McDonlad's and the Hotel Industry

Problem Definition

In 2002 McDonald's Corporation had more than 30,000 restaurants in over 120 countries. With a market that was reaching saturation, one industry observer believed that McDonald's should leverage its brand name and value to extend into the hotel industry in the USA, specifically Illinois which was the leader in state tourism spending. However there were a number of considerations to be examined before McDonald's could set a strategy for expansion:

 Indentifying the target market

 Identifying market segments to compete in

 What features should the hotel offer

 Possible locations

 Price range for rooms

SWOT Analysis

Strength Weaknesses

 McDonald's is one of the largest brands ranking number 9 in the world; leveraging the association to the parent brand would facilitate the introduction and adoption of McDonald's hotels by clients.

 McDonald's has experienced management, new branch development expertise, advanced operational systems, strong financial position and unique global infrastructure. They have the bases to break into a new category.

 The US attracts 17.9% of the world tourism travel. The hotel industry enjoyed a big share of these tourists with an occupancy rate of 63.7% in 2001. This means that the external environment for hotels is stable and strong and attractive to engage in.  McDonald's is planning to enter the hotel industry which is nearing the maturity phase since sales slowed down in 2001; this means that in the mature stages of a product's category cycle, growth is low and might suffer slight declines.

 McDonald's brand is closely tied and connected with the fast food industry which might limit its potential to expand. Customers might not feel the hotel category is credible, if it was not strongly connected to the parent brand.

 McDonald's might be experienced in food service but lack the expertise in hotel services. This might not enable them to have an advantage or differentiation over competitors.

Opportunities Threats

 The hotel industry is a very attractive category in terms of sales, therefore McDonalds could benefit even more from the tourism customers if they entered the hotel business.

 McDonald's can use this new category extension to revitalize their brand and attract customers' whose preferences had changed and shifted.

 The hotel industry is expected to recover and grow back in 2004, which gives McDonald's some time to prepare for their new category and be ready in time for the new industry boom.  Hotels are