McDonald's Strategic Analysis: Porters Five Forces and Recommendations

This essay analyzes McDonald's value proposition, market position, competitive advantage, external environment, strategic issues, and recommendations using Porters Five Forces.

Running head: CAPSTONE EXPERIENCE IN INTGRATION AND STRATEGY 1
Capstone Experience in Integration and Strategy
Name:
Institution

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Executive Summary
The Porters Five Forces are effective in analyzing the external environment in which an
organization is currently operating. McDonald’s, for instance, operates in an environment that is highly
competitive, thus it faces the threat of substitution. The corporation experiences challenges that range
from competition, bad marketing, poor management, and lack of changes to customer needs. This calls
for the McDonald’s to come up with strategies that would assist it to retain its market share such as
designing its menu to include nutritional foods and remove meals that may affect its customers’ health.

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Table of Contents
Executive Summary.....................................................................................................................................2
1.0 Introduction........................................................................................................................................4
1.1 Value Proposition...............................................................................................................................4
1.2 Market Position..................................................................................................................................4
1.3 Competitive Advantage......................................................................................................................5
2.0 External Environment Analysis..........................................................................................................5
2.1 Current Environment..........................................................................................................................6
2.2 Porters Five Forces.............................................................................................................................6
2.2.1 Competitive Rivalry........................................................................................................................6
2.1.2 Bargaining Power of Buyers...............................................................................................................6
2.1.3 Bargaining Power of Suppliers...........................................................................................................7
2.1.4 Threat of Substitutes...........................................................................................................................7
2.1.5 Threat of New Entrants.......................................................................................................................7
3.0 Strategic Issues...................................................................................................................................8
3.1.1 Customer Service.............................................................................................................................8
3.1.2 Opposing Viewpoint........................................................................................................................8
3.1.3 Health Factor......................................................................................................................................8
3.1.4 Competition.....................................................................................................................................9
3.1.5 Slim Down the Menu.......................................................................................................................9
4.0 Conclusion and Recommendations.....................................................................................................9
References.................................................................................................................................................11

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1.0 Introduction
McDonald’s is an international corporation that possesses several fast-food restaurants
across the globe. The corporation was founded in 1937 by Richard and Maurice McDonald in
California. The corporation serves a worldwide chain of more than 30,000 restaurants. The
purpose of this essay is to analyze McDonald’s value proposition, market position, competitive
advantage, external environment, strategic issues, as well as coming up with recommendations
for the organization.
1.1 Value Proposition
McDonald’s has a unique value regarding its offerings in the marketplace. The
organization achieves maximum performance and productivity by coordinating its areas of
operations. First, McDonald’s operates to provide its clients with affordable products. The
organization makes sure that it is serving sizes and prices that are according to the consumers'
expectations (Banytė, Tarutė & Taujanskytė, 2014). Second, McDonald’s ensures that it
maximizes product quality and the high quality is consistent and the methods of preparation are
uniform. By introducing the limited menu fast-food restaurant, the company has revolutionized
the restaurant industry. The corporation is also concerned about its staff such that it encourages a
workplace that values every employees’ unique contribution. McDonald’s aims at making its
staff positive about work by educating and training them.
1.2 Market Position
When it comes to the fast industry, McDonald’s is the international market leader. The
corporation is considered to be an almost perfect industrial system. This means that its conveyor
belt is in an environment that is inadvertently designed as a blueprint of the traditional
manufacturing company (Choo, 2013). The company’s low-cost leadership, as well as its
business strategy, are supplemented by McDonald’s geographical structures together with its

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bureaucratic culture. McDonald’s positions itself as a family-friendly low-cost restaurant. The
organization has got a narrow scope based on the customer base as well as a low-cost strategy.
McDonald’s aims at cutting the prices of its food and the delivery time. To facilitate this, the
restaurants have got a dual drive-through that seeks to minimize the waiting time while
increasing the number of customers being served (Harrington, Ottenbacher & Fauser, 2017). The
corporation is observed to do things different from its rivals by marketing to the family market
while its rivals markets to a broader base or even to different generations.
1.3 Competitive Advantage
When referring to McDonald’s competitive advantage, business strategists normally point
to the corporation’s franchise business model that combines scope and economies of scale as
well as its brand name. However, in the current sluggish sales environment, this is not the case.
The organization competitive advantage is based on several factors which include; first is its
excellent training whereby the company possesses a heavy staff resource turn over (Crittenden,
Crittenden & Pierpont, 2015). As a result, it calls for the company to be good in training if its
stores and franchisees are to remain supported. Second, McDonald’s has got a detailed “system”
and processes. The corporation has got all its daily activities planned down to the individual level
including when the restaurants are to open, when to start grill or fryer, when to start coffee
among others, thus enhancing its effectiveness. Last, McDonald’s has got a clear understanding
of who their customers are and what they want. The company understands that it is not in the
market to compete with the “high end” burger joints and thus does not waste its time competing
with them.
2.0 External Environment Analysis
Using the Porters Five Forces, the corporation expands globally by applying strategies
that contribute to the external factors in the fast-food industry. Analyzing the Five Forces avails

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valuable information that supports strategic management, particularly by addressing crucial
issues in a business’ external environment.
2.1 Current Environment
All businesses are immensely affected by their environment. In the fast-food industry,
McDonald’s is a big name and at times it gets swayed by the prevailing external and internal
environment (Dobbs, 2014). The corporation has got several competitors, each seeking a share of
the market. The company faces competition from larger burger as well as chicken chains and
independently owned chips and fish shops or even the eat-in or take-out establishments. Thus,
the corporation should device competitive strategies that differentiate it from its competitors.
2.2 Porters Five Forces
2.2.1 Competitive Rivalry
Since the fast-food industry is saturated, McDonald’s faces stiff competition. The factors
which contribute to the competitive rivalry include: the first is the high number of companies
which include the global chains and the mom-and-pop fast food restaurants. Second is the
increased aggressiveness of firms in marketing their products (Indiatsy, Mwangi, Mandere,
Bichanga & George, 2014). Third, the low switching costs enhances the customers’ ability to
switch to other restaurants. These three external factors increase the force of competition within
the market. This indicates that competition is a strong force to reckon with in the fast-food
industry.
2.1.2 Bargaining Power of Buyers
This force addresses the customers’ influence and demands, and how their decision
affects an organization. Some of the external factors that enhances this force include; first, is the
low switching costs that enhances the consumers’ ability to impose their demands on the
corporation. Also, due to the market saturation, the customers are capable of choosing from

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several other fast-food restaurants besides McDonald’s (Jensen, Cobbs & Turner, 2016).
Additionally, the availability of substitutes such as food kiosks, artisanal bakeries, or microwave
meals contributes to the customers’ bargaining power. The three factors make the buyers
bargaining power a strong force in affecting McDonald’s external environment.
2.1.3 Bargaining Power of Suppliers
Suppliers affect McDonald’s regarding the corporation’s production capacity in terms of
the availability of the raw materials. The suppliers’ weak bargaining power is as a result of
factors such as the presence of many suppliers. As a result, this weakens individual supplier’s
effect on McDonald’s and it is based on the fact that there lacks a strong global as well as
regional alliance among suppliers (Jiang & Liu, 2015). Second, most of the corporation’s
suppliers are not vertically integrated. Thus, the distribution networks used to transport the
supplies to companies are controlled by firms such as McDonald’s and not the suppliers
themselves. Such integration weakness the bargaining power.
2.1.4 Threat of Substitutes
Substitutes are a primary concern to McDonald’s. The threat of substitution is made
strong by factors such as the high substitute availability such as those from local bakeries or the
customers may prefer cooking their meals at home (Yi & Gong, 2013). The low switching costs
is another factor that influences the high threat of substitutes. Additionally, the substitutes are
very competitive in regard to customer satisfaction and quality. The three external factors
enhance the strength for substitution within the fast-food industry.
2.1.5 Threat of New Entrants
McDonald’s financial performance and the market share can be affected by new entrants
into the fast-food industry. The moderate rate of new entry is influenced by factors such as low
switching costs which enhances the customers’ movement from the corporation to other new

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fast-food restaurants. Additionally, the high variable costs of setting up new firms empower
individuals to enter the industry. Last, building a strong brand within the fast-food industry is
expensive. This makes the threat of new entry into this industry to be moderate.
3.0 Strategic Issues
Among the issues that McDonald’s faces include the increase in competition, bad
marketing, poor management, and lack of changes to customer needs.
3.1.1 Customer Service
Among the problems facing the corporation is its poor customer service. The factors that
contribute to the poor customer service are the high employee turnover rate. This makes it the
organization with the highest turnover rate among its rivals. The other contributing factor is the
slow service that is offered through the drive-through window (Choong, 2013). The corporation
ranks fifth in speed in the use of drive-through window and 19th in terms of accuracy.
3.1.2 Opposing Viewpoint
While the corporation might feel positive regarding the implementation of new changes,
it is observed that the critics are skeptical. According to critics, they believed that it would be
difficult for McDonald’s to sustain margin expansion and growth at the same time (Upadhaya,
Munir & Blount, 2014). Critics seem to question every implementation plan by the corporation
regarding if the plan is to provide the corporation with the core competencies required to build a
sustainable competitive advantage.
3.1.3 Health Factor
Every fast-food chain including McDonald’s is forced to adapt to the changes in
consumer preferences that range from high-calorie burger to items that are much healthier such
as baked potatoes or even deli sandwiches. Thus, the corporations struggles to meet the
consumers’ health expectations.

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3.1.4 Competition
Competition is among McDonald’s major issues. The second largest fast-food chain
globally is hamburger in and it is McDonald’s biggest competitor. This restaurant collects more
than 55% of its revenue from the drive-through window (Telang & Deshpande, 2016). The
organization is unique in that it has Whopper that has got a charbroiled taste and the restaurant
prepares hamburger depending on the customer’s preference. Wendy is the other big rival to
McDonald’s and it offers many unique items that consist of Spicy Chicken, salads, Frosty, and
Sandwiches among other healthier items. Other competitors include Hardee’s, Jack in the Box,
and Sonic.
3.1.5 Slim Down the Menu
With the intention of offering healthier alternatives to the fries and burgers, some
customers still argue that McDonald’s has got complicated menus. The big menus have made the
kitchen operations complex. This has thus resulted in a longer wait for food to be fixed among
some customers.
4.0 Conclusion and Recommendations
McDonald’s occupies the largest market share globally in the fast-food industry. The
corporation’s value proposition aims at satisfying its customers by offering high-quality products
and enhancing effectiveness. The company’s competitive advantage is based on its ability to
understand what its customers want and availing the same product. However, the current
environment which McDonald’s operates is saturated and thus competition is high as expressed
using the Porters Five Forces. Some of the issues that McDonald’s faces include competition,
bad marketing, poor management, and lack of changes to customer needs.
Under a rejoinder approach, the corporation is capable of saving its market share
maintaining a competitive differentiation at levels that are beyond its competitors. First, the

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company should consider observing a patient internalization approach. This means that it should
hold to its present majority holdings. This would assist it to deserve the increasing desire for
international tastes in the domestic market. Also, it should consider designing its menu to include
meals that are nutritious while scraping from its menu some products that are raising eyebrows
among the health practitioners.

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