Case Analysis – Strong Headwinds for McDonald’s

Case Analysis – Strong Headwinds for McDonald’s

Macroeconomic factors that led to headwinds for McDonald’s in 2012?

One of the macroeconomic factors that caused MC Donald’s headwinds in 2012 was reduced customer sentiment. This reduced consumer sentiment was caused by a decline in McDonald’s products demand due to the worsening economic situation from the effects of the 2007/2008 economic depression. Even though economies were seemingly recovering by 2012, consumer sentiment was increasingly declining (Strom, 2012). Consumers felt that they were not able to finance their needs due to the lack of enough income. The young demographic was the most affected, yet it constitutes much of the company’s market share.

Another macroeconomic factor responsible for declining sales in 2012 was competition. Rivals such as Wendy’s and Burger King were stiff competition for McDonald’s. The two fast-food chain stores were under new management at the time; hence, several changes were implemented. These changes included menu additions and the remodelling of stores to attract more customers (Strom, 2012). The new additions include a gingerbread cookie shake by Burger King and Wendy’s popular salads. Therefore, customers responded by patronizing the restaurants that have the newer menus to the detriment of McDonald’s.

Also, the modest consumer demand has driven McDonald’s sales downwards. Although the company invested heavily in advertising, consumers’ responses to the advertisements were poor at the time. Attempts to market its cheddar bacon onions CBO on social media attracted fewer clients than expected due to modest consumer demand at the time.

 Effects of macro-environment changes in the McDonald’s micro-economic factors of demand, production, cost, and profitability

The rising commodity price was an issue of concern for fast food franchises, including McDonald’s. For instance, the chicken price rose by approximately 9.9% during the period, while beef prices increased by double digits (Strom, 2012). The increase in beef prices was a continuation of 2010 trends. Increasing commodity prices reduced the company’s internal demand for the affected commodities.

Increasing commodity prices led to an increase in the cost of goods. The cost of goods, a derivative of profit, increased significantly. Any dollar increase in the cost of commodities means a dollar-less contribution to the company’s bottom line. One of the most notable effects of increasing commodity prices was an increase in the cost of goods for sandwiches across 11,000 McDonald’s restaurants in the US.

Despite increasing commodity prices affecting the company’s cost of goods and profitability, there were no significant changes in production operations. The company’s operations remained the same with no impact from the increasing cost of commodities (Rajawat et al., 2020). Either McDonald’s operations were resilient enough not to be affected by increasing prices, or the restaurants managed the increasing costs efficiently.

In a move to protect customers, McDonald’s absorbed costs for some menu items. The restaurant’s low-price dollar menu prices have largely remained the same despite increasing costs (Rajawat et al., 2020). The double cheeseburger that is mainly associated with cash-strapped individuals has remained affordable. One of the reasons for retaining pricing for low-priced items is to attract income-deprived clients.  This segment of clients positively contributes towards enhancing the company’s profits by cushioning high-priced items.

What role does the policies of various governments play in influencing McDonald’s’ international expansion strategies?

Some government actions affect the branding and marketing strategies used by McDonald’s. For instance, the requirement by the Russian government that the company changes its brand name forced them to adopt a Russian name (Vrontis & Pavlou, 2008). The name does not necessarily reflect its corporate name, but the company had no option but to change its name to continue operating. The same thing happened in Japan, where the company was forced to change its name to Makudonaldo to stay in the market.

Moreover, a new legal requirement in Russia means that the company cannot make significant decisions by itself. The three-quarter vote requirement means that the company representatives must agree before the company pursues strategic changes (Vrontis & Pavlou, 2008). For instance, expanding the franchise’s store requires the nod of the city council representatives.

Besides, some governments regulate promotional activities and advertising. For instance, the company is restricted from conducting door-to-door promotional services in China and France. Besides, the content of advertising messages and delivery is restricted by governments in conservative societies.

Comparison case

According to Rowland (2017), Macroeconomic factors influence strategic actions by Ford Motor Company. For instance, governments tend to support innovations to improve economic conditions. Another macroeconomic factor that contributes positively to Ford’s growth is the existence of international trade partnership opportunities. By partnering with other companies, Ford has managed to take its vehicles to foreign markets. Besides, high-growth countries are improving infrastructural facilities that support business activities. With improved infrastructural networks like roads, it will be easier to operate even in difficult terrain.

On the other hand, microeconomic factors include the adoption of mobile computing to facilitate mobile marketing and other services. Ford Company also stands a chance to improve its performance by leveraging its online fulfilment services. For instance, online fulfilment services facilitate the seamless delivery of vehicle parts to consumers. On the flip side, however, the company’s move to manufacture alternative fuel vehicles is likely to be hampered by the lack of sufficient alternative fuel filling stations.

References

Rajawat, A., Kee, D. M. H., Malik, M. Z. B. A., Yassin, M. A. Q. B. M., Shaffie, M. S. I. B. A., Fuaat, M. H. B., AlDosari, N., & Santoso, M. E. J. (2020). Factors: Responsible for McDonald’s Performance. Journal of the Community Development in Asia, 3(2), 11–17. https://doi.org/10.32535/jcda.v3i2.806

Rowland, C. (2015, October 18). Ford Motor Company PESTEL/PESTLE Analysis – Panmore Institute. Panmore Institute. http://panmore.com/ford-motor-company-pestel-pestle-analysis

Strom, S. (2012, November 9). McDonald’s Reports Unexpectedly Sharp Drop in Sales. The New York Times. https://www.nytimes.com/2012/11/09/business/mcdonalds-reports-global-decline-in-sales.html

Vrontis, D., & Pavlou, P. (2008). The external environment and its effect on strategic marketing planning: a case study for McDonald’s. J. For International Business and Entrepreneurship Development, 3(3/4), 289. https://doi.org/10.1504/jibed.2008.019163

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Case for Analysis: Strong Headwinds for McDonald’s (page 453).

After reading the case study and relevant sections in the textbook, answer the following questions:

1. Describe the macroeconomic factors that caused headwinds for McDonald’s in 2012.

2. Discuss how changes in the macro-environment affected McDonald’s micro-economic factors of demand, production, cost, and profitability.

3. What role did the policies of various governments play in influencing the international expansion strategies of McDonald’s?

4. In recent business publications, find and analyze a case study in which changes in the macro environment play a major role in influencing a firm’s competitive strategy. Contrast this with a second case in which micro factors play a more important role.