Distribution channel of mcdonalds..

1. THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT PROJECT REPORT ON DISTRIBUTION CHANNEL OF McDonald’s SUBMITTED TO: SUBMITTED BY: Prof. AJAY NARULA RAHUL TIWARI-54 ACKNOWLEDGMENT The Project on Distribution channel of McDonalds has been made and completed under the guidance of our respected professor Prof. Ajay Narula. He has helped me in the learning about Elements of distribution channel and giving me valuable insight knowledge about how the Distribution channel works. I would like to thank him for giving his cooperation, guidance and enriching my thoughts in this field of Distibution Channel without his guidance I would not have able to complete this Project Report. SYNOPSIS McDonald’s format BackgroundMcDonald's International through its wholly owned subsidiary McDonald's India entered into two JVs, one with Connaught Plaza Restaurants Pvt. Ltd. in the Northern & Eastern region and another with Hard Castle Restaurants Pvt. Ltd. in the Western & Southern region. Trail BlazerAs a leader in QSR segment (Quick Service Restaurant) McDonald's has pioneered various industry benchmark practices over the past decade of serving Indian customers, including new concepts such as Oil Alliances in India by inking with petroleum giants BPCL and HPCL. Two such alliances with BPCL outlets are in Mathura (2000) (UP) and Doraha (2002) (Punjab)Novel menu formats such as an Express Model with a limited menu and Kiosks with a variety of dessert offeringsHome Delivery (McDeliveryTM-2004): Providing even more convenience to our customers. In 2006, McDelivery on bicycle at Chandni Chowk and 2007 All India single delivery number (66 000 666) was introduced.First Drive Thru Restaurant in India at NOIDA (UP) in 1997 Quality McDonald’s India serves only the highest quality products. The attention to food quality started long before the first restaurant opened. McDonald’s India has established close relationships with local suppliers who provide McDonald’s with the highest quality, freshest ingredients to make its products. All suppliers adhere to Indian government regulations to food, health and hygiene while continuously maintaining McDonald’s own recognized standards. McDonald’s has established an extensive “cold chain” distribution system in India to ensure that the products that arrive at the restaurant from suppliers all over India are absolutely fresh. In the restaurants, products and suppliers are used on a “first-in, first-out” basis to ensure freshness. All McDonald’s products are prepared using the most current state-of-the-art cooking equipment to ensure quality and safety. On an average 20 different quality checks are carried out before any product is served to our customers. Service McDonald’s India provides fast, friendly service – the hallmark of McDonald’s, which sets its restaurants apart from others. At McDonald’s, the customer comes first. Every employee strives to provide 100 percent customer satisfaction – for every customer – every visit. This includes fast, friendly and attentive service, accuracy in order taking and filling, and anticipation of customer’s needs. Cleanliness McDonald’s restaurants provide a clean, comfortable environment especially suited for families. McDonald’s stringent cleaning standards ensure that all tables, seating, highchairs and trays are sanitized several times each hour. The attention to cleanliness extends from the lobby to the kitchen to the sidewalk and even immediate areas outside the restaurant. In addition to urging customers to dispose of their litter properly and offering a number of litter bins (both inside and outside the restaurants) for their convenience, McDonald’s “Litter Patrols” walk one block around the restaurants several times each day picking up McDonald’s litter. Restaurant managers walk through the dining areas each hour, to ensure that it is clean and well stocked. All restaurants provide warm and inviting environment and a variety of comfortable seating arrangements to accommodate anyone – from a single individual to a large family. Value McDonald’s prices its products in such a way that a very large cross section of the Indian population can afford it. McDonald’s does not sacrifice quality for value – rather McDonald’s leverages economies of scale to minimize costs while maximising value to customers. McDonald’s definition of value is broader than most restaurants of its kind – it is more than even the price. Value at McDonald’s is the sum of the total McDonald’s experience: quality food; fast, friendly service; a clean and pleasant environment and products priced for the largest segment of Indian consumers possible. That is value at McDonald’s. Local Sourcing Is Key For Truly Indian Products Around the world, McDonald's traditionally operates with local partners or local management. In India too, McDonald's purchases form local suppliers. McDonald's constructs its restaurants using local architects, contractors, labour and - where possible – local materials. McDonald's hires local personnel for all positions within the restaurants and contributes a portion of its success to communities in the form of municipal taxes and reinvestment. McDonald's sources food products form local companies. Fresh Lettuce comes from Pune, Delhi, Nainital and Ooty; Cheese form Dynamix Dairies, Baramati, Maharashtra; fresh Buns from Cremica, Phillaur, Punjab and Mrs. Bector and Sons, Khopoli, Maharashtra; Sauce from Bector Foods, Phillaur, Punjab and Hindustan Lever Limited-Best Foods Division, Thane, Chicken Patties, Vegetable Patties, Pies and Pizza McPuff™ from Vista Processed Foods, Taloja, Maharashtra. Dairy Products from Amrit Food, Ghaziabad, UP. INTRODUCTION: McDonald’s i’m lovin’ it The McDonald's Promise QSC&V......The Foundation that built McDonald's success left0When asked to explain McDonald's success, founder Ray Kroc used to say,
We take the hamburger business more seriously than anyone else.
Kroc was a perfectionist. From the day he opened his first restaurant, he vowed to give his customers high quality products, served quickly --and with a smile, in a clean and pleasant environment, and all at a fair price. Quality, Service, Cleanliness and Value (QSC&V) became the philosophy that drove McDonald's business. McDonald's Quality Management instills the culture of quality through such principles as being customer driven, managing with facts, valuing people, and continually improving every aspect of our business Service that is fast and friendly and has always been a foundation for success at McDonald's Cleanliness for us means having the cleanest and freshest facilities from the kitchen to the rest rooms and parking lots Value at McDonald's means the total experience...... great food, friendly folks, a clean environment, quick and accurate service and fun! Company Profile McDonald's International through its wholly owned subsidiary McDonald's India entered into two JVs, one with Connaught Plaza Restaurants Pvt. Ltd. in the Northern & Eastern region and another with Hard Castle Restaurants Pvt. Ltd. in the Western & Southern region. Trail BlazerAs a leader in QSR segment (Quick Service Restaurant) McDonald's has pioneered various industry benchmark practices over the past decade of serving Indian customers, including new concepts such as :Oil Alliances in India by inking with petroleum giants BPCL and HPCL. Two such alliances with BPCL outlets are in Mathura (2000) (UP) and Doraha (2002) (Punjab)Novel menu formats such as an Express Model with a limited menu and Kiosks with a variety of dessert offeringsHome Delivery (McDeliveryTM-2004): Providing even more convenience to our customers. In 2006, McDelivery on bicycle at Chandni Chowk and 2007 All India single delivery number (66 000 666) was introduced.First Drive Thru Restaurant in India at NOIDA (UP) in 1997 INTRODUCTION TO THE DISRIBUTION CHANNEL Distribution channels move products and services from businesses to consumers and to other businesses. Also known as marketing channels, channels of distribution consist of a set of interdependent organizations—such as wholesalers, retailers, and sales agents—involved in making a product or service available for use or consumption. Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers. As Howard J. Weiss and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1) a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2) a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex. A simple distribution network is one that consists of only a single source of supply, a single source of demand, or both, along with fixed transportation routes connecting that source with other parts of the network. In a simple distribution network, the major decisions for managers to make include when and how much to order and ship, based on internal purchasing and inventory considerations. In short, distribution describes all the logistics involved in delivering a company's products or services to the right place, at the right time, for the lowest cost. In the unending efforts to realize these goals, the channels of distribution selected by a business play a vital role in this process. Well-chosen channels constitute a significant competitive advantage, while poorly conceived or chosen channels can doom even a superior product or service to failure in the market. MULTIPLE CHANNELS OF DISTRIBUTION For many products and services, their manufacturers or providers use multiple channels of distribution. A personal computer, for example, might be bought directly from the manufacturer, either over the telephone, direct mail, or the Internet, or through several kinds of retailers, including independent computer stores, franchised computer stores, and department stores. In addition, large and small businesses may make their purchases through other outlets. Channel structures range from two to five levels. The simplest is a two-level structure in which goods and services move directly from the manufacturer or provider to the consumer. Two-level structures occur in some industries where consumers are able to order products directly from the manufacturer and the manufacturer fulfills those orders through its own physical distribution system. In a three-level channel structure retailers serve as intermediaries between consumers and manufacturers. Retailers order products directly from the manufacturer, and then sell those products directly to the consumer. A fourth level is added when manufacturers sell to wholesalers rather than to retailers. In a four-level structure, retailers order goods from wholesalers rather than manufacturers. Finally, a manufacturer's agent can serve as an intermediary between the manufacturer and its wholesalers, creating a five-level channel structure consisting of the manufacturer, agent, wholesale, retail, and consumer levels. A five-level channel structure might also consist of the manufacturer, wholesale, jobber, retail, and consumer levels, whereby jobbers service smaller retailers not covered by the large wholesalers in the industry. BENEFITS OF INTERMEDIARIES If selling directly from the manufacturer to the consumer was always the most efficient methodology for doing business, the need for channels of distribution would be obviated. Intermediaries, however, provide several benefits to both manufacturers and consumers: improved efficiency, a better assortment of products, reutilizations of transactions, and easier searching for goods as well as customers. The improved efficiency that results from adding intermediaries in the channels of distribution can easily be grasped with the help of a few examples. Take five manufacturers and 20 retailers, for instance. If each manufacturer sells directly to each retailer, there are 100 contact lines—one line from each manufacturer to each retailer. The complexity of this distribution arrangement can be reduced by adding wholesalers as intermediaries between manufacturers and retailers. If a single wholesaler serves as the intermediary, the number of contacts is reduced from 100 to 25: five contact lines between the manufacturers and the wholesaler, and 20 contact lines between the wholesaler and the retailers. Reducing the number of necessary contacts brings more efficiency into the distribution system by eliminating duplicate efforts in ordering, processing, shipping, etc. In terms of efficiency there is an effect of diminishing returns as more intermediaries are added to the channels of distribution. If, in the example above, there were three wholesalers instead of only one, the number of essential contacts increases to 75: 15 contacts between five manufacturers and three wholesalers, plus 60 contacts between three wholesalers and 20 retailers. Of course this example assumes that each retailer would order from each wholesaler and that each manufacturer would supply each wholesaler. In fact geographic and other constraints typically eliminate some lines of contact, making the channels of distribution more efficient. Intermediaries provide a second benefit by bridging the gap between the assortment of goods and services generated by producers and those in demand from consumers. Manufacturers typically produce large quantities of a few similar products, while consumers want small quantities of many different products. In order to smooth the flow of goods and services, intermediaries perform such functions as sorting, accumulation, allocation, and creating assortments. In sorting, intermediaries take a supply of different items and sort them into similar groupings, as exemplified by graded agricultural products. Accumulation means that intermediaries bring together items from a number of different sources to create a larger supply for their customers. Intermediaries allocate products by breaking down a homogeneous supply into smaller units for resale. Finally, they build up an assortment of products to give their customers a wider selection. A third benefit provided by intermediaries is that they help reduce the cost of distribution by making transactions routine. Exchange relationships can be standardized in terms of lot size, frequency of delivery and payment, and communications. Seller and buyer no longer have to bargain over every transaction. As transactions become more routine, the costs associated with those transactions are reduced. The use of intermediaries also aids the search processes of both buyers and sellers. Producers are searching to determine their customers' needs, while customers are searching for certain products and services. A degree of uncertainty in both search processes can be reduced by using channels of distribution. For example, consumers are more likely to find what they are looking for when they shop at wholesale or retail institutions organized by separate lines of trade, such as grocery, hardware, and clothing stores. In addition, producers can make some of their commonly used products more widely available by placing them in many different retail outlets, so that consumers are more likely to find them at the right time. WHAT FLOWS THROUGH THE CHANNELS Members of channels of distribution typically buy, sell, and transfer title to goods. There are, however, many other flows between channel members in addition to physical possession and ownership of goods. These include promotion flows, negotiation flows, financing, assuming risk, ordering, and payment. In some cases the flow is in one direction, from the manufacturer to the consumer. Physical possession, ownership, and promotion flow in one direction through the channels of distribution from the manufacturer to the consumer. In other cases there is a two-way flow. Negotiation, financing, and the assumption of risk flow in both directions between the manufacturer and the consumer. Ordering and payment are channel flows that go in one direction from the consumer to the manufacturer. There are also a number of support functions that help channel members perform their distribution tasks. Transportation, storage, insurance, financing, and advertising is tasks that can be performed by facilitating agencies that may or may not be considered part of the marketing channel. From a channel management point of view, it may be more effective to consider only those institutions and agencies that are involved in the transfer of title as channel members. The other agencies involved in supporting tasks can then be described as an ancillary or support structure. The rationale for separating these two types of organizations is that they each require different types of management decisions and have different levels of involvement in channel membership. Effective management of the channels of distribution involves forging better relationships among channel members. With respect to the task of distribution, all of the channel members are interdependent. Relationships between channel members can be influenced by how the channels are structured. Improved performance of the overall distribution system is achieved through managing such variables as channel structure and channel flows. SELECTING CHANNELS FOR SMALL BUSINESSES Given the importance of distribution channels—along with the limited resources generally available to small businesses—it is particularly important for entrepreneurs to make a careful assessment of their channel alternatives. In evaluating possible channels, it may be helpful first to analyze the distribution channels used by competitors. This analysis may reveal that using the same channels would provide the best option, or it may show that choosing an alternative channel structure would give the small business a competitive advantage. Other factors to consider include the company's pricing strategy and internal resources. As a general rule, as the number of intermediaries included in a channel increase, producers lose a greater percentage of their control over the product and pay more to compensate each participating channel level. At the same time, however, more intermediaries can also provide greater market coverage. Among the many channels a small business owner can choose from are: direct sales (which provides the advantage of direct contact with the consumer); original equipment manufacturer (OEM) sales (in which a small business's product is sold to another company that incorporates it into a finished product); manufacturer's representatives (salespeople operating out of agencies that handle an assortment of complimentary products); wholesalers (which generally buy goods in large quantities, warehouse them, then break them down into smaller shipments for their customers—usually retailers); brokers (who act as intermediaries between producers and wholesalers or retailers); retailers (which include independent stores as well as regional and national chains); and direct mail. Ideally, the distribution channels selected by a small business owner should be close to the desired market, able to provide necessary services to buyers, able to handle local advertising and promotion, experienced in selling compatible product lines, solid financially, cooperative, and reputable. Since many small businesses lack the resources to hire, train, and supervise their own sales forces, sales agents and brokers are a common distribution channel. Many small businesses consign their output to an agent, who might sell it to various wholesalers, one large distributor, or a number of retail outlets. In this way, an agent might provide the small business with access to channels it would not otherwise have had. Moreover, since most agents work on a commission basis, the cost of sales drops when the level of sales drops, which provides small businesses with some measure of protection against economic downturns? When selecting an agent, an entrepreneur should look for one who has experience with desired channels as well as with closely related—but not competitive—products. Other channel alternatives can also offer benefits to small businesses. For example, by warehousing goods, wholesalers can reduce the amount of storage space needed by small manufacturers. They can also provide national distribution that might otherwise be out of reach for an entrepreneur. Selling directly to retailers can be a challenge for small business owners. Independent retailers tend to be the easiest market for entrepreneurs to penetrate. The merchandise buyers for independent retailers are most likely to get their supplies from local distributors, can order new items on the spot, and can make adjustments to inventory themselves. Likewise, buyers for small groups of retail stores also tend to hold decision-making power, and they are able to try out new items by writing small orders. However, these buyers are more likely to seek discounts, advertising allowances, and return guarantees. Medium-sized retail chains often do their buying through a central office. In order to convince the chain to carry a new product, an entrepreneur must usually make a formal sales presentation with brochures and samples. Once an item makes it onto the shelf, it is required to produce a certain amount of revenue to justify the space it occupies, or else it will be dropped in favor of a more profitable item. National retail chains, too, handle their merchandise buying out of centralized offices and are unlikely to see entrepreneurs making cold sales calls. Instead, they usually request a complete marketing program, with anticipated returns, before they will consider carrying a new product. Once an item becomes successful, however, these larger chains often establish direct computer links with producers for replenishment. McDonald's had been working critically on its supply chain part. Considering, an international brand trying to make inroads into the Indian consciousness, its Indian supplier partners were developed in such a manner that made them stay with the company from the beginning. Bakshi explains,
The success of McDonald's India is a result of its commitment to sourcing almost all its products from within the country. For this purpose, it has developed local Indian businesses, which can supply them the highest quality products required for their Indian operations.
As per today's standings, McDonald's India works with as many as 38 Indian suppliers on a long-term basis, besides several others standalone restaurants working with it, for various requirements. In the supply chain management for a QSR, the distribution centers hold special place for bringing food right to the outlet counters. For McDonald's India, the distribution centers came in the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and the latest one in Kolkata (2007). McDonald's entered its first distribution partnership agreement with Radha Krishna Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. The association goes back to July 1993, when it studied the nuances of McDonald's operations and requirements for the Indian market. Recalling the association, Bakshi remarks,
Better facilities and infrastructures were created along with new systems by them to satisfy McDonald's high demands, which finally culminated into an agreement with McDonald's India, for Radha Krishna Foodland to serve as distribution centers for our restaurants in Delhi and Mumbai.
As distribution centers, the company was responsible for procurement, the quality inspection programmed, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value-added services like shredding of lettuce, re-packing of promotional items continued since then at the centers playing a vital role in maintaining the integrity of the products throughout the entire 'cold chain'. The operations and accounting is totally transparent and is subject to regular audits.
McDonald's had worked aggressively to attain the right suppliers and systems that ensured that 90 per cent of yield was indigenous before the doors were opened to consumers. The only products that we used to import were oil and fries, for which we have had made arrangements to manufacture the oil in India. We ensured that the products developed locally abide by global McDonald's standards,
informs Bakshi. Over the last 10 years, the company has gained experience and adopted procedures that helped in maintaining a continuous supply of food products irrespective of the climatic conditions. Bakshi proclaims,
Our logistics and warehousing system is robust that prepares us to deliver products at the same temperature throughout, without a single break in the cold chain.
McDonald's suppliers in India Amrit Foods: Amrit Foods, a division of Amrit Banaspati, has been associated with McDonald's India as a supplier of Dairy Mixes, Soft Serve Mix and Milk Shake Mix for over a decade now Cremica Industries: Cremica Industries was started in 1980 as small ice-cream unit run by Mrs. Bector out of her backyard in Ludhiana. However after its initial success Cremica added buns and biscuits to its product line and in 1996 McDonald's selected Cremica to be its supplier for buns, liquid condiments, batter and breading in collaboration with its international partners Dynamix Dairies: McDonald's India has approved Dynamix Dairies, Baramati (Maharashtra) for supply of cheese to its restaurants. Dynamix has a modern automated plant that is fully computer controlled Trikaya Agriculture: Trikaya Agriculture is McDonald's supplier of fresh iceberg lettuce. The farms at Talegaon, Maharashtra produce the crop throughout the year Strengthening the backbone Suppliers are proclaimed to be the backbone of any good business as they are the individual units that build supply chain. On them depends the health of the overall business cycle. Highlighting McDonald's role in developing its supply chain network, Bakshi says,
Cremica Industries (which provide liquid condiments, batter and breading), for example, worked with another McDonald's supplier from Europe to develop technology and expertise that allowed the company to expand it business from baking to providing breading and batters to McDonald's India and other companies as well.
Another benefit in the company's favor was its expertise in the areas of agriculture, which allowed it, along with its suppliers, to work with farmers in Ooty, Pune, Dehradun and other regions to cultivate high quality iceberg lettuce. Bakshi says,
There has been a substantial effort on sharing advanced agricultural technology and expertise with farmers/suppliers like utilization of drip irrigation systems (for less water consumption), better seeds and agricultural management practices for greater yields.
Another area of concern is the sensitive price indexes of the food materials that McDonald's uses and to tackle price fluctuations, the company goes with yearly rate agreements with suppliers. McDonald's took special care in identifying the positives of their suppliers and added their expertise to improve on their existing standard. Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such enterprise that is an intrinsic part of the cold chain. MCDONALD’S IN INDIA 3495675104775McDonald's India is a joint-venture company managed by Indians. McDonald’s India, a subsidiary of McDonald’s USA, has expanded Its presence in India via 2 joint venture companies – Connaught Plaza restaurants and Hard castle restaurants. McDonald’s (India) has a 50 per cent equity stake each in both joint venture companies. Connaught Plaza restaurants manages operations and expansions across North India (Delhi, Jaipur and Punjab) – led by Vikram Bakshi – and hard castle restaurants, which is headed by Amit Jatia, manages operations and expansions across Western India (Mumbai, Pune, and Gujarat). Around the world, McDonald's traditionally operates with local partners or local management. In India too, McDonald's purchases form local suppliers. McDonald's constructs its restaurants using local architects, contractors, labour and - where possible – local materials. McDonald's hires local personnel for all positions within the restaurants and contributes a portion of its success to communities in the form of municipal taxes and reinvestment. Six years prior to the opening of the first McDonald's restaurant in India, McDonald's and its international supplier partners worked together with local Indian Companies to develop products that meet McDonald's rigorous quality standards. Part of this development involves the transfer of state-of-the-art food processing technology, which has enabled Indian businesses to grow by improving their ability to compete in today’s international markets. Mr. Jatia and Mr. Bakshi McDonald’s worldwide is well known for the high degree of respect to the local culture. McDonald's has developed a menu especially for India with vegetarian selections to suit Indian tasted and culture. Keeping in line with this McDonald's does not offer any beef and pork items in India. McDonald's has also re-engineered its operations to address the special requirements of a vegetarian menu. The cheese and cold sauces used in India is 100% vegetarian. Vegetable products are prepared separately, using dedicated equipment and utensils. Also in India, only vegetable oil is used as a cooking medium. This separation of vegetarian and non-vegetarian food products is maintained throughout the various stages of procurement, cooking and serving. The McDonald's philosophy of Quality, Service, Cleanliness and Value (QSC&V) is the guiding force behind its service to the customers. McDonald’s India serves only the highest quality products. All McDonald’s suppliers adhere to Indian Government regulations on food, health and hygiene while continuously maintaining their own recognized standards. All McDonald’s products are prepared using the most current state-of-the-art cooking equipment to ensure quality and safety. At McDonald’s, the customer always comes first. McDonald’s India provides fast friendly service- the hallmark of McDonald’s that sets its restaurants apart from others. McDonald’s restaurants provide a clean, comfortable environment especially suited for families. This is achieved through McDonald’s stringent cleaning standards, carefully adhered to. McDonald’s menu is priced at a value that the largest segment of the Indian consumers can afford. McDonald’s does not sacrifice quality for value – rather McDonald’s leverages economies to minimize costs while maximizing value to customers. The company has invested Rs 450 crore so far in its India operations out of its total planned investment of Rs 850 crore till 2007.McDonald’s India Pvt. Ltd. has moved an application to the government seeking permission for payment and remittance of the initial franchise fee and royalty to Mc Donald’s Corporation. The permission has been sought on two grounds: McDonald’s India would pay an initial franchise fee of $45,000 on each of the McDonald’s restaurants already franchised or to be franchised, in the future, in India; and a royalty equal to 5 per cent of the gross sales from the operations of all its Indian restaurants on a monthly basis to McDonald’s. CHANNEL STRUCTURE OF THE COMPANY Vertical Marketing System (VMS) Vertical marketing systems are coordinated and integrated channels. Contractual VMS A franchise is an example of a contractual VMS. The franchisee signs an agreement with the franchisor and has to agree to various stipulations. The franchisee, however, gets training and the right to use the name. Many of the well-known fast food restaurants (Burger King, MacDonald’s, and Kentucky Fried Chicken) are franchises. Channel Members Amrit Foods: Amrit Foods, a division of Amrit Banaspati, has been associated with McDonald's India as a supplier of Dairy Mixes, Soft Serve Mix and Milk Shake Mix for over a decade now Cremica Industries: Cremica Industries was started in 1980 as small ice-cream unit run by Mrs Bector out of her backyard in Ludhiana. However after its initial success Cremica added buns and biscuits to its product line and in 1996 McDonald's selected Cremica to be its supplier for buns, liquid condiments, batter and breading in collaboration with its international partners Dynamix Dairies: McDonald's India has approved Dynamix Dairies, Baramati (Maharashtra) for supply of cheese to its restaurants. Dynamix has a modern automated plant that is fully computer controlled Trikaya Agriculture: Trikaya Agriculture is McDonald's supplier of fresh iceberg lettuce. The farms at Talegaon, Maharashtra produce the crop throughout the year Rolls, Responsibilities, importance, functions of Channel Members Potato Farming In Gujarat McDonald's India, even prior to its entry into India, was committed to working with local suppliers and farmers to source all its requirements. The company therefore spent 6 years and around Rs. 450 crore to set up the food supply chain even before opening its first restaurant in the country. India, despite being the world’s second largest producer of food, loses nearly Rs.50,000 crore worth of food produce due to wastage at various levels, especially due to lack of proper infrastructure for storage and transportation. McDonald's India has pioneered the cold chain management system wherein the freshness, crispness and nutritional value of vegetables and processed products are retained. In 1991, McDonald's was looking for a particular variety of potato for manufacturing its world famous French fries. One of McDonald’s suppliers – Lamb Weston – invested heavily in setting up production lines to process these potatoes and make the fries. However, production was discontinued, as the right quality of potatoes could not be sourced. The right quality potato in India was unavailable as farmers used seeds from the preceding crop, which in turn resulted in a single variety and poor quality potatoes. McDonald’s needed the process-grade variety of potato for its products, which are as per McDonald's international quality standards. The variety of potato required by McDonald’s had to have a certain length, high solids content and low moisture content while the ones that were available were of the table-grade variety. Nonetheless, as per its initial commitment to local sourcing, McDonald's and its supplier partner, McCain Foods Pvt. Ltd., began to work closely with farmers in Gujarat and Maharashtra to develop process-grade potato varieties. McCain Foods Pvt. Ltd. is the world’s largest French Fry Company in the world. Established in 1957, today it is a brand that is known and respected in more than 100 countries, generating worldwide sales of more than $5.5 billion. It has more than 55 processing plants on 4 continents (29 of which are French fry and potato specialty facilities) and exports to more than 80 countries worldwide. Leaders in agronomy, technology and innovation, McCain Foods Pvt. Ltd. partnered with McDonald’s to work with farmers in Gujarat (specifically the towns of Deesa and Kheda) to interact with agronomists and field assistants to demonstrate the best practices – right from better agronomy techniques like irrigation system, sowing seed treatments, planting methods, fertilizer application programmes and better storage methods for the produce. In addition to this, the farmers also benefit through incremental monetary gains as they sell directly to McCain Foods Pvt. Ltd. instead of commission agents. The result of these efforts has been that now the Gujarat potato crop has been utilised to make McDonald’s ‘Chatpatey’ Potato Wedges.Radhakrishna Foodland (P) Ltd. Radhakrishna Foodland - Distribution CentreAn integral part of the Radhakrishna Group, Foodland specialises in handling large volumes, providing the entire range of services including procurement, quality inspection, storage, inventory management, deliveries, data collection, recording and reporting. Salient strengths are :A one-stop shop for all distribution management services.Dry and cold storage facility to store and transport perishable products at temperatures up to - 22 Degrees Celsius.Effective process control for minimum distribution cost.McDonald’s Distribution Partner Radhakrishna Foodland (P) Ltd. [“Foodland”] is a part of the Radhakrishna Group, which is engaged in food and related service businesses. From July 1993, much before McDonald’s started its operations in India, sincere efforts were made by Foodland to carefully understand McDonald’s operations and requirements for the Indian market. Better facilities and infrastructures were created and new systems were adopted to satisfy McDonald’s demands. Finally, all those efforts put in by Foodland culminated into a handshake agreement with McDonald’s India, to serve as Distribution Centres for their restaurants in Mumbai. So began the mutually beneficial business association between the two companies. The division has focused all its resources to meet McDonald’s expectation of ‘Cold, Clean, On-time delivery’. From this evolved the mission statement, ‘To ensure that all McDonald’s restaurants are supplied without interruption, products conforming to acceptable standards at lowest local costs to the system.’ The Distribution Centre (DC) is responsible for procurement, quality inspection programme, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value added services like repacking of promotional items are also carried out at the DC. The DC plays a very vital role in maintaining the integrity of the products throughout the entire ‘cold chain’ – the distribution system that ensures the products, which arrive at McDonald’s restaurants from suppliers all over India, are absolutely fresh and as per McDonald’s Quality Standards. All these operations need to be managed in the most cost- effective manner.The operations and accountings are totally transparent and are subject to regular audit. McDonald’s introduced Foodland to F. J. Walkers of Australia, which resulted in an affiliation between the two companies to develop the distribution set-up in India. The association has helped Foodland to refine its operations to achieve the following: • Designing and establishing the distribution system to handle large volumes. • Engineering the storage and delivery network to service the unique requirements at each of the customer’s locations. • Devising delivery schedules to minimise business interruption and maximise efficiency so that store managers know exactly what to expect and when. • Maintaining open communication lines with customers, suppliers and all business associates. • Emerging as a key system player after realising the inter-dependence of all the associates in the McDonald’s business system. • Transferring some of the good distribution practices to other divisions of the group. The company has also invested in ERP Software to bring in efficiency, speed and accuracy into the system. Foodland is the first Indian company engaged in such business to have customized software for smoother operations. As a sign of increasing confidence in Foodland’s operations, McDonald’s agreed to terminate the technical support till then provided to Foodland by F. J. Walkers of Australia. Foodland is a member of McDonald’s Asia Pacific Logistics and Distribution Team, which helps them to sharpen their skills and benchmark its efficiency measures with elsewhere in McDonald’s Asia Pacific Zone. The beginning has been made and Foodland is highly optimistic that with the active support from McDonald’s and its business associates, it can reach even greater heights in the future and become a pioneer in the organised food distribution system. Foodland’s association with McDonald’s India is a typical example of McDonald’s support and commitment to its local partners, who are now growing as McDonald’s grows.Vista Processed Foods Pvt. Ltd.Vista Processed Foods Pvt. Ltd. - Supplier of Chicken and Vegetable range of products A joint venture with OSI Industries Inc., USA, and McDonald's India Pvt. Ltd. Vista Processed Foods Pvt. Ltd. produces a range of frozen chicken and vegetable foods. A world class infrastructure at its plant at Taloja, Maharashtra, has :Separate processing lines for chicken and vegetable foods.Capability to produce frozen foods at temperature as low as -35 Degree Celsius to retain total freshness.International standards, procedures and support services. McDonald’s Supplier Of Chicken And Vegetable Products Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the chicken and vegetable range of products, is another important player in this cold chain. Technical and financial support extended by OSI Industries Inc., USA and McDonald’s India Private Limited have enabled Vista to set up world-class infrastructure and support services. This infrastructure includes hi-tech refrigeration plants for manufacture of frozen food at temperatures as low as - 35° C. This is vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is maintained. The frozen product is immediately moved to cold storage rooms. With continued assistance from its international partners, Vista has installed hi-tech equipment for both the chicken and vegetable processing lines, which reflect the latest food processing technology (de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the latest vegetable mixers and blenders are in operation. Also, keeping cultural sensitivities in mind, both processing lines are absolutely segregated and utmost care is taken to ensure that the vegetable products do not mix with the non-vegetarian products. Now, at Vista, a very wide range of frozen and nutritious chicken and vegetable products is available. Ongoing R&D, both locally and in the parent companies, work towards innovation in taste, nutritional value and convenience. These products, besides being supplied to McDonald's, are also offered to institutions like star-rated hotels, hospitals, project sites, caterers, corporate canteens, schools and colleges, restaurants, food service establishments and coffee shops. Today, production of high quality frozen foods that are both nutritious and fresh have made Vista a name to reckon within the industry.Dynamix Dairy Dynamix Diary - Supplier of CheeseDynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up a network of milk collection centres equipped with bulk coolers. Easy accessibility has enabled farmers augment their income by finding a new market for surplus milk. The factory has:Fully automatic international standard processing facility.Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein & whey protein and humanised baby food.Stringent quality control measures and continuous Research & Development McDonald’s Supplier of Cheese Towards fulfilling its commitment to sourcing almost all of its products from local suppliers, McDonald’s has identified local Indian businesses which share its level of commitment and dedication in satisfying customers by supplying them the highest quality products. The relationship between McDonald’s and its Indian suppliers benefits both parties. For McDonald’s – world-class products of the highest quality are readily available from local sources. For the suppliers – the opportunity to expand their business, have access to the latest technology and exposure to advanced practices – as well as the ability to grow as McDonald’s expands in India. Through McDonald’s, the suppliers also get access to overseas markets to export their products. One of the best example of this supplier relationship is evident in the case of the multi crore Dynamix Group, McDonald’s supplier of cheese in India. McDonald’s India has approved Dynamix Dairy, Baramati (Maharashtra) for the supply of cheese to its restaurants, which has 100% computer control, high tech automation equipment. Baramati is small district, which has a large number of milch cattle. However, average land holding per farmer is very low and the farms are scattered across the countryside. Due to this scattering of farms, a long period of time elapses between the milking of the cows and bringing it to the dairy farm for final refrigeration. The lack of proper refrigeration can impact the quality of milk – and the farmer does not get a good price for his product. Owing to the lack of infrastructure in Baramati, milk producers were not able to channel the surplus milk to places outside Baramati. Within the region, the market was not large enough. Consequently, milk producers were throwing away the excess milk and increasingly opting out of the milk business. Recognising the need for quality milk to make quality cheese, Dynamix set up a dedicated quality program for milk procurement and invested significantly in setting up bulk coolers at all milk collection centres in the Baramati area. Efforts were made to see that the bulk cooling centres were located at an accessible location so that the farmer had to travel only a distance of 1-2 km from his farm to the collection centre, drastically reducing the time from milking to refrigeration. On receipt, the milk is immediately stored in the bulk coolers installed in Dynamix’s 45 milk collection centres, to prevent further growth of bacteria in the milk and preserving its freshness – thus, maintaining the ‘cold chain.’ The company also provided these centres with electronic testing and measuring instruments so that the milk producer could be given an exact value for his milk. This helped the farmer to improve yield and quality as well as obtain a better price for his milk. To support this, a passbook system was also introduced so that the farmer could keep a record of his milk production and its quality. A model demonstration dairy farm with a dedicated R&D centre was established to educate milk producers with the latest concepts in modern dairy – animal management – hygiene and cleanliness, regulated feeding, disease control and the genetic improvement of milch cattle to increase the yield and ensure consistent high quality. Moreover, modern equipment involving utilisation of natural resources like the use of solar energy to heat water for cleaning and sanitizing the milk containers have also been installed subsequently. To encourage these improvements in quality standards and world class manufacturing capabilities at Dynamix, McDonald’s introduced Dynamix to two of its global suppliers – Schreiber Foods, USA and Erie Foods, USA. This resulted in a joint venture with one company and an export order worth $12 million per year from the other company. It also helped Dynamix in acquiring technology to market a large number of high quality, value-added milk products. Dynamix Dairy’s association with McDonald’s India is a typical example of McDonald’s commitment to its local suppliers, especially at the grass root level, who not only gain by the technology transfers, but also by obtaining a better price for their products. McDonald’s and Dynamix Dairy’s efforts not only helped milk-producing farmers to find a market for their produce, but has also helped them to increase their surplus produceTrikaya AgricultureTrikaya Agriculture - Supplier of Iceberg LettuceImplementation of advanced agricultural practices has enabled Trikaya to successfully grow speciality crops like iceberg lettuce, special herbs and many oriental vegetables. Farm infrastructure features:A specialised nursery with a team of agricultural experts.Drip and sprinkler irrigation in raised farm beds with fertiliser mixing plant.Pre-cooling room and a large cold room for post harvest handling.Refrigerated truck for transportation. McDonald’s Supplier Of Fresh Iceberg Lettuce McDonald’s India benefits other Indian businesses through local sourcing. Worldwide, too, McDonald’s has brought benefits consistently to the community by working with local businesses, which could grow as McDonald’s grew. By forming partnerships with the local suppliers, based on trust and the mutual desire to grow, McDonald’s has set the stage for enormous success for a large number of companies from which it purchases supplies and services. Working with these local suppliers, McDonald's and its international supplier network has helped transfer to them advanced technology and state-of-the-art procedures in the areas of agriculture, food processing, warehousing and distribution, restaurant equipment manufacturing, restaurant operations and other disciplines related to the food service industry. For example, McDonald's partnership with local produce suppliers has stimulated the introduction of new farming techniques and widened geographic areas of production. Agricultural suppliers to the company are now employing the most current farming practices – resulting in better cropping patterns, greater yields, higher farm income and increased jobs within the rural farming sector. One of the best examples of this supplier development is Trikaya Agriculture, McDonald's supplier of fresh iceberg lettuce. Initially lettuce could only be grown during the winter months but with McDonald's expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is now able to grow this crop all the year round. McDonald's has provided assistance in the selection of high quality seeds, exposed the farms to advanced drip – irrigation technology and helped develop a refrigerated transportation system allowing a small agro–business in Maharashtra to provide fresh, high quality lettuce to McDonald's urban restaurant locations thousands of kilometers away. Today, Trikaya Agriculture is a major supplier of iceberg lettuce to McDonald's India for their Indian operations. OversupplyChoiceImitationMore OfferingsSmarter CustomersNew ProductsOr ServicesPriceOptionsNew Distribution TechniquesValuePrice Exposure to better agricultural management practices and sharing of advanced agricultural technology with McDonald’s has made Trikaya Agriculture extremely conscious of delivering its products with utmost care and quality. Its post harvest facilities include a cold chain consisting of a vacuum pre cooling room to remove field heat, a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of this crop is maintained between 1° C and 4° C and 95% respectively. Vegetables are in the pre cooling room within half an hour of harvesting. The pre – cooling room ensures rapid cooling to 2° C within 90 minutes. The pack house, pre cooling and cold room are located at the farms itself, ensuring no delay between harvesting, pre cooling, packaging, and cold storage. Thus 0% spoilage and freshness are maintained. Besides supplying to McDonald's, Trikaya Agriculture has also a plan to export this high value product to other international markets, especially to McDonald's Middle East operations. McDonald's expertise in packaging, handling and long distance transportation has helped Trikaya to do trial shipments to the Gulf successfully and a large amount of snow peas to Austrian markets. In addition to export, McDonald's assistance has enabled Trikaya Agriculture to supply this crop to a number of star-rated hotels, clubs, flight kitchens and offshore catering companies all over India. Trikaya Agriculture’s association with McDonald's India is typical of McDonald's commitment to local sourcing and the opportunity this provides to the suppliers to expand their business, have access to the latest in food processing technology and acquire exposure to advanced agricultural practices.Gap AnalysisProduct & Market StrategyOfficially McDonalds names three elements in their strategy to be the world’s best quick servicerestaurant: People (being the best employer), Customers (providing them excellence) and SystemGrowth (for owners/operators, suppliers and company).McDonalds has always been a franchising Company and has relied on its franchisees to play a major role in its success. McDonalds remains committed to franchising as a predominant way of doing business. Approximately 70% of McDonalds worldwide restaurant businesses are owned and operated by independent businessmen and women, our franchisees’. Usually, McDonalds offers franchises to poor performing restaurants in order to sustain profitability.Advertising is used to differentiate McDonalds’ products from competitors and as a means of branding: Advertising Spend in 2001 amounted to £39m (KFC: £14m, Burger King: £8.6m, Pizza Hut: £7.4m).Furthermore, McDonalds is involved in various high profile sponsorship schemes (e.g. majorSponsor of FIFA World Cup, ‘gold’ sponsor and official restaurant of the Olympic Games) that secures them favourable PR.Recently McDonalds acquired Boston Market Chicken restaurants, the Donatos pizza chain and Chipotle Mexican Grill. In the UK, it purchased the Aroma coffee chain and 33% of Pret A Manger. This demonstrates that McDonalds has diversified into other segments of the fast food/ convenience /take away market. McDonalds is the world’s largest food service organisation.It has the greatest market share of the breakfast, lunch and dinner market and holds 67% of the UK Burger Market. McDonalds’ golden arches are the world’s biggest brand with higher awareness than Coca-Cola. McDonalds is constantly introducing new products, usually for a limited period of time. This is because management recognise that consumers like variety as well as a continuation of good products such as Big Macs and Cheeseburgers. Also, they are well aware that if McDonalds has too many products running at the same time then the speed of customer service will deteriorate.However, McDonalds has not introduced healthier products in response to growing concerns about obesity.It is difficult to evaluate the extent to which McDonalds fulfils customers’ demands. In the 2001 consumer survey conducted by Sandelman & Associates, McDonald’s was ranked as last out of 60 chains for taste. Statistics that describe McDonalds cleanliness are not available and therefore the achievement of this objective is difficult to examine, but anecdotal evidence suggests that suitable policies are in place to meet that objective. Customer service quality is difficult to assess but it is renowned for being quick.Ethical StanceMcDonalds believes their ethical stance is a way of thinking, caring, and responding to issues within society, illustrating that they are a socially responsive organisation. They go beyond meeting the legal standards for corporate behaviour, whilst also addressing people’s concerns. ‘McDonalds goal is to utilise and leverage every opportunity to advance the level of awareness and depth of 6 March 2003 understanding of various social responsibility issues, policies and practices so that they can increase their contribution to society’. This assists McDonalds in their objectives of continuing to build a relationship with their customers and being a genuine part of the fabric of British society. McDonalds has gone through many changes to achieve the ethical stance it holds today; for instance, they have developed global guiding principles requiring suppliers to meet and exceed government laws, regulations and industry standards helping to improve the treatment of animals and workers. Although this has been very successful in the UK and US, such abusive confinement systems have yet to be phased out anywhere else in the World. This has been reported on many occasions by the press and the Government agency ‘Business for Social Responsibility’ identifying that international standards are needed. McDonald’s has tried to respond to many claims by introducing the corrective action plan.McDonalds support to many charities has helped them to achieve and show their commitment tobeing a good neighbour and partner within communities. In addition, the set up of the Ronald McDonald Housing Charity has helped to provide a better relationship with society and enhance the McDonalds image. However, this is seen as hypocritical within society partially because of the latest issue of McDonalds food creating soaring rates of childhood obesity (see The Guardian (26.Nov 2002) Youngster sue for McDonald’s for failing to warn that fast food can lead to obesity),heart disease, and diabetes, which customers are not warned about. This exerts stress on McDonalds’ goal of ‘doing what is right’. McDonalds’ strategy to overcome this problem is to provide nutritional information about every product it sells, while also putting fruit, salads, and pasta meals onto its menu. This is helping McDonalds to move away from its junk food image. Although nutritional information is now accessible, more customers need to be made aware that this information is available.Environmental PoliciesMcDonalds is wholly committed to sustainable environmental practices believing in thinking for thefuture generation and not misusing the facilities of today. In terms of facilities, McDonalds is actively involved in exploring the use of alternative refrigerants and as a result is working alongside the United Nations Environmental Programme and the US Environmental Protection Agency (EPA). This organisation wishes to open a HFC (hydrofluorocarbon) free restaurant in 2003. In terms of these actual practices, McDonalds purchases recycled products through the McRecycle program which boasts the largest available database on recycling suppliers. This scheme has also set a guideline that a minimum of $100 million a year is to be spent on buying recycled materials of all kinds such as Happy Meal boxes, carryout bags and carryout trays. During the 1990s, McDonalds recycled more than two million tons of corrugated cardboard. The organisation also boasts that various stores located in Germany have an in-store recycling collection system where customer waste is recycled. Wastage is another grave concern where many companies fail in terms of utilising the available resources. The Environmental Defence has a direct alliance with McDonalds and through this alliance it has allowed the organisation to make significant packaging changes, including, switching to recycled carry-out bags, unbleached napkins and tray liners, and shipping boxes with nearly half-recycled contents. The organisation is also a member of several environmental organisations and is currently spending considerable amounts on research related to conserving and protecting natural resources. This organisation takes aggressive measures to minimise energy and other forms of resource consumption through increased conservation and efficiency. McDonalds has a strict policy which does not permit the destruction of rain forests for their cattle farming.Although many multinational companies have many views on how they approach the issue of environmental concern, few ensure accountability procedures. McDonalds appoints environmental affairs officers and these officers are given broad based responsibilities to ensure that this organisation is fulfilling its environmental objectives. These officers are in regular contact with the board of directors and report specifically on environmental factors.Gap Analysis:The major issue that McDonalds has to deal with is related to developing quantifiable data for ongoing environmental performance. Essentially, because McDonalds as an organisation is related to the services industry there are little statutory requirements by law or regulation to record environmental data. Through having little quantifiable data, there is no physical evidence of actually achieving the necessary environmental aims and objectives. This organisation has just developed their own Environmental Management System and this will help monitor annually the environmental aspect of McDonalds. Through monitoring they can then improve their environmental policy on a regular basis.Financial PerformanceSignificant Items Restructuring charges $(-266.9) million Restaurant closings/asset impairment $(-402.4) millionTechnology write-off and other charges $(-183.9) million Total significant items $(-853.2) million Profits were down for three main reasons: significant item costs ($853 million), poor performing sites, and economic slowdown. PerformanceMcDonald’s return on capital employed stands at 9%, 23% less than Diageo’s and 11% less than that of the Yum Brands. Their return on shareholders funds stands at 21%, 14% less than Diageo’s and 836% less than that of the Yum Brands. The reason the Stock Holder’s equity is so low is due to the fact that YUM has accumulated deficit and loss of income, which is clearly shown on their consolidated balance sheet. When compared with Diageo and the Yum Brands it can be said that McDonald’s has not done a good job of converting their inputs into outputs.EfficiencyIf you compare McDonalds with Diageo, it’s closest rival, then their Sales per Employee and Profits per Employee are significantly less at -£233,405 and -£45,791 respectively. This is largely due to them having six times more employees. However, if you now compare McDonalds with Yum Brands then they are doing much better. Sales per Employee and Profits per Employee are up by £9,774 and £1,106 respectively. Therefore, McDonalds is quite efficient at using it’s assets to generate profit.LiquidityThe Current Ratio shows the relationship between Current Assets and Current Liabilities. Respectively, a 2 to 1 ratio is good. None of the companies shown have good current ratios so their abilities to meet short-term debts are poor. However, Diageo (the company that owns Burger King 8 March 2003 and Guiness) at least has a greater value of Current Assets to Current Liabilities at a ratio of 1:1. Yum Brands (including Kentucky Fried Chicken and Pizza Hut) has the worst Current Ratio at 0.3.InvestorThe Earnings per share is virtually the same for McDonald’s and Diageo. However, Yum’s figure is $2.67 greater. The Price/Earnings ratio shows considerable variation across the three companies with Yum at 7.12, McDonald’s 23.57, and Diageo 75. Diageo has the most investment potential.Supply side gaps come about when a business finds that the services that it has traditionally offered to customers in the past are now too expensive to justify the value they provide. For example, in the
old days
(i.e., until the early 1990s), travel agents provided a valuable service—they would
match
travelers and airlines, finding a reasonable fare and travel time and issuing the ticket to the customer who, then, did not have to call all the airlines for a fare and then visit the airport or an airline office. However, nowadays, it is much more convenient for consumers to carry e-tickets, and it is frequently easier to go online to compare fares and travel time at one’s convenience. Therefore, travel agents, to command their commissions, will often need to provide something extra that the online services cannot. The problem is that, for most consumers, there just isn’t much that the travel agent can offer other than fancy coffee or donuts, which you can get more conveniently elsewhere anywhere. Maybe they can take passport photos or arrange bus transportation to a cruise ship, but is that enough to justify people coming to them? Online services are starting to offer package deals—air fare, hotel, and car rental—anyway.Finding OpportunitiesAgain, it is important to emphasize the need for market balance. Frequently, there will be room for higher cost services for one segment, and perhaps a diametrically opposed service for the lower cost service. When we talk about McDonalds the first thing which comes in our mind is a burger. This is the result of the excessive promotion of the brand involving the promotion of burgers at the same time. Hence people consider McDonalds only at the time when they feel to have a burger. They need to promote other things as well and the same scale on which the burgers are promoted.Customer satisfaction abounds, and many consumers would like to replace their current suppliers. This can happen either generally—there is a widespread dissatisfaction with banks among consumers, and many would switch if they found one that they thought to provide better service—or the gap can be with one segment that is not being well served. As an example of the latter, consider parents who, if they had not had children, would have been perfectly satisfied with an ordinary Internet service provider but are now worried that their children can be exposed to inappropriate material online. Therefore, the PAX Network, which features family-oriented television programming, stepped in to offer a service that claims to block out most objectionable sites. Further, one auto parts store owned by a woman ran an advertising campaign aimed at women, acknowledging that women were often being asked by their husbands and boyfriends to be
parts runners.
The ad then went on to talk about the cleanliness of the store and non-condescending attitudes of the sales people.When McDonalds are providing a burger the customer is expecting to have a good burger which tastes better from others but when we talk about a burger which is either known as McVegie they want it not only tastes better but also is different from other.Now McDonalds is just like a family restaurant. People visit McDonalds along with their partner and Kids hence they require space and fun.CHANNEL DYNAMICSConventional channel comprise of independent producer, wholesaler & retailer. Each trying to maximize its return.A Vertical Marketing System(VMS): by contrast, comprises of all the three acting in a unified system.Corporate VMS combines successive stages of production and distribution under single ownership. (Bata)Administered VMS coordinates successive stages of production and distribution through the size and power of the distribution (MRF, ITC, HLL).Contractual VMS consists of independent firms at different levels of production & distribution joining together to gain economies of scale. (AMUL) Horizontal Marketing SystemsTwo or more unrelated co.’s come together to exploit an emerging market opportunity. (Super-market providing bank ATM’s).CHANNEL DYNAMICSChannel FuctionsSTRATEGIC ALLIANCES A Strategic Alliance is a formal relationship formed between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk. Types of strategic alliancesVarious terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly, ‘strategic alliances’. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’. According to Yoshino and Rangan the Internationalisation Strategies can be categorized using the model displayed at the right side. Stages of Alliance Formation A typical strategic alliance formation process involves these steps: Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy. Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood. Alliance Operation: Alliance operations involves addressing senior management’s commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance. Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocated resources elsewhere. Wal-Mart has a partnering alliance with Ronald McDonald. In many of their units across the country, proudly displayed, are signs on the store's entrance doors announcing, McDonald's inside and a life-size plastic Ronald, who sits inside on a bench to greet customers. Stores within stores have become commonplace through alliance relationships.In a strategic move, McDonald’s India is currently working with Nestle India to launch a new range of desserts, beverages and other new products in 2003, informs Mr Amit Jatia, managing director, Hardcastle Restaurants Pvt Ltd. In fact, close association with Nestle is the third such alliance for introducing a new range of desserts and beverages. Prior to working with Nestle, they launched McSwirl Cone ice-cream in association with Cadbury’s this year. Through a strategic alliance with Coca-Cola India, we recently introduced Georgia Gold coffee at our outlets.” Ushering in the festive season, the company plans to roll out a host of new marketing initiatives to promote its entire range of products. “As part of promotional campaign, introduction of new Happy Meal Programme called ‘McPirates’ which will run between September 6 and October 3. Our on-going Happy Meal Programme’ called “McDonaldland Puzzles’ will run till September 5, 2002.” On the company’s new product launches, McDonald’s has recently introduced ‘Paneer Salsa Wrap’ priced at Rs 39 and the ‘Chicken Mexican Wrap’ priced at Rs 49. He adds: “The new products are being sold a la carte as well as in a ‘Meal Combo’, which is priced at Rs 82 (net) for the Paneer Salsa Combo and Rs 92 (net) for the Chicken Mexican Combo.As for the target audience for the company’s new launches, “This new products have been designed for adults who are looking for variety in product as well as taste at McDonald’s.”Further, on the positioning of the new product range, research had indicated that they need to address three needs such as variety, filling and making McDonald’s more relevant for the adult. Which is what we have done through these new launches.” In order to enhance brand visibility for ‘Paneer Salsa’ and ‘Chicken Mexican’ wraps, the company plans to release television and radio commercials soon“The Wrap is another step in product innovation at McDonald’s towards its menu becoming more fun, contemporary and relevant to the Indian customer.’’ McDonald’s Strategic IssueTo Consistently Increase Shareholder Value through the Growth of Profits and Market Share in the Fast Food Industry.Pricing Strategies. McDonald's strategy is to offer quality food quickly to customers at a good value. The pricing structure for McDonald's over years has supported this message. The company strives to differentiate itself from other fast food restaurants by offering a variety of menu items that appeal to a variety of people from those who just want great hamburgers, to those who just want a quick healthy meal. McDonald's differentiates itself by offering a dollar menu, combination meals, and a free toy with Happy McDonald's, over the years, has also ran many promostions to increase traffic or product sales. For instance, the most recent roll out has been the 2004 Chicken Selects premium Breast Strips. Right now, you can go to your local McDonald's and
try them free.
With this new product is offered a variation of the
usual
sauces for the Chicken Nuggest - a Chipotle Barbeque sauce is most commonly advertised (www.mcdonalds.com, n.d.). Another promotion was the
Campaign 55
where diners could buy a featured sandwich, like the Big Mac in April, for 55 cents when purchased with fries and a drink. Many other promotions with food, toys, collectibles, videos, and other prizes have been used by McDonald's restaurants over the past 50-plus years. These promotions, some better than others, have helped to keep McDonald's growing and gaining in the fast food world. Value has been an area in which McDonald's has strengthened over time, not only with customers, but within their distribution, channel management, and logistics strategies as well .Distribution, Channel Management, and Logistics. A company the size of McDonald's requires the value chain to be increasingly important. Not only does McDonald's want to add value for the customers, but also the firm looks for ways to improve the operations that makes McDonald's a more efficient business.McDonalds CompetitionStrengthsMcDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11,4009 million), 5.6% sales growthGood innovation and product development. It continually innovates to retain customers in the business.The McDonalds brand offers consumers choice, reasonable value and great serviceLarge amounts of investment have gone into supporting its franchise network, 75% of stores are franchisesLoyal staff and strong management team. WeaknessesCore product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot food and burgers.SeasonalQuality issues across the franchise network. OpportunitiesJoint ventures with retailers (e.g. supermarkets).Consolidation of retailers likely, so better locations for franchisees.Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning.Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modeling and profiles of shoppers) and prevent brand switching.Strengthen its value proposition and offering, to encourage customers who visit coffee shops into McDonalds.The new “formats”, McCafe, having Wifi internet links should help in attracting segments. Also installing children’s play-parks and its focus on educating consumers about health, fitness.Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages.International expansion into emerging markets of China and India. ThreatsSocial changes - Government, consumer groups encouraging balanced meals, 5 a day fruit and vegetables.Focus by consumers on nutrition and healthier lifestyles.Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S.Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors.Pressure groups - environmental. GAP ANALYSIS TEMPLATE . Five Marketing Functions in a Mc. DONALD Channel: Physical FunctionSuppliersCustomerTransporters WarehousesManufacturerTransporters WarehousesDealersTransporters Title FunctionCustomerSuppliersManufacturerDealers CustomerSuppliersPayment FunctionBanksManufacturerBanksDealersBanks Information FunctionCustomerSuppliersTransporters Warehouses BanksManufacturerTransporters Warehouses BanksDealersTransporters Banks Promotion FunctionCustomerAdvertising AgencySuppliersManufacturerAdvertising AgencyDealers Channel Design Options: Three Dimensions of Variation: Number of levels in the channel. Number of intermediaries at each level. Types of intermediaries used at each level. Number of Intermediaries at Each Level: IntermediariesUse as few outlets (intermediaries) as possibleExclusive DistributionIntermediariesSelective DistributionIntermediariesNot all available intermediaries are usedOutletOutletOutletUse as many outlets as possibleOutletOutletOutletIntensive Distribution Types of Intermediaries: Manufacturer’s sales force Manufacturer’s representatives Distributors Consumer Channel Design: ProducerZero-levelConsumerNumber of LevelsOne-levelRetailerWholesalerTwo-levelRetailerThree-levelRetailerWholesalerAgent Industrial Channel Design: ManufacturerZero-levelIndustrialUserNumber of LevelsOne-levelIndustrialDistributorTwo-levelManufacturer’s RepresentativeIndustrialDistributorThree-levelManufacturer’s SalesforceInstallerIndustrialDistributor Issues of Control vs. Resources in Channel Design: Intermediary’s ControlOver Channel FunctionsManufacturer’s Financial ResourcesManufacturer’s Financial ResourcesFewer financial resources requiredLess control given upMore financial resources requiredMore control given upNumber of IntermediariesFewManyHighLow Changes in Life Cycle and Channels: The Case of Mc. Donalds Introductory StageDeclining/ DeathGrowthStageMature StageOutlet(e.g., service utility)Offprice Outlets(e.g., convenience utility)Bigger Outlet(e.g., selection utility)Variety(e.g., lot size utility)Market Growth RateLowHighUtility Added by ChannelLowHigh The STP Process Marketing process of McDonald A fascinating aspect of Mc Donald is the intricate marketing process they employ to gain a stronghold on the market. The marketing process becomes even more involved due to the behaviour of Indian customer being different from that of the western countries, where Mc Donald chains have typically been operating. Even with several outlets in various locations in India, the marketing process of a new outlet typically has to be thought from scratch due to the wide diversity across the country. Product :Mc Donalds product portfolio primarily comprises of vegetarian and non-vegetarian burgers. The vegetarian burgers like Veg surprise, salad sandwich, Mc Aloo Tikki Burger, Mc veggie burger are offered to the customers. Non-vegetatarian burgers include Chicken Mc grill, Mc chicken burger, Fliet of fish and chicken maharaja burger. Along with these french-fries, veg pizza mc puff, wrap chicken Mexican, wrap paneer salsa, potato wedges, soft serve pineapple and choclate ice creams, Mc swirl soft drinks, coffee and Mc shakes are also offered to increase the variety in the product portfolio. Mc Donalds also provides mean combos with medium fries and medium soft drink, happy mean with small soft drink, econo meals with small soft drink and value meals with potato wedges and small soft drink. Segmentation: Geographic: Mc Donalds presence in India has been divided as follows: McDonald's in India is a locally owned and managed company run by Indians, employing local staff, procures from local suppliers to serve its customers. It has 132 Restaurants across India. Age: kids may visit with parents, teenagers, business customers. FLC: Mc Donalds has its basic presence of affirmity amongst kids, forcing people at fullnest stage 1, 2 and 3 to visit the joint. Behavioral: Mc Donald as an image has been set such that people find eating at Mc Donalds perfert for almost everyday occasions. Targeting: Mc Donald’s targets the market with a differentiated (segmented) marketing. Several market segments with separate offers for each. It aims for higher sales and better positions within each segment. Stronger positions within several segments creates more total sales. Combined brand (coke) gives it a higher market share. Positioning: Mc Donald’s might identify various customers on the following basis: A parent with two children : To give the children a treat. Children : As they find it a fun place to eat. A business customer : Visits Mc Donald during rhe work day as the service is quick, the food tastes great, can be eaten in a car without affecting a busy work schedule. Teenagers : visit because the money saver menu is affordable. McDonald's spends more money on advertising and marketing than any other brand. As a result it has replaced Coca-Cola as the world's most famous brand. The key to a successful franchise and chain, according to many texts on the subject, can be expressed in one word:
uniformity.
Franchises and chain stores strive to offer exactly the same product or service at numerous locations. And, according to psychology that Customers are drawn to familiar brands by an instinct to avoid the unknown. A brand offers a feeling of reassurance when its products are always These examples represent just a few of McDonald's possible customer profiles. Each has different reasons for coming to McDonald's. Using this type of information McDonald's can tailor communication to the needs of specific groups. It is their needs that determine the type of products and services offered, prices charged, promotions created and where restaurants are located hence positioning its products in the right way. Mc Donald understands the importance of responsible marketing practices and takes their communications with kids and families seriously. Age appropriate portion sizes for our kids meals. McDonald’s provides nutrition information so parents can make informed choices. Happy Meals are a good source of at least 8 nutrients, including protein, fiber, vitamins and minerals. Ronald McDonald® encourages fitness and active play at community events,charity fundraisers, and videos in schools as a public service. Global “Get Moving with Ronald McDonald™” TV vignettes encourage physical activity. The above points show that Mc Donalds have a serious positioning strategy, penetrating deep into the minds of the target customer. CONCLUSION The distribution channel of McDonald’s is completely based on loyalty and commitment. They know that the Indian population is very much conscious about the taste and quality of the product offered to them. McDonald’s has targeted the emotional weakness of Indian customers by giving them respect and the desired service they always seek for. The supply chain of McDonalds is very simple not as complicated as those located on other parts of the globe. The supply chain consists of only few channel members so that the delivery network is simple and could be managed effectively and efficiently. The supply chain members belong to different parts of India and materials and services provided by them are as per the demand of Indian customers.