Case Analysis: How Has McDonald’s Become the Market Leader?

McDonald’s has become the biggest fast food restaurant in the world and its logo can be seen all around the world these days. Its recent report for revenues also shows the company’s huge success; the company posted revenues of $5.945 billion for the second reporting quarter of 2010, which is a 5% increase compared to $5.647 billion in the second quarter of 2009. (http://www.wikinvest.com/stock/McDonald's_(MCD))

1. McDonald’s Success during the economic slowdown
Compared to its competitors like KFC and Wendy’s, the company managed to overcome the economic crisis well and generated strong revenue, which enabled the company to add 650 more outlets by the end of 2009. The company’s success can be attributed to its strategy called “Plan to Win” with which the company focused on increasing sales at existing locations by improving the menu, refurbishing the outlets, and extending hours. Its strategy also involves monitoring pricing to make sure its menu remains affordable without hurting the company’s profit margins. For example, although the company struggled with the increasing costs, it has kept the pricing on its Dollar Menu, which brings in almost 15 percent of total sales. To maximize its profit from the Dollar Menu, the company also replaced its $1 double cheeseburger with the McDouble, which is similar but less expensive to make (Strategic Management: Text and Cases). Its success during the economic slowdown can also be attributed to the nature of its products. Since McDonald’s products are considered as “inferior goods”, they were consumed relatively more than other normal goods and contributed to keeping the company business profitable.

2. Learning from Mistakes
Before seeing great success in 2008 and 2009, McDonald’s did experience hard time, which resulted from its “mistakes” in running franchises and monitoring operations over the past decade. For example, its growing size and continuous expansions made it difficult to maintain its core competencies such as consistent, fast, friendly service. Furthermore, it stopped monitoring its franchises for cleanness, customer service, and food quality, which laid the company behind the growing competitors such as Wendy’s. Even though the company has been known as the “best” and “biggest” fast food business in the world, according to a 2002 survey by market researcher Global Growth Group, McDonald’s came in third in average service time behind Wendy’s and sandwich shop Chick-fil-A Inc.

However, the company learned lessons from its “mistakes” and seized opportunities to bring itself to the next level. Some of the efforts the company made to improve its sales again are as follows:

• Getting the basics of service and quality right, in part by reinstituting a tough “up or out” grading system that would kick out underperforming franchisees.


• Tried to draw more customers through the introduction of new products instead of expanding its outlets


• Revamped the menu with “healthier” foods and promoted them with a slogan, “I’m loving it” (Strategic Management: Text and Cases)

3. My two cents on the company's future
There still exist some threats such as the growing concerns about health problems caused by fast foods, which would hurt the company’s growth. In addition, the company has also been facing the changes in the tastes of consumers, which have been led mostly by exotic “fast” foods like sushi. The growing competitions from supermarkets and convenience stores that also offer quick meals have become great challenges to the company as well.

With the efforts that the company has made to improve its product lines and turn its bad image around, however, the company is expected to remain its market power in the industry and sustain its growth. For example, McDonald’s has been trying to include more fruits and vegetables in its popular Happy Meals. This improvement has raised the company’s operating costs because of the perishable nature of produce making it more expensive to ship and store.(Strategic Management: Text and Cases) However, this improvement in the menu will help the company change the way people think of McDonald’s and improve its brand image.

Customers purchase experience and value, not just “taste”. To sustain its “absolute” reign in the fast food industry, McDonalds should strive to be positioned as a brand that provides special experience and value to its customers, beyond just a place to eat a “Big Mac” burger.