Download Introduction - Courtney Elizabeth Hamm

McDonald’s Corporation in the New Millennium
May 30, 2006
Team 3
Futurists
Ashley Caldwell
Harold Goldsberry
Courtney Hamm
Brandon Johnson
Introduction
“McDonald’s Corporation in the New Millennium,” a case in Marketing
Management: Case Analysis by Teams, discusses the challenges and opportunities faced
by McDonalds in recent years. The four main areas covered by the case included the
fast-food industry in general, McDonald’s as a corporation, major competitors in the
hamburger segment, and major competition in the non-hamburger segment. Since the
case’s writing, there have been several important developments in each of these areas.
The Fast Food Industry
The trends occurring in the fast-food industry at the time of the case included new
store designs, a focus by restaurants on the speed of drive through service, an increase in
the number of non-hamburger options, more fast-casual restaurants, and an overall
change in the eating habits of Americans. Store designs have continued to change, with
restaurants such as Sonic Drive-In putting a new spin on its nostalgic appearance. Recent
trends have been the introduction of the value menu that most fast food chains have
adopted and expansion into international markets.
Restaurants are now focusing not only on drive through speed, but also on menu
board appearance and order accuracy. The magazine Quality and Speed for Restaurant
Success promotes a yearly drive-thru contest that ranks on these three categories, and
accuracy levels tend to carry more weight than speed and appearance. Nationally, the
average for accurate orders is 91.3 percent, up from 81.5 percent in 2001 (Baker).
Americans have gone through a huge shift in their eating habits that has left the
fast-food industry struggling to catch up. The variety of food available to fast-food
Futurist Team
445-01
Summer 1
1
consumers is growing. Pizza and chicken chains grew much faster than burger chains in
the past five years, but there are still nearly twice as many burger options as compared to
the largest competitor, pizza. Non-hamburger sales, which accounted for 8 percent for
fast-food meals five years ago, now account for around 11 percent (Gray). In fact, burger
chains constitute half of the $100 million revenues of the American fast-food market.
Industry analysts feel that this is due to “a more health-conscious American public”
(Gorodesky and McCarron).
Companies have also realized that although Americans are focusing on healthier
eating habits, diet foods have been a complete failure in the fast-food market. An
example of this is the McLean burger, which failed to take off with McDonald’s
customers. Restaurants are now luring in an older, health-conscious, and affluent
customer base with deli-style sandwiches (Gray). Running contrary to the desire of
Americans to eat in a healthy manner, larger portions seem to be attracting more business
for the industry. McDonald’s has filled this niche with its Deluxe series (Arch Deluxe,
Crispy Chicken Deluxe, Fish Filet Deluxe, and Grilled Chicken Deluxe).
In addition to the changes in eating habits of customers, the industry has also had
to face a change in spending habits. “Value Pricing” is increasing gaining in popularity,
with nearly all restaurants offering meal combos, in addition to the growing popularity of
“dollar” or “value” menus. Not only is the amount of money that customers spend
changing, but also how they spend it. Increasing numbers of fast food restaurants are
now accepting credit or debit cards. The percentage of non-cash transactions rose from
3% to 12% in the past five years, and industry analysts expect increasing growth (Gray).
Futurist Team
445-01
Summer 1
2
The fast-food industry has seen many changes in the location and appearance of
restaurants. One example of this is in-store restaurants in chains such as K-Mart, WalMart, and Target. Shoppers can new chose from options including store-specific
restaurants such as Little Caesars, Subway, and McDonald’s. “Multiple-branding” has
also gained popularity, where one or more restaurants share a store-front. Pepsico and
Yum Brands, Inc. are in the forefront of multibranding, with pairings between restaurants
such as Taco Bell, KFC, Pizza Hut, Long John Silvers, and A&W. Multibranded units
tend to increase single-store sales by around $400,000, giving franchises greater ability to
purchase prime real estate usually only accessible to bank and other high-income
companies(Gray).
McDonald’s as a Corporation
McDonald’s has made many changes to its menu, layout, and interior design of its
restaurants in recent years. These changes have contributed to a system-wide sales
increase of 6% in 2004. Shareholders have profited through a 185 percent increase in
dividends per share (“McDonald’s Corporation 2005 Financial Report”).
This increase in earnings is due to the implementation of many new marketing
plans by the company. Several of the marketing plans are intended to follow in the
footsteps of other fast food chains serving healthier foods. The release of documentary
film “Super Size Me” in 2004 strongly influenced McDonald’s commitment to healthy
alternatives. The film blamed McDonald’s for increasing obesity in the United States. In
order to help combat these accusations, the chain immediately dropped the super size
menu and began focusing on its healthy alternatives (“Trivia for Super Size Me”).
Futurist Team
445-01
Summer 1
3
New menu offerings at McDonald’s have lead to an increase of nearly 2 million
customers a day since 2002. These include Fruit Parfaits, Premium Salads, and new
Premium Chicken sandwiches which offer the choice of fried or grilled chicken. These
changes have caused McDonald’s to become the country’s largest distributor of apples, a
feat that no other fast food restaurant has achieved (Piccalo). The company also made
changes to Happy Meals, offering the option of milk rather than soft drinks for children.
McDonald’s marketing plan also included embarking on a new advertising campaign
focused on a healthy and balanced lifestyle.
McDonald’s stores are currently going through a makeover. In the past year,
McDonald’s has begun to incorporate the tastes of a “younger” generation regarding
design. It is implementing a clean, sleek design based around a Starbucks-style dining
area. This redesign has already been implemented in new restaurants and approximately
20 stores in the Midwest. By the end of 2006, the company expects to have all stores in
agreement with the changes and at least half of the stores remodeled (Gogoi).
Major Competitors in the Hamburger Segment
The three major competitors in the hamburger segment listed in the case are
Burger King, Hardee’s, and Wendy’s. Competition has increased dramatically in the past
three years, beginning with the head-to-head battle between Burger King’s Whopper and
McDonald’s Big ‘N’ Tasty, each company’s top burger, in 2003. At one point, both
companies had priced their burgers at $1 or less, causing them to lose money on every
burger that was sold (Green). Although these sandwiches have returned to their normal
prices, the after-effect of the “burger war” is still visible in the restaurants’ competing
low prices.
Futurist Team
445-01
Summer 1
4
The largest trend in the fast-food hamburger industry since 2003 has been the
addition of the $1 value menu. The trend began with Wendy’s, but McDonald’s and
Burger King quickly followed suit. Although prices continue to rise for consumer goods,
the extreme competitiveness in the fast-food industry forces competitors to keep value
menus. Richard Adams, the current president of the Franchise Equity Group, a company
which owns around 400 McDonald’s franchises blames both the intense rivalry and the
immense popularity of value menus on market over-saturation. He believes that there are
simply too many fast food stores competing for the same customers (Green). This oversaturation in the domestic market has the potential to cause another burger war, resulting
in a loss of revenue for all companies involved. Adams also believes that something as
small as which item is on the value menu could create another burger war. “The easy
answer is for McDonald’s to put the Big ‘N’ Tasty back on the dollar menu, then Burger
King would return fire”(Green).
Another major trend particularly visible in the hamburger segment is the addition
of healthy options including salads and fruit bowls. As a whole, America has become
increasingly health-conscious in recent years. This has led to an increasing number of
dieters and a desire to eat healthier foods. This trend eventually led to the oxymoronic
term “healthy fast food.”
Wendy’s was also the first to add healthy options to their menu, with McDonald’s
following close behind (Nguyen). Both restaurants are constantly updating and
upgrading their salad offerings in an attempt to provide higher variety and quality.
According to Bill Lamar, chief marketing officer for McDonald’s, over 500 million
salads have been sold by McDonald’s since 2003 (Horovitz).
Futurist Team
445-01
Summer 1
5
Another fast-food war has erupted between McDonald’s and Wendy’s, this time
based on the health-food market. This fight recently reached a new level of
competitiveness when McDonald’s released its Asian-themed salad. This salad is
extremely similar to the Wendy’s Mandarin Chicken Salad, a menu item since 2003
(Horovitz). Wendy’s spokesman Bob Bertini claims, “It's another example of
McDonald's attempting to take a page from our playbook” (Horovitz).
Both the introduction of value menus and the desire to obtain the business of
health-conscious consumers are fueling the competition. Value menus are damaging all
three companies’ financial heath. In addition, the competition between chains to attract
the health-conscious consumer has become so intense that Wendy’s took the release of
McDonald’s Asian Chicken Salad as more of a personal attack than a business strategy.
Major Competitors in the Non-Hamburger Segment
McDonald’s has three main non-hamburger competitors, which are Pizza Hut,
Taco Bell, and KFC. All of these fast food chains are now owned by the Yum! Brand.
Yum!’s main marketing strategy is the multibranding of restaurants. Multibranding
occurs when two restaurants operate under the same roof, offering the consumer more
selection and convenience. Yum! is the worldwide leader in multibranding with more
than 2900 multibrand restaurants (“Multibranding: Great Brands”).
In recent years, all of the competitive, non-hamburger franchises have been
growing under the Yum! Brand. Within the brand, a variety of sales levels exists. Taco
Bell is currently in the lead and Pizza Hut has been last since mid 2005 (“Historic: Same
Store Sales”).
Futurist Team
445-01
Summer 1
6
The trends seen in the hamburger segment are also present in the non-hamburger
competitors. Both Taco Bell and KFC have incorporated a value menu as well as more
nutritional selections including salads and wraps.
Taco Bell’s newest marketing strategy is the “Fourth Meal,” which is targeting
people who eat an addition evening meal after dinner (Cazares). This appears to be a
good strategy because it targets the main consumer as detailed in the case. KFC’s newest
introduction is “Famous Bowls,” a combination of mashed potatoes, gravy, sweet corn,
cheese, and chicken. This is an attempt at combining existing products into a new
product to gain new customers (“Survey Reveals…”). Pizza Hut suffers from decreasing
sales, seemingly in contrast to its innovative marketing plans (“Historic: Same Store
Sales”).
Recommendations and Conclusion
McDonald’s should begin to focus on quality rather than quantity, particularly in
the competition-heavy domestic market. It should improve franchise standards, in
addition to requiring higher franchise renewal fees. These standards increases should
include, but not be limited to adding a selection of deli sandwiches, continuing with plans
to create a more appealing interior, beginning to offer higher quality food, providing
better service and cleaning standards, and focusing on creating and rewarding welltrained workers. McDonald’s should create a committee to oversee franchise standards,
as well as an evaluation system. If an individual franchise is not meeting the standards
set forth by the committee, they should immediately begin a pre-set resolution system.
McDonald’s should also continue expanding into foreign markets, particularly
China, to increase profits. Finally, the company should focus more on research and
Futurist Team
445-01
Summer 1
7
development, allowing them to create new trends rather than copy them from their
competitors.
Futurist Team
445-01
Summer 1
8
Works Cited
Baker, Brian. “Why Accuracy Matters.” Quality and Speed for Restaurant Success. 24
May 2006. 2006. <http://www.qsrmagazine.com/drive-thru/>.
Cazares, Lizeth. “The Dinner Bell Rings at a Later Hour for Taco Bell’s ‘Fourth Meal.’”
The California Aggie. 17 May, 2006.
Gogoi, Pallavi. “Mickey D’s McMakeover.” Business Week Online. 24 May 2006. 2006.
<http://money.aol.com/bw/investing/canvas3/_a/mickey-dsmcmakeover/20060509100909990001>.
Gorodesky, Ron, and McCarron, Ed. “Trends in the Quick-Service Restaurant Industry.”
Restaurant Report. 24 May 2006. 2006.
<http://www.restaurantreport.com/features/ft_trends.html>.
Green, Frank. “Hungry for a Fight? Fast-Food Chains Push Value Items But Recall
Burger War Losses”. The San Diego Union-Tribune, Business, p. C1. Feb. 8,
2006.
Gray, Steven. “Drink In The Top 10 Trends In The Restaurant Industry.” Career Journal.
24 May 2006. 2006.
<http://www.careerjournal.com/salaryhiring/industries/hotelrestleisure/20041229gray.html>.
“Historic: Same Store Sales.” Yum! 24 May 2006. 2006.
<http://www.yum.com/investors/sss04.asp>.
Mattson, Melvin R. Marketing Management: Case Analysis by Teams. Boston: McGraw
Hill, 2005.
Futurist Team
445-01
Summer 1
9
“McDonald’s Corporation 2005 Financial Report.” 24 May 2006. 2006.
<http://mcd.mobular.net/mcd/90/13/35/>.
“Multibranding: Great Brands.” Yum! 24 May, 2006. 2006.
<http://www.yum.com/about/multibranding.asp>.
Nguyen, Daisy. “Despite Healthier Options, Some Fast-Food Eaters Want Greasy Fare”.
The Associated Press State & Local Wire, Business News. Dec. 13, 2005.
Piccalo, Gina. “Fries with That Fruit?” LA Times. 24 May 2006. 18 July 2005.
<https://medialit.med.sc.edu/fries_with_that_fruit.htm>.
“Survey Reveals Shrinking Lunch Hour Leaves America’s Office Workers in a Mealtime
Crunch.” Interest! Alert. 24 May, 2006. 2006.
<http://interestalert.com/story/siteia.shtml?Story=st/sn/05170000aaa05aca.prn&S
ys=siteia&Fid=RESTAURA&Type=News&Filter=Restaurants>.
“Trivia for Super Size Me.” 24 May, 2006. 2004.
<http://www.imdb.com/title/tt0390521/trivia>.
Horovitz, Bruce. “McDonald's Asian-themed salad going nationwide;
Fast-food giant says newest offering could be chain's top seller”. USA Today,
Money, p. B3. Apr. 18, 2006.
Futurist Team
445-01
Summer 1
10
Futurist Team
445-01
Summer 1
11