Business policy and strategy

Summary of McDonald’s strategies and performance

The McDonalds Corporation is a successful global restaurant that operates chains around the globe. The organization has employed global expansion and effective management strategies to enter new markets and gain a share of the diverse, fast food market. It is clear that McDonalds has achieved this massive success. The business has established best practices in the global food industry. However, it has also experienced international growth challenges trends in the recent past. These factors have seen the company perform poorly in its different businesses in both local and foreign nations. (Mourdoukoutas, 2013)

One of the strategies employed by McDonalds is the creation of both customer and brand loyalty for its products and services. Right from the beginning, the founder, Ray Kroc ensured that the French fries customers bought in one restaurant would be similar to another McDonald restaurant by developing a sophisticated operating and delivery system. He proved himself an industrial pioneer who revolutionized the American restaurant industry by imposing discipline on the production of milkshakes, hamburgers, and French fries. The consistency made McDonald's the brand name that defined American fast food. In the restaurant industry, the McDonald’s is well known for high-quality foods and services evident in the quantity of customers they serve. The making of a uniform and consistent product for customers is one of the most important aspects of McDonald’s success. (Beef Central, 2015)

Irrespective of where customers purchase their products, once they see the ever-present "golden arches" they know exactly they are expected to get. McDonald’s Mission Statement has helped the business to focus on what really matters both to itself and to stakeholders. It has acted as a guide to strategic and routine operational decisions. In addition, it represents the glue that binds all the franchises under the organization together. Another strategy employed by McDonalds is rapid expansion. Right from the beginning, McDonalds expanded by franchising. By 1960, more than 200 McDonald's outlets were operational. McDonald’s Corporation has been recording declining sales and profits both in its local and foreign businesses. On the other hand, competitors have been formulating strategies to attract more customers to their business. In 2015, McDonald’s reported 30% drop in profit and 11% decrease in revenue for the first three months of the year. It announced hundreds of store closings. The company has been trying to fix its problems particularly in the U.S market that generates 40% of its profit. It is simplifying its menu to appeal to its customers. It is testing all-day breakfast and has slowed down service and focused efforts on reducing errors in orders. (Mourdoukoutas, 2013)

The reality is that McDonald’s recent performance has been poor. In 2015 first quarter, the company recorded US$5.6 billion in global revenue down from $6.7 Billion in 2014 first quarter. The net income recorded amounted to $ 811 million down from $1.2 billion in the year 2013. Part of the business expenses arose from charges linked to restaurant closures. In the US and Canada, 220 restaurants were closed as well as 130 in Japan. The company is expected to close other 350 restaurants worldwide to avoid further loses. McDonald’s largest division in the United States saw a decrease in sales of up to 2.6% reflecting low customer traffic and negative sales amidst high competition. (Mourdoukoutas, 2013)

The operating income decreased by 11% as a result of weak sales and restructuring and closing activities. In its Europe’s division, the business experienced a decline in sales of 0.6%. First quarter operating income decreased by 20% partly as a result of currency and inflation pressures in Russia and continuing macroeconomic pressures facing much of Europe The business’s Pacific, Asia, Middle East and African divisions saw first quarter sales decrease by 8.3%. Asia region had a prolonged impact of consumer perception issues particularly in Japan over food safety breaches. The operating income in these regions decreased due to restaurant closing in response to poor performance.

Chipotle Mexican Grill

McDonald's Corporation is a competitor of Chipotle Mexican Grill that operates and franchises restaurants in the United States. Chipotle Mexican Grill offers various food products coffee, soft drinks, and other beverages. Both businesses with their subsidiaries license to foreign affiliates in other countries. Unlike McDonalds, Chipotle had an impressive year in terms of financial performance. (Farzad, 2013)

Prospects of success against this competitor

McDonald’s is making positive strategic moves to gain its edge against competitors. It is closing the poor performing businesses and leaving out the others contributing positively to the bottom line. The firm is also speeding up its re-franchising efforts. McDonald’s wants 90% of its businesses globally to be franchised by 2018, up from 81% currently. This has been an industry-wide trend common with competitors including Chipotle Mexican Grill. Accordingly, 3,500 more restaurants will be managed and owned by franchisees. The organization plans to open 1,000 more restaurants each year. The benefit of this strategy of more franchise-owned restaurants is that it provides the company with a more stable and predictable cash flow all at the same time shifting accountability to local businesses. (Farzad, 2013)

References

Beef Central "Tough times continue for McDonald’s in first quarter results" (2015, April 22)

Mourdoukoutas P. "McDonald's: Three Strategies to Reignite Sales Growth" (2013)

Farzad Robin "Chipotle Mexican Grill: away from McDonalds" (2013)

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