Nottingham University Business School

MBA Programme

Business Economics (N14M79)

The Perspective View of PESTEL Analysis for McDonald’s

Chummar Pudussery (011869)

Copy 2
Word Count: 2126
TABLE OF CONTENT
EXECUTIVE SUMMARY .........………………………………………………………3
1.0 INTRODUCTION
1.1 The History of McDonalds ………………………...…………….……4
1.2 Industry Overview ………………………………………………….....4
1.3 The challenges…………………………………………………...….…5-6

2.0 PESTEL Analysis
2.1 Political ………………………………………………....………...…. 7
2.2 Economical ……………………………………………………….…...7
2.3 Social………………………………………………………….....…….8
2.4 Technological……………………………………………….……..…..8
2.5 Environmental……………………………………………..…….….…9
2.6 Law………………………………………………………..…….…..…9

3.0 Recommendations………………………………………………….…….…..10-11

4.0 Conclusion ……………………………………………………………...……12
5.0 Bibliography ……………………………………………………………..…..13-14

Executive Summary
McDonald’s considered one of the pioneers in the fast food industry, is clearly got many aspects to discuss about which is related to functioning of their business. In this study, PESTEL Analysis was conducted to understand various factors surrounding the environment. The factors are namely Political, Economic, Social, Technology, Environmental and Law. This paper is organized as follows: In the first section, will give an introduction to the History of McDonald’s, Industry Overview and The challenges faced by the industry. In the second section, PESTEL Analysis is used to study some of the various factors that have been happening around McDonald’s. Here we get to see factors faced by the organization on a global basis to have a better insight, and to an extent see how the factors involved with one country may differ with those in other countries. Finally, we see the recommendation that is found based on the analysis and the conclusion gathered. The objective of this paper is to have a detailed study of the various factors affecting McDonald’s, and in what ways the organization can improve to increase their performance with the various environmental factors.

1.0 Introduction
1.1 The History of McDonalds
McDonald’s first opened in 1940 at San Bernardino, California. It started off as a drive-in restaurant with a wide range of menu and car hop service. Raymond Kroc, learnt that McDonald’s was intending on going for franchising all over the country. In 1955, Kroc opened his first McDonald’s outlet at Des Plaines, Illinois and McDonald’s Corporation was then created. Later in 1961, for $2.7 million, Raymond Croc bought the concept of McDonald’s from the McDonald’s brothers. McDonald’s is functioning in more than 34000 locations around the world, serving around 69 million customers daily in 119 every day (McDonald’s, 2012).
1.2 Industry Overview
The fast food restaurants sector is just one of the many components of the wide food services list. The total estimated revenue from this sector is about $1.86 trillion (US dollars) during the year 2012. Around $706.7 billion is the estimated revenue in 2012. This contributes to around 38% of the food service sub-sector of the world. The revenue from the industry is expected to increase at an estimate of 3.2% in 2012.
On a global level, the fast food industry plunged down because the global recession arose and unemployment rate hit high in the United States and many other countries. To maintain the market position and to keep up the image, some of the fast food operators put up promotional activities to interest the customers and also shut down some of the underperforming stores (Smith, 2012). Figure 1: Market Share in the Fast Food Restaurants Industry
Source: IBISWORLD, 2012
1.3 The challenges
One of the problems that the fast food industry is facing is the criticism about the product, for being high in fat content, increase in body mass index (BMI) and putting on weight. A number of books and documentaries have increased awareness among the public about the harmful consequences on one’s health. The various articles make the health conscious consumers sceptical towards fast food and look for other means to meet their likes.
The rise in commodity prices has considerably affected the fast food industry. The cost of food and beverage inputs comes up to approximately 33% of costs and higher cost of other raw materials has drastically reduced the profit margin. But due to strong competition from other players in the market, trying to put a price increase is not possible either. Instead, many of the fast food franchises promoted meals at a very affordable price, affecting their margin making greatly.

Figure 2: Food Price Commodity Index
Source: WealthyDaily.com, 2012

2.0 PESTEL ANALYSIS
2.1 Political
It represents the way and the extent to which a government influences the economy and a certain business. Political factors are represented by specific areas, such as labour law, tax policy, tariffs, trade restrictions and even environmental law.

The operations of McDonald’s are seen to have been affected by various policies implemented by the government on the fast food industry. A McDonald’s franchise in Asia was forced to shut down by the local government when it was found that the outlet had sold an item past its expiry date (Bloomberg, 2012).
McDonald’s along with a few other fast food organizations have taken part in helping to develop and define food health policies in the UK. The step was taken as an initiative by the government to resolve the issues related to obesity and couch potato epidemics (Stevenson, 2012).
2.2 Economical
It refer to areas unique to economy and directly influenced by economy or comprised by economy, areas such as inflation rate, interest rate, economic growth or exchange rates.

The rise in price of commodity has reportedly hit the profit margin of the company. To tackle this problem, McDonald’s raised the prices to make up for the fall in the earnings for almost all the items produced by the company. As seen here, the rising concern of increasing price rise is seen to eventually reflect on the costs that the customers incur for purchasing (Rappeport, 2011).

2.3 Social
This factor mainly refers to demographic factors, which comprise factors like population growth rate, cultural aspects, age distribution and health consciousness.

Meals served like that at McDonald’s is said to have some substances, which when above the ground level proves to be hazardous to one’s health. Some of these substances are sugar, fat, sodium and calories. Various studies have shown that these substances increases the chances of heart disease, stroke, and diabetes related chronic diseases which lead to premature death.
McDonald’s is looking into adding healthier options for its menu to tackle the problem of rising concerns about obesity. It is also coming up with employment opportunities to hire about 50000 employees with an additional investment of $518m in the US (Adams, 2011).
McDonald’s is involved in different community projects related to education, health care, medical research, and rehabilitation facilities. These involvements help the organization to develop their representation to a stage more than fun & entertainment to societal responsibility (McDonald’s, 2012).

2.4 Technological
It refers to automation, incentives, the rate of technological change and R&D activity.
McDonald’s has shown a revolutionary approach through technology for the drive-through service at the McDonald’s outlets. In this system, when a customer arrives at the order board, the conversation of the customer is routed to a call centre elsewhere. The order taken from the customer is taken down by the employee and routed back to the same respective McDonald outlet, which brings together the requested items.
In Philippines, the Help Desk Service Got their IT related assistances outsourced to Fujitsu Philippines. By doing so, it helped solve problems being faced with multiple outlets and solve the issues and concerns in real-time. This helped improve McDonald’s customer service as the time taken for rectifying the issues was reduced remarkably and efficiently (Fujitsu, 2012).
2.5 Environmental
It refers to all the factors directly related, influenced or determined by the surrounding environment.
Unfavourable demonstrations were seen against setting up of McDonald’s at a few locations in India.The reason being religious and dietary sensitiveness, especially with concerns over slaughtering of millions of cows for most of the items delivered. McDonald’s eventually agreed on opening vegetarian outlets complying with the concern of the major inhabitants of these locations (Nelson, 2012).
2.6 Law
It refers to all the laws directly connected to a business/company and its area of activity, including consumer law, antitrust law, discrimination law and health and safety law.
A new law was passed in the US which was targeted at providing insurance coverage to 32 million uninsured people in the country by the year 2019. McDonald’s put forward a request to the federal regulators of the health-care department to put aside parts of the new law, that was introduced, which may or else raise concerns for the company to search for an different insurance plan (Stanford & Armstrong, 2010).

3.0 Recommendations
Being a food supply chain, it is clearly seen that the organization is required to look into each and every factors with due diligence. The external factors and changes are to be especially dealt with readily as it is always prone to changes. It thus requires constant monitoring and efficient actions to be taken in response to the respective situation.
Often because of the improper operation standards of processing and related factors, many franchises are often seen to have been brought to the attention of the government. As a result various means of compensation are asked to be given up to the victim of these improper operations. And sometimes, the franchise is even shut down. But here, the problem does not stop there. As the news about these problems spreads through to the general public, it affects the reputation of the organization to a great extent. To eradicate the chances of such incidents, the processing and operations of the franchises are to be monitored on a regular basis without fail, as investing more into it would be much more helpful as compared to compensating the consumers and the organization suffering a negative image.
McDonald’s presence in various government related programs, help create an image of its active link with the political system. This link helps the organization to maintain a positive relationship with the government. By co-operating and complying with the various resources and information the organization has, that can prove helpful to the government in implementing various programs beneficial to the society; a cordial political relationship may prove constructive in various forthcoming economic activities mutually beneficial to the society and to the organization.
Change in economic factors like rise in price of raw components hits the profit margin of the organization in a big scale. The fact being components being brought in from outside sources or suppliers, the organization is liable to pay up to the demand of the sellers with no other alternate solution. If the organization is able to put up investment in rearing some of these crucial components, by forecasting the chances of deficit, it can become self-sufficient and minimize dip in profit margin to a great extent.
The growing concerns of unhealthy components and the results of chronic diseases among the chain consumers have evidently raised alarm among a major portion of the general customer base. The organization can invest more into the Research & Development to come up with products which when processed, creates not just neutral benefits but even more importantly positive outcome from the consumption of these products by the consumers. This change can help recreate the image, win the confidence of the general consumers and strengthen the sales eventually leading to better profit margin.
McDonald’s is seen to have created a fun and socially helpful image by setting up various programs to help the society in a number of ways. The target segment benefited from these services is parents and children who can eventually be helpful in providing testimonials favouring the organization. Even more innovative and helpful activities can help create an even stronger and meaningful image.
The technological advancements of McDonald’s have proven helpful to a very great extent. It has helped increase efficiency and on time delivery to the customers. But technology and IT being a very vast field, improvements in this aspect are ever growing. Constant monitoring of the operations and understanding if any further improvements are required can help bring in the necessary technological upgrade and help even better in performing towards the goals of the organization.
When choosing a location for opening an outlet, various environmental factors are to be analysed and studied. For various unforeseen reasons, the local inhabitants might approve various items being provided, thus giving chances for unfavourable business environment and troubled continuity.
In different countries, various kinds of law constraints are to be faced in various circumstances. This being an inevitable factor, due correspondence with the respective authorities is necessary to understand even better the needs and also let the authorities let know our concerns, and also how the organization can contribute towards the society in a beneficial manner.

4.0 Conclusion
With the help of PESTEL analysis, we are able to look into some of the macro-environmental factors surrounding the organization in various parts of the world. Taking these factors into consideration it helps in doing a better market research and the various other details the organization has to consider for the prospective changes and development. As the business of McDonald’s is seen to be based on the need of a favourable response from the families and children, maintaining the respective correct image is seen to be a major necessity. For how complex it can be to come up to the expectation of the target customer base, the organization has to work continuously in all aspects to meet up their needs. Competition is seen to be ever growing is this sector, which makes the need for innovativeness and research & development equally important. The social aspect is seen to require a lot of focus. In the fast growing numbers of franchises being opened all around the world, various factors are to be looked into and studied before actually executing the plans, as any vital information being omitted might prove disastrous to the image and business of the organization as a whole.
To conclude, the points and factors noted down in the analysis can prove helpful in rectifying some of the mistakes that the organization came across and also improving the chances for prospective business development. Demographic study and analysis play an important role in studying these factors and learn to cater better, and even make the necessary changes to the prevailing system if necessary. At present McDonald’s is considered a market leader. But to sustain this position, organization needs to strive continuously to cope up with these changing surrounding factors and keep up the lead against the competitors.

5.0 Bibliography
McDonald’s, 2010-2012 McDonald’s History, Available from: http://www.aboutmcdonalds.com/mcd/our_company/mcdonalds_history_timeline.html
:[Accessed 16th November, 2012]
Gavin Smith, June 03, 2012 Global Fast Food Restaurants Industry Market Research Report Now Available from IBISWorld, Available from: http://www.prweb.com/releases/2012/6/prweb9568740.htm :[Accessed 16th November, 2012]
Matt Sena, [n.d.] Fast Food Industry Analysis 2012 – Cost & Trends, Available from: http://www.franchisehelp.com/industry-reports/fast-food-industry-report:[Accessed 18th November, 2012]
Yidi Zhao, April 09, 2012 Beijing Tightens Food Safety Control With Life Ban in New Rules, Available from: http://www.businessweek.com/news/2012-04-09/beijing-tightens-food-safety-control-with-life-ban-in-new-rules:[Accessed 21th November, 2012]
Heidi Stevenson, 15 November, 2010 It's Official: McDonald's Is Helping Define UK's Health Policy, Available from: http://www.gaia-health.com/articles301/000328-mcdonalds-helping-define-uk-health-policy.shtml:[Accessed 24th November, 2012]
Alan Rappeport, April 21, 2011 McDonald’s warns on commodity inflation, Available from: http://www.ft.com/cms/s/abae4938-6c17-11e0-b36e-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fabae4938-6c17-11e0-b36e-00144feab49a.html&_i_referer=#axzz2Co7fMk1I:[Accessed 25th November, 2012]
Susan Adams, 04 June, 2011 Behind McDonald's 50,000-Worker Hiring Spree, Available from: http://www.forbes.com/sites/susanadams/2011/04/06/behind-mcdonalds-50000-worker-hiring-spree/:[Accessed 28th November, 2012]
McDonald’s, 2010-2012, Making a difference one family at a time, Available from:http://www.mcdonalds.com/us/en/our_story/our_communities/rmhc.html:[Accessed 30th November, 2012]
Fujitsu, 2001-2012, McDonald's Philippines improves customer service via technology, Available from: http://www.fujitsu.com/ph/casestudies/mcdonalds.html:[Accessed 2nd December 2012]
Dean Nelson, 04 September 2012, McDonald's facing Hindu protests over restaurants near holy sites, Available from: http://www.telegraph.co.uk/news/worldnews/asia/india/9520451/McDonalds-facing-Hindu-protests-over-restaurants-near-holy-sites.html:[Accessed 3rd December, 2012]
Duane Stanford and Drew Armstrong, 30 September, 2010, McDonald's Seeks Waiver Over New Health-Care Law, Official SayS, Available from: http://www.bloomberg.com/news/2010-09-30/mcdonald-s-seeks-health-care-waiver-may-seek-alternative-plan-for-workers.html:[Accessed 5th December, 2012]
Mickey,A. 2012. Economic Forecast:5 Charts Reveal the REAL State of the U.S. Economy. Angel Publishing LLC. [Online]. Available from: http:// http://www.wealthdaily.com/articles/2012-economic-forecast-a-surprising-and-profitable-trend-emerges/3347 2012 Economic Forecast:[Accessed 5th December, 2012]