Strat Managemnt Mcdonalds,Russia

Strategic ManagementStrategic Management

McDonald’s McDonald’s

RUSSIA RUSSIA

Rinu Varghese

Introduction and Strategic Profile of the FirmIntroduction and Strategic Profile of the Firm

McDonald’sMcDonald’s

McDonald’s is the world’s largest chain of fast-food restaurants.McDonald’s is the world’s largest chain of fast-food restaurants.

The company primarily franchises and operates McDonald’s restaurants The company primarily franchises and operates McDonald’s restaurants in the food service industry.in the food service industry.

The present corporation dates its founding to the opening of a The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc on April 15, 1955.franchised restaurant by Ray Kroc on April 15, 1955.

By developing a sophisticated operating and delivery system, there By developing a sophisticated operating and delivery system, there were more than 200 McDonald’s outlets across the country by 1960, a were more than 200 McDonald’s outlets across the country by 1960, a rapid expansion fueled by low franchising fees.rapid expansion fueled by low franchising fees.

Fast Food IndustryFast Food Industry

The fast food industry emerged in America in the 1920s .The fast food industry emerged in America in the 1920s .

The industrial growth and a speedily developing automobile industry gave The industrial growth and a speedily developing automobile industry gave people no opportunity for cooking at home .people no opportunity for cooking at home .

Americans now spend more money on fast food than they do on higher Americans now spend more money on fast food than they do on higher education, personal computers, software or new cars .education, personal computers, software or new cars .

In the United states alone, customers spent about US$142 billion on fast In the United states alone, customers spent about US$142 billion on fast food in 2006 (which increased from US$6 billion in 1970) .food in 2006 (which increased from US$6 billion in 1970) .

Overview of McDonald’s StrategiesOverview of McDonald’s Strategies

McDonald’s is growing at the rate of between 1000 and 1500 restaurants a McDonald’s is growing at the rate of between 1000 and 1500 restaurants a year and by five to ten new countries a year. Today it has about 23000 year and by five to ten new countries a year. Today it has about 23000 restaurants worldwide .restaurants worldwide .

McDonald’s spends more money on advertising and marketing than does McDonald’s spends more money on advertising and marketing than does any other brand, much of it targeted at children.any other brand, much of it targeted at children.

They are focusing on new innovative modifications to their menu They are focusing on new innovative modifications to their menu depending upon the region’s culture, customs, and traditions.depending upon the region’s culture, customs, and traditions.

Maintaining an extensive advertising campaign by TV, Radio, and Maintaining an extensive advertising campaign by TV, Radio, and newspaper.newspaper.

company makes significant use of billboards and signage, sponsors company makes significant use of billboards and signage, sponsors sporting events from ranging from Little League to the Olympic Games. sporting events from ranging from Little League to the Olympic Games.

Russia Federation Russia Federation

HistoryHistory

History of Russia begins with that History of Russia begins with that of the East Slavs.of the East Slavs.

Adopted Christianity from the Adopted Christianity from the Byzantine Empire in 988.Byzantine Empire in 988.

After the 13th century, Moscow After the 13th century, Moscow gradually came to dominate the gradually came to dominate the former cultural center.former cultural center.

By the 18th century, the Grand By the 18th century, the Grand Duchy of Moscow had become the Duchy of Moscow had become the huge Russian Empire.huge Russian Empire.

The collapse of the Soviet Union The collapse of the Soviet Union in late 1991.in late 1991.

Geography Geography

Russia is the world's largest Russia is the world's largest country. country.

Population: 149 millionPopulation: 149 million Geographic size: 6.6 million square Geographic size: 6.6 million square

miles.miles. Capital: MoscowCapital: Moscow Major cities and population: Major cities and population:

Moscow, Saint PetersburgMoscow, Saint Petersburg Three quarters of the Russian Three quarters of the Russian

population lives in the cities and population lives in the cities and towns of western Russiatowns of western Russia

About 25% of the population still About 25% of the population still live in rural areaslive in rural areas

Society and CultureSociety and Culture

Russian culture has a long history and tradition Russian culture has a long history and tradition and Russians are very proud of it.and Russians are very proud of it.

Russians consider themselves as a well educated Russians consider themselves as a well educated nation.nation.

They read a lot, books are cheap, and every one They read a lot, books are cheap, and every one can afford to buy 5-10 books a month without can afford to buy 5-10 books a month without serious damage to a family budget.serious damage to a family budget.

Russians are also big fan of live performances Russians are also big fan of live performances at theatres.at theatres.

They enjoy attending theatres: opera, musical, They enjoy attending theatres: opera, musical, ballet, drama etc.ballet, drama etc.

There was no private property until Perestroika, There was no private property until Perestroika, everything used to belong to the stateeverything used to belong to the state

During Soviet times there was a well developed During Soviet times there was a well developed system of community work.system of community work.

People that were doing community work were People that were doing community work were given benefits (free or discounted travel, ability given benefits (free or discounted travel, ability to buy deficit goods.)to buy deficit goods.)

The majority of Russians consider themselves The majority of Russians consider themselves as Christiansas Christians

DemographyDemography

Russia's area is about 17 million square Russia's area is about 17 million square kilometers .kilometers .

Its population density is about 9 persons Its population density is about 9 persons per square kilometer (22 per sq. mi.), per square kilometer (22 per sq. mi.), making it one of the most sparsely making it one of the most sparsely populated countries in the world. Its populated countries in the world. Its population is predominantly urban.population is predominantly urban.

2006, Russia's population of 142,300,0002006, Russia's population of 142,300,000

Population structurePopulation structure 0-14 years: 14.2%0-14 years: 14.2%

15-64 years: 71.3%15-64 years: 71.3%65 years and over: 14.4% (2006 est.)65 years and over: 14.4% (2006 est.)

Infant mortality rate:Infant mortality rate: 15.13 deaths/1,000 live births (2006 est.) 15.13 deaths/1,000 live births (2006 est.)

Life expectancy at birth:Life expectancy at birth:total population: 67.08 yearstotal population: 67.08 yearsmale: 60.45 yearsmale: 60.45 yearsfemale: 74.1 years (2006 est.)female: 74.1 years (2006 est.)

Ethnic groupsEthnic groups

3.83% Tatars (5,554,601) 3.83% Tatars (5,554,601)

2.03% Ukrainians (2,942,961) 2.03% Ukrainians (2,942,961)

1.15% Bashkir's (1,673,389) 1.15% Bashkir's (1,673,389)

1.13% Chuvash's (1,637,094) 1.13% Chuvash's (1,637,094)

0.94% Chechens (1,360,253) 0.94% Chechens (1,360,253)

0.78% Armenians (1,130,491)0.78% Armenians (1,130,491)

  Political System an ConditionPolitical System an Condition

Federal Presidential Republic, where by the President of Russia is the Head Federal Presidential Republic, where by the President of Russia is the Head of state and the Prime Minister of Russia is the Head of Government. of state and the Prime Minister of Russia is the Head of Government.

Executive Power is exercised by the government.Executive Power is exercised by the government. Legislative power is vested in both the government and the two chambers Legislative power is vested in both the government and the two chambers

of the Federal Assembly of the Russian Federation.of the Federal Assembly of the Russian Federation. After collapse of the Soviet Union at the end of 1991, Russia has faced After collapse of the Soviet Union at the end of 1991, Russia has faced

serious challenges in its efforts to forge a political system.serious challenges in its efforts to forge a political system. October 1993,when President Boris Yeltsin used military force to dissolve October 1993,when President Boris Yeltsin used military force to dissolve

the parliament and called for new legislative elections.the parliament and called for new legislative elections. Russia has faced serious challenges in its efforts to forge a political system Russia has faced serious challenges in its efforts to forge a political system

to follow nearly seventy-five years of Soviet rule.to follow nearly seventy-five years of Soviet rule. For instance leading figures in the legislative and executive branches have For instance leading figures in the legislative and executive branches have

put forth opposing views of Russia's political directionput forth opposing views of Russia's political direction

Ecological ProfileEcological Profile

The ecological issues have been neglected in Russia since 1995.The ecological issues have been neglected in Russia since 1995. recently the situation has deterioratedrecently the situation has deteriorated

““Union of Greens” according to their calculations, "some 300,000 or Union of Greens” according to their calculations, "some 300,000 or 350,000 people a year die in Russia because of the unfavorable 350,000 people a year die in Russia because of the unfavorable environmental situation.environmental situation.

Many people believe that “ecology is just for rich countries and Russia will Many people believe that “ecology is just for rich countries and Russia will deal with it when it is rich”.deal with it when it is rich”.

Russia is not on the brink of an ecological catastrophe, it is already Russia is not on the brink of an ecological catastrophe, it is already developing in Russia.developing in Russia.

Energy ProfileEnergy Profile Russia is a major world oil producer, some times producing even more than Russia is a major world oil producer, some times producing even more than

Saudi Arabia.Saudi Arabia. According to the Oil and Gas Journal, Russia has proven oil reserves of 60 According to the Oil and Gas Journal, Russia has proven oil reserves of 60

billion barrels.billion barrels. Russia has the largest natural gas reserves in the world, but the country’s Russia has the largest natural gas reserves in the world, but the country’s

aging natural gas infrastructure,aging natural gas infrastructure, Russia holds the world’s largest natural gas reserves, with 1,680 trillion Russia holds the world’s largest natural gas reserves, with 1,680 trillion

cubic feet (Tcf).cubic feet (Tcf). Russia has the second-largest amount of recoverable coal reserves in the Russia has the second-largest amount of recoverable coal reserves in the

world.world. Russia's power sector includes over 440 thermal and hydropower plants Russia's power sector includes over 440 thermal and hydropower plants

(approximately 77 of which are coal-fired) plus 31 nuclear reactors.(approximately 77 of which are coal-fired) plus 31 nuclear reactors. Russia has 41 oil refineries with a total crude oil processing capacity of 5.4 Russia has 41 oil refineries with a total crude oil processing capacity of 5.4

million bbl.million bbl. Russia’s economy is heavily dependent on oil and natural gas exports, Russia’s economy is heavily dependent on oil and natural gas exports,

making it vulnerable to fluctuations in world oil prices. According to an making it vulnerable to fluctuations in world oil prices. According to an International Monetary Fund (IMF) study , a $1 per barrel increase in Urals International Monetary Fund (IMF) study , a $1 per barrel increase in Urals blend oil prices for a year is estimated to raise federal budget revenues by blend oil prices for a year is estimated to raise federal budget revenues by 0.35 percent of GDP.0.35 percent of GDP.

  Energy OverviewEnergy Overview

Proven Oil Reserves (January 1, 2007E) 60 billion barrels.Proven Oil Reserves (January 1, 2007E) 60 billion barrels.Oil Production (2006E) 9,674 thousand barrels per day, of which 96% was crude Oil Production (2006E) 9,674 thousand barrels per day, of which 96% was crude oil. oil.

Oil Consumption (2005E) 2,854 thousand barrels per day. Oil Consumption (2005E) 2,854 thousand barrels per day. Crude Oil Distillation Capacity (2007E) 5,339 thousand barrels per day. Crude Oil Distillation Capacity (2007E) 5,339 thousand barrels per day.

Proven Natural Gas Reserves (January 1, 2007E) 1,680 trillion cubic feet. Proven Natural Gas Reserves (January 1, 2007E) 1,680 trillion cubic feet.

Natural Gas Production (2004E), (2005E) 22.4 trillion cubic feet (tcf), 22.7 tcf. Natural Gas Production (2004E), (2005E) 22.4 trillion cubic feet (tcf), 22.7 tcf. Natural Gas Consumption (2004E), (2004E) 16.0 Trillion cubic feet (tcf). Natural Gas Consumption (2004E), (2004E) 16.0 Trillion cubic feet (tcf). Recoverable Coal Reserves (2003E) 173,073.9 million short tons. Recoverable Coal Reserves (2003E) 173,073.9 million short tons. Coal Production (2004E) 308.9 million short tons. Coal Production (2004E) 308.9 million short tons. Coal Consumption (2004E) 257.5 million short tons. Coal Consumption (2004E) 257.5 million short tons. Electricity Installed Capacity (2004E) 215.3 gig watts. Electricity Installed Capacity (2004E) 215.3 gig watts. Electricity Production (2004E) 881.6 billion kilowatt hours. Electricity Production (2004E) 881.6 billion kilowatt hours. Electricity Consumption (2004E) 804 billion kilowatt hours. Electricity Consumption (2004E) 804 billion kilowatt hours. Total Energy Consumption (2004E) 30.1 quadrillion Btus, of which Natural Gas Total Energy Consumption (2004E) 30.1 quadrillion Btus, of which Natural Gas (55%), Oil (19%), Coal (16%), Hydroelectricity (6%), Nuclear (5%), Other (55%), Oil (19%), Coal (16%), Hydroelectricity (6%), Nuclear (5%), Other Renewable (0%) Renewable (0%) Total Per Capita Energy Consumption (2004E) 208.8 million Btus. Total Per Capita Energy Consumption (2004E) 208.8 million Btus. Energy Intensity (2004E) 15,763 Btu per $2000-PPPEnergy Intensity (2004E) 15,763 Btu per $2000-PPP

Russia Armed ForcesRussia Armed Forces

Currently, the military is in the middle of a Currently, the military is in the middle of a major equipment upgrade, with the government major equipment upgrade, with the government in the process of spending about $200 billionin the process of spending about $200 billion

Active troops. 1,037,000 (Ranked 5th) Active troops. 1,037,000 (Ranked 5th) China, USA, India, N.KoriaChina, USA, India, N.Koria

Total troops. 3,796,100.Total troops. 3,796,100.

Military expendituresMilitary expenditures

$32 billion USD (2007) Russian Military $32 billion USD (2007) Russian Military spending.spending.

Air Force And NavyAir Force And Navy

   It is claimed to be the greatest air force in the It is claimed to be the greatest air force in the

world in terms of military power, along with the world in terms of military power, along with the U.S. Air ForceU.S. Air Force

The Russian Air Force has a strength of 2400 The Russian Air Force has a strength of 2400 combat aircraft and a total of 3365 aircraft.combat aircraft and a total of 3365 aircraft.

Russia Has World Fast, Largest military Russia Has World Fast, Largest military transport, Operative fighter, Largest and Faster transport, Operative fighter, Largest and Faster Bomber, Faster Multi Engine, Largest Bomber, Faster Multi Engine, Largest Helicopter, Faster Attack HelicopterHelicopter, Faster Attack Helicopter

The Russian Navy possesses most of the former The Russian Navy possesses most of the former Soviet naval forcesSoviet naval forces

35,000 personnel with around 270 combat 35,000 personnel with around 270 combat aircraft in 2006. aircraft in 2006.

GeopoliticsGeopolitics

   Latvia and Estonia dare to have territorial claims against RussiaLatvia and Estonia dare to have territorial claims against Russia..

Russia should divide that unsustainable country with China, there by Russia should divide that unsustainable country with China, there by stimulating China’s geopolitical interests in expanding further to the west.stimulating China’s geopolitical interests in expanding further to the west.

Also demand the return of primordial Russian lands in northeastern Also demand the return of primordial Russian lands in northeastern

Kazakhstan.Kazakhstan.  

EconomyEconomy More than a decade after the collapse of the Soviet Union in 1991, Russia is More than a decade after the collapse of the Soviet Union in 1991, Russia is

trying to further develop a market economy and achieve much more trying to further develop a market economy and achieve much more consistent economic growth.consistent economic growth.

Russia ended 2006 with its eighth straight year of growth, averaging 6.7% Russia ended 2006 with its eighth straight year of growth, averaging 6.7% annuallyannually

Although high oil prices and a relatively cheap ruble initially drove this Although high oil prices and a relatively cheap ruble initially drove this growth, since 2003 consumer demand and, more recently, investment have growth, since 2003 consumer demand and, more recently, investment have played a significant role.played a significant role.

Russia's 2006 GDP was $1.723 trillion (est. PPP), the 9th highest in the Russia's 2006 GDP was $1.723 trillion (est. PPP), the 9th highest in the world.world.

Oil, natural gas, metals, and timber account for more than 80% of exportsOil, natural gas, metals, and timber account for more than 80% of exports Oil and gas contribute to 5.7% of GDPOil and gas contribute to 5.7% of GDP Russia has the largest known natural gas reserves of any state on Earth, Russia has the largest known natural gas reserves of any state on Earth,

along with the second largest coal reserves, and the eighth largest oil along with the second largest coal reserves, and the eighth largest oil reserves.reserves.

It is the world's leading natural gas exporter and the second leading oil It is the world's leading natural gas exporter and the second leading oil exporterexporter

In January-June 2007, foreign investment in the Russian economy doubled In January-June 2007, foreign investment in the Russian economy doubled year-on-year reaching $60.3 billionyear-on-year reaching $60.3 billion

In 2000 total investment in fixed assets was $40 billion, giving growth of In 2000 total investment in fixed assets was $40 billion, giving growth of 300% by 2006.300% by 2006.

Russia has a flat income tax rate of 13 percent, one of the lowest rates in the Russia has a flat income tax rate of 13 percent, one of the lowest rates in the worldworld

The federal budget has run surpluses since 2001 and ended 2006 with a The federal budget has run surpluses since 2001 and ended 2006 with a surplus of 9% of GDPsurplus of 9% of GDP

  Economic PolicyEconomic Policy

Despite restrictions on foreign investment, an improving overall business Despite restrictions on foreign investment, an improving overall business environment has led to increased inflows of foreign direct investment environment has led to increased inflows of foreign direct investment (FDI).(FDI).

Foreign Trade Impact. Foreign trade has a huge part (70%) in GDP of Foreign Trade Impact. Foreign trade has a huge part (70%) in GDP of Russia.Russia.

Protection of Foreign Currency Earning EnterprisesProtection of Foreign Currency Earning Enterprises International Security Agreements.International Security Agreements. improving the taxation system.improving the taxation system. Russia's entry into the World Trade Organization (WTO), which is likely in Russia's entry into the World Trade Organization (WTO), which is likely in

2008.2008. protection of intellectual property rights.protection of intellectual property rights. modernization of customs, transport and trade facilitation, enhanced modernization of customs, transport and trade facilitation, enhanced

domestic competition especially in utilities, improvements in the area of domestic competition especially in utilities, improvements in the area of product standards, rules for public procurement, and judicial reform.product standards, rules for public procurement, and judicial reform.

Business Sector and business companiesBusiness Sector and business companies

GazpromGazprom (Gas Company could grow into the world's largest company in (Gas Company could grow into the world's largest company in terms of capitalization, capitalization totals roughly $300 billion.terms of capitalization, capitalization totals roughly $300 billion.

Vneshstrojimport. Vneshstrojimport. Russia's leading construction management company, Russia's leading construction management company, Over 3000 projects of more than $ 26 billion value have been implemented.Over 3000 projects of more than $ 26 billion value have been implemented.

RekSoft.RekSoft.Outsourcing professionals rank Reksoft among 30 Outsourcing professionals rank Reksoft among 30 leadingleading

offshore outsourcing servicesoffshore outsourcing services companies in The Top Off shoring Providers companies in The Top Off shoring Providers by IAOP.by IAOP.

Response to GlobalizationResponse to Globalization

wide range of papers and data relevant to trade and foreign direct wide range of papers and data relevant to trade and foreign direct investment policy and WTO accession are presented.investment policy and WTO accession are presented.

Open door foreign companies for business in Country.Open door foreign companies for business in Country. Commitments to foreign investors in several business services sectors can Commitments to foreign investors in several business services sectors can

be considerably improvedbe considerably improved Invest in other country, such as India, Iran and others.Invest in other country, such as India, Iran and others. Joint venture start with many sector.Joint venture start with many sector. Become members (observer) other world and trade organization, ASAN, Become members (observer) other world and trade organization, ASAN,

ARAB LeagueARAB League

Industry AnalysisIndustry Analysis

McDonalds competitive advantage over McDonalds competitive advantage over rivalsrivals

Being their own bossBeing their own boss All franchisee agrees to operate the restaurant in accordance with All franchisee agrees to operate the restaurant in accordance with

McDonald's standards of quality, service, cleanliness and value .McDonald's standards of quality, service, cleanliness and value . Selling a well established, high quality productSelling a well established, high quality product Product standardization.Product standardization. No expensive market researchNo expensive market research Intensive initial trainingIntensive initial training Training for 9 monthsTraining for 9 months Leadership qualities, business management, team building. Leadership qualities, business management, team building. Stock control and ordering, profit and loss accounts and the legal side of Stock control and ordering, profit and loss accounts and the legal side of

hiring and employing staff hiring and employing staff Continuous supportContinuous support Success and profitability of McDonald's is inextricably linked to the success Success and profitability of McDonald's is inextricably linked to the success

of all the franchises.of all the franchises.

National marketing:National marketing: McDonald's trademark, the Golden Arches-most instantly recognized McDonald's trademark, the Golden Arches-most instantly recognized

symbol in the world.symbol in the world.

Huge Benefits from national marketing carried out by McDonald's .Huge Benefits from national marketing carried out by McDonald's .

Radio and press advertisements ,television and promotional activities are Radio and press advertisements ,television and promotional activities are used to get specific messages across emphasizing the quality of product used to get specific messages across emphasizing the quality of product ingredients. ingredients.

All franchisees benefit from national marketing .All franchisees benefit from national marketing .

McDonalds in RussiaMcDonalds in Russia

http://www.robertamsterdam.com/2007/10/http://www.robertamsterdam.com/2007/10/video_mcdonalds_booming_in_rus.htmvideo_mcdonalds_booming_in_rus.htm

http://video.msn.com/video.aspx?mkt=en-us&vid=824bcc34-http://video.msn.com/video.aspx?mkt=en-us&vid=824bcc34-5efe-4860-aecc-96e5351c0b775efe-4860-aecc-96e5351c0b77

Competitor analysisCompetitor analysisFood market in RussiaFood market in Russia

1.Moscow’s fast food market is estimated at between $1.Moscow’s fast food market is estimated at between $400-400-700 million700 million per year, with per annum growth of per year, with per annum growth of perhaps 20 percent. perhaps 20 percent.

2.Reasons to start business in Russia: 2.Reasons to start business in Russia: a.a. The rapid expansion of shopping malls creates new The rapid expansion of shopping malls creates new

real estate for fast food real estate for fast food b.b. Russia’s broad-based, young, not-so-picky crowd.Russia’s broad-based, young, not-so-picky crowd.

3. According to recent market research, half of men and 3. According to recent market research, half of men and women between women between 16-5016-50 buy fast food at least once a buy fast food at least once a week. week.

64% considers location 64% considers location 54% considers cost54% considers cost important, important, while fewer regard quality (43%) and cleanliness (25%) as while fewer regard quality (43%) and cleanliness (25%) as

important factors important factors

McDonald's McDonald's

McDonald's franchises operates more than 32,000 fast-food restaurants in McDonald's franchises operates more than 32,000 fast-food restaurants in over 100 countries. over 100 countries.

Europe $7,072 (35%)Europe $7,072 (35%)

United States $6,955 (34%) United States $6,955 (34%)

Australia/Asia-Pacific $2,815 (14%) Australia/Asia-Pacific $2,815 (14%)

Latin America $1,327 (6%) Latin America $1,327 (6%)

Canada $948 (5%)Canada $948 (5%)

Other $1,343 (6%) Other $1,343 (6%)

Competitor analysisCompetitor analysis Baskin RobbinsBaskin Robbins And And MarconMarcon –small competitors –small competitors

Rostik Group and Yum brandsRostik Group and Yum brands

Baskin Robbins is one of Russia’s largest franchises. Baskin Robbins is one of Russia’s largest franchises. Combining the Combining the western brand namewestern brand name and the and the quality assurancequality assurance of a local of a local

factory in Russia to develop their productsfactory in Russia to develop their products Franchises such as Pizza Hut, Sbarro’s, and Subway all have smaller Franchises such as Pizza Hut, Sbarro’s, and Subway all have smaller

presences and have faced more problems in the  market.presences and have faced more problems in the  market. Rostik’s (Russia's KFC)Rostik’s (Russia's KFC) Market leader in drive-through restaurants. Market leader in drive-through restaurants. Rostik owns all of the Rostik owns all of the 100 Rostik’s100 Rostik’s restaurants. restaurants. It will invest up to It will invest up to $100 million$100 million in the expansion over the next five years . in the expansion over the next five years . turnover of $200 million a year. turnover of $200 million a year. Rostik's provides franchise support services to both KFC and Rostik's Rostik's provides franchise support services to both KFC and Rostik's

restaurants in Russia and the CIS restaurants in Russia and the CIS

Yum brandsYum brands Yum! Brands is the world's largest restaurant company in terms of system Yum! Brands is the world's largest restaurant company in terms of system

restaurants with over restaurants with over 34,000 restaurants in more than 100 countries and 34,000 restaurants in more than 100 countries and territoriesterritories. Four of the company's restaurant brands -- . Four of the company's restaurant brands -- KFC, Pizza Hut, KFC, Pizza Hut, Taco Bell and Long John Silver'sTaco Bell and Long John Silver's -- are the global leaders of the chicken, -- are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories pizza, Mexican-style food and quick-service seafood categories respectively.respectively.

Yum! Brands is the worldwide leader in multibranding, which offers Yum! Brands is the worldwide leader in multibranding, which offers consumers more choice and convenience at one restaurant consumers more choice and convenience at one restaurant

U.S. fast-food giant Yum! Brands is throwing the weight of its KFC brand U.S. fast-food giant Yum! Brands is throwing the weight of its KFC brand behind local fried chicken chain Rostik’s in a deal aimed at opening 300 behind local fried chicken chain Rostik’s in a deal aimed at opening 300 joint outlets in Russia and the CIS over the next five years.joint outlets in Russia and the CIS over the next five years.

Under the parties' agreements, RRL will retain Under the parties' agreements, RRL will retain day-to-day operational day-to-day operational managementmanagement of its restaurants, while Yum! Brands will provide strategic of its restaurants, while Yum! Brands will provide strategic support through its support through its experienceexperience and and technologies in managing international technologies in managing international quick-service brandsquick-service brands..

SWOT ANALYSISSWOT ANALYSIS STRENGTHSSTRENGTHS

Brand recognition:Brand recognition:McDonald’s is the most well know fast food chain in the world, brand McDonald’s is the most well know fast food chain in the world, brand

recognition is there biggest strength. Their marketing campaign continues recognition is there biggest strength. Their marketing campaign continues to focus on brand recognition.to focus on brand recognition.

Innovative leaders:Innovative leaders:McDonald’s success is its willingness to innovate, even while striving to McDonald’s success is its willingness to innovate, even while striving to

achieve consistency in the operation of its many outlets. For example, its achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich, and addition of cabbage pie along with other traditional Russian sandwich, and addition of cabbage pie along with other traditional Russian food items .food items .

Convenience:Convenience: The company has also made convenience its watchword, not The company has also made convenience its watchword, not

only through how fast it serves customers, but also in the only through how fast it serves customers, but also in the location of its outlets .Freestanding restaurants are positioned location of its outlets .Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in so that you are never more than a few minutes away by foot in the city or by car in the suburbs. Plus McDonald’s is tucking the city or by car in the suburbs. Plus McDonald’s is tucking restaurants into schools, stores etc.restaurants into schools, stores etc.

Customers:Customers: The store serves 30,000 customers a day, as busy as on The store serves 30,000 customers a day, as busy as on

opening day, January 31,1990. McDonald's has served more opening day, January 31,1990. McDonald's has served more than 1 billion customers and more than 132 million Big Macs. than 1 billion customers and more than 132 million Big Macs.

The Push kin Square restaurant is important because it is the The Push kin Square restaurant is important because it is the jewel in a growing real estate empire that ranks jewel in a growing real estate empire that ranks McDonald's McDonald's among the largest corporate landowners in Russiaamong the largest corporate landowners in Russia..

Currently, Currently, 127 McDonald's restaurants are open in 37 Russian 127 McDonald's restaurants are open in 37 Russian citiescities. The chain now . The chain now employs 17,000 Russians in 37 citiesemploys 17,000 Russians in 37 cities

WeaknessWeaknessNegative image:Negative image: Their biggest weakness is the negative image of their food. Their Their biggest weakness is the negative image of their food. Their food food

doesn’t have a good public imagedoesn’t have a good public image. Key to its future success will be . Key to its future success will be maintaining its core strengths—an unwavering focus on qualitymaintaining its core strengths—an unwavering focus on quality

Profits and stock prices:Profits and stock prices: In 1990s, the company was fixated on adding 2500 stores. But by 2000, In 1990s, the company was fixated on adding 2500 stores. But by 2000,

the condition of its existing locations, as well as the appeal of certain the condition of its existing locations, as well as the appeal of certain menu items, deteriorated. menu items, deteriorated.

The company's flawed expansion strategy was hammering its profits and The company's flawed expansion strategy was hammering its profits and stock price.stock price.

Production problem:Production problem: There was no manufacturer or producer in Russia who could produce There was no manufacturer or producer in Russia who could produce

products needed for the business. One of the solutions was to bring all the products needed for the business. One of the solutions was to bring all the products from different countries, but that would be too expensive.products from different countries, but that would be too expensive.

Technology problem:Technology problem: Despite its status as a Super- Power, Russia was far behind United States Despite its status as a Super- Power, Russia was far behind United States

and Canadian technological development. All the equipment for the and Canadian technological development. All the equipment for the restaurant had to be brought from outside of the country, even the restaurant had to be brought from outside of the country, even the equipment for the food processing plant equipment for the food processing plant

Political problem:Political problem:They had to introduce their restaurant not as a “Capitalism” intruder, but as a They had to introduce their restaurant not as a “Capitalism” intruder, but as a

business that will serve people’s needs when they are in hurry.business that will serve people’s needs when they are in hurry.

OpportunitiesOpportunities McDonalds expansion:McDonalds expansion: Russia ranks second out of all McDonald's' markets for the average number of consumers per restaurant.Russia ranks second out of all McDonald's' markets for the average number of consumers per restaurant.

McDonalds will spend up to McDonalds will spend up to $50m$50m to expand its chain in Russia . to expand its chain in Russia .

McDonald’s international operations -“huge opportunity”McDonald’s international operations -“huge opportunity”

International operations account for International operations account for 60% of60% of McDonald’s profits McDonald’s profits

80 % of new units are expected to grow at 4 times the rate of its business in the United States 80 % of new units are expected to grow at 4 times the rate of its business in the United States

Expand local supplier base:Expand local supplier base: McDonald's has continued to expand its local supplier base. McDonald's has continued to expand its local supplier base.

75% of raw ingredients75% of raw ingredients needed for McDonald's in Russia Restaurants are purchased from more than needed for McDonald's in Russia Restaurants are purchased from more than

130 independent Russian suppliers who have created more than 80,000 jobs130 independent Russian suppliers who have created more than 80,000 jobs in their companies and in their companies and who follow McDonald's strictly controlled quality standards in their food processing operations.who follow McDonald's strictly controlled quality standards in their food processing operations.

Growing dining-out marketGrowing dining-out market McDonald’s sees the decline in fast-food diningMcDonald’s sees the decline in fast-food dining . . Turn threat into opportunity.Turn threat into opportunity.

It will devote It will devote 20% of its marketing budget20% of its marketing budget to persuade Russian to persuade Russian consumers to have breakfast in its restaurants.consumers to have breakfast in its restaurants.

The chain now serves over The chain now serves over 10 million customers10 million customers a day in Europe, which a day in Europe, which contributes contributes 36 percent to the company's operating income36 percent to the company's operating income, making it the , making it the chain's second most profitable region after the United Statechain's second most profitable region after the United State

Russian foodservice development:Russian foodservice development: McDonald's has made significant contributions to the development of McDonald's has made significant contributions to the development of

Russia's foodservice and processing industries, agriculture and business Russia's foodservice and processing industries, agriculture and business practices.practices.

ThreatsThreatsSaturation:Saturation:The key threats to McDonald’s domestically are the lack of growth The key threats to McDonald’s domestically are the lack of growth

opportunities. The market is well saturated, and it would difficult to opportunities. The market is well saturated, and it would difficult to achieve double-digit growth.achieve double-digit growth.

Healthier eating:Healthier eating: Fast foods increases the incidence of cancer, heart disease, and diabetes Fast foods increases the incidence of cancer, heart disease, and diabetes

among the population.among the population. Doctors have established that McDonald’s salads are even more unhealthy Doctors have established that McDonald’s salads are even more unhealthy

than its hamburgers. McDonald’s Caesar salad contains than its hamburgers. McDonald’s Caesar salad contains 18.4 g of fat18.4 g of fat while while a standard cheeseburger contains just a standard cheeseburger contains just 11.5 g of fat.11.5 g of fat. It is highly likely that It is highly likely that the salad dressing is too fat and high-calorie.the salad dressing is too fat and high-calorie.

Ubiquity:Ubiquity:McDonald’s are everywhere, the dining experience is never special  . And as McDonald’s are everywhere, the dining experience is never special  . And as

Baby Boomers age and become more affluent, it is likely that they will Baby Boomers age and become more affluent, it is likely that they will leave behind their fast-food ways, if only to step up to moderately priced leave behind their fast-food ways, if only to step up to moderately priced restaurants as they have an added advantage of serving higher-margin restaurants as they have an added advantage of serving higher-margin alcoholic drinks,alcoholic drinks,

Porter analysisPorter analysisThreat of substitutesThreat of substitutes

DiverseDiverse substitute products may include products purchased from the local grocery store, substitute products may include products purchased from the local grocery store,

food from sit-down restaurants, or delivery foods such as pizza. food from sit-down restaurants, or delivery foods such as pizza.

Availability:Availability: The primary issue with these substitute products is that they are readily available The primary issue with these substitute products is that they are readily available

to the customer and the customer tends to view them as being comparable or better to the customer and the customer tends to view them as being comparable or better in terms of the quality of fast-food products. in terms of the quality of fast-food products.

Health:Health: Another issue that faces the fast-food industry is the availability of products that Another issue that faces the fast-food industry is the availability of products that

cater to the health-conscious lifestyle. The majority of the public tends to view cater to the health-conscious lifestyle. The majority of the public tends to view fast-food restaurants as primarily serving foods that are high in fat content and fast-food restaurants as primarily serving foods that are high in fat content and unhealthy and as a result they are likely to look elsewhere for a healthy foodunhealthy and as a result they are likely to look elsewhere for a healthy food

Strongest and closest substitutes:Strongest and closest substitutes: KENTUCKY FRIED CHICKEN: Equally sizeable market share, KENTUCKY FRIED CHICKEN: Equally sizeable market share,

competitiveness in the pricing structure , new and changed recipe in the competitiveness in the pricing structure , new and changed recipe in the market , emphasis on maintenance of quality and standard of service market , emphasis on maintenance of quality and standard of service

DRAWBACKS:DRAWBACKS:

MCDONALDS COMPETITIVE ADVANTAGE:MCDONALDS COMPETITIVE ADVANTAGE: McDonalds offers both beef and chicken products as part of its wide range McDonalds offers both beef and chicken products as part of its wide range

of delicacies, KFC has limited its range to offer products made from of delicacies, KFC has limited its range to offer products made from chicken only.chicken only.

Threat of new entrants:Threat of new entrants:

The threat of potential new entrants is lowThe threat of potential new entrants is lowCompany’s brands :Company’s brands :High customer loyalty towards a company’s brands, which is true for the High customer loyalty towards a company’s brands, which is true for the

differentiation strategy, can n play a vital role in discouraging potential differentiation strategy, can n play a vital role in discouraging potential entrantsentrants

Large capital:Large capital:In order to compete on a large scale, it will require a great deal of capital to In order to compete on a large scale, it will require a great deal of capital to

invest in real estate and build physical restaurant locations. In addition, invest in real estate and build physical restaurant locations. In addition, the market is already so saturated that the new competitor might find it the market is already so saturated that the new competitor might find it difficult to establish a customer base and become profitable. difficult to establish a customer base and become profitable.

Bargaining power of suppliersBargaining power of suppliers is not a significant competitive force in the fast-food industryis not a significant competitive force in the fast-food industry Purchase from many sources:Purchase from many sources: Since the fast-food firms divide their purchases among a diverse array of Since the fast-food firms divide their purchases among a diverse array of

suppliers, the suppliers, the suppliers tend to have little or no bargaining power or suppliers tend to have little or no bargaining power or leverage since there are multiple suppliers for the same productsleverage since there are multiple suppliers for the same products

SuppliersSuppliers Raw ingredients needed for McDonald's Russian restaurants are purchased Raw ingredients needed for McDonald's Russian restaurants are purchased

from more than from more than 100 independent Russian and C.I.S suppliers100 independent Russian and C.I.S suppliers who who follow McDonald's strictly controlled quality standards in their food follow McDonald's strictly controlled quality standards in their food processing operations.processing operations.

"Pensensky Myasopticekombinat” "Pensensky Myasopticekombinat” is a supplier of high quality is a supplier of high quality beef for McDonald’s in Russia. beef for McDonald’s in Russia.

Threat of intense rivalryThreat of intense rivalry HighHigh Rivalry within the industry is intense Rivalry within the industry is intense Dominated by price wars led by ROSTIKS, Yum Brands – KFC Dominated by price wars led by ROSTIKS, Yum Brands – KFC Kroshka – Kartoshka,Marcon are the other fast food restaurants in RussiaKroshka – Kartoshka,Marcon are the other fast food restaurants in Russia McDonald still the leader:McDonald still the leader: Industry has not yet reached perfect competition where competitors are Industry has not yet reached perfect competition where competitors are

numerous and relatively of the same size. As long as the firms continue to numerous and relatively of the same size. As long as the firms continue to have differentiated offerings, they maintain their ability to set prices. have differentiated offerings, they maintain their ability to set prices.

Bargaining power of buyers:Bargaining power of buyers: HighHigh Cost leaders-low price strategy: Cost leaders-low price strategy: Cost leaders have the unique ability to offer lower price options to large Cost leaders have the unique ability to offer lower price options to large

and powerful buyers..and powerful buyers.. Leveraging power:Leveraging power: Fast-food industry has begun to focus on the needs of the customer. The Fast-food industry has begun to focus on the needs of the customer. The

buyer has a great deal of leveraging power due to the fact that if they are buyer has a great deal of leveraging power due to the fact that if they are dissatisfied with one brand they can easily switch or purchase from an dissatisfied with one brand they can easily switch or purchase from an alternate brand with little or no monetary repercussions. alternate brand with little or no monetary repercussions.

McDonalds have implemented strategies to improve the quality of customer McDonalds have implemented strategies to improve the quality of customer service and the cleanliness of the restaurant locations in order to please their service and the cleanliness of the restaurant locations in order to please their customers in hopes that they will become a repeat customer.customers in hopes that they will become a repeat customer.

Country Specific Country Specific International Strategy International Strategy

FormulationFormulation

Corporate Level StrategyCorporate Level Strategy

McDonald's Corporate level strategy aligns with the country specific McDonald's Corporate level strategy aligns with the country specific objectiveobjective

Management practices decide how to govern through direct corporate Management practices decide how to govern through direct corporate interventionsinterventions

Competitive contact is to be localizedCompetitive contact is to be localized

The company should be able to reach it’s customers defining the issues of The company should be able to reach it’s customers defining the issues of corporate responsibilitiescorporate responsibilities

Business Level StrategyBusiness Level Strategy

Strategic issues are both practical coordination of operating units and Strategic issues are both practical coordination of operating units and developing and sustaining a competitive advantage for the products and developing and sustaining a competitive advantage for the products and services that are producedservices that are produced

Organizations compete for a wide customer base on price.Organizations compete for a wide customer base on price.

Reconfiguration of value chain as neededReconfiguration of value chain as needed

Product differentiation offering lower prices as compared to our Product differentiation offering lower prices as compared to our competitorscompetitors

Introducing integrated low cost and differentiation strategyIntroducing integrated low cost and differentiation strategy

Entry ModesEntry Modes

Strategic AllianceStrategic Alliance

AcquisitionsAcquisitions

Greenfield VentureGreenfield Venture

Country Specific International Country Specific International Strategy ImplementationStrategy Implementation

Organizational StructureOrganizational Structure

World Wide Structure: Making money from franchisee’s food World Wide Structure: Making money from franchisee’s food salessales

Increasing the number of restaurants by a larger margin, Increasing the number of restaurants by a larger margin, mainly due to the rise in demand of hamburgersmainly due to the rise in demand of hamburgers

The structure of McDonald’s in Russia is based on ‘trust’The structure of McDonald’s in Russia is based on ‘trust’

RecommendationsRecommendations

Corporate Level Strategy: Reach target of 125 franchise restaurants every Corporate Level Strategy: Reach target of 125 franchise restaurants every yearyear

DecentralizationDecentralization Open Regional offices in Moscow and St. PetersburgOpen Regional offices in Moscow and St. Petersburg Business Level Strategy: Open more restaurants in the mall since the Business Level Strategy: Open more restaurants in the mall since the

volume of malls in Russia are bigvolume of malls in Russia are big Introduce diet food in order to maintain the customers’ diet conscious rolesIntroduce diet food in order to maintain the customers’ diet conscious roles Entry Mode: The coffee drinkers in Russia are increasing by 15% every Entry Mode: The coffee drinkers in Russia are increasing by 15% every

year, hence it’s good time to jump into a joint venture with one of the year, hence it’s good time to jump into a joint venture with one of the coffee companies in Russia.coffee companies in Russia.

Thank youThank you

Questions and AnswersQuestions and Answers