Case 3: Coca-Cola and McDonald’s

 

Global Distinctive Practice Cases for Strategic Partnering – Report by Imperial College London Students (Continued).

 

Case 3:  Coca-Cola and McDonald’s  

Introduction

McDonald’s partnered with Coca-Cola in 1955, when McDonald’s opened its first restaurants in Des Plaines and a beverage supplier was required.  (Gelles, 2014).  Since they possessed the same American expansion ambition, their executives agreed with this alliance.  Despite the lack of paper contract, there is considerable contact between the two companies at board level (The Economist, 1998).

Achievement & Overall Assessment

McDonald’s and Coca-Cola alliance is a big success, making the two companies what they are today.  McDonald’s is now the world’s leading global food service retailer with more than 35000 local restaurants serving nearly 70 million people in more than 100 countries (McDonald’s, 2014), while Coca-Cola is the world’s largest beverage company owning and licensing around 1.9 billion beverage servings worldwide every day in more than 200 countries (Coca-Cola Annual Report, 2013).  Customers are accustomed to enjoying a meal with a coke inside all along, which result in that the soft drink becoming a key revenue stream, covering about five percent of McDonald’s revenue (Edward Jones, 2012).  Due to the incredible contribution of McDonald’s to Coca-Cola’s returns, one unique executive offered by Coca-Cola exclusively takes charge of this important account’s co-operation issues (Storm, 2014).

Dick Starmann, a confidant of Ray Kroc who expanded McDonald’s around the world, once commented,

“When you’d ask Coca-Cola in what countries it had the biggest sales, it would say something like the United States, Japan, Germany and McDonald’s — and in that order.  It was kind of funny but it was true.”  (David, 2014)

Their partnering seems destined for success from the beginning.  Not only does a joint mission naturally exist between a chain restaurant and a beverage supplier, but also McDonald’s shared the very exact destination, expansion first across the US, then around the world with Coca-Cola.  As the result, they managed to create and deliver excellent transformational value for both sides, mainly focusing on developing an integrated supply chain, and enabling rapid entry and large-scale expansion into new geographies.  Moreover, the top management teams from both sides have been very careful about partnering relationship since the handshake between the two top executives in 1955 (David, 2014).  Javier C. Goizueta, the Vice President of the Coca-Cola Company and President of the global McDonald’s Division, is in charge of a worldwide organization responsible for building the strategic alliance with McDonald’s in over 31,000 restaurants and over 100 countries (Coca-Cola, 2014).  Goizueta is an experienced mature leader with over 20 years of leading businesses successfully and fully empowered.  Although McDonald’s and Coca-Cola seem to be a natural fit, it is the compelling partnership ‘Value Propositions’ and ‘offers’ they jointly designed that make the partnering extraordinary rather than good.

Compelling partnership value propositions and offers

Specifically, they manage to create excellent offers that follow:

1. The joint expansion vision

Partners are encouraged to be of equal footing and have a common vision and not simply relying on chemistry (Bardin, 2012, 73).  McDonald’s and Coca-Cola shared a common mission and vision to expand globally (David, 2014).

 “Those two companies helped each other grow and expand around the globe.  Neither one would be what they are today without the other.”  Mr. Starmann commented.  (Gelles, 2014)

2. Source of value (SoVs)

Cheap to set up, alliances is a method to achieve quicker and cheaper growth.  Coca-Cola has saved the cost of vertical integration from the partnership with McDonald’s (Douglas et al., 1996), compared to Pepsi who expanded distribution of its products to end customers by acquiring Kentucky Fried Chicken, Pizza Hut and Taco Bell at an expensive cost (PepsiCo, 2014).  Meanwhile, targeting similar demographic end customers, that partnership benefited each other in terms of resources & expertise sharing, marketing synergies and risk reduction. 

3. Areas of co-operation (AoCs)

A. Market expansion

Both of them are the leaders in their industries and possess numerous resources and operation experiences, thus adding more symmetry to the vision of global expansion (David, 2014).  For example, to help McDonald’s expand worldwide, Coca-Cola often provides existing offices in different regions as a base of operation for McDonald’s to get up (Gelles, 2014).

B. Product development

The know-how and expertise from Coca-Cola benefits the product development of McDonald’s.  In 1993, Coca-Cola offered business advice on the product offering of McDonald’s, creating the Extra Value Meal (David, 2014).  In 2002, both of them executed collaborative strategies for Latin America, designing and testing of new packaging for drinks (Taina, 2002).  Moreover, recently, Coca-Cola helped McDonald’s create a new product line of smoothies Meal (David, 2014).

C. Unique strategic values created by the supply chain integration

The unique supply chain co-operated by both Coca-Cola and McDonald’s creates added values.  Evidence shows that the best taste of Coca-Cola is only available in McDonald’s (Mark, 2011), as they established a unique system for the delivery and production of coke.  Coke syrup is normally delivered in plastic bags; however, since McDonald’s sells a larger amount of coke, syrup can be delivered in stainless steel tanker truck (Chart Inc., 2013).  Additionally, McDonald’s has a reverse osmosis filter offering the cleanest water.  All these make coke taste fresher and better, enabling McDonald’s to possess competitive advantage of better-taste coke.

D. Advertising and Corporate social responsibilities (CSR)

From opposing Bloomberg on super-size sodas (Watson, 2012) to being the ‘biggest sponsors of Brazil’s 2014 world cup’ (Smith, 2014), McDonald’s and Coca-Cola have stood by each other and worked countless campaigns globally over years.  Most recently, in Philippines, both partners started #BetterTogether, a social media campaign to promote ‘the fast food chain’s BFF Bundle, a set meal which includes Coca-Cola drinks.’  (Adobe Magazine, 2014)

Moreover, McDonald’s and Coca-Cola constantly innovates together in a more sustainable supply chain.  In 2002, they pursued new sponsorship and charity opportunities in Latin America, and helped more than 100 local schools to allow students to see the collection from Art Museum (Taina, 2002).  Furthermore, they also developed a new cup with a locking lid to prevent children from spilling their drinks.

Obesity Issue and Recommendation

Referred as ‘Junk food giants’ (Philips, 2012), obesity is evaluated to be a serious issue for both partners, where London Assembly voted to ban McDonald’s and Coke from sponsoring the Olympics (Philips, 2012).  A rising issue in ‘developed and developing countries’ (WHO, n.a) and China, where an increase of 13.5% is discovered (World Health Organisation noted in Bruno, 2013).  Pipkin argues that Asians are less concern about obesity (2014) and people are less obese because of higher levels of physical activities (Sisson, 2014).

“Obesity tends to be an issue that grows along with affluence.  Prosperity means bigger pay checks, which can mean more meat, fast foods and bigger meals.  Meanwhile, long hours at desk or factory jobs instead of agricultural ones mean less physical activity. “  (Bruno, 2013)

This means the blame for obesity should not be entirely on junk food giants but to the increase in wealth and lack of physical activities such as ‘exercise’ (Chan, 2002).  This presents an opportunity for both partners to counter by promoting physical activities such as playing and recreational activities (WHO, n.a).

Gamification will be a good choice as they both advertise to offer fun.  It is the use of game playing elements in ‘non-game applications’ (oxford dictionaries, 2014; Grove, 2011).  This technique motivates people to ‘perform chores that they ordinarily consider boring’ (Mashable, 2014) and keep customers ‘engaged and connected’ (Supanc, 2011).  A reward system that offers tangible rewards for good behaviour is recommended to encourage loyalty and participation (Zichermann, 2012).  Customers may be rewarded through ‘non-cash rewards’ (Zichermann, 2012) such as vouchers and prizes.

(To be continued…)