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Introduction
A merger is a business expansion strategy in which two or more companies combine to form one new company. On the other hand, an acquisition is a business venture in which one company purchases another one without formation of a new company. In general, a merger and an acquisition entail consolidation of two or more corporations to form a competitive joint synergy.
In this paper, McDonald and Carls Jr. Corporations have been chosen to illustrate the effectiveness of mergers and acquisitions as business expansion strategies. McDonalds Corporation is one of the leading fast food restaurants that have gained global competitive advantage through acquisitions. Unlike McDonalds, the competitive advantage of Carls Jr. is product differentiation and effective customer service. Carls Jr. operates mainly in the United States of America.
McDonalds Corporation
McDonalds is the largest chain restaurant in fast food industry. The company started in 1940 as a barbecue restaurant in California. Its main products are hamburgers, breakfast items, cheeseburgers, and soft drinks. Today, McDonalds Corporation serves over 65 million customers on a daily basis in 120 countries around the world. Its main expansion strategies are competitive customer service, high quality products at affordable prices, product differentiation, effective marketing and acquisitions (Mujtaba & Patel, 2007).
During its initial business expansion phase, McDonalds Corporation employed high quality customer service and product differentiation as strategic marketing tools to gain a strong market presence in the United States of America. By mid 1980s, McDonalds was among the biggest fast food restaurants in the United States of America.
This strong market presence prompted the need to explore overseas markets. A stronger domestic market presence was essential in propelling the fast food leader to the international scene. Acquisitions were among the effective strategies that would ensure quick expansion of McDonalds Corporation.
Acquisitions were also thought to be strategic management tools that would help McDonalds overcome the challenges of new markets. McDonalds Corporation hoped to use the already established market presence and successful business models of existing companies in new market environments (Mujtaba & Patel, 2007). In response to these needs, it acquired Donatos Pizza, Chipotle Mexican grill, and Boston Market between 1998 and 2000 (Derdak & Pederson, 2004).
The above acquisitions made McDonalds the biggest chain of fast food restaurants in North and South America. The acquisitions were strategic because they increased the product line and domestic market presence of McDonalds Corporation. Donatos pizza is based in Columbus, Ohio with over 200 outlets in the United States of America. Its acquisition made McDonalds Corporation the dominant fast food restaurant in Ohio with an entry in the pizza industry.
Chipotle Mexican grill had over 1200 restaurants in 43 states and countries in the world. Among its market strongholds are Canada, England France, and Russia. It specializes in tacos and burritos as the main products. Its acquisition by McDonalds in 1998 made the latter the biggest fast food restaurant in Canada and England (MarketLine, 2012). It also extended McDonalds product line by inclusion of tacos and burritos.
By the year 2000, McDonalds Corporation was the leading fast food restaurant in Washington, DC, Ontario, Toronto, Quebec, and Paris thanks to the acquisition of Chipotle Mexican grill. McDonalds Corporation acquired Boston Market (Formerly known as Boston Chicken) in 2000.
Boston Market had 550 restaurants in 28 states in the United States of America, Australia, Sydney, and Canada prior to its acquisition by McDonalds Corporation. Thus, the acquisition of Boston Market by McDonalds Corporation expanded the market presence of the latter in Australia and Canada. McDonalds was able to use human resources and the success story of Boston Market to enter into new market environments without incurring establishment and administrative costs.
In general, the decision to acquire the above three fast food restaurants by McDonalds Corporation was strategic. This is because it enhanced quick expansion into international markets without incurring establishment and administrative costs. According to MarketLine report (2012), many organizations fail to establish themselves in new markets because of the inability to adapt to new consumer cultures. Thus, acquisitions are effective tools of overcoming cultural shocks in new market environments.
Carls Jr. Corporation
Carl Karcher and Margaret Karcher started Carls Jr. as a hamburger restaurant in California in 1941. It was initially called Carls Drive-In barbecue until 1956. The stiff market competition of the 1990s made it difficult for Carls Jr. Corporation to establish itself in Texas and Arizona.
Its expansion has been slow due to its management strategies that discourage mergers and acquisitions. The major challenge to its expansion is the competition from McDonalds Corporation, which has the largest market presence in the United States of America. Currently, Carls Jr. is planning to expand its operation into international markets. The first proposed destinations are Singapore, Russia, Australia, New Zealand, Denmark, and Brazil among others.
The most effective and profitable company for a merger or acquisition for Carls Jr. is Starbucks Corporation. This is because of its wide international market presence that makes it the third biggest chain restaurant in the world. Starbucks Corporation is the leading coffeehouse restaurant in the world with over 20300 stores in 61 countries. Its strongest international market presence is Japan, Canada, China, the United Kingdom, Mexico, Taiwan, Philippines, and India among others.
Besides hot and cold coffee, Starbucks Corporation also deals in snacks, sweet pastries, salads, and cold sandwiches. The joint venture of Carls Jr. and Starbucks Corporations will be profitable for the former because of expanded product line. Carls Jr. will also benefit from the international market locations of Starbucks without incurring extra administrative and establishment costs.
The business and corporate strategies of McDonalds Corporation
The mission of McDonalds Corporation is to be the customers favorite place to eat in the world. The business strategy for McDonalds is market led, and customer focused innovations. To achieve this, McDonalds undertakes extensive market research to establish its customers and their needs.
It then designs its products to meet the needs of all age groups. The prices are also varied to meet the needs of people from all social classes. The wide market presence ensures that McDonalds is the restaurant of choice for majority customers in the world (Mujtaba & Patel, 2007). McDonalds corporate strategy is business diversification and international expansion. McDonalds employs related diversification by proving various meals that meet all customer needs.
Recommendations for improvement
The most effective recommendation for McDonalds Corporation is vertical integration. This is a cost cutting strategy, which is achieved by using an organizations own inputs and distribution channels. McDonalds Corporation should produce its own inputs and develop its own transportation and distribution systems. This will reduce overall costs and increase the companys profitability.
Proposed business and corporate strategies for Carls Jr.
The most effective business level strategy for Carls Jr. is high quality product branding. Effective branding of Carls Jr. Corporation and its products will attract the attention of new customers in new market environments (Gussoni & Mangani, 2012). This will offer it a competitive advantage against other market players. For corporate level strategy, the most effective recommendation for Carls Jr. is international expansion. This will provide the company with a global market for its products (Stoy & Kytzia, 2004).
References
Derdak, T. & Pederson, J.P. (2004). McDonalds . In Derdak, T & Pederson, J.(Eds.), International directory of company histories. 3rd Ed (pp. 108-109). New York: St.James Press.
Gussoni, M. & Mangani, A. (2012). Corporate branding strategies in mergers and acquisitions. Journal of Brand Management, 19, 772-787.
MarketLine (formerly Datamonitor), Financial Deals. (2012). McDonalds Corporation Mergers & Acquisitions (M&A), Partnerships & Alliances and Investment Report Nov 27, 2012. New York, NY: Alacra Store.
Mujtaba, G.B. & Patel, B. (2007). McDonalds Success Strategy And Global Expansion Through Customer And Brand Loyalty. Journal of Business Case Studies, 3(3), 55-66.
Stoy, C. & Kytzia, S. (2004). Strategies of corporate real estate management: Strategic dimensions and participants. Journal of Corporate Real Estate, 6(4), 353-370.
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