McDonald's and Hotels

McDonald's & Hotels

Written Case Analysis

By

Sean Bibbey

SWOT Analysis

External Environment

The external environment of the hotel industry in is very competitive and already well established. Trends in the market include promotional campaigns to customers using the "more bang for your buck," method. There are several different segments of the hotel industry including: luxury, upscale, mid-market with food and beverage, mid-market without food and beverage, economy, and budget. Each different segment offers certain amenities to appeal to consumers depending on what they are looking for in an over night stay away from home. As McDonald's looks at entering the hotel industry they have looked at several important issues dealing with an entry into this market. McDonald's would like to enter the market in the state of Illinois where the company's headquarters is. Illinois leads all other states in money spent on tourism totaling $61.1 million in the year 2000. Illinois also ranked fourth in the nation for leisure person trips in 2000. Hotel industry has several important barriers to entry including cost of entry, ability to differentiate from other hotels, and competition in every hotel segment.

Internal Environment

McDonald's was started in 1955 by Ray Kroc and has grown to more than 30,000 restaurants in 121 countries. McDonald's also had $10.1 billion in system-wide sales and $271.9 million in corporate profits on revenues of $3.7 billion in the year 2001.

McDonald's strengths are that is ranked as the ninth most valuable brand name in the world, it has experienced management, site development expertise, advanced operational systems, and unique global infrastructure. They want to use these strengths to break into the hotel industry.

McDonald's weaknesses are inexperience in the hotel industry and the fact that it has no clear idea which hotel segment they want to move into or how to differentiate themselves from other hotel chains already in the segment.

Customer Environment

McDonald's current customer environment is people on the go or people who don't want to spend a lot while going out and need something quick and good to eat. It is best stated in McDonald's mission statement that they want to be the world's best quick service restaurant experience. As stated before, McDonald's has restaurants in 121 countries and has extensive global experience in customer service and satisfaction. McDonald's is excellent at researching an international area before building restaurant there. For example, in India McDonald's realized that the majority of the population was Hindu and vegetarian, they therefore, did not even bother to put beef or any other red meat on the menu.

Summary of the Situation and Identification of Major Issues

McDonald's wants to enter the hotel industry using the strength of the company's brand name and core competencies to propel it. They want to begin this venture by starting in the state of Illinois where the McDonald's headquarters is and there is a strong tourism base. The major issues of this idea include overcoming barriers to entry and deciding how deciding how establish and differentiate themselves in the hotel industry.

Problem Statement

McDonald's must choose a hotel segment that best suits the companies core competencies and will give them the best chance to succeed in the industry. They need to be able differentiate themselves from other hotel chains and use their strengths as a company to create a unique hotel experience. They also have to create a mission statement that outlines their goals in the industry.

Strategic Alternative Analysis

One alternative that McDonald's can pursue is creating somewhat of a new hotel segment by combining a McDonald's restaurant with a low cost hotel. They could use their site development expertise to appeal to travelers. Another alternative McDonald's can pursue is a joint venture with a hotel chain that already knows the business and has already been successful. A joint venture would lower the barriers to entry and reduce overall risk. Finally, McDonald's could create a totally brand name driven hotel enterprise by using the same type of direction Disney did when they created their own cruise line.