Business, Management

McDonald’s PESTEL/PESTLE Analysis & Recommendations

Updated on Updated on by Roberta Greenspan
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. This PESTEL analysis (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)

This PESTLE analysis (PESTEL analysis) of McDonald’s Corporation’s business environment assesses strategic challenges in the fast-food restaurant industry. The PESTEL analysis model supports strategic management by identifying the external factors that present opportunities or threats, based on the remote or macro-environment of the fast-food 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 strategies for maximizing the benefits of the opportunities in its industry environment. These strategies address the external factors in the organization’s environment, including competitive rivalry with fast-food businesses, like Wendy’s, Burger King, Subway, and Dunkin’, as well as McCafé competitors, like 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 analysis. Such adaptation is essential to the long-term survival and growth of the foodservice business. This adaptation supports the business purpose and strategic goals of McDonald’s mission and vision despite aggressive competition and the threats enumerated in this PESTLE analysis.

Through a PESTEL analysis of McDonald’s Corporation, management decisions can focus on the most significant trends that influence the foodservice business and its industry. These PESTLE 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 Five Forces analysis of McDonald’s Corporation. In understanding the competitive landscape and external factors and trends identified in this PESTLE analysis, the company’s managers can develop strategies appropriate to the restaurant business environment.

Political Factors Affecting McDonald’s Business

This aspect of the PESTEL analysis refers to the effects of governmental actions and policies on the remote or macro-environment of McDonald’s business. The PESTLE analysis framework considers governmental intervention as a determinant of the development rate and path of the foodservice business. The political factors in the fast-food restaurant chain industry environment affecting McDonald’s are as follows:

  1. Increasing international trade agreements (opportunity)
  2. Stricter 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 enhances global supply chains. This PESTEL analysis also identifies stricter governmental guidelines for diet and health as a threat and an opportunity for the restaurant chain business. For example, this political factor is a threat that puts pressure on McDonald’s, which has been the subject of criticism regarding the effects of its products on consumers’ health. Nonetheless, in the PESTLE analysis context, this same external factor creates an opportunity for the fast-food company to improve its products. Corresponding changes in McDonald’s generic competitive strategy and intensive growth strategies for product development can address this external factor. Moreover, governments have evolving public health policies that, in this PESTEL analysis, present a threat and an opportunity for the restaurant chain business. For instance, this external factor threatens the company through policies and programs that reduce public schools’ support for fast food. Still, the business has the opportunity to provide healthier options to consumers. McDonald’s marketing mix or 4P already includes some healthy menu items, such as salads, but the company can add more to address this political factor. This aspect of the PESTLE analysis of McDonald’s Corporation shows that political factors create significant opportunities despite threats to the business.

Economic Factors

This aspect of the PESTEL 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 the performance of the foodservice business. The PESTLE analysis considers the varying degrees of influence of local and regional economies, and the global economy on McDonald’s industry environment, with emphasis on the following economic 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 PESTLE analysis framework views the slow but stable economic growth of developed countries as an opportunity for McDonald’s to grow and increase the stability of its business. The U.S. market continues to be the biggest source of the company’s revenues, but the restaurant chain business also benefits from the stable growth of European markets. On the other hand, the slowdown of the Chinese economy is considered a threat in this PESTEL analysis of the fast-food business and its market. This external factor is a strategic issue because the Chinese market is a major source of McDonald’s revenues. Nonetheless, developing markets are an opportunity in the context of the PESTEL analysis, pointing to the restaurant company’s potential growth in these high-growth markets. In this aspect of the PESTLE analysis of McDonald’s, economic factors mainly provide opportunities for business growth.

Social/Sociocultural Factors Influencing McDonald’s Business Environment

This aspect of the PESTEL 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 restaurant company and its revenues. The following social factors are relevant to this PESTLE analysis of McDonald’s Corporation:

  1. Rising disposable incomes (opportunity)
  2. Busy lifestyles in urban environments (opportunity)
  3. Increasing cultural diversity (threat & opportunity)
  4. Increasing popularity of healthy lifestyles (threat & opportunity)

Based on the external factor of rising disposable incomes, this PESTEL analysis points to the opportunity for McDonald’s to grow alongside the increasing capacity and tendency of consumers to buy and eat convenient fast food instead of cooking more affordable healthy meals at home. This trend is also linked to busy lifestyles in urban environments, which is another sociocultural factor considered in this PESTLE analysis of the restaurant business. Hectic schedules encourage consumers to dine at fast-food restaurants, like McDonald’s.

The increasing cultural diversity trend is perceived as a threat and an opportunity in the context of this PESTEL analysis of McDonald’s. For example, increasingly diverse consumer preferences in local and domestic markets create a challenging business environment where McDonald’s needs to optimize its recipes to achieve high overall customer satisfaction and revenues despite variations among consumers’ preferences. The inability to address this social factor could threaten the business, but effective adaptation can increase the restaurant chain’s stability. The PESTLE analysis also extends this external factor to regional markets, where McDonald’s has the opportunity to develop flexibility in product design to optimally satisfy diverse consumer preferences.

The healthy lifestyles trend is a threat to McDonald’s, which is often criticized for the health effects of its products. However, this PESTEL analysis shows that the company has the opportunity to increase the healthfulness of its menu items. Improving the healthfulness of these food products can make them more attractive and profitable, and strengthen the brand image, which is among the main business strengths shown in the SWOT analysis of McDonald’s Corporation.

The social factors in this aspect of the PESTLE analysis of McDonald’s create major opportunities for business development. These external factors influence consumers’ perception about the fast-food company. McDonald’s corporate social responsibility (CSR) strategy, ESG, and stakeholder management initiatives partially counteract the negative effects of social trends on the business, but the company also needs to address these external factors through other strategies.

Technological Factors

This aspect of the PESTEL analysis pertains to the impact of technologies and related trends in the remote or macro-environment of McDonald’s business. In this external analysis case, success depends on business adaptation to maximize the benefits of technological trends and resources available to the restaurant chain. This PESTLE analysis considers the following technological factors affecting McDonald’s:

  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 PESTLE analysis, a strategic objective is to reach a higher level of R&D activity to increase the restaurant chain’s competitiveness. Also, the company can implement more automation, which is viewed in this PESTEL analysis as an opportunity to maximize the productivity of the restaurant business. Such additional automation may require changes in McDonald’s operations management and productivity approaches. Furthermore, this PESTLE analysis indicates that the fast-food business has the opportunity to improve its mobile services to reach more consumers through mobile apps. Based on the technological trend of increasing food sales via mobile devices, the company can expect revenue growth through mobile channels. In this technological aspect of the PESTEL analysis, McDonald’s has major opportunities to grow its foodservice operations.

Ecological/Environmental Factors Affecting McDonald’s

This aspect of the PESTEL 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, especially in the food and beverage market. The following ecological factors are notable in this PESTLE analysis of McDonald’s and its business environment:

  1. Rising significance of corporate environmental programs (opportunity)
  2. Increasing ecological and business impact of sustainable business strategies (opportunity)
  3. Changes in climate conditions in some regions (threat)

McDonald’s Corporation can improve its sustainability and environmental programs to strengthen its brand and business performance. In this PESTEL analysis of the restaurant chain business, the goal of such an improvement effort is to address the opportunities associated with the rising significance of corporate environmental programs, and the increasing emphasis on sustainable business practices. Such ecological factors are opportunities in this PESTLE analysis, potentially supporting McDonald’s business stability and growth.

On the other hand, changes in climate conditions in some regions are viewed as a threat in this PESTEL analysis of McDonald’s foodservice business. Climatic conditions determine the availability and stability of food supply and influence the company’s supply chain. Thus, the external factors in this aspect of the PESTLE analysis highlight corporate social responsibility opportunities, although McDonald’s also needs to further diversify its supply chain to address the effects of climatic trends.

Legal Factors

This aspect of the PESTLE analysis pertains to the impact of laws or regulations on McDonald’s. Changes in legal systems and new laws shape the remote or macro-environment of the restaurant chain by imposing new or modified requirements for business. The following legal factors in McDonald’s industry environment are relevant in this PESTEL analysis:

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

Health regulations can limit the availability and accessibility of fast food in some workplaces and schools. Such a limiting effect is a threat in the context of this PESTLE analysis, pointing to a potential reduction in McDonald’s revenues in affected market segments. On the other hand, animal welfare regulations are classified as a threat and an opportunity in this PESTEL analysis of the restaurant firm. For example, these regulations increase costs in McDonald’s supply chain. However, the same external factor creates an opportunity to improve the foodservice business by implementing a comprehensive animal welfare policy, which can attract more customers who are interested in animal welfare. Also pertinent to this PESTLE analysis is the rise of minimum wages, which threatens to increase McDonald’s costs and prices. However, this legal trend is unavoidable, and the fast-food business needs to optimize its efficiencies to maintain competitiveness in costs and prices despite rising wages. Overall, the legal factors in this aspect of the PESTEL analysis impose threats that McDonald’s strategies must address.

Recommendations – PESTEL/PESTLE Analysis of McDonald’s

Threats. The external factors and trends outlined in this PESTEL analysis point to various threats relevant to McDonald’s. A recommendation to address the combined threats of evolving public health policies and governmental guidelines for diet and health is to continually improve the company’s products, like hamburgers, fries, and drinks. Having more healthy menu items can help McDonald’s address the abovementioned political threats, as well as the threat of the healthy lifestyles trend, and the threat of health regulations in workplaces and schools. To address the threat of cultural diversity noted in this PESTLE analysis, it is recommended that McDonald’s improve the flexibility of its international operations to ensure that menu items optimally match target consumers’ preferences. Also, in response to the ecological trends identified in this PESTEL analysis, the fast-food company can further diversify its supply chain to address the threat of climatic changes in some regional markets.

Opportunities. There are many business growth opportunities enumerated in this PESTLE analysis of McDonald’s Corporation. It is recommended that the restaurant business increase its degree of market penetration in high-growth economies. For example, increasing the number of McDonald’s restaurant locations in fast-growing Asian economies can boost overall business growth. This recommendation also deals with the trend of rising disposable incomes, which is considered an opportunity for restaurant business growth in this PESTEL analysis. On the other hand, to address the opportunities that come with the ecological trends in this PESTLE analysis, it is recommended that McDonald’s expand its corporate social responsibility programs. The strategic objectives should include improving the environmental impact of the fast-food business. Other related objectives are to strengthen the brand and to enhance consumer perception about McDonald’s.

References

Tags: , , ,