Case Discussion Mc Donalds: Is China Lovin It

7/28/2019 Case Discussion Mc Donalds: Is China Lovin It

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Case II Marketing “McDonald's: is China Lovin it”

1. What are the general environmental forces that could influence or have influenced McDonald's

development in China?

a. Demographic Environment

• There was massive urbanization in China, captured in graphic bellow: (Opportunities)

Urban Population Percentage

30%

32%

34%

36%

38%

40%

2000 2001 2002 2003 2004 2005 2006

Year

P o p u l a t i o n

p e r c e n t a g e

Rural population (in percentage)

Urban population (in percentage)

• In China there was significant economic growth, which reflected from per capita annual income

growth. (opportunities)

0

200400600800

1000120014001600

P e r C a p i t a A n n u a l

I n c o m e ( i n U S $ )

1980 1985 1990 1995 2000 2005

Year

Per Capita Annual Income of Urban and Rural Households in

China (Year 1980-2005)

Per Capita AnnualDisposable Income of Urban Households (inUS$)

Per Capita Annual NetIncome of RuralHouseholds (in US$)

• Affluence people in China was increasing (opportunities)

• In China’s there was rapidly growing middle class (opportunities)

• In China there are many lower income consumers that could not afford at Western fast food chains,

which charge $3 for a basic meal. (threat)b. Sociocultural Environment

• Chinese customers are eager to try out burgers and fries, which were vastly different from local

Chinese quick service restaurants. (Opportunities)

•

Big curiosity of Chinese about foreign brands and their-in-store experience that enable Western fastfood and restaurant companies to set relatively high price for their food (Opportunities)

• Chinese food tradition. Chinese meal, dishes were served on communal plates, which were placed at

the center of a table for everyone to share. That different from what McDonald’s offers as westernfood, which serve on individual serving. (threat)

• China’s rapidly growing middle class was also demanding higher standards. (Opportunities)

• Fast food is already known in China, such as noodle and dumpling stalls. (Opportunities)

By: G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu



• In the late 1980’s and early 1990’s the emerge of Western fast-food chains had change restaurant

landscape in China through the different experience they offered to Chinese consumers: efficientself-service (threat),

• Standardized servings, less reliance on eating utensils, a clean environment and a comfortable

atmosphere. (Opportunities)

• Young Chinese customers had a different view about Western restaurant: they don’t mind paying

more expensive food to enjoy and socialize with friend and relax. (Opportunities)

• Breakfast market in China: 80% of Chinese consumers are eating breakfast, among which 68% ate

breakfast away from home. (Opportunities)

• Chinese consumers have a preference tea then coffee. (Threat)

• Social critic about health improvement and environmental standard in China: Mc Donald’s doesn’t

do the same campaign about health and environment as they do in US. (threat)

• McDonald’s in developing nations had been targeted by anti Americans Activist. (threat)

• American News Anchor Brian Sulivan said that McDonald should respect US since McDonald was

American Company as a impact of tag “I’m Lovin it when China win” (threat)

• While the booming economy of China offered the environmental conditions corresponding to fast-food culture, the environment also posed challenges to McDonald’s. The prevalence of Mc’Donalds

restaurants in China seemed suggests the Chinese were lovin’ it. (opportunity)

• In 1987-1990, the KFC, McDonald, Pizza Hut have a service that comparable to high class Chinese

Restaurant. Many Chinese in those early considered dining at KFC, McDonald’s or Pizza Hut as

Luxury. (opportunities)

• There were cases in china of other franchises signing on as partners just to learn trade secrets and

recipes and then open their own stores under different names. (threat)

• Malan Noodles emphasizing the nutritional values of its noodles and ingredients that it used, it also

promotes wide selection of Chinese dishes to customers, unlike western fast food, which lack

variety. (threat)

• McDonald’s rival, KFC, was the first foreign company to bring the concept of fast food to the

country in 1987 (threat)

c. Economic Environment

• The competitive environment was also intensifying as local a foreign restaurant sought to capitalize

on China’s increasing affluence people. (threat)

• There were powerful Chinese partners who willing to have a joint venture relationship with McDonald as a foreign company. (opportunities)

• In April 2007 there was raising inflation in China. (threat)

• Companies that originated in Asia and which were familiar with both Chinese tastes and Western

management styles also emerged in China during the Economic Reform. (threat) new entries




• Many home grown fast-food chains, which offered more – Chinese and lower prices than foreign

counterpart. (threat) existing competitors

• Local Chinese chains mostly concentrated their business in urban cities in specific regions and

offered food delivery services (threat)

•

KFC’s first outlet in Beijing was in three-storey building of 1,100 square meters, making it theworld’s largest KFC by floor space. (Threat) existing competitor

d. Regulatory Environment

• McDonald’s was entered China in 1990, where China not yet have Franchise Law. In 1997 China

enacted its Franchise Regulations which applied only to domestic franchiser; just in 2004 China hascreated legal structure for foreign franchiser as part of China commitments to WTO. (opportunities)

• Newspaper revealed McDonald and Yum Brands had underpaid their part time employees in

Guangzhou. (threat)

• As a foreign fast food companies sprang up quickly during the 1990s, the Chinese government

expected the fast-food sector to grow rapidly in the country and contributed significantly to

restaurant industry. (opportunities)

e. Technological Environment

• Many of China Chains failed because they failed to develop system like those of foreign chains

(threat)

• Lihua fast food operated without storefronts but owned a well-equipped kitchen with a skilful

kitchen crew (threat)

• Lihua used computers to facilitate inefficient food ordering and tracking system and utilized the GPS

to aid food delivery. (threat)

• Lihua fast food was the 1st fast food company in China to use environmentally friendly packaging

and implement the ISO 4001 environmental management system (threat)

f. Natural Environment

• China have natural resources that can fulfill 95% of material needs by Mc Donald’s (egg. beef ,

potatoes, milk, and vegetable) (opportunities)

2. What are the opportunities and threats presented to McDonald's operations in China?

• Opportunities presented to McDonald’s operation in China

Marketing opportunities is an area of buyer need and interest that a company has a high probability of profitability satisfying based on Marketing Management by Kotler, Keller 14ed.

Massive urbanization in China

Affluence people in China was increasing & there was rapidly growing middle class

Chinese customers are eager to try out burgers and fries

Big curiosity of Chinese about foreign brands and their-in-store experience

Fast food is already known in China, such as noodle and dumpling stalls




As a foreign fast food companies sprang up quickly during the 1990s, the Chinese governmentexpected the fast-food sector to grow rapidly in the country and contributed significantly torestaurant industry.

Many of China Chains failed because they failed to develop system like those of foreign chains

China have natural resources that can fulfill 95% of material needs by Mc Donald’s (e.g. beef , potatoes, milk, and vegetable)

• Threats presented to McDonald’s operation in China

Environmental threat is a challenge posed by unfavorable trend or development that, in the absence of

defensive marketing action, would lead to lower sales and profit.

3. What are the strategic groups in the fast-food industry in China? In which strategic group does

McDonald's China compete most?

Based on Michael Porter theories, Strategic group is firms directing the same strategy directed to the sametarget market.

• Different restaurant landscape

Efficient self-service

Standardized serving

Less reliance on eating utensil

A clean environment

Comfortable atmosphere

Focus on brand quality

Focus on management control

Ability to adapt quickly to local condition

Has well-known and strong name and

trademark

Vast Capital


Rivalry amongexisting

competitors

Threat of newenterence

Bargaining power of buyers

Bargaining power of Suppliers

State owned GeneralCorporation of Beijing

Agriculture, LocalFarmer

Threat of substituteproduct

H i g h

L o wH i g h

H i g h

Already have a join venture withState owned General Corporation of Beijing AgricultureDevelop a network with farmer, foodprocessing manufacture and other suppliers

L o wH i g h

L o wH i g h

Good substituteperformanceLow cost of change

Free market

Small size order There were difference offeringfrom its competitor High price sensitivityLow cost of changing

Moderate time and costentryModerate economic of scaleMany new local entrancefailed to develop systemLow barriers to entry

A lot of number competitor Uniqueness product of each competitorsLow customer loyaltyNo switching cost


Threat of newenterence A lot of number competitor

Uniqueness product of each competitorsLow customer loyaltyNo switching cost




Rivalry amongexisting

competitors


Bargaining power of Suppliers

State owned GeneralCorporation of Beijing

Agriculture, LocalFarmer


M o d e r a t

e

L o w H i g h



Expert in technology

Adapt its menu to China preference chickenover beef

Well develop its internal supply network.

Strong partnership through local

company, e.g. McDonald with

Taobao.com for online shop and

Sinopec’s for drive through in 30,000

petrol stations.

Have home delivery service

Open hour to 24 hours per day

Price discrimination

Promoting western menu in China

*the bold one is the strategy that McDonald’s China mostcompete




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Case Discussion Mc Donalds: Is China Lovin It