Question

3. What is McDonald’s’ business model? How does McDonald’s make money?

1. What is the strategic issue(s) that McDonald’s needs to address?
What are McDonald’s’ core competencies?

Answer 1

1. Business model of McDonald:

• It is famous for its value proposition. The food is of a constant quality that is served quickly across the globe.
• The major customer segments are families, youngsters, elderly & business people.
• Its main strategic partners are franchise holders. Along with its suppliers, the company’s model is based on a three legged stool: suppliers, franchisees &McDonald’s. Survival of all the three legs is essential for the business to be profitable.
• Key activities would include marketing & selling food & beverages.
• They mainly distribute their products through restaurants.
• The cost structure would include the employees’ salaries, facility construction costs, raw materials procurement & marketing costs.
• The revenues of McDonald are generated at the restaurants owned by the company itself & also those owned by the franchise holders.
• The customer relationship takes place online through the device that is preferred by the customer.

2. How McDonald makes money?

McDonald is one of the last food chains in the world. But it is not their menu or food items that generate multibillion dollar profits for the company. it is the real estate that is its best seller.

There are more than 36,000 locations throughout the world but only 5% of them are owned by the company. The rest are franchised out this means that the company would only spend money on the real estate of that location. The franchisee is responsible for paying everything for the restaurant starting from the rent, franchisee fee, and monthly service fee. With this multiple means of collecting the revenue, it is relying so heavily on the franchisees.

We are not basically in the food business,” former McDonald’s CFO Harry J. Sonneborn reportedly told investors. “We are in the real estate business. The only reason we sell 15 cent hamburgers is because they are the greatest producer of revenue from which our tenants can pay us rent.”

3. Strategic issues:

The major challenges that are faced by the company would include increased competition, poor management, poor marketing & lack of response to the changes in the needs of the customers & franchisees. This resulted in the strategic issues that needed to be implemented to continue growing success for the company. Going global is critical in the expansion of McDonalds. Over the past couple of decades, the major chains have also begun to expand into the global marketplace and have opened franchises up around the world. McDonald’s currently operates in over 120 countries around the world with over 30,000 stores.

4. Core competency of McDonald:

McDonald’s core competency is providing convenience when people need and want to eat fast food at prices that are competitive and provide best value for the customer's money. One of

McDonald’s competitive advantages are its focus on consistency of quality, production of food and use of raw materials all around the world. The world recognition associated with the brand

McDonald’s itself is also one of McDonald's competitive advantages