Industry Five Forces Analysis Marketing Essay

The strategic analysis, involves us to discuss its popular tools such as SWOT and PESTEL analysis. Strategic analysis is important which enables strategic planning and that is very beneficial for the organization. This report will look beyond McDonald’s facts, macro environment, industry five forces, internal analysis, and strategy assessment.

McDonald’s is one of the world’s largest food corporations. It is American in origin, but currently it is the largest chain of hamburger fast food restaurants all over the world. It serves around 70 million customers in about 120 countries every day. It operates over 34,000 restaurants worldwide. It is a story of success that started with simple idea of making hamburger that began in 1940, with a restaurant opened by brothers Richard and Maurice McDonald in California.

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The step of going internationally began when the operations were sure successful in 1952 and the first franchise was sold to Neil Fox who opened a restaurant in Phoenix, Arizona and created the well-known golden arches of McDonalds. Fox had huge success with the store and the brothers were unwilling at first to begin a national franchise system. Ray Croc joined the team as the exclusive franchise operator in the United States.

Type of products:

McDonald’s products include: hamburgers, cheeseburgers, chicken, French fries, breakfast items, soft drinks, milkshakes and desserts, salads, wraps, smoothies and fruit.

Company Mission:

McDonald’s mission: “our mission is to be our customers’ favorite place and way to eat. Our worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to continuously improving our operations and enhancing our customers’ experience.” This shows that the culture of McDonald’s is keeping their customers happy and to do whatever they can to create a wider customer base along with a product line that satisfies any taste.

Industry and segment:

McDonald’s is in fast food industry and their segments are college students, working individual, families and kids because McDonald has Happy Meal with toys. Mostly target is under age 5-6, 12-15, 15-20 and over who have mostly middle class and upper class.

Macro environment (PEST) Analysis

The PEST analysis on McDonald’s shows the following facts:

PEST

Factors

Political

Labor costs, there’s no minimum wages; there’s lot of expats with low wage and that will help MacDonald’s because they will pay less and it will help them to reduce costs.

Political stability- In the UAE it stable, but there’s few problems with Iran, but it’s not going to affect MacDonald’s.

UAE’s tariff of 5% was significantly lower than the maximum tariff of 15% that can be charged under international trade regulations.

Each Emirate has its own governmental institution so MacDonald’s will deal with different departments in each Emirate.

Economical

Gross domestic product growth, the UAE’s real economy expanded to reach 360.25 billion US dollars in 2011 which increased spending power and that will help McDonald’s because customer will buy more and the profit will increase.

Currency: Emirate dirham(Dh or AED)

Exchange Rate: 3.67AED per UD dollar

Social

Culture, Al Ain has a higher proportion of Emirati nationals and most people are Muslims so female want to have private place also because of the culture some families don’t allow their daughters to set in mixed restaurant.

UAE has Islam religion so McDonald’s must sell Halal food.

Technological

Recent technological development which will help McDonald to serve quick services such as computers and smart cashiers.

Media- McDonald’s useTV advertisings for marketing.

Industry Five Forces Analysis:

The Five Forces analysis on McDonald’s shows the following facts:

Threat of new entrants: The threat of new entrants for McDonald’s and the fast-food industry is low. There are many different kinds of fast-food restaurants already in the industry. Entering at this point would cause conflict for the new entrant because customer will be loyal for existing fast food restaurants and there will be no economic of scale for the new entrants and low distribution channel and high existing power and government regulations. McDonald’s is strong brand name and that make it more difficult to enter the market because new entrants are faced with price competition and it takes much time for a new business to establish in the fast food industry.

Bargaining power of suppliers: The suppliers power of McDonald’s is high because McDonald’s restaurants use the same products from the same suppliers for example, you get the same Big Mac everywhere. Supplying these products to McDonald’s around the world is the whole business for the suppliers. If McDonald’s would lose one supplier it would have to change its product lines and this gives the suppliers of McDonald’s a high power.

Bargaining power of buyers: Buyers power are low in the fast food industry since switching cost is very low. Also there are lots of buyers in the market so customers can’t control prices.

Substitute products/services: In the fast-food industry, including McDonald’s, the threat of substitutes is greater now more than ever with the convenience food industry growing. More convenience food stores are offering similar products as the fast-food restaurants. There are wide variety of alternative products to choose or customer can use instead such as: Lebanon food like “shawarma” and “falafel” also UAE traditional food or Italian food like pizza and pasta.

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Competitive rivalry: industry market structure of fast food is competition so there are high rivalry and lots of competitors such as Subway, Burger king, Pizza hut, KFC, Hardees, Fat Burger and Harvey’s. Some franchisers were also complaining that McDonald’s was giving too many franchisees too close to each other and actually stealing business away from each other. In addition, switching cost is low and that lead to high rivalry.

Lifecycle stage:

Macdonald’s currently is in the mature stage because price fall and customer loyalty is important, competitions high between firms for the market share, high barriers to entry and demand limited to replacement. McDonald’s adapted to changes in the marketplace by innovating new products and services for customers such as expanded their menu so they can have healthier alternatives. An example of adapting to environment is staying open late. McDonald’s use advertisement to remind, retain and gain more customers through ads in along highways and close to their locations also advertise in TV.

Internal Analysis

SWOT analysis of McDonald’s shows the following facts:

SWOT

Status of McDonald’s

Strengths

Good communication and friendly environment among their employees and customers especially children because they attract them through happy meals and the toys in it

Own one of the world’s best known brand name and that helps Macdonald’s to keep and retain their customers due to the strong brand which make customers have strong loyalty

Macdonald’s offer products for healthier people so they offers Veggie Burger, Salads, Fruit, Roasted food and bottle water and other low fats and calorie alternatives

Weaknesses

High number of employees turnover which will cost MacDonald’s lots of money because they will need to hire new employees and then training them

Focus on burger and french-fries which not healthier option for customers

Most advertises of MacDonald’s food items are target children and we can notice that they always display advertisement of happy meals and any other deal that is mainly for kids

Opportunities

Consider social changes – by becoming innovation and focus in healthier lifestyle foods such as healthier snacks this opportunity give MacDonald’s a chance to have new products which are more healthier such as Salad and Fruit

Opening up an online service that enable customers their orders from home

As they are a part of environment friendly, they can use a packages of material that can be recycled of not harming the environment and as a result they will gain environmental friendly people as a customer

Macdonad’s servs different famous brand name such as, Dannon Yogurt, Kraft cheese, Nastle CHOCLATE, Heinz Ketchup, and Minute Maid Juice

Threats

Recession might be a threat because during recession the percentage of unemployment increase and the GDP decrease and that is mean people will have less money to spend which will affect MacDonald’s negatively because if sales decrease then the profit will decrease.

Customers focusing on nutrition healthier lifestyles so, now people are aware of the danger of unhealthy food which lead to an obesity so they might turn to buy healthier alternative food

There are many competitors such as, KFC, Pizza Hut, Hardees, Burger King, Subway, and Fat Burger which means that customers has wide variety of restaurant so they can chose from when they want to buy

Strategy Assessment:

McDonald’s has tried both whole market differentiation and low cost as strategies. McDonald’s is known for their low price product line and has been competitive with other businesses in the industry. They were one of the first in the industry to do a very low-cost smaller menu of items on their product line. McDonald’s has also tried a differentiation strategy with different products like the McRib or the Big Mac. Also, ability to modify and change its products based on international tastes and preferences. For example, Teriyaki burgers in Japan, McPork Burgers and McTempeh in Indonesia, McSpaghetti in the Philippines and McLox Salmon sandwiches in Norway.

In order to stay a stable company, McDonald’s will have to lower its debt levels, and strive to keep costs to a minimum. In addition, McDonald’s is continually expanding, and using all manner of capital to increase its market share.

To keep matching between mission and strategy, McDonald’s is advised to follow to be a proactive market leader. The principle of this is to continually stay one step ahead of their competitors. McDonald’s is already the industry leader in the fast-food industry with a market share of 33 percent compared with the number two chain in the industry, Burger King at 13 percent market share. They can stay out front by applying R&D and implementing technological improvements by using in their restaurants to enhance the production methods or to improve the ordering process of the customer.

In addition, they can also introduce new or better product offerings to satisfy the needs of their customers. The best approach that McDonald’s can take through this strategy is to improve their customer service. McDonald’s customer service ranking was the lowest in the fast-food industry. To improve upon this substandard attribute, McDonald’s should refresh their training process for newly hired employees and introduce new educational modules for currently employed personnel.

Conclusion

McDonalds has seen many changes, good and bad during its creation and duration of the business. As long as the core competencies are recognized and never forgotten, then this business will continue to succeed. With every issue and challenge the corporation faces, it has the opportunity to improve itself.

The key success factors of the business which really makes the business for what it is today, including franchises that offer quick, efficient service in a clean friendly environment.