Team 11

McDonald’s:

Polishing the Golden Arches

Pauline V. 4502640834

Pun L. 4502640875

Strengths

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

•Strongest International Presence•120 Countries

•Brand Recognition

•Leader in Quick Service Sandwich Industry•World’s Largest Burger Chain•Over 30,000 Stores, $41 billion in sales

•Real-Estate Holdings•Prime time high-traffic locations•Have control over what to do with the land

•Easily Recognizable Product•Big-Mac as Trademark

•Variety Sources of Income•Franchise – Rent and %-of-Sales•Company-owned Restaurants•Brand Portfolio of Restaurants

•Franchise Business Model

Weaknesses

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

•Poor Management•Management at Corporate Level (Failed Initiatives)•Franchise Management (Poor Franchise Relationships)

-Not responsive to needs-Cannibalization - Tension

•Customer Service Level•Slow Service at Drive Through Windows (60% sales)•Poor Order Accuracy (84.41%)

•Poor Marketing•Not attentive to customer’s needs•Failed of healthy menu/low fat products

•Struggles in Offering Value/Premium Items•Markets abroad have not responded well

•High Employee Turnover•Nature of Industry at 300%•Higher than Rivals•Believed to be One of the Factors for Poor Service RankingsQ&A

Opportunities

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

•Initial Public Offerings in Other Countries•Success in US and Japan•120 countries

•Growth in Global Food Service Industry•International Expansion•Grow more than $200 billion (’02-’06)

•Acquisition of Other Restaurants•Diversifying Brand Portfolio

•Retail Sales of Merchandises•McDonald’s family characters•License Agreements (i.e. Disneys)

Q&A

Threats

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

•Health Conscious Consumer Trend•Decreased consumption of fried food, junk food, and red meat•Brand Perception

•Increased Competition from Various Industries•Quick Service Restaurants Industry

•Non-Traditional outlets (grocery/convenience stores)

•Value-Conscious Consumer Trend•Demand Quality for Good Value for Price

•Saturation of US fast-food Market•Aggressive Expansion no longer an option

•Slow Growth in Sandwich Segment•Price War Business Practices

•Weak Economy – attract value conscious consumers•Hurt Profitability

Q&A

Financial Analysis

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Liquidity

Profitability

Asset Utilization

Leverage

• Not extremely liquid but capability inFinancing short-term debt will not bea problem

• Profitable • Declining trend but returns to normal level of profitability in 2003

•Normal leverage•Has ability to cover debt obligations

• High inventory turnover compliant to nature of industry

Q&A

Marketing Analysis

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

4 P’s Analysis

$Product

•Wide variety of menu items - traditional items- health-conscious items

•Local flavors

Q&A

4 P’s Analysis

$SWOT

Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Marketing Analysis

Promotion

•I’m lovin’ it campaign to attract family•Feature artists to target teenagers•Give Ronald a more prominent place

Q&A

4 P’s Analysis

$SWOT

Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Marketing Analysis

Place

•30,000 stores worldwide•Operations

-Company-owned-Franchise

Q&A

4 P’s Analysis

$SWOT

Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Marketing Analysis

Price

•Traditionally - value-pricing as competitive weapon•Now, offer products at range of price points

-attract both price-sensitive and health-conscious consumers

Q&A

Management Critique

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Present

+

Past •Series of unsuccessful initiatives•Aggressive store expansion cannibalization•Tensions – stopped QSVC evaluation

Poor Customer Service Level

Q&A

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Present

+

Past

Management Critique

•Cantalupo took over in 2003•Launched initiatives aimed to

- internal operations- slowing down expansion- enhancing relevancy to customers

• Shown positive progress

Concerns

•Sustainability of Initiatives?•Or is it just Cyclical Trend?

Q&A

Brand

Situation Analysis

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Distinctive Competencies

Franchise Business Model•Pioneer in Franchise Management•Quick Expansion – Leader in Quick Serve Industry•“Standardization” – What McDonald’s is Known For

Sustainable Competitive Advantage

•World Recognition•Presence > 120 countries

Concern: Deteriorating Franchise Management

Concern: Negative Brand Perception – “JUNK FOOD”Q&A

Issues at Hand

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

TWO

ONE

THREE

FOUR

FIVE

How can McDonald’s continue to have product innovations that meet customers’ needs?

Problems

Q&A

McDonald’s has received lowest customer Service ranking among fast-food chains, how

can the company improve its customer Service level in order to stay number one

in the fast-food industry?

TWO

ONE

THREE

FOUR

FIVE

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Issues at Hand

Problems

Q&A

TWO

ONE

THREE

FOUR

FIVE

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Issues at Hand

Problems

How will McDonald’s continue to perform when this batch of management who has extensive experience with McDonald’s is no longer with

the company?

Q&A

How can McDonald’s improve its employee turnover rate?

TWO

ONE

THREE

FOUR

FIVE

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Issues at Hand

Problems

Q&A

TWO

ONE

THREE

FOUR

FIVE

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Issues at Hand

Problems

How can McDonald’s improve its deteriorating franchise management to sustain its

reputation as a well-known franchise system?Q&A

Problem Statement

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

“How can McDonald’s improve its deteriorating franchise management to sustain its reputation

as a well-known franchise system?

Q&A

Problem Statement

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

“How can McDonald’s improve its deteriorating franchise management to sustain its reputation

as a well-known franchise system?

Rationale

Franchise System is the Backbone of McDonald’s

Success

•Distinctive Competency

•Allow Quick Expansion

•Uniform Operation – Standardization

•Same Food Experience

Franchises

Q&A

Problem Statement

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

“How can McDonald’s improve its deteriorating franchise management to sustain its reputation

as a well-known franchise system?

Rationale

Franchises

Corporate Policies and Initiatives

Success of Implementation Depends on Franchisees

Corporate Initiatives only go so Far

•Depends on Franchise Level Execution

•Franchises – point of contact

•Unable to achieve Consistency

Q&A

Alternatives

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

• Stop Expansion altogether to Prevent Future Cannibalization and Focus only on Same Store Sales Growth

• Exercise Coercive Bargaining Power on Franchisees

• Open More Company-Owned Restaurants

• McDonald’s Takes over the Complete Recruiting Process

• Provide more Benefits

Q&A

Alternatives

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

• Station McDonald’s Company-Owned Managers at Each Franchise to Ensure Control of Every Store’s Performance

• Set up QSVC Rankings to Create Competition between Franchisees

• Status Quo

•Enhancing Franchise Relationship

•Planned Growth

Q&A

Basis of Choosing Recommendation

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

F

Corporate Policies and Initiatives

Success of Implementation Depends

on Franchisees

F F

Deteriorating Franchise

Management

•Cannibalization and Failed Marketing Tension

•Unresponsive to Needs

•Franchisees reluctant to comply

•Relationship is Key to Implementation Success

Poor Relationship

Q&A

Basis of Choosing Recommendation

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

F

Corporate Policies and Initiatives

Success of Implementation Depends

on Franchisees

F F

Managing

Franchisor-Franchisee

Relationship

Enhancing Franchise RelationshipsRecommendation I

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

“Franchisee Involvement in Various Initiative Planning”

STRATEGY

UnderstandingFranchisees’ Needs

and Capabilities

•Know areas franchisees require Improvement

•Correct Franchise Management Procedures where Lacking

•Attend to needs of Franchisees

Involve FranchiseesIn Initiative/Policy

Planning

•Depends on how much McDonald’s willing to open up involvement

•From Developing KPI to product innovation ideas

•Arrive to a mutual understanding and increase commitment levels

•Enhance relationship and likelihood of initiative implementation success

Objective:

Planned Growth Strategy

Recommendation II

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Execute planned growth strategy to capitalize opportunitieswithout foregoing a Healthy Franchisor-Franchisee Relationship

STRATEGY

•US Market Saturation – Slow Expansion

•Focus on Same Store-Sales Growth and Improving Delivery Outlets

•High Growth

•Aggressive ‘Planned’ Expansion – to avoid conflict with current franchisee and future franchisees

Domestic Market

InternationalMarkets

Q&A

Summary

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

“How can McDonald’s improve its deteriorating franchise management to sustain its reputation

as a well-known franchise system?

“Franchisee Involvement in Various Initiative Planning”

Execute planned growth strategy to capitalize opportunitieswithout foregoing a Healthy Franchisor-Franchisee Relationship

Problem Statement

Recommendation I: Enhance Franchise Relationships

Recommendation II: Planned Growth

Q&A

Conclusion

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

F

Corporate Policies and Initiatives

Success of Implementation Depends

on Franchisees

F F

McDonald’s Focus Marketing. Product

Innovations, and Franchise Management

Policies

Enhanced Relationship

Mutual Understanding and Raised

Commitment Levels

Turning Initiatives into Successes

Franchise able and willing to Deliver

Initiatives in consistent manners

Q&A

Team 11

McDonald’s:

Polishing the Golden Arches

Thank You.

Summary

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

“How can McDonald’s improve its deteriorating franchise management to sustain its reputation

as a well-known franchise system?

“Franchisee Involvement in Various Initiative Planning”

Execute planned growth strategy to capitalize opportunitieswithout foregoing a Healthy Franchisor-Franchisee Relationship

Problem Statement

Recommendation I: Enhance Franchise Relationships

Recommendation II: Planned Growth

Q&A

Q&A Slide Navigator

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

Presentation Slides IndexFinancial Ratios(1)Financial Ratios(2)Where to Expand

Franchise-RelatedKeeping a Cooperative RelationshipConcerns – Clash of GoalsBenefits of Franchisee InvolvementOthersBrand PerceptionEmployee Turnover Issue

Presentation Slide Index

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

SWOTStrengthsWeaknessesOpportunitiesThreatsSituation AnalysisFinancial AnalysisManagement CritiqueMarketingDistinctive/Sustainable AdvantageProblemIssues @ HandProblem StatementRationale

RecommendationAlternativesBasis of Choosing RecommendationRec. I: Enhance RelationshipRec. II: Planned GrowthConclusionConclusionSummary

Q&A

Benefits from Franchisee Involvement

•For McDonald’s:

-Understand where its franchise management is lacking

-Get Ideas for Future Initiatives

-Enhance Future Franchise Management

Can Thrive even under high pressure/competitive environment

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&AQ&A

•For McDonald’s Franchisee:

-Attain ability to carry out franchisor’s initiatives

-Improve commitment levels

Keeping a Cooperative Relationship

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&AQ&A

•Franchisee see benefits when Outlets are New

•Need to Keep “Solid Relationship”

Ways to Keep Cooperative Relationship

•McDonald’s can ‘encourage’ franchisees to innovate

•Get on well internally and taking interest in each other

•Offering genuine assistance

•McDonald’s needs to recognize good performance

•McDonald’s – Fair and setting reasonable objectives and not terminating franchisees for no good reason

•Formalization

•Franchisees want a certain level of autonomy – making decisions and certain standards

“Exert Influence without Threatening Autonomy”

Incongruent Goals

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

Avoiding Future Cannibalization and Relationship Damage•Franchisors will likely expand – to increase sales

•Solution

•Give priority to franchisees nearby – ask if existing ones would like to open new stores

•If not, franchisees should have the right to refuse

Clashes of Goals•Franchisors – Seek to Increase Sales

•Franchisees – Seek to Increase Profits

Brand Perception

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

Why Not Priority?

•It is a Concern.

•McDonald’s will need to find ways to enhance its brand image

•Product Innovations

•Marketing Campaigns

•Corporate Social Responsible Initiatives

Current Trend•Health Conscious Trend

•Social Implications: McDonald’s = “Junk Food”

•BUT REMEMBER,

-INITIATIVES ONLY GO SO FAR

-NEED TO REFOCUS ON DISTINCT COMPETENCY

High employee turnover • Nature of Industry• Constraint to business operations but applies to all fast-food restaurants• Competitors still outperform in customer service

High Employee Turnover

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

Employee Turnover

Examples of Improving Employee Turnover

-Hire More Regular-Time Relative To Part-Time-Hire Older Adults (i.e. Retired People)-Improve Employee Welfare

Asia/Pacific, Middle East, and Africa – still has room for growth

i.e. JAPAN shown strong sales – should be main focus of expansion

Where to Expand

Financial Analysis

2003(forecasted)

2002 2001 2000 1999

7.11% 3.73% 6.66% 9.12% 9.28%

Q3 2003 Q2 2003 Q1 2003 2002 2001 2000 1999

0.7361 0.7832 0.7927 0.7082 0.8092 0.7041 0.4802

Q3 2003 Q2 2003 Q1 2003 2002 2001 2000 1999

0.6920 0.7374 0.7481 0.6621 0.7623 0.6621 0.4549

Current

Quick

Liquidity

2003(forecasted)

2002 2001 2000 1999

10.69% 5.80% 10.09% 13.88% 14.69%

2003 (forecasted)

2002 2001 2000 1999

13.86% 13.85% 14.37% 16.40% 17.69%

2003(forecasted)

2002 2001 2000 1999

15.39% 8.69% 15.81% 21.57% 20.21%

Profitability

GPM

NPM

ROE

ROA

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

2003(forecasted)

2002 2001 2000 1999

15.39% 8.69% 15.81% 21.57% 20.21%

2003(forecasted)

2002 2001 2000 1999

9.69 4.5597 5.8518 7.7023 9.2776

2003(forecasted)

2002 2001 2000 1999

92.87 88.69 89.61 88.12 94.67

2003(forecasted)

2002 2001 2000 1999

16.85 20.26 21.65 20.41 19.49

Asset Utilization

Leverage

Debt

TIE

Inventory T/O

DSO

SWOT Analysis

Situation Analysis

Problems

Problem Statement

Alternatives

Rec. I

Rec. 2

Q&A

Financial Analysis