Mcdonald’s Is China Loving It Possible Solution

With chinas rapidly developing economy, the go up wealth of its middle-class and to a greater extent occidental debased- diet bowed stringed instruments infiltrating the nation, McDonalds finds itself at a crossroads. The union must evaluate its watercourse standing in the Chinese abstain- food for thought grocery store and elect to either continue its present operations, hoping to stay fresh its second place rank to KFC, or impose new strategies to come to merchandise share, meet the Chinese peoples expectations, and abide by g everyplacenmental standards. The following alternatives leave be evaluated to yield a ending 1. brutal Status QuoIn this scenario, McDonalds pass on continue operational(a) under its current strategies. New threats from competitors in china, including long-time rival KFC, Asian card-playing-food companies want Hong Kongs Cafe de Coral, Taiwans Dicos Fried yellowish and japans Ajisen Ramen, and emerging Western durance like Subway and rain forest Cafe, would be ignored. Since its competitors menus focus on Chinese preferences for chicken and noodle dishes, McDonalds get out attempt to continue to offset that advantage by punctuate quality and service. However, in the long run, McDonalds operations would fall dupe to mainland Chinas developing economy.In particular, Chinas unionized workers would confabulate for excess pay increases and inflationary pressures would ca wont material hails to rise. As a result, McDonalds would be forced to increase its prices, as it had done with(p) in the past. In all likelihood, the price point for the quality of food sayed would fail to live up to public and governmental standards. With competitors progressing in tandem with Chinas economy, religious pass much luxurious periodic eat environments and healthier menu creams, McDonalds would fall behind in the grocery. 2.Option 1 Efficiency, Convenience, and Environmental Responsibility. In this case, McDonalds woul d augment its strategies to remain competitive with Western fast-food counterparts like KFC, Burger King and Subway, and Asian competitors like Cafe de Coral, Dicos Fried Chicken and Ajisen Ramen. McDonalds would capitalize on the publics demand for quick, agreeable service at low prices and continue using its tier price model. The company would further exploit the wealth distri merelyion in China by widening its target focus to include the increase purchasing power of the lower-tier consumer in rural egions of the country. Chinese rural households account for over 60% of the total population. These households spend a larger proportion of income on food, compared to urban households, further as incomes rise, the proportion spent on food does not increase (see Exhibit 1). Thus, McDonalds would focus on transfering more products to more customers at lower prices. McDonalds would incorporate healthier options in its menu, so to argue with Subway, a chain focused on fresh, powerf ul food, and to address growing governmental concerns with an obesity epidemic.McDonalds would excessively absolute and sustain its locally-based picture chain and joint ventures, to maintain respect and its business model, belongings competitors at a disadvantage. (page 8 lihua) (ultra modern cost faculty) Despite the lack of formal legislation on environmental issues in China, McDonalds would further emphasize its dedication to decreasing its environmental reach by repositioning itself as a foodstuff leader in environmentally friendly encase, going beyond the established no angry walk days instituted in Hong Kong.This lead highlight McDonalds testamentingness to partner with its customers to go down the use of plastic as well as reducing packaging be. McDonalds long-term goal would be to dominate the fast-food market as a dependable, responsible and valued leaf blade. 3. Option 2 Sophisticated dine Experiences This option targets the higher(prenominal)-income segme nt of the population. McDonalds would recognize that individuals in this market waste rising standards on the type of food and service they receive.Additionally, the amount of notes these individuals spend on food, in proportion to growing incomes, is not increasing (see Exhibit 1). In order to retain these higher-income customers, McDonalds go out offer more luxurious ambiences and more amenities at its eaterys. McDonalds would animate current locations and build new locations in two ways, with both types oblation the typical Western McDonalds menu and options catered to Chinese tastes. One withdraw of restaurants would encompass sit-down eat-rooms with waiter-service, which would mainly compete with Pizza Hut and rain forest Cafe.The other line of restaurants, McCafes, would include sit-down dining spaces without waiter-service and offer radio internet, calm music, and comfortable seating. The McCafes would compete directly with Starbucks. Delivery service and car-side magazine options would combust throughout the country in both types of settings, to maintain thoroughgoing(a) revenue volume. In addition, coupon partnerships with cyberspace companies like Taobao. com go away continue to tolerate incentives for customers to dine at McDonalds.The main risk in this scenario is that McDonalds is whole revamping its identity as a true-fast food company. Consequently, the company may discharge its second-place position to KFC, to justify itself as a luxury mark. 4. Option 3 Fast Food Efficiency and McCafe gang In this situation, McDonalds would implement strategies from options 1 and 2. Tier price would continue, services and products would be tailored to the characteristics of the conglomerate provinces in the nation, and convenience, health, the environment, and luxury would be emphasized.As in option 1, McDonalds would expand its operations in the more rural, Western provinces and renovate current locations in urban areas, to include the environmentally friendly and health-conscious menus and processes. In addition, a voice of the urban locations would be transformed into McCafes, as mentioned in option 2. Drive-thrus, saving service, and car side pickup would expand to all areas. Furthermore, McDonalds would secure its local supply-chain, proceed with its joint venture structure, and continue coupon programs with Internet companies.IV. Critical Issues The following issues are of import count onations for McDonalds, in order to make its decision 1. brand name Perception McDonalds needs to convince its Chinese consumers that it offers a product worthy of the price it cost, that the products are special and luxurious, and that the company cares about its workers, the environment, suppliers and the health of consumers. McDonalds must also address governmental concerns on safety and health, demonstrating that its products will not propose any detriment to Chinas developing economy. 2. furbish up on Market charact er Since KFC, its biggest competitor, entered the China market earlier than it did, McDonalds must consider whether its new strategies will be able to surpass KFC in the fast-food market. McDonalds must consider that as China develops, many new competitors will enter the fast-food market. McDonalds strategies must be able to rip and maintain its targeted customer bases, and attract the consumers in competitors markets. 3. Long Term Sustainability McDonalds must consider whether its platform would do its desired affect to gain market share, maximize gross margin and cut its expenses.The company wants to ensure that it will maintain pricing power (charging more for fewer high-end product sales and charging less for more low-end product sales), improve consumer confidence in a rapidly ever-ever-changing economic environment, and continue to bring in in the future. 4. represents to Implement McDonalds must consider the expenses associated with developing new programs and funding ex pansions. The company must be confident that future profits will cover execution costs. V. Rubric and Methodology Score Key 1 = Poor, 2 = Fair, 3 = Good, 4 = Superior, 5 = ExcellentBrand Perception touch on to market share LT SustainabilityCost to ImplementTotal Score Weight0. 40. 30. 20. 11. 00 Base**21141. 7 Option 144413. 7 Option 232222. 4 Option 354414. 1 **Base refers to current method. The ratings are based on a 1 through 5 scale with a score of 1 existence unretentive and a score 5 being excellent. Weights for each criterion were designate on an arbitrary evaluation of their importance. Brand Perception was considered most authoritative (0. 4 weight) because most of McDonalds problems regarding competition in China substructure from a changing consumer perception of the McDonalds brand.Impact to Market Share was considered to run through the strongest secondary importance (0. 3 weight) because McDonalds main motivation for changing marketing strategies is to gain marke t share from its major competitor KFC as well as share from the increasing number of domestic fast food suppliers. Long-Term sustainability was considered to be less important (0. 2 weight) as in such a highly competitive market, McDonalds may be forced to continuously alter the focus of its marketing strategy payable the dynamic nature of the Chinese market. Finally, Cost to Implement was considered to be the least important (0. weight) as McDonalds growth has been extremely sturdy and, regardless of the competition it faces, McDonalds should be able to finance hearty capital expenditures for the purpose of securing future growth. The option with the highest score should be enforced immediately. Base is included for comparison only. VI. Analysis of Alternatives Base Method Brand Perception light Increasing awareness of the health risks of McDonalds food, raw treatment of workers, inconsistent environmental policy, and global perception of McDonalds has trim down Chinese p erception of the McDonalds brand.The brand will continue wear without action. Impact to Market Share scurvy McDonalds will digest market share to KFC and an increasing number of domestic and foreign competitors oblation diverse fast food and casual dining options. Long-Term Sustainability POOR The dynamic changes in the purchasing power of Chinese consumers and the eroding brand perception will inspire them to purchase alternative products to those offered by McDonalds. Cost to Implement SUPERIOR McDonalds will commence no additional costs than it is already pick upring in the China market.Option 1 McDonalds Concentrates on Efficiency, Convenience, and Environmental Responsibility. Brand Perception SUPERIOR Increasing supply chain efficiency, healthy food alternatives, clean/ unripened/modern restaurant environment will make Chinese consumers perceive McDonalds to be a vital, healthy, and responsible fast food alternative. Impact to Market Share SUPERIOR McDonalds wi ll gain market share from KFC and other domestic and foreign competitors because its modern, life force efficient, and cost effective supply chain approach will part with McDonalds to offer a winner product at a competitive price. Long-Term Sustainability SUPERIOR The efficiency of this new style of McDonalds will enable it to keep profit margins higher during times of increased inflation and raw materials costs. This advantage will increase the sustainability of McDonalds. Cost to Implement POOR McDonalds will incur crucial capital expenditures costs to repair current restaurants, develop a more efficient supply chain process, research healthier fast food alternatives that will prove successful in the Chinese market while maintaining McDonalds brand identity as an American burger company.Additionally, McDonalds will incur significant advertising expenditures as it campaigns to sell the new, green, and modern McDonalds. Option 2 McDonalds Concentrates on Sophisticated dine Experiences Brand Perception GOOD McDonalds will increase the Chinese markets perception of the McDonalds brand by offering a more sophisticate dining experience worthy of higher prices and a continued characterization as a luxury brand. Impact to Market Share FAIR McDonalds will enter a smaller and more specialized market with increased risks. While offering a more sophisticated and specialized food alternative will allow McDonalds to charge a premium, there is a significant probability that this alternative will not catch on due to the increasing purchasing power of Chinese and ability to choose among casual dining competitors such as Pizza Hut and Rainforest Cafe.Long-Term Sustainability FAIR It is highly possible that the radical change in business visualize suggested by option 2 will increase profits in the short-term as the new McDonalds will be considered a novelty however, over the long-term, this novelty may wear off and significantly reduce the amount of returning customers. Cost to Implement FAIR McDonalds will incur significant capital expenditures costs to refurbish current locations into more sophisticated casual dining atmospheres and significant advertising costs as the company campaigns to change the Chinese perception of McDonalds from being a cheap and low class dining option to a sophisticated high-end establishment. Option 3 Fast Food Efficiency and McCafe Combination Brand Perception EXCELLENT McDonalds brand perception will be maximized as it will offer a clean and green environment with fresh, fast, inexpensive, and healthy food in its flagship stores and a sophisticated and aplomb bistro cafe experience with interesting regional food options in its McCafe stores. Impact to Market Share SUPERIOR McDonalds will gain market share from KFC and other domestic and foreign fast food chains as it will offer a superior product at a lower price with an increasing corporate responsibility to have a low environmental repair.Furthe r McDonalds will steal market share from casual dining and coffee shop entrants as it whole works to make McCafe a market leader. Long-Term Sustainability SUPERIOR Option 3 will foster superior sustainability through a strong brand perception of McDonalds as a market leader in efficient and healthy fast food and cafe service. McDonalds efforts to use its economies of scale to produce a very low environmental impact will keep its operating costs low and allow McDonalds to price out the competition in the long-run while keeping margins high. Cost to Implement POOR McDonalds will incur significant capital expenditures as it retools its supply chain and refurbishes its stores to operate more energy efficiently and with minimal environmental impact as well as advertising costs to convince Chinese consumers that it has corrected its prior missteps and has reinvented itself as a market leader in a new fast food space. VII. Recommendations Options 1 and 2 are not the best highway for McDonalds to pursue.In option 1 McDonalds will seek to compete in only one market, the cheap fast food market. The more healthy, modern, and energy efficient approach will increase its brand perception, but at the opportunity cost of not exploring more casual dining marketing opportunities. By pursuing only option 2, McDonalds will compete only in the casual dining market but at the opportunity cost of the cheap fast food market that McDonalds has been a world leader in.While option 2 will result in increased brand perception, the long-term sustainability of this option is unclear and may not justify the significant capital expenditures required to refurbish the companys locations. While option 1 and 2 will both significantly increase McDonalds brand perception, the increased costs of implementation and increased opportunity costs of foregoing other markets for a single market approach warrant that these options not be commended.We recommend that McDonalds pursue option 3 because it is a multi-segmented approach that utilizes McDonalds current position as a market leader and focuses on expanding McDonalds marketing footprint in the casual but sophisticated bistro/cafe space. Option 3, more than the other options, will increase McDonalds brand perception and counter the growing sentiment in the China market that McDonalds does not treat its workers fairly, does not offer healthy food choices, and does not strive to positively impact the environment.Following option 3 will reposition McDonalds as a healthy and environmentally responsible fast food alternative. While this option will incur significant capital costs in the short-run, this option will allow McDonalds to grow market share, price more competitively, and run a more streamlined operations that, in the long-run, will reduce operating expenses and lead to higher margins. As it will impact the problems McDonalds faces in the case most effectively, we highly recommend that McDonalds implement option 3 im mediately. From HBS case, McDonalds Is China Loving it?