McDonald’s Corporation in the New Millennium
May 30, 2006
“McDonald’s Corporation in the New Millennium,” a case in Marketing Management: Case Analysis by Teams, discusses the challenges and opportunities faced by McDonalds in recent years. The four main areas covered by the case included the fast-food industry in general, McDonald’s as a corporation, major competitors in the hamburger segment, and major competition in the non-hamburger segment. Since the case’s writing, there have been several important developments in each of these areas.
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Pizza and chicken chains grew much faster than burger chains in the past five years, but there are still nearly twice as many burger options as compared to the largest competitor, pizza. Non-hamburger sales, which accounted for 8 percent for fast-food meals five years ago, now account for around 11 percent (Gray). In fact, burger chains constitute half of the $100 million revenues of the American fast-food market. Industry analysts feel that this is due to “a more health-conscious American public” (Gorodesky and McCarron).
Companies have also realized that although Americans are focusing on healthier eating habits, diet foods have been a complete failure in the fast-food market. An example of this is the McLean burger, which failed to take off with McDonald’s customers. Restaurants are now luring in an older, health-conscious, and affluent customer base with deli-style sandwiches (Gray). Running contrary to the desire of Americans to eat in a healthy manner, larger portions seem to be attracting more business for the industry. McDonald’s has filled this niche with its Deluxe series (Arch Deluxe, Crispy Chicken Deluxe, Fish Filet Deluxe, and Grilled Chicken Deluxe).
In addition to the changes in eating habits of customers, the industry has also had to face a change in spending habits. “Value Pricing” is increasing gaining in popularity, with nearly all restaurants offering meal combos, in addition to the growing popularity of “dollar” or “value” menus. Not only is the amount of money that customers spend changing, but also how they spend it. Increasing numbers of fast food restaurants are now accepting credit or debit cards. The percentage of non-cash transactions rose from 3% to 12% in the past five years, and industry analysts expect increasing growth (Gray).
The fast-food industry has seen many changes in the location and appearance of restaurants. One example of this is in-store restaurants in chains such as K-Mart, Wal-Mart, and Target. Shoppers can new chose from options including store-specific restaurants such as Little Caesars, Subway, and McDonald’s. “Multiple-branding” has also gained popularity, where one or more restaurants share a store-front. Pepsico and Yum Brands, Inc. are in the forefront of multibranding, with pairings between restaurants such as Taco Bell, KFC, Pizza Hut, Long John Silvers, and A&W. Multibranded units tend to increase single-store sales by around $400,000, giving franchises greater ability to purchase prime real estate usually only accessible to bank and other high-income companies(Gray).
McDonald’s as a Corporation
McDonald’s has made many changes to its menu, layout, and interior design of its restaurants in recent years. These changes have contributed to a system-wide sales increase of 6% in 2004. Shareholders have profited through a 185 percent increase in dividends per share (“McDonald’s Corporation 2005 Financial Report”).
This increase in earnings is due to...