V) McDonald's

McDonald's is an example of an organisation that had reached its peak and started to progress down the right hand side of the S-curve. However, recently, it has started to pull itself out of the decline.

On the surface McDonald's appear to have everything going for it, eg famous brand, broad public appeal and decades of growth with a chain of global restaurants. It is the world's largest restaurant chain with around 30,000 restaurants in 119 countries, $US 17 billion in annual sales and has 1.6 million employees.

By 2002 the strategy of growth by expansion had failed with profits in 2002 being half those of 2001, and in the final 3 months the company lost money for the first time in living memory. Furthermore, its share price plummeted to a 7-year low. The quality, service and cleanliness (QSC) elements that had always been the trademark of McDonald's had also slipped. Furthermore, McDonald's was receiving bad publicity about its fast food and how its products were adding to obesity problems, especially in children; coupled with failure to offer something fresh.

A new management team was employed with a new strategy: improve quality, service and cleanliness, introduce new product lines and change the marketing strategy including a move to healthier, fresher, fast-food options, ie less fat and sugar, eg taking sugar out of the buns. Starting offering chicken products as people eat more chicken than beef. These changes are a reflection of society's move to more health-conscious products, such as salads. Previous product changes had not taken into account the health-conscious market requirements. Introducing health-conscious products coupled with nutritional labelling has been successful in enticing more customers into the restaurant and has had a flow-on effect to older products such as Big Macs and Filet-O-Fish. Initially, these new products were targeted at women (working women and mothers). However, more retirees were becoming regular customers. The introduction of McCafes and healthier food, such as Salad Plus, etc, has attracted more older people.

McDonald's has automated many parts of its operation, such as pushing a button rather than holding a lever for dispensing beverages, self-order kiosks are being trialed, bulk oil machines are being introduced, etc. The aim of these changes is to free staff from time-consuming tasks

Furthermore, the company has introduced "hot spot" wireless technology, allowing computer users to log onto the Internet from McDonald's restaurants which open for longer hours and have been refitted to reflect the new image, etc

As a result of these changes, 2003 global sales increased by 10 percent, while in the US sales rocketed by 20 percent. McDonald's share price doubled in the 12 months from mid 2003. In 2003 the company made a profit of US1.5 billion, compared with less than $900 million in 2001. In other words, with these changes McDonald's started another upward S curve.

Remember: image and marketing have been the cornerstone of McDonald's strategy.


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