Strong Global Brand: McDonald’s has one of the most recognizable brands in the world. Most individuals in the United States, and much of the world, instantly recognize the company’s “Golden Arches”. The company provides consistency in its food, so that you can get the same taste whether you’re eating a Big Mac in New York or Moscow. However, it also provides cultural diversity in the foods it offers based on the location of the restaurant, thereby adding to supplemental sales in each particular region. The company’s success has allowed it to become the world’s largest fast food restaurant chain in the world.
Diversified Income: Since the company is so large, with so many locations around the world, its total sales and earnings in different regions tend to offset one another. It has locations in nearly 120 countries, so if domestic sales are slumping, it’s possible that they could be strong in South America or Europe. As a result, the company doesn’t rely on one key source of income, unlike many of its rivals. For example, Burger King relies almost exclusively, roughly 98%, on the United States for its earnings. This diversification allows McDonald’s to have relatively stable cash flows, and generate consistent profitability.
Negative publicity: McDonald’s has always maintained the perception that its food is unhealthy, loaded with fat, carbs, salt, and sugar. Well, these perceptions are generally on point, as most items on its standard menu are relatively unhealthy. The chain has been widely criticized for promoting unhealthy eating habits, leading many of its customers to put on pounds. 2004’s documentary, “Super Size Me”, didn’t help the company, as it documented Morgan Spurlock’s rapidly deteriorating health as he ate only McDonald’s for a 30-day period. As a result, many health conscious consumers don’t even consider having a meal at McDonald’s, despite its efforts to introduce healthier options.
High Employee Turnover: Most jobs at McDonald’s are low skilled and low paying. As a result, there is a significant amount of employee turnover. Many employees don’t take the job seriously, or only do it for short periods of time, and this leads to lower performance. Since there is so much turnover, training costs are high, pressuring the company’s bottom line.
Upgraded Menu: New CEO Steve Easterbrook has big plans to turn the company around. Part of the plan is to offer premium products at some of its locations. The restaurant recently introduced artisan chicken and sirloin burgers to its menu in parts of the U.S. The company is also trying to strengthen its position in the high-margined caffeinated beverages industry, dominated by Starbucks (SBUX). McCafe has had some success by keeping prices competitive, and the company has been able to harness its vast store network, marketing muscle, and highly efficient supply chain. The McCafe menu also now includes fruit smoothies, an appeal to more health conscious consumers.
Expansion Plans: McDonald’s is always on the lookout to expand its market share. While the markets in North America and Europe are fairly saturated, there are opportunities in more underdeveloped nations. The company also recently announced that it was going to refranchise 3,500 restaurants by the end of 2018, accelerating the pace of refranchising and increasing the global franchised percentage from the current 81% to 90%. This should allow for a more streamlined, lower cost, and more stable organization.
Competition: McDonald’s faces significant competition from national, international, regional, and local retailers of food products. It competes on the basis of price, convenience, service, menu variety, and product quality. While it does a good job on most of these metrics, product quality is something that management is working on, given consumers’ increasing preference for quality and natural products. In the hamburger fast food category, McDonald’s primarily competes with Burger King and Wendy’s (WEN). However, it still has the highest market share in the overall fast food market, with a 22% share, ahead of competitors Yum! Brands (YUM) and Subway.
More Health-Conscious Customers: Many consumers, both in the U.S. and abroad, are trying to eat a healthier diet. The rise in popularity of organic products, fresh fruit and vegetables, and goods with all-natural ingredients is somewhat of a concern for McDonald’s. While the company has very strict quality controls for its food, customers aren’t exactly going to McDonald’s for free-range chicken and organic vegetables. The company is also facing concerns that younger, more health-conscious consumers, will hurt results in the long run unless a shift in strategy is made.