Reference no: EM133950686 , Length: Words Count:400

Assignment:

It is hard to believe, but McDonald's is no longer the world's largest fast food chain - at least measured by the number of restaurants. Subway has rocketed ahead with close to 42,000 restaurants worldwide vis-a`-vis McDonald's' 34,000. While McDonald's still sells more than Subway (US$28 billion versus US$18 billion in 2013), McDonald's seems to have lost momentum, with US sales slowing down noticeably. McDonald's, of course, does not only compete with Subway, but also with the likes of Five Guys and Chipotle. In all three competitors, customers can see their food being prepared and feel that it is fresher and seemingly healthier. In the Fresh Wars, Subway has elevated its food preparers to become "sandwich artists". Chipotle has bragged about its "food with integrity", and released a short film critical of industrial farming - with a finger pointing at you know what.

In response, McDonald's has unleashed the McWrap, a high-profile salvo in the Fresh Wars in an effort to grab customer attention. At $3.99 in the United States, the McWrap is a ten-inch, white-flour tortilla wrapped around three ounces of chicken (grilled or crispy), lettuce, spring greens, sliced cucumbers, tomatoes, and cheddar jack cheese. Customers can choose their preferred dressing; ranch, sweet chilli, or creamy garlic. Only made to order (not pre-made), the McWrap can be prepared under 60 seconds. When served, it comes with a cool cardboard wrapper whose top can be zipped open. The whole thing can fit vertically in a cup holder in a car. The two-year, nine-ingredient, focus-grouped efforts to fix McDonald's freshness problem are an amazing case study of how a multinational changes its strategy, taps into its global organisation, and leverages its knowledge-all under the pressure of cost reduction and local responsiveness. Dissecting what is behind the launch of McWrap, we can see at least three things.

First, the idea did not come from the United States. It came from three operations in Europe. In 2004, McDonald's in the Czech Republic started selling the Chicken Roll Up. In 2005, McDonald's in Poland introduced a tortilla sandwich, inspired by the kebab, a popular street food. In 2009, Austria pioneered the nifty cardboard container that can be unzipped. Thanks to a European food studio (which would be called an R&D lab in many other firms), these local innovations were noticed and diffused to the rest of McDonald's organisation.

Second, the attention the McWrap idea attracted from the headquarters was driven by a strategic interest in search of fresher and healthier items to outcompete rivals in the Fresh Wars. Specifically, it was the search for local responsiveness - in this case primarily in McDonald's home country, the United States - that identified the wrap to be a potential good fit. Americans are eating more chicken and prefer more fresh food, and the wrap might enable McDonald's to respond to such changing tastes.

Third, significant experimentation, learning and innovation went into the process. While the idea seemed appealing, McDonald's did not operate on gut feelings. Led by Dan Courfreaut, executive chef and vice president of culinary innovation (whose nick name is ChefDan), McDonald's menu innovation team undertook intense research and numerous experiments that ultimately took two years (2011-2013) to finish. To introduce new items to a restaurant chain as large as McDonald's was mind- boggling. The food had to be tasty, the cost low, and the time to serve short - without compromising quality. "My job," according to Chef Dan, "is pushing ourselves without breaking the system."

To enhance freshness, two slices of English cucumber were added for the first time to McDonald's offerings. While adding a tiny bit of cucumber did not sound like a big deal, it actually was quite a challenge to McDonald's supply chain structure. About a decade ago McDonald's introduced sliced apples to its menu, and it quickly became one of the largest buyers of apples in the United States. Initially, a half-breast of chicken was used. But focus groups thought the wrap was a salad - with too much vegetable. Despite the rising health awareness, customers actually wanted more meat - as long as it was chicken. So the final version of the wrap had a full breast of chicken. The wrap's name also went through intense testing. In the first trial in Chicago, it was called the Grande Wrap. But customers could not figure out what "grande" was. Then the name Fresh Garden Wrap was tested in Orlando, and it flopped too. Eventually, McWrap was chosen.

In a leaked, internal memo obtained by the media, McDonald's admitted that it was not even in the top ten of the Millennial Generation's list of favourite restaurant chains. Calling the McWrap a "Subway buster", the memo suggested that "McWrap offers us the perfect food offering to address the needs of this very important customer to McDonald's". When asked to elaborate, a McDonald's spokesperson noted: "We want to remain relevant to all of our customers." Whether McWrap will prove to be relevant to customers remains to be seen - or tasted.

Question -

In 2011, McDonald's saw sales in Europe increase, but yet the yearly profits were actually down as a result of a weakening euro. Discuss three foreign exchange risks MacDonald's face and three strategies to overcome these risks.

(350 to 400 words)