Golden arch hotels : Case study

Golden Arch Hotels by McDonald’s

Chintham Ashish (008)Ipsita Pradhan (019)Arokia Rexton (028)Pranjal Yadav (037)

Ragavendra R. (038)Vaishnavi C. (056)

Gaurav Kumar Singh (096)

By TEAM RIES

• 1954 – Milk Shake seller – Raymond Croc• Fast and Friendly• Donald Brothers – San Bernardino• First McDonald – Franchisee• 1967 – Outside the US – Canada, Japan, Holland,

Australia and Great Britain• 1970s – Germany, Hong Kong, Sweden, the Far East, and

Latin America

Introduction

• 1976 – Swiss – 142 – 7200 Employees• 1989 – Eastern Europe – Russia, Poland, Hungary, and the

Czech Republic• 2005 – 30,000 QS Restaurants in 122 Countries• Relationships with its Neighbors, Local Communities ad

Clubs• Built in “PlayLand”

• 1965 – IPO – NYSE• Market Saturation• Diversification Strategy• The Swiss Strategy• The Hotel Project• 4 Star Hotel – The Golden Arch

Uniqueness of The Golden Arch• Competency center• Luggage Handling – Custom made trolley• No rush in Check-in & Check-out – Self, Credit Card at the

Airport Terminal would do• Curved Walls in rooms – Patented• Futuristic Shower

• Spirit of Mc. D’s- “hospitality philosophy”• McD’s USP-

Burger and fries at one price Clean environment Fast and friendly service – Zero waiting time Consistency in quality , rate & taste

• Relationship with customers, neighbors, local community and clubs.

• Ambience :• 1/4th of the restaurant – play land for kids• McD’s clown – educate and entertain children• Target customers: children centric

Mc Donald’s Brand image

Service sector- quality food

Associated with social benefit

Cheap place to hang around

Family gathering

Children recreational place

Mc D perceived as

Customer Experience at Golden Arches

• Signage of the hotel was not prominent• Unfriendly front-desk employees• Comfort• Ambience • Brand reinforcement at every turn

• Wireless keyboard was too advanced in 2001• It was relatively isolated• 4 star rating did not correspond with hotel image• Only eating option is McDonald’s• The name Golden Arch does not translate into the

German language

Customer Experience at Golden Arches

Customer Reactions

10

The room was exceedingly cheerful and I found the headboards witty rather

than annoying.- Fred Bernstein

As I think about this hotel visit in retrospect, the entire feeling was one of oddity and discomfort.- Nancy Stephens(Arizona)

It would have never crossed my mind that

a Mc Donald’s restaurant would qualify

as a four-star hotel.-Daniel Deutscher

Given the low occupancy,there was little effort to

sell the rooms to us and the front-desk person was not very

friendly or welcoming either.-Upendra Dixit

Quotes

I Usually stay in five-stars. But if there isn’t one around,

why not stay at Mc Donald’s?-Erwin Brunner

Deep / Broad Brand Awareness

PoP & PoD

Positive accessible reactions

Intense & Active loyalty

Role of PoP & PoD in the Brand Building

Performance- How well functional needs are met ?- Question marks: Food & beverage, Guest

services, Recreational facilities, Business needs like large conference rooms

Imagery- Way people think about a brand abstractly- Question marks:- “I can’t imaging staying at a Mc Donald’s hotel on

a business trip”- “expected the hotel would be one or two star”- “having a picnic than having a drink in a bar”

Expectations @4 star hotel?

Comfort Ambiance Recreational Facilities

Food and beverages Service Cleanliness

Are the points of difference compelling?

Curved wall Gadget

(keyboard)

Movable beds

Futuristic Shower

Automation

Custom made trolley

Deliverability?

Desirability?

Porter 5 forces analysis

• No such threat at that point of timeThreat from substitute

• Competition with four star hotels• World’s fastest growing hotels• Compared with other hotels, far from airport

Intensity of rivalry within industry

• Tours and Airlines (major customer segment) – demand long term relations and lower price. (Bargaining power – HIGH)

Bargaining power- Customers

• HR scarcity in SwitzerlandBargaining power- Supplier

• Increasing nos. of new hotel• Growth rate 40%, 3000 new rooms• In past, increased growth drop in occupancy rate

Threat – new entrants

Hotel Life Cycle at Swiss

Swiss Hotels

• Loyal currentcustomers• The new products have a good quality and are well

promoted and priced.• Moreover, the new products are marketed to the same

economic environment as the existing products.

• McDonald’s Customer group -> Economical and Upper middle Class

• Golden Arches’ Customer group -> Upper class people

When to Horizontally Diversify???

• Customer Confusion:

Surprised to see Golden Arches Hotel (not much advertising)

OMG!!! McD is a 4 Star hotel???

A 4 star hotel with no bell boy, no receptionist, looks deserted!!

Where are the friendly customer support executives??? Safety

factor!

A 4 Star hotel with only a burger joint???

Internal Problems Faced

• Bar ambience • ‘Arches’ in German sounds awful.• Noise from the airport.• Comfortable multi position adjustable bed looks like a hospital

bed to some customers. (Actually McD has satisfied customers’ needs, wants and went one step forward to satisfy desires)

• Shower in the Bed room!• Out of McD’s core competency• POD (High end technology) doesn’t seem to be relevant

Continued..

Problems

• Segmentation and Targeting• Failure of Brand Value support• Irrelevant PODs• Market is expected to mature very soon and tough

competition existed!• Faster service was preferred over friendly service.

BCG Matrix

Better liquidate it, it might hurt the parent brand

Ansoff’s Matrix

Diversification

• The corporation has already exploited all four cells of Ansoff’s matrix:• Market penetration –

McDonald’s saturated its home market (the USA) a number of years ago• Market development –

The company has managed to duplicate its fast-food success worldwide• Product development –

From burgers ‘n fries to breakfast, from salads to ice cream, the corporation has innovated in almost every edible direction

• Diversification – McDonald’s control land holdings and own processing facilities, logistics operations, franchising/financing operations, training facilities, and now hotels.

Ansoff ‘s Matrix

LACK OF CLARITY IN STP

• From a price perspective McDonald’s could match the segments of Mid-price, Economy and Budget.

• The segment chosen has a high impact on the price because Hammers himself told about this.

• Focusing much on families.

Segmentation

• Lack of Clarity between Segmented and Targeted Customers• McDonald can make use of the advantage that it is

recognized as a family restaurants and attracting that kind of consumers to the hotels.

Targeting

31%

42%

27%

Customers

Business TravellerTour OperatorsIndividuals & Layovers

• Good Quality at Cheap price

• Overriding its core competency in case of hotels.

• Planned a different name for the hotel chain.

• But the name symbolizes Mc. Donald’s

• It sounds different in German.Ref: http://blueprintcreative.info/MyServices/

Positioning and Naming

Features

Investment in Hotel Tot loan for hotel AnnuityPayment out

standing

$ 28,800,000

$ 23,040,000 ($8,145,339.57)

pmt interest principal $23,040,000.00

Yr1 ($8,145,339.57) $691,200.00 $7,454,139.57 $15,585,860.43

Yr2 ($8,145,339.57) $467,575.81 $7,677,763.76 $7,908,096.67

Yr3 ($8,145,339.57) $237,242.90 $7,908,096.67 $0.00

It is a 3 year mortgage loan and Golden Arches was not able to generate funds to pay it back. Plz download the case memo also for more detailed explanation.

Sources to pay back Liability

• Debt by debt (reduces credibility)• Cost restructure (funds from parent brand)• Internal Funds (not sufficient)

• Target Market: Travel vacationers and lodging guests. Age 0-50 with children. Prefers to travel by car and enjoys various kind of entertainment

Segments: The Mid-price and Economy segments. Focusing much on families, building on the parent brand attracting consumers from both segments.

•Hotel Features: In-room appliances, Internet, Newspapers, breakfast/lunch restaurant with recognizable McDonald’s products.

Location: Currently Located near highways, in vicinity of theme parks, golf courses, and shopping malls.

Key Recommendations

• Use what works In food Industry for McDonald’s and use the family oriented and value based business model to create a unique hotel experience that everyone could enjoy.

Be Unique

-McDonald's can incorporate their Play Place and other game room activities like coin operated arcades.

-Not only does provide entertainment, but it also provides revenue from guests that if they were in other hotels would not spend more than the room fee.

-Include a unique dining experience that includes much of what they provide already while adding multi-cuisine food in the menu.Shall give a reason to look forward to for the customers.

Alternatives

• 2 or 3 Star Hotel Focus on families with

children Low-cost budget Economy class Limited amenities

• 4 Star Hotel under a different Brand Different logo Interior Design Ambience Multi-cuisine restaurant Customer Engaging Activities Trained Service staff

What happened to this Hotel?

THANK YOU