McDonald’s generic strategy determines the basic approach to developing the competitive advantages of the business, and the company’s intensive growth strategies focus on approaches for growth and viability. As the biggest fast-food restaurant chain in the world, McDonald’s uses its intensive growth strategies to support business development and expansion. The related strategic objectives dictate the company’s operational activities, especially in responding to economic changes and competing food service firms, such as Wendy’s, Burger King, Subway, KFC, and Arby’s, as well as Starbucks, Dunkin’, and Tim Hortons. McDonald’s generic competitive strategy also shapes the business foundation for competing in the global market. The company’s competitive advantages and competencies are based on the successful implementation of the generic strategy and the support of the intensive growth strategies of the fast-food business.
McDonald’s intensive growth strategies determine business growth and development potential. On the other hand, the company’s generic competitive strategy defines business competitiveness in the international fast-food restaurant industry. This competitiveness addresses the strong external pressure coming from competitors, as characterized in the Porter’s Five Forces analysis of McDonald’s Corporation.
McDonald’s Generic Strategy (Porter’s Model)
McDonald’s generic strategy is cost leadership, which builds competitive advantage through cost minimization. The company has standardized processes designed to maximize efficiency, minimize costs, and ensure profitability despite the use of competitive selling prices. In this regard, McDonald’s operations management contributes to the implementation of cost leadership as a generic competitive strategy. In addition, the large size of the business organization allows for economies of scale, which translate to cost reduction in purchasing materials and producing ingredients used at the company’s restaurants. The competitive advantages achieved through the cost leadership generic strategy support McDonald’s intensive growth strategies, especially market penetration and product development.
Profitability through the cost leadership generic strategy facilitates the attainment of market leadership, which is underscored in McDonald’s corporate mission statement and corporate vision statement. Applying this generic competitive strategy puts the food service company against many competitors in the fast-food market. Also, the company’s McCafé products compete against Unilever’s BRU coffee and PepsiCo’s caffeinated beverages. McDonald’s intensive growth strategies depend on how this generic strategy ensures competitiveness despite other firms that use similar strategies.
Intensive Growth Strategies of McDonald’s Corporation
Market penetration is the main intensive growth strategy that supports McDonald’s business development. The company’s strategic objective in using market penetration is to generate more sales in food service markets where the business currently has operations. The restaurant chain employs a number of ways for this intensive growth strategy, including franchising, licensing, joint ventures, and partnerships. For example, the company has agreements for the distribution of McCafé products through retail stores and platforms, such as Walmart, Target, Costco, and Amazon. In this context, McDonald’s cost leadership generic strategy supports market penetration as an intensive growth strategy, with low costs and competitive prices empowering the business to penetrate the multinational market.
In market penetration, the business strengths identified in the SWOT analysis of McDonald’s Corporation add to the competitive advantages for growing sales and market reach. The success of this intensive growth strategy relies on business competencies that effectively address the aggressiveness of other fast-food companies. In relation, in implementing market penetration as an intensive growth strategy, McDonald’s marketing mix or 4Ps determine the actual strategies and tactics used for reaching target restaurant customers and home-brew coffee consumers. The cost leadership generic strategy affects the availability of the restaurant company’s financial resources for such marketing strategies and tactics.
Product development is applied as one of McDonald’s intensive growth strategies. The company’s strategic objective in product development is to produce and sell new food and beverage products to its current markets, such as the EU and North American markets. This intensive growth strategy has a supporting role in growing the business, considering that McDonald’s mainly relies on market penetration. In applying product development, the company has a low frequency of releasing new products, such as new burgers or variants of existing menu items. This intensive growth strategy relates to McDonald’s cost leadership generic competitive strategy, in terms of competitive pricing. For example, the company can use low introductory prices to encourage consumers to buy new food products.
Industry and market trends determine the kinds of products that McDonald’s develops through the intensive growth strategy of product development. These trends reflect consumer preferences and food-service market dynamics. The PESTEL/PESTLE analysis of McDonald’s shows that these trends determine how the market responds to the business and its products. In relation, the restaurant company’s implementation of product development as an intensive growth strategy influences how corporate citizenship addresses such trends. For example, McDonald’s corporate social responsibility strategy and stakeholder management programs encourage product designs that suit corporate citizenship concerns. These concerns include sustainable sourcing of ingredients, to address green business trends. McDonald’s organizational culture or corporate culture defines the human resource foundation for such corporate citizenship efforts in using product development as an intensive growth strategy. Also, the company culture influences how the generic strategy of cost leadership supports funding for product development for the fast-food business organization’s competitive advantage and growth.
Diversification is only minimally applied as an intensive growth strategy in McDonald’s business. In this case, the strategic objective of diversification is to grow the business through new products in markets outside the food service industry. The company has implemented this strategy for intensive growth, but only to a small extent and still within the area of food preparation and production. For example, the company’s McCafé home-brew products are in the consumer goods industry. Still, McDonald’s has not yet maximized its growth in the consumer goods market. Implementing diversification requires organizational capabilities aligned with the requirements of establishing new operations other than food service. McDonald’s organizational structure or corporate structure may adopt new components or human resource groups to support this intensive growth strategy. Also, the restaurant company’s generic competitive strategy of cost leadership may no longer apply to new operations under diversification, while other generic strategies may be more appropriate.
Strategic Insights on McDonald’s Corporation
McDonald’s generic competitive strategy and intensive growth strategies reflect the company’s strategic planning processes. For example, business innovation decisions are translated to the fast-food company’s intensive growth strategy of product development. Also, business process design shows how managerial preferences and decisions affect McDonald’s generic strategy. For instance, choosing cost leadership as a generic competitive strategy indicates that the restaurant chain focuses on targeting all consumers worldwide through cost and pricing. The other generic strategies are less suitable to executives’ and managers’ perspectives on McDonald’s operations. Using differentiation as the main generic strategy would make the company focus on developing unique food and beverage products that may come with higher prices, which could narrow down the target market. Similarly, using differentiation focus as McDonald’s generic competitive strategy would entail a limited target market. The current situation shows that the fast-food company’s intensive growth strategies and generic strategy are designed to support each other for optimal business performance.
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- Why Franchise a McDonald’s?