Professor Dee Malone
MBA 554: Managerial Finance
30 November 2014
Week 2 Case Study - Chem Med
To steal a cheesy line from Tommy Boy, a classic Chris Farley movie, “Any business that tries to wait it out will be just that, out. In auto parts, you're either growing or you're dying. There ain't no third direction.” While this line is pertaining to the crisis facing his father’s auto part company, we can construe the line to apply it to the health and quality dilemma that McDonalds, and the fast food industry as a whole, are currently facing.
As the market share leader, McDonalds could sit back on its laurels; however, as recent sales trends have shown this position as an industry leader would be short lived. Rather McDonalds is actively engaged in trying to both proactively and reactively address the methods in which they market their brand and products to consumers. As we will discuss, these consumers are shifting the way in which they decide how to make food visits and ultimately spend their food money.
Changes in Customer Taste
Recent trends in the fast food industry and specifically the hamburger segment led to a downturn in sales and profits generated. This decline spurred investigation into a root cause and reasoning as to ‘why’. Research into the industry wide changes found two primary determinants. It was discovered that the consumer market was first of all becoming more health conscious and secondly was willing to invest the extra dollar or two into a new niche labeled as the ‘fast casual dining experience. The impact McDonald’s initially felt was in their bottom line; however, in recent years Jack Greenberg and McDonalds corporation have been responded to the changes in customer taste by exploring product development and venturing into a new type of dining experience, which will be discussed in further detail later on.
From an industry wide perspective we are seeing a transition from the days of value based marketing such as ‘dollar’ or value menus and beginning to see more and more ‘quality’ and health initiatives and branding pop up. According to the case study, “many younger consumers are getting tired of fast food and are thinking about their health” (Peter 246). With these new health and quality trends it has been noted that the fastest growing sector of the industry is the ‘fast casual’ dining experience, with growth expected to be between 15 to 20 percent per year. We have already seen McDonalds, and the industry as a whole, make adaptations in products, branding and marketing to attempt to capture this growing sectors attention – and ultimately their dollars.
Strengths, Weaknesses and Future
As a market share leader McDonald’s greatest strength is its ability to change the entire landscape of the industry with product development and targeting the aforementioned trends of health and quality. Examples of these successful adaptations listed in the case are their expansive list of chicken products and the venture into the McCafe setup and branding (Peter 246). In terms of weaknesses McDonalds, much like their competitors in the hamburger segment, must face the harsh reality that the consumer has a growing negative perception of their greasy burgers and fries. This constitutes the both the greatest opportunity and threat to companies in the hamburger segment – thus the race is on to leverage marketing strategies and product development to change perceptions and reputations in order to capture and sustain market shares.
Analysis of the Heavy Users
Amidst all of…