MCD

McDonald’s – A Business Model Review

Business Model Innovation – 17.09.2015 1

1

2

3

4

Introduction

Business Model Analysis

Threats and Challenges

5 Conclusion

Agenda

Internationalization

Business Model Innovation – 17.09.2015

Introduction

2

McDonald’s Global Leadership - Facts

Introduction Business

Model Int.

Expansion Threats Conclusion

• Global market leader in fast-food industry

• More than 36,000 restaurants worldwide

• Serving about 70 million customer in 119 countries

• World‟s second largest private employer with 440,000

employees

• Revenue 2013 28.11 billion US-Dollar

• Net income 2013 5.59 billion US-Dollar

I’m lovin’ it


Business Model Canvas of McDonald’s

Business Model Analysis – Overview

Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



McDonald’s Value Proposition

Business Model Analysis – Value Proposition

• Food preparation with standardized and

optimized processes:

• Shortest possible waiting time & same

product quality globally

• Similar corporate style and menu structure

• Individual adaptions for markets

• Increase in product variety

• McCafé, McVeggie, & Fruits

• Strong efforts for sustainability and social

responsibility

Value Proposition for Customers

Mission Statement

“To be their customers„ favorite place and way to eat with inspired people who delight

every customer with unmatched quality, service, cleanliness, and value every time“


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



McDonald’s Covers a Wide Variety of Client Segments

Business Model Analysis – Customer Segments

• Children (happy meal, playgrounds,

advertisements, toys)

• Youth (students, younger adults; providing

them a place to hang out (gadgets like iPad's

etc),

• Families (dinner occasions)

• Convenience adults/business men (grab a

quick meal)

• Budget customers (value meals/burgers)

• Coffee goers (place to relax)

Demographic Segmentation

Psychologic Segmentation

• Convenience

• Life Style


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



McDonald’s Has Many Ways of Reaching the Final Customer

Business Model Analysis – Channels

• McDonald‟s restaurants:

• Similar design globally

• City center or outskirts

• Restaurant & pick-up station

• Delivery Service

• Small & portable stands

Direct Sales Channels

Customer Touchpoints

Social Media TV Advertisement McDonald’s App Website Print & Board Ads


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



McDonalds Tries to Establish a Closer Customer Relationship Through Involvement

Business Model Analysis – Customer Relationships

Customer Relationships

Personal Assistance Automated Services Communities Co-Creation

• Direct interaction

with customer

• Takes orders and

handles

complaints

• Order Kiosks

• Customers order,

pay, and pick up

their food

• McVIP community

in Germany

• Lotteries, exclusive

content, games

• Own burger

creation in

Germany

• Winner chosen by

community

• Very popular

among customers


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



Every Aspect From Product to Place is Carefully Analyzed

Business Model Analysis – Key Activities

Marketing Supply Chain Management Selling food and beverages

Product

Price

Promotion

Place People

Process

Physical Evidence

• Product: pleases customers; high quality

standards & control systems; constant

reinvention

• Price: Right price for right market to maximize

market share.

• Promotion: Brand globally, advertise locally;

sales promotion, advertising, pers. selling, PR

• Place: City centre or outskirts; easy

accessible; prudent and Strategic Expansion


Model Int.



Whether Referring to People or to Processes, the Standards are Always High



Product

Price

Promotion

Place People

Process

Physical Evidence

• People: Friendly and prompt service; training

centres and universities focus on HR

• Physical Evidence: Clean and accessible;

hygienic; same environment style everywhere;

identical look for facilities; family friendly

• Process: transparent; heavy quality control

and training for franchisees; high standards for

suppliers; advanced standardization; efficient

and perfectly planned customer service


Model Int.



McDonald’s Fully Outsources their Production



• Complete outsourcing of production; high

requirements for suppliers part of three

legged stool

• Establishment & enforcement of high quality

standards and product specifications; ongoing

product reviews and onsite supplier visits

• Close work with suppliers to encourage

innovation, assure best practices, and drive

continuous improvement.

• Restaurant personnel are trained in the proper

storage, handling and preparation of products.

McDonald’s Supply Chain Organization


Model Int.



Standardization is Key in Maintaining the Highest Quality



• Regular and most important activity

• Same rules apply for franchisees and fully

owned stores

• McDonald‟s prefers to test new products and

processes in their own places

• Trying to test each market without

compromising their relation with

franchisees (it could damage their sales)


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



17

Every Employee is Trained to be Competent but Versatile

Business Model Analysis – Key Ressources

Employees Location Brand

“If we‟re going to go anywhere, we‟ve got to have talent. And I‟m going to put my money in talent”

- Ray Kroc,

• More than 1,8 million employees heart of the organization

• Special trainings for employees

• University education for 7500 employees per year (MBA

programs, etc.)

• McDonald‟s has been in the center of many accusations

regarding the employee‟s wages. Workers were demanding a

salary of 15$/hour

• However, McDonald‟s wages represent 26% of the costs

• Having said so, McDonald‟s couldn‟t meet the demands or

they would see their profits decrease by about 15%


Model Int.



Every Location is Strategically Chosen



• 20.774 conventional

• 5.228 licensed

• 3.542 affiliates

• 6714 Own Restaurants

• Best locations in city centres

or outskirts (e.g. next to

highway)

• Constant improvement of

facilities

• McDonald’s is present in almost every country

• Locations are always perfectly situated, thus restaurants are always in

reach for the customer


Model Int.



McDonald’s Brand is Recognized All Over the World



• McDonald„s brand equity is one of the key competitive advantages of the company

• Rank 6 in Forbes “Most Valuable Brands” ranking

• According to BBC the brand is more recognized than the Christian cross

• “The whole world know about McDonald‟s”

• High brand loyalty, especially within their younger target audiences


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



Franchises are Core in McDonald’s Business Model

Business Model Analysis – Key Partners

3 Types of Franchisees

• Usually 20 years

• Requires an initial

payment + royalties

• The company owns the

land and infrastructure

• The franchisees are

responsible for the

equipment, employees

etc.

Conventional Franchise

• Licensees provide capital

for the whole businees

including real estate

• The company has no

Money invested

Development License

• “The company has an

equity investment in a

limited number of foreign

affiliated markets”

Affiliates

More than 80% of the McDonald’s restaurants are franchises


Model Int.



The Process is Long and Demanding

Business Model Analysis – Key Partners

• Very long and extensive process

• After several enterviews you might be

selected to take part in a training process

• Candidate needs to provide a refundable

£5,000 training deposit

McDonald’s Franchise Process

Having Money is not enough!


Model Int.



Suppliers are Key in McDonald’s Business Model


Since all the production is done locally,

suppliers are the key to assure the quality of

the meals.

With this business model, not only can

McDonald’s effectively reduce costs, they

can also serve their customers with the local

freshest ingredients.


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



Franchises are Extremely Profitable

Business Model Analysis – Revenue Streams

• Revenues from own

Restaurants

• Franchising Fees

• Franchisees have to pay

an initial fee

• Royalties

• % of the sales (4%)

• Rent

• Might be fixed or % of

sales

4 Sources of Revenue

Revenues

Even though the revenues from owned restaurants are higher, the reduced

costs associated with the franchises make them much more profitable


Model Int.





Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Int.



McDonald’s Costs are High, Significantly Reducing the Margins

Business Model Analysis – Cost Structures

• Food and per costs:

• Increasing food costs due to

rising energy costs, droughs,

import and export bans

• Payroll and employee benefits:

• Average wage: 8.90$ in US

• Wage rise cannot be passed

on to customers

• Occupancy and other expenses:

• All costs related to land and

buildings (rents, real estate

taxes, insurrance, etc.)

• Remain stable due to long-

term lease agreements or

ownership

Main Cost Drivers:


Model Int.



McDonald’s Focuses on Creating Global Brand

Business Model Analysis – International Expansion

• Global marketing strategy

• Western & American image

• Neighborhood restaurant image

• Global brand partnerships:

• Walt Disney (alliance from film to food)

• Coca Cola

• Global sponsoring:

• Olympics and World Cup

• Association of Volleyball Professionals,

and the NBA

• Global CSR activities:

• Partnership with UNESCO (millenium

dreamers)

• The Ronald McDonald House Charities

• Involvement targeted on improving

children„s lifes

Global Branding Efforts


Model Int.



Local Adaption is Key to Success for McDonalds

Business Model Analysis – International Expansion

McDonald’s strategy is to brand globally and think locally

• McDonalds adapts their products, services, and

restuarants locally

• Local marketing strategies and local sourcing

• Tries to fulfill cultural and religional requirements

as well as adaption to local eating habits

• Examples for local adaptation:

• Vegetarian and chicken burgers for Indian

market no beef

• Special burgers in each country

• Halal certification in Indonesia

• Delivery Services in Asian Countries

• Cozy interior in France

Local Adaptation Efforts


Model Int.



Obesity as the Threat of the 21st Century for McDonald’s

Threats - Obesity

• In 2004 the documentary “Super-size me” was released, where

Morgan Spurlock eats McDonald‟s all the time for 30 day straight.

• Spurlock suffered various side effects (chest pains,

shortness of breath)

• Brought McDonald‟s into a substantial crisis

• The documentary emphasized the major need to get healthier

and fight obesity

• 2008: 1.4 billion adults were overweight; 0.5 billion were obese.

• At least 2.8 million people each year die as a result of being

overweight or obese

• Globally, 42 million preschool children were overweight in 2013.

Obesity Issues for McDonald’s


Model Int.



McDonald’s Tries to Gain a More Healthy and Sustainable Image

Threats - Obesity

• McDonald‟s started heavily promoting their menu alternatives and healthier lifestyles

• Changed the menu salads and fruits as big changes

• However, despite all the efforts many remain sceptical about McDonald‟s health issues.

• Product formulation, marketing, labelling and future development were under scrutiny by

McDonald‟s.

• Aggressive marketing campaign, launching a global advertising scheme, which aims to bring

back its core consumer to its stores, namely youths, children and their parents.

• Key experts have also been consulted, to provide nutritional advice

McDonald’s Reaction


Model Int.



Part of McDonald’s Bad 2014 Performance Can be Explained by the Exchange Rates

Threats – Exchange Rates

Revenues from Franchises

EUR vs. US $

• More than 40% of McDonald‟s revenues come

from Europe.

• This leaves the company susceptible to any

hindrances that may occur

Revenue Contration

With the threat of deflation and of a Grexit in Europe, the Euro sharply

depreciated against the US Dollar which greatly compromised McDonald’s

results.


Model Int.



Conclusion

33

McDonalds’ Business Model Conclusion


Model Int.


• Local adaptation while having a strong global

brand Glocalization

• Strong supply chain network and

management

• High franchise profitability

• Strong focus on HR development

• Best locations worldwide

Main Competitive Advantages

McDonald‟s didn‟t reinvent its whole business model – established parts such as

the franchise system remain, but the company developed key competitive

advantages

However, after facing a deep reputation crisis in the last 15 years, the company is

attempting to remodel its image and turn into a progressive company


Thank you for your attention!


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