Analysis of McDonald’s Renovation Strategy

Shahnam Taheri

   April 2012

 1-Introduction:

 

                         McDonald’s Corp. is the largest fast foods retailer in the world. McDonald’s

corporation has dominated the fast food sector for over five decades. McDonald’s operates 32,737

restaurants in more than 117 countries on six continents. Its historical growth in revenues was

amazing. The average number of customers served per day was 64 million people in 2010.The

company’s net income within 5 years from 2005 ($2,602 million) almost became doubled in 2010

($4,946 billion). The sales volume in global level had 5 %( $16,233) and EPS had 11 %( $2.4 billion

dollar cash dividends) growth accordingly. (10, 6)

Although this company is well managed and organized but we believe that there are some important

issues against the sustainable growth of company which will level off over long run if it doesn’t make

right strategic decision.

The company faces three strategic issues: (A) How to deal with growing fierce competition in fast

food market like Burger King, Wendy’s, KFC, Taco Bell and new competitors such as Tim Horton in

Canada (B) How to deal with financial problems such as high franchise fees in contrast with

geographical expansion goals, and (C) How to deal with worldwide economic crisis when everyone is

hurting from recession and fighting to remain profitable as it has been.

In order to achieve and sustain its competitive advantage, McDonald’s Corp. Burger chain is

pumping $1 billion into renovating its Canadian restaurants. The changes, including enlarging the

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drive through, installing fireplaces and flat-screen TVs, will create "more inviting and relevant"

restaurants. Dining rooms will be divided to accommodate for large groups and those who want to

linger over the free Wi-Fi access. The company will be using new color schemes, stone and tile

accents and wood tones. (1)

The purpose of this report is to examine the link and relation of the of renovation strategy in

McDonald’s restaurants in Canada with strategic definitions and investigating that if that strategy is

in alignment to the organization’s vision and mission.

2- Renovations Strategy and Strategy Concepts

Mintzberg, in his article, presents five definition of strategy – as plan, ploy, pattern, position, and

perspective – and considers some of their interrelationships.(2,11) We will examine the McDonald’s

Renovation strategy specifically and other strategies implicitly mentioned in the newspaper with

those five definitions of strategy concept.

(A)Strategy as Plan

“Strategy is a plan- some sort of consciously intended course of action, a guideline (or set of

guidelines) to deal with a situation or something equivalent- a direction, a guide or course of action

into the future, a path to get from here to there.”(2, 11)In McDonald case, spending $1 billion

(financial resources) for renovation is an intended course of action for keeping the current customers

and attracting potential customers to McDonald’s restaurants in response to sever competition in the

fast food industry. “The stores which are renovated so far in “Toronto and Montreal succeeded in

bring more customers as well as doubling sales” (1, 1)

(B) Strategy as Ploy

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“As plans, a strategy may be a ploy; too, really just a specific manoeuvre intended to outwit an

opponent or competitor.”(2, 11) The secret of McDonald’s is its willingness to innovate. For example

its breakfast menu, salads, Chicken McNuggets and Mclean Deluxe sandwich are example of ploy

against its traditional competitors like Burger King, Wendy and KFC.“McDonald’s has given away

50 million free cups of coffee in the last two and half years in an attempt to steal away market from

Tims which Yarbrough said dominates 45 percent of breakfast sales.”(2, 1) Giving free cups of coffee

is a strategy as a ploy against Tim Horton in Canada’s coffee and breakfast market. Internet access,

and comfortable sofa and cosier environment, and a special place for children play could also be are

example of ploy against Burger King, Wendy, Starbucks and Tim Hortons.

(C)Strategy as Pattern

 Strategy is also a pattern that is constantly in behaviour over time. McDonald’s perpetually markets

new products and styles to attract its customers. Egg McMuffin and McCoffee and renovation

restaurants plus quick service and friendly environment so that customers can linger longer, can

attract more customers to stay longer and buy more are the examples of McDonald’s pattern as a

strategy.

“For McDonald’s, consistency of hamburger and French fry quality is important as its taste and

portion size.”(146, 9) McDonald’s coordinates all its restaurants in the entire world according to a

consistent pattern. “Coordination encompasses the setting standards in global level to achieve

competitive advantage with consideration cultural differences. (113, 5)

(D)Strategy as Position

“Strategy is a position-specifically, a means of locating an organization in what organization theorists

like to call an environment.”(13, 2)

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McDonald’s introduced a new product called Egg McMuffin- the American breakfast in a bun. This

was to encourage the use of the restaurant facilities in the morning of day in another word it was as a

strategy of a new position of McDonald’s in its existing perspective of fast food industry.

(E)Strategy as a perspective

“Strategy is a perspective. Its content consisting not just of a chosen position, but of an ingrained way

of perceiving the world” (16, 2)

McDonald’s perspective concentrates on sheer productive efficiency as a fast food industry to serve

the customers quickly. McDonald’s senior managers see franchising as the best way for global

expansion and growth.” We view ourselves primarily as a franchisor and believe franchising is

important to deliver in great, locally relevant customer experience and driving profitability” (9,10)

 

  3- Renovation Strategy and McDonald’s Vision and Mission          .

 “McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best

means providing outstanding quality, service, cleanliness and value, so that we make every customer

in every restaurant smile.”(11)

“McDonald’s Mission is:

Be the best employer for our people in each community around the world.

Deliver operational excellence to our customers in each of restaurants and achieve enduring

profitable growth by expanding the brand and leveraging the strengths of McDonald’s system through

innovation and technology.

“McDonald’s value is to be our customers’ favourite place and way to eat out with inspired people

who delight each customer with out matched quality, service, cleanliness and value every time”(13)

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With situation (SWOT) analysis, McDonald’s implemented a strategy that they titled “Plan to win”.

McDonald’s focused on making a deeper connection with customers through five business drivers of

people, products, place, price, and promotion. (8, 10)

Have a cleanliness environment when customer enjoys the meal and renovation of restaurants make

McDonald’s restaurants a friendlier and cozy environment along offering new menu items such as

salads and healthier food and McCafe (smoothies, pastries and higher –end coffee was in direction to

McDonald’s vision and mission to be the world’s best quick service restaurant in the world.

4-Summary

Attracting more customers to McDonald’s remains its goal for growth. Annual report shows

McDonald’s has been successful during the five past years although world economy has been in

recession. New menus, offering healthier foods, making restaurants and facilities as a cozy places by

renovations with internet access Wi-Fi, staying open longer, accepting all credit and debit cards were

among a comprehensive and related parts of execution a comprehensive strategy aligned with the

mission and vision of the company to satisfy customer demand with quick service, choice and variety,

and friendly environment with maintaining its consistency of its core strengths- affordable and good

service-with carefully experiencing new menu and aggressive marketing are the keys to success of

McDonald’s in future

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Works Cited

Newspaper

1-The Canadian Press. “McDonald’s earmarks $1 – billion for Canadian renovations.” The Globe and Mail 7Sep.2011.Print.Journals

2-Mintzberg Henry. “The Strategy Concept I: Five Ps For Strategy.” California Magazine Review (2001):11-24. Print.

Books

3-Beamish Paul W. and C.Patrick Woodcock. Strategic Management. Canada, McGraw-Hill Ryerson Limited, Fifth Edition, 1999. Print.

4-Berkowitz, Crane, Kerin, Hartley, Rudelius. Marketing. Canada, McGraw-Hill Ryerson Limited, Fifth Edition, 2003.Print.

5-Fahey Liam and Robert Randall, The Portable MBA in Strategy, Canada, John Wiley & Sons, Inc.1994.Print.

6-Hitt, Ireland, Hoskisson, Rowe and Sheppard. Strategic Management: Competitiveness and Globalization-Concept.3rd Canadian Edition. Toronto, Nelson, 2009.Print.

7-Kaplan Robert S. and David P. Norton, The Strategy- Focused Organization, Harvard Business School Publishing Corporation, 2001.Print.

8- Kaplan Robert S. and David P. Norton, Strategy Maps, Harvard Business School Publishing Corporation, 2004.Print.

9-Porter Michael E. Competitive Advantage, New York, The Free Press: A Division of Macmillan, Inc.1985.

Websites

10-McDonald’s Corporation. Annual Report 2010.Web. 25 Sept. 2011.http://www.aboutmcdonalds.com/etc/medialib/aboutMcDonalds/investor_relations3.Par.56096.File.dat/2010%20Annual%20Report%20(print).pdf11-McDonald’s Corporation, mission, Web. 26 Sep. 2011. http://www.mcdonalds.com.my/abtus/corpinfo/mission.asp12-McDonald’s mission and vision statement, Web.26 Sep.2011. http://www.samples-help.org.uk/mission-statements/mcdonald-vision-statement.htm13- McDonald’s mission and vision statement, Web.23 Sep.2011. www.mcdonalds.com.my/abtus/corpinfo/mission.asp

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