Professional Documents
Culture Documents
Management 182
Lindsey Hicks
Eva Ho
Joshua Price
Suren Divanyan
Dominant Economic
Characteristics
Dominant Economic
Characteristics
Market Size (2002)
Dominant Economic
Characteristics
Scope of Competitive rivalry
International : Most companies of the industry
operate stores in many countries and compete
with each other in specific country markets.
Dominant Economic
Characteristics
Market Growth Rate
McDonald's: Revenue 2.1 %, Earnings Per Share $1.47,
Operating Income 4%
Burger King: Revenue (1)%, Earnings Per Share N/A
Operating Income N/A
Taco Bell: Revenue 6%, Earnings Per Share 41%,
Operating Income 25%
Dominant Economic
Characteristics
Stage in life cycle:
Mature
Growth opportunity still exists in new countries
and markets
Diversification into related businesses attractive
for sustained growth
Introduction of new line of products and
services to differentiate from rivals is practiced
Dominant Economic
Companies in Industry Characteristics
There are 8 main companies that captures 89% of
fast-food Market
McDonald's 34.7 %
Burger King 15.8%
Taco Bell 9.6%
Wendy's International 9.5%
Subway 5.9%
Hardee's 4.6%
Arby's 3.9%
Dairy Queen 3.8%
Other 11.7%
Dominant Economic
Characteristics
Ease of Entry Globally:
Relatively hard to enter, because of strong
competition and high capital requirements:
In order to franchise the entrepreneur should be at
least $1 million worth
Efficient operations is the key to faster product
delivery and lower costs
Requires diverse supply materials, which complicates
entry
Customers are price sensitive and promotion driven
Dominant Economic
Characteristics
Exit of Industry:
Mergers and Acquisitions are common ways of
exit strategies (Ex. McDonalds acquired
Boston Market restaurant chain)
Companies like Taco Bell and KFC were parts
of a diversified company, which in 97 were
spun off as publicly traded companies
Dominant Economic
Characteristics
Technology and Innovation:
Automated Inventory Ordering System
Just in Time operations
Fast order taking systems
More efficient operations
Reduces operating costs
Increases profit margin
Dominant Economic
Characteristics
Processes and Innovation
Introduction of new order-to-make burger or
sandwich assembly process
Reduces waists
Increases food freshness
Increases customer satisfaction
Custom orders
Dominant Economic
Characteristics
Product Innovation
Dominant Economic
Characteristics
Distribution Channels
Supply distribution is managed by the centralized
corporate headquarters because it enforces
standardization of supply materials and gives the
companies greater bargaining power
The product and services are distributed to customers
by individual stores
Dominant Economic
Characteristics
Products and Services
Products and Services are differentiated among
the rivals
Taco Bell is the most differentiated
McDonalds and Burger King are weakly
differentiated. They each have their own special
ingredients but offer the same satisfaction
Speed of delivery and freshness are the main
characteristics of product
Dominant Economic
Characteristics
Economies of Scale
Big companies have economies of scale in
purchasing, manufacturing, transportation, and
advertising
Bargaining power in supply purchasing
Lower per unit cost in mass manufacturing of pre-made
supplies
Transportation costs are distributed among several restaurants
in the same geographic area
Advertising aides many restaurants
Dominant Economic
Characteristics
Industry Location
Fast-food restaurants are strategically located in
most geographic areas with a population that
could sustain business
The big companies are also growing into other
national markets
For example, McDonalds operates in 121 countries
Dominant Economic
Characteristics
Capacity Utilization
Effective and efficient operations results in
lower burger or sandwich assembly costs, which
in turn results in higher profits margins
Capacity Utilization is important to spread high
fixed costs over greater number of products and
services produced
Dominant Economic
Characteristics
Competition Analysis
Competitive Analysis
Forces of Competitive Analysis
Competitive Analysis
Rivalry among competing sellers
In the fast food industry Competition is high
Many options for customers
Low prices/price wars
Many substitute products easily available
Customer decisions based on what is available at time
Advertising
Promotional incentives
Products differentiated
Competitive Analysis
Rivalry among competing sellers
Companies striving to better market share
Continuous growth into new markets, with new products
offerings and growth into new geographic markets.
Diverse menus and competitors willing to make exactly
what customers want.
Demand for fast food growing with the fast pace of life
around the world
Fast food restaurants are worldwide and have relatively
equal resources for growth
Competitive Analysis
Potential of new entry into market
Competitors well established
Brands well known around world
Customers like restaurants they know
Economies of Scale, with many world wide companies
entrants can enter small although difficult to establish
name in an already saturated market
Competitive Analysis
Potential of new entry into market
Advantages of large food chains
Lower costs due to buying volume
Already established name
Learning curve (they know what customers want and
have perfected speed at which to serve customers)
Established suppliers for specialized products
Established in most major metropolitan markets, in
prime locations
Competitive Analysis
Pressures from substitute products
In the food market there are many substitutes to any one
restaurant
Customers who desire more well rounded meals threaten
fast food
The traditional sit down restaurant is a threat to fast food
as customers are not in a rush
Then the grocery store with so many meals which can be
prepared in minutes poses threats for the fast food industry
Competitive Analysis
Pressures from substitute products
The food and grocery market currently is saturated with
many buyer and sellers making it difficult for any one
vendor to take over all head of market. The health of
vendors in the food industry depend heavily on the
preferences of the consumers in the market. Currently
more and more people are eating out, giving the fast food
industry many chances for advance. With so many
substitutes available sellers must continue to set
themselves apart from the rest to keep ahead of the
changing market conditions.
Competitive Analysis
Supplier bargaining power and competitive
pressures
Highly competitive
Suppliers who support rivals puts them in charge of
prices for commodities which rivals must have to
perform and compete well
As companies and suppliers work together, they can
benefit both as far as consistent revenue for the supplier
and on time deliveries for companies to cut inventory
costs
Competitive Analysis
Pressures from buyer bargaining power
With many fast food restaurants buyers switching costs
are low, which causes companies to lower prices and
increase incentives to keep customers coming back,
giving the customer power in price and product control
Prices: fast food restaurants are open books to
customers along with products prices so price changes
affect local competitors
Example the Whopper and Big Mac which are very
comparable hamburgers if the price of one was to go up
the sales of the other can benefit
Competitive Analysis
Other Forces which affect Fast Food Sellers
Many fast food chains are operating in many diverse
countries where customs and norms are very different
from one another. Because markets are so diversified
many chains must operate differently depending on the
particular market. For example in China many fast food
restaurants are rethinking the packaging used in service
because many people are beginning to drive and eat at
the same time while still in other markets this is not seen.
There are numerous other forces affecting the market in
particular areas but relatively few which effect the fast
food market as a whole.
Competitive Analysis
Key findings
The fast food industry is very strong with many sellers
and customers. Many competitive forces effect the
already established companies, which keep the prices
down and the quality of food up. All of this will keep
the big players in the game and will make it very
difficult for the new entrants to come in and take over.
Driving Forces
Driving Forces
Factors that effect Driving Forces
Driving Forces
Globalization of the Fast Food industry
The fast food industry is a labor intensive market
requiring employees at all locations of business, this
does not give them the opportunity to cut costs with
cheap labor in other countries
Although the large scale of operations gives the
restaurants economies of scale in their purchase of
disposable items made for the particular chain such as
cups and boxes for food prepared
Driving Forces
Opportunity for long term growth
The fast food industry is already well established in
many countries across the the world. McDonald's is in
121, while Burger King is only in 57, with many other
sellers competing in varying markets across the world,
majority of sellers only compete locally
Although many that are already global look for the
industry to continue to expand into new markets as well
as with countries as the population of the world grows
and the demand for fast food increases
Driving Forces
Fast Food and differentiation of product
Many fast food restaurants are diversifying their menus
example: Jack in the Box with tacos and rice bowls and also
the traditional hamburger. By differentiating in this way it
give customers more options which will keep them coming
back instead of going to a different place
This can be very important with many food restaurants
located close together the buyer preference of differentiation
is what keeps buyers coming back and not changing
restaurants
Other than different offering the food industry is very
standard
Driving Forces
Forces with minor effects
Technological Change
New technology can increase productivity and reduce costs
Customer base
Broad base of customers although some more than others
Product innovation
Changes in offerings and extras are very common in the
market, but innovation in food is rare
Driving Forces
Changing Societal Concerns and lifestyles
With many American's becoming more aware of their
health the traditional greasy and fatty food of the fast
food industry are changing their offering, with many
places offering veggie burgers and low fat products
The health conscious customers are also opting to eat at
home
There is also the opposite of this with many peoples
lifestyles getting so busy they do not have time to eat or
even prepare meals for their children and many fast
food restaurants benefit from this
Driving Forces
Uncertainty and business risk
With no agreements with customers this makes for no
predictable revenue
Although the health of the food industry has been very
strong over the past years
McDonald's revenue has gone up every year for the
past 10 years and they have no foreseeable reason for it
not to continue
Competitive Position of
Major Companies
McDonalds
Burger King (Diageo)
Taco Bell (Tricon Global)
Wendys International
Subway
Hardees
Arbys
Dairy Queen
Ticker
MCD
2001 Sales
$20,051,000,000
Major Industry
Food Service
Sub Industry
Fast Food
Country
United States
Currency
U.S. Dollars
Number of Employees
1,500,000
Exchange
NYSE, CSE
Market Capitalization
37,918,000,000
Ticker
DEO
2001 Sales
$8,500,000,000
Major Industry
Food and Beverages
Country
United States
Currency
U.S. Dollars
Number of Employees
360,000
Exchange
NYSE
Market Capitalization
43,789,000,000
Ticker
YUM
2001 Sales
$4,800,000,000
Major Industry
Fast Food
United States
Currency
U.S. Dollars
Number of Employees
320,000
Exchange
NYSE
Market Capitalization
9,370,000,000
Competitor Analysis
Competitor Analysis
Which companies are in the strongest/
weakest position?
Strategic Group Mapping
A technique for revealing the competitive positions
of industry participants.
Competitor Analysis
Strategic Group Mapping
Competitor Analysis
Strategic Group Mapping
Competitor Analysis
Strategic Group Mapping
McDonalds
Growth
In 2001, McDonalds took actions to streamline operations in an effort to
realize sales growth through improved operations and customer service.
McDonalds plans to add up to 1,400 restaurants in 2002.
Geographic coverage
McDonald's serves 46 million people every day in about 30,000
restaurants in 121 countries.
Competitor Analysis
Strategic Group Mapping
Burger King
Growth
In 2001, Burger King announced it is launching 14 new and improved
menu items.
Geographic coverage
Burger King currently operates 11,435 restaurants in 57 countries and
territories worldwide.
Competitor Analysis
Strategic Group Mapping
Taco Bell
Growth
Taco Bell reported an increase in sales of 12% from the previous year in
December 2001.
Taco Bell dominated the Mexican QSR Sales with a 64% share as of year
end 2001.
Geographic coverage
Taco Bell operates 239 of its total 6,683 restaurants in 14 countries
worldwide.
Competitor Analysis
Conclusions
The three circles on the strategic map are very
close together, which suggests strong competitive
rivalry among the companies.
McDonalds is clearly the industry leader.
They have over one-third of the total market share.
They have advanced the furthest into the global market.
Competitor Analysis
Conclusions (cont.)
Although Burger King has over 15% of the market
share, they do not have much potential for growth.
Burger Kings parent company, Diageo, is
planning to spin off the company in order to focus
more on beverages.
Burger King is quickly losing market share to both
McDonalds and Wendys International.
Competitor Analysis
Competitors Next Moves
McDonalds
Currently, McDonalds strategy is working well for them.
Being the market leader, they are under no pressure to
change the path they are currently on.
Burger King
Burger King has recently made some changes in
management and marketing that have hurt their operating
results.
Competitor Analysis
Competitors Next Moves
Competitor Analysis
Competitors Next Moves
Taco Bell
In order to boost sales, Taco Bells parent company, Tricon
Global Restaurants, has been aggressively co-branding its
products.
Tricon Global consists of Taco Bell, KFC, Pizza Hut, and
has recently acquired Long John Silvers and A&W
Restaurants.
With the combined strength of the 5 companies, Tricon is
focusing its growth on international expansion.
Convenient Locations
Clever Advertisement
Consistency
Food Quality
Food Innovation
Cost Control
Favorable Image & Good Reputation
Fast Services
McDonalds
Wendys
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