Case 2-7

McDonald’s andOBESITY

INTRODUCTIONGlobalization has made the globe considerably smaller.  States lines have turned into practically a divider separating certain regions of a massive unitary community.  Businesses are the one that

are highly affected by this occurrence.  The virtual closeness of states has made trade and

commerce an international event.  Together with these advances, the key standards of business

are similarly taken into account.  

The discussions in this case shall involve an analysis of the international expansion strategy

utilized by a multinational company.  In this case, the situation surrounding McDonald’s will

be taken into consideration.  The following annotations and propositions employed in the following discussions are to be supported by claims on journals and academic pieces that

address international expansion strategies and international marketing theories.

BACKGROUNDThe modest beginnings of McDonald’s in Illinois turned out to be among the main brand names in the international scene.  It has been synonymous to what is widely-accepted the fast-food concept. The company operates over thirty one thousand stores all over the world to date. It was one of the first to perfect the concept of fast service in the food industry in its early days of operations in 1955.

Given that the products of the company are mainly western in character; its operations have also expanded to the Asian region. The first McDonald’s store operated in Hong Kong in 1975.  The first shop operated at Paterson Street in Causeway Bay.  Up to this data, the functions of McDonald’s in Hong Kong covers over two hundred restaurant chains spread in the whole of Hong Kong alone.  In the rest of the globe, it operates thousands of store franchises that functions autonomously.

SUMMARY OF THE CASE

THE PROBLEMGovernment and

influential health advocates around the world, spooked that their nation’s kids will become as fat as American kids, cracking down on the marketers they blame for the explosion in childhood obesity. Across the Globe, efforts are under way to slow the march of obesity.

THE WORLD• The World Heart Federation reports that

globally there are now more than 1 billion overweight adults and that at least 400 million of those are obese. An estimated 155 million children are overweight worldwide including 30–45 million who are obese

GLOBAL REACTIONS TO OBESITYOne of the perplexing questions is why there has been

a relatively sudden increase of obesity worldwide. Some opine that fast-food portion sizes are partly to blame; the average size order of French fries has nearly tripled since 1955. Some people say advertising is to blame, particularly ads aimed at children, such as those that use celebrities to market high-calorie foods. According to USA Today, one study found that the average American child sees 10,000 food ads a year, mostly for high-fat or sugary foods and drinks.

MCDONALD’S RESPONSE For the last few years, McDonald’s has reacted to the obesity issues in several ways in the United Kingdom and other countries. Concerned about consumer reaction to the film Super Size Me , McDonald’s Corp. broke a U.K. campaign called “Changes” with poster ads that omit the Golden Arches for the first time, replacing them with a question mark in the same typeface and the tagline “McDonald’s. But not as you know it.”

• Promoting ongoing menu changes, the posters feature items such as a salad, a pile of free-range eggshells, pieces of fruit, and cups of cappuccino. The effort preceded a direct-mail campaign to 17 million households touting healthier menu items and smaller portion sizes.

Super Size Meis a documentary about the fast-food industry and the addictiveness of fast food, its allure to children, and so forth. Scenes in the fi lm feature Morgan Spurlock (the director, producer, and star of the documentary), whose fast-food feat consists of eating some 5,000 calories a day, twice what his doctor says he needs to maintain his starting weight of 185 pounds.

• He also avoids exercise because, he says, that’s what most Americans do. Spurlock gains weight—nearly 25 pounds over 30 days. His cholesterol goes up, and so does his blood pressure. His doctor describes his liver function test results as “obscene.” Spurlock complains of sluggishness, depression, shortness of breath, impotence, chest pressure, and headaches.

THE MARKET’S REACTIONInitially, McDonald’s sales worldwide, as well as in England, suffered. However European sales last year, from restaurants open all year, was 5.8 percent, outstripping even U.S. growth. Some 320,000 more people a day than the year before visited McDonald’s in Britain. Around 90 percent of them are buying traditional products such as burgers, fries, and ice cream rather than the healthier sandwiches and salads the chain stocks

THE PRINCE CHIMES INCharles asked: “Have you got anywhere with

McDonald’s? Have you tried getting it banned? That’s the key.” His comments were reported internationally,

with reactions that were more positive for McDonald’s than one would expect.

Health advocates and nutritionists said a ban on McDonald’s was “certainly not the answer” to

Britain’s obesity epidemic. Even the press ran articles favorable to McDonald’s.

Duchy Originals• one of the United

Kingdom’s leading brands of organic food and drink

• offered fast foods whose fat and calorie content was no better, if not worse, than McDonald’s

QUESTIONS1. How should McDonald’s respond when ads

promoting healthy lifestyles featuring Ronald McDonald are equated with Joe Camel and Cigarette Ads? Should McDonalds eliminate Ronald McDonald in its ads?

Answers• Introduction of Healthier Foods– ‘Healthy Ad Campaigns' for kids

• In-Restaurant Promotion and Signage• McDonald’s is part of the Obesity Solution– “solution” lies within the options to include apples

and 1% milk in Happy Meals and adding grilled chicken to salads. Additionally , the company works “closely with the health organizations and others.”

Ronald McDonald Retiring?!?• Ronald McDonald is just getting too old for kids.  Actually,

folks are just trying to get the major fast food corporation, McDonald’s, to stop marketing its junk food and "Happy Meals" to kids.

• The Wall Street Journal recently published an article stating that parents, health advocates (Dr. Weil, et al.) and the non-profit corporate watchdog Corporate Accountability International have sent a letter to the fast food giant to stop selling junk to the kids of the world.  The goal is to get the loveable clown to stop selling to kids and enticing them to ‘buy’ the perennial happy meals.

2. Discuss the merits of the law proposed by France that would require fast-food companies either to add a health message to commercials a pay a 1.5 percent tax on their ad budgets. Propose a strategy for McDonald’s to pay the tax or add health messages, and defend your recommendation.

A new law in France will force food marketers to choose between adding a health message to commercials or paying a 1.5 percent tax on their ad budgets to fund healthy-eating messages. Other measures under consideration in Europe include banning celebrities and cartoon characters from food ads aimed at children and preventing food marketers from using cell phone jingles to reach kids.

• I propose to add a health message to commercials because the target consumers which are the children and also include the parents teaches them to make their children a healthy one.

3. If there is no evidence that obesity rates fall in those countries that ban food advertising to children, why bother?

Wrong idea, because company must address their social responsibility. If ever there is no evidence, the company itself must also consider that those facts by doing own research.

4. The broad issue facing McDonald’s U.K. is the current attitude toward rising obesity. The company seems to have tried many approaches to deal with the problem, but the problem persists. List all the problems facing McDonald’s and critique its various approaches to solve the problems.

5. Based on your response to Question 4, recommend both a short-range and long-range for McDonald’s to implement.

Ronald McDonald Fallout: What Role Does Advertising Have in Childhood

Obesity?• Childhood obesity has more than tripled in

the past 30 years. Obesity in children 6 to 11 has gone from 6.5 percent in 1980 to almost 20 percent in 2008. Parents are frantic, health professionals are alarmed and activists are up in arms.

• Legislators are calling for a tax on soft drinks; some states are making it a requirement for restaurants to post calories on their menus. A few weeks ago Pepsi and others voluntarily pulled sugar-laden soft drinks from schools and the advocacy group Corporate Accountability International targeted the venerable spokes-clown for McDonald's, Ronald McDonald, saying for nearly 50 years he has hooked kids on unhealthy food, spurring an epidemic of diet-related diseases.

• What role has advertising played in the disturbing obesity epidemic facing American kids and are marketers being responsible in their advertising practices?

• Most experts agree there is no single reason the youth of America are increasingly overweight. Lack of exercise, an increase in the availability of snacks and soft drinks in school, the growing number of fast food outlets in the country, the trend to larger portion sizes and the dramatic increase in the amount of time kids spend with media -- all play a part. The average kid spends 5 1/2 hours a day consuming media -- more time than kids spend doing anything else except sleeping.

• A byproduct of all of that time in front of the TV is that the average child sees 40,000 TV commercials a year. Research has shown that a two- or three-year-old already knows the McDonald's logo, and a study conducted by Stanford doctors showed that children believed a number of foods, including milk and carrots, tasted better, by a significant margin when served in McDonald's packaging.

Ronald McDonald: The 'Heart and Soul' of Charity?

• "He is the heart and soul of Ronald McDonald House Charities, which lends a helping hand to families in their time of need, particularly when families need to be near their critically-ill children in hospitals. In fact, four million children are helped every year around the world through the Ronald McDonald House Charities. Ronald also helps deliver messages to families on many important subjects such as safety, literacy, and the importance of physical activity and making balanced food choices. That's what Ronald McDonald is all about, which our customers know and appreciate," she said.

Ronald McDonald Fallout: What Role Does Advertising Have in Childhood Obesity?

• I think the company should acknowledge the influence Ronald has and pledge to act in a more

responsible way to help attack the problem. They are not the sole cause, nor can they be the sole cure. But the one thing corporations seem

to lack is common sense. Advertisers have a responsibility and they need to own up to it -- if

only because when your customer base diminishes then so will your profits.

Political Factors• The international operations of McDonald’s are

highly influenced by the individual state policies enforced by each government. (2001, 705) For instance, there are certain groups in Europe and the United States that clamor for state actions pertaining to the health implications of eating fast food. (2005) They have indicated that harmful elements like cholesterol and adverse effects like obesity are attributable to consuming fast food products.

On the other hand, the company is controlled by the individual policies and regulations of

operations. Specific markets focus on different areas of concern such as that of health, worker protection, and environment. All these elements

are seen in the government control of the licensing of the restaurants in the respective

states. For instance, there is an impending legal dispute in the McDonald’s franchise in India

where certain infringement of rights and violation of religious laws pertaining to the contents of the

food.

• The existence of meat in their menus in India is apparently offensive to the Hindu religion in the said market. There are also other studies that points to the infringement of McDonald’s Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonald’s stores have to contend with the issues of employment procedures as well as their tax obligations so as to succeed in the foreign market.

RECOMMENDATION• Since it is apparent that the company is

expanding continuously, it is wise to deal directly with the proper authorities in the respective markets that they intend to operate in. This way, a good way of establishes good relationship with the government. It is advisable that the company rests on the good graces of the government on which they will be penetrating.

• To do this, all they have to do is accomplish all the prescribed acts and satisfy all the prerequisites for doing business. The company must also be acquainted with the law in order to know what their responsibilities and their possible liabilities.

Economic Factors• Organizations in the fast food industry are not

excused from any disputes and troubles. Specifically, they do have their individual concerns involving economic factors.  Branches and franchises of fast food chains like McDonald’s has the tendency to experience hardship in instances where the economy of the respective states is hit by inflation and changes in the exchange rates.  

• The customers consequently are faced with a stalemate of going over their individual budgets whether or not they should use up more on these foreign fast food chains. Hence, these chains may have to put up with the issues of the effects of the economic environment.

• Particularly, their problem depends on the response of the consumers on these fundamentals and how it could influence their general sales.  In regarding the operations of the company, food chains like McDonald’s tend to import much of their raw materials into a specific territory if there is a dearth of supply.  Exchange rate fluctuations will also play a significant role in the operations of the company.

McDonald stores have to take a great deal of consideration with reference to their microenvironment. The company’s international supply as well as the existing exchange rates is merely a part of the overall components needed to guarantee success for the foreign operations of McDonald’s. Moreover, it is imperative that the company be cognizant of the existing tax requirements needed by the individual governments on which they operate. This basically ensures the smooth operations of the McDonald’s franchises.

• In the same regard, the company will also have to consider the economic standing of the state on which they operate on.

RECOMMENDATION• Before penetrating the market, the company

must carry out a well conducted market research, especially in the movements in the economic environment. The frequency of the shifts in the inflation rate as well as the fluctuations in the exchange rate affects the operations of the company.

Socio-cultural Factors• Articles on the international strategies of

McDonald’s seem to function on several fields to guarantee lucrative returns for the organization.  To illustrate, the organization improves on establishing a positive mind-set from their core consumers.  McDonald’s indulge a particular variety of consumers with definite types of personalities.

RECOMMENDATION• Obtain the relevant information from the target

market in addition to the individual customers of the organization. It is imperative that before a franchise is granted to a particular market, a well drafted and comprehensive market research should be conducted initially so as to establish the acts that would conform to good customs, public policies, and morals of the said state.

• Similarly, the company should find out the shifts in areas like the consumer behavior and purchasing patterns of the market. Fundamentally, this is the key condition for executing a suitable customer relationship management system.

Technological Factors• McDonald’s generates a demand for their

own products. (2006) The Company’s key tool for marketing is by means of television advertisements.  There are similarly some claims that McDonald’s are inclined to interest the younger populations more.

• They employ animated depictions of their characters like Grimace and Hamburglar. Other advertising operations employ popular celebrities to promote their products.  The like  has become endorsers for McDonald’s worldwide “loving’ it” campaign.  Moreover, the operations of McDonald’s have significantly been infused with new technology.  

• Elements like the inventory system and the management of the value chain of the

company allows for easy payments for their suppliers and other vendors which the

individual stores in respective markets deal with. The integration of technology in the

operations of McDonalds tend to add value to their products.

• Basically, this is manifested in the improvements on its value chain. The improvement of the inventory system as well as its supply chain allows the company to operate in an international context.

RECOMMENDATION• Use the internet to their advantage. The

cost-effectiveness, interactivity and real-time effects of the communications are a good way to find suppliers. It is also a good way to correspond with the respective McDonald’s headquarters in every state.

• The company must also look into the use of IT to enhance their inventory operations. As the operations in its inbound and outbound logistics improve, the company will expect significant savings and reduction of costs in the operations.  

Legal Factors• There has been the recurrent bellowing in opposition to the fast food industry.  This has

similarly made McDonald’s apply a more careful consideration on their corporate social responsibilities.  On the whole, this addressed the need of the company to form its corporate reputation to a more positive one and a more

socially responsible company. ( 2005) The reputation of McDonald’s is apparently a huge

matter.

• This is tied up with the socio-cultural attributes of the market on which they operate. For instance, operations in predominantly Muslim countries require their meat to conform to the Halal requirements of the law.

RECOMMENDATION• Hire local counsels to deal with the legal

conflicts in individual markets on which the company may encounter. This is shall ensure the company that the lawyers that will handle their legal affairs are more versed with the legal regime that would iron out certain creases on their operations.

Environmental Factors• The social responsibilities of McDonald’s on

the state are influential to the operations of the company.  These entail accusations of environmental damage.  Among the reasons why they are charged with such claims is the employ of non-biodegradable substances for their drinks glasses and Styrofoam coffers for the meals.

• Several civic groups in Hong Kong have made actions to make the McDonald’s franchises in Hong Kong aware of the rather copious use of Styrofoam containers and the resultant abuse of the environment.   (1997) further indicated that in 1995, McDonald’s Hong Kong went over the Styrofoam used by both Australia and the United States combined.

RECOMMENDATIONFind out the environmental regime that governs the operations in every market. Monitor the waste disposal of the company. Minimize the use of Styrofoam materials and plastic cups. Constant updating of the social corporate responsibility is imperative. This should also entail that the headquarters should take in hand a manner of internal control of those that would infringe upon this company objective.

• Sanctions such as revoking of the franchise license or a particularly high fine should be installed to serve as a deterrent to infringement.