Proceedings of the 2023 International Conference on Management Research and Economic Development

DOI: 10.54254/2754-1169/20/20230175

Strategies in Corporate Finance and Risks Assessment to

Improve Profitability
—Taking McDonald’s as an Example
Haoting Yu1,a,*
1
Beijing Normal University, Hong Kong Baptist University United International College, ZhuHai,
519087, China
a. r130001126@mail.uic.edu
*corresponding author

Abstract: McDonald's has grown steadily since its establishment and has gradually grown
into a leader in the fast food industry over the years. How McDonald’s becomes so profitable
may be questioned and learned by other enterprises. That is because, throughout the
development of McDonald’s, many successful strategies have been used to improve its
competitiveness and market share. This paper explores McDonald’s concrete marketing
strategy in corporate finance and risk assessment. It is organized as follows: In the first part,
the achievements of McDonald’s will be briefly introduced. In the second part, this paper
analyzes some specific strategies that McDonald’s has used in its corporate finance. In the
third part, this paper discusses McDonald’s strategies to assess its risk. In the end, the
successful strategies that McDonald’s has utilized are summarized. This paper can help
readers understand McDonald’s experience and how they become so successful.

Keywords: risk assessment, business management strategy, marketing strategy, franchise,

McDonald’s

1. Introduction
Richard and Morris established the "Dick and Mac McDonald's" restaurant in 1940, which served as
the prototype for McDonald's. McDonald's, the world's largest fast food chain, was founded in 1955.
McDonald's officially entered the Chinese market in 1990, when it opened its first restaurant in
Shenzhen, officially entering the socialist country. McDonald's now has over 32000 fast food
restaurants in 121 countries and regions around the world [1]. The success of McDonald’s is not an
accident. Effective and reasonable strategies play a significant role in the company’s operation, which
advance McDonald’s to nowadays position step by step. There are many research methods that can
be used to analyze McDonald’s strategies, such as the Ansoff Matrix, Porter’s Generic Strategy, swot
analysis, and marketing mix. McDonald’s would apply these methods to manage business activities
and assess risk.
Chen and Hu [2] also claims that as the COVID-19 outbreak, the catering industry took a hit in
several years, how McDonald’s manage risk and maintain operation to respond to such public health
crisis is also a good experience for other company to learn from. This paper mainly analyzes
© 2023 The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(https://creativecommons.org/licenses/by/4.0/).

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McDonald’s franchise agreement and structure and tries to discover its successful business model and
marketing and management strategies to improve sustainability.
2. Marketing Strategy Analysis
2.1. SWOT
SWOT analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats, is a useful tool
for developing an overall marketing strategy or planning individual campaigns.
2.1.1. Strengths
McDonald's has high brand awareness, influence and credibility. McDonald's operates globally and
has more than 38,000 stores in more than 100 countries. It has opened up sales channels around the
world and is recognized by the public. It has a great advantage in the highly competitive catering
industry [3].
New technical support. The development of McDonald's has been following the progress of the
times, not only providing consumers with self-ordering and skip-the-line functions to realize the
concept of future restaurants, but also quickly calculating the calories of McDonald's food for
customer reference through technology. At the same time, as many countries want to achieve the goal
of carbon neutrality, McDonald's also has technical support and progress in energy conservation and
emission reduction. For example, the use of electric vehicles in transportation, the use of solar power
instead of gas power in restaurants, etc.
Financial Status. McDonald's revenue in 2019 was $21.98 billion, and its market share has been
growing slowly but steadily, which gives McDonald's an absolute advantage in future development.
2.1.2. Weakness
The chain business model. The chain operation mode of McDonald's makes the management of the
company very complicated. McDonald's cannot guarantee the uniform quality and service of each
company. If one McDonald's has problems, the reputation and trust of the whole McDonald's will be
affected.
The food is not nutritionally balanced. McDonald's food is mostly junk food, such as fried food
and carbonated drinks, which is very bad for some people who pursue a nutritious diet.
Lack of employee satisfaction. Because McDonald's has been pursuing high profits and low wages,
employees have serious dissatisfaction with their work treatment and salary. McDonald's has faced
frequent employee protests and strikes.
2.1.3. Opportunities
Expansion of the menu. More and more consumers are concerned about their health, but McDonald's
currently offers a very limited number of healthy diets meals, and McDonald's can add more choices
for consumers to attract more health-conscious consumers.
Global store expansion. McDonald's can continue to expand its stores around the world to broaden
the global market and give it a more leadership in the fast-food market.
Green development. As the world pays more and more attention to sustainable development,
McDonald's should follow the world's mainstream energy conservation and emission reduction and
pay attention to its own green development. At a time when other competitors have not yet
transitioned to green development, McDonald's has opened up the market first to lay the foundation
for its future development.

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2.1.4. Threats
Although McDonald's is now the leader in the fast food industry, it also has many competitors, such
as Burger King, chick-fil-a and KFC, which should not be ignored. Moreover, now more and more
fast food brands are established, they will make up for the defects that McDonald's does not bring to
consumers. McDonald's will have to work hard to be a leader in the future.
Economic uncertainty. In the first quarter of 2020, McDonald's missed quarterly profit
expectations due to economic uncertainty. That led to a 4% drop in the value of its shares, which
could be steeper if the economic uncertainty continues for longer [4].
Emerging consumer preferences. Consumer trends and consumer preferences are changing with
The Times. At present, fast food is still popular among consumers, but in the future, with the concept
of healthy and green development, if people choose healthier diet and better quality of life,
McDonald's will face great changes.
Strict state regulations. Some countries restrict the development of many fast food companies due
to health problems, and many countries shut down McDonald's due to political problems, such as
Russia closed all the local McDonald's.
2.2. Marketing Mix
2.2.1. Product Strategy
McDonald’s products mainly include hamburgers, sandwiches, salads, snacks, sides, beverages,
desserts and shakes. According to Shastri [5], McDonald’s regularly change its menu to adapt to
changing needs, trends and tastes. Before adding new products to the menu, it has undergone a
thorough market test, so franchisees have a fair understanding of its potential. Meyer also claims that
the McDonald’s business gradually expands its product mix, making its products diversified [6]. This
action not only satisfies market demand and improves its revenues but also reduces the risk of over-
dependence on one or several food service segments.
2.2.2. Place Strategy
The company’s revenue mainly relies on McDonald’s restaurants. It has more than 38000
standardized restaurants, distributed in over 100 countries. In addition, in order to meet the digital
trend of the catering industry, McDonald’s allows customers to order food online via their website
and cooperates with some leading online food delivery services companies [5]. McDonald’s also
manages kiosks to sell some specific categories of products, such as some desserts, which provide
extra revenue [6].
2.2.3. Pricing Strategy
McDonald’s pricing strategy include bundle pricing strategy and psychological pricing strategy.
Bundle pricing strategy is to encourage customers to purchase product portfolio instead of a single
product. For example, if customers go to McDonald’s ordering system, they will discover that the
price of a set male is much cheaper than the sum of each component’s price. Psychological pricing
strategy is another common pricing strategy existing in many companies. They will price their product
at a price that could give customers mental suggestions. For instance, they will price their product at
99$ instead of 100$ to let customers feel cheaper.

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2.2.4. Promotion Strategy

McDonald’s promotion strategies include advertisement, sales promotion, public relations and direct
marketing [6]. The company publicizes its products through TV, the internet and other carriers.
McDonald’s also discounts some of their products to attract customers. For public relations,
McDonald’s releases their CSR report actively and promotes the company’s sustainability. Direct
marketing is for some big events or activities held by local governments or communities. In addition,
McDonald’s has personalized marketing strategies for different regions, which considered factors
about religion, custom, culture, and tradition.
2.3. Generic Strategy
In 1980, Michael Porter introduced Porter’s Generic Strategy, which are standard basic strategies that
an enterprise can follow. It’s comprised of three basic strategies, namely the “Cost Leadership
Strategy”, “Differentiation Strategy” and “Focus Strategy” [7]. By choosing the right strategies, the
enterprise can pursue a higher competitive advantage. The strategies proposed depend on the
company’s competitive advantage and the scope of the market targeted.

Figure 1: Porter’s Generic Strategy.

McDonald's has made cost leadership its main generic strategy. It involves minimizing costs in
order to offer products at lower prices. The objective of McDonald’s by using this strategy is to attain
market leadership position by establishing efficient value chain management. In addition, Gregory
considered that the company’s standardized processes make it possible to maximize efficiency,
minimize costs, and ensure profitability despite the use of competitive selling prices. He also
explained that the huge business organization promotes economies of scale, which lower the cost of
raw materials [8].
2.4. Intensive Growth Strategies
The Ansoff Matrix was developed in 1957 by Igor Ansoff, the father of strategic management. It
refers to two broad areas of concern for a firm: Product and Market. This model helps enterprises
identify opportunities to increase business income by developing new products and services or

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exploring new markets. The matrix contains 4 options: market penetration, product development,
market development, and diversification. Each option has a different level of risk.

Figure 2: The Ansoff Matrix.

2.4.1. Market Penetration

Intensive growth refers to the growth of a company by expanding its product line or market scope [9].
McDonald’s aims to improve profitability and increase market share by using these strategies, and
the primary strategy is market penetration, which is a measure of how much a product or service is
being used by customers compared to the total estimated market for that product or service [10]. One
of the concrete methods is related to cost leadership strategy because lower cost leads to lower prices,
increasing market penetration. The promotion strategy, which was mentioned in the marketing mix
is another way for McDonald’s to achieve this goal as promotions and discounts are good ways to
increase sales. In addition, McDonald’s competitive advantages will be strengthened by doing SWOT
analysis for increasing growing sales and market reach [8].
2.4.2. Product Development
McDonald’s develops new products or modifies its product lines for their current customers in the
existing market. The company has enlarged its product line and owned its competitors’ products to
improve its ability to against risk. Accompanied by product development, McDonald's has increased
investment in research and development. Considering that McDonald's mainly relies on market
penetration, this intensive growth strategy has a supportive effect on business growth. Because of the
increased risk, the frequency of developing new products or changing menu is quite low. In addition,
Gregory considered this strategy is related to the cost leadership strategy in his report, as the company
can use lower introductory prices to attract customers [8].

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2.4.3. Market Development

McDonald’s mainly use this strategy to develop new market in global business expansion. New
market development based on low prices products, effective promotion strategy, and strong brand
awareness. The company applies this strategy by developing new products or considering new
geographic areas to expand its value chain. What’s more, while accessing in different markets,
personalized marketing for different regions is also important, which fully considers the religion,
customs, values, and cultures of its operation areas.
2.4.4. Diversification
According to Ansoff Matrix, diversification refers to developing new products and entering new
market. Diversification provides the greatest growth potential, but also the greatest risk of failure. For
McDonald’s, diversification strategy has been only applied to a minimum extent [8]. The company
mainly utilizes related diversification in food preparation and production such as developing new
products in the global drink industry. However, some lateral diversification has developed nowadays
as the changes in the development situation. For example, in response to the growing criticism about
environmental impact, the company has invested in green business practices to set up a good
enterprise image.
3. Sustainability Strategy
3.1. Climate Action
McDonald’s is focusing on reducing emissions in their restaurant operations and engaging suppliers
to reduce emissions in supply chains. The company has joined the United Nations Race to Zero
campaign, committing to put McDonald’s on the path to net zero emissions by 2050 [11].
3.1.1. Restaurant Energy
The company has invested in areas such as renewable energy, LED lighting, energy-management
systems and energy-efficient kitchen equipment. McDonald’s is getting LEED recognition---Tibet
(convenient traffic reducing traffic pollution), Hainan Island (convenient traffic, environmental
protection fitment and decoration) & Nanjing (power saving system), the UK’s first “net zero carbon
restaurant”. The company expects to have 1800 LEED-certified restaurants by the end of 2022.
Moreover, McDonald's provides electric vehicle (EV) charging points in restaurants located in
multiple markets around the world.
3.1.2. Supply Chain Management
For farm management, McDonald’s support farmers to continuously improve farm management
practices, systems and technologies to reduce emissions and increase production efficiency. They
also support regenerative agriculture initiatives to promote soil regeneration and improve soil health
[12]. The company is also committed to reducing deforestation in supply chain to reduce emissions.
In addition, McDonald’s is reducing energy usage at supplier facilities, sourcing renewable energy,
transportation efficiency and reducing waste.
3.2. Food Safety
McDonald's attaches importance to customer feedback and operates multiple global social media
accounts and toll-free phone numbers for customers’ suggestions. They use these feedback to improve

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the quality and safety of products and services. The company also work with experts, it has established
McDonald’s Global Food Safety Advisory Council which include leaders of food safety industry
from all over the world [11]. The council provides suggestions on production safety standards and
restaurant food safety practices so that McDonald's can continuously improve their standards. In
addition, McDonald’s also conducts annual food safety audits of their suppliers to check if the food
meets the standard. In addition, McDonald’s also conducts annual food safety audits of their suppliers
to check if the food meets the standard. The food sources should go through strict inspection
procedures. For example, beef patties have to go through multiple control indicators and tests. Even
if 1.5 mm metal is mixed, it will be immediately detected and removed by the metal detector [12].
3.3. Safe & Respectful Working Environment and Empowerment
McDonald's works hard to create a safe working environment for the crew and provide customers
with a safe experience. It strives to provide a good restaurant atmosphere by strengthening staff
training. Meanwhile, McDonald's will conduct safety inspections for all restaurants every year and
take measures against unqualified restaurants. The company also provides learning and development
opportunities for its employees and focuses on attracting and retaining the best employees.
McDonald's has established Hamburger University around the world to provide talent [13]. What’s
more, they take serious responsibility to respect human rights throughout the value chain, preventing
forced labor and other human rights violations.
3.4. Community Impact
McDonald's can create a lasting positive impact through community service. By supporting the
development of communities, the company have established impactful relationships with community-
based organizations [11]. One of the significant examples is Ronald McDonald House Charities
(RMHC). The Ronald McDonald’s House provides free temporary housing for families of sick
children who seek medical care away from home and donate necessary foods and suppliers.
Consumers enjoy the humanistic care of McDonald's and the company builds a reputation.
4. Risk Strategy
4.1. Establish a Standardized Management System
The standardized management system plays an important role in the face of existing major risk. After
the COVID-19 outbreak, McDonald’s acquire its employees wear mask uniformly. Employee also
strictly obey the Six-step washing hands rule [2]. The company also strengthened the disinfection of
the ventilation system in the store and the facilities frequently contacted by customers [2]. These
actions minimize the risk of epidemic spread and ensure the health of employees and customers,
Keeping most stores open during the epidemic.
4.2. Buy Back Shares
McDonald's has bought back millions of shares in a stock buyback program. From 2010 to 2020,
McDonald's cut the total number of outstanding shares by more than 30% [14]. Basically, that is
because of McDonald’s pursuit of low cost. Low price lead to low-profit margins, which is a common
phenomenon in fast food industry. Another key reason is the decrease in sales. For these reasons, the
company bought back shares to increase the share dividends. McDonald’s increased the portion of
sales from franchisees to increase free cash flow, and they use these extra money to buy back shares
[14]. These measures eventually lead to higher buybacks and dividends. From 2009 to 2020, the
dividends per share increased by 125% while the cost of dividends rose by only 56.4%.

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Figure 3: Hake calculations [14].

4.3. Invest in Real Estate

McDonald’s earned most of its income from real estate investment, which is related to franchising.
The company operate three different types of it: developmental license, which is the franchisee invests
their own capital in setting up the restaurant. Conventional franchising, which is the franchisee paying
rent and royalty for using the restaurants. Affiliates, which is receiving investment and accounts for
equity investments from the company [15]. According to McDonald's business report in the third
quarter of 2020, about 7% of McDonald's stores are owned and operated by the company, and the
remaining 93% of stores pay some form of rent and royalty to the corporate office. In addition, the
report also shows that the revenue generated from food sales at company-operated restaurants was
$2.2864 billion, while $3.0448 billion from franchised restaurants. So McDonald’s mainly gain
income from rent and royalty of franchised restaurants.
5. Conclusion
To sum up, in terms of marketing strategies, swot analysis shows that McDonald's has high brand
awareness, influence and credibility. It also has strong new technique support and good financial
status. There are also lots of opportunities such as the expansion of the menu, global store expansion
and green development. However, McDonald’s has its own weaknesses. The overstrict chain model
impedes effective management, the not nutritionally balanced food, and lack of employee satisfaction.
McDonald’s is also facing the rat race, economic uncertainty, emerging consumer preferences, strict
state regulations and other kinds of threats. In order to improve profitability, McDonald’s has adopted
different approach of its 4p marketing mix in their global outlets, which greatly depends on their
globalization approach and localization approach. In the aspect of sustainability performance, the
ESG report claims that according to The Upright Project, McDonald's has a net impact ratio of -43.3%,
indicating an overall negative sustainability impact [16]. McDonald's seems to create positive value
in the categories of Jobs, Taxes, and Meaning & Joy by using resources or causing negative impacts
in the categories of Physical diseases, GHG emissions, and Scarce human capital. Under this situation,
McDonald’s also adopt some strategies in the aspect of the environment, labour and human rights,
supporting local communities and so on.
In terms of risk assessment, McDonald's bought back millions of shares, reducing the number of
shares outstanding to reduce debt level. The unprecedented growth is mainly because its successfully
usage of franchisee entrepreneurs to promote the McDonald's product, which reduce risk to a large
extent.

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This study has some limitations. Not every problem is fully covered, the operation situation may
change over time. However, this paper is also a useful source to research the business strategies of
McDonald’s and enlighten others.
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