Business Report: In-depth Situational Analysis of McDonald's

This report presents a detailed situational analysis of McDonald's, a major player in the fast-food industry. It begins with an executive summary and background of the company, highlighting its global presence and market share. The core of the analysis involves a PESTEL analysis, examining the political, economic, sociocultural, technological, environmental, and legal factors influencing McDonald's business environment. The report then applies Porter's Five Forces framework to assess competitive rivalry, the bargaining power of buyers and suppliers, the threat of substitutes, and the threat of new entrants. The analysis reveals the strengths and weaknesses of McDonald's position, the strong forces affecting it, and concludes with strategic recommendations to improve customer experience, change food quality perception and brand image. The report emphasizes the need for McDonald's to adapt to changing consumer preferences and address negative brand perceptions.

Running Head: Situational Analysis of McDonald
Situational Analysis of McDonald
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Running Head: Situational Analysis of McDonald
Table of Contents
Executive Summary........................................................................................................................................................3
Background of the Company..........................................................................................................................................4
PESTEL Analysis...........................................................................................................................................................4
Political factor.............................................................................................................................................................4
Economic Factor.........................................................................................................................................................4
Sociocultural factors...................................................................................................................................................5
Technological Factors.................................................................................................................................................5
Environmental Factors................................................................................................................................................5
Legal Factors...............................................................................................................................................................6
Porter’s Five force Analysis............................................................................................................................................6
The competitive rivalry of McDonald’s– Strong Force..............................................................................................6
Bargaining power of buyers at McDonald’s – Strong Force......................................................................................6
Bargaining power of suppliers at McDonald’s – Weak Force....................................................................................7
The threat of substitutes at McDonald’s – Strong Force............................................................................................7
The threat of new entrants for McDonald’s – Moderate Force..................................................................................7
Conclusion......................................................................................................................................................................8
Recommendation............................................................................................................................................................8
References.....................................................................................................................................................................10
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Running Head: Situational Analysis of McDonald
Executive Summary
McDonald’s is the major player in the fast food industry. Few of the major reason for the
growth is the brand’s global presence, massive promotions and advertising, convenience, and
healthier menu options. They provide consistently faster services which draw many customers.
But lately, the brand is getting negative perception from the public. The perception of the
brand is not keeping pace with product sales. The company is consistently ranking lower in terms
of quality perception as compared to their rivals. Several factors which influence this negative
perception include the involvement of animal cruelty, obesity issue from fast foods, and social
media commentary (Abratt& Bendixen, 2018).
This report studies the external environment of McDonald through PESTEL and Porter’s
analysis and recommends ways to overcome problems at McDonald’s.
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Running Head: Situational Analysis of McDonald
Background of the Company
McDonald’s is the major player in the fast food industry, in 119 countries across the
world. Through its 33,000 stores in various locations, McDonald's serves over 70 million
customers per day. In the year 2016, McDonald’s was rated as the largest player in the U.S snack
industry. Over the last few years, the sales increase and FY 2016 reported the eighth consecutive
financial year of positive growth. Ahead of Burger King (6.8% market share), McDonald's has
the highest market share of 7.2% (IBIS, 2019).
PESTEL Analysis
Through PESTEL analysis, McDonald’s management can focus on the trends and
influence that affect the fast food industry business. The company can develop strategies that
match the business environment.
Political factor
The most significant political factor that influences McDonald is the ever-increasing
international trade agreements, which is an opportunity for the company as they can expand the
multinational business and enhance global supply chains (Crawford, 2015). Another factor is the
government’s guidelines for health and diet, which is both an opportunity and a threat. In a way,
it puts pressure on McDonald's to improve quality as they often get subjected to criticism on
consumer’s health. Governments also have to change public health policies, which pose a threat
and an opportunity for McDonald's (Harrington, Ottenbacher&Fauser, 2017).
Economic Factor
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Running Head: Situational Analysis of McDonald
The economic factor affecting McDonald's is the stable and slow growth of the developed
countries. This poses an opportunity for McDonald's to expand its operation in such regions. A
threat to McDonald’s is the steady slowdown of the Chinese economy, but at the same time, the
rapid growth of the developing economy poses an excellent expansion opportunity (Harrington,
Ottenbacher&Fauser, 2017).
Sociocultural factors
The social factors affecting the business environment of McDonald’s are busy lifestyles
on the developed and developing countries, where people like to dine out. The rising disposable
income and increase cultural diversity further offer an opportunity. But the increasing concern
towards healthy food consumption poses a threat to McDonald. But the company can use the
same threat as an opportunity to improve its services and cater their products to suit customer’s
requirements (Mashhadil& Ijaz-Ur-Rehman,2017).
Technological Factors
Some of the technological factors include Increasing sales through a mobile device and
online food ordering applications, increasing business automation, and gradually expanding
research and development in the fast food industry. All of these offer an excellent opportunity for
McDonald's to expand productivity, meet the changing buying behaviour, and reach more buyers
(Kanagal, 2015).
Environmental Factors
The environmental factors affecting McDonald's are the increased interest in corporate
environmental programs. The company can improve sustainability and environmental programs
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Running Head: Situational Analysis of McDonald
to strengthen brand image and business performance. McDonald can address the emphasis on
sustainable business practices(Rothaermel, 2015).
Legal Factors
Some of the legal factors affecting McDonald's are the increasing health regulations,
especially in schools, hospitals, and workplace. This poses a strong threat to the company
because the majority of people want to eat healthily. Apart from this the increasing number of
animal welfare regulations also pose a threat to the company. This regulation increases the
supply chain cost. Another threat is the increase in legal minimum wages, which leads to a high
production cost(Rothaermel, 2015).
Porter’s Five force Analysis
McDonald’s faces the effects of multiple external factors. These effects are of varying
intensities, and the company should implement strategies to minimize their negative effects:
The competitive rivalry of McDonald’s– Strong Force
The organization faces very fierce competition because the fast food industry has several
key placers. There is a high number of companies offering similar foods and services. All of
these firms have aggressive marketing positioning. Furthermore, the switching cost from one
company to another is very low. All of these are strong forces. Hence, competitive rivalry is
among the strongest external forces that should be considered in strategic management
decisions(Kharub& Sharma, 2017).
Bargaining power of buyers at McDonald’s – Strong Force
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Running Head: Situational Analysis of McDonald
Another factor is the buyer’s bargaining power. This is also a strong force which
McDonald should address soon. For buyers, the switching cost is easy. When not satisfied with
McDonald’s products, they can simply switch to another product or a different provider since
there are a lot many providers offering similar or better products at cheaper costs. Since there is
high availability of alternatives, the bargaining power of buyers at McDonald’s is a strong
force(Rothaermel, 2015).
Bargaining power of suppliers at McDonald’s – Weak Force
Overall, this is a weak force because of the large population of raw material suppliers.
The suppliers don’t have very strong global or regional alliances, and thus they are not vertically
integrated, and they don’t regulate the distribution network. The low vertical integration thus
reduces the bargaining power of suppliers. And furthermore, the abundance of raw material like
meat and flour reduces the dependency on one supplier(Kharub& Sharma, 2017).
The threat of substitutes at McDonald’s – Strong Force
Similar to Competitive rivalry, the threat of substitutes is a strong force too. The reason is
low switching cost, high substitute availability, and the increasing cost-to-performance ratio of
substitutes. Several substitutes like local bakeries and artisanal food producers, pose as a strong
force (Rothaermel, 2015).
The threat of new entrants for McDonald’s – Moderate Force
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Running Head: Situational Analysis of McDonald
This is a moderate force because of the high cost of brand development. For any new
brand to enter, a large sum of capital is required. The high variable capital cost is a moderate
force (Kharub& Sharma, 2017).
Conclusion
McDonald’s enjoys a strong position in the fast food industry; however, the negative
brand perception has been a concern for the company. Sociocultural factors like increasing
concern towards healthy food consumption pose a threat to McDonald, and the legal factors like
Government health policies and animal welfare regulations, expose the company to threat.
Furthermore, the higher intensity of competitive rivalry, bargaining power of buyers, and
substitutes, require stringent action during strategic management.
Recommendation
After analysis of the external factors affecting McDonald’s and the issue of brand
perception, we recommend the following strategy:
Provide the best customer experience
For this, McDonald's should take a more assertive role during recruiting and training
employees and managers. Better training would improve customer experience, which will get
better word of mouth, and remove negative brand perception. This way they can beat competitive
rivalry and reduce the threat of substitutes and new entrants(Rodrigues, Nikhil, & Jacob, 2016).
Shift the focus on changing the perception about food quality
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Running Head: Situational Analysis of McDonald
With the changing buying behaviour and preference of a healthier lifestyle, McDonald’s
should change their attitude to keep up with changing needs which will change the brand image.
They should develop a menu that is healthy and prepared from all ingredient that has a positive
impact on the human body (Shabbir, 2018).
Invest in a promotion that can improve brand image
McDonald must continue their promotional strategy by showing the buyer the positive
changes that have been made within the company (Rodrigues, Nikhil, & Jacob, 2016).
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Running Head: Situational Analysis of McDonald
References
Abratt, R., & Bendixen, M. (2018). Strategic Marketing: Concepts and Cases. Routledge.
Crawford, A. (2015). McDonald's: A Case Study in Glocalization. Journal of Global Business
Issues, 9(1), 11.
Harrington, R. J., Ottenbacher, M. C., &Fauser, S. (2017). QSR brand value: Marketing mix
dimensions among McDonald’s, KFC, Burger King, Subway and
Starbucks. International Journal of Contemporary Hospitality Management, 29(1), 551-
570.
Industry Market Research, Reports, and Statistics. (n.d.). Retrieved from
https://www.ibisworld.com/industry-trends/specialized-market-researchreports/consumer-
goods-services/food-service-drinking-places/burger-restaurants.html
Kanagal, N. B. (2015). Innovation and product innovation in marketing strategy. Journal of
Management and marketing research, 18, 1-25.
Kharub, M., & Sharma, R. (2017). Comparative analyses of competitive advantage using Porter
diamond model. Competitiveness Review: An International Business Journal, 27(2), 132-
160.
Mashhadi, A. H., & Ijaz-Ur-Rehman, Q. (2017). Impact of external environment on the
performance of the fast food industry. International Journal of Management, Economics
and Social Sciences (IJMESS), 1(1), 19-25.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
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Running Head: Situational Analysis of McDonald
Rodrigues, J., Nikhil, S., & Jacob, S. (2016). Promotional Strategies of McDonalds and Market
Effects. Journal of Management Research and Analysis, 3(1), 53-55.
Shabbir, M. S. (2018). Innovation Strategy of McDonald Business from Historical
perspectives. Innovative Journal of Business and Management, 7(12), 30-41.
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