitability Jack in the Box planned to

develop its strategy on improving its business model to reflect the needs of the business

operations. This includes remodelling the business around franchised restaurants,

reducing overhead and food costs, simplifying operational activities and directing

resources to core business operation by selling Quick Stuff Convenient stores operation

in all 61 locations. (Jack in the Box, annual report, p. 12)

4.3 Sonic Drive-in

4.3.1 Company Overview

With 2,700 restaurants across USA, Sonic is nation’s largest drive-in restaurant. Almost

80 percent of its restaurants comprise of franchised operated units. Although being

smaller in size than most competitor in the fast food market, Sonic have shown a steady

growth. It remained on the list of best small business companies of Forbes 200 for 10

years. Financial year 2003 was impressive for Sonic with 6.2 percent same-store sales

growth and 20 percent increase in profit over previous year. (Marino, 2004. p, C224)

4.3.2 Business Strategy, Sonic’s 2000

Sonic primarily drive its revenues from “partner drive-in” sales and royalties of

franchisees. Further sources of revenues include franchise fees at the time of handing

over restaurants, selling and leasing of signs and real estate. (Sonic, annual Report 2008)

30

4.3.2.1 Key elements of Sonic’s 2000

Sonic’s ongoing growth strategy focuses on franchise expansion and product

differentiation concepts of strategic business planning. Financial year 2008 marked 22nd

consecutive year of positive sales growth, reflecting the success of this multilayered

strategy. Sonics multilayered growth strategy which was adopted in 2000, is composed of

following components. (Sonic, annual reports 2003, 2007, 2008)

• Increase number of franchised restaurants instead of company owned and operated

restaurants to reduce capital expenditure and increase liquidity.

• Increased franchising income by new unit growth, same-store sales growth and

ascending royalty rate.

• Using access cash flow and cash proceeds from franchising to pay debt on partner

drive-ins.

• Differentiating brand image from other competitors in fast food industry.

• Avoiding price war by focusing on the quality and personalized services offered to

customers. Ensuring fast, convenient and personalized carhop services with unique

menu items.

• Ensuring positive same store sales by acquiring under performing drive-ins and

franchising them to more enthusiastic operators.

• Centralization of restaurant operation and installation of new information system to

ensure steady services and efficiency in operations.

4.3.3 Future Business Strategy

Sonic business strategies have remained consistent over the past years to focus brand

image, services and differentiating on the basis of a unique feature of drive-in restaurant.

Despite severe price drop competition in the restaurant industry in domestic market,

31

Sonic avoided competing on price; instead it promoted its products to be more relevant to

its niche market. (Sonic, annual report 2008)

Only recently Sonic rolled out new value-menu in last quarter of 2008 to improve the

number of visits by customers. The company hope that the introduction of value menu

will support efforts to overcome recent profit losses. Sonic also hope that this initiative

will increase the number of visits by new customers. (Fuhrmann, Investopedia, January

12, 2009)

32

5 Task 5 – References & Appendices

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34

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hortons-markets-equity-cx_sr_0919markets04.html [Accessed; 10 January 2009]

• Wendy’s, Internet; http://www.wendys.com/ [Accessed; 1 January 2009]

• Wendy’s Annual Report 2007, Internet, Available at;

http://thomson.mobular.net/thomson/7/2716/3264/ [Accessed; 10 January 2009]

• Wendy’s & Arby’s Group, Internet; http://www.wendysarbys.com [Accessed; 10

January 2009]

• Jack in The Box, Annual Report 2003, Available at http://media.corporate-

ir.net/media_files/irol/94/94497/reports/2003ar.pdf [Accessed; 10 January 2009]

• Anon, Los Angeles Times News article, May 13, 2004 “Gourmet Sandwiches Lift Jack

in the Box’s Earnings”, http://articles.latimes.com/2004/may/13/business/fi-jack13

[Accessed 11 January 2009]

• Jack in The Box, Annual Report 2008, Available at; http://library.corporate-

ir.net/library/94/944/94497/items/319125/CF7EF997-7B01-4ECC-9141-

88A01B2A52E6_08ar.pdf [Accessed 12 January 2009]

• Sonic Reports Fiscal 2008 Results, Internet;

http://vocuspr.vocus.com/vocuspr30/Newsroom/ViewAttachment.aspx?SiteName=son

icCollateralXML&attachmentid=fc2c1460-7520-4f9f-a06e-

36

299d55336c2e&attachmenttype=F&entity=PRAsset&entityid=103165 [Accessed 12

January 2009]

• Fuhrmann, Ryan C., January 12, 2009, Stock Analysis, Sonic Boom or Bust,

http://community.investopedia.com/news/IA/2009/Sonic-Boom-Or-Bust-

SONC0112.aspx?partner=forbes-q [Accessed 11 January 2009]

• Jack In the Box Inc., Various 7ews Articles, Internet;

http://articles.latimes.com/keyword/jack-in-the-box-inc/2 [Accessed 11 January 2009]

• QSR Magazine, Jack in The Box, Internet;

http://www.qsrmagazine.com/articles/news/bychain.phtml?id=1422 [Accessed 11

January 2009]

• Henneman, Todd., 2009, Jack in the Box Tackles Turnover, Business Opportunities

Journal, Internet; http://www.boj.com/articles/franchise/jbx.htm [Accessed 10 January

2009]

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http://quicktake.morningstar.com/Stocknet/san.aspx?id=265480 [Accessed 9 January

2009]

37

5.2 Appendices

5.2.1 Figure 1: Swot Analysis

5.2.2 Table 1: McDonald’s Operating Income 2000-3

38

5.2.3 Table 2: McDonald’s 3rd Quarter results

5.2.4 Table 3 Fortune 500, Food Services Industry

39

5.2.5 Table 4: Fortune 500, top 10 in Food Service Industry

Introduction The case study presents a detailed scenario from which you are required to:

• Identify and extract key information surrounding strategic business issues. • Analyse and evaluate that information using concepts and models from the module. • Carry out research for information not in the detailed scenario. • Present your findings in a document written to academically acceptable standards.

Word Limit: 8,000 words, plus/ minus 10% (excluding diagrams, visuals and appendices). You must read the case study for key information, and then carry out the required tasks.

Case Study McDonald’s: Polishing the Golden Arches (in Thompson, A. A., Strickland. A. J. and Gamble, J. (2005) Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill, New York, pages C-213 to C-234).

Tasks The case study, written by Lou Marino and Katy Beth Jackson of the University of Alabama, describes the burger chain McDonald’s faltering performance through the 1980s and 1990s and the emergence of strong competitors in the fast-food sector, and raises questions over the company’s future prospects. Based on the case study, and on online and offline research, complete the following tasks: -

Task 1 – 24 marks From the information contained in the case study, what do you consider to be the business strengths and weaknesses of McDonald’s and the opportunities and threats faced by the company at the beginning of 2003? To answer this: -

• Carry out a comprehensive SWOT analysis, including: o A thorough review of McDonald’s internal resources and capabilities, and o An examination of external market factors, including trends in consumer

preferences, and the impact of the strategies and activities of competitors

Task 2 – 20 marks Is the 2003 new strategy, called Plan to Win, justified in the light of your SWOT analysis? To answer this: -

• Explain the key elements of McDonald’s new business strategy. • Make links between your SWOT analysis and the Plan to Win, and • Comment on the extent to which the Plan to Win reflects the findings of your SWOT

analysis.

Task 3 – 19 marks Assess whether McDonald’s strategy since 2003 has let the company regain its prominent position in the global fast-food industry. To answer this: -

• Carry out online research to find out McDonald’s current strategy and level of performance • Reflect and report on the views of business analysts and other commentators • Carry out a SWOT analysis to assess McDonald’s current circumstances • Compare your analysis for 2009 with the one you did for 2003 (Task 1), and note any

significant changes. • Evaluate and report whether the company has regained its prominent position in the fast-

food sector. Give the reasons for your conclusion.

Task 4 – 27 marks How have the following competitors, mentioned in the case study, performed since 2003?

• Wendy’s • Jack in the Box • Sonic

To answer this: -

• Describe the strategy each company was pursuing in 2003 • Check online to assess each company’s development since then • Determine whether their strategies have been successful to date • State what changes, if any, to their strategies are apparent for the foreseeable future.

Task 5 – 10 marks Assemble your work (the answers from Tasks 1-4) into one document, with: -

• Table of Contents • Reference List • Appendices and • Bibliography