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McDonald's Corporation

Company Profile

Publication Date: 29 Apr 2011

www.datamonitor.com

Europe, Middle East & Africa Americas Asia Pacific

119 Farringdon Road 245 5th Avenue Level 46

London 4th Floor 2 Park Street

EC1R 3DA New York, NY 10016 Sydney, NSW 2000

United Kingdom USA Australia

t: +44 20 7551 9000 t: +1 212 686 7400 t: +61 2 8705 6900

f: +44 20 7551 9090 f: +1 212 686 2626 f: +61 2 8088 7405

e: [email protected] e: [email protected] e: [email protected]

McDonald's Corporation

ABOUT DATAMONITOR

Datamonitor is a leading business information company specializing in industry analysis.

Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased

expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive,

Energy, Consumer Markets, and Financial Services.

The company also advises clients on the impact that new technology and eCommerce will have on

their businesses. Datamonitor maintains its headquarters in London, and regional offices in New

York, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies.

Datamonitor's premium reports are based on primary research with industry panels and consumers.

We gather information on market segmentation, market growth and pricing, competitors and products.

Our experts then interpret this data to produce detailed forecasts and actionable recommendations,

helping you create new business opportunities and ideas.

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qualitative and quantitative summary information you need - including predictions and forecasts.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic,

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The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that the

findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith

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can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.

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McDonald's Corporation

TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts...............................................................................................................4

SWOT Analysis.....................................................................................................5

McDonald's Corporation Page 3

McDonald's Corporation

Company Overview

COMPANY OVERVIEW

McDonald's Corporation (McDonald's or 'the company') is one of the world's largest foodservice

retailing chain. The company is primarily known for its burgers and fries which it sells through more

than 32,737 restaurants in 117 countries. It primarily operates in Europe, Asia Pacific, and Americas.

The company is headquartered in Oak Brook, Illinois and employs about 400,000 people.

The company recorded revenues of $24,074.6 million during the financial year ended December

2010 (FY2010), an increase of 5.8% over 2009. The revenue growth was primarily driven by the

positive comparable sales growth. The operating profit of the company was $7,473.1 million in

FY2010, an increase of 9.2% over 2009. The net profit was $4,946.3 million in FY2010, an increase

of 8.7% over 2009.

KEY FACTS

Head Office

Phone

Fax

Web Address

Revenue / turnover

(USD Mn)

Financial Year End

Employees

New York Stock

Exchange Ticker

McDonald's Corporation

One McDonald's Plaza

Oak Brook

Illinois 60523

USA

1 630 623 3000

1 630 623 5700

http://www.mcdonalds.com

24,074.6

December

400,000

MCD

McDonald's Corporation Page 4

McDonald's Corporation

SWOT Analysis

SWOT ANALYSIS

McDonald's Corporation (McDonald's or 'the company') is one of the world's largest foodservice

retailing chain. The company is primarily known for its burgers and fries which it sells through more

than 32,737 restaurants in 117 countries. McDonald's has a well-established brand that appeals to

customers of all age groups and nationalities. Strong brand recognition enables the company to

consolidate its market share both through new restaurant openings as well as product extensions.

However, rising food prices would have an eventual impact on the company's sales and profitability.

Strengths Weaknesses

Strong brand value sustains the company's

leadership position

Diversified geographic presence provides

opportunity to gain from economic buoyancy

in emerging markets

Large scale of operation compared to peers

Legal proceedings affect brand image

adversely

Product failures such as Arch Deluxe

Opportunities

Threats

Growth of franchisee operated restaurants

Positive outlook for out-of-home eating

market can boost top line in long run

Growing hot drinks market - another

favorable trend to drive topline

Strengths

Rise in food prices

Intense competition in retail food industry

Growing consumer consciousness for

healthy food products

Strong brand value sustains the company's leadership position

McDonald's is one of the well-established global brands. The company's 32,737 restaurants in 117

countries have reinforced the brand identity of McDonald's. Many of its products like Big Mac,

McGriddle, McMuffin are iconic fast food brands with strong customer loyalty. McDonald's brand is

now almost synonymous to affordable quality fast food products and enjoys remarkably high brand

value worldwide. The company's brand equity can be gauged by the fact that on an average the

company serves 64 million customers per day. Also, the company consistently ranks in the top ten

lists of several brand surveys. For instance, Fortune's 2010 list of World's Most Admired Companies

ranked McDonald's number one in the food service category and number ten in the overall categories.

The robust brand equity has enabled the company to sustain its leadership in the fast food chain

industry. The company has increased its global market share, both in developed and emerging

McDonald's Corporation Page 5

McDonald's Corporation

SWOT Analysis

markets, primarily driven by the McDonald's brand equity.The revenues have also grown consistently

and the company's global comparable sales increased by 5% in 2010, eighth consecutive year of

same store sales growth.

Besides, the strong brand recognition has also helped successful product extensions aimed at

capturing new customer base. Some of the launches like McCafe branded coffee products and a

full range of breakfast and salads menu have been instant hit with customers.

Strong brand recognition hence enables the company to consolidate its market share both through

new restaurant openings as well as product extensions.

Diversified geographic presence provides opportunity to gain from economic buoyancy in emerging

markets

McDonald's has a diversified geographic presence. As of FY2010, the company operated in 117

countries in the following geographic segments: the US; Europe; Asia/ Pacific, Middle East, and

Africa (APMEA); Latin America and Canada.

Revenues from outside the US accounted for about 66.3% of the company's total revenues whereas

the US accounted for around 33.7% of the company's total revenues. The aforementioned figures

signify that McDonald's does not depend on particular economies to generate it revenues. Also,

large scale geographic diversification partially insulates the company from the effect of downturn in

particular market. Moreover, this factor also gives the company the opportunity to gain from economic

buoyancy in emerging markets. This is visible from the fact that the company's revenues from

Asia/Pacific, Middle East and Africa region increased 16.8% in FY2010 as compared to FY2009.

Thus, diversified geographic presence reduces the McDonald's business risk and presence in

emerging markets enables the company to stabilize its revenue growth.

Large scale of operation compared to peers

With total revenues of $24,074.6 million from 32,737 restaurants in 117 countries, McDonald's stands

higher amongst its peers. Comparatively, Yum! Brands registered $9,783 million in revenues for the

fiscal year ended December 2010 from 37,000 restaurant units.While, Burger King recorded $2,502.2

million in revenues for the fiscal year ended June 2010 from 12,174 restaurants. These figures

indicate McDonald's high revenue generation capability from its restaurants. On an average, per

McDonald's restaurant generated 0.73 million in revenues.Yum! Brands per restaurant revenues

stood at 0.26 million and Burger King's at 0.19 million.

In terms of operating margins also, the company enjoys the favorable scale compared to its

competitors. For instance, the operating margin of McDonald's for FY2010 stood at 31.04% compared

to 18.08% for Yum! Brands and 13.3% for Burger King. Also, the company holds substantial cash

to sustain investments in branding and new restaurant openings. For FY2010, cash from operations

totaled $6.3 billion and exceeded capital expenditures by $4.2 billion in 2010.

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McDonald's Corporation

SWOT Analysis

The company's large scale of operation and economy of scale positions it strongly to further enhance

market share based on price advantage. Also, the cash strength allows it to penetrate new markets

and customer base as well as launch marketing and branding strategies to promote brand value.

Hence, large scale of operations provides exceptional competitive advantages to McDonald's in the

intensely competitive fast foods industry.

Weaknesses

Legal proceedings affect brand image adversely

McDonald's is party to several litigations across the world. The complaints filed against McDonald's

include claims for violation of state consumer fraud acts, unfair competition or deceptive trade

practices acts, strict liability, failure to warn, negligence, breach of express and implied warranties,

fraud and fraudulent concealment, negligent misrepresentation and concealment, unjust enrichment,

and false advertising. Such claims tend to affect the company's brand image and ultimately its

profitability.

Product failures such as Arch Deluxe

McDonald's has had a number of product failures in recent years, few of which include Arch Deluxe,

McLean Deluxe, McSoup and McPizza. However, the failure of Arch Deluxe was a major setback

for the company as the product was marketed as the burger for grown up consumer, and the idea

was to have a burger which wasn't associated with children. McDonald's also advertised the product

with images of kids shunning the so called sophisticated product. However, the company has built

its reputation and value proposition on convenience rather than sophistication. Moreover, one of the

key aspects of the company's brand identity is its children-friendly approach. Hence, the company

launched a product which was in complete contrast to its brand identity.

In another event, the company had to recall 12 million glassware in 2010 because of high cadmium

contents.These glasses were sold as a promotional tie-in to the Shrek movie.The recall was another

instance of the company's failure to successfully launch a new product line.

Product failures like Arch Deluxe reflect poorly on the company's consumer research and branding

strategies. The confusing brand positioning of new launches will subsequently have a negative

bearing on the company's overall brand proposition. Also, failure of products due to quality issues

has an adverse impact on the brand image of the company. Besides, the product failures also have

cost implications in terms of recall expenses and loss of sales, which in turn negatively impacts its

revenues and profitability.

Opportunities

Growth of franchisee operated restaurants

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McDonald's Corporation

SWOT Analysis

In future, McDonald's is planning to significantly increase its count of franchisee operated restaurants.

Over the past few years, the company has made significant progress in enhancing the mix of

franchised and company-operated restaurants. As a result of its developmental license strategy and

franchising initiatives, the percentage of franchised and affiliated restaurants worldwide increased

from 73.7% in FY2006 to 80.4% in FY2010.

Under a developmental license, a local entrepreneur owns the business, including control of the real

estate, and uses their capital and local knowledge to build the McDonald's Brand and optimize

long-term sales and profitability. The company collects a royalty, which varies by market, based on

a percentage of sales, but does not invest any capital for new restaurants or reinvestments. The

company has successfully used this structure for more than 15 years.

The transition of company-operated restaurants to franchisees and developmental license structure

is likely to increase the overall profitability of McDonald's.

Positive outlook for out-of-home eating market can boost top line in long run

After subdued consumer demand during recession, out-of-home eating trend has rebounded. In the

US, industry reports suggests that the restaurant industry sales are expected to reach $604 billion

and post positive growth of 3.6% year-on-year in 2011; after a three-year period of negative real

sales growth. Further, sales at quick-service restaurants are projected to reach $167.7 billion in

2010, reflecting an increase of 3.3% over 2010. Similarly, India and China as well as other emerging

markets are also showcasing similar trends.

McDonald's operates over 32,000 restaurants worldwide and has invested significantly in marketing

campaigns and elevated customer experience by renovating restaurants, offering extended hours

and providing services such as free wireless Internet access in its restaurants. Moreover, McDonald's

also focuses on product innovation. It recently launched three new premium products such as Angus

Third Pounder hamburger and the McCafe specialty coffee menu. Such investments and product

innovation leads to increased restaurant traffic and McDonald's can leverage the growing opportunity

in the out-of-home market to boost its top line in long run.

Growing hot drinks market - another favorable trend to drive topline

According to Datamonitor estimates, the global hot drinks market generated total revenues of $68

billion in 2009, representing a compound annual growth rate (CAGR) of 3.7% for the period spanning

2005-2009.The performance of the market is forecast to follow a similar pattern, with an anticipated

compounded annual growth rate (CAGR) of 3.7% for the five-year period 2009-2014, which is

expected to lead the market to a value of $81.4 billion by the end of 2014. Among the hot drinks,

coffee sales are the most lucrative for the global hot drinks market. In 2009, coffee sales generated

total revenues of $36.9 billion, equivalent to 54.2% of the market's overall value.

As part of its multi-year strategy to take advantage of the significant and growing hot drinks category,

McDonald's began rolling-out espresso-based hot and cold specialty coffees.The company expanded

its McCafe locations, an upscale area with coffeehouse style ambiance inside an existing McDonald's

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McDonald's Corporation

SWOT Analysis

restaurant, to nearly 1,300 outlets.The expected growth in hot drinks category will offer the company

opportunities for expanding its revenue base.

Threats

Rise in food prices

Inflation has been one of the major concerns for the food service companies during major parts of

2010 and early 2011. Inflationary trends are far bigger concern in Asia where company caters to the

price-sensitive customers. According to IMF report on Asia Pacific, headline inflation in Asia has

accelerated since October 2010, mainly owing to higher commodity prices. For the region as a whole,

headline consumer price index (CPI) inflation accelerated to 4.5% in February 2011, from about

4.25% in October 2010. India, Indonesia, and Vietnam have experienced relatively higher inflation

figures. Besides, according to the US Department of Agriculture, the prices will continue to accelerate

in the US during the first half of 2011, leading to a 2%-3% rise in food price inflation for the year.

Industry reports estimates that McDonald's will have to raise prices by 2% to 3% to offset the higher

food costs.

Although majority of McDonald' revenues and profits are contributed by rents and royalties, however

the impact of inflation on the franchise earnings will subsequently affect the company's overall

earnings. Since McDonald's brand has gained popularity in emerging markets for its low-priced

foods, local franchises cannot pass through the rise in operating costs to these price-sensitive

customers. Consequently, rising food prices would have an eventual impact on the company's sales

and profitability.

Intense competition in retail food industry

McDonald's operate in a highly competitive retail food industry. The retail food industry is highly

competitive with respect to price and quality of food products, new product development, price,

advertising levels and promotional initiatives, customer service, reputation, restaurant location, and

attractiveness and maintenance of properties.

A decline in franchise sales could alter McDonald's intrinsic value. Also, the volatile cost of food,

energy, and labor could affect profitability. Moreover, credit lending firms have become more cautious

after the recession of FY2008-09 and a tighter credit market could impede franchisees' ability to add

new restaurants, perform renovations, or purchase equipment. Such factors could affect McDonald's

business and expansion plans adversely.

Growing consumer consciousness for healthy food products

The fast spreading consciousness for healthy, sugar and salt free meals might influence McDonald's

growth plans and profitability. More people are switching to healthier options such as salads, fat-free

sandwiches, and home cooked food. In this aspect, McDonald's faces stiff competition from companies

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McDonald's Corporation

SWOT Analysis

such as Subway who promote and market themselves as fresh and healthy food products company.

Subway is also one of the fastest growing franchises in the world with approximately 34,497

restaurants in 98 countries as of April 2011. It overtook McDonald's in terms of number of restaurants

in 2010. The growing number of Subway outlets signifies the growing preference for food chains

promoting health and wellness. Since McDonald's products are often criticized for their high calorie

value and negative impact on health, the health and wellness trend would have material adverse

impact on the company's sales.

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