McDonalds marketing strategy is built on segmenting its targets market. Segmentation involves dividing population into groups based on characteristic features, whereas targeting implies choosing specific groups identified as a result of segmentation to sell the chosen products. Positioning refers to the selection of the marketing mix most suitable for the target customer segment. McDonald’s uses adaptive form of product positioning and accordingly, the company is engaged in periodical re-positioning of products and services based on changes in the segment (Ahmed, 2016). McDonald's target consumer group includes young children, teenagers, millennials, parents, business customers. The most prominent marketing for McDonald's is targeted towards children and the parents of young children. Ronald McDonald was first introduced in 1963 and marked the beginning of their focus on young children as a critical part of their ongoing business. Parents accompany their children to McDonalds which offers comfortable seating arrangement and, in some locations, play area for kids. McDonald's also targets business customers as a part of their fast service business strategy. Another major target group for McDonald's is marketing is to teenagers and millennials (See Appendix 3).
US market segment is the largest market of the company in terms of revenue generation. In FY2015, McDonalds generated revenues of US$8,559 million from the US market. Further to boost its market share, the company undertook several growth initiatives (McDonald Corporation, 2015). It brought various changes in menu to capture the growing needs and it also introduced the concept of all day breakfast in the US, to serve customers Egg McMuffins and other breakfast items at lunch and throughout the day. McDonalds further diversified the menu based on local tastes and needs. In 2015, the company launched Artisan Grilled Chicken and Premium Buttermilk Crispy Chicken Deluxe sandwiches along with introduction of mobile app in the US to give power of convenience to customers. 5. McDonalds Competitor Analysis McDonalds corporation competes with international, national, regional and local brands operating in the food service sector. It competes based on pricing strategies, convenience, menu diversification and product quality in a highly fragmented global restaurant industry. The Company’s primary competition, referred to as “informal eating out” segment, includes restaurants categorized as quick-service eating establishments, casual dining, kiosks, cafés, takeaway services, specialist coffee shops, self-service cafeterias and juice/smoothie bars. McDonalds direct competitors include quick fast food restaurant chains like Burger King, Wendy's, Pizza Hut, KFC, Taco Bell, Subway and Starbucks (See Appendix 1). Starbucks Corporation is a specialty quick-service restaurant with an offering overlapping with McDonald's. McDonald's also competes with a fragmented market of takeout and casual dining restaurants.
In 2018, McDonald's was the most valued fast food restaurant chain globally with an estimated brand worth of U.S $126.04 billion. In the same year, Starbucks brand value amounted to approximately U.S $44.5 billion. The profitability of companies operating in the food business sector depends on a variety of factors such as delivering efficient operation and marketing strategy that effectively meets customer requirements. Global companies have advantages in procuring, financing, branding strategies and offering products of superior quality and services. Over the last decade the average consumer trend of fast-food spending has increased due to customers valuing increased convenience and cost-friendly pricing by fast food joints. Consumers are drawn to the low product pricing strategies offered by fast-food joints than by expensive fine-dining restaurants. As a result, various fast-food chains capitalized its revenue sales during the period of recession when consumers were seeking low price range products making McDonalds the leader in quick service restaurant chain in the US (Downie, 2018). Starbucks, a U.S based, world's largest company chain of coffee restaurants currently operates 27,399 Cafes in 75 countries with 13,930 joints in the United States itself. Starbucks serves different varieties of coffees, teas, deserts and snacking options and markets itself through a high premium pricing strategy. The company reported fiscal 2017 revenue of $22.4 billion, making Starbucks the second highest-selling U.S. chain restaurant behind McDonald's.
As of June 2018, Starbucks' market cap is $68.7 billion. Unlike McDonald's, which is a franchise-based business model for expansion. Starbucks believes such a model could lead to less control over day-to-day operations and thereby wants to maintain control over its restaurant chain corporation. Starbucks also has leveraged itself as a premium coffee brand without following the traditional marketing advertising strategies. McDonalds business model operates under a 95% Franchised model, whereas, its leading competitor Starbucks has utilises the network of Franchisee model only for International expansions. Only 50% of Starbucks restaurants outside of U.S are company owned, this is mainly because it aims to retain its culture and company values. In early 2018, both McDonalds and Starbucks displayed same-store sales growth. McDonald’s worldwide store sales increased by 5.3% with Starbucks’ global store sales rose by just 2% (Ausick, 2018). However, Starbucks generated an EBITDA of 21% through its company owned model compared to only 19% for McDonalds. The company’s stock assessment in 2017, indicated a rise of 37% by McDonald's while Starbucks only raised to a 3% (See Appendix 4 & 5). McDonald's earnings were expected to grow by 14 percent to $6.52, while Starbucks' earnings in fiscal 2017 increased by 7.9 percent to $2.06 share. This resulted in significant stocks gains for McDonald's, and minute gains for Starbucks. Over the past 12 months, McDonald’s stock is up more than 44% while Starbucks shares have added just 1.6%. Starbucks plans to add 2,300 more new stores in 2018 around the world.
The company recently acquired 1,400 stores in China resulting in a total of 3,100 chain of restaurant in China. McDonald’s has further decided to offer low-priced items at franchised stores, while Starbucks owns most of its stores and has been moving further upscale with its Starbucks Reserve roasteries and store upscaling (Ausick, 2018). Other major competitors of McDonalds include: - Yum Brands, Inc.- Yum! Brands, Inc. operates popular quick-service restaurant chains including Taco Bell, KFC and Pizza Hut. It is located in more than 44,000 locations in 135 different countries. YUM was ranked 422nd on the 2017 Fortune 500 list with revenue exceeding $5.8 billion in 2017. Taco Bell serves fast food breakfast and lunch options inspired based on Mexican cuisines, including tacos, burritos and nachos. KFC serves chicken based recipes and sandwiches options along with sides and beverages. Pizza Hut on the other hand is a quick-service pizza restaurant chain. As of June 2018, Yum! Brands' market cap is $25.3 billion (Downie, 2018). Subway-Subway founded in 1965 and headquartered in Milford, Connecticut holds a restaurant chain in 46,000 different locations in 110 countries and 21,000 of its locations are owned by franchisees. The menu options include primarily footlong styled sandwiches and fresh salad range. However, in mid-2017 Subway witnessed a downfall in its sales and announced closing of a hundred of locations worldwide.
In 2017, it reported a sale of $11.3 billion in U.S itself (Downie, 2018). Burger King- Burger King founded in 1954 and headquartered in Miami, Florida had over 14,000 locations in over 100 countries, with roughly 11 million daily visitors worldwide in the year 2017. And most of these locations owned by independent franchisees. Burger King includes a diverse range of a la carte menu for breakfast, lunch and dinner options including Hamburgers, chicken sandwiches, chicken tenders, French fries and beverages quite similar to McDonald’s range. During 2017, it recorded over $1.2 billion in revenue. Assessing McDonalds performance relative to Burger king, McDonald's is playing strong in terms of both power of brand awareness and scale of reach to consumers with nearly 37,000 locations globally (Downie, 2018). Forbes ranked it as having the most valuable brand in the restaurant industry, and the ninth most valuable overall, worth over $40 billion. McDonalds direct competitor chain of restaurant, Burger King with just 16,000 locations worldwide was unable to make to the Forbes' list. 6. McDonalds Competitive Analysis Michael Porter defines competitive advantage as a unique strategy useful for creating value and long-term sustainability for the Business by providing superior services to the customers which otherwise other companies playing in the same industry are unable to (Porter, 1985). It is built on the premise of identifying the benefits and value the company is offering, reaching out to the right target group and providing differentiated products which competitors are unable to provide.
McDonalds business strategy utilizes a combination of cost leadership and international market expansion strategies (Dudovskiy, 2016). McDonald’s product offering is built on retaining customers through high quality product delivery. This is established by quality assurance board, which closely works with company’s suppliers, supply chain players to establish a system of continuous innovation and improvement by maintaining health and safety standards. They encourage their suppliers to develop and create new and innovative products and processes. They encourage the development of technology from their suppliers in exchange for loyalty to reduce their manufacturing costs (McDonalds Corporation, 2017). McDonalds supply chain strategy promotes local sourcing of ingredients, strict regulation of its distribution centres and extensively investing in R&D facilities located worldwide. Although, it offers a substantially uniform menu, it regularly innovates its menu through increased product differentiation by offering wide options to its consumers by considering local taste preferences of people, when curating the product menu. This in turn focuses on the concept of innovation and new product development to meet the changing consumer demands and is built by positioning its products at reasonably priced range by effectively utilizing the economies of scale to gain cost advantage. McDonald's is the biggest purchaser of beef, pork, and potatoes in the United States. Since McDonald's is purchasing high quantities of potatoes, beef, and chicken their higher buying power has vastly reduced the price they charge (Schlosser, 2000).
In 2015 it announced the use of 100% cage-free eggs for its restaurant chain in the US and Canada for next 10 years and has been procuring more than 13 million cage-free eggs since 2011, annually. McDonalds incorporates a structure of high restaurant network comprising over 80% of the chain operated through a network of Franchisee and licensing model of new market entry. McDonald's is the largest Worldwide Franchised Food Service Organization (McDonalds Corporate, 2012). In 2016, McDonalds had a chain of 36,525 restaurants with 30,081 franchised restaurants and 6,444 company operated stores worldwide (Mourdoukoutas, 2015). Such a strong presence of global network reduces the risk of single market overdependence and facilitating a model of diverse revenue generation. In 2015, McDonalds refranchised 470 restaurant chains with global aim of achieving 95% franchisees in high growth and potentially developing markets with the objective of reducing company’s capital expenditure, corporate investment and reduced cost of administration and staffing. McDonalds saw a potential opportunity in expanding its restaurant business chain and in early 2016 announced strategic decision to open more than 1,000 new franchised restaurants in China by 2021 (McDonalds Corporation, 2017). With company’s high focus on product differentiation and menu diversification in the same year it planned on introducing a new healthy product range to meet the growing consumer trends towards healthy and sustained living. As a result, incorporating fruit slices, veggie cups and multi grain muffins in the menu. Furthermore, China was targeted as an opportunity due to growing tourism levels (Si, 2018) in China, further bolstered by rising levels of urbanization that creates a need for convenient healthy eating options with Chinese consumers shifting trends towards healthy, westernized and high-quality food range.
McDonalds strategy capitalizes consumer’s increasing trend of eating out, the US Economic Research Service estimates that by 2025 expenditure on “away-from-home dining” food services will increase by over 10% per capita. McDonald’s, the World’s largest foodservice will largely benefit from the predicted industry trends worldwide and showed a revenue-sales of US $ 24.62 from the US market itself (See Appendix 2). McDonald’s quick service restaurant operation strategy is based on ‘fast food’ format by offering universality in taste through a set application of standardized cooking throughout the world and focusing on providing cost effective and nutritional products through high speed customer service with the aim of making their customers “happy” (Aderohunmu, 2004). McDonald's concept of affordable pricing strategy focuses on making Customer More Satisfied is fulfilled by employing cheap labour and utilizing self-service kiosks (Johnson, 2016). To summarize McDonalds sustains its competitive advantage by :- 1). Providing high value products to its customers 2). Continuous product innovation 3). Optimal strategic business operations 4). Expanding to growing world markets.