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In this economic report, we are going to review McDonald. McDonald is in restaurants and more precisely in fast food industry. The aim of the report to identify key competitors of the McDonald and show the strategies the company has applied in order to remain market leader in the fast food industry. The report also aims at identifying both macroeconomic and microeconomic problems facing the company and the strategies the company is employing in order to revert the possible losses as the results of the economic problem. The report is built on the analysis of both the demand and supply of the products produced by the McDonald and how the company has structured its operations in order to have a competitive edge over its competitors in the industry. In these report we are going to review the government legislation and other policies in the market and show how they inhibit the operations of the company; for instance in the fast food industry, the policies that promote healthy lifestyle would have a bearing on the operations of McDonald and other firms in the same industry (Shah, Sherlekar & Sidana, 2009.)
2.0 Key issues
The issue of competition in fast food industry is paramount to McDonald. In fast food industry, there is bottleneck competition and thus the company must package its product in such a way that it will ensure competitive edge over its key rivals in the industry. The key competitor to the McDonald is the Burger King which is the second largest producer of hamburger in the world. Burger King has diversified its operations to more than 11400 locations in about 58 countries. Burger king reported a 17 percent increase in revenue from the total revenue of $1.72 billion in 2002 as compared to an increase in revenue of 4 percent reported by McDonald in the same period. The major strength of Burger King in the fast food industry is its customization of its products policy where the hamburger is prepared according to the individualized needs of the customers and not one product to fit the requirements of all customers. Other strength of Burger King is that it specializes in few products that are different from what if offered by the competitors in the market thus able to attain the highest standards possible in the market. The third largest firm in the fast food industry is Wendy; it has around 9000 outlets in over 33 countries in the world. The fourth largest firm in fast food industry is Hardee; it operates around 2400 stores in 32 countries. Jack in the box is another competitor to McDonald in fast food industry and operates in 17 states with more than 1850 stores. Lastly, sonic also offer competition to McDonald in fast food operating 2700 stores (Canny, 2005).
3.1 The price of the good
The products offered by McDonald have high elastic of demand. The elasticity of demand refers to the responsiveness of demand as a result in changes of prices of the product in the market. If the product has a high elasticity of demand, any increases in the prices if the product would result in the decrease in demand of that product and vice versa is true if the product has its demand being price inelastic. Fast food industry is characterized by high competition thus any increase in the prices of the product would lead to low demand of that product since the buyers would demand the products of other sellers in the market who may is offering the same product at relative low prices. For McDonald to increase demand, it has reduced the price of it products in China for instance the price of McWings has reduced from 7 Yuan to about 5 Yuan (McDonald, Ward, & Smith, 2007).
3.2 The price of related goods (substitutes/compliment)
Since the elasticity of demand is high in fast food industry, the competitors are offering their product at low price for them to have a competitive edge over their major rival; McDonald; For instance Starbucks has recently announced to offer breakfast menu at low prices. Starbuck charges $2.99 for waffle sandwich in the morning and $ 0.99 for the rest of the time in the day.
The McDonald generates most of its income from the sale of its product and from the loyalties it receives from its franchising businesses.
3.4 Expected future prices
If the emerging trends on the prices is something to go by, we expect future prices of the products offered by the McDonald to reduce significantly as a result of the stiff competition from the competitors in the industry.
The McDonald targets the youth and low income young families in urban centers. The Products offered are affordable to low income earners at the same time the services offered are enjoyed to all members of the family.
The products offered by the McDonald are preferred over others offered by the competitors firms in the industry. The products are of high quality, high class services, cleanliness of the products and the value addition to products offered.
4.1 the prices of the good
McDonald realized that for it to remain competitive in the market, it has to ensure that its suppliers of low material are efficient, production cost is low and that it must be innovative in the production of the products. Thus the price of the raw material is low for the firm to attain its goal.
4.2 the prices of the related goods
The prices of related goods must be low to compete for the market in fast food industry. For the fast food to ensure profitability, it has to ensure that the raw materials supplied are of low prices thus reducing the cost of production and thus low prices of goods produced (Cross, 2007).
4.3 the prices of factors of production
The prices of factors of the production is kept very low so that the cost of production is low for the products produced in the fast food industry to be competitive. McDonald is applying a strategy called McDonalizing the suppliers and thus help to increase the efficiency of production and thus reducing g costs (Goodwin, Nelson, Ackerman, 2007).
4.4 Expected future prices
The expected future prices of the supplies are expected to even reduce further for the firm to reduce the overall cost of production.
4.5 The number of suppliers
The McDonald engages on e suppliers in a process known as McDonaldzing the suppliers. The suppliers at McDonald become key players in the development of new products thus the suppliers are part and parcel of the success at McDonald.
McDonald applies superior technology for it to be innovative in line with its vision. The superior technology ensures reduction in the cost of production.
5.0 Economic problem 1: Economic Crisis.
Possible Solution: The economic crisis that we have experienced in the recent past has led to the reduction of revenue and thus profit for McDonald. Customers were experiencing hard times financially and opted to spend their money on things like gas rather than buy hamburger. The problem can be solved by offering products at low prices affordable to the people regardless of economic status (Wiggins, & Rodge, 2010).
Economic problem 2: Fluctuating exchange rates in different countries.
Possible solution: The Company should emphasize that all its products from different countries be purchased using the same currency (Brickley, Smith, & Zimmerman, 2007).
McDonald Company is the market leader in fast food industry in United States’ market. McDonald has achieved to be a market leader by applying superior strategies over its competitors to attain competitive edge. The company has supplied its products at low cost so for them to be competitive in the market. The company has succeeded making the suppliers corporate in the production of its products thus getting supplies at low cost hence reducing the cost of production; producing goods at low cost thus offering the firm competitive advantage over its rivals (Molch, 2007).