PESTEL Analysis of McDonalds Food Industry PEST Example

PESTEL Analysis of McDonalds Food Industry PEST Example Introduction McDonalds is the largest sporting pabulum chain in the world. There ar approximately 35,000 McDonalds stores across 119 countries, and they jointly serve wellspring-nigh 68 one thousand million customers a year (McDonalds, 2014). Each McDonalds is either run as a franchise, or by the McDonalds Corporation itself in the UK, approximately 65% of McDonalds restaurants are run as a franchise, and the re chief(prenominal)ing 35% are run by McDonalds themselves. There is a relatively rigorous application process involved in beseeming a McDonalds franchisee McDonalds themselves lists near of the requirements, includinga high level of integrity, demarcation experience, experience within the food fabrication, the time and ability to complete a minimum of nine months franchisee training, a full time commitment to the opportunity, and a high level of investor capital (McDonalds, 2014b). such commitment to en suring the strength and commitment of their franchisees has perhaps contributed to the strength of the McDonalds brand, which is among the worlds best-recognised and well-regarded, in particular in the fast(a) food market (Moskowitz, 2014) This essay will examine the current business purlieu McDonalds operates in through a PESTEL analysis, to examine the normal external business environment and the specific industry factors that may affect the business. The results of this essay foot then be used as the background for a SWOT analysis to highlight the specific strengths and weaknesses of the McDonalds business model and its potential difference forthcoming opportunities and threat, which should help to determine the best strategic reign overion for McDonalds to take in the coming years. PESTEL Analysis A PESTEL analysis examines the external business environment facing a firm in 6 main areas Political factor, Economic factors, Sociological factors, Technological factors, Environmental factors and Legal factors. Though a wiz organisation is norm every last(predicate)y unable to directly affect the external factors facing it, a conglomeration of companies can exert some pressure on these factors, particularly any political factors through the intelligent use of political lobbying. Proper intelligence of these factors al sufferings the organisation to highlight areas of business opportunity when combined with proper understanding of the business strengths, and also potential threats to the business when combined with a proper understanding of the firms weaknesses (Baines et al, 2011). Thus, for effective strategic planning, analysis of the external factors is the around important step before per playing an analysis of the business intrinsic strengths and weaknesses through a SWOT analysis. Political The fast food industry is frequently a target for political relation initiatives aimed at improving health and reduction obesity, particularly in E uropean countries. In 2003, after the publication of a traverse by the Scientific Advisory Committee on Nutrition (SACN) on the link between general levels of salt intake among the UK population and heart disease, the UK government introduced initiatives to reduce the amount of salt in many a(prenominal) a(prenominal) foodstuffs, including many products within the fast food industry in general, and McDonalds in particular. In response, McDonalds reduced the overall salt content of its UK menu by around 14% (Food Standards Agency, 2005). In Germany, a recent food labelling initiative requisite all fast food restaurants to provide clear indications of a military issue of nutritional factors for each of their meals, including salt and sugar levels, calorie content, saturated and unsaturated fat levels, and a traffic-light label indicating the overall level of healthiness, with green indicating two low calorie and low fat options, and red indicating high calorie, high fat options (Hurt et al, 2010). Similar initiatives hold back been implemented in the UK, France and the Netherlands, though reports indicate that the introduced food labelling has little impact on overall pray within the fast food industry (Grunert and Wills, 2007). In Denmark, a government initiative in 2003 placed restrictions on the amount of artificially created unsaturated fats, known as Trans Fat, or TFA, which harbour been shown to be severely involved in change magnitude cholesterol and thereby heart disease risk., TFAs are present in many food industries that rely on orphic fat frying, as they can be used for far longer than more conventional oils while still staying relatively fresh (Choe and Min, 2007). Prior to the compel restrictions, a meal of Chicken McNuggets and Medium French Fries at a true Denmark McDonalds had, on average, 30g of Trans Fat. After the restrictions, the same meal had on average less than 1g of Trans Fat (Hurt et al, 2010). In the US, by comparison, the fast food industry is far more self-regulating, with little to no government intervention at all, despite many published reports on the link between fast food industry advertising and childhood obesity (Wilson and Roberts, 2012). This is due to two main factors firstly the US political system as a whole tends to be far more committed to laissez-faire economics than even its some right-wing European counterparts in general, there is far more political inertia to overcome (Skousen, 2009). Secondly, the fast food industry has an aggressive and concentrated lobbying front in the capital (of which McDonald plays a significant role), and is politically savvy enough to avoid or negate any proposed convention that makes it through (Wilson and Roberts, 2012). The fast food lobby has thus far defeated proposed restrictions on Trans Fat content similar to those enacted in Denmark, a proposed soda tax on sugary drinks, and policies aimed at controlling the amount of sugar, salt and fat in childrens meals (Wilson and Roberts, 2012). This helps to keep McDonalds US profit margins higher than those countries where such restrictions dupe been imposed (Schlosser, 2012). efficient The recent economic recession was incredibly disruptive for firms in many industries, reducing revenues and profits across the board, and decreasing consumer entreat for many goods and services (Kliman, 2012). even so not all firms and industries were adversely affected some actually saw revenue and profit opportunities increase during the economic downturn due to higher lease these tend to be firms and industries that are seen to provide value for money, of which the fast food industry is one (Bems et al, 2010). Fast food restaurants can be seen as imperfect substitutes for more traditional restaurants many consumers prefer to eat out at a fast food restaurant as a cheaper resource to a more expensive traditional restaurant. In 2008, near the height of the crisis, the fast food ind ustry in the UK actually saw increased harvest-time in monetary value of revenue of 4.5%, with an overall increase in demand for McDonalds products of around 4% ( call Note, 2009). Other countries that saw similar increases in demand in the fast food industry in general and McDonalds in particular include Japan, France and Belgium (Economist, 2010). By comparison, in the US the demand for McDonalds products over the recession did not increase as in Japan, the UK and France, but more importantly it did not decrease either this during a time where demand in the overall US restaurant industry fell by around 6% (Economist, 2010). These figures paint a picture of the fast food industry being relatively recession proof however, as a Moodys report (2009) cautions, this may not always be the case. Consumers may engage to eat at home rather than going out in particularly severe recessions, substituting home-cooked meals for restaurant ones, value-for-money or otherwise. They may also f ocalisation their demand on low- appeal, budget menu items with particularly low profit margins. Indeed, during the recession Burger King saw its US profits fall by around 6% as customers increasingly turned to its dollar menu options which it had chosen to focus on as a marketing strategy during the recession, with demand for those items increasing by as much as 20%. A number of Burger King franchises actually sued the corporation after requiring them to promote and sell double-cheeseburgers at $1, when they cost $1.10 to make (Economist, 2010). Such poor marketing strategies undoubtedly led to Burger Kings fall in profits during the recession in contrast, McDonalds proceed to focus on its more expensive standard menu options, and actually increased marketing spend by 7%, as many companies slice back (Ritchie, 2010). Sociological While McDonalds and the fast food industry in the US has manage to dodge most proposed regulation aimed at reducing the unhealthiness of many of thei r products, they have been perhaps less successful in dodging the negative public opinion over the same issue. Fast food in general has seen its public image decline as society in general becomes more health conscious the preceding decades have seen a rise in many societal health- ground food initiatives, such as increased demand for unprocessed and organic foods, and a growing public knowingness of obesity and heart disease and its links to high-fat foods. In 2004 Morgan Spurlock, an American social-commentary filmmaker in the same vein as Michael Moore, created the documentary Super-Size Me (2004), where he ate all McDonalds for 30 days, for 3 meals a day (breakfast, lunch and dinner). He did not allow himself to have any other food during that time, and had to upgrade to a super-size meal whenever asked, which had double the amount of fries of a medium sized meal, and also came with a 42 ounce coke. After the 30 day period, he had gained 1 stone and 10.5 pounds of extra weight w hich represented a 13% body mass increase, had a cholesterol level of 230 (where levels below 200 are considered healthy) and had developed cirrhosis of the liver (Spurlock, 2004). There have also been many damaging reports made about the fast food industry in general and McDonald in particular, including a number of studies that have suggested fast food addiction shares many of the same characteristics as drug addiction (Garber and Lustig, 2011 Volkow and Wise, 2005). A paper by Johnson and Kenny (2010) found that high-fat food triggered many of the same dopamine receptors in rats as those triggered by cocaine or heroin, and can override standard eating responses and hightail it to bout of compulsive, addictive-like eating. In response to this, McDonalds has phased out the super-size option for all of its US meals (the UK supersize meal option had been phased out in 2001 due to very low demand, and had not been introduced in any other countries) and began offering more healthy me nu options, including fruit smoothies, salads, milk, water and fruit (Pompper and Higgins, 2007). They have also launched a number of innovative marketing campaigns aimed at highlighting the new range of healthy alternatives, a policy that is estimated to cost an additional $35million in marketing costs (Vizard, 2013). Such an approach appears to have been effective, with no sales decline reported in any month over the last 10 years (Vizard, 2013). Technological The sexual climax of the internet has opened up many opportunities for low-cost, high-impact marketing across a range of firms and industries. Increasingly, firms are being judged more and more strongly on their online posture and perceived technological savvy it can seriously harm a business image if they are seen as out-of-touch with the modern technological world (Chaffey, 2009). merchandising opportunities using the internet are many and varied and can range from intricate, involved, multi-layered viral campaigns, t hrough website design and functionality to a simple social media presence. While the fast food industry was slow to catch on to the benefits of internet marketing in the beginning, most firms have now embraced its potential, and McDonalds is at the forefront. As well as taking the (now somewhat standard) step of establishing a strong social media presence, with the creation of both a Facebook page and twitter account in 2009, McDonald have also run a number of successful online marketing campaigns, including an Ask McDonalds Youtube campaign in 2012, where over 20,000 questions from the public were answered, with most being based around the quality and supply chain of McDonalds food and burgers. Many of the questions were answered through short Youtube videos, some of which have gathered over 10 million views, and most of which were received very confirmatoryly (Macmillan, 2012). However, as with most other firms, the internet has proved to be a double-edged sword in terms of mar keting success for McDonalds. There have also been a number of negative articles posted on Facebook and Twitter about the company and its products, including an obvious tosh post that claimed a batch of McDonalds hamburgers in Oklahoma had been found to have been contaminated with human meat (Hooton, 2014, p1). Despite the obvious unreasonableness of the claims (the posts were interpreted from a joke parole site, satirising the Tesco horse meat scandal of 2013) many people online believed the stories, claiming to be sickened by them, and declaring they would boycott McDonald products from now on (Hooton, 2014). Such false information is easily spread online with little to no information regulation firms can be at the mercy of false accusations and internet pranks. Also, in direct contrast to the successful Youtube campaign was a perhaps less successful Twitter campaign, where McDonalds promoted the Mcdstories hashtag for twitter users to post their stories and positive experience s with the firm. However, as there was no ability to either control or properly interact with the responses as with the Youtube campaign, the campaign collapsed almost immediately with a glut of negative anti-McDonalds tweets, outweighing the positive responses by around 10 to 1 (Kolowich, 2014). Careful monitoring of the companys online presence and quick response to such incidents will go some way to mitigating the potential damage. Environmental In recent years, environmental issues have come to the forefront of public consciousness with the rise of many green initiatives and movements. In response, many businesses now include some form of environmental damage mitigation to counteract the negative environmental aspects of their typical business merchandise methods typical methods include the replanting of trees to offset carbon emissions caused by the transportation of goods, a reduction in the amount of paper used in the administrative side of the business, energy-saving init iatives such as the turning off of lights, electrical appliances and computers when facilities are not in use, and a reduction in the amount of packaging used in the production process (Satya, 2002). Environmental concerns about a business operations are particularly pronounced in the food industry, as food production techniques are often associated with poor environmental controls, particularly in emerging third world economy producers, and budget meat suppliers (Foster et al, 2007). Indeed, a number of refuses have been levelled at many fast food firms in general, and McDonalds in particular on 19th July 1985, Greenpeace in the UK declared an anti-McD Day of Action (Veggis, 2014, p1) which involved demonstrations, protest marches and pickets of many McDonalds stores across the UK. The Day of Action has been repeated every year on the same date, and protests against the promotion of junk food, the unethical targeting of children, developing of workers, animal cruelty, damage to the environment and the global domination of corporations over our lives (Veggis, 2014, p3). In 1997, two of the protestors were sued by McDonalds for libel, after repeating some of these claims in many McDonalds restaurant. The judge found in favour of McDonalds for some of the allegations of libel, but found others had some truth to them and could not be considered libellous, including claims that they falsely crusade their food as nutritious, risk the health of their long-term regular customers and are culpably responsible for cruelty to animals reared for their products ( justice Bell, 1997, p13). In response to this, McDonalds have initiated a number of Corporate Social Responsibility (CSR) policies centred on reducing the environmental impact of the business they currently participate in Earth Hour, an initiative that encourages many businesses to turn off their lights and unused equipment on a specific hour each year, to reduce their carbon footprint. They have also sought to reduce the environmental impact of their packaging, seeking out more biodegradable packaging in many markets they have initiated paper-reduction policies in many of their administration centres, and they have also instigated investigations into the conduct and management of the animals reared for their product supply, with a view to ensuring no unnecessary cruelty or inhumane treatment is taking place (McDonalds, 2014c) Legal The specific good environment in which McDonalds operates is highly dependent on the specific country and market in question however, most of the markets that McDonalds operates in have some form of a Health and Safety legal framework, particularly with regard to food preparation. Many, if not all of the countries McDonalds operates in has some form of public health inspection system with regard to food producers in the UK, it is the Food Standards Agency, while in the US, it is the Food and Drug Administration (Campbell et al, 2008). In both markets, any employees with food-handling capabilities must take part in food-hygiene training at the companys expense. McDonalds has implemented a system that adds additional controls to those essential by either health agency, and as their customer-facing website states, there are at least 70 safety checks on beef and chicken every day. In fact, McDonalds rigorous standards have been used by government agencies as models for their own regulations (McDonalds, 2014d, p1). In this way, their dedication to food safety over and above that required by law can be used as a marketing tool, to emphasise their commitment to quality (Campbell et al, 2008). There are also a number of employment laws to consider in each market, including those regulating the maximum length of an employees daily and weekly working hours, the requirements for employee breaks and facilities, tax and payroll requirements, business registration and accountancy standards for reporting profit and loss (Jones, 2013). McDonal ds tends to adhere to the same legal standards across markets for each of these areas, even in markets with less stringent regulations or legal requirements than those of the UK or US markets (McDonalds, 2014a). Conclusion In conclusion, McDonalds faces a number of challenges from its external environment, including the threat of further government health regulation in the US, social concerns about the unhealthiness of their products, adverse publicity from hoaxes or failed marketing campaigns on the internet, and additional protests regarding the environmental impact of the business. Through understanding these challenges, McDonalds marketing and strategy managers can use the business strengths, such as its commitment to food quality and safety, its successful marketing campaigns, and the overall strengths of its brand, to turn these challenges into potential business opportunities. In order to do so, they can use the information provided by this PESTEL analysis as the groundwor k for a comprehensive SWOT analysis, to alter the intelligent setting of future strategy for McDonalds. In this way, they can help to ensure McDonalds remains a market leader in the fast food industry. References Baines, P, Fill, C and Page, K (2011), merchandising, 2nd Ed, Oxford Oxford University Press Bems, R, Johnson, R and Yi, K (2010), Demand Spillovers and the Collapse of Trade in the Global Recession, IMF Economic Review, strength 58, Issue 1, pp295-326 Campbell M, Gardner C, Dwyer J, Isaacs S, Krueger P, and Ying J (2008), Effectiveness of public health interventions in food safety a systematic review, University of York Centre for Reviews and Dissemination Chaffey, D (2009), Internet Marketing Strategy, Implementation and Practice, Harlow Pearson Education Choe, E and Min, D (2007), Chemistry of Deep-Fat Frying Oils, Journal of Food Science, Volume 72, Issue 5, ppR77-R86 Economist (2010), The changes facing fast food cracking and hungry Online, lendable http//ww w.economist.com/node/16380043 Accessed 9th October 2014 Food Standards Agency (2005), UK salt reduction initiatives, London FSA Foster, C, Green, K, Bleda, M and Dewik, P (2007), Environmental impacts of food production and consumption concluding report to the Department for Environment Food and Rural Affairs, Brussels UN Food and Agriculture Organisation Garber, A and Rustig, R (2011), Is fast food addictive?, accepted Drug Abuse Review, Volume 4, Issue 3, pp146-162 Grunert, K and Wills, J (2007), A review of European research on consumer response to nutrition information on food labels, Journal of Public Health, Volume 15, Issue 5, pp385-399 Hooton, C (2014), Those human meat found in McDonalds factory stories and Facebook posts are a hoax, obviously Online, Available http//www.independent.co.uk/life-style/food-and-drink/news/those-human-meat-found-in-McDonalds-factory-stories-and-facebook-posts-are-a-hoax-obviously-9784592.html Accessed 9th October 2014 Hurt, R, Kulisek , C, Buchanan, L and McClave, S (2010), The Obesity Epidemic Challenges, Health Initiatives, and Implications for Gastroenterologists, Gastroenterol Hepatol , Volume 6, Issue 12, pp780-792 Johnson, P and Kenny, P (2010), Dopamine D2 receptors in addiction-like reward dysfunction and compulsive eating in obese rats, Nature Neuroscience, Volume 13, Issue 1, pp635-641 Jones, L (2013), Introduction to Business Law, 2nd Ed, Oxford Oxford University Press Justice Bell (1997), Justice Bells Verdict 19th June 1997 Online, Available http//www.mcspotlight.org/case/trial/verdict/verdict0_sum.html Accessed tenth October 2014 Key Note (2009), Fast-Food Home-Delivery Outlets Market Update 2009, London Key Note Kliman, A (2012), The failure of capitalist production Underlying causes of the great recession, 1st Ed, London Pluto Press Kolowich, L (2014), The Rules of Twitter Hashtags Hits and Misses From 7 voluminous soils Online, Available http//blog.hubspot.com/marketing/twitter-hashtag -campaign-examples Accessed 10th October 2014 Macmillan, G (2012), How McDonalds created a social media success with questions campaign Online, Available http//wallblog.co.uk/2012/08/20/how-McDonalds-created-a-social-media-success-with-questions-campaign/ Accessed 8th October 2014 McDonalds (2014a), Corporate data Online, Available http//www.McDonalds.com/us/en/our_story/Corporate_Info.html Accessed 7th October 2014 McDonalds (2014b), McDonalds International Franchising Online, Available http//www.McDonalds.co.uk/ukhome/Aboutus/Franchising.html Accessed 7th October 2014 McDonalds (2014c), Striving for a Sustainable Future Online, Available http//www.McDonalds.co.uk/ukhome/Ourworld/Environment.html Accessed 10th October 2014 McDonalds (2014d), Food Safety Online, Available http//www.McDonalds.ca/ca/en/food/making_informed_choices/food_safety.html Accessed 10th October 2014 Moodys Investors Services (2009), Fast-Food Advantage, new-sprung(prenominal) York Alacra Store Mos kowitz, D (2014), McDonalds Brand Strength Still Dominates Its Peers Online, Available http//www.fool.com/investing/general/2014/04/03/McDonalds-brand-strength-still-dominates-its-peers.aspx Accessed 8th October 2014 Pompper, D and Higgins, L (2007), Corporation-bashing in documentary film A case study of news media coverage organizational response, Public Relations Review, Volume 33, Issue 4, pp429-432 Ritchie, J (2010), How McDonalds Thrived During the Recession Online, Availablehttps//www.mint.com/blog/trends/McDonalds-recession-09212010/ Accessed 9 th October 2014 Satya, L (2002), Environmentalism A Global History (review) Journal of World History, Volume 13, Issue 2, pp525-529 Schlosser, E (2012), Fast Food Nation The Dark Side of the All-American Meal, 1st Ed, New York Houghton Mifflin Harcourt Skousen, M (2009), The Making of Modern Economics, 2nd Ed, New York M E Sharpe Spurlock, M (2004), Super-Size Me, Documentary, New York The Con Production Company Veggis (2014) , Whats Still Wrong With McDonalds alike date every year Online, Available http//www.veggies.org.uk/event.php?ref=50 Accessed 10th October 2014 Vizard, S (2013), McDonalds vows to ramp up marketing of healthy options Online, Available http//www.marketingweek.co.uk/news/McDonalds-vows-to-ramp-up-marketing-of-healthy-options/4008065.article Accessed 9th October 2014 Volkow, N and Wise, R (2005), How can drug addiction help us understand obesity? Nature Neuroscience, Volume 8, Issue 1, pp555-560 Wilson, D and Roberts, J (2012), Special narrative How Washington went soft on childhood obesity Online, Available http//www.reuters.com/article/2012/04/27/us-usa-foodlobby-idUSBRE83Q0ED20120427 Accessed 8th October 2014