McDonald’s Business Case Analysis

MacKenzie WinterBA 301 Final Term PaperSection 005

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March 9, 2016

Table of ContentsExecutive Summary..............................................................................................3

Situation Analysis..................................................................................................4

Problem Analysis & Description............................................................................6

Solutions, Evaluation & Recommendation............................................................8

Solution #1: Redesign Supply Chain to Include Local Suppliers and Local Food Culture..........................................................................................................................8

Solution #2: Location, Location, Location; Sale in Customer Convenient Venues.........................................................................................................................9

Solution #3: Healthier Food Choices.................................................................9

Implementation Plan............................................................................................10

Metric #1..............................................................................................................12

Metric #2..........................................................................................................12

Bibliography.........................................................................................................13

Appendix.............................................................................................................15

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Executive Summary McDonald’s (MCD) is a powerhouse within the fast food industry and has been

the most profitable fast-food restaurant in the US since its inception in 1955. It is a global company that operates and franchises restaurants in over 100 countries, and until recently it has delivered on its mission to become the "favorite place and way to eat and drink" for its 69 million customers. Its trademark and brand, the “Golden Arches” may be the most recognized symbol in the world. But recently, MCD has been struggling--MCD has been losing market share to competitors such as Yum! Brands Inc., Compass Group PLC, and Wendy’s Company, and based on a general SWOT Analysis several threats and weaknesses are exacerbating this decline--such as intense competition in the industry, labor costs and declining operational performance.  

MCD’s market dominance has been built largely on its franchise model, consistently strong and increasing sales and revenues year over year, and stable growth in guest traffic counts. But recently, those characteristics that have driven MCD to the top in this industry are showing stress: MCD’s franchise model is no longer competitive, its sales and revenues have been declining for several years and guest traffic counts has been negative.

Accordingly, MCD sales and revenues are suffering (along with its market share), particularly in the US markets because MCD’s menu of food items is unhealthy and has a negative reputation for being junk food that contributes to child obesity and diabetes. To resolve this problem, I recommend MCD change its menu to offer healthier food options. Solutions to this problem include redesigning the supply chain to include local suppliers and local food culture, selling in more relevant and customer convenient venues, and redesigning the MCD menu itself to offer healthier food choices.  By using both a “Weighted Matrix Analysis” and “Cost Benefit Analysis” for each proposed solution, I determined that the best solution to remedy the problem would be for MCD to redesign its menu to offer healthier and better quality food options. The SWOT Analysis also demonstrates that a MCD strength is product innovation suggesting this solution is a core competency for MCD.

Offering a more transparent menu of healthier food options that includes allergy sensitive items will appeal to both MCD’s traditional customer base, young parents and children, as well as millennials. Research shows that families want to eat food that has less calories and fat in it; millennials want quality healthy food and both customer groups are willing to pay a little more for that food. Moreover, both these customer groups are looking for choices and are more aware than ever before of health issues linked to unhealthy food, and allergy restrictions--a more transparent healthy menu with allergy sensitive choices will meet this consumer preference.

The solution I have outlined in detail can be implemented generally in two ways: (i) adding ingredients and new regional food choices (ii) changing the way its food items are prepared. Although this solution could take as long as 3 years to fully implement, I have suggested a pilot project in the Pacific Northwest over a 12-month period using guest count metrics (correlated with sales measures) and customer and public perception surveys to determine the success of this solution.

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Situation AnalysisGoals, Mission and Vision. MCD is a global company that operates and

franchises restaurants in over 100 countries. Its vision and mission is to become a modern, progressive burger company that is the "favorite place and way to eat and drink" for its 69 million customers. To deliver that vision and mission, MCD's strategy is to optimize the menu with "locally-relevant" quality choices, modernize the customers' brand experience to increase name recognition and trust in the Golden Arches, and "broaden accessibility to deliver unparalleled convenience." (McDonald’s Corporation, McDonald’s 2014 Annual Report; McDonald’s Corporation, McDonald’s Company Profile). MCD's values are: a positive customer experience; commitment to its people; belief in the McDonald’s System; operating ethically; giving back to its communities; growing the business profitably; and, continuous improvement. (McDonald’s Corporation, McDonald’s Standards of Business Conduct).

Has MCD delivered the beef? MCD had a disappointing fiscal year in 2014. It experienced a global sales decrease of 1% and operating income declined 8%, even though it grew system wide sales by 1%. (McDonald’s Corporation, McDonald’s 2014 Annual Report). Unfortunately, based on a recent earnings release filed on its Form 8-K for the quarter ending 9/30/2015 (filed 10/22/2015) its results worsened: Consolidated revenues decreased by 5%, consolidated operating income decreased 2% in part driven by increases in wages and benefits but also declining sales in the United States (US) all of which resulted in a market share decline.

Early in 2015 MCD initiated a leadership change; new CEO Steve Easterbrook stepped up to turn MCD around and deliver on its financial promises. There were also internal promotions of the CFO and Controller to Chief Administrative Officer respectively. Not surprising, shortly after MCD filed its 10-Q for the quarter ended 9/30/2015, it filed a Form 8-K disclosing material investor information: The McDonald's Turnaround Plan. The Turnaround Plan highlights how Easterbrook and his team will deliver its vision, mission, and strategy going forward, noting that MCD expects positive Q4 sales in all of its segments and operating income consistent with its financial targets; it calls for increased refranchising targets to achieve a 95% franchise model versus the current 81%, increasing the Q4 dividend by 5% and issuing medium term notes (debt) to help finance operational goals.

To date, MCD has delivered on some of its Turnaround promise--it has increased dividends from $0.85 cents to $0.89 per share and it issued $6,000,000,000 in medium term notes in December 2015. Since announcing its dividend increase MCD's stock price increased from about $90 per share to a closing price on 1/22/2016 of about $118 per share with an impressive 5-year increase from about $75 per share in 2011. While MCD's 2015 Annual Report discloses a slight increase in consolidated sales at 1.5%, sales were flat in the US, there was a consolidated revenue decrease of 7% and consolidated operating income decrease of 10% and most notably overall negative guest traffic in almost all segments globally. (McDonald’s Corporation, McDonald’s 2015 Annual Report). Currently the ratings analysts recommend hold or buy on MCD stock indicating the market believes MCD may yet deliver the beef. (Morningstar, MCD McDonald’s Corp Overview).

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Risk Related Exposure; Competition; SWOT. MCD's business model is primarily based on independent owners of local MCD retail restaurants--i.e., franchises. Many people are employed through this franchise structure as well as with the corporate entity, MCD. Based on their most recent Annual Report, it appears they have the usual legal exposure found in this type of business model but none of which appear to be material to their financial condition at this time—disputes with their franchisees, food and other product suppliers, employee related disputes including wage and hour, discrimination and compliance with employment laws, and some customer disputes related to products, service and nutritional disclosures. MCD identifies a number of risks to its business, notably, intense competition, consumer preferences and food safety, increasing government regulation and the franchise business model itself. (McDonald’s Corporation, McDonald’s 2015 Annual Report).

With 15.4% of the market share, MCD dominates this industry and clearly leads the pack in economies of scale and international presence. While its main competition includes: Yum! Brands Inc. (KFC, Taco Bell, Pizza Hut) with 8.7% markets share, Compass Group PLC (Subway (5.3%), Papa John's Pizza, Chick-Fil-A and Starbucks under license) and Wendy's Company (4.1%) none of these competitors come close to MCD's gross sales and revenues or operating income. Moreover, these 4 companies hold 33.5% market share while all other companies make up the remaining 66.5% and all with less than 4.1% of the market. (IBISWorld, Major Companies). Although the metrics indicate that each of the competitors suffers from similar market forces: intense competition based on price, and flat or slightly declining revenue and slow growth, it is notable that MCD is losing market share to some of these competitors and others (Chick-fil-A at 2.3% and climbing) in the US market. In its efforts to distinguish MCD from its US competitors, MCD reintroduced "All Day Breakfast" to its menu along with its continued drive to increase franchises to 95% of its business model. (McDonald’s Corporation, 8K, 1/23/16). (Appendix A: Competitive Overview)

Although MCD is one of the largest food chains in the world, and arguably has one of the most recognizable brands in the industry—its Golden Arches—both the U.S. and global business environment can significantly impact its business and performance that allows MCD to achieve its objective to become the "favorite place and way to eat and drink" for its 69 million customers. In particular, MCD is impacted by a variety of political, economic, social and technological factors such as:  

Political pressure from new regulations about labeling nutritional content on their menus as more statistics on the link between fast food and obesity are revealed. (Smolarski, Michelle); political activists actively pursue large corporations like MCD to drive their agendas simultaneous with their legislative goals such as the use of antibiotics and other drugs in chicken and meat to reduce costs and increase quantities of supply for the industry. (Baertlein, Lisa; P.J. Huffstutter).

Macro-economic changes in the world impact MCD performance such as fluctuations in local currency and the slowdown in the Chinese economy. (Greenspan, Roberta). For example, MCD's focus on expansion in Asia, particularly China has impacted its revenues: MCD "generally owns and operates its own stores in growing foreign markets, and that’s generally the case with its Chinese operations, with only

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about one-fifth of Chinese outlets owned by franchisees”, so slow growth more directly impacts MCD in China with less financial franchise insulation. (Mitchell, Dan).

MCD is a retail business that depends on consumer preference and as such it must respond to social and cultural changes and demands if it intends to keep and increase its market share. Factors such as the wealth gap, cultural diversity in food preferences and healthy lifestyle trends are significant influences on MCD performance. (Greenspan, Roberta).

While MCD does not appear to be a cutting edge techno company, it does rely heavily on Techno-Science to make its food. For example, Cargill one of its main suppliers, tests out new technology to make its most popular item French fries. Further, improvements in this technology can impact the way MCD serves its customers, including self-serve kiosks that are currently employed by some locations. (Hung, Dennis). (Appendix B: SWOT Analysis)

Problem Analysis & DescriptionCritical Issues Facing MCD. Based on the Situation Analysis, it is clear that

MCD is facing several issues including: intense industry competition based on price and its current franchise model, declining sales and revenues particularly in its US market, and negative guest counts, all resulting in a market share decline over the last several years: MCD has lost market share in its largest market the United States (US) since 2014--(2014 US market share 17% vs. 15.4% in 2015). (McDonald’s Corporation, McDonald’s 2014 Annual Report; McDonald’s Corporation, McDonald’s 2015 Annual Report).

Symptom/Gap: McDonald’s is currently 80% franchised and needs to reach 95% by 2018--to reach this goal it needs to refranchise about 4,000 restaurants based on its 2014 mix. In 2014 and 2015, it had refranchised 400 and 470 restaurants respectively towards the needed 4000 new franchises. To reach 95% over the next 3 years, it will need to refranchise over 1,000 restaurants per year, a performance increase of over 200% over the next 3 years. It seems unlikely that MCD will be able to reach a 95% franchise model by 2018.

Root Causes.  MCD's franchise costs are higher than many of its competitors. To acquire a MCD franchise an applicant must provide $500K in liquid capital which may be cost prohibitive—this likely contributes to the slow pace of achieving new franchises.

Root Cause.  In addition to the high buy in fee, Franchisees rent and lease equipment and land from MCD and pay a percentage of sales (e.g.4%) to MCD monthly. Franchisees may not want to invest in a franchise and brand that has been under fire in recent years due to the nature of the food they sale and the traditional market they target. The public and political activists like Corporate Accountability International have become increasingly concerned that MCD "uses clowns and toys to sell unhealthy food to impressionable children. [and they want MCD to] stop making the next generation sick [by retiring] Ronald and the rest of [its] junk food marketing to kids". (Rooney, Ben).

Symptom/Gap:  MCD has targeted positive sales and revenues since FYE 2014. In contrast, MCD has experienced a 7% decline in revenue in 2015. The 2014 YE

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revenue result was approximately $27 million while the 2015 YE revenue result was approximately $25 million.  While consolidated sales increased year over year 1.5%, it remained flat in MCD's key US market. (McDonald’s Corporation, McDonald’s 2015 Annual Report).

Root Causes. MCD's US sales have declined in recent years or remained flat. MCD's traditional menu is largely made up of "junk food." That menu is not retaining its traditional target customers (young families with children) nor is it attracting the new millennial market segment that appear to want "fresh and healthy" food. Customers perceive that other fast food franchises are offering healthier food, such as Chipotle, Five Guys, and Panera Bread. Accordingly, sales particularly in the US are declining.

Root Cause. MCD has traditionally provided customers with a cheap, fast and convenient food source. Its product has been comprised of low cost ingredients, i.e., cheap ingredients and high caloric fats and carbohydrates, and to reach economies of scale, supply chains that are able to provide mass quantities of key ingredients such as bread, beef and chicken to central facilities that can distribute to its global retailers timely. But, customers are increasingly demanding better quality food

Root Cause. MCD has suffered some reputational and brand damage over the quality of its food, particularly its meat, and its treatment of employees. In one instance a meat supplier Husi Food Co., Ltd. sold MCD expired meat in China, resulting in declining sales and revenues that have just recently started to come back in China but not Japan. MCD has also been involved in labor issues regarding low wages and poor work conditions at its own stores contributing to negative public perceptions and further damaging sales particularly in the US market but also in some European markets. (Sheffield, Hazel; Temple, Ron).  

Symptom/Gap: MCD’s has reported that consolidated guest counts have been negative in 2015 and declined 2.3%. Guest counts are the amount of customer traffic in same stores over a period of time. Generally, guest counts were expected to rise slightly or stay flat in 2015. (McDonald’s Corporation, McDonald’s 2015 Annual Report).

Root Cause.  Customers, particularly in the US have a "do-it-yourself health" focus—they want to customize their food orders to meet their personal health needs. As food sensitivities rise, parents increasingly need to address allergies such as gluten intolerance. Guest count declines may also be due to target customers gravitating to MCD competitors that offer more customizable menu options, like Subway, Panera Bread and Chipotle Mexican Grill. (Wolf, Barney).

Roots Cause. MCD's target segment customers are children, youth and young urban parents. (McDonald’s Corporation, McDonald’s 2014 Annual Report). In recent years, MCDs customer demographics show signs of a decline in its family segment. "By mid-2014, families with a child age 12 or under accounted for 14.6% of [MCD's} visitors, from 18.6% in 2011". (Bertagnoli, Lisa).

Root Cause. Guest count declines may be due to location of MCD franchises and company owned stores. Fast food is by definition intended to be convenient; if MCD's target customers are young families and children, MCD locations as stand-alone facilities with large play structures may not be the convenience customers are seeking in 2015 and going forward. Young working parents have limited time and are likely

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looking for fast value and healthy food in spaces they already visit—schools, health facilities, church events, grocery and other value merchandise stores. (Wolf, Barney).

In sum, MCD is facing intense industry competition based on price and its current franchise model, declining sales and revenues particularly in its US market, and negative guest counts, all resulting in a market share decline over the last several years.

Single Problem: MCD unhealthy food menu is not attracting its traditional targeted customers causing declining sales and revenues resulting in a loss of market share: (2014 US market share 17% vs. 15.4% in 2015).

Solutions, Evaluation & RecommendationProblem discussion. As noted in the Problem Analysis above, MCD's problem

is an unhealthy food menu that is driving its traditional customers to other fast food options. Historically, MCD has created its market power by offering fast, cheap, convenient and filling food--more negatively referred to as “junk food.” MCD to become the dominant player in the fast food industry, its products have been comprised of low cost ingredients (cheap ingredients with high caloric fats and carbohydrates), and, to reach economies of scale, supply chains that are able to provide mass quantities of key ingredients such as bread, beef and chicken to central facilities that can distribute to its global retailers timely. But, customers are increasingly demanding better quality and healthier fast food. (ACSI: Customer Satisfaction Steady for Full-Service Restaurants; Fast Food Declines as Consumers With More Purchasing Power Prefer Quality Over Price).

Weighted Matrix Analysis: Criteria and Weighting.To resolve MCD's problem, any solution that creates a fast food menu that will

retain its traditional key customer base and attract new customer segments needs to be evaluated as to how well it increases sales and revenues by both retaining traditional customers and attracting new customers. Accordingly, solutions need to be evaluated against the criterion, and cumulatively weighted to a total of 1 as follows: Positive impact on (I) sales (0.30), (ii) customer preference (0.25), (iii) brand enhancement (0.15), (iv) public opinion (0.10) and (v) franchise desirability (0.20).

Solution #1: Redesign Supply Chain to Include Local Suppliers and Local Food Culture

MCDs needs to change its menu by incorporating local suppliers and the local food culture into its logistics and supply chain; It needs to provide menu options that are both reflective of each franchise region but that also capitalize on the fresh food available in the local supplier and farmer markets. By using local suppliers and farmers MCD would also participate in the local economy and help the local economies grow, which in turn could enhance its brand and improve its public image at the same time as addressing the increasing desire for fresher food options expressed by its customers, particularly in the US. Although moving towards a more localized supplier menu with more local cuisine choices is likely to increase MCD’s operational costs, I believe MCD’s current market power along with the strength of its balance sheet should allow it to find efficiencies in this more decentralized food delivery model. In the long run, this

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solution will generate a broader range of customers looking for this new fast food experience which should result in more sales and increased revenues. Regional customers will recognize MCD's support of its local food economy and more readily identify with the food menu attracting both its traditional customers as well as "millennials" who are shaping the way we eat. These millennials want to eat local and support local economies: "50 percent of millennials refer to themselves as “foodies,” but 60 percent of those self-identified foodies still visit fast-food restaurants at least once a week (compared with 48 percent for older adults). (Carman, Tim; Contreras, Tricia).

If MCD’s fresh local supplier farm menu can keep its young family and children customer base, and attract these millennials, it should be competitive with other fast food businesses because this will result in a more locally driven and sourced menu that will generate more customers and more sales; it should also create more desire for MCD franchises and thus create more MCD revenues, all of which should translate into more market share. (Appendix C: Solution 1 Chart: Benefits and Costs)

Solution #2: Location, Location, Location; Sale in Customer Convenient Venues.

MCD needs to target the young family segment and the millennials by establishing franchise locations in which families and millennials frequent and want to spend their discretionary food dollars. (Wolf, Barney). That is, MCD needs to bring its menu to the schools, and other community locations like churches, health care facilities, local farmers and craft markets, and recreational and entertainment locations like film and theaters that it has not traditionally penetrated, particularly due to their “junk food” image. To access these target customers, MCD needs to get into the schools, health care venues, food and value chain stores, local craft and food markets, and recreational and entertainment facilities with franchise opportunities. Some of these locations are often government or government sponsored (schools and some health care facilities), or non-profit organizations (local craft and food markets and theaters) that are often economically strapped and may welcome a franchise type of partnership with MCD to bring in new revenue streams. To further reach out to millennials, MCD needs to also establish locations that are primarily focused on this customer group--high traffic, urban areas with communal facilities and internet access. In sum, this solution will focus on the convenience of MCD's fast food option for its traditional and new millennial customers. These customers will find it easy to spend their discretionary dollars at the locations in which they already frequent and accordingly, this solution should create a new menu that will drive sales and increase franchise revenues, and ultimately increase MCD's market share in the fast-food industry. (Appendix D: Solution 2 Chart:   Benefits and Costs)

Solution #3: Healthier Food ChoicesMCDs needs to change its menu by offering healthier food choices--it needs to

provide its franchisees with sustainable chicken and beef, and fresh vegetables and fruits all free of additives, antibiotics, and other artificial components to compete with threats from Starbucks, Chick-fil-A, fresh Mexican options and subway. (Wolf, Barney). MCD must reduce the caloric content of its menu choices and use more “real food” and local cuisine that is not always breaded, fried and high in calorie. In particular, it needs

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to redesign its salad options to add more vegetables and fruits to its menu. (Landers, Sarah, McDonald's fails at healthy food, makes kale salad WORSE than a Double Big Mac). The US food trend is clearly towards healthier choices as can be seen in the farm to table movement, and drive for less fat and sugar in school food options. It is not enough for MCD to offer local cultural choices, like the McLobster in New England or the McSpaghetti in the Philippines, under its old centralized frozen food model.  As part of its drive for a healthier menu, MCD needs to show its customers a menu that provides transparency about the food, e.g., tags that identify food sensitivities (both allergies and vegetarian requirements) as well as calorie and fat content information, and sustainable practices. Both young families and millennials (the customers it needs to retain and attract) are looking for a new fast food dining experience--lower but reasonable cost, but most importantly healthier choices. MCD needs to appeal to these target customers by making their food have less calories and fat, and more protein. This new marketing solution should also promote the new brand reputation as well as attract more franchisees.  As customer guest traffic increases, sales should also increase and drive revenues which should ultimately drive MCD’s market share up in the fast-food industry. (Appendix E: Solution 3 Chart: Benefits and Costs) (Appendix F: Weighted Matrix Analysis)

The Solution: The solution I have decided to go with is to develop a menu that provides healthier more transparent food choices. A shift to healthier menu options should bring both its traditional market of young families back, as well as attract new non-traditional millennial customers to its franchises and stores, resulting in increased sales and revenues and ultimately more market share. This healthier menu will provide allergy sensitive options, food that has less calories and fat, and higher quality and sustainable protein. MCD also needs to be transparent about their food by displaying calorie and fat content information under each item. The target customer base (young families and millennials) are willing to spend a little more for healthier food and want to support their community economies. (Carman, Tim).

As important, this solution also supports MCD's values and business ethics: "operating ethically; giving back to its communities..." Healthier food options address their customer’s health needs as well as financial needs, and shows that MCD cares about their customers by making sure they’re eating healthy and are aware of what they’re eating. Creating transparent menus that show its customers the caloric, fat and other contents of those new fresh fruits, vegetables and sustainable protein options, as well as having items on the menu that are allergy free should make customers feel safe eating MCD food, and it will show MCD is a good corporate citizen by being on the forefront of both FDA regulatory concerns about drug laden protein, and in responding to political food activists groups demands for healthier fast food choices.  

Implementation PlanThe solution can be implemented in two general ways: (i) adding ingredients and

new regional food choices (ii) changing the way its food items are prepared. This plan will likely take two to three years to fully implement but I suggest a pilot 12-month project that targets a particular region--the Pacific Northwest (PNW) and measure its

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success on a year over year basis for that region. Thereafter, if successful MCD can implement by targeting US regions to fully implement using the plan it created for the PNW over the next two years.

Step 1 (Month 1): Target Facilities. Identify selected franchises and stores within the PNW that will implement the

solution. MCD would need to alert its current company stores and franchisees by area within the PNW about the new food menu changes.

Step 2: (Months 1-3): Sourcing and Preparation. MCD will need to establish regional supply chains for fruits and vegetables, and

sustainable beef and chicken that do not need to be flash frozen, as well as design some selected menu options that will incorporate those healthier food ingredients. MCD will also need to adjust other traditional menu options to be healthier; to do this, it will need to change the ratio of ingredients in its traditional menu to cook with less fat and use better sources of fat, such as better cholesterol frying ingredients, like olive, canola, avocado and coconut oil. MCD will also need to add some allergy sensitive ingredient options—generally some non-dairy and gluten free options that will require instituting new procedures and designating selected areas for preparing those items to ensure customers of the integrity of their allergy sensitive choices. It will also need to work with its current suppliers and add new regional supply contracts to source the new ingredients through traditional and new channels.

Facility Redesign. MCD will likely need to address facility design at its current facilities and for all new facilities to ensure that they have the proper amount of space and equipment to efficiently make allergy sensitive food uncontaminated by MCD’s other menu options.

Marketing and Branding.  This solution will also require a new marketing plan to achieve its goal of becoming its customers “favorite place and way to eat and drink". MCD will need to move away from attracting its customers with toys and a clown and move towards branding based on fresh, healthy, convenient and reasonably priced fast food. This step will also need to include an advertising campaign that should include social media as well as MCD’s traditional forms of advertising.

Materials and Documentation Preparation. MCD will need to revise or create new public and internal communications to explain this solution and to prepare franchisors and employees for the transition--a communication plan for the PNW solution. This step should also develop a customer and a public perception survey for use after initiation of the solution. It is likely to also include some new contracts and other legal documents to implement.

 Step 3:  Month 4):  Franchisee, Manager and Employee Preparation. Execute communication plan and initiate franchisee and employee retraining to understand the new menu, manage the preparation, and effectively market the new menu to its current customers.  

Step 4: (Months 4-6) Ad Campaign Rollout.  Roll out the social media, T.V, radio and other mediums as planned.

Step 5 (Month 6-12):  Initiate Solution. All selected franchises and stores introduce new menu and begin testing against the pre-established metrics. Begin MCD

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internal audit to assess compliance with new menu options, and process and procedures to ensure that all pilot franchises and stores are following the new menu, food processes and communication procedures.

Success MetricsThe solution and plan I have developed (to improve the health of MCD’s menu)

should increase guest counts by retaining and attracting MCD’s target customers and result in better sales and revenues at its franchises and company stores. To determine the success of this solution MCD will need to measure monthly for the 6-month period beginning with initiation and compare it to the same 6-month period the prior 2 years for these targeted franchises and stores: guest traffic counts and customer perception.

Metric #1The fast food industry has some traditional tools for measuring success. One of

these is guest traffic count. MCD needs to track by franchise and store guests counts on a monthly basis for the 6-month period the PNW solution is initiated and compare with guest counts for this same period on a monthly basis for the same 6-month period in the prior 2 fiscal years at these franchises and stores. If guest traffic count increases year over year for the 6-month period, MCD can infer that its new menu has had a positive impact. Similarly, sales from the increased guest traffic can be compared with sales for the prior two fiscal years during the same 6-month period allowing MCD to also determine if increased guest traffic has positively impacted sales.

Guest counts, and sales, should also be correlated with sales at the targeted franchises and stores, and could be compared with similarly situated franchises and stores in the PNW that did not participate in the new menu pilot project.  If sales and guest counts are higher than last year’s results at the same time in the targeted PNW stores versus similarly situated franchises and stores, than MCD can infer that its new menu has successfully increased both guest count and sales and may be its solution to positive guest counts in US markets, and potentially increased sales and revenues going forward as it implements its plan across all US regions over the next two years.

Metric #2MCD should execute two surveys: One for customers that buy food at its PNW

franchises and stores, and a separate survey for public perception at large in the PNW. The customer survey should measure customer reaction to the new menu and evaluate customer preference for the new food items. This survey should be provided to every customer in each targeted franchise and store for the 6-month test period, and analyzed monthly. Customers should be incented to complete the survey somewhat like a loyalty program--points for completing the survey will earn free or discounts on additional food.

MCD should also survey the public at large as well as monitor public opinion through news reports, industry analyst’s reviews and food activists’ responses to evaluate the positive or negative perception of its changes. Public surveys can be outsourced to a third party and delivered twice, at the beginning of the PNW new menu pilot project and at the end of the 6-month period to determine movement in the perception.  

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All surveys should use a variety of mediums such as internet, hard copy and/or telephone, to accommodate as many responses as possible. MCD should invite public discourse when possible to generate as much “buzz” about its new approach as it can to better assess the success of this solution. Positive evaluations and perceptions of the new menu should provide some measure of whether this solution meets the needs of its customers and increase sales.

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Appendix

Appendix A. Source: IBISWorld

Competitor Comparison

Company Franchised Annual Sales Revenue Operating Income

McDonalds 81% 34,631,000 (-2.3%) 8,597,000 (-0.6%) 3,455,000 (-1.9%)

Yum! 80%+ 19,585,000 (-1.7%) 2,303,000 (-12.4%) 472,000 (-18.3%)

Subway 100% 11,938,000 (-2.6%)Unknown (private company; no public disclosure)

1,265,000 (-1.7%)

Wendy's 85% 9,151,000 (1.8%) 1,824,600 (1.6%) 246,700 (12.5%)

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Appendix B. Source: Global Markets Direct SWOT Reports

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Appendix C.

Tangible BenefitsSales increaseRevenue increaseA higher volume of customersTangible CostsBuying food from local farmers is likely to increase costsNegative inventory/impact on financialsCosts to retrain employees with new menusPotential loss of economies of scale

Intangible BenefitsImproved brand imagePositive exposure to potential franchiseesNew expanded pool of marketsHealthier customersTaking customers away from the competitionGood press; potentially improved public imageHelping local communities and local economyIntangible CostsTime to find new suppliersCreating a new menuPotential stress of cooks/cashiers from new menu items

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Appendix D.

Tangible BenefitsIncreased number of customersIncreased salesNew franchise locationsTangible CostsThe cost of new infastructureHiring new employees/managersNew equipment costsNew property costsExtra food costsCosts to file paperwork on new franchises

Tangible BenefitsFulfilling promises of more franchiseesMore family food locationsMore public exposureProviding food to a broader segment of customersIntangible CostsLost time if plan isn't successfulBad public exposureA decline in public health

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Appendix E.

Tangible BenefitsIncreased number of customersIncreased salesIncreased guest countsTangible CostsFood costsRetraining employees/managersTest product costsNew menu costsNew equipment costs

Intangible BenefitsPositive public exposurePromoting health in the communityProviding food to a broader range of customersImproved brand imageIntangible CostsPotential failed food productsEmployee/manager stress from new menu itemsLost time if plan isn't successful

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Appendix F.

Weight Solution 1 Solution 2 Solution 3Revenue Increase 0.3 8 2.4 8 2.4 8 2.4Customer Preference 0.25 8 2 8 2 9 2.25Brand Enhancement 0.15 7 1.05 7 1.05 8 1.2Public Opinion 0.1 6 0.6 6 0.6 8 0.8Franchise Desirability 0.2 7 1.4 8 1.6 8 1.6

1 7.45 7.65 8.25

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