In Chapter 16 of Economics for Managers, read the case study Strong Headwinds fo
ID: 1198125 • Letter: I
Question
In Chapter 16 of Economics for Managers, read the case study Strong Headwinds for McDonald's, then answer the following questions:
A. Describe the macroeconomic factors that caused headwinds for McDonald's in 2012. Please include sources with your answer.
B. Give examples of oligopolistic behavior among the rivals in the fast-food industry.
C.Regarding the discussion of when McDonald's introduced its Dollar Menu strategy in the fall of 2002, why was the company assuming or hoping that the demand for its products was elastic? Did this appear to be the case?
D. Based on the case, how did the McDonald's development of its mini-restaurants improve its overall profitability?
E. What role did the policies of various governments play in influencing the international expansion strategies of McDonald's?
Write a 500-word paper answering the preceding questions.
Incorporate a minimum of three sources in addition to the text in this assignment for a total of four sources. Your sources may include scholarly sources, credible newspapers, trade journals, or websites. Be sure to use OCLS to find these sources.
Explanation / Answer
A) The world's largest fast-food chain has touted the efficiency of its global operations and diverse menu for returning a strong profit margin. But in 2012, higher food, labor, occupancy and business-investment costs are hurting profitability. The headwinds are macroeconomic, such as declining consumer sentiment. Other pressures are the result of planned strategic decisions made to grow the business.
B) The oligopolistic behavior among the rivals in the fast-food industry are :-
• Uniform prices
• A penalty for price discounts
• Advance notice of price changes
• Information exchange
The fast food and restaurant industry has many barriers to entry. There is a saturation of restaurant businesses in the market. It will be extremely hard to compete against well known food places like McDonalds and KFC. Another significant barrier would be customer loyalty. There are thousands of people all over the work who practice customer loyalty to places such as Burger King, McDonald’s, and Subway.To start a restaurant, it can be expensive entry cost and capital costs when all land/labour/resources are bought. There are also government regulations and licensing that need to be followed before opening a restaurant such as health checks, food standard testing and if food complys with health standards. It is also critical that the best location possible is chosen. A restaurant can quickly go out of business if it is strategically placed in a bad area which is why it could be said that there are many barriers to entry in the fast food industry.
C) The breakfast Dollar Menu across the USA in January 2010, as Mcdonald's attempts to sustain the volume of customers visiting its stores, after US sales had been hit by intensive competition and a 10 percent unemployment rate.US sales at established McDonald’s restaurants fell for the second month in a row in November 2010.McDonalds launched its breakfast Dollar Menu across the USA in January 2010, as it attempted to sustain the volume of customers visiting its stores, after US sales had been hit by intensive competition and a 10 percent unemployment rate.US sales at established McDonald’s restaurants fell for the second month in a row in November 2010.McDonalds did some test marketing on the sales promotion by offering breakfast items for $1 each at restaurants in Chicago and other markets for several months.Many investors were worried what impact unemployment would have on McDonald’s high-margin breakfast business which accounts for around 25% of its sales in the US.
D)McDonald’s developed three strategies for sustaining the competitive advantage. These are customer convenience, customer value, and optimal operations. Together with the digital strategies, it will help create new and bold ideas for the company. The stores are characterized by the operations team as miniature manufacturing facilities.With its goal in improving the suite of its manufacturing systems (inventory control, production planning, financial control, and point-of-sale order entry) that supports the store, the team has developed ways of improving its overall operations.
E) The international operations of McDonald's are highly influenced by the individual state policies enforced by each government. (2001, 705) For instance, there are certain groups in Europe and the United States that clamor for state actions pertaining to the health implications of eating fast food. (2005) They have indicated that harmful elements like cholesterol and adverse effects like obesity are attributable to consuming fast food products.
On the other hand, the company is controlled by the individual policies and regulations of operations. Specific markets focus on different areas of concern such as that of health, worker protection, and environment. All these elements are seen in the government control of the licensing of the restaurants in the respective states. For instance, there is an impending legal dispute in the McDonald's franchise in India where certain infringement of rights and violation of religious laws pertaining to the contents of the food. The existence of meat in their menus in India is apparently offensive to the Hindu religion in the said market. There are also other studies that points to the infringement of McDonald's Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonald's stores have to contend with the issues of employment procedures as well as their tax obligations so as to succeed in the foreign market