McDonalds SWOT Analysis / SWOT Matrix
Posted by David Williamson on Dec-05-2018
A SWOT analysis is a framework that is used to analyze a company’s competitive positioning in its business environment. This can be used by McDonalds, and will involve the identification of its internal Strengths (S) and Weaknesses (W) followed by the identification of the Opportunities (O) and Threats (T) it faces in its extensivelyrnal business environment.
McDonalds is among the leading firms within its industry, and it needs to retain this position. McDonalds is carefully reviewing its SWOT analysis and using it to make strategic decisions. For a SWOT analysis to be conducted of the firm, an interactive process needs to be undertaken by coordinating among all the departments of the firm such as finance, marketing, operations, human resource, logistics, strategic planning, management information systems etc.
A SWOT matrix is a 2x2 matrix that has the internal strategic factors listed in the first row; Strengths and Weaknesses. It has the external strategic factors listed in the second row; Opportunities and Threats. This SWOT strategic framework allows company managers to easily view all of the company’s strengths, weaknesses, opportunities and threats in one matrix.
The SWOT analysis matrix helps in the development of 4 types of strategies by managers. These are:
- Strengths-Opportunities Strategies (SO): This involves using internal strengths to take advantage of opportunities.
- Weaknesses-Opportunities Strategies (WO): This involves improving on the company’s weaknesses by making use of the opportunities.
- Strengths-Threats Strategies (ST): This involves the using of strengths to minimize the weaknesses.
- Weaknesses-Threats Strategies (WT): This involves the elimination of weaknesses to combat the threats.
The main objective of the SWOT analysis is to help in identifying the strategies that can be used by the company to build on its strengths, eliminate its weaknesses while making the most of opportunities and countering threats.
SWOT Analysis of McDonalds
Strengths of McDonalds
- Distribution and Reach: McDonalds has a large number of outlets in almost every state, supported by a strong distribution network that makes sure that its products are available easily to a large number of customers in a timely manner.
- Cost Structure: McDonalds’s low cost structure helps it produce at a low cost and sell its products at a low price, making it affordable for its customers.
- Dealer Community: McDonalds has a strong relationship with its dealers that not only provide them with supplies but also focus on promoting the company's products and training.
- Financial Position: McDonalds has a strong financial position with consecutive profits in the past 5 years, along with accumulated profit reserves that can be used to finance future capital expenditures.
- McDonalds has a large asset base, which provides it with better solvency.
- Return on Capital Expenditure: McDonalds has been successfully able to generate positive returns on the capital expenditure it has incurred on various projects in the past.
- Automation: of various stages of production has allowed the more efficient use of resources and reducing costs. It also allows for consistency in quality of its products and provides the ability to scale up and scale down production as per the demand in the market.
- Skilled Labor force: McDonalds has invested extensively in the training of its employees that has resulted in it employing a large number of skilled and motivated employees.
- McDonalds has a diversified workforce, with people of many geographical, racial, cultural and educational backgrounds that help the company by bringing in diverse ideas and methodologies of doing things.
- McDonalds has qualified and accredited professionals working under in its team.
- Entering new markets: McDonalds’s innovative teams have allowed it to come up with new products and enter new markets. It has been successful in past, in most of the initiatives it has taken in new markets.
- Social Media: McDonalds has a strong presence on social media with more than millions of followers on the three most famous social media platforms: Facebook, Twitter and Instagram. It has high levels of customer engagement on these platforms with low customer response time.
- Website: McDonalds has a well-functioning and interactive website that draws a large number of internet traffic and sales.
- Product Portfolio: McDonalds has a large product portfolio where it provides products in a large range of categories. It has a number of unique product offerings that are not provided by competitors.
- The geography and location of McDonalds provide it with a cost advantage in serving its customers, when compared to that with the competition.
- McDonalds has a well-established IT system that ensures efficiency in its internal and external operations.
- McDonalds owns a number of intellectual property rights that include trademarks and patents. These allow it exclusivity over its products and competitors cannot copy or reverse engineer them.
- McDonalds is a brand that has been in the market for years, and people are aware of it. This makes its brand awareness high.
- Its products have maintained quality over the years and are still valued by customers, who find it as good value for the amount of money that they pay.
- Partnerships: Strategic partnerships are established by McDonalds with its suppliers, dealers, retailers and other stakeholders. This allows it to leverage them if need be in the future.
Weaknesses of McDonalds
- Research and Development: Even though McDonalds is spending more than the average research and development expenditure within the industry, it is spending way less than a few players within the industry that have had a significant advantage as a result of their innovative products.
- High Day Sales Inventory: The time it takes for products to be purchased and sold are higher than the industry average, meaning that McDonalds builds up on inventory adding unnecessary costs to the business.
- Rented Property: A significant proportion of the property that McDonalds owns is rented rather than purchased. It has to pay large amounts of rent on these adding to its costs.
- Low current ratio: The current ratio that shows the company’s ability to meet its short term financial obligations, is lower than the industry average. This could mean that the company could have liquidity problems in the future.
- The company has low levels of current assets compared to current liabilities, and this can create liquidity problems for it in operations.
- Cash flow problems: There is a lack of proper financial planning at McDonalds regarding cash flows, leading to certain circumstances where there isn’t enough cash flow as required leading to unnecessary unplanned borrowing.
- Integration: McDonalds's current structure and culture have resulted in the failure of various mergers aimed at vertical integration.
- Diversification in the workforce: The workforce at McDonalds is concentrated with mostly local workers, and low amounts of workers from other racial backgrounds. Lack of diversification makes it difficult for employees from different racial background to adjust at the workplace, leading to loss of talent.
- Market Research: McDonalds has not conducted market research within the market that is serves since the past 2 years. As a result, it is making decisions based on 2 years old data, while customer needs may have evolved over time.
- High employee turnover rates: McDonalds has a higher employee turnover rate compared to competitors. This means that it has more people leaving the job, and as a result, it is spending more on training and development as employees keep leaving and joining.
- Quality Control: McDonalds has a lower budget for its quality control department than competitors. This leads to lack of consistency and the possibility of damage to quality across its various outlets.
- Lack of legal experience and legal department employees are not highly qualified.
- A few products have a high market share, while most of the products have a low market share. This reliance on a few products makes McDonalds vulnerable to external threats if these few products suffer for any reason.
- The workload is a high per worker as there are fewer workers than the actual work required. This puts workers under psychological stress and is likely to be less productive.
- Worker morale is low due to company culture and politics that have grown in recent years.
- Competition and qualified employees have been leaving the organisation in recent years, which could mean a shortage of good talent for the company in the upcoming years.
- The decision making is highly centralized, and decisions by teams need to be approved by certain officials. This reduces efficiency in operations by making them more time consuming. It also leads to reduced innovation.
- The performance appraisal is not in a systematic manner. People are often not appraised for their performance. This leads to lower work morale and lack of promotion opportunities for employees.
Opportunities of McDonalds
- Internet: there has been an increase in the number of internet users all over the world. This means that there is an opportunity for McDonalds to expand their presence online; by using the internet to interact with its customers.
- E-commerce: There has been a new trend and a growth in sales of the e-commerce industry. This means that a lot of people are now making purchases online. McDonalds can earn revenue by opening online stores and making sales through these.
- Social Media: there has been an increase in the number of social media users worldwide. The three social media platforms; Facebook, Twitter and Instagram, have shown the greatest number of increase in monthly active users. McDonalds can use social media to promote its products, interact with customers and collect feedback from them.
- Technological developments: technology comes with numerous benefits among many departments. Operations can be automated to reduce costs. Technology enables better data to be collected on customers and improves on marketing efforts.
- There has been an increase in average household income along with an increase in consumer spending following the recession. This will result in growth in McDonalds’s target market with new customers that can be attracted towards the business.
- Population: the population has been growing and is expected to grow at a positive rate for the upcoming years. This is beneficial for McDonalds as there will be an increase in the number of potential customers that it can target.
- Inflation: The inflation rate has been low and is expected to remain low in the next two years. This is an opportunity for McDonalds as its cost of inputs would remain low for the next two years.
- Interest rate: Lower interest rates than compared to previous years provides an opportunity for McDonalds to undergo expansion projects that are financed with loans at a cheaper interest rate.
- Green government drive: this provides an opportunity for McDonalds for the sale of McDonalds's products to federal and state government contractors.
- Transport Industry: the transport industry has been flourishing in the past few years, and shows growth potential in the future. This has reduced the costs of transportation, which is beneficial for McDonalds as it will lower its overall costs.
- Tax policy: the governments’ reduction in tax rate is beneficial for McDonalds as a lower amount would be expensed out as a tax.
- The government has also announced a subsidy on the sale of environmentally friendly goods in this sector. McDonalds can focus on these environmentally friendly products and make use of this opportunity.
- Tourism: growth in tourism is beneficial for McDonalds as it will provide new potential customers that it can target in order to gain market share.
- Skilled workers: increase in education and training by numerous institutes has increased the amount of skilled labor available within the country. This means that if McDonalds is able to hire skilled labor, it would have to spend less on training and development, therefore, saving costs.
- The growth in consumer spending in the economy is likely to increase consumption for McDonalds's products.
- A number of new niche markets have opened up that are growing. McDonalds can sell products in these markets and take advantage.
- Globalisation: Increased globalisation does not restrict McDonalds to its own country. It can extend its operations to other countries, entering into these markets and making use of the opportunities that lie in these markets.
- Consumers within the industry are becoming more conscious of health, and this is a segment that is growing. McDonalds can take advantage by manufacturing products that are beneficial to customer's health.
- Trade barriers have been reduced on the import of goods. This will reduce the costs incurred on inputs for production.
- Regulations have loosened in recent years making it easier for businesses to carry out their operations.
Threats of McDonalds
- Technological developments by competitors; New technological developments by a few competitors within the industry pose a threat to McDonalds as customer attracted to this new technology can be lost to competitors, decreasing McDonalds’s overall market share.
- Suppliers: The bargaining power of suppliers has increased over the years with the decrease in the number of suppliers. This means that the costs of inputs could increase for McDonalds.
- New entrants: there have been numerous players that have entered the market and are gaining market share by gaining existing companies’ market share. This is a threat to McDonalds as it can lose its customers to these new entrants.
- Increasing competition: there has been an increase in competition within the industry putting downward pressure on prices. This could lead to reduced revenue for McDonalds if it adjusts to the price changes, or loss of market share if it doesn’t.
- Exchange Rate: the exchange rate keeps fluctuating and this affects a company like McDonalds that has sales internationally, while its suppliers are local.
- Political uncertainties in the country prove to be a barrier in business, hindering performance at times and making the business incur unnecessary costs.
- The fluctuating interest rates in the country do not provide a stable financial and economic environment.
- Consumer tastes are changing, and this puts pressure on companies to constantly change their products to meet the needs of these customers.
- Regulations on international trade keep changing, and this requires compliance by companies if they are to operate globally.
- Substitute products available are also increasing, which is threat collectively for the whole industry as consumption of current products decrease.
- The rise in prices of fuel has increased in the input costs for McDonalds. These costs have also increased as other industries that provide inputs for this company also have suffered from increasing fuel prices, thereby charging more.
- Increased promotions by competitors have been a threat for McDonalds. On most media, there is more clutter than ever, and customers are bombarded with multiple messages. This reduces the effectiveness of promotional messages by McDonalds.
- Constant technological developments require the workforce to be trained accordingly as the inability to keep up with these changes can lead to loss of business for McDonalds.
Limitations of the SWOT Analysis of McDonalds
Even though the SWOT analysis is an effective tool, it has certain limitations as well.
- Its major limitation is the fact that there can be an overlap of strengths and weakness, with a single factor being both a strength and a weakness. For example, a large number of outlets can be a strength in a growing economy or a weakness if the economy is going through a recession.
- The matrix is not an end as it does not show how to achieve the objectives. It should be used as a starting point to make strategic decisions.
- The assessment done through a SWOT analysis is a static one and does not take into consideration the changes that take place in the competitive environment.
- The factors listed down in a SWOT analysis may be overemphasized by the company.
- There are certain interrelationships between the internal and external factors that the SWOT Matrix overlooks.
Weighted SWOT analysis of McDonalds
In response to the above mentioned limitations, a weighted SWOT analysis can be conducted for McDonalds that involves assigning weightage to each of the strengths and weaknesses mentioned in the SWOT analysis for McDonalds. It also involves estimating the probability of an event occurring in the external environment. This allows managers to focus on the important factors, and give less consideration to the less important ones.
The limitation of the weighted SWOT analysis is that it does not look at how holistically different factors affect the business when combined.
Example of weighted SWOT analysis
For McDonalds, the strength for strong distribution can be given a higher weight than the strength for the skilled labor force.
Advanced SWOT analysis/SWOT Matrix
McDonalds SWOT analysis lists down the strengths, weaknesses, opportunities and threats to any organisation, but does not tell management what can be done by these. To overcome this limitation and help develop strategies that are appropriate, an advanced SWOT analysis or TOWS matrix is used. This lists down the Strengths-Opportunities (SO) strategies that involve using strengths to take advantage of opportunities. It lists the Strengths-Threats (ST) strategies that involve using strengths to fight of threats. It involves the Weaknesses-Opportunities strategies that involve converting weaknesses to strengths by using opportunities. Lastly, Weakness-Threats (WT) strategies involve overcoming weaknesses to avoid threats.
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