1McDonalds

An independent SWOT Analysisbased on 2006 World Wide CR Report verified with personal observations made in

different MD locations.

(CSR Seminar Dr. Frank Vorhies / Nov Feb. 2007)

Foreword

McDonalds (MD) was founded decades ago by Ray Kroc and he once said Whatever we can do today we can do better tomorrow. It not always has been like this but from time to time it seems that the spirit of Ray Kroc visits MD again and gives an aging fast food company a push forward. McDonalds always has been known as the fast food chain no.1 in the world with revenues of 24bn and a marketing budget of over 1bn USD and responsible of making millions of US citizens overweight. The fast food chain has been known of supplying tasty, economic but unhealthy food. Now that is on the rise to change.

MDs recent progress has been determined by 3 CSR actions:

Nutrition information initiative Support of sustainable fisheries Fund raising for childrens charities

MDs progress at the begin of the millennium:

Open doors

The open doors initiative started to X-ray MD publicly. They opened almost everything to everyone and made MD of public interest somehow a matter of a lot of people.

There are many ways on how to structure a SWOT report on MD. Always we would certainly take a SWOT template to order the strength, weaknesses, opportunities and threats. But all of the 4 elements would need to be ordered as well and that could be either based on the 3 Ps of MD such as Products, Price, Place or on the classic 4 Ps of marketing i.e. Products, Price, Place & Promotion or any other criteria based sequence. All of these structures as I perceive would give it too much of a taste of marketing and profit making issue.Therefore I have decided not to give it too much of the a.m. structure but rather go through the CR report of 2006 and mention strength, weaknesses, opportunities and threats as they happen.

2Overview SWOT template

Strength (p 3 7) Weaknesses (p 9,10) Open door company Inflexibility Ceres guidance and co-work Not employee-friendly Active community responsibility Too much shareholder-value driven Rigorous food safety standards Errors on promoted CSR Careful supply chain strategies MD continues to prom. unhealthy food Accurate service standards Affordable prices for high quality

product Responsible Charity and Comm. Work Profitability Product strategy Nutrion information on packaging Encouraging activity Decentralized but not disconnected sys. Innovative excellence program Good governance a. ethical conduct

Opportunities (10 12) Threats (p. 7,8)

Attractive and flexible working environm. Sceptisism about MD Strong environmental work Not healthy enough for children High supplier profile Beef/Poultry/Fish health problems Own corporate responsibility comity Made in China Syndrom on Accessor. truthful brand image Profit pressure

MD major contributor in global warming

Local fast food restaurants MD has the power to create demand

3Strength

All strengths have been taken from the McDonalds 2006 Worldwide Corporate Responsibility Report1

Open door CompanyCompany trust was declining because of public confidence in the safety of beef, poultry and bad intentioned internet rumours. We do also remember the BSE crisis in Europe at the begin of this millennium. On March 2001 MD decided to open its doors to everybody with desire to see how the company is being managed. This action was supported by open invitation through TV and printed advertisement. Consider the courage of MDs board to open their company to everyone? Have they completely been sure of what is going on in their remotest MD restaurant? How can they risk to show one of their black sheep (and every 1000s of subsidiaries holding concern has some!) to the public and could face the tremendous impact a cockroach would have being found in a double-cheese burger or found on their kitchen floors? Roaches are present in many locations we dont want to have them:In modern hospital kitchens, in modern companies etc. the boundaries between human life and animal live is a free flowing one and we would have to use so many chemicals that we would harm ourselves much more than with just living with them. Still however a cockroach could have an impact nobody at MD wants to risk. For this reason in 2001 only selected MD restaurants, the HQ and 3 major suppliers have been opened to public. Of course that was not the only reason why only a limited amount of MD companies were opened to public. An open house is always a burden to employees and management as it hinders the operation per se. Questions need to be answered, people are standing in the way. Open door means that the house must always be clean, the people must be charming and all processes have to be clear. So I assume that the fear of beef patties on the floor or cockroaches in a corner were not the only reason that the amount of open restaurants and suppliers were limited.

Certainly MD intended a growing mindset by its employees and management by implementing programs like this. Vice-president of corporate affairs Eric Gravier said: If any aspect of our business deserves an open look, its our efforts to conduct our business responsibility.

Ceres guidance and co-workMD works together with a coalition of investors, environmental organizations and other public interest groups to strengthen their social and environmental programs. I would perceive it also as a form of public auditing. It can be valued as strengthbecause this helps MD to focus on what they should do to maintain loyal to its corporate social responsibility targets without loosing strength on their business

1 McDonalds 2006 Worldwide Corporate Responsibility Report: http://www.mcdonalds.com/corp/values/report.html- retrieved on 9.2.07

4priorities. CERES encourages MD to report their progress and future efforts through an open door spirit.

Ceres helps MD to develop and live CSR. The highly decentralized system considered as a great advantage in MD business also has is disadvantages when it comes to achieve mutual global objectives. Ceres puts these weaknesses open on the table and MDs top management evaluates these statements, research results. Ceres e.g. has advised management that MD should report more metrics and goals to demonstrate and foster progress.

Ceres made 3 issues its top priority:

1. Obesity2. MDs purchasing power3. Climate change

To 1 obesityTheir approach to the health problem no.1 in the US is the following:

Offering Menu Choice Providing Nutrition Information Promoting Physical Activity Marketing and Communicating Responsibility

MD has made this topic to one of its greatest strength today. Today at MD you can get a lean chicken burger with approx. 300 kcal and a fresh garden salad with an almost non-fatSalad dressing. Of course as an alternative you can still get the 850 kcal double-cheese burger with French fries topping a 1000 kcal easily. MD has to keep its product portfolio balanced in order to survive but at least society (occasionally depending on fast food) now is not obliged anymore to stuff their bodies just with French fries and fattening burgers. The healthy choice now creates a new strength for the Corporation and a quick stop nowadays must not be remembered for 6 8 hours because the fast food does not want to pass the stomach and move on.The nutritional information initiative is a first step in making customers aware of what they are eating. The next step could be that governments will further foster the eating behaviour of their citizens by e.g. taxing saturated fats and cholesterol holding products. At corporate level a Global Advisory Council is advising management on Balanced, Active Lifestyles (BAL) issues. As a result MD is selling more than ever vegetables (approx. 220.000 tons) and fruits (approx. 100.00 tons) per year.

To 2 purchasing powerHow does MD influence their upstream purchasing power? What is profit oriented and what is really CSR oriented?

Fish: MD is influencing their fish suppliers via a fishery evaluation tool. Unsustainable fish grounds run into danger that they will be taken off the purchasing program.

5What I missed in the paper is the quality of fish especially in the regard of heavy metal content which especially is a crucial issue for pregnant women and children. Beef: MD has set up progressive meat standards in the U.S.. Europe or South America already has grass fed cows, without growth hormones and just limited use of antibiotics and is considered as a forerunner

Careful supply chain strategyFor MD there are several important strategic pillars, the first one is the commitment to social responsibility with food quality and safety, then the issue of sustainable food supply and animal welfare. MD food standards are world class.

Active community responsibilityThrough MD House Charities and innumerable local and global community programs MD shows that the revenue is not all or part of the revenue belongs to the society and therefore will be given back. It shall demonstrate that MD recognized that through society they can do business and prosper. This consciousness also reflects itself in the attitude of employees and management in a way that they feel more responsible in what they are doing as it is as serving the public.

Rigorous food safety standardsIt goes all the way from the farm right to the restaurant. MD works hard to make sure that rigorous food safety standards are upheld in each restaurant with training, food, safety and quality, the development of the food and menus. It all ties because many of the suppliers consider themselves extensions of the MD family and so they have the same rigorous approach to the programs. MD has a responsibility to provide a relevant variety of quality product choices that the costumer trust and that means working with partners that operate ethically and meet the social responsibility standards.

Accurate service standardsMD works hard to maintain a work environment where everybody feels valued and accepted by providing training and other opportunities for personal and professional growth and to promote job satisfaction. In their own words: Our well-trained employees will proudly provide fast, friendly and accurate service with a smile to delight our costumers.

Affordable prices to high quality productsMD keeps its responsibility by keeping values and high standards as they provide food that is affordable to a wide range of costumers and that means being the most efficient provider and offer the best value to the most people.

6Responsible charity and community workWe believe in giving back to the communities in which we do business and to supporting Ronald McDonald House Charities and other charities that promote the health and well being of children. (MD core values guide chart) p6.

ProfitabilityMD is committed to growing their business on behalf of the shareholders who provide the necessary capital for the company to grow, they should realize and attractive return on their investments. No poor company can allow itself to offer charities or help when it itself is in need. Being rentable makes MD able to help whenever necessary and maintain its corporate responsibility principles fresh.

Bigger menu choices / Product strategyMD works together with the Global advisory council whose members are very high profile scientists in the food industry, experts who are looking at obesity and nutrition. With their help MD has created new menu choices including salads and fruits, keeping their serving size standards and making menus more flexible and easier to mix or change. In the last 5 years MD has included milk and water and a variety of ongoing product innovation will include expanded side and beverages choices in addition to new entrees which will give the costumer to feed himself healthier and proportionate.

Clear nutrition information on packagingI think one of the better strengths from MD is that they where one of the first fast-food restaurant that started writing the nutritional info on their packaging advocating for balanced active lifestyles and healthier clear nutrition values. MD has been a terrific leader on their work to explore new ways to deliver nutrition and balanced active lifestyle info to the costumers.

External and Internal leadership stances to encourage activityInternal: MD developed and distributed an own crew training video in seven languages on Its what I eat and what I do, besides that the company makes a great effort distributing materials encouraging balanced, active lifestyles. MD has also introduced training for both crew and management.External: MD introduced its what I eat and what I do initiative. Leveraged Olympic and global sponsorships including Olympic day run. In the USA more than 15 million step meters were distributed and passport to play was launched.

Decentralized but not disconnected systemMD recognizes the need to maintain a system in which everyone adheres to the same core values, principles and standards. They balanced this with a program called Freedom within the framework. Local business-owner/operators and restaurant managers have the flexibility and responsibility to develop programs that respond to the diversity of the costumers and local market conditions.

7Innovative excellence program developmentMD has a very wide selection of programs on its account, everything with the only goal of growing to be better rather than bigger. MD has aligned around a global strategy program called Plan to Win that centres in the five basic Ps, people, products, place, price and promotion. Each P has its own vision, specific objectives and key performance measures. This reflects and approach to long-tern sustainable, profitable growth. Other excellence programs are the well known ROIP (Restaurant Operations Improvement Process). It helps improve restaurant performance and accountability as related to quality, service and cleanliness (QSC) and people practice standards. Those standards have been broken down into specific procedures and are organized into 12 systems that deliver the experience the costumers expect. An excellent program is the Mystery shopper program where unannounced and anonymous inspectors visit as costumers and rate the restaurant according to the QSC. Many restaurants around the world include a measurement program based on customer comment that can provide its feedback via toll-number and they also take input from their own staff by an annual employee satisfaction survey.

Ethical Conduct promotionMD Board of directors and top management work to ensure the companys integrity in all its dealings with shareholders. Their commitment is codified in policies, standards and codes including the Corporate Governance principles, Code of Conduct for the board of directors and code of Ethics for the CEO and Senior Financial Officers because Corporate Responsibility begins at the top. The principles include provisions designed to ensure independent oversight of the companys assets and business affairs.This strengths could be as well be left out as today all public concerns do need to have these policies and if all are having them they cannot be considered as strength anymore but simply as going concern and standard.

For MD employees worldwide the overall framework for ethical business practices is the Standards of Business Conduct which applies to all salaried employees worldwide including restaurant managers. It provides rules for handling every ethical issue that might arise or incorporate all laws and policies that apply to the worldwide business. The standards establish a foundation on their core values, provide an orientation to ethical business conduct, offer guidance in a wide range of issue areas and identify resources for questions and concerns.

Threats

ScepticismIn recent years we have seen e-mails and information on the web that MD is using monster-chicken

Not healthy enough for childrenFor children the product choice still is not healthy enough. What else besides beef and chicken or fish? What about a soy burger, vegetable burger or fibre containing

8Deserts or simple deep frozen, quick steamed vegetable bowl (containing at least 80 % of the vitamins and enzymes). What about offering small gifts or special packages as a premium for a healthy product or a premium system for kids who eat healthy?A threat if the competition comes up with such a system.

Beef/Poultry/Fish Health ProblemsSerious initiatives in the US against growth hormone and or antibiotic stuffed cows, bird flue epidemics in the US and Europe, high contents of heavy metals in fish could cause sales slumps and cause profits and stocks to fall. MD as a giant in the fast food business could act to slow to avoid large corporate damage.

Made in China syndromLabour exploitation in China for the production of McDonalds happy meal toys.

Profit pressureThe pressure to deliver shareholder value will force MD to not follow up the one or other CSR issue. No MD CEO will risk his post at the cost for the implementation of a CSR if it would not at the same time create immediate value for shareholders.

MD a major contributor in global warmingMD is considered to be the largest consumer of beef. Examples that MD cattle are being fed on former rain-forest territory, the excessive amount of cattle which produce huge quantities of methane, heavy use of chemicals, fertilizers and pesticides just to keep cattle breeding and MD burgers profitable could develop a future threat of conscious consumer choices to visit a MD restaurant or not.

Local fast food restaurantsLocal fast food restaurants who are dont have such purchasing power and are less environmental threatening as giants such as McDonalds enjoy better quality reputation, because they buy from local butcheries, or use products e.g. made in Austria i.e. free running chickens, approved Austrian grown cows.

MD has the power to create demand Rather than reacting to the free play of market forces MD with its marketing budget of 1bn USD is able to create demand2. That can be a threat for a society and its culture.

2 Phil Lyon, Stephen Taylor and Sheena Smith. The Ritzer debate continued: http://www.mcspotlight.org/media/reports/silverstone.html - retrieved on 9.2.07

9Weaknesses

MD inflexibilityCan MD ever excel or are they caught to always offer economic fast food ? MD is weak in reacting fast to markets changes. If more and more customers go onto eating BIO or ECO-food e.g. meat MD could not follow this trend without loosing a lot of profit because such a shift in suppliers a) from the point of offer/demand ratio and b) from logistics could not be made in reasonable time. It would impose a threat of a deep profit recession until MD would have adapted their product portfolio.

Not employee-friendlyMD is not a worker-friendly environment in the sense that it offers medium to long-term working relationships. In the article3 Company before Nation McDonald claims that it has the hostility of workers rights union under control. Well if e.g. in Germany you have a workers rotation on average below 6 months a company never runs into danger of facing workers protection laws. Every worker in Germany for the first 6 months is under trial-conditions employed and can be discharged at any time without any obligations and cost. In an article4 of the Billings Gazette it has been recognized that MD has a hard time in finding and retaining good workers. Gylette, Wyoming reports a weired case that a MD manager needs to outsource the drive-through order taking process via a call center in Santa Monica, California.

McDonalds = too much shareholder value driven5

Shareholder value is often not the same as Corporate Social Responsibility i.e. if profits go down and down, stocks go down often more than they actually should and drastic corporate measures have to fix the problem. The levers are not too many and are well known: Where can we save costs ? Where can we get cheaper meat ? Where can we get cheaper bread ? Where can we release workers and run a MD restaurant with less people ? As anyone can imagine some of these actions cannot be socially or environmentally responsible that is not what money is all about !

MD continues to promote unhealthy foodDespite diversification of their product portfolio towards more healthy choices MD still continues a saturated fat filled 850 kcal Burger and other unhealthy but tasty food. That could continue to harm their reputation as unhealthy fast food supplier.

3 Financial Times Limited, December 13th 2000 - http://www.licenseenews.com/news/news9.html retrieved on 9.2.074 Billings Gazette 5.7.2006 - http://www.hroaeurope.com/file/3524/mcdonalds-outsourcing-to-call-center.htmlretrieved on 9.2.075 Finanz Nachrichten 12.4.2006 - http://www.finanznachrichten.de/nachrichten-2006-04/artikel-6317906.aspretrieved on 9.2.07

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Errors on promoted CSRMD claimed that they have not imported meat from rain forest countries but in court it appeared that MD very well had imported meat from Costa Rica and Brazil where rain forests are eliminated to get more green-fields for cows6.

Opportunities

Attractive and flexible work environmentMD offers many job opportunities. External recognition about how MD is a great place to work has become something that dispels myths that are out there. Programs like MC flexibility make their 1.5 million employees around the world to love and respect their work place. MD takes very serious its responsibility to promote fair, safe and healthful working conditions, effective management policies, diversity and inclusiveness in all restaurants. MD is pride to say that 42% of their world top management started with MD careers serving customers.Jim Skinner (CEO) has named talent management and leadership development as one of his three top company priorities, there is a Leadership institute launched. MDhas increased its communication to all restaurants, have social responsibility communication materials available at employee conventions, internal and external websites. Employees have the chance to maintain direct and indirect dialogue with the top management worldwide; ROIP came to life (Restaurant Operationsimprovement Program) and another education and training program for field staff and managers has been developed and launched in 18 countries worldwide as ROIP is integrated into the global business.However the attractive and flexible working environment has been not rated as a strength as personal observation and press reports (see e.g. under weaknesses not employment friendly) make it more of an opportunity. An opportunity for society that there is an employer who always hires people which can be helpful for intermediate jobs i.e. amongst other advantages keeping jobless-rates lower.

Strong environmental workAlso this CSR issue has been characterized within the 2006 Worldwide Corporate Social Responsibility Report more as a strength as an opportunity. The web however has contradictory essays and reports and therefore it is rated here as an opportunity. MD restaurants are committed to manage their business by integrating environmental considerations into daily operations and by constantly seeking ways to add value to the community. For example maintaining the restaurants and drive-thrus clean. MD continues the refinement and implementation of the environmental guidelines on fish sourcing and trough this guidelines at least 18,000 metric tones of whitefish have been shifted from unsustainable sources.

Energy management tools are utilized in top markets to monitor and control energy efficiency within the restaurants. In addition, best practices are shared to learn from leadership within the system. MD maintains a ratio of 83% renewable material-based

6 McLibel Support Campaign (1994) Butletitt 9 Weekly summary and extracts of court proceedings in High Court case: McDonald's versus Helen Steel and Dave Morris.

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packaging, 31.5% of which is recycled content. MD keeps searching for new breakthrough commercially viable materials for packaging. MD Europe follows a Forestry policy for consumer packaging for all wood-based products.

High Supplier profileSetting the highest quality standards possible makes suppliers to jump the hurdle. They have to be able to deliver what we ask for. We look at taste and quality first not efficiency not cost.Frank Muschetto (Senior Vice-president) clears: the profile of the suppliers that we select is consistent with several attributes that we identified years ago that we feltsupport what MD is about. One of them is their commitment to corporate responsibility if they dont have it, forget it. We try to pull together with many other companies and in several cases with the whole industry to be proactive against issues that can affects us all like avian influenza. We use our leadership as a tool to participate with the United Nations on the common goal of stopping the sickness.MD participates in a program called Kaleidoscope to test ways to sustain compliance based on dynamic, internal management systems and ongoing worker input. Several of its mayor suppliers have demonstrated leadership and self-management by adopting their own programs equivalent to MD, including external monitoring. And thats not all, MD has developed and own certification system with and for direct poultry suppliers implementing validation process for their antibiotics policy. Annual audits are done globally for meat (beef, pork and poultry) processing plants looking forward to maintain animal welfare farms all over the world and not only in the USA and Europe.McDonalds recognizes that Europe due to strict regulatory and high consumer pressure raises cattle without growth hormones and only with limited antibiotics. The fact of this recognition will boost MDs efforts to lead the U.S. beef industry to explore more sustainable practices.

Own corporate responsibility ComityMD takes serious responsibility on what comes from being a major player in the global food industry and thats why the Board of Directors has a standing Corporate Responsibility Committee. It acts in an advisory capacity to the board and to management on policies and strategies. At the global management level, several groups provide leadership on particular types of corporate responsibility issues, for example:Worldwide Corporate relations council who aligns all communications and external affairs for MD globally: oversees and advises on the corporate responsibility efforts.The Quality Assurance Board: QA directors in each major geographic sector and senior level, supply chain and food safety specialists lead the development and execution of the worldwide food quality strategies, including food safety and responsible purchasing initiatives.Corporate Citizenship and Issues Management Department: provides corporate staff leadership, coordination and support for the global corporate responsibility programs and policies.Safety, Security and Social Accountability department: Develops and monitors the system standards relating to the safety and integrity on the products, including the Code of Conduct for Suppliers.

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Truthful brand imageMD ensures to maintain and build the trust with all stakeholders and customers with appropriate and truthful marketing and communications. These topics must also be relevant to costumers and consistent with the brand. Being real makes the people believe in our corporation and give support in our many community and global charity programs. MD continuously works to assess and evolve their marketing and advertising standards; they have newly introduced additional training and accountability for those whose work involves brand related communications and or use of MD trademarks.

Indice :

Billings Gazette 5.7.2006 - http://www.hroaeurope.com/file/3524/mcdonalds-outsourcing-to-call-center.html retrieved on 9.2.07

Financial Times Limited, December 13th 2000 - http://www.licenseenews.com/news/news9.html retrieved on 9.2.07

Finanz Nachrichten 12.4.2006 - http://www.finanznachrichten.de/nachrichten-2006-04/artikel-6317906.aspretrieved on 9.2.07

McDonalds 2006 Worldwide Corporate Responsibility Report: http://www.mcdonalds.com/corp/values/report.html -retrieved on 9.2.07

McLibel Support Campaign (1994) Butletitt 9 Weekly summary and extracts of court proceedings in High Court case: McDonald's versus Helen Steel and Dave Morris.

Phil Lyon, Stephen Taylor and Sheena Smith. The Ritzer debate continued: http://www.mcspotlight.org/media/reports/silverstone.html - retrieved on 9.2.07