McDonalds SWOT Analysis

Abhijeet Pratap
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Mcdonald’s swot analysisMcDonald’s is among the world’s largest fast food brands and serves customers globally across more than 100 countries. In the third quarter of 2023, the company had more than 40,000 locations operational worldwide. McDonald’s is also enjoying solid sales growth along the e-commerce channels in its leading markets.

McDonald’s is also among the leading franchise chains in the world. Around 95% of McDonald’s locations globally are owned and operated by local and independent business owners. It is a well established brand that serves a diverse menu to its customers globally. In recent years, the company has also introduced several healthier options for its customers in various regions.

Health concerns among the customers have grown globally who are switching towards healthier menu options since the pandemic. A shift towards digital has also happened since the pandemic as more and more customers are now buying from the digital channels.

In 2022, the company’s revenue remained flat compared to the previous year. Its operating expenses on the other hand grew.

The fast food industry is experiencing intensifying competition and apart from product quality, innovation is also a key driver of demand and sales in this sector.

In this swot analysis, we will analyze the strengths and weaknesses of McDonald’s as well as its leading opportunities and threats.

Strengths:

  • Global presence: McDonald’s has maintained a strong presence internationally in more than 100 countries. While the main market of the company is the United States, it also generates a sizable part of its net revenue from the other markets. The company serves its customers in various markets through both online and offline channels. A strong presence in the international markets has helped the company find financial growth.
  • Strong brand image: As the leading fast food brand globally, McDonald’s has maintained a strong brand image which has enabled faster growth for the brand. It also enjoys strong brand awareness in most corners of the globe. Marketing has also played a key role in helping McDonald’s strengthen its brand awareness and grow demand. Its focus on customer service and innovation have also strengthened the company’s image.
  • Industry leading brand: McDonald’s is one of the leaders in the fast food sector with a strong international footprint and enjoys strong brand recognition. While the company operates its business mainly through franchisees, it has successfully maintained its leadership in the fast food sector through menu diversity, pricing, product quality and marketing.
  • Growing online sales: In recent years, McDonald’s has experienced growth in sales through online channels. The company enjoyed solid online sales in the third quarter of 2023. In its top six markets which includes the United States, systemwide digital sales remained $9 billion or 40% of the total systemwide sales in these markets1. More customers are buying from online channels since the pandemic and strengthening online sales in 2023 is a very good sign for McDonald’s.
  • Diverse menu options:

McDonald’s has continued to diversify its menu to cater to the needs of various customer segments in the US and international markets. It offers a large range of items in various categories like breakfast, happy meals, burgers, fries and sides and so on. The company has also introduced several healthy options for the health conscious consumers2. Having multiple options on the menu has helped the brand attract customers from various different segments including those who are looking to grab a quick bite or those who want a delicious and yet healthy option. McDonald’s also offers a nice range of chicken and fish sandwiches for the non-vegetarian consumers. However, it also has a nice range of vegetarian options included in its menu for the vegetarian consumers.

  • Investing in innovation:

Building superior growth in the fast food industry sector also requires a focus on technological innovation. Technology has become key to marketing, sales and customer service in the fast food sector. Since the pandemic, digital technology has been driving swift and significant changes across the fast food sector. The company is investing in data & analytics as well as AI to serve its customers better and grow customer satisfaction. It also made some acquisitions in the past that were targeted at improving sales and customer service.

Weaknesses:

  • Dependent on the US market:-

McDonald’s has a solid international footprint. However, the company mainly depends on the US market for revenue and sales growth. The company generates a sizable part of its total net revenue from the US market. In 2022, it generated 41% of its total net sales from the US market. To reduce its dependence on the US, the company will need to expand its international footprint aggressively.

  • Dependent on franchisees:

McDonald’s operates its business mainly through franchisees. Nearly 95% of its business is operated through franchisees. These franchisees are independent local business owners in its domestic and international markets. While it can be profitable to operate a franchisee operated chain, there are also several major risks involved related to business operations, HRM and marketing. HR related concerns are more common when a large part of the chain is operated through franchisees. The company also has to maintain a higher focus on quality control to avoid losing customers and image.

  • Organizational culture related problems:

A large number of organizational culture and HRM related issues have also surfaced about McDonald’s. Recently, a large number of employees in the UK alleged that harassment and abuse were common across the organization there. As per a recent BBC report3, the employees in the UK alleged that the company has a toxic work culture and harassment was common. While the company has apologized and promised to provide its employees with safe working conditions, most of the allegations against it in the UK are related to sexual harassment.

Opportunities:

  • Innovation:-

Innovation can provide several major opportunities of growth for McDonald’s. The company has been investing in digital technology and other major technologies to find growth and build higher customer loyalty. However, AI, Data and Analytics and Machine learning have the potential to improve operations, customer service and grow customer engagement and loyalty. In the fast food industry, McDonald’s is known to be among the early pioneers of innovation4. Continuous innovation can drive faster growth in the leading markets.

  • Emerging markets:

Emerging markets also offer a significant growth opportunity for the business. The company can work on expanding its physical footprint in the emerging markets. Apart from adding new stores in these markets, the company’s digital presence there can also help it strengthen its position in these markets and achieve faster revenue growth.

  • Acquisitions:-

McDonald’s is a leader in the fast food industry and financially strong. The company can achieve superior growth through acquisitions. While acquisitions can help it cement its own position and strengthen its core business, they can also help it expand into new related areas and build new channels of revenue. The company can find faster growth as a food and beverages brand through acquisitions.

Threats:

  • Competitive pressure:-

The fast food industry is experiencing intensifying competition. There are several international brands with a strong presence in multiple markets that are competing with McDonald’s. The strong competitive pressure in the fast food industry has resulted in higher operating expenses for McDonald’s. There are several brands including Burger King, Subway, Wendy’s, KFC and several others that are competing with McDonald’s for market share. Due to increased competitive pressure, McDonald’s has to spend more on marketing to maintain demand and market share.

  • Increasing operating expenses:-

There are several factors that are driving the operating expenses higher for McDonald’s including the increasing costs of raw materials and labor as well as increased competition in the market. In several areas, the company can face a shortage of raw materials due to the increased demand from other outlets including international and local fast food brands. The costs of raw materials have kept growing every year causing the operating expenses to increase. Increasing labor costs and costs of supply chain management as well as transportation have also caused the operating expenses to increase.

  • Regulatory pressures:-

Regulatory pressures are also adding to the challenges faced by McDonald’s. There are several areas including labor laws and product safety laws as well as other laws that affect operations in the United States as well as other parts of the world. Moreover, these laws differ from market to market and the company has to ensure compliance in each area to avoid hefty fines.

  • HRM related challenges:-

HR issues can get really very ugly for businesses and can cost them heavily in terms of brand image. McDonald’s has been facing allegations related to sexual abuse of female workers at various levels throughout the organization. Its ex-CEO Stephen J. Easterbrook was terminated over charges of sexual abuse. While SEC did not impose any fines on McDonald’s, it found Easterbrook to be in violation of anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 19345. However, according to the McDonald’s employees, the company has a highly toxic culture. Unless McDonald’s takes strong measures to prevent the harassment of female employees at the workplace and ensures a safe workplace for them, it will affect the staff’s productivity and will continue to hurt the brand’s image.

  • Changing Consumer Preferences:
    The changing consumer preferences with regards to food consumption and customer service have also changed a lot. As the demographic composition of the global population has changed, so have changed the consumer preferences. the focus on digital has grown and companies are aslo investing in menu innovation in the fast food sector to serve the customers satisfactorily. The focus on consumer experience along both the online and offline channels needs to be higher. While on the one hand, consumer preferences have changed in terms fo eating, they have also changed in terms of service. Overall, changing consumer preferences in various corners of the world will aslo drive operating expenses higher for McDonald’s.

Conclusion:

McDonald’s is a leader in the fast food sector and among the largest in the US market. The company generates a significant part of its net sales from the US market and to decrease its dependence on the US, it will need to further expand its international footprint. Its international empire spans more than 100 countries where the company serves its customers through stores and online channels. Its growth and expansion can be attributed to the company’s focus on product quality, marketing, innovation and supply chain management. McDonald’s is operated mainly through franchisees in both the US and overseas markets. However, its company operated stores are also a significant source of revenue for the brand which the company also uses for training and innovation.
The fast food industry has undergone several signifcant changes since the pandemic. Apart from the growing focus on digitalization, changing consumer preferences have also affected how business have been operating. While McDonald’s has experienced strenthening online sales in 2023, the drive thru model has also proved profitable for several fast food brands. Investing in technology has also proved profitable for McDonald’s.

While the company may be doing well financially, it is also facing several challenges related to supply chain management, HRM and other operational areas. The allegations against McDonald’s in terms of HR are particularly severe and will require very strong focus from the leadership and management. McDonald’s is also facing a culture issue and the management needs to deal with this challenge with somewhat urgency since it is also affecting the brand’s image.

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