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Value Chain and Competitive Advantage of McDonald’s

November 22, 2012

Company Profile

 

 

 

McDonald’s Corporation (NYSE: MCD) is the world’s largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized their business as a hamburger stand using production line principles. Businessman Ray Kroc joined the company as a franchise agent in 1955. He subsequently purchased the chain from the McDonald brothers and oversaw its worldwide growth

A McDonald’s restaurant is operated by either a franchisee, an affiliate, or the corporation itself. The corporation’s revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants. McDonald’s revenues grew 27 percent over the three years ending in 2007 to $22.8 billion, and 9 percent growth in operating income to $3.9 billion.

McDonald’s primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast items, soft drinks, milkshakes and desserts. In response to changing consumer tastes, the company has expanded its menu to include salads, wraps, smoothies and fruit.

 

 

 

 

Headquarters

 

 

McDonald’s Plaza, located in Oak Brook, Illinois is the headquarters of McDonald’s

The McDonald’s headquarters complex, McDonald’s Plaza, is located in Oak Brook, Illinois. It sits on the site of the former headquarters and stabling area of Paul Butler, the founder of Oak Brook. McDonald’s moved into the Oak Brook facility from an office within the Chicaco Loop in 1971.

 

Vision

McDonald’s vision is to be a fast-food restaurant with the best service in the world. To achieve this vision, McDonald’s has always guarantee the quality of products, provide outstanding service, offer the hygiene and safety of food products as well as other added values​​. For McDonald’s, every customer’s smile is the most important thing.

 

Mission

 

  1. Being the best company for all of our employees in every community
    around the world.
  2. Delivers services with superior operational system for each
    our customers in every branch of McDonald’s restaurants
  3. Keep progressing in a favorable direction as
    a brand, as well as continuing to develop operational systems McDonald’s
    toward better through innovation and technology.

 

 

History of McDonald’s

 

The business began in 1940, with a restaurant opened by brothers Richard and Maurice McDonald at 1398 North E Street at West 14th Street in San Bernardino, California  Their introduction of the “Speedee Service System” in 1948 furthered the principles of the modern fast-food restaurant that the White Castle hamburger chain had already put into practice more than two decades earlier. The original mascot of McDonald’s was a man with a chef’s hat on top of a hamburger shaped head whose name was “Speedee”. Speedee was eventually replaced with Ronald McDonald by 1967 when the company first filed a U.S. trademark on a clown shaped man having puffed out costume legs.

McDonald’s first filed for a U.S. trademark on the name “McDonald’s” on May 4, 1961, with the description “Drive-In Restaurant Services”, which continues to be renewed through the end of December 2009. In the same year, on September 13, 1961, the company filed a logo trademark on an overlapping, double arched “M” symbol. The overlapping double arched “M” symbol logo was temporarily disfavored by September 6, 1962, when a trademark was filed for a single arch, shaped over many of the early McDonald’s restaurants in the early years. Although the “Golden Arches” appeared in various forms, the present form as a letter “M” did not appear until November 18, 1968, when the company applied for a U.S. trademark. The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois, on April 15, 1955, the ninth McDonald’s restaurant overall. Kroc later purchased the McDonald brothers’ equity in the company and led its worldwide expansion, and the company became listed on the public stock markets in 1965. Kroc was also noted for aggressive business practices, compelling the McDonald brothers to leave the fast food industry. The McDonald brothers and Kroc feuded over control of the business, as documented in both Kroc’s autobiography and in the McDonald brothers’ autobiography. The San Bernardino store was demolished in 1976 (or 1971, according to Juan Pollo) and the site was sold to the Juan Pollo restaurant chain. It now serves as headquarters for the Juan Pollo chain, as well as a McDonald’s and Route 66 museum. With the expansion of McDonald’s into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also

 

 

McDonald’s History In Indonesia

 

–         February 22, 1991 the first McDonald’s presence in Indonesia, a restaurant located in Sarinah Thamrin, Jakarta.

–         1994 McDonald’s Indonesia MUI halal certified, and became the first kosher restaurant in Indonesia.

–         1995 Launched the campaign “I’m Lovin ‘It” to spread the spirit of McDonald’s circumnavigating the country.

–         9 September 2003 Opening of McDonald’s restaurants with drive-thru facilities first.
December 21, 2004 Launch McDelivery Service delivery service 14 045.

–         Along with the launch in May 2007 the system of “Made For You”, the first McCafe presence in Indonesia, located at McDonald’s Kemang.

–         June 3, 2009 PT Rekso National Food (RNF) is the rightful holder of the McDonald’s franchise in Indonesia. RNF is a subsidiary of Rekso Group.

–         December 23, 2009 Opens first restaurant under the auspices of PT RNF in KeboIwa, Bali, and broke the MURI record by featuring 1008 dancers.

–         December 11, 2009 Starting marathon remodeling stores, until now there are more than 45 restaurants were refurbished.

–         1 November 2010 PT RNF officially presented the Foundation’s Ronald McDonald House Charities ® (RMHC) in Indonesia.

–         December 20, 2010 McDonald’s comes first in the city of Manado, North Sulawesi.

–         1 April 2011 By simultaneously launching McDonald’s Breakfast menu.

–         June 21, 2010 opening of a McDonald’s restaurant to 100 in Indonesia, located in Kelapa Gading, Jakarta, as well as presenting MURI record 250 ondel-ondel Betawi.

–         February 14 2011 McDonald’s celebrates birthday-20, as well as attendance and launched back in SarinahThamrin Ronald McDonald Care Mobile ® to help improve the welfare of children in Indonesia.

–         June 2011 McDonald’s was awarded “Indonesia’s Most Admired Company” in the category of fast food Frontier.

 

Value Chain of McDonald’s (Michael Porter)

 

Primary Activities


1. Inbound Logistics

 

1) “McDonald’s purchases raw vegetables and other raw materials from its fixed, pre- defined suppliers only, therefore by increasing capital and labor, their production will increase proportionately.”
Source and further information:

“McDonald’s has practiced a backward vertical integration,
by replacing most of its suppliers. It has done so for two reasons, 1) To reduce
costs, and 2) To ensure that its products are of top quality. These supplies
include beef and milk to be used in its products, which it gets from its farms.
Other suppliers include local grocery stores that supply McDonald’s with fresh
vegetables. Soft drinks are supplied exclusively by Coca-Cola, which is also its
ally. McDonald’s supplies also include raw material such as flour, sugar, yeast,
etc.”

2) McDonald’s own information:
“We import some beef raw materials from Australia and New Zealand. And those plants have to meet all our same requirements that we hold our U.S. plants to; which includes animal welfare and food safety, testing — everything.”

 

2. Operations :

McDonald’s Backgrouds for Operation Management

Before the McDonald’s brothers invented their fast-food operations system, some restaurants did make food pretty quickly. These restaurants employed short-order cooks, who specialized in making food that didn’t require a lot of preparation time.

Being a short-order cook took skill and training, and good cooks are in high demand. These speedee system, however, was completely different. Instead of using a skilled cook to make food quickly, it used lot of unskilled workers.

The McDonald’s Brothers changed the design of restaurant kitchen. Instead of having lots of different equipment and stations for preparing a wide of variety food, the Speede kitchen had:

–          A very large grill where one person could cook lots of burgers simultaneously

–          A dressing station where people added the same condiments to every burgers

–          A fryer where one person can made french fries

–          A soda fountain and milkshake machine for desserts and beverages

–          A counters where customers placed and received their orders.

 

The Process

The mass-production process requires each restaurants chain to have a distribution network to carry the food to every restaurant. Warehouses store enormous amounts of everything a restaurant needs. Including foods, paper products and cleaning supplies. The warehouses the ship supplies to each restaurant by truck. Warehousing and distribution, just like the management of chain, is centralized rather than handled by each restaurant.

In some chains, managers track the restaurants’s inventories of food, wrappers, cups,  and other necessary items. They often order everything the restaurant  need from the distribution center, which ships it to them.

In other chains, it is automated, which means,  a computer keeps track of what the restaurants have and should have on hand, or the distribution center ships the necessary items on a regular schedule instead of waiting a request from the restaurant.

McDonald’s is always keen to take the charge of crucial task of turning the company around to meet customer demands. One of thefirst steps that it prposeshas been to inovate the process of manufacturing and logistics.

This had been done with the view to increase efficiency of the supply chain in terms of capacity, technology selections, and buying policies.

 

3. Outbound Logistics

McDonald’s is committed to providing the highest quality food and superior service, at a great value, in a clean and welcoming environment. That’s why we work with our employees, franchisees, and suppliers to serve a balanced array of food choices and provide the nutrition information needed for customers to make sound decisions.

At the restaurant level, McDonald’s is focused on energy conservation, sustainable packaging, and waste management. We are dedicated to innovation and improving our operations in order to build an even more sustainable, environmentally friendly, and profitable business. And we will continue to reoptimize our menu, modernize the customer experience, and broaden accessibility to our brand, so that consumers will always enjoy the maximum McDonald’s experience.(

 

4. Marketing and Sales

McDonald’s restaurants are found in 119 countries and territories around the world and serve 58 million customers each day. McDonald’s operates over 31,000 restaurants worldwide, employing more than 1.5 million people. The company also operates other restaurant brands, such as Piles Café.

Focusing on its core brand, McDonald’s began divesting itself of other chains it had acquired during the 1990s. The company owned a majority stake in Chipotle Mexican Grill until October 2006, when McDonald’s fully divested from Chipotle through a stock exchange. Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald’s sold Boston Market to Sun Capital Partners.

Notably, McDonald’s has increased shareholder dividends for 25 consecutive years, making it one of the S&P 500 Dividend Aristocrats In October 2012, its monthly sales fell for the first time in nine years.

Advertising

McDonald’s has for decades maintained an extensive advertising campaign. In addition to the usual media (television, radio, and newspaper), the company makes significant use of billboards and signage, sponsors sporting events ranging from Little League to the Olympic Games, and makes coolers of orange drink with its logo available for local events of all kinds. Nonetheless, television has always played a central role in the company’s advertising strategy.

To date, McDonald’s has used 23 different slogans in United States advertising, as well as a few other slogans for select countries and regions. At times, it has run into trouble with its campaigns.

McDonald’s in Indonesia

The first McDonald’s restaurant was founded in 1940 by two brothers Dick and Mac McDonald, but was later bought out by Ray Kroc and expanded to the entire world.

Until in 2004, McDonald’s has 30,000 restaurant worldwide with an average number of visitors to 50 million people and visitors per day and eating houses 1,700 people.

The first McDonald’s restaurant located at Sarinah in Indonesia, Jakarta and opened on February 23, 1991. Different from most McDonald’s restaurants abroad, McDonald’s also sells fried chicken and rice in a restaurant-restaurant in Indonesia.

On October 1, 2009 McDonald’s turned into a Tony Jack’s Indonesia but not all McDonald’s outlets. There are 13 outlets of McDonald’s owned by Bambang Rachmadi changed among others located in Sarinah (Thamrin), Melawai Plaza, Blok M Plaza, Arion, Kelapa Gading, Sunter, Bandung Indah Plaza, Tunjungan Plaza, Soekarno-Hatta Airport, ITC Mangga Dua, Citra Land , Gajah Mada Plaza, and Kebon Jeruk. Shortly thereafter, in 2010 Tony Jack’s Indonesia expert bankrupt and was taken by McDonald’s.

 

5. Services

Free Wi-Fi @ McDonald’s

Your favorite McDonald’s meal now comes with complimentary Wi-Fi. Get some work done, check email, connect with friends…for free!

With free Wi-Fi at more than 11,500 participating restaurants, customers can access the Internet using their laptops or PDAs at no charge. So grab a McCafé Latte and log on…it’s on us! Just one more thing to love about McDonald’s.

Gift Cards

Whether you’re looking to reward your co-workers for a job well done or say “thank you” to someone special, give the Arch Card* or McDonald’s Gift Certificates**. Great for a cash-free fries run, too!

 

 

Arch Card

The Arch Card is a pre-paid card that gives customers a quick and convenient way to pay at McDonald’s. Arch Cards also make the perfect gift for holidays or any special occasion. Arch Cards come in denominations of $5, $10, $25, and $50.

They can be purchased for the first time or reloaded later at participating McDonald’s restaurants nationwide. They are also available at retailers including Safeway, Kroger, SuperValu and Ahold.

McDonald’s Arch Cards never expire, and there are no penalty or dormancy fees.

PlayPlaces & Parties

You bring the kids, we’ll make the party. Super-fun for the kids, stress-free for you! We’ve got this party thing down to a science: Happy Meals, cake, decorations, party favors. Talk to your local McDonald’s manager to make arrangements.Depending on your location, you can have your child’s party at a McDonald’s PlayPlace for even more fun!

 

Support Activities

1. Firm Infrastructure

McDonald’s Infrastructure is  modern an sophisticated, they using the advanced IT and yet they’re still maintaining the green activities.

 

Greener Than Ever

McDonald’s strives to provide eco-friendly workplaces and restaurants that reflect our sustainability goals and demonstrate environmental stewardship in the workplace.

In August 2008, McDonald’s USA opened its first corporate-owned pilot green restaurant and received Leadership in Energy and Environmental Design (LEED) Gold certification in April 2009. Some of the green attributes of the Chicago restaurant include energy-efficiency equipment and lighting, high efficiency plumbing fixtures, and permeable pavement and rainwater collection for irrigation. We’re using this “green building lab” to help refine our green building strategy. Our second green restaurant was completed in North Carolina in early 2010.

Green building strategies aren’t limited to McDonald’s restaurants. Using the LEED rating system developed for Existing Buildings (LEED EB), we recently tackled our Global Headquarters in Oak Brook, Illinois. Our 20-year-old Campus Office Building (affectionately known as the COB) was granted Platinum Certification, the highest level possible. The COB is one of the oldest buildings to receive this certification.

The sustainable building enhancements made during the certification process have resulted in clear financial and environmental benefits. Energy use is at its lowest level in five years, helping to offset rising utility costs. Enhanced recycling efforts have diverted over 58% of waste targeted for landfill, helping control disposal costs. And overall, our efforts are reducing McDonald’s environmental impact.

 

2.  Human Resource Management

The work offered by McDonald’s may have some positive elements, but workers are often choosing employment at McDonald’s in the context of having few other attractive options. Almost regardless of what people think of the work itself, working at McDonald’s could be said to offer advantages for some employees who want flexible hours and are engaged in other activities and responsibilities. For those marginalised in the labour market who have few chances of a job elsewhere, McDonald’s offers much needed work.

However, the employees’ dependence on McDonald’s and/or their tendency to see their employment as a short-term strategy makes them vulnerable to management manipulation. Those with minimum interest simply leave if they do not like it, and this is clearly reflected in high labour turnover. Perhaps they are attracted by the combination of fairly secure employment, familiar ‘family’ surroundings created by a highly paternalistic approach to management and lots of employees of similar age or temperament. This may help to explain how the corporation sometimes retains individuals who could probably obtain better paid and more skilled work elsewhere. As  (1986) puts it, it is ‘recruiting as means of control’. As already suggested, however, whether this is a deliberate ‘strategy’ or something else is not clear (, 1994).

The employment relationship at McDonald’s is managed by a complete spectrum of controls, from simple, direct and bureaucratic controls to the management of subjectivity. At one end of the spectrum, restaurant managers are disciplined to accept tough work schedules and must prove themselves ‘up to the challenge’ of punishing schedules. Long hours and loyalty are locked in, with young managers being persuaded not only to accept as the norm many hours of unpaid work but also to gain a perverse satisfaction from surviving these tough and uncompromising work routines. In addition, young managers who may or may not get similar ‘opportunities’ elsewhere in the labour market are romanced by offers of promotion and career development. At the other end of the spectrum, more direct methods are used to maintain control. However, this still leaves unanswered the question of how the corporation has managed to sustain the uniformity of its employee relations practices despite major differences across societal cultures.

3. Technology Development

Even as consumer confidence stagnates domestically and in Europe, McDonald’s will focus on modernizing restaurants, evolving the menu and engineering value, said Don Thompson, the company’s president and chief operating officer, in an earnings call on Friday.

McDonald’s net income rose 5 percent and same-store sales increased 7.3 percent for the quarter, and the brand gained market share in the United States and abroad, according to the company’s first-quarter earnings report.

The call marked a transition from McDonald’s Corp. chief executive Jim Skinner, who will retire June 30, to incoming leader Thompson, but both executives stressed that the company’s strategy going forward would remain as focused as ever on the brand’s Plan to Win.

Asked what he thought his legacy would be after taking over for Skinner, Thompson responded that he would preach fundamentals just like Skinner. Thompson gave a few hints toward McDonald’s near-term strategy.

“When we talk about modernizing the customer experience, technology will play a big role in that, and so will the new look of McDonald’s,” he said. “When we talk about optimizing the menu, we’ll be more focused on nutrition-based products, as well as our core items and premium products like those coming out of Europe. We’ve proven that we can scale products and learn from our other areas of the world, and we’ll do that at an accelerated pace.”

 

McDonald’s enters five-year IT support deal with Fujitsu

The services provider plans to roll out “user-exchangeable parts” to McDonald’s 1,200 branches throughout UK and Ireland

Fujitsu has signed a five-year deal with fast food chain McDonald’s to supply IT support to the company’s 1,200 branches in the UK and Ireland.

The IT outsourcer will offer support for point-of-sale systems and back office operations to both company-owned and franchise outlets, replacing various incumbent suppliers.

Fujitsu plans to make McDonald’s IT systems more reliable by deploying systems built on “user-exchangeable parts”, the company said in a statement. This will allow staff to fix minor IT problems themselves by replacing faulty units such as card readers, it claimed.

The provider said success would be judged on whether it simplified IT support for branch staff, reduced of on-site engineering visits and drove down the total cost of ownership of McDonald’s IT equipment over its lifetime. Fujitsu’s business unit director Jon Wolfe said that keeping tills open and operating was the most important job for IT support.

“However the role moving forward is as much about the customer experience and supporting new technologies that ensure agility in meeting customer demands, such as touch-screen ordering and contactless payments – both areas that McDonald’s is already deploying,” Wolfe claimed. In Janaury 2011, McDonald’s announced that it will use Visa’s contactless payments infrastructure.

 

4. Procurement

McDonalds E-Procurement SystemMcDonalds E-Procurement System is basically a main reason for their successful supply chain management.It is so efficient that it provides the backbone not only to all the logistics but the whole McDonalds supply chain management.

 

How McDonald’s Uses E-procurement SystemsEmac Digital:(Internet procurement site designed for McDonald’s Corporation’s 27,000 franchises)Emac Digital Company is E-Procurement website which is jointly owned by McDonalds and Accel-KKR Internet Co.

 

It is a procurement hub launched in 2001 allow all of McDonald’s franchises across the globe to buy everything needed to run their restaurants. From uniform to HamBurger

 

Aside from being faster and more convenient for franchisees, the procurement site also allow business owners to buy supplies and materials at a discounted price, ultimately reducing costs for McDonald’s. E-Procurement allows 85% cut in costs according to McDonald’s supply chief Edwards.

 

Benefits For the SuppliersMcDonald’s works with two types of suppliers. Major Suppliers and Small Suppliers

 

McDonald’s Competitive Advantage

1. Cost Leadership

–         Supply chain: McDonald’s buys supplies in bulk and, to get lower prices

–         Real Estate: McDonald’s leases land and property they own to franchises

–         Marketing: McDonald’s is such a well known brand name and Ronald McDonald such a well known mascot McDonalds has to do much less advertising than many other chains to maintain awareness of their brand.

–          Strategic/predatory customer selection (see “Supersize Me”) Mc Donalds purposefully aims their brands at kids who can be taught to over-eat fast food and, in addition, serves things like ultra-fatty sauces with salads and fatty foods in general with sugar baked into breads and often soda-only drink selections, all designed to make McDonalds customers unhealthily addicted to compounds in their food.

 

2. Differentiation

McDonald’s does no t believe in opening its restaurant without any knowledge of the local culture and tastes.

The company caters to a large customers market with varying tastes and thus can’t  afford to introduce products without familirizing itself with provincial prefences in food. For this reason, McDonald’s distributes its products in foreign locations with the hel of franchises who are well aware in of that works in their country.

This is an exremely inteligent distribution method because on the one hand, it doesn’t create rifts between governments and McDonald’s official, and on the other hand, it helps in providing people with the kind of products they desire. It is important to understand that Mcdonald’s doesn’t change its basic product range for any country but tries to introduce certain changes in secondary products in order to make them suitable for local tastes.

McDonald’s predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald’s offers salads and vegetarian items, wraps and other localized fare. On a seasonal basis, McDonald’s offers the McRib sandwich. Some speculate the seasonality of the McRib adds to its appeal.Various countries, especially in Asia, are currently serving soup. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos (such as the religious prohibition of beef consumption in India) or to make available foods with which the regional market is more familiar (such as the sale of McRice in Indonesia). In Germany, McDonald’s sells beer.

 

Types of restaurants

Most standalone McDonald’s restaurants offer both counter service and drive-through service, with indoor and sometimes outdoor seating. Drive-Thru, Auto-Mac, Pay and Drive, or “McDrive” as it is known in many countries, often has separate stations for placing, paying for, and picking up orders, though the latter two steps are frequently combined; it was first introduced in Arizona in 1975, following the lead of other fast-food chains. The first such restaurant in Britain opened at Fallowfield, Manchester in 1986.

In some countries, “McDrive” locations near highways offer no counter service or seating. In contrast, locations in high-density city neighborhoods often omit drive-through service. There are also a few locations, located mostly in downtown districts, that offer Walk-Thru service in place of Drive-Thru.

To accommodate the current trend for high quality coffee and the popularity of coffee shops in general, McDonald’s introduced McCafé, a café-style accompaniment to McDonald’s restaurants in the style of Starbucks. McCafé is a concept created by McDonald’s Australia, starting with Melbourne in 1993. Today, most McDonald’s in Australia have McCafés located within the existing McDonald’s restaurant. In Tasmania, there are McCafés in every store, with the rest of the states quickly following suit. After upgrading to the new McCafé look and feel, some Australian stores have noticed up to a 60% increase in sales. As of the end of 2003 there were over 600 McCafés worldwide.

Some locations are connected to gas stations/convenience stores, while others called McExpress have limited seating and/or menu or may be located in a shopping mall. Other McDonald’s are located in Wal-Mart stores. McStop is a location targeted at truckers and travelers which may have services found at truck stops.

Since 1997, the only Kosher McDonald’s in the world that is not in Israel, is located in the Abasto mall, in Buenos Aires, Argentina.

 

Conclusion

McDonald’s restaurants are found in 119 countries and territories around the world and serve 58 million customers each day.] McDonald’s operates over 31,000 restaurants worldwide, employing more than 1.5 million people. The company also operates other restaurant brands, such as Piles Café.

Focusing on its core brand, McDonald’s began divesting itself of other chains it had acquired during the 1990s. The company owned a majority stake in Chipotle Mexican Grill until October 2006, when McDonald’s fully divested from Chipotle through a stock exchange. Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald’s sold Boston Market to Sun Capital Partners.

Notably, McDonald’s has increased shareholder dividends for 25 consecutive years, making it one of the S&P 500 Dividend Aristocrats. In October 2012, its monthly sales fell for the first time in nine years].

 

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