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Introduction to McDonalds

Question:

Discuss about the Business Plan for McDonalds Food Chain.

McDonalds is the famous destination for a huge customer base every day and making it one of the biggest fast food chain all over the world. Now, the company is considered as a leading fast food organization in terms of restaurants and revenues and profits. Currently, it has 36900 stores in more than 100 nations and provided employment to 385000 employees all over the world. It is headquartered in Oak Brook, Illinois, but it has its operations span from USA to Europe to Middle East and then to Pacific Region (McDonalds, 2012). The stores of McDonalds serve with a standardized menu with the food products such as; burgers, soft drinks, milkshakes, salads, cookies, cheeseburgers, French fries, shakes, coffee, flavored tea, chicken etc. In addition to this, the company offers breakfast items especially in United States and other global markets. Breakfast offerings include biscuits, muffins, hotcakes, bagel sandwiches etc. There are some brands, under which this company is marketing its products, like; McFlurry, Big Mac, Big N’Tasty, McNuggets, McMuffin etc.

Industry and market analysis is a method for evaluating the company’s current position in prospective industry and market. It assists in understanding the competition and about the major competitors in the market. Competitors are the major component, which are accountable for growth or failure of business. According to previous report, international fast food industry has reached to a value of $103 billion that has grown by 5%. There are various players including McDonalds, which are performing very well in the industry (Armstrong, et al, 2015). In the fast food industry, McDonalds is facing intense competition from some other leading players, like; KFC, Burger King, etc. However, McDonalds is listed as leading fast food chain, but still these competitors are affecting its business with innovative ideas. Burger King is one of the major competitors, which are offering the products, like; burger, salads, shakes etc. Tough the company is still a market leader with the potential of competitors growing the competition looks very much intense. These competitors in the fast food industry are making efforts to increase their revenues and sales by focusing on health concerns, as people are becoming more health conscious. To compete with the players, the company is using franchise model, which offers the scope for the expansion and development for this business entity (McDonalds, 2010).

Industry Analysis and Competition

Customer value proposition is the statement, which is prepared by an organization, when it introduces its new products and services. It states that why the customers should prefer to buy the products of this particular company. Primarily, it targets the customers rather than employees and other stakeholders. McDonalds is very famous for its customer value proposition. Under its business, the company is targeting the people, who love to eat outside their home (Baker, 2014). Under this expansion, the value proposition of McDonalds will include most convenient locations, efficient and fast service, comfortable seats and in-store amenities, a variety of fast food products, effective value offering and pricing etc. In addition to this, the company is making focus on offering the food products with the constant quality, which is served very fast and consistently all over the world. It is preparing the food by targeting the people of all age groups. This value proposition of company will entice a number of diverse target markets. Thus, by this value proposition, this company has various advantages over its major rivals, such as; facilities, locations, fast services and diverse product range (Bauer, 2012). 

When a company introduces a new business or new franchise, it needs to formulate new marketing strategies, so that it can reach to its potential customers. These marketing strategies can be developed under marketing mix tool, which includes 4 P’s of marketing. McDonalds will also use this tool to develop its strategies (Bhasin, 2016). The marketing mix for McDonalds is stated below;

Predominantly, McDonalds sells hamburgers and soft-drinks, which forms its standardized menu all over the world. In addition, the company offers different types of chicken products and other products, like; French fries, breakfast items and desserts. It provides diverse range of products within limited promotional durations. This element of marketing mix shows that McDonalds continuously tries to innovate its products to appeal more customers.

The pricing strategy of McDonalds includes the price bundling united with the emotional pricing. Under this process, the organization provides the meals and other product combos for discount. Under this pricing strategy, McDonalds offers prices, which appear to be critically more affordable. This component of McDonalds marketing mix includes the significance of price bundling to boost the customers to purchase the products of McDonalds (David, David, & David, 2016).

The restaurants of McDonalds are the most noticeable places, where the products and services of the company are distributed. This component of marketing mix tool demonstrates the locations and venues, where the company can offer its fast food products. There primary places of McDonalds for distribution of products are, such as; kiosks, restaurants, mobile app of the company and website of other food delivery firms. People can order their desired products through its McDonald’s website, Postmates website and application.

Customer Value Proposition

This company is engaged in promotion and advertising process for attracting more customers. The component of the marketing mix describes the methods, which are used to interact with the customers. There are different strategies, which are used by McDonalds for promoting its products, like; advertising, sales promotion, and public relations and direct selling of the products. It is primarily engaged in the direct selling to events, like; local government events, corporate clientele, community events and parties (Hill, Jones, & Schilling, 2014).

Thus, these marketing strategies of the company are assisting it in attracting the customers and increasing its all over customer base. It will help the organization in generating more revenues under competitive scenario.

In order to expand its business operations, McDonalds will create an operations plan under its business plan. This operation plan will includes all the operations strategies and processes, which will support its overall objectives. The operations management of this company will assist its position as one of the largest fast food chain in the world. There are some areas, which need to be considered in formulating its operation plan. These operation practices are stated below;

The major goal of McDonalds in this area is to offer affordable products. The prices and serving size of products are done on the basis of needs and expectations of customers. However, some of the products of this company are reduced in the size to make more affordable for all the people (Kenawy, 2015).

McDonalds aims to enhance the quality of products with components, like; price limits and costs. It implements a production line approach for maintaining the consistent quality of products. Quality consistency fulfills the expectations of customers about this company and its brand under quality management.

Under this aspect of operations management, the major objective of the company is to choose a strategic location, so maximum people can reach to its products and services. The above-mentioned marketing mix of the company includes kiosks, outlets and websites as venues. Via these strategic locations, the company reaches to its customers in modernized and traditional ways (Kotlar & Armstrong, 2012).

Human Resource Management of McDonalds is also an important part of operations management. The company will use effective HR strategies, which will include the training and development program for improving the skills and abilities needed for production in kitchens and restaurants. Under this area of operation plan, organizational and individual learning are focused to aid the organizational culture of McDonalds (Lam, and Harker, 2015).

Marketing Strategies for McDonalds

The supply chain of firm aids its different locations all over the globe. This organization will implement a strategy of diversifying the supply chain for operation management. This type of strategy includes availing more suppliers from different areas to decrease the risks associated with supply chain at McDonalds.

Under inventory management, the company has the goal to reduce the inventory costs with aiding the operations in restaurants. It does not sell the ingredients and products directly to the restaurants. In its place, regional and local distributors communicate with the outlet managers of McDonalds to maintain the inventory and stock (New, 2015).

For introducing this new franchise, the company can reform its organizational structure as per its operations and departments. The management team and organizational structure of McDonalds facilitates managing the target markets on the basis of performance levels (Lee, Hallak and Sardeshmukh, 2016). The company is following a hierarchy structure, which includes all the concerned departments that play an important role in McDonalds’ operations. The diagram, given on next page indicates all the levels of management team at McDonalds and its company structure. There are different levels of management, like top level, middle level and lower level of management. All the levels have their separate roles and responsibilities in the organization. The top level management is liable for the goal setting, decision making, operation management etc. Other departments, like; marketing, finances, sales departments have their own duties and responsibilities for supporting the attainment of final objectives of McDonalds (McKeever, 2016).

By looking at the above diagram, it can be understood that company has a big management team, which support the organization in delivering effective food services to its potential customers.

The resources and capabilities of a company can be considered as its major business strategy. McDonalds possesses various resources, which leads the organization towards growth and success. The resources of the company are stated below;

This company possesses a wide range of physical resources, which are used in offering its services to the customers effectively. Its physical resources include the food outlet location that will be in a strategic location, like; mall or any other popular building in the city. It will have the sitting capacity of more than 50 persons. These fast food outlets are equipped with modern and latest storing and cooking utensils and equipment. There is the facility of playing room for the children and other fun activities also (Paul & Roy, 2014).

Operations Plan for McDonalds

In the food service organization, human resources play an important role. The major strength of food organization is not the machines, tools or cash flow; rather the employees are the major resources, which make the company more competitive and great. This organization understands that employee satisfaction is very important in attaining the overall objective of organization. It offers an effective training to the employees for their development. Under the hiring process, it selects the employees by considering their motivation level, integrity and educational qualifications (Popov and Roosenboom, 2013).

The leading player in Fast food industry, McDonalds serves as a training and development center, where it makes more focus on day-to-day training between and interaction between managers of all the levels. This training and development program starts with the lower level, like; first the person learns to cook the French fries. This resource of the company offers a foundation for enhancing the discipline, responsibility and organizational and interpersonal skills. They can learn to work in the team (Scarborough, 2015).

When an organization introduces its new business operations, then it thinks about raising the funds from different options. Acquiring the franchise of McDonalds can be major investment for the investors. For its business, the company is availing funds from different sources and options. It is working majorly with two banks, i.e. MayBank and CIMB. Both the banks are handling the financing activities for this company inside and outside the nation and offer the short term loans to McDonalds (Untaru & Ispas, 2013). In addition, the company is taking funds from U.S. bank, which is giving it various advantages, like; long term loans, i.e. 7 year term, business and financial solutions, fixed and adjustable rates etc. Thus, the company has a well-grown and established business, so there are so many bank and financial institutions, which are ready to invest their funds in the franchise of McDonalds.

The major objective of McDonalds is to expand its business operations to international markets. The company is expanding its business by offering variety of fast food products to customers. The financial projections for the company are given below;

For establishing this new franchise, McDonalds will have various start-up costs. These costs include kitchen and fixtures, interior and furniture, legal fees and rent. In addition, it will include the salaries, which will be given to the staff and restaurant employees in the future (West, Ford, & Ibrahim, 2015). The below given table includes all the start-up costs, which can be incurred in establishing this new franchise.

Start-up Requirements

Expenses

Amount

Fixtures and Kitchen

Interior and furniture

Legal expenses

Rent

Contingencies

Total Start-up Expenses

$35000

$25000

$5000

$15000

$6000

$86000

Start-up Assets

Cash

Long-term Assets

Current Assets

$55000

$0

$0

Total Start-up Requirements

$1,41,000

Personnel

1st Year

2nd Year

Managers

Cook

Cashiers

Waiters

$0

$25000

$40000

$20000

$50000

$50000

$55000

$35000

Total Payroll

$85000

$1,80,000

Human Resource Management

After evaluating other businesses, McDonalds has supposed that break even analysis indicates that it will require unit sales over 9700 per month to reach to break-even point. The below-plotted graph shows the break-even analysis for this organization.

For introducing this new franchise, McDonalds has made an effective financial plan, which will help the business in attaining its goals and objectives.      

McDonalds

Profit & Loss Statement

Amount ($)

Year 1

Year 2

Year 3

A.    Sales

$289,397

$312,314

$556,226

Direct Cost of Sales

$59,519

$113,694

$196,868

B.     Total Cost of Sales

$59,519

$113,694

$136,868

Gross Profit (A-B)

$229,878

$198,620

$359,358

C.    Operating Expenses

Salary

$157,000

$174,000

$190,000

Rent

$8,400

$8,400

$8,400

Insurance

$2,000

$2,000

$2,000

Utilities

$2,200

$2,200

$2,200

Depreciation

$636

$636

$636

Payroll taxes

$23,550

$26,100

$28,500

Sales and Marketing and Other Expenses

$12,800

$10,200

$9,200

D.    Total Operating Expenses

$208,586

$225,536

$242,936

Profit Before Interest and Taxes

$21,292

($26,916)

$116,422

EBITDA

$21,928

($26,280)

$117,058

Taxes

$20,095

$0

$24,397

Net Profit

$1,833

($26,280)

$92,661

Net Profit/Sales

0.63%

-8.41%

16.66%

Under this new implementation, McDonalds may face some risks, which may impact the business and growth of the company in fast food industry. There may be different type of risks, like; operational risks, currency risks, brand image risks and legal risks. Operation risk may occur, when there will be labor strikes and protests against the company. The company will need to make changes in its operations, as the people are becoming very much concerned about their health and they prefer to eat healthy and dietary food (Percy, 2014). It may affect the business of company. In addition, the company may face the currency risks, which need to be mitigated by the organization. When the company expands its business operations in international market, it needs to comply with the laws and regulations in that country. It is one of the major challenges for the organization.

To deal with the above-mentioned risks, the company will go with some strategic options. These strategic options will assist the organization in eliminating these risks and challenges. To handle the operation risks, the company should diversify its products and introduce a new segment with healthy and dietary food products. For mitigating the currency and financial risks, it can use hedging instruments. Before opening a new franchise, the company should make a market research in the target country market. It will assist the organization in understanding the imposed laws and regulations in new market. Introduction of healthier menu will assist McDonalds in fulfilling the demands and expectations of people of healthy food products (Yu, et al, 2016).

During the setup of this new franchise of McDonalds, the management team will conduct the planning and execution in building its outlets. The implementation of this business plan will include different key milestones. It will take some months along with the refinement and revision process, which will take a period before establishing this franchise (Percy, 2014). The key milestones for the organization are given in the below table;

Activity

Starting date

End Date

Manager

Concerned Department

Business plan formation

1/1/2018

1/4/2018

Marketing Manager

Marketing Department

Office set up

1/4/2018

1/7/2018

-

Owners

Website Creation

1/7/2018

1/10/2018

Managers

Information Technology department

Hiring of the people

1/10/2018

1/12/2018

Personnel manager

Personnel Department

Marketing Communication Program

1/1/2019

1/3/2019

Marketing Manager

Marketing Department

Grand Opening Materials

1/3/2019

1/4/2019

Owners

Material planning department

Training the staff

1/5/2019

1/6/2019

Human Resource executives

Human Resource Department

Conclusion

From the above analysis, it can be concluded that McDonalds can use this business plan for establishing its new franchise in the country. The report describes all the related aspects, which are needed to introduce new business and new business operations under existing organization. The company needs to include various marketing strategies, which can be used for attracting the customers towards its products and services. It is a fast food organization, so it needs various resources, which can assist the organization in implementing its operations. The company should go ahead with this business plan to deal with all the risks and challenges in the future. It can implement different strategic options to mitigate the associated risks and challenges.

References

Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction. Pearson Education.

Baker, M.J., 2014. Marketing strategy and management. Palgrave Macmillan.

Bhasin, H., 2016, Marketing Mix of McDonalds, retrieved from https://www.marketing91.com/marketing-mix-mcdonalds/

Bauer, C., 2012, An integrated decision model for strategic evaluation of the viability of new technologies, GRIN Verlag.

David, M.E., David, F.R. & David, F.R., 2016, The quantitative strategic planning matrix: a new marketing tool, Journal of Strategic Marketing.

Hill, C. W., Jones, G. R., & Schilling, M. A, 2014, Strategic management: theory: an integrated approach. Cengage Learning.

Kenawy, E.M., 2015. The economic importance of franchise Industry in Egypt. European Journal of Academic Essays, 1(9), pp.23-33.

Kotlar, P. & Armstrong, G, 2012, Principles of Marketing (14 edition), Pearson Education, Inc.

Lam, W. and Harker, M.J., 2015. Marketing and entrepreneurship: An integrated view from the entrepreneur’s perspective. International Small Business Journal, 33(3), pp.321-348.

Lee, C., Hallak, R. and Sardeshmukh, S.R., 2016. Innovation, entrepreneurship, and restaurant performance: a higher-order structural model. Tourism Management, 53, pp.215-228.

McDonalds., 2012, McDonalds Corporate Social Responsibility and Sustainability Report. Retrieved from https://mcdonalds.com.au/sites/mcdonalds.com.au/files/MCD_CRS_Complete.pdf.

McDonalds, 2010, About McDonalds. Retrieved from https://www.aboutmcdonalds.com/mcd.

McKeever, M., 2016. How to write a business plan. Nolo Publications.

New, S., 2015, McDonald’s and the challenges of a modern supply chain. Harvard Business Review.

Paul, R., & Roy, S. K., 2014, Case Study 11: Marketing of Services: The McDonald’s Way. In Marketing Cases from Emerging Markets (pp. 99-112). Springer Berlin Heidelberg.

Percy, L, 2014, Strategic Integrated Marketing Communications. Routledge Publications.

Popov, A. and Roosenboom, P., 2013. Venture capital and new business creation. Journal of banking & finance, 37(12), pp.4695-4710.

Scarborough, N.M., 2015. Entrepreneurship and effective small business management. Pearson Higher Ed.

Untaru, E., & Ispas, A., 2013, Why do young people prefer fast-food restaurants? An exploratory study: Journal of Tourism, (15), 27-34.

West, D. C., Ford, J., & Ibrahim, E, 2015, Strategic marketing: creating competitive advantage. Oxford University Press, USA.

Yu, Y., Wang, X., Zhong, R.Y. and Huang, G.Q., 2016. E-commerce logistics in supply chain management: Practice perspective. Procedia CIRP, 52, pp.179-185.

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