The birth of McDonald’s began with Raymond Albert Kroc. Ray Kroc was the exclusive distributor of a milk shake maker called the Multimixer. Meanwhile, two brothers, Richard and Maurice McDonald owned and ran a hamburger restaurant in San Bernadino, California, in the 1950s. Ray Kroc heard how well the McDonald brothers were doing using his Multimixers to serve their customers. He met up with them and acquired the franchising right from them to run McDonald’s restaurants.
A great success story was in the making. In 1955, Ray Kroc founded the McDonald’s Corporation and opened the first restaurant in Des Plaines, Illinois. In 1961, he bought out the McDonald brothers. And the rest, as they say, is history. McDonald’s grew into the largest restaurant organization in the world. Today, there are more than 33,000 McDonald’s restaurants in 119 countries. Ray Kroc died in 1984 but his legacy is very much alive. His success story continues with McDonald’s families of employees, franchisees and suppliers. His commitment, dedication and achievements continue to live on at McDonald’s restaurants across the world.
The recession imposed economic hardship on many firms and workers. However, one firm that was able to perform relatively well during this era was McDonald’s. This is because many Americans flocked to the fast-food giant as an inexpensive substitute for sit-down meals. Similarly, Wal-Mart’s sales remained buoyant as households were attracted to the discounter’s merchandise.
However, business was not good for McDonald’s in other parts of the world, such as Europe and Asia, where about two-thirds of its revenues come from. Besides a worsening global economy which flattened its sales, McDonald’s suffered from a strengthening U.S. dollar that made its burger, French fries, and shakes more expensive for foreign customers. Also soaring commodity costs were putting intense pressure on McDonald’s. Restaurant outlets complained that the high costs of beef, cheese, buns, and other ingredients, combined with a rising minimum wage and high energy costs, were flattened their profits.
McDonald’s attempt to buoy it sales and profits during the recession by focusing on improving restaurant operations, lowering prices, and keeping down costs. To reducing operating costs, McDonald’s removed gas-guzzling automobiles from the firm’s fleet and held meetings at the company’s Hamburger University in suburban Chicago rather that an exotic and expensive locations. The firm also convinced media firms to negotiate decreased advertising rates for McDonald’s products, and ceased constructing new restaurants in markets that showed economic weakness. Moreover, McDonald’s increased investments in highly profitable coffee drinks that competed with Starbucks, and improved drive-through windows that increased sales and productivity.
Many of these adjustments actually began in 2003 when McDonald’s revised its operating strategy to rebound from lethargic sales. It halted ambitious expansion of restaurants and instead emphasized improvements in its food, service, atmosphere, and marketing. The result was a more comprehensive menu that included item ranging from low-cost salads to a Southern-style chicken biscuit served at breakfast, and restaurants equipped with flat-screen televisions sets and comfortable leather seats for customers. These activities helped McDonald’s feed an additional 2 million customers a day.
As the recession of 2008-2009 intensified, McDonald’s increasing encouraged restaurant managers across the world to more closely scrutinize labor, food, and utility costs. Moreover, the food giant gave its restaurant managers more freedom to price item in line with changing demand conditions. During previous eras of inflation, restaurant managers simply increased the price of large burgers by a dime and the price of a milk shake by 4 cents while another decreased it by 5 cents. In particular, the firm shied away from increasing prices, and thus losing customers, at outlets in economically depressed areas of the country.
Simply put, the strategy used by McDonald’s to cope with the global recession was to cut costs and promote lower-priced items perceived as a good value. At the same time, franchise owners would have to tolerate lower profit margins until the economy improved. (Contemporary Economics
By Robert J. Carbaugh)
McDonald’s Corp. has been one of the world’s most successful big companies during the recession. Many issues have McDonald’s facing during its operations such as problem health issue, high commodity costs, bad customer-service quality, currency risk, and rapid adjusting price.
McDonald’s food has continuously been in the limelight for its quality and how it affects health. Documentaries such as “Super-Size Me” garnered further negative publicity for McDonald’s. Unfortunately, this has also cast a shadow on McDonald’s trying to move to a healthier menu, a trend towards that consumers have started to embrace. Nowadays, consumers will find the healthier menu first.
Very popular question is, what makes McDonald’s food unhealthy? Fast food usually contains excess calories, sodium, empty carbs, and unhealthy fats. According to Corporate Accountability International, the negative effects of eating fast food includes cardiovascular disease, type two diabetes, asthma, liver disease, and cancer. (Adam Jones, 2014)
McDonald’s purchases food commodities such as beef, poultry, fish, potatoes, dairy products, and other items from thousands of suppliers. To put it in perspective, McDonald’s biggest suppliers provide 400 million pounds of beef, 260 million pounds of chicken, and 25 million pounds of fish each year. Recently, beef prices have been rising due to severe weather conditions, droughts, and increased export activity. (Adam Jones,2014)
Another issue that give big impact to McDonald’s is restaurant franchisees complained that the high cost of beef, cheese, buns and other ingredients, combined with a rising minimum wage and high energy costs, had flattened their profits. This soaring commodity costs were putting intense pressure on McDonald’s.
Also, the restaurant industry is highly competitive. Aggressive competitors threaten McDonald’s status as the market leader. However, the company seems not diversify its products regularly while competitors are stronger and have new products gradually.
The Wall Street Journal reported about a recent web-cast McDonald’s executives delivered to the company’s franchisees discussing the deterioration of the customer-service quality delivered by employees. The article describes the fast-food giant’s strong position on fixing these issues and addressing the customer-service problems. Comments on the Web echo the same feelings, recognizing what can sometimes be apathetic maybe even outright rude attitudes received from employees. (Industry News, 2013)
In every organization’s performance, people represent the largest variance factor. Just as consistency is applied to all other aspects of the customer experience, so it should be applied to people. Not to turn them into robots, but to guide them and inspire them. (Industry News, 2013)
Emotional engagement is playing an increasingly greater role in every value proposition. People deliver such value. But McDonald’s proposed response is more processes. Companies tend to focus on what they think they can control, and in the high-turnover world of fast-food restaurants, it seems as if companies and franchisees simply have given up on the possibility of engaging employees to care. (Industry News, 2013)
Another big issue McDonald’s facing is currency risk. In places like Russia, the significant decline in currencies had softening their profits. The company prepared sensitivity analyses of its financial instruments to determine the impact of hypothetical changes in interest rates and foreign currency exchange rates on the company’s results of operations, cash flows, and the fair value of its financial instruments. The interest rate analysis assumed a 1 percentage point adverse change in interest rates on all financial instruments but did not consider the effects of the reduced level of economic activity that could exist in such an environment. The foreign currency rate analysis assumed that each foreign currency rate would change by 10% in the same direction relative to the U.S. dollar on all financial instruments. (Samantha Nielson, 2014)
Besides that, McDonald’s launched a social media campaign last week inviting customers to ask questions about the ingredients it uses. Showing just how bad perceptions can be, among the first questions McDonald’s addressed were “Why doesn’t your food rot?” and “Do you use real chicken in your Chicken McNuggets? ” The company has run similar programs in Canada and Australia, where it says the program has built trust with customers. (The Associated Press, 2014)
The last issue will be discussed are rapid adjusting price after several years of developing higher priced products to create marketing lower-priced item that implementing computerized systems in outlets and also a top complaint of French customers about McDonald’s. They feel pressure to order, which keeps some families from coming in.
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5. Challenges and strategic opportunities facing the organization
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