Free Essay Sample: Worldwide Economic Crisis of 2008

The global financial system during the worldwide economic crisis of 2008 seemed on the margin of failure. It was similar to the prevalent concepts of how the economic and financial worlds are supposed to operate. Most firms and even individuals were adversely affected by this crisis. However, some firms seemed to thrive during the crisis. One of them is McDonald's, which despite the collapsing economy, compression credit market, extraordinary food prices, and intensifying concern about obesity, still managed to prosper. It has been purported that the presence of more hungry diners assisted McDonald's sales and profit to grow. McDonald's performed quite well during the economic crisis of 2008 due to the utilization of various strategies that had a positive microeconomic impact.

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2008 marked a decade after which Americans had begun to trade up to higher-quality consumer goods and services. They then started to trade down with a form of retribution. McDonald's, which at that time had 44% of its stores in the US, was set up to gain revenue from trading in certain ways (Gross, 2009). It is important to note that people tend to eat at home regularly and less out in a recession. Also, when they eat out, they look for cheaper places. The low cost of food at McDonald's, its efficiency, prevalence, and suitability made it a feasible alternative to other restaurants (Gross, 2009). Therefore, during the recession, McDonald's still made huge sales and gained substantial revenue.

McDonald's also learned how to adjust its menu in response to the economic alterations promptly. They emphasized value instead of nutrition. Most of its profits in 2008 came from high sales of breakfast biscuits, drinks, and Southern-style chicken sandwiches (Adamy, 2009). The Dollar Menu is also an instance of a campaign to inspire clients worried about the price to walk through the Golden Arches. Their website further described that the Dollar Menu offers high-quality menu items at a decent worth ("Is McDonald's Lovin' the Economic Crisis? Hard times, fast food and health", 2009).

On the other hand, it is relevant to note that McDonald's relied on other countries for growth and profits. In 2007, the revenues in Europe were higher than those in the US. There was also strong growth in Africa, Asia, and the Middle East. In November 2008, the economic crisis was spreading, but McDonald's global sales increased by more than 171% compared to that of the US ("Is McDonald's Lovin' the Economic Crisis? Hard times, Fast Food and health", 2009). Thus, the firm was not affected by the economic crisis, and instead, it thrived.

McDonald's good performance during the economic crisis was also boosted by a change in its marketing strategy. They responded to their opponents more compellingly and used more innovative tactics. An instance was observed in its Quality Correspondents program that sought to win over mothers by taking them on kitchen tours. They then emphasized food quality and nutritious selections. Through this cadre of sales mothers, McDonald's improved their image and further helped them overcome one of the largest barriers to increasing sales to children, which was health concerns by mothers (Gross, 2009).

It is also essential to note that McDonald's had undertaken certain strategies before the economic crisis that enabled them to thrive. They also took their critics more forcefully. There was false information published about the firm, which resulted in people questioning the general quality and safety of fast food. However, the company took measures, and in 2006, McDonald's hired a public relations company that disputed charges against the business (Adamy, 2009). As such, by 2008, these kinds of changes, accompanied by a declining economy, helped the firm turn around its performance.

Another aspect that enabled McDonald's to handle the economic crisis in 2008 was its ability to deliver a consistent consumer experience nationally and globally. There is a form of safety given to clients by McDonald's concerning their food quality. The elements of safety and consistency were quite appealing to consumers during the economic crisis and the affordable prices of food products. Besides, McDonald's has always been flexible concerning the food they sell. For instance, it moved from being a hamburger to a food restaurant and managed to grow its brand to embrace various types of food (Adamy, 2009). As such, they showed their consumers some value during the recession, which was then rewarded with loyalty. Hence, it is necessary to note that the aspects of comfort, food safety, reliable consumer experience, low prices, and cultural flexibility have all been executed on a global scale, assisting the company in thriving during the economic downturn (Gross, 2009). Moreover, it may be depicted that the size and progressively common dollar menu led to McDonald's being a huge beneficiary of the recession because diners were relegated from expensive restaurants.

A rapid decline in discretionary spending during the recession resulted in companies reducing prices and, thus, the margins. It was done to maintain the consistency of clients. At that time, McDonald's ran numerous deals and further distributed several vouchers. Nonetheless, the company also utilized funds to promote a higher-margin product that could appear appealing to a new class of trading-down clients. The product was coffee. McDonald's expanded its offerings as compared to its competitors, such as Starbucks. The McCafe line was not quite attractive, but it seemed to be impressive to some consumers. During the second-quarter earnings release in 2009, McDonald's stated that the launch of the McCafe coffee lineup was a substantial contributor to the results (Maze, 2019). Therefore, the introduction of the new product accompanied by marketing strategies helped McDonald's boost their sales and revenue during the economic crisis of 2008.

After and during the recession, McDonald's was purported to be facing some form of vulnerabilities. One of the threats was the turning costs of commodities. The first part of 2008 saw a global increase in food prices (Reynolds, 2018). In July of the same year, McDonald's issued a warning to investors that increasing chicken and beef prices might decrease revenues. The rise in beef and cheese led McDonald's to eliminate the double cheeseburger from the Dollar Menu. As compensation for the loss, they added a new McDouble Burger. As such, the change saved the company some money. There was a high demand for beef and chicken in rising markets such as Latin America and Asia, which led to an increase in its price (Koh et al., 2013). Thus, this made it hard for fast-food firms to maintain low prices, and in the end, cost-conscious consumers ended up leaving.

McDonald's continued to thrive even after the recession. This is attributed to the firm's aspect of enjoying various competitive advantages that have been seen to separate it from its commerce peers. The company is the largest publicly traded fast-food organization worldwide. It also has a massive scale, which enables it to sustain its prices at a low rate (Maze, 2019). Additionally, McDonald's has a strong brand. During an economic downturn, clients tend to downgrade, and instead of going to expensive restaurants, they normally shift to fast food. However, even after the recession, McDonald's has continued to enjoy high sales and revenues. The company grew its earnings every year of the recession and further averaged double-digit growth over the three years that it lasted (Reynolds, 2018). As such, this was a demonstration of the business having a recession-resistant model.

McDonald's was observed to experience strong growth in its global markets after the recession. Nonetheless, it is relevant to note that its stock historically performs well during a recession. As other restaurant chains' stocks fell, McDonald's valuation was highly maintained. Also, their sales have been seen to perform better during a tough period, which was seen during the economic crisis of 2008. Consumers were observed to flood the Dollar Menu of the company. Furthermore, some consumers were also seen to "trade down" to the chain's assistance from the more costly casual dining concepts, when assessed hypothetically (Koh et al., 2013).

After the economic crisis of 2008, most operators were observed to have increased their prices aggressively. It was due to an increase in labor and other costs as well. In the end, this assisted the chain's same-store sales, but there have been beliefs that the prices sent away some consumers. McDonald's has also struggled to find the right resolution that would bring in value-oriented clients without hurting its franchisees (Maze, 2019).

Globalization has significantly contributed to McDonald's revenues during and even after the recession. However, there are some risks posed by the same aspect. The firm needs to consider how globalization is likely to affect its existence and design strategies to counter them efficiently. McDonald's faces threats such as strict regulations and global standards, which could hurt their need for continued growth and expansion (Reynolds, 2018).

McDonald's has been assessed concerning the way it performed during the economic crisis of 2008. It has been observed that the firm performed well as compared to most companies that were adversely affected. McDonald's applied some efficient microeconomic aspects that enabled it to survive the crisis at that time. They delivered a consistent client experience accompanied by low prices, food safety, and cultural flexibility. After the recession, the firm continued to thrive, especially due to the presence of several competitive advantages. However, globalization has been seen to have contributed to its revenues during and after the recession. They also face risks due to globalization, which includes strict regulations that are likely to have an adverse effect on their growth, expansion, and even existence.

References

Adamy, J. (2009). McDonald's Seeks Way to Keep Sizzling. WSJ. Retrieved 18 September 2020, from https://www.wsj.com/articles/SB123664077802177333.

Gross, D. (2009). How McDonald's won the recession.. Slate Magazine. Retrieved 18 September 2020, from https://slate.com/business/2009/08/how-mcdonald-s-won-the-recession.html.

Is McDonald’s Lovin’ the Economic Crisis? Hard times, fast food and health. Corporations and Health Watch. (2009). Retrieved 18 September 2020, from https://corporationsandhealth.org/2009/01/01/is-mcdonalds-lovin-the-economic-crisis-hard-times-fast-food-and-health/.

Koh, Y., Lee, S., & Choi, C. (2013). The income elasticity of demand and firm performance of US restaurant companies by restaurant type during recessions. Tourism Economics, 19(4), 855-881.

Maze, J. (2019). Economic fears boost McDonald’s stock. Restaurant Business. Retrieved 18 September 2020, from https://www.restaurantbusinessonline.com/financing/economic-fears-boost-mcdonalds-stock.

Reynolds, B. (2018). McDonald's Recession Performance: Prepare Yourself - GuruFocus.com. Gurufocus.com. Retrieved 18 September 2020, from https://www.gurufocus.com/news/707453/mcdonalds-recession-performance-prepare-yourself.