McDonald’s Pestel Analysis

McDonald’s is among the leading brand names in the fast food sector. It is a globally well recognized brand with a strong presence in several leading markets. Through its more than 40,000 restaurant stores the company serves customers across more than 100 countries. Its largest market is the United States, which accounts for a significant portion of the company’s total net revenues. 

McDonald’s manages its global business through franchisees mainly. The number of company operated McDonald’s stores is very small and they are mainly used for the purpose of training and innovation. Around 95% of McDonald’s restaurant stores are owned and operated by independent franchisees. The US based fast food brand has maintained a strong focus on product quality and customer service which have enabled its strong growth in the domestic and overseas markets.  

McDonald’s is also among the early pioneers of innovation in the fast food sector and invests in innovation for better customer service. Now, the company is enjoying strong growth in sales through its ecommerce channels. 

As a leading international fast food brand, McDonald’s also faces several challenges which can be political, economic, technological or legal in nature. These challenges may be related to its day to day operations or supply chain management.

In this Pestel analysis of McDonald’s, we will analyze the macroenvironment of the US based fast food brand and find out what opportunities and challenges these factors offer to McDonald’s.

Political:

Political factors significantly affect the performance of businesses worldwide. The international factors can particularly face severe impact of political forces in the markets where they operate. Significant political changes can have a direct impact on the business environment of a market and can also cause significant economic fluctuations in the local environment. The Russia Ukraine war has forced several international brands to shut their operations in Russia and Ukraine. McDonald’s is also one of them. It shut its more than 800 restaurant stores in 2022 temporarily and it has been losing millions per month since then1.

Political factors affect several things related to business including taxation, the overall legal environment and other things some of which are also economic in nature. Government policies related to particular sectors also affect the profitability of businesses in those sectors. How open a market is to foreign direct investment also affects the profitability of international brands operating in that market.

McDonald’s on the other hand has performed well in China despite the fears that the US China trade wars could affect the fortune of US based businesses there2. One of the key reasons that McDonald’s has flourished in China is localization. The company operates its overseas stores mainly through local independent business owners. Moreover, its local management team is also composed of Chinese people which helps mitigate the threat from several factors including those political in nature. So, localization can help businesses to mitigate the threat from political factors to some extent. However, it also depends on the degree of localization.

Economic:

Economic factors can affect the sales of fast food brands in the international markets significantly. Both the global economic conditions and local economic conditions in specific markets can affect business performance. It is because of the impact of the economic changes on individual consumers. Consumer spending on fast food products is generally higher when the economy is performing well and the overall level of employment is high. During such periods, brands like McDonald’s enjoy higher sales. The markets that have recovered fast from the pandemic are experiencing higher McDonald’s sales. It is why the US market has also proved relatively safer for McDonald’s. Consumer spending on fast food products in the western markets is also higher which helps them operate profitably in these markets.

So, economic growth is essential for businesses like McDonald’s to grow. There is a large segment of consumers that will spend more on fast food products when it has enough earnings. During the times of economic downturns as happened during the pandemic recently businesses experience reduced sales due to reduced business activity. As business activity and economic performance of various markets improved and returned on track following the pandemic, fast food brands like McDonald’s are also enjoying higher sales.

So, the overall impact of economic factors on brands like McDonald’s is rather direct and significant. Mitigating the threat from economic fluctuations requires a focus on the more significant markets as well as pricing and other demand creation strategies. 

Social:

Social changes also play a crucial role in terms of profitable operation of the fast food businesses. There are significant demographic changes which may require fast food businesses like Mcdonald’s to review their marketing, sales and operational strategies. Apart from changes to menu, these changes may also require McDonald’s to adapt in terms of sales and customer service. However, social factors can also sometimes prove favorable for businesses and can drive faster sales growth. 

For example, the demand for McDonald’s products is significantly higher in the United States compared to most other parts of the world, which is because people here prefer such types of food. Consumption patterns vary from society to society and culture to culture which can affect McDonald’s sales performance in various corners of the globe. 

The growing health awareness across the global society since the pandemic is also an important concern for businesses like McDonald’s. People have been forced to rethink what and how they eat. More of them have turned to healthier options and are now more cautious of their personal health and well being. McDonald’s is also adding more healthier options to its menu to attract the health conscious consumers.

Companies like McDonald’s are required to adopt culturally sensitive menus to avoid hurting public sentiment in particular areas of the globe. For example, it does not serve beef or pork products in India. 

It is also important for the large and international fast food brands like McDonald’s to remain socially responsible and adopt practices that do not hurt their social image. It is also related to the company’s own culture. Having a strong social image can drive sales higher and help a business create higher demand.

Technological:

Technology has emerged as a game changer in several areas including the fast food sector. Investing in technology has proved profitable for McDonald’s which is among the early pioneers of technology in the fast food sector.  In most corners of the world, digital technology is changing the fast food game. The change has only accelerated since the pandemic.

 Since more and more people started buying from online channels during the pandemic, fast food businesses introduced online sales and delivery channels to cater to the changing demand patterns. In 2023, McDonald’s experienced strengthening sales along its e-commerce channels.

Over the past several years, McDonald’s has kept investing in technology to improve its competitive edge. It developed better technologies for sales and customer service and acquired other tech businesses to improve its own business.

Superior customer service through technology helps fast food businesses gain customer loyalty. However, it also helps improve brand image. Moreover, technology is driving faster growth and the future lies in technology. The use of data and analytics has also helped McDonald’s improve its products and customer service.

So, technology is playing a key role for McDonald’s in marketing, sales, supply chain management, and other operational areas. In the 21st century, technology has also become a key source of differentiation for fast food brands. McDonald’s will continue to invest in technology so as to improve its business operations continuously. It is using digital channels and apps for sales, marketing and customer engagement.

Environmental:-

It is now critical for the large businesses to improve their environmental footprint and operate sustainably. Not just in their own operations, but businesses are also required to manage the environmental footprint of their supply chains. Worldwide governments have formed laws to ensure that businesses are operating sustainably and investing in minimizing their carbon footprint.

McDonald’s is also investing in making its business processes more and more sustainable. In its own processes as well as in terms of sourcing, its focus is on higher sustainability. Some of the leading initiatives that McDonald’s has started to make its business operations more sustainable include the following:

  • Measuring its energy impact:  The company is developing its climate strategy by using millions of climate data tracking points, sharing actionable data and benchmarking insights.
  • Collaborating with partners and suppliers to drive change systemwide: McDonald’s is collaborating with its partners, franchisees, supply chain partners, governments and NGOs to develop climate action initiatives.
  • Implementing climate solutions in its supply chain: Forest conservation and emission reduction are also key focus areas for McDonald’s. The company is working with its suppliers to strengthen the regenerative agricultural practices in its supply chain.
  • Accelerating circularity: McDonald’s plans to improve circularity in its system with a packaging and waste strategy to reduce waste and carbon emissions.
  • Increasing the energy efficiency in restaurants:- McDonald’s is focusing on designing and operating more sustainable restaurant stores. It has embraced practices that will conserve energy and increase the use of renewable energy in its stores according to the standards set in Global Restaurant Standards3.

Worldwide governments and societies have become increasingly aware of the environmental impact of businesses across various sectors including the fast food sector. As a result companies are investing in being more sustainable and managing their carbon footprint. Being sustainable also improves the social image of businesses.

Legal:

Legal compliance and ethical operations are also of critical importance for McDonald’s. International businesses like McDonald’s operating across the globe in various market regions have to deal with varying legal frameworks that affect operations. Some of the areas where legal challenges can prove particularly problematic for McDonald’s include labor laws, and food quality related laws. The company has been dealing with several legal challenges. In its history, it has already faced various types of legal challenges. Some of these legal challenges are faced by the franchisee owners while some by McDonald’s itself4. McDonald’s operates 95% of its business through franchisees giving it less control over day to day operations of a vast number of outlets.

Some of the leading challenges currently faced by McDonald’s are related to labor issues and HR management. One of them is related to racial discrimination at the workplace. In the past McDonald’s has also faced many legal cases that were related to marketing and its advertising practices5.

Over the recent decades, the government scrutiny of large businesses has grown significantly and it is critical for McDonald’s to operate in compliance with the applicable laws in all its markets. Since laws differ from market to market, compliance remains a difficult area for the company.

  1. https://www.cnbc.com/2022/05/20/mcdonalds-exiting-russia-after-32-years-is-the-end-of-an-era.html ↩︎
  2. https://global.chinadaily.com.cn/a/202308/08/WS64d1f478a31035260b81af17.html#:~:text=McDonald’s%20China%20has%20developed%20rapidly,percent%20year%2Don%2Dyear. ↩︎
  3. https://www.mcdonalds.com/us/en-us/about-our-food/our-food-philosophy/commitment-to-quality.html ↩︎
  4. https://beststocks.com/mcdonalds-faces-multiple-legal-challenges-acr/ ↩︎
  5. https://en.wikipedia.org/wiki/McDonald%27s_legal_cases ↩︎