McDonald’s generic strategy determines the basic approach to developing the competitive advantages of the business, and the company’s intensive growth strategies focus on approaches for growth and viability. As the biggest fast-food restaurant chain in the world, McDonald’s uses its intensive growth strategies to support business development and expansion. The related strategic objectives dictate the company’s operational activities, especially in responding to economic changes and competing food service firms, such as Wendy’s, Burger King, Subway, KFC, and Arby’s, as well as Starbucks, Dunkin’, and Tim Hortons. McDonald’s generic competitive strategy also shapes the business foundation for competing in the global market. The company’s competitive advantages and competencies are based on the successful implementation of the generic strategy and the support of the intensive growth strategies of the fast-food business.
McDonald’s intensive growth strategies determine business growth and development potential. On the other hand, the company’s generic competitive strategy defines business competitiveness in the international fast-food restaurant industry. This competitiveness addresses the strong external pressure coming from competitors, as characterized in the Porter’s Five Forces analysis of McDonald’s Corporation.
McDonald’s Generic Strategy (Porter’s Model)
McDonald’s generic strategy is cost leadership, which builds competitive advantage through cost minimization. The company has standardized processes designed to maximize efficiency, minimize costs, and ensure profitability despite the use of competitive selling prices. In this regard, McDonald’s operations management contributes to the implementation of cost leadership as a generic competitive strategy. In addition, the large size of the business organization allows for economies of scale, which translate to cost reduction in purchasing materials and producing ingredients used at the company’s restaurants. The competitive advantages achieved through the cost leadership generic strategy support McDonald’s intensive growth strategies, especially market penetration and product development.
Profitability through the cost leadership generic strategy facilitates the attainment of market leadership, which is underscored in McDonald’s corporate mission statement and corporate vision statement. Applying this generic competitive strategy puts the food service company against many competitors in the fast-food market. Also, the company’s McCafé products compete against Unilever’s BRU coffee and PepsiCo’s caffeinated beverages. McDonald’s intensive growth strategies depend on how this generic strategy ensures competitiveness despite other firms that use similar strategies.
Intensive Growth Strategies of McDonald’s Corporation
Market penetration is the main intensive growth strategy that supports McDonald’s business development. The company’s strategic objective in using market penetration is to generate more sales in food service markets where the business currently has operations. The restaurant chain employs a number of ways for this intensive growth strategy, including franchising, licensing, joint ventures, and partnerships. For example, the company has agreements for the distribution of McCafé products through retail stores and platforms, such as Walmart, Target, Costco, and Amazon. In this context, McDonald’s cost leadership generic strategy supports market penetration as an intensive growth strategy, with low costs and competitive prices empowering the business to penetrate the multinational market.
In market penetration, the business strengths identified in the SWOT analysis of McDonald’s Corporation add to the competitive advantages for growing sales and market reach. The success of this intensive growth strategy relies on business competencies that effectively address the aggressiveness of other fast-food companies. In relation, in implementing market penetration as an intensive growth strategy, McDonald’s marketing mix or 4Ps determine the actual strategies and tactics used for reaching target restaurant customers and home-brew coffee consumers. The cost leadership generic strategy affects the availability of the restaurant company’s financial resources for such marketing strategies and tactics.
Product development is applied as one of McDonald’s intensive growth strategies. The company’s strategic objective in product development is to produce and sell new food and beverage products to its current markets, such as the EU and North American markets. This intensive growth strategy has a supporting role in growing the business, considering that McDonald’s mainly relies on market penetration. In applying product development, the company has a low frequency of releasing new products, such as new burgers or variants of existing menu items. This intensive growth strategy relates to McDonald’s cost leadership generic competitive strategy, in terms of competitive pricing. For example, the company can use low introductory prices to encourage consumers to buy new food products.
Industry and market trends determine the kinds of products that McDonald’s develops through the intensive growth strategy of product development. These trends reflect consumer preferences and food-service market dynamics. The PESTEL/PESTLE analysis of McDonald’s shows that these trends determine how the market responds to the business and its products. In relation, the restaurant company’s implementation of product development as an intensive growth strategy influences how corporate citizenship addresses such trends. For example, McDonald’s corporate social responsibility strategy and stakeholder management programs encourage product designs that suit corporate citizenship concerns. These concerns include sustainable sourcing of ingredients, to address green business trends. McDonald’s organizational culture or corporate culture defines the human resource foundation for such corporate citizenship efforts in using product development as an intensive growth strategy. Also, the company culture influences how the generic strategy of cost leadership supports funding for product development for the fast-food business organization’s competitive advantage and growth.
Diversification is only minimally applied as an intensive growth strategy in McDonald’s business. In this case, the strategic objective of diversification is to grow the business through new products in markets outside the food service industry. The company has implemented this strategy for intensive growth, but only to a small extent and still within the area of food preparation and production. For example, the company’s McCafé home-brew products are in the consumer goods industry. Still, McDonald’s has not yet maximized its growth in the consumer goods market. Implementing diversification requires organizational capabilities aligned with the requirements of establishing new operations other than food service. McDonald’s organizational structure or corporate structure may adopt new components or human resource groups to support this intensive growth strategy. Also, the restaurant company’s generic competitive strategy of cost leadership may no longer apply to new operations under diversification, while other generic strategies may be more appropriate.
Strategic Insights on McDonald’s Corporation
McDonald’s generic competitive strategy and intensive growth strategies reflect the company’s strategic planning processes. For example, business innovation decisions are translated to the fast-food company’s intensive growth strategy of product development. Also, business process design shows how managerial preferences and decisions affect McDonald’s generic strategy. For instance, choosing cost leadership as a generic competitive strategy indicates that the restaurant chain focuses on targeting all consumers worldwide through cost and pricing. The other generic strategies are less suitable to executives’ and managers’ perspectives on McDonald’s operations. Using differentiation as the main generic strategy would make the company focus on developing unique food and beverage products that may come with higher prices, which could narrow down the target market. Similarly, using differentiation focus as McDonald’s generic competitive strategy would entail a limited target market. The current situation shows that the fast-food company’s intensive growth strategies and generic strategy are designed to support each other for optimal business performance.
References
- Alcalde-Delgado, R., Sáiz-Bárcena, L., Olmo, R., & Pérez, C. A. D. A. (2020). Empirical study of the business growth strategy related to the added value by intellectual capital. International Journal of Production Management and Engineering, 8(1), 1-12.
- Greckhamer, T., & Gur, F. A. (2021). Disentangling combinations and contingencies of generic strategies: A set-theoretic configurational approach. Long Range Planning, 54(2), 101951.
- Islami, X., Mustafa, N., & Topuzovska Latkovikj, M. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(1), 1-15.
- McCafé at Home.
- McDonald’s Corporation – Form 10-K.
- McDonald’s Corporation – Our Business Model and Growth Strategy.
- Pidun, U. (2019). Corporate growth strategy. In Corporate Strategy (pp. 95-126). Springer Gabler, Wiesbaden.
- U.S. Department of Commerce – International Trade Administration – Consumer Goods Industry.
- U.S. Department of Commerce – International Trade Administration – Travel, Tourism & Hospitality Industry.
- Why Franchise a McDonald’s?
FAQs
McDonald's Generic Strategy (Porter's Model)
McDonald's generic strategy is cost leadership, which builds competitive advantage through cost minimization. The company has standardized processes designed to maximize efficiency, minimize costs, and ensure profitability despite the use of competitive selling prices.
What kind of a growth strategy is McDonald's is into? ›
Run Great Restaurants
McDonald's reinvigorated strategy is underpinned by a relentless focus on running great restaurants and empowering restaurant crew. The Company has reduced its drive thru service times by about 30 seconds over the past two years in its largest markets, on average.
What are the 3 pillars of growth strategy for McDonald's? ›
“Our three growth pillars known as our 'MCDs' – marketing, core menu and the 3Ds (digital, delivery and drive-thru) guide our business. This includes amplifying contactless channels like delivery and drive-thru and creating digital experiences that are seamless, personalized and easy to use.”
How did McDonald create its competitive strategy to design its process strategy? ›
McDonald's runs a lean-process-based assembly line to deliver products to the customer. The company designed the assembly process to meet instant demand, thereby reducing storage costs while minimizing wastage.
What is an example of an intensive growth strategy? ›
When an organization is having a strong Research and Development base. Example: Apple focuses on the product development as one of the main intensive strategy for the growth of its market. It offers attractive and innovative products in the existing markets to increase its market share and performance.
What business strategies does mcdonalds use? ›
McDonald's follows a three-structured franchise model. The company's franchisees own and operate 90% of its restaurants. Franchisees operate their restaurants with oversight from the company and act as their employer. They have significant control over the pricing, the sale, and the operation of their restaurants.
What is McDonald's expected growth? ›
Earnings vs Savings Rate: MCD's forecast earnings growth (7.3% per year) is above the savings rate (2.1%). Earnings vs Market: MCD's earnings (7.3% per year) are forecast to grow slower than the US market (15.4% per year).
What is McDonald's growth potential? ›
Since 2017, McDonald's has increased its restaurant units by about 8% to 40,275. The company is accelerating new restaurant development for 2023 and is planning to open about 1,900 gross restaurants in the current year (~1,500 net openings due to anticipated restaurant closings).
What are the 5Ps of strategy McDonald's? ›
McDonald's uses the strategy of Plan to Win for driving its worldwide expansion. This strategy has 5Ps that consist of price, promotion, product, place, and people. The company relies on strong strategic thrust and competitive advantage that mainly focus on its resources for implementing its marketing objectives.
What is the key to McDonald's success? ›
McDonald's success today is largely attributed to its franchising model, consistency, and innovation. Through their franchising model, they were able to enjoy rapid growth.
We're challenging ourselves to lead change across four key areas: Planet, People, Restaurants and Food. That means achieving net zero and protecting and restoring nature. Championing great people, whatever their background. And sourcing quality, sustainable ingredients that provide more balanced and tastier options.
What are key growth strategies? ›
There are four core strategies that make up organic growth. These strategies are known as market penetration, market development, product development, and diversification. Market Penetration: This growth strategy involves selling more of a company's existing products or services to its current customer base.
Which business level strategy does McDonald's employ is effective how so? ›
McDonald's business-level strategy focuses on customer satisfaction by tapping into their needs and taste. McDonald's uses market segmentation according to age, taste, preferences, and cultural values to define different consumer needs. McDonald's also leverages competitive pricing and a broad target strategy.
What is McDonald's strategic role? ›
In McDonald's the business strategy for the company is to make food fast available to its customers at a very low competitive price but to get profit as well by reducing the cost of the product and expanding the business world wide. Operations strategies play a very important role in achieving organizational goals.
How would you describe McDonald's business strategy What are the foundations of its competitive advantage? ›
The business strategy of McDonald's is to provide instant service at competitive prices. They follow a cost leadership model whereby they minimize costs to offer a low pricing to the customers. They have a front attack approach (Brand positioning) i…
What are the 3 most common types of intensive growth strategies? ›
Market penetration, market development, and product development are sometimes referred to as intensive strategies because they require intensive efforts if a firm's competitive position with existing products is to improve.
What are the 4 growth strategy example? ›
The four growth strategies
This can be accomplished by a price decrease, an increase in promotion and distribution support; the acquisition of a rival in the same market or modest product refinements.
What are 3 advantages of intensive strategies? ›
Advantages of intensive strategies
Increased market share reduces the business's vulnerability to actions of competitors. Increase in sales/income and profitability. Improved service delivery may improve business image. Businesses may have more control over the prices of products/services.
How did McDonald's grow so fast? ›
McDonald's grew thanks to its 'Speedee Service System'
According to Love, they simplified their menu to just nine items—hamburgers, cheeseburgers, three soft drink flavors in one 12-ounce size, milk, coffee, potato chips and pie. “Our whole concept was based on speed, lower prices and volume,” Richard McDonald said.
What is the profitability and growth of McDonald's? ›
McDonald's average annual sales for 2021 from more than 10,000 locations in the United States was over $3 million. To franchisors, McDonald's is a highly profitable business, with a net income of over $2 billion. The average income for 2019, 2020, and 2021 was $2.480 billion.
The McDonald Brothers
In 1948 they took a risk by streamlining their operations and introducing their Speedee Service System featuring 15 cent hamburgers. The restaurant's success led the brothers to begin franchising their concept—nine becoming operating restaurants.
What is the main reason why McDonald's strategy was effective in increasing their sales? ›
This worked for two reasons: First, McDonald's invested a ton of money into ensuring that there was consistent quality across its franchises. Second, the company invested in sourcing products from individual regions, and tailored menus to match regional tastes.
What is the 4ps for McDonald's? ›
McDonald's marketing mix strategy examines the company using the marketing mix paradigm, which includes the four Ps (Product, Price, Place, Promotion). Product development, price strategy, promotion planning, and so on are all examples of marketing tactics.
What are McDonald's key goals? ›
Our mission is to make delicious feel-good moments easy for everyone. This is how we uniquely feed and foster communities.
How does McDonald's motivate their employees? ›
“Those people are motivated by the training and development opportunities we offer, which is one of the reasons we invest more than $40 million on training annually.” By drawing on the strengths of their recognition and training programs, McDonald's can focus on identifying the strengths of crew members.
How does McDonald's attract customers? ›
McDonald's runs a very successful series of marketing and advertising campaigns to make sure all of our customers are aware of our offers, promotions and good work that McDonald's is involved in. This includes TV, print, display, radio, and online advertising.
What is the most common growth strategy? ›
Market development is a common growth strategy because it allows you to move beyond your existing customers. As a result, you'll expand your share of the market.
What are the 5 stages of growth strategies? ›
Depending on who you ask, the growth stages businesses go through differ. Some people promote a growth cycle that contains five stages: existence, survival, success, take-off, and resource maturity. Others suggest there are four stages: start-up, growth, maturity, and renewal/decline.
What are the 4 P's of growth strategy? ›
The four growth strategies
If you've studied growth before, you may know of the popular Four Ps. These are Product, Placement, Promotion and Price.
Who is head of strategy at mcdonalds? ›
Kevin Ozan. As Senior Executive Vice President of Strategic Initiatives, Kevin leads McDonald's Strategy team.
We're aiming for 100% certified, recycled or renewable guest packaging materials by the end of 2025. Our ambition is to drastically reduce plastics and offer sustainable Happy Meal toys2 and transition to more sustainable materials by the end of 2025.
Does McDonald's use a differentiation strategy? ›
Fast Food Strategy of Efficiency
Efficiency is central to differentiation strategies used by McDonald's. The company routinely locates restaurants just off of highway exits or in well-traveled business districts.
What type of pricing strategy does McDonald's use? ›
McDonald's pricing strategy involves price bundling combined with psychological pricing. In price bundling, the company offers meals and other product bundles for a discount. This is especially so because of the lack of regional or global alliances among suppliers.
Which strategy is McDonald's likely to employ in order to appeal to local tastes? ›
Customisation: McDonalds have a relatively standard brand, logo and menu across the world however some menu items are adjusted to fit local tastes and generate increased sales.
On what differentiating factors are McDonald's restaurants positioned? ›
It is made up of four factors which are 1) Product differentiation 2) Differentiation basedon services accompanying the product 3) Personnel differentiation and 4) Imagedifferentiation. McDonalds has only used one of these factors to position itself which isPersonnel differentiation.
What is a good example of differentiation strategy? ›
An example of product differentiation is when a company emphasizes a characteristic of a new product to market that sets it apart from others already on the market. For example, Tesla differentiates itself from other auto brands because their cars are innovative, high-end, and battery-operated.
What are the 3 generic strategies for competitive advantage? ›
The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus.
What are the three generic strategies? ›
According to Porter's Generic Strategies model, there are three basic strategic options available to organizations for gaining competitive advantage. These are: Cost Leadership, Differentiation and Focus.
What are the benefits of generic strategy? ›
A generic strategy is a general way of positioning a firm within an industry. Focusing on one generic strategy allows executives to concentrate on the core elements of firms' business-level strategies and avoid competing in the markets better served by other generic strategies.
What is McDonald's promotion strategy? ›
McDonald's leads in the fast food industry with its promotional techniques that include offers and freebies to regularly attract customers. For example, McDonald's offers a "Happy Meal," which consists of a main meal, side, and drink for a discounted price.
Understanding their customers in context
McDonald's demonstrates that time and time again, they understand how and why their customers choose their brand. It's this intricate understanding of their audience tastes, motivations and behaviours that truly sets them a part.
What are the 4 P's of McDonald's? ›
McDonald's marketing mix strategy examines the company using the marketing mix paradigm, which includes the four Ps (Product, Price, Place, Promotion). Product development, price strategy, promotion planning, and so on are all examples of marketing tactics.
