Industry profile

Fast food is Quick Service Restaurant (QSR). The food can be prepared and served
quickly. It usually only needs to preheat or precooked ingredients and served to the customer.
The fast food market means the sales of foods and drinks for immediate consumption
(Borade, 2012). This industry can satisfy the demands of people especially children.

Forces affecting competitive strategy

The threat of new entrants is moderate. If new entrant releases new products, it will
cause QSR threat. These existing competitors are more likely to have a stronger supplier
relationship which let them enjoy the cost advantage. The entrants are unlikely to have the
same financial intermediaries (Nihat, 2006).
The bargaining power of buyer is moderate. The competitiveness of the market can
increase the power and the customer price sensitive and no switching costs between
providers. However, the officer attempted to reduce buyer power for providing a range of
products to cater to the entire population (Ibrahim, 2012).
The bargaining power of suppliers is also moderate. Competition in the global supply
chain, supplier's strength is limited. Suppliers in the industry because of the number, it is
difficult for them to take advantage of significant powers of fast food companies.
The threat of substitute is high because customer can choose another QSR. Since
McDonald's be classified as fast-food services, we need to consider an alternative description
of the goods and other fast food items.
The intensity of rivalry among competitors is high. More competition is not only fast
service agencies with similar, but with a beverage companies and high-end food.

PEST analysis of fast food industry

A) Political
Government takes action of improving health for people in the QSR. This is because fast
food is strongly involved by public nowadays and causes many diseases such as obesity. The
other factors which are employment law, tax law and related trade restrictions also vital to
concerned (Fung Kan, 2013).

B) Economical
The changes in inflation and the exchange rates can influence the organizations. The
chains should make adaption to the problems and the economic environments consequents.
The raw materials supply and demand relation also depends on the economic elements.
However, the wage ratio, inflation ratio, and expenses living also impact the business
(Ivythesis, 2011).

C) Social-Cultural
The sales of the fast food company will be changed if the lifestyles of people change.
Different country has different eating behavior, so the eating habits of customers in Malaysia
are different with customers in foreign country (Fung Kan, 2013).

D) Technological
High technology can help the industry on developing such as improve its management
and productivity performance. Technology in QSR can be applied in making advertise
through internet and offering Wi-Fi service to its consumers. It also tends to add value for
their products (Fung Kan, 2013).

SWOT analysis of McDonalds

The first strength is it has the strong brand name, image and reputation. This is
because it has provided the foods which taste and flavor are popularization and suitable for
people from all walks of life. The second strength is it is the largest market shares in the QSR
of global which in accordance with the total world sales 8% (Jurevicius, 2013).Target on
children is the third strength. McDonalds has offered a lot of toys and equipment of
playground to attract children. Moreover, managers in McDonalds are high quality because
they have well-trained. Having good managers are beneficial for developing the business.
The last strength is that McDonalds has uses technology for innovative in this modern
century. Customer can order the meals online, thus this will save the time to them (Candyleo,
2012).
The first weakness is unhealthy food menu. Besides, it has a weakness which is high
employee turnover rate because employee of McDonalds received low salary, the job is low
skilled and employees need to repeat the same steps of working every day (Jurevicius,
3

2013).The next weakness is they are standardized to products. It means that everything in the
meals is fixed and which cannot add more other ingredients. Food standardized limits the
consumers choices on their meals.
The first opportunity is increasing demand for healthier food. It can introduce the new
products which are healthy such as fresh burger, nutritious dessert or salad. Besides, the
service of home meal delivery is also an opportunity for McDonalds. It will enhance its
scope to consumers. The last opportunity is changing customer habits and new customer
group. McDonalds should introduce new needs to change customer habits and it can also
fulfil the needs of customer group which is untapped before.
The first threat is strong competitors. Nowadays, there are many QRS appeared in the
fast food industry. Some of them have the strong brand also such as Wendys or Burger King.
Although they are not really well-known as McDonalds, but it is also a threat to McDonalds
because they maybe will gain some customers to them. The second threat is public health
crisis. In recently, there are many cases such as obesity occurred. Therefore, some customers
will reduce having fast food such as McDonalds for maintaining their healthy. Economic
depression is the last threat. When the economic downturn, it may influence the sales of
retailers and it will tighten the peoples budget, so it might lead to a reduction of McDonalds
customers.

SWOT analysis of Subway

Strength
The first strength is Subway has expanded with many stores. Subway has 38181
restaurants in 99 countries, more than McDonalds or any other QSR. The second strength is
the healthy food selection menu to promote health awareness. Subway provides a series of
low calorie, fresh and nutritious food. One of the unique strengths, the subway preparation in
front of customers, and provides customized food, rather than just adding ingredients that are
fixed on the menu. It can only use fresh ingredients (Boone, 2013).
Weaknesses
The first weakness is that Subway interior design outlets tend to look like simple.
Subway restaurants lack of internal design and quality. The second weakness is the service is
4

not consistent. Each restaurant has their own service and some of them are good, but some of
them are not really well. Thus, consumers have the opportunity to differentiate those services.
Finally, Subway controls over the franchisee. Although the Subway cannot guarantee the
stability of quality in the entire store it exerts too much control over their franchisees facts.
This is achieved by a more favorable concession contract completion (Jurevicius, 2013).

Opportunity
First, Subway is enhancing demand for healthier food. This is a good opportunity,
though Subway has grown itself, may be further introduced low-fat, low-salt, more nutrition
menu. In addition, it can also provide home meal delivery. Subway can take advantage of the
opportunity to deliver food to customers home, increase its coverage to the customer. Finally,
Subway also can be introduction of drive-thru. McDonald's and KFC have drive-thru; this is a
large opportunity of Subway (Jurevicius, 2013).
Threats
First, in the developed economy in the fast food market is saturated. The fast food
market in developed countries has a lot of fast food restaurant chain; it has caused the threat
of Subway, because it found it difficult to growth in the developed economies. The second
threat of subway is healthy diet. Menu is only part of Subway to provide meals healthier
choices, while the rest of the menu contains rich salt, many calories, and soft drink.
(Jurevicius, 2013).

Generic Strategy of McDonalds

McDonalds use the generic strategies which are differentiation strategy and cost
leadership strategy for developing. McDonalds develops their service or product which is
considered as distinctive in the whole industry on differentiation strategy. For example,
McDonalds has offered many services to customers such as drive thru, restroom, lobby and
meal menu. They also offer the Wi-Fi service to consumers especially office workers. So,
they can eat their meals while working. McCaf, McExpress and McStop restaurants are
also differentiation strategy used by McDonalds (Mansaray, 2010).

On the other hand, McDonalds also offer the foods with low prices through the cost
leadership strategy. They train employees who are inexperienced with keeping the prices
low (Scilly, 2015). They tried to minimize the costs between the strong competition price
and the similar products for gaining profits. However, other companies can also lower their
costs as well which is the risk of this strategy.

Generic Strategy of Subway

Generic business strategies used at Subway is the broad differentiation strategy. There
is in Subway menu provide a wide variety of foods, including pasta, salads, dinner, soups and
desserts. They have taken actions to dinner and late-night sales and marketing to children for
improving their business. In terms of nutrition, it is made with fresh ingredients; it is healthier
than others. Improving the quality of higher money value will increase the value of the
product. In a different value pricing, they have different pricing strategies. However, creating
products will through quality of service, the environment, variety and convenience
(Siriwardena, 2009).

Strategy implementation of McDonalds using the 7-S Model

Hard Elements

1) Strategy
The primary strategy of McDonalds is planning properly with rote map for achieving
the advantage competition. They deal with competitive pressure by providing products or
services that are better than competitors at competitive price for dominating the market.
McDonalds consumers might not possibly change their demand in a short period of time
because they are used to eat McDonalds already no matter the price increases or decreases.
The external environment can be divided into competitors and healthy problem which can
affect the strategies. So, McDonalds adjusted the strategies by developing more effective
strategies.

2) Structure
6

The structure of McDonalds is due to a geographic structure. It partitioned its

operations into five geographical areas. The hierarchy is a top down management.
McDonalds business strategy is centralized which lead to tight controls for franchisees and
suppliers. Its information is better given by an explicit recommendation.

3) System
McDonalds main systems are divided into production, service, and shift management.
They perform the proposed change with systematic way. An effective processing system of
preparing the food and delivery system are easier for company to attain their objective.

Soft Elements

4) Shared Value
McDonalds commits core values which are teamwork, respect, accountability, integrity,
innovation, diversity, employees, stockholders, community to guide their decisions and
behaviors. McDonalds corporate culture is according to its shared value system and
maintains standardized quality process to make sure that same quality and reduction in lead
time.

5) Style
McDonalds have the leadership management style in which any proposed change is
discussed inefficient way. Team leaders apply the management style for creating outlets
which are fun environment for working. Employees McDonalds often be competitive, so
they are able to improve themselves from the pressure competition. They are just nominal
groups because all of them have their own work as they are working individually. They are
not really gathering together for the jobs implementation.

6) Staff

McDonalds staffs are taking the position with counter service employee or kitchen
helper. Top managers assigned their position regarding to the abilities of them. The position
currently available is trainee restaurant manager. Some of them are gaps in required
competencies because they are lack of qualifications or any conditions. The business might
be successful if they decide the staffs position correctly.

7) Skill
McDonalds is paying deep intension and spending a lot of money for training
employees. The effective skills were developed after training. There are some skills gaps
because the learning ability of everyone is different. McDonalds known for doing well by
the customers responses or the company sales. Current employees have the ability to do the
job and the skills are monitored and evaluated by their employers.

Strategy implementation of Subway using the 7-S Model

Hard Elements
1) Strategy
The main objective of Subway service by consumers to make a market in every
restaurant has become the number one ranking. All restaurants owned and operated by local
businessman, selected for their local Subway. Development team will provide assistance to
open and run an underground restaurant in a new market and new entrepreneurs. Subway will
continue to provide assistance to ensure the franchisee get all the basic information.
(Dannygreeff , 2008).
2) Structure
Subway chain is the establishment of the largest chain of global and it employs about
150,000 people in 90 countries and more than 30000 areas as widely as possible. Since
operation measures, Subway has more than 700 development to improve and help people in

Milford, Connecticut. Subway can be divided into many departments such as franchising
sales, new business development, store design, customer service (Dannygreeff, 2008).
3) System
Chains to offer an information resources and program available to the knowledge
entrepreneurs need. Subway dealer franchise system formulated the following four criteria:
Product quality: It is very concerned about the quality of the product. This is visible fresh
products and inspection.
Location flexibility: It does not find new markets. Contact Subway potential restaurant
owner.
Lower investment: Start with the lowest cost compared to other fast food.
Operations Support: Subway provides training courses and information resources franchisee.

Soft Elements
4) Shared Value
Shared value of Subway could be identified by the keywords which are simple,
support and control because Subway easy to run systems, operation and information
resources to help franchisee and teaching methods to help effectively conduct business. The
shared value of the chain is providing tools and knowledge to make a successful entrepreneur
in the QSR industry.
5) Style
Subway is in the right direction to guide the dealer training courses and the necessary
information. It supports franchisees and help to start the business.
6) Staff
In the two weeks of training, Subway also provides new franchisees and required
information. Subway franchise fee is very low.
7) Skills
9

Subway provides marketing knowledge to join and the necessary tools to operate
effectively to the business. They know the market and provide healthy choice than other QSR
such as McDonalds.

Financial Performance Analysis of McDonalds

2011 ($)

2012 ($)

2013 ($)

Net Assets

32,989.90

35,386.50

36,626.30

Net Liabilities

18,599.70

20,092.90

20,616.60

Net Revenue

5,503.10

5,464.80

5,585.90

Source: McDonalds Annual Report 2011, 2012, 2013

In year 2011, Global Comparable Sales Growth is 5.6%; Earning per Share Growth is
11%. In year 2012, Global Comparable Sales Growth is 3.1%; Earning per Share Growth is
5%. The total revenue was decreased from the year 2011 to 2012. This might due to several
reasons. For instance, there is economic downturn or inflation during that time, so it will
tighten the budget of people. In year 2013, Global Comparable Sales Growth is 0.2%;
Earning per Share Growth is 4%. The total revenue from year 2012 to 2013 was increased.
This is because there is economic recovery boom during that time. Thus, many of the
customers can continue to support McDonalds. Skinner (2011) stated that McDonald's
continued success reflects the fundamental strength of our business model and unprecedented
alignment around our customer-focused strategies. Based on those data, we can know that the
financial performance McDonalds is considered as well and positive although there is a
declining trend on the year of middle.
10

Financial Performance Analysis of Subway

25,000,000
20,000,000
15,000,000
Net revenue
10,000,000

Net assets
Net liabilities

5,000,000
0
2011

2012

2013

-5,000,000

2011
2012
2013

Net

Net assets

Net

revenue00

(00,000)

liabilities(00,00

,000
6
-1,2
-1,3

0)
19,3
17,6
15,4

1,4
1,4
4

Source: Subway Annual Report 2011, 2012, 2013

11

In year 2011, net revenue is the highest in the 3 years. The lowest net revenue is in
2013. In 2011 net revenue is highest, that is because in that year Subway competitors do not
have a lot of. In the next two years increased slowly in less because of the competition.
Besides that, net assets decreased in the three years. Subway net asset decreases in three years
because it consumes the asset in its operations. Assets uses up include cash, supplies,
accounts receivable and prepaid expenses. In the year 2011 and 2012, net liabilities
unchanged but in the year 2013 net liabilities decrease. Decrease in liabilities would be a
decrease in any bills you owe all together, like long term debt.

Final Analysis - Compare and contrast between the two firms within the same industry
Subway
service is not consistent

weaknesses

McDonalds
standardized to product

interior design outlets

Unhealthy food menu

tend to look cheap

expanded with many Strength

Largest fast food market

stores

health food choices in

share in the world

the menu

prepare food in front of

customers
Introduction of drive- Opportunities
thru

Partnerships

with

best

brands

Changing customer habits

and new customer group

In contrast, Subway provides healthy food menu, but McDonald's provide unhealthy
food menu. Subway sells foods low in calories, cholesterol, trans fats are very liberal;
however, McDonald's offer fried food. Next, Subway expanded with many stores but
McDonalds is largest fast food market share in the world. McDonald's has 33,000 restaurants
around the world, and provides 52 million people a day. Subway has 36,000 restaurants and
25,549 stores around the world, the sum of the number of McDonald's and Starbucks.
Subway interior design outlets tend to look cheap, but McDonalds interior design outlets tend
to look suitable for children. Subway furnishings simple, no special place but McDonalds
provide playground for children. Subway prepares food in front of customers, so customers
12

can observe the making process directly; however, McDonalds prepares food at kitchen, so
customers unable to see the process directly. Furthermore, McDonalds provides toys to
children, but Subway did not. McDonalds have provides drive-thru; Subway did not. Having
drive-thru service is more convenience for customers who want to take away. The skill of
McDonalds is standardization; but Subway is customization. The financial performance of
McDonald's is the best within the fast food industry; however, the financial performance of
Subway is also good but not as well as McDonald's.

Conclusion and Recommendation

As a conclusion, both the two companies have their own characteristic that attracts their
customers. Although McDonalds is more popular than Subway, it does not mean that
Subway is not good. It is just only because that people nowadays especially teenagers are
paying attention on their favorites rather than being healthy. Besides, customization and
standardization are really an ideal example of McDonalds and Subway Company for
achieving their goals. Both these types of service are sometimes applied together in many
workings like Pizza Hut and Little Caesars restaurant. So, the integration of these two types
of service is the most effective system; Standardization in McDonalds works effectively
between consumers and organization by following the steps while customization in Subway
satisfied consumers ideal demand on their foods. For recommendation, we suggested that
McDonalds and Subway can complementary on standardization and customization. For
example, McDonalds can provide another service such as customization service like
Subway. The staff of McDonalds can ask customers whether they want to add on some
ingredients on their meals or not. They also will be more satisfied after having the ideal
meals. On the other hand, Subway can show the extra add on price in the menu whenever
customers want to form their ideal meals. Therefore, customers will know the total price
quickly and it will be more convenience for them. To sum up, both the two companies will be
more successful if they apply the good and appropriate strategies.
(2947 words)

13

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