External Situation Analysis of McDonald's Corporation

External Situation Analysis of McDonald’s Corporation

Anthony Oghenekaro Ejeta, Chun How Beh, Kun Zhang, Nikita Ashok Menon
Ottawa University · BUS 8500: Business Policies and Strategy
Dr. Roger Fuller · June 7, 2026

---

McDonald’s operates in one of the most competitive industries in the world, where customer preferences and marketing environments are constantly changing. Although McDonald’s has a strong global brand and extensive franchise network, external factors still affect its long-term performance. This paper analyzes the company’s remote environment through a STEEP framework and its competitive environment through Porter’s Five Forces.

Remote Environment

The following STEEP analysis examines the external factors that can affect McDonald’s business operations and strategies in the global fast food industry.

Social / Cultural Factor

One of the most important social factors affecting McDonald’s is the shift in food trends. More customers, especially younger generations, care about health issues and prefer fresher, more natural foods with good protein sources. According to Attest (2026), over 70 percent of Gen Z customers consider sustainability important when choosing food, and 54 percent always check ingredients. This trend creates threats for McDonald’s because many of its menu items are considered high in calories, sugar, and fat. McDonald’s responds by modifying menu items to include reduced salt, sugar, and sauce options.

Technological Factor

McDonald’s upgraded its ordering system after the COVID-19 pandemic due to the change in customer habits. More customers preferred contactless self-kiosk ordering, mobile payments, and drive-thru services instead of traditional counter ordering. To adapt, McDonald’s expanded the use of self-ordering kiosks and mobile app platforms to create a faster and seamless experience. According to Honeywell (2021), self-ordering kiosks allow customers to customize their meals more easily and encourage them to explore the menu. McDonald’s also invested heavily in its mobile app, growing its rewards system to over 170 million active users, with loyalty members up 30% year-over-year in 2024 (Restaurant Dive, 2025). These upgrades have helped McDonald’s improve order accuracy, reduce waiting times, and increase customer spending.

Economic Factor

Inflation is one of the major challenges faced by McDonald’s. One of the company’s responses to rising costs is increasing the prices of meal combinations. However, higher prices can influence consumers’ purchasing decisions. The controversy surrounding McDonald’s $23 meal deal led many customers to believe the meal no longer provided the value they expected, prompting the company to introduce a $5 Value Meal to address public criticism and attract price-sensitive consumers. Because McDonald’s operates primarily through a franchise model, some franchise locations have the authority to determine their own pricing, meaning prices and promotional deals can vary across different states and locations.

Environmental Factor

According to Shorr Packaging (2025), 53% of consumers rate themselves as highly concerned about the environmental impact of packaging, and nearly three-quarters of shoppers are willing to switch to brands that offer more sustainable options. McDonald’s can improve its brand image by adopting more environmentally friendly practices, such as gradually reducing single-use plastics and replacing them with biodegradable or recyclable packaging materials. However, sustainable packaging will increase operating costs, and the investment is likely to become a long-term expense. If McDonald’s reverses these changes after promoting its environmental commitment, it could lead to negative public reactions and damage its reputation.

Political Factor

Labor laws may require higher minimum wages, which would increase McDonald’s labor costs. For example, California’s Assembly Bill 1228, which took effect in April 2024, raised the minimum wage for fast food workers to $20 per hour — roughly a 25% wage increase — causing total labor hours at several McDonald’s locations to drop significantly (HR Executive, 2026). Higher labor costs can create additional financial pressure for franchise owners, but may also help attract employees, reduce staff turnover, and improve overall service quality. The increase in operating costs may also lead McDonald’s to raise menu prices or reduce headcount to maintain profitability.

Competitive Environment — Porter’s Five Forces

Porter’s Five Forces, developed by Michael Porter in 1979, is a framework for analyzing the competitive environment of an industry. It examines five key forces that affect a company’s profitability and market position.

Threat of New Entrants — Low

The threat of new entrants for McDonald’s is relatively low. While opening a fast food restaurant is not difficult, it is nearly impossible for a new company to reach the same scale as McDonald’s or replicate its global supply chain, franchise system, and strong brand recognition. According to Panmore Institute (2026), developing a strong brand in the fast food industry requires significant resources, which many small and medium-sized businesses simply do not have. As a result, its main competitors are more likely to be well-established fast food chains such as Burger King and Wendy’s rather than new entrants.

Bargaining Power of Suppliers — Medium

Due to McDonald’s large purchasing volume, the company works with multiple regional suppliers across its global market. Its large-scale procurement gives McDonald’s strong negotiating power, allowing it to secure lower prices and stable supply agreements. However, when inflation drives up the cost of raw materials such as beef, chicken, and packaging, suppliers are able to pass some of these costs on to McDonald’s. Beef and veal prices rose 14.7% year-over-year in September 2025, and McDonald’s CEO noted that inflation remains a concern with beef costs running well above historical norms (DCF Modeling, 2025). To maintain consistent product quality and supply standards, McDonald’s is often willing to accept reasonable price increases from its suppliers.

Bargaining Power of Buyers — High

The bargaining power of buyers is high. For consumers, McDonald’s is not an irreplaceable choice, as there are many fast-food restaurants offering similar products at comparable prices. If McDonald’s raises its prices too much or food quality declines, customers can easily switch to Burger King, Wendy’s, or local restaurants. The cost of switching is very low, and McDonald’s locations are often surrounded by competing chains. As a result, customers have a wide range of alternatives, giving them strong bargaining power.

Threat of Substitutes — High

The threat of substitutes is high. Customers can easily replace McDonald’s with other fast-food chains offering similar products and prices. In addition, younger consumers are becoming more interested in healthier eating habits and are more likely to choose fresh and customizable meals over traditional fried fast food. As a result, healthier fast-casual restaurants such as Chipotle have become strong substitutes and continue to attract health-conscious customers.

Industry Rivalry — High

Competition within the fast-food industry is very high. Many of McDonald’s major competitors operate at a similar scale with comparable business models, supply chains, and menu offerings. As a result, companies compete through price promotions, mobile app deals, loyalty programs, and limited-time menu items. For example, Burger King has offered free fries with mobile app orders to attract customers and increase app usage. To remain competitive, McDonald’s has adjusted its rewards program multiple times and launched Happy Meal collaborations with popular entertainment franchises. According to TheStreet (2026), loyalty customers generated about $37 billion in systemwide sales in 2025, a 20% increase compared to the previous year. Because competitors are constantly introducing new promotions and marketing campaigns, McDonald’s must continue innovating to maintain its market share and customer loyalty.

Conclusion

Overall, McDonald’s operates in a highly competitive and constantly changing external environment. Social shifts, new technology, economic pressure, stricter environmental expectations, and changing labor laws all create both challenges and opportunities for the company. Although McDonald’s faces strong competition and rising costs, its strong global brand, growing digital platform, and willingness to adapt suggest that the company is well-positioned for long-term success.

References

Rand, S. (2026, May 11). Gen Z food trends: What today’s young US consumers want. Attest. https://www.askattest.com/blog/research/gen-z-food-trends

Honeywell. (2021). Why quick service restaurants are turning to contactless drive-thru, self-ordering kiosks. https://www.honeywell.com/us/en/news/featured-stories/2021/06/why-quick-service-restaurants-are-turning-to-contactless-drive-thru-self-ordering-kiosks

Restaurant Dive. (2025, February 10). McDonald’s looks to loyalty to recapture traffic after disappointing quarter. https://www.restaurantdive.com/news/mcdonalds-loyalty-recapture-traffic-accelerating-the-arches/739741/

Shorr Packaging. (2025). The 2025 sustainable packaging consumer report. https://www.shorr.com/resources/blog/sustainable-packaging-consumer-report/

McDonald’s Corporation. (n.d.). Business & McDonald’s franchising FAQ. https://www.mcdonalds.com/us/en-us/faq/business.html

HR Executive. (2026, April 6). As minimum wages rise in 21 states, McDonald’s and Burger King offer a cautionary tale. https://hrexecutive.com/as-minimum-wages-rise-in-21-states-mcdonalds-and-burger-king-offer-a-cautionary-tale/

Panmore Institute. (2026, January 19). McDonald’s five forces analysis and recommendations. https://panmore.com/mcdonalds-five-forces-analysis-porters-model

DCF Modeling. (2025). What are the Porter’s Five Forces of McDonald’s Corporation (MCD)? https://www.dcfmodeling.com/products/mcd-porters-five-forces-analysis

TheStreet. (2026, March 5). McDonald’s revives two popular collaborations in new Happy Meal. https://www.thestreet.com/restaurants/mcdonalds-revives-two-popular-collaborations-in-new-happy-meal