McDonalds is one of the most recognized brands in the world, and has been highly successful over the course of its history. The company current has revenues of $22.7 billion and assets of $30.2 billion (MSN Moneycentral, 2010). This report will utilize a number of tools to analyze the strategy of McDonalds, and how the firm deals with its environment.
The first tool to consider is Porter's Five Forces. This tool outlines the different cost and price drivers within the industry. Pricing power both on the supply side and the demand side is critical to maintaining profitability. The five forces are supplier power, buyer power, threat of new entrants, threat of substitutes and intensity of rivalry (QuickMBA, 2010). McDonald's has tremendous power over its suppliers for a couple of reasons. Its volume is great, and many of its suppliers are dependent on this volume. The inputs are not especially differentiated, which gives McDonald's switching power to hold as leverage over its suppliers. McDonald's has moderate pricing power over its customers. The company has a strong brand, and this drives business to McDonalds. Competition reduces this pricing power, but consumers are less price sensitive with McDonalds than they are with many other fast food chains.
There are few barriers to entry, although it should be noted that McDonalds enjoys significant economies of scale and it is difficult for competitors to build to that level. There is a high threat of substitutes, in other burger chains, other fast food and other eating options entirely. That there are a number of other players in the industry results in a highly intense rivalry. Firms compete on brand, on food type and on price in this industry, so to succeed means being better than rivals at all of these things at once. Overall, this is an unfavorable industry in which to operate because other supplier power, most of the forces imply a lack of pricing power from which to derive...
McDonalds has offset some of these forces with its size, brand and muscle, so for McDonalds the industry is moderately favorable.
The PESTLE analysis examines the external environment from the following perspectives -- political, economic, social, technological, legal and environmental. McDonald's enjoy a positive political environment. There are some laws with respect to food safety and employment, but in general there is no negative political influence on the company. The economic environment at present is difficult. Even a cheap restaurant like McDonalds is a luxury for some, so when unemployment is high and the economy is depressed, McDonalds is likely to lose sales, and this is what has happened in the past year. The social environment is generally positive. While the company definitely has a large number of vocal detractors, the fact remains that most Americans eat at McDonalds and have a favorable view of the company.
The technological environment is rapidly changing, but poses more opportunities than threats to McDonalds. The company encompasses new technologies for cooking, logistics, procurement and marketing, and its competitive situation has not generally been harmed by recent technological developments. The legal environment is generally favorable for McDonalds. While any company of its size can expect to face legal action on multiple fronts, there is little in the way of major legal action against the company that would impact in a profoundly negative way the company does business. The environmental environment is the least favorable for McDonalds, primarily because its core business is beef, it encourages needless driving and it still has wasteful packaging. While this imposes some costs on the company, concern for the environment has yet to signal a quantum shift in the McDonalds business model.
The company operates a cost leadership strategy in the food service category…
