Types of Stores Operating in the Fast Food Industry in Melbourne - Case Study Example

STRATEGIC GROUP REPORT By Name Course Instructor Institution City/State Date Table of Contents Strategic Group Report 1.0 Introduction We seek to open a fast food café at Parkville, the City of Melbourne due to the fact that fast foods are easily accessible and more affordable to the targeted customers. Basically, people in Melbourne prefer fast food because they are not just tasty, but also their orders are quickly delivered. Fast-food café provides hasty meals to individuals on the move, and also it is a substitute to the conventional, sit-down restaurants. We chose fast food because of its convenience, especially when located in an area with high-traffic such as Parkville. Normally, fast food café concentrates on low cost, high volume, as well as high speed product. When located on busy commercial streets and in the shopping malls and, fast food cafés gets impulse purchases from customers, especially those without enough money to go to a restaurant. Moreover, it is easy for a new entrant in this industry to remain profitable for a long period, as long as they become closer to their customers. Paying attention to the needs of the customers is imperative in this industry; because it may assist the businesses circumnavigate in this ever-changing industry as their positioning, service, and menu evolve. Therefore competitive advantage in this industry is easily achieved when the products as well as services offered are aligned with the present and future needs of the customers. 2.0 Types of stores operating in the Fast Food industry in Melbourne A majority of fast food chains utilises two forms of establishments: franchisees as well as company owned outlets (Antonsson et al., 2011, p.9). Some of the franchises include McDonald's which undoubtedly is the main player in this industry as well as the most competitive fast food franchise in Melbourne. Others include KFC, Subway, Paleo Café, SumoSalad, Salsa's Fresh Mex, Domino’s Pizza, and so forth. Company owned outlets include Red Rooster, Panda Express, Trios, and among others. The fast food café will be a non-franchise. Normally, fast food-franchises utilise trademark of the parent company and spend more to enter the business as compared to the non-franchised fast food café. Besides that, non-franchised fast food cafe normally has fewer entry barriers and while they lack direct support, Welsh et al. (2011, p.4) posit that they have more freedom to formulate their own goals as compared to franchisees. Moreover being a non-franchised fast food café there will be no need to follow strict system guidelines such as operational rules from other companies as compared to franchise operators. 3.0 The macro- environment Essentially, fast food demand has recently increased because of contemporary people’s fast moving lifestyle. In Melbourne, fast food covers a substantial market considering that the industry is projected to continue growing. For this reason, the macro environment includes far-reaching forces shaping opportunities as well as posing threats to fast food café. 3.1 Political Currently, all fast food outlets in Australia have to adhere to certain political requirements, like the minimum wage regulations that stipulate a minimum wage of $ 16.87 per hour or $640.90 per week (Department of Employment, 2014). This as a result increases the cost of operation. Besides that, Victoria’s quality and hygiene regulations significantly impact the quality of products offered these outlets. Besides that, labelling and packaging should adhere to Food Standards Code that covers comprehensively the labelling laws applicable to food for both catering and retail purposes. Victoria government together with the national government are exerting pressure to fast food outlets to support healthy eating, and for this reason both governments have introduced the mandatory calorie count policy on all menus provided by the fast food (Berg, 2011). 3.2 Economical Economic recession can extremely affect scores of companies in different industries, and this in consequence, can reduce profits as well as revenues across the board, which in turn reduces consumer demand for products as observed during the financial crisis of 2007–08. Still, economic depression does not adversely affect all industries and companies; for instance in the 2007/2008 economic recession the fast food industry experienced an increased demand, especially from individuals who could no longer afford traditional restaurants. As mentioned by Kan et al. (2008, p.189), fast food outlets are considered a substitute for other restaurants because of the cheaper alternative they offer. Moreover, growth in the market, growing disposable income, as well as backing from the suppliers are some of the economic factors that have an effect on the fast food industry in Melbourne. 3.3 Social Growing consumer awareness in Australia with regard to healthy lifestyles is putting more pressure on fast food companies to provide menus with healthier selections such as providing low-calorie alternatives as well as salads along with burgers, and importantly showing nutritional content. Besides that, the Australia’s fast-food industry advertisements have largely been condemned for aiming children such as offering toys in children’s meals, and this is most evident in MacDonald’s outlets. In 2012, Australia Government banned junk food advertising, bit this was considered les effort by the Greens who wanted the government to ban fast food advertising during the children’s prime television viewing time so as to assist in curbing the rates of obese (Schriever, 2013). 3.4 Technological In the present digital age, consumers are more connected to technology; so, fast-food companies are utilising platforms like social networking sites so as to interact with their customers. Almost 90% of Australians utilise internet, and so the Internet can be utilised widely for advertising the fast food outlets (Telstra Corporation Limited, 2014, p.3). Besides that, scores of fast food stores in Melbourne are offering free Wi-Fi access to their customers, and this is viewed as a way of retaining customers. Moreover, digital displays can help fast food stores to efficiently alter their menus so as to suit the customers’ preferences. Technologically enabled self-service ordering points according to Fisher and Beatson (2002, p.66) have advanced the speed of offering services as well as lessened labour costs. 3.5 Environmental Victoria government as well as environmental lobbyists are pressurising the fast-food companies to offer green services and products. Bearing in mind that recycling is a leading world-wide issue and so, Victorian Government needs all fast food outlets to utilise recyclable packaging. Furthermore, consumers’ increased awareness about environment issues, offers fast food firms a good chance to go ‘green’ so as gain customer loyalty. Besides that, fast food companies are being encouraged to utilise recyclable materials for Styrofoam coffers, plates as well as drinking glasses. 3.6 Legal In Melbourne, fast food operators are expected to adhere to particular regulations and legislation such as the requirement of having a food safety supervisor, employment regulations like minimum wage requirements and taxation. Besides that, companies are expected meet the food standards and quality requirements stipulated in both state and national food standard policies. 4.0 Porter’s model 4.1 Threat of New Entrants Presently, the threat posed by new entrants in the fast food industry is moderate because the industry is dominated by numerous international Quick Service Restaurant (QSR) chains, such as KFC, McDonald’s, and Pizza Hut. Such brands according to Yu (2012, p.72) are exceedingly valuable, and enjoy a big customer base thanks to their reliable service as well as quality. Most of the key players such as McDonald have changed their marketing strategy so as to suit social norms as well as local cultures, in consequence, avoiding consumer isolation and consolidating its brand. Therefore, new entrants will obviously struggle in competing with the existing companies, given that their brands are unfamiliar. Besides that, reputable fast food chains possess adequate resources to aggressively strike back by means of pricing promotions; thus, discouraging new entrants from penetrating the market. In this high-turnover industry, existing fast food chains have economies of scale that have been developed over time, and which new entrants lack, so they use it to remain competitive. However, social media sites offer a cheap channel for marketing, which is widely utilised by new entrants. 4.2 Bargaining Power of Customers In essence, the competitiveness of the fast food market increases the bargaining power of the customers, considering that customers are always sensitive to prices. For this reason, the main fast food companies try to diminish buyer power by offering various products that satisfy the entire demographic, instead of just one segment. For instance, through ‘Happy Meals’ McDonald’ has managed to target children with various options such as take away coffee. In addition, companies are more and more marketing differentiated products so as to reduce the customers’ bargaining power: for instance, Whopper by Burger King, Big Mac by MacDonald, as well as promotion campaigns such as ‘Two for Tuesday’ by Domino. Therefore, customer loyalty as well as a high brand value has made the bargaining power of the buyers moderate. 4.3 Power of Suppliers The power of suppliers can be considered moderate because the suppliers’ availability as well as competitiveness amongst themselves has limited their bargaining power. Because of the many suppliers in the fast food industry, it is not easy for them to leverage considerable power over the companies. For instance, Burger King and MacDonald get their soft-drink supplies from Coca-Cola while KFC is supplied by Pepsi. 4.4 Competitive Rivalry The competitive rivalry in the fast food industry is without a doubt very strong, and even though McDonald, Subway, and KFC are the dominating force in Melbourne, the fast food market in general is fragmented with scores of independent operators as well as global chains. Therefore, competition is predominantly based on cost with companies unceasingly devoting their finances in their service and production processes so as to weaken their competitors. Still, the exit costs are exceedingly low and capability is certainly boosted through franchising. 4.5 Threat of Substitutions In this industry, substitutes are readily accessible since food can be bought nearly everywhere, through retail or foodservice. Still, convenience attributed to the fast food industry is the value-adding element that lessens the threat of substitutes. Additionally, consumers can cheaply prepare food at homes; however, it results in inconvenience. Therefore, ready-meals can be considered as the main threat, based on convenience as well as price. 5.0 The Industry Life Cycle According to Zwolak (2010, p.11), the fast food industry is presently in the mature phase of its industry life cycle. Evidently, the fast food industry is presently experiencing a low growth phase and has conceivably reached or is too close to the saturation point not just in Melbourne market, but also in expansive Australian market. Basically, the population size limits in the city that can support a fast food outlet profitably has been invaded by various operators and the remaining areas is experiencing significant competition. Almost 25% of fast food industry income is controlled by the main players, so the small operators enjoy a small revenue percentage. The maturity phase is evidenced by the lack of new stores opening in Melbourne by established franchises such as Macdonald and KFC. Besides that, there is a considerable merging taking place, whereby major franchises such as Subway are taking over other so as to realise growth. Currently, there are is a major consumer and market changes in this industry, and with growing demand for healthy menus far from super-size, high salt, and high fat meals, given that the obesity epidemic is still increasing (Mashhadi & Ijaz-Ur-Rehman, 2012, p.22). Therefore, the fast food industry is in the mature phase, this is because the industry is experiencing a significant competition while the return on equity has currently normalised. 6.0 Strategic recommendations at functional and business level For new entrants to become successful in this fast food industry they need business expertise because this is a low margin, a high turnover industry where loses can easily be recorded. Therefore, the company must have a clear market position as compared to the competitors and effective cost controls to reduce wastage. Furthermore, the company should be able to franchise its operations so as to achieve the needed support from experienced companies. Besides that, the companies’ products should be sold at high profile stores that can be easily accessed and also be able to offer drive-through services. As needed by Victoria government the fast food staff should have adequate skills on their roles; therefore, the company should seek a flexible and multi-skilled staff, and casual employees who can help the company meet high demand during the peak periods. Furthermore, the company should introduce a loyalty scheme so as to boost purchase frequency, and this can be achieved through a points-based scheme. 7.0 References Antonsson, H., Engström, L. & Verbus, V., 2011. Innovation within Fast Food Restaurants: The role of the local restaurant management. Thesis. Jönköping : Henrik Antonsson; Lukas Engström; Vytautas Verbus Jönköping University. Berg, C., 2011. Fat chance of cutting calories. [Online] Available at: HYPERLINK "http://www.abc.net.au/news/2011-09-28/berg---fat-chance-of-cutting-calories/2956454" http://www.abc.net.au/news/2011-09-28/berg---fat-chance-of-cutting-calories/2956454 [Accessed 3 May 2015]. Department of Employment, 2014. Fair Work Commission Annual Wage Review increases national minimum wage. [Online] Available at: HYPERLINK "https://employment.gov.au/news/fair-work-commission-annual-wage-review-increases-national-minimum-wage" https://employment.gov.au/news/fair-work-commission-annual-wage-review-increases-national-minimum-wage [Accessed 11 May 2015]. Fisher, G. & Beatson, A.T., 2002. The impact of culture on self-service on technology adoption in the hotel industry. International Journal of Hospitality and Tourism Administration, vol. 3, no. 3, pp.59-77. Kan, J., Lau, H. & Martin, D., 2008. Live and Work in China and Hong Kong. London: Crimson Publishing. Mashhadi, A.H. & Ijaz-Ur-Rehman, Q., 2012. Impact of External Environment on the Performance of the Fast Food Industry. International Journal of Management, Economics and Social Sciences, vol. 1, no. 1, pp.19 –25. Schriever, J., 2013. Greens launch policy to ban TV ads during prime time children's programs. [Online] Available at: HYPERLINK "http://www.news.com.au/national/greens-launch-policy-to-ban-tv-ads-during-prime-time-children8217s-programs/story-fnho52ip-1226693125533" http://www.news.com.au/national/greens-launch-policy-to-ban-tv-ads-during-prime-time-children8217s-programs/story-fnho52ip-1226693125533 [Accessed 11 May 2015]. Telstra Corporation Limited, 2014. Addressing the Cyber Safety Challenge. From risk to resilience. Survey. Sydney: Telstra Corporation Limited. Welsh, D.H.B., Desplaces, D.E. & Davis, A.E., 2011. A Comparison of Retail Franchises, Independent Businesses, and Purchased Existing Independent Business Startups: Lessons From the Kauffman Firm Survey. Journal of Marketing Channels, vol. 18, no. 1, pp.3-18. Yu, L., 2012. The International Hospitality Business: Management and Operations. New York: Routledge. Zwolak, R., 2010. Fast-food fallout: Health-conscious and cash poor consumers serve as an industry challenge. IBISWorld Industry Report. New York: IBISWorld. Read More