McDonald’s PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social, technological, environmental and legal factors. McDonald’s PESTEL analysis involves the analysis of potential impact of these factors on the bottom line and long-term growth prospects.
Political Factors in McDonald’s PESTEL Analysis
McDonald’s revenues and long-term growth prospects are affected by a number of political factors such as levels of bureaucracy and corruption, government stability and the freedom of press. Moreover, activities of trade unions and home market lobby groups can be referred to as noteworthy political factors that may affect multinational corporations.
Exiting Russia
On March 8, 2022 McDonald’s announced that it had temporarily closed restaurants in Russia and paused operations in the market due to Russia-Ukraine war conflict. The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald’s values.[1]
On May 2022 the fast food chain announced it starts the process of selling its business in Russia, meaning that the company is leaving the country permanently. Exiting one of its biggest markets where McDonald’s had more than 800 restaurants employing 62000 employees[2] due to a war conflict is a stark example for a political factor affecting the fast food chain.
Trade Unions
Activities of trade unions and their implications belong to the list of important political factors affecting McDonald’s. Trade unions may succeed in their demands to increase employee wages and to improve working conditions and these will have negative implications for the profitability of the business.
Accordingly, the fast food giant is known worldwide for its hostility to trade unions. For example, in 2021 it was reported that McDonald’s has, for years, spied on activists and employees engaged in labour organizing and the Fight for USD15 campaign.[3]
Political Lobbying
Although, in general businesses are not in the position of influencing external political factors, a corporation of a size of McDonald’s usually attempts to affect political factors via lobbying and other means. In June 2015, McDonald’s hired the former White House Press Secretary Robert Gibbs as its head of global communications. This move was rightly perceived by many as an attempt to establish a connection with Washington D.C. taking into account the absence of Gibb’s experience in food industry. Moreover, it has been noted that “known for effectively putting down the rumour that Obama was a Muslim, Gibbs will be a useful tool in fighting any smear campaigns that face McDonald’s during his time there, be it accusations of unfair labour practices or another pink slime debacle”.[4]
Economic Factors in McDonald’s PESTEL Analysis
A set of economic factors such as monetary and fiscal policies of governments, currency exchange rate, cost of labour, inflation rate and an overall macroeconomic climate in the country affects businesses regardless of the industry and the size of the company.
Changes in Currency Exchange Rates
In case of McDonald’s, changes in currency exchange rate have particularly great impact on declared income due to the global scope of business operations. A substantial part of McDonald’s operating income is generated outside of the US and about 36% of its total debt is denominated in foreign currencies.[5] Furthermore, the fast food giant generates about 61% of its total revenues from international markets. Therefore, the amount of reportable profit is subject to exchange rate fluctuations to a great extent. Particularly, changes in exchange rate between US Dollar and Euro, British Pound, Australian Dollar and Canadian Dollar greatly affects McDonald’s revenues.
Inflation Rate
Inflation rate is another substantial factor with direct implications on McDonald’s performance. It has been estimated that the price of Big Mac has increased by nearly 40% in the last ten years, mainly due to inflation.[6] In fact, changes in the price of Big Mac are used by many to assess the inflation rate because the price incorporates many economic factors.
Furthermore, according to McDonald’s the company is benefiting from the inflation rate. It has been noted that inflation is causing the grocery prices to rise faster than fast food. Specifically, in 2021 McDonald’s prices increased by 8% in the US, at the same time when beef prices at grocery stores increased as much as 16%.
Unemployment rate
Unemployment rate as an important economic factor has two effects on McDonald’s revenues. On one hand, high level of unemployment increases the numbers of reserve employees for the fast food chain. In other words, high level of employee turnover due to low wages is a major issue for the company and higher level of unemployment rate in the economy decreases employee turnover for McDonald’s to a certain extend.
On the other hand, high level of unemployment rate is a sign of slowing down of the overall macroeconomic climate. In such a climate increasing numbers of consumers may prefer to eat at home to save money as opposed to eating out.
McDonald’s Corporation Report contains a full version of McDonald’s PESTEL analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on McDonald’s. Moreover, the report contains analyses of McDonald’s business strategy, leadership, organizational structure and organizational culture. The report also comprises discussions of McDonald’s marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[1] McDonald’s To Exit from Russia (2022) McDonald’s, Available at: https://corporate.mcdonalds.com/corpmcd/en-us/our-stories/article/ourstories.mcd-exit-russia.html
[2] Turak, N. (2022) “Goodbye, American soft power: McDonald’s exiting Russia after 32 years is the end of an era” CNBC, Available at: https://www.cnbc.com/2022/05/20/mcdonalds-exiting-russia-after-32-years-is-the-end-of-an-era.html
[3] Franceschi-Bicchierai, L. & Gurley, L.K. (2021) „McDonald’s Secretive Intel Team Spies on ‘Fight for USD15’ Workers, Internal Documents Show” Vice, Available at: https://www.vice.com/en/article/pkdkz9/mcdonalds-secretive-intel-team-spies-on-fight-for-15-workers
[4] Berg, M. (2015) “By Hiring Robert Gibbs, McDonald’s Plays Politics” Forbes, Available at: http://www.forbes.com/sites/maddieberg/2015/06/10/by-hiring-robert-gibbs-mcdonalds-plays-politics/#6035085526f1
[5] Annual Report (2021) McDonald’s Corporation
[6] Nesbit, J. (2022) “Inflation Alert: McDonald’s Big Mac Is Outpacing Cost of Living, Price up 40%” Yahoo! Finance, Available at: https://finance.yahoo.com/news/inflation-alert-mcdonald-big-mac-162111194.html