McDonalds Actual Case 2017.docx - MCDONALD'S Althougli McDonald's earnings for the fourth quarter of 2012 beat expectations the world's largest

McDonalds Actual Case 2017.docx - MCDONALD'S Althougli...

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MCDONALD'S* Althougli McDonald's earnings for the fourth quarter of 2012 beat expectations, the world's largest restaurant chain stated that it will continue to face considerable challenges in 2013. During 2012, the firm reported the first monthly same-store sales decline in nine years, reflecting the effect of the shaky global eeonomy (see Exhibits 1 and 2). On January 23, 2013, Chief Executive Don Thompson, who had stepped intő the job just six months before, told inves-tors, "More specifically, growth in the informál eating-out industry has been relatively fiat to declining around the world and we expect that to continue." 1 The dip in sales figures came as a surprise to most analysts, because McDonald's had managed to show con- sistent performance since 2003, leading to a surge in oper- ating profits and stock price over almost a decade. Most of this could be attributed to the "Plan to Win," which was first outlined by James R. Cantalupo, who came out of retirement to guide McDonald's after overexpansion had caused the chain to lose focus. The core of the plan was to increase sales at existing locations by improving the menu, refurbishing the outlets, and extending hours. In spite of management changes, McDonald's has remained committed to pushing on various aspects of this *Case developed by Professor Jamal Shamsie, Michigan State University, with the assistance of Professor Alan B. Eisner, Pace University. Matériái has been drawn from published sources to be used for purposes of class discussion. Copyright © 2013 Jamal Shamsie and Alan B. Eisner. plan. The chain has continued to expand its menu over the years, with more sandwiches and salads. It alsó started to add snacks and drinks, two of the few areas where restaurant sales have still been growing in spite of the economic downturn. Its addition of speeialty coffee, ice-cold frappes, and fruit smoothies in its newly added McCafes has helped boosted the average spent by each customer and lured them to its outlets for snacks during slower parts of the day. Nevertheless, McDonald's is aware that it is facing a rapidly fragmenting markét, where consumers are looking for healthier and even more exotic foods. The chain is facing tougher competition from Burger King and Wendy's, both of which have been adding to their menüs and remod-eling their outlets. At the same time, McDonald's is alsó losing customers to chains such as Subway, Chipotle, and Taco Bell, which had not previously been viewed as strong competitors. Many analysts therefore believe that the chain must continue to work on its turnaround strategy in order to meet these challenges. Thompson has been monitoring pricing in order to make sure the menu stays affordable even though commodity prices have been rising. He believes that the chain was hurt by its increased emphasis on the Extra Value Menu that included items priced higher than a dollár. It has since shifted its focus back to the Dollár Menu, which has continued to generate almost 15 percent of totál sales. Steven Kron, an analyst with Goldman Sachs, emphasized the attractiveness of the firm's
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