McDonald’s Corp

Length: 1120 words

McDonald’s Corp, established in 1955 as McDonald’s System Inc, is the largest fast food operator in the world, with over 30,000 restaurants in 120 countries. The company offered shares to the public in 1965. Of the company’s over 30,000 outlets worldwide, approximately 45% are located in the US. The company’s signature product, the Big Mac, was launched in 1968, and began the strategic move towards menu standardization that has marked the history of success at McDonald’s. Although the company began as strictly a hamburger chain, McDonald’s took its first step towards menu diversification with the 1964 launch of the Filet-o-Fish sandwich, and added Chicken McNuggets in 1983. Subsequent initiatives included a breakfast menu available nationwide, with the introduction of the Egg McMuffin in 1973.

Ronald McDonald was first seen in a television appearance in 1963, and has since become the ubiquitous company representative and also ambassador of charity involvement in the form of Ronald McDonald House, which was established in 1974 as a key element of the company’s philanthropic community involvement. The Happy Meal was introduced in 1979, which pioneered the promotional concept of marketing to children by giving away toys and games with meal purchases. This concept has since been adopted by all major burger chains, and has evolved into a significant promotional and tie-in tool for partnerships with major entertainment companies and events. Having created the promotional toy tool with the introduction of Happy Meals in 1976, McDonald’s is the leader in toy-based promotions in both foodservice and across all industries. (www.datamonitor.com)

McDonald’s suffered from a series of strategic blunders and a deteriorating public image in the mid-1990s. These slips included the launch of the low-fat McLean Deluxe sandwich, which was very poorly received, and the launch of the adult-targeted Arch Deluxe sandwich, which did not win consumer acceptance, whilst operating margins were negatively impacted by heavy couponing; The Campaign 55 promotion, a US$0.55 sandwich offer subject to a variety of confusing conditions, proved too difficult and was pulled.

In an attempt to find growth opportunities outside of the saturated burgers segment, McDonald’s took a step towards diversification in 1998, when it purchased Latin American fast food chain Chipotle, and then in 1999 with the acquisition of Ohio-based pizza chain Donato’s Pizza. In the same year, the company announced its intention to purchase the bankrupt Boston Market chain of restaurants that specialized in meal replacement and limited FSR. The sale was approved in 2000, and constituted McDonald’s first major acquisition outside of its QSR stronghold.

In response to continuing criticism regarding its foods’ nutritional content and to broaden its appeal to health conscious consumers, McDonald’s has added a variety of healthier meal options, including premium salads and fresh fruit. The company discontinued its “supersize” menu items in 2004, and in 2006, McDonald’s was the first fast food restaurant to post nutritional information on the packaging of each of its food items. The new packaging will use bar charts and icons to detail five basic nutritional elements – calories, protein, fat, carbohydrates and sodium.

Competitive Positioning

McDonald’s is by far the leading fast food burger chain in the US, with nearly a 45% market share in foodservice. The company does, however, face strong competition, like other foodservice operators, but its ever growing market penetration, new product innovation and strong advertising backing helped the company see a consecutive value share increase between 2000 and 2005.

The reach of the McDonald’s brand has posed growth challenges in recent years, as saturation presents limits to opportunities for unit growth in the US, the company’s main market. The company initially turned to a strategy of diversification, evident in its acquisitions of Chipotle and Boston Market, and, most recently, McDonald’s has focused on boosting unit same store sales through new product innovation and its value menu. Recent product additions include a line of premium chicken breast sandwiches and premium salads, as well as its 2006 addition of the Chicken Snack Wrap, which includes a piece of crispy chicken, cheddar jack cheese with ranch dressing wrapped in a soft tortilla.

McDonald’s Chipotle brand is considered a leader in fast casual Latin American fast food. While Taco Bell dominates the Latin American fast food category, Chipotle is the largest fast casual Latin American restaurant, in large part due to McDonald’s funding. McDonald’s plans to completely divest Chipotle by the end of 2006, in order to focus on its fast food hamburger chain and allow the company to buy back McDonald’s shares using highly appreciated Chipotle stock with no tax on the appreciation. (www.datamonitor.com)

Fast food chicken chain Boston Market, originally purchased by McDonald’s for its real estate, has since become a valuable brand for the company as it has diversified its business. Since McDonald’s acquisition of the brand in 2000, the company has seen sales increases. Boston Market does not compete directly with other fast food chicken chains, like KFC, which offer mainly fried chicken items, as it focuses on providing high quality home meal replacements like rotisserie chicken. With growing consumer demand for convenient meal options, especially healthy and high quality food, the Boston Market concept is expected to do well.

Strategic Direction

McDonald’s provides a core menu of traditional burgers, premium products and everyday value items in an attempt to appeal to the widest possible customer base. The company strives for continued unit expansion as well as same-store value sales growth. McDonald’s strategy is to focus on its customers and maximize system profitability by capturing opportunities within five fundamental drivers – people, products, place, price and promotion. Each fundamental is intended to maximize customer relevance and system profitability. Long-term, McDonald’s looks to create a variety of customer experiences that build brand loyalty and drive profitability.

As the largest restaurant chain in the world, McDonald’s is challenged by continual scrutiny, amplified further by the media, regarding the food it serves. Consequently, the company has committed itself to promoting balanced, active lifestyles and adding healthy menu options. In 2006, McDonald’s was the first fast food restaurant to print the foods nutrition information on the package. McDonald’s also focused its appeal on winning back mothers with new premium salads, chicken sandwiches and apple slices. The company has also used athletic role models, such as tennis stars Venus and Serena Williams, in a global campaign tied in with the Olympics to talk about exercise and nutrition. Despite these efforts, the company continues to face negative publicity and is likely to continue to do so as the obesity epidemic in the US continues to escalate. www.mcdonald’s.com

While McDonald’s faces several challenges, the company is expected to maintain its strong market presence and continue to see value growth and outlet expansion globally as a result of its strong brand recognition, rapid outlet penetration, continual menu innovation and low price offerings, all backed by its considerable annual marketing and advertising investment.

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