You are on page 1of 25

1

Project Report
On
McDonalds
BY
Atithya Vyas, Dhruvi Bhatt, Kinjal Vaghela,
Shreya Nair, Yash Jain, Dharmaraj Wala
2

1. INTRODUCTION:

1.1 McDonald: a worldwide fast food king
McDonalds has thousands of competitors, each seeking a share of the market. McDonalds
recognizes that it is up against not only other large burger and chicken chains but also
independently owned fish and chips shops and other eat-in or take-out establishments. Therefore,
a company like McDonalds has to develop competitive strategies to differentiate themselves
from their rivals. Actually, any organizations need to be in touch with their business environment
in order to make sure that what they do fits with customer expectations. Especially, that
expectations change over time and countries. Indeed, even huge corporation like them have to
watch their back in order to remain in the top of their game. Moreover, the market segment in
which McDonalds operates is becoming increasingly competitive. But how this firm stills the
number one in the global market scale? In this purpose we will look together how and why the
American multinational remain on the top of his game in three crucial regions of the world.
First of all, if McDonald is the worlds largest chain of fast food restaurants is because the
corporation serve around 68 million customers daily in 119 countries. But the secret of such
success lies on a strong strategic competitive advantage that the company still building until
now. Indeed, the impressive supply chain of the corporation is pretty well known. And it play a
key role since it permits them to offer the lowest meal. Furthermore, McDonald does not hesitate
to go to new markets with an extremely clever distribution channel.
Nevertheless, in this crowded market place, McDonalds lead came under pressure largely
because many others fast foods have either copied the trail blazing idea that was previously set
by McDonald. Besides, McDonalds recognizes the need to respond and it is looking to increase
the competitive gap by:
adding greater value through innovation
making the process of visiting a McDonalds restaurant less routine and controlled
enhancing the overall in house experience.
leading on all the social medias platforms
In addition, the following quote from Mister Don Thompson, chief executive officer of
MacDonalds, illustrates the three important aspects of the companys strategy in order to gain
and keep their competitive advantage:
While the informal eating out market remains challenging and economic uncertainty is
pressuring consumer spending, were continuing to differentiate the McDonalds experience by
uniting consumer insights, innovation and execution. said Thompson.
3

In fact, McDonalds now offers late night breakfasts, a new Dollar Menu, and is advertising
vegetarian value priced meals in markets like India to attract more customers. The company also
said that a new line of quarter pounder hamburgers, including a bacon habanero ranch version,
was selling well. It has rolled out an egg white version of its popular McMuffin breakfast
sandwich and has gotten rid of slow movers such as Angus burgers and its Fruit & Walnut Salad.
Furthermore, the American corporation had changes the restaurant interior design and made it
more technological friendly and modern. But above all, what we have to underline here that
McDonald focus on the customers needs and demands which help them to see theirs flaws and
fix it right away. And even more upgrade their services and products. A strategic position which
differentiates the multinational company from her rivals. But also give them the ability to
dominate and to be a head of the industry.

4

2. EXTERNAL ENVIRONMENT ANALYSIS
2.1 Analysis of McDonalds general-environment

Political factors
The international operations of McDonalds are extreme under influence of a policy of the
separate state put into practice by each government. For example, there are certain groups in
Europe and the United States which demand the acts of governmental power concerning medical
values of meal of fast food. They have specified that harmful elements as cholesterol and
negative influences as fatness are concerning consumption of products of fast food.
On the other hand, the company operates the separate policy and instructions of operations. The
certain markets concentrate on various areas of anxiety, such as various area of health, protection
of the worker, and environment. All these elements are noticed in the state control of licensing of
restaurants in the corresponding states. For example, there is a hung legal dispute in privilege
McDonalds in India where certain infringement of rights and infringement of the religious laws
concerning the maintenance of meal. Meat existence in their menu in India is obviously
offensive to Indian religions in the mentioned market. There are also other researches which
specifies in infringement of McDonald's Stores concerning existing laws on employment in the
target market. As any business enterprise, these McDonald's stores should argue with problems
of procedures of employment just as their tax obligations to succeed in the foreign market.
Economic factors
The organizations in the fast food industry aren't excused from any disputes and problems.
Definitely, they really have the separate problems involving business factors. Branches and
privileges of networks of the enterprises of fast service as McDonalds has a tendency to
experience difficulty in cases where the economy of the corresponding states is amazed by
inflation and changes in exchange rates. Clients hence face a survey stalemate through their
separate budgets, whether they should spend more on these foreign networks of the enterprises of
fast food. Hence, to these chains, possibly, it is necessary to take out problems of effects of
economic environment. Especially, their problem depends on the answer of consumers to these
main principles and how it could influence their general sales. In an estimation of operations of
the company, food chains as McDonalds tend to import the biggest part of the raw materials to
certain territory if there is a delivery lack. Exchange rate fluctuations will also play an essential
role in companys operations.
As it is declared in the paragraph above, stores of McDonald should take a big reason concerning
their microenvironment. The companys international supply as well as the existing exchange
rates is merely a part of the overall components needed to guarantee success for the foreign
operations of McDonalds. It is besides obligatory, that the company has been informed on the
existing tax requirements needed by the separate governments on which they operate. It basically
5

guarantees smooth operations of McDonalds privileges. In the same relation the company
should consider also a state economic situation on which they influence on. Level at which the
economy of special state grows, defines purchasing capacity of consumers in that country.
Hence, if the privilege works in the especially economically weak state, then their products
should cost above than other existing products in the market, these privileges should take certain
regulators to support economy at the expense of manufacture growth.
Socio-Cultural factors
Articles about the international strategy of McDonalds, apparently, function on several areas to
guarantee profitable returns for the organization. To illustrate, the organization changes to the
best an establishment of positive thinking from their basic consumers. McDonalds indulges a
special variety of consumers with certain types of persons. Also it has been noticed that the
company has given the markets, such as the United Kingdom, a choice concerning their lunch
requirements. Specified that McDonalds beginnings considerably valued set of meal which
offers a reliable degree of quality for the corresponding market where it works. In addition, those
who are elderly only below a bracket of thirty five as said are the most frequent consumers of
McDonalds privileges.
Many-sided character of business is reflected now in sharp value of the information about the
existing market. This procedure is essentially identified in area as market research. Information
concerning the reference and potential areas of the market would double as a barrier to success of
the company if this area of operations neglected. In case of McDonalds they establish good
system in determining of requirements of the market. The company uses concept of consumer
individuality of a product of behaviour and decisions on purchase to its advantage. It is said, to
have the main influence on understanding of prospective result of the organization in the
particular market.
Technological factors
McDonalds makes a demand for their own products. The key tool of the company for marketing
is by means of TV advertisings. There are some requirements that McDonalds is inclined to
interest the younger population more. Existence of game stains also toys in the meal offered by
the company shows this validity. Other demonstration of such marketing strategy is obvious in
advertising they use. They use recovered descriptions of the characters as Grimace and
Hamburglar. Other advertising operations employ popular celebrities to promote their products.
Similar became endorsees for McDonalds all over the world loving it campaign. Besides,
operations of McDonalds have considerably been infused with new technology. Elements as the
system of stock and management of the value chain of companys creation consider easy
payments for the suppliers and other sellers with which the person supplies in the corresponding
agreement on the markets. Technology integration into operations of McDonalds tends to
increase cost of their products. Basically it is shown in improvements on its chain of creation of
6

value. Improvement of stock system just as its systems of deliveries allows the company to work
in the international context.
Legal factors
There was a current roar against the fast food industry. It has forced McDonalds to apply more
close examination on their corporate social responsibility. As a whole it has addressed to
requirement of the company to generate its corporate reputation to more positive and the more
socially responsible company. The reputation of McDonalds is obviously a huge question.
Noticed on companys web site, seems, that they have got steps to take in hand the key social
condemnation that they abused them in the last decades. The company gave to their clients the
corresponding data in which they need the relation of food essence of their products. This is to
attend to the arguments of obesity charged against the products of the company. In the same way
consumers have provided freedom in a choice, whether they want to buy the meal.
It is connected with socio-cultural market signs which they influence. For example, operations in
predominantly Muslim countries demand, that their meat corresponded to Halal requirements of
the law. In the same regard, those that operate in countries in the European Union should
correspond to the existing laws forbidding usage of genetically modified meat products in their
meal. Other legal concepts as tax obligations, employment standards, and requirements to a
degree of quality are only a few of important elements on which the company should consider.
Otherwise, smooth operations should be difficult to reach.
Environmental factor
Social responsibility of McDonalds on the state influences to company operations. They involve
charges of harm to environment. Among the reasons why they are accused of such requirements,
is that the work of substances is not decomposed by microorganisms for their drinks glasses and
treasury of expanded polystyrene for meal. Some civil groups in Hong Kong have made actions
to make McDonalds privileges in Hong Kong aware of the rather copious use of containers of
expanded polystyrene and resulting abusing by environment. Further, has specified that in 1995,
McDonalds Hong Kong ran through the expanded polystyrene used by both Australia and the
incorporated United States.

7

2.2 Analysis of industry (five forces framework)
A business has to understand the dynamics of its industries and markets in order to compete
effectively and intensively in the marketplace. The forces which derive competition and
attractiveness of a market, contending that the competitive environment is created by the
interaction of these five different forces acting on a business. In addition to rivalry among
existing firms and the threat of new entrants into the market, there are also the forces of supplier
power, the power of buyers, and the threat of substitute products or services (The
Figure1 Porters Five Forces Framework). Michael E. Porter suggested that the intensity of
competition is determined by the relative strengths of these forces.
The Five Forces directly are interconnected with the effect on the companys ability to serve its
customers and to make a profit. A change in any of these forces generally requires a company to
re-assess its competitive strategies.
Competitive rivalry
According to Porters Five Forces Model, if entry into a market is easy then rivalry is likely to be
high. Considering McDonalds competitive rivalry, there is intense competition in fast food
industry that many small fast food businesses fight with each other to improve their customer
base. This makes a competition the major focus between businesses. Although, McDonalds,
with more than 32,000 local restaurants serving more than 60 million people in 117 countries
each day, has a number of fast food outlet competitors across the countries such as Burger King,
Taco Bell, KFC, Wendys, it is currently the leader of the industry in market capitalization with a
cap of $39.31 billion.
The Threat of new entrants
The threat of new entrants in the fast food industry is high because there are no legal barriers
which would keep them from entering the industry. The economies of scale and the access of the
distribution are the major barriers that firms face in the industry. Firms must spend a large
amount of capital on advertising and marketing in order to enjoy successful existence and long
life of a fast food outlet. Large established companies with strong brand names such as
McDonalds make it more difficult to enter the market because new entrants are faced with price
competition from existing chain restaurants. Thus, it takes a pretty much time for a new business
to establish in the fast food industry.
Supplier bargaining power
The bargaining power of suppliers of McDonalds is high because McDonalds restaurants use
the same products from the same suppliers and it doesnt matter if you are in Rochester, MN or
Beijing, China you can get the same Big Mac everywhere. This is a feature McDonalds want to
keep going on by encouraging consistency among its restaurants. Supplying these products to
McDonalds across the globe is the whole business for the suppliers and, however, if
8

McDonalds would lose even one supplier it would have to change one or more of its product
lines and perhaps the whole menu what the McDonalds customers were used to. This gives the
suppliers of McDonalds a high bargaining power.
Buyer bargaining power
Buyers, in the fast food industry, are those who is ordering fast food at the local restaurant, over
the telephone, or internet or just paying or consuming the products. Bargaining power of
customers of McDonalds is low because of low customer switching costs which are nearly zero;
however, for example, one-fifth of the USA population eats in a fast food restaurant every day.
Thus, fast food industry does not worry about customers loyalty. Fast food products industry is
differentiated which are usually or almost always promoted by advertising that is because of a
vast competition between fast food firms. Product differentiation is very important in fast food
industry to make your product stand out against the crowded fast food industry products.
Furthermore, quality of the product or service in the fast food industry is very important as
customers have full information of the products they buy and consume.
Furthermore, if the fast food industry does not match the demands of the buyers and the general
consumer trends, then the buyers can choose not to buy their product and convince others to do
the same. A good example of this is the movie Super Size Me. It is a movie showing an
ordinary consumer trying to live of McDonalds fast food, and the purpose of the movie was to
see what the traditional fast food from McDonalds could do to your health if you were to eat
their products for every meal. This movie shows what the buyers possible reactions could be if
not satisfied or not being pleased. The reactions from the whole market were a large change in
consumer preferences and brand preferences.
The threat of substitutes
Several factors determine if there is a threat of substitute products in an industry. First, if the
consumers switching costs are low, which means that there is little of anything stopping the
consumer from purchasing the substitute instead of the industrys product, then the threat of
substitute products is high. Second, if the substitute product is cheaper than the industrys
product there is a high risk of threat of substitutes. Third, if the substitute product is having equal
or superior quality, functions, attributes, or performance compared to the industrys product, the
threat of substitutes as well is high.With so many firms in the fast food industry with low
switching costs, vide variety of similar products that people can chose, and healthier alternatives,
the threat of substitutes is very high.
As there is intense competition between rival sellers in the fast food industry, the competition
between firms selling substitute products is intense as well. One very important issue is that the
customer always tends to find another product comparable or better in terms of the quality of fast
food products.

9

2.3 COMPETITORS ANALYSIS

Burger King: after years of struggling

This is a business analysis on the two important public corporations: McDonalds and Burger
King. Both of them are competing in the fast food industry. To add, the fast food industry is one
of the largest food services sectors around the world and one of the most competitive industry.
This sector focuses on the lower prices strategy in order to attract customers worldwide.
McDonalds and Burger King, both compete with all types of food retailers on the basis of prices,
convenience, food qualities and customer services.
Regarding Burger King, the majority of their fast-food restaurants are locate internationally and
are privately owned franchises. Whereas the majority of those franchisees are smaller
operations, several have grown into major corporations in their own. At the end of the
companys fiscal quarter in September 2012, Burger King reported it had 12,667 outlets in 73
countries of these 66% are in the United States and 95% are privately owned and operated. The
company locations employ more than 37,000 people who serve approximately 11.4 million
customers daily.
Besides, Burger King is also redesigning it is restaurants, changing it is packaging, cleaning up it
is cooking process and changing uniforms to reflect a more modern approach to food services.
Finlay, these factors will contribute to a more desirable experience for customers. But Burger
King does look rather old school and out of touch by not having the premium chicken wraps,
salads and coffee drinks that have become the most-have in a fast food in 2012. Not having
those items certainly has not helped in the battle to stay relevant. As far as improvement goes,
Burger Kings core question should be: how to better present the value proposition? And how to
better underscore what makes Burger King the ideal destination for fast food customers? In fact,
there must be something McDonalds and Wendys are not doing and something that can be tied
back to Burger Kings specific promise to their customers. That would present a competitive
advantage if introduced into the market. That is how Burger King will truly stand out.







10

Other Competitors:
It is unnecessary to talk about the supremacy of the brand with the golden arches in the market.
However, smaller rivals such as Wendys, Burger King, KFC or Subway are upping their game
with bacon sundaes and limited-time offers. Wendys for instance is known for his square
hamburgers and thick frosty shakes but recently introduced a pretzel bacon cheeseburger that
appears to be chains best-selling new product in about ten years. And here we are only talking
about the front runners of the competition. Indeed, Five Guys, Yum! and In-N-Out and others
compose the second line of the pack.
Lets not forget also that non-burger competition has also increased. Actually, in this category
we can count Starbucks, Taco Bell, Dunkin Donuts, Pizza Hut and Dominos Pizza. Further, we
believe that Chipotles success in selling burritos may have reinvigorated the broader market for
Mexican food. On the higher-end, McDonalds has to compete with customers who are looking
to healthier options at Panera, as well as the organic offering of Chipotle. Therefore, the brand
fights back by offering more healthy menus and underline the quality of all their ingredients
through advertising campaigns. And the uses of local suppliers. This growing competition and
saturation on the market is a huge challenge for the number one of the fast-foods industry. The
highly globalized segment of the world economy, markets where consumers have
standardized preferences. Plus, the customers are driven with the curiosity to try news burgers
recipes and concepts. Since, they exhaust all the golden arches menus so they look to new
experiences or taste somewhere else. In addition, brands restaurants such as Taco Bell, Yum and
11

KFC grew the same store sales: 7% and 4%, respectively, during the most recent quarter. Taco
Bell is the only major competitor, in our view, to McDonalds value proposition with premium
items.
PIZZA HUT:
Pizza Hut is a global fast food chain, a subsidiary of Yum! Brands Inc. , the worlds largest
restaurant company. It was founded in Wichita, Kansas, USA in 1958 and is running its
operations in about 91 countries worldwide. Its one of the major competitions of McDonalds in
the Pakistani QSR industry. It started its operations in Pakistan in 1993 with a single outlet at
Boat Basin, Clifton, Karachi. Today it operates in nine cities of Pakistan with 38 outlets. The
cities include Karachi, Lahore, Islamabad, Peshawar, Faisalabad, Multan, Rawalpindi, Sialkot
and Hyderabad. Pizza Hut serves a large variety of starters, soups, salads, sandwiches, Pastas and
deserts.
Strategic Objectives:
When we talk about strategic objectives, Pizza hut says: We want to satisfy our
customers by offering them The best. Diversification of the products that they offer
has always been a focal point of strategies at Pizza Hut. The strategies at Pizza hut are
guided by principles like Cleanliness, Hospitality, Accuracy, Maintenance, Product
quality and Speed (CHAMPS). Since its a global chain, the strategies are based upon
customizing the services, advertising and marketing activities according to the countries
that they are operating in. Customer service and satisfaction have of course always been
a vital aspect of the strategies. Another important feature of the Pizza Huts strategies
are the 3 Fs (Fun, Friendly and Familiar).
Problems and Weaknesses:
At one time, the biggest marketing problem Pizza Hut faced was lunch. As compared to
McDonalds, its restaurants had virtually no lunch time sales, and neither did any of its
pizza competitors. The reason, of course, is that it takes 20 minutes to cook a pizza from
scratch in a traditional pizza oven, and most people wont spend that long at lunch time
waiting to be served. By using a new, continuous-broiling technology adapted from
burger business, Pizza Hut developed a personal pan pizza that could be served in less
than 5 minutes. It was quick, tasty and moderately priced. And Pizza hut rolled it out to
all 4500 stores worldwide and locked up the pizza-lunch business almost everywhere,
almost overnight.
One of the weaknesses of Pizza hut that it hasnt overcome yet is its price. Local chains
are constantly springing up, offering lower prices and similar recipes. Most people dont
mind giving a lower price for slightly different taste because of which the sales at pizza
hut at are suffering.
12

Growing awareness about eco-friendliness has forced a lot of the food chains to
maintain practices that conform to international environmental standards. For example
McDonalds is introducing coffee beans grown in environmental friendly conditions in
order to appeal to the people who are conscious about environmental friendliness. In the
Pizza selling restaurants, organic pizzas are the new concepts that are appealing to the
masses to these days. Its a phenomenon that highlights the health conscious attitude as
well as environmental friendliness. Pizza Hut on the other hand has not come up with
any strategy in this area and if it doesnt even in the future, it is going to lag behind the
chains that offer healthier food.
Competitive Advantages:
Pizza Hut has the first mover advantage in the pizza chains because of which it has
developed a strong customer base which is one of its strengths.
In the Pakistani QSRs industry, the delivery service of Pizza hut is clearly a competitive
advantage that it enjoys. Pizza huts delivery service is one of quickest and the pizzas
delivered are oven hot in the real sense of the world.
Pizza Hut is often referred to as Pizza Innovation Leader because it is constantly
coming up with new varieties of pizzas to appeal the different audiences and at the same
time, people at the pizza hut have a really good idea about which varieties are appealing
to the customers and they are thus retained in the menus
The first mover advantage is an advantage that Pizza hut was born with but time, Pizza
hut has been successfully creating competitive advantages like a traditionally strong
brand name for itself and the quality service that it provides.
KENTUCKY FRIED CHICKEN (KFC):
KFC, founded and also known as Kentucky Fried Chicken, is a chain of fast food restaurants
based in Louisville, Kentucky. KFC is a brand and operating segment, called a "concept",

of
Yum! Brands since 1997, when that company was spun off from PepsiCo as Tricon Global
Restaurants Inc.. KFC has more than 11,000 restaurants in more than 80 countries. KFC came to
Pakistan in 1996 with the first branch opening in Karachi and later in Lahore. The Franchisee
was a Pakistani owned and operated, Dubai-based Company the Cupola Group, which owns
licenses and its own restaurant throughout Pakistan and the middle-east.
Strategic Objectives:
KFC has the strategic objectives of expansion along with profits and sales growth. KFC
has also been applying its strategies at improving services and making them more and
more customer friendly. It has not only been customizing it's menu according to the
countries that it has been operating in, it has also been trying to cater to different ethnic
groups like African Americans and Hispanics. Such types of strategies are focused on
13

increasing the customer base by better customization of products. Other than the
traditional eat-in restaurants, KFC has also been expanding into non-traditional facilities
like shopping malls, hospitals, universities, stadiums; office buildings etc and a number
of strategies have been formulated to aid this kind of expansion.

Problems and Weaknesses:
The advertising campaign of KFC does not specifically appeal to any segment. It
does not appear to have a consistent long-term approach. The U.S. has enormous
changes in its demographics. Only in US, single-person households increased
from 12% in 1970 to 25% in 1995. With this kind of dramatic change, KFC does
not have a proper approach to its target market.
The increased health concerns of the masses has put KFC at a great disadvantage
because of the word 'fried' attached to it's brand name which gives an instant idea
that the food would be oily and unhealthy.
Another weakness of KFC is that of the lack of a corporate direction because it
has been a part of four different parent companies till now namely, Heublein
Inc., R.J Reynolds, Pepsi Co. and Yumm! Brands Inc. The corporate functioning
of these companies has been pretty different from each other because of which a
strong culture could not be established at KFC and it had long been struggling
with it.
Because of the nature of the chicken segment of the fast food industry,
innovation was never a primary strategy for KFC. However, during the late
1980's, other fast food chains, such as McDonald's, began to offer chicken as a
menu option. During this time, McDonald's had already introduced the
McChicken while KFC was still testing its own chicken sandwich. This delay
significantly increased the cost of developing consumer awareness for the KFC
sandwich.
Competitive Advantage:

A very strong financial background is one of KFCs competitive advantages.
KFC has been functioning as a multinational corporation for several decades. As
a result, the company is familiar with the logistical and quality problems which
accompany operating an international food operation, and has demonstrated that
it can work with host countries and businesses within the host country to develop
a strategy which works in the most cost effective way.
With the passage of time, KFC has developed another very important
competitive advantage for itself- Environmental Friendliness. In March 2009, the
first eco-friendly green KFC was opened in Northampton USA. The restaurant is
designed according to environmental goals that include cutting energy and water
consumption by 30 percent and reducing CO2 emissions. Operations at the new
site are also expected to reduce waste and the amount of rubbish sent to landfills;
14

the restaurant composts and recycles other waste, grease and used cooking oil.
Other than this, in an effort to reduce its packaging by 1,400 tons, KFC is now
switching from cardboard to recyclable and biodegradable paper wrapping for
some of its products.
Subway:
Subway is a restaurant franchise that primarily sells submarine sandwiches and salads. It is
owned and operated by Doctor's Associates, Inc. (DAI). Subway is one of the fastest growing
franchises in the world with approximately 30,052 restaurants in 90 countries as of April 2009. It
is the second largest restaurant operator globally after Yum! Brands (35,000 locations)
Subway restaurants are known for their sub sandwiches and salads. The Subway restaurant chain
is the fastest growing restaurant chain in the world surpassing even McDonald's. Subway has the
second most stores of any chain restaurant system in the world after McDonald's, and the most
locations in North America of any chain. Subway was founded in 1965, however the franchising
started in 1974.
In Pakistan, subway has restaurants at 30 locations, including Karachi, Lahore, Gujranwala,
Islamabad, Sialkot and Multan. Majority of the restaurants are located in Lahore and Karachi.
Strategic Objectives:
The strategic objectives of Subway focus on creating a global strategic plan to enable
Subway Restaurants to succeed internationally. Other than this subway is intent upon
introducing the concept of healthy fast food. Sandwiches of Subway have been
included in diet plans by experts. Jared Fogle, an obese college student who weighed
425 pounds introduced a weight loss plan called the subway diet and lost 245 pounds in
11 months. Subways stand regarding obesity in children is not new to its customers.
Strategies at Subway are not only about a really ambitious increase in franchises all over
the world but they are also about making the food more and more appealing to the health
conscious customers because health conscious attitudes, according to the experts, are
here to stay now.
Problems and Weaknesses:
One of the major problems that can be identified with Subway right now is
related to the franchises. Although Subway has long been named as the number
one franchise opportunity by The Entrepreneur magazine but it seems that
Subway has developed a myopic focus regarding the franchises. Subway has
regional managers who have the opening of new franchises as their sole aim and
their bonuses and incentives are tied to the opening of new franchises. These
managers at Subway even don't care if the new franchises are detrimental for the
existing ones and because of this; many of the franchises are becoming a victim
of internal competition or cannibalization. For example, in Lahore alone,
15

Subway has 20 outlets. Instead of this, Subway could have targeted Cities like
Faisalabad and explored a new market. Franchise owners believe that Subway
has been irresponsible with allocating the franchises and uses bloated store sales
projections as part of their sales pitch for encouraging new franchises.
The opening up of a lot of new stores in close proximities are also resulting in
decline in sales per store because of which the franchisees are not very satisfies
with Subway.
The environment at the Subway stores cannot be compared with that of
McDonald's, KFC or Pizza Hut. The Stores are small and suffocating and do not
even provide the necessary privacy to the people eating there. Subway has no
standard size for any of its store because of which the sales oriented Franchisees
try to fix them at as smaller a place as possible. This is tarnishing the image of
Subway as an international brand.
The quality of the sandwiches and standards of cleanliness at Subway are going
down day by day due to the greater and greater autonomy that franchisees enjoy.
The Subway at Rawalpindi was recently closed down due to quality issues as
well.
There is a dire need of a system to integrate the large number of Subway
franchises and to ensure that the original Subway practices are being followed
there. The management of the franchises is one part of their operations that
Subway has not handled well.
Competitive Advantage:
One of the greatest competitive advantage that Subway was born with is it's
healthy Menu. The salads and sandwiches appeal much more to the people as
compared to fried chicken, burgers, fries and pizzas. With its advertising and
promotion, Subway has long been highlighting its healthy food in advertising
and promotions and with the passage of time, it has established itself as a healthy
brand.
Another competitive advantage that subway enjoys is the fact that along with
traditional locations, Subway restaurants can be found in more than 4,000 non-
traditional locations such as food courts, health clubs, hospitals, universities,
amusement parks or just about anywhere. In fact, Subway restaurants can even
be found in automobile showrooms and Laundromats! This global presence is
indeed a sustainable advantage for Subway and needs to be managed properly.
Subway's fresh food is also a competitive advantage because unlike it's
competitors like McDonald's it allows it's franchisees to choose their own food
suppliers, to ensure they can access the freshest ingredients.
16

3. INTERNAL ENVIRONMENT ANALYSIS

The internal environment assessment and analysis is conducted after the external environment
analysis. While the external environment analysis seeks to identify opportunities and threats in
the external environment, the internal environment analysis seeks to identify the strengths and
weakness of business. It focuses on factors that are internal of the business, some of which can
be easily changed or improved upon. The three models are resources, capabilities and core
competences which Influence when identifying internal factors of the business.
It is important to distinguish between the resources and the capabilities of the firm, resources are
the productive assets owned by the firm; capabilities are what the firm can do. According to
(Ivythesis, 2010), the connection between the resource and capabilities of a firm in the area of
business makes a competitive advantage. It is because the capabilities and resources allow the
organization to create value and gain some form of advantage from the rivals.
3.1 Resources
To take a wider view of a firms resources it is helpful to identify tow principal types of
resource: tangible and intangible
Tangible Resources
Tangible resources are the easiest to identify and evaluate: financial resources, human resources,
physical resources and organizational.
Physical
The physical resources of McDonalds include the restaurant location which will be at UCTI
building with an average sitting capacity of 50 persons. The restaurant is equipped with the latest
cooking and storing equipment. The restaurant has the facility of Play Place for students and has
one television.
Human resource
Human resource is most important resource of any business unit wherever in the world. The
strength of any organization is not the machine, equipment or its cash flows; rather these are
employees that make an organization great and competitive.
McDonald's recognizes that employee satisfaction is a critical component in its goal of achieving
100 percent customer satisfaction. Its employees are offered world-class, award-winning training
and the opportunity for career development.

17

Financial
McDonald's is concerned, now information is available about its financing activities. McDonald's
is working with two banks namely CIMB and MayBank. These two banks are taking care of any
financial activity for McDonald's inside and outside the country and also provide short-term
loans to the company.
Organizational
McDonald serve as training center where day-to-day coaching and shoulder-to-shoulder
interaction between managers and crew are emphasized. Training begins with one-on-one
instruction before a crew-person cooks the first French fries and for new entrants to the
workforce, the company offers an important foundation:
Intangible resources
Human:
McDonalds has provided thousands of jobs for global population. Employees of McDonald's
divided into three groups including restaurant workers, corporate staff, and franchise owners.
McDonald's usually hires between 50 and 65 people in each local restaurant and most of these
positions are part-time workers. Nevertheless, the chain ran into more problems because of the
tighter labor market.
Innovation:
The innovation of products is the priority concern of McDonalds to increase the revenues and
maintain a base of loyal customers. For instance, they remove the trans-fatty acids in the oil that
is used to make french fries and salt content of its products that without changing the taste of
their food. It is suggested this change may help McDonalds attract more customers and satisfy
the demands of different consumers. Additionally, in order not to be left behind by its rival,
McDonalds applies innovative technology in doing business. For instance, a touch- activated
screen is provided in drive-through area, permitting customers to punch in orders without
queuing. This renovation will bring interests to customers, especially teenagers as well as save
time in ordering food. Reputation McDonalds is famous for selling hamburgers and
cheeseburgers under the traditional symbol of a golden arch.
Reputation:
To improve the reputation with customers, McDonalds should improve the quality of food and
introduce healthier foods to satisfy the demands of customers. The website of the company is a
channel for consumers to give feedbacks or comments on their services and delivery systems and
this is the fastest way to receive feedbacks from consumers. Moreover, they need to put
emphasize on the hygiene and safety of food to bring the best quality to customers and enhance
their images.
18

Besides, they also do some charity works for community such as Ronald McDonald Charity
program because McDonalds want to bring positive impacts on children, so they donated $400
million dollars for children all over the world.
The company also makes an annual global fundraising on World Childrens Day and they
participate in some children fundraisings such as the Ronald McDonald House Charities. By
doing community projects, they can build nice image in customers eyes.
3.2 Capabilities
McDonald applied an essential step in translating directions and operating practices into
capabilities. The successful firms used the knowledge as part of the fundamental transformation
in their enterprises. Moreover, the McDonald pioneered the transformation through
systematization which is appropriate in their processes.
The idea of systematization presumes that the firm can more fully articulate the processes as part
of its capabilities.
With concern of knowledge management, McDonald Company is primarily implementing the
McDonalds system. The essence of systematization of knowledge is followed by every outlet
with a detailed set of rules. Therefore, the operating practices became part of every employee
and given a thorough attention from the management through the training programs.
Capabilities are highly essential in the following areas:
Inbound Logistics
Organizing the supply of food and materials to restaurants through approved
third party logistics operators.
Production huge plants denoted exclusive to McDonald control food
Operations
R&D in field research needs of end users.
Quality development in collaboration with good suppliers
Forward integration through franchisees with control over store presentation,
menu items etc. and enhance participation in process improvement.
Outbound Logistics
It is the concern of the franchisee.
Outbound logistics are growing as a part of McDonald recycling system
integrating in the logistics of distribution center.
Sales & Marketing
Long term marketing objectives are broken down into short term measurable
targets, which McDonalds uses as milestones.
Country teams are given autonomy in marketing mix decision.

19

Services
Services provided by the companies enrollment standards

3.3 Core competencies
Core competencies are all about providing increase customer value. This numerous opportunity
to the company; it can be about innovative new products or exploring the new market niche.
Same is the case with MacDonald selling burger is not their core competence instead providing
convenience and customer oriented policy is their strongest point.
Following are the McDonalds core competencies which makes it stand ahead among its
competitors in industry:
Product variety: McDonalds keeps on changing a bringing innovation in to burger, salads,
desserts, drinks and sandwiches variety.
For growth McDonalds have to experiment with new product line. It is suggested that
McDonalds should rely on test marketing to check new menu if it wants to maintain a constant
growth.

20

4. STRATEGIES ADOPTED BY MC DONALDS:
Hummer of a Summer PR strategy:
In August 2006, McDonalds in US launched a
PR effort by the name of Hummer of a
Summer. This was a collaborative effort of
General Motors and McDonalds and focused on
HUMMER- One of General Motors key
divisions.
To announce the program launch, McDonald's
staged a three-mile long parade down Chicago's
Michigan Avenue during lunch hour. Ronald
McDonald led the parade on the hood of a
HUMMER and was followed by the life-size versions of the trucks that will be available in the
Happy Meals. The parade ended at the flagship McDonald's restaurant in downtown Chicago.
Kids at the restaurant were also invited to go inside the vehicles. The kids were then treated to
free happy meals.
There were also regional events and programs sponsored by local McDonald's restaurants and
GM dealers.
McDonald's Happy Meal and Mighty Kids Meal HUMMER line-up featured eight dynamic
vehicles, capturing the power, excitement and unique styling that make HUMMER one of the
most recognizable vehicles on (and off) the road.
One of eight toy HUMMERS were packed in each
"boy" Happy Meal ("girl" meals featured Polly
Pocket). The full HUMMER lineup was represented,
from the now-defunct H1 to the H3T Concept pickup.
This strategy proved to be quite popular with the kids
and the way people at McDonalds tried to cash the
awe and charisma associated with the brand
HUMMER was remarkable. The strategy proved to be
a win-win one for both GM and McDonalds because
it not only attracted the kids to the happy meal even more than before but also magnified the
iconic brand status that HUMMER has acquired over the years.

21

McMommy Blogging Society:
In December 2007, McDonald's opened up its kitchens to an
army of mother bloggers, who will be reporting their
allegedly unedited findings on McDonald's website, and their
verifiably unedited findings on blogs around the Internet.
The fast food giant's goal was to stem criticism that the
restaurant's offerings are making the country obese by
making their processes more transparent to the public.
The burger giant apparently also was hoping that the program will help contradict stories of
fattening, unhealthy food that have been detailed in books such as "Fast Food Nation" and
movies such as "Super Size Me."
McDonald's equipped six mothers with laptop computers to record their impressions of its
operations over the next few months. The moms were chosen by an independent company from a
group of 4,000 applicants, and the blogs and journals were posted "unedited" beginning June 20
2007 on McDonald's home page, where it hoped to attract other moms interested in seeing the
comments, officials said last week.
Selected moms were expected to participate in as many as three "field trips" lasting two to three
days, and received payment for "reasonable travel expenses."
Nothing like this has ever been done on the internet by a fast food company before and
McDonalds intended to exceed the customer expectations by coming up with a new strategy that
would astonish everybody and the campaign was indeed well received by the audience.
Tier Pricing Strategy:
For McDonalds, tier-pricing is becoming part of its global strategy. To stay competitive in an
era of food inflation, the US franchise is
abandoning its one price fits all
approach.
McDonald's has implemented a tier-
pricing system in Taiwan, partitioning the
island into three districts to counter the
impact of food price inflation.

The three districts are the rural south and
east; the industrial north and west (plus
three southern cities); and entertainment
and high-rent districts across the island. Future prices will be adjusted according to income
levels, the consumer price index and other factors for each district.
22

In Japan, McDonalds was also the first marketer to introduce tier-pricing, according to Tsao.
Japan was a good choice of model for us to follow, he said.
The economic situation in Japan is similar to Taiwan. Both countries have crowded restaurant
sectors and face intense competition. Operating costs in Taiwan vary widely due to rent, labour
and transportation.
In Taiwan McDonalds is using the consulting firm, Revenue Management Solutions to analyze
operating costs, customer demand, price sensitivity and Government price indexes to create a
map of the price districts.

For the menu-board price changes, McDonalds is scattering price rises on different items rather
than instituting blanket increases. Tsao said the reaction from Taiwans consumers had been
mixed.
Strategy for increasing sales at existing restaurants:
McDonalds has also focused on increasing sales at existing restaurants instead of opening new
ones. To do so, McDonald's has remodeled many restaurants, kept stores open longer and
increased menu options. Nevertheless, new McDonalds restaurants are still opening around the
world at a rapid rate - the company plans to open about 1,000 units in 2008, and continues to
grow its new restaurants at a 1%-2% rate each year.
McDonald's executives say they're adding features that will increase sales. Mr. Alvarez showed
off a self-service kiosk where customers can place orders electronically. He recently watched
customers use kiosks at a McDonald's in Tours, France.
Mr. Alvarez says a top complaint of French customers about McDonald's is that they feel
pressured to order, which keeps some families from coming in. Ordering at a kiosk, he says,
"allows them to either control their kids or control their order."
Remodeling of locations:
An estimated 7,000 U.S restaurants will be rebuilt, relocated or refreshed as part of the far
reaching plan to upgrade its public persona with updated restaurant designs intended to boost the
bottom line.
The redesign is risky and has many franchisees up in arms over the high costs of a makeover.
But company officials believe the overhaul is needed.
McDonald's, whose restaurants are visited by more
than 40 million people every day, has moved
aggressively over the past three years to revamp its
menu and attract a new breed of customer.
23

The traditional McDonald's yellow and red
colors will remain, but the red will be muted
to terra cotta and olive and sage green will be
added to the mix. To warm up their look, the
restaurants will have less plastic and more
brick and wood, with modern hanging lights
to produce a softer glow. Contemporary art or
framed photographs will hang on the walls.
The dining area will be separated into three
sections with distinct personalities.
The "linger" zone will offer comfortable
armchairs, sofas, and Wi-Fi connections.
The focus is on young adults who want to
socialize, hang out, and linger.
Sponsoring the report cards:
For us it seems unthinkable that companies are
allowed to extend their persuasive activities inside
the walls of elementary schools, especially if they
sell what could be called vice-products. An article
appeared in August 2007 in Ad Age Daily which
reported that McDonalds sponsors school children's
report cards in Seminole County, Fla.
The cover of the report card has the McDonalds
logo, and (here it gets nasty) a 'good' report gets
rewarded with a gift coupon for a Happy meal at
McDonalds. From the company's perspective a
very smart move: get you message to the captive
target audience (I guess kids and parents HAVE to
look at report cards), and apply two major
conditioning procedures at the same time:
- operant conditioning: the coupon is a 'reward' for performance
- Evaluative conditioning: the McDonalds brand is associated with a positive event (at least if the
rapport is good)
This strategy was however not a very good move at McDonalds part and After nearly 2,000
parent complaints about children health concerns, McDonald's ended its controversial report card
advertising in Seminole County, Florida in January 2008.
24

McDonalds Coffee Strategy:
McDonald's who took some coffee ground away from Starbucks and Dunkin' Donuts last year
announced that they'll install coffee bars with Starbucks-like baristas in 14,000 U.S. locations
this year.
Along with drip coffee, McDonald's will be serving high-end coffee drinks like lattes and
cappuccinos. Following the successful introduction of their premium drip coffee, this would
seem to be a natural, next-step line extension, especially with so many locations to offer up
product throughout the United States.
It has also been reported that the McDonald's process will use a single machine that
automatically steams the milk and combines it with the espresso, which cuts down on some of
the drama and ceremony that comes with the preparation of a really well prepared espresso. And
since selection and variety is also a category loyalty driver, McDonald's is bound to have a more
narrow selection on offer than the gabillion varieties available at Starbucks.
However, there are two reasons to think that McDonald's might find the high-end coffee market
surprisingly hard to crack.
1. The processes required to serve customized drinks are vastly
different from the processes required to serve McDonald's tightly
standardized menu. Running two distinct systems in a single retail
location can be very difficult. Lengthening lines could alienate core
McDonald's customers looking for reliably quick food.
2. McDonald's franchise model means it can't simply force the
coffee bars on retail locations. Individual franchise owners have to
decide that investing in the bars is in their best interest. While McDonald's claims that early
market tests have proved quite promising, a consultant to some of McDonald's franchise owners
told USA Today, "It is certainly the biggest potential mistake in the
history of the system."

Global Best of Green:
McDonalds has also been trying to show consumers its greener
side with a new institutional marketing effort, Global Best of
Green. McDonalds around the world has taken a number of
initiatives around the world as a part of this marketing effort which
include the following.
About 80 percent of packaging used by McDonalds Europe comes from renewable
resources.
25

In Canada, switching from bleached white napkins to plain brown has saved $1.3 million
annually, while reducing energy, wood and water use.
U.S. restaurant locations recycle about 13,000 pounds of used cooking oil per year, on
average.
Using a fryer that requires less oil allows restaurants to cook the same product with 40
percent less oil, saving 4 percent in energy over other fryer models.
U.S. locations completing an energy survey identify savings of $3,000-6,000.
McDonalds USA recognizes Energy All-Stars, or store managers that have provided
examples for others.
In France, 10 restaurants that have committed themselves to an interactive software,
EcoProgress, have reduced electricity consumption 11 percent over a few months.
McDonalds Sweden is using CO2 detectors in 24 restaurants to adjust ventilation
systems to the amount of customers in the store, reducing electricity use 15 percent
annually.
McDonalds Europe is serving salads in cardboard bowls instead of plastic dishes, and
wooden coffee stirrers instead of plastic.
In the U.S., decreasing the weight of polypropylene cold cups has decreased costs by 6
percent and saved nearly 1,000 tons of resin.
Various anti-littering marketing campaigns have been implemented in Portugal, Italy,
Switzerland, the UK, Australia, Germany and other nations.
A variety of different waste and recycling bins have been tested in certain countries. A
German model achieved a 90 percent recycling rate.
Restaurants in Switzerland feature a separate receptacle for organic waste, which is sold
to Kompogas, which ferments the waste into biogas.