2.1.4 Technological
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Fast foods markets is accepting new method of payment by credit card as a new technology in the industry (fortwayne.com) - more profitable when offer customers to make payment from different options. The costs of hardware and transaction fees are quite high, which makes not all business, can afford this option.
- Introduction of Mobil SpeedPass in fast food industry allows payment process in less than 15 seconds, and the company gets the data on the customers' orders (TechWeb.com). It is suitable for drive-through take away because it uses radio frequency identification.
- Installation of wireless Internet connection in major fast-foods outlets in the US gives inspiration for this industry in the UK. It allows laptop users to connect to the Internet using wireless technology (supermarketguru.com).
- E-business application-Introduction of new option in placing food orders on the Web including web-enabled phones, or web TV and Internet websites (crmdailydotcom). For example, in the rocket London website.
2.2 Micro Environment
Porter's Five Forces model will be used to identify microenvironment in fast-food industry. (Refer to appendix 2)
2.2.1 Threat of new entrants
- Economies of scale - operating efficiencies give data consistency leads to high economies of scale in the industry
- Differentiation - service differentiation is essential with product quality
- Low switching cost for buyers because they can choose which foods they want at anytime with low cost.
- Government legislation is low, only stress on hygiene and minimum wage. Company try to cut labour costs by recruiting part-time staffs.
- Existing outlets is expected to retaliate very high because several established brand makes discounting and short-term promotions as regular feature of the fast food
- Brand loyalty is increasing due to extensive promotions targeted at children and teenagers or family such as through kids fun club and family club with tie-ins films or television series.
Entry barrier is moderate.
2.2.2 Threat of substitutes
- Substitute for fast foods will be complete set meal in normal restaurants. Some of this substitute also offers home delivery services.
- Switching costs are low since the price of substitutes are more or less the same with fast foods and sometimes even lower
- Less efficient since the service are not as quick as fast foods
- Food quality are better because offer more healthy foods
- Buyers would choose substitutes for better quality foods
- However, fast foods outlets are more reliable in faster service quality that meet the needs for busier lifestyle
The substitution threats are considered as moderate.
- Determinants of supplier power
- Switching costs from one supplier to another are low since there is large number of suppliers in the industry. Buyers can choose the best quality products with lowest costs.
- Some suppliers do have power over buyer due to their strong brand name such as Pepsi, and Coca-Cola.
- Deliveries times are strongly determined by buyers since fast food industry mainly rely on fast services. Suppliers must act according to strong buyers demand especially when buyers in fast food chain are highly concentrated.
- Strong capabilities of branded fast food outlets give threats of backward integration. The outlets such as KFC able to acquire ownership of a supply chain and develops its own supply chain in order to reduce supplier power and input cots.
Bargaining power of suppliers is relatively low, higher profitable.
- Determinants of buyer power
- Fast food industry mostly dominated by US outlets and they are expanding based on franchising and is more concentrated - gives power to do backward integration if not satisfied with price or service quality.
- Switching costs are low.
- Several choices of suppliers allow buyers to browse the best price and quality which will threat suppliers.
Bargaining power of buyers is high.
- Competitive rivalry determinants
All of the above will influence the competitive rivalry.
Rivalry for new competitors:
- Market growth rates - industry average life cycle are in maturity stage means slower growth and slower new openings.
- Most major competitors try to maintain market share - advertising battles will increase total industry demand but may be costly for smaller competitors
- Branded outlets such as KFC, McDonalds, Burger King and Pizza Hut manipulate the markets and makes independent unbranded outlets failed to meet with this strong competition
Rivalry among exiting competitors:
- Service differentiation is increasingly important for companies to attract customers because of low switch costs - technology
- Barriers to exit is high among branded names since there is an emotional attached of customers toward the outlets resulting from their long-term strategy in positioning its products into consumer's mind from their early age.
- Strong competition from McDonald's, Burger King, Kentucky Fried Chicken, Pizza Hut, Domino's Pizza.
Strong competitive rivalry.
The forces show that fast food industry is profitable because the forces are considered as moderate overall. Yet, companies must draw a proper strategy to meet with strong competitive rivalry to ensure profitability.
3. Internal Analysis
3.1 Mission Statement
3.1.1 McDonald’s
“OUR MISSION is to be Europe’s favourite restaurant by providing consumers with an exceptional eating experience they can’t get anywhere else. We intend to accomplish our mission through four key customer priorities. We will create a hospitality culture that delivers fast and friendly service to every customer, every visit. We will unveil exciting, new food and beverage offerings. We will expand our work on contemporary, relevant restaurant décors and ambiences that make McDonald are a place to go to, not just pass through. And, we will continue to offer the best value for our customers’ money and time through everyday affordability, innovation and a fun McDonald’s experience.”
3.1.2 KFC
To be the leading fast food operator by exceeding customers' expectations for quality, service, cleanliness and value, with a chicken dominant menu.
Figure 1: An Evaluation Matrix of Mission Statement
*= YES
3.2 Porter’s Value Chain Analyses
“The Value Chain concept can be helpful in understanding how value is created and lost. The value chain describes the activities within and around an organization which together create a product or service.” (Johnson and Scholes p.160)
3.2.1 McDonald's
Figure 2: Value Chain in McDonald Company
3.2.2 KFC
Figure 3: Value Chain in KFC
As a conclusion for this, both company the core competencies are the marketing and sales and their services.
4. SWOT Analysis
4.1Strengths and Weakness (McDonald’s)
4.1.1 Strengths
There are several strengths that can be identified in McDonald Company:
- Brand- Brand that is support by continuous advertising and promotion maintain consumer interest.
- Products and Services Quality-Employ some of the best, most ambitious people on the job market. It values people with a positive attitude towards customers, themselves and other employees, and who strive towards delivering the highest standards of quality, service and cleanliness.
- Technology advancement (Intranet) - It launched in the year 2000, McDonald’s UK Intranet provides a fast and up –to- the –minute source of information for its management and office staff.
- Number of Outlet- Rapid outlet expansion at every province.
- Product development- New menu development such as extends breakfast menu, ethnic varieties chips and burger are extending sales. McDonald’s always has and always will continue to develop new products that satisfy customers’ expectations for great taste and great value.
- Logo- Very attractive for children.
- Environmental Concern- Using recycle paper bag.
4.1.2 Weakness
- Health Concerns- It have reduced sales in burger market, they think burger is not very healthy food.(Keynote)
- Non “HALAL” Food- The burger are not “HALAL” for those Muslims who stay at UK.
- No segment towards older age customers- McDonald’s did not target older age customers which could be quite important to improve their sales performance
4.2 Strengths and Weakness (KFC)
4.2.1 Strengths
There are several strengths that can be identified in KFC Company:
- Reputation-Chicken has relatively healthy image, which encourage switching from traditional burger sales.
- New product developments- The Twisters product from KFC and chicken wings and strips, have boosted snack sales to young and busy adults eating on the move.
- Product and Services Quality- Good customer service, cleaner restaurants, faster and friendlier service and continued high-quality products
- Outlet expansion for the leading player plus renovation of outlet of some smaller players has improved the sector image.
- Pepsi Co. (Sound parent company) – That can help to solve problem, support them. E.g.-Financial
- Innovation Marketing- Innovative advertising plan and offer many dishes and sides that their competitors do not.
- Environmental Concern- Using recycle paper bag
4.2.2 Weakness
- Less Variety of Product which selling only Chicken product.
- Non “HALAL” food- The KFC chickens are not “HALAL” for those Muslims who stay at UK.
- Less Public Interaction such as painting for society, charity.
4.3 Opportunities and Threats
4.3.1 Opportunities
There are several opportunities that can be identified in fast food industry:
- Delivery services not only for home buyers, but also to offices to meet with demand of a busier lifestyle
- Can start to find suitable location for expansion across provincial towns and cities to overcome industry saturation in big cities such as London
- Introduction of more healthier foods with better quality and hygiene can attract more consumers
- Newly introduced technology for faster payment and services, Mobile SpeedPass will attracts busy executives
- Increasing parents trust on fast foods outlets
4.3.2 Threats
- Customers' concerns on healthier foods and rejecting preservatives foods may affect sales and growth in fast food industry
- Saturation leads to difficulty in gaining and create new market share
- Fragmentation and diversification of menu choices increase higher competition
5. COMPETITIVE STRATEGIES
5.1 Porter’s Generic Framework
KFC is using differentiation strategy yet McDonald use cost leadership as their competitive advantages which use their uniqueness to gain broad target.
As a conclusion of this, KFC are more concentrated on their special recipes chicken and sides order to gain market share by concern healthy food. Compare to McDonald, they offer cheap price, fast service and try to occupy most of the place to gain market share by build unique restaurant.
5.2 DEVELOPMENT STRATEGIES
5.2.1 Ansoff Products/Markets Framework
Ansoff’s matrix assesses KFC and McDonald’s marketing objectives and strategies which related to their product and markets. Both outlets are more concentrated in the market penetration and product development. Besides, they also are entering to market development.
As a conclusion of this, McDonald’s always has and will continue to develop new products that satisfy existing and new customers’ expectations for great taste and great value. Meanwhile, KFC keep improving their products and launched new types of product for new target market. This is known to help market penetration for the company.
6. Recommendation and Conclusion
McDonald’s and KFC are using differentiation strategy as their competitive advantages which use product Uniqueness o gain broad target. To enhance their market share, both company can adopted the focus strategy by installing wireless connection and impose higher charge for the services. This target is focus to executive customer where money is not a problem for them.
As a conclusion, this report is to analyze strategic position of two major players of Fast Food Industry in U.K. To analyse the strategic position of McDonald’s and KFC through external and internal analysis. This leads to a clear comparison of the strategy adopted by both companies as assessed by this report using Porter Generic and Ansoff Model.
References:
Johnson, G. and Scholes, K. (1999) Exploring Corporate Strategy. 5th ed, Essex: Prentice Hall.
Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy. 6th ed, Essex: Prentice Hall.
Porter, M. E. (1985) Competitive Advantage. United States of America. Simon & Schuster Inc.
Datamonitor.com
Food technology publications
Fortwayne.com
Keynotes UK 2002
Supermarket Guru.com .Technology wireless in McD
Technology in McDonald's
Corporation Fetishism and KFC: The Colonel's Secrets
By .
Lecturer researches fast food industry
Company Information.
Ray Kroc, McDonald's, And The Fast-Food Industry.
McDonald's needs a recipe for the future.
At KFC's test kitchen, proof is in the market: Innovation, testing keep menu fresh
Times Square
Developing Competitive Strategy
McDonald's Plans to Keep Its Discounting Strategy
