The article is based upon in-depth analysis of Fast Food Industry of Australian Region with strong emphasis on McDonalds that is considered as market leader of Australian Fast Food Industry. Environment of the industry is essential to be analyzed in order to conduct strategic analysis so that relevant forces can be identified that can affect the companies and serve to shape their strategies. Therefore environmental analysis of the industry at macro and industry level is provided in the report. The next section follows with overview of company, analysis of key resources and core capabilities of the firm, and the ways and strategies through which the company is able to generate sustainable competitive advantage and leading position in the market. In order to achieve report objectives, different tools are identified. For example, the PEST analysis is used to analyze external environment and Porters’ Five Forces Model is used to analyze environment at industry level. Likewise Resource based view of the firm is also done to highlight key capabilities and game theory to acknowledge different partnerships and their outcomes.
1. Introduction
For operating in competitive environment, it is important for the companies to undertake vigorous research regarding the forces operating in industry and the strategies of firms they are competing with. As a result, they can tactfully shape their strategies for attaining sustainable competitive advantage.
1.1. Purpose of the Report
For analyzing the environment, it is essential to keep an eye on macro level that involves all political, legal, social, technological and economic forces that might affect overall industry. In addition to this, it is also important to look at characteristics of suppliers, customers, competitors and potential substitutes so that appropriate opportunities can be tapped and strategies can be developed accordingly. The fundamental purpose of this report is to analyze one specific industry and its environment in detail so that success factors of one particular firm and the ways through which it addresses the obstacles, attain benefits from the environment and generate sustainable competitive advantage can be identified
1.2. Selected Industry
In order to achieve report objectives, American Fast Food Industry, with particular emphasis on McDonalds have been targeted for the analysis.
1.3. Reasons of Selection
The industry is selected because in Australian region, fast food industry is rapidly growing and several firms are entering the market yet McDonalds is able to sustain its leading position in the market.
2. Fast Food Industry and Company Overview
The concept of fast food comes from the instant delivery of food products to the customers who are having limited lunch time or busy schedule to prepare their own food. For this reason the companies that are providing food very fast operates in the fast food industry and this is one of the industries that is considered quite lucrative at the moment. Usually the organizations that are operating in the industry serve the customers with pizzas, burgers, sandwiches, fish or chips, sushi and wide variety of drinks and ice-creams. The introduction of concept of drive through or mobile van is also prominent in fast food industry. According to the report generated by Retail and Personal Services Training Council (2015), the annual estimated revenue of fast food industry is nearly $14.9 billion with almost 25141 businesses operating across Australian region. Thus it can be assumed that the industry is employing millions of people for serving the customers. And the profitability of this industry is around $7.5 billion that is almost 50% of the revenues. The fast food market structure in Australia is monopolistic competition in which several major companies such as McDonalds, Burger King, Subway, KFC, Hungry Jack’s and Dominos are operating in the industry and fighting for market share. The analysis of the industry at macro and industry level is presented in the following section:
2.1. Macro Level
Macro environment of any firm or industry encompass several forces that are existing outside the organizational environment. These larger societal forces directly affect company’s ability to serve its customers (Samnani, 2014). The basic forces lie at micro level involves Political forces, economic and social forces, technological forces, demographic forces etc. The section presents analysis of Australian fast food industry at Macro level.
2.1.1. Political Forces
It is important to notice that countries remain in the state of political unrest and this is applicable to even those countries that are stable and developed. At political level, the Australian Fast food industry is shaped by several governmental initiatives and restrictions. The regulations regarding food administration and testing, quality assurance and compliance with the standards, trading hours, management of work force and productivity are all the factors that are under continuous monitoring of government. Moreover there are several penalties that are also associated with lack of following the rules and regulations prescribed by the governmental forces.
In addition to the enforcement issues, concern about ethics and protection of natural environment is also the aspect to be discussed in this section. Usually the companies have sound corporate social responsibility standards and they claims to follow it but political forces might question usage and selling of recyclable packaging materials, extent to which the business affects natural resources and aspects related to level of hygiene and standards of operations. In Australia, it is important to notice that these regulations are changed from time to time in order to assure better quality services. From the business perspective, it is to be noted that in order to remain competitive, the companies need to continuously inculcate the updated and revised policies. Otherwise the reputation of the firm might be at the stake and firm can face heavy fines.
2.1.2. Socio- Economic Forces
On the basis of industry research report, it was identified that trend of dining in fast food restaurants has increased up to 0.2% and the research division claims that consumer spending in this very industry is more likely to be increased in the upcoming years. Thus the industry is open for the new entrants that are aiming to serve the customers with their services because users’ acceptance is high. Australian Statistical Bureau also indicates that in West Australia, the sales of takeaway food are also increased by 13.5%. Thus the industry has been viewed as one of vastly growing industries and most of the people prefer to utilize drive thru or take away facilities.
2.1.3. Technological Forces
Fast food industry is highly dependent upon technological factors because the companies need to get that technology that can better able to serve the customers within minimum possible time. For this reason in most of the restaurants, instant brewers, coffee makers, ice cream makers, shake makers, hearth and automatic cutters and cookers are installed that can enable the workers to prepare order in minimum possible time. These technological facilities are industry wise available and thus each of the firm with the capacity to invest in technology can attain the benefits.
2.1.4. Demographic Forces
According to the report developed by IBIS World (2015) it was identified that people belonging to the age group of 45-50 are considered as the largest market segment for Fast food industry. This is because of the fact that 21% of Australian population is based on working mothers who are taking care of their households. They have limited time for the preparation of food and management of other activities (Dey, 2016). Therefore they find it convenient to utilize the services of fast food restaurants. In addition to these young professionals makes up 20% of this very market because the segment is looking for best value against limited cost. People belonging to 35-44 years of age group make up 19% of the market and those from 25-34 makes 18%.
The people belonging to age group of 50 and above constitute 6% of the market (Sipahi, 2010). From these facts the trends and preferences of the people can easily be observed. People who belong to 50 and above are more likely to prefer traditional food items or healthy diets as compared to pizzas and sandwiches. Some of them are restricted by medical professionals whilst the others are more oriented towards traditional food items. Therefore sales to this segment are least and organizations need to focus more on offering products according to tastes and preferences of segments that are more lucrative. Hence all these forces affect organizational strategies, offerings or operations (Smith, 2012).
2.2. Industry Level – Porter 5 Forces Model
The industry level analysis of fast food services in Australia can be done by utilizing the tool offer by Michael Porter. According to this tool, there are five major forces that are affecting the firm. Among these are new entrants, substitutes, suppliers, competitors and the customers.
2.2.1. New Entrants
In Australian market, new entrants are facilitated by the government however they need to follow detailed series of steps for starting up the business operations. In order to compete for market share, new entrants need to differentiate products by offering something new and unique to the customers. Therefore it is not quite difficult for new entrants or private startups to overcome this barrier (Smith, 2012). The only problems these firms face can be regarding initial capital investments. Attaining high quality technology as the competitors do, setting up the operations can be of issue for newly developed organizations however if the investments are huge then everything needed for new operations is readily available.
2.2.2. Substitutes
In the industry, there are several firms that are providing instant food delivery services to the customers. The switching cost of these products is relatively low and therefore people can easily switch to the substitute products. Instead of availing burgers, chips and other options they can go for salads and healthier options (Garcia et al., 2014). Therefore threat prevailing in the industry regarding substitutes is very high.
2.2.3. Suppliers
In Australia the fast food chains have options to select from more than thousand suppliers and the screening process is done by adopting the approach of competitive bidding. As a result the supplier power is low and companies can easily switch the services.
2.2.4. Competitors
Among the major players of market are McDonalds, Subway, KFC, Hungry Jack’s and Dominos. These players fight for the major portion of share in Australian Fast food industry and therefore focus keenly on strategies and tactics. The companies offer hamburgers, chicken, fish and chips, pizzas and related fast food services to the customers (Garcia et al., 2014)..
2.2.5. Customers
The power of the customer is also low because there limited range of products is offered to them and prices are usually fixed. Thus customers have the option of switching the services among the competing firms however they cannot shape the fundamental offering or bargain on prices. Most of the people eat fast food and this gives edge to the firms.
2.3. Competitive Analysis – Game theory
Game theory defines the existence of competitors in cooperative manner. People might wonder that why McDonalds and Burger King exist together in malls, airports and other related locations. The reason is them being the elements of game theory in which the competing forces have cooperated with each other with the intention of splitting the profits with each other. As a result, market share of both companies can be maximized ¬(Grant, 2013). Thus location game served to be the indicator of fact that fast food chains usually cluster to compete for best possible locations and then keep even their shares in the market.
3. Analysis of the Firm – McDonalds
McDonalds is one of the major names that is known throughout the world. The company is serving the customers with their famous hamburgers. The company has been operating since 1940 when McDonald and Ray Kroc opened first fast food restaurant in California. The trend of fast food restaurants was familiarized across the globe and widely accepted by the customers (O’Donnell, 2004). Instead of preparing their lunch, individuals belonging to different departments availed its services. Among the key success factors of the firm are difficult to imitate products, unique atmosphere and ambiance, brand image and customer’s orientation towards the brand.
3.1. Goals and Values
The fundamental aims and goals of McDonalds is to serve food products in fun and friendly environment. The company’s basic objective is to become socially responsible and provision of best returns to the shareholders. Thus it can be said that the company aims to maximize its profits, keeping view the essence of social responsibility and considering the importance of its customers.
3.2. Resources based view of the firm
Intangible resources
One of the major resources of McDonalds is its intellectual resources. The brand name, logo, the character associated with the brand and the philosophy under which business is operating is difficult to be copied. The company generates huge amount of revenues just by selling its name. According to the researchers, millions of dollars are earned on daily basis because of franchising.
Human Resources
Secondly the people of organization are another key resource for the firm. All the staff seems to be dedicated and consistent towards provision of services. The physical resources of the firm are the key strengths and these are difficult to be copied by the competing forces. In order to remain competitive in global environment, McDonalds offers competitive salary packages and unique products to the customers.
Technological Resources
In addition to the above mentioned resources, McDonalds is also equipped with state of the art technological resources (Smith, 2012). These resources make it possible for the company and its workers to deliver the services in minimum possible time.
3.3. Core competencies and Sustainable Competitive Advantage
The core competency of McDonalds is provision of convenience to the customers within minimum possible time. The products offered to the customers are low priced as compared to the competitors so that instead of purchasing high priced produces, most of the people tend to purchase services of McDonalds (Amor, 2013). The raw material from which products are made are manufactured or processed by company owned sources so that the standardization of services can be assured. No other competitor holds such competency and instead of utilizing own services, the companies hire external suppliers. As a result, in comparison to those of competitors, McDonalds can save huge amount of money from the suppliers and offer the best quality services to the customers at low prices.
Another competency of McDonalds is unique brand recognition. The specific colors and the presence of clown indicate services of McDonalds and customers recognize it as a speedy brand. The brand is known and widely available throughout the world therefore it successfully uses its brand name for generating huge amount of revenues. Company’s ability to serve well even in the rush hours and timings in which there are huge number of customers, prompt services and unique associations are the capabilities of the firm that can be of help for generating sustainable competitive advantage. The other strategies selected by the firm are mentioned as follows
3.4. Porter Generic Strategies
If the strategies of McDonalds are viewed in detail, it is identified that the company is following cost leadership strategy. As a result, the company focuses on minimizing the costs of products and offers it to the customers at lower prices. In addition to this, at secondary level, the company is also following product differentiation because the restaurant is making the products different from the competitors (Garcia et al., 2014). In order to achieve strategic goals, the company has been doing vertical integration. As a result, the facilities are owned by the organization that produces standardized ingredients. Thus instead of relying on the external parties for the ingredients that are essential for the development of products, the organization uses its own facilities. Hence cost of raw material is decreased at significant level and the company has been able to follow cost leadership strategy.
One of the fundamental reasons behind company’s successful operations across the globe is its intensive strategies (O’Donnell, 2004). McDonalds utilizes all three strategies i.e. market development, market penetration and product development strategies for tapping the unmet needs of the segments and facilitating them with best quality services. More and more customers in the regions in which the company is already functional are invited to the services by franchising (Lessard, Lucea, and Vives, 2013). As a result expansion in new and existing locations can be made possible. Furthermore, market development strategies are also met by focusing on the areas in which the company’s services were not available. For example when the new services were formed such as theme park or shopping mall, services of McDonalds can be easily found there. If product development strategies are viewed, the company keeps on introducing new tastes and brings variation in existing products. As a result more customers are attracted towards its products and services.
4. Conclusions
Among different fast food companies that are operating in Australian region, McDonalds is most famous and is widely accepted by the customers in comparison to the competitors. The company successfully capitalizes its resources for generating value for the customers. Among the most important resources of the firm are its intellectual resources. The brand name, logo and other branding elements are utilized across the world for franchising. The human resources enable the company to maintain the standards in different regions of the world. As a result, the company is able to serve well across the globe and to standardize the service quality. The company aims to facilitate the customers in best possible way and for this reason most of the people prefer to dine in McDonalds as compared to other fast food retailers. The company avails the opportunities available in the environment and uses it for generation of revenues and accomplish strategic goals. If strategies of the company are viewed in detail, it can be identified that McDonalds is adopting cost leadership strategy and offering low cost solutions to the customers. For this reason products of McDonalds are low priced as compared to the competitors. Thus the company has been able to maintain unique position in the market
References
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