Case Study: McDonald’s PESTLE Analysis & Recommendations

Introduction

The PESTEL/PESTLE analysis model supports strategic management by identifying the external factors that present opportunities or threats, based on the remote or macro-environment of the business, pertaining to the political, economic, sociocultural, technological, legal, and ecological factors (the PESTLE factors).

Management decisions can focus on the most significant trends that influence the food service business and its industry. These trends are among the defining factors of developments in the global food and beverage market, which is also under the influence of the strong force of competition shown in the Porter’s Five Forces analysis of McDonald’s Corporation.

 

Political Factors Affecting McDonald’s Business

This aspect of the PESTEL/PESTLE analysis refers to the effects of governmental actions and policies on the remote or macro-environment of McDonald’s business and the economy as a whole.

Governmental guidelines for diet and health are a threat and an opportunity for the restaurant chain business. McDonald’s 4P marketing mix already includes healthful options, such as salads, but the company can add more to improve its status in addressing this political external factor.

McDonald’s Corporation also has the opportunity to expand its multinational business based on improved international trade, which can enhance global supply chains.

The most significant political external factors in the fast-food restaurant chain industry environment are as follows:

  • Increasing international trade agreements (opportunity)
  • Governmental guidelines and health policies for diet and health (threat and opportunity)

 

Economic Factors Important to McDonald’s Corporation

This aspect of the PESTEL/PESTLE analysis pertains to the effects of economic conditions and trends on the remote or macro-environment of McDonald’s. Economic changes, directly and indirectly, influence business performance.

The slow but stable economic growth of developed countries is an opportunity for McDonald’s to grow and increase the stability of its restaurant chain business. The U.S. market remains the biggest contributor to the company’s revenues, but the business also benefits from the stable recovery and growth of European markets. On the other hand, the slowdown of the Chinese economy is considered a threat.

The global economy, regional economies, and local economies influence McDonald’s industry environment through the following economic external factors:

  • Slow but stable growth of developed countries (opportunity)
  • Slowdown of the Chinese economy (threat)
  • Rapid growth of developing countries (opportunity)

 

Social/Sociocultural Factors Influencing McDonald’s Business Environment

This aspect of the PESTEL/PESTLE analysis refers to the social conditions that support or limit McDonald’s business. Social trends influence consumer behaviours and, in turn, affect the remote or macro-environment of the business in terms of revenues.

Based on the external factor of rising disposable incomes, McDonald’s has the opportunity to grow based on the increasing tendency of consumers to buy fast food instead of cooking at home.

This tendency is also linked to busy lifestyles in urban environments. These lifestyles increase consumers’ likelihood of dining in restaurants like McDonald’s instead of cooking food at home.

Sociocultural external factor creates a diverse set of consumer preferences based on various local and regional markets that McDonald’s must account for in product development to satisfy consumers’ preferences in different markets around the world.

Furthermore, the healthy lifestyles trend is a threat against McDonald’s, based on criticisms about the adverse health effects of many of the company’s products.

In this case of McDonald’s Corporation, the most significant sociocultural external factors are as follows:

  • Rising disposable incomes (opportunity)
  • Busy lifestyles in urban environments (opportunity)
  • Increasing cultural diversity (threat and opportunity)
  • Healthy lifestyle trend (threat & opportunity)

 

Technological Factors in McDonald’s Business

This aspect of the PESTEL/PESTLE analysis pertains to the impact of technologies and related trends on the remote or macro-environment of companies.

McDonald’s has the opportunity to increase its research and development investments to improve business effectiveness and efficiency and to reach a higher level of R&D activity compared to competitors.

More automation can maximize productivity, based on the external factor of increasing business automation. Such automation may require changes in McDonald’s operations management and productivity approaches.

The business can improve its mobile services to reach more consumers via its mobile apps. Based on the technological trend of increasing sales through mobile devices, the company can expect revenue growth through mobile channels.

The company needs to address the following technological external factors:

  • Moderate R&D activity in the industry (opportunity)
  • Increasing business automation (opportunity)
  • Increasing sales through mobile devices (opportunity)

 

Ecological/Environmental Factors

This aspect of the PESTEL/PESTLE analysis refers to the trends linked to the natural environment, and how these trends affect McDonald’s remote or macro-environment.

There is a rising global interest for corporate environmental programs and increasing emphasis on sustainable business practices. McDonald’s Corporation can improve its environmental programs and sustainability to strengthen its brand and business performance.

Changes in climate conditions in some regions threaten the company. For example, these climatic conditions determine the availability and stability of food supply and influence the company’s supply chain. McDonald’s may need to further diversify its supply chain to address the effects of changes in climate conditions.

In McDonald’s business environment, the following are the most significant ecological external factors:

  • Rising interest in corporate environmental programs (opportunity)
  • Increasing emphasis on sustainable business strategies (opportunity)
  • Changes in climate conditions in some regions (threat)

 

Legal Factors

This aspect of the PESTEL/PESTLE analysis pertains to the impact of laws or regulations on firms. Changes in legal systems and new laws shape the remote or macro-environment of businesses by imposing new requirements.

Health regulations impose limits on the accessibility and availability of fast food in some workplaces and schools. This legal trend threatens McDonald’s revenues from these market segments.

Animal welfare regulations are classified as a threat and an opportunity as these regulations increase costs in McDonald’s supply chain. However, the same external factor creates an opportunity to improve the business by implementing a comprehensive animal welfare policy, which can attract more customers who are interested in animal welfare.

McDonald’s faces the threat of higher minimum wages, which lead to higher costs and prices.

McDonald’s Corporation must consider the following legal external factors in its industry environment:

  • Increasing health regulations in workplaces and schools (threat)
  • Increasing animal welfare regulations (threat & opportunity)
  • Rising legal minimum wages (threat)

 

Recommendations

Threats

  1. Address the combined threat of governmental guidelines for diet and health and evolving public health policies by continually improving the company’s menu.

This also addresses the threat linked to the healthy lifestyle trend and the threat associated with health regulations in workplaces and schools.

  1. Improve the flexibility of its international operations to ensure that menu items match target consumers’ culturally diverse preferences.
  2. Diversify its supply chain to address the threat of changes in climate conditions in some regions.

 

Opportunities

  1. Increase its market penetration in high-growth markets. For example, increasing the number of McDonald’s restaurant locations in high growth developing countries in Asia can contribute to overall growth.
  2. Increase its market penetration in areas with rising disposable incomes in various markets around the world.
  3. Expand its corporate social responsibility programs to address the opportunities that come with ecological trends.
  4. Improve the environmental impact of the business, while strengthening the brand and consumer perception about the business.

Adapted from: http://panmore.com/mcdonalds-pestel-pestle-analysis-recommendations

Author: Updated On September 5, 2018 By Roberta Greenspan