Analysis of McDonald’s Business Strategy – The Venture into Healthy Food

McDonald’s is a global foodservice industry, which began its operations in the 1940’s. The concept of McDonald’s was introduced by two brothers, Dick and Maurice McDonald. These innovative individuals began by opening a hamburger stall in San Bernardino, California.  They introduced the workable concept of counter sales that has since been applied to fast food joints. In addition, they possessed a competitive advantage as they had reduced food prices as compared to their competitors. This was achieved via ingenious cost-cutting especially hired personnel as customers could utilize car hops and the counter to purchase food. This innovation proved successful and popular among the customers.  The concept contributed to increased sales and the business turned out to be very profitable. To date, McDonald’s has become a household name.

The McDonald’s food joint became a pioneer in the food industry to adopt the ‘Fordist’ approach in the production of hot food.  They focused on burger cooking on a production line rather than a kitchen task.  The staff of McDonald’s was committed to one task at a time.  When Mr. Ray Kroc, an entrepreneur came across the McDonalds brother, he was astounded as he had never seen so many people served so quickly. He was quite impressed by the rather efficient speed of service utilized in catering for the customers. Kroc realized the business potential of McDonald’s and he came up with a suggestion for business expansion. However, the McDonalds brothers declined as their hands were full and they could not manage to run any other outlet. Kroc volunteered to run a new outlet and this was the beginning of the McDonalds franchise.  The McDonalds brothers further benefited from the royalty paid by Krok for applying their business concept.

Kroc was an exceptional individual as he possessed an aggressive spirit and a risk-taking attitude. He utilized his business acumen to carry out a case study analysis of his business. Most outstanding in the outcome was the realization that most customers placed a high value on details that could easily be overlooked. For instance, cleanliness was highly regarded and Krok was prompt in creating a pristine and clean environment. This crucial detail was noted and highly appreciated by the customers and again the sales of McDonald’s soared.  He started growing his business and started giving the franchise to other people.  With the help of Ted Turner, Kroc realized the immense potential of fast food joints. Moreover, viable business expansion could only be realized via offering franchises.

The major domestic growth of McDonald’s in the USA began in 1960’s, as there was a demand for cheap takeaway food.  Through the franchise concept, McDonald’s made a move toward worldwide success.  Currently, the Company operates in more than 117 countries worldwide, serving more than 50 million customers per day.  The company’s retail outlets are either owned by the company or by franchisees.  The company focuses on delivering high quality and value to its customers through its services, product range and constant quality check of its products.

Background to change

It was in the year 1996 when McDonald’s experienced declining sales consecutively for four quarters, which continued till the year 2004. The company was losing its image and was not able to focus on providing a ‘Great American Meal’.  McDonald’s was losing its grip of remaining one of the world’s favorite destinations for fast food lovers across the globe.  The company was being targeted for its ‘junk food’ and this was a leading cause of decreasing customer satisfaction. With the advent of nutritional disorders, many links were made between obesity and McDonald’s food.  Different lawsuits were filed against McDonald’s Big Macs and Happy Meal and the consumers filed a suit against McDonald’s. McDonald’s was allegedly responsible for ruining the health of Americans and people around the world.

During this period, the company started losing its market shares.  The company experienced the high time low volume in its shares in the year 2003.  The company reported its first loss of $343.8 million during the year 2003 in the first quarter since its inception in 1965. The continuous decrease in sales, losing market share and drifting of consumers to other brands such as Burger King and Wendy’s, lead to McDonald’s rethinking its strategy and worked on a turnaround plan in the year 2003 under the leadership of Jim Cantalupo.  The company made a new strategy and focused on it that the company was successful in turning McDonald’s around by mid-2004.  McDonald’s was also able to increase its profits by 25% by the first quarters that ended in July 2004. This was one of the fastest turnarounds of the world.

Strategic Changes and their Causes

Causes of Strategic change at McDonald’s

The success and ubiquity of the fast food industry catapulted it into the increasingly prominent public health issue of nutrition and obesity in the developed world. In the new millennium, McDonald’s remains the world’s most recognized brand. By the mid-2000s, one in four Americans visited a fast food restaurant every day. While Americans spent 3 billion a year on fast food in 1979 they now spend more than $110 billion per year—an astronomical increase even after accounting for inflation.

The “McLibel” suit of the 1990s was just the start of a serious challenge to McDonald’s for providing fare that was dangerous to consumers’ health. In 2001, Eric Schlosser released Fast Food Nation, a best-selling book critical of the fast food industry. In 2002-2003, a group of obese American teenagers sued McDonald’s in the so-called “McLawsuit,” alleging that the corporation caused their obesity, diabetes, coronary heart disease, high blood pressure, elevated cholesterol intake, related cancers, and/or other detrimental health effects.

Just as media coverage of the 2002 lawsuits fueling the obesity debate had run its course, and McDonald’s had launched its Plan to Win business initiative, Super Size Me hit major theaters in 2004 with a scathing, direct attack on McDonald’s regarding the issue of health and nutrition.

Gains made by McDonald’s compare poorly with the growth of some smaller competitors. Despite its number one ranking in terms of system-wide sales in 2005, McDonald’s was ranked number 29 in growth. There is evidence of changing preferences in variety and choice, fueled in part by the health and nutrition debate.

Strategic Changes at McDonald’s

Jim Cantalupo, the new McDonald’s CEO, attributed McDonald’s disappointing financial performance due to weak economic conditions and the nature and size of the business. He did not openly address the continuing effects of the “McLawsuit,” including the demonization of McDonald’s across traditional and new media outlets; in the debate raging over obesity, the McDonald’s brand had become the biggest, major target of all. Cantalupo did, however, call for a revised business plan, with the inspirational label The Plan to Win. A key component of this plan was the provision of a more varied menu with new healthy choices. Salads were made a permanent menu item for the first time in the organization’s history. The addition of white chicken meat and salads in 2003 contrasted markedly with the fatty-food menu items introduced in 2001.

In 2002, McDonald’s stated that it would be replacing its Trans fat oil with healthier cooking oils. This announcement caused enough complaints from loyal customers that McDonald’s did not follow through with its promise. Four years later, McDonald’s maintains that they are still working on developing a Transfat alternative that would not diminish the taste and quality of their world-famous French fries. McDonald’s may soon be forced to make the switch they promised long ago. In 2006, The Food and Drug Administration began pushing a proposal to ban trans-saturated fats from restaurants.

McDonald’s has excelled in taking decisive and aggressive action in its corporate marketing programs. Indeed, the fast food industry has a long-established tradition of being marketing innovators (McDonald’s Returns to Its Roots, 2006). Following McDonald’s financial losses in 2002, the Plan to Win initiative was introduced in 2003. The “I’m Lovin’ It” advertising campaign that targeted young adults, women, and families was also introduced. McDonald’s recognized changing consumer taste preferences and started providing salads and “other wholesome offerings” (McDonald’s Annual report, 2003). McDonald’s introduced Go Active! Happy Meals for adults promoted a walking program and gave out free pedometers. They produced a program titled “Get Moving with Ronald McDonald,” and used a cartoon character, McMunchright, to present health and fitness messages on television programs targeted to children. Additionally, at the end of 2003, McDonald’s appointed a Director of Worldwide Nutrition, Dr. Cathy Kapica.

In 2004, McDonald’s had introduced a key component of the Plan to Win, the balanced, active lifestyles initiative. The initiative addressed three critical areas: adding more menu choice and variety, providing nutrition education, and supporting physical activity (McDonald’s Annual report, 2004, p.4). McDonald’s still resisted placing nutritional information directly on their product packaging, stating that they have been providing nutritional and ingredient information for over 30 years and that such information was accessible through brochures, tray liners, the corporate website, and customer service center.

In 2005, McDonald’s modified their advertising message to “It’s What I Eat and What I Do…I’m Lovin’ It” to reflect a new public awareness campaign to help consumers understand components of living active lifestyles (McDonald’s and Dr. Ro, 2005). As part of the campaign, McDonald’s signed several celebrity brand ambassadors such as the music group Destiny’s Child, tennis champion Venus Williams, and fitness expert Bob Greene, among others. In addition, several press events were staged to showcase the introduction of McDonald’s Premium Salad line.

The Asian salad was introduced in 2006 and heavily promoted through consumer advertising. Going into 2006, McDonald’s reaffirmed its commitment to “providing information on nutrition and promoting physical activity to support our customers’ needs to make the best choices for their lifestyles.” The Wall Street Journal reported in April of 2006 that: “McDonald’s has spent the past few years revamping its menu to include more nutritious foods such as apple dippers and a new line of premium salads. It is also shifting its marketing to emphasize exercise. It has repositioned Ronald McDonald as an “ambassador of balanced lifestyles” and depicts him in publicity photos in a running position”.

In 2006, McDonald’s also introduced nutritional labeling directly on its products in a roll-out campaign that would be in effect in 20,000 of its restaurants in a one-year time period.

McDonald’s has also announced that it will collaborate on research and education initiatives with the Scripps Research Institute to fight childhood obesity and Type 2 diabetes. Ralph Alvarez, President and Chief Operating Officer of McDonald’s, stated that “McDonald’s overall goal is to make a difference in the lives of children. The collaboration with Scripps Research is an extension of McDonald’s long-standing commitment to the well-being of children around the world.” Of the press releases available on McDonald’s website that deal with the issue of nutrition and health, all describe the actions McDonald’s has taken to promote healthy lifestyles.

Menu changes alone could not achieve the economic overhaul and that is the reason behind the development of McDonald’s two-pronged global marketing strategy. The company decided to sidestep the child market by targeting teens rather than children, ironically returning to the burgers’ original fans. Their first ad in the global youth campaign featured, global pop star Justin Timberlake singing its new “I’m Lovin’ it” strapline. This youth campaign focus unfolded with growing sponsorship of MTV show Advance Warning followed by ads employing hip yet dynamic teen icons like skate legend Tony Hawks to speak to its new youthful targets based on four core areas: music, sport, fashion, and entertainment.

Recently, McDonald’s has become aware of the increasing health conscious public and has tried to adapt accordingly.  They have incorporated many different campaigns to capture and promote the essence of healthy living.  As stated before, among these include the sponsorship of the Olympics, offering a line of products which are marketed to the health conscious customers, endorsements with super-fit celebrities, collaboration with other health-oriented products such as bottled water, and also the introduction and promotion of the GoActive! Campaign.  This campaign is headed by a famous celebrity fitness trainer, Bob Greene, and has been named “The GoActive! American Challenge”.

McDonald’s Customer Awareness

McDonald’s provides a positive and caring attitude towards the community of which it serves.  McDonalds’ vision states that “We are not a hamburger company serving people; we are a people company serving hamburgers”.  With a vision so clearly committed to people, customers have responded by continuing to keep McDonald’s number one.

Other aspects of the McDonald’s dining experience show why their customers continue to hold their reputation high.  They use things like the dollar menu, playgrounds, endorsements, and charities all add to create the overall satisfying experience.  These things overshadow the health risks that are a large issue in today’s American society.  McDonald’s is still popular because it is about convenience and fast food.  Until people are willing to wait longer to eat and pay more for healthier food, it still remains as one of the leading chains.

The type of experience McDonald’s offers to its loyal consumer is, in the majority, rated high in overall satisfaction.  The reasons McDonald’s consumers are loyal to McDonald’s and not to its competitors are many.   First, McDonald’s has recognized the importance of diversity and its impact on company strategy.  They have done an excellent job in implementing a multi-domestic strategy to ensure the loyalty of its customers and their changing wants and needs. This is shown through their diverse menu options around the globe.  For example, McDonalds’ restaurants in India created a vegetarian sandwich in order to cater to their need of not eating beef.  By increasing the number of segments they can market to, they are able to reach more people.  This is only one example of many on how McDonald’s has met the needs of its customers.

Summary

McDonald’s was the first fast food restaurant on the scene.  There have been many imitators over the years, but it has historically been number one.  Since its first opening in 1940, the business has boomed into an international craze.  Historically, McDonald’s has been viewed as the pinnacle and one of the defining features of the American lifestyle.  Burger, fries and a Coke were the traditional meal.  The GoActive! The campaign is McDonalds’ most recent attempt to diversify their options on the menu, and convince its customers to become more active.  This is aimed more at the adult rather than the child market, which is a turn from traditional marketing strategies. McDonald’s wants parents to be able to order healthful food while still giving the kids what they really want: The Happy Meal.  This change is successful because the options are given to customers, rather than automatically getting fries and a soda with the meal.  Instead, customers are given the option of things like fruit salad, apple slices with caramel sauce, cut veggies, juice, and bottled water.   It is McDonalds’ hope that customers will see, from this challenge, that McDonald’s is a place where they have a choice to consume either healthy or unhealthy food.