The Fast Food And Quick Service Restaurant Industry Marketing Essay

The Fast Food And Quick Service Restaurant Industry Marketing Essay For the mid-term paper I have chosen the food beverage category from the 2008 Inc 500 list. Companies in this industry are involved in processing, packaging and delivering of food and beverage. This includes prepared foods, packaged foods, alcoholic and nonalcoholic beverages. The company with the highest revenue on this list is Wingstop with revenue of $206.6 million in 2008 and the company with the highest growth rate is The Snack Factory with a growth as high as 18,371.3%. The company in lowest quartile of the top 2008 Inc. 500 Food Beverage list that I think will move up the most positions is a company called Saladworks. In this paper I will evaluate for the different companies what industry they are in and if it is an attractive industry. I will use Michael Porters five basic competitive forces to evaluate the competition and profitability of the industries. The basic forces are threat of new entrants, power of suppliers, power of customers, threat of substitutes and rivalry among existing competitors. For Wingstop and The Snack Factory I will further evaluate positioning, competitive advantage, trends, customers, products, business model, core competencies and competition for each. For Saladworks I will explain why I think they will move up the most positions. Wingstop is a Restaurant chain serving made-to-order buffalo chicken wings, side dishes and beer in 28 states across the U.S. (Inc 500) The company was founded in 1994 and was successful in creating a niche in chicken dining. They started franchising in 1997 and have a nostalgic, aviation-theme in their restaurants. The industry that they are in is the fast food and quick-service restaurant industry. I will have a look at industry competition to evaluate if this is an attractive industry. The threat of new entrants in this industry is moderate. There are some important barriers to entry but the lack of some significant ones makes it vulnerable. The barriers that are in place are high investments and high fixed costs. Especially marketing and advertising costs to keep existing customers and getting new ones are high for the big chains. There is relatively high degree of brand loyalty to some branded chains and franchise licenses are protected as intellectual property. The barriers that are not in place includes the absent of economics of scale meaning even small local stores can be profitable. Many consumers are also price sensitive and the cost of switching is low. Because of the lack of some of the most important barriers the threat of new entries is substantial. The power of suppliers in this industry is considerable but mostly for small restaurants. The distribution to the fast food chains is dominated by a few large suppliers that can put pressure on smaller businesses. But with the bigger chains like McDonalds the suppliers stand weaker in a bargaining situation. The power of customers and the pressure they can put on the industry is relatively moderate. This is because the consumers in principle can produce the product themselves if they want. They are also price-sensitive so the prices are kept low and it doesnt cost customers anything to switch to an alternative product. The threat of substitutes in the industry is high. Fast food faces constant competition from home cooked food. In addition the fast food product is not differentiated and consumers can easily go from McDonalds to for example Burger King. The price for most fast foods is in the same low range and it is easy to switch to an alternative restaurant. Rivalry among existing competitors is also high. There are many small players with the same size but in the high end a number of big franchise chains. They have many of the same strategies such as low price, quick service and quality. There is almost no differentiation between the businesses and the growth of one company goes on the expense of a competitor so spending on advertising tends to be high. The industry has suffered a lot of criticism coming from the high coverage of negative health effects and obesity from diverse media. Even do rivalry between competitors is high and there is a lot of negative media coverage this is an attractive industry to be in. People are still buying these often calorie busting products and the sales were more than $180 billion in 2007. (Hoovers) Positioning Wingstop position itself as healthy finger food chain. They use lot of funds to market that the chain is not selling unhealthy fast food and that they always serve fresh homemade food. Their competitive advantages include their award-winning recipes and simple concept, but also important is their marketing and distribution partnership with high profile American football team Dallas Cowboys. Their deal with the team has made them the exclusive chicken wing vendor in the team stadium and also made a lot of hype around the chain. With more than 600 open or under development restaurants in 27 states they have proven that the concept is scalable in the U.S. The simple concept of selling just chicken wings with some side dishes has been well received by the public. Scalability internationally is more difficult because buffalo chicken wings are a traditional American bar food and are not widely available outside the U.S. Scalability in the ranks of McDonalds is therefore questionable but no t impossible with the right use of resources. Their advantage is also sustainable if they continue with the simple concept, focus solely on the chicken wings and invest further in the process that makes them unique among competitors. This chain is definitely here to stay. Trends A trend that is working against the company is the increased media focus on health and diet issues associated with fast food chains. The industry is also very competitive and Wingstop has to spend a lot on advertising to keep consumers away from their competitors. Another trend that is acting for the company is the increasingly busy workdays that make people eat out instead of making food at home. Consumers often chose the fastest and cheapest alternative when they are in a hurry and need to eat on the go. Problem The problem Wingstop is solving is the elementary need for food and the need for having it made and served fast when people dont have time do make it themselves. The need for food is an aspirin problem with regards to Maslows hierarchy of needs because the physiological need must be met or the human body simply cannot continue to function. But the need for a fast meal is rather a strong vitamin problem because even with hectic workdays you can decide to take time to make your own food. The job to be done is to be available and visible to serve customers. Customers The customers are everyday consumers that have a liking for chicken wings. The consumers are families looking to have a good time without having to cook themselves and singles with a hectic workdays that doesnt have time cook and need something easy. Product Their product is primarily Buffalo style chicken wings but they also sell different chicken types, side dishes and beer. Other chicken alternatives are boneless strips and breaded chicken. Their side dishes includes fresh cut seasoned fries, potato salad, creamy cole slaw, hot cheddar cheese sauce, bourbon baked beans, crispy veggie sticks and dips. More than just the physical products they sell an experience. The American bar experience in a 1930-40s pre-jet aviation theme inspired setting. Business model Their business model is that of a manufacturer. Their main product is a nondurable physical asset in the form of food and they buy the raw materials and transform them into their product as a creator. Even do they outsource much of the actual production as a large part of their branch consist of franchises they are still a creator. Wingstop have clear routines for every franchise so that the product tastes the same everywhere you buy it and so they do substantial design of the product and are therefore not a distributor. Core competencies To continue to succeed Wingstop need to be top of the line when it comes to marketing. In addition to the process of making the popular chicken wings they sell their most important core competency is the ability to advertise the brand and create hype around their restaurant chain. They have extended a contract with their national spokesman, Super Bowl hero Troy Aikman and this shows that they are on the right track. As mentioned earlier the competition among fast food chains are tough and the only ones that survives are the ones that get through too consumers and keeps them coming back. To get consumers to come back the food and service in the restaurants needs to be excellent. Because many of their restaurants are franchises they need to be good at creating solid routines so the experience in the restaurants doesnt differ from each other. But the most important factor to continue the success is to be visible and stand out among the fast food restaurants and this must be done by adve rtising and creative marketing. Competition The competition Wingstop faces is all the different fast food chains including not only the restaurants that sell chicken wings but also the ones that offer hamburgers, pizza tacos and more. The big competitors in the segments as a whole are McDonalds, Burger King, Wendys, Pizza Hut and Taco Bell to mention some that has a large part of the market shares. More directly Wingstop has to compete with the other restaurants offering similar chicken wing meals. Some of the competitor chains are Buffalo Wild Wings, Hooters, Wing Zone, Applebees, Brinker, Carlson Restaurants, Damons, Darden, Family Sports Concepts, Fox Hound Restaurant, Ker Inc, Papa Johns and Zaxbys (Hoovers). The biggest competitor from the list is Buffalo Wild Wings (BWW). They had revenues of $422.4 million in 2008 and operate a chain of more than 550 restaurants in nearly 40 states. Besides the chicken wings they are very famous for their dipping sauces that accompanies. They also sell appetizers, burgers, tacos, salads, beer wine and other beverages. Like Wingstop they have used relationships with sports to market themselves as a sports bar franchise. Another competitor worth mentioning is Hooters which have had success with the restaurant experience they offer consumers and this factor is more important than the food they serve. Hooters have a beach theme and their waitresses dress in the chains trademark bright orange short shorts and tight T-shirts and are known as Hooter girls. By focusing on the special atmosphere they have managed to differentiate themselves and gained a competitive advantage. This has also opened the door for international expansion and they now have 450 Hooters restaurants in about 45 states and more than 25 other countries. The Snack Factory Background The Snack Factory is a family owned and operated business that makes and sells crunchy snacks. The company was founded in 1981 by Sara and Warren Wilson. Warren started out with selling funnel cakes based on his grandmothers recipe on country fairs in 1969 and paid his way through college with the proceeds. After college he opened a store selling funnel cakes in New Jersey and here he met Sara. The two of them started to develop the company called Funnel Cake Factory and eventually made a concept of bagel chips that was flat crunchy chips made from bagels into a company called New York Style Bagel Chip Company. This was a new idea and consumers welcomed the new product. The bagel chips company was later sold to Nabisco in 1992 and the funnel cake company was sold to JJ Snack Foods a few years later. The entrepreneurs didnt stop and used the following years to develop a thin but crunchy pretzel great for dipping and spreading that became known as Pretzel Crisps. Industry The Snack Factory is in the snack foods industry which can be explained as Companies that manufacture, process, and/or package snack foods, including salty snacks, nuts, snack bars, and snack mixes (Hoovers). The threat of new entrants in the industry is low on national and international level. A major barrier of entry in this market is very high degree of brand loyalty. The big companies with their popular brands make it very difficult to come in to the market and establish a new brand. It is easier to enter on the local level because the consumers are open to local products. Customers are price sensitive in this industry too but with already very low prices it is difficult to enter and compete with the larger corporations. The power of suppliers in this industry is low. Most of the raw foods for the snack manufacturers come from farmers and they dont have strong bargaining power. Farmers have no choice but to follow the prices the snack manufacturers will give them. The power of customers is also not very high in this industry. Customers are supermarkets that again sell to consumers. The supermarkets and the likes need to provide the consumers with the snack brands they want or they will go somewhere else. The stores therefore have weak bargaining power towards the manufacturers but indirect the manufacturers have to listen to the consumers that are price sensitive and set the price so they will buy the product. The threat of substitutes in the industry is on the other hand high. There is continuous threat from existing snack food and also from new alternatives. There isnt much to differentiate a bag of chips from another and the customers have to buy in what the consumers want the most because they cant carry every brand. Rivalry among existing competitors is also high. There is fierce rivalry among the biggest companies and advertising and marketing budget are extremely high. Because of low differentiation and that growth goes on the expense of a competitor making customer buy and keep buying is crucial. Despite high costs on promotion and brand advertising and large corporations competing to capture larger shares of the market this is also an attractive industry. The industry generates billions of dollars in revenue and if you as a company manage to take some shares of the market there is large profit involved Positioning The Snack Factory position themselves as a healthy snack alternative with less calories, cholesterol and fat compared to other snack alternatives. Both the founders and their family members are involved with the company and this gives the company a family business image. Their most important competitive advantages are the made in America brand and recipe that is developed over several years combined with the expertise the Wilsons holds. They have already demonstrated that it is scalable by increasing distribution to some of Americas largest retailers having a growth as high as 18,371.3% last year. But the family based company can only supply to so many before they need to expand production and that can be in conflict with their image. The growth may therefore not be too sustainable, but with the product in the hands of a bigger snack manufacturer the growth might continue. This would mean an exit for the Wilson like they did with the other two companies but they are entrepreneurs and will probably keep going for the next big thing. Trends A trend that is acting for the company is the media focus mentioned earlier on health effects from eating food with high calorie and fat amounts. People are becoming more and more concerned about these issues and have started to choose more healthy alternatives. Another trend working for them is the consumer interest for made in America brand products. Having this label can appeal to Americans who associate this with high quality and the feeling of contributing to keep production in the U.S. A trend that is acting against the company is that many of the large competitors also have shifted focus over on healthy snack products and have much more money to use on marketing their products. Problem The problem The Snack Factory is solving is the hunger consumers have between the main meals of the day that are breakfast, lunch and dinner. Snack food is an alternative to be eaten between these meals as an energy supply or for taste enjoyment. This problem is also is also a vitamin need. The job to be done is to provide a product that the consumers see as an alternative to the many different types of snack foods. It also has to be available as many consumers buy these products on impulse usually when they are shopping for something entirely different. Customers The Snack Factorys customers are the large retailers, supermarkets and fine stores who sell the products to the end customer the consumers. Retailers and supermarkets they are already supplying to include Sams Club, Whole Foods, Shaws Supermarket and many others across the U.S and Canada. Sams Club is a chain of membership-only retail warehouses and is today serving more than 47 million U.S. members. Whole Foods is a food retailer of natural and organic products and have more than 275 locations in the United States, Canada and United Kingdom. Shaws Supermarket is the second largest grocery group in the New England States and operates 200 stores solely across New England. Product The product The Snack Factory is selling is Pretzels Crisps. The product is like a normal pretzel only that the middle is removed. The product has a lot of crunch and flavor and is made with no trans fats, no saturated fat and no cholesterol and only containing 110 calories per serving. The product is meant as a snack straight from the bag but also for dipping and spread for toppings. The Pretzels Crisps come in many different flavors including original, garlic, honey mustard onion, buffalo wing, dark chocolate, peanut butter and chipotle cheddar. The price out to the end users from retailers and supermarkets is around $2.99. Business model Their business model is that of a manufacturer like Wingstop. The Pretzels Crisps they are making is a nondurable asset so they are classified as physical. The pretzels are made from raw material to the final products that they sell out. This kind of transformation of the asset classifies the company a creator. A creator of physical assets follows the basic business model of a manufacturer. Core competencies To continue the success The Snack Factory need to put more capital into marketing if they are going to continue the growth they have experienced. Their core competency lies with the experience in developing new food products and recipes for the preparation of the Pretzels Crisps. Sara says, We believe its the product that catapults us. Sure, we do some marketing, but our success came before we did any marketing. The product itself makes people come back for more. (Inc 500. Sep 1, 2008) It is obvious that the company is not spending much on advertising and they have been using in-store samplings as the most used marketing method. This approach has gotten the company so far and they have said they were looking into the opportunity to expand to Asia and Europe while keeping the business personable and family oriented. But coming from a local factory start and beginning to compete with the large snack manufacturers this will provide some challenges. The industry consists of large corpora tions competing hard to capture shares and they spend heavily on promotion campaigns to convince customers to buy their product. To compete with these corporations they have to be good at marketing in a big scale. The company doesnt have the experience with taking products to compete in the top since they sold the previous companies before they got there. If they are to pursue international growth they need to get better in marketing, partner up with companies that have the experience or they should make an exit and sell. Competition Their competition is as mentioned the large players in the snack industry. There was no company information on The Snack Factory in the Hoovers database but looking at the information for the company J J Snack Foods that acquired their funnel cake company I found a list of competitors in the snack business. In the US they will have to compete with companies like J J Snack Foods, Frito-Lay, Mrs. Fields, Snyders of Hanover, American Dairy Queen, Auntie Annes, Cinnabon, Dawn Food Products, Dreyerss, General Mills, Interstate Bakeries, Jamba, Jel Sert, Juice It Up, Kellogg U.S. Snacks, Kraft Foods, Lance Snacks, Mister Twister Pretzels, Nestle USA, Otis Spunkmeyer, Planet Smoothie, Pretzels, Inc, Ruiz Foods Inc., Sara Lee, Smoothie King, Sorbee International, Wetzels Pretzels, Dippin Dots, Flowers Foods, Golden Enterprises, Goya, Hanover Foods, Mckee Foods and Tasty Baking. There are a lot of players in the industry and they are all looking to maximize market share. One competitor worth mentioning is Frito-Lay that sells more chips than any other company in North America. Their top selling food snacks include well known products such as Cheetos, Doritos, Fritos and Lays. They have responded to the market trends and have bought several healthy snack brands and they spend heavily on marketing to stay on the top. Saladworks Saladworks is in the lowest quartile of the top 2008 Inc. 500 Food Beverage list. The company had revenues of $5.5 million and a growth of 98.3%. Saladworks was founded by John Scardapane in 1986 and started out with a single location in the Cherry Hill Mall in Southern New Jersey. It is the first and largest tossed-salad franchise in the U.S. with 104 locations in 9 states today. The idea of the franchise and their positioning is to provide fresh and healthy salads as alternative food for consumers on the go. They sell primarily gourmet salads but also soups, wraps, sandwiches and more. In 2008 they also added signature salads to the menu. They invited four A-list chefs to create four different salads that became the signature series. The competitive advantage that Saladworks has is being first with turning fast food in to a healthier meal and the chef expertise in the development making it hard for copycats to follow. The company had a major growth in 2002 when they managed to add 21 new franchise locations in only 10 months. Consumer response and the growth Saladworks has experienced prove that it is scalable. The company is in the fast food and quick-service restaurant industry same as Wingstop. As mentioned earlier the competitive landscape is hard in this industry with moderate threat of new entrants, considerable bargaining power of suppliers, moderate power of customers, high levels of both threats of new substitutes and rivalry amongst the competitors. A large trend in this industry is need for healthy alternatives among the many unhealthy fast foods. The businesses that sell products with high calories have started to include some healthy alternatives as side dishes in their menus. But unable to shift entirely over to healthy alternatives is difficult because their brand is associated with their products. Where would McDonalds be if they threw out their burgers and started selling only salads? Because SaladWorks is first and largest and places itself in the industry with trends on their side I see the potential of the company franchising more across the U.S and possible also to Europe. They signed a contract for ten new locations in Metro Atlanta in 2008 and in 2009 they have expanded with new stores in Virginia. They have also made deals for opening new locations in California and Boston. With the plans for expansions, market trends on their side and the advantages of being one of the first I think this company will move up many positions on the Inc 500 Food Beverage list for the years to come.