SWOT analysis of McDonald's (5 Key Strengths in 2018)

Ovidijus Jurevicius | March 17, 2018

SWOT analysis of McDonald's Corporation

This McDonald’s SWOT analysis reveals how the most successful fast-food chain company of all time uses its competitive advantages to continue dominating fast-food industry.

It identifies all the key strengths, weaknesses, opportunities and threats that affect the company the most. If you want to find out more about the SWOT of McDonald’s, you’re in the right place.

For more information on how to do a SWOT analysis please refer to our article.

Keep reading.

Company Background

Key Facts
Name McDonald’s Corporation
Founded May 15, 1940
Logo
Industries served Restaurants
Geographic areas served Worldwide (37,241 restaurants in 120 countries)
Headquarters Oak Brook, Illinois, United States
Current CEO Stephen J. Easterbrook
Revenue (US$) 22.820 billion (2017) 7.3% decrease over 24.622 billion (2016)
Profit (US$) 5.192 billion (2017) 10.8% increase 4.687 billion (2016)
Employees 235,000 (2018)
Main Competitors Burger King Worldwide, Inc., Darden Restaurants, Inc., Doctor's Associates, Inc. (Subway), Domino’s, Inc., Dunkin' Brands Group, Inc., Yum! Brands, Inc. (KFC), Starbucks Corporation, Wendy’s Company and many other restaurant chains.

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 beverages sold at various 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 is primarily a franchisor, with more than 90% of McDonald's restaurants currently owned and operated by independent franchisees.

Franchising enables an individual to be their own employer and maintain control over all employment related matters, marketing and pricing decisions, while also benefiting from the strength of McDonald’s global brand, operating system and financial resources.

The Company’s typical franchise term is 20 years. The Company requires franchisees to meet rigorous standards and generally does not work with passive investors. The business relationship with franchisees is designed to ensure consistency and high quality at all McDonald’s restaurants.

Conventional franchisees contribute to the Company’s revenue through the payment of rent and royalties based upon a percent of sales, with specified minimum rent payments, along with initial fees paid upon the opening of a new restaurant or grant of a new franchise.

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, chicken sandwiches, wraps, french fries, salads, oatmeal, shakes, desserts, sundaes, soft serve cones, pies, soft drinks, coffee 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.”[1]

You can find more information about the business in McDonald's official website or Wikipedia’s article.

McDonald's SWOT analysis

Strengths

1. The second-largest restaurant network serving customers in over 120 countries

As of 2018, McDonald’s operates the second-largest restaurant network in the world. In total, the company and its franchisees operate 37,241 restaurants in 120 countries.

Figure 1. Largest quick service restaurant (QSR) chains by number of locations in 2018
Rank Brand Name Locations
1. Subway 43,772
2. McDonald's 37,241
3. Starbucks 27,339
4. KFC 21,487

Source: The respective Companies’ financial reports and official websites [1][2][3][4][5]

In terms of sales, McDonald’s outrivals any other QSR chain in the world with US$22.820 billion in sales in 2017 alone (earning slightly more than Starbucks). The sheer size of the company’s restaurant network is a strength that provides many advantages over competitors, including:

  • Economies of scale. The company can share its fixed costs over many restaurants locations, which makes McDonald’s one of the cheapest places to eat at.

  • Huge gains from implementing best practices. The company can identify better ways of performing tasks, managing restaurants or hiring new employees and can achieve huge gains by implementing these best practices in its vast network of restaurants.

  • Market power over suppliers and competitors. Due to its size, McDonald’s can exercise its market power over suppliers by requiring lower prices from them. The company clearly demonstrates this with The Coca Cola Company.

    Because of McDonald’s and The Coca Cola Company’s agreement, no other restaurant chain can sell Coca Cola drinks for lower prices than McDonald’s, even if it means losing the business to PepsiCo.

    The Coca Cola Company could easily get out of such agreement if McDonald’s wouldn’t be so huge and would generate less income for The Coca Cola Company. McDonald’s can also use its size to affect the competition by underpricing some of its items or driving them out of the best locations.

  • Wide audience reach. McDonald’s restaurant network allows the chain to reach more customers than most of its rivals could reach. According to the Company’s CEO[6], in five of its largest markets, 75% of population lives within 3 miles of McDonald’s restaurants.

    Wide audience reach does not only help the company to target more customers and increase brand awareness, but also to introduce new services, such as home delivery.

2. The most recognizable brand in restaurant industry

McDonald’s opened its first restaurant in 1940.[7] Since then, the company has become the world’s largest restaurant chain in terms of revenue with the most recognizable brand in the market.

According to Forbes[8] and Interbrand[9], McDonald’s brand is 9th and 12th most valuable brand in the world, worth US$40.3 billion and US$41.533 billion, respectively. No other restaurant brand, except Starbucks, is included in the list of the top 50 most valuable brands.

The brand value is closely related to the brand recognition and reputation. Usually, the more valuable a brand is the better it is recognized worldwide. McDonald’s, which operates in 120 countries, where billions of people live, enjoys some of the greatest brand awareness among all global corporations.

Only KFC operates in more countries (131)[4] than McDonald’s and can compare in brand awareness with it. Brand awareness also helps to introduce new products or sell the current ones faster as the company needs to spend less money on advertising.

While, McDonald’s reputation has suffered a lot during the years, the company is still recognized for its innovations in fast-food industry and the American business values it brings to other countries.

Figure 2. McDonald’s brand value 2000-2017

McDonald's brand value increased from US$27.9 billion in 2000 to US$41.5 billion in 2017.

Source: Interbrand [9][10][11][12][13]

Few direct competitors have such a valuable and recognizable brand, which strengthens the company.

3. Focus on improving customer experience through stronger digital capabilities

Over the last few years, McDonald’s struggled to revive its slowing sales. The traffic to the company’s restaurants was decreasing each year up until 2017 when it improved only slightly.

Customers are turning away to newer brands, which offer both, better quality food and service. In order to combat that, McDonald’s CEO Steve Easterbrook has announced a new plan, which focuses on improving customer experience through stronger digital capabilities.[14]

The company has been lacking in its digital efforts and lagged behind rivals, such as Starbucks, Panera Bread and Dunkin’ Donuts. In 2016, the company has announced a new concept of its restaurants called ‘Experience of the Future’. The new concept of restaurants is aimed at improving customer experience through faster and more convenient ordering.

The new restaurants include digital ordering kiosks, order personalization and table service as well as improved functionality of McDonald’s app. The company has already seen the success with the ‘Experience of the Future’ concept and is accelerating the deployment of such restaurants across the U.S. and international markets.[14]

In addition to the new concept restaurants, McDonald’s has introduced mobile ordering and payment app, which allows skipping lines entirely. The company is also planning to facilitate drive-thru experience by introducing more digital solutions to its customers.

Although it’s just the beginning of McDonald’s efforts to build stronger digital capabilities, the introduction of new digital solutions and expansion of Experience of the Future restaurants has already improved ordering process and overall customer experience.

Few companies are capable of converting their digital efforts to real gains for their customers.

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Published: March 17, 2018
Format: PDF + PowerPoint
Pages: 26
Words: 5,100
Charts/tables: 9
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Table of contents

  • Company Overview
  • SWOT Analysis
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Summary
  • Sources

Sources

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About Ovidijus Jurevicius

Ovidijus is the founder of SM Insight and the lead writer since 2013. His interest and studies in strategic management turned into SM Insight project, the No.1 source on the subject online.

He's been using his knowledge on strategic management and swot analysis to analyze the businesses for the last 5 years. His work is published in many publications, including three books.