PEST Analysis of McDonalds | Business Teacher
The political context of McDonald’s environment is important as this can provide it with both opportunities and threats to its success. Government policies towards issues such as trade or public health can increase costs or impact on the operations of the organization. Trade agreements can make it easier or harder for organisations to undertake business activities in certain areas, such as when there are differences in food standards between markets within which the organisation is operating, for example, the USA and Europe (McDonalds 2017a). However, health issues, such as concerns regarding obesity, also make business activities more expensive, especially if taxes on fast foods are increased or certain ingredients are banned (McDonalds 2017a).
Economic factors which impact on McDonalds include international, national, and local conditions due to it being a global brand (McDonalds 2017a). This means that the whole company was impacted by the 2008 economic recession due to its impact in the USA and Europe and the fall in disposable income, increased unemployment, and wage stagnation (McDonalds 2017a). The success of McDonalds is therefore reliant on a strong economy with low rates of unemployment. Falling sales can also be attributable to changing tastes and increased competition in the industry. The exchange rate also impacts on McDonalds and a weaker US dollar enables a better exchange rate and thus financial reporting (McDonalds 2017a).
The changing tastes of consumers can impact on McDonalds in terms of their sales. The growth of the coffee industry has led McDonalds to develop a McCafe menu to provide an alternative to Starbucks (McDonalds 2017b). Changing tastes, such as the increased focus on health have required brands such as McDonalds to cater to these or loose the sales. Changing customer demographics mean that McDonalds needs to meet the changing demands such as the health and price conscious nature of millennials. In order to sustain demand and to increase its sales, McDonalds will need to adapt their menu choices accordingly to include low fat choices (McDonalds 2017b). The continued concerns regarding obesity has also meant that McDonalds has needed to provide healthier choices for all of its customers, and particularly children.
Changing technology not only allows McDonalds to improve business process such as re-ordering and reducing waste, but also allows it to develop greater connections with its customers. Technology can assist McDonalds in strengthening its brand by providing different channels for ordering by customers, such as in-store self service and collection or online ordering (McDonalds 2017c). Online ordering can enable organisations to gather data on customers and undertake personalized marketing through promotions. This technology allows for higher levels of convenience for customers which organisations will need to meet or customers may choose to go to a competitor (McDonalds 2017c). Technology can also enable a brand to reach a far greater market and to undertake appropriate social media strategies to engage with their customers.
The interest in environmental issues is focused on resource protection over the long term and therefore needs businesses to consider their impacts by developing corporate social responsibility policies and reporting on these through frameworks such as the Global Reporting Initiative (McDonalds 2017a). This includes issues such as the requirement for brands and their supply chain to be environmentally friendly and sustainable and ethical supply chain agreements are becoming a firm feature for global companies such as McDonalds. Some of the environmental issues being faced are in food production and this incudes issues such as deforestation and food miles. One of the ways in which McDonalds addresses this is to buy beef and milk from UK farmers (McDonalds 2017b).
The regulatory context can have a major impact on how successful a business can be. Higher levels of regulation can stifle business growth, whilst lower levels may enable businesses to make more profit. Employment law regarding issues such as minimum wage, holiday and sick pay may increase the costs for a business, but may also reduce recruitment costs if staff feel that they are receiving the correct rate of pay and other benefits. However, in the UK, there has been an increased use of zero hour contracts which organisations have used to gain a more flexible working force, which is particularly useful for the food industry, which often operates 24 hours per day (Ruddick 2016). Whilst these are legal, there have been some criticisms of their use as they prevent workers from receiving holiday and sick pay (Ruddick 2016).
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- BBC News (2016) ‘First bid for McDonald’s China franchises confirmed’ BBC News, June 23 [online] Available from http://www.bbc.co.uk/news/business-36603779
- Forbes (2017) ‘The World’s Most Valuable Brands #9 McDonalds’ [online] Available from https://www.forbes.com/companies/mcdonalds/
- IBIS World (2017) ‘Takeaway and fast food restaurant in the UK: market research report’ [online] Available from https://www.ibisworld.co.uk/market-research/takeaway-fast-food-restaurants.html/
- Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regnér, P. (2014) Exploring Strategy, Text and Cases (10th ed.) Harlow: Pearson Education Ltd
- McDonalds Corporation (2017a) ‘Annual Report 2016’ [online] Available from http://corporate.mcdonalds.com/content/dam/AboutMcDonalds/Investors/2016%20Annual%20Report.pdf
- McDonalds (2017b) ‘Our company’ [online] Available from http://corporate.mcdonalds.com/mcd/our_company/our-ambition.html
- McDonalds (2017c) ‘Click and Collect’ [online] Available from https://www.mcdonalds.com/gb/en-gb.html
- Ruddick, G. (2016) ‘McDonald’s offer staff the chance to get off zero-hours contracts’ Guardian, April 15 [online] Available from https://www.theguardian.com/business/2016/apr/15/mcdonalds-offer-staff-the-chance-to-get-off-zero-hours-contracts