Coffee Initiative as a Strategic Management Technique Used by McDonalds - Case Study Example

Strategic Management Name Course Institutional Affiliation Date Abstract This paper analyses the coffee initiative as a strategic management techniques used by McDonald’s chain of restaurants. Both companies specialize in the food industries and hence provide the best case study of strategic management techniques. McDonalds was established in 1955 in Illinois and has since undergone through a series of expansion in different parts of the world. The restaurant started as a hamburger outlet, but it is currently offering a wide variety of products. On the other hand, McCafe was established as a beverage outlet that operated mainly in conjunction with McDonalds. McCafe outlets are located at McDonald’s restaurants as coffee bars at the entrance. The company has, however, expanded its market share in the food industries and currently operates independently. This paper gives SWOT analysis of the two food and beverage outlets focusing mainly on mergers and globalization as a major strategic management technique that contributes to their success. The food industry is one of the most competitive industries in the world. These restaurants face competition from the upcoming, organized and market hungry establishments. These establishments are using all the available technology to reach the highest number of consumers. It should be noted McDonalds strategically merges or acquires most of the upcoming food outlets especially Canada and United States in United States and Canada to minimize competition levels in the industry. McDonalds is diversifying its products from specialized food services to include beverages. Mergers is not, however, successful in elimination competition from established food outlets like burger King and Triccon Global restaurants which is rapidly expanding its operations to Africa, Asia and South America. This paper concludes by giving establishing the problems facing the companies and giving out recommendations on how they can improve their management as well as marketing strategy to maximize profits and optimize the respective market share (McDonald’s Investors, 2013). Introduction McDonalds has not been able to keep in pace with rapid growth of the food industry regardless of the fact that its snacks and breakfast sales have been increasing since its establishment. Coffee quality remains a major obstacle for McDonald’s growth in Canada. The company has been attempting to improve their coffee quality and brand in Canada since its establishment but all in vain. This was due to stiff competition from other established firms like Higgins and Burke. McDonald’s efforts to merge its coffee brand with that of Higgins and Burke were futile. McDonalds, however, revolutionized its coffee brand through the Introduction of McCafe, which operates alongside its stores in Canada. This was done to respond to the increase in coffee production across Canada (The New York Times, 2012). McCafe is a full service coffees stand located inside McDonald’s restaurant. Establishment of McCafe was mainly meant to increase snack and breakfast sales through elimination of coffee as its main competitor. McCafe main objective was to assist McDonald to acquire a lucrative share of the coffee market. McCafe’s initial sales were overwhelming despite struggling to establish this coffee brand in Canada. The introduction of McCafe led to an increase in breakfast and snack sales at McDonald’s stores in Canada. This is the best management strategy adopted by McDonald to establish a brand in Canada (Blaxill, 2009, 1). McCafe is the highest selling coffee brand in United States, but it’s still struggling in the Canadian market. This is because brands like Sturbuk are well established in the Canadian market taking almost fifty per cent of coffee market share. McDonald has over three hundred McCafe establishments across the world which provides them with quite a large market share. Coffee sales at McDonald restaurants have increased tremendously in Asia and Canada as compared to other parts of the world (McDonald’s Investors, 2013). McDonalds SWOT Analysis McDonalds SWOT analysis involves a conclusive analysis of the company’s weaknesses and strengths as it gears into expanding its market share as well as increase its profits. McDonalds, being one of the largest food chain companies in the world experiences several difficulties in its operations and strategic management. McDonald is also characterized with crowded restaurants and unhealthy menu. This would serve as a future setback for the company given the fact that new food restaurants are focusing on its weaknesses while they try to establish a tangible customer base (Carpenter, 2008, 4). 1. Strengths Strong reputation and brand name. McDonalds has over thirty one outlets across the world making it the largest food company. This large market share established the company has a household brand with a great reputation among its customers in 120 countries. Its image is recognized even in the countries where they are not established. This implies that it serves as a tourist brands for individuals with little knowledge about other food outlets in those countries. The brand is also ranked among the best ten brands in the world alongside Coca-Cola, Nokia and general motors. This implies that the introduction of McCafe was strategically implemented to take advantage of the brands reputation. This is clearly seen in the rise o f McCafe’s sales since its establishment (Moncrieff, 2004, 274). Big Market Share: McDonald has the large food market share in the world with over thirty one outlets in one-twenty countries. This was seen in 2006 when Burger King Wendy’s lost their market share while McDonald expanded in terms of market share. The ability of McDonald to reach a large number of customers enhances McCafe’s sales. This is because most of McDonald’s customers won’t have to look for coffee from another restaurant. For example, in Canada McCafe has a 19% market share. This is quite a large share given that it is still a new coffee brand in Canada (Meyer, 2008). Training: McDonald has a program for recruiting and training managers called Hamburger University. This ensures its management highly training and is reflected in the decisions made by the management (McDonald’s Investors, 2013). New products: The ability of McDonald to introduce new food products keeps it a step ahead of its competitors. The company was also the first fast food service in the world. This implies that McDonalds acts as a pace setter for other fast food service providers. McCafe was not the first coffee brand, but the management ensured that the product is sold together with more established restaurant. Good marketing strategies have also enhanced establishment of McCafe in the competitive beverage industry. This is because McCafe is mainly marketed as McDonald’s beverage brand (Meyer, 2008). 2. Weaknesses Unhealthy Diet image: McDonald’s food is considered by many critics as unhealthy and contributes to the rise in obesity cases in the United States, China and Canada. This is because most of the food available at McDonald contains extremely high sugar levels. Parents also fear that the establishment of McDonald’s stands in schools is contributing to the increase obesity cases among school going children. This negative reputation has impacted negatively on the sales of most of McDonald’s. McCafe being one o f the major product by the company may be viewed by the public as another unhealthy product by the company (Interbrand, 2013). Competition: The food and beverage industry is second most competitive industry in the world. This is because there is an increase in establishment of new food and beverage outlets across the world. Initially, McDonald was the first food and beverage to establish its branches in different parts of the world. However, this is currently not the case, because the natives of the countries are coming up with more culture friendly outlets. The product (McCafe) faces a lot of competition from established brands like Sturbuk in Canada where McDonald coffee market share has been decreasing tremendously. Increase in competition leads to a reduction in the number of customers’ hence low profits. Coffee sales are highly affected especially in Canada and some parts of South America (Meyer, 2008). Litigation: McDonald is involved in a series of legal suits which ranges from unlawful termination of employments to trademark issues. McDonald forced some of the coffee shops to change their name so that McCafe would keep Mc ‘on its name. Increase in the number o lawsuit as a result of social negligence implies that most of it customers are losing trust with its products. 3. Opportunities Growth: the fast food industry is growing at the highest rate ever and McDonald can take advantage of the situation to diversify its products to carter for the needs of most of its customers. Green Energy: the company should use green energies and green packaging which so that can establish a customer base among the green energy revolutionists. Globalization: The Company has over 31,000 branches across the world, but half of them are based in United States. Establishment of more outlets in other countries would serve in increasing its market share. 4. Threats: The Company operates in a quite competitive industry which requires accurate and achievable strategies for success. The only threat that the company faces is that of extreme competition from established coffee brands such as Sturbuck. Conclusion and Recommendations McDonald has a large customer base Asia, but it has concentrated mainly in China and China. This limits other consumers in countries like India, which has quite a large customer potential. Therefore, it’s recommended that the Company should consider establishing other outlets in Asian and African countries (Interbrand, 2013). The Company’s name is well known by many people across the world, but the company has not fully utilized this advantage to their benefit. This can be achieved by establishing hotels such the McDonald’s hotel in Switzerland. McDonald has a bad reputation in terms of customer service. This implies that it is quite a big setback for the company. The company should concentrate on training the subordinate staff as they train the managers. They can introduce a system where the highly trained managers train the subordinate staff. References The New York Times (2012). How McDonald’s came Back Bigger than Ever. Available at: http://www.nytimes.com/2012/05/06/magazine/how-mcdonalds-came-back-bigger-than- ever.html?pagewanted=2&_r=0&ref=mcdonaldscorporation. (Accessed:23 March 2014) McDonald’s Investors (2013). Company profile. Available at: http://www.aboutmcdonalds.com/mcd/investors/company_profile.html. (Accessed:23 March 2014) United States Securities and Exchange Commission (2012). 10-K Form McDonald’s Corporation. Available at < http://www.sec.gov/Archives/edgar/data/63908/000119312511046701/d10k.htm> (Accessed:23 March 2014) Interbrand (2013). Best Global Brands 2012. Available at: http://www.interbrand.com/en/best- global-brands/2012/Best-Global-Brands-2012.aspx (Accessed:23 March 2014) Blaxill, Mark & Eckardt, Ralph, 2009 "The Invisible Edge: Taking your Strategy to the Next Level Using Intellectual property”. De Wit and Meyer, (2008). Strategy Process: Content and Context. Thomson Learning publishers, New York. Moncrieff, J. (2004). “Is strategy making a difference?” Long Range Planning Review, vol 32, no2, pp273–276. IBM, Capitalizing on Complexity: Insights from the Global Chief Executive Office Study, July 2010. Carpenter M, Sanders, Wm. (2008) Strategic Management: A Dynamic Perspective”, 2nd ed, Pearson Prentice Hall, Frenchs Forest. Read More