McDonald's Corporation’s Economic Moat

McDonald's Corporation (ticker: MCD) needs very little introduction. The company was founded in 1940 by two brothers, Richard and Maurice McDonald, and it has since grown to become one of the most recognized and successful brands in the world. MCD operates more than 38,000 restaurants in more than 100 countries, and it serves millions of customers every day, making it difficult to rival its reach.

Brand and Customer Loyalty

I am sure this is a common scene. When children pass by one of MCD’s restaurants and see its golden arch, they most likely pester their parents to go in and eat something. Not only that, if a person is in a foreign land, if he isn’t comfortable eating the local food, he might opt to eat at an international brand restaurant. If there is an MCD nearby and he may choose to eat there.

The loyalty of its customer is strong that when MCD leave Russia because of the war, one man handcuffed himself to one of the restaurants hoping that MCD wouldn’t leave Russia. I wish I made it up, but this one of the news reporting: https://www.mirror.co.uk/news/world-news/russian-mcdonalds-fan-chains-himself-26458955

The MCD’s brand is one of the most recognized and trusted brands in the world and this helps the company to attract and retain customers. When people think of fast food, burgers, or French fries, they often think of MCD, and this strong association has helped the company to build a loyal customer base that returns to its restaurants time and time again.

In addition, the MCD’s brand is associated with a high level of quality and consistency, which helps to further build customer loyalty and trust. This creates a strong intangible asset for the company and helps it to maintain its competitive advantage in the fast food industry.

Established Global Supply Chain

A global supply chain is a network of organizations involved in the production, handling, and distribution of goods and services from raw materials to end customers. The goal of a global supply chain is to maximize efficiency and minimize cost by coordinating the flow of materials, information, and capital across the various stages of production, distribution, and consumption. For example, getting the raw food from farmers, processing the food, and then selling it in restaurants.

McDonald's global supply chain helps the company to keep costs down in several ways. This isn’t an easy feat, due to the sheer number of restaurants this company has. Not to mention it is one of the largest numbers of restaurants in the world, based on https://www.alltopeverything.com/largest-fast-food-restaurant-chains/

First, the company has a large and diverse network of suppliers that allows it to take advantage of economies of scale and negotiate favorable prices for raw materials and other inputs. Suppliers love to receive bulk orders. Raw food is perishable, time isn’t in their favor. Thus, if their customers, like MCD, place a huge order, they will gladly give them a better price. It saves them the headache of storing or disposing of the food. Either way, there are costs involved.

Second, MCD has developed strong relationships with its suppliers over the years, which helps it to secure reliable and consistent supplies of high-quality ingredients at competitive prices. If their suppliers know what MCD wants, and their standards for their ingredients, and they deliver what MCD wants consistently, MCD most likely be their regular customer.

Finally, MCD invests in logistics technologies and inventory management systems to optimize its supply chain operations and minimize waste, which helps to keep costs down. This helps MCD to increase the efficiency and effectiveness of its global supply chain, which is an important factor in the company's ability to keep costs low in the long run.

Franchises

MCD operates a large network of franchises, which is a strong part of its business model and a pillar of its success.

A franchise is a business arrangement in which a company (the franchisor) grants the right to use its name, products, and operating system to another company (the franchisee) in exchange for a fee.

MCD has a franchise model for many of its restaurants, which means that the company sells the right to use its brand and operating system to independent business owners (franchisees) who operate McDonald's restaurants in their local markets.

This franchise model has several benefits for MCD.

First, it allows the company to expand its operations and reach a wider market without incurring the full costs of owning and operating all of its restaurants.

Second, it enables MCD to tap into the local knowledge and expertise of its franchisees, which are often well-connected and deeply embedded in their communities. One such example is that in 2013, MCD in China put rice products on their menu. The core reason is that the Chinese consider a meal without rice is not a complete meal.

MCD helps its franchisees in a few ways too.

First, the company provides training and resources to help franchisees get started and operate their restaurants effectively. This may include training in areas such as food safety, customer service, and management, as well as access to tools and resources such as marketing materials and operational guidelines. Second, McDonald's offers ongoing support to its franchisees to help them maintain high standards of quality and service and stay up to date with the latest products and practices. This may include training programs, marketing support, and technical assistance. Finally, McDonald's provides financial and logistical support to its franchisees through its supply chain and purchasing programs, which help to keep costs low and ensure a consistent supply of high-quality ingredients and other supplies. This creates a win-win situation for both MCD and its franchisees.

Therefore the franchise model helps McDonald's to build a strong and loyal network of business owners who are invested in the success of the company and committed to upholding its standards of quality and service.

Conclusion

McDonald's Corporation has several economic moats, including strong brand recognition and customer loyalty, a large and well-established network of franchises, and a global supply chain that helps it to keep costs low. In addition, MCD has a diversified menu and a focus on innovation, which allows it to appeal to a wide range of customers and stay relevant in an increasingly competitive marketplace. These factors help McDonald's to maintain its position as one of the most successful fast food chains in the world.

 

For a glance at MCD, please have a look over here: https://drive.google.com/file/d/15mBUGNRujk-4zwuDJlyxckGZOyjal2k9/view?usp=share_link