McDonald’s environment analysis for hospitality
INTRODUCTION
As per British Hospitality Association, hospitality is UK’s 4th largest industry which employs 2.7 million people in the UK and accounted for 27.7% of total job growth in the UK. Importance of this industry to the UK’s economy can never be overemphasised. In recent past the UK’s economy has faced radical changes which led the organisation to adapt and change in order to survive and grow. The aim of this research is to analyse the impact of business environment on the success of an organisation chosen from this ever growing Hospitality and Tourism industry. The study choses McDonald corporation which is a key food service retailer. McDonalds serves over 69 million customers in over 100 countries through its 36000 locations. The organisation stepped in the UK market in 1974 and has more than 1200 restaurants across the UK.
References:
http://www.bha.org.uk/
http://news.mcdonalds.com/Corporate/Press-Releases/Financial-Release?xmlreleaseid=123062
1.2 FACTORS AFFECTING AN ORGANISATION: INTERNAL AND EXTERNAL ENVIORNMENTAL FACTORS
As per www.study.com there are a number of events and situations that impact an organisation and they can be classified into: internal environmental factors and external environmental factors (referred to as IEF and EEF hereafter). Few examples of IEF would be changes in the management, cultural changes and employee morale changes etc. Similarly few examples of EEF will be industry regulations, economic and political factors, government regulations etc.
References:
http://study.com/academy/lesson/internal-and-external-environments-of-business-lesson-quiz.html
1.2.1 INTERNAL AND EXTERNAL ENVIORNMENTAL FACTORS IN THE CASE OF MCDONALDS: As per Campden BRI which is a food and drink research firm, there are six challenges that this industry will face in 2012 and beyond. The Campden report broadly classifies these factors as
Manufacturing challenges
Innovation
Food Drink and the Consumer
Safety
Knowledge
The tables below classifies the Campden BRI’s six factors as IEF and EEF applied in the case of McDonalds.
Factors / Challenges for food industry as per Campden BRI.
How this factor applies in the case of McDonalds as an IEF or an EEF.
Raw Material
External environmental factor: to be able to secure and sustain an efficient supply chain right from raw material procurement stage.
Manufacturing Challenges.
Internal environmental factor: Improving efficiency in the manufacturing process, cost control and optimisation, assuring effectiveness though out the operations.
Innovation
Internal environmental factor: Innovation in the use of raw material, packaging material.
Food, drink and the consumer
External environmental factor: Understanding of consumer, consumer choices and their behaviour.
Safety
External environmental factor: Compliance to regulatory safety standards for better understanding of allergens and contamination in the food.
knowledge
Internal environmental factor: Continual process improvement is possible through efficient knowledge management and knowledge transfer.
Source: http://www.foodmanufacture.co.uk/Supply-Chain/Campden-BRI-s-six-food-industry-challenges
1.2.2 ANALYSING INTERNAL AND EXTERNAL ENVIORNMENTAL FACTORS IN CASE OF MCDONALDS
This section tries to analyse various IEF and EEF based on
1.2.2.1 RAW MATERIAL CHALLENGES/SUPPLIERS- AN EXTERNAL ENVIORNMENTAL FACTOR
The foremost supporters for McDonalds are their supplier as they are the one of the largest company to supply burgers in the US. Customer’s reputation is highlighted through maintained system of service, quality and cleanliness in every aspect. They have also met or exceed USDA standards that are strictest in the food industry. The public supporters are in general multiple support clubs and with respect to customer group represents multi fan sites and blogs.
1.2.2.2 MANUFACTURING CHALLENGES / AN INTERNAL ENVIROMENT FACTOR
Analysing the business environment will attempt to demonstrate the complexity of issues arise with the organisation. They have developed network operation and distribution system. The company has been able to achieve consistent product taste. Their focus is on delivery sales and protecting its life time reputation. McDonalds has also done culture adaption to consider vegetarian options for their all universal food branch.
1.2.2.3 INNOVATION / AN INTERNAL ENVIROMENT FACTOR
The innovation will increase both product quality and longevity.
1.2.2.4 FOOD, DRINK AND THE CONSUMER /
McDonald’s had maintained the quite low bargaining power of buyers. They are very low risk of switching customers into other brands. There was quite stagnant image among the customers through quality of differentiation, customer care and other promotions.
1.2.2.5 SAFETY / REGULATORY AND STATUTORY COMPLIANCE
1.2.2.6: KNOWLEDGE /
1.2.2.7 EXPANSION/ NEW GEOGRAPHICAL MARKET
A number of key internal and external environmental factors constitute the elements of long term sustainable growth plan and it will not be wrong to say that the geographical diversification is vital element to fuel growth. As per the company’s corporate website:
“We believe these priorities align with our customers’ evolving needs, and – combined with our competitive advantages of convenience, menu variety, geographic diversification and System alignment – will drive long-term sustainable growth.”
Looking into the recent trends it can be said that McDonald’s growth is fuelled by its franchise business.
As per the company’s official website
“We view ourselves primarily as a franchisor and believe franchising is important to delivering great customer experiences and driving profitability. At year-end 2014, more than 80% of McDonald’s restaurants were franchised.
SOURCE: http://www.aboutmcdonalds.com/mcd/investors/company_profile.html
http://www.aboutmcdonalds.com/mcd/investors/company_profile.html
References:
http://www.bha.org.uk/
http://news.mcdonalds.com/Corporate/Press-Releases/Financial-Release?xmlreleaseid=123062
http://www.mcdonalds.co.uk/ukhome/Aboutus/Franchising.html
Competitive advantage
http://www.mcdonalds.co.uk/ukhome/Aboutus/Development/Locations_and_contacts.html
McDonald is very open about its grown plans. On the official website the company has posted geographical regions for its intended growth region and invites the public to propose a development site. The study feel that by using this approach McDonalds is making an effective use of public information by providing an open platform for the local. This information gathering methodology not only is more efficient in terms of using local public knowledge about the area, but is also effective way of reducing planning, research and development cost and time that goes is development of a new site. This marketing strategy also adds to Brand awareness, brand recognition and stronger connect via the local people.
Negative: The Company may end up losing a lot of time effort cost in moving in a direction which may not be fruitful.
To afford a comparative analysis of the internal and external environment of McDonalds this study has used KFC’s corresponding data.
It’s structured as an independent business with responsible accounting operations, community relations, training and human resources. They offer both counter service and drive through service with indoor and outdoor seating. In 2006, introduction of forever young brand was to redesign the current structure outlet of restaurant. One of the cornerstones of McDonald’s success in the UK is its property portfolio, which provides a well located and convenient network of restaurants throughout the country for our customers to use and enjoy. There are almost 1200 restaurants to be found in a variety of locations such as traditional high streets; shopping centres; retail parks; roadside locations; leisure centres; railway and airport termini and motorway service areas. We are renowned for being the pioneers of the drive-thru restaurant concept and are the UK and world leader in this sector. This continues to be the key focus for our growth.
Due to the growing success of the Company, the intention is to increase the pace of acquisitions with a target of 40 new restaurant openings per year from 2014, which will create up to 2,400 new job opportunities annually.
The primary vehicle for this expansion will be freestanding drive-thru restaurants where convenience is key or locations in new or existing retail and leisure parks and transport hubs where visits are often part of a linked trip.
Competitors
http://www.kfc.co.uk/join-us/become-a-franchisee/
Mc Donald’s has a much stronger presence in the UK Market as compared to its competitors whereas a key rival KFC has 800 branches across the UK.
http://www.kfc.co.uk/join-us/become-a-franchisee/
As evident from the information openly available on the website of Mc Donald’s KFC it appres that the cost of opening a Mc Donald’s franchise is much less as compared to cost of opening a KFC franchise.
They suffer tough competition through burger king’s that are specialised in beef products. Wendy has also been added as a competitor due to high hamburger chains. They are other companies as well who are gaining market shares due to specialised in gourmet coffees, pasties and fresh sub sandwiches like Subway, Greggs and Starbucks.
http://www.kfcdevelopment.co.uk/faqs/
KFC pays finders fee
Do you pay finder’s fees for introducing a site?
Yes we pay generous finder’s fees for recognised introductions – ?20,000 for DT sites and ?12,500 for food courts/restaurants.*
Figure: Competitors of McDonald’s
A table showing a comparative analysis relating to the franchise between Mc Donald’s (UK) and KFC (UK) based on information directly available from the website.
Mc Donald’s
KFC
Number of Locations
1200
800
Cost of Setting up a Franchise
Ranges from ?125,000 to ?325,000
As per the KFC official website
“At least ?5m if you’re a business. (?2m must be your own investment)”
Franchise Ratio
80%
75%
Finder’s Fee for franchise business
Information not available
Yes
http://www.mcdonalds.co.uk/ukhome/Aboutus/Franchising/the-finance-bit.html
http://www.kfc.co.uk/join-us/become-a-franchisee/
Opponents
McDonald’s has been targeted due to their popularity in the food industry. Recently there was criticism about the cow disease crisis which showed serious threats towards world health. Children welfare society also opposes this company about their advertisement on happy meal which continuously attract children to buy their products. The other opponents are mainly animal rights groups that supported animal cruelty, which are against the manufacture of food produced by killing animals.
Environment Analysis
McDonald’s differs from its Competitors
All leases are taken in the McDonald’s Restaurants Ltd name
McDonald’s take leases up to 25 years
McDonald’s has a superior covenant strength achieving yields of between 5% and 6%
Site requirements
Mixed Use/Retail Parks/Leisure Parks/Main Arterial Routes
Co-location opportunities with hotels and petrol stations considered
Ideal site size is 0.5+ acres
All opportunities considered: Standalone units/Leasehold or Freehold – sites up to one acre
Our Recommendations:
The research asserts that being in food industry the importance of maintaining a healthy and clean image in the eye of the public can never be overemphasized. Having said that, the increasing competition in the industry may lead to targeted negative criticism towards McDonalds. Developing a proactive crisis management team will be key element to manage any crisis situation.
This study feels that there is a direct correlation between growth planning and the number of outlets that an organisation can open in new geographical areas across the UK. The franchise model plays a key role in deciding the growth path in the UK market and how well McDonald’s and its competitors manage this model will determine the organisations future share in this industry segment in the foreseeable future. Below are some key recommendations:
Proactive measures to find a store location in the newer markets: Whereas, inviting public to propose a site for an outlet is a very cost effective and efficient way for growth planning, at the same time the study feels that McDonalds should take proactive steps to capture all the key locations in the major towns and cities. Using extensive market research, talking to local people and other direct means of research will be highly recommended for this purpose.
Encouraging active participation of local resources: From finding a new location to the stage of complete set up of a franchise store, the process may involve a close liaison with local public. The study feels that there should be more incentive for the local parties to take an enthusiastic participation in this process. The study found that the KFC offers a ‘Finder’s Fee’ covenant openly disclosed under the FAQ section whereas provision for such a clause was missing from McDonalds website.
Full disclosure of key information which is vital for decision making: If the franchise procedure is explained well, it could play a key role in encouraging people to show active participation in the process. Whereas KFC’s website discloses information about handing of planning permission and the time duration involved in the whole set up process very openly, this was found missing from the franchise FAQs section of the McDonalds website. Clear and full disclosure of the vital facts will afford more tools for informed decision making in the hands of perspective franchisee.
