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BUSINESS CASE STUDY 2021 A comprehensive case study of McDonald’s Covering 9 Operations 9 Marketing 9 Finance 9 Human Resources A.J. Stanshall
BUSINESS
CASE STUDY 2021
A comprehensive case study
of McDonald’s
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BUSINESS CASE STUDY - McDonald's
CONTENTS
Foreword – McDonald’s Case Study
Introduction
A Very Brief History 8
Worldwide Structure 8
Abbreviations8
CHAPTER 1 – OPERATIONS
The Role of Operations: Why is operations important to McDonald’s?
1.1 The Strategic Role of Operations 10
The Influences on Operations: What factors impact on the operations decisions
McDonald’s makes?
1.2 Globalisation 11
1.3 Technology 11
1.4 Quality Expectations 12
1.5 Cost-Based Competition 13
1.6 Government Policies 14
1.7 Legal Regulation 14
1.8 Environmental Sustainability 15
1.9 Corporate Social Responsibility 17
The Processes of Operations: How does McDonald’s do it?
1.10 Inputs 20
1.11 Transformation Processes 22
1.12 Outputs 27
Operations Strategies: How does McDonald’s achieve its objectives?
1.13 Performance Objectives 28
1.14 New Product or Service Design and Development 29
1.15 Supply Chain Management 30
1.16 Outsourcing 30
1.17 Technology 31
1.18 Inventory 31
1.19 Quality Management 32
1.20 Global Factors 32
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CHAPTER 2 – MARKETING
The Role of Marketing: Why is marketing important to McDonald’s?
2.1 The Strategic Role of Marketing Goods and Services 33
2.2 Production, Selling and Marketing Approaches 33
2.3 Types of Market 33
The Influences on Marketing: What factors impact on the marketing decisions
McDonald’s makes?
2.4 Factors Influencing Customer Choice 34
2.5 Consumer Laws 35
2.6 Ethical Considerations 36
The Processes of Marketing: How does McDonald’s do it?
2.7 Situational Analysis – SWOT, Product Life Cycle 37
2.8 Market Research 39
2.9 Establishing Market Objectives 39
2.10 Identifying Target Markets 40
2.11 Developing Marketing Strategies 40
2.12 Implementation, Monitoring and Controlling 40
Marketing Strategies: How does McDonald’s achieve its objectives?
2.13 Market Segmentation, Product/Service Differentiation and Positioning 41
2.14 Products – Goods and/or Services 44
2.15 Price, Including Pricing Methods 45
2.16 Promotion 46
2.17 Place/Distribution 48
2.18 Global Marketing 48
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BUSINESS CASE STUDY - McDonald's
CHAPTER 3 – FINANCE
The Role of Financial Management: Why is financial management important to
McDonald’s?
3.1 The Strategic Role of Financial Management 50
3.2 The Objectives of Financial Management 51
The Influences on Financial Management: What factors impact on the financial
decisions McDonald’s makes?
3.3 Internal Sources of Finance 52
3.4 External Sources of Finance 52
3.5 Financial Institutions 53
3.6 Government Institutions 53
3.7 The Global Market 55
The Processes of Financial Management: How does McDonald’s do it?
3.8 Planning and Implementing 56
3.9 Monitoring and Controlling 59
3.10 Financial Ratios 59
3.11 The Limitations of Financial Reports 66
3.12 Ethical Issues Related to Financial Reports 68
Financial Management Strategies: How does McDonald’s achieve its objectives?
3.13 Cash Flow Management 69
3.14 Working Capital Management (Current Assets) 69
3.15 Working Capital Management (Current Liabilities) 70
3.16 Working Capital Management (Strategies) 70
3.17 Profitability Management (Cost Controls) 71
3.18 Profitability Management (Revenue Controls) 71
3.19 Global Financial Management 72
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CHAPTER 4 – HUMAN RESOURCES
The Role of Human Resource Management: Why is human resource management
important to McDonald’s?
4.1 The Strategic Role of Human Resource Management 73
4.2 Outsourcing 74
The Influences on Human Resource Management: What factors impact on the
human resources decisions McDonald’s makes?
4.3 Stakeholders 75
4.4 Legal – The Current Legal Framework 77
4.5 Economic 80
4.6 Technological 80
4.7 Social – Changing Work Patterns and Living Standards 81
4.8 Ethics and Corporate Social Responsibility 82
The Processes of Human Resource Management: How does McDonald’s do it?
4.9 Acquisition 83
4.10 Development 83
4.11 Maintenance 84
4.12 Separation 84
Human Resource Management Strategies: How does McDonald’s achieve its
objectives?
4.13 Leadership Style 85
4.14 Job Design 86
4.15 Recruitment 86
4.16 Training and Development 86
4.17 Performance Management 87
4.18 Rewards – Monetary and Non-Monetary, Individual or Group, Performance Pay 87
4.19 Global – Costs, Skills, Supply 88
4.20 Workplace Disputes Resolution 88
The Effectiveness of Human Resource Management: How does McDonald’s know
what is working and what isn’t?
4.21 Indicators 89
CHAPTER 5 – INTERDEPENDENCE OF KEY BUSINESS FUNCTIONS
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BUSINESS CASE STUDY - McDonald's
Introduction
A Very Brief History
Brothers Richard and Mac McDonald opened a restaurant called McDonald’s Bar-B-Q in California
in 1940. In 1948, they remodeled the store as a drive-in with a reduced number of items for sale and
changed the name simply to McDonald’s. The New York Times quoted Richard McDonald as saying
“Our whole concept was based on speed, lower prices and volume.” 1
In 1954, Ray Kroc acquired the rights to set up franchised McDonald’s restaurants in most areas of the
United States. By 1959, there were 102 McDonald’s restaurants. In 1961, Ray Kroc finally purchased
the remaining shares of the company, meaning that Richard and Mac McDonald were no longer
involved. By 1963, the number of McDonald’s restaurants had reached 500. The company was listed
on the New York Stock Exchange in 1965. It was not until 1968 that McDonald’s introduced the Big
Mac.
McDonald’s is a revolutionary company in many ways, including marketing, management, operations
and franchising. McDonald’s’ phenomenal worldwide growth has also been viewed by some
commentators as changing how and what millions of humans eat. Founder Ray Kroc once said, “I put
the hamburger on the assembly line.” 2 It now has over 39,000 outlets in 119 countries, around 93% of
which are owned by franchisees, with the remainder owned by McDonald’s. Worldwide, McDonald’s
aims for this to change to 95% franchises and only 5% company stores within the next few years.
Many franchisees of McDonald’s own multiple outlets. In 2020, like many businesses, McDonald’s
was severely impacted by the COVID-19 pandemic. CEO Chris Kempczinski stated in March 2020:
“We’re now operating in a completely different world and we expect these changes to persist long after the crisis
is over.” 3
The first McDonald’s Restaurant in Des Plaines
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BUSINESS CASE STUDY - McDonald's
Animal Health and Welfare
In a legal battle that became known as the “McLibel” Trial, a British court found McDonald’s
“culpably responsible” for the cruel treatment of animals.6 Since the judgment in 1997, McDonald’s
has been working with industry groups to affect change in the rearing and slaughtering of animals.
McDonald’s stated:
“The Five Freedoms (freedom from hunger / thirst, from pain, injury, or disease, to express normal behavior,
and from fear and distress) and the provision of positive welfare for those animals in our supply chain are the
fundamental responsibilities of food suppliers to the McDonald’s System.” 7
In Australia, McDonald’s became a founding member of the Roundtable for Sustainable Beef
Australia (RSBA). Along with other members, including the World Wildlife Fund and the Cattle
Council of Australia, the RSBA works with stakeholders towards creating a beef industry that
promotes animal welfare.
McDonald’s Australia achieved its goal to use only cage-free eggs in 2017. McDonald’s US has also
made a commitment to shift to cage-free eggs by 2026. This is a large change as McDonald’s US were
only sourcing 1% of eggs cage-free in 2015. Additionally, 100% of chicken meat used by McDonald’s
worldwide comes from cage-free systems. This further demonstrates McDonald’s commitment to
upholding its ethical obligations with regard to the treatment of animals, not only within its own
business but by affecting industry-wide practices.
Some think McDonald’s could do better in animal health and welfare
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BUSINESS CASE STUDY - McDonald's
The Influence of Volume, Variety, Variation in Demand and Visibility (Customer Contact)
The influence of McDonald’s
Volume Volume refers to the quantity of an item produced. Central to McDonald’s
success is accurate inventory management that allows its transformation
processes to respond to changes in consumer demand. 69 million people
visit McDonald’s each day. McDonald’s is mostly able to satisfy customer
demand by developing systems that track the volume of menu items sold in
each store. There are times, however, when customer demand may fluctuate.
Customer demand may be seasonal for products such as ice cream and
frozen soft drinks. Managing volume is imperative for McDonald’s to
maintain short lead times as failure to do so may result in falling sales.
Variety Variety is the product or service mix and range that a business offers.
Originally, McDonald’s delivered a very simple menu including hamburgers,
fries, thick shakes, Coke, root beer, coffee and milk. As consumer tastes and
demands have changed, McDonald’s has responded by altering the variety of
menu items it now provides. In 2020, McDonald’s Australia offered:
• 9 breakfast items
• 13 beef burgers
• 9 chicken and fish burgers
• Nuggets, McBites and Grilled McBites
• 7 wraps and salads
• 2 varieties of fries (original and loaded)
• 17 sauces and condiments
• 40 drinks
• 11 desserts
• 50 McCafé items
Variation in Demand The challenge for any business is to ensure that its supply of labour and
inputs is able to respond to changing demand. The company must be
prepared for expected shifts in demand caused by changing seasons,
consumer tastes and marketing campaigns.
McDonald’s, like other businesses, faced a sharp downturn during the
COVID-19 pandemic. Although “lockdown” laws in various countries
suppressed demand, the McDonald’s CEO was very confident that sales
would “bounce back” strongly, saying “we’re encouraged by some of our early
learnings that lead us to believe customers will be seeking known brands and
familiar routines. ... after a prolonged disruption of their daily lives, customers are
craving comfort in our iconic core menu items.” 8
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Marketing Strategies
How does McDonald’s achieve its objectives?
2.13 Market Segmentation, Product/Service Differentiation and Positioning
The Informal Eating Out (IEO) industry contains approximately 9 million outlets and generated
global sales of US$1.2 trillion in 2018. Despite only accounting for 0.4% of the total number of IEO
outlets worldwide, McDonald’s generated 8.2% of total industry sales. This shows that McDonald’s
has been successful in implementing a range of strategies to attract and maintain a loyal customer base.
These include market segmentation, differentiation and positioning.
Market Segmentation
Market segmentation involves tailoring marketing initiatives for specific groups who share common
customer characteristics. Target markets can differ based on demographic, psychographic, geographic
and behavioural factors. In doing this, a business is able to tailor its marketing mix to appeal to specific
groups of customers.
• Demographic
Demographic segmentation divides customers by such factors as age, race, religion, gender, family
size, ethnicity income, and education. McDonald’s clearly makes use of demographic segmentation.
For example:
Age: Happy Meals contain a toy that appeals to young children, while the expansion of McCafé
barista-made coffee, sweets and table
service appeal to older customers.
Race/Ethnicity: McDonald’s in the US
run campaigns directed at different
groups, including Black, Hispanic and
Asian consumers. In fact, not so long
ago, there were senior marketing
management positions at McDonald’s
with titles such as “Director of African
American,” “Director of Hispanics,” etc.
Religion: McDonald’s cater for
members of different religions, including
the provision of Halal and Kosher foods
in certain locations. Additionally, in
India, it does not sell any beef or pork
products due to the prevailing Hindu
belief. The Filet of Fish was also created
in 1962 to cater for Catholic consumers
who would not eat meat on Fridays. McDonald’s provides Halal food
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McDonald’s leases a
property from a landlord
with a 20-year lease
agreement
The franchisee then leases it The franchisee
from McDonald’s with a uses the
20-year lease agreement building
The matching principle in action
3.9 Monitoring and Controlling
McDonald’s provides annual reports that include a cash flow statement, an income statement and a
balance sheet. As the business is so large, these can be quite difficult to understand and interpret. The
production of consistent, audited financial reports that adhere to accounting standards assists greatly in
the monitoring and controlling of finances. Although the actual financial statements themselves take
up approximately three pages, the notes, analysis and explanation of the statements take up about 100
pages.
3.10 Financial Ratios
McDonald’s key financial ratios can be calculated and compared to Yum! Brands Inc., which is a
similar-sized global business with over 50,000 stores, including Pizza Hut, KFC and Taco Bell.
Yum! Brands Inc. also utilises a mix of company-owned and franchised stores - 98% of its stores are
franchised. Using comparative ratio analysis, the financial performance and position of McDonald’s
can be assessed. Relevant comparisons can be made with Yum! Brand’s Inc. as well as past performance
and previous budget forecasts. Information for Yum! Brands Inc. comes from its 2019 Annual Report.
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4.7 Social – Changing Work Patterns and Living Standards
Many McDonald’s restaurants are open for trading 24
hours a day or have extended operating hours. (62% of all
McDonald’s in Australia are usually open 24 hours per
day, 7 days per week - pre COVID-19.) Employees in the
service sector of the economy now work varied hours
including nights and weekends. This has been a
significant change in working patterns from the
traditional nine-to-five, Monday-to-Friday working
week.
At its corporate headquarters, McDonald’s Australia
tries to recognise and cater for individual staff needs.
For example, it has a work-from-home policy in place,
allowing greater flexibility of when and how work is
completed. It also allows employees to start work earlier
or finish later from Monday to Thursday to allow a 1pm
finish on Fridays. On top of this, it offers eighteen weeks
Many McDonald’s restaurants operate 24 hours a day
paid parental leave for company employees, and for
parents returning to work, it offers discounted child care
and designated breast-feeding rooms.
Employees also have the option of
gaining an additional four weeks leave
per year by reducing their pay, giving
them greater choice and flexibility.
In the United States, a large campaign
called Fight for $15 has been arguing
for the minimum wage for low paid
workers, including those at McDonald’s,
to be set at US$15 per hour. The
campaign claims that current wage
levels are too low to live on.
As a result, around 22 million workers
(not all McDonald’s) in some US states
have received a minimum $15 wage.
McDonald’s (US only) as a company
responded by increasing wages at the
rate of US$1 above the local minimum
wage at company-owned stores (not
Fight for 15 campaign extended to the United Kingdom
franchises).
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