McDonalds Russia: Managing a Crisis Harvard Case Solution & Analysis

Background

McDonald’s opened its first restaurant in the year 1990 in Moscow that was the biggest decision in the history of the company. The idea of introducing McDonald’s in Russia was first initiated at the Montreal Olympic Games where Cohon, founder of the McDonald’s Russia met a group of dignitaries that belonged to the Soviet Union went into McDonald’s for snacks.

During that time in Russia there were only two types of restaurants that included formal dining rooms and small informal cafes. Moreover, the market of Russia is bigger as compared to the United State as the people of Russia are proud to eat the types of the food that McDonald’s sells.

McDonald’s got the approval of introducing McDonald’s in Russia in the year 1988 that included the approval of 20 restaurants to be built in Moscow and 100,000 square foot processing also to be built in a Moscow suburb. According to the deal, McDonald’s would get the hold of 49% of the ownership, whereas, 51% of the ownership would be held by Moscow city.

Furthermore, McDonald’s has brought top suppliers of the company from all around the world in order to train the soviet as the farmers of the Soviet had no concept of the food that McDonald’s made. The company has constructed its own food production facility in order to overcome the problem of tightly control food production system within the crumbling Soviet empire.

The company has hired the employees at its restaurant in Moscow that meet the standards and values of McDonald’s. Also, McDonald’s has selected the ruble currency only because the target of the company was the Russian customers. The objective of McDonald’s was to create a Russian company, with the Russian employees, as well as Russian suppliers and Russian-sourced product.

However, McDonald’s was greatly appreciated by the customers that were impressed by the food, atmosphere and the employees as well as with the no special privileges and only rubles polices.

What is the issue?

Currently McDonald’s at Russia is facing a state of economic emergency as the country is in the situation of adverse currency crisis. The value of Russian ruble has dropped that is catering massive inflation as well as a widespread economic disorder. In addition to this, the tariff in the 26 restaurants has fallen and Cohon, the founder of the McDonald’s Russia is facing difficulty in order to find out the ways that help to determine how to entice consumers back to McDonald’s.

However, Cohon is assessing two key options in order to overcome the problems in the currency crisis. These decisions include whether to raise the prices of their food offerings and whether to add the low priced Russian items to their menus for short term period.

The options that the company was considering to include in the menu were simple grilled cheese sandwiches, cabbage salads, and burgers along with the pork patties, soups, chickens or mushroom all sourced locally.

Solution of the Issue

Raise the prices of the food offerings, adding low priced Russia-specific food items are the two options that the company has in order to survive in the situation of currency crisis in Russia and to entice consumers back to the restaurant.

Raise in prices

The first alternative solution for the McDonald’s is to raise the prices of their food offerings. The increase in the prices of the food items would provide McDonald’s with the opportunity to cover the cost of expenses in order to serve the few customers that still want to eat their food. In addition to this, the increase in prices would also motivate the company to produce and generate more profit. The increase in the prices of the offerings would also make the market of fast food in Russia more competitive as well as provide the opportunity to target those customers that relate the price with the product’s quality.

Despite all these benefits, there are a few disadvantages of the rise in prices. The main disadvantage that the company may get by raising the prices of the food offerings is that high prices of the food items could discourage the customer to buy the food due to their low purchasing power as compared to the prices that are charged by the company. As, the decreasing value of the ruble results in massive inflation, it is creating difficulties for the people to pay high charges for the goods..............................

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In August 1998, George Cohon, founder and senior chairman of Russia McDonald `s, faced with the economic emergency. Russia in the midst of a severe crisis currency - the ruble has plummeted in value, creating massive inflation and widespread economic chaos. Traffic in 26 restaurants plummeted Cohon and trying to figure out how to entice consumers back to McDonald's. Cohon discusses two questions. Whether to raise prices, and add some cheap items such as cabbage soup, in the "Hide
Youngme on the Moon, Kerry Herman Source: Harvard Business School 23 pages. Publication Date: October 21, 2002. Prod. #: 503020-PDF-ENG

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