Fast Food In a Fast Economy - Essay Example

Antony Antony Vimal Venmani 07 August 2008 Fast food In a Fast Economy: The US The moment the word Fast food rings in the ears, heonly thinks of America which is known for its obsession with junk foods and Fast foods. This certainly kindles the spirit of any aspiring business novice with a spirit of entrepreneurship to venture into this Industry. Not much of investment and perhaps the widening demography of fast food consumption in the US is very attractive. Still, it would be taking things for granted if one fails to notice the cutthroat competition in this field where there isn't much of product differentiation. Advantages are of many kinds like the first mover advantage, locational advantage, price advantage, customer loyalty and of course the differentiation of products. Thus Micheal Porter's five force theory comes in handy to analyse the forces that will apparently have its impact on fast food Industry. Before getting down the brass stacks it would be apposite to define the five forces. They are the Entry and Exit barriers, Forward integration, Backward Integration, Substitutes and competitive rivalry. The fact that three locations have been selected for establishing the fast food outlets it demands the owner to check whether all the locations are ideal for the outlets. The more populous the place is, the better the opportunity to grow provided the competition at that locality is not much. Fast food industry is one such industry which gives ample opportunity to the owner to win the customers heart through his products Antony 2 as well as his services, i.e it is one industry where the tangibles as well as the intangibles will prove to be rewarding. When it is said that the rewards come easily, one should also remember that it wouldn't take much time for the reputation to get tarnished in no time. One major driver of the fast food industry is the word of mouth advertising where customers spread the message about the outlet to their kith and kin. This is the priceless way of advertising where the owner doesn't need to shell a penny from his pocket but the same word of mouth may drive the outlet to dogs. So the onus is in the hands of the company that ventures to act different and win people's heart. Though the five forces model of porter mentions about five different forces, a careful examination would reveal that all of them bottle down to one general aspect - The competitive advantage that one has over the other. Thus the five forces could be construed as the sub divisions of the competitive advantage. More often than not people think that industry monopolies and oligopolies are only in the higher end fields which is technology is intensive but the fact is that it is worse in a low technology intensive industry like fast foods. While competition may keep mushrooming everyday, substitutes are no where far and the forward and backward integration of the outlet plays a vital role in delivering on time the ordered products. Industry that has a low entry barrier needs a lot of initiatives and expertise to sustain and here since the exit barrier is also low, it wouldn't prevent one from experimenting. So, one has to face the real competitors with these trial blazers. How the entrepreneur faces endures the forces and acts accordingly in the fast food industry is defined through a diagram in the following pages. Antony 4 Entry & Exit Barriers: As mentioned in the diagram when it comes to a fast food industry the entry barrier is seemingly that may attract anyone to experiment with it. But the real fact is that there are many barriers that impedes. First is the location, which is of paramount importance, fast food outlets before was literally used to serve food fast and therefore people didn't really bother about the ambience, but now it has become a luxury destination and people have started using the fast found joints for socializing. Therefore they want a hassle free place to relax and enjoy the food. So renting or owning a good place might be expensive. Another important aspect is the distribution network. Though there isn't a big distribution hierarchy in delivering, nowadays people prefer being served at there doorstep, therefore a large number of service people need to be recruited. When it comes to the sales people, not many who work in fast food outlets climb up the ladder and since youngsters are the apt people who are active in delivering, it is equally difficult to retain them. They don't find the job interesting for a long period and once they notice that it isn't really going to enhance there career ladder they switch jobs, this is not only at the lower level but also at the store manager level. All said for any business to be successful customer's good will is bountifully needed. But when it comes to the fast food business, people always prefer to try new outlets and if there is even a speck of blemish in the service of the outlet they bad mouth it and it tarnishes the image of the business. The exit barrier is easy as long as the owner doesn't go for a blanket opening of outlets , instead if he tries with a couple of outlets in a good locality without owning the place then it would be easy to exit if it isn't successful. Antony 5 Substitutes: When it comes to substitutes, there are two kinds- one is the substitute within the industry and the other which is outside the industry. When in comes to the fast food industry, the cost of switching to other entertainments other than food products is not that high, people even say that Americans spend more for fast food than what they spend for any thing else. Therefore the presence of substitutes outside the industry will not really affect the fast food industry. But the presence of competitors within the industry and the substitutes in the food industry on the whole might have an impact on the fast food company. One major fast food industry stalwart is the reputed McDonald. It is even said that 96 % of American children are able to recognise McDonald and that itself is a testimony for it reach. Competition: Competition and rivalry is something that is there in the business of fast food industry in the US is highly organised. When an outlet is giving a range of products, the possibility of a competitor that has specialized in one of the products in the range entering the field may have a better advantage compared to the company that gives all the products. An example to this would be - say that pizza hut specializes in pizzas but also serves burgers and similar products, then after a period of time a competitor might enter the fast food industry space with its expertise in burger alone. Then people might find that interesting and may go for trying that outlet. Here it is a catch22 situation for the company because it can't stop serving burgers just because a competitor has emerged but has to improve its quality in par with the competitor and provide new products in the same product line. This would make pizza its primary product and burger and other product lines and other products, secondary. Antony 6 Forward &Backward integration: As said before in the other forces, the forward and backward integration is also integrated with all those. Since the industry is a fast food industry, it is all about preparing consumable products by the companies and raw material supply is the important thing that plays a vital role. How well the company integrates itself with its suppliers and customers is directly proportional to its success. This is the first mover advantage and the space occupied by a big company in tapping the market share matters. There are various problems underneath these issues. Firstly, the suppliers might not prefer catering to a small player or a new comer for the simple reason that they don't know how the company is going to perform. Apart from this, there might even be pressure from the monopolies and oligopolies discouraging the suppliers supplying to the new outlets. When this happens, then the new comer will be left only with the hobson's choice of going for a low level supplier and it's apparent that the supplier may not be good in his products and deliveries. They might not be as good and fast as an established supplier. Forward integration is rather a sensitive aspect, because , atleast in the backward integration, the fast food company might dictate some terms, but in the forward integration, a monopoly company might have an upper hand over the customer, but a new comer in a competitive environment can do nothing but to budge to the customers requirements. Given the fact that it is a food industry, customers tend to try new things in a different ambience. Therefore, it's really difficult to retain customers to one outlet continuously. So , to retain them the fast food outlet should try new things and give many products on the platter where the problem lies. Since it Antony 7 is a fast food joint, there isn't much to differentiate from the competitors products, for example , a pizza outlet might augment the product into different varieties by stuffing different materials, but the basic product is still a pizza and they can only be innovative to some extent. Now this can be easily emulated by the competitor. If a new variety of pizza is introduced by pizza hut, then the same stuffing can be emulated by burger king in no time and here comes the intangible service and ambience that can attract the cream of customers towards the outlet. Once again, switching cost for the customer is zilch in the fast food industry. Therefore, the outlet has to be really adept in serving its customers. All said, Obesity is another problem that the Americans are complaining about, they have a penchant for fast food items and an unchecked consumption of those items make them obese. Therefore there is a chance that people may become more health conscious. Thus , concentrating on augmenting the existing products with more and more of high calories stuff, the new comer may introduce a low calories product which would rather be called a diet product. If a Pepsi can introduce a diet Pepsi, so can the fast food industry. Adding to all these innovations, the below the line marketing of products by giving discounts for mass orders, festival time offers and special offer during birthday's of customers and issuing coupons for a particular number of visits and above all expediting the process of delivery- be it at the shop or home , would make the fast food chain reach its pinnacle. Works Cited Kotler Keller. "Dealing with competition". Marketing Management 12e:316-17 Schlosser Eric."Fast food nation: The true cost of America's diet". Rolling stone Magazine (USA). 3rd September 1998. http://www.mcspotlight.org/media/press/rollingstone1.html Read More