McDonald’s Business Model Analyzed and Explained

Editorial Team

McDonald’s Business Model Analyzed and Explained

Fast food is one of the easily available, cheap, and fulfilling options, attracting thousands towards itself owing to its flavorfulness. It is by far the major reason for McDonald’s popularity, making it the largest fast-food chain globally. Such large-scale businesses are hugely responsible for globalization and a tyrant in the business market. So, let’s analyze this oldest fast-food restaurant to comprehend what makes it successful among its competitors with its revenues and future plans.

The Making Of Mcdonald’s

First opened by the McDonald brothers in San Bernardino, California, in 1940, Ray Kroc now owns McDonald’s. The startup McDonald’s was a drive-in restaurant that offered a wide selection of food items. However, in 1948 the founding members decided to create a newly envisioned version of McDonald’s by limiting the menu but increasing the quality. However, the catch was that the food would get prepared in bulk at an extensive scale. This way, it would be affordable. The initial menu consisted of hamburgers, French fries, drinks, and pies. Later, their menu items also added shakes, chicken burgers, and seafood. The fast-food chain has continued to expand at such a level over time that it has more than 34,000 outlets today operating in over 115 countries worldwide. The growth is so swift that the reports estimate that every five hours marks the opening of a new McDonald’s somewhere in the world.

McDonald’s Business Model

Since its founding in 1948, McDonald’s has opened 34,000 outlets worldwide in 115 countries. They serve up to 68 million customers daily, making up about 1% of the world’s population. We can’t deny it as it is popular among both children and adults. Plus, the company has over 1.7 employees, which makes it the second-largest private employer in the whole world. Concerning the Business model, the brothers brought forward and applied the franchise and drive-thru model to run their fast-food restaurant.

McDonald’s Earned Revenues

The US is the leading market for McDonald’s and accounts for most of its revenue, with the 14,000 restaurants generating $7.4 billion across the last calendar year. UK, Canada, Australia, France, Germany, Russia, and Hong Kong are other leading international markets, with the company amassing over $11.4 billion in revenue. The company is one of the most valuable businesses in the world, valued at over $130 billion, and this figure is constantly rising. Global sales increase by over 30% yearly, signifying that McDonald’s is an everlasting franchise.



How does McDonald’s make Money?

McDonald’s generates most of its revenue by leveraging its facilities to franchisees who must lease the franchises owned by McDonald’s at hefty markups. They also charge a considerable amount from the franchise longing for its license with loyalty.

Note that, out of its 34,000 outlets, 93% are leased by private owners, while the rest are self-owned by McDonald’s. Through this, McDonald’s receives a substantial advantage as the revenue earned is notably steady.

The additional benefit is it contributed to the low operating cost because the franchisee pays for the interior design. It, in turn, suggests more earned profit. This leasing system can be seen as a subscription by the franchisee. It also benefits the franchisees as they have the surety of the brand name.

McDonald’s 4 Ps Marketing Mix

The 4 Marketing Ps highlight the business strategies that the company employs to ladder up in the long run. McDonald’s mix and match these 4 Ps accordingly to attract the target audience, displaying the marketing techniques. These 4 Ps are:

1. Product

McDonald’s rose to fame from their beef burgers. Yet, over time they started selling chicken and fish products with a wide array of desserts and drinks. The company has introduced a series of products to cater to all kinds of cuisines. We can consider an example from the Middle Eastern region, where the introduction of mcArabia was an instant hit, as the people living in that region felt represented on the international stage.

2. Place

With more than 36,000 restaurants spread across the globe, McDonald’s strategic placement of their restaurants is phenomenal, with outlets always within the customer’s reach. They have outlets inside malls, kiosks at events, and restaurants in every nook and cranny of the earth. Dining at McDonald’s has become people’s hobby, as the restaurants and taste calls for it. Children especially love visiting the play areas, so it’s more likely a family restaurant partnered with a fun and clean play area.

3. Price

The company intelligently uses psychological pricing strategy by rounding off all prices to .99 to make their products look more appealing and affordable. In addition to this, they also use the bundle pricing strategy, which offers discounted food bundles. It includes the make-it-a-meal option, where customers would buy a meal instead of a burger as it seemed a better choice while paying more. For good measure, McDonald’s successfully employed a cost leadership marketing strategy by hiring inexperienced employees. The trained managers train them and earn loyalty in return. It reduces the cost of hiring experienced professionals, ultimately generating more profit.

4. Promotion

McDonald’s advertising strategy is the most notable among its promotion strategies. Its unique and attractive promotions online and through TV and radio have amassed a huge viewership, bringing in more customers. It offers discount coupons and freebies. It also promotes its brand by partnering with other brands, ensuring benefits for both.

The primary target audience of McDonald’s comprises both young people and adults alike. However, the marketing towards the youth is the most evident. Ronald McDonald was introduced in 1963, and children loved the clown.

McDonald’s had taken a smart move by adding a breakfast menu and McCafe to attract business people, who could get food without waiting too long or conducting business meetings over a cup of coffee.

Another intelligent promotion strategy by McDonald’s was collaborating with major artists and other famed personalities over the years. The most recent was their collaboration with Travis Scott, where they introduced the Travis Scott Burger loved by customers, especially the youth.

Reasons Contributing To The Huge Success Of Mcdonald’s

1. Consistency

Consistency is the eminence of success, and McDonald’s has demonstrated it multiple times. Regardless of the McDonald’s outlet, the food will always taste similar. The rationale is similar to recipes and ingredients imported from the same place. Consistency helps build trust, as customers know what to expect every time they visit; hence become regular.

2. Innovation

The innovation laboratory of McDonald’s is one of the reasons why the company has achieved the position it holds in the fast food chain industry. McDonald’s has kept the grounds consistent while innovating food on the same bases. In 1975, it started the first drive-thru restaurant near a military base in Arizona to assist soldiers in getting food conveniently. The introduction of a separate breakfast menu was an instant hit among customers. Other innovations like the introduction of Fillet-o-Fish and fried chicken were fan favorites. In addition to this, food suited to the cuisine of the local culture attracts a lot of local customers. This uniqueness substantially contributed to McDonald’s success in the global food market.

Competition In The International Market

After observing the massive success of McDonald’s, many such fast-food restaurants started opening up all across the world. This spread of globalization was beneficial for spreading culture all over. The rise of such restaurants has threatened the sale of McDonald’s from time to time, which promotes healthy competition in the international market.

1. KFC

KFC is McDonald’s greatest competitor in the international market. This 1930-founded franchise has over 20,000 branches spread in over 120 countries. However, the crucial difference is that KFC is known for its fried chicken and constituent food products, while McDonald’s main selling point is beef. Its revenue is around $3 billion, and its sales rose for the first time last year after a gap of 17 years.

2. Subway

Subway is one of the world’s fastest-growing food chains. Founded in 1965, the company owns over 45,000 stores in more than 110 countries. Although Subway has a limited menu, its simplicity is one of its reasons for success. The unique feature is you can watch your food while cooking in front of you, let it cook how you like, and get it in your hands within less than five minutes. It is also seen as a healthier alternative to other fast-food joints, providing another reason for its growing success. This cleanliness, customized order, and hygiene make it popular among people.

3. Burger King

Owned by Restaurant Brands International, Burger King stands as one of the largest fast-food restaurants in the world. As the name suggests, it is one of the most sought-after food joints in the world. This 1953-founded restaurant was originally located in the US, but the locals loved it to such an extent that it now has 15,000 outlets in more than 100 countries. It makes a revenue of $4 billion while holding assets amounting to $16 billion.

4. Pizza Hut

Pizzas and burgers are the fast food most people turn to, and Pizza Hut is the pioneer of pizzas under Yum brands, likely KFC. Founded in 1958, the company has expanded to over 16,000 locations worldwide. Its vast and diverse menu, which includes different kinds of pizzas, is the reason for its massive success. The company’s monetary net worth, as of 2022, stands at $810 billion.

5. Starbucks

Founded in 1971, Starbucks is probably the most popular coffee house in the world. Its massive rise is that they have almost 24,000 locations scattered around the world where Starbucks sells its famous coffee. Its revenue sits at a whopping $19 billion while employing nearly 250,000 employees from different areas of the globe.

In addition to the aforementioned global franchises, several local franchises stand strong against giving McDonald’s sturdy competition. These franchises cater to the needs of the locals, while global franchises have a more generalized taste. All in all, we can conclude that the food industry is an ever-growing industry, and one has to be always transforming to succeed in the market.

Challenges Faced and How McDonald’s Tackles Them

Being such a large global organization brings its pros and cons. Likewise, McDonald’s has faced prime criticism over the years and has been in the spotlight multiple times. However, the organization has always been very responsive to all the criticism through their actions. Let’s discuss the challenges McDonald’s has achieved to come to its present position.

  • Over the years, McDonald’s has faced many challenges related to health issues, especially in children. In response to this, they worked with experts to form a menu that would be nutritious and in accord with the guidelines. In addition to this, it started providing nutrition facts on the packaging. Since 2015, the company has stopped using animals being treated with artificial growth hormones and used only those that are free of antibiotics.
  • Activists started raising concerns over McDonald’s policies affecting the environment. In response, it founded the Global Environment Committee in 1990, which suggested ways to reduce solid waste and conserve natural resources. Recently, the company switched to renewable materials for 80% of its packaging, which helps preserve the environment.
  • Customers complained a lot about the costly prices of the menu items. These negative reviews also jeopardized the restaurant’s revenue as consumers turned toward other newly opened food joints. So, McDonald’s started offering discounts and loyalty rewards to win back customers. To boot, they also introduced the dollar menu to sell exclusive items up to a range of $5.
  • Harassment faced by McDonald’s employees and customers was a major occurrence in the past. The authorities passed several Lawsuits, but the results only suppressed the voices over the years. To counter harassment at the workplace, McDonald’s has been very responsive those years as they took strict action against such employees. They educated the staff on how to behave in the office and defend themselves in such scenarios. They have also launched several policies against discrimination. However, after all of this, harassment at the workplace still exists. The company should work harder to eradicate this evil.

What Has McDonald’s Planned For Its Future?

McDonald’s unveiled a new growth plan in November 2020. They did so intending to invest in the 3 Ds: Digital, Delivery, and Drive Thru. This shift has been done primarily due to the coronavirus pandemic. Lifestyle has grown faster, and hence demands have to be fulfilled rapidly. Therefore, the company decided to increase the number of drive-thru restaurants, even though almost 65% of their restaurants have one.

For good measure, McDonald’s has taken adequate steps to enhance the digital capabilities of restaurants. They provide their customers to place their orders through kiosks, implying they can skip the long order placement lines. Their food will be brought right to them, at their table, and customers will not have to go through the hassles of waiting long for their food. Moreover, Mcdonald’s also plans to introduce mobile ordering. It means when you place an order through your mobile online, you can also skip the drive-thru line, as the staff delivers the ordered food to your curbside.

They also make their already extensive system larger so that people can access McDonald’s franchises near them. It is to be available to all McDonald’s lovers within a 3km radius. They also aim to partner with other delivery services to speed up the process.

Considering this, the company has designed numerous plans to strengthen its interpersonal relationships with customers by catering to family occasions and serving food-led breakfasts. They also plan to invest heavily in their McCafe service as it has been a customer favorite over the past few years. This way, they tend to convert casual customers to regular customers. In addition, they have decided to revamp restaurants and create a more convenient and enjoyable ambiance.

Another step the company is taking is introducing plant burgers, concerning the veg population. It will also contribute to the environment, so double the benefits. Yet, McDonald’s is presently testing different versions of the Plant burger in its laboratory.

One of McDonald’s aims is to give back to the environment. They aim to source their food from quality ingredients, drive climate action campaigns to protect the planet, connect with communities in times of need, and provide employment opportunities. In this regard, they aim to convert 100% of their packaging to ensure it is environmentally friendly and biodegradable. They also donate millions of pounds of food each year to help families in need by employing over 2 million people worldwide.

In the business arena, the company has decided to franchise restaurants and upgrade their number to meet consumer demand. They aim to increase the total savings by at least 5% annually. Moreover, shareholders are going to get greater cash returns. It would build a stronger bond between the shareholders and the company itself.

Conclusion

McDonald’s is the most famous fast-food restaurant globally, and with around 40,000 franchises, it is one of the most successful businesses in the world. Their innovative ideas are hugely responsible for the multitudes of success the company has earned. Due to being such a tycoon, it shares its fair trade of problems. Yet, it has been quite triumphant in facing them. The rationale is its stable growth plan combined with the franchise business model that aids it in successfully handling several challenges, like economic and consumer demands, as everyone still craves it. It makes us think it will rule the fast-food industry for many forthcoming years.