McDonald's SWOT analysis 2016

| April 5, 2016

Company Background

Name McDonald’s Corporation
Logo
Industries served Restaurants (McDonald’s, McCafé, McExpress, McStop)
Geographic areas served Worldwide (36,525 restaurants in 119 countries)
Headquarters Oak Brook, Illinois, United States
Current CEO Steve Easterbrook
Revenue US$25.413 billion (2015) 7.4% decrease over US$27.441 billion (2014)
Profit US$4.529 billion (2015) 4.8% decrease over US$4.758 billion (2014)
Employees 420,000 (2016)
Main Competitors Burger King Worldwide, Inc., Darden Restaurants, Inc., Doctor's Associates, Inc., Domino’s, Inc., Yum! Brands, Inc., Starbucks Corporation, Wendy’s Company and many other restaurant chains.

Business description

McDonald’s Corporation’s business overview from the company’s financial report:

"General

The Company operates and franchises McDonald’s restaurants, which serve a locally-relevant menu of quality food and drinks sold at various affordable price points in more than 100 countries. McDonald’s global system is comprised of both Company-owned and franchised restaurants. McDonald’s franchised restaurants are owned and operated under one of the following structures - conventional franchise, developmental license or affiliate. The business relationship between McDonald’s and its independent franchisees is of fundamental importance to overall performance and to the McDonald’s Brand. This business relationship is supported by an agreement that requires adherence to standards and policies essential to protecting our brand.

The Company views itself primarily as a franchisor, with the vast majority of McDonald’s restaurants (approximately 82%) owned and operated by independent franchisees. Franchising enables an individual to own a restaurant business and maintain control over personnel, purchasing, marketing and pricing decisions, while also benefiting from the strength of McDonald’s global brand, operating system and financial resources. One of the strengths of this model is that the expertise gained from operating Company-owned restaurants allows McDonald’s to improve the operations and success of all restaurants while innovations from franchisees can be tested and, when viable, efficiently implemented across relevant restaurants.

Conventional franchisees contribute to the Company’s revenue stream through the payment of rent and royalties based upon a percent of sales. The conventional franchise arrangement typically lasts 20 years, and franchising practices are generally consistent throughout the world. Over 70% of franchised restaurants operate under conventional franchise arrangements.

Products

McDonald’s restaurants offer a substantially uniform menu, although there are geographic variations to suit local consumer preferences and tastes. In addition, McDonald’s tests new products on an ongoing basis.

McDonald’s menu includes hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, wraps, french fries, salads, oatmeal, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafé beverages and other beverages. In addition, the restaurants sell a variety of other products during limited-time promotions.

McDonald’s restaurants in the U.S. and many international markets offer a full or limited breakfast menu. Breakfast offerings may include Egg McMuffin, Sausage McMuffin with Egg, McGriddles, biscuit and bagel sandwiches and hotcakes.

Quality, choice and nutrition are increasingly important to our customers and we are continuously evolving our menu to meet our customers' needs.

Customers

The Company’s business is not dependent upon either a single customer or small group of customers.

Number of employees

The Company’s number of employees worldwide, including Company-operated restaurant employees, was approximately 420,000 as of year-end 2014.”[1]

McDonald's SWOT 2016 Factors

Strengths

1. Diversified income streams. One of McDonald’s main strengths is its diversified income streams. The fast food chain’s revenues come from various countries, regions and products. It doesn’t rely on one key source of income, unlike some of its rivals.

McDonald’s sales from its company-owned restaurants were US$16.488 billion or 64.9% of its total revenues. Revenues from franchisee stores were US$8.925 billion or 35.1% of the company’s total revenues in 2015.[1] Few other rivals receive as much revenue from their franchisees as McDonald’s.

Figure 1. McDonald’s and its competitors’ revenue breakdown in 2015 (revenue in US$ billions)

Company Company sales % of total revenue Revenue from franchisees % of total revenue Total revenue
McDonald’s 16.488 64.9 8.925 35.1 25.413
Yum! Brands 11.145 85 1.960 15 13.105
Burger King 2.169 53.5 1.883 46.5 4.052
Wendy’s 1.438 76.7 0.431 23.3 1.870

Source: The respective companies’ financial reports[1][2][3][4]

These numbers indicate that Yum! Brands and Wendy’s have to heavily rely on their directly-owned restaurants to generate most of their income, while Subway (no financial information provided) relies on franchisees for its income. Only Burger King has managed to balance its revenue sources in 2015. In both situations, where the respective companies are relying on one primary source of income, aren’t ideal for McDonald’s competitors.

McDonald’s income is also much more geographically diversified than its rivals.

Figure 2. McDonald’s and its competitors’ geographic revenue breakdown in 2015 (revenue in US$ billions)

Company Income from the U.S. % of total revenue Rest of the world % of total revenue Total revenue
McDonald’s 8.559 33.7 16.854 66.3 25.413
Yum! Brands 6.909* 52.7 6.196 47.3 13.105
Burger King 0.982 24.2 3.070 75.8 4.052
Wendy’s 1.749 93.5 0.121 6.5 1.870

Source: The respective companies’ financial reports[1][2][3][4] (Yum! Brands revenues are for China not for U.S.)

Wendy’s rely heavily on sales from the U.S., while more than 52% of Yum! Brands’ income comes only from China.

McDonald’s diversified income streams are a strength that allow it to grow more consistently. The company isn’t as affected by major market, political, legal, economic, social or other environmental changes in various regions as much as other fast food companies.