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Ronald McDonald’s Goes to China

Case Study: Ronald McDonald’s Goes to China

Introduction

            McDonald’s entered Hong Kong in 1975 and Beijing only in 1992. After about seven years, there were already 235 McDonald’s restaurants across China and in Hong Kong there were 158 franchises as of 1999 (Watson, 2000). Today, there are already about 200 outlets and more than 10,000 staff  in Hong Kong (McDonald’s HK, 2007) while in Beijing there are 90 outlets some of which are offer 24-hour service (CEN, 2006). The entry of McDonald’s in China, although the country is known for its rich, deep-rooted culture, has become successful primarily because of the changing lifestyles of the people themselves along with the changing characteristics of  the country’s demographics. This case study identifies the problems McDonald’s in China is facing and recommends possible solutions to the problems identified.

Problem Identification

            McDonald’s is faced on the issues on how to stay competitive in the fast food industry and on how to take advantage of the many opportunities available  for them. If McDonald’s does not take advantage of these opportunities, its competitors are likely to grab such opportunities. According to Watson (2000), China is currently experiencing changes with its demographic characteristics such as changing family system, lifestyles,

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family values, aging population, and rising incomes. Due to these  opportunities. China has become more attractive to other fast food companies that the number of  fast food restaurants as well as the intensity of competition in the country is increasing. There is the KFC, Pizza Hut, Mos Burger, California Beef Noodle King, Starbucks, Yoshinoya, and recently, Burger King. All of them have their own market segments and have their own way of attracting customers. Burger King for instance had already entered the Chinese market in 2005 (AP, 2005) and can be expected to expand across China in the next few years. Burger King has many similarities with McDonald’s from the quality of service to the quality of products  as well as with the ability to attract customers. Additionally,  Burger King also knows how to innovate and differentiate products from that of the competitors (e.g. patties are grilled thus the taste of its burgers is distinguishable from that of other brands).

            Another problem is that the taste of McDonald’s beef patties does not appeal to the Chinese   adults (Watson, 2000).  This means that the adult segment of McDonald’s market eat there not because they like the taste of the foods but because of the popularity associated with it and the comfort especially the children and teenage customers find at every McDonald’s restaurants. Burger King, McDonald’s number one competitor in the United States which has been proven to have better tasting burgers than McDonald’s, may soon become a big threat  to McDonald’s if McDonald’s will not give careful attention in improving the taste of its burgers to suit the taste preferences of the Chinese.

Identification of Options or Alternatives

            McDonald’s may implement one or a combination of the following alternatives:

·         Intensify its communication and marketing efforts to ensure that McDonald’s remains attractive to the younger consumers, making up with the loss made due to the unattractiveness of McDonald’s burger to adults. McDonald’s definitely has competitive advantage over its competitors due to its popularity and strong brand identity which was developed through its strong marketing and communication tools. This particular strength of McDonald’s can be further utilized in order to sustain its competitive advantage. However, this alternative requires McDonald’s to allot additional budget for its marketing strategies.

·         Instead of allocating additional financial support for promotions and marketing, McDonald’s may opt to allocate budget for research and development in order for the company to innovate and improve the taste of its burger patties; that is, integrate Chinese taste preferences with the American burger. McDonald’s should conduct research to determine the specific taste of burgers that Chinese adults want and to alter the recipe of its traditional American burger patty. In other words, although Chinese customers are now embracing American foods, it will be better if they can still get to eat the Chinese way even at McDonald’s. McDonald’s must focus on product innovation. According to Nonaka (1991, p.25) innovation means “to recreate the world according to a particular vision or ideal”. If McDonald’s is really aiming to localize the company, it must then become serious in offering products with tastes that will be appreciated by the Chinese consumers.. McDonald’s is a food company thus, its focus must primarily be on the taste of its products and not only on providing customers the experience of eating in a friendly restaurant.

·         McDonald’s may expand its operation by opening new outlets to be able to broaden its market reach and ensure that McDonald’s has presence in all possible strategic locations. This alternative addresses the opportunities available for McDonald’s; however, it does not really solve the second problem identified above.

Recommendations

            Among the alternatives given above, the second alternative will be the best solution that should be implemented. McDonald’s should utilize its ability to innovate products in order to be more responsive to the needs of the Chinese market. Popularity, good customer service, strategic locations, and excellent promotion will all be useless if the products themselves are not appealing to a wide range of consumers. Its primary product is its burgers so it would be better to improve its burger and try to add more products product to its menu list. Spicy Wings seems not to be an alternative to burger so McDonald’s must create burgers that can satisfy the taste preferences of Chines adults. McDonald’s should not rely on its younger consumers but also on the adult segments who look for better tasting foods. Additionally, the number of people in China who are willing to spend for leisure and dining is increasing thus McDonald’s does not have to further decrease its price; consumers are commonly willing to pay for a bit higher price in exchange of high quality and better tasting foods. In that way can McDonald’s be able to sustain its competitive advantage over its competitors.

SWOT Analysis

            As with any other company, McDonald’s has its own share of strengths and weaknesses which can pose threat or offer opportunities to the company’s operation in China. There are also external forces that are needed to be recognized in order to determine how it can possibly effect the company. Situational analysis, being a part of the market and strategic planning process, is an integral procedure and a very powerful tool for organizations and businesses to instigate effective marketing plans and strategies. All these can be best described and determined using SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. SWOT analysis is “concerned with analysis of an organization’s internal and external environment with the aim of identifying internal strengths in order to take advantage of its external opportunities and avoid external and possible internal threats, while addressing its weaknesses”, (Panagiotou, 2003, p.8). SWOT analysis therefore is a business strategy and decision-making tool that provides a company an in-depth analysis of its characteristics, enabling the company decides on the appropriate strategies.

Strengths

·         The primary strength of McDonald’s is its strong brand identity that enables the company to  differentiate itself from the other fast food and restaurants in China. In China, the popular foods are noodles and dimsum thus the Chinese people found McDonald’s to be different. McDonald’s offers products and services different from what other traditional Chinese restaurants in the country offer, such as birthday celebrations and party packages which have met the needs of the Chinese who usually live in small areas in the city of Beijing. The company has the ability to offer diverse and innovative services including the McCafe which offers cakes, pastries, tea and coffee and the drive-thru service in order to serve a wide range of market. McDonald’s products are known for its burgers that tastes the same in every McDonald’s outlet. However, the company has managed to still localized its products by varying its menu and adding some products that can satisfy the local market. In Beijing and Shanghai, McDonald’s offers the Spicy Wings, Spicy Chicken Fillet Burger and the Spicy Fillet-O-Fish. Additionally, some Chinese people think that eating at an American restaurant like McDonald’s which is far different from the traditional Chinese cuisine they are used to is a way of being part of the globalization or they way of connecting to the world (Watson, 2000).

·         McDonald’s was able to used effective and strong promotion and communication tools to be able to capture and reach for a wider market.  McDonald’s has gained its market primarily through its effective advertisement in radio, television and billboards. It recently launched the “You Got Beef Today?” and the “Feel the Beef” television and print ads . McDonald’s was the first fast food chain to launched a central advertising icon with its clown Ronald McDonald, also known as Uncle McDonald in China who was paired with Aunt McDonald to entertain children while they eat at McDonald’s and during party. McDonald’s has made Yao Ming, the famous Chinese basketball player, its endorser to be able to influence younger individuals.

·         McDonald’s has a high quality customer service that even Chinese elites perceived McDonald’s to offer safe, clean and reliable products and quick service along with the air-conditioned restaurant, roomy tables, and courteous and friendly staff. McDonald’s knows that the fast food industry is also a service industry so the relationship between the personnel and the customers is important. It recently launched the “Ask Me” program that “invites customer to ask crew members or post questions via its website about  product quality or other concerns” (R&I, 2007). Through this program, McDonald’s has the chance to determine customers’ demands and further improve its products and services.

·         McDonald’s knows how to locate its restaurants strategically and is aware the location is the means of getting the product to the target customers. McDonald’s has placed its stores in key locations accessible to consumers and attractive to passers-by. In Beijing, McDonald’s restaurants are commonly located at central business districts, residential areas and large shopping malls like in the Beijing New World Centre, COFCO Plaza, and Anzhen Plaza while in Hong Kong McDonald’s restaurants are located at busy areas such as the Causeway Bay, Quarry Bay and mostly on malls and near schools.

Weaknesses

·         Compared to other local Chinese-style fast-food restaurants in China, McDonald’s price is still higher that it needed to lower the price of some of its products. However, McDonald’s products are still considered pricey that the working class parents needed to save up first before they can afford to bring their children at McDonald’s.

·          According to Watson (2000), most Chinese adults do not like the taste of fried beef patties which are the main ingredients of McDonald’s burgers. Burgers are known to be the specialty of McDonald’s but at China, the company’s burger market is not very reliable.

Opportunities

·         China has a population of over 1.3 billion while its economy is improving. This means that China is a good place where McDonald’s can open more outlets and still expect to have a better market share.

·         The rising incomes in China’s major cities increase the number of Chinese middle class, the market segment McDonald’s usually target and who are willing to spend money for entertainment and leisure including dining out, opening opportunity for McDonald’s to have increased numbers of visitors and consequently increased profits.

·         The changing lifestyles and eating habits of Chinese today opens the possibility that more and more Chinese will embrace or adopt to the American culture including its foods which are offered at McDonald’s.

·         The Communist Party in China implemented the single-child family system. This means that parents can bring their child more often to McDonald’s.

·         China’s population is aging, posing opportunities to target the market of the elderly who will usually like teas and coffee, opening the opportunity for McDonald’s to pursue McCafe in key locations across China.

Threats

·         In the past years, KFC has been the only close competitor of McDonald’s. However, Burger King, the number one rival of McDonald’s in the worldwide market of fast-food chains, has entered the Chinese market in 2005 by opening its first outlet in Shanghai (AP, 2005). There is great probability that Burger King will soon open more outlets in locations where McDonald’s restaurants are also located. Consequently, Burger King may take on some of the market share of McDonald’s, decreasing the profit of McDonald’s. Like McDonald’s, Burger King also has a strong brand identity and  is also known for its innovative products and services not very far behind McDonald’s. This means  that the competition in the fast-food segment in the country is expected to be more intense.

·         China is a communist country, and as an American company, McDonald’s is prone to protest and criticisms of militant groups. Aside from that, McDonald’s everywhere including that in China is always criticize for offering meals that can cause obesity and for exploiting the young workforce which are allegedly said to received very low salary. Such criticisms and accusations may cause mistrust and negative images to McDonald’s.

References:

Associated Press (2005) Burger King opened its first Chinese outlet in China Fast-food chain follows

             McDonald’s with restaurant in Shanghai, Retrieved online on February 25, 2007

            http://www.msnbc.msn.com/id/8375389/

China Economic Net, McDonald’s  offers 24-hour services in Beijing,

            Retrieved online on February 24, 2007

            http://en.ce.cn/Business/Enterprise/200604/06/t20060406_6621134.shtml

Nonaka, I. (1991) The Knowledge-Creating Company,

             Harvard Business Review, November-December: 96-104

McDonald’s Hong Kong Website

            Retrieved online on February 25, 2007

            http://www.mcdonalds.com.hk/english/about/index.htm

Panagiotou, George (2003) Bringing SWOT into Focus, Business Strategy Review, 14:2; 8-10

Restaurants & Institutions, The Road To China,

            Retrieved online on February 25, 2007

            http://www.rimag.com/archives/2006/12/business-china.asp

Watson, James L. (2000) China’s Big Mac Attack.(infiltration of American consumerism)

            Foreign Affairs, 79.3

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