Managing Service Relationships
CASE STUDY
MACDONALDS
BURGER KING
HUNGRY JACKS
Anna K., Cianne S., Philip T., Ronnie N.
Executive Summary:
This paper reports on the Quick service restaurant industry, analysing the service
relationships from the perspective of McDonald's, Burger King, and Subway. The report
highlights the different strategies and tactical executions each chain utilises in order
to compete and create a unique appeal for their target audience. It became evident that
each company had identified a set of values core to the business, and this forms the
basis of how they handled their service relationships. It was also discovered that these
relationships have significantly impacted the ongoing success of the chains, especially
where significant changes were required to meet the changing demands of the market.
The paper surmised that through continuous benchmarking, relationship
development/management and ongoing analysis of the demands of the market, these
key QSR companies create sustainable businesses capable of minimizing potential
threats and maximizing on growth opportunities.
Table of Contents
Title Page:
1
Executive Summary
2
Table Of Contents
3
General Information
Defining Quick Service Restaurants
Historical Brief of McDonald's, Burger King and Subway
Identification of Values
Key Strategic Differences
4
4
5
5-6
Service Relationships Analysis
Market Opportunity Analysis
Demand Chain Analysis
Supply Chain Analysis
7
Summary Analysis, Findings, Recommendations and Conclusions
11
Referencing
14
1. General information
1.1 Defining Quick Service Restaurants
Quick Service (fast food) Restaurants: known for fast efficient, take-out-ready foods at
affordable prices. Priority: getting food to the customer fast and with limited or no table service.
They are often chains and gain momentum from operating in multiple locations under the
same upper management. Companies like McDonalds or Starbucks have achieved enormous
market share due to their many locations. QSR’s offer consistent food, thanks to highly
regulated production systems, food suppliers and menu development, quick service
restaurants are known for their consistency. QSR’s can benefit from franchising; this allows
businesses to grow by expanding the brand and building investments.
1.2 Histories of three companies
McDonald's was established in 1955 with more than 36,000 restaurants worldwide. Its market
capitalization is $96.91B USD which is equal to $127.66B AUD. It ranks number 6 world’s
most valuable brands (Forbes Magazines). Its mission is ‘’to be our customer’s favourite place
to eat and drink. Our worldwide operations are aligned around a global strategy called the
‘Plan to win’, which centre on an exceptional customer experience- people, products, place,
price and promotion. We are committed to continuously improving our operations and
enhancing our customer’s experience’’.
Burger King, which is named Hungry Jacks in Australia, was founded in 1954 with
approximately 14,000 restaurants in 98 countries and territories worldwide. Its market
capitalization is $11.2B USD which is equal to $14.75B AUD. It ranks the world’s third-largest
quick service restaurant. Its mission is ‘’to ensure that our guests return, by delivering great
food through the highest of standards of quality, service, and cleanliness every day of the
year’’.
Subway was established in 1965 with 43,826 restaurants in 110 countries. Its market
capitalization is $12.032B USD which is equal to $15.85B AUD. It ranks the world’s second
largest quick-service restaurant. Its mission is ‘’ to be the number one quick service restaurant
(QSR) franchise in the world while delivering fresh, delicious sandwiches and exceptional
experience’’.
1.3 Values
McDonald's
Burger King
Subway
- We place the customer
experience at the core of
what we do
- We are committed to our
people
- We believe in the
McDonald's System
- We operate our
businesses ethically
- We give back to our
communities
- We grow our business
profitably
- The strive to continue to
improve
- Guests matter
- Safety
- Integrity
- Perform consistently
- High standards
- Fairness
- Diversity
- Caring
- Respect
- Commitment to excellent
- Takes great pride in serving
its customers and
communities
- Seeks continuous
improvement in all that it
does
- Emphasis on an innovative,
entrepreneurial approach to
business
- Expects fairness and
mutual respect in all our
activities
- Acknowledges that the
company's success depends
upon the initiative taken
individually and the ability to
work as a team.
1.4 The key strategic differences
McDonald's
1. Development of customer loyalty through relationship management and emotional
buy-in. Tactical examples include:
a. Their “McHappy” campaign; which used emotional wording to promote
experiential dining with a reward/comforting feel.
b. Ronald McDonald Houses and Rainforest Certified Coffee practices, branding
McDonald's as an ethically considerate and emotionally empathetic/
community supporting company.
2. Market dominance, McDonald's is second in-store population globally (first is Subway).
this creates a barrier to entry for competitors, reduces their overheads, and meets the
demand for easily/improves accessibility to their customers.
Burger King
1. Emphasis on quality and consistent product, as is a core value of Quick Service
Restaurants. By sticking to burgers and not differentiating their product, they have
established themselves as a unique operation from their biggest competitor
(McDonald's). Tactical examples include:
a. “The burgers are better at Hungry Jacks” campaign in Australia
2. Franchisee Ownership; emphasising owner buy-in means stores don't fall behind the
benchmark as owners are rewarded for their vested interest. It also means the stores
can offer a localised strategy and set of tactics to address differences. Tactics include:
a. The use of U.S Celebrity (such as Jay Leno and Mary J. Blige) as ambassadors
of Burger King in the U.S.
b. Customization of the menu offering to meet the demand of customers. For
example, adding pineapple to burgers in Australia.
Subway
1. Product Differentiation: by emphasising fast fresh and healthy product, Subway meet
a market gap and therefore supply a demanding market, while remaining true to the
core meaning of Quick Service Restaurants. n doing so they have created a unique
positioning- an advantage over their competitors. Tactical examples include:
a. “Eat Fresh” campaign
b. Making the product in front of you, bread included.
c. mass customization (though the customer's ability to build the sub); a trending
demand.
d. “Subway Diet” campaign, with success story Jared Fogle as the ambassador.
2. Market Dominance: Subway has the most stores worldwide comparatively, and aim to
increase their store count by 100,000 by 2030. A simplistic business model has
enabled this; which is also comparatively lower in cost to set up, as well as lower
overheads ongoing overall. in doing so, Subway has created and strengthened the
barrier to entry for possible future competitors.
2. Service Relationships Analysis
Globally, one of the largest food sectors is Quick Service Restaurants. To attract customers
worldwide, this industry collectively offers competitively low pricing on their saleable products.
In doing so, they create barriers to entry, as well as challenges unto themselves, as raising
prices may compromise their captive audience and market share (Basham, 2010). Despite
the fact that these restaurants operate in an oligopoly market, they strive to achieve a
competitive edge over each other and hence formulate a series of differentiating strategies
that create a unique positioning. By analysing Service Relationships, one is able to identify
their unique positioning and the ways in which these top market stakeholders have succeeded
in creating a sustainable practice.
2.1 Market opportunity analysis:
2.1.1 Industry value drivers
The Quick Service Restaurant industry demands the following value drivers collectively in
order to see success. These are:
- Competitively priced product
- Consistent and fast service
- Ability to meet demand (in volume)
- Market dominance especially via chains- franchising enables this to occur more easily
- Superior brand awareness
- Revolutionary technology.
The following are ways in which McDonald's, Burger King and Subway were able to
successfully deliver on these values, and consequently differing their companies from one
another.
McDonald's: Developed a business model known as the three-legged stool
which consists of employees, suppliers and the owner (Nielson, 2013). Through the balance
and alignment of this foundation, it has achieved a lot of success. This model enables
McDonald's to be an integral part of the community it serves as well as consistently providing
customers with locally relevant restaurant experiences. Additionally, changing customers’
needs and preferences are met as McDonalds’ ability to identify and implement innovative
ideas is facilitated by this business model. McDonald has also considerably expanded its
menu to include smoothies, wraps, fruits and salads, all in the name of meeting customer
preferences.
Burger King: As the Treffis Team of Forbes (2014) wrote, Burger King merged
with Tim Hortons. This merge suited the Burger King’s business model which is based around
its menu innovation and international expansion. As a result, Burger King was able to focus
on coffee and doughnuts more on its menu. Additionally, it has been able to expand
considerably as it developed new restaurants all over the world thus boosting sales.
Subway: In a bid to differentiate from competitors, Subway prided itself by
going ‘green’ with the introduction of earth-friendly ‘eco-restaurants’ (Franchise Update, 2011).
Offering environmentally friendly aspects of reducing the consumption of water and energy,
and reducing waste is the overall goal of these eco-restaurants which reflects the brand’s
“commitment to social sustainability and responsibility” according to its marketing director
Elizabeth Stewart.
2.1.2 Resource implication
The following are the ways our companies have created competitive advantages through its
resourcing.
McDonald's: Takes advantage of better human resourcing and recruitment
when it comes to resource implication. It’s always in search of new talent that matches the
skills desired- especially that of quality customer service, which drives home the relational
value. This type of resource is timely, costly and difficult to copy, making it a highly valuable
resource.
Burger King: Took advantage of technology advancement to introduce better
Wi-Fi in its restaurants as suggested by Johnson of Napean LLC (2014). Burger King proposes
that this new technology of Wi-Fi will improve the in-restaurant experience as well as enable
mobile payments when they become available, especially given their current target market
and young adults who they are trying to attract.
Subway: has taken advantage of its innovative service approach by introducing a
loyalty card program and CRM software program (Stensby, 2012). These programs aid in
identifying its customers thus helping it predict customer behaviour, monitor sales as well as
enabling it to enhance the internal service quality. These programs also aid in tailoring
communication to different customer needs hence building trust.
2.1.3 Organisational structure
McDonald's: highly structured training is offered to the new employees
immediately after hire. Training rooms and video players are available in all of its
restaurants. Through training and development, McDonald's is able to improve the quality
management as well as job skills. Also, McDonald's recently changed its organisational
structure by eliminating layers of management amid dwindling sales and profits as stated by
Jargon of Wall Street Journal (2014). These organisational changes would ensure more
autonomy would be offered to local markets thus providing products more relevant to them
hence meeting customer preferences.
Burger King: Burger King’s organisational structure is different according to
regions (PR Newswire, 2007). In North America, divisional barriers were eliminated with a
highly centralised system that is focused and functionally aligned introduced. This system
aligns employees’ objectives with those of the company as well as enabling easier handling
of corporate learning due to the reduced number of systems. Internationally, a decentralized
system was retained and this is advantageous as control is increased at the local level.
Subway: adopts a traditional or modern organisational structure. But the most
notable organisation structure is a flat organisational structure which has a short chain of
command from top to bottom. This enables a problem to be solved more quickly. Furthermore,
any customer complaint is handled quickly and reaches the top management as well.
2.1.4 Customer types
McDonald's: most of McDonald’s foods target families and younger children
(Roney, 2011). As a result of this, indoor playgrounds are common in most of their
restaurant to attract parents to take their children hence increasing sales.
Burger King: for years, the target audience for Burger King has been young
men. However, in 2008, this target was hit hard by the economic recession (Melnick, 2012).
This prompted Burger King to expand their menu to include fresh garden salads, fruit
smoothies and chicken wraps among others so as to target more audience such as women,
the health conscious and families.
Subway: has always focused on the young male office worker and student
consumer groups. However, as competition stiffens, Subway has expanded its target
audience. As stated by Luckerson of Time (2014), Subway introduced a marketing campaign
that targeted kids by trying to convince them that “veggies can be cooler than
cheeseburgers”. The campaign emphasis was on “fruits, vegetables and non-sugary drinks’’,
centring on the slogan ‘‘Playtime, Powered by Veggies’’.
2.2 Demand chain analysis:
2.2.1 Customer value model
McDonald's
Burger King
Subway
- Increase the numbers of
restaurants
- Narrow accessibility
- Remodelled and renovated
restaurants
- Increase new foods
(lower-calorie, lower-fat
fries).
- Replace Masked mascot
with celebrities
- Slash price
- Replace bacon and ham
with halal meat
2.2.2 Value driver analysis
McDonald's: as suggested by Seeking Alpha (2013), McDonald’s main value
driver is raising the demand for its foods by increasing the number of restaurants. The UK,
US, Germany, France and Australia have already established markets while Russia, Brazil,
India and China are emerging markets. Additionally, the accessibility of its restaurants in the
US has contributed to a considerable amount of profit. For instance, for every 7.58 miles, a
McDonald’s restaurant can be found. Furthermore, the company plans to spend $3 billion on
opening new restaurants in the US. Also, the existing restaurants are being remodelled and
renovated to increase their quality. This increases the company’s image through customer
experience as quality and hygienic food are reflected by a well maintained and clean
restaurant. All these drivers are geared towards increasing customer experience and
demand of their products hence an increase in sales (profits) as well
Burger King: giving away free satisfies was its main driver towards increasing
consumers’ demand for their new foods (Horovitz, 2013). In an attempt to get more
customers to demand their new lower calorie lower fat fries, Burger King offered free
satisfies for a whole weekend. And the response was positive from health-focused
consumers who increased in numbers both in restaurants and on social media. Additionally,
changing its marketing campaign was successful as it attracted more customers thus
increasing the demand for its food. The masked mascot is no longer used, with several
celebrities who are instantly recognised replacing it (Morrison, 2012).
Subway: slashing prices was Subway’s main driver in increasing the demand for its
products (Smith, 2011). Subway introduced its $2 six inch subs with an aim to attract more
customers. Furthermore, in a successful attempt to meet strong demands from Muslims,
Subway removed bacon and ham from its stores in the UK and Ireland and replaced them
with halal meat (Poulter, 2014). Turkey ham and turkey rashes replaced the bacon while all
meat is now prepared according to halal rules, all in an attempt to please its Muslim
consumers. All these drivers have seen subway increase its consumer base.
2.2.3 Value proposition
McDonald's: as stated by Cahill (2013), McDonald’s famous value proposition is
based on quickly serving food of constant quality, and consistently around the world.
McDonald's is able to deliver the fast, inexpensive and convenient food through its equally
simple and reliable restaurants.
Burger King: the value proposition of Burger King is to provide cheap foods 43
matches “soft consumer spending” (Burger Business, 2013). Additionally, “fewer and more
impactful” menus can be expected. A balance between value and premium products at
budget-friendly offers is maintained by Burger King.
Subway: offer fresh, nutritious and healthy food of great tasting at a competitive price
point (Subway, 2014). The value proposition also includes Subway Real Deal which hero the
turkey and ham sub. Additionally, it includes the My Sub My Way platform which
“emphasises on the customizable nature of the Subway menu, which empowers customers
to control and order their Sub or flatbread just the way they like it.”
2.3 Supply chain analysis:
2.3.1 Value production and coordination
McDonald's: involving a number of ingredients, more than 36,000 restaurants are
operated by McDonald's. Since McDonald's does not make any of those ingredients, direct
suppliers are used by McDonald's so as to ensure easier coordination of purchasing and
distribution to its restaurants. It contracts suppliers which include: Coca-Cola, Sunny Fresh
Farms, Dean Foods and Tyson Foods among others (Jones, 2014). Poultry, fish, bakery and
meat are among the items supplied.
Burger King: it is Burger King’s philosophy to support local suppliers in all of its
restaurants around the world (Fin24, 2014). It aims to be locally supplied with products so as
to meet consumer preferences.
Subway: has always streamlined its supply chain (Subway, 2015). It searches for
suppliers who “share its values and commitment to environmental and social responsibility.”
It requires all of the suppliers to meet its ‘Vendor Code of Conduct’ which consist of stringent
audit processes. The samples of products supplied must meet specifications from rigorous
third-party audits for food safety.
2.3.2 Value delivery
McDonald's: in serving it’s over 70 million customers, McDonald's demands
consistency from its suppliers by setting strict standards to be adhered to. The consistency,
safety and quality of products delivered are the responsibility of the suppliers. The colour,
texture and freshness must be consistent as required by McDonald's with all standards met.
Burger King: always selective in terms of suppliers depending on the season.
Burger King also traces the ingredients back to their origins as well as fully track the supply
chain. It also ensures that all guidelines and standards related to animal husbandry are
regularly monitored and met by their suppliers (Burger King 2015).
Subway: sustainable sourcing also ensures that fair labour practices and animal
husbandry are maintained by its suppliers. Subway also follows the products supplied from
the time they are grown and harvested to the point they reach their restaurants as serving
food that consistently meets the highest quality and safety standards is their goal.
2.3.3 Value servicing
McDonald's: to avoid lawsuits, it ensures food safety at all times. To ensure this
safety, tractability programs have been developed by suppliers who track food in the supply
chain.
Burger King: purposefully avoids using artificial flavours and enhancers in a bid to
ensure their superior quality of ingredients and great taste that can only be guaranteed by
freshness.
Subway: to ensure that food quality and safety are met, Subway, on a monthly basis,
evaluates all of its restaurants around the world for compliance of policies and procedures.
A report has demonstrated how different companies within one industry are constantly
improving their customer service in order to meet customer’s needs and wants. All fast food
restaurants use a similar business concept, which is to provide a quick food at an affordable
price, however, they rely on different elements to create value for customers.
A report has shown that all three companies realize the importance of customers’ satisfaction
and that understanding consumers is vital for their business. Quick service restaurants
industry is often affected by changes in consumer tastes and for this reason, restaurant
managers should study customer’s preferences on a regular basis. Grasping customer’s
complaints in a timely and effective manner is also crucial for customer’s satisfaction and helps
companies to build a rapport. All three fast food restaurants analysed are doing their best to
meet customers’ needs and expectations. For example, all three of them, are well aware of
the shift in consumer attitudes towards healthy food and for this reason they are expanding
their menus to include salads and other healthy options to appeal to a wider audience.
In today’s highly competitive market understanding consumers are the key to success and a
major element that influence all organizations. Restaurants managers should not only listen
to the needs of the customers but they should be able to build a connection to understand how
these needs and desires can be fulfilled.
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