McDonalds Situation Analysis and Environment Scan - Case Study Example

Executive Summary McDonald’s bears a heavy burden of success. Can its legendary record of market share growth, profitability, and branding continue in future? Answers will not be the same across all countries. The marketing analysis and strategy recommendations in this document apply specifically to the U.K. Productive address of a new cluster of segments is a Mantra for McDonald’s to enjoy a future in this country better than its historic business performance. Such an approach will address emerging needs of new customer groups, meet competitive challenges head-on, and take advantage of the changed economic scenario at the same time. Detailed sections that follow suggest action steps after describing the flux in the market place and elements of the marketing mix that require modifications. Situation Analysis and Environment Scan McDonald’s is an exceptional and sustained business success by all measures. The annual report for 2007 (Investing in McDonald’s, 2008) displays numbers that would do any management team in the world proud. Sales have grown annually by 6.8%. Shareholders enjoy compounded returns of 25%. The plan to win seems to work. This applies to the strategy of a unitary brand, system, and approach to customers. It is tempting but dangerous to get carried away. Will the future be a simple extrapolation of the past? A key consideration is the forward projections of globalization and North American dominance of the world. This document is focused on the United Kingdom. The latter has its own web site, but the subsidiary functions as an obedient appendage of the U.S. parent (About Us, 2008). There are many reasons to consider the United Kingdom as a strategic and unique business territory. Much of this has to do with the resilience of the nation’s economy, and the commendable industrial progress in areas such as Ireland. Even more significant is the multi-racial composition of the population, the country’s enviable position as a tourist destination, and its continuing command over the worlds of commerce and investment. The stability of the political system is easy to take for granted, but it is an irreplaceable asset for the Group, given the prevalence of dictatorships, strife, and poverty in so many parts of the world. The UK has been a formidable ally of the United States during the Camelot years of the McDonald’s Corporation. It is not within the scope of this document to comment on whether the nearly servile links built across the two banks of the Atlantic will endure, but it is likely that social and economic trends in the United Kingdom may follow courses independent of North America. There are signs of some major discontinuities in the UK business landscape. Each of them has the potential to dissolve some existing revenue lines, even as new commercial opportunities bud and flower. McDonald’s in this country is at risk of going the way of U.S. automobile majors from Detroit. Casual dining habits will probably change rather dramatically in this country. McDonald’s rivals Coca-Cola as a symbol of ‘Americana’. This has become less of an advantage than it used to be a decade ago (Beder, 2005). It has never been a key strength for the United Kingdom. Overall, there are serious prospects of footfall dropping as hordes of young people and adults who associated the brand with the Great American Dream, may no longer be enamored of it. High Street real estate prices in the United Kingdom makes poor sense of McDonald’s pricing (Daly, 2002). Runaway inflation in key raw material prices and labor rates are probable in the wake of economic recovery. However, the brand cannot continue to support customers idling in outlets over cups of coffee. The situation with respect to traded beverages is probably much worse in this respect. A new culinary and dining culture has begun to emerge in the United Kingdom (Jackson, 2008). McDonald’s is tuned in to some changes such as the concerns for food safety (About Us, 2008). However, will casual dining continue to revolve around high-calories comfort food? New tastes and preferences could become striking as a new generation takes over the mantle of paying for food and for snacks between meals. Not all trends are disturbing. The adverse economic climate (Pre-Budget Report, 2008) could see new groups of adults dining at McDonald’s. This is not to celebrate tight budgets, but to take note of new opportunities to deliver excellent value for money. Finally, purchase decisions for fast food could change (UK Diet and Eating Habits, 2007). It may be necessary to revamp the menu. More significant would be a departure from offerings in other countries. UK consumers may not act in tandem with their counterparts in the United States. Challenges from other cuisines such as Indian curries and kebabs have always existed in the UK, and will accentuate. The Marketing Process The burden of past success (Kincheloe, 2002) is an issue for McDonald’s at this juncture. It would be disastrous for such a profitable and growing enterprise to abandon its past systems without discrimination. However, it would be nearly as fallacious to continue business as though nothing has changed. A formal consideration of the Marketing process (Sandhusen, 2000) is in order. The Situation Analysis postulates key changes in the UK market for fast food. Some of these trends are country-specific. A first step would therefore be to review the customers that McDonald’s would like to target in the country. Business objectives also need review, though these would probably be uniform throughout the Group. Perhaps, the UK can do no more than make some suggestions in this regard to the corporate management. This applies to strategy formulation, but there is scope to allow for some degrees of autonomy for the Marketing Mix in the United Kingdom. The country will certainly have a unique agenda for all implementation steps. Finally, financial targets and qualitative action plans should be country-specific. Overall, it appears that the Marketing function processes should be detailed without regard to how it has been done at headquarters and in other countries. Segmentation and Targeting There are many pointers for McDonald’s to move up the age ladder, from children to young adults. Annual Report visuals from the Group indicate that such a move may be afoot already. However, the UK operations are strongly focused on adolescents and younger children as well. This demographic group is under strong teacher and parental influences to stay away from fast food. Child obesity is a serious issue in the United Kingdom. McDonald’s have made efforts over the year to offer sound nutrition at balanced energy levels. However, these moves have remained at the edges of the company, and have not materially affected the core positioning of the brand. Key brand values of cleanliness and service are sometimes wasted on boisterous youngsters from Great Britain. Young adults present new profit opportunities for McDonald’s in the UK. Eating out is certainly a valued habit with this group of customers. This has always been an expensive practice in the country, and many spenders will look for cost savings in the short and medium terms. The company should consciously work towards to increasing the proportion of young adults who provide custom. A unique challenge for McDonald’s in this country will be to appeal to Asians, Chinese, and East Europeans, as much as to the mainstream population. Women deserve special attention. Their disposable incomes have certainly risen since McDonald’s first started business in the country. They have unique nutritional needs, and tastes as well as preferences. Besides, they are major decision-makers for children, and when families dine together. This is why a slant in favor of females will enhance the future business prospects of McDonald’s. This is within the cluster of multi-racial young adults. Overall, a change in the target group of customers is a strategic marketing decision recommended for the company management. It would be best to do this by way of menu additions and by earmarking dedicated sections for the cluster. This will protect revenue inflows during the transition period. Objectives McDonald’s has common marketing and business objectives for all countries. However, major territories such as the UK would do well to suggest additional and subordinate objectives. Here is a set which has been used to derive strategy and execution proposals: 1. To improve returns on capital deployed in the country. 2. To retain market share against outlet expansion by competitors. 3. To exploit the growing demand for home and office deliveries. 4. To address established nutrition needs of the local population. 5. To impart British values to the brand without affecting its core values. These objectives may be tried on a pilot basis in small English and Scottish towns before full national launch. This is to assuage possible Group fears that a subsidiary in a particular country deviates too abruptly from standard business policies. Company values, some aspects of branding, funding policies, and development of key human resources, are appropriate dimensions of a universal and centralized business approach. However, no customer-focused corporation can afford to ignore demographic, racial, cultural, and language differences. Each strategic country should be treated as a unique profit and growth contributor, with unfettered opportunities to further the long-term business prospects of the McDonald’s Corporation. Strategy Strategy is like objectives when it comes to a group versus subsidiary trade-off. The umbrella strategy of the McDonald’s Corporation is crystal-clear, and proven to boot. Hence, the United Kingdom must subscribe to these guidelines and implement them fully. Indeed, the web site for McDonald’s in the UK proves that this is indeed the case. It remains to uncover ways of realizing the additional country objectives enumerated in the preceding section. This must be done in consonance with the group strategy. The recommended national strategy in the UK could be to introduce a new customer-engaged menu and service. McDonald’s should run promotions to get British customers and immigrant-citizens to suggest their favorite ethnic dishes that they would like to see as appendages to the traditional McDonald’s menu. Fish and chips wrapped in hygienic paper, burgers and mash in tubs, specialty teas, and puddings, are possibilities, though we should not out-guess what UK customers really want. Similarly, McDonald’s should sponsor a soccer team, hold talent-scouting contests for musicians, introduce a chain of pubs, and do all the other things that make the United Kingdom such a favorite of world travelers. The national strategy may be stated to engage British customers in unique ways. A McDonald’s outlet in this country should be just as friendly and convenient as in the United States, but it should also contain all the delights of Great Britain. We will know that the approach has worked when the young members of the Royal Family become regulars! Marketing Mix It is not enough to make general statements about marketing strategy. It is vital to address all elements of the Marketing Mix (Payne, 2002). Since the service element is so important in the McDonald’s business model, eight parameters have to be addresses rather than four as used to be the case in the age of tangible products. The following paragraphs of this section are restricted to national additions to the group Marketing Mix for the United States. This is to adhere to the length restriction for this document. Product: the focus here is to look for menu and service additions that yield improved Gross Margins. Nutritious three-course meals for people, who need to lose some weight, are examples. Many British citizens will appreciate and pay premiums for service at tables: there could be new sections to cater to this presently unmet needs. The same principle applies to home and office deliveries, and to catering for events such as birthday celebrations. Promotion: there are two typically British preferences to consider. Firstly, people in this country have sports and entertainment likes that are unique. Soccer has already been mentioned as an example, but there is also cricket. Celtic music is a concrete example of a cultural expression that is not very well known outside the country. McDonald’s must not only engage British consumers with great insights, but also prove to the country that the corporation respects and appreciates the UK contribution to the brand and the business. The other aspect is to ally closely and in demonstrable manner to UK Government initiatives on the nutrition and health fronts. McDonald’s should invest in promoting awareness of national health initiatives and campaigns. Price: take-away products should be available at attractive discounts. Realty costs in the country, the current slump notwithstanding, are relatively exorbitant. It does not help the bottom-line for customers to spend time in expensive premises with air-conditioning, heating, rest-room, and continuous cleaning services, over a beverage and fries. Similarly, the cheap and abundant availability of unskilled and unemployed people in the country makes customer-site deliveries on motor-bikes very attractive from a financial standpoint. Place: why not gift a McDonald’s fun meal rather than flowers for anniversaries of all kinds? The country web-site should incorporate e-commerce options. The company should also use the current economic depression to buy properties for new outlets at bargain prices. Funds from well-heeled franchisees are related opportunities to consider. Sections in public houses are worth considering, especially now that smoking in these places has stopped. These places would be ideal to launch new British cuisine options. People: recruitment criteria and skills sets for training programs need reviews. Recent immigrants from Soviet-bloc countries have found high proportions of the population in the national job market. McDonald’s needs new and improved filters to guard against counter-staff who are unable to deal courteously and promptly with British accents and colloquialisms. New recruits and training for existing ones should reflect the target change from adolescents to young adults, and the focus on women. Process: the 2012 Olympics is an event that deserves special consideration. It can be used for a quantum jump in revenues, with optimized durability in the years after the occasion. It will be a matter of serving a more global customer base, with potentials to introduce sports and fitness oriented products and services. Physical evidence: outlet frontages are designed for children. We should consider adding a formerly-attired person at entrances to remove any hesitation on the parts of young adults and working women to be seen at McDonald’s. Arrangements for darts and better rest-room facilities for women are examples of touches that will make the new target cluster feel welcome. Preferential customer services: customer loyalty deserves recognition and rewards. McDonald’s does this for children, but should make intensive efforts to draw in corporate customers, young professionals, and other groups with significant spending powers. It would be safest to do this in a British Club format at selected outlets, rather than across-the board. This will help to retain original branding, even as the UK operation works on new opportunities presented by its territory. Financial Goals Functional specifics of Marketing need to be viewed in a business context. The following financial goals are suggested for McDonald’s in the UK: Most of them have not been quantified because present values for the relevant ratios are not known for the United Kingdom at this time. 1. Compounded return on capital employed to match the group achievement for 2007 of 25%. 2. Investment in new stores around new growth centers in the United Kingdom. 3. Investment in e-commerce 4. Improvements in the Quick and Current Ratios. 5. Targets for contribution improvements from outlets with poor business results. The Finance function of the company should have the opportunity to review these goals, and to review the proposed marketing strategy as well. Action Plan Marketing strategy cannot be developed in a single phase or direction. There is likely to be a certain amount of interaction and iteration on the matter, especially since the United Kingdom proposes some rather revolutionary shifts from the traditional McDonald’s way of conducting business. It is assumed for the purpose of listing actions that the recommendations of this document are accepted by the group management. Three sets of key actions should guide implementation of marketing strategy. First, primary data should be generated to validate the accuracy and thoroughness of the new trends forecast in the section on Situation Analysis and Environment Scan. The planning exercise would have to be repeated if focus groups and other methods of customer research uncover important business trends that we have missed, or if the bases for the new segmentation and targeting conclusions are incorrect. Internal communication should follow the validation process. All levels of the organization and its edges should be taken in to confidence on the proposed marketing strategy. Important feedback and objections should be taken in to account. It is not just a matter of communication, but of aligning jobs, roles, and tasks to the chosen business direction. Recruitment, training, performance appraisal, and remuneration decisions should be aligned to the strategy and its attendant goals. Finally, there is the matter of establishing control systems. Milestones have to be established to know whether the marketing strategy produces desired results. There must be provisions to deal with unforeseen developments, and to correct course when required. The UK operation and the group should agree on a review process. Qualitative Controls Financial controls are necessary but not enough. Just as the group monitors how many customers it serves, so McDonald’s in the UK must also track customer satisfaction levels. Market share and branding should be assessed independently at the most frequent intervals possible. A key concern will be to guard against avoidable loss of goodwill from the existing customer base even as the company tries to reach out to new market segments. Another set of qualitative controls will relate to raw materials and processing methods used for new additions to the menu. The company must ensure that the same quality, safety, and hygiene that apply to traditional burgers, shakes, and fries, applies equally to new products added to meet ethnic and national tastes and preferences. Finally, checks are needed to ensure that core values of the group are not transgressed. Alcohol and tobacco are prime risks, as many customer groups in the UK suffer from addictions, or view substance abuse very differently from the group management in the United States. Providing a public house ambience for working adults should not degenerate in to the smoky and alcoholic conventions for which this kind of British hospitality and recreation has become known. It would be best if the group management establishes a cross-functional and global audit team to review operations in all its key territories. This team should be empowered to look in to the engine rooms of all country operations. Numerical controls are simply inadequate for the global corporation of today. Conclusions It is time for McDonald’s to evolve. The past business definition is not appropriate for the markets of the future. Hospitality and cuisine are intricately interwoven with culture. It follows that customer requirements cannot be standard across the world. McDonald’s should develop in to a conglomerate from its corporate infancy in fast food and casual dining. It should exercise meaningful controls on business directions in discrete territories, while leaving country teams unfettered in quests to provide products and services that local conditions demand. Market transition is a related challenge for the McDonald’s of yesteryear. Success in the past holds no guarantees for the future. There used to be a time when uniform quality and friendly service were enough to sustain a competitive edge for profits. Many national outfits have now learned how to do this, and at astonishing costs as well. McDonald’s has to lead the market to new planes of differentiation if it is to grow as fast and as profitably as it has done in the last century. Centralization of the past will not work. Affiliates in countries need more operational freedom (Ahrne, 1994). The celebrations in the annual report for 2007 about one brand and one system must give way to goals of thriving in diversity. Values and processes will remain constant, but the group management has to loosen its grip on structured outcomes and conclusions. This document started out in an endeavor to plan for the UK, but ironically though with respect, it concludes with prescriptions for the bosses! Then there is the matter of the function. Marketing at the heart of business management, but people are at the heart of marketing (Fifield, 1998). Marketing strategy is about a group of individuals planning on how to serve other people. Dominance is the common end-point of crafting any strategy, but marketing as a business function cannot afford such aggression or intransigence. This thinking has guided the creation of this document. All McDonald’s needs to figure out is how best it can serve the casual dining needs of the UK population and her visitors. Nothing less will produce sustainable business results. However, no country operation exists in isolation, nor can it afford to take a deviant position. There could be better approaches developed by marketing professionals in other countries. This document and its conclusions are subject to reworking and modification depends on what works best for the McDonald’s of tomorrow. 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