McDonald’s New Challenges
A look at how socio-culture trends such as obesity will require that McDonald’s breaks from standardization on a grand scale
(Fitness Mantra, 2007)
Industry Overview
Influence of Culture and Demographics
Supporting Work
McDonald’s is the multi-national company (MNC) that has worked to break through internal barriers on a global scale. McDonald’s has been at the forefront in new market expansion and the organization has now covered nearly every market on the globe (Lafontaine & Leibsohn, 2004). Despite the global coverage of operations, McDonald’s has excelled in keeping its menu virtually the same. Although some room is given in terms of flexibility to incorporate items from the local culture, a Big Mac made in the U.S. tastes much like one prepared in China. This strategy has offered McDonald’s a great deal of standardization through quantities of scale in different markets composed of many varieties of demographic and cultural preferences.
Furthermore, McDonald’s has built innovative technology that allows them consistency in service as well as a good amount of customization for different cultural preferences in different international markets (Faulkner, 2004). McDonald’s has become an American icon across the globe by building a culture of quick and relatively inexpensive dining experiences. However there are growing concerns in many markets, especially in industrialized countries, about the rising epidemic of obesity.
McDonald’s has taken many steps to address some of these challenges already. Yet the nutritional content in the McDonald’s menu is easily subject to criticism. As a result of the socio-culture trends in industrialized nations, McDonald’s will undoubtedly have to continue to improve its menu in terms of health consequences that some of its foods and preparations contribute to obesity concerns in many areas. However, these concerns are not universal and many of the developing countries do not face the same challenges. Therefore, it is reasonable to suspect that in the future McDonald’s will have to break from a global standardized operation to one that is more customized for the specific market that they are operating in. This will require that McDonald’s reinvents itself on several different levels.
Industry Overview
The restaurant industry is highly fragmented and is comprised of local, regional, national, and international competitors in almost every market. The most common structure of multiple location ownership is that of a franchise. The franchise model is responsible for nearly a quarter of the total quick service restaurant industry and continues to grow by stealing market share from locally owned restaurants (Franchise Direct, 2010). The quick service restaurant industry is also growing as a whole. In many markets there are both economic and socio-cultural factors that can help explain this trend.
One contributing factor responsible for the growth in this industry is likely the evolving composition of households in developed nations. Many countries are experiencing a rapidly increasing number of single-person households and single-parent families (Usdansky, 2008). The breakdown of the traditional family structure often leaves the smaller families less time for shopping and food preparation. Therefore, a quick service restaurant becomes an attractive alternative to preparing meals at home. These meals are provided nearly instantly and for little expense thus expanding the popularity of such items.
A significant portion of growth of the fast-food industry is due to the ability to create quantities of scale throughout the entire supply chain as well as standardize much of the operations to achieve various operational efficiencies. McDonald’s core competency has been that it can achieve these efficiencies on a truly global scale. McDonald’s can duplicate its service and quality standards through its franchise model. The individual locations also benefit from access to the company’s brand equity and their collective advertising efforts. McDonald’s model has become so successful that it is imitated on a continual basis by the competition. This has led to an explosion in the franchise restaurant market segment.
However, while the fast-food industry has experienced exponential growth, there have also been some unintended consequences. Creating food on a mass scale has often led to diminished nutritional value of the food. For example, a piece of lettuce many travel two thousand miles before it becomes part of someone’s meal. Furthermore, in many cases preservatives may be added to raw materials to which can cause health concerns. With the onset of obesity rates sky rocketing in many countries, many advocacy groups have been critical of the fast food model. Many consumers are now seeking out more local and often less efficient businesses that offered food that is prepared locally. Therefore, while there has been consistent growth of the franchise model, there has also been a considerable reverse trend as well.
A new market niche is also developing because changing consumer preferences that limit their fast food intake. A new model has emerged in the restaurant industry called fast-casual emerged. This model incorporates elements of fast food with some from what is considered casual dining. The niche was primarily developed by companies such as Panera Bread and is being quickly imitated. Panera is able to offer food that is served in an efficient manner yet still is cooked with fresh quality ingredients. This new niche has taken full advantage to the socio-cultural trend in which consumers are becoming more conscious of what they are eating. This trend poses a problem for McDonald’s in the future if it does not reinvent itself in these markets.
Influence of Culture and Demographics
McDonald’s has proven to be the model for developing international markets. Yet this success has not come easily and the organization has learned much of their current strategies by trial and error. For example, McDonald’s has experienced tremendous failures many new market entries. When the organization entered the Brazilian market there were countless protest and boycotts from local consumers because these consumers believed that McDonald’s was serving beef raised on ranches that were located on formerly protected rainforest areas (Schnaubelt, 2002). Problems also arose in Germany and France because news spread that McDonald’s was using suppliers that inject growth hormones in their cattle in Europe; a practice that is used in the U.S. market. Despite obstacles such as these, McDonald’s has been successful in overcoming these barriers and eventually won the trust of the local culture.
These examples serve as a testament to McDonald’s ability to craft a level of flexibility despite the high level of standardization in operations. The cultural resistance that the organization experienced in many new markets virtually forced them to adapt to the local consumer demands. Yet McDonalds must also incorporate their traditional menus and processes to leverage their efficient operating practices in these markets to be successful (Peters, 2009). However, the balancing act between customization and standardization will be even more difficult in tackling some of the causes of obesity. For example, in Germany, France, and Brazil, McDonald’s was simply able to redesign the supply chain to purchase beef from new suppliers or suppliers that changed their operating practices. However, serving a healthier menu could require a more comprehensive operational change.
As opposed to the internationally strategy that McDonald’s currently uses, it may become more appropriate for the company to adopt a national strategy. The national strategy could be different for each country based on the consumer trends found within that countries culture. For example, in the U.S., Europe, and Australia, where obesity is growing to epidemic levels, the business strategy could address these issues separately from the global strategy. In developing markets such as India, China, and Brazil where obesity has yet to become a major problem, the current model could remain intact.
Even though McDonald’s has focused on standardization as much as possible there are cases in which the company has used a national strategy already in existence. Since Japan represents a totally different culture than most other markets, McDonald’s heavily customized their menu to suite the Japanese consumers. Furthermore, the national customization strategy was able to retain key operational procedures but create a hybrid menu based on local preferences and had incredible results. McDonald’s has integrated with the local culture so well that may Japanese citizens feel that McDonald’s is actually a Japanese brand (Schnaubelt, 2002).
Figure 1 – McDonald’s Croquette Burger in Japan (Koichi, 2008)
The global business culture has attempted to standardize processes in as much as possible in their international operations; socio-cultural factors may slow this trend however. Not only do organizations often come across difficulties that prevent them from efficiently managing with the differences presented by culture and national identity, but these trends are dynamic and are continually in motion. Technology can help to overcome challenges in national customization and the utilization of ERP systems can provide a platform that can allow more flexibility between the parent company and their international subsidiaries. As these systems continue to evolve, they serve the potential of helping to manage more complex operating environments and allow for more localization in the supply chains.
Discussion
McDonald’s serves as one of the classical examples of how a multi-national company can develop new markets. Yet McDonald’s faced many challenges and failures in gaining penetration in some markets. McDonald’s has to work assiduously to find the balance between standardization and customizing its services to accommodate to local preferences and customs. However, as markets continually change and consumer preferences evolve, it is believed that McDonald’s will have to produce even higher levels of customization. It will be more difficult for McDonald’s to continue to use the mass production model and it will undoubtedly have to localize much of its supply chain to provide healthier and higher quality menus.
There are two primary drivers of the need for greater customization and localization. The first driver arises out of new pressures exerted from industry changes and the development of the fast-casual market niche. These competitors offer high quality and healthier items in a setting that is still fast and convenient. It is reasonable to suspect that this segment will continue to grow indefinitely. Furthermore, another driver is the increase awareness of dietary health issues that is exponentially growing in the wake of obesity epidemics in industrialized nations. Consumers are becoming more concerned with the nutritional value of their meals which disadvantages McDonald’s on several levels. Both of these drivers require a response that will undoubtedly need more localization in the supply chain.
McDonald’s must move to a global to national strategy in the short-term. This will allow the organization to address consumer pressures in national markets specifically. Obesity in industrialized nations is a prime example of issues that need to be addressed individually. In the medium term the organization will have to push towards more regional control addressing the concerns of smaller market areas. Finally, the organization will ultimately have to introduce a level of localization and local customization that can be responsive to the local community. The shift towards localization will allow McDonald’s to become more sustainable both in terms of quality in its supply chain as well as meeting the demands of the local consumers.
Works Cited
Faulkner, D., 2004. Strategy: critical perspectives on business and management. 1st ed. London: Routledge.
Fitness Mantra, 2007. FitnessMantra Weekend: The McDonald’s Effect On Children’s Taste. [Online]
Available at: http://www.fitnessmantra.info/2007/08/12/fitnessmantra-weekend-the-mcdonalds-effect-on-childrens-taste / [Accessed 13 July 2012].
Franchise Direct, 2010. Industry Trends. [Online]
Available at: http://www.franchisedirect.com/top100globalfranchises/industrytrends/158/874/
[Accessed 13 July 2012].
Koichi, T., 2008. The Japanese McDonalds Menu. [Online]
Available at: http://www.tofugu.com/2008/11/02/the-japanese-mcdonalds-menu-im-actually-lovin-it/
[Accessed 14 July 2012].
Lafontaine, F. & Leibsohn, D., 2004. Beyond Entry: Examining McDonald’s Expansion in International Markets. [Online]
Available at: http://www.ftc.gov/be/seminardocs/04beyondentry.pdf
[Accessed 14 July 2012].
Peters, N., 2009. Operational Exellence – Identifying qualifying and order winning factors. [Online]
Available at: http://www.grin.com/en/e-book/179418/operational-exellence-identifying-qualifying-and-order-winning-factors
Schnaubelt, C., 2002. Global Arches: A Cultural Look at McDonald’s Franchise in Central Europe. [Online]
Available at: http://murphylibrary.uwlax.edu/digital/jur/2002/schnaubelt.pdf
[Accessed 14 July 2012].
Usdansky, M., 2008. The Emergence of a Social Problem: Single-Parent Families in U.S. Popular Magazines and Social Science Journals, 1900 — 1998. Sociological Inquiry, 78(1), pp. 74-96.
Supporting Work
Standardization vs. Localization
Industry Trends — Fast-Casual
Socio-Cultural Trends — Health Consciousness
Global vs. National/Regional Strategies
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