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AKADMS_4900_-_McDonald's - Issue Identification Due to...

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Issue Identification Due to increasing competition, the primary issue faced by McDonalds is McCafe’s ability to stem the loss of McDonald’s market share in breakfast sales over the long term. Can McCafe be what McDonalds needs to remove coffee as a barrier to breakfast sales and help rebuild its competitive advantage? Although, breakfast sales had increased, its market share had declined for McDonald’s reputation for coffee is poor. McDonalds will have to find a way to build their brand name in the retail coffee industry if they want to capture any loss that has been incurred. ANALYSIS Objective and Goals Ralph Sgro, a franchisee of several McDonald’s locations in Burlington, had a vision to expand the McCafe concept to Canada. The goal is to bring the European concept to Canada to not only allow for growth of McDonalds, but also to address the issue of Tim Horton’s increasing market share of the coffee industry. The strategy must be considered carefully if McDonalds wants to generate above average performance both for the revenue of the coffee, but to also bring up their market share for its breakfast and snack market. The objective is to resolve the problem through diversification of its products. Determining how to create value through entering new markets and introducing new products is vital. The issue is critical because both profitability and market share will be at risk. Background/Theories Their current strategy is to gain back the market share of their breakfast sales and try to rebuild their competitive strategy based on this initiative. To support the goals of the organization the McCafe concept was to introduce specialty coffees in an effort to remove coffee as a barrier. The major setback here remains that McDonald’s reputation for coffee was poor and they have no reputation at all for any premium coffees. The idea here would be to use its brand image to bring brand equity to its coffee initiative. The problem was that the market in fast food industry was saturated and there was no more room to grow. McDonalds, therefore, adopted a growth strategy through acquisitions so as to leverage the strong McDonalds brand. Diversification was another strategy undertaken and with the opening of the McCafe will decide whether the coffee industry is something that McDonalds
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should stick with or drop the whole idea completely. Change is necessary because of a variety of forces, which was discovered after analyzing the resource based view of the firm, SWOT Analysis and Michael Porter’s 5-Force Model. It is vital that McDonalds addresses the same issue of increasing their market share and defining their brand image for coffee. The models indicate that if McDonalds does not capitalize on the opportunities presented, their major competitors will continue gaining the market share for both coffee and breakfast sales.
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