History of Fast Foods
The 1970s has always been described as the boom decade for the fast food industry, even though there were other pre-established industry players by then (Collins, 2005). It is estimated that the revenue from fast foods in the 1970s was $6 billion a figure that has since grown to $200 billion in 2015. By 2015, the fast food restaurants were over 200,000 in the US with a consumer estimation of 50 million daily. Fast foods had over 4 million employees and restaurant charters add up to 200,00 employments that was in 2015. The growth of the industry is always ascribed to the modern lifestyles of working class who prefer having both lunches and dinner outside.
Taste, expense, and quality are the key considerations for consumers in this industry. Foods are processed highly and arranged in a line but the main focus of these restaurants are constancy in experience, remaining affordable and the speed of service. Fast foods industry later on advanced to fast casual restaurants to form what is now called Quick Service Restaurants (Collins, 2005). Chart 1 (In the Appendix) of the market share of fast foods.
The industry has over time been fraught with challenges; complaints of unhealthy foods, poor wages, and bad working condition, accusations of uncultured foods and competition to fast casuals. Nonetheless, the industry dealt with the above constraints by introducing healthier foods, diversifying their products and services, improved operational efficiency and increased prices and adoption of modern service to customers including delivery. The main players in the industry are McDonalds; established in 1945 as a hamburger stand today listed on NASDAQ as MCD, and Starbucks; founded in 1971 as a coffee merchandise listed on NASDAQ as SBUX (NASDAQ, n.d.). These two are the main rivals in the fast food industry.
Strategic Identification
McDonald is a multi-business company, having poached the coffee industry recently, to compete with the coffee industry giant Starbucks. The two companies have varied strategies in their markets. McDonalds hard work has earned it its repute in the global fast food at the top position. It is currently stable, owing to a new strategy that its new CEO who was elected in 2002 to salvage the falling company, introduced; coined “plan to win.” This stratagem has not only boosted satisfaction among customers and enhanced their current franchise but also helped standardize their future franchise (Tracy, 2012). With the use of “plan to win” they have been able to diversify to new products as McCafe beverage lines which is in the coffee and tea markets, resulting in stability both in market and stocks.
The “plan to win” stratagem encompasses 5 major elements of business; People, Place, Price, product, and promotion. It aims at promoting new and existing products by use of print and digital media and advertisements in general. The products covered here include the new McCafe products, McDonald’s food studios, rice burgers, fruits, and walnut salads. It entails a global campaign dubbed “I’m loving it” and has helped to broaden selections, gaining high standards for products and gained supplier superiority practices (Tracy, 2012). The pricing achieves favorable prices for high-quality foods while people and place considerations have technologized their services and places of work, and made efficient the employees to customer satisfaction.
McDonalds focuses on maintenance of their outstanding power and creating value addition cost by experience as well as developing shares in the American market. They have established a worldwide network of suppliers and made itself a powerful brand globally. To fully understand this achievement in terms of performance, it is prudent to study their financial statements; liquidity, asset and its utilization, profit analysis and Market value ratio. McDonald experienced a 0.44 rate increase in liquidity ratio between 2016-17 equaling 31.42% increase totally which essentially means it is able to convert its assets without necessarily trading their inventory. Profitability entails the ability to manage assets, liabilities, and equity. McDonald experienced $ -2.204 billion valued equity in 2016 and $ -3.268 billion valued equity in 2017, a translation of -47.02%. The subsequent net income between 2016 and 2017 was $ 4.687 billion and $ 5.192 billion, translation of -62.9% negativity in the ratios shows mismanagement tendency is high. It experienced an asset turnover ratio of $ 22.82 billion and $24.622 billion between 2017 and 2016, a performance ratio of 0.12 drop (Tracy, 2012). This apparently portends a stagnation in growth.
Starbucks has employed the corporate level strategy since its inception of product differentiation as quality product blend, locations, repute of coffee products, and a superior service to customers which has made it an impeccable and inimitable brand respected for its quality value. Starbucks employed a shrewd stratagem of alliances and mergers and acquisitions. It operates a company focused on stores and made joint ventures in the global market. Key acquisitions by Starbucks include Teavana Products, Bay bread, Juice ventures of evolution fresh, to mention but a few in the diversification strategy (Greereddy, 2013). They have employed a horizontal service and product versus market acquisitions. Starbucks has also incorporated another key strategy for growth; global stratagem of expansion into developed and new markets to over 60 nations. All these have leveraged advantage for it.
The financial performance for Starbuck in terms of liquidity, assets, profit analysis and market value ratios is growing. Increased liquidity difference of 0.20 between 2016-17 which is a 19.05% in the current ratio. It had a net income of $2.818 billion and $2.885 billion in 2016 and 2017 respectively, total equities between being $5.475 billion and $5.891 billion for 2017 and 2016 respectively. Therefore, the return on equity was 52.7% and 47.8% for 2017 and 2016 respectively, a representation of exquisite management of assets (Tracy, 2012). Starbucks has been constant in profit per share while McDonald has not. The projection is that McDonalds would not make a profit in 2018, while Starbucks is growing steadily. The table 1 (in the Appendix) represents projected earnings-per-share between 2016 -2015, along with the past earnings-per-share dating to 2010 for McDonald and Starbucks.
McDonalds in its quest to be an international brand faces many challenges from management since different countries have different cultures and norms and preferences. There could be the financial implication if countries they venture into are politically unstable. Due to mismanagement, the probable investors would be scared off. Others include acceptance in the market, a high cost of duplication, employee turnover and health concerns. Starbucks, on the other hand, faces challenges associated with diversifying including improper partnerships, incompetent partners, and untrustworthy partners. Starbucks faces saturated markets, insufficient suppliers to global markets and packaging concerns to health.
The remedies for McDonalds’ strategy includes employee motivation, a partnership with health professionals to mitigate health concerns associated with products, study their markets globally before venturing, and checking on the cost of production in new markets. On the other hand, Starbucks should venture into new markets, partner with other brands for easy supplies, and look for major partners in the packaging industry to avert health concerns associated with their box packages.