Golden arch hotels : Case study

McDonald’s Adventure in the Hotel Industry

1. Golden Arch Hotels by McDonald’s Chintham Ashish (008) Ipsita Pradhan (019) Arokia Rexton (028) Pranjal Yadav (037) Ragavendra R. (038) Vaishnavi C. (056) Gaurav Kumar Singh (096) By TEAM RIES

2. 1954 – Milk Shake seller – Raymond Croc Fast and Friendly Donald Brothers – San Bernardino First McDonald – Franchisee 1967 – Outside the US – Canada, Japan, Holland, Australia and Great Britain 1970s – Germany, Hong Kong, Sweden, the Far East, and Latin America Introduction

3. 1976 – Swiss – 142 – 7200 Employees 1989 – Eastern Europe – Russia, Poland, Hungary, and the Czech Republic 2005 – 30,000 QS Restaurants in 122 Countries Relationships with its Neighbors, Local Communities ad Clubs Built in “ PlayLand ”

4. 1965 – IPO – NYSE Market Saturation Diversification Strategy The Swiss Strategy The Hotel Project 4 Star Hotel – The Golden Arch

5. Uniqueness of The Golden Arch Competency center Luggage Handling – Custom made trolley No rush in Check-in & Check-out – Self, Credit Card at the Airport Terminal would do Curved Walls in rooms – Patented Futuristic Shower

6. Spirit of Mc. D’s- “ hospitality philosophy ” McD’s USP- Burger and fries at one price Clean environment Fast and friendly service – Zero waiting time Consistency in quality , rate & taste Relationship with customers, neighbors, local community and clubs. Ambience : 1/4 th of the restaurant – play land for kids McD’s clown – educate and entertain children Target customers: children centric Mc Donald’s Brand image

7. Service sector- quality food Associated with social benefit Cheap place to hang around Family gathering Children recreational place Mc D perceived as

8. Customer Experience at Golden Arches Signage of the hotel was not prominent Unfriendly front-desk employees Comfort Ambience Brand reinforcement at every turn

9. Wireless keyboard was too advanced in 2001 It was relatively isolated 4 star rating did not correspond with hotel image Only eating option is McDonald’s The name Golden Arch does not translate into the German language Customer Experience at Golden Arches

10. Customer Reactions 10 The room was exceedingly cheerful and I found the headboards witty rather than annoying. - Fred Bernstein As I think about this hotel visit in retrospect, the entire feeling was one of oddity and discomfort. - Nancy Stephens(Arizona) It would have never crossed my mind that a Mc Donald’s restaurant would qualify as a four-star hotel. -Daniel Deutscher Given the low occupancy, there was little effort to sell the rooms to us and the front-desk person was not very friendly or welcoming either. -Upendra Dixit Quotes I Usually stay in five-stars. But if there isn’t one around, why not stay at Mc Donald’s? -Erwin Brunner

11. Deep / Broad Brand Awareness PoP & PoD Positive accessible reactions Intense & Active loyalty Role of PoP & PoD in the Brand Building Performance How well functional needs are met ? Question marks: Food & beverage, Guest services, Recreational facilities, Business needs like large conference rooms Imagery Way people think about a brand abstractly Question marks: “I can’t imaging staying at a Mc Donald’s hotel on a business trip” “expected the hotel would be one or two star” “having a picnic than having a drink in a bar”

12. Expectations @4 star hotel?

13. Are the points of difference compelling?

14. Porter 5 forces analysis

15. Hotel Life Cycle at Swiss Swiss Hotels

16. Loyal currentcustomers The new products have a good quality and are well promoted and priced . Moreover , the new products are marketed to the same economic environment as the existing products. McDonald’s Customer group -> Economical and Upper middle Class Golden Arches’ Customer group -> Upper class people When to Horizontally Diversify???

17. Customer Confusion: Surprised to see Golden Arches Hotel (not much advertising) OMG!!! McD is a 4 Star hotel??? A 4 star hotel with no bell boy, no receptionist, looks deserted!! Where are the friendly customer support executives??? Safety factor! A 4 Star hotel with only a burger joint??? Internal Problems Faced

18. Bar ambience ‘Arches’ in German sounds awful. Noise from the airport. Comfortable multi position adjustable bed looks like a hospital bed to some customers. (Actually McD has satisfied customers’ needs, wants and went one step forward to satisfy desires) Shower in the Bed room! Out of McD’s core competency POD (High end technology) doesn’t seem to be relevant Continued..

19. Problems Segmentation and Targeting Failure of Brand Value support Irrelevant PODs Market is expected to mature very soon and tough competition existed! Faster service was preferred over friendly service.

20. BCG Matrix Better liquidate it, it might hurt the parent brand

21. Ansoff’s Matrix Diversification

22. The corporation has already exploited all four cells of Ansoff’s matrix : Market penetration – McDonald’s saturated its home market (the USA) a number of years ago Market development – The company has managed to duplicate its fast-food success worldwide Product development – From burgers ‘n fries to breakfast, from salads to ice cream, the corporation has innovated in almost every edible direction Diversification – McDonald’s control land holdings and own processing facilities, logistics operations, franchising/financing operations, training facilities, and now hotels. Ansoff ‘s Matrix

23. LACK OF CLARITY IN STP

24. From a price perspective McDonald’s could match the segments of Mid-price , Economy and Budget.  The segment chosen has a high impact on the price because Hammers himself told about this. Focusing much on families. Segmentation

25. Lack of Clarity between Segmented and Targeted Customers McDonald can make use of the advantage that it is recognized as a family restaurants and attracting that kind of consumers to the hotels.  Targeting

26. Good Quality at Cheap price Overriding its core competency in case of hotels. Planned a different name for the hotel chain. But the name symbolizes Mc. Donald’s It sounds different in German. Ref: http ://blueprintcreative.info/MyServices/ Positioning and Naming

27. Features

28. Investment in Hotel Tot loan for hotel Annuity Payment out standing $ 28,800,000 $ 23,040,000 ($8,145,339.57)   pmt interest principal $23,040,000.00 Yr1 ($8,145,339.57) $691,200.00 $7,454,139.57 $15,585,860.43 Yr2 ($8,145,339.57) $467,575.81 $7,677,763.76 $7,908,096.67 Yr3 ($8,145,339.57) $237,242.90 $7,908,096.67 $0.00 It is a 3 year mortgage loan and Golden Arches was not able to generate funds to pay it back. Plz download the case memo also for more detailed explanation.

29. Sources to pay back Liability Debt by debt (reduces credibility) Cost restructure (funds from parent brand) Internal Funds (not sufficient)

30. Target Market : Travel vacationers and lodging guests. Age 0-50 with children. Prefers to travel by car and enjoys various kind of entertainment  Segments : The Mid-price and Economy segments. Focusing much on families, building on the parent brand attracting consumers from both segments.  Hotel Features : In-room appliances, Internet, Newspapers, breakfast/lunch restaurant with recognizable McDonald’s products.  Location : Currently Located near highways, in vicinity of theme parks, golf courses, and shopping malls.  Key Recommendations

31. Use what works In food Industry for McDonald’s and use the family oriented and value based business model to create a unique hotel experience that everyone could enjoy. Be Unique -McDonald's can incorporate their Play Place and other game room activities like coin operated arcades. - Not only does provide entertainment, but it also provides revenue from guests that if they were in other hotels would not spend more than the room fee. -Include a unique dining experience that includes much of what they provide already while adding multi-cuisine food in the menu. Shall give a reason to look forward to for the customers.

32. Alternatives 2 or 3 Star Hotel Focus on families with children Low-cost budget Economy class Limited amenities 4 Star Hotel under a different Brand Different logo Interior Design Ambience Multi-cuisine restaurant Customer Engaging Activities Trained Service staff

33. What happened to this Hotel?

34. THANK YOU 