Harvard Case - Arcos Dorados: Decarbonizing McDonald's in Latin America
"Arcos Dorados: Decarbonizing McDonald's in Latin America" Harvard business case study is written by George Serafeim, Michael W. Toffel, Jenyfeer Martinez Buitrago, Mariana Cal. It deals with the challenges in the field of General Management. The case study is 36 page(s) long and it was first published on : May 24, 2023
At Fern Fort University, we recommend Arcos Dorados implement a comprehensive decarbonization strategy encompassing operational efficiency, sustainable sourcing, and customer engagement initiatives. This strategy should prioritize a phased approach, focusing on immediate actions with measurable impact while building a long-term roadmap for achieving ambitious sustainability goals.
2. Background
Arcos Dorados, the largest McDonald's franchisee in the world, operates in 20 Latin American countries. The company faces increasing pressure to reduce its environmental footprint, driven by consumer demand, regulatory pressures, and investor expectations. This case study explores Arcos Dorados' efforts to decarbonize its operations, focusing on their challenges and opportunities in Latin America.
The main protagonists are:
- Arcos Dorados: The company striving to balance profitability with sustainability.
- McDonald's: The franchisor setting sustainability targets and providing guidance.
- Latin American consumers: Increasingly demanding sustainable practices from businesses.
- Local governments: Implementing regulations to address environmental concerns.
3. Analysis of the Case Study
Strategic Analysis:
- SWOT Analysis:
- Strengths: Strong brand recognition, existing infrastructure, established supply chain, committed leadership.
- Weaknesses: Limited experience with large-scale sustainability initiatives, potential for operational disruptions, reliance on third-party suppliers.
- Opportunities: Growing consumer demand for sustainable products, government incentives, technological advancements in renewable energy and waste management.
- Threats: Rising energy costs, regulatory changes, reputational risks associated with environmental impact.
- Porter's Five Forces:
- Competitive Rivalry: Intense competition within the fast-food industry, with rivals focusing on sustainability to gain an edge.
- Threat of New Entrants: High barriers to entry due to established brands and infrastructure.
- Threat of Substitutes: Growing popularity of plant-based alternatives and healthier food options.
- Bargaining Power of Buyers: Increasing consumer awareness and demand for sustainable practices give buyers more leverage.
- Bargaining Power of Suppliers: Dependence on third-party suppliers for ingredients and services creates potential challenges in implementing sustainable practices across the supply chain.
Financial Analysis:
- Cost-Benefit Analysis: Implementing decarbonization initiatives involves significant upfront investment, but can lead to long-term cost savings through energy efficiency, waste reduction, and reduced regulatory fines.
- Return on Investment (ROI): Evaluating the financial return on sustainability initiatives through metrics like energy savings, waste diversion, and increased brand value.
Marketing Analysis:
- Consumer Segmentation: Identifying target customer segments with high environmental awareness and willingness to pay for sustainable products.
- Brand Positioning: Communicating Arcos Dorados' commitment to sustainability and showcasing its efforts to reduce environmental impact.
- Marketing Campaigns: Developing marketing initiatives to promote sustainable practices and engage customers in the company's sustainability journey.
Operational Analysis:
- Operations Strategy: Implementing operational changes to reduce energy consumption, optimize waste management, and promote sustainable sourcing.
- Supply Chain Management: Collaborating with suppliers to adopt sustainable practices throughout the value chain.
- Technology and Analytics: Utilizing data analytics to track progress, identify areas for improvement, and optimize resource allocation.
4. Recommendations
Phase 1: Immediate Actions (Year 1-2):
- Energy Efficiency:
- Implement energy audits across all restaurants to identify areas for improvement.
- Upgrade equipment to energy-efficient models.
- Install solar panels and other renewable energy sources where feasible.
- Waste Reduction:
- Implement a comprehensive waste management program, including source reduction, recycling, and composting.
- Partner with local waste management companies to ensure responsible disposal.
- Sustainable Sourcing:
- Prioritize sourcing from local suppliers with sustainable practices.
- Develop partnerships with suppliers to implement joint sustainability initiatives.
- Customer Engagement:
- Launch a public awareness campaign showcasing Arcos Dorados' commitment to sustainability.
- Offer sustainable product options and promote responsible consumption.
- Engage with customers through social media and other channels to gather feedback and build trust.
Phase 2: Long-Term Roadmap (Year 3-5):
- Ambitious Targets: Set ambitious decarbonization targets aligned with industry best practices and global sustainability goals.
- Innovation and Technology: Invest in research and development to explore innovative solutions for reducing environmental impact.
- Employee Engagement: Foster a culture of sustainability within the organization, empowering employees to participate in initiatives.
- Strategic Partnerships: Collaborate with NGOs, industry leaders, and government agencies to advance sustainability goals.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with Arcos Dorados' core competencies in operations management, supply chain management, and customer engagement. They also reinforce the company's mission to provide quality food and service while contributing to a sustainable future.
- External Customers and Internal Clients: The recommendations address the growing demand for sustainable practices from consumers and investors, while also engaging employees in the company's sustainability journey.
- Competitors: The recommendations help Arcos Dorados maintain a competitive advantage by positioning the company as a leader in sustainability within the fast-food industry.
- Attractiveness - Quantitative Measures: The recommendations are supported by a cost-benefit analysis demonstrating the financial viability of implementing decarbonization initiatives.
6. Conclusion
Arcos Dorados has a unique opportunity to leverage its size and influence to drive positive change in Latin America. By implementing a comprehensive decarbonization strategy, the company can achieve significant environmental impact, enhance its brand reputation, and secure its long-term sustainability.
7. Discussion
Alternatives:
- Minimalist Approach: Focusing solely on regulatory compliance and avoiding significant investments in sustainability initiatives. This approach would likely lead to missed opportunities and potential reputational risks.
- Outsourcing Sustainability Initiatives: Delegating responsibility for sustainability to third-party organizations. This approach could lead to a lack of control and transparency in the implementation of initiatives.
Risks and Key Assumptions:
- Cost Overruns: Implementing decarbonization initiatives may involve higher-than-expected costs.
- Operational Disruptions: Implementing new processes and technologies may disrupt operations.
- Consumer Acceptance: Consumers may not fully embrace sustainable product options and practices.
8. Next Steps
Timeline:
- Year 1: Implement energy audits, pilot waste management programs, and launch customer engagement initiatives.
- Year 2: Expand energy efficiency measures, establish sustainable sourcing partnerships, and develop a comprehensive sustainability strategy.
- Year 3: Set ambitious decarbonization targets, invest in innovative solutions, and build a culture of sustainability.
Key Milestones:
- Reduce energy consumption by 10% within the first year.
- Divert 50% of waste from landfills within two years.
- Source 25% of ingredients from sustainable suppliers within three years.
- Achieve carbon neutrality by 2030.
By implementing these recommendations, Arcos Dorados can demonstrate its commitment to sustainability and build a more sustainable future for its business and the communities it serves.
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Case Description
This case describes the decarbonization strategy of Arcos Dorados-McDonald's largest independent franchisee, operating in 20 countries and territories in Latin America and the Caribbean-and how the company measured its greenhouse gas (GHG) emissions, including those generated directly by the company and by all of its suppliers. Set in May 2022, the case also describes the challenges faced by the company to understand the composition of its carbon footprint, as well as the actions it has taken to reduce it. Under CEO Marcelo Rabach, Arcos Dorados was focusing on reducing its carbon intensity. While the company had made progress in reducing carbon emissions from its operations, it now needed to develop a plan to address emissions in its supply chain, which directly impacted the composition of its menu. Options to reduce the carbon impact of menu items included replacing (or mixing) the beef used in sandwiches with less carbon-intensive ingredients; shifting sales toward chicken-based meals; adding plant-based menu options; and increasing the share of sales driven by coffee and ice cream. The plan should align with the company's double-digit growth strategy while also controlling costs to maintain profit margins. Confronting these challenges, what was the best product mix and prioritization for these alternatives? Which products should get more resources to develop and market? How should the company forecast demand for these products? And how could they ensure that their efforts to reduce their carbon intensity would avoid hampering the company's growth, especially given its context of fierce competition and macroeconomic and social disruptions?
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