(Solved Homework): McDonald's Corporation J. Paul Peter and Ashish Gokhale University of Wisconsin-Madison Jack…

1.

The market size could not be estimated with the current data provided.

Growth rate –

• Fast casual sector – 20%
• Quick service sector- 2%

life stage – maturity stage

Declining profits and flat sales, the industry is in maturity stage with numerous players and intense competition. Fast food is easily available at numerous locations e.g. subway has 13200 outlets in US.

Mostly the consumers are repeat consumers eg in McD 60 % of visits are done by repeat consumers

In a saturated market, Players are trying hard to differentiate themselves, Companies try to differentiate through promotional campaigns and menu changes/ variety

Importance of economy of scale

As fast food sector is shifting towards increased importance for the dining experience, investments in restaurant facilities and service personnel apart from investments in technology is gaining at a rapid pace.

This included

• windshield sales
• Investments in media outlays (Wendy’s)
• Especially with the increase in fast casual sector
• Increasing menu list will increase inventory
• Upscale cafe shops like McCafe need investments in interiors and upholsteries

Hence economies of scale is very important in fast food industry

2.

Industry structure

Based on experience

1. Quick service – drive through, dining, take away
2. Fast casual

Based on products

1. Hamburger
2. Non- hamburger
   1. Sandwiches –chicken and Vegetarian
   2. pizza

Suppliers, channel members, and consumers

Baby boomers and young adults less than 30 years of age are the chief consumers. Children are targeted by all

Suppliers- vendors of Ham, chicken, fish, vegetables, spices, bakers, packing containers etc

Channel members- advertisers, marketers, malls and shopping outlets

Bargaining power of suppliers is low. Many fast food restaurants chains are volume players like big box retailers. These players have an upper hand over suppliers

Bargaining power of consumers– high. There are too many options and substitutes for consumers in every segment. And their power is high

There is not much of forwarding or backward integration in the industry except for bakers, where Mc Cafe uses bakers on its own as well as buys from others.

3. Changes and trends

• Consumers- both baby boomers and young consumers, are moving towards healthy meal options and non-hamburger sandwiches. Hence there is a shift in McD consumers towards options like subway
• Recession in the economy is affecting fast food sales. The overall market growth is slow resulting in flat sales for McD
• Drive through consumers has been increasing especially in Mc Donald’s
• Fine-dining is also increasing i.e. fast- casual segment. McD is making use of this opportunity using Mc Cafe
• Heavy users- single males with working class jobs, account for majority of repeat visits
• The shift in preference towards hamburger substitutes like pizza. this is engulfing the market share of Mc Donald.

McD sales have become flatter with 1-2 percent growth in same store sales and with increased service rise operating costs resulting in decreasing profits- net income for them.( the income sheet posted is not clear and complete)

4.

The competition is quite intense with numerous stores and numerous options for consumers. The market is saturated and competitors are trying to differentiate through product variety promotions and sales discounts etc

6.

Competitive actions in the ham segment

• Kitchen upgrade
• Drive-through upgrade
• Menu change
• Price promotion
• Bundling, mid-price sandwich options
• Increase breakfast sales
• Upscale products from Wendy’s, Cke etc
• Promotional tactics e.g. Toys and stickers for kids,

Strengths and weaknesses

This competitive action results in an increase in both operating and fixed costs.

At the same time, they force the players to innovate with new products, new experiences and new service levels. This also has forced almost all players to try the upscale segment and fine –dining segments of fast food industry. Also, players are moving towards healthier food options.

The future will be in terms of variety in products with healthier food options combined with fine dining.