Market Analysis of McDonalds

This document provides a market analysis of McDonalds, including an overview of the company, its products/services, and the characteristics of its market structure. It also offers a critical analysis of various market structures and suggests the optimal structure for McDonalds. Additionally, it discusses the lesser or greater interventions of the government on key operations of McDonalds.

Management Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Overview of McDonald’s, with descriptions of products/services....................................1
2. Market Analysis of McDonalds..........................................................................................2
3. Characteristics of previous and current market structure of McDonalds...........................4
4. a) Critical analysis on various market structure for identifying optimal structure for
McDonalds.............................................................................................................................4
4. b) Suggestions on lesser or greater interventions of government upon key operations of
McDonalds.............................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Managerial economics is one of the important concept which define as amalgamation of
various economic theories with practices of business, so that better decision can be taken. Such
decisions are based on minimisation of cost and maximisation of profitability, via successful
operations and productions (Sagheb, Ghasemi and Nourbakhsh, 2020). For this purpose, a study
is conducted to analyse the way in which economic theories can be applied on business policies.
To conduct this study, McDonald’s is chosen, which deals in fast food industry and operated
business in more than 100 countries. For analysing its market condition as well as structure,
under which it operates business, overall historical data with financial position of this firm is
evaluated. Furthermore, some suggestions upon greater or lesser interventions of government on
its production is also being made in this report, by considering the society benefit.
MAIN BODY
1. Overview of McDonald’s, with descriptions of products/services
Fast food industry is one of the major channel sectors, which continues to perform well in
all aspect of economic conditions. In UK, it has been evaluated that this sector has accelerated its
growth as just doubled from last few years. Considering its growth and expansion of business at
international level, it is predicted that worth of this industry may reach by £9.8 billion till 2021
(How to hack into the growing Fast Food UK Industry, 2019). Through Office of National
Statistics, it has been evaluated that people of this country spent near about 22% on takeaway
deliveries, so, it shows expected high growth of fast food companies in future also (Silva and et.
al., 2019). McDonald’s is one of the fastest growing food company, which is founded in 1940.
At initial period, its co-founders Richard and Maurice McDonald has just opened a single
restaurant in San Bernardino, US. After then, they have started in expanding the business in other
locations, at domestic and international level, where it first extending in 1967 to Canada. After
then, it reaches a total of ten thousand restaurants till 1988. Continuing this expansion, through
franchising and other options, by 21st century, it has expanded business with near about 35,000
outlets in more than hundred countries (Adekoya and Jimoh, 2019). Although, growth in 90’s
was so swift in the 1990s where in every 5 hours, McDonalds has opened new outlets worldwide.
So, this would make this firm as the largest fast-food chain firm as most popular family
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restaurant, which emphasized with affordable food, tasty hamburgers and flavours to its
customers, as per demand of them.
Currently, it has more than 37,855 outlets at all over the world with 69 millions of
customers. However, this fast-food restaurant is mainly famous for its hamburgers, French fries
and cheeseburgers, but to increase expectations of its clients, it also offers a wide range of
savoury and delicious foods (Lemaire and Limbourg, 2019). It includes chicken products, soft
drinks, breakfast items, milkshakes, desserts and more. The main factor which shows high
contribution of McDonald’s in national economy is its employment, where it has offered up
millions of jobs. Currently, more than 1.7 million employees are associated with this fast foot
company, among them some are employed at part-time and others on full-time employment.
Usually, its workplace compromises with young people who would like to work on part-time
basis, to become self-dependent and earn money during academics (English and Fleischman,
2019).
2. Market Analysis of McDonalds
The main vision of McDonald’s is to become the best quick service restaurant experience
in the world. For being the best, it emphasis on providing best of quality products, outstanding
service, cleanliness as well as higher value to customers, which would help in enhancing
customer experiences at its restaurant (Gray and Hinch, 2019). The core value of business that it
offers to targeted audience (all age of people) includes – Committed to provide best services;
Maintain company’s image at each and every stores; Carry out business operations ethically;
Grow business profitably; and Always strive for continuous improvement. McDonald’s
management is successful in exporting its brands and maintenance of core values throughout the
globe. It not only operates the restaurants but also franchises it. Among 37,855 restaurants within
117 countries near about 6,262 were operated via franchising the business and rest of them are
operated by McDonald’s (Hong, Zhang and Ding, 2018). Under the franchise arrangement, a
small portion of capital are provided by franchisees for investment in restaurant businesses, in
order to purchase new equipment, seating and decorations, as well as other arrangements. Along
with tis, reinvestment in business is also timely done to enhance its performance. In this regard,
financial position of McDonald’s from last five years (i.e. from 2015 to 2019), can be measured
through its cash flow statement, as shown below –
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MCDONALD'S CORP (MCD) Statement of CASH FLOW
Fiscal year ends in Dec. USD in millions
except per share data.
2015-
16
2016-
17
2017-
18
2018-
19
2019-
20
TTM
Cash Flows From Operating Activities
Net income 4529 4686 5192 5924 6025 6025
Depreciation & amortization 1556 1516 1363 1482 1618 1618
Deferred income taxes -1 -539 -36 103 150 150
Stock based compensation 110 131 118 125 110 110
Change in working capital 168 167 -980 -473 298 298
Accounts receivable -181 -159 -341 -479 27 27
Inventory 45 28 -37 -2 129 129
Accounts payable -15 90 -60 129 -27 -27
Accrued liabilities 383 38 -146 -87 -4 -4
Income taxes payable -64 170 -396 -33 173 173
Other non-cash items 178 97 -105 -195 -79 -79
Net cash provided by operating activities 6539 6060 5551 6967 8122 8122
Cash Flows From Investing Activities
Investments in property, plant, and equipment -1814 -1821 -1854 -2742 -2394 -
2394
Property, plant, and equipment reductions 83 167 160 151 151
Acquisitions, net 414 866 2495 429 -200 -200
Other investing activities -20 -110 -246 -303 -628 -628
Net cash used for investing activities -1420 -982 562 -2455 -3071 -
3071
Cash Flows From Financing Activities
Debt issued 10220 3780 4728 3794 4499 4499
Debt repayment -1054 -823 -1649 -1760 -2062 -
2062
Common stock repurchased -6099 - -4686 -5208 -4976 -
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11171 4976
Dividend paid -3230 -3058 -3089 -3256 -3582 -
3582
Other financing activities 899 10 -614 479 1126 1126
Net cash provided by (used for) financing
activities
735 -
11262
-5311 -5950 -4995 -
4995
Effect of exchange rate changes -247 -104 264 -160 -24 -24
Net change in cash 5608 -6288 1066 -1598 32 32
Cash at beginning of period 2078 7686 1223 2464 866 866
Cash at end of period 7686 1397 2290 866 898 898
Free Cash Flow
Operating cash flow 6539 6060 5551 6967 8122 8122
Capital expenditure -1814 -1821 -1854 -2742 -2394 -
2394
Free cash flow 4725 4238 3698 4225 5728 5728
As per Forbes Report (2019), it has been identified that long-term goal of McDonalds is
for 95% of its restaurants which are to be owned by franchisees. In this regard, at the end of
financial year 2018, this figure has been stand at 92.7% (McDonald’s Corporations, 2019). In
terms of overall company’s posted revenue, as shown by above financial data, with $21.03
billion it grows up to 18% year (McDonald's Reports Good Results, To Continue Growth in
2019. 2019). This would have helped its management in cutting down operational or other costs,
that consequently leads to improve margins (Zhu and et. al., 2018).
3. Characteristics of previous and current market structure of McDonalds
In contest with food industry market, companies like McDonald’s are characterised as
oligopolistic market, due to rigidity of price. This would lead to price war among companies
considered as put significant impact on each other pricing strategies. The another main reason
that shows that McDonalds deal in oligopolistic market is presence of few large sellers or
producers. So, having this structure make present firm able to identify position of its competitors,
as well as can keenly examine strategies of them. This would help in developing better strategies
in terms of offering food combo on amazing rates, increase products range and more. But
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through analysing its current position, where it has put slogan under its brand name as “Nobody
does it like McDonald’s”, has considered a literally true and made its products differentiated
from its rivalries such as Burger King. So, it depicts its monopolistically competitive industrial
presence, by offering same products like other food restaurants but not identical. It gives
opportunity to this firm to gain market power and earn economic profits.
4. a) Critical analysis on various market structure for identifying optimal structure for
McDonalds
Market structure can be defined as organisation and key characteristics of a particular area,
where a company operates its business (Sagheb, Ghasemi and Nourbakhsh, 2020). It majorly can
be classified into four main groups as per competitiveness and pricing degree – Perfect
competition, Monopoly, Oligopoly and Monopolistic competition. Hereby, oligopoly market
defined as area in which only few companies hold a position of price makers, while within
monopoly ones, only one firm has got the opportunity to become the same (Govindan, 2018). On
contrast, perfect competition market shows various firms which act as price takers, whereas
monopolistic ones indicated the ability of some organisations to have market power. Within fast-
food industry, a number of firms compete with each other in order to satisfy the same demand of
customers i.e. get something tasty and healthy but with quick service. But each of restaurants
used to offer distinctive as well as differentiate products for satisfy that demand either less or
more (Ferguson, 2019). As customers in food industry prefer to come in restaurants that offers
fast services with tasty products, instead of perfect substitutes. Therefore, when numerous firms
when offer competing and differentiated products within fast-food industry, then as per
economists’ opinion, it has viewed firms as just to make their products differentiated from
others.
With respect to McDonalds, alike monopoly, where a company face no competition or
oligopoly in which few rivals are present, it deals in a monopolistically competitive industry.
This market structure shows a number of competing producers who sells similar but not identical
products, as well as has allowed to free entry and exit (Garcia-Garcia, Stone and Rahimifard,
2019). Therefore, it has been analysed that to operate business in monopolistic competitive
market only, would prove optimum way for McDonalds. It would give ability to this firm to gain
long time market power and set price of its each differentiated products, to gain continuous
growth in food industry.
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4. b) Suggestions on lesser or greater interventions of government upon key operations of
McDonalds
Since it has seen that in some market of food industry, to achieve competitive image,
restaurants are delivering wat customers are demanded to them (Silva and et. al., 2019).
Therefore, this give rise to concern towards public policy, because consuming fast-foods
regularly increase problems like obesity and weight issues, diet related problems and more. As
per survey, it has identified due to such foods near about 9.3% child with age 4-5 years are
suffering from obesity, while under 10-11 age group, this percentage has increased by 10
(18.9%) and growing continuously. Along with this, excessive weight and obesity also lead to
rise more health problems in people at all age. Therefore, these points state that there is a need of
greater interventions in fast-food industry (Adekoya and Jimoh, 2019). Because well-functioning
market will yield to efficiently allocation of goods, that makes firm to be price taker which
reflect their cost of production, as well as each individual must be informed. For this purpose,
Government needs to bring awareness among public about consequences of consumption of fast-
food products on regular manner, through schools, labelling, advertising and health campaigning
programs. Policies in terms of altering the way of companies where choices are presented to
people need to be made like Nudge policy (Lemaire and Limbourg, 2019). However, numerous
interventions have been taken in UK and other countries like ban on using trans fat in food,
restrictions on advertising and more, which seems not to be justified if consider their economic
contribution. In this regard, policies need to developed after considering entire societal and
economical benefits. For example – advertising banned only on public channels, urge for
changes on food-displays, parenting programs for encouraging a healthier home environment,
school based interventions for changing beliefs of children and motivate them to concern on
health etc.
CONCLUSION
It has been concluded from this overall study that economic management is of the important
that helps a firm in making best decisions, by timely analysing its financial position at
marketplace. In order to estimate future progress, companies can apply various theories of
managerial economies like financial data, market structure, present and previous position etc.
they can choose the optimum market structure of their business. In context with present report, it
has been made on food industry, therefore, by making an investigation in this chosen field, it has
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been analysed that associated companies in any economic condition, gain opportunities to get
continuous growth in business. Along with this, through government interventions on food
policies, they get support in building sustainability by offering healthy and high quality of food
products to customers.
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REFERENCES
Books and Journals
Adekoya, O. D. and Jimoh, I., 2019. Scholars Journal of Economics, Business and Management.
English, P. and Fleischman, D., 2019. Food for Thought in Restaurant Reviews: Lifestyle
journalism or an extension of marketing in UK and Australian newspapers. Journalism
Practice, 13(1), pp.90-104.
Ferguson, M., 2019. The rise of management consulting in Britain. Routledge.
Garcia-Garcia, G., Stone, J. and Rahimifard, S., 2019. Opportunities for waste valorisation in the
food industry–A case study with four UK food manufacturers. Journal of cleaner
production. 211. pp.1339-1356.
Govindan, K., 2018. Sustainable consumption and production in the food supply chain: A
conceptual framework. International Journal of Production Economics. 195. pp.419-
431.
Gray, A. and Hinch, R. eds., 2019. A handbook of food crime: Immoral and illegal practices in
the food industry and what to do about them. Policy Press.
Hong, J., Zhang, Y. and Ding, M., 2018. Sustainable supply chain management practices, supply
chain dynamic capabilities, and enterprise performance. Journal of Cleaner Production.
172. pp.3508-3519.
Lemaire, A. and Limbourg, S., 2019. How can food loss and waste management achieve
sustainable development goals?. Journal of Cleaner Production.
Sagheb, M. Z., Ghasemi, B. and Nourbakhsh, S. K., 2020. Factors affecting purchase intention of
foreign food products. British Food Journal.
Silva, D. S. and et. al., 2019. Lean Startup, Agile Methodologies and Customer Development for
business model innovation. International Journal of Entrepreneurial Behavior &
Research.
Zhu, Z. and et. al., 2018. Recent advances and opportunities in sustainable food supply chain: a
model-oriented review. International Journal of Production Research. 56(17). pp.5700-
5722.
Online
How to hack into the growing Fast Food UK Industry. 2019. [Online] Available Through: <
https://www.aviko.co.uk/news/fast-food-industry-uk-2019 >.
McDonald’s Corporations. 2019. [Online] Available Through: < https://www.stock-analysis-
on.net/NYSE/Company/McDonalds-Corp>.
McDonald's Reports Good Results, To Continue Growth in 2019. 2019. [Online] Available
Through: <https://www.forbes.com/sites/greatspeculations/2019/02/04/mcdonalds-
reports-good-results-to-continue-growth-in-2019/#794c197b19ec>.
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