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We all have always devoured burgers and the first name that ever comes to the mind regardless of the customer’s preference,is McDonald’s.Although it’s not a monopoly,but the widespread liking for its products has made the customers believe it to be one.
This article is composed for providing information based on McDonald’s competitive advantages. Let’s get back into the wheel of time to actually know,how was this empire built.
The first ever McDonald’s was set up by the McDonald’s brothers Maurice and Richard in the year 1940 in California
Over the time,they chose favourable decisions and policies for their restuarant which in turn helped in grow beyond geographical boundaries. But what actually helped it to survive for the past 80 years? Every business survives on it’s own talents and that’s what we call a competitive advantage. It’s the factor that offers the business superiority over its competitors,hence allowing it to increase the turnover and prosper everytime.
A competitive advantage comes from a firm’s ability to perform activities more effectively than it’s rivals.A business,whether monopoly or not,will have to face competitors after a certain stage of its Product Life Cycle and it’s the competitive advantage that will help it sustain the competition. Some competitive advantages are sustainable over the time and are unconditionally applicable. Others may not be sustainable and applicable only for some specific market conditions. What matters more is the sustainability of the competitive advantage to ensure the sustainability of the business. A competitive advantage can be anything-a policy,a leader,a fandom,a great control over Supply Chain,so on and so forth.
McDonald’s stands out agressive compared to its competitors because Ray Kroc had a motto
Raymond Albert Kroc was an American businessman. He purchased the fast food company McDonald’s in 1961 and served as its CEO from 1967 to 1973. His mottos were:
- Quality
- Service
- Cleanliness
- Value
And any new recruits were being trained in their own training school in Hamburger University established in 1961 which makes them unique and also make them different from other companies in same line. It also gives a competitive advantage of highly skilled employees/workers
McDonald has an amazing ability to provide food as per the taste preferences of respective countries where they are operating.
Another core competency of their is that they had a great balance between non-vegetarian food and vegetarian food. After few years Mcdonald’s tagline is now known to significant number of peoples around the world and company made loyal customers in countries such as UK, USA , CANADA. And to make such loyalty among customers is the toughest job for any enterprise in the world.
Innovation was one of the most important and agressive core competency of Mcdonald’s.
Apart from innovating new products , they were also having a great Research and Development team so that they would have a first mover advantage as well as new developments coming through. The best example of USA where a group of soldiers wanted to buy food items from McD, but the issue was they were not allowed to get out of their cars ad they were wearing their uniforms which disallow them to remain informal, analysing it as a problem statement, they have established a drive through near military base in 1975.
It was observed that in 2008-09 Subway was operated at 6000 new locations whereas KFC and Mcdonald’s were having 500 and 600 new business location respectively. As it is temptingly low as compared to what Subway market space is , Mcdonald’s had one of the highest ROE(return on equity) 29% aslo a fact which their financial statements say is the real estates ( assets) were 5th highest in world in terms of their assets valuing 39 billion dollars before considering desprication.
They too took smart decisions such as out of their all operating locations, 85% were leased.
To be more precise, in 2019, 7.5 billion dollars or 64% of their 11.6 billion dollars franchise fees comes in form of rent.
Street smart, yes that’s what we should call them because their operating locations selection is one of the best . It shops around usually for intersection between two high traffic roads and buys space in whatever corner has more parking, traffic light, long term fix interest rate and etc
Normally any company from same line spend almost 6-10% of sale in rent, whereas Mcdonald’s spend 8.5-15% of sale in rent. Which makes their ideology perfect that they are not looking forward to save money for their premise selection, because it is one of the most underrated reasons why business succeeds.
Mcdonald’s also have many varieties as compared to say for example KFC
KFC has Fried chicken, Chicken and sandwich, French Fries, Soft Drinks, Salads, Desserts, Milk shakes, Breakfast
Whereas Mcdonald’s has Hamburgers, Chicken, French Fries, Soft Drinks, Milk Shakes, Salad, Desserts, Breakfast, Coffee, Pancake
Which makes them dominant in market as they have more products.
Comparison of revenue make more clearer that KFC is having upper hand as KFC recorded a revenue of 23 US billion dollars, whereas Mcdonald’s has revenue of 21.0765 billion dollars But But But there is a twists in a tale, KFC has market share of just 2.8% whereas Mcdonald’s has market share of 21.4% which makes them giant despite having marginal less revenue than KFC , Mcdonald’s has a Drastic and a huge amount of market share which stands out different from their competitors.
Every business is run by strategies that help them build competitive advantage in the areas of products and customers. It’s no former rule that a business can follow only one particular strategy. It can follow a mash up of strategies that suit it’s environmental factors. McDonald’s has been adopting a mash up of the Low Cost Leadership Strategy and the Broad Differentiation Strategy.
A Low Cost Leadership Strategy emphasizes on producing standardized products at a very low Unit cost and is generally set up for the protection of consumers who are very price sensitive. as McDonald’s was and is a huge unit,every raw material used is to be acquired in bulks and buying in huge sizes at once benefits the supplier as well the receiver. As the raw materials cost low,per unit cost easily reduces and the business can earn profit even while charging low prices. Hence,it becomes a win-win situation for both, McDonald’s as well as the consumers,as none of them suffers any kind of losses.
A Low Cost Leadership Strategy can be pursued by forward,backward and horizontal integration in the business unit.But any Low Cost Leadership Strategy shall be always pursued in conjunction with Broad Differentiation Strategy to explore utmost benefits out of it.
Broad Differentiation Strategy is aimed at producing products and services that are considered unique wide the industry and directed at consumers who are loyal regardless the prices,i.e relatively price insensitive. As compared to our current case study,which is McDonald’s, there might be a price rise after every reasonable amount of time but the taste and satisfaction offered to the consumers matters more than the price regulations. Such consumer base then allows the business to grow in critical times as well. McDonald’s built such base on the basis of its uniqueness.
A Broad Differentiation Strategy should be pursued only after a careful study of buyer’s needs and preferences to determine the feasibility of incorporating one or more differentiating features into a unique product. For instance, McDonald’s burgers are available with such a unique sauce that enhaces the entire taste and accompanies very well with all the other saladific ingredients of the burger.
To talk about another instance, McDonald’s fries are really great at taste as they do not turn soggy after a reasonable amount of time has passed. They still remain fresh which in turn allows the consumer to enjoy it at his own pace.
A successful differentiation strategy allows a business unit to charge a higher price for its product and to gain customer loyalty.
The food giant has filed several trademarks, 10 to be exact, at the US Patent and Trademark Office (UPTO) on February 4 that includes both McDonald’s and McCafe.
Whether the USPTO approves the trademark or not, but it is sure that McDonald’s has a big plan for the metaverse and most importantly, the company is also planning to merge the physical world with the virtual world.
Also, at the moment, we have no idea how the entire physical delivery feature will work. But from what we can understand is that if people order food in metaverse, McDonald’s will actually deliver it to their doorstep, just like it happens with the app.
Overall, MCD remains a stellar company, one with strong fundamentals. The company continues to invest in new stores and continues to have a strong focus on its digital initiatives. It also continues to have a loyal customer base not just in the U.S. but across the globe and remains well positioned to capitalise on the pent-up demand in China.
Cricanalysis 