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(solution) 30 PART 1 INTRODUCTION I l &, df!;':t;:'1;,., CASIE 1-2



Using the following guidelines and attached file, write a 2-3 page case study in APA format.


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7. Be careful not to plagiarize from the case text or other published outside sources of information about the case.



30 PART 1 ? INTRODUCTION I l &,

 

df!;':t;:'1;,., CASIE 1-2 i: ~~~tr)J} ·,1· il McDonald's Expands Globally While Adjusting Its Local Recipe M cDonald's Corporation is a fast-food legend whose famous

 

golden arches can be found in 118 different countries. The

 

company is the undisputed leader in the quick-service restaurant

 

(QSR) segment of the hospitality industry, with more than twice the

 

system-wide revenues of Burger King. McDonald's built its reputation

 

by promising and delivering three things to customers: inexpensive

 

food with consistent taste regardless of location; quick service; and a

 

clean, familiar environment.

 

The company was also· a pioneer in the development of convenience-oriented features such as drive-through windows and indoor

 

playgrounds for children. Today, thanks to memorable advertising and

 

intensive promotion efforts, McDonald's is one of the world's most

 

valuable brands. The golden arches are said to be the second most

 

recognized symbol in the world, behind the Olympic rings. In the

 

United States alone, McDonald's typically spends about twice as much

 

on advertising as Burger King and Wendy's.

 

Today, however, the company faces competitive attacks from

 

several directions. During the 1990s, a wide range of upscale food

 

and beverage purveyors arrived on the scene. For example, consumers

 

began flocking to Starbucks coffee bars where they spent freely on

 

lattes and other coffee-based specialty drinks. The "fast-casual"

 

segment of the industry that includes companies such as Panera

 

Bread, Casi, and Baja Fresh is attracting customers seeking higherquality menu items in more comfortable surroundings. Meanwhile,

 

Subway overtook McDonald's as the restaurant chain with t he most

 

outlets in the United States. Some industry observers suggested that,

 

in terms of both food offerings and marketing, McDonald's was losing

 

touch with modern American lifestyles.

 

Until recently, the picture appeared brighter outside the United

 

States. Thanks to changing lifestyles around the globe, more people

 

are embracing the Western-style fast-food culture. McDonald's

 

responded to the opportunities by stepping up its rate of new unit ': i

 

·' Source: Hasan Jama Ii/AP Wide World Photos. openings. McDonald's International is organized into - three

 

geographic regions: (1) Europe; (2) Asia/Pacific, Middle East, and

 

Africa (APMEA); and (3) Other Countries. In 2005, the offices of the

 

country heads for Europe and Asia were moved from headquarters to

 

their respective regions; now, for example, the head of APMEA

 

manages his business from Hong Kong. Commenting on the change,

 

Ken Koziol, vice president of worldwide restaura nt innovation,

 

explained, "McDonald's was built on a strong foundation of a core

 

menu that we took around the world but we need to make sure we

 

are more locally relevant. Taste profiles and desires are changing." Asia-Pacific

 

The Indian market appears to hold huge potential for McDonald's. In

 

fall 1996, the company opened its first restaurants in New Delhi and

 

Bombay. In Delhi, McDonald's competes with Nirula's, a quick-service

 

restaurant chain with several dozen outlets; in addition, there are

 

hundreds of smaller regiona l chains throughout India. The U.S.-based

 

Subway chain opened its first Indian location in 2001; Pizza Hut, KFC,

 

and Domino's Pizza have also entered the market The Pizza Hut on

 

Juhu Road in Bombay is housed in a three-story-tall building with large

 

plate glass windows and centra l air conditioning. On most nights a

 

long line of customers forms outside.

 

.

 

Indian demand for meals from the major food chains is growing

 

at a double-digit rate; annual total sales exceed $1 billion. With those

 

Donald's identifies strategic locations in areas with

 

trends in mind, mf

 

heavy pedestrian traffic, such as the shopping street in Sandra in the

 

Bombay suburbs. Other restaurant locations include a site near a

 

college in Vile Parle and another opposite the Andheri train station; in

 

all, McDonald's India operated 208 locations at the end of 2010. Plans

 

ca ll for opening another 40 outlets in 2011. Prices are lower than in

 

other countries; most sandwiches cost about 40 rupees (less than $1 ).

 

Drinks cost 15 rupees, and a packet of French fries is 25 rupees.

 

A complete meal costs the equivalent of about $2.

 

Because the Hindu relig ion prohibits eating beef, McDonald's

 

developed the Chicken Maharaja Mac specifically for India. Despite

 

protests from several Hindu nationalist groups, the first McDonald's

 

attracted huge crowds to its site near the Victori a railway terminal;

 

customers included many tourists from across India and from abroad as

 

well as locals commuting to and from work. In short order, however,

 

Hindu activists renewed their protests, this time accusing t he company

 

of using beef tallow in its cooking. Management responded by posting

 

signs reading "No beef or beef products sold here," but the doubts

 

raised by the controversy kept many potential customers away.

 

Since that time, McDonald's has worked steadily to prove that it

 

is sensitive to Indian tastes and traditions. As is true throughout the

 

world, McDonald's emphasizes that most of the food ingredients it

 

uses-as much as 95 percent-a re produced locally. In addition, to

 

accommodate vegetarians, each restaurant has two separate food

 

preparation areas. The "green" kitchen is devoted to vegetarian

 

fare such as the spicy McAloo Tikka potato burger, Pizza McPuff,

 

and Paneer Salsa McWrap. Meat items are prepared on the 'red side.

 

Even the mayonnaise is made without eggs. Some of the new menu

 

items developed for India are being introduced in Europe and the

 

United States.

 

China is currently home to the world's largest McDonald's; China

 

is also the fastest-growing market in terms of number of new store

 

openings. The first Chinese location opened in mid-1992 in central CHAPTER 1 ? INTRODUCTION TO GLOBAL MARKETING

 

Beijing, a few blocks from Tiananmen Square. Despite having a

 

20-year lease for the site, McDonald's found itself in the middle of a

 

dispute between the central government and Beijing's city government. City officials decided to build a new $1.2 billion commercial

 

complex in the city center and demanded that McDonald's vacate the

 

site. McDonald's was forced to abandon the location. Despite the

 

turbulent start, McDonald's now has more than 1,000 restaurants in

 

China. Plans call for opening 600 new locations by 2013. The restaurants purchase 95 percent of their supplies, including lettuce, from

 

local sources. "The tastes of the urban, upwardly mobile Indian are evolving,

 

and more Indians are looking to eat out and experiment. The

 

potential Indian customer base for a McDonald's or a Subway is

 

larger than the size of entire developed countries." 31 yellow, and the golden arches are displayed more subtly. Overall, the

 

restaurants don't look like McDonald's elsewhere. The first redesigned

 

store is located on the Champs Elysees on a site previously occupied

 

by a Burger King; called "Music," the restaurant provides diners with

 

the opportunity to listen to music on iPods and watch music videos on

 

1V monitors. In some locations, lime green Danish designer armchairs

 

have replaced plastic seats. As McDonald's locations in France

 

undergo style makeovers, some franchisees report sales increases of

 

10 to 20 percent. Encouraged by these results, McDonald's has

 

embarked on an ambitious program to refurbish several thousand

 

outlets in various countries. Central and Eastern Europe January 31, 2010, marked the 20th anniversary of McDonald's arrival

 

in the Soviet Union. The first Moscow McDonald's was built on

 

Pushkin Square, near a major metro station just a few blocks from the

 

Sapna Nayak, food analyst at Raobank India

 

Kremlin. It has 700 indoor seats and another 200 outside. It boasts

 

800 employees and features a 70-foot counter with 27 cash registers,

 

In Asia and elsewhere, McDonald's protects itself from currency ·

 

equivalent to 20 ordinary McDonald's rolled into one. For its 20th

 

fluctuations by purchasing as much as possible from local suppliers.

 

birthday celebration, the Pushkin Square location offered customers a

 

For example, the company's Singapore locations now buy chicken

 

"buy one, get one free" hamburger promotion; accordion-wielding

 

patties from Thailand rather than from the United States. However,

 

musicians provided background music.

 

French fries must still be imported from Australia or the United States .

 

Khamzat Khazbu latov was selected to manage the first store;

 

. To help offset higher costs, McDonald's offers customers the choice of

 

today, he is director of McDonald's operations for all of Russia.

 

rice as a side dish at a lower price.

 

At present, there are 235 McDonald's restaurants in Russia, and the

 

company employs more than 25,000 people. To ensure a steady supWestern Europe

 

ply of high-qual ity raw materials, the company built McComplex, a

 

huge $50 million processing facil ity on the outskirts of Moscow.

 

The golden arches are a familiar sight in turope, particularly in

 

France, Germany, and the United Kingdom. There is even a four-star

 

McDonald's also worked closely with local farmers to boost yields and

 

quality. Now th~ facility has been turned over to private companies

 

Golden Arch hotel in Zurich . Overall, Europe contributes about

 

that today prO'vfae 80 percent of the ingredients used in Russia . For

 

40 percent of both revenue and operating income, mak ing it a key

 

world region.

 

example, W imm-Bill-Dann supplies da iry products to McDonald's; in

 

France's trad ition of culinary excellence makes it a special case in

 

2002, it became the first Russian company to be listed on the New

 

Europe; dining options rang~ from legendary three-star Michelin

 

York Stock Exchange. Overall, 100,000 people are employed by comrestaurants to humble neighborhood bistros. From the time

 

panies in McDonald's supply chain .

 

Ukra ine and Belarus are among the other members of the

 

McDonald's opened its first French outlet in 1972, policymakers and

 

media commentators have voiced concerns about the impact of fast

 

Commonwealth of Independent States with newly opened restaurants. The first Ukrainian McDonald's opened in Kiev in 1997; by

 

food on French culture . Even so, with nearly 1,000 outlets, France

 

today represents McDonald's third-largest market in Europe.

 

2007, the cha in had expanded to 57 locations in 16 cities. Plans call

 

However, controversy has kept the company in the public eye. For

 

for up to 100 restaurants, for a total investment of $120 million.

 

example, some French citizens objected when McDonald's became the

 

McDonald's has also set its sights on Central Europe, where plans

 

official food of the World Cup finals that were held in France in 1998.

 

call for hundreds of new restaurants to be opened in Croatia,

 

Slovakia, Romania, and other countries. In 2010, McDonald's Czech

 

In August 1999, a sheep farmer named Jose Bove led a protest against

 

Republic restaurants featured a specia l lineup of New York-themed

 

construction of the 851 st French McDonald's near the village of

 

Millau. The group used construction tools to dismantle the partially

 

sandwiches that were promoted with the iconic "I Heart NY" logo.

 

finished structure. Bove told the press that the group had singled out

 

Advertisements promised "Another burger each week"; the offerings

 

included Wall Street Beef ("grilled beef, cheese, crispy bacon, fresh

 

McDonald's because, in his words, it is a symbol of America, "the

 

place where they not only promote globalization and industrially

 

'lettuce and onion with BBQ sauce on an oval bun topped w ith sesame

 

seeds"); Broadway · Chicken; SoHo Grande; Manhattan Grilled

 

produced food but also unfairly penalize our peasants." In 2002,

 

Chicken; and Brooklyn Classic.

 

executives at McDonald's France even ran an ad in Femme Actuelle

 

magazine suggesting that children should eat only one meal at

 

"McDonald's comes off as uncool. If you want to be chic, you

 

McDonald's per week.

 

eat sushi. Indian food is even more cutting edge. McDonald's is

 

McDonald's French franchisees experience some of the same

 

like white bread."

 

competitive pressures facing the U.S. units; there are also key differences. For example, local bistro operators have enjoyed great success

 

Daniel, a 26-year-old architectural draftsman in San Francisco

 

selling fresh-baked baguettes filled with ham and brie, effectively

 

neutralizing McDonald's advantage of fast service and low prices.

 

Refocusing on the U.S. Market

 

In response, executives hired an architecture firm to develop new

 

Disappointing financial results led to a management shakeup in

 

restaurant designs and reimage the French operations.

 

.

 

2002, and Jim Cantalupo became CEO. Cantalupo was a retired vice

 

A total of eight different themes were developed; many of the

 

redesigned stores have hardwood floors and exposed brick walls.

 

:hairma~ whose 28~year career at McDonald's included considerab~le ,;

 

? '_··_::

 

international experience. He vowed to get the company back on · .,_:;-:

 

Signs are in muted colors rather than the chain's signature red and . ;~

 

i 1 I

 

I 32 PART 1 ? INTRODUCTION track by focusing on the basics, namely customer service, clean

 

restaurants, and reliable food. Unhappy with the company's recent

 

"Smile" advertising theme, Cantalupo took the extraordinary step of

 

calling a summit meeting of sen ior creative personnel from 14 advertising agencies representing McDonald 's 10 largest international

 

markets. Foremost among them w as New York-based DDB

 

Worldwide, the lead agency on the McDonald's account that handles

 

advertising in 34 countries, including Australia, the United States,

 

and Germany. In addition, Leo Burnett is responsible for ads targeting

 

children. McDonald's marketing and advertising managers from key

 

countries were also summoned to the meeting at company

 

headquarters in Oakbrook, Illinois.

 

As Larry Light, then-global chief marketing officer for McDonald's,

 

noted :

 

Creative talent is a rare talent, and creative people don't belong

 

to geographies, to Brazil or France or Australia. We're going to

 

challenge our agencies to be more open-minded about sharing

 

between geographies.

 

Charlie Bell, a former executive at McDonald's Europe who was

 

promoted to chief operating officer, didn't mince words about the

 

company's advertising. "For one of the world's best brands, we have

 

missed the mark," he said before the summit meeting. In June 2002,

 

the company announced that it had picked t he phrase "i'm lovin' it"

 

as its new global marketing theme; the copy w as proposed by Heye

 

& Partner, a DDB Worldwide unit located in Germany. Tragica lly,

 

within a few months, both Cantalupo and Bell died unexpect edly.

 

Jim Skinner, the company's current chief executive officer, instituted a "Plan to Win" initiative to increase McDonald's momentum.

 

The core idea was to make McDonald's "better, not just bigger. "

 

Skinner identified f ive main drivers of McDonald's: people, products,

 

place, price, and promotion.

 

Even as McDonald's executives attempted to come to grips with

 

the problems facing their company, various business experts were

 

offering advice of their own . lr;i the mid-1990s, one market analyst

 

said, "McDonald's is similar to Gaea-Cola 10 years ago. It's on the

 

verge of becoming an international giant, with the United States as a

 

major market, but overseas as the driving force." Adrian J. Slywotzky,

 

a'uthor of Value Migration, noted, "McDonald's needs to move the

 

question from 'How can we sell, more hamburgers?' to 'What does

 

our brand allow us to consider selling to our customers?"' Mark

 

DiMassimo, chief executive of a New York-based company that

 

specializes in brand advertising, called McDonald's "a large lost

 

organization that is searching for a strategy." In his view, " The

 

company must focus, focus, focus, and st and fo r one thing."

 

There is ample evidence that, 10 years after its implementation,

 

the Plan to Win strategy has been a success. Consumer Reports

 

lauded the company's efforts to upgrade its coffee program.

 

Consumers have embraced "better-for-you" menu items such as

 

· salads and sandwiches. The company is also seeking ways to be

 

more environmentally conscious by using Jess plastic packaging and

 

recycling more. Denis Hennequin, the executive in charge of European

 

operations, is pleased w ith the results of his reimaging campaign. He

 

said, "I'm changing the story. We've got to be loyal to our roots, w e

 

have to be affordable, we have to be convenient ... but w e have to

 

add new dimensions."

 

Despite the challenging economic environment, McDonald's total

 

stock return for the 3-year period 2007 through 2009 was the highest

 

among the 30 companies th at comprise the Dow Jones Industrial Average. The company's strong financial res ults have given it the

 

resources to move forward with a remodeling initiative for stores in

 

the United States. The price tag: A whopping $1 billion. Th e upgrades

 

are partly a response to the positive results from revamped European

 

operations; the makeover also reflects an appreciation for retail design

 

principles used by Apple, Starbucks, and other trendsetters. By 2015,

 

most of McDonald's 14,000 U.S. stores will be updated.

 

McDonald's executives intend to create a modern, streamlined

 

environment that will encourage customers to stay longer and spend

 

more. Some of the changes are dramatic: Gone are the red roofs and

 

splashes of neon yellow that many associate with iconic spokes-clown

 

Ronald McDonald. The new color palette includes subtle shades of

 

orange, yellow, and green. Also on tap: softer lighting and comfortable, stylish new furniture. As Jim Carras, a senior U.S. executive,

 

noted, "McDonald's has to change with the times. And we have to do

 

so faster than w e ever have before." Discussion Questions

 

1. Identify the key elements in McDonald's global marketing strategy. In particular, how does McDonald's approach the issue of

 

standardization? Does McDonald's think global and act local?

 

Does it also think local and act global?

 

2. Do you think government officials in developing countries such

 

as Russia, China, and India w elcome McDonald's? Do consumers

 

in these countries welcome McDonald's? Why or why not?

 

3. The Plan to Win initiative is built around five factors that drive

 

McDonald's business: people, products, place, price, and promotion . As a student of marketing, what can you say about these .

 

factors?

 

4. Is it realistic to expect that McDonald's-or any well-known company-c~

 

pand globally without occasionally making mistakes

 

or generating controversy? Why do antiglobalization protesters

 

around the world frequently target McDonald's? s') l, Su..r{M(:,'( ~ Visit the Web Site

 

See www.mcdonalds.com

 

for a directory to country-specific sites. Sources: Bruce Horovitz, "McDonald's Revamps Stores to Look More Upscale,"

 

USA Today (May 8, 201 1), pp. 18, 28; Andrew E. Kramer, "Russia's Evolution, as

 

Seen Through the Golden Arches," The New York Times (February 2, 2010), p. 83;

 

Janet Adamy, "As Burgers Boom in Russia, McDonald's Touts Discipline," The Wall

 

Street Journal (October 16, 2007), pp . A 1, A 17; Jenny Wiggins, " Burger, Fries, and

 

a Shake-Up," Financial Times (January 27, 2007), p. 7; Steven Gray, " Beyond

 

Burgers: M cDonald's M en u Upgrade Boosts M eal Prices and Results," The Wall

 

Street Journal (February 18-19, 2006), pp. A1, A7; Jeremy Grant, " Golde n

 

Arches Bridge Local Tastes," Financial Times (February 9, 2006), p. 1O; Saritha Rai,

 

"Tastes of India in U.S. Wrappers," The New York Times (April 29, 2003), pp. W 1,

 

W7; Bruce Horovitz, "It 's Back to Basics for McDonald's," USA Today (May 21 ,

 

2003), pp. 1B, 28; Sherri Day, "After Years at Top, McDonald's Strives to Regain

 

Ground," Th e New York Times (March 3, 2003), pp. A 1, A 19; Sherri Day and

 

Stuart Elliot, "At McDonald 's, an Effort to Restore Lost Luster," Th e New York

 

Times (April 8, 2003), pp. B1, 84; Shirley Leung and Suzanne Vranica, "Happy

 

Mea ls Are No Longer Bringing Smiles at McDonald's," The Wall Street Journ al

 

(January 31, 2003), p. B1; Shirley Leung and Ron Lieber, "The New Menu Option

 

at McDonald's: Plastic," The Wall Street Journal (November 26, 2002), pp. D1,

 

D2; Shirley Leung, "McHaute Cu isin e: Armchairs, TVs and Espresso-ls

 

It McDonald's? " Th e Wall Street Journal (August 30, 2002), pp. A 1, A6; Bruce

 

Horovitz, "McDonald's Tries a New Recipe to Revive Sales," USA Today (J uly 10,

 

200 1), pp. 1A, 2A; Geoff Win estock and Yaroslav Trofimov, "McDonald's

 

Reassures Italians About Beef," The Wall Street Journal (January 16, 2001),

 

pp. A3, A6.

 


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