McDonald’s PESTEL/PESTLE Analysis & Recommendations

McDonald’s PESTEL PESTLE analysis, political economic sociocultural technological ecological legal external factors restaurant business case study
A McDonald’s in Zell am See, Austria. A PESTEL/PESTLE analysis of McDonald’s Corporation shows growth opportunities and threats based on external factors in the fast food restaurant chain industry environment. (Photo: Public Domain)

McDonald’s Corporation’s strategies address issues in its external environment, such as the ones identified in this PESTEL/PESTLE analysis of the global fast food restaurant chain business. The PESTEL/PESTLE analysis model supports strategic management by identifying the external factors that present opportunities or threats, based on the remote or macro-environment of the business, pertaining to the political, economic, sociocultural, technological, legal, and ecological factors (the PESTLE factors). In the context of this business analysis, McDonald’s employs a set of strategies for maximizing the benefits of opportunities in its industry environment. These strategies are intended to address the external factors in the organization’s environment, along with competitive rivalry involving firms like Wendy’s, Subway, Burger King, and Dunkin’ Donuts, as well as Starbucks Coffee Company. As the biggest fast food restaurant chain in the world, McDonald’s uses its strengths to adapt to changes in its business environment, such as the trends shown in this PESTEL/PESTLE analysis. Such adaptation is essential to the long-term survival and growth of the business, especially amid aggressive competition.

Through a PESTEL/PESTLE analysis of McDonald’s Corporation, management decisions can focus on the most significant trends that influence the food service business and its industry. These trends are among the defining factors of developments in the global food and beverage market, which is also under the influence of the strong force of competition shown in the Porter’s Five Forces analysis of McDonald’s Corporation. In this regard, in understanding the competitive landscape and the external factors and trends identified in this PESTEL/PESTLE analysis, the company’s management can develop strategies appropriate to the conditions of the business environment.

Political Factors Affecting McDonald’s Business

This aspect of the PESTEL/PESTLE analysis refers to the effects of governmental actions and policies on the remote or macro-environment of McDonald’s business and the economy as a whole. Governmental intervention can determine the rate and path of business development. In McDonald’s case, the most significant political external factors in the fast food restaurant chain industry environment are as follows:

  1. Increasing international trade agreements (opportunity)
  2. Governmental guidelines for diet and health (threat and opportunity)
  3. Evolving public health policies (threat and opportunity)

McDonald’s Corporation has the opportunity to expand its multinational business based on improved international trade, which can enhance global supply chains. This PESTEL/PESTLE analysis also identifies governmental guidelines for diet and health as a threat and an opportunity for the restaurant chain business. For example, this political external factor is a threat because it puts pressure on McDonald’s, which has been the subject of criticism regarding the effects of its products on consumers’ health. Nonetheless, this same external factor creates an opportunity for the company to improve its products. Corresponding changes in McDonald’s generic competitive strategy and intensive growth strategies can address this external factor. In relation, governments have evolving public health policies, which present a threat and an opportunity for the restaurant chain business. For instance, this external factor threatens the company through policies that change public schools’ food programs for students. Still, the business can improve through adjustments to provide more healthful options to consumers. McDonald’s marketing mix or 4P already includes healthful options, such as salads, but the company can add more to improve its status in addressing this political external factor. This aspect of the PESTEL/PESTLE analysis of McDonald’s Corporation shows that political external factors present opportunities despite threats against the business.

Economic Factors Important to McDonald’s Corporation

This aspect of the PESTEL/PESTLE analysis pertains to the effects of economic conditions and trends on the remote or macro-environment of McDonald’s. Economic changes directly and indirectly influence business performance. The global economy, regional economies, and local economies influence McDonald’s industry environment through the following economic external factors:

  1. Slow but stable growth of developed countries (opportunity)
  2. Slowdown of the Chinese economy (threat)
  3. Rapid growth of developing countries (opportunity)

The slow but stable economic growth of developed countries is an opportunity for McDonald’s to grow and increase the stability of its restaurant chain business. The U.S. market remains the biggest contributor to the company’s revenues, but the business also benefits from the stable recovery and growth of European markets. On the other hand, the slowdown of the Chinese economy is considered a threat in this PESTEL/PESTLE analysis. This external factor is a strategic issue because the Chinese market is a major contributor to McDonald’s revenues. Nonetheless, the company has the opportunity to grow through expansion in high-growth developing markets, such as in Asia. In this aspect of the PESTEL/PESTLE analysis of McDonald’s, economic external factors mainly provide opportunities for business growth.

Social/Sociocultural Factors Influencing McDonald’s Business Environment

This aspect of the PESTEL/PESTLE analysis refers to the social conditions that support or limit McDonald’s business. Social trends influence consumer behaviors and, in turn, affect the remote or macro-environment of the business in terms of revenues. In this case of McDonald’s Corporation, the most significant sociocultural external factors are as follows:

  1. Rising disposable incomes (opportunity)
  2. Busy lifestyles in urban environments (opportunity)
  3. Increasing cultural diversity (threat and opportunity)
  4. Healthy lifestyle trend (threat & opportunity)

Based on the external factor of rising disposable incomes, McDonald’s has the opportunity to grow based on the increasing tendency of consumers to buy fast food instead of cooking at home. This tendency is also linked to busy lifestyles in urban environments. These lifestyles increase consumers’ likelihood of dining in restaurants like McDonald’s instead of cooking food at home. On the other hand, the increasing cultural diversity is perceived a threat and an opportunity in the context of this PESTEL/PESTLE analysis. For example, this sociocultural external factor creates a diverse set of consumer preferences based on various local and regional markets that McDonald’s must account for in product development. Inability to do so can reduce the company profits. The fast food business has the opportunity to increase its flexibility in product design to satisfy consumers’ preferences in different markets around the world. Furthermore, the healthy lifestyles trend is a threat against McDonald’s, based on criticisms about the adverse health effects of many of the company’s products. The company has the opportunity to increase the healthfulness of its menu items. Thus, the social external factors in this aspect of the PESTEL/PESTLE analysis of McDonald’s Corporation create major opportunities for business development. These effects of external factors influence consumers’ perception about the company. McDonald’s corporate social responsibility strategy and stakeholder management initiatives partially counteract the negative effects of such social trends on the business.

Technological Factors in McDonald’s Business

This aspect of the PESTEL/PESTLE analysis pertains to the impact of technologies and related trends on the remote or macro-environment of companies. In this external analysis case, McDonald’s Corporation’s success depends on business adaptation to maximize the benefits of technological trends and resources. The company needs to address the following technological external factors:

  1. Moderate R&D activity in the industry (opportunity)
  2. Increasing business automation (opportunity)
  3. Increasing sales through mobile devices (opportunity)

McDonald’s has the opportunity to increase its research and development investments to improve business effectiveness and efficiency. In this PESTEL/PESTLE analysis case, the strategic objective is to reach a higher level of R&D activity compared to competitors. Also, the company can apply more automation to maximize productivity, based on the external factor of increasing business automation. Such automation requires changes in McDonald’s operations management and productivity approaches. Furthermore, the business can improve its mobile services to reach more consumers via its mobile apps. Based on the technological trend of increasing sales through mobile devices, the company can expect revenue growth through mobile channels. In this technological aspect of the PESTEL/PESTLE analysis, McDonald’s has major opportunities to grow its fast food restaurant business.

Ecological/Environmental Factors

This aspect of the PESTEL/PESTLE analysis refers to the trends linked to the natural environment, and how these trends affect McDonald’s remote or macro-environment. This company analysis examines the influence of ecological trends on businesses and consumers. In McDonald’s business environment, the following are the most significant ecological external factors:

  1. Rising interest for corporate environmental programs (opportunity)
  2. Increasing emphasis on sustainable business strategies (opportunity)
  3. Changes in climate conditions in some regions (threat)

McDonald’s Corporation can improve its environmental programs and sustainability to strengthen its brand and business performance. The aim of these endeavors is to address the opportunities associated with the rising interest for corporate environmental programs, and the increasing emphasis on sustainable business practices. In this PESTEL/PESTLE analysis, such external factors create opportunities that support McDonald’s business stability and potential growth. On the other hand, changes in climate conditions in some regions threaten the company. For example, these climatic conditions determine the availability and stability of food supply, and influence the company’s supply chain. In this aspect of the PESTEL/PESTLE analysis, the ecological external factors highlight corporate social responsibility opportunities, although McDonald’s also needs to further diversify its supply chain to address the effects of changes in climate conditions.

Legal Factors

This aspect of the PESTEL/PESTLE analysis pertains to the impact of laws or regulations on firms. Changes in legal systems and new laws shape the remote or macro-environment of businesses by imposing new requirements. McDonald’s Corporation must consider the following legal external factors in its industry environment:

  1. Increasing health regulations in workplaces and schools (threat)
  2. Increasing animal welfare regulations (threat & opportunity)
  3. Rising legal minimum wages (threat)

Health regulations impose limits on the accessibility and availability of fast food in some workplaces and schools. This legal trend threatens McDonald’s revenues from these market segments. On the other hand, animal welfare regulations are classified as a threat and an opportunity in this PESTEL/PESTLE analysis. For example, these regulations increase costs in McDonald’s supply chain. However, the same external factor creates an opportunity to improve the business by implementing a comprehensive animal welfare policy, which can attract more customers who are interested in animal welfare. Also, McDonald’s faces the threat of higher minimum wages, which lead to higher costs and prices. However, this external factor has limited influence on the company’s business. Overall, the legal external factors in this aspect of the PESTEL/PESTLE analysis impose major threats that McDonald’s strategies must address.

PESTEL/PESTLE Analysis of McDonald’s Corporation – Recommendations

Threats. The external factors and trends outlined in this PESTEL/PESTLE analysis point to various threats relevant to McDonald’s. A recommendation to address the combined threat of governmental guidelines for diet and health and evolving public health policies is to continually improve the company’s menu. The ultimate aim is to make all McDonald’s menu items healthful. This recommendation also addresses the threat linked to the healthy lifestyle trend, and the threat associated with health regulations in workplaces and schools. Regarding the threat of cultural diversity, it is recommended that McDonald’s improve the flexibility of its international operations to ensure that menu items match target consumers’ preferences. Also, the company can further diversify its supply chain to address the threat of changes in climate conditions in some regions.

Opportunities. There are many business growth opportunities enumerated in this PESTEL/PESTLE analysis of McDonald’s Corporation. It is recommended that the company increase its market penetration in high-growth markets. For example, increasing the number of McDonald’s restaurant locations in high-growth developing countries in Asia can contribute to overall growth. This recommendation also deals with the opportunity to grow based on rising disposable incomes in various markets around the world. To address the opportunities that come with ecological trends, it is recommended that McDonald’s expand its corporate social responsibility programs. The strategic goal should include improving the environmental impact of the business, while strengthening the brand and consumer perception about the business.

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