case: mcdonalds corporation

Problem statement: Define the scope of identified problems and challenges that McDonald's Corporation has faced in the first paragraph of your paper. Conclude the first paragraph with the question, and explain why the question is important. (10 points). 126 Rohrmel Cases McDonald's Corporate looking at ways to move into the fast-casual arena by offering selected scaled-down dishes that appeal to value-seeking diners A subsegment of the fastecawal restaurant industry is the premium burger segment, which grow 10 times faster than traditional fast food chains from 2005 through 2013 Customers have been flock- ing to burger chains such as Five Guys N Out Burger Shake Shack Sensburger and Fatburger for higher priced higher quality burgers, while fast food restaurants such as McDonald's Burger King and Wendy's have scrambled to counter with their own premium offerings. Customers have been known to wait in time for nearly an hour to get a Shake Shack burger and fries the company's shares proved to be just as popular in its January 2015 I more than doubling in price from 521 to 545.90 on the first day of trading. In the meantime, investors cooled on Shake Shack with its market capitalization falling from $3.3 billion in the spring of 2015 to a mere 51.1 billion in the fall of 2017 Revenues were $316 million in same year. But much like the Arch Dely in the 1990 McDonald's more recent efforts to compete in the premlum segment have fallen flat. Customers could not justify paying 1 to 55 for a one-third pound Angus burger when there were sandwiches on the McDonald's Dollar Men for much less. The com- pany discontinued the Angus Deluxe product line in 2013 after just four years Other fast-casual restaurants such as Chipotle Mexican Grill Panera bread, and more recently con Starbucks have taken away customers from McDonalds COFFEE McDonald's expanding into specialty coffee drinks with the McCafe lime means that it also com petes with more traditional coffee shops such as Starbucks and Dunkin' Donuts. Starbucks answered the introduction of McCafe by distributing its Seattle's Best brand to other quick-service restaurants such as Erger King and Subway. It purchased La Boulange Bakery in 2012 to expand its food offer Ings, which are now available in more than 2.500 stores. In total, Starbucks has over 25000 stores and garnered revenues of over 122 billion in 2017 Attempting to drive more store traffic in outside the morning hours where customers need their daily caffeine shot Starbucks has added baked goods, sandwiches, and other food items to its men To get more customers into its stores in the late afternoon and early evening-traditionally its slowest time-Starbucks stores now offer items such as vegetables flatbread pima, plates of cheese and des serts. It even introduced alcoholic beverages such as wine and beer, available after 4 pm as part of an "Eveningsprogram. Starbucks also continues its efforts to find new levels of luxury offerings catering to higher end customers within its existing customer base. Online and in stores it produces Limited fun exclusive batches of varietal coffees for home use at high price points Some stores also offer ind vidually brewed cups of the same higher priced roasts. Since 2014 Starbucks has created something called a Starbucks Reserve Roastery and Tasting Room. The first of super high-end stores appeared In Starbucks home. In Seattle, with additional locations planned domestically and around the work Tunda Donuts on the lower price point of the spectrum plans to triple its presence to 15000 shes and is likewise expanding its warm breakfast options to compete mare decthuch Du Dwut which has served coffee for more than 60 years made a failed bid to trademark its bras Target Market Market research indicates that the typical American dins outfit s per week of the main reass so many quick-service restaurants we focusing on th is that the early morning was the last said for every resta r t the NPD Group estimates that the weape American co 2 lunches in two discutie 11 to 12 percent of these w e are caten Mc A quick breakdown of a typical McDonalds franchise in a mile-class burb of 25.000 dents provides a al market insight. Roughly one out of 16 o 1.500 people now the local McDonalds over the course of a hen day Breakfast accounts for the largest proportion percent of was followed by lunch 24 percent afternoon dinnertime, and l ightly morning each account for another 15 to 16 percent of sales. The moon lunch hour is the b est and most profitable time of day bringing in 200.000 in revenues Annual the average franchise can be expected to bring in about 117 million in sales with an operating pecat of around $150.000 The three main target market w McDonald's are mothers and young whole Moms view McDonalds as a quick casy, and affordable meal for families on the and the way are the ones who bring the children but with 17 percent of youth co d e fast food chains find themselves in an awkward position whes marketing directly to children is response to parental demands for healthier kid meal options. McDonalds reduced t o Meal care con by 20 percent by adding apples and having the amount of french fries Mc h as redaced the sodium content of its food by 15 percent and plans to make further reductions in calories saturated fats and portions by 2020. Eres this was not enough for a year old girl who publicly took then-Co Thompson to task at a shareholders' meeting the compa ing kids to eating junk food by using boys and cartoon characten t rick other cha c hack in the Box have op to eliminately from the kids meals while Taco Bell has dec i de esther The key demographic group for most fast food res is o sonals who care above-average Income Then called they were t or more per week providing a steady sent of sales and pool A n e peces he chain twice d icated gebout the food sourc e held 128 Current Challenges MENU In 2017 McDonald's operated a total 37000 restaurants in all with 14.300 of them in the US. One of Easterbrooksfirmaer moves was to propose all-day breakfast in all Us restaurants, the company's Mit tative in six years. Testing started a t immediately after he took office with a rollout in fall 2015 Conyms had long been asking for this change, but the company related because stores use the same equipment to cook both breakfast and lunch. All kitchen are now equipped with separate grills for cooking eggs and burgers rolling carts and utensils to use Jest with eggs to prevent contamina tion and new toasters so that they can prepare both buns and muffins at the same time they toast at different temperatures. The estimated for renting each kitchen is $to $5.000, depending on existing equipment. To make things a bit more manable the all-day breakfast menu will be restricted to a few popular Items such as sausage burritos hot cakes. Ege McMuffins, or biscuit sand wiches Breakfast items will be made continuously during peak morning hours, but cooked-to-onder during slower parts of the day. An internal McDonald's presentation projected that extending breakfast hours could increase sales by 2.5 percent per year Another way that anterbrook is giving customers more choice is what they eat is by giving fran- chises more freedom to offer locally relevant menu items. For example chorizo burritos are more popular in Texas and the Midwest, while moarella sticks sell better in New York and New Jersey Local restaurant operators can choose items from the company's global pipeline and adjust them as needed to suit local tastes. Managers will also be granted more freedom to run their own promotions to Increase store traffic As a direct competitive response to the better burger chains." McDonald's is experimenting with Build Your Own tablets where customers design their own sandwich from over 30 choices of meats topping and buns. They can only be ordered from inside the restaurant, cost $1.50 more than a Big Mac and take seven to eight minutes to prepare because the meat is cooked fresh. It will cost each franchise approximately $100.000 per store to Install the new system and stock the required ingre- dients. This persents an interesting conundrum for a quick-serve restaurant that generates roughly two-thirds of its revence from drive-through customers. To free up space for these new offering the company plans to phase out underperforming fea tures such as the snack wrap and reduce the number of extra value meals. Sail the McDonald's men has swollen te over 120 items, many of which require specialized equipment and take more time to prepare. That represents a 75 percent increase from 2004 and is considerably more than the 33-utem en from 1990 While a greater variety of menu options helps to draw new customers into stores so many items slow down the order fulfillment process. Increasing employee stress and customer frustrations. The average service time for a McDonalds drive through his slowed to 18949 seconds Laging rival Wendy average by almost a minute. Complaints about speed of service have increased significantly in recent years with the McDonalds service experience described as "chote PRODUCT QUALITY The McDonalds made a con t ar a decade Including the 2001 book 2014 deceway per ME 2012 expose has takes 2014 the Maced the being A wet har placing 21 by Come Medlem in the 2015 in s e food rest e ra draped per but de feb rer 2014 firm in the last post Easter has declared imgewing food quality o f this top priorites tailing to win a schicken supply M onksis owing dairy producer homefree cattle. The company has also to i ts produce ingred e its food preparatie procedures. Its goal is to become more bary and food Labels by reducing the number of part s There are 19 Ingredients in the French fries McDonalds area is the s ales compared to e in Great Faverock simultaneously counterattacks McDo r ayers with a media campal high lighting positiews about the company food and workers. The company has launched a video weries entitled "Our food. Your s de rating how McDead food besar made. The company reports that it has already responded to 40000 questions and that the increased their ency has been well received. In June 2015 Caterhoek hired two external candidates to take the company's media atin. He tapped Robert Ole former White House Press Secretary under President Obama to serve as executive vice president and global chef comm e und Silvia Lagnada previously with Bacardi Led to serve as head of global marketing APPEALING TO MILLENNIALS One of the more perplexing problems that Easterbrook faces is how to increase its appeal to w lennials. Between 2011 and 2014, 19. to 21-year olds increased the monthly visto fast- restaurants by 23 percent while their trips to McDonalds decreased by 12.9 percent. C e sed 226 37 increased their fast-casual outings by 5 percent over the same the period while waste McDonald's stayed flat. They are consistently choosing fresh and health over at d e and McDonalds is having trouble convincing them it can be both Thus far Easterbrook's main response has been to reach out through digitationes lennials want to buy into a brand not just from it. What we go to do is finteresting and Ing ways to share that information with them mot old-fashid oporte lec h e former Google executive to lead McDonalds Experience of the Future which includes m e d social media presence dement of a smartphone app and testing of e m LABOR McDonate has a stating that need to be added to rvice rest McDo w ext to last in d i e Part 130 the problems that are understand during makaka lunch hens, Is hard to be friendly while work pe up and customers prowincreasingly irritated at how long it takes to place and the onders The w a t e r rate is the food industry is 50 percent s frustrated workers week to move to be stressful and higher paying jobs It is too soon to tell whether McDonalds pledge to raise pay to at least more per hour than the local minimum wage will be enough to attract and retain motivated workers. The company also granted employees the ability to accre up to five days of paid vacation annually after one year of employment. However, this new HR policy applies only to the 90.000 employees of company-owned Mores and risks upsetting franchisees who are likely to feel pressured to match corporate offer with out equivalent financial resources. Meanwhile, activists continue to lobby for an even larger pay ra 315 per hour minimum as well as the right to unionine without retaliation. To force McDonald's to the negotiating table, the National Labor Relations Boards NLR general counsel has filled a suit claiming that the company has enough control over franchise operations to be considered a joint employer. As of fall 2017 the cases will ongoing INTERNATIONAL MARKETS Like many us-based global companies, McDonald's has most of its net-new growth from interna tional markets. The secular story that consumers in emerging markets eat out more often as their Income increases is still intact. Furthermore, BMO Capital Markets an investment banknotes that the quick-service restaurant OSR hamburger sales have an annual growth rate of 12-13 percent in China and 21-22 percent in Rust for the last 10 years as the fourth quarter of 2016 US same-store sales dropped by five percent, but that was better than estimates. In contrast during the same quarter. International growth was only 1.3 percent and the Wall Street analysts were notably gloomy' at the results. When McDonald's reports their financial and operational results they further divvy up international results into international high growth and "foundational markets Exhibit JL In the end non-US growth matters McDonald's has taken a differing approach to these markets in China and Hong Kon the com pany recently sold an 80 percent stake in their 1750 restaurants to Citic state-owned Investment group and the US private equity firm. Carlyle. They are currently looking for these partners to open an additional 1.500 stores in China Hong Kong and Korea Going Forward The hotels facing Meeks and CEO MEEasterbrook is deunting The company is its most serious Identity crisis to date and desperately needs to define a clear w e what wants to be and a plan for how to get there in trying to be all things to all people. It has ceded and wwwcach them to be tre speed which l ed to be the Moscoe McDonald's Corporation McDonalds Corporation of consumers through its doorways, but the added complexity comes with increased costs and service delays. And after all this time. 30 percent of the company's sales still derive from just five main items Big Macs, hamburgers cheeseburgers, McNuggets, and fries. Other fast food restaurants are not only faster, but according to the polls) also have better food. Instilling stronger financial discipline. faster decision-making and hard-edged accountability are good first steps but none of these actions mat- ter if Easterbrookfails to carve out a viable strategy for McDonalds in the 21st century In 2016, with the release of a feature film. Founder, staring Michael Keaton as Ray Kroc, there has been a renewed interest in the McDonalds story. Although over 60 years of history separate Ray Kroc and Steve Easterbrook, the key challenges remain largely the same: How to provide a product that balances quality, speed, and affordability? How to innovate the menu without creating unnecessary menu scope creep? How to respond to competitive threats without losing the company's core identity? How to prevent complacency, in spite of many years of relative success? In a recent talk at the Chief Executives Club at Boston College, Easterbrook said. "We don't need to be a different McDonalds, we just need to be a better McDonalds. Problem statement: Define the scope of identified problems and challenges that McDonald's Corporation has faced in the first paragraph of your paper. Conclude the first paragraph with the question, and explain why the question is important. (10 points). 126 Rohrmel Cases McDonald's Corporate looking at ways to move into the fast-casual arena by offering selected scaled-down dishes that appeal to value-seeking diners A subsegment of the fastecawal restaurant industry is the premium burger segment, which grow 10 times faster than traditional fast food chains from 2005 through 2013 Customers have been flock- ing to burger chains such as Five Guys N Out Burger Shake Shack Sensburger and Fatburger for higher priced higher quality burgers, while fast food restaurants such as McDonald's Burger King and Wendy's have scrambled to counter with their own premium offerings. Customers have been known to wait in time for nearly an hour to get a Shake Shack burger and fries the company's shares proved to be just as popular in its January 2015 I more than doubling in price from 521 to 545.90 on the first day of trading. In the meantime, investors cooled on Shake Shack with its market capitalization falling from $3.3 billion in the spring of 2015 to a mere 51.1 billion in the fall of 2017 Revenues were $316 million in same year. But much like the Arch Dely in the 1990 McDonald's more recent efforts to compete in the premlum segment have fallen flat. Customers could not justify paying 1 to 55 for a one-third pound Angus burger when there were sandwiches on the McDonald's Dollar Men for much less. The com- pany discontinued the Angus Deluxe product line in 2013 after just four years Other fast-casual restaurants such as Chipotle Mexican Grill Panera bread, and more recently con Starbucks have taken away customers from McDonalds COFFEE McDonald's expanding into specialty coffee drinks with the McCafe lime means that it also com petes with more traditional coffee shops such as Starbucks and Dunkin' Donuts. Starbucks answered the introduction of McCafe by distributing its Seattle's Best brand to other quick-service restaurants such as Erger King and Subway. It purchased La Boulange Bakery in 2012 to expand its food offer Ings, which are now available in more than 2.500 stores. In total, Starbucks has over 25000 stores and garnered revenues of over 122 billion in 2017 Attempting to drive more store traffic in outside the morning hours where customers need their daily caffeine shot Starbucks has added baked goods, sandwiches, and other food items to its men To get more customers into its stores in the late afternoon and early evening-traditionally its slowest time-Starbucks stores now offer items such as vegetables flatbread pima, plates of cheese and des serts. It even introduced alcoholic beverages such as wine and beer, available after 4 pm as part of an "Eveningsprogram. Starbucks also continues its efforts to find new levels of luxury offerings catering to higher end customers within its existing customer base. Online and in stores it produces Limited fun exclusive batches of varietal coffees for home use at high price points Some stores also offer ind vidually brewed cups of the same higher priced roasts. Since 2014 Starbucks has created something called a Starbucks Reserve Roastery and Tasting Room. The first of super high-end stores appeared In Starbucks home. In Seattle, with additional locations planned domestically and around the work Tunda Donuts on the lower price point of the spectrum plans to triple its presence to 15000 shes and is likewise expanding its warm breakfast options to compete mare decthuch Du Dwut which has served coffee for more than 60 years made a failed bid to trademark its bras Target Market Market research indicates that the typical American dins outfit s per week of the main reass so many quick-service restaurants we focusing on th is that the early morning was the last said for every resta r t the NPD Group estimates that the weape American co 2 lunches in two discutie 11 to 12 percent of these w e are caten Mc A quick breakdown of a typical McDonalds franchise in a mile-class burb of 25.000 dents provides a al market insight. Roughly one out of 16 o 1.500 people now the local McDonalds over the course of a hen day Breakfast accounts for the largest proportion percent of was followed by lunch 24 percent afternoon dinnertime, and l ightly morning each account for another 15 to 16 percent of sales. The moon lunch hour is the b est and most profitable time of day bringing in 200.000 in revenues Annual the average franchise can be expected to bring in about 117 million in sales with an operating pecat of around $150.000 The three main target market w McDonald's are mothers and young whole Moms view McDonalds as a quick casy, and affordable meal for families on the and the way are the ones who bring the children but with 17 percent of youth co d e fast food chains find themselves in an awkward position whes marketing directly to children is response to parental demands for healthier kid meal options. McDonalds reduced t o Meal care con by 20 percent by adding apples and having the amount of french fries Mc h as redaced the sodium content of its food by 15 percent and plans to make further reductions in calories saturated fats and portions by 2020. Eres this was not enough for a year old girl who publicly took then-Co Thompson to task at a shareholders' meeting the compa ing kids to eating junk food by using boys and cartoon characten t rick other cha c hack in the Box have op to eliminately from the kids meals while Taco Bell has dec i de esther The key demographic group for most fast food res is o sonals who care above-average Income Then called they were t or more per week providing a steady sent of sales and pool A n e peces he chain twice d icated gebout the food sourc e held 128 Current Challenges MENU In 2017 McDonald's operated a total 37000 restaurants in all with 14.300 of them in the US. One of Easterbrooksfirmaer moves was to propose all-day breakfast in all Us restaurants, the company's Mit tative in six years. Testing started a t immediately after he took office with a rollout in fall 2015 Conyms had long been asking for this change, but the company related because stores use the same equipment to cook both breakfast and lunch. All kitchen are now equipped with separate grills for cooking eggs and burgers rolling carts and utensils to use Jest with eggs to prevent contamina tion and new toasters so that they can prepare both buns and muffins at the same time they toast at different temperatures. The estimated for renting each kitchen is $to $5.000, depending on existing equipment. To make things a bit more manable the all-day breakfast menu will be restricted to a few popular Items such as sausage burritos hot cakes. Ege McMuffins, or biscuit sand wiches Breakfast items will be made continuously during peak morning hours, but cooked-to-onder during slower parts of the day. An internal McDonald's presentation projected that extending breakfast hours could increase sales by 2.5 percent per year Another way that anterbrook is giving customers more choice is what they eat is by giving fran- chises more freedom to offer locally relevant menu items. For example chorizo burritos are more popular in Texas and the Midwest, while moarella sticks sell better in New York and New Jersey Local restaurant operators can choose items from the company's global pipeline and adjust them as needed to suit local tastes. Managers will also be granted more freedom to run their own promotions to Increase store traffic As a direct competitive response to the better burger chains." McDonald's is experimenting with Build Your Own tablets where customers design their own sandwich from over 30 choices of meats topping and buns. They can only be ordered from inside the restaurant, cost $1.50 more than a Big Mac and take seven to eight minutes to prepare because the meat is cooked fresh. It will cost each franchise approximately $100.000 per store to Install the new system and stock the required ingre- dients. This persents an interesting conundrum for a quick-serve restaurant that generates roughly two-thirds of its revence from drive-through customers. To free up space for these new offering the company plans to phase out underperforming fea tures such as the snack wrap and reduce the number of extra value meals. Sail the McDonald's men has swollen te over 120 items, many of which require specialized equipment and take more time to prepare. That represents a 75 percent increase from 2004 and is considerably more than the 33-utem en from 1990 While a greater variety of menu options helps to draw new customers into stores so many items slow down the order fulfillment process. Increasing employee stress and customer frustrations. The average service time for a McDonalds drive through his slowed to 18949 seconds Laging rival Wendy average by almost a minute. Complaints about speed of service have increased significantly in recent years with the McDonalds service experience described as "chote PRODUCT QUALITY The McDonalds made a con t ar a decade Including the 2001 book 2014 deceway per ME 2012 expose has takes 2014 the Maced the being A wet har placing 21 by Come Medlem in the 2015 in s e food rest e ra draped per but de feb rer 2014 firm in the last post Easter has declared imgewing food quality o f this top priorites tailing to win a schicken supply M onksis owing dairy producer homefree cattle. The company has also to i ts produce ingred e its food preparatie procedures. Its goal is to become more bary and food Labels by reducing the number of part s There are 19 Ingredients in the French fries McDonalds area is the s ales compared to e in Great Faverock simultaneously counterattacks McDo r ayers with a media campal high lighting positiews about the company food and workers. The company has launched a video weries entitled "Our food. Your s de rating how McDead food besar made. The company reports that it has already responded to 40000 questions and that the increased their ency has been well received. In June 2015 Caterhoek hired two external candidates to take the company's media atin. He tapped Robert Ole former White House Press Secretary under President Obama to serve as executive vice president and global chef comm e und Silvia Lagnada previously with Bacardi Led to serve as head of global marketing APPEALING TO MILLENNIALS One of the more perplexing problems that Easterbrook faces is how to increase its appeal to w lennials. Between 2011 and 2014, 19. to 21-year olds increased the monthly visto fast- restaurants by 23 percent while their trips to McDonalds decreased by 12.9 percent. C e sed 226 37 increased their fast-casual outings by 5 percent over the same the period while waste McDonald's stayed flat. They are consistently choosing fresh and health over at d e and McDonalds is having trouble convincing them it can be both Thus far Easterbrook's main response has been to reach out through digitationes lennials want to buy into a brand not just from it. What we go to do is finteresting and Ing ways to share that information with them mot old-fashid oporte lec h e former Google executive to lead McDonalds Experience of the Future which includes m e d social media presence dement of a smartphone app and testing of e m LABOR McDonate has a stating that need to be added to rvice rest McDo w ext to last in d i e Part 130 the problems that are understand during makaka lunch hens, Is hard to be friendly while work pe up and customers prowincreasingly irritated at how long it takes to place and the onders The w a t e r rate is the food industry is 50 percent s frustrated workers week to move to be stressful and higher paying jobs It is too soon to tell whether McDonalds pledge to raise pay to at least more per hour than the local minimum wage will be enough to attract and retain motivated workers. The company also granted employees the ability to accre up to five days of paid vacation annually after one year of employment. However, this new HR policy applies only to the 90.000 employees of company-owned Mores and risks upsetting franchisees who are likely to feel pressured to match corporate offer with out equivalent financial resources. Meanwhile, activists continue to lobby for an even larger pay ra 315 per hour minimum as well as the right to unionine without retaliation. To force McDonald's to the negotiating table, the National Labor Relations Boards NLR general counsel has filled a suit claiming that the company has enough control over franchise operations to be considered a joint employer. As of fall 2017 the cases will ongoing INTERNATIONAL MARKETS Like many us-based global companies, McDonald's has most of its net-new growth from interna tional markets. The secular story that consumers in emerging markets eat out more often as their Income increases is still intact. Furthermore, BMO Capital Markets an investment banknotes that the quick-service restaurant OSR hamburger sales have an annual growth rate of 12-13 percent in China and 21-22 percent in Rust for the last 10 years as the fourth quarter of 2016 US same-store sales dropped by five percent, but that was better than estimates. In contrast during the same quarter. International growth was only 1.3 percent and the Wall Street analysts were notably gloomy' at the results. When McDonald's reports their financial and operational results they further divvy up international results into international high growth and "foundational markets Exhibit JL In the end non-US growth matters McDonald's has taken a differing approach to these markets in China and Hong Kon the com pany recently sold an 80 percent stake in their 1750 restaurants to Citic state-owned Investment group and the US private equity firm. Carlyle. They are currently looking for these partners to open an additional 1.500 stores in China Hong Kong and Korea Going Forward The hotels facing Meeks and CEO MEEasterbrook is deunting The company is its most serious Identity crisis to date and desperately needs to define a clear w e what wants to be and a plan for how to get there in trying to be all things to all people. It has ceded and wwwcach them to be tre speed which l ed to be the Moscoe McDonald's Corporation McDonalds Corporation of consumers through its doorways, but the added complexity comes with increased costs and service delays. And after all this time. 30 percent of the company's sales still derive from just five main items Big Macs, hamburgers cheeseburgers, McNuggets, and fries. Other fast food restaurants are not only faster, but according to the polls) also have better food. Instilling stronger financial discipline. faster decision-making and hard-edged accountability are good first steps but none of these actions mat- ter if Easterbrookfails to carve out a viable strategy for McDonalds in the 21st century In 2016, with the release of a feature film. Founder, staring Michael Keaton as Ray Kroc, there has been a renewed interest in the McDonalds story. Although over 60 years of history separate Ray Kroc and Steve Easterbrook, the key challenges remain largely the same: How to provide a product that balances quality, speed, and affordability? How to innovate the menu without creating unnecessary menu scope creep? How to respond to competitive threats without losing the company's core identity? How to prevent complacency, in spite of many years of relative success? In a recent talk at the Chief Executives Club at Boston College, Easterbrook said. "We don't need to be a different McDonalds, we just need to be a better McDonalds