Mcdonald S Marketing Stratiges And The Fast Food Industry Marketing Essay

McDonald’s takes into account cultural factors in serving the Malaysian consumers. The food serve is halal and servers local taste as well. They have wide range choice of menu similar with burger king. Seasonally they serve the ‘prosperity burger’ for Chinese New Year. McDonald’s also serves healthy food but this will effect on the taste and consumers eating experience. For instance, saturated oil that now is replaces with Trans fat oils have change the taste of the McDonald’s famous fries.

Price

McDonald’s have more price reduction compared to KFC and Burger King. They offer a very competitive food prices. They have the “Value Mc Savers” and the “Mc Value Meal”. KFC do have their value meal called “Jom Jimat Everyday” and Burger King but in term of their price, McDonald offers the best price for fast Food. However, McDonalds, they offered only during certain period of time there-for rise the question of its availability.

Place

In terms of distribution, McDonalds have 185 restaurants nationwide. They are built or open in retail area’s like shopping malls due to a trend of all Malaysian who loves to shop in malls. They also open in some rural area’s however KFC has more restaurants in the rural area. In some strategic places, McDonalds also opens in several local gas station such as PETRONAS Mesra. They open an express café that serve some popular products. This can satisfy the hunger of consumers such as, working executives on-the-go and motorist.

Promotion

In order to achieve good profit and high customer satisfaction, promotion is one of the main factors. According to Kara, Kaynak and Kucukemiroglu (1997) fast food buyers are seeking price deal and promotions before visiting a fast food restaurant.

Promotion Methods

McDonald’s

KFC

Burger King

Television Advertisement

yes

yes

Media Text- Newspaper and Magazine

yes

yes

yes

Events & Sponsorships

Yes

(many)

yes

Billboards

yes

Games and Contest

yes

yes

yes

Price Reduction

yes

yes

Coupons

yes

yes

yes

Loyalty Card

yes

yes

Specialties

yes

yes

McDonald’s television advertisement is place on a seasonal basis which they only advertise during festive seasons and movie. Normally, their ads attract children rather than adult consumers. KFC also does TV ads similar concept to McDonalds. However, KFC have their own Television Program called the “Chicky Hour” that is on air every Saturday.

Events and sponsorship by McDonalds is mainly to coordinate with their social responsibility. They usually organize events for their Ronald McDonald Charity House. However, KFC doesn’t focus on charity however more related to increase their position in the market. Recently, “they organize campaign, entitled ‘Good things come together with KFC’, aims to differentiate KFC from its rivals and highlights the fast food chain’s presence and role in everyday Malaysian life”(Brand Republica,2009). Burger King has no known event in Malaysia.

McDonald’s in Malaysia primarily focus of it marketing campaign by sending flyers to houses and attach coupon in newspapers. KFC also gives discount coupons as well as Burger King. However Burger King coupons are purchased from the store not given for free like KFC and McDonald’s.

McDonald’s also advertise their product using billboard. They place their latest advertisement on “McDonald’s Mc Value Meal” at major roads that indeed attract attention. KFC and Burger King do not use this advertisement tool to promote their brand.

McDonald’s have more price reduction compared to KFC and Burger King. They have the “Value Mc Savers” and the “Mc Value Meal”. KFC do have their value meal called “Jom Jimat Everyday” and Burger King but in term of their price, McDonald offers the best price for fast Food.

Therefore we can conclude that McDonalds spends heavily in promotion especially their advertisement to gain their market position. This is aligning with the global McDonald advertising strategy of retaining customers.

. Executive Summary

The background of McDonalds in Malaysia, the mission and vision of McDonalds and also the opportunity and threats of McDonalds. After the brief introduction is the external environmental analysis of McDonalds.

The next section analyses the fast food industry through Porter’s five forces model as well as the competitor analysis that consist of Burger King and KFC. Subsequently, market analysis is conducted to indentify the market trend and also the market size and growth.

Next is the analysis of the buyer analysis. The analysis is being analyzed base on the psychological factors, personal and social factors. Then followed on are the internal analysis and core competencies. This analysis is to analyzed McDonald’s strengths and also its weaknesses

The next segment will discuss the market segmentation, targeting and positioning of McDonalds in Malaysia market. The marketing program of McDonalds will then be evaluated as well as its financial performance.

Lastly, the issues and problems are brought up and recommendations are given to improve the situation.

1.0 Company Overview

McDonalds was founded by two brothers, Richard and Maurice McDonald in 1937 in California. This largest global fast food chained arrived in Malaysia 43 years later in December 1980. McDonald Corp. gave their license to Golden Arches Sdn Bhd to open McDonald’s Restaurant in Malaysia. After twenty six years they now have 185 franchise outlets nationwide. McDonalds have created over 7000 job opportunity ever since they arrive in Malaysia over the years. Their vision is “to be our customers’ favorite place and way to eat”.

1 Strength

The strong global present becomes one of the biggest strength McDonald’s has. It makes McDonald’s able to capture large market in other countries such as Malaysia. McDonald’s expand their market has proven successful which is supported by the brand recognition. It generated more sales and gain market share. McDonald’s product innovation is the other strength it has. The innovation of fast food which is different in every country it enters is a good strategy for localizing the taste and preference of customers. McDonald’s offers Ayam Goreng which is only available in Malaysia and McCurry Pan in India. McDonalds also offered 24 hours delivery services which enable consumers to enjoy foods during midnight if they feel hungry. This is the core competencies for McDonalds over its competitors where KFC, Subway, Burger King and others do not have 24 hours delivery service.

7.2 Weakness

McDonald’s has low width of product caused by the saturated market in food industry has make McDonald’s difficult to add new outlets in their menu lists. The last breakthrough for McDonald’s is their chicken nugget in 1983. the increase of competition such as KFC, A&W, Burger King, and Subway, has created a tight price competition. McDonald’s unable to earn much revenue from this price competition. Health concern becomes one of the major weaknesses of McDonalds where many people complaint with the oily foods that are offered.

1.1 Opportunity

The fast food trend in Malaysia has benefited McDonalds as they are able to capture more market share and customers. Malaysian would like to eat outside with the increasing of number of women workers. They would like to look at convenience place to eat as McDonalds provide it for them. The technology advance has improved McDonald’s services efficiency as their customer able to order through phone and online. The growing internet users in Malaysia supported for this kind of service. 24 hours service will open a revenue window for McDonalds as customers look for quick meal at late night.

internet

Internet World Statistics. (2008). Malaysia Internet Usage Stats and Marketing Report. Retrieved April 3, 2009, from http://www.internetworldstats.com/asia/my.htm

1.2 Threat

The increase of competitions from KFC, Subway, Burger King, and others has made the competition for market share in Malaysia tighter. Customers have more range of fast food being offered and they would have no brand loyalty with one brand. McDonalds need to fight back with their promotion and advertisement to gain the customers feeling. They need to spend a large amount of money on it. The health concern has become a main treat for McDonalds as most customers concern on healthy foods. Fast food is considered unhealthy because of too oily. This will reduce the number of customers to purchase McDonalds foods.

3.0 Industry Analysis

To analyze the industry for McDonald’s, the Michael Porter’s five forces are used. The Porter 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place.

Porter 5 Forces

High

Moderate

Low

Threat of New Entrant

Bargaining power of Suppliers

Bargaining power of Buyers

Threat of Substitute products

Rivalry among existing industry firms

10.0 Financial Performance Evaluation

This case study will evaluate about the financial performance of McDonald’s. McDonalds is not the only fast food chain restaurant in Malaysia however they are competing with many other competitors such as KFC, Pizza Hut, Burger King and others. Therefore the financial ratios will indicate whether McDonald’s is a market leader or a follower in Malaysia by comparing with KFC. The financial statements are only available for the year ended 2007.

Ratio

McDonalds

KFC

1) Current Ratio

Current Asset

Current Liability

2007

0.26:1 0.28:1

2007

28:1

2) Cash Flow Ratio

Cash Flow from Ops

Average Current Liability

0.445

1.331

3) Average Inventory

Turnover

Average Inventory x360

Cost of Goods Sold

12.5 days

–

4) Debt Ratio

Total Liabilities

Total Equity

2006 2007

28.9% 31.8%

2007

0.12

5) Return on Sales

Profit after Tax

Total Revenue

0.0098 0.0197

0.42

6) Gross Profit Margin

Gross profit

Net sales

26.7% 27.8%

100%

The current ratio of McDonald for 2006 and 2007 is 0.26:1 and 0.28:1 respectively. It is assumed that the higher the current ratio, the stronger the business can cover its short-term liability. It is a basic indicator of short-term debt servicing and/or cash flow capacity. The low current ratio of McDonald’s may also impose other problems. It may suggest that McDonalds is not fully utilizing the available liquidity assets especially cash and not available to pay theirs liabilities. Compare to KFC in 2007, its ratio is 28:1. This means KFC has a stronger short term to cover its liability.

The cash flow ratio of McDonald and KFC for 2007 is 0.445 and 1.331 respectively. This shows the ability of KFC to solve their short term solvency which indicates that they have a stronger and more positive cash flow compare to McDonald’s.

The average inventory turnover period for McDonald’s as indicated is 12.5 days. This is a good indicator for a fast food restaurant. It shows that McDonald only take on average 12.5 days for their inventory to be sold. However due to some unavailable data, the KFC inventory turnover period can’t be calculated.

Debt ratio measures proportion of total assets financed by debts. The debt ratio for McDonald’s for 2006 and 2007 is 28.9% and 31.8% respectively. This is an increase of debts from previous year that has a considerably lower debt ratio. As compared with KFC, 12% they have a lower debt ratio, almost to half than McDonalds. This indicates that McDonald’s has financed 28.9 % of its assets with debt. The higher this ratio, the more financial leverage McDonald has.

The return on sales measures the profit generated from each dollar of sales. Higher return on sales ratio indicates higher profit margin and the expenses are managed well. McDonald’s on 2006 was 0.0098 and increase in 2007 to 0.197. However, if compared to KFC with a ratio of 0.42 almost twice the profit generated from each dollar of sales.

Gross profit margin is a one of the best indicator to measure the performance of McDonald operations. In 2007 McDonald has 27.8% gross profit margin compared to 2006 with 26.7 % a small increase. The proportion of revenues that is operating profit and thus McDonald’s is available to compensate debt, equity capital. It also reflects McDonald’s ability to generate revenues and control costs in such a way as to generate a profit. KFC however have a 100 % gross profit margin. In the statement they have no cost of goods sold.

Based on the ratios selected it shows that KFC is performing better than McDonalds. However if compared their net profit for 2007 McDonalds earn RM12, 524000 and KFC earns RM 36,770,000 three times more than McDonalds

Therefore in Malaysia, KFC is the market leader in the fast food chain based on the financial statements.

*(calculation in appendix 1)

3.1 Rivalry among existing industry firms

The fast food industry is facing high intense of competition. Rivalry is strong because competition is focusing on providing the best service and product variety. Other competitors such as KFC and A&W create an intense rivalry among the fast food providers. Rivalry such as KFC is constantly providing more choices ranging from fried chickens to burgers and to side snack such as potato wedges and salad. Moreover, competitors equal in size and power and growth in the industry.

3.2 Threats from substitute products

Factors that caused the firm to lose its sales profit is the limited choice of product they offer. Therefore, many people will go to substitute products. The substitute products for McDonald’s will be the other fast food chain, for example: Burger King and road side burger stalls. Although McDonald’s has applied 24 hours all around, however, road side burger stall that operates until late at night and other fast food restaurant is also operating 24 hours service.

3.3 The threat of new entrants

New entrants pose threats and increase competition in the industry. The lesser the threat of new entrants, the greater will be an industry’s attractiveness as it is in the retailing industries. Due to low switching cost and lack of product differentiation, new competitors can easily enter the market. For example, McDonald’s face competition from Carl’s Junior and Wendy’s which are quite new in the Malaysian market still.

3.4 Bargaining power of suppliers

The bargaining power of suppliers is viewed as a threat because the quality of the supplied products is highly dependent on them. They can either raise the prices or lowered the quality if the suppliers are powerful. In the fast food industry case, the power of suppliers is relatively low because the inputs are standardized, low switching costs and there are a lot of substitutions of supplier.

3.5 Bargaining power of buyers

As the competition among rival become intense in attracting potential customer and maintaining loyal customer. According to Viljoen & Dann (2000), buyers play an important role in deciding the shape of the market as they can drive prices down and make unreasonable demands regarding quality, delivery and terms of payment. In McDonald’s case, buyers assert higher bargaining power because of low switching cost to other brand (Burger King). For instances, McDonald’s cannot set high prices on their products as consumer can easily opt for other burger.

4.0 Competitor Analysis

This part evaluates about the strategy that McDonald used compared with its main competitor of the similar product. It identifies whether McDonald is a market leaders, followers, nichers market challengers in its own type of products and the whole market’s position.

Issues

McDonald’s

Burger King

KFC

Main Products

Burger

Burger

Fried Chicken, Burger

Additional Products

Fried Chicken, Porridge

Curly Fries

Wedges, Mash Potato

Market Shares

(Among all fast food brands)

19.6%

2.1%

52.7%

Origin

United States

United States

United States

Outlets in the market

(End of year 2007)

176

20

402

Rank in Malaysia

2

3

1

Rank in World

1

3

2