McDonalds PESTEL analysis
A PESTEL Analysis of the Fast Food Brand McDonald's
McDonald's is the leading brand in the QSR industry with a strong presence in a large number of international markets. The company is run mainly by franchisees. In 2020, the number of McDonald's stores had reached 39,198, of which around 93% or 36,521 were franchised.
Its focus on product quality , marketing and customer service have helped the company grow its popularity throughout the globe.
The company serves customers in 119 countries.
It has continued to grow its focus on marketing and customer experience to grow its brand equity.
The QSR industry has grown highly competitive.
Companies have slowly switched to a largely digital operating model during the pandemic.
The QSR industry is passing through a challenging phase and there are several risks ahead.
However, McDonald's enjoys a strong competitive edge as a leading QSR brand.
This is a PESTEL analysis of McDonald's. Since the fast food giant operates in a global environment, its business is influenced by several factors. These factors have an important bearing on the brand’s sales and image.
Political Factors Influencing McDonalds:
Political factors impact the performance of any brand. The government’s role is immensely important. It is because the government policies have a deep effect on the performance of the brand. Whether it is the trade related regulations or taxes, all impact the business environment of a nation. In nations where the business environment is heavily regulated, the situation for these brands is difficult. This is the situation in Asian nations particularly. China and India have stiff laws that make it difficult for the foreign brands to operate profitably.
New trade agreements have come which can impact a brand’s performance positively or negatively. Trade agreements like NAFTA might make it easier for the US based brands to do business in the member nations. Apart from these there are government made policies that may make it easy or difficult for the brands to do their business.
Health policies of the government too have an impact on the performance of fast food brands. It is not just the finance related regulations but also the food and health related regulations that affect McDonalds' sales and profits globally. Political changes occurring in the Asian countries can sometimes have worse than desired impact on the performance of the international brands. These countries are less open to foreign investment and foreign brands which makes the situation even difficult.
Apart from it, the trade wars between the United States and China has also affected the US based businesses operating in China negatively. Overall, the impact of the political environment is now more clear and direct on the international businesses across all industry sectors than ever,
Economic Factors Influencing McDonalds:
The economic factors are most important when the companies are operating in a global environment. McDonald's is also affected heavily by the economic environment. It is not just about the local economies of the nations in which it operates but also the world economy that affects the brand’s performance. The world economy was through a deep recession a few years ago. Now, things have started getting better. It is why McDonalds’ performance has also improved. It is doing better since 2015. The US economy has grown stable but things will take time to become perfect.
In US, McDonald's has shown improved performance with improved economic conditions. However, globally the brand’s performance has continued to improve but for the strengthening dollar. A stronger dollar has had a bad impact on the brand’s profits. Thus, economic forces have a direct impact on the financial performance of the economy. With improved economic conditions, it is going to improve further. In the coming days, if dollar weakens, the financial performance of fast food brands like McDonalds could get better.
Competition is also an important factor that brands like McDonald's need to consider for business growth. The level of competition in the QSR industry has continued to grow and apart from the international fast food brands, there are several local brands across various regions, which compete with McDonald's. Some of the leading competitors of McDonald's include Burger King, KFC, Wendy's, Subway and Domino's.
Social factors Influencing McDonalds :
The importance of social factors is important to be considered to analyze the performance of any business. There are so many social factors like the social trends, lifestyle changes and many other factors which have a direct impact on a brand’s performance. Particularly, changing tastes of the consumers and lifestyle changes can drive sales up or low. Customers are growing increasingly health conscious. It requires brands like McDonalds to have a menu that suits their preferences. Millennials are both health and price conscious. To drive its sales and profits up, McDonalds needs to focus on them and the kind of food they want.
McDonalds’ has continued to focus on menu innovation to grow the popularity of its products. It has continued to add more health friendly and low calorie products to its menu. Health is a very important factor that any food brand has to consider. In the last decade, due to growing obesity around the world, the society’s focus has been on low calorie diet. They do not want calorie heavy burgers or colas. Apart from it McDonald's should target the right segments in the society. Its target market is mainly made of the young people from the middle class.
Technological factors Influencing McDonalds:
The growing importance of technology for the business world is well known. Technology is virtually everywhere. It is at the counter; it is inside people’s pockets. Technology enables everything in the modern world from sales to customer service. Technology can amplify the power of any brand. It can increase its market influence and grow its competitive edge. Technology is just as important for McDonald's too. Whether it is marketing, advertising, sales or even customer service, in all aspects technology accelerates the brand’s performance. Customers place orders and make payments online. They also track their orders online and make payments from their smartphones. Companies have developed smart apps that customers can use to shop from their favorite brands.
Apps have become especially famous among the companies to attract customers and sales. They have also become a great tool to provide extra ordinary customer service. Any brand can reach millions of customers and engage them using the social media. The brands like McDonalds have a huge line of fans and followers that follow it on the social media. Other big brands have also developed great social media strategies to engage their customers. These strategies play a major role at attracting the millennial customers. Automation has also made these brands more efficient with customer service and service delivery. Not just this, technology is also being used in the area of research and development to grow a brand and its number of followers.
Ecological/Environmental factors Influencing McDonalds:
All around the globe, governments are now focusing on environmental protection. The focus is now on sustainability. It is not just a trend but a change with a long term impact. The focus is not just on brands but on their supply chains too. Brands like Starbucks and McDonalds are focusing on having environment friendly and sustainable supply chains. The environment friendly brands also have a larger customer base. Such brands are more popular among their customers. Many of such brands that did not focus on their environmental liability have suffered a loss of reputation. It is why all the major brands have a well-developed CSR policy to handle their environment related concerns. Environment is a concern for all. McDonalds too focuses on framing policies that are more environment friendly.
Legal factors Influencing McDonalds:
Law too has a major impact on the businesses around the world. The legal environment of a nation has a deep effect on how well the businesses do there. If the legal environment is relaxed, the companies do better. The burden is less in such environments. Compliance is an important factor. There are several nations where bureaucracy and red tape make it difficult for the brands to operate profitably. When compliance becomes the bigger issue, brands find their focus shifting. It is why in many nations where the laws are complex, foreign brand find it difficult to make an investment. Indian laws are not very open towards FDI (Foreign Direct Investment).
If the legal environment of a nation is favorable brands operate both safely and profitably. Otherwise taxes and compliance related factors can make it so difficult that the brands find it impossible to do business profitably. Slowly, the Asian countries have started relaxing their laws to invite foreign brands. Such an environment will make it easier for brands like McDonalds to earn their profits and deliver their services. Poor state of law also leads other difficulties. Several nations still do not have well development employment laws. In such environments employees may find themselves at the receiving end. This is not very good for the big brands either since they will experience a high turnover rate.
The global environment is full of possibilities. However, the after effects of economic recession are still looming large. Dollar has grown stronger since the recession. Due to it the situation is not very profitable for brands like McDonalds. However, it must make better use of technology to serve its customers. Moreover, the social factors are to be paid attention too. The health changes sweeping through the society have also made it necessary that the focus is placed on menu. If the menu is simpler, the millennial customers would be more satisfied. Otherwise, the threat of obesity is another major problem that has changed the attitude of the customers towards brands like McDonald's. The legal and economic factors might not be under McDonalds’ control but the brand must still focus on sustainability. This is an important area where the brand’s focus must remain. It needs to handle the CSR part responsibly since not just the government but the customers are also favoring environment friendly brands.