The Corporative Microeconomics as per McDonald's Corporation
McDonald’s corporation is an American fast food company, founded in 1940 as a restaurant operated by Richard and Maurice McDonald. What many people don’t know is, McDonalds actually started as a barbecue restaurant and in 1954; a local businessman by the name of Kroc intersected himself into the company as a franchising representative. A few years later Kroc bought complete control of the franchise and became sole founder of the McDonalds corporation. McDonalds is one of the biggest and most successful franchises in the world, it has garnished over 100 million customers worldwide and growing with over 35,000 locations across the globe in over 100 countries. Total Revenue for McDonald’s has fallen by 7.9% from $22.8 billion in 2017 to $21 billion in 2018, and is expected to recover by 2.4% to around $21.5 billion in 2019. McDonald’s provides elastic products to its consumers such as burgers, fries, breakfast meals, and so on. It is actually referred to as a highly sensitive elasticity, and this can be observed very simply; the price setting is consistently in realm with its competitors. Also, McDonald’s supplies McValue Meals that provide custom pricing on many selected menu items that in return; counter competitors promotional strategies. There is also a dollar menu available which has acted as a key driver of the growth for McDonald’s over the years. With the cheap supply of food and the large demand this would equate McDonalds to being an inferior good, as income increases the demand for McDonalds will in return decrease causing a downward sloping demand curve. McDonald’s being at the top of the food chain of fast food corporations has many competitors.
As a result of this, the more competition the higher the elasticity of demand is. Consumers tend to be more sensitive to price changes by one firm if they have additional choices. Price changes are usually the result of changes in the input prices. When this changes, it causes McDonald’s to change its prices, this in return forces the competitors to change their prices as well. Throughout the semester we learned that, elasticity is all about the amount of responsiveness on demand or supply when something effects it. Which explains why consumers are so sensitive to price change and having various options on what to eat. The demand for McDonalds food and beverages has taken a sudden decline over the years due to, the many competitors catching up with them and rising in popularity. Nonetheless, even with this decline in demand the franchise still registers marginal growth as the overall demand for fast foods around the globe continue to increase. With McDonalds being the leading fast food restraunt in the world, this has a lot to do with the low pricing they provide for food; making it affordable for virtually everyone. For example, there would be a significant decrease in the demand for McDonalds if unemployment were to rise because more people would be more inclined to buy fast food on a low budget.
McDonalds prices vary from $1.00 to $6.79 with many selections to chose from, some of there most known meals are chicken McNuggets, Big Mac, Happy meals, and their quarter pounder cheeseburgers. The low pricing at this franchise also goes with the “Law of Demand,” consumers tend to demand more of a good the lower its price. McDonalds knows its target audience is children and people who want a quick cheap meal so that’s who they advertise to. People tend to spend more of their money on healthy food rather than unhealthfully fast food; that is not particularly good for your well- being when they have money. That is to say, when income comes to a halt and decreases, people tend to spend more persistently on McDonald’s cheap fast food in return. Whether people want to eat at McDonalds or not is all about “consumer preference.” We learned in class that consumer preference is, the practice of showing how a consumer would rank any combination of goods; these consumer preferences can be shown graphically represented through indifference curves. This is why I say McDonalds knows its demographic and knows who its selling to, they spend millions of dollars a year on advertising to attract their target audience and make a grand profit. With there creative kid’s meals and toys as well as their constant deals on big macs and whoppers; its all about learning your target audience, studying there likes and dislikes, and selling the dream. Cardinal information also plays a big role in McDonalds choosing its core customer base as well as, how bad the consumers will demand a certain product an institution or corporation has to offer. Cardinal information is the process of, telling us something about the intensity of a product; whether in McDonalds case their customers prefer the “Quarter Pounder “or the world famous “Big Mac.” This will have an effect on the pricing of which item cost more depending on the demand for it to work off of and in return maximize the profit as well as; advertising cost of which one will appear in more commercials, to get consumers to feel that they need to experience this item. McDonalds supply process consists of the following:
- Growing/ Processer – this step is the process of lettuce growing and coating systems,
- Processing – making the vegetable and chicken patties amongst other foods,
- Inbound Transportation – dedicated fleet of refrigerated truck; Distribution center,
- Outbound Transportation – dedicated fleet of multi- temp and single temp trucks, and lastly distribution throughout each restraunt across the globe.
The supply for McDonalds is very high because the demand from their consumers is so high; the two concepts go hand and hand. For example, there will be an increase in the supply of McDonalds burgers if they invent new machines to make burgers at a faster rate. There will be a decrease in supply if for example, the price of McDonalds burgers meat increases. This would increase the cost of production forcing the company to raise their prices, in an effort to help make back a decent profit. With the growing success of McDonalds franchise only focusing on cheap fast food, in 1993 the restraunt expanded to a more affordable bakery and coffee shop; compared to others in the market called McCafé. This was a very smart business move they stuck to their roots of having cheap and affordable coffee and baked goods, which in return gave them a large share in the global industrial market.
McDonalds was already in a top monopolistic competitive market with all of there competitors to name a few Burger King, Jack In The Box, and Whataburger; but this made it enter an entirely new monopolistic market. Competing with top tier coffee shops such as Starbucks and Dunkin Donuts which were more of an upscale feel, each catering to a different demographic of people economically wise with a different demand curve; but all providing the same thing. Starbucks is more expensive therefore, people in better economic standing will go there for coffee whereas people with less financial stability; may settle for a cheaper substitute of a good in this case coffee from McCafé. McDonalds has many compliment competitors in the form of beverages, if someone does not feel like going to McDonalds for a soda; they can easily go somewhere else. For example, the price of a coke at McDonald’s is about the same as the price of a Pepsi at Burger King; therefore, this is a perfect substitute and there’s no difference to what the person got from Burger King opposed to if they bought it from McDonalds. This wouldn’t provide the same outcome if it was for food compared to a beverage from a different restraunt, with the different ingredients that go into the food in other establishments it would not be as simple to find a perfect complement for food from different places of business. McDonalds is also a corporation that is deemed to be apart of an oligopoly market.
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