Wednesday, June 1, 2011

Week III: Analyzing the External Strategic Environment and Evaluating Industry Dynamics


Week III: Analyzing the External Strategic Environment and Evaluating Industry Dynamics
After a long deliberation and contemplation, an idea finally struck my mind. Earlier this afternoon, I went out for lunch. I wanted to have some Chinese but decided to go to McDonalds instead for a quick bite. McDonalds in Australia are similar to the ones in the US, yet different. The one that I went to even had a small cafĂ© section to it - selling latte, cappuccino, cakes, pudding, and so forth. That’s how I picked up on this week’s blog topics of external strategic environment and evaluating industry and I am going to reflect them on McDonalds.
McDonalds has been equated to globalization and is probably the most iconic representative of globalization. I wondered what strategic planning it undertook and how have the industry dynamics and external environmental factors affected its strategy development. A quick little research revealed that the fast food chain was trading at $80 - up from the $13.45 it was at just six years ago. Their global same-stores sales were up 7.1% in January, while paying a $0.50 dividend. Recession, a typically adverse external environment for most businesses, is in fact favorable to McDonalds. While during consumer downturns of the early and mid-1990s, McDonalds’ average sales per restaurants declined, according to UBS analyst David Palmer, during past recession, the sales have been up. Total revenue during the quarter that ended March 31, rose 9 percent to $6.1 billion during which period, the stock price went up 25%. Further research revealed that McDonalds’ plans to expand into the beverage department. They've already debuted "McCafes," which offer cheaper lattes and frappes.


Other important strategies: By accepting credit cards, using drive-throughs and keeping many locations open 24 hours, McDonalds makes it a very easy food choice for people working longer hours or shuttling between jobs.
McDonalds has mostly thrived not only against pricier fair, but also versus its peers. Compared to its immediate competitor Burger King, McDonald’s performance over past period has been spectacular.
McDonald's CEO Jim Skinner claim that they emphasize 'value' in everything they do and communicate that to customers, either through service, convenience, coffee or whatever. Since taking over McDonald Skinner emphasized on industry evaluation and took McDonald on a ride. The products, menu and the store formats were updated, broadening the chain's appeal to more sophisticated consumers. Better salads and chicken sandwiches were introduced. Chicken nuggets and, most especially coffee, were upgraded.
It is important to emphasize that McDonalds has been successful in internalizing external strategic environment whereby it has defied the common knowledge that recession is bad for businesses. 25% rise in share price and US$3 billion in profit during recession speak for McDonald’s strategic direction. In addition, understanding the dynamics of fast food industry, McDonald made some drastic changes in its services and range of services it offered and capitalized on it.
With market capitalization of over US$84.687 billion, McDonald, today, operates its 31,000 outlets in over 122 counties.


References:
1. http://uk.finance.yahoo.com/echarts?s=MCD#symbol=mcd;range=5y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
2. http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-4-McDonalds-profit-Dec-same-store-sales-ris-ZXPT7?OpenDocument
3. http://en.wikipedia.org/wiki/List_of_countries_with_McDonald's_franchises

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