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CASE STUDY ANALYSIS MCDONALDS: IS CHINA LOVINS IT?

SUBMITTED TO: Professor Dr. D.D Swain Associate Professor (Marketing)

SUBMITTED BY:Iliyas ahmad 1st Year PGDM

DECLARATION
I Iliyas ahmad, student of IMI Bhubaneswar PGDM 2012-2014 1st batch declared that the case study analysis has been entirely done by me.

INDEX

S. No 1. 2. 3. 4. 5.

Title

Page No. 4 5 6 7 8-9

Introduction of case study Market analysis Five forces model Macro environmental analysis SWOT analysis

INTRODUCTION
McDonalds is global brand of fast food origin from America. It entered china in 1990, before chinas franchise law was introduced. By 2008 McDonalds was the second-largest fast food provider in china in term of number of outlet and popularity after KFC. McDonalds china approach: McDonalds localization approach: it offered different experience to Chinese customer through efficient self-service, standardized serving, less reliance on eating utensils, a clean environment and a comfortable atmosphere. Use of local ingredients: McDonalds had established a network of local farmers, food processing manufacturers and other suppliers. By 2006 95% of materials employed by McDonalds in its supply chain for the Chinese market.

Unique store design and innovative Chinese menu: to blend in to local culture McDonalds decorated its restaurants with design symbolizing Chinese culture. From time to time other side-dishes inspired by Chinese diet were added to the menu. 24 hour service: McDonalds had begun extending its business hours to 24 hours per day since the beginning of 2006. By mid-2007 nearly half of its restaurants in china operated 24 hours per day.

Alliance with internet shopping site and delivery service: in September 2007 McDonalds partnered with a popular Chinese online shopping site, Taobao.com. it provide McDonalds a greater online presence than its direct competitors.

Tier pricing: to respond to an uneven wealth distribution in a big country, McDonalds explored the use of a tier pricing model in china to sell products at a range of prices for consumer with different pricing power.

Market analysis:
Top fast food market player in China: 1. KFC 2. McDonalds 3. Dicos 4. Caf De Coral 5. Ajisen Ramen 6. Burger King 7. Japan Mos Burger

McDonalds biggest rival KFC was the first foreign company who bring the concept of fast food in china in 1987 before 5 year of McDonalds. in the same year in 1990 Pizza Hut also opened its first store in Beijing and introduced another new concept of casual dining. Companies originated from Asia which were familiar with both Chinese taste and western management style also emerged in Chinese market. In 1992 Hong Kong caf de coral entered in china which was a market leader in fast food in Hong Kong. In 1994 Taiwans Ting Hsin entered in china. Another popular fast food brand Japans noodle chain entered in china in 1995. In 2005 Burger King launched in china. Another Burger restaurant Japan Mos Burger the largest fast food franchise in japan entered in china in 2008. After this tough competition McDonalds was the second top player in Chinese fast food market after KFC.

Now the question is that would McDonalds be able to sustain its momentum as china transferred itself into a developed nation? What would be the opportunities and threats presented to McDonalds by transforming environment in china?

McDonalds: is china lovin it and Five forces model:

Competitive rivalry between suppliers: There are many fast food options in China. McDonalds is the second largest fast food provider and their primary rival is Kentucky Fried Chicken (KFC). Other competitors in China in the fast food industry include noodle and dumpling stalls. Local Chinese restaurants sell light and simple food such as noodles, dumplings, wantons, and steamed bread, which are all becoming part of the fast food culture in China. Rivalry is a strong competitive force. Threat of new market entrants: After numerous attempts in the 1990s by various local and regional Chinese fast food chains, some successful and some not so successful, many companies could not compete in this environment. In the mid-2000s, new market entrants into the Chinese fast food industry were U.S.-based Burger King, and Subway and Japans Mos Burger. Themed restaurants and Starbucks also entered the mix of new entrants. Although these new entrants offer a different experience, the growing middle class of China still wants McDonalds to be a Western brand. The threat of new entrants is a moderate competitive force. Bargaining power of buyers: Buyers do not have any switching costs. The buyers just simply go to a different fast food restaurant, a traditional Chinese meal served on communal plates, or cook at home. Buyers can purchase from several sellers. Buyers are a strong competitive force because they have a lot of leverage. McDonalds has recognized this and has offered tiered pricing, altered their menu, trained their staff to ensure quality and consistency, and updated their dcor. Power of suppliers: McDonalds set up its own internal supply network to sell to both the domestic and export markets. Chinese partners created joint ventures with McDonalds and strengthened McDonalds supply chain. The supply chain created by McDonalds has created 95% of the materials needed. It would be costly for McDonalds to switch suppliers because of the joint venture that they entered into with their Chinese partners. This makes the suppliers a strong competitive force. Threat of Substitute Products: Many substitute products exist in the fast food arena. If you look at McDonalds as a hamburger fast food restaurant, substitute products would be noodles, dumplings, sandwiches, chicken, and pizza. Traditional Chinese restaurants and home cooked meals are also substitutes to the McDonalds hamburger. There is a vast array of substitute products available for the Chinese consumer. This makes substitute products a moderate competitive force.

McDonalds: is China lovin it (Analyzing the macro environment):-

Demographic environment: there is a growing interest for western food and night-life in teens and young adults. Growing population of young people and their inclination toward the western culture. Economical environment: Chinese food culture and life-style were changing due to surging economic growth and massive urbanization. The income varies to a large extent depending upon the region which needs for tier price model in different areas. This tier price model help for different consumer according to their purchasing power. Social culture environment: they offered different experience to Chinese customer through efficient self-service, standardized serving, less reliance on eating utensils, a clean environment and a comfortable atmosphere. McDonalds were considered to a place to socialize with friend even though the food were more costly. Global environment: as part of its localization strategy McDonalds china demonstrated the company commitment through its Olympic 2008 campaign I am lovin it when china wins. However it was criticized heavily in USA as they believe McDonalds was after all a US company. Technological environment: there was a growing popularity of internet shopping among Chinese young generation. To increase its exposure and attract this internet users McDonalds partnered with a local Chinese online shopping site Toabao.com. Political-legal environment: due to legal restriction McDonalds did not follow its franchisee model as it did in the other part of the world and operates under direct investment. But now liberalization of franchisee help them to do their business more freely and confidently.

SWOT Analysis (McDonalds: is china lovin it):

Strength: 1. Strong global presence with 32060 restaurant in 118 countries of the world. 2. World- wide brand image and reputation. It follows same strategy in every market of the world but also take consideration of local beliefs. 3. Launched innovative product from time to time to regularly attract the customer such as happy meals for kids. 4. Tier prices for different customer with different purchasing power.

Weakness: 1. Quality issues across the entire restaurant. Customer requires same quality food in all the restaurant which McDonalds fail to provide regularly. 2. The core product of McDonalds does not meet the trend toward the healthier lifestyle of child and adults. 3. Focus mainly on beef burger in china. 4. Poor advertisement policy which consider offensive by locals which affects the brand image.

Opportunities: 1. Growing income and increased purchasing power. 2. Rapidly growing middle class and their demand for higher standard of living. 3. Liberalization of franchisee sector help them to expand business more confidently. 4. Westernization of youth and curiosity regarding the western culture provide opportunity to attract young people 5. Increase in usage of mobile and internet create additional marketing channel for the company to reach people.

6. China potentially one of the fastest growing market stimulate sale 7. Growth of fast food industry in china 8. Increase in awareness for healthy fast food.

Threats: 1. Growing awareness among people for healthy foods. 2. Increasing competition from both local and foreign fast food chain 3. Growing social and environmental concern of the people 4. Rising inflammation which force them to rise price