debriefing of kfc and fast food
DESCRIPTION
Fast Food IndustryTRANSCRIPT
KFC and the Fast Food Industry
Understanding Industry Structure
Prof. Marcus Hurt 2
Major Characteristics of the Fast Food Business (Industry)
Industry in maturityGrowth rate still holds at around 4%
Relatively concentratedFull-service and fast-food segments do 64% of food-service sales (2002)
However, 858,000 US restaurants and food outlets in 2002$400 billion industryScope of rivalry is global
Major chains pursue growth in foreign markets to overcome domestic maturityHowever outlets compete against other local restaurants
SegmentationType of foodStyle of consumption
Prof. Marcus Hurt 3
Industry Segments and Business Units
Different segments in the food industry may be considered businesses by a firm that is already in these businesses or thinking of going into these businesses by acquisition or developmentExample: Yum, which is made up of spin-offs by PepsiCo:
KFCTaco BellA & WPizza HurtLong John Silver’s
Prof. Marcus Hurt 4
Difference between Strategic Segmentation and Marketing Segmentation
Concerns the firm's activities as a wholeDivides activities into homogeneous groups based on:
technology, markets, competitors
Allows decisions on:acquisitions, developmentdivestiture
Stimulates medium or long-term change
Concerns one of firm's activitiesDivides up consumers into groups based on habits and behavioursAllows adapting products to consumers, targeting groups and defining marketing mixStimulates short and medium-term change
StrategicStrategic MarketingMarketing
Source: Ramantasou
Prof. Marcus Hurt 5
CustomerFunctions
CustomerGroups
Technologies
Based on Abell
Defining a Business -Segmentation
Prof. Marcus Hurt 6
Technologies
Based on Abell
CustomerFunctions
CustomerGroups
Defining a Business -Segmentation
Prof. Marcus Hurt 7
CustomerFunctions
CustomerFunctions
CustomerGroups
CustomerGroups
TechnologiesTechnologies
DistributionChannels
Substitutability
GeographicAreas
KSFs
CompetitorGroups
PossibleSegmentation
Criteria
Defining a Business - Segmentation
Prof. Marcus Hurt 8Technologies
ComputersB
usin
ess
Adm
inis
trat
ionCustomer
Functions
CustomerGroups
Engi
neer
s
Con
sum
ers
Scanner/Printers
Digital Cameras
Example of Multi-business Firm in Various Industry Segments
Example: HPExample: HP
Each business
may be an industry
Each business may have its own strategy
This is NOT marketing segmentation
Prof. Marcus Hurt 9
Food-Service Segments
Technologies
CustomerFunctions
Productcontent
Qui
ck
dini
ng
Div
ersi
tyD
inin
g
Soci
alev
ent
Counter & self-serviceTake-away
Full service
Chicken
Mexican
Hamburger
Grills
Sandwiches
Fine Cuisine
Prof. Marcus Hurt 10
PoliticalPolitical EconomicEconomic
SocialSocial TechnologicalTechnological
EDI technology makes JIT logistics possible & integrates industry and supplier networks
Greater disposable income for foods, beverages and lifestyle goodsGeneral trend to consolidation of industries
Government control of hygiene and food qualityNAFTA agreements
Accelerated pace of lifeSearch for diversity in life stylesIndependent life styles for family membersIncreased emphasis on healthy lifestyles
General Environment Factors: PEST Analysis
Prof. Marcus Hurt 11
Horizontal Integration
Raw materialsmanufacture
Componentsmanufacture
Machinerymanufacture
Product/processresearch/design
Raw materialssupply
Machinerysupply
Financing
By-productsComplementary
products
Competitiveproducts
Backward Integration
Forward Integration
Distributionoutlets
Transport MarketingInformation
Repairs andservicing
Componentssupply
Manufacturer
Transport
UNDERSTANDING THE
INDUSTRIAL CHAIN
Prof. Marcus Hurt 12
The Fast Food Industrial Chain
Food ServiceFood ServicePackagingPackaging
Retail StoresRetail Stores
DistributionDistribution
First SectorFirst SectorFood ProductionFood Production
BrandBrandMarketingMarketing
Wholesalers of Wholesalers of raw foodsraw foods
Menu Design &Menu Design &AssemblyAssembly
Second SectorSecond SectorEquipment and fixtures Equipment and fixtures
supplierssuppliers
Second SectorSecond SectorConsumables Consumables
supplierssuppliers
StoreStoreMarketingMarketing
The Fast Food Firm Level
Prof. Marcus Hurt 13
Integration Choices
Food ServiceFood ServicePackagingPackaging
Retail StoresRetail Stores
DistributionDistribution
First SectorFirst SectorFood ProductionFood Production
BrandBrandMarketingMarketing
Wholesalers of Wholesalers of raw foodsraw foods
Menu Design &Menu Design &AssemblyAssembly
Second SectorSecond SectorEquipment and fixtures Equipment and fixtures
supplierssuppliers
Second SectorSecond SectorConsumables Consumables
supplierssuppliers
StoreStoreMarketingMarketing
Company-owned stores like Starbucks
Prof. Marcus Hurt 14
Food ServiceFood ServicePackagingPackaging
Retail StoresRetail Stores
DistributionDistribution
First SectorFirst SectorFood ProductionFood Production
BrandBrandMarketingMarketing
Wholesalers of Wholesalers of raw foodsraw foods
Menu Design &Menu Design &AssemblyAssembly
Second SectorSecond SectorEquipment and fixtures Equipment and fixtures
supplierssuppliers
Second SectorSecond SectorConsumables Consumables
supplierssuppliers
StoreStoreMarketingMarketing
The Five Forces Model
Prof. Marcus Hurt 15
Threat of Substitute Products
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
The Five Forces Model of Competition
Prof. Marcus Hurt 16
Intensity of Rivalry –Strong Competitive Force
High fixed costsLow customer switching costsDifferentiation does not create loyalty
CommoditizationCustomers seek to change
Maturity and slowing growthCompetitors are similar in size and resourcesConsiderable price competition
Five Forces Analysis
Prof. Marcus Hurt 17
Illustration of High Fixed Costs in the Industry
Fast Food Businesses hold few current assets
They have high fixed costsProperty Plant and Equipment
Five Forces Analysis
Prof. Marcus Hurt 18
Threat of Substitutes –Strong Competitive Force
Ready to eat meals for home consumptionFamily restaurantsFull-service, formal restaurants?
Not really a competitor, serves another purpose than just eating
Supermarket delisHome-cooked meals
(a substitute that is seriously declining in dining-out America but is still strong in other countries)
Five Forces Analysis
Prof. Marcus Hurt 19
Threat of New Entrants –Moderately Strong Force
Slowing industry growth makes entry problematicThreat of price retaliationEstablished players enjoy high brand equityHigh fixed costs and need for economies of scaleHigh marketing costs and training costs for new stores or franchisesExperience curve is important barrier but can be overcome by hiring of skills from market
The propensity of final users to switch to other foods makes entry at the local level relatively easyCapital intensity can be bypassed by franchising after first store (restaurant)On foreign markets there may be little competitionMajor chains may encourage imitation by local chains better understanding local eating and consumption habits
Five Forces Analysis
Barriers to Entry Facilitators of Entry
Prof. Marcus Hurt 20
Bargaining Power of Buyers
Complex question: who are buyers in the Five Forces Model
Franchisees?Final consumers?
Five Forces Analysis
Prof. Marcus Hurt 21
Five Forces Analysis
Bargaining Power of Buyers -Moderate to weak
Fast FoodChains
Fast FoodFast FoodChainsChains
FranchiseesFranchiseesFinal user Final user --
Food Food consumerconsumer
• Price sensitive• Propensity to switch• Low switching costs• Fragmented and
numerous
• Franchise costs weigh heavily in outlet production
• Very high switching costs• Not concentrated• No threat of backward
integration• Industry is crucial to quality
Brand Marketing to sell and maintain franchises
Prof. Marcus Hurt 22
Bargaining Power of Suppliers – Relatively weak
Fast food industry is made up of large players that make volume purchases
Extremely important customer of food producersSuppliers are commodity providersSupplier industries are fragmentedThreat of backward integration by fast food firms is a real oneIndustry switching costs may be low
Five Forces Analysis
Prof. Marcus Hurt 23
How does power translate?
Industry can impose low purchase pricesIndustry can force upstream suppliers to hold inventories ready and provide just-in-time deliveryIndustry can impose quality standardsIndustry can impose long payment terms
Five Forces Analysis
Prof. Marcus Hurt 24
Example of Power of the Industry over its Suppliers
Fast Food Businesses are practically cash businesses
They can force suppliers to wait a long time for payment
Five Forces Analysis
Prof. Marcus Hurt 25
Attractiveness of the IndustryAttractiveness Factors
Growth in dining outInternational expansionCross-segment menu broadening possibilitiesCo-branding and marketing opportunities
Unattractiveness FactorsConstant price competitionMaturity & Slow growthTrue differentiation difficultLines between segments are blurring because of cross-segment cannibalization
KenTacoHutMounting labor cost pressures
Summary: Industry remains attractive for major chainswith good experience curves, operational efficiency and good margins because of power over suppliers
Prof. Marcus Hurt 26
KSFs in the Industry
Low costs and high operating efficiencyBroad product line and yet specializationQuality and hygieneGood franchisee relationshipsFunds to finance expansion and internationalizationGood marketing and advertising to attract repeat customers