In 2012, McDonald’s Corp had a 4.5% decrease as economic troubles pressured margins and consumer confidence. Due to higher food, labor, occupancy and business investment costs, McDonald’s had negative profitability. In addition to the already difficult situation, consumer confidence was at an all time low, with consumers pressuring them to increase its marketing and promote value. “McDonald’s are experiencing headwinds on both the top and bottom lines. Some of the headwinds are macroeconomic, such as declining consumer sentiment. Other pressures are the result of planned strategic decisions that were made to grow the business, such as enhancing its value menu and implementing new technology” (Gasparro, 2012).
An oligopoly is a “market structure characterized by competition among a small number of large firms that have market power, but that must take their rivals’ ...view middle of the document...
The company has started considering consumer interest, best practices and price differences, when determining the growth of drivers at work. McDonald’s updated its restaurants, modernized and took advantage of consumer proclivity by offering smaller items throughout the day. In addition to the dollar menu, McDonald’s also added items that range in price to appeal to all consumers. “In doing this, McDonald’s have protected profits by offsetting cheaper items” (Jargon, 2011).
The development of McDonald’s mini-restaurants has improved overall profitability by improving their bottom line. In 1991, it cost less to build a mini-restaurant than it does today; however, the mini-restaurant could still handle the amount of volume that a person would see at a regular sized location (Farnham, 2014). In building mini-restaurants, the consumer market could expand in areas that were not able to support the traditional restaurants.
The need for healthier menu items has been the major factor in influencing McDonald’s expansion strategies. Another factor would be increasing the amount of drive-throughs and delivery services. Although the United States is not a place where delivery is an option, in larger countries it is. Competitive pressures push McDonald’s to realize that innovation in the global market could increase their profits (Jargon, 2012).
Farnham, P. (2014). Economics for managers (3rd ed). Upper Saddle River, NJ: Pearson Education, Inc.
Gasparro, A. (2012). McDonald’s loses some momentum. Retrieved November 2, 2014, from http://online.wsj.com/articles/SB10000872396390443437504577544650620997144
Jargon, J. (2011). How McDonald’s hit the spot. Retrieved November 2, 2014, from http://online.wsj.com/articles/SB10001424052970203430404577093051519700964
Jargon, J. (2012). McDonald’s is feeling fried. Retrieved November 2, 2014, from m http://online.wsj.com/articles/SB10001424127887323894704578106650828393198