The popular fast food giant McDonald’s is contemplating on a new scheme to offer all-day breakfast to its customers. This offer suggests that breakfast items like McMuffins and pancakes will be available even after 10.30 . This decision was based on an observation that there is a high demand for breakfasts even after the stipulated breakfast time from a large section of the customers. This move also a part of McDonald’s strategy to revive its faltering sales in the recent times as Wall Street Journal reports . But offering a wide range of products and breakfasts day long may not provide the required impetus to boost its sales revenue. There are a number of costs involved with offering a wide range of products. This paper analyses the decision of McDonald’s to offer day long breakfast menu and expansion in its range of items and discusses the pros and cons of this strategy in terms of demand, costs and market structure.
McDonald’s is a major player in the fast food segment with few close competitors. There are a large number of small fast food companies making it a competitive market but around six to seven major chains dominate the market giving it some monopoly element. So we can infer that the market structure is somewhat a monopolistic competition. The competition is concentrated round the major giants like the Burger King, Dominos, Wendy’s international and such others. In a monopolistic competition there is a constant endeavor by the firms to increase its market share. To maintain and expand the market share the firms take up a number of strategies. The most important one is product differentiation . Research and development is important in this context to come up with new products that find more popularity among the consumers. Offering a product with improved features and attractive packaging increases the sales and hence the firm enjoys higher market share and profit. Marketing strategies are very important in this kind of a market. Advertisements, packaging, sales promotion moves are important to gain more market share.
McDonald’s has been facing with falling sales in recent times. To boost its sales it has started offering a wide range of products like fruit smoothies and oatmeal and even customized burgers for which the customers have the option to choose their favorite toppings . These new products have increased the sales to some extent but the associated costs are high. First of all it increases the serving time as the kitchen staff find it difficult to manage a varied order in a short time. There are also cases of serving a wrong order. Such incidents have increased customer discontent and can affect sales to some extent. Another problem with serving day long breakfast is that the staff has to prepare meals along with muffins and pancakes. There arises problem with infrastructure. To deal with this McDonald’s has added kitchen space to some of its franchisees. But that involves additional cost. Before launching the scheme of day-long breakfast on popular demand McDonald’s should conduct a systematic market survey to investigate the real extent of the demand. Macroeconomic theory tells us that an increase in demand allows the supplier to supply a higher amount at a higher price. This is depicted in figure1 below. The increase in demand leads to an upward shift in the demand curve from D0 to D1. The market equilibrium shifts to E2 from E1 at a higher price and output.
It is clear from the news that is published in the Wall Street Journal that to offer new products and all-day breakfast the company has to undergo a number of changes that involves considerable amount of costs. Since the number of items has increased a greater number of personnel is required along with bigger kitchen spaces. If the revenue from this expansion is not considerable enough, the company will incur losses. If the prices of the products remain the same the revenue will not rise considerably. Moreover the average cost will increase with new infrastructure and personnel being involved.
If the market survey suggests a considerable increase in demand for all-day breakfast and the consumers are willing to pay a premium to avail this facility then McDonald’s can charge a higher price for this offer which can compensate for the rise in the average cost that the company has to bear due to this new offer.
Apart from this strategy of offering new products and day-long breakfast McDonald’s should also ponder upon other strategies that can improve its dwindling sales. One important aspect of product differentiation is the location of the fast food joint. McDonald’s runs its operations through franchisees. It should make sure that the location is chosen after careful survey so that it fetches that maximum number of customers. Finally. McDonald’s should maintain a healthy and strategic relationship with its franchisees so that its marketing strategies can be well implemented.
Jargon, J. (2015, July 21). McDonald's Could Offer All-Day Breakfast Nationwide in October. Wall Street Journal.
Pindyck, R., & Rubinfield, D. (2009). Microeconomics (7th ed.). Prentice Hall.
wikinvest. (2015, July 21). McDonald's Corporation Wiki Analysis. Retrieved from wikinvest.com: http://www.wikinvest.com/stock/McDonald's_Corporation_(NYSE:MCD)