MCDONALDS AVENTURE IN THE

HOTEL INDUSTRY

GROUP NO 7
PGP/20/259 ANKIT KUMAR YADAV
PGP/20/278 NAGARAMAKRISHNA KURRA
PGP/20/279 NISCHAL JAIN
PGP/20/300 THAITHOILUNG THAIMEI
PGP/20/303 UMANG AGRAWAL
PGP/20/307 VISHESH KALRA
 PENETRATION OF A FAST AND ECONOMIC FOOD CHAIN ACROSS THE WORLD

A milkshake mixer
seller Raymond Expansion begins Expansion in
Kroc got a outside the USA in Eastern Europe in
franchisee from Canada, Japan, Russia, Poland,
the McDonald's Holland, Australia Hungary and the
brothers and Great Britain Czech Republic

1954 1955 1967 1970 1989

1st McDonalds Restaurants in

Family restaurant Germany, Hong
in California Kong, Sweden,
the Far East and
Latin America
 ALTERED MARKET CIRCUMSTANCES LEADING TO DIVERSIFICATION

Diversification Strategy Swiss Strategy

CEO Urs Hammers hotelier

Build more profit and revenue-
winning restaurants
Company centre in each country
would share its acquired
knowledge with other restaurants
Developing core competencies as
use throughout the corporation
background will help in Horizontal
diversification
Zurich is considered trendy along
with cultural and business values
attracting insiders
Promising airport area generating
demand for hotels
 THE GOLDEN ARCH HOTEL

4 star hotel with 211 rooms with 24*7 McDonalds restaurant

Two type of the rooms available in range of 150 CHF to 200 CHF

Custom made trolley for efficient luggage handling

Check-in and Check-out facility at the Airport terminal

9 meeting rooms foldable-wall technology to transform into larger 30-person conference room

Curved wall to give unique look to rooms

Futuristic shower in the bedroom

 VOICE OF THE CUSTOMER

Uncomfortable Flooring & Unwelcoming Ambience

Feeling of Oddity and Discomfort

Cheerful rooms with latest amenities"

Unwelcoming staff with poor quality of service

Should have built a three-star range hotel with a fine dining restaurant

Customers had a mixed review about the hotel and its services with many suggesting that they would never associate a
McDonalds restaurant with a four-star hotel
 HORIZONTAL DIVERSIFICATION REQUIREMENTS ARE NOT MET

Driving Forces of Horizontal Diversification

Loyal Current customer base YES McDonalds has a huge loyal customer base

New Products/Services are well placed and The promotion of Golden Arch is poor
NO
promoted

Attractiveness of the Industry Maturity

The Swiss hotel industry is at its maturity stage
stage

New Products/Services are marketed to the same McDonalds is associated with low price while
economic environment NO
Golden Arch customers are upper middle class
 SERVICE PROCESS DEFICIENCIES

Check in Escott to the

Arrive Stay Check out
room by Staff

Visitor engaging
Self Check-In
House Luggage activities Self Check-out
Airport Shuttle Service
Keeping Handling Comfort Feedback
Reception
Dine-in Services and
Lounge Bar
Amenities
 NPV ANALYSIS OF GOLDEN ARCH HOTEL

Particulars NPV Year 0 Year 1 Year 2 Year 3 ... Year 18 Year 19 Year 20
Initial outlay (57,60,000) (57,60,000)

PBIT @20.24% 89,43,830 18,56,766 18,56,766 18,56,766 18,56,766 18,56,766 18,56,766

Interest @3% (19,55,136) (6,91,200) (6,91,200) (6,91,200)

Principal Payment With current profit/loss forecast,
@3% (2,10,84,864) (2,30,40,000) Golden Arch is unlikely to achieve
Total NPV (1,98,56,170) break-even
Break Even:-
Particulars NPV Year 0 Year 1 Year 2 Year 3 ... Year 18 Year 19 Year 20

Initial outlay (57,60,000) (57,60,000)

PBIT @20.24% 2,88,00,000 59,78,967 59,78,967 59,78,967 59,78,967 59,78,967 59,78,967

Interest @3% (19,55,136) (6,91,200) (6,91,200) (6,91,200)

Golden Arch needs to increase its
Principal Payment
@3% (2,10,84,864) (2,30,40,000)
PBIT by three times to achieve
Total NPV 0 -
breakeven
Assumptions:-
Occupancy rate remains constant @ 71.92%; Average Room
Rent remains constant @128.77 CHF;No tax and inflation

1. Convert to a 2 or 3-star
hotel?
Gels with McDonalds
inexpensive image
Potential of higher occupancy
rates
Lesser need of competent staff
But, converting into 2 or 3-star
hotel will result in loss in
revenue as average room rate
will decrease
THE WAY FORWARD?
2. Convert to a 5-star hotel? 3. Stay as a 4-star with
Only competition from Hilton rebranding and management
in this segment by an established hotel group?
Can charge higher rent Improved customer perception
Cater to needs of business Improved management
travellers and higher class Potential increase in revenue
customers
But, converting into 5-star will
incur more investment in
infrastructure, services and
high class facilities
 CONTINUE AS A 4-STAR AND MANAGEMENT BY ESTABLISHED HOTEL

McDonalds is associated with low price and name Rebranding it under a different brand will avoid any
Golden Arch has negative connotations in German negative perception

Shortage of trained staff personnel New management will bring its own trained staff

Open facilities like spa, gym etc. and start dine-in

Visitor engaging activities and Dine-in restaurant service in lounge

Interior overhaul to remove linkages with

Room environment and ambience
McDonalds and provide comfortable slippers

Allow McDonalds concentrate on its Restaurant

Not McDonalds core competency
business and explore unsaturated markets

Take advantage of its close proximity to highways, airport and exhibition centre, and differentiate on
services like self check-in, internet access in rooms and airport shuttle service