Before presenting a detailed evaluation of McDonald’s strategic management perspective, it is necessary to define the leading actors in this situation. Exploring employee’s culture, understanding clients’ needs and concerns, attracting new investors and suppliers, and establishing fruitful relations with environmental organizations should be a priority for the restaurant network.
At the current moment, the company faces the challenge of creating a new concept and logo of the fast food industry that should focus on health conscious consumers.
A new shift in production and service are predetermined by the increasing popularity of environmental concerns with the ecological situation and the threat of genetically modified products. Therefore, the products should restructure their product orientation to sustain long-term competition.
While considering the level of interest and power among the potential stakeholders, specific attention should be given to employees, clients, and suppliers because they have a potent impact on McDonald’s profitability and performance.
To begin with, the Matrix of interest and power demonstrates that employees have a high level of power but their interest is low, which implies that the company fails to provide a rich organizational culture and develop strong corporate responsibilities. Introducing strong morale and ethics will definitely have a positive effect on employees’ awareness and commitment to organizational goals.
While developing efficient employed setting, the managers should take closer attention to a culturally diverse environment and create a strong ethical framework for employees to motivate their performance. Hence, different regions should rely on the geographic and national peculiarities to respect employees’ background.
Apart from individualistic approach, the company should work out a universal philosophy that would be tolerant to all employees irrespective of their race, nationality, and gender. Thus, there should be a balance between respect for tradition and overall humanistic approach to managing human resources.
While considering consumer needs and concerns, it is necessary to introduce differentiation strategies for consumers who can take part in developing the new menu for the restaurants with regard to their cultural, national, and ethnic backgrounds. This is the case when global expansion strategies should be introduced for evaluating the local peculiarities and adopting them into a new framework.
For instance, acting in Asian region, company’s managers should focus on the local specialties that are in high demand among consumers. The employees should also be familiar with their customs and establish trustful and respectful relations with their clients. Focusing on hospitality and communication based on high-context culture.
Specifically, this type of culture relies on “nonverbal and subtle situational messages when communicating with others” (Kreitner 97). Therefore, the main task of McDonalds is to inform and train their employees to be able to meet a specific cultural environment.
High context cultures are also identified with the representative of collectivist culture, which means that clients from such countries as Egypt, Japan, and India have a strong commitment to their families, friends, and relatives. Therefore, they tend to share common goals and objectives.
In contrast to low-context and individualistic cultures, the restaurant managers should be deeply concerned with person-oriented approach to meet the clients’ needs.
The representatives of low-context culture include predominantly European and Western countries. Overall, an in-depth assessment of cultural, economic, and ethnic backgrounds is essential because it enhances McDonald’s competitive advantage and improves their philosophy and vision.
Apart from cultural consideration, developing a new concept of food consumption is another issue that McDonald should change to meet environmental and health concerns. Consumers should alter their attitude to McDonald’s in terms of stereotyping its products as “junk food”.
In this respect, the company’s marketing personnel should develop a new advertising campaign that can present a completely different philosophy to convince the consumers that fast food can be healthy. Such a vision is unique and, therefore, it provides McDonald’s with a considerable competitive advantage.
Hence, other fast food networks will need some time to work out another efficient strategy for expanding their market segments. Such a strategy should be consistent with quality and price dimensions that should also attract consumers. Certainly, because the product is natural and healthy, the price for quality should be higher.
The shifts in the concept of food offered to consumers should be congruent with product differentiation strategy, which implies the development of a health menu for health conscious consumers. These menus must include the information about the ingredients, calories that a separate product contains. In such a way, consumers can be more confident about the product they consume.
To develop a new concept, searching for new suppliers will be a new challenge. Under these circumstances, it is possible to follow the example of Nestle company, a multinational producer, that has managed to meet the requirements of health conscious population and create new jobs in agricultural sector (Haksoz et al 200). This is of particular concern to supply of milk in the Indian regions in which the products are distributed.
Besides, the delivery terms were simplified because the company did not need to supply milk from distant regions anymore (Haksoz et al. 200). Besides, the agricultural sector in Panjab that had previously been in recession has experienced the second revival. As a result, the economic situation has also been improved significantly (Haksoz et al. 200).
Based on this example, McDonald’s restaurant networks can also adjust to geographic and climatic conditions of various regions and establish contacts with local suppliers of food products, including milk, meet, and other products. For instance, while operating in China, it is possible to produce dishes containing rice whereas Japanese McDonalds can deal with sea products.
In Islamic countries, McDonald’s chain can take into consideration the food preferences in terms of religion traditions. Such products as ham and pork are prohibited among Muslims and, therefore, the managers should develop a new culturally oriented product to meet the dietary restrictions.
Establishing and searching for new suppliers of products and equipment is an important strategy because it allows the managers to protect the company from potential losses of the resources. Additionally, developing brand loyalty and improving public relations is another beneficial strategy that can contribute to the competitiveness of the fast food chain.
The development and expansion of retail stores at hospitals, airports, and other public place turned out to be successful and, therefore, this approach to expansion should be implemented in future while entering new economic spaces. Due to the fact that the bargaining power of suppliers is relatively stable, the possibility to substitute distributors will not be problematic.
It also contributes to a long-term competitive advantage and sustainable development of restaurant network. Additionally, developing and expanding supply chain will enhance the industry’s global influence because lack of resources can immediately be replaced by other producers from the local regions.
The above-proposed marketing strategies should be congruent with international and domestic policies that can enhance attitude and quality of the organizational process. Taking control of technological development is also indispensible to meet the globalization process and innovation.
Advancing equipment and developing electronic menus will definitely improve the quality of services. Therefore, taking advantage of the local capabilities and integrating advanced technology can provide wider opportunities for enhancing the company’s competitiveness.
McDonald’s global orientation will be beneficial as soon as external environment is considered properly. In fact, estimating and predicting the competition strategies of its rivals is as important as recognizing the importance of internal processes optimization.
Broader sense of competition should be acknowledged to ensure McDonald’s successful operation. At this point, the matter of time is important during rush hours. So, locating restaurants should be based on the possibility to deliver quickly prepared meal at a moderate price that could be taken with clients.
Finally, McDonald should provide a new ideological framework in terms of authenticity of ideas. For instance, it is possible to organize restaurants in rural areas and present specialized menu based on the products from countryside
. This idea will produce shifts in perceiving McDonald’s as an urban network of restaurant. In general, all the proposed strategies cover all external and internal factors consistently to sustain a competitive advantage in five years (from 2013 to 2018) of business activities.
Ensuring the quality of operations and introducing new ethical and moral frameworks can strengthen the global position of the fast food industry. Thinking locally, but acting globally is the basic principle of successful business management. Addressing the change immediately is another approach to gain a competitive advantage.
Works Cited
Haksoz Cargi, Seshadri Sridhar, and Ananth V. Iyer. Managing Supply Chains on the Silk Road: Strategy, Performance, and Risk. US: CRC Press, 2012. Print.
Kreitner, Robert. Principles of Management. US: Cengage Learning, 2009. Print.
The key to excellent business performance lies in the well being of an organization’s human resource component. McDonald’s, one of the leading retail fast food chains in the world promotes its employees welfare by providing numerous benefit packages that aim at protecting the employee’s health, social welfare, and financial security.
The corporation which was founded by Ray Kroc in the mid 20th century has managed to continuously deliver exceptional growth over the years despite the challenges facing the fast food industry in the modern economy.
This outstanding performance can be attributed to the company’s improved customer service and extensive marketing which saw a 3.8% sales increment in 2009.
To further improve its performance in the coming years, McDonald’s should focus more on employee’s welfare by providing a benefit package that motivates the existing pool of experienced labor and discourages high rates of employee turn over.
Currently, McDonald’s offers a wide range of benefits to its permanent employees. The corporation’s benefit program constitutes health and protection benefits which include medical plan, vision supplement, dental plan, spending accounts, short and long term disability, life and accidental death insurance, and travel accident insurance.
In addition, the company provides a wide range of enhancement benefits which include vacations and holidays, sabbatical program, short Fridays and leave of absence, adoption assistance, education assistance, free internet discount program, and international fitness club network among others.
Further, McDonald’s provides retirement benefits to its employees through profit sharing and savings, Mc$ave, McDirect shares, credit union, and financial planning services. However, McDonald’s offers a limited range of employee benefits to its part time employees working directly in the restaurants despite the risky nature of their work.
Further, the company’s plan to drop its employees’ health plan has faced a lot of criticisms in the media which may damage the image of the company among employees and consumers.
In response to this, McDonald should review its benefit plan scheme to incorporate an extensive benefit package for restaurant crew. It should also utilize its financial resources efficiently in order to obtain adequate revenue to maintain its employees’ health care plan and meet the required regulations.
In anticipation of revenue increment in the coming year, McDonald’s should invest more on its human resource by increasing the range of benefit coverage. However, if McDonald’s anticipates reduction in sales in the coming year, the company should focus more on maintaining health care and retirement benefits and restrict employee eligibility for recreational benefits.
Mc Donald’s Background Information
In the late 40s, two brothers, Dick and McDonald were seeking to improve performance in their little restaurant located in California. In response to this, the two brothers introduced self service, redid their menu, increased their production rates, and reduced their prices making them more competitive.
As a result, the company enjoyed remarkable success in the following years which prompted establishment of franchises to further increase its market. McDonald’s restaurant success story caught the interest of Ray Kroc, a 52 year old sales man who became their exclusive franchising agent for the entire United States.
In 1961, Kroc eventually acquired McDonald’s and this not only freed him from McDonald’s initial restrictive agreement but also enhanced his ability to pursue growth in McDonald’s and the fast food industry at large. McDonald’s continuous growth saw the take off of fast food industry in United States and later took the world by storm.
Ray Kroc emphasized on maintenance of cleanliness, quality standards, improved service, and value in all McDonald’s franchises which led to improvement in customer service in the rapidly growing fast food restaurant industry.
In 1965, McDonald’s issued its shares to the public which consequently transformed in into a public corporation and a year later, it was listed in the New York’s stock exchange.
The subsequent years were followed by increase in the number of restaurants and sales such that by 1970, the corporation had approximately 1600 restaurants located across all the states US and reported sales of $587 (McDonald’s 2011).
After achieving wide spread growth across United States, McDonald’s further sought to expand into international markets to further increase its market base. The first McDonald’s restaurant to be established outside US was in Canada after which the company ventured into the European, Australian market, and Asian Market.
Currently, McDonald’s is among the leading food service retailers in the fast food industry and has established more than thirty two thousand restaurants, which are spread across 117 countries (McDonald’s 2011).
With more than 75% of its restaurants being franchised, the company has provided opportunities for other businessmen to contribute to the success of the company and has provided employment to over 1.7 million people world wide (McDonald’s 2011).
McDonald’s continues to improve its performance by continuously improving customer service and promoting entrepreneurial spirit among the employees, suppliers, and operators (McDonald’s 2011).
In addition to its unique customer service, McDonald’s impressive performance in the industry can be attributed to personal and professional integrity whereby the company seeks employee trust by being dependable, ethical and truthful (McDonald’s 2011).
In addition, the company promotes good governance among its leaders and shows commitment to the same through annual reviews and monitoring which creates room for adjustment and continuous improvement.
According to McDonald’s (2011), good governance within the organization is the journey through which the company promotes integrity in its interaction with all the relevant stakeholders.
McDonald’s Employee Benefit
In the past, McDonald’s paid most of its employees the minimum wage. However, the current labor shortages have forced the price of wages to increase. Benefits such as health insurance and sick leaves were lacking in most franchises in US (Leidner 1993) and lack of tangible benefits was especially evident among restaurant crews most of whom are students and part time workers.
This resulted in very high employee turn over rates such that in 1984, the employee turn over rate average 153% and the rates increased in 1985 to 205% (Leidner, 2003). Today, Mc Donald’s strives to employ and maintain a competent pool of human resource capable of meeting and overcoming the challenges facing the fast food industry.
In order to achieve this, the company ensures that it awards flexible schedules and competitive payment packages for its part time employees working as restaurant crew. The restaurant crew benefits comprise of 24 hour nurse line access, free or discounted meals, and flexible hours.
In addition, these employees may be awarded other benefits eligible to permanent employees but these are subject to specific requirements and restrictions. McDonald’s benefit program attracts, retains, and engages competent personnel capable of promoting achievement of the company’s objectives.
The company’s employees at corporate, divisional, and regional offices are awarded benefits which are classified under four categories; health and protection, pay and rewards, investing in the future, and balancing between work and life (McDonald’s 2011).
Health and Protection
While many companies in the first food industry do not offer health coverage for their employees, McDonald’s provides medical plans for its workers at 10,500 US locations most of which are franchised (McDonald’s 2011).
The medical programs provide different options depending on employees needs. These plans incorporate a prescription drug program, preventive care, annual physical exams, child care and immunization as well as unlimited life time benefit maximum (McDonald’s 2011).
The cost of medical plan varies according to plan and number of people being covered. For mini-med plans, a single worker can pay up to $14 per week for an annual plan worth $ 2000 or $ 32 per week for coverage up to &10000 a year.
As of March 2009, the basic McCrew plan cost the employee less than $56 dollars a month, employees plus 1 at slightly over $117 per month, and the employee plus family at under $180 per month (McDonald’s 2011).
In the same time period, the mid 5 McCrew medical plan cost the employee $97 per month, employee plus 1 at $117 per month, while employee plus family cost under $320 per month (McDonald’s 2011).
Employees enrolled in either of McDonald’s medical plans may choose a vision supplement plan which covers a wide range of visual services such as eye glasses and contact lens replacement program. In addition, the company provides a dental plan which enables its employees to access dental services from the dentists of their choice.
McDonald’s provides flexible spending accounts for its employees which enable them to set aside pre tax income to pay for health care and day care expenses. Employees may set aside up to $5600 in health care spending account and up to $5000 in the day care spending account (McDonald’s 2011).
This enables the employees to comfortably cater for costs uncovered or partially covered by the medical plan. The company also offers short and long term disability coverage to its staff at no cost.
The short term disability plan provides benefits to employees who are incapable of working for ten consecutive days while the long term disability coverage covers 60% of employees base salary while he is disabled (McDonald’s 2011).
Employee and dependent life insurance is twice the employee’s base salary and is provided to McDonald’s employees at no cost. However, the employees can choose to acquire additional life insurance to cater for spouse and other dependents at his/her own cost.
The company also provides accidental and dismemberment insurance cover which benefits employees’ dependents upon accidental death of the employee and is equal to twice the employee’s base salary.
Further, the travel and business travel accident cover provides travel accident coverage of twice an employee’s base salary at no cost to employees. Depending on employee’s position, the coverage amounts to either $100000 or $200000 and incorporates travel accident coverage (McDonald’s 2011).
Retirement Benefit Plans
McDonald’s acknowledges the need for its employees to invest in the future in these economically challenging times. Consequently, the company offers savings and money management programs which assist employees in planning for the future.
The profit sharing and savings plan allows the employees to save up to 50% of their pay on tax deferred basis in 401(k) (McDonald’s 2011). The company contributes $3 for every $1 contributed by eligible employees of the first 1% of their contribution and a further $1 for each $1 contributed by employees on the next 4% of their contribution.
In addition, eligible employees are also entitled to a discretionary profit sharing match of 0% to 4% which is based on their contribution (McDonald’s 2011).
In addition, McDonald has established other investment packages such as Mc$ave which is a money market fund where employees invest part of their income in the prime reserve fund, McDirect shares which allows employees to buy customer shares and reinvest dividends in the company, Credit Union where McDonald’s employees enjoy services through corporate America Family Credit Union, and financial planning services which facilitates employees access to professional financial planning services through Ameriprise Financial or Merrill Lynch (McDonald’s 2011)
Balancing Employees Work and Life
In order to achieve maximum output from the human resource component, McDonald’s seeks to assist its employees in striking a balance between work and life outside the work place by providing a wide range of benefit packages designed to help employees maintain this balance.
The company offers paid vacations for corporate, region, division office and restaurant management employees (McDonald’s 2011). The vacation period depends on the duration in which an employee has worked for McDonald’s. Moreover, the company offers nine paid holidays to its full time eligible employees.
McDonald’s seeks to reduce the amount of time spent in the office by its employees by providing anniversary splash, sabbatical program, short Fridays, and leave absence (McDonald’s 2011).
In attempt to break the monotony associated with specialization and routine work, McDonald’s develops alternative work strategies where permanent employees have the option of flexible time or compressed work week while part time employees have the option of adopting the part time schedule or job sharing (McDonald’s 2011).
McDonald seeks to promote the social welfare in its human resource by offering child adoption assistance of up to $ 2500 per child to its employees. The company further seeks to promote improved child care among its employees by providing them with opportunities for discounted tuition.
For instance, McDonald’s has agreements with three national care providers; child time learning center, Knowledge learning center, and La Petite Academy which offer 10% discount on tuition for McDonald’s employees (McDonald’s 2011). In addition, eligible employees willing to further their studies may receive financial assistance from the company.
McDonald’s established the matching gift program which encourage employees to support NGOs, employee resource connection program which enables employees to manage their lives outside the office, international fitness club network where workers acquire fitness information and discounts on fitness equipment, auto and home insurance program which helps employees to purchase insurance through MetLife Auto and Home Insurance Program, and beyond work which is a free internet discount program for recreational products and services (McDonald’s 2011).
Recommendations
The fast food industry has gained world wide popularity due to its ability to provide quick service and inexpensive food to consumers. In the US market where McDonald’s has its most number of restaurants, the fast food industry has continued to grow with its market value being estimated at $ 51 billion in 2007 (Albala & Allen, 2007).
This growth can be attributed to emergence of a culture which favors longer work days and dual-income families. Despite the remarkable growth in the industry, McDonald has been a major target of the ongoing criticism regarding the quality of food served in fast food restaurants as well as its health care plan (Albala & Allen, 2007).
For instance, McDonald’s Bigger Big Mac was said to contain an entire day’s recommended allowance of saturated sales. In addition, the company’s plan to drop the health care plan for nearly 30,000 workers due to the new requirements of health overhaul has received a lot of criticism from the media, employees, and consumers (Adamy, 2010).
Health issues and numerous litigation law suits have significantly reduced sales revenue at McDonald’s. McDonald’s has been on the spotlight regarding its labor practices (Albala & Allen, 2007)
The restaurant crew is dominated by young teenagers, immigrants, elderly, and handicapped (Albala & Allen, 2007) and the working conditions are unsafe due to restaurants’ proximity to highways hence increased cases of armed robbery. Consequently, most workers in McDonald’s occupy their jobs for less than a year which leads to constant loss of experienced labor.
Despite the challenges facing the fast food industry, McDonald’s managed to deliver exceptional growth in 2009. Its sales revenue and market share continued to increase giving it a competitive edge over other fast food companies. McDonald’s should use its superior financial performance to improve working conditions in the company.
Employment on any level should be permanent and based on individual qualification upon which benefits such as those awarded to full time employees should be awarded to restaurant crew employees. Restaurant crew should be provided with health benefits and accidental insurance cover to protect them against the risks associated with their work.
McDonald should provide enhancement and investment benefits to part time workers in order to motivate them to work permanently for the company and to make them feel like they are part of McDonald’ team. The company should further seek to improve its image as an employer by ensuring provision of benefit plans to employees in the franchises.
Analysis of Benefit Package While Anticipating Revenue Increment and Revenue Reduction
If McDonald’s expects an increment in revenue in the next year, the company should invest heavily on employees by providing them with a wide range of benefit packages to further motivate them.
The company should increase employer contribution in the retirement benefit package and should introduce awards and recognition for exceptional performers. In addition, recreational benefits should be increased and the company should seek to contribute more to employees’ social welfare.
Further, McDonald’s should seek to meet the 2011 requirement by the department of health and human service which requires McDonald’s to spend 80-85% of its premiums on medical expenses rather than overhead expenses in its mini-med plan (Adamy, 2010).
If McDonald’s expects revenue reduction in the subsequent years, the company should seek to reduce its spending on employees benefits by reducing its contribution to recreational benefits package.
The company may discourage such benefits through restricting eligible members by demanding improvement in a performance for employee to be awarded holiday and vocational benefits.
McDonald’s may also increase employee contribution in the recreational benefits and drop some of the recreational benefits. Therefore, upon revenue reduction anticipation, the company should reduce the amount spent on employees’ benefits by the company but it should be careful not to send negative signals and discourage employees in McDonald’s.
McDonald’s is a name given to several restaurants operating under the same brand name in the US, which marks the origin of the restaurants. The company started early in the 1950s, making great profits and gaining popularity in providing foods to children, youths, young adults, and adults, including the elderly. It was not until 2001 that the restaurant reached its lowest point in operations, making great losses. Several serious issues affected restaurant operations (Laermer & Simmons, 2004).
External Factors
McDonald’s restaurant produced and sold the same type of foods as other restaurants in the region. This made it impossible for the restaurant to make a profit as before. Wendy and Burger introduced new skills and ideas in the restaurant operations, thus taking some of the customers from McDonald’s. Legislation, on the other hand, had its share on lowering down the activities of the restaurant. Some of the customers took legal action to sue McDonald’s for providing foods that made them gain a lot of weight in few days like one month. This is directly linked to customer’s preference whereby customers preferred specific types of foods that McDonald’s did not produce and sell (Laermer & Simmons, 2004).
Internal Factors
During the low period, McDonald’s had its internal problems that affected smooth functioning. Customers complained of inadequate satisfaction from the restaurant’s services. They observed that foods were of less substantial quality. The general cleanliness of the apartment was below the required standards. These made most of the customers feel insecure to pathogens that cause diseases. They opted to get their food from different restaurants, which fulfilled their satisfaction (Jellison, 2006). There were also several internal wrangles. For instance, shareholders demanded removal of Jack Greenberg as the manager of the restaurant during the restaurants darkest period.
Proposed Changes
Citing the problems that the restaurant was facing the management proposed some new strategies to help correct the situation. The restaurant management decided to use two strategies in this context. The strategies included travel path technology and lower calorie offerings.
McDonald’s travel path aimed at enabling a staff member to walk along after every thirty minutes to ascertain that all programs were running well. The restaurant management proposed a change in amount of calories they provided to their customers. This is because some customers complain of fast gaining of weight that can easily lead to obesity. Some of the foods invented to promote the sales of the restaurant in different parts of US and other parts of the world. For instance, in Japan they make Teriyaki Burger, which is a new idea from Sweden that grills Burgers vertically instead of horizontal in the same way as a traditional griddle (Jellison, 2006).
References
Jellison, J. (2006). Managing the Dynamics of Change. New York: McGraw Hill.
Laermer, R. & Simmons, M. (2004). Punk Marketing. New York: Harper Collins.
McDonald’s Company is one of the largest businesses in the world, with branches in 119 countries. The company serves over 60 million people daily in over 24,000 operational business zones worldwide. The following report focuses on one of the branches and/or subsidiaries operating in the UAE.
It gives a brief history and background followed by a strategic analysis of the company. The company’s chain of restaurants in the UAE will be discussed, including an assessment of their operations, investigation of the industry in which the business operates, and the market as a whole.
The report also states the mission, vision, values, and goals of the organisation in terms of its delivery of services to customers in the region and beyond. The Porter’s five forces model that is applicable in the analysis of performance and competition will also be applied in the company’s analysis. This will be followed by the competition analysis from new entrants in the market as well as the existing competitors.
An analysis of the company in terms of strengths, weaknesses, opportunities, and threats will be done in the section on SWOT analysis. The entry strategies that were used in the creation of the international brand of McDonald’s will also be analysed, with the provision of appropriate recommendations to the same. A conclusion is also provided encompassing all the suggested recommendations.
Background and History of the Company
McDonald’s Company began as a small restaurant in California under the steer of two brothers, Maurice and Richard McDonald in 1949. One of the other individuals responsible for the international expansion of the company is Ray Croc who is the American businessperson with roots from the Czech Republic. Croc bought the two brother’s equity in the company, thus transforming it into a nationally and internationally renowned brand.
McDonald’s business was listed as a public company in 1965 where it continued with its international expansion to markets away from America including Asia. The UAE subsidiary of McDonald’s Company was established in 1994. It has since been involved in the delivery of services in the area and in the region as part of McDonald’s Arabia Company. The company currently has over 100 restaurants that are spread all over the Arabian region.
Industry Analysis
The restaurant industry in the United Arab Emirates is one of the fastest growing industries in the world, with this growth being related to the relatively good performance of the economy. Several restaurants are spread out across the region and in the ever-growing cities. These restaurants provide services related to those that McDonald’s offers.
The industry is also well performing. In 2008, it recorded a growth of about 12% from the previous year in the purchase of food and beverages from the restaurants (Williams, 2008). The value was expected to increase from that of $841 in 2008 to over $1.2 billion in 2012 (Williams, 2008). In 2008 alone, there were over 11000 restaurants in the UAE, with McDonald’s business being among these establishments (Williams, 2008).
Market Analysis
The restaurant market in the UAE is relatively developed, with people here having a culture that is related to that in the Western nations. McDonald’s commands a respectable market share. It currently lies third in the market share in the region that it operates in the UAE. Most of the cities are places of work and residence in the UAE. McDonald’s business has capitalised on this to ensure that it is located in regions where the best market is located.
Mission of the Company
The mission of any company provides the strategic objectives for its existence in the region and industry. The brief statement of an organisation’s mission provides a means of guaranteeing the best services to customers of the organisation, thus ensuring that the company lives to the fullest of its customers’ expectations.
Mission Statement
McDonald’s Company mission is to be the, ‘customers’ preferred base and the way to eat’.
Vision of the Company
The company’s vision is to be the desired food outlet restaurant in the UAE, providing services to customer satisfaction.
Values of the Company
Company values are important to the organisation, employees, and customers. In the UAE, the company aims to be the favourite dining place for the population. The company also aims to provide unmatched quality services. It also hopes to maintain the highest level of cleanliness in its operations to facilitate in its vision of providing the safest food in the region. The company also values time. Besides, it has the value of providing timely services to its customers.
Goals of the Company
The goals of McDonald’s include being the market leader in the restaurant industry in the UAE and the region (Walker, 2007). It also has the goal of being the preferred eating-place for the population by providing the best ethically approved services. The company also aims to give back to the community and/or to grow its business positively in profitability.
McDonald’s UAE, which is a part of the McDonald’s Arabia, is a well-established company, with the brand name being strong in the region and internationally. The company has used this characteristic to ensure that it grows on the international front, with operations in the UAE being based on the desire to establish a restaurant chain as successful as in the mother country.
The vision, mission, and goals of the company are related to those of the mother company. They are necessary in facilitating the success of the company and quality service delivery. Some of the recommendations include that the company should invest more in other aspects of the economy and/or diversify its services in the region by providing foods that are culturally general in the area.
External Analysis of the Company
A competitive analysis of McDonald’s Company in the UAE is possible although with reference to the mother company and the regional branches from which the company operates.
Porter’s Five Forces Model
An analysis of McDonald’s using Porter’s five forces model is necessary to show the competitiveness of the company both in the region and in the UAE specifically. Porter’s competitiveness model shows the attractiveness of a market based on the outcome of the negative and positive influences that this aspect has on the profitability of the organisation on focus.
Risk of entry by Potential Competitors
The entry of potential competitors into a market is an important factor in the model. It is assumed that markets with a high performance index and with high returns will lead to attraction of new member of the market. There are a number of determinants to the entry of new members in a specific market.
They include the barriers that exist, as imposed by the existing market participants, or the nature of the industry in which they operate. For McDonald’s, the brand name is a very important factor in the prevention of entry of other competitors, as these are deemed to be afraid of competing with the well-established brand that the company has created.
Rivalry among established Companies
In any industry, competition is driven by the rivalry between the major industry players who determine the course of the competition. Several factors influence the competition, with different forms of competition being driven by the rivalry between the companies. The main determinant of the intensity of competition in the market that McDonald’s operates in the UAE is the use of advertising and majoring on innovation to attain competitive advantage.
The company has a number of recognised advertising campaigns that it has run in the region. These campaigns have ensured that it is ahead of the pack in competition. The rivalry in the industry is between the company and the major players who originally dominated the market before McDonald’s entry.
The Bargaining Power of Buyers
The bargaining power of buyers, also known as the market of outputs, is also a pillar in the Porter’s five forces model. Consumers have the power to determine the performance of any organisation.
One of the major ways that firms reduce customers’ bargaining power is using loyalty programs that ensure that customers are faithful to the organisation. Another component of this pillar is the number of customers in relation to the number of outlets that the organisation runs. McDonald’s in the UAE has a significantly better ratio, having a number of branches distributed throughout the UAE.
The Bargaining Power of Suppliers
Suppliers are also a significant factor in determining the performance of any organisation. McDonald’s is not an exception of this fact. As opposed to the bargaining power of customers, bargaining power of supplier, also known as market of inputs, affects the availability of raw materials for use on the organisation. If an organisation secures a good supply chain with trusted suppliers, the output also improves.
There is the availability of goods and services to the convenience of its customers. McDonald’s UAE has ensured that suppliers are available for the main utilities in the organisation. These utilities are sourced locally and internationally as per the requirements. Suppliers have also contributed to the quality services that the organisation provides.
Substitute Products
There are several restaurants in the UAE that offer competition to McDonald’s. While these restaurants offer direct competition, the hotel and catering industries around offer an indirect competition through the provision of related products. McDonald’s ensures that the competition that is provided by these substitute products is reduced through the pricing of its own products. When the prices of a product are lower than that of another related product, the customer often makes the choice of buying the cheaper product.
External Threats to the Company
Despite the company performing well both internationally and on the local front, there are a number of threats that it faces. These are likely to affect the future operations and profitability of the business. The main threat is the heath campaign against the company that is evident in many avenues. There has been concern about the prevalence of obesity in other areas of the world where the company operates. This situation is likely to emerge in the UAE. The negative publicity that the campaign creates for the company is likely to affect its performance.
External Opportunities for the Company
Despite the threat above, the company has a potential opportunity on the international front. With the improved performance of most of the economies in the region and the development of major infrastructure projects, the population will increase in the region (Robison, & Goodman, 1996). This provides an opportunity to the company to use its well-established brand name to improve its presence and performance in the region.
Internal Analysis of the Company
Resources and Capabilities of the Company
The company has a number of resources that it can attribute to its success in the country and the region in general. One of the major resources is the strong brand name that it has created over the years. The company also has a large number of experienced personnel to ensure that the services provided are adequate.
The company prides itself in having an experienced human resource. Some of the future resources that the company may invest in are cleaner and efficient way of producing the goods that it sells. This will be a likely source of future better performance.
Competencies of the Company
The company has a number of competencies that it is known for in the industry. As a restaurant with a powerful brand name, McDonald’s provides some of the tastiest fast foods available, with the best known of these foods being the burgers and chips. The organisation has used them as the marketing strategy to ensure that customers can relate the company with the sweetest foods.
The company also offers delivery services for some of the foods that it produces. It often has promotions where these foods are provided at a reduced cost. The main competence of the company is the efficiency with which it is able to provide quality foods. Some of these foods also include sandwiches and coffee, fruits and vegetables, and beef products.
Competitive Advantages of the Company
The company has a competitive advantage in a number of ways that it has managed to add value to its customers. One of the ways that the company adds value to customers is saving them time and money. Through the availability of cheap foods, customers can work comfortably in any city where there is a McDonald’s business. The organisation also ensures that families can save time and money through providing them with cheaper food options as opposed to travelling to their home places to look for food.
Strengths of the Company
The company has a number of strengths that are a source of its dominance in the region and on the international arena. One of the major strengths that have been mentioned is the strong brand name that it has created internationally. This continues to influence its performance even in the UAE.
Another source of strength is the location of the branches at the most convenient places where customers can access them. A large market and consumer base is another of the strengths that the company has. Many people in the UAE have at least dined, or wanted to dine, in the restaurant. The ownership of the restaurant is also by the locals. This makes them tailor their services according to market needs.
Weaknesses of the Company
Despite the strengths discussed above, the company also had its share of flaws. The major weakness of the company is the absence of varieties in the provision of services. The company has embarked on the preservation of its brand name. This has involved the restriction of services to the food and restaurant industry. The company is also located in the large urban areas, thus locking other markets that have a potential to develop.
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Strong brand name
Located in urban areas only
Growing economy of the UAE
New restaurants
Quality services
Absence of diversity
Increased dominance
Negative health campaigns
International presence
Strong customer base
Large market share
Poor market performance
Strong organisational culture
Developing regional economies and a chance of expansion
Local ownership of branches
Global Strategy
The company has adopted an efficient global strategy that is run by the mother company. This involves spreading to all corners of the world. Now, the company has subsidiaries and branches in over 110 countries. The ownership of these branches is purely by the local investors in each of the countries. The company controls the activities of these subsidiaries. The main achievement that the company has had is the establishment of branches in all the major continents and the provision of services related to the mother company.
Entry Strategy
The company used a number of strategies in its entry into the global markets. One of the strategies that it used was the acquisition of other international companies and organisations offering the same services elsewhere where they wanted to enter the markets. The company bought the smaller chain of restaurants where its operations were to run in the countries.
Another strategy that the company used was to contact investors in the different parts of the world. These investors were contracted to provide services on behalf of the organisation using its strong brand name to provide these services. The company used this entry strategy in most of the restaurants that are run in the UAE.
Entry Strategy Recommendation
The Arabian region is one of the regions that McDonald’s may expand into with a large presence. A number of branches are already available in one of the UAE neighbours. In order to expand to countries such as Iran and Iraq, the company needs to invest through the local investors.
It should build its own restaurants and contract locals to run the outlets. This method will be an effective strategy to ensure a widespread acceptance in the new places in terms of determining the entry strategy that should be used when the company enters a market in the future.
Conclusions
Based on the expositions made in the paper, McDonald’s qualifies to be one of the largest restaurants chain in the world. One of the international branches is the McDonald’s UAE. The company, as discussed, is locally owned by different investors, with the brand name being the most significant of its strengths in the operations. Some of the characteristics of the organisation have been discussed in brief.
Some suggestions are possible for this international organisation. One of the recommendations is that it should consider diversification of its services to other industries apart from the restaurant chain. This move would be important in guaranteeing performance even with the threats in the restaurant industry.
Reference List
Robison, R., & Goodman, S. (1996). The New rich in Asia: mobile phones, McDonald’s and middle-class revolution. London: Routledge.
Walker, J. (2007). Oman, UAE & Arabian Peninsula. Footscray, Vic.: Lonely Planet.
Williams, D. (2008). United Arab Emirates FAIRS Subject Report—UAE Establishes Arabic Labeling Requirements for Food Products 2008. USDA Foreign Agriculture Service. Retrieved from https://www.fas.usda.gov/
Mongolian market proposes McDonald’s Inc. great opportunities for global expansion and penetration in the Asian region. Thus, similar to other less developed countries Mongolia is a country with high political and economic risks. High inflation rates and unstable economic position, low level of foreign direct investments, and international operations with other countries are the main limitations for McDonald’s. Marketing planning will require sales projections for such periods as one, three, five, and ten years ahead, but it will be extremely difficult to forecast and plan these activities. Mongolia is a parliamentary republic, but it becomes independent only in 1992 and has inadequate democratic institutions and unfavorable laws for international companies (Doyle and Stern 2006; Storey, 2001).
Low income and unemployment rates, national culture, and cuisine will prevent McDonald’s from rapid growth. These projections predict customer and competitor reactions; attempt to gauge acceptance for new products; and highlight economic, social, demographic, technological, psychological, and political changes, all of which are difficult tasks to perform -nor can they be performed with the degree of precision available in other more concrete situations (Doyle and Stern 2006). The official language is spoken by 90% of citizens. The main problems will deal with religious diversity and national cuisine. Mongolians practice tendrils and shamanism, Buddhism, and Islam. Mongolians dietary patterns include mutton. McDonald’s will have to adapt its menus to this cultural and national tradition in order to compete in this country (Storey, 2001).
One of the major characteristics of the adoption of the marketing philosophy is that plans and programs replace haphazard marketing methods. By providing the means for anticipating the firm’s future requirements along with an orderly, continuous, systematic, and sequential basis, McDonald’s marketing planning should avoid crisis decisions and concentrates on integrated programs of action. There is more emotional resistance to change in the Mongolian type of culture and problem-solving procedures follow precedent or adapt old procedures to new situations. Departure from tradition is generally presumed to be bad until proved otherwise. The Mongolian world is a clear example of where modernization is not the same as Westernization. American themes are not, in general, good sales arguments among Mongolians — unlike among the Japanese, for instance. The value pattern in traditional societies also sets a limit to technology transfer possibilities. Mongolians are generally quite nationalistic. This is a common phenomenon among (successful) young nations. However, Mongolians also see themselves as unique and do not want to be compared with others (Doyle and Stern 2006).
Mongolians have little experience of working in formal organizations which, combined with belonging to a high-contextual culture, means that much of what goes on as planning, supervising, and controlling is more symbolic than substantive, as will be seen. Many Mongolian institutions and business organizations are not very efficient, which is one reason why Mongolian executives prefer to use personal (family and friendship) ties instead of formal channels and apply a very personalized and informal management style. Also, in the Mongolian type of culture, there is less concern with fashion in management ideas. The combination of education (whether at home or abroad) and exposure to the West (through business or personal travel) has typically resulted in a bilingual Mongolian executive. Incentive programs will help to attract and retain employees and potential customers (Hollensen, 2007).
McDonald’s will have to adopt a transformational leadership style in order to react and change traditional organizational patterns and performance principles. Management systems are culturally based. However, such systems are more than just rational tools; they contain elements of symbolism and rituals, and particularly so in high-contextual cultures, of course. The autocratic management style is often criticized by managers but it will help McDonald’s to control and introduce effective management practices and innovations. Meetings, where planning activities are to take place, can be used by seniors as confirmations of their positions and relations to other seniors and as a means to avoid uncertainty. As previously mentioned, this is particularly so when formal organizations are often inefficient in such recently modernized nations as those found in the Middle East.
These organizations tend, therefore, to become very ritualistic (Hollensen, 2007). Symbols are much developed in Mongolia, and Western managers visiting their clients and counterparts in the Middle East find themselves negotiating symbolic systems which define quite different realities from those existing in the West. This richness of symbols may seem like ‘an invisible wall’ to the outsider, because, like many aspects of culture and its manifestations, symbolic systems exist at an unconscious rather than a conscious level of awareness. However, these systems may be of importance at any time and at any place. Mongolians are very proud: they are proud of their culture, people, and achievements. They expect others to pay respect to what they are and what they have done. This tribal-based social structure is also very rigid in Mongolia. Friendship is determined by social relationships and mainly ‘locals’ (not ‘cosmopolitans’) will be found in influential positions. However, in order for this to work, the social structure must be very stable. One consequence is common, that is, privileges are unevenly distributed; Mongolians live in a collectivistic culture, but it is not egalitarian. It may even be that ordinary citizens are considered incompetent versus the authorities (Hollensen, 2007).
McDonald’s marketing planning should be a rational way of translating experience, research information, and thought into marketing action. It is a pragmatic, organized procedure for analyzing situations and meeting the future. Based on information about ends and means to determine various causal relationships, trends, and patterns of behavior, it is concerned with the selection of alternative strategies.
Competition is an integral part of any firm’s functioning; the choice of the means, strategies, and tools to enhance the firm’s competitive advantage is often the key to understanding the roots to its success or failure, as well as the issues connected with its competitive behavior.
Every business owner wants to be successful, and wants to receive the highest revenue possible. Nevertheless, there are always certain limitations, requirements, and factors that produce a complex influence on the firm’s functioning and predetermine its profitability.
Business stakeholders should always keep in mind that the firm cannot function in an isolated way; the strategic success of any company depends first of all on the way it attracts customers. One of the effective tools to improve communication with customers, to raise the corporate image and reputations, and to preserve a positive social image, is to get actively involved in the corporate social responsibility (CSR) issues.
They are nowadays recognized as one of the dominant factors affecting the company performance; CSR has become particularly important under the conditions of the modern economic crisis when large corporations cooperate with worldwide NGOs and governmental authorities in order to help states overcome the problems of unemployment, hazards to health, and inequality of people (Royle 2005, p. 42).
The majority of large and successful corporations pose corporate social responsibility as one of their top priorities in business operations; it is evident that this way they manage to cater for their customers and to create the constant, stale, and reciprocal relationships with their clients.
In case corporate social responsibility standards are kept to, there is always much more customer confidence loyalty. As in case with McDonalds that is the subject of the present paper, the mission statement of the company clearly states that the main task of the company is to create unique and unforgettable experiences for their customers (McDonald’s Corporate Responsibility – Values in Practice).
The present mission statement is clearly customer-focused, which will surely create a positive feedback from customers feeling that they are valued.
It is true that the core assumption lying in the basis of the Porter’s model is that the industry structure produces a strong and inevitable influence on the firm’s performance.
The five forces outlined by Michael Porter include the threat for businesses because of the entry of new market participants, the intensity of rivalry firms experience inside the market segment, the pressure from product substitutes or very similar products of rivals, the bargaining power of buyers and suppliers (Ormanidhi & Stringa 2008, p. 57).
Therefore, engagement in CSR activities falls within the framework of ‘intensity of rivalry’ – all fast food leaders in the field have strong positions, and they can easily survive even under the conditions of fierce competition.
McDonalds is the $40 billion company that employed about 1.6 million workers worldwide in 2005, and reported serving 46 million of customer a day (Royle 2005, p. 45). McDonalds has been involved in the corporate social responsibility activities for a long time, since its administration realized the potential for the corporation in the socially responsible approach.
Even upon a glance at their CSR philosophy, one can assume that McDonalds provides 10% of Americans with their first job, and has become the number one job training center in the USA, which creates a highly positive reputation and image for the company and improves its position regarding its competitors (Royle 2005, p. 45).
There is a great number of corporate social responsibility activities in which McDonalds is currently involved; upon viewing its social responsibility page at the official McDonalds website, one can see that there are the following CSR activities McDonalds pursues:
Proper care about nutrition and well-being of customer
Expanding the food menu for children with proper attention paid to their unique needs
Education and information provision about useful nutrition
Implementation of the forestry policy
Popularizing environmental considerations on product packaging
Provision of financial and volunteer support for Ronald McDonald House Charities (RMHC)
Proliferation of volunteer activities through an online management tool
Publicizing all production and transportation processes through the “from Farm to Front Counter” program (McDonalds Corporation Worldwide Corporate Responsibility 2010 Report 2010, pp. 6-10).
It is not only a strong focus on the customer satisfaction but also considerations of profitability that make the CSR activities of McDonalds effective. There is a feasible contribution that McDonalds makes to the economies of the countries in which its major markets operate, such as the USA; for example, the expenditures for philanthropic activities in 2006 constituted $13.6 million, while the 2009 figure equals $19 million.
The McDonalds Corporation paid $493 million of social taxes in 2006, and the figure rose to $568 million in 2009 (McDonalds Corporation Worldwide Corporate Responsibility 2010 Report 2010, p. 10). However, at the same time the corporation experiences substantial gains deriving from the introduction of CSR initiatives.
For instance, the electricity consumption rates have decreased considerably to the level of 1.689 kWh/TC, 100% of meat-producing plants go through thorough certification and analysis, and more than 90% of employees receive their professional certification in the McDonalds-owned Hamburger Universities (McDonalds Corporation Worldwide Corporate Responsibility 2010 Report 2010, pp. 7-10).
The popularity of CSR activities has been realized by all leaders in the fast food market, which is proven by the active engagement in such actions by other US leaders in the fast food industry such as Burger King, KFC, and Pizza Hut (Royle 2005, p. 45).
The present observation supports the claims of Ormanidhi and Stringa (2008) about the applicability of the Porter’s Five Forces model to the assessment of CSR activities as well, since they contain the element of competition for the customer loyalty as well.
The deep involvement in community work, volunteer work, and other types of CSR activities called philanthropic activity by the company are first of all driven by the effort to reduce the negative impact of such Porter’s force as ‘pressure from substitutes’. There is a clear indication on the emphasis put by the company administration on authenticity of their products and services.
Even their mission statement claims about the creation of unique customer experiences for each single client coming to a McDonald’s restaurant. In addition, the business objectives published at the official side of McDonalds indicate the wish to take care about customers’ health, and to place their customers and commitment to them to the core of their corporate values.
Obviously, it is a clearly beneficial competitive strategy, since the principle of ‘stakeholder democracy’ is fully retained at each level of the corporation’s functioning (Royle 2005, p. 42).
Another popular CSR activity that McDonalds has implemented only recently is the online discussion blog “Open for Discussion” initiated by the company in order to engage in closer and more active communication with customers and stakeholders on health and environmental issues (Fleck, Fieseler, & Meckel 2009, p. 1).
It is an experimental form of communication between the complex body of an organization and its stakeholders that proved highly successful and beneficial in terms of ensuring the implementation of corporate business objectives, tracking customer satisfaction, and monitoring the feedback received from customers as well.
The present feature of the McDonalds CSR activities is also directed at reduction of the ‘pressure of substitutes’ factor from the Porter’s five forces model of competition. There is a clear advantage in communication tools that McDonalds employs, and the CSR activities it undertakes provide the corporation with a confident competitive advantage, and customer loyalty in the industry with very easy entry conditions.
Arriving at a conclusion in the discussion of McDonalds CSR activities ensuring its sound competitiveness in the market of fast food, one should assume that the company has chosen the correct focus of its CSR initiatives, and manages to secure its leading place in the global fast food production and service.
The competitive business strategy of the company is highly adjusted to the current needs of all stakeholders, including investors, shareholders, customers, and international controlling institutions. The business strategy of McDonalds is focused on environmental protection, care about health and well-being of clients, education for staff, and adjustment to customer needs.
The company also ensures transparency of its processes (e.g., through the “From Farm to Front Counter” manual). In the industry offering more or less standardized and comparatively cheap products, the present strategy wins a leading role, positive reputation, and beneficial social image for McDonalds, ensuring its profitability and diminished impact of Porter’s five forces of competition.
References
Fleck, M, Fieseler, C, & Meckel, M 2009, ‘Micro-Dialogues in Cyberspace – McDonalds Blogging Efforts in Communicating Corporate Social Responsibility online. The 59th Annual Conference of the International Communication Association, Chicago, IL.
McDonald’s Corporate Responsibility – Values in Practice 2011, McDonalds Official Site. Web.
Ormanidhi, O, & Stringa, O 2008, ‘Porter’s Model of Generic Competitive Strategies: An insightful and convenient approach to firms’ analysis’, Business Economics, July 2008, pp. 55-64.
Royle, T 2005, ‘Realism or idealism? Corporate social responsibility and the employee stakeholder in the global fast-food industry’, Business Ethics: a European Review, vol. 14, no. 1, pp. 42-55.
McDonald’s should not engage in a targeted acquisition of another company, where the discouragement is made for vertical integration specifically. However, the company should aim to conduct a horizontal integration. The recommendation is made on the basis of McDonald’s current situation, which is already heavily integrated into its vertical framework. Thus, McDonald’s should focus on acquiring another chain of restaurants to diversify its brand portfolio and increase its customer base by attracting market segments that are not drawn to the original brand.
It is important to note that the acquisition process can go mainly in two ways. These include vertical or horizontal integrations, where the former refers to a movement along the supply chain (McLaney, 2017). However, horizontal integration is a sideway directional acquisition, where a target is a company operating at a similar level of the supply chain (McLaney, 2009). Although it is usually better to integrate vertically to remove the risk elements from the suppliers, McDonald’s is not in such a position. The company has already successfully integrated vertically, where “Mcdonald’s also owns most of the land that their stores are placed on so they don’t have to deal with landlords or leasing costs” (Washcollcms, 2017, para. 4). Therefore, the company should expand horizontally since it is fully integrated vertically with no room for significant change.
In conclusion, the recommendation is that McDonald’s should acquire companies horizontally because it has no vertical dependencies. The target for horizontal acquisitions should be companies that have customer segments inaccessible to McDonald’s. These might include health-conscious consumers, who view the corporation’s products as unhealthy. By focusing on horizontal expansion, McDonald’s can capture larger market segments, which will significantly increase its market share and diversify its brand portfolio available.
Reference List
McLaney, E. (2009) Business finance: theory and practice. 8th end. Hoboken: Prentice Hall.
McLaney, E. (2017) Business finance. 11th end. Philadelphia: Trans-Atlantic Publications.
Washcollcms. (2017) ‘Vertical integration’, Mediums and Messages, Web.
McDonald’s leads the food service sector globally, with its more than 70 million customers in more than 100 countries. It relies on 35,000 locations and uses a franchise model to sustain growth globally. The parent company owns 20 percent of the restaurants, while the remaining share belongs to independent businesses (McDonald’s, 2014).
What kind of market does the company belong to?
The market of McDonalds’s products is perfectly competitive because there are many rivals, who have equal access to the customers. At the same time, customers have adequate information about the products offered by all companies in the industry, and they are free to pick any of the products they see fit.
Prices of the products depend on a business’s strategic positioning in the market. At the same time, prices are sensitive to any deviations from the market equilibrium position.
For example, if the price of a McDonald’s burger increases substantially to be different from the ordinary price of burgers in a particular country, then consumers will prefer to buy burgers from the competing brands and shun the McDonald’s brand.
McDonald’s belongs to the quick service restaurant industry, specializing in the delivery of easy to grab food menu items.
What is the Price Elasticity of Demand for the goods that the McDonald’s sells?
The price elasticity of foods and nonalcoholic beverages offered by the company is generally under one. Additionally, the inclusion of food away from home in the analysis brings the elasticity towards one.
Typical scores for the price elasticity of fast food restaurant food are 0.7 to 0.8. An interpretation of this elasticity is that the demand for the food or beverage is very sensitive to price changes. If prices increase by one percent, then the expected reduction in demand will be 0.8 percent to 0.7 percent.
Is the demand elastic or inelastic?
The demand for McDonald’s products is elastic. Changes in price, caused by the company’s decision or regulatory influences such as tax and subsidy policies, can lead to fluctuations in demand in the short term. Customers do not have to invest in the brand for long for them to be able to derive value.
Moreover, they do not build significant attachment to foods and beverages offered, such that they cannot cut their purchases or shift to the substitute products. In fact, the presence of many alternatives contributes to the elasticity of the demand for the company.
The elastic nature of demand for the company’s product places it in a risky market position. At the same time, the quality of food served by the company is a source of concern for many stakeholder groups that seek to influence healthy food choices in society.
Therefore, McDonald’s business remains vulnerable to factors that affect prices of its goods and the demand, as a result.
Increased focus on healthy eating habits in society caused by a high prevalence of lifestyle diseases, such as diabetes and obesity, is causing consumers and health bodies in different countries to demand restrictions on the marketing of fast food restaurants and imposing taxes on the business to compensate for their negative influence on society.
However, the application of recommendations is different in various countries (Andreyeva, Long, & Brownell, 2010). McDonald’s is yet to face a radical shift in policy that severely handicaps its business strategy, but the company is aware of the potential danger that such as regulatory move would cause to its profitability.
Overall, McDonad’s products face different effects of technological changes, social factors, the retail environment, government policies, and changing economic factors in the various countries where the company operates.
What kind of income elasticity the product(s) of the company face?
The foods and drinks offered at any McDonald’s restaurant are normal goods whose demand and supply curves follow market conventions. A rise in the price influences an increase in the supply, when demand remains the same or increases.
On the other hand, as the price elasticity of demand showed, a rise in price corresponds to a decrease in demand when other things in the market remain constant. Consumers increase their consumption of products from McDonald’s when their income increases.
At the same time, during harsh economic conditions, when people lose jobs, or experience a slowdown in their businesses and have less disposable income, they only purchase essential quantities or skip some purchases. Therefore, the income elasticity of the products sold by McDonald’s is elastic.
However, for particular foods like burgers that fill the dollar menu, considerable increases in consumer incomes only increase the consumption to a certain level before consumers choose other pricier menu items perceived for their healthiness. In this case, the burger becomes an inferior good and its income elasticity becomes inelastic.
Who are their closest competitors?
The closest competitors include Burger King Worldwide Inc., which offer various fast food menu items at an affordable price for most consumers, Subway restaurants, KFC, and Wendy’s Co.
Both Burger King and Wendy ventured into the breakfast segment of the market as a way of differentiating themselves, and to increase their rivalry with McDonald’s. They also introduced menu items that are locally customizable to give consumers better matches for their tastes (Patton, 2014).
Other than the main global competitors, there are country-specific competitors in every nation where the company has a presence.
Are there any close substitutes or complements?
There are several products whose cross elasticity of demand with respect to the products offered by McDonald’s is positive. Consumers can take on the substitutes when they do not have or do not want to purchase McDonald’s products.
At the same time, the company’s products have compliments. The beverages sold at McDonald’s restaurants have substitutes in the form of other beverage brands sold by other restaurants. The price of a coke at McDonald’s is about the same as the price of a Pepsi at Burger King.
McDonald’s sells numerous brands within particular beverage ranges, such as coffee or tea and soda. This includes its branded foods and drinks, which consumers can quickly find replacements in its rival stores. As for burgers and other foods, there is a slight difference in the ingredients used to make them.
However, the taste of a burger and the size at a McDonald’s restaurant are similar to those available in other restaurants, such as KFC and Subway (Landsburg, 2014).
Thus, customers can form preferences based on the location of the restaurant and brand association. However, they are free to pick a McDonald’s or any of its close competitors if they depend on a pure product basis. The company does not encourage customers to bring foods from external sources into its restaurants.
Therefore, it does not have compliments. The exception is when clients take food from McDonald’s and go to eat together with food or drinks from other outlets. In many cases, the complimentary product will be a drink or food item that McDonald’s does not offer.
However, a significant percentage of consumers do not rely on complementary products. They will either pick a McDonald’s product, such as its hamburger or one of its close rivals.
Is the demand for the product of the company growing?
The demand for McDonald’s foods and beverages has been plateauing for the last few years as rivals catch up with the company, and negative performances of economies affect it. However, the company still registers marginal growth as the overall demand for fast foods around the world increases.
The main reason for the increase is the rise in population and the growth of the middle-income class in many emerging economies. A big influence for change in the demand is consumer preference. Many people are becoming aware of the health effects of eating junk food.
Therefore, they are watching their fat and calorie intake. The negative publicity of McDonald’s foods does not make the matter better.
The brand associates with bad food choices and consumers opt to look for rival restaurants to find healthy food, despite the interventions made by the company to increase healthy food menu items in its restaurants.
As a result, the company has to invest more money in its promotion strategy to ensure that it continues to attract new customers and retain the existing ones (Hirschey, 2008).
Nevertheless, a focus on the dollar menu has been a key driver of growth for McDonald’s. The company seeks to provide consumers with the most affordable food in the market. It offers a dollar menu item that includes the essential daily nutrition elements for individuals.
Thus, consumers who are busy and need a quick meal prefer to pick items from the dollar menu (The Associated Press, 2013). At the same time, those looking for the most affordable meal associate McDonald’s with inexpensiveness and frequent its restaurants.
Therefore, the primary promoter of the increase in demand for the company’s products is the changing lifestyles of consumers, which make them busy. Moreover, the increase in the costs of living compels consumers to look for value for money deals when visiting restaurants.
Growth in demand for McDonald’s faces two challenges. The first one is the reputation of the brand as a poor health choice for consumers. That reputation was further tarnished by reports showing that the company relied on wrong ingredient choices and used expired ingredients in its foods.
Although the company has done several internal tests to correct the problem, the public perception of the brand has already suffered. Regulators also investigated the restaurant for sanitary standard violation across the European and Russian market.
The restaurant business is sensitive to sanitary issues. Consumers expect to dine in premises that meet the minimum threshold of cleanliness. Therefore, any news of sanitary standards’ violation is going to affect the demand for the company’s products adversely.
Despite the grave nature of the adverse effects highlighted above, McDonald’s can overcome them in the long-term, as it continues to implement strategies that enhance its value to consumers.
A more persistent problem in the company is its maturation. In many markets, the industry has matured, and there is no more room for growth. There are enough restaurants competing in the industry, and the only way for companies to expand is by merging or acquiring their rivals.
Otherwise, companies are only able to introduce few restaurants per year, and the marginal return on the new restaurants is less that optimal.
In the United States, in particular, the growth of McDonald’s and the rival businesses has stagnated in terms of the number of new restaurants opened annually. At the same time, sales for each restaurant are either the same or slowing down in their growth.
Can the labor force of the company be trained further to increase productivity and lower cost of production?
It is difficult to train the labor force to raise productivity because the practice is standardized. Employees are already trained in customer service delivery and specialized in various aspects of restaurant operations. They can serve in different departments in the same restaurant or various restaurants.
They are aware of customer demands, as well as operational needs of the business. Additional training is less likely to increase productivity in the low-end level of employees, unless the training involves the use of technologically advanced equipment to ease service delivery.
On the other hand, the management employees in the restaurants and the overall business can benefit from improvements in the management and leadership skills.
The business performance relies on strategic implementation of its growth and sustainability plans. Its main actors in this area are its management employees.
Therefore, any additional training on the use of appropriate business leadership and management tools, as well as awareness of industry variables will help managers improve the operation of their restaurants and their divisions in the company (Hirschey, 2008).
However, training will not guarantee substantial improvements in performance because it relies on the matching of difference people skills and job demands. Standardized training will work for some employees and fail to work for others.
Therefore, in case the company goes ahead with any additional training plans, it must consider various factors that affect training effectiveness.
These include the company tradition, prevailing economic and social influencing factors on employee productivity, the cost of training, and the expected margin of improvement in performance (Hill, Jones, & Schilling, 2014).
As a business, is the company profitable? Will it be able to sustain profitability?
McDonald’s prides itself as more than just a restaurant; the company gives jobs to many people and acts as a community partner. It seeks to sustain its position as a model for other restaurants around the world.
One way of sustaining its market position is by focusing on the quality of its product, delivering services that meet customers’ expectations and maintaining overall cleanliness.
The company also nourishes its values across all its operations across the world. It seeks to define the lifestyle of its customers, in addition to its desire to become a place where customers will prefer to eat and drink.
Therefore, it focuses on a marketing mix strategy that continuously improves aspects of its operations dealing with products, place, price, and promotions (McDonald’s, 2014).
McDonald’s has not been profitable in the last few years. Its primary market, which is the United States, has been experiencing slow growth, thereby affecting its overall profitability negatively.
In 2014, the third-quarter profits dropped by 30 percent in the United States, which was due to the poor performance of the introduced deals and new items.
An increase in the price of the burger, which many consumers preferred as an inexpensive meal also, led to a slump in demand and decreased profitability.
The loss in profitability was attributed to increased competition, but it could also be a pointer to the decreasing popularity of the purely fast food chain in developed markets (Patton, 2014).
How can it make its profit grow?
Consumers are increasingly scrutinizing the market for foods and drinks across the world. They are looking at ethical business conduct and corporate social responsibility programs of different companies to evaluate their brand values.
Given that ‘eating out’ has become an acceptable lifestyle choice for Western cultures, customers prefer to explain their life choices by different issues, such as the restaurants they frequent daily.
McDonald’s has to place itself in an excellent market position to capture the various market segments characterized by consumer preferences, economic conditions, and social factors (Goodman, 2009).
As a public traded company, the company also faces demands from stakeholders and shareholders, which affect its ability to formulate and pursue different strategies. For example, it has to comply with market regulations against business monopolies and submit annual returns to the market regulator.
It must provide its investors with a yearly report that details its performance and elaborates its strategies for the upcoming years. This information informs investors and other stakeholders about the company.
At the same time, it provides the competitors with a basis for understanding the McDonald’s structure and the way of doing business.
Thus, many rivals can quickly formulate business strategies to compete with McDonald’s and take its share of different markets. In view of these points, McDonald’s must rely on differentiation and the pursuit of capabilities that are difficult for its rivals to copy in various markets.
This table demonstrates the income sources of fast food restaurants from different regions to highlight their growth and profitability prospects. It shows McDonald’s as the company with the most diversified sources of income, closely followed by Burger King (Jurevicius, 2015)
2013
McDonald’s[1]
Yum! Brands[2]
Burger King[3]
Wendy’s[4]
Income from U.S.
31.5%
18.9%
58%
>98%
Income from Europe
40%
19.3%
29.3%
0%
Rest of the world
28.5%
61.8%
12.7%
<2%
McDonald’s has an internal company value of constant improvement, where it seeks to respond to changes in customer, employee, and system needs effectively (QRSWeb.com, 2010).
The company has to focus on its iconic brands that are responsible for most customer traffic into its restaurants across the world to maintain profitability. It also has to find incremental changes to its menu items that make the main foods and drinks relevant to changes in customer preferences.
Relying on consumer research will be a good strategy for maintaining profitability. The company should build on its various customer intelligence platforms to know more about its customers and use its barbell strategy to manage its multiple revenue streams.
These strategies will allow it to sustain a favorable market, even in times of economic recession when customers watch their spending.
The company must invest in technology platforms that enable it to offer differentiated services. The restaurant experience can extend beyond the actual restaurant premises into people’s social lifestyles. The company should make use of the new media to stay in touch with the customers.
It should also update its customer order display boards and its point-of-sale systems regularly so that it improves the speed of capturing details and the number of details obtained (Macke, 2015).
Eventually, the new information should assist its employees in delivering personalized service to an industry that relies on standardization.
A critical competitive advantage of the company will be its ability to personalize the McDonald’s experience, which makes it unique compared to customer experiences at rival restaurants.
The franchise business model allows McDonald’s to retain control of its global image and promotion strategy, which is an essential part of sustaining its profitability momentum (Ferrell & Hartline, 2011).
Recently, the company introduced new features in its branding strategy. It hopes that the new features will continue to make its brand relevant in the 21st century.
At the same time, the new features such, as newly build and remodeled restaurants around the world, will be avenues for increasing customer focus. For example, the company is allowing new restaurants to have new designs in in-store graphics, furniture, and iconic features of the Ronald McDonald’s comical image.
Other relevant factors
The company’s profitability relies on a perfect execution of its long-term plan, referred to as the Plan to Win. Thus, it has to maintain a capable leadership and senior management team to ensure that all the parameters of the plan succeed.
The main factor affecting growth and sustainability of the business is its ability to remain relevant and continue to enjoy high levels of customer trust. For the company to achieve long-term growth, it has to differentiate the client experience.
Differentiation requires investing in customer intelligence and research on preferences and market trends. It should also include the development of new products. However, the company must also ensure that additional costs introduced into the business do not erode its profit margins.
The strategic plan of the company continues to affect the options for pricing, marketing, and promoting the business in different countries.
An important point for McDonald’s to consider is to ensure that the company adapts to the cultural and social factors affecting its operations in foreign countries. In the past year, the company initiated various remodeling initiatives for its newer restaurants to improve the brand.
Moreover, it has to look into making optimal capacity improvements so that growth in revenue comes from increased business of the existing restaurants, rather than relying on the development of new restaurants. The biggest improvement in McDonald’s business will come from consistent reviews of its market performance.
The company needs to scrutinize every management decision to determine its effect on the overall performance. For example, it can create performance benchmarks that follow non-monetary aspects of employee engagement, and then use them, together with management decision evaluation systems to evaluate the effectiveness of its strategic plan.
The following is a SWOT analysis table of the internal business situation at McDonald’s and external factors that can influence its strategic choices.
SWOT Analysis of McDonald’s
Strengths
Weaknesses
Income diversification – the company relies on diversified income sources to sustain its business. It runs a fast food restaurant in many countries. In the particular markets where it operates, the company offers different menu items and targets differentiated consumers. Therefore, it obtains revenues from different source as compared to its rivals that rely on the same products and consumer segments in every market that they operate in. While competitors rely on the incomes of a few geographical regions, McDonald’s gets revenue from the United States, Europe, and the rest of the world in well-balanced proportions. McDonald’s revenues will increase because income will come from different sources. Turbulence in one market can be offset by good returns form another market.
Successful advertisement & brand name – the company has invested enough funds to grow its brand reputation. It is known globally, even in markets where it does not have a franchise yet. As a result, customers who want fast foods or drinks prefer to dine in a McDonald’s than in other lesser-known brands. In many countries outside the United States, successful branding has allowed the company to enjoy favorable treatment as customers seek to embrace the Western culture.
Collaborations – the company has also succeeded because it is collaborating with other firms to offer comprehensive menu items. For example, the partnership with Coke allows it to offer consumers value for money when they are picking its dollar menu items. It pairs each selection with drinks so that customers do not have to buy drinks separately.
The company has also been providing clean environments and aims to follow high hygienic standards. Parents are assured that play areas for their children will remain clean always.
Standardized service – customers can expect the same quality of service at all restaurants belonging to the company. McDonald’s invests in its employees by training and providing them with career development options. This allows them to remain committed to their work and deliver high-quality services to customers in every part of the world.
Competitive pricings – in addition to the dollar menu items that target the bargain hunters, the other foods and drinks offered at the restaurant are priced competitively. The company understands the elastic nature of the demand for its goods; therefore, it matches the prices of products with market expectations.
Weak product development – the time taken to come up with new products at the company is quite long. Rivals can introduce products faster and take up a significant share of the market in response to changing tastes and preferences of consumers. At the same time, McDonald’s relies so much on its successful products that it fails to pay enough attention to other products. This contributes to their huckster performance.
Joint venture or franchise management – unlike its stores, the company does not have absolute control of its franchise businesses. It can only rely on the platform that it has created to ensure that global programs of the business and opportunities for growth are harnessed. However, in the case of country-specific challenges, the business may take time to react appropriately due to the bureaucratic layers that are introduced to management by the franchise business model.
Opportunities
Threats
Internationalization – currently, the business serves only one percent of the global population; thus, there are numerous opportunities for growth. It can increase its revenue by investing in emerging economies like India and Brazil, which are having a high growth of their middle-class incomes. At the same time, it may concentrate on its operations in developed countries and introduce variations to its key products to capture new market segments.
Healthy foods – as the world becomes conscious of healthy eating, McDonald’s can partner with health companies to help it deliver better food and beverage choices to consumers (Hirschey, 2008).
Changing consumer trends – much of the world is embracing the eating out culture, which presents excellent growth opportunities for companies that run restaurants in different market segments.
Association with unhealthy habits – the company faces a reputation challenge as consumers become health-conscious and demand healthier menu items. If the company fails to address concerns from consumers, then it risks losing its business to rivals that offer healthier alternatives.
Cultural backlash – in foreign markets, McDonald’s does not make substantial efforts to assimilate into the local cultures. While it prides itself as spreading the American culture, it also risks facing resistance for its failure to consider local cultural expectations of particular countries.
There are many local competitors in different countries that have set their target as McDonald’s. The success of the company attracts scrutiny of its business strategies and acts as a hindrance to its differentiation strategy. Competitors are keen to copy its strategies and deny it a competitive advantage.
This table shows the performance of McDonald’s and some of its close competitors in terms of income for the year 2013 and total the number of restaurants by the year 2014 (Bloch, 2015)
2013
McDonald’s
Burger King
Wendy’s
% of income from the total number of franchises operated by the respective companies
32.85%
80.5%
12.9%
Total number of restaurants (year 2014)
36,258
52 (company owned), 14,320 (franchised worldwide)
957
References
Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The impact of food prices on consumption: A systematic review of research on the price elasticity of demand for food. American Journal of Public Health, 100(2), 216-222.
There exist a number of global chains of restaurants that are known all over the world, and McDonald’s is one of them. In this paper, we will analyze the situation that McDonald’s has been facing in the market, and then we will consider the company’s growth opportunities specifically in Saudi Arabia. Based on our discussion, we will offer some recommendations for the enterprise to develop in the mentioned country.
Analysis
Nowadays, McDonald’s is one of the largest global chains of fast food restaurants. It operates as a franchisor, selling local businesspeople the rights to open a restaurant under the brand’s name and providing them with what is necessary to meet the company’s standards (“Our Business Model” n. pag.).
Even though McDonald’s is one of the most well-known brands in the world, the company suffered a major decline in its profits over the last few years. In 2014, the operating income of the fast food chain accounted for only 90.7% of its operating income in 2013 (“MCD Income Statement” n. pag.). In 2015, the company suffered even more setbacks. But it was able to recover later in the year; its net income rose to $1.21 billion in the fourth quarter of 2015, in comparison to $1.1 billion in the fourth quarter of 2014 (CNBC n. pag.).
Therefore, it is crucial for the company to use the momentum to continue its recovery and turn it into a growth. It is possible for the business to do that in two main ways: to open new restaurants, and to modify and improve the services it offers.
Regarding the second way, the company needs to better adapt to local cultures while operating in countries other than the U.S. It already does to some extent; for instance, in the Arab world, McDonald’s proposes food made from halal meat, and provides respective certificates (“Our Ingredients” par. 2), and offers some meals that are more typical of the local cuisines (“McArabia” par. 2).
One of the countries where the company might develop further is Saudi Arabia. This country has the population of approximately 30 million people, whereas the total number of McDonald’s restaurants in this country is nearly 120 (“International Saudi Arabia” n. pag.). Therefore, there is approximately one restaurant for every 250,000 people in Saudi Arabia. It means that some potential customers might simply not visit McDonald’s often due to the remoteness of the nearest restaurant.
McDonald’s also has a different image in Saudi Arabia than it has, for instance, in the U.S. The restaurant does not only propose food; it also provides the customers with the information about what the food consists of, offers a friendly atmosphere, free Wi-Fi, and so on. While this is common in the USA, it is not always the case in restaurants in Saudi Arabia (“McArabia” n. pag.).
Also, some political issues arise around McDonald’s as around an American company from time to time. For instance, when in 2000 Saudis were indignant about the USA’s support of Israel, they started boycotting American companies, which included McDonald’s. McDonald’s responded by a charity campaign; they began donating 26 cents from each meal they sold to children’s hospitals in Palestine (“Saudi Burgers to Help Palestinians” n. pag.).
In 2002, another boycott campaign against American companies was on a rise; however, in the case of McDonald’s, more harm was done to the local franchisors than to the global corporation (Mroue n. pag.). On the whole, McDonald’s tries to respond to the boycotts in a placating way, showing the local customers that the company is not to be blamed.
Discussion
As we have seen, there are some opportunities for McDonald’s development in Saudi Arabia. The fact that there is only one restaurant for 250,000 people in the country means that the company can grow by opening new restaurants.
Apparently, that the network of locations in Saudi Arabia is not dense, which means that many potential customers would gladly visit McDonald’s if a restaurant was not so remote. Consequently, opening new locations should enable them to buy the foods McDonald’s has to offer much more easily, and, therefore, more frequently.
It is also a possibility to adapt the menu to the local culture more, and to organize events and attractive offers related to the local special occasions. We have already stressed that McDonald’s in Saudi Arabia has a rather good reputation; therefore, for example, proposing to celebrate a holiday in McDonald’s might be a worthwhile offer to some of the locals. The menu can also be further diversified by including foods that are enjoyed by the Arabian population, for instance, by adding falafel burgers to it.
Recommendations
Based on the considerations above, we would offer McDonald’s to take the following three main steps to develop further in Saudi Arabia. First, some new restaurants should be opened, so that the customers would be able to visit them more often instead of simply not doing it because of the remoteness of the nearest McDonald’s.
Second, the menu should be diversified by the foods that are very popular among the population (for instance, the falafel burger). And third, the company should provide the clients with more opportunities to celebrate special occasions in the restaurants.
Conclusion
To sum up, it should be noted that McDonald’s had suffered setbacks over the years 2014-2015, but started recovering at the end of 2015. It is important for the company to use the momentum, and one of the countries where there exist opportunities for growth is Saudi Arabia. To develop further in this country, we recommend opening more restaurants, to diversify the menu to adjust it even better to the local culture, and to provide the clients with additional opportunities to celebrate special events in the restaurants.
One of the main challenges that many companies in America are dealing with is how to handle compensation and benefits. This is not a new challenge. It has been a permanent feature of the American economy. The current struggles have their roots in the financial crisis that hit the American economy in 2009. The financial crisis hit the American economy about a decade after the dotcom bubble. The American economy is currently in recovery after these two major shocks.
However, many people have become impatient with the government for the slow rate of recovery. This is seeping into the national discussion with debates on how the government and employers should handle the tough economic times. Employers are struggling to retain top talent.
In addition, they are struggling to retain low-level workers who are usually hit hard by the negative impacts of economic problems. A movement to change the basis for wage calculations from the federal minimum wage to a living wage is gaining momentum. The reason for this is that the minimum wage in America no longer guarantees workers a decent life.
This paper examines the wage situation at McDonald’s and the attendant crisis. McDonald’s is one of the best-known American brands. The company happens to have a very poor reputation when it comes to employee wages.
In this context, this paper looks at the reasons behind the current push by McDonald’s and other large employers such as Wal-Mart to oppose the enactment of higher minimum wages in America, and the adoption of the living wage as the standard for measuring wages. The analysis will culminate in the development of recommendations for the management of the company on how to handle the current crisis.
Literature Review
The starting point for the analysis is the consideration of definitions of compensation and benefits. Compensation refers to the money paid for rendering a service or for supplying goods. Compensation may be given in monetary terms, through access to certain privileges, or by through complementary services. On the other hand, benefits refer to a special class of compensation given to employees over and above the obligatory payment for services rendered.
Employee benefits vary from employer to employer. In some cases, benefits may be regulated by law. Employers use benefits as a means of differentiating themselves in competitive labor markets. One example of the benefits offered to employees to retain them is giving them stock options.
The History of McDonald’s
McDonalds begun operations as a single store operated by the Richard McDonald Maurice McDonald. The brothers specialized in making hamburgers and based on their skills, they successfully opened a series of restaurants. The brothers focused on the delivery of fast food as swiftly as possible, as their source of competitive advantage. The restaurants soon differentiated themselves as fast food joints.
Ray Croc joined the company in 1955 as its franchising agent. His work was to sell the McDonald’s franchise to anyone interested in operating a McDonald’s café, provided he/she had the ability to meet all the franchise requirements. Later on Croc bought the business from the brothers and began an aggressive program of expanding the company. Currently the company serves an estimated 70 million clients annually, and has stores in 120 countries.
The company’s food production and service model were based on the production line techniques popularized by the motor industry. This included the use of a standardized model of production and developing the ability to deliver products of uniform quality in all McDonald’s stores.
The use of a mass production system meant that the company needed to employ many employees. The efficiency of the McDonald’s business systems also meant that the company needed only a relatively small number of skilled employees to manage the systems, and the low-level workers. The result was a large number of low skill workers, with the attendant low wages.
Current Compensation Challenges
McDonalds has been in the limelight for several decades in regards to its paltry remuneration packages for most of its low-level employees. The term “McJobs” which refers to low paying, repetitive, and unfulfilling work that required no creativity and with very little chances of advancement came up. The employment situation is improving in America. This means that workers who could not find better paying jobs elsewhere can now find better jobs as the economy grows.
This puts McDonald’s at a disadvantage because it relies on low-level workers to meet its business objectives. Apart from this environmental threat, the company is also dealing with pressure from lobbyists who are advocating for the adoption of the living wage as the standard for the minimum wage. The living wage is the money required to support a family of four to meet expenses for food, transport, housing, and other essentials.
In the current economic climate, the living wage is about $13.50 to $15.00 per hour in America. This shows that the legal minimum wage is only about half of the living wage. Projections show that if McDonald’s started paying a living wage, it would need $8 billion to meet its wage obligations.
This figure is equivalent the net profit the company posted in the last financial year. This shows that McDonald’s has very tough decisions to make in light of the impacts of either increasing or reducing the minimum wages. As long as McDonald’s is unable to match its lowest pay with the living wage, it will be difficult to shed off the reputation that led to the emergence of the term, “McJob”.
How Ford Handled Wage Problems
Henry Ford was one in a similar situation to what McDonald’s finds itself today. His company had a very high rate of employee turnover that in order to retain 14,000 workers, he had to hire 50,000 workers. The turnover was due to various reasons. First, the company required the employees to work for nine hours per day. This was unbearable for some workers at a $2.5 hourly pay. Secondly, these workers could do other jobs for better pay or for better conditions.
Therefore, Ford found himself dealing with low employee morale and a very high rate of employee turnover. The problem of the turnover is that each time an employee left, the company needed to hire a replacement and to train him. The cost of training new employees was higher than the cost of maintaining experienced ones. Ford decided to double the minimum wage from $2.5 per hour to $5 per hour.
He pegged the extra $2.5 to certain conditions to ensure he would get full commitment from his remaining employees. The result of the pay hike was that some of the employees were now able to buy the cars, leading to an increase in the sales of the company. The most significant effect was that it led to increased productivity.
Potential Strategies for Handling Wage Problems
McDonalds has some options for dealing with the current crisis. The first set of options is compensation based. In order to achieve greater employee motivation and lower turnover, the company must ensure that it has the best terms among its competitors. This means that the company should not struggle to meet the living wage standard if it is impossible to do it and remain profitable. Rather, it should ensure that its employees know that they have the best rates in the market.
There is greater flexibility when it comes to the benefits that the company can offer its employees as a means of dealing with the current crisis. The benefits should be aimed at increasing employee morale and increasing employee retention. One option is to develop in-service programs for its employees.
These programs should be given to employee groups who have the highest flight risk, and who need to further their skills. Other benefits worth considering include giving the employees opportunities to invest in the company, or investing with the help of the company.
Another approach that the company can use based on the human capital theory is to give its employees bonuses as a means of boosting their income, pegged on the performance of the company . This means that the company can institute bonuses tied to longevity of service in the company, as well as performance of an individual employee. This approach will ensure that the employees see the benefits of giving their best efforts to the company as well as staying with the company for a long time.
According to the Motivation-Hygiene Theory, remuneration has a limited effect on employee motivation. Beyond a certain remuneration limit, the company will not achieve commensurate motivational gains. The implication of this situation is that the company needs to find other ways of motivating its workers apart from more pay. Once the pay package is competitive within the industry and the competing industries, then the company should find other ways of motivating the employees.
Implications of Literature
The implications that arise from the literature reviewed are as follows. First, the competition for workers is not just within the fast food sub-sector. Low skill workers have a high rate of transferability as long as there are other lucrative openings. This means that the company is not just competing with its business rivals for workers. Its competitors in regards to talent acquisition include all industry segments that have jobs for unskilled or semi-skilled workers.
The company must analyze the competitive climate in employee recruitment in regards to the industries that need the same pool of workers as a basis for determining the pay levels that it should have. In other words, McDonald’s needs to know where its employees go after they leave, and the terms they find attractive. This will help in developing attractive in-house compensation packages.
The second implication that arises from the literature review is that a pay raise for low skilled workers is inevitable. Using the minimum wage as a guide for the lowest wages is unsustainable. The company must look at the options available for raising the pay of its workers. This should guide it in the efforts of developing a proactive plan to implement pay increases in the coming years.
The third implication arising from the literature is that the company needs to prepare itself for more pressure to raise wages. The pressure will come from lobbyists and from the government. Up to 70% of Americans support the call to increase the minimum wage to make it equal to the living wage.
This means that it is only a matter of time before politicians take not of public interest in the matter. With such certainty that the calls to raise the minimum wage are inevitable, the company needs to plan for how to remain ahead of the curve.
The fourth implication of the literature review is that the company has options concerning how to deal with high employee turnover and low morale. The company can increase compensation based on market conditions and based on its financial performance. Secondly, the company has the option increasing and diversifying the benefits that its employees enjoy to ensure that they do not leave.
This includes using in-service training to meet their need to increase their skills. The company can also open up investment opportunities for its employees in either the company, or its interests. The options listed here demonstrate that McDonald’s has many options on how to deal with this crisis.
The fifth implication of the literature review is that the company needs to deal with the reputation associated with the term McJob. This term is degrading to anyone who works for the company, and can be the basis for bad publicity. The McDonald’s brand should be associated with prosperity and a good life.
The term McJob makes it seem as though the company delivers its products at the expense of its employees. Customers can protest at this by avoiding McDonald’s stores because of this association. The company needs to do everything in its power to deal with the reputational risk associated with this term.
The literature reviewed did not reveal the company’s primary competitors for labor. This would have made it easier to develop recommendations in regards to how the company can handle the current crisis.
Recommendations to the Management
The recommendations to the McDonald’s company management are as follows.
The company should take a proactive stance in regards to dealing with the issue of wages for its employees. Otherwise, the company will soon find itself under pressure from lobbyists and the government to increase employee wages.
The management of the company should work towards the development of measures to motivate employees in both monetary and non-monetary terms.
The company should not aim at meeting the living wage in the near term, but rather it should try to offer its employees better terms than its current competitors as it works towards meeting the living wage in the long term.
Conclusion
The issue of a minimum wage versus a living wage is an interesting dimension in the development of remuneration packages. This case illustrates that the dream of lifting everyone out of poverty and dire economic circumstances is still a work in progress. There is still need to work out a way in which all citizens can enjoy a prosperous life.
Businesses are also in a dilemma between maximizing profits and offering their employees the best remuneration packages. There are answers to this problem. The solutions call for a clear direction in regards to compensation and benefits, followed by decisive action.
Reference List
Ab Hamid, R. N. (2008). Consumers’ Behaviour Towards Internet Technology and Internet Marketing Tools. International Journal of Communications , 2 (3), 195-204.
Arson, E. W., & Gray, C. F. (2011). Project Management: The Managerial Process,. New York, NY: McGraw Hill International.
Martocchio, J. J. (2011). Strategic Compensation: A human Resource Management Approach. Upper Saddle River, NJ: Prentice Hall.
Volberda, H. W., Morgan, R. E., Reinmoeller, P., Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2012). Strategic Management: Competitiveness and Globalization (Concepts and Cases). Hampshire: Cengage Learning.