McDonald’s was founded in the 1940s, and today it is the leading fast-food restaurant chain in the world. The main characteristic of this chain is the focus on the franchised business and the provision of high-quality services (Hill, Jones & Schilling 2014, p. 114). The purpose of this report is to analyse the strategic development of McDonald’s in detail, and it is necessary to refer to the internal and external analyses to describe the factors that have an effect on the company’s strategy.
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Internal Strategic Analysis
The SWOT analysis represents the information not only regarding strengths and weaknesses (internal factors) but also regarding such external factors as threats and opportunities.
McDonald’s is characterised by the reputation of a leader in the industry, and this fact attracts and retains customers. The company operates globally, and the proposed menus are adapted to the local customers’ needs. In addition, the focus is on the quality and speed of the provided services. Thus, the services are differentiated. The company effectively uses the franchising strategy in local markets (McDonald’s SWOT analysis 2015). Much attention is paid to advertising in order to contribute to the brand recognition.
If the services in McDonald’s are effectively differentiated, the products are characterised by the low differentiation. In addition, the company’s image often suffers from critical commentaries on the unhealthy character of menus.
The main focus is on diversification of the proposed products in order to address the tastes of the larger population. McDonald’s can refer to targeting not only children and middle-income employees but also other categories of the population.
There are high risks of new entrants in the industry and the decreased interest in McDonald’s products because of changes in the eating trends.
The main resource-based opportunities for McDonald’s are the improvement of the reputation with references to enhancing the advertising and the focus on core competencies such as high quality, responsiveness, and the attention to local customers’ needs.
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External Strategic Analysis
The Five Forces Analysis
The model of Porter’s Five Forces is important to be used for the external analysis in order to study what specific features of the industry can influence the McDonald’s strategy.
Threats of New Entrants
The threat is high because McDonald’s competes with a variety of restaurants globally, and there are both large fast food chains and small businesses among the rivals for which barriers to entry are rather low. This market sector develops actively, and the number of new fast food restaurants increases annually, including the development of international chains and small local brands (University of Oregon Investment Group 2010, p. 6). The required capitals are small, and local governments usually support the opening of new restaurants.
Bargaining Power of Suppliers
McDonald’s is a large fast food restaurant chain, and its restaurants are opened in different countries. The used franchising strategy allows selecting suppliers according to the needs of the concrete restaurant (Lynch 2015, p. 89). Suppliers are interested in cooperating with McDonald’s restaurants. As a result, the power of suppliers is low because of the company’s limited dependence on the proposed products and services.
Bargaining Power of Buyers
Buyers in this industry have no power to influence its development because the success of McDonald’s restaurants is based on the franchising strategy and the specific approaches used by managers in the concrete region or location.
Threat of a Substitute
The threat of a substitute is high because the fast food and restaurant industry develops actively. Today, there are many cafes and restaurants that propose not only fast-food menus but also specific options that include the vegetarian menu or national cuisines. From this perspective, McDonald’s can address the changes in the industry and meet the clients’ expectations.
The Degree of Rivalry
As the threat of substitutes is high, the degree of rivalry in the industry is also high. The main competitors of McDonald’s are Burger King, Yum!, and Wendy’s (Appendix A). In spite of being one of the dominating actors in the fast-food industry, the company also competes in the local markets with small or national cafes and restaurants. The company’s success in this competition is grounded on its brand reputation and the differentiation strategy, but it can become ineffective in the perspective.
Environment-Based Opportunities, Generic Strategies and Ansoff Matrix
According to Porter’s classification of generic strategies, McDonald’s uses the differentiation strategy while proposing unique services (the low wait time and high convenience) and using the brand reputation for the further development. The broad audience is intended to be targeted with the product. According to Ansoff Matrix, the relevant choice for McDonald’s is the further product development with the focus on proposing new menu options for different categories of customers (Lynch 2015).
McDonald’s Strategy Formulation
McDonald’s has two strategic options to follow. The first one is prescriptive, and it is based on developing the effective differentiation strategy with the focus on increasing the reputation. McDonald’s mission should change to targeting all categories of the population despite their eating habits. This approach is associated with the product development strategy. The target for McDonald’s can become the improvement of the menus in local restaurants in terms of proposing the healthy eating options, vegetarian dishes, and national dishes in order to address more buyers.
Thus, the first step is the improvement of the reputation with the focus on providing diversified menu options, including the healthy food. The second step is the recruitment of the high-skilled people to guarantee the quality of services. The third step is the product development to become different from competitors. The learning-based approach can also be implemented. In this case, McDonald’s will focus on the detailed analysis of the previous experience in the industry and study the field in order to implement the above-mentioned steps gradually and with the higher results.
The analyses demonstrate the tendency of the increased rivalry in the fast-food industry. In order to address the intensified competition, McDonald’s should focus on improving the current strategy. It is important to address the risks associated with the high number of new entrants proposing new products. Following Porter’s views, McDonald’s should develop the differentiation strategy. Referring to Ansoff Matrix, it is important to propose the product development. In order to make the changes more gradual and productive, it is possible for McDonald’s to refer to the learning-based approach.
Hill, C, Jones, G & Schilling, M 2014, Strategic management: theory: an integrated approach, Cengage Learning, New York.
Lynch, R 2015, Strategic management, Pearson, Harlow.
McDonald’s SWOT analysis 2015, Web.
University of Oregon Investment Group 2010, McDonald’s Corporation, Web.
Table 1. Rivals’ Income
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