|Industry||Quick Service Restaurant|
|Headquarter||Chicago, Illinois, U.S.A|
|CEO||Christopher J. Kempczinski (since November 2019)|
|Revenue||USD 21.1 billion in the fiscal year 2019|
|Profit||USD 5.94 billion (28.2% net margin)|
|Competitor||Yum! Brands Inc., Wendy’s Co, Restaurant Brands International, Jack in the Box Inc., El Pollo Loco Holdings Inc.|
Mcdonald’s SWOT Analysis
McDonald’s operates and franchises fast-food restaurants globally. Its restaurants serve a variety of value-priced menu products in many countries around the world. McDonald’s has more than 38,000 serving fast food items, mostly burgers, and fries, in 100 countries (about 14,000 of them are in the U.S alone). The most popular items on the menu are Big Macs, Quarter Pounders, Chicken McNuggets, and McMuffin. In addition to freestanding units with dine-in, take-out, and drive-through service, McDonald’s also has locations inside airports, train stations, and other retail areas with high foot traffic. More than 90% of the restaurants are run by franchisees and McDonald’s generates more than half of its revenue outside the U.S. Let’s dive in the swot analysis to have a better understanding of the company.
Mcdonald’s Strengths 2020
- Stable income through successful franchising and marketing campaigns.
Given that more than 90% of 38,000 McDonald’s are franchising instead of company-operated ones, McDonald’s corporation would have less concern on the day-to-day operation of each location. Instead, revenue can be smoothed out by collecting monthly rent and royalty fee based on the percentage of sales. The company is in the process of converting its own restaurants into franchise locations due to the predictable revenue and cash flow, less resource, and capital intensive. In addition, branching out internationally using franchising would soften the culture shock in operating in a new country and render the adaptation to local tastes easier.
- Strong brand recognition through marketing campaigns.
Through marketing techniques like Happy Meal, the iconic Golden Arches, and Ronald McDonald, McDonald’s is synonymous with fast food and has become a branding success story. It has spent millions of dollars on marketing campaigns that span digital, print, TV to generate loyalty and differentiate itself from competitors.
- Food quality is consistent.
McDonald’s works with local and global suppliers to ensure consistent, quality products. Its international network of franchise operator is controlled to ensure that a Big Mac purchased in Pittsburgh tasted the same as the one bought in Tokyo. This is a big plus to travelers in a foreign country when they are not adventurous enough to try local food.
- Using technology to improve customer experience in stores and mobile applications.
McDonald’s offers self-serving kiosks in many retail locations where customers can customize and pay for their orders without talking to an employee. McDonald’s also has a mobile application for ordering for pick-up or delivery. In 2019, McDonald’s acquired Dynamic Yield for a technology that will enable McDonald’s to improve its drive-through experience by changing the menu items depends on the weather, time of day, and trending items. Once a slow adopter, McDonald’s now eager to enhance its mobile engagement with young customers, hence a small stake in Plexure, another tech company, is bought. Plexure is tasked to attract customers using offers and loyalty programs on mobile devices.
Mcdonald’s Weaknesses 2020:
- Income is heavily dependent on the franchisee, however, McDonald’s is not more immune to sales decline compared to companies that own and operate their own restaurant.
The franchising model has little operating leverage thanks to its low level of assets, however franchisors, like McDonald’s, have to bail out franchisees when they are struggling financially due to wage-rate inflation, store remodels, and tech upgrades. Specifically, McDonald’s is expected to support its franchisees with rent deferral, royalty, and ad-fund.
- Little exposure in the world’s largest market, China.
Only 9% of McDonald’s stores worldwide are in China, which contributes to only 3% of operating income. With a population of more than one billion people, McDonald’s is not exploiting the potential of this market enough and it is leaving money on the table.
Mcdonald’s Opportunities 2020:
- Invest in the McCafe brand to enter into the coffee business.
According to various reports, McCafe-featured locations generally generate 15% more sales than a regular McDonald’s. McCafe menu offers many items that are popular in a coffee store, from espresso, cappuccino to cold frappe, and smoothies. Its wide range of offers is enough to take on chains like Starbucks. McCafe’s coffee bean is also offered in retail bags so that customers can enjoy a McCafe at home. McDonald’s should leverage McCafe’s current position further to penetrate the coffeehouse market.
- Introduce limited-time offers of premium items to boost margin and compete with Shake Shack and Five Guys.
Recently, Jack in the Box bundles its limited-time offers with regular items to avoid diluting the equity of core menu items. McDonald’s could implement this strategy and offer the premium items at a lower cost to gain sales from low-income consumers, plus bundling items will make customers think they are paying less than what it worth. Currently, McDonald’s premium fresh-beef quarter pounder and other higher-priced items have fueled the U.S same-store sales gain, so the demand is there for McDonald’s to capitalize on it.
- Introduce healthier items to the menu to attract new customer bases and change the image of the company of being an “unhealthy” food chain.
At the moment, McDonald’s has various salads on its menu and sliced apples in its Happy Meal, as well as offering some “healthier” choices on its side menu, such as yogurt. Healthy items should be expanded beyond salad so that health-conscious customers can buy a whole meal at McDonald’s and somewhat changing the current image of the company. Moreover, to anticipate the trending vegetarian/vegan diet, McDonald’s should include meat-alternative burgers and vegan-friendly fries on its menu.
Mcdonald’s Threats 2020:
- New trends toward health and wellness impact consumer demand for fast food.
McDonald’s revenue has deteriorated over the past year due to this trend. If McDonald’s plays its card right, the threat can turn into a new opportunity to capture a whole new customer base.
- New regulations from governments around the world put restrictions on fast food to curb out obesity.
The U.S government requires restaurants, including fast-food chains, to list their menu items along with calories figure. The calorie count can discourage many customers from buying when they see how much calories they are about to consume. Regulations on fat and sugar content will cost McDonald’s to reformulate its food and request them with suppliers.
- The company’s use of boxes, wrappers, cups, and straws is not sustainable for the environment.
Fast-food chains, like McDonald’s, are among the heavy users of plastic straws and cups and generate tons of waste every year. Starbucks starts to offer paper straws to replace the plastic ones and redesign their cups so that certain drinks do not require straws to enjoy. McDonald’s should replace its current package’s material with environmental-friendly ones to avoid posing a negative image to customers.
SWOT Analysis of Mcdonald’s Conclusion:
Despite some temporary setbacks in sales during the past years (2018-2019), McDonald’s and its Golden Arches are still the most iconic brand name in the fast-food industry with millions of loyal customers worldwide. The company is going through some franchising efforts as part of a new strategy to improve operational efficiency and achieve a more stable cash flow. McDonald’s has plenty of opportunities to grow, however, it has to address many anticipated threats in the near future to earn higher revenue.