The fast food industry is thriving for the past few years. Money is generated in this industry by selling huge quantities of food at a lower price. In this industry, the profit margin for the products is not very high, but the amount of food sold covers up for revenue that is lost. McDonald Corporation is the market leader in the fast food industry, providing mouth-watering burgers to the mass at a quite reasonable price. The figure below indicates the market share of McDonalds:
Figure 1: Market share of McDonald
(Source: McDonald Corporation, 2014)
From the above figure, it is evident that market share of McDonald is the highest among other fast food retailers. It indicates the fact that McDonald, through its operational strategies and successful business models, have drawn up sales to that extent where the company has become the market leader (McDonald's., 2013). The following essay elaborates the business model and operational strategies of McDonald.
McDonald Corporation is regarded as the leading multinational company, which has its operation in more than 117 countries worldwide. The company, through its franchisees, have operated in highly demanding markets, where the competitors are fast enough to imitate their products. “McDonald’s competes on the basis of price, convenience, service, menu variety and product quality in a highly fragmented global restaurant industry” (Franchise Direct, 2013) – is the mission statement for the company. The company has encountered risks in the past and has still been facing some in areas of interest rates, inflation, foreign exchange rates and industry regulations.
The company has achieved competitive advantage, both nationally and internationally, in the fast food industry. The net income of the company has increased from $2.4 billion in 2007 to $5.0 billion in 2011 (Pym, 2009).
McDonald has become a manifestation of globalization worldwide and thus, sometimes, it is said that there has been "McDonaldization" of the society (Ritzer, 2004.). The company serves around 68 million customers worldwide and operate either by franchise or through own control. The revenue of the company is derived from the royalties; rent and fees paid by the franchises; and also, from sales generated by company operated restaurants. In 2012, total revenue of the company had amounted to $27.5 billion, whereas, the profit was $5.5 billion (Neutral Fuel, n.d.).
BCG matrix is important for the portfolio management of a company. The BCG Matrix of McDonald is given below:
For ensuring long-term value creation among customers, McDonald develops product portfolios, which have high growth with respect to the cash inputs. The portfolio also consists of products that consists of low growth products, but generate a lot of cash. The two dimension of BCG matrix, which is followed by McDonald, are the relative market share and market growth. Both are very essential for the company, mainly because if the product has acquired greater market share, then the company is said to be performing well in the market. McDonald has acquired about 19% of the fast food market and thus, it can be said that the company has concentrated on expanding their product range. McDonald is regarded as the “Star” in the fast food industry. The company is the market leader here and generates cash for their further operation.
The business model of McDonald is depicted as three-legged stool of the owner, employees and suppliers of the company. The balance between the three groups is the main interest for the company for success of its operation. The company currently employs around 1.8 million employees and owns 5,000 franchisees (Vignali, 2001). The second leg of the stool is the main concern for the company management as well as investors. The reason behind the concern can be depicted as the aggressive nature of employees in demanding for more and more wages (Nair, 2013).
The strength of the company lies in alignment of the company’s franchisees, suppliers and employees. The business model permits the company to deliver their customers with an ambience of local restaurants and gives tremendous effort to form an integral part of communities that it serves. It stresses on polishing its abilities for identifying and implementing innovative ideas, which will meet the changing preferences and needs of customers. The overall performance of the company has been attractive to investors too, since the business is making huge profit for the past few years (KPMG, 2008).
The following figure elaborates the fundamental drivers of profitability and stock price of the company:
Figure 2: McDonald return on Assets and Equity
(Source: Nair, 2013)
From the figure, it can be inferred that return on equity of the company has been increasing over the years and that is profitable for investors, as they are receiving higher returns on the invested shares. The company has not only satisfied their customers with the range of products, but has also satisfied their investors by providing them with higher return values. The return on asset is stable over the years, which suggests that the company has been stable in their performance.
McDonald has captured a larger market share worldwide and has kept their position elevated in the society by producing appropriate products for different sections of the society. However, the company has encountered competition from local restaurants and others, which provide burgers at a reasonable price. Even so, the company has not slacked down from its powerful positions, as it has emerged with new products and brought in variations in taste and texture of the same. Their response was abrupt and clear, which made customers and investors more confident regarding efficiency of the company (Kotler, 2009).