1.0 Executive Summary
The report is to review on how the largest global foodservice retailer, McDonald’s grew in Malaysia within the past 30 years. Since the year 1980, McDonald’s USA (United State of America) has given the licensing to the Malaysia organisation. The franchising business started from Klang Valley and had expanded to the whole of Malaysia.
Using the SWOT analysis, Michael Porter’s Value Chain and the PEST analysis, this report examine the reasons why McDonald’s appears to be losing market share in Malaysia. Besides discussing the expansion of McDonald’s franchise in Malaysia, the report also highlight the relationship between McDonald’s and the local community and also how it benefits the local people who are behind expanding the business.
2.0 Organization Overview
2.1 The Backgrounds of McDonald’s
McDonald’s had started by the name of Mc Bar-B-Que restaurant by two brothers, Dick and Mac McDonald in 1940. Mac Bar-B-Que had the drive-in concept, which features a large menu and car hop service. In 1948, the restaurant had shut down for three months to do a modification and subsequently, reopened in December with a new concept as a self-service drive-in restaurant. The new concept that McDonalds had applied was to guarantee that fresh food will be served in 60 seconds. Thus, this marks the beginning point of defined McDonald’s as fast food restaurant in the future. The menu has been reduced to nine items as the hamburger is the core product.
The success of the new business had attracted a multimixer salesman, Ray Kroc to visit the restaurant in 1954. At that time, it was a perfect opportunity for McDonald’s because the brothers were looking for a nationwide franchising agent. Ray Kroc had learned the tricks of the trade and operations from Dick and Mac McDonald. Hence, this had led to the opening of the first Mc Donald’s restaurant by Ray Kroc in Des Plaines, Illinois on 15 April 1955. The distinctive feature of the restaurant was the red and white tiled building with gold arches. Ray Kroc began the McDonald’s global empire by expanding the restaurant to 100 branches within 4 years and had the number reached 500 restaurants in 1963. Besides that, McDonald’s had captured the market in different ways. This include, by featuring the indoor seating in restaurants and also by including its own mascot, Ronald McDonald on television commercials and developing new products from time to time.
2.2 The McDonald’s in Malaysia
The McDonald’s had decided to expand its business outside the USA in 1967, by opening the first international restaurant in Canada and Puerto Rico. The franchising business of McDonald’s grew very fast globally and McDonald’s had become the largest restaurant organisation in the world. When McDonald’s was first introduced to Malaysia in 1980, McDonald’s Corporation, and USA had granted the license to a local organisation, Golden Arches Restaurant Sdn Bhd to operate the McDonald’s restaurant in Malaysia. Malaysians had gotten the first taste of McDonald’s when McDonald’s Malaysia opened its first restaurant in Bukit Bintang, Kuala Lumpur on 29 April 1982.
McDonald’s Malaysia is expanding the business equally and currently, there are 185 McDonald’s chains located nationwide. McDonald’s Malaysia continues the expansion of the chain by about ten to fifteen restaurants yearly. Therefore, McDonald’s Malaysia has created many job opportunities for the local people. There are over 7000 staffs in McDonald’s and 120 support staff at the headquarters managing the day-to-day operations of McDonald’s business.
3.0 SWOT Analysis
SWOT is an acronym for the internal Strength and Weakness of a firm and the environmental Opportunities and Threats facing that firm. SWOT analysis is a widely used technique through which managers create a quick overview of a company’s strategic situation. It is based on the assumption that an effective strategy derives from a sound “fit” between a firm’s internal sources (strengths and weakness) and its external situation (opportunities and threats). A good fit maximizes a firm’s strengths and opportunities but minimizes its weakness and threats. This simple assumption has powerful implications for the design of a successful strategy with accurately applied.
3.1 Impact of Internal Influences
Strength is a resource advantage relative to competitors and the needs of the marketers a firm serves or expects to serve. It is a distinctive competence when it gives the firm a comparative advantage in the market place. Strength arises from the resources and competencies available to firm.
McDonald’s is regarded as a convenience food because of the fast speed of serving food. With today’s hectic lifestyle, it is the perfect food for anybody who’s on the go, be it office workers or students. As it takes less than 5 minutes to get served, McDonald’s is the preferred food for everybody.
In addition, if the consumer does not want to drop by to the restaurant, McDonald’s has its own delivery service, which is known as the McDelivery. Just a quick telephone call and the nearest McDonald’s restaurant will deliver the food with a charge of RM (Ringgit Malaysia) 3. This saves the customer’s time and also the hassle of traffic jams. It also benefits working parents, as they do not worry about the hassle of preparing food for their children.
220.127.116.11 Quality Services
The McDonald’s in Malaysia provide the drive-thru service to ease the customer’s convenience as the location of McDonald’s restaurant is busy and the parking lots are very limited. One of the reason people come for the fast food is because of speed. Thus, the drive-thru service is very popular, as they do not need to queue up for service.
In addition, it is a norm for Malaysians to have supper at night. Before McDonald had introduced the twenty four hours operating restaurant, the only restaurant that operates a 24-hour service is the mamak stall (Indian-Muslim operating hawker stall which opens for twenty four hours). Hence, McDonalds had provide the twenty four hours service restaurant in order to satisfy Malaysian’ demand for supper. This is a value service that McDonald’s had provide to provide to complement the Malaysians’ lifestyle.
A weakness is a limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm’s effective performance.
18.104.22.168 Quality of Product
McDonald’s had implemented a standard guideline of requirement for franchises in other parts of the world to follow, and McDonald’s Malaysia is not excluded. McDonald’s has strict rules, including how franchisee should operate a restaurant from controlling over the menu, cooking methods, staffing policies, design and location of the restaurant. This is one of the weaknesses of McDonald’s since not every restaurant will provide the same quality of product. There are some feedbacks from consumers in the inconsistency of the taste of the food, such as the fries in certain McDonald’s restaurants are too salty or tasteless. The most significant is the different taste of beef burgers served in the East and West Malaysia. This is due to the beef used in the burgers sold in sell at west Malaysian were imported. Furthermore, the East Malaysia government had discouraged the use of imported beef in restaurants. The texture between the local and imported beef is different as the imported beef is chewier than the local beef.
22.214.171.124 Lack of Initiative on Product Development
The menu in McDonald’s Malaysia had remained the same in all these years. The development of product is poor and the new products were not introduced to the menu. Consumers have limited choices because there are only twelve types of main food in the menu. Eventually, customers would feel bored of the McDonald’s menu. The McDonald’s Malaysia used to have the Prosperity burger, but it only sold for a limited time, which is during the month of Chinese New Year. In addition, this is the only product that is promoted every year.
3.2 Michael Porter’s Value Chain
Porter defines ‘value’ as “the amount buyers are willing to pay for what a firm provides”. The value chain was therefore designed to display total value and consisted of the firm’s Value activities (defined below) and it margins. Therefore, the generic value chain for a single firm comprises three main elements which are primary activities, support activities and the margin. Primary activities are those involved in the creation of the product, its sale and transfer to the buyer as well as after-sales service. Support activities are those which support primary activities and each other. Three of these – procurement, technology development and human resource management – can be associated with specific primary activities while the fourth, firm infrastructure, supports the entire chain.
3.2.1 Primary Activities of value chain
The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin. This is the description of the activities that involve in primary value chain.
- Inbound Logistics includes warehousing, materials handling, inventory control, etc.
- Operations are the activities that transform inputs into finished products (eg machining, testing, packaging, equipment maintenance, etc).
- Outbound Logistics includes the activities that store and distribute products to buyers (eg warehousing, delivery vehicle operations, order processing, etc).
- Marketing and Sales are the activities that provide the means for the buyer to purchase (eg advertising, sales force operations, selection and management of distribution channels, etc).
- Service includes activities which enhance or maintain the value such as installation, repair, parts supply, etc).
126.96.36.199 Inbound Logistics
As it is a fast food restaurant, McDonald’s Malaysia tries to eliminate its cost of raw materials, namely meat, vegetables, raw foods and oil. As McDonald’s Malaysia widely known, they will only choose the reputable supplier to provide raw foods to them. As McDonald’s Malaysia is a huge conglomerate in Malaysia, it has no problem in attaining the raw materials as suppliers would be willingly to supply the materials to them. Compared to other restaurant operators, they are able to obtain a discount as their orders come in bulk. Furthermore, once they have acquired the raw materials, they will store the end products (meat, french fries) in the cold storage rooms at their respective warehouses in Malaysia.
McDonald’s Malaysia would have to convert the raw materials into end products, such as burgers and fries. As they are an internationally recognized company, McDonald’s can afford to hire production and factory workers at a lower wage as the supply of factory workers are abundant. Quality control is also ensured as their machinery is checked to see whether there are any defects. Furthermore, the hygiene of factory workers are also strictly controlled as McDonald’s cannot afford to allow any food poisoning or toxicity in their products. If there is any foreign element in the food products, this would cause customers to be ill and thereafter, affect the image of McDonald’s Malaysia as a fast food restaurant.
188.8.131.52 Outbound logistics
As it supplies their end product to the nationwide restaurants, McDonald’s Malaysia would have to incur costs in transportation, namely the Lorries. The vehicles would be bought in at a discounted price, as McDonald’s would need more vehicles to transport their end products to the whole of Malaysia. Gas and also servicing of the vehicles would also incur additional costs to McDonald’s Malaysia. McDonalds Malaysia would find reputable car workshops to service their vehicles to ensure that they are of working condition. It is detrimental to the company if their vehicles are not in good condition as they need to deliver the end products (burgers) to the respective chain of restaurants.
184.108.40.206 Marketing and Sales
McDonald’s Malaysia would need to incur costs for their marketing and sales. Promotion would come in the form of leaflets that are inserted in newspaper as well as door to door. McDonald’s would liaise with respective newspaper agent to promote their products. As newspaper is a wide form of media, the promotion would work as it will attract the attention of consumers. During the economic meltdown, consumers were very frugal.Realizing this, McDonald’s Malaysia had publicized their Value Meal through newspaper advertisements and television commercials. It proved to be a huge success as customers’ had realized that it would not cost much to buy a meal in McDonald’s Malaysia. Promotion in the forms of coupons are given out online and also in the forms ofleaflets. In order to increase revenue, McDonald’s Malaysia had encouraged consumers to buy more by giving out discount coupons. As a result McDonald’s would also have to budget for their promotional efforts for the local media sources.
As McDonald’s strive to serve customers’ better, they provide value added service in the form of McDelivery. Customer service and deliver staff also play an important role in this value added service. Customer service representatives handle the customers’ orders, enquiries and also promote the products in McDonalds Malaysia. The delivery person has a role in delivering the food to customers and ensuring that they arrive on time. McDonald’s Malaysia must also take into account the cost of the motorcycles, used by the delivery person. Regular servicing of motorcycles is needed to ensure that the vehicle is in working condition.
3.3 Impact of External Influences
An opportunity is a major favourable situation in a firm’s environment. Key trends are one source of opportunities. Identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm.
220.127.116.11 Value Meal
The economy crisis had impacted the purchasing power of consumers in Malaysia. However, McDonald’s Malaysia had overcome this problem by reducing the price of the product. McDonald’s Malaysia had introduced a special promotion, which is the Mc Value set. For RM (ringgit Malaysia) 5.95, the set consisted of a burger, medium sized of fries and soft drink. This had attracted a lot of customers as the price of RM5.95 is nearly equal to the price of a bowl of noodle and a beverage in most hawker stalls. Hence, many people would prefer to dine at McDonald’s restaurants because of the good dining environment. During the launch of the promotion, there is only one choice in the menu on weekdays, from twelve to three o’clock in the afternoon. When the response for the promotion is overwhelming, McDonald’s had expanded their promotional items. Instead of one choice, the menu consisted of five choices, and the promotion is not only entitled on weekday but is available every day. This strategy was used by McDonald’s to maintain its sales during recession.
18.104.22.168 Growth and Expanding
The McDonald’s Malaysia chains were located mostly in the major cities. There are 185 restaurants around Malaysia and most of the restaurants are located in shopping malls and in the Klang Valley because the purchasing power in the city is regarded to be better. However, as the purchasing power in town had increased, more organisations would like to build more factories out of the city since the modal is much cheaper if compared to the city. Thus, the purchasing power will increase from time to time.
A threat is a major unfavourable situation in a firm’s environment. Threats are key impediments to the firm’s current or desired position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm’s success.
The major competitors for McDonald’s Malaysia is KFC Malaysia (Kentucky Fried Chicken) and Burger King. Both of the brands have increased in terms of volume of the restaurant in Malaysia. Moreover, KFC have a good market share in Malaysia. Even though KFC is famous with the fried chicken, but they have different strategies in developing their product, such as developing different types of flavour of fried chicken. KFC Malaysia had localised their product to suit local taste buds, by introducing the chicken rice. This had gotten a good response as not many people had favoured fried chicken. They can either go for other KFC products such as grilled chicken, snack wrap, burger or salad. However, the slogan of KFC Malaysia, “good things for all with KFC”, as they are targeting different market segments, as compared to McDonald’s Malaysia who only focuses on the youth market.
Furthermore, Malaysia is famous with its home brand burger, which is the RAMLI burger (the burger hawker stall which is operated by Malays individually). This posed as a threat for McDonald’s because RAMLI is cheaper and famous from those days before McDonald’s had entered into Malaysia.
22.214.171.124 Customer Perception
Nowadays, people are concerned of their health and wish to maintain a healthy life. However, McDonald’s Malaysia is not alert on the above matters and still maintains the same menu without bothering about the health conscious consumers. On the other hand, Pizza Hutz and KFC are getting popular in Malaysia because Pizza Hutz had developed a new flavour, vegetable pizza while KFC have added the garden salads to the menu. Unlike McDonald’s Malaysia, McDonald’s USA does care about the customer needs. Salads and yoghurt have been added to the main menu. This showed that the McDonald’s USA does care about the customer needs. It is dangerous for a company when it does not meet the expectations. Therefore, Mc Donald’s Malaysia has to be aware about this matter or risk losing their market share.
3.4 PEST Analaysis
PEST is an acronym for Political, Economic, Social, and Technological, which are used to assess the market for a business or organizational unit. The PEST analysis headings are a framework for reviewing a situation and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea. By understanding the environment in which the companies operate (external to the company and department), the advantage of opportunities can be taken and the threats can be minimized.
- Political – The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses.
- Economy – Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing.
- Socio-Cultural – The social and cultural influences on business vary from country to country. It is very important that such factors are considered.
- Technology – Technology is vital for competitive advantage, and is a major driver of globalization.
3.4.1 Political Factors
Malaysia’s population comprises of many ethnic group, which includes the main three races, Malays, Chinese, Indian and other indigenous groups in East Malaysia. Therefore, Malaysians live in harmony under the slogan of “One Malaysia”. Thus, the stability of politics in Malaysia would attract more investors to open or expand the business in Malaysia and create more job opportunities, which in turn increase the purchasing power.
3.4.2 Economy Factors
The global recession had hit the whole world at the end of 2007. This had resulted in a sharp drop in international trade and unemployment. Malaysia was not deeply affected compared to Singapore because Malaysia had learnt its lesson from the economic crisis in 1997. McDonald’s Malaysia had counteract this problem by reducing the price of the product, which are the value meals mention on 126.96.36.199 and the sales is maintained well if compared to other fast restaurant who still maintain the product in the normal price.
3.4.3 Socio-Cultural Factors
Malaysia is a multi-religion society and Islam is the official religion as more than half of the Malaysian population practice Islam. The people who practice Islam are known as Muslim and Muslim does not take pork. Thus, McDonald’s Malaysia does not serve the pork as a respect to the religion as the majority of Malaysians are Muslim. The Muslims are the major consumers of beef, and therefore, the best selling product in McDonald’s Malaysia is the Big Mac.
3.4.4 Technology Factors
McDonald’s Malaysia recognized the advantage of the Internet and therefore, it had notified the public about the corporate information, promotions and events. However, the McDonald’s Malaysia still maintain the McDelivery order by telephone calls. This is the disadvantage for the organisation since the advancement of technology had caused the difference in consumer behaviour. Consumer would prefer to place the order online instead of calling because it would be more accurate.
3.5 Ecological Factors
The ecological factors are important in a business due to the factors affect consumer behaviour. The ecological factors in McDonald’s business can view by two ways which is the eco-environmental issue and corporate social responsibility (CSR).
3.5.1 Eco- environmental
McDonald’s Malaysia has followed the global McDonald’s which examine ways of reducing material used in the production and packaging, as well as diverting as much as waste as possible from the solid waste stream.
188.8.131.52 Reduce, Reuse and Recycle
In doing so, McDonald’s had set the three courses of action which involved with the follow three courses of action: reduce, reuse and recycle.
- Reduce – McDonald’s will take the steps to reduce the weight and volume of packaging when serving the food. This may mean eliminating packaging, adopting thinner and lighter packaging, changing manufacturing and distribution systems, adopting new technologies or using alternative materials. On the other hand, McDonald’s do continually search for materials that are environmentally preferable.
- Reuse – McDonald’s do implement reusable materials whenever feasible within the operation and distribution systems as long as that is not compromising the safety and sanitation standards, moreover the customer services and expectations which also not offset by other environmental or safety concerns.
- Recycle – McDonald’s are committed to maximum use of recycled materials in the construction, equipping and operations of restaurants. McDonald’s are proud to say that they are the largest user of recycled paper in the fast food industry, applying it to such the items as Happy Meal boxes, carry out bags, carryout trays and napkins.
3.5.2 Corporate Social Responsibility (CSR)
McDonald’s Malaysia has invested a lot in the Corporate Social Responsibility (CSR) and it does make a good business sense as the companies do not operate in a vacuum. A business does maintain a constant, interdependent relationship with the world in which or where the organization operate.
184.108.40.206 Good Works : Gift of smiles
In Malaysia alone, 1 out of 600 babies is born with a cleft lip and palate. Out of the 570,000 babies born in this country, about 950 new cases are found each year. To date, there are almost 12,000 babies born with this defect and have yet to undergo corrective surgery. This is mainly due to financial constraints, parental ignorance of the available cure and in some instances, societal beliefs.
McDonald’s Malaysia has set a goal to instil public awareness and enable parents of these children to come forward and seek medical aid. Thus, McDonald’s together with the partners, ING Insurance Berhad and Pantai Hospitals Sdn. Bhd. understand that financial constraints are a huge obstacle for many parents.. McDonald’s understands the plight of these parents and would like to help by reducing their burdens. The partnership will see Pantai Hospitals Sdn Bhd undertaking corrective surgery for these children, through fundraising projects initiated by RMCC and cash contribution from ING Insurance Berhad under the Gift of Smile Programme.
Together, let’s give them the ‘Gift of Smile’
McDonald’s Malaysia believes the organization would have the responsibility to give back as much as they can to the local communities. The idea of “giving back” is an integral part of everything the organisation doing. The McDonald’s Malaysia works in the wider community to provide support and encouragement to the people who need it. All the McDonald’s restaurants contribute to their local community and every year the organisation help to set up and support thousands of educational, sporting and charity programs designed to help a wide range of people and community. Consequently, McDonald’s has a proactive move towards to sponsorships. McDonald’s Malaysia believes the sponsorships help inspire and support Malaysians, especially for those the underprivileged to live a better life. The organisation has keen to delivering great experiences through sponsorships.
McDonald’s Malaysia is the second largest fast food franchisor in Malaysia but the business had sustained slowly in these few years. The main reason that McDonald’s Malaysia gets stuck in between is because of the failure in achieving customer perception. As compared to Ramli Burger, the “local burger” had implements research to develop its burgers from time to time. For that reason, McDonald’s Malaysia should expand the products line and focus on the youth markets as well as other age segments. By following the competitor’s footsteps, McDonald’s should rebrand their position in the Malaysian fast food market, by not only catering for the youth but also cater to families who are health conscious and seeking value for their money. As a result, product development should be highlighted since the adults and the elderly people have much concern on their health. Moreover, fried food is hard to digest especially for older customers and infants. McDonald’s can refer to what the competitors did and develop more healthy menus. It is recommended to have salad in the menu and more juices as the beverage. In addition, McDonald’s can replace the vanilla ice cream with yogurt ice cream, which is very popular in the market nowadays. McDonald’s Malaysia had to be more initiative in product development for achieving the consumer perception and prevent to lose the market share, as there are many competitors entering into the fast food market from time to time.
The competitors are taking advantages with what McDonald’s Malaysia missed in its business strategy. Even though McDonald’s is a well known brand but improvisation is needed especially in the competitive market now. The downfall of Lehman Brothers had shown that the super brand have the possibility to fail if the business is not well managed. Hence, as consumers translates into figures in sales, all companies, regardless of any industries, should comply with their consumer’s expectations. A successful company is a company which can adapt to different type of environments to satisfy different type of consumers. As the saying goes, “in Roman, do what the Romans do”, companies should adapt to different types of culture to capture the market share in that specific country.
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