Mcdonald’s Is China Loving It Possible Solution

With chinas rapidly developing economy, the lift wealth of its middle-class and to a greater extent Western nimble-food arranges infiltrating the nation, McDonalds finds itself at a crossroads. The caller-up must evaluate its current standing in the Chinese fast-food commercialiseplace and elect to either keep open its present operations, hoping to maintain its second place regulate to KFC, or implement bare-ass strategies to gain market share, meet the Chinese peoples expectations, and abide by g all overnmental standards. The following alternatives depart be evaluated to make a decision 1. prime Status QuoIn this scenario, McDonalds will continue operating under its current strategies. New threats from competitors in China, including long-time oppose KFC, Asian fast-food companies like Hong Kongs Cafe de Coral, Taiwans Dicos Fried Chicken and Japans Ajisen Ramen, and emerging Western chains like electron tube and Rainforest Cafe, would be ignored. Since its competito rs menus focus on Chinese preferences for chicken and noodle dishes, McDonalds will attempt to continue to offset that advantage by emphasize quality and service. However, in the long run, McDonalds operations would fall victim to Chinas developing economy.In particular, Chinas unionized workers would call for excess pay increases and inflationary pressures would cause material be to rise. As a result, McDonalds would be forced to increase its prices, as it had done in the past. In all likelihood, the price point for the quality of food offered would fail to live up to public and governmental standards. With competitors progressing in tandem with Chinas economy, offer much luxurious casual dining environments and healthier menu choices, McDonalds would fall behind in the market. 2. woof 1 Efficiency, Convenience, and Environmental Responsibility. In this case, McDonalds would affix its strategies to remain matched with Western fast-food counterparts like KFC, Burger King and S ubway, and Asian competitors like Cafe de Coral, Dicos Fried Chicken and Ajisen Ramen. McDonalds would capitalize on the publics demand for quick, convenient service at low prices and continue using its tier pricing model. The partnership would further exploit the wealth distribution in China by widening its target focus to include the change magnitude purchasing force out 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, but as incomes rise, the proportion spent on food does not increase (see Exhibit 1). Thus, McDonalds would focus on selling 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, healthy food, and to verbalize growing governmental concerns with an obesity epidemic.McDonalds would also secu re and sustain its locally-based fork over chain and joint imperils, to maintain value and its business model, keeping competitors at a disadvantage. (page 8 lihua) (ultra modern cost efficiency) Despite the lack of formal jurisprudence on environmental issues in China, McDonalds would further emphasize its dedication to decreasing its environmental impact by displaceing itself as a market leader in environmentally friendly packaging, going beyond the established no straw days instituted in Hong Kong.This will highlight McDonalds willingness to pardner with its customers to decrease the use of plastic as well as reducing packaging costs. McDonalds long-term goal would be to dominate the fast-food market as a dependable, responsible and valued brand. 3. Option 2 Sophisticated Dining Experiences This option targets the higher-income segment of the population. McDonalds would recognize that individuals in this market have rising standards on the type of food and service they rece ive.Additionally, the amount of money these individuals spend on food, in proportion to growing incomes, is not change magnitude (see Exhibit 1). In order to retain these higher-income customers, McDonalds will offer more luxurious ambiences and more amenities at its restaurants. McDonalds would renovate current locations and build new locations in two ways, with both types offering the typical Western McDonalds menu and options catered to Chinese tastes. One line of restaurants would encompass sit-down dining-rooms with waiter-service, which would mainly compete with Pizza Hut and Rainforest Cafe.The other line of restaurants, McCafes, would include sit-down dining spaces without waiter-service and offer wireless internet, calm music, and comfortable seating. The McCafes would compete directly with Starbucks. manner of speaking service and car-side pickup options would expand throughout the country in both types of settings, to maintain sales volume. In addition, coupon partnersh ips with Internet companies like Taobao. com will continue to provide incentives for customers to dine at McDonalds.The main risk in this scenario is that McDonalds is completely revamping its identity as a true-fast food company. Consequently, the company may put down its second-place position to KFC, to justify itself as a luxury brand. 4. Option 3 Fast Food Efficiency and McCafe Combination In this situation, McDonalds would implement strategies from options 1 and 2. Tier pricing would continue, services and products would be tailored to the characteristics of the various 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 percentage of the urban locations would be transform into McCafes, as mentioned in option 2. Drive-thrus, delivery 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 evidential considerations for McDonalds, in order to make its decision 1. Brand sensing McDonalds inescapably to convince its Chinese consumers that it offers a product worthy of the price it costs, 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.Impact on Market Share 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 attract and maintain its targeted customer bases, and attract the consumers in competitors markets. 3. dour Term Sustainability McDonalds must consider whether its plan would have 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 changing economic environment, and continue to profit in the future. 4. Costs to fulfil McDonalds must consider the expenses associated with developing new programs and financial support expansions. The company must be confident that future profits will cover implementation costs. V. Rubric and Methodology Score Key 1 = Poor, 2 = Fair, 3 = Good, 4 = Superior, 5 = Exc ellentBrand PerceptionImpact 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 being poor and a score 5 being excellent. Weights for each criterion were assigned on an arbitrary evaluation of their importance. Brand Perception was considered roughly important (0. 4 weight) because most of McDonalds problems regarding opposition in China stem from a changing consumer intuition of the McDonalds brand.Impact to Market Share was considered to have the strongest secondary importance (0. 3 weight) because McDonalds main motivation for changing selling strategies is to gain market share from its major competitor KFC as well as share from the increasing number of home(prenominal) 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 due 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 robust and, regardless of the competition it faces, McDonalds should be able to finance significant capital expenditures for the purpose of securing future growth. The option with the highest score should be implemented immediately. Base is included for comparison only. VI. Analysis of Alternatives Base Method Brand Perception FAIR change magnitude awareness of the health risks of McDonalds food, unfair treatment of workers, inconsistent environmental policy, and global intuition of McDonalds has reduced Chinese perception of the McDonalds brand.The brand will continue eroding without action. Impact to Market Share POOR McDonalds will lose market share to KFC and an increasing number of domestic and foreign competitors offering 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 welcome no additional costs than it is already incurring 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/green/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 will gain market share from KFC and other domestic and foreign competitors because its modern, energy efficient, and cost effective supply chain start out will allow McDonalds to offer a superior product at a compet itive price. Long-Term Sustainability SUPERIOR The efficiency of this new style of McDonalds will enable it to keep profit margins higher during times of change magnitude inflation and raw materials costs. This advantage will increase the sustainability of McDonalds. Cost to Implement POOR McDonalds will incur significant capital expenditures costs to quicken 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 hamburger 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 Dining Experiences Brand Perception GOOD McDonalds will increase the Chinese markets perception of the McDonalds brand by offering a more school dining experience worthy of higher prices and a continued chara cterization as a luxury brand. Impact to Market Share FAIR McDonalds will enter a smaller and more specialized market with change magnitude risks. While offering a more sophisticated and specialized food alternative will allow McDonalds to fool away 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 plan 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 cool 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 right to have a low environmental impact.Further McDonalds will steal market share from casual dining and coffee shop entrants as it whole kit and boodle to make McCafe a market leader. Long-Term Sustainability SUPERIOR Option 3 will foster superior sustainabili ty 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 wee-wee 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 change by reversal 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 outflank route 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 perce ption, but at the fortune 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 preliminary other markets for a single market approach warrant that these options not be recommended.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 spac e. 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 immediately. From HBS case, McDonalds Is China Loving it?