Fast Food Industry Assessment 2- Written report Written by: Jieyi Huang (14857289) Dharshikah Amirthalingam (1396063) Zahraa Sahil (1379826) Rahul Mani (0947527) Esmaeilpour, M., Mohamadi, Z., & Rajabi, A. (2016). Effect of Dimensions of Service Quality on the Brand Equity in the Fast Food Industry. Studies In Business & Economics, 11(3), 30-46. doi:10.1515/sbe-2016-0033 (Esmaeilpour, 2016) Telles D’Costa, N. (2017). New Zealand’s fast food industry – a trend analysis . Foodtechnology.co.nz . Retrieved 12 April 2017, from http://www.foodtechnology.co.nz/content/new-zealands-fast-food-industry-trend-analy sis/ (Telles D’Costa, 2017) 1 Table of Contents 2 Introduction Fast food industry had been rapidly growing since the 1920s and it is still growing.This report is for whom that might be interested in entering the fast food industry. This report will address the some background information about fast food industry and the main competitors of the industry. The competitive environment will also be defined by using the Porter’s five forces and strategic map. The industry parameters in terms of size, composition and trend, and macro-environment of the industry will also be mentioned. Definition of Fast Food Industry Fast food is a quick service,easy accessible and cheap option meal that are widely available everywhere, therefore it is highly popular in this fast paced and busy world. With the rapid growth in hospitality sector in the recent years, fast food industry had become a leading segment within the hospitality sector. A World Health Organization (WHO) research study had show that New Zealand is one of the highest fast food consumption in the world. According to New Zealand’s fast food industry trend analysis that had published in 2013 (Food Technology,2013), New Zealand’s fast food is extremely high in a small population country. In 2013, New Zealanders’ expenditure on fast food had reached over $1200-$1500 US dollars per person per year. There are many multinational and local fast food brands are continue to expand their business in New Zealand. For example, Mcdonald’s, KFC, Carl’s jr, Burger Fuel and Pizza Hut etc. They have long competed against each other in the fast food industry in many ways. The rivalry within competitive group is often quite intense as they often compare their products to competitive brand in terms of quality of service,level price and quality of food etc. Therefore a strategic group mapping is essential in analyzing the competitive position and the profitability of businesses within the industry. 3 The strategic group mapping below shows the competitive position of different multinationals and local fast food brands. It can helps businesses identify its close rivals and setting future strategic goals. By looking at the diagram below, fast food businesses tend to clustered around low price with medium level quality of service and high price with higher level quality of service. Therefore, the competition is quite high in those positions. Fast food Industry Parameters Fast food industry in New Zealand has been growing. With new fast food chains being introduced, competition has increased. Fast foods seem to be an easier and cheaper option for most people, thus the increased number of fast food restaurants available in New Zealand. McDonald's still seems to be the leading fast food chain in New Zealand, this is due to their innovative approaches and adaptation to new trends in the industry (Euromonitor International, 2016). The composition of the fast food industry is generally around the thought of being widely available and easily consumed due to the fast and efficient methods. Although fast foods are made up of mostly less healthier options, as shown in the graph (Appendix 1), the notion is that it is fast, efficient, affordable and easy for busy people. The graph clearly portrays that there is room for improvement regarding nutritional composition of fast foods (Eyles, Waterlander, & Whitworth, 2014). 4 Trends that are affecting the fast food industry in New Zealand today are healthier option trends, whereby focus is put on introducing healthier options to consumers to enhance their health and decrease obesity. Healthier options are also normally regarded as cheaper to regular meals; they also contain less sugar, fat, sodium and energy. “ Therefore, there is huge potential for improving nutrition in the New Zealand fast food restaurant setting” (Chand , Eyles, & Mhurchu, 2012). Influencing the youth is another trend as they are a huge consumer of fast foods. Advertising fast foods for youths has been effective as youth have been exposed to this, thus causing conflict between public health and commercial benefits (Hammond, Wyllie, & Casswell, 1991; Wilson, et al., 2006). With New Zealand becoming a multi-ethnic country, another growing trend is the halal industry which the industry has yet to explore as New Zealand is actively seeking to become a halal-friendly destination to attracts more visitors too (Razzaq, Hall, & Prayag, 2016). Details of trends are available in Appendix 2 of this report. Competitive Environment New Zealand is a country which is rich in culture as it has a large multicultural background. This background brings forth a variety of food delicacies. These delicacies provide good competition to the fast-food industry although the threat of new entrants to the fast-food industry is relatively low. This is because of the requirements that need to be met in order for any new fast-food eatery to become successful. The threat of substitute products is relatively high because of the lack of unique products that are in the current market. The fast-food industry is primarily looked at being burgers and fries which are the key products that all fast-food eateries supply to the market. The threat comes into play, if a competing eatery introduces an alternative which is healthier, affordable and takes the same time to make as the regular fast-food products. Bargaining power of buyers is high because there are so many competitors in the industry which will cause the customers of any fast-food eatery to be able to choose one brand over the other quickly if there are any instances which the customer does not like. This proves to be a disadvantage for fast-food eateries. Bargaining power of suppliers is quite low because of the products that fast-food eateries are readily available at a number of suppliers in the industry. So if one supplier is producing a better quality product over another, it will be easy for the fast-food eatery to switch over to the better suited supplier. This becomes a great advantage for fast-food eateries. 5 Competitive rivalry among competitors in the fast-food industry is high because of the large number of different brands in the market who sell the similar products. Therefore, there are two advantages present in the competitive industry of fast-food, compared with three disadvantages. Thus being a tough industry to compete in unless a new eatery is formed which has a very unique product that can give customers a better alternative to the original products in the current market, it may not succeed. Macro-environment There are two main purposes as to why a macro environment analysis is beneficial. To begin with, the analysis will have suggestions for organisational change and advancement. Secondly, by having leaders from every useful area of the organisation required in the analysis, it should be simpler to get their participation when making alterations in light of the analysis. To acquire data required to evaluate the outer prerequisites, research should be embraced, utilising structured systems. Internationally the fast food industry generates more than $570 billion towards our economy. There are many trends that have impacted fast food chains. From sustainability to waste reduction and human treatment of animals, this sector has been liable to many evolving laws. However, regardless of these evolving patterns, the fast food industry has shown strong development based on some vital elements. POLITICAL FACTORS Political factors influencing the fast food industry can differ from nation to nation. However consistency is of vital importance. Globally fast food brands need to conform to a set list of requirements. These controls are related to relevant issues such as wages, food quality and hygiene. In 2012 New Zealand became the first country in the world do sign an agreement with the United States Food and Drug Administration . This partnership recognised each country's food safety systems as providing a comparable degree of food safety quality assurance. The government has also pushed for fast food chains to have more beneficial choices on their menus, as current policies such as the The Food Act 2014, is pushing for the public to be more health conscious when buying food. ECONOMIC FACTORS 6 The recession was an influencing factor on the fast food industry to a certain degree. Since it has passed, there has been an increase in consumer spending. Most restaurants and fast food chains have included less expensive choices in their menus and enhanced client benefit. Customer service proved to be an important area that was focused on during periods of recession or struggling economies, as customer retention proved to be difficult. Changes included included implementing health conscious products which then in turn influenced fast food sales. Enjoyable meals were lacking in pulling in customer. Therefore fast food chains counteracted this with expanding convenience and lowering prices. It was perceived to be cheaper to buy a whole meal than going to the supermarket and buying individual ingredients and making a meal from scratch. Generally financial variables are an essential impact on the fast food industry. This sector has shown great advancement with their capabilities to adapt to changing trends. To better suit low economic activity, lower priced items were included in menus and a larger but cheaper variety of products became available. However consumer spending is always dependent on the available disposable income that an individual has, and this is the hey determining factor for this industry. SOCIAL FACTORS Healthy eating and lifestyle trends, have been a major influencing factor on the fast food industry today. Consumers now think before they eat, and due to a constant change in consumer attitudes and perceptions, fast food brands have been more consumer conscious and introduced low calorie options. The media has played an important role in the perception of the industry as it was criticised for targeting unhealthy food alternatives to young children. Therefore the concept of healthy eating is being pushed and directly affects the sales in this sector, as the industry was being held liable for encouraging and promoting childhood obesity. Therefore, as a result of this, labels including nutritional content and lowered calories needed to be visible on products. TECHNOLOGICAL FACTORS This sector is not only highly dependent on the appeal of its menu towards consumers, but customer service and overall convenience is a relevant factor that affects sales. Technological factors have brought about change to the way in which large brands communicate and engage with their customers. The rate of change within the industry has influenced major operating changes. When technology changes it then forces the industry to adapt and change their mode of operations as well. Stock and machinery need to constantly be upheld and 7 maintained, and if modifications need to be made, then competitors within the industry need to be able to maintain and update themselves as new technology is brought forward. Social media platforms such as Facebook, Twitter and Instagram to name a few, help these large brands interact with their customers on a 24/7 basis. It provides the chance for them to engage and provide an indispensable form of customer service. Recommendations To be successful in the fast food industry, the client is recommend to provide a good quality of service despite how much a customer spends. This will benefit the industry in the long run as customers will have a sense of comfort when approaching a fast food chain due to previous experience. Also by doing so, customers are likely to feel equality amongst the other customers despite having a small order compared to another. For example, a customer orders 1 burger and another orders 10 burgers- Both customers should receive the same level and quality of service. Having customer customization for personal options is also an advantage. The fast food industry is continuing to grow; therefore new advancements need to be taken into consideration to be able to keep customers attracted between numerous competitors. Therefore, allowing customers to personalise their meals by adding in, ‘more salad’ or ‘less cheese’ is giving customers the authority to be included in making their meal the way they want. This is an important factor as individuals will feel included and at the same time they will know their diet better so they are able to eliminate ingredients, at the same time add in their preferred ingredients. For example, Greenlane McDonald’s has the “make your own burger” option available. Forming a partnership with health initiatives is also recommended. Poor health and increased obesity is a target in New Zealand. New Zealanders are large consumers of fast food which has resulted in being significantly unhealthy, increasing the obesity rates within the New Zealand community. By introducing healthier options, this will contribute towards a healthy meal for those that consume fast foods every day. An example of a health initiative partnership would be, McDonalds sharing a partnership with weight watchers by introducing a healthy burger that fits within their menu, however, has less calories compared to their 8 usual burgers. This will enhance consumers to be eating slightly healthier meals whilst being able to continue consuming their choice of fast good. Also this will benefit the community as a whole by promoting healthier options and decreasing obesity. Conclusion Overall, we would recommend the client to enter the fast food industry after analysing the fast food industry in terms of the industry parameters and key trends, macro environment factors and the competitive environment. Fast food industry would seem to have a bright future ahead not only because of the convenience of the purchase but also there are emerging trends like food customization that better suits the customers. 9 References Chand , A., Eyles, H., & Mhurchu, C. N. (2012). Availability and accessibility of healthier options and nutrition information at New Zealand fast food restaurants. Appetite , 227-233. Euromonitor International. (2016, August). Fast Food in New Zealand . Retrieved from Euromonitor International: http://www.euromonitor.com/fast-food-in-new-zealand/report Eyles, H., Waterlander, W. E., & Whitworth, L. (2014). Healthiness of popular fast food items in New Zealand: plenty of room for improvement. The New Zealand Medical Journal , 102-105. Hammond, K. M., Wyllie, A., & Casswell, S. (1999). The extent and nature of televised food advertising to New Zealand children and adolescents. Public Health , 49-55. Razzaq, S., Hall, M., & Prayag, G. (2016). The capacity of New Zealand to accommodate the halal tourism market — Or not. Tourism Management Perspectives , 92-97. Wilson, N., Signal , L., Nicholls, S., & Thompson, G. (2006). Marketing fat and sugar to children on New Zealand television. Preventive Medicine , 96-101. Appendix 1 10 %RDI adult a Combo Meals(burger, fries, soft/fizzy drink) Energy Saturated fat Sugar Sugar WHO b Sodium KFC (n=2) Male 25-28% 5-6% 35-36 % 100-101 % 51-62% Female 34-38% 7-9% 48% 135-136 % 51-62% McD (n=4) Male 23-30% 8-18% 33-35 % 94-98% 50-62% Female 31-41% 11-26% 44-47 % 127-132 % 50-62% BK (n=4) Male 26-41% 11-20% 36-49 % 102-138 % 32-76% Female 35-54% 16-28% 48-65 % 137-185 % 32-76% Pizza (3 slices) PH (n=4) Male 17-20% 15-19% 5-8% 13-24% 49-68% Female 23-26% 22-27% 6-11% 18-32% 49-68% a. RDI values used include (for males/females respectively): energy 13,300/9900kJ; saturated fat 42.3/31.5g; sugar 117.4/87.4g; sodium 2,300mg. b. WHO guideline for sugar intake (5%RDI). Retrieved from https://www.nzma.org.nz/journal/read-the-journal/all-issues/2010-2019/2014/vol-126-no -1392/letters-waterlander 11 Appendix 2 There are certain key trends that are affecting fast food demand in New Zealand today, these include: a) Health and wellness trends in fast food – with over 3000 organised fast food outlets across the country, the New Zealand fast food market is now facing intense scrutiny over its need to provide healthier options. As fast food manufacturers are faced with constant price pressure there is an equal stimulus to provide healthy fast food options in order to retain consumer loyalty. While most fast food manufacturers today offer ‘healthy’ variants, the products are, in general, viewed with scepticism. The pressure to provide cost-effective healthy options is immense and often unviable for such enterprises as more and more chains offer meals for as low as $1 ($US 0.8). However, going healthy is currently the only successful way out for an industry that will otherwise ultimately face stagnation, especially as obesity and cardio vascular disease incidences rise in New Zealand. The importance of this trend is already apparent as almost all fast food chains have healthy variants. One such example is the McDonald’s Weight Watcher co-branding venture. MacDonald’s New Zealand in 2010 became one of the first fast food giants globally to tie up with the highly acclaimed Weight Watchers programme. Three meal combinations are available based on Weight Watchers Points – a proprietary calculation based on a food’s calories, fat and fibre content b) Focusing on local produce – as fast food chains aim to capture local flavours and go ethnic in order to woo the ever changing fast food consumer, the local trend has emerged as the biggest cash cow for this industry. The introduction of products that use local produce has been seen as a key driver of this trend as consumers feel that their purchases directly benefit the Kiwi agricultural and livestock society. One such example was the introduction of the classic lamb burger. Burger Fuel, for instance, provides a lamb burger with 100 per cent NZ lamb, with kiwifruit and aioli amongst other options. All three of these ingredients in addition to a side of kumara chips are considered ‘kiwiana’ and are a key reason why this indigenous organisation has grown from strength to strength by providing local ingredients in an international format c) Influencing the youth – with strong branding and low cost options, fast food chains have 12 chosen to appeal to the most lucrative segment of the population – that of the youth. As more and more New Zealanders move to larger cities to work and study, the fast food sector has cashed in on these young people as a key consumer segment. Additionally, as a key employer for students (McDonald’s New Zealand is the country’s largest youth employer) the company has chosen to keep its customers close to its core and thereby ensuring that a large portion of its customers are from its employees itself. This focus on the younger population and constant reduction of prices to cater to students and young people on a budget has proven to be a high volume market for fast food chains and will continue to be one of its major growth drivers over the years to come Retrieved from http://www.foodtechnology.co.nz/content/new-zealands-fast-food-industry-trend-analysis/ Halal Trend Some hospitality businesses in New Zealand are also embracing the concept of halal. A prime example is Burger Fuel, an international fast food chain which started in New Zealand, which has a number of outlets in the Middle East. According to Burger Fuel’s website, the meat used in all their outlets are certified halal and that any of their burgers can be “halalified”, by ensuring that the food and the utensils used to prepare the burgers are washed, cleaned, and separated from non-halal foods and utensils to ensure no cross contamination occurs. Retrieved from https://ir.canterbury.ac.nz/bitstream/handle/10092/11923/Razzaq,%20Serrin%20MCom%20t hesis.pdf?sequence=1 PLZ change, if doesn’t agree 13 Peer Assessment Form for Strategic Management Available Marks Max. /5 Participation in Group Activities (Process) Group members: Jieyi DharshiKah Rahul Zahraa 1.1 Attendance: Group member was present for group meetings/class. 5/5 5/5 5/5 5/5 1.2 Punctuality : Group member arrived at scheduled meetings and in class on time (or gave apologies for lateness or absence). They ensure things get done on time. Group does not have to significantly adjust deadlines or work responsibilities because of group member. 5/5 5/5 5/5 5/5 1.3 Prepared: Group member was well prepared with material required, prior reading or work completed to date for Group discussions in class/meetings. 5/5 5/5 5/5 5/5 1.4 Interpersonal Relations : Group member positively contributed to group performance (friendly, prompt and regular communication by email, text, phone or in person, helped group focus on tasks, move ahead to meet deadlines, motivate others, constructively resolve conflicts and was not destructive to group functioning, readily contributed to ideas.) 5/5 5/5 5/5 5/5 1.5 Team Player: Group member contributed and provided useful ideas to group on-line or in-person discussions. Listens to, shares with, and 5/5 5/5 5/5 5/5 14 supports the efforts of others. Tries to keep people working well together. Performance (Actual Task) 2.1 Quality of work Group member did high quality work: Well researched, edited and correct. 5/5 5/5 5/5 5/5 2.2 Quantity of Work: Group member took responsibility for completing integral portions of the project, or the management of the project process. 5/5 5/5 5/5 5/5 2.3 Project Deadlines : Group member positively contributed to group performance by meeting set task deadlines by uploading completed work (for example into Dropbox) for peer review on time. 5/5 5/5 5/5 5/5 TOTAL /40 40/40 40/40 40/40 40/40 Strategic Management - Assessment 2 -Coversheet -Title Page -Contents Page -Executive Summary (150 words) -Introduction (100 words) -Definition of Industry (ADA) -Competitive environment ( RAHUL) -Industry Parameters (ZAHRAA) -Macro-environment ( DHARSHIKAH) -Conclusions (100 words) -Recommendations ( GROUP) -References (4 References each person) -Appendices 15 -Minimum of 4 references each -330 words per section, unless advised -Diagrams to be included in Appendicies 16