Which Trends in McDonald’s External Environment Are Likely to Have the Greatest Impact on the Company’s Ability to Sustain a Competitive Advantage?

1. Which trends in McDonald’s external environment are likely to have the greatest impact on the company’s ability to sustain a competitive advantage?

Since its inception in 1940 by the McDonald brothers, McDonald’s has had an overwhelming competitive advantage. This started to change in the 1980s with Wendy’s and Burger King slowly eroding away at McDonald’s enormous market share by offering competitive pricing and more options for consumers.By the early 1990s, Taco Bell and Subway had made their presence felt as well. With the market being very competitive and saturated, McDonald’s had to react to their external environment in order to sustain their competitive advantage.

McDonald’s responded to these threats by slowing their expansion of new stores from 114 a day globally in the the 90s, to just 50 to 100 annually in the early 2000s. McDonald’s also expanded their menu with many(mostly failures) new items such as the Arch Deluxe, pizza, pasta, and fried chicken. They also entered the gourmet coffee market with the McCafe line. Additional changes such as the all-day breakfast menu and building double drive-thrus were implemented as well. As McDonald’s made changes, the external environment changed also.

The rise of the health conscious consumer is the biggest trend to affect McDonald’s. The movie Super Size Me, released in 2004, was an unflattering documentary of a person gaining 25 pounds and growing increasingly ill eating every meal over the course of a month at McDonald’s. Exacerbating McDonald’s image further, the government enacted the 2010 Patent Protection and Affordable Care Act. This law requires that calorie counts must be displayed on all food service menus with additional nutritional information available upon request. Public perception of McDonald’s was further damaged by Jamie Kennedy’s “pink slime” online documentary in 2012. Consumer Reports rated the McDonald’s hamburger as the worst in the America in 2014. Steve Easterbrook, the current CEO, has made improving food quality one of his top priorities going forward.

The other external threat making the most impact, is the rise in popularity of fast casual restaurants such as Steak & Shake, Chipotle, Panera, Five Guys, etc. These restaurants are viewed as offering healthier options for comparable prices. This segment has experienced continued growth for the past 5 years. The challenge for McDonald’s is to to be perceived as “fresh and healthy”, rather than “fast and convenient”. The millennials have made it clear that the fast casual experience is the one they prefer.

2. How is McDonald’s positioned vis-à-vis its major competitors?

Since McDonald’s started as fast food company in 1940 selling burgers, fries, and drinks, the company has competed against other fast food companies such as