Strategic Management (MGT603) Fall 2016 Assignment No. 1: A Case Study of McDonald s in Pakistan

Transcription

1 Strategic Management (MGT603) Fall 2016 Assignment No. 1: A Case Study of McDonald s in Pakistan Due date: November Total Marks: 10 The Dilemma It was a foggy morning in December Raza Ali, the country manager of McDonald s Pakistan, was sipping coffee. He had read that strategic thinking was less about analyzing data and more about having strategic conversations. He reflected that maybe the textbook should be rewritten. In his experience over the last few years, it was not so much about having strategic conversations; it was more about having strategic arguments. Since McDonald s inception in Pakistan, the fast-food giant enjoyed many competitive advantages: a strong brand name, a reputation for customer service, and ultimately high sales. However, competition has become tougher. Many local businesses have entered the fast-food market. A growing number of international fast-food chains have also entered the Pakistani market. Top management thinks that this mounting competition will hurt company profitability in the long run. To counter this competition, the top management is considering its options. Two options are currently on the table. One option, which Ali has been pushing for, is to launch the separate coffee restaurant McCafé. He is very positive about this launch and believes that Pakistani youths will become regular coffee drinkers, although most of them love tea at the moment. A second option, being championed by his colleague Rashid Ibrahim, is to continue to build the McDonald s brand first. Better advertising, better professional training, and better supply chain management would allow McDonald s to become more efficient and to build its brand equity more quickly. Ibrahim believes that launching McCafe would merely confuse Pakistanis and compromise the brand in the long run. It would also divert top management s effort, focus, and resources from the core business. The Company Profile McDonald s is the leading global food service retailer with more than 33,000 restaurants serving nearly 68 million people in more than 119 countries each day. The first McDonald s restaurant was established in Chicago, Illinois, in The company s corporate headquarters is based in Oak Brook, Illinois. The company aims to develop the most trusted restaurant brand in the world. Its mission is to be the customer s favorite place and way to eat by providing simple easy enjoyment anytime, anywhere. McDonald s Pakistan operates as a developmental licensee, managed by SIZA Foods (Pvt.) Ltd. and GAM Corporation (Pvt.) Ltd. as part of the Lakson Group. The first McDonald s restaurant opened in Lahore in Today, McDonald s Pakistan serves more than 25 million customers every year. McDonald s Pakistan has expanded its business and opened landmarks in cities like Karachi, Lahore, Islamabad, Rawalpindi, Faisalabad, Hyderabad, Sialkot, and Kala Shah Kaku. McDonald s Pakistan is presently operating 26 restaurants. There had been

2 relocations and closures of some stores in a few cities due to various reasons like security hazards, parking issues, and aggressive openings in remote cities. McDonald s Pakistan has 1,300 employees. McDonald s has introduced new standards of quality, value, service, and cleanliness, leading to a general improvement and growth in Pakistan s fast-food industry. Continuous training of staff, both locally and abroad, has created a large trained workforce base. McDonald s operations have made a substantial contribution to the country s economy and created a large number of jobs directly and indirectly through vendors and suppliers. McDonald s Pakistan is an equal opportunity employer and offers a positive work environment for all of its employees. As a responsible corporate citizen, McDonald s focuses on such key areas as: Special kids. Supports charitable organizations, including Dar-ul-Sukoon, Chamman House, SOS Children s Village, Thalassemia Society of Pakistan, Annual Wheelchair Race, Orphanage Parties, and Special Olympics. Environment. Maintains public parks, sponsors kids visits to WWF Wetlands Center, supports Walks against Cruelty to Animals, litter patrol, beach cleaning, etc. Active lifestyle. Maintains jogging parks, sponsors swimming competitions and children s coaching program McCricket besides major events and teams. Community relief. Contributions to President s Earthquake Relief Fund by customers were doubled by McDonald s, besides support to various charities. Recognition of McDonald s performance in Pakistan recently came in the form of an award for outstanding business performance, consistent growth, and proud employer rating within McDonald s Middle East region. Ultimately, though, the achievement of the organization reflects the values and personalities of its senior managers. Raza Ali Raza Ali earned his MBA in marketing in 1998 from a local business school in Lahore and started his career with the Pakistan Tobacco Company as a merchandising officer. After two years he joined McDonald s as a marketing coordinator and his journey of success began. In a span of 10 years, Ali moved into the country manager position. He attributes his success toward his positive thinking and untiring attitude toward work. He recalls exciting memories when McDonald s was launched in Lahore in He has told his story so many times that he can recall his own words by heart. I was an MBA student when I participated in the opening ceremony of McDonald s in Lahore along with my classmates. All my classmates really made fun of it. They all believed that McDonald s would never thrive in Pakistan. But Lahoris were so excited about McDonald s launching in Lahore. That s when I knew that McDonald s would become a great success and that I wanted to be part of that success.

3 Rashid Ibrahim Rashid Ibrahim earned his MBA in marketing in 1994 from a public university based in Karachi. He started his own agriculture business but could not continue due to shortage of funds and a lack of marketing experience. His failure made him more cautious and more ambitious at the same time. In 2001, he joined a multinational fast-food company as a management trainee officer and within five years was promoted to brand manager at a pizza company. Under his supervision, the marketing and sales teams achieved miracles in terms of high market share and profitability. Ibrahim s performance won him many awards, and he received many employment offers from competing organizations. But he sought an opportunity in McDonald s Pakistan, and in 2010, he was hired by Raza Ali as the marketing manager of McDonald s Pakistan. He believes in teamwork, hard work, and consistency. He is an operational man who likes to sort out the details that other people overlook. McCafe McCafé is a coffeehouse owned by McDonald s that was initially launched in Melbourne, Australia, in The chain offers consumers a range of coffee choices. In 2003, McCafé generated 15 percent more revenue than McDonald s restaurants in Australia. The success persuaded McDonald s USA to open its first McCafé branch in May 2001 in Chicago. Since then, McCafé has expanded like wildfire. By 2007, McCafé had 1,300 stores worldwide, including in Costa Rica, Japan, and Paraguay. By the end of 2009, McCafé expanded the coffeehouse concept into South Africa, Ukraine, and Spain. Targeting Asian markets, McCafé entered Malaysia in 2011 and plans to expand this concept to other markets like India and Pakistan. McCafé appeals to working adults in particular, who love to gather and enjoy coffee. The question is whether Pakistanis who are traditionally tea drinkers will buy into this concept. The population of Pakistan is estimated at 187 million people living in three types of densities: urban cities (Lahore, Karachi, and Islamabad are the most famous), semi-urban cities, and rural parts. It is no surprise that McDonald s opened in Lahore first. Lahore is the second largest city of Pakistan in terms of population. The city has historical imagery that reminds tourists of the time when Mughal emperors ruled the entire subcontinent. The city attracts a lot of tourists (national and international) every year and is known for its traditional food and historical places like Lahore fort, Shalamar Bagh gardens, and Badshahi mosque. The residents of Lahore are known for their love of good food, their outgoing friendliness, and their liveliness. The city has a vibrant night life; people of all ages like to go out to eat traditional and modern food. Lahore is also known for its educational institutes which range from the classic architecture of Punjab University to modern buildings of the Lahore University of Management Sciences (LUMS). Students from all across the country prefer to study in Lahore and enjoy the combination of a quality education, economical living, and all types of food. The city has a classic-style railway station that connects it with all other major cities of Pakistan. Allama Iqbal International Airport of Lahore makes it easy for

4 international travelers to come and explore the city. In addition, large multinational firms and renowned national companies have their corporate offices located in the city. Pakistan is the world s sixth-most-populous country, and its continuing high birth rate means that position will not be threatened anytime soon. In addition to the country s growing population, the average life expectancy of 64 years makes this country a paradise for national and international brands targeting young customers. Most of the population living in urban areas is literate and has access to all levels of education. About 60 percent of the population is aged between 15 and 64 years, making Pakistan an attractive market for telecommunications, banking, and fast food. People in urban cities are trendy, and they like to buy products and services offered by international companies. This has resulted in a large number of multinationals operating in urban and semiurban cities in Pakistan. The services sector represents more than 50 percent of the economy, with banking, telecommunications, and fast food among the fastest-growing sectors. Other sectors that are important include health care, education, and public administration. The growth of the services sector has created many jobs for skilled, semiskilled, and unskilled workers. Due to growing urbanization, young people are no longer interested in agriculture-based work. This shift in the structure of the economy is likely to continue and accelerate in the future. McDonald s Target Market McDonald s traditional competitors are KFC, Pizza Hut, Subway, and some local chains of fastfood restaurants. However, generally, customers are satisfied with McDonald s product and service offerings, and it is also rated high in terms of social responsibility activities. There are many segments in the food category that range from traditional food lovers to consumers who are used to fast-food products. McDonald s in Pakistan focuses on those people who live in urban areas of Pakistan and have a modern way of living life. Usually, high-income groups favor the consumption of fast-food products and these people visit McDonald s restaurants. McDonald s targets people ranging from 3 years to 45 years of age, with a special emphasis on attracting the young adults and teenagers who constitute the largest segment because they love food and are always on the go. For these customers, speed of service is key, and McDonald s provides this service in a wonderful way. Teenagers, however, also enjoy food and services with friends and family. They are more focused on the food and drinks served and spending time with their friends. Given the growing population in Pakistan, kids and younger children are another important segment for fast-food companies, and McDonald s tries its best to attract this segment by reaching out to mothers. This demographic requires an element of fun, alongside the quality of food, to make mothers and their kids want to spend time at the restaurant. It is interesting to note that other fast-food chains also target these segments, but McDonald s success is attributed to its superior customer service, good quality of products, and strength of brand recognition and recall.

5 The Main Competitor: Gloria Jeans Coffees Gloria Jean s Coffees (GJC), an Australian-owned global specialty coffee company, has its presence in many countries across the globe. The brand story began in the United States in 1979 when Gloria Jean and Ed Kvetko opened a specialty gourmet coffee outlet in a small town just north of Chicago. In a short span of time, the brand developed its mark in geographically diverse locations across the United States. About 16 years later, Nabi Saleh, an Australian businessman, experienced this brand and brought GJC to Australia. This proved to be a very good decision and the brand started to grow at an exponential rate in the Australian market. Through the passage of time, Saleh envisioned GJC to be the most respected and loved brand across the globe. In 2004, Saleh and a close friend went to United States and bought branding and roasting rights for all countries outside of the United States. In early 2009, Praise International (an affiliate company of GJC) bought the U.S. retail and franchise operations of 102 coffee houses spread across 24 states. Gloria Jean s Coffees ( was launched in 2007 when the company opened its first coffeehouse in Lahore. The concept, despite being new in the market, proved a success, and the company opened four new coffeehouses in Lahore within 18 months. At GJC, guests experience how coffee is made right in front of them. The company believes in delivering high-quality customer service that is provided by internationally trained baristas at all outlets in Pakistan. These coffeehouses offer a culture of friendliness, cleanliness, and high customer satisfaction. The brand has an image of being trendy, service-oriented, and premium in the minds of young customers. Back to the Dilemma The debate whether to launch McCafé or focus on building the McDonald s brand is a complicated one. The internal strengths and weaknesses of the company are well known. However, much of the decision is influenced by the strategic moves of its competitors. One of the reasons Raza Ali is pushing for McCafé is that players like Starbucks have not yet entered the Pakistani market. By taking the initiative, McDonald s could obtain the first-mover advantage. Another aspect of the debate has to do with people. Time is passing and the board of directors will meet next week to make the final decisions. Ali can wait and let the board members provide some guidance for the final decision. He could also have lunch with several board members before the crucial meeting and use his personal relationships with them to get what he think is the best outcome for the company. (Adapted from: Strategic Management from an Islamic Perspective: Text and Cases by Rodrigue Fontaine and Khaliq Ahmad, Chapter 17, pp , Copyright 2013 by John Wiley & Sons Singapore Pte. Ltd.) Based on the given information, answer the following questions:- 1. Which decision do you think the board of directors will take and why? (6 marks) 2. If the decision comes in favor of one of them, then how would Raza Ali and Rashid Ibraheem get the support of each other? (4 marks)

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