McDonalds Analysis, Case Study Example

Problem Definition

Beef hamburgers are among the very basic McDonalds’s products. However, recent concerns of the mad cow disease have significantly reduced the consumption of beef in the regions, which are especially important for the company: United State and European Union. Beef consumption in the United States has dropped 30 percent due to fears of Mad Cow Disease. European market has also confronted difficulties: some households stopped purchasing beef at all, and others reduced the share of beef in their consumer basket dramatically.

The situation has got worse in 2000 and the following years, as direct connection between mad cow disease in cattle and Creutzfeldt-Jacob disease among humans has been detected. It was proven that mad cow disease may lead to CJD through eating beef. It has never been a secret that McDonalds primarily used British beef in all of its restaurants in UK and a number of the restaurants throughout Europe. Moreover, the problem was easier to overcome in 1996, as only England faced problems with contaminated beef. In 2000 and 2001 a number of European countries faced similar problems, including Italy and France – also significant beef producers. As a result, McDonalds experienced decrease in sale in both the United State and Europe, faced reduce in profits by around 10% and was forced to publish rather negative annual results.

Organizational Objectives

Determine a course of action to counter the bad press originating from mad cow disease in Europe. Develop an anti – crisis program that will stabilize the situation and return the sales to previous level. A course of actions is also required to minimize all the aspects of the negative influence of the crisis at the global beef market.

Data Analysis

The cause – and affect connections are rather obvious in this case. The symptoms of the problem are obvious: a decline in sales and consequently a decline in profits. A true problem is certainly influenced by the external factors, which the company can not overwhelm and therefore is forced to deal with. The epidemic of mad cow disease first in Britain and then throughout Europe has received massive press coverage and attracted great attention in the society. Further scientific studies established direct connection between the consumption of the contaminated beef and human sickness.

In order to try to solve the problem the stakeholders have to be determined. In this case they can be split up into several groups:

1. Consumers – prefer not to purchase McDonalds products that include beef and generally restrain from visiting the restaurants, being afraid to get sick
2. Suppliers – find it hard to deliver the necessary amount of beef, as it take time to check the  health of the great number of animals; moreover, the bacteria is not destroyed by the heat treatment or any other widely used way of controlling the meat quality.
3. Shareholders of the company – experiences losses, as the profits of the enterprise decline, as well as the shares’ price and return per share.

Ideally, the strategy that will be used is supposed to benefit all of the stakeholders. Consumers have to start feeling secure and confident that the products sold by McDonalds do not bear any danger for their health. Shareholders should receive the returns on investment that they expect and would prefer to be confident of the financial stability and health of the company. The situation with the suppliers is perhaps the most complicated one: the company may not risk and purchase beef, the quality of which is not 100% certified. At the same time, even if the European supplier manages to comply with all the requirements from the state and the company, the fact that McDonalds still buys beef from English farmers will surely negatively influence the company’s image.

Alternative Strategies

In fact, series of actions are to be made in order to make sure the company handles the crisis well. There are three basic strategies that can be used in the situation described. All of them certainly have benefits and flaws, and in order to decide which one is more appropriate, they have to be discussed.

• Strategy # 1

Is aimed to increase the public awareness of the problem and position the company properly, so that minimal damage to the company’s prestige is done. It could include a massive campaign, claiming that McDonalds has switched suppliers and no longer uses European beef for its hamburgers. Series of commercials may be run to demonstrate that only healthy cows from the safe farms outside Britain are used.

• Strategy #2

Is opposite to the first strategy, but is based on the idea that extra attention only worsens the situation. If the company simply ignores the problem and prefers to keep it quit, it may hope that the public will soon forget the entire matter and return to their regular buying habits. If the company draws to much attention towards the beef problem, the consumers will just be sure that the problem is really serious and will still restrain from buying hamburger “just in case”

• Strategy #3

Is actually a combination of the first two ones and is aimed to retrieve the positive affects of each. Extensive press coverage may really aggravate the problem. At the same time, lack of attention may show that the company does not care much about its clients. In order to avoid that, a “golden middle” should be found. McDonalds should demonstrate that only the healthiest products are used, but not stress the mad cow disease issue. It also may be slightly mentioned that McDonald’s prefers to buy beef from Latin America, where the mad cow disease has never been present. Other parts of the strategy could include diversifying the product line, including snacks without any beef.

The third strategy seems to be the most appropriate one, as it successfully combines the positive sides of the first two ones. Following this strategy, McDonalds will improve the public image without attracting too much negative attention. In fact, the company actually followed this pattern, which turned out to be rather effective.

Recommendation

Immediate

• Design a comprehensive communication plan
• Change the European suppliers that have incidents with the mad cow disease
• Use stricter quality standards for beef, which will ensure no contaminated meat is used to prepare hamburgers

Short-term (3-5 years)

• Ensure consumer confidence is once again high.
• Diversify the product range; add more vegetarian dishes, desserts. Meals with fish or chicken
• Diversify the supplier base, make sure that all beef does not come form the same source

Long-term (5-10 years)

• Ensure profitability and market share are consistently higher than competitors
• Maintain top brand recognition
• Broaden the restaurant chains in the perspective areas

Communication

The company has to be very cautious with advertising campaigns, as extra problem coverage may actually worsen the situation. The main task is to make sure the name McDonalds is not mentioned in the same sentence with mad cow disease or CJD.  The public should be aware that McDonalds uses the best meat, but the issue of meat contamination in Europe has to be avoided. A carefully balanced presentation is supposed to maintain the high brand image of the company.

Ramifications

Short-term positive

• McDonalds was one of the first companies to pull beef from the stores.
• The company managed to avoid connection between its products and mad cow disease

Short-term negative

• Beef is the most significant part of the McDonalds franchise.
• New suppliers outside Europe are not so easy to find and the delivery will certainly cost more

Long-term positive

• Product range has become broader, vegetarian dishes have been developed

 Long-term negative

• It will take time for the industry to recover
• Profile business is hurt

Phased Plan

Immediate

• Construct communication plan.
• Implement the supplier changes

Short range (3 – 5 years)

• Diversify the product range, step away from the perception that McDonalds is the company based on beef products

Long range

• Try to predict crises like that and have back up plans, like alternative menus and suppliers

Conclusion

Overall, McDonalds has handled the problem exceptionally well, especially in 1996. The reaction was prompt and adequate, the public image of the company did not suffer and the losses have been minimized. In fact, the beef consumption reduced by around 30% in Europe and US, while company lost only about 10% of the profit. The decline in the market was inevitable, but a thoroughly chosen strategy allowed the company to overwhelm the crisis very fast.