Case Analysis for Yum! Brands

Topics: Pizza Hut, Fast food restaurant, Fast food Pages: 5 (1312 words) Published: February 12, 2008
Page 1

1. What are the primary driving forces in the U.S fast food industry in 2004

The primary driving forces in the U.S. fast food industry for 2004 are as follows:

There is a major increase in globalization, no matter where you travel to in this time period you are guaranteed to either see a McDonalds or a Pizza Hut. The fast food industry has diversified it product line by offering semi healthy choices, such as chicken, salads, fajitas or pizza. To this end, consumers want choices. Consumers are more likely to be a repeat buyer at a certain fast food chain; if they find something they like, they stick to it. To this end, competition efforts have to more aggressive than ever. The market is reaching its maturity stage so again, competition has to be very aggressive. It is harder to gain market share now because the market is so established. Locations for fast food restaurants do not have to be as traditional anymore; it is common to see a McDonalds in the middle of Wal-mart or at the mall. Consumers are also more educated and will not support companies that are not ethically responsible. For example, KFE receive a lot of bad press from PETA because of its unnatural way its treats and grows its chickens. To this end, KFC has not been able to meet it growth objectives.

2. Using the Porter's Five Forces Model, assess the strengths of each competitive force in the fast food industry.

Porter's Five Forces Model includes the following: in the center is competition, on the left are suppliers, on the right are customers, on the top is substitute products and finally on the bottom is entry barriers.

I will begin from the middle and discuss competition:

First movers have gained significantly in the competition segment and it mainly is because of brand recognition and loyalty. There are so many fast food chains, often located in the same plaza so competition is very fierce. To this end, fast food chains are constantly offering promotions, games (such as monopoly), toys or new menu items. Heavy advertisement is a must in the fast food industry. This is a strong force.

Moving to the left I will discuss suppliers:
This industry offers many suppliers so fast food chains have the option to shop around and find the lowest costs available. There are many different suppliers that are needed; for cups, napkins, meat, buns, soda syrup, sandwich wrappers, potato provider…the list is endless. This is a weak force because of the bargaining abilities.

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Moving to the right side of the model, I will discuss customers: Customers are the most important part of a business so right off the bat; I can tell you it's a strong force. Customers who eat fast food for the most part are price conscious and have limited time. To this end, they want convenience, choices and quality food at an inexpensive price.

Moving to the top of the chart, I will discuss substitutes:
There are many substitutes against fast food chains; so again, this is a very strong force. Substitutes include but are not limited to:
Pizza shops (local shops or chains like Pizza hut), Deli's (locally owned or franchises like Subway or Quizno's), full service restaurants—(such as TGIF, Ruby Tuesday's or the Olive Garden), quick easy to make products from the supermarket, (microwavable to go cups, frozen pizza, hot pockets)

Finally moving to the bottom of the model, I will discuss entry barriers: This is a weak force because this is a maturing market. The costs associated with market entry are very high. Brand loyalty for most consumers has already been established—quite possibly from childhood.

3. Is the fast food industry attractive?

The fast food industry is not attractive; the number reason being that consumers are becoming more health concerned so even though this is a saturated industry –sales seem to be declining. Furthermore, it is not attractive because it is a mature market and the costs of entering it are most likely...
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