Table of Contents
1) Introduction……………………………………………………………………………………………………………………………….. 2
2) Market Analysis/Structure……………………………………………………………………………………….……..……… 2
3) Competitor Analysis……………………………………………………………………………………………………………….... 4
4) Factors Affecting Demand and Supply………………………………………………………………………………….. 4
5) Structure-Conduct, Performance Model……………………………………………………………………………..… 5
Structure……………………………………………………………………………………………………………………………………... 5
Barriers to Entry………………………………………………………………………………………………………………..……… 6
Conduct………………………………………………………………………………………………………………………………….……. 6
Performance……………………………………………………………………………………………………………………………….. 7
6) PESTEL Analysis………………………………………………………………………………………………………………………… 7
Political Factors……………………………………………………………………………………………………………..………….. 7
Economic Factors………………………………………………………………………………………………………………………. 8
Social Factors…………………………………………………………………………………………………………………………..…. 8
Technological Factors……………………………………………………………………………………………………………….. 9
Environmental Factors…………………………………………………………………………………………………………… 10
Legal Factors………………………………………………………………………………………………………………..…..……… 10
7) Macroeconomic Environment and Government Policies……………………………………..…….......11
8) Globalisation……………………………………………………………………………………………………………………………. 12
9) Legal Aspect – Case Study……………………………………………………………………………………………………... 13
10) Conclusion……………………………………………………………………………………………………………………………… 15
References:………………………………………………………………………………………………………………………………….… 16
1) Introduction
McDonald’s Restaurant Ltd is a wholly owned subsidiary of the US-based
McDonald’s Corp, a global fast food player with a presence in 118 countries.
McDonald’s restaurant opened its first restaurant in 1974 in Woolwich. The UK
market represents around 4% of the total number of McDonald’s outlets worldwide,
but 7% of global profits (Euromonitor, 2013a).
Mcdonald’s in the UK operates only in the burger fast food, where it holds a leading
position. The company operates in the UK with more than 1,200 restaurants and
employs around 97,000 people. Around 70% of the restaurants in the UK are owned
and operated by local businessmen and women (franchised). It is also listed on (LSE)
London Stock Exchange (McDonald’s, 2014a). However, according to Euromonitor
(2013a), the further development of franchising could hamper due to difficult trade
conditions and difficulties in obtaining necessary capital.
Overall, McDonald’s operates over 35,000 restaurants worldwide and employs more
than 1.8 million workers. At year-end 2013, more than 80% of McDonald’s
restaurants are operated by franchises or via joint ventures with affiliates and the
corporation itself owns approximately 19% of restaurants (McDonalds, 2014b).
2) Market Analysis/Structure
According to Keynote (2013a), fast-food outlets form the part of the hospitality
industry, a pillar of the UK economy. Fast-food restaurants are located in variety of
places, including the high street, shopping malls, transport stations and terminals,
leisure parks, motorway services and petrol station.
In her lecture on market structures, Tootoonchain (2014) pointed out that it involves
three steps in defining a market or industry i.e. identifying the goods and services,
competitors and the geographical area. Keynote (2013a) divided fast food market by
type of food which is made up of six principal sectors i.e. sandwiches, burgers, pizza,
fish and chips, chicken and other fast food and takeaways.
On the other hand, Keynote (2013b) classified restaurants into three main sectors i.e.
pub restaurants, quick service restaurants and casual dining restaurants. The quick
service sector is primarily made up of fast-food chains. It is dominated by US brands
such as McDonald’s, Burger King and Kentucky Fried Chicken (KFC).
However, burger fast food restaurants chains are not the largest sector in the market
share but the importance of these businesses in the UK’s eating out category is
undeniable because it is the largest sector in terms of revenue. In recent times, market
saturation and competition has resulted in portfolio diversification. As a result, fast
food restaurant chains now offer a variety of other products, in addition to traditional
burgers, including salads and wraps which also focus on the growing concern of
healthier options (Keynote, 2013a and Keynote, 2013b).
According to Euromonitor (2013b), the economic downturn and reduced purchasing
power pushed consumers to cut back and trade down, so restaurant meals have been
replaced by fast foods. On the other hand, the impact on the overall market was
limited as the category had to battle its unhealthy image. However, chained fast food
reported better growth in terms of sales by almost 2% to £6.9 billion in 2012.
On the contrary, the market has largely been bolstered by food price inflation which
continues to put pressure on brands operating margins. However, market innovations
for example growth of premium snack/drinks ranges has also helped companies in this
market gain more widespread demand (Mintel, 2013a).
In Mintel report (2013a), over half of fast food users stated that they haven’t changed
their spending behaviour in the last year while 29% of fast food users have reduced
the amount of spending but this is most commonly among the over-55’s who tend to
be less frequent users.
3) Competitor Analysis
McDonald’s restaurant was the leading player in the UK food service market
accounting for over one-third of value sales in 2012, while ranking third in terms of
outlets with a share of 13%, behind Greggs, the leader with an outlet share of 18%,
and Subway with a share of 16% (Euromonitor, 2013b).
According to the survey conducted by Mintel (2013a) stated that 52% of people
bought food from McDonalds in the last three months while 34% people bought it
from KFC following Subway by 28% and Burger King by 20%.
In one sense, McDonald’s does not have any real competitors, as they are the largest
restaurant chain worldwide. But some of the other restaurant chains are large enough
to cut into its market share in the UK, which includes Burger King Corporation,
Subway, Kentucky Fried Chicken and Starbucks.
Apart from the leading brands, there are other small outlets that are competing with
McDonald’s and gaining the market share are such as the kebab and chicken shops as
well as the stalls on the high street and Sunday markets.
4) Factors A”ecting Demand and Supply
Chandon and Wansink (2007) proposed that health claims made by fast-food and
casual dining restaurants lead consumers to underestimate the number of calories in
their main dishes which inevitably leads to the consumer ordering higher-calorie
sides, drinks, or desserts.
A restaurant’s atmosphere might lead people to overeat if it stimulates them to eat
faster (Lawton, 2004), or it might lead people to overeat if it encourages a person to
stay longer at the restaurant and order additional food (Wansink, 2004). On the other
hand, lightning and noise could have a psychological influence on food consumption
because they directly or indirectly influence eating duration (Garg et al, 2007).
According to Ward (2013), consumers will continue to seek greater value in their
menu options, not just through price, but also through greater variety in the side items
and desserts. In addition, consumers expect a good experience through polite and
courteous service, accuracy in their orders, and convenient locations and hours.
Tabassum (2012) stated that one of the effects of urban development is the increase in
sale of ready cooked food. The growth in information technology (IT) sector and the
entry of women in the job market has made the environment conducive for opening of
many Fast food restaurants. In his study, he identified the factors affecting the choice
of fast food restaurant and the top three were location, availability of variety of items
and value for money.
It can be evaluated that there are various other factors like healthiness, restaurant
atmosphere, customer experience, entry of women in job market and so on which can
affects the demand and supply of McDonald’s restaurant apart from the most common
factors classified in the economics such as price of substitute and related goods,
income, government regulations, advances in technology and so on.
5) Structure-Conduct, Performance Model
Structure
Defining a market and the industry is difficult but classifying a firm to a particular
industry is even more difficult. According to the market analysis, carried out in this
report, McDonald’s restaurant has been classified by various researchers as a fast food
or a quick service restaurant. Therefore, it can be clearly said that McDonald’s
belongs to the fast-food restaurant market.
As per the competitor analysis, it can be analysed that there are very few competitors
to compete with McDonald’s. There are only few large firms which are leading to
high market concentration ratio and hence, it can be assumed that McDonald’s
operates in an Oligopoly market. In addition, the types of product all firms sell are
easily differentiated through their ingredients, packaging and brand.
Overall, it is highly concentrated Oligopoly market due to various factors like fewer
firms, obesity, price, location, product and so on.
Barriers to Entry
In order to compete with McDonald’s and other leading fast food outlets, the entry
barrier is very high. There will be some structural barrier as well as strategic barriers.
To begin with, it will require high capital cost for setting up the new business. Further,
there will be some patent and copyright issues if the new entrant wants to introduce
any product or brand name that is similar to the rivalry. Besides, the product, service
and price should be easily differentiated in order to attract customers.
On the other hand, advertisement, R&D expenses will be high at the beginning, which
can make business to go in losses if firm is competing on the basis of low price
products. Additionally, access to distribution channel will be less in the UK, as most
of them will be tied up in contracts. Hence, cost per unit will be more due to raw
material available at high cost, lower production and increased marketing.
Conduct
According to the survey conducted by Mintel (2013b) stated that 41% of people
would like to eat at fast-food outlet while they are out of home. In addition, 67% of
people preferred convenient location. Furthermore, in their survey, it was found out
that 58% of people are put off from buying food due to queues.
This suggests that fast food outlets take the lead at present with their low prices and
accessibility being the key attractions. In this Oligopoly market, in which McDonald’s
operate, it can be assumed that competition is based on price, service, quality and
location.
Performance
According to Oak Brook in McDonald’s press report (2014c), the company’s revenue
was higher compared with the prior year, while earnings per share for first quarter of
2014 declined due to the impact of prior year income tax benefits.
During the first quarter, there was a positive sales performance in the UK. In addition,
across Europe, a combination of unique limited-time food events, premium offerings
and everyday pricing contributed to positive performance. Moreover, Europe sales
and operating income increased by 1.4% and 6% respectively (McDonald’s, 2014).
Hence, it can be concluded that fast food industry is performing better in the UK as
well as in Europe and profitability is good.
6) PESTEL Analysis
Political Factors
The government has consistently held back from passing legislation to limit
