Competitive Advantage 204719

Competitive Advantage Competitive advantages are conditions that allow a company or country to produce a good or service at a lower price or in a more desirable fashion for customers. These conditions allow the productive entity to generate more sales or superior margins than its competition. Competitive advantages are attributed to a variety of factors, including cost structure, brand, quality of product offerings, distribution network, intellectual property and customer .

Fig: Competitive advantage analysis

 Cost Leadership:  Supply chain: McDonald’s buys supplies in bulk and, to get lower prices  Real Estate: McDonald’s leases land and property they own to franchises  Marketing: McDonald’s is such a well-known brand name and Ronald McDonald such a well-known mascot McDonalds has to do much less advertising than many other chains to maintain awareness of their brand.

 Strategic/predatory customer selection (see “Supersize Me”): McDonalds purposefully aims their brands at kids who can be taught to over-eat fast food and, in addition, serves things like ultra-fatty sauces with salads and fatty foods in general with sugar baked into breads and often soda-only drink selections, all designed to make McDonalds customers unhealthily addicted to compounds in their food.

 Differentiation McDonald’s does not believe in opening its restaurant without any knowledge of the local culture and tastes. The company caters to a large customers market with varying tastes and thus can’t afford to introduce products without familiarizing itself with provincial presences in food. For this reason, McDonald’s distributes its products in foreign locations with the help of franchises who are well aware in of that works in their country. This is an extremely intelligent distribution method because on the one hand, it doesn’t create rifts between governments and McDonald’s official, and on the other hand, it helps in providing people with the kind of products they desire. It is important to understand that McDonald’s doesn’t change its basic product range for any country but tries to introduce certain changes in secondary products in order to make them suitable for local tastes. McDonald’s predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald’s offers salads and vegetarian items, wraps and other localized fare. On a seasonal basis, McDonald’s offers the McRib sandwich. Some speculate the seasonality of the McRib adds to its appeal. Various countries, especially in Asia, are currently serving soup. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos (such as the religious prohibition of beef consumption in India) or

to make available foods with which the regional market is more familiar (such as the sale of McRice in India).

Value Chain Analysis Primary Activities: 

Inbound Logistics:

1) “McDonald’s purchases raw vegetables and other raw materials from its fixed, pre- defined suppliers only, therefore by increasing capital and labor, their production will increase proportionately. “McDonald’s has practiced a backward vertical integration, by replacing most of its suppliers. It has done so for two reasons:  To reduce costs, and  To ensure that its products are of top quality. These supplies include beef and milk to be used in its products, which it gets from its farms. Other suppliers include local grocery stores that supply McDonald’s with fresh vegetables. Soft drinks are supplied exclusively by Coca-Cola. McDonald’s supplies also include raw material such as flour, sugar, yeast etc. 2) McDonald’s own information: McDonald import some beef raw materials from Australia and New Zealand.

 Operations :

Before the McDonald’s brothers invented their fast-food operations system, some restaurants did make food pretty quickly. These restaurants employed short-order cooks, who specialized in making food that didn’t require a lot of preparation time. Being a short-order cook took skill and training, and good cooks are in high demand. These speeded system, however, was completely different. Instead of using a skilled cook to make food quickly, it used lot of unskilled workers. The McDonald’s Brothers changed the design of restaurant kitchen. Instead of having lots of different equipment and stations for preparing a wide of variety food, the Speeded kitchen had: –

A very large grill where one person could cook lots of burgers

simultaneously –

A dressing station where people added the same condiments to every

burgers –

A fryer where one person can made french fries

–

A soda fountain and milkshake machine for desserts and beverages

–

A counters where customers placed and received their orders.

Fig: Value chain analysis

 The Process: The mass-production process requires each restaurants chain to have a distribution network to carry the food to every restaurant. Warehouses store enormous amounts of everything a restaurant needs. Including foods, paper products and cleaning supplies. The warehouses the ship supplies to each restaurant by truck. Warehousing and distribution, just like the management of chain, is centralized rather than handled by each restaurant.

In some chains, managers track the restaurants’ inventories of food, wrappers, cups, and other necessary items. They often order everything the restaurant need from the distribution center, which ships it to them. In other chains, it is automated, which means, a computer keeps track of what the restaurants have and should have on hand, or the distribution center ships the necessary items on a regular schedule instead of waiting a request from the restaurant. McDonald’s is always keen to take the charge of crucial task of turning the company around to meet customer demands. One of the first steps that it propose has been to innovate the process of manufacturing and logistics. This had been done with the view to increase efficiency of the supply chain in of capacity, technology selections, and buying policies.

 Outbound Logistics McDonald’s is committed to providing the highest quality food and superior service, at a great value, in a clean and welcoming environment. That’s why we work with our employees, franchisees, and suppliers to serve a balanced array of food choices and provide the nutrition information needed for customers to make sound decisions. At the restaurant level, McDonald’s is focused on energy conservation, sustainable packaging, and waste management. We are dedicated to innovation and improving our operations in order to build an even more sustainable, environmentally friendly, and profitable business. And we will continue to optimize our menu, modernize the customer experience, and broaden accessibility to our brand, so that consumers will always enjoy the maximum McDonald’s experience.

 Marketing and Sales McDonald’s restaurants are found in 119 countries and territories around the world and serve 58 million customers each day. McDonald’s operates over 31,000 restaurants worldwide, employing more than 1.5 million people. The company also operates other restaurant brands, such as Piles Café. Focusing on its core brand, McDonald’s began divesting itself of other chains it had acquired during the 1990s. The company owned a majority stake in Chipotle Mexican Grill until October 2006, when McDonald’s fully divested from Chipotle through a stock exchange. Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald’s sold Boston Market to Sun Capital Partners. Notably, McDonald’s has increased shareholder dividends for 25 consecutive years, making it one of the S&P 500 Dividend Aristocrats In October 2012, its monthly sales fell for the first time in nine years.  Advertising McDonald’s has for decades maintained an extensive advertising campaign. In addition to the usual media (television, radio, and newspaper), the company makes significant use of billboards and signage, sponsors sporting events ranging from Little League to the Olympic Games, and makes coolers of orange drink with its logo available for local events of all kinds. Nonetheless, television has always played a central role in the company’s advertising strategy. To date, McDonald’s has used 23 different slogans in United States advertising, as well as a few other slogans for select countries and regions. At times, it has run into trouble with its campaigns.

 Services

 Free Wi-Fi @ McDonald’s:

McDonald’s meal now comes with complimentary Wi-Fi. Get some work done, check email, and connect with friends for free. With free Wi-Fi at more than 11,500 participating restaurants, customers can access the Internet using their laptops or PDAs at no charge.  Arch Card The Arch Card is a pre-paid card that gives customers a quick and convenient way to pay at McDonald’s. Arch Cards also make the perfect gift for holidays or any special occasion. Arch Cards come in denominations of $5, $10, $25, and $50. They can be purchased for the first time or reloaded later at participating McDonald’s restaurants nationwide. They are also available at retailers including Safeway, Kroger, SuperValu and Ahold. McDonald’s Arch Cards never expire, and there are no penalty or dormancy fees.  Play Places & Parties If anyone bring their kids then McDonalds make the party. Super-fun for the kids, stress-free for the customers they’ve got this party thing down to a science: Happy Meals, cake, decorations, party favors. Talk to your local McDonald’s manager to make arrangements. Depending on location, anyone can have their child’s party at a McDonald’s Play Place for even more fun!

 Activities

 Firm Infrastructure McDonald’s Infrastructure is modern an sophisticated, they using the advanced IT and yet they’re still maintaining the green activities.

 Greener Than Ever

McDonald’s strives to provide eco-friendly workplaces and restaurants that reflect our sustainability goals and demonstrate environmental stewardship in the workplace. In August 2008, McDonald’s USA opened its first corporate-owned pilot green restaurant and received Leadership in Energy and Environmental Design (LEED) Gold certification in April 2009. Some of the green attributes of the Chicago restaurant include energy-efficiency equipment and lighting, high efficiency plumbing fixtures, and permeable pavement and rainwater collection for irrigation. Green building strategies aren’t limited to McDonald’s restaurants. Using the LEED rating system developed for Existing Buildings (LEED EB), we recently tackled our Global Headquarters in Oak Brook, Illinois. Our 20-year-old Campus Office Building (affectionately known as the COB) was granted Platinum Certification, the highest level possible. The COB is one of the oldest buildings to receive this certification. The sustainable building enhancements made during the certification process have resulted in clear financial and environmental benefits. Energy use is at its lowest level in five years, helping to offset rising utility costs. Enhanced recycling efforts have diverted over 58% of waste targeted for landfill, helping control disposal costs. And overall, our efforts are reducing McDonald’s environmental impact.

 Human Resource Management The work offered by McDonald’s may have some positive elements, but workers are often choosing employment at McDonald’s in the context of having few other attractive options. Almost regardless of what people think of the work itself, working at McDonald’s could be said to offer advantages for some employees who want flexible hours and are engaged in other

activities and responsibilities. For those marginalised in the labour market who have few chances of a job elsewhere, McDonald’s offers much needed work. However, the employees’ dependence on McDonald’s and/or their tendency to see their employment as a short-term strategy makes them vulnerable to management manipulation. Those with minimum interest simply leave if they do not like it, and this is clearly reflected in high labour turnover. Perhaps they are attracted by the combination of fairly secure employment, familiar ‘family’ surroundings created by a highly paternalistic approach to management and lots of employees of similar age or temperament. This may help to explain how the corporation sometimes retains individuals who could probably obtain better paid and more skilled work elsewhere. As (1986) puts it, it is ‘recruiting as means of control’. As already suggested, however, whether this is a deliberate ‘strategy’ or something else is not clear (, 1994). The employment relationship at McDonald’s is managed by a complete spectrum of controls, from simple, direct and bureaucratic controls to the management of subjectivity. At one end of the spectrum, restaurant managers are disciplined to accept tough work schedules and must prove themselves ‘up to the challenge’ of punishing schedules. Long hours and loyalty are locked in, with young managers being persuaded not only to accept as the norm many hours of unpaid work but also to gain a perverse satisfaction from surviving these tough and uncompromising work routines. In addition, young managers who may or may not get similar ‘opportunities’ elsewhere in the labour market are romanced by offers of promotion and career development. At the other end of the spectrum, more direct methods are used to maintain control. However, this still leaves unanswered the question of how the corporation has managed to sustain the uniformity of its employee relations practices despite major differences across societal cultures.  Technology Development

Even as consumer confidence stagnates domestically and in Europe, McDonald’s will focus on modernizing restaurants, evolving the menu and engineering value, said Don Thompson, the company’s president and chief operating officer, in an earnings call on Friday. McDonald’s net income rose 5 percent and same-store sales increased 7.3 percent for the quarter, and the brand gained market share in the United States and abroad, according to the company’s first-quarter earnings report. The call marked a transition from McDonald’s Corp. chief executive Jim Skinner, who will retire June 30, to incoming leader Thompson, but both executives stressed that the company’s strategy going forward would remain as focused as ever on the brand’s Plan to Win. Asked what he thought his legacy would be after taking over for Skinner, Thompson responded that he would preach fundamentals just like Skinner. Thompson gave a few hints toward McDonald’s near-term strategy. McDonald’s enters five-year IT deal with Fujitsu. The services provider plans to roll out “-exchangeable parts” to McDonald’s 1,200 branches throughout UK and Ireland Fujitsu has signed a five-year deal with fast food chain McDonald’s to supply IT to the company’s 1,200 branches in the UK and Ireland. The IT outsourcer will offer for point-of-sale systems and back office operations to both company-owned and franchise outlets, replacing various incumbent suppliers. Fujitsu plans to make McDonald’s IT systems more reliable by deploying systems built on “-exchangeable parts”, the company said in a statement. This will allow staff to fix minor IT problems themselves by replacing faulty units such as card readers, it claimed. The provider said success would be judged on whether it simplified IT for branch staff, reduced of on-site engineering visits and drove

down the total cost of ownership of McDonald’s IT equipment over its lifetime. Fujitsu’s business unit director Jon Wolfe said that keeping tills open and operating was the most important job for IT . “However the role moving forward is as much about the customer experience and ing new technologies that ensure agility in meeting customer demands, such as touch-screen ordering and less payments – both areas that McDonald’s is already deploying,” Wolfe claimed. In Janaury 2011, McDonald’s announced that it will use Visa’s less payments infrastructure.

 Procurement McDonalds E-Procurement System McDonalds E-Procurement System is basically a main reason for their successful supply chain management. It is so efficient that it provides the backbone not only to all the logistics but the whole McDonalds supply chain management. How McDonald’s Uses E-procurement Systems Emac Digital:(Internet procurement site designed for McDonald’s Corporation’s 27,000 franchises)Emac Digital Company is E-Procurement website which is tly owned by McDonalds and Accel-KKR Internet Co. It is a procurement hub launched in 2001 allow all of McDonald’s franchises across the globe to buy everything needed to run their restaurants. From uniform to HamBurger Aside from being faster and more convenient for franchisees, the procurement site also allow business owners to buy supplies and materials at a discounted price, ultimately reducing costs for McDonald’s. E-Procurement allows 85% cut in costs according to McDonald’s supply chief Edwards. Benefits for the Suppliers McDonald’s works with two types of suppliers. Major Suppliers and Small Suppliers

SWOT Analysis

Fig: SWOT analysis

 Strengths:

- Strong brand name, image and reputation McDonalds has built up huge brand equity. It is the no 1 fast food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. The image of McDonalds is recognized everywhere. This brand is in top ten of the most powerful brand names in the world with Coca-Cola, Nokia or GM. - Large market share McDonalds is considered as the largest player in size and global reach. When Wendy’s or Burgers King are losing market share in 2006, McDonalds still increases its market share. Market share of McDonalds in the recent time is about 19% while Yum!Brands is 9% and both Wendy’s and Burger King is 2%. - Specialized training for managers McDonalds is very serious on training managers. This company has its own program to train managers the most professionally, which is called Hamburger University. As a result, McDonalds has many good managers who can help company development well. - McDonalds Plan to Win McDonalds customer – focused Plan to Win provide a common framework for its global business yet allows for local adaptation. Through the execution of initiatives surrounding the five elements of its Plan to Win – People, Products, Place, Price and Promotion – McDonalds has enhanced the restaurant experience for customers worldwide and grown comparable sales and customer visits in each of the last eight years. This Plan, combined with financial discipline, has delivered strong results for company’s shareholders. - Introduction of new production McDonalds is considered the first one enter to fast food industry. It initiates to other brand to enter this industry. As a result, when think about fast food, customers always McDonalds first. In fact, in some big countries, especially in US, McDonalds is the first choice of a large number of customers. - Technology Innovative: McDonald’s is keeping at the forefront of technology around the globe. For example, In Brazil McDonald’s is currently studying the installation of Internet access terminals in some outlets as well as enabling customers to

order online. This will create a more efficient process that will reduce the amount of lag time between a customer’s orders and pick up of the order. - Good marketing strategies: No matter the continent, children and adults know the face of Ronald McDonald is synonymous with the colossus restaurant chain. This results in wonderful marketing strategies among management which conducts a very thorough market analysis, resulting in much success around the globe.

 Weaknesses: - Unhealthy food image McDonald's has been impacted by negative press like the documentary "Supersize Me" by Morgan Spurlock in which he contributed our society’s obesity to McDonald's and other fast food chains. In fact, each McDonalds dishes provides large amount of calories but not too much nutrition. - Customer loses due to fierce competition McDonalds has to compete with many strong brand name in fast food industry such as Wendy’s, Burger King or Yum!Brands. This fierce competition makes McDonalds loose a large number of customers who prefer favor of other brands. - Problem related to health issue McDonalds use Trans - fat and beef oil in their food. Although it is not illegal, it affects badly on customer’s health because Trans – fat is causes of some kind of cancer. Consequently, a number of customers who care about their health stop eating at McDonalds restaurants. It makes revenue of company decrease. - Legal action: McDonald’s has been involved in a number of lawsuits and other legal cases in the course. For example, there are many case which involved with trademark issue. McDonald’s force many others restaurant, company of just a coffee shop to change their brand name because of keeping “Mc” letters. - Unbalance meals: Although McDonalds tries to update its menu by healthy criteria, McDonald’s meals are still unbalance. For example, there are many dishes with chicken

(both grilled and fried), bacon, beef, rib or egg. Besides, just several dishes are salad with vegetable and fruit. Moreover, amount of fruit or vegetable is not much. - High employee turnover rate Although McDonalds has many good managers as well as skillful employees, the turnover rate is still high. Every year many of their employees are fired out of the restaurants. Moreover, many others quit their jobs, especially part time employees because of low salary as well as too high working pressure. - Action related to environmental issue McDonalds uses HCFC – 22 to make polystyrene that is contributing to ozone depletion. The company has to repair this weakness if doesn’t want to be criticized. - Dissatisfied Franchisees: Franchisees are beginning to become very dissatisfied with the fees that McDonald’s are forcing them to pay. As the company continues to expand, they are also increasing the amount of fees franchisees have to pay for the use of the notorious fast-food brand. Many people are not very happy about this and as a result many franchisees are selling their businesses.

 Opportunities: - Growth of the fast food industry Fast food industry now is developing significantly. The change of lifestyle leads to the change in people eating habit. In the past, if just workers, drivers or someone who had to work busily and didn’t have enough time for a home meal choose fast food; nowadays, almost people eat fast food and a major of them like fast food very much. It is a huge chance for fast food brand to increase their revenues, especially McDonalds. - Conservation: McDonald should research green energies and green packaging solutions and incorporate these finding as a part of their marketing strategies and ments.

- Globalization, expansion in other countries McDonalds has more than 31,000 restaurants serving in almost 120 countries. Of the 31,000 restaurants, at least 14,000 are in US. However, now, because the care of McDonalds about favors and cultures in each countries it enters, McDonalds can open more restaurant in new areas such as China or India – the countries which culture influences on people lifestyle deeply. They are very potential markets. The expansion of these areas is big opportunities For McDonalds. - Low cost menu is preferred by large number of customers With low cost menu, McDonalds can attract customers who just have low income. This segment makes up a fairly remarkable part, especially in the recent time, when global economic is struggling. It is not difficult for McDonalds to apply low cost menu on all restaurants. - Appearance of freebies and discounts Discounts given on every food item may help them gain more customers. Moreover, a new trend is rising among customers that they like freebies and discounts, even when they don’t need it or don’t use these freebies after. - Diverse tastes and needs of customers Customer’s tastes now become more diverse. As a result, they require new format of service in order to satisfy them. McDonalds, with new format of business such as McCafe, it can attract new segment of customer; for instance civil service, who prefer coffee as well as want to use Wi-Fi to work when drink coffee. - Growing health trend among the customers: Although people concern about how McDonalds influence badly on their health, it is also a chance for McDonalds. This company can develop new products, specifically fresh burger or healthy dessert.

 Threats: - Intensity competitors Along with the development of fast food industry, there are many new fast food brand enter to the market. It is nothing to say if there is no strong brand

which can compete with McDonalds. However, in fact, there are some and they are stronger gradually, for example Yum!Brands, Wendy’s or Burger King. Although market share of these brand are lower than McDonalds, they try to gain more customers from McDonalds. Moreover, more casual dining restaurants increase their burger offering and decrease the price. If we are not really hurry, we may choose this kind of restaurant instead of fast food restaurants. They also become the competitors of McDonalds. - Public health crisis With a growing number of obesity cases among Americans, fast food chains like McDonalds will continued to be overshadowed by their previous products offerings, for example Supersized Meal, no fruit or yogurt, slim salad selection. Besides, people nowadays are facing heart problem more seriously. As a result, they require nutritious and healthy food as well as lifestyle. - Economic recession The company's revenue streams are diversified, but depending on the length of this "recession", they will inevitably be negatively impacted by the trickledown effect. Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors. - Serious environmental issue: Environment is one of the hottest topics all over the world. Any action which influence on the earth and human life is criticized strongly. Consequently, if McDonalds keep using HCFC -22, it may lose customers, especially who really care about the earth.