Milestone #1
Timothy Venable
Regent University
ECON 230 - Macroeconomics
Dr. Jeff Bajah
March 27, 2022
McDonald’s Overview
In 1954, Ray Kroc visited Dick and Mac McDonald’s restaurant (Our History, McDonald’s, para. 3). Their menu featured a limited number of items—drinks, burgers, and fries (Our History, McDonald’s, para. 3). With fewer items, they could serve their customers more quickly; Kroc was impressed by their operational effectiveness and became their franchising agent (Our History, McDonald’s, para. 3-4). “In 1955, he founded McDonald’s System, Inc., a predecessor of the McDonald’s Corporation, and six years later bought the exclusive rights to the McDonald’s name and operating system” (Our History, McDonald’s, para. 4). Today, McDonald’s is the “biggest fast-food chain in the world” (Chia et al., 2020, p. 38). They serve “over 69 million customers daily in 119 countries with approximately 32,000 outlets” (Chia et al., 2020, p. 38).
McDonald’s Comparative Advantage
McDonald’s has become a household name, not only across America, but across the world. “McDonald’s is a globally established corporation and an iconic brand, which has penetrated international markets by adapting scientific service management techniques to local contexts (Vignali, 2001)” (Osman et al., 2014, p. 240). There are many strengths associated with McDonald’s. These include its “strong brand name” and image, its “large product range”, its “diversification of…products”, its “[c]ustomer service”, its “employee training”, and its employee benefits (Chia et al., 2020, pp. 39-40). In fact, McDonald’s was one of the pioneers in fast-food franchising. Their franchises provided customers with their food in a short time span at an affordable price. Ever since their start in 1955, they have grown exponentially. They have many locations around the globe and maintain a strong brand name and image. Additionally, they invest in their employees with proper training and offer them a few benefits including healthcare coverage (Chia et al., 2020, p. 40).
McDonald’s Supply & Demand
McDonald’s products are inextricably tied to their services. McDonald’s quick service and cheap prices on their sandwiches, fries, and drinks incentive customers to purchase food at their locations. “McDonald’s ranked #3 on the 2012 Gartner’s Supply Chain Top 25 list…The model used...revolves around three basic areas: Supply management, Demand management, and Product management” (Rowley & McMurtrey, 2016, p. 34). McDonald’s is able to meet the service demands of their customers through proper employee training and incentives. And is able to meet their customers’ product demands “by using multiple suppliers, but working closely with them to achieve close consistency (Young, 2005)” (Rowley & McMurtrey, 2016, p. 35).
"Due to…[McDonald’s] concerted efforts to work with…suppliers for uniformity, the system has the benefit of being local to individual restaurants, yet with enough flexibility to shift production around the country (and potentially the world) depending on needs of the chain as a whole (Young, 2005)" (Rowley & McMurtrey, 2016, p. 35).
America and Japan’s GDP
The top two countries with the most McDonald’s locations include the United States and Japan. In the United States, “McDonald’s recorded a revenue of approximately 7.66 billion U.S. dollars” in 2020 (Revenue of McDonald’s Corporation worldwide in 2020, by region, 2022, para. 1). And in Japan, McDonald’s operating profit reached “30 billion yen ($285 million)” in 2020 (Nikkei Asia, 2021, para. 1). According to The Heritage Foundation, in 2020, America’s GDP was $20.9 trillion (United States, p. 428), while Japan’s was $5.3 trillion (Japan, p. 242).
Factors Affecting McDonald’s Profitability
There are many economic factors that can affect the profitability of McDonald’s. These include economic recession and governmental regulations (Chia et al., 2020, pp. 41-42). Since “McDonald’s revenue streams are diversified, they will be negatively impacted by the trickledown effect depending on the length of the economic recession” (Chia et al., 2020, p. 41). During times of recession, people have tighter budgets and tend to spend less money on fast-food (Chia et al., 2020, p. 41). Additionally, “[t]he fastfood industry, including McDonald’s, is facing higher government control and oversight. Due to that, the costs of operation have become higher” (Chia et al., 2020, p. 41). And with “higher regulatory pressure”, “McDonald’s will face troubles while expanding into overseas markets” (Chia et al., 2020, p. 42).
References
Chia, X. R., Kee, D. M. H., Khor, S. T., Chin, K. Y., Lok, T. X., Almutairi, H. A., ... & Kulkarni,
S. (2020). Contributing Factors to Organizational Success: A Case Study of McDonald’s. International journal of Tourism and hospitality in Asia Pasific (IJTHAP), 3(2), 38-47.
Nikkei Asia. (2021, February 5). McDonald's Japan to post highest operating profit of $285M.
Nikkei Asia. Retrieved March 18, 2022, from https://asia.nikkei.com/Business/Companies/McDonald-s-Japan-to-post-highest-operating-profit-of-285m.
Osman, H., Johns, N., & Lugosi, P. (2014). Commercial hospitality in destination experiences:
McDonald's and tourists' consumption of space. Tourism Management, 42, 238-247.
Our History. McDonald’s. (n.d.). Retrieved March 18, 2022, from
https://www.mcdonalds.com/us/en-us/about-us/our-history.html.
Revenue of McDonald’s Corporation worldwide in 2020, by region. Statista. (2022, February
25). Retrieved March 18, 2022, from https://www.statista.com/statistics/219453/revenue-of-the-mcdonalds-corporation-by-geographic-region/.
Rowley, B., & McMurtrey, M. E. (2016). McDonald’s and the Triple Bottom Line: A Case
Study of Corporate Sustainability. Journal of Strategic Innovation and Sustainability, 11(1), 33-37.
The Heritage Foundation. Japan. 2022 Index of Economic Freedom,
https://www.heritage.org/index/pdf/2022/countries/2022_IndexofEconomicFreedom-Japan.pdf
The Heritage Foundation. United States. 2022 Index of Economic Freedom,
https://www.heritage.org/index/pdf/2022/countries/2022_IndexofEconomicFreedom-United-States.pdf
Hi Timothy,
McDonald’s is a great topic. I am against the way Ray Kroc went about gaining ownership (manipulating and stealing) and preventing the brothers (Richard and Maurice McDonald) from succeeding in the only restaurant they had left – “Ray quickly ran circles around them, set up a new store across the road from the brothers and the brothers had to shut down … it is a lesson for entrepreneurs – be careful of handshakes since they do not necessarily get honored; put everything down in the contract” (Miranda, 2017). I found it just, that his widow was a philanthropist who systematically gave the majority of this wealth away.
However, despite Kroc’s morals, he was an innovative thinker. Concerning McDonald’s, I believe it is strategically ingenious that while the public and rivals focus on its great-tasting burgers, etc., the company has actually been building extensive real estate portfolios, owning the land on which each McDonald’s restaurant sits. I also see their marketing strategy of attracting children to their brand as their greatest popularity gain and profit over the years because not many parents can say no to their little children. Their low prices also attract many adults, and the company/restaurant gaining nicknames such as Micky D's make the brand feel endeared like family (giving brand attachment/loyalty). The article states, “names are powerful ways to establish social connections and to indicate relationship qualities … Names, particularly nicknames, can help people understand the nature of a given relationship in a social context” (Zhang & Patrick, 2021, p. 60). The love of children and familiarity by adults coupled with the low prices make the demand for their products great globally.
Also, they have a great comparative advantage over their rivals (Burger King, Wendy’s, etc.) through mastery of vertical integration because they own and provide much of their own supply (cows, crops, processing, logistics, etc.) which gives them a sustainable quality supply source and allows them to save cost and to offer such low prices to consumers. The article states, “everything that makes McDonald’s, McDonald’s, is done through a vertical integration supply chain, and evidently it really works for them … but there are plenty of companies using the system and not experiencing the growth that they do … this system does give them a lot of control over supplies” (Supply Chain Management, n.d., p. 1).
Blessings!
References
Miranda, L. (2017, June 9). Lessons for entrepreneurs from the McDonald brothers and Ray Kroc. Forbes India. https://www.forbesindia.com/blog/accidental-investor/lessons-for-entrepreneurs-from-the-mcdonald-brothers-and-ray-kroc/
Supply Chain Management. (n.d.). McDonald’s supply chain management is the secret to their success! Box Around The World. https://boxaroundtheworld.com/mcdonalds-supply-chain-management/
Zhang, Z., & Patrick, V. M. (2021). Mickey D’s has more street cred than McDonald’s: Consumer brand nickname use signals information authenticity. Journal of Marketing, 85(5), 58–73. https://doi.org/10.1177/0022242921996277