I. The character and attractiveness of the U.S. food service and fast-food industries in 1994
The fast-food industry is considered a subsection of the food service industry, or rather a submarket within a broader market. This broader industry, the US food service industry, is in what is known as the maturity stage. Typically, the maturity stage exemplifies the following characteristics: •Sales continue but at slower pace.
•Competition leads to decreased market share or prices.
•Competing products become very similar and differentiating product becomes both crucial and more difficult As a result, firms need to place their efforts into encouraging competitors’ customers to switch to their product offering, increase usage per customer and even convert non-users into customers. At this stage, the primary goal of a given firm is to maintain market share. The food service industry, as is the fast-food industry, is typified by franchising which became well-established in the early 1950s. The concept held and in 1994 there were over 550, 000 restaurants and food outlets in America. Although the industry in 1994 was slowing, that is not to say that it was not growing. Food service industry sales were forecast to surpass $275 billion and this had grown at an estimated compound annual rate of 3.9% from 1988 till 1994. This billion dollar industry is dominated by the fast-food and full service segments who commanded annual sales of $86 billion and $85.5 billion dollars respectively. The fast-food segment is prima facie, a very attractive one. Not only did the segment grow 5.6%, outpacing almost all other food categories but its future is also promising with a forecast of 6.3% growth in 1994. In addition, the share of industry sales by the fast-food industry has risen by 1.8 years over the last 5 years showing market dominance and growth. When we consider the fast-food industry specifically, pizza, family restaurants and dinner houses are the winners if we assess growth. The chicken segment, in which KFC competes, grew only 4.1% as demographics changed and the trend towards healthier eating gained momentum. Figure 1 illustrates the market share held by each of the fast-food categories.
However, though there has been seemingly strong growth up until now, assessing market attractiveness inherently involves some element of forecasting as we need not only assess current attractiveness, but future scenarios as well. Consumer preferences in 1994 were changing.
•There was a move away from fried unhealthy food to healthier options •As per the survey in 1994, consumers showed a desire for a greater variety of menu items •In this time, consumers also began expecting greater value for their money. This will inevitably have implications on the price strategy pursued by a firm as it puts pressure on lowering price and developing a viable cost structure. Other things being equal, this detracts from market attractiveness as it presents new and problematic challenges for current and potential competing firms.
II. The major competitors for KFC
KFC’s competitors can be considered in the context of consumers’ purchasing and consumption behaviours. The consumer segments can be classified depending on the benefits sought by the consumer. These benefits include the convenience of a fast food chain such as KFC, the satisfaction resulting from consumption and the attractive prices of the products. The success of the fast-food industry can be partly attributed to its universal appeal of convenience for the consumer in satisfying the basic physiological need for food. KFC’s competitors can be ranked accordingly. Figure 2 ranks the competitors of KFC from the most...