The Environmental Impact
McDonalds has been hammered for providing people with unhealthy food that makes them obese and is an indirect contributor to other health problems (The Economist, 2004). With obesity figures rising in US and UK, the cultural changes are also taking place. The American dream of going out on a sunny day and having a Big Mac has also transformed with Mac burgers becoming a fast food item. The political reasons have also played their part in McDonalds growing misery; with political polarization greater than before, the anti American sentiments in the rest of the world has had negative impact on Mac sales where half of the revenues are from foreign operations (The Economist, 2004). This was just a glimpse of the environmental forces at play; McDonald’s problems also found roots in its internal environment. The main problems stemmed from McDonald’s strategy where it was investing more and more in opening up new restaurants to make the operations better and follow a cash cow strategy in a mature market (Guy, 2003). These problems have been highlighted by the one of the shareholders, Robert Olstein who owns 1.5 million shares. He wrote a letter to James Cantalupo after he took over and highlighted the problems (Bhatnagar, 2004).

James Cantalupo’s Challenges
At the time Cantalupo took charge, McDonald’s was experiencing “sluggish sales, reduced earnings over several years and heavy price discounting," in the words of Dennis Milton, an analyst at S&P (Bhatangar, 2004). To bring the company out of this situation where it had suffered heavy losses for almost three years with the dip beginning in 1999 from $2 billion to a record low of $0.9 billion in 2002 (The Economist, 2004).

The biggest challenge that Cantalupo faced was changing the mind set of the people from being a loser to employees of a growing Company. Even when he announced the company strategy, not many people were convinced of the leader’s conviction. However, he was determined in taking up that challenge and putting the company on its growth plan. It was pursuing a growth of 6-7 percent annual growth which was not much considering the huge size of the food chain. The challenge was to increase the sales and revenues of the Company and retain its status back. However, the growth had to be reengineered as well, i.e. not from new restaurants but from the improvements in the existing restaurants. In a survey conducted in 2002 by a fast food consulting firm, Sandleman and Associates, McDonalds was graded last by 50,000 eaters from 70 different fast food chains. This was humiliating for the giant and this signified the low perception that people had for McDonald’s (Horovitz, 2003). A large part of it was contributed by the low service quality due to poor performance of the franchisees, 68 of 129 franchisees leaving because of poor performance. This problem goes back to the 1990s when due to massive expansion the headquarters eliminated the cleanliness, speed and service performance indicators (Gogoi, 2003).

Also, another factor demanded Cantalupo’s attention i.e. the fragmentation of the food market. Due to the growing number of immigrants, the variety of tastes was also increasing and the exotic cuisines from Asia and Latin America were attracting consumer preferences falling in the “fast-causal” segment (Gogoi, 2003). All of this took shape in the form of numeric values showed constant decline line of 2.1 and 2.4 percent for two years.

Cantalupo’s Strategy
The strategic course that Cantalupo took was not limited at simple expansion. He continued on with the growth strategy but did slash down the growth targets from 15 percent annually to 2 percent. This has also resulted in the Company planning to open only 250 outlets in the US, 40 percent fewer than 2002 (Gogoi, 2003). The organizational development focused upon generating revenues from the existing operations. The biggest change is the expansion in the menus based upon the product development strategy and market expansion strategy that Cantalupo wants to follow (The Economist, 2003). The menus now responded to the consumer behavior and included more healthy food items like Happy Meals for adults like salads and fruits. It has been observed that the consumers spend more on sandwiches than on burgers and do not consider them junk food as is the case with the burgers. McDonald’s also went on to acquire a few sandwich and coffee chains in UK and Australia. This was based upon the research surveys conducted to explore new markets and new market segments. Though these changes were a positive step towards incorporation of consumer demands, but it also put the burger giant in competition with a different set of restaurants like Subway offering fresh salads and sandwiches. In order to take the market share in mature markets, McDonald’s has come up with some innovative ideas like the introduction of gourmet coffee in Australia with coffee lounges and net cafés-the message, a place for high-teens that the Company wants to sell by 2005 (The Economist, 2004). He invested in reorganization of the existing restaurants with a quality campaign and performance indicators making a comeback. The grading system was also reinstituted to eliminate the poor performing franchisees.

Conclusion
Thus, the Cantalupo gave reality to his vision through a system wide change plan with strategic measures aligned with the environmental changes. Cantalupo’s growth plan is more cautious and result oriented with expansion into only the best results producing markets with a more diversifying menu. The result has been rise in the stock prices and growth in revenues from a mere net income of $0.9 billion to $2.2 billion in 2004 (The Economist, 2004).