Assume you are the CFO of McDonald’s Corporation. Your overall revenues have been steadily falling since 2016, however, you’ve managed to keep net income fairly stable by reducing operating costs. However, due to the economic effects of COVID19, your revenues again took a huge $1.2B hit in 2020.

It hasn’t escaped your attention that despite COVID KFC’s revenues increased by more than $34 million in 2020! (Note: Up to this point, everything is based on actual financial statements. However, the next sentence is a made-up scenario.) Unfortunately, it appears that McDonalds’ McNuggets are not in as much demand as KFC’s chicken is among the quarantining and take-out populace.

1. You have created SWOT analyses (see below) of both McDonald’s and KFC to see if KFC might be worth acquiring or aligning with in some way.  

Using the Framework for Choosing a Path for Inorganic Growth section in Chapter 6 of your text and the decision flowchart (Exhibit 6.20), determine the following.

1. (4 points) Based on your SWOT analysis, what inorganic growth opportunity would be the best approach for McDonald’s to take with KFC as an acquisition target? Select only one.
   1. (6 points) Explain your reasoning in terms of what benefits, coordination, and/or learning you expect to gain from your selected approach.
   1. (6 points) Explain your reasoning in terms of McDonald’s need for ownership and control.
   1. (6 points) Explain your reasoning in terms of managing risk exposure.

• (Note: Fictional scenario!) Three years ago, McDonald’s acquired KFC as an outright purchase simply to obtain their chicken recipe. McDonald’s let go of all KFC management and employees, selling off all KFC locations. McDonald’s rebranded McNuggets as KFC McNuggets and uses the former KFC recipe in a new line of chicken products. However, chicken sales have lagged completely, and this occurred even prior to the COVID pandemic, which made sales even worse. You’ve decided it’s time to refocus your product line, hoping that will improve your bottom line. 

Using the Framework for Choosing a Path for Restructuring section in Chapter 6 of your text and the decision flowchart (Exhibit 6.21), determine the following.

1.  (4 points) What restructuring alternative would be the best approach for McDonald’s to take considering their declining sales of chicken products? Select only one.
   1. (6 points) Explain your reasoning in terms of what relationship the KFC purchase has to McDonalds’ core business.
   1. (6 points) Explain your reasoning in terms of McDonald’s need for control.
   1. (6 points) Explain your reasoning in terms of whether or not the KFC purchase can now operate as a separate entity.

(6 pts) Proper grammar, full sentences, correct spelling and punctuation, and a neat and professional format with clearly labeled answers are required.

	McDonald’s SWOT Analysis
Internal	STRENGTHS	WEAKNESSES
	#1 global brand in the fast-food industry ($19.2B revenues, $4.7B net income)$2B advertising budgetFood menus adapted to locality80% are independent franchisesMarkets to children well	Negative publicityUnhealthy food menuLow differentiationHigh employee turnover
External	OPPORTUNITIES	THREATS
	Increased demand for healthier foodHome deliveryChanging customer trends and new customer groups	Developed world has saturated food marketsTrend toward healthier foodsLocal fast-food chainsCurrency fluctuationsLawsuits

	KFC SWOT Analysis
Internal	STRENGTHS	WEAKNESSES
	#2 global brand in the fast-food industry ($259M revenues, $19M net income)Strong position in ChinaKFC combined with Pizza Hut or Taco BellMarket leader for fast-food chickenOriginal herbs and spices recipe	Negative publicityUnhealthy food menuUntrustworthy suppliersHigh employee turnover
External	OPPORTUNITIES	THREATS
	Increased demand for healthier foodHome deliveryIntroducing new products	Developed world has saturated food marketsTrend toward healthier foodsLocal fast-food chainsCurrency fluctuationsLawsuits

MCD: 2020 annual data derived from SEC’s EDGAR database of company filings:  https://www.sec.gov/ix?doc=/Archives/edgar/data/63908/000006390821000013/mcd-20201231.htm#ie6432d332c1e474ebcfd7a8ae92953e8_49

KFC:  Income Statement shown in Japanese Yen (JPY). Results were converted to US Dollars using the conversion rate effective on Sep 23, 5:23 PM UTC:  1 JPY = 0.0091 USD: https://www.investing.com/equities/kfc-ltd-income-statement