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A business has to understand the dynamics of its industry and market in order to compete effectively and intensively in the marketplace. The forces which derive on competition and attractiveness of a market. The competitive environment is created by the interaction of these five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of buyers, and the threat of substitute products or services.
Michael E. Porter suggested that the intensity of competition is determined by the relative strengths of these forces. The Five Forces directly are interconnected with the effect on the company’s ability to serve its customers and to make a profit. A change in any of these forces generally requires a company to re-assess its competitive strategies. Competitive rivalry
According to Porter’s Five Forces Model, if entry into a market is easy then rivalry is likely to be high.
Considering McDonald’s competitive rivalry, there is intense competition in fast food industry that many small fast food businesses fight with each other to improve their customer base. This makes a competition the major focus between businesses. Although, McDonald’s, with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day, has a number of fast food outlet competitors across the countries such as Burger King, Taco Bell, KFC, Wendy’s, it is currently the leader of the industry in market capitalization with a cap of $39.31 billion. Supplier bargaining power
The bargaining power of suppliers of McDonald’s is high because McDonald’s restaurants use the same products from the same suppliers and it doesn’t matter if you are in Rochester, MN or Beijing, China you can get the same Big Mac everywhere. This is a feature McDonald’s want to keep going on by encouraging consistency among its restaurants. Supplying these products to McDonald’s across the globe is the whole business for the suppliers and, however, if McDonald’s would lose even one supplier it would have to change one or more of its product lines and perhaps the whole menu what the McDonald’s customers were used to. This gives the suppliers of McDonald’s a high bargaining power. Buyer bargaining power
Bargaining power of customers of McDonald’s is low because of low customer switching costs which are nearly zero; however, for example, one-fifth of the USA population eats in a fast food restaurant every day. Thus, fast food industry does not worry about customers’ loyalty. Fast food products industry is differentiated which are usually or almost always promoted by advertising – that is because of a vast competition between fast food firms. Product differentiation is very important in fast food industry to make your product stand out against the crowded fast food industry products. Furthermore, quality of the product or service in the fast food industry is very important as customers have full information of the products they buy and consume.
Furthermore, if the fast food industry does not match the demands of the buyers and the general consumer trends, then the buyers can choose not to buy their product and convince others to do the same. A good example of this is the movie ‘Super Size Me’. It is a movie showing an ordinary consumer trying to live off of McDonald’s fast food, and the purpose of the movie was to see what the traditional fast food from McDonalds could do to your health if you were to eat their products for every meal. This movie shows what the buyers possible reactions could be if not satisfied or not being pleased. The reactions from the whole market were a large change in consumer preferences and brand preferences. Key strategic factors in the industry
Strategic groups
All of the competitors serving fast food around the world and are focused on providing a product that is based on low price convenience. Their strategic group is associated with many geographic locations and low price and quality. Even though these companies could be considered the biggest players in the global market, they face local fast food restaurants in every country, but the bigger influence on them is that the local competitors are unable to. There are always competitive pressures and driving forces which adversely affect the firms in strategic groups. Therefore, some firms may try to shift to a more favorably situated group. This shifting is however difficult if the entry barriers of the target strategic group are high.
Standardization
In order to maintain the highest quality of their products McDonald’s standardized the production methods and processes. The company just adjusts to different culinary differences in different countries, for example McDonald’s offered vegetarian burgers to practicing Buddhists or Asian countries preferring spicy taste saw the introduction of spicy burgers, chicken and seasoning. This gives for people possibility to try either original US or their local taste. McDonalds achieves balance by maintaining standardization in products but adjusting to the local taste.
Future scenarios
McDonald’s developed its future scenarios around three strategies — customer convenience, customer value, and optimal operations. More than ever, McDonald’s is focused on and committed to doing the right thing for the local communities in which the company operates and for the customers it serves. This philosophy of doing good and giving back has always been at the heart and soul of the McDonald’s business -like fries and hamburgers – and started with founder, Ray Kroc. Before there was even a name for “social responsibility,” McDonald’s was setting the standard, and they’ve been the leader ever since. As we deal with challenging economic and political climates around the world, McDonald’s role as an employer and local business becomes even more important. The company remains steadfastly committed to addressing various social responsibility issues, policies, and practices within the McDonald’s system that affect local communities and customers.
Identification of opportunities and threats
Over the years of operation this company has achieved its recognition and name and is a strong outstanding company from its competitors. The business is ranked number one in Fortune Magazine’s 2008 list of most admired food service companies. However, even this company has a strong experience and recognition; there are some threats that occur in all the markets, especially when food market is one of the widest markets in the world. Taking McDonald’s business it doesn’t mean being oligopoly or monopoly, it means being in a market where perfect competition takes place. So, it is useful to consider what opportunities and threats may arise for such a company as McDonald’s. As I identify some characteristics of this successful company, I can draw out the opportunities that this company can achieve in the nearest future: * The first opportunity that can be realized in this company is new segments identification. Of course there are no limits in business to expand and there is no business that could survive without any growth or promotion. It is a very good opportunity to define some new needs or tastes of customers, despite all those diet cokes or healthy bread burgers that McDonalds already included, there are so many other different needs that people have.
* The other more specific opportunity for McDonalds would be new technology adoption. Not talking about those new high technology cash-registers that are based on computer programs, McDonalds could include new technological ways in product making, that could make the process itself more fast or special products more tasty and with higher quality ( for example ice-cream or fresh juice machines). * The internal strategy improvement has never gone to bad. As McDonalds already has a good strategy and employees training and promotion, it can make it more efficient and more productive by applying some new ways of motivation or work organization. As the food is made in lines, it can be somehow more diversified to achieve the more efficient operation. * Provide optional allergen free food items, such as gluten free and peanut free. That would be a great success of concentration to people, who have serious health problems and have to avoid fast food.
* Also McDonalds could consider new brands development. As it is a franchise, it doesn’t mean that it hasn’t opportunity of brands extent. It could make another niche where it would sell some other kind of products, like chocolate bars or other kind of sweats. As there are many opportunities that can be fulfilled in the future, however McDonalds has also some weaknesses and threats. Talking about weaknesses McDonalds had some bad luck or unsuccessful projects in the past that manifested some weaknesses and also there are some disadvantages of fast food industry: * High employee turnover in their restaurants leads to more money being spent on training.
* They have yet to capitalize on the trend towards organic foods. * McDonald’s have problems with fluctuations in operating and net profits which ultimately impact investor relations. * The industry of fast food restaurants is huge and so do the competition in it. Some companies get old and boring in time and so can happen to McDonalds if it won’t get adapt to new changes in trends and lifestyles. Major competitors, like Burger King, Starbucks, Taco Bell, Wendy’s, KFC and any mid-range sit-down restaurants.
* Another huge threat is the threat of human health deterioration. The industry of fat food is huge in the world and especially in most developed countries. People become more aware of unhealthy additives and processed foods that are included in McDonald’s food production. Also the extreme rate of fat people in some countries can raise some disciplines in fast food making or prevent it at all. * Another threat of going into franchising is reputation. It is essential to maintain a good reputation of your name; otherwise no one will buy your franchise.
DEVELOPMENT and RECOMMENDATIONS FOR IMPLEMENTATION OF STRATEGIC OPTIONS Strategic options:
* Reduction of employee training spending (lowering employee turnover) * Advantage of human health problems (improvement of products). 1. Reduction of employee training spending (lowering employee turnover). In order to reduce of employee training spending and to lower turnover, we would like to suggest: * To give the job just for highly motivated people. It means, that they are going to be loyal and not to leave job so fast; * To train new employees using ’’Big Brother’’ principle. New employees would be trained by employees, who are working longer. In this way, company reduces training spending, new employees are trained by the people, who are working inside the company and do the same things every day.
* To motivate employees and always take care about their expectations. It can be money premiums for good working in the end of the month (or year), some employees parties, ’’Employee of the week (month)’’ competition and etc.; also employer should take a look of what employee is expected from employer and try to solve that, ex. Maybe employee is not expected to get premium every month, but for good and loyal working he would like that the company would pay his child studies fee after 5 years.
2. Advantage of human health problems (improvement of products) McDonald’s is big food supplying company, and all of us know, how food affects our health. It is one of the main factors, what built our body and strength our brains. Knowing that, McDonald’s should: * Suggest just high quality, improved products, which is full of vitamins and minerals. So, it means that the company must improve their products, all the food must be certificated and fit for all healthy food standards. * Be in a contact with suppliers, who supply products for McDonald’s food and always check if the products is natural, high standard and healthy for all of age customers.
Works Cited
Key Ingredients of the McDonald’s Experience 28, November, 2012. <http://www.meettheboss.tv/Article/11/Key-Ingredients-of-the-McDonald’s-Experience/> McDonald’s FAQ 28, November, 2012. <http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html> McDonald’s website 29, November, 2012. <http://www.mcdonalds.com/us/en/home.html> Our company 28, November, 2012. <http://www.aboutmcdonalds.com/mcd/our_company/bios.html> Resource of organization’s history, managers, mission, vision, values, main products and markets 29, November, 2012. <http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html?DCSext.destination=http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html>
