McDonald’s to Offer More Health Food Options in the U.S.

Case Type: new business; operations strategy.
Consulting Firm: LEK Consulting first round job interview.
Industry Coverage: restaurant & food services.

Case Interview Question #00459: McDonald’s Corporation (NYSE: MCD) is the world’s largest chain of fast food restaurants, serving around 64 million customers daily in 119 countries. Headquartered in the Chicago suburb of Oak Brook, Illinois, United States, McDonald’s primarily sells hamburgers, cheeseburgers, chicken, french fries, soft drinks, breakfast items, shakes and desserts. The company recently has also expanded its menu to include healthier food options like salads, wraps, smoothies and fruit.

Recently, in response to changing consumer tastes, McDonald’s is thinking about offering more health food in the United States. In broad terms, it is considering three strategic options:

• Roll out dedicated health food restaurants
• Integrate a health food menu into their current restaurants
• Forget the entire health food business all together

How would you analyze this business opportunity for McDonaId’s? Which of the three strategic options would you recommend McDonald’s to adopt?

Possible Answers:

The point of this strategy case is to have the interviewee analyze various related issues McDonald’s must face in regards to its decision and then conclude with an actual recommendation. The interviewer’s task is to assist the interviewee, drive towards a solution, and then assess the thoroughness of the recommendation.

There are many ways to solve this case. However, the interviewee should be able to discuss the following basic analyses during the interview:

1. Market Definition

What is health food? McDonald’s defines health food as all non-red meat-based food, for example food from restaurants like Kenny Rogers Roasters, Koo Koo Roo, Boston Market, etc. *Red meat in traditional culinary terminology is meat which is red when raw and not white when cooked. In the nutritional sciences, red meat includes all mammal meat, e.g. pork, beef, lamb.

2. Competitor & Industry Analysis

Determine overall industry attractiveness based on the degree of competitor rivalry and each competitor’s positions. Clearly there are a large number of competitors but they share common weaknesses: they are smaller than McDonald’s; they lack the multi-unit management expertise of McDonald’s, and lack the advertising resources of McDonald’s.

3. Market Analysis

Determine overall market demand for health food. The market analysis can be conducted in numerous ways: Look at sales of other health food restaurants; look at sales of health food products in grocery stores; survey current McDonald’s customers; survey potential customers.

4. Company Capabilities

What core competencies and transferable skills would McDonald’s be able to leverage from its traditional fast food business?

Clearly McDonald’s will be able to leverage its marketing skills and administrative skills (e.g. overhead activities). However, McDonald’s will need to develop an entirely new set of operational routines. They will need a new “assembly line” , identify new “raw materials”, and probably new equipment.

5. Costs and Risks

What are the costs (fixed and variable) in establishing a chain of new health food stores. What are the risks involved? Both of the potential “Go” options involve high costs and risks.

Key issues to consider: How does any new initiative affect McD0nald’s brand name. The firm will most likely have to develop a new name if they launch a full scale chain of health food stores.

What additional costs will be incurred with each option: training, new store locations, menu design costs, store start-up costs, etc.

6. Recommendation

Clearly there is no right or wrong answer here. Rather it is more important to be able to discuss what approach you would take and what you would want to analyze. Moreover, your recommendation should be based on the logic you discussed during the interview. If you said a new brand name was important, you shouldn’t recommend that McDonald’s should launch a health food menu in its existing stores.