LCBB5003 Management Economics: Market Analysis of McDonald's Report

This report provides a comprehensive analysis of McDonald's within the context of managerial economics. It begins with an introduction to managerial economics and the rationale for analyzing McDonald's, a leading fast-food corporation operating globally. The report then delves into McDonald's company profile, including its history, products, and services, followed by a detailed market analysis. This section examines McDonald's market position, financial performance from 2015 to 2019 (including cash flow statements), and strategic focus. The report also explores the characteristics of McDonald's market structure, classifying it as an oligopoly, and discusses the factors influencing its pricing and competitive strategies. Furthermore, the analysis includes a critical evaluation of various market structures to identify the optimal structure for McDonald's and suggests recommendations regarding government intervention in its operations, considering the balance between community benefit and business interests. The report concludes with a summary of the findings and references cited.

MANAGEMENT
ECONOMICS
(Assessment 2)

Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
1. Company and its products/services and history.................................................................3
2. Market Analysis of McDonalds..........................................................................................4
3. Characteristics of previous and current market structure of McDonalds...........................6
4. (a) Critical analysis on various market structure for identifying optimal structure for
McDonalds.............................................................................................................................8
b) Suggestions on lesser or greater interventions of government upon key operations of
McDonalds.............................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Managerial economics is among the significant feature that identify as blending of numerous
economic models with processes of businesses, such that smarter decision would be made. These
judgments are focused on reduction of expense and long term sustainability of production,
through effective operations and outputs (Sagheb, Ghasemi and Nourbakhsh, 2020). For this
reason, a research is undertaken to analyse the manner wherein economic theory may be
implemented to corporate policies. To perform this report, McDonald’s is selected, that operates
across fast food sector and run business activity with more than 100 nations.
The report includes, evaluating the market situation and also framework, with which it
conducts trade, total actual data including financial status of firm is analysed. Additionally,
certain suggestions about bigger or smaller actions of the government around its output have also
been rendered in this paper, through considering the community profit.
TASK
1. Company and its products/services and history
Fast food market is consider to be the big channel markets, which tends to function really
well in the area of increasing and maintaining economic conditions. In United Kingdom, this has
been assessed restaurant sector has intensified their development as only twice since last few
decades. Regarding its development and success of company at international stage, this is
anticipated that market value of the whole business sector may achieve by £9.8 billion till 2021
(How to hack into the growing Fast Food UK Industry, 2019). Via Office of official statistics, it
has already been calculated that citizens of this nation spend close around 22 % on takeaway
transactions, thus, it indicates anticipated strong growth of food service firms in potential already
(Silva and et. al., 2019). While, development in 90's was really fast in the 1990s in each and
every 5 hours, McDonalds has created new outlets across the country. So, this will render this
company as either the largest fast-food restaurant company like most famous local restaurant that
focused with cheap food, tasty cheeseburgers and spices to its consumers, according to
requirement of customers.
McDonald's is among the biggest food corporation that is established in 1940. At initial
point, its main establisher was Richard and Maurice McDonald who have only launched a sole
restaurant in San Bernardino, US. Since then, they had begun in spreading the company in many

areas, at domestically and foreign level, although it first extended in 1967 to Canada. Then after,
it crosses a record of thousand establishments till 1988. Extending this growth by franchise
model as well as other alternatives, by modern era, it has extended company with close around
35,000 branches in far more than 100 countries (Adekoya and Jimoh, 2019). Today, it has far
more about 37,855 stores at all around the global economy and 69 millions of consumers.
Nevertheless, this restaurant is primarily popular for its hamburgers, French fries as well as mc-
nuggets, but to raise demands of its customers, it also serves a broad variety of garlicky and tasty
products (Lemaire and Limbourg, 2019). It contains chicken sandwiches, beverages, baked
goods, chocolate chip cookies, pastries and much more. The key factor that also showed
increased impact of McDonald's in country's economy is its job security, in which it has actually
provided millions of workers.
2. Market Analysis of McDonalds
The key goal of McDonald's should become the greatest fast service food experience in the
country. Of being the highest, it focus on offering best in class goods, excellent service,
cleanliness and also better value to consumers, which will result in improving consumer
satisfaction at its cafe (Gray and Hinch, 2019). The important focus of company in which it
provides to target market (all volume of individuals) involves engaged to provide quality service;
retain corporation 's image in every as well as every retail outlets; handle out business activities
responsibly increase sales efficiently and always keep on improving.
McDonald’s management is effective in distributing the products and preservation of core
principles across the globe. This mostly runs the franchises but also licenses them. Between
37,855 restaurants inside 117 countries close around 6,262 is controlled by franchise model the
company and majority of them are run by McDonald's (Hong, Zhang and Ding, 2018). Within
the franchise agreement, limited amounts of money are received by franchisees for expenditure
in restaurant companies, in order to buy new appliances, furniture and accessories, and other
agreements. Alongside this, capital investment in company is also appropriately designed to
improve its efficiency. In this respect, financial status of McDonald's since last 5 years (i.e. from
2015 to 2019), can be calculated by its statement of cash flows, as seen below:
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 -
11171
-
4686
-5208 -4976 -
4976
Dividend paid -3230 -3058 - -3256 -3582 -

3089 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
According to Forbes Report (2019), this has been reported the long-term target of
McDonalds is only for 95 percent of its franchises that are to be operated by franchise owners.
Throughout this respect, at the close of the financial report 2018, this statistic seems to have been
standing at 92.7 percent (McDonald's Corporations, 2019). In percentage of overall corporation's
reported sales, as seen by aforementioned account information, with $21.03 billion it rises up to
18 percent year (McDonald's Announces Positive Performance, To Maintain Growing in 2019.
2019). This might have supported its manager in reducing administrative or some other expenses
that actually leads to deliver enhanced (Zhu and et. al., 2018).
3. Characteristics of previous and current market structure of McDonalds
In conflict with food business sector, firms like McDonald's were defined as oligopoly
market, owing to inflexibility of demand. This will lead to higher prices war between results of
interactions as placed meaningful effect upon one another marketing strategy. The next key
explanation that indicates that McDonalds operate with oligopolistic environment is existence of
few major sellers or manufacturers. Therefore, making this framework render current company
likely to recognise role of its rivals and also can strongly analyse tactics. It will aid in designing
effective plans in terms of selling food combination on incredible prices, expand consumer
selection and much more.

McDonald's franchises works in oligopolistic sector because as fast food restaurant is
among the main companies of this form of competition (Govindan, 2018). Any of the prominent
characteristics of oligopolistic economies are demand stability and trade conflict that have
serious effects mostly on business's pricing strategy. The rationale for the procedure of this
company in monopolistic economies would be that food service sector is impacted by a number
of smaller manufacturers or sellers. As a consequence, any major retailer in the business has a
perceivable effect on certain dealers because they affect the sector.
Through assessing its present position, in which it has placed tagline underneath the
branded product as “Nobody does it just like McDonald's”, has regarded a practically correct and
manage to make its product lines distinguished from its own competition firms like Burger King.
Therefore, it illustrates the market competition dominant manufacturing existence, by selling
same items as other food places and not similar. It provides opportunities to such a company to
obtain market dominance and receive higher benefits. McDonald's has seen several complaints
and critical coverage aimed against it over different problems. Through an outside view, it seems
that at least a majority of their approach involves accepting the problem or question and source
of financing in-house to remaining on top of the question. For example, when it comes to health
issues and environmentally sustainable procedures, activist groups have also been expressing
concern over McDonald's policy initiatives for centuries In addition, McDonald's officially
formed an environmental protection Commitment in 1990 that details the measures they have
taken to minimize plastic waste, preserve and maintain natural resources, along with urging
everyone to be responsible for their acts. One of consequences of this pledge that that over 80
percent of McDonald's food packaging that produced from recycled products. McDonald's can't
possibly discourage the tremendous PR hit that occurred as a result again from attempts of
London environmental groups. The company beginning suing representatives of London
Greenpeace for libel in the early 1990 inside an endeavor to smother the allegations, but a
quantity of them tried to fight back generating an unfortunate situation. In addition , McDonald's
officially formed an environmental protection Commitment in 1990 that details the measures
they have taken to minimize plastic waste, preserve and maintain natural resources, along with
urging everyone to be responsible for their acts. One of consequences of this pledge that that
over 80 percent of McDonald's food packaging that produced from recycled products.
McDonald's can't possibly discourage the tremendous PR hit that occurred as a result again from

attempts of London environmental groups. The company beginning suing representatives of
London Greenpeace for libel in the early 1990 inside an endeavor to smother the allegations, but
a quantity of them tried to fight back generating an unfortunate situation.
4. (a) Critical analysis on various market structure for identifying optimal structure for
McDonalds
Market structure is characterized as organization and specific features of a specific region,
in which a company conducts its business (Sagheb, Ghasemi and Nourbakhsh, 2020). It
massively can be grouped into 3 key categories as per profitability and pricing degree total
rivalry, Monopoly, oligopolistic market and Monopolistic rivalry. Hereby, oligopolistic global
economy characterized as location where only few firms take a position of companies produce,
but inside monopolistic ones, only one company had already received the chance of becoming
the relatively similar. In comparison, great competitiveness marketplace shows different
companies who function as price setters, while monopolistic ones suggested the capacity of
certain companies to also have market control. Within fast-food sector, a variety of companies
battle with others in required to address the same needs of consumers i.e. have something
delicious and nutritious along with swift service. But-of restaurants being used deliver
identifiable and also distinguish items for satisfying the request whether smaller or larger
(Ferguson, 2019). As consumers in food sector prefer going in cuisine that provides good
facilities with delicious items, rather than substitute products.
Thus, several firms as deliver competitive and distinguished goods inside fast-food sector,
according to economists’ viewpoint, it has regarded companies as only to keep their goods
distinguished from others.
With regard to McDonalds, similarly monopoly, when a business experience little rivalry
or oligopoly under which very few competitors are present, it operates with a monopolistically
oriented market. This regulatory framework reveals a variety of competitive producers whom
markets close but not equivalent goods, and also has enabled to free entries and exits (Garcia-
Garcia, Stone and Rahimifard, 2019). Thus the, it has also been evaluated these to conduct
business in monopoly market only, will also prove augment for McDonalds. It could offer
opportunity to this company to acquire long term market control as well as set price of all its
each consumer products, to achieve continuous increase in food industry.

b) Suggestions on lesser or greater interventions of government upon key operations of
McDonalds
As it has been shown in certain marketplace of food processing industry, to attain
competitive identity, locations are supplying which consumers are requested to them (Silva and
et. al., 2019). Furthermore, these offer rise to outrage about public policies, because eating fast-
foods routinely raise problems including obesity and weight concerns, health related
complications and much more. According to survey, it has attributed due to certain food products
near approximately 9.3 % kid with age 4-5 years have been continue to suffer from malnutrition,
when under 10-11 age category, this proportion has continued to increase besides 10 (18.9 %)
and continuously growing. As well as this, excess fat and heart disease also result in a rise the
most wellbeing problems in children throughout all age.
Consequently, such items nation there is indeed a need for some greater treatments in fast-
food industry (Adekoya and Jimoh, 2019). For well-functioning market would then produce to
productively supply of the goods, which helps to make company to also be market structure that
also represent their production costs, including each employee should be notified. Of this reason,
Government wants to put knowledge between public regarding implications of consuming of
fast-food items on stable way, by colleges, classifying, advertisement and safety campaigning
programmes. Proposals in different parts of the network of businesses where options are given to
customers ought to be rendered like Nudge legislation.
Nonetheless, opportunities and challenges faced in UK and other countries including
prohibition about using saturated fat in food, limits on ads and much more, that appears not to be
warranted if considering their financial impact. Throughout this respect, strategies need to
establish by recognizing whole social and socioeconomic advantages. For e.g. ads prohibited
only on national media, advise for improvements to food-displays, parenting services for
promoting a healthy home atmosphere, school related strategies for improving attitudes of
children to encourage them to care about safety etc. In addition , McDonald's officially formed
an environmental protection Commitment in 1990 that details the measures they have taken to
minimize plastic waste, preserve and maintain natural resources, along with urging everyone to
be responsible for their acts. One of consequences of this pledge that that over 80 % of
McDonald's food packaging that produced from recycled products. McDonald's can't possibly
discourage the tremendous PR hit that occurred as a result again from attempts of London

environmental groups. The company beginning suing representatives of London Greenpeace for
libel in the early 1990 inside an endeavour to smother the allegations, but a quantity of them tried
to fight back generating an unfortunate situation (Govindan, 2018).
CONCLUSION
In the end of report, it has been concluded that microeconomic management is among the
essential that allows a company in making right choices, by promptly assessing the financial
situation at global market. To order to predict potential success, businesses should implement
different hypotheses of management markets including financial statistics, market dynamics,
current and former location etc. they should select the optimal market environment of their
company. In connection of present research, it has been rendered on restaurant industry, hence,
by having an examination in this chosen area, it has been analysed that member companies in
just about any economic situation, improved consumer to get constant growth in market.

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>.