cont bus Assignment 2

cont bus Assignment 2 - Product diversity is an...

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Product diversity is an increasingly common attribute in large corporations today. “Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are different from current operations” (Thomas, J). Companies choose to diversify in order to increase profitability and sales volumes obtained from new products and consumer bases. Unfortunately, diversification is not without its negative aspects and diversifying might demand significant expanding of human and financial resources, which may detract focus, commitment and finances from the core industry. Because of the above drawbacks many companies attempting to diversify have been unsuccessful including McDonald’s Corporation and its failed venture into the hospitality industry. McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 64 million customers daily in 119 countries (McDonald's Corporation). It was founded and made popular by entrepreneur Ray Kroc after he purchased the rights to a small hamburger chain operated by Richard and Maurice McDonald in 1955. Today the golden arches of McDonalds are recognized world round. What few people failed to hear about this successful company is that in 1999 McDonald’s decided to pursue a diversification strategy that resulted in the failure of two hotels. “Between November 1999 and February 2000, McDonald’s stock declined from $48 to $32 per share. The financial analysts surmised that McDonald’s had reached market saturation” (Michael, S). After receiving the green light from the McDonald’s headquarters McDonald’s Switzerland headed by CEO Urs Hammer chose to pursue a business enterprise in the hotel business to boost the slumped shares. With Hammer’s hotelier background and their large consumer base, McDonald’s Switzerland was confident that their diversification strategy into hotels would be successful and
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became overly confident in their ability to pull it off. “Our restaurants serve 74 million customers in a country with a population of 7 million,” Hammer argued. “If only one in 1,000 of those guests choose the Golden Arch Hotel, the project will be a success” (Michael S). McDonald’s Corporation opened its first hotel in Rümlang, Switzerland, in March 2001. The four-star hotel boasted 211-beds and was situated close to Airport Zürich-Kloten. A few weeks later the second hotel in Lully, Switzerland opened. The hotels were well designed and offered customers a 24 hour drive through McDonald’s, with arch-shaped headboards, easy access to the airports, free internet and futuristic showers. They were both located in bustling areas that had proved successful for other hotel owners. Most hotels in the area were able to have an average of 80% occupancy rate year round. In order to recover the initial $26 million dollar
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cont bus Assignment 2 - Product diversity is an...

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