The Market-Leader in the UK Fast Food Industry - Essay Example

The market-leader in the UK fast food industry Table of Content Serial Number and Topic Head Page Number 0 Introduction 02 2.0 Executive Summary 02 3.0 The Trend 04 4.0 PESTEL Analysis 07 4.1 Political Trend 07 4.2 Environmental Trend 09 4.3 Social Trend 10 4.4 Economic Trend 13 4.5 Legislative Trend 14 5.0 Porter's Five Forces 15 6.0 Recommendation 17 7.0 Conclusion 18 8.0 References 20 1.0 Introduction Mr Cod is UK's leading fast food take-away and restaurant business specialising in fish and chicken. The story of Mr Cod began sometime in 1979, when it opened its first UK outlet near London. Since then, the company has come a long way expanding its presence in other parts of the UK through dedicated network of franchisees. The company is now poised to enter foreign markets, thanks to its strong base development in the UK. So what makes Mr Cod tick And why is Mr Cod chosen as the forerunner in the fast food business in the UK Mr Cod is among the top British companies to successfully compete with existing multinationals in the country. The company manages its operations through specialised American machinery to international standards, but with a difference. Mr Cod has its roots firmly targeting British sentiments and maintains a high quality that is synonymous of its service. Mr Cod's special Fish and Chips and other famous chicken products are, in the opinion of its staunch supporters and existing franchisees, superior to any multinational competitor. Mr Cod is the brainchild of Mr John Brewer, a pioneer of fast food franchising in the UK, and a former director of Kentucky Fried Chicken. He became a founder member of the British Franchise Association in 1977, and a founder member of the British Fast Food Federation in 1978 (Mr. Cod, Mr. Cod Background and History, www.mrcod.com). 2.0 Executive Summary The fast-food industry has seen a remarkable upward trend in recent years in the UK. It was estimated that this business industry, which, if coffee shops were included, was valued at around 10.78bn, in 2005, an increase of 4% to the corresponding period the previous year. It's quite easy to predict the cause for this growth pattern. With globalisation come opportunities. Its not just here in the UK or in Europe, but the world itself is becoming one big union. China was the first to break the communist jinx and follow a path to liberalisation and open market. This opened the floodgates and multinational companies took advantage of the benefits of cheap labour and raw materials to establish and expand their market presence there. It didn't take long for other Asian countries to recognise the benefit of liberalisation. Soon others joined the bandwagon to economic freedom and FDI. Perhaps one might wonder what this has got to do with the fast food industry. Time! Just about everyone competes with the other for space. Fast-paced and time restrained, the people who make things happen, have just no time to share the table with their colleagues and family. Gone are the days when families got together on weekends over a barbeque and had fun. Today, the world is fast-paced. Only those who have the inclination and dedication for fast-paced life, survive. Breakfasts during transit, business meetings over lunch, and late dinner are a part of an executive's life. Liberalisation and globalisation has brought countries closer to each other. With more and more conglomerates setting up their business in other countries, competition has become stiff. Time is money and people just don't seem to have the time to sit over a cup of coffee with a paper in their hand. This phenomenon has created opportunities for hoteliers and other like-minded entrepreneurs as well. Fast food for the fast-paced! Just about every corner of the street is occupied by a burger or hot dog vendor making a decent income by sunset. Welcome to the world of fast foods. This tradition has caught the imagination of almost all people around the globe. In the UK, it is no different. Burger King Ltd, Domino's Pizza Group Ltd, Greggs PLC, Kentucky Fried Chicken (Great Britain) Ltd, McDonald's Restaurants Ltd, Perfect Pizza Ltd, Pizza Hut (UK) Ltd, Prt--Manger (Europe) Ltd, Wimpy Restaurants, and Group Ltd are some familiar fast food restaurant names conspicuous throughout the UK. While most of them are imports from the U.S through franchisees, there are a few native fast food restaurants that are more traditional and making waves here. Mr Cod is one among them, and will be the company on the dissection table for this thesis on the market leader in fast foods in the UK. 3.0 The Trend As mentioned above, fast food is the solution for providing quick meals for the executives of today. In response to this demand, many fast-food outlets have mushroomed across the UK, leading to healthy competition. The number of outlets and spatial locations has multiplied by the day and people now have the choice of Western, Continental, Chinese, and Indian fast food. Because of this, the many, till now standalone fast-food outlets, are facing increased competition from multiple retailers who have moved into this market with their own in-house cafs and fast-food restaurants. This phenomenon has come about with increased demand. However, much to the chagrin of the consumer, these outlets have been far from health consciousness. In order to cater to as many people as possible, these restaurants have sacrificed quality. A growing number of consumers have shown concern over the lack of hygienic and quality standards in the recent past. Fast food is not just for the man on the move any more. Children are addicted to this as well. The repercussions are far too dangerous to ignore. Key Note's research showed that more than half of those visiting fast-food restaurants recently, have begun to alter their eating patterns by opting for healthier meals (e.g. sandwiches and salads), reducing their frequency of visiting outlets or opting for smaller portion sizes (Fast Food & Home Delivery Outlets Market Report Plus, 2006)1. This does not by any means indicate that the number of people visiting fast food restaurants has decreased. But there is another section of society that has the time and inclination to seek food of their preference. This has opened the avenue for Coffee shops to enter the fray. Coffee shops remain a favourite of the affluent and older consumers, than the traditional young and less affluent users of fast-food outlets. Despite health concerns, fast food will remain ever so popular with the majority of people around the world. It is estimated that more than 60% adults visited a major fast-food outlet in the past 6 months (Fast Food & Home Delivery Outlets Market Report Plus, 2006)2. However, the health factor will have an impact on the future demand for fast foods, with sandwiches, chicken and pizza likely to be the fastest-growing areas of the market, according to Fast Food & Home Delivery Outlets Market Report. "The future growth of the fast food industry is expected to be relatively stable, with an annual average growth less than 5% per annum, considering the current prices predicted over the next 5 years. This figure can further decrease, if the government bans, or limits advertisements on junk food' aimed at children. On a more positive note, the advent of online ordering through the internet and mobile phones will only support their business cause" (Fast Food & Home Delivery Outlets Market Report Plus, www.marketresearch.com, 2006). In the face of such uncertainties, Mr Cod is one native fast food restaurant that has been doing well. It has managed to establish a strong customer base for itself and is now expanding its operations to other parts of the UK through franchisee operations. Mr Cod built up a reputation of being a high quality and health conscious business restaurant. . Though all its major equipments are designed in the USA, it makes it mandatory to get the machines approved to British standards. The success of Mr Cod is attributed to the use of the best equipment in cooking, and food display. High quality equipment enhances the quality of the food served to customers, display of good, hot food at correct temperature serves to delight the connoisseur, and controlled costs help Mr Cod maintain its clientele in the face of growing competition. However, with sustained marketing initiatives and growing demand, competition is bound to heat up. This calls for new initiatives. This is what, this paper will seek to identify in the following chapters on PESTEL Analysis, and Porter's Five Forces. 4.0 PESTEL Analysis PESTEL stands for Political, Economic, Social, Technical, Environment, and Legislative. It is a strategic planning technique that provides a useful framework for analysing the various external pressures on a team or an organisation. Graph Courtesy: PESTEL Analysis. PDF 4.1Political Trend: In essence, any major business relationship needs the support and patronage of individuals. Political changes bring about new policies and standards. Legislation can be either advantageous or disadvantageous. These issues must be kept in mind by restaurants to sustain and improve their business. With globalisation, government policies to immigration and business have been redefined. The influx of people into this country has also grown. Different visas are offered to skilled and semi-skilled workers seeking entry into the UK. Business visas are also offered to individuals and companies that can contribute to the economic development of the country. In such a scenario, restaurant owners find their clientele more cosmopolitan. Many international companies have entered the UK to take advantage of flexible business policies that are advantageous and highly profitable. This had led to the import of personnel as well. Government policies change from time to time, and such policies need to be addressed carefully by industry gurus. Positive government policies to allow foreign students, visitors, business people, and migrants to this country have helped hoteliers immensely. This may not be the case always, as new legislations can at times be more damaging than favourable. "A litigation brought by a group of overweight children against McDonald's Corporation for compensation for obesity-related health problems provoked an intense public response. Many derided this lawsuit as representing the worst excesses of the tort liability system. Fast-food litigation raised the question of accountability for the economic and public health consequences of obesity." (Michelle M. Mello, Eric B. Rimm and David M, Studdert, 2003). It is therefore imperative that Mr Cod seek a very cordial relationship with politicians. The benefits are immense. The company gets political/bureaucratic patron; is able to get favours in government contracts, will be able to secure government funding, so necessary for national and international expansion, have access to inside information on present and future government policies; this is an avenue that will help the business considerably, as the company can then plan its strategic move well ahead of its competitors, get favourable legislation, and protect against other arms of the bureaucracy attempting to implement legislation which may threaten the company's business interests, and protects the company against competitors (Richard Mead, International Management, 2005, p.194). Americans call this 'sweetheart deals'. Such relationships occur in all societies. They are particularly prevalent where rapid economic and social changes are experienced. 4.2 Environmental Trend: As a service organisation, Mr Cod needs to develop appropriate strategies to retain, or even build up customer relationships in the face of competition. This can be brought about by tracing service defects and monitoring feedbacks from customers. In some cases, a remedial action such as compensation can be augmented to deliver the right message. Customers like to be recognised and rewarded, so taking a step to accomplish this will only help bridge the gap between the public and the organisation. We see a lot of service oriented companies come forward to reward their die-hard customers. This helps in retention as well as customer growth. Often, it is possible to convert a service failure into an advantage for the firm. Empathize with customers and turn an inconvenience into an act which proves the caring attitude of the firm towards the customers. This is an essential element of public relations. Mr Cod as a fast food restaurant could help turn things in its favour by offering instant deliveries of hot, hygienic food on demand. In the case of late deliveries, the company can offer the customer an incentive of sorts. Customers love surprises, so why not use this as a tool to the advantage. A hot cup of coffee maybe or a discount for the delay will suffice. This will send the right message to the customer. Similarly, if an executive is kept waiting for his order, Mr Cod could offer a complimentary drink, or better still, offer to deliver the order at his office, free of cost. Such service will only bring more accolades to the restaurant. Location is also of prime importance. No customer likes the idea of going out of the way to eat, unless he/she has ample time or inclination to do so. Therefore, it is imperative that Mr Cod identifies suitable locations within close proximity to metros, bus stops, business centres to improve their client base. The criteria involved in seeking suitable sites for franchise can be looked at on two levels. Companies looking to develop the Mr Cod brand to an existing chain of outlets, at shopping centres, service stations, airports and the like, and/or, New entrants will need to be close to pubs and clubs, schools, universities and high density residential populations. Cost implication for any business to survive is primary. Irrespective of the service and quality, fast food restaurants need to service their customers with food that does not hurt their pocket. It's alright to talk of quality and punctuality, but money is equally important. As an investor, what counts ultimately, is the returns. If the returns are minimal, then the business may not survive for too long. Products need to be priced in keeping with competition. Unless a customer is satisfied with the product, he/she will not patronise the restaurant. This is a cause for concern. Just pricing will not suffice. The atmosphere, the service, the price and the product must all synchronise to make the venture successful. This is precisely what Mr Cod needs to concentrate on; the concept of healthy British standard food at competitive prices. 4.3 Social Trend: With globalisation, people from all around the world, have come to the UK for work and business. They bring with them a culture that is alien to the UK. They have different dress code, eating habits, and other living standards. What is most appealing to these visitors is the taste of their native food. Restaurants around the country try to import the best cooks from around the world to make these visitors feel at home. May it be just British, or European, Chinese or Indian, or Ethnic, restaurants in the UK have been trying to bring the best of both worlds to their table. The expectations of the foreigners are very high. They expect very high standards in the quality of life and the food they eat. It is this impression that has to be fulfilled. The UK has a very strong presence of Asians. These people migrated here decades ago in search of a happy life. The numbers have multiplied over the years and today, the number of Asians in the UK is quite substantial. The recent trend of hiring professionals has also led to an increase of foreigners. Most alien workers in the country are single and spend most of their time at work. This leaves them with little or no time at all to make their food. They bank on restaurants to fill their palate. It is true that adults, young and old, living alone are less likely to cook a meal than their contemporaries living with family or friends. Young singles often have active social lives and it is generally the case that it is more difficult to cook meals for one than for a group, so the takeaway option is most popular, more so with younger adults living alone. The increase in the numbers of single-person households has helped fast food and takeaway sales. With young adults staying independently, the coming decades will see the number of single person households grow considerably, aiding the growth of fast food market. Adults living together will witness a decrease, sending the demand for fast foods and takeaways soaring The diet of people living in areas of multiple deprivations, or in families of lower socio-economic status, is especially poor. This is true with children from the same background. In contrast, the diet of families from the higher socio-economic background, as in England, is characterised by high consumption of convenience foods, carbonated drinks, dairy products and low intake of homemade foods, fresh fruit and vegetables. Mr Cod can send out the right message that, the company stands for quality and performs to the British standards of health and hygiene. With competition increasing, many companies try to impress their clients through advertisements. As a fast food restaurant, Mr Cod could do well by spreading its service through word of mouth. Mr Cod is also known for its high class quality and service. With its existing happy customers, Mr Cod can build on the current strength of clients. Spreading word through mouth is more convincing than through other media. Ultimately it's the customer's satisfaction that comes first. With this in mind, Mr Cod can go a step further to service their clients better. As a small organisation, the existing customers may feel very welcome and cared for. This is the kind of ambience and response that a customer looks forward to. The restaurant can achieve higher growth if it can add a bit more fizz to its public relations in introducing more ethnic and continental food to its menu. It should involve the service of overseas catering professionals to give the menu a native look and taste. This will make the restaurant more authentic and attractive. With more and more foreigners entering the UK for business and work, ethnic food will bring more clients. The recruitment of overseas staff to handle customers in their native language will improve customer retention as well. 4.4 Economic Trend: Today's economy is global economy.This is true whether, it is global, national or regional. Globalisation has brought people closer and business and investment opportunities abound for people who understand the new world order, and evolving global economy. The rewards are great for those who are ready to take advantage of new opportunities. With the British economy growing, more and more opportunities are on the anvil, giving way to entrepreneurs to invest and enjoy economic success here. With investment comes employment. A lot more people are employed and this indirectly helps restaurants earn more. Economics plays a vital role in decision making in all spheres of life. The same is the case with the fast food business. With growth, more and more opportunities develop, and along with this, the scope for more business develops. The spending capacity of individuals grows and this reflects in the way people spend money on food, clothing and shelter. This trend is seen throughout the world. Europe is experiencing buoyant economic growth. The trend in Asia is very encouraging. The GDP growth for 2006 was estimated at 2.6%, while the forecast for 2007, stands at 2.4%. Inflation will be down 0.6%, from 2.6% in 2006 to 2.0% in 2007 (HM Treasury, 2006). The economic boom has witnessed varying lifestyle trends in the UK. Rising incomes, longer working hours, more working mothers, and time-poor/cash-rich parents tend to support a 'convenience food culture' and the increased consumption of HFSS (High in fats, salt and sugar) foods. In order to support the above theory consider this: The demand for ready-meals in Britain grew by 44% between 1990 and 2002, while Growth across Europe as a whole was 29%. Britain is now consuming double the amount of amount of ready-meals consumed in France and six times the number in Spain. 80% of households in the UK have a microwave, compared with 27% in Italy (Ofcom, 2004). Mr Cod, a fast food restaurant is the ideal setting to tap the growing market, for the simple reason that it caters to people with absolutely no time for socialising. The logic behind serving the people on the run fits Mr Cod quite well. They serve light food and target those who check in for a quick bite. The idea of introducing special takeaways will also add more flavour and encourage customers to walk in and order. With some serious investment, the reach of the company can be achieved. With its existing base, the company can easily develop a strong customer base in other unrepresented places. Franchisee options should also bring in the desired result of higher growth and profitability. Standards must be maintained to make the customers see no difference. 4.5 Legislative Trends: In the face of uncertain health risks through consumption of fast foods, legislation to develop effective nutrition policies for the UK was considered. The UK food and drink industry is considered the largest manufacturing sector in the UK and plays a vital role in the country's economy. Legislation aims to satisfy consumer needs and expectations by making it imperative for hotels/restaurants/fast food eateries to supply wholesome, safe, enjoyable, and nutritious products at value for money. Food and Drink Federation (FDF) represents and promotes the industry's common interests by developing and implementing policies and information and education programmes on all these above key issues. Opposition to the new era of globalisation is emerging in the food system. The effect of this can be seen in the questioning of not just the products of the food system but the nature of its production and distribution in the UK. Mr Cod has maintained quality to British standards and uses the best imported machinery at its outlets. Franchisees are also made to follow the stringent quality standards offered to customers. Thus, Mr Cod has made a clich for itself as a truly British fast food catering to British standards. 5.0 Porter's Five Forces Porter's five forces is a strategic tool that is employed by those who seek to develop an edge over rival firms in business. So what are the so called five forces In order to understand this better, one needs to know the definition of business. Finet.com defines business as 'An organisation operated with the objective of making a profit from the sale of goods or services'3. If there are two or more organisations with the same product or service, profits would diminish, as each one would try to beat the other with discounts and incentives, which naturally eats into their profit. Fast food and takeaways have to compete with each other and with larger established restaurants to sustain their operations. This is where Porter's five forces come handy. These are but simple practices that need to be dealt with precision and dedication. 1. Supplier Power 2. Barriers to Entry 3. Threat of Substitutes 4. Degree of Rivalry 5. Buyer Power Supplier Power is all about supplies and its relevance to business profits. Barriers to entry is about product/service launch and sustaining it, threat of substitutes is about switching costs, buyer inclination to substitutes and so on, rivalry is all about business, and buyer power, as the name suggests, is about bargaining. The above is just a snippet of what these five forces constitute, there are more to it. However, all these point to one particular point - Rivalry. As mentioned, competition among rival companies can drive profit levels to zero, but companies are not unsophisticated passives price takers and do social work. They strive for that elusive competitive advantage over their rivals that will see them take the major share of profit. Thus, the intensity of rivalry among firms varies across industries. If a few firms hold a large market share, the competitive landscape is less competitive, and if a low concentration ratio indicates that the industry is characterised by many rivals, as in the case of fast foods and takeaways, and none have a significant market share, this market is said to be highly competitive. When rivalry acts in a way that elicits a counter - responses by other firms, rivalry intensifies. In order to beat rivalry and competition, the five forces of Porter can be applied to the advantage of the company. Some of the basic business tactics used by business houses to beat competition are: Manipulate existing market prices Improving product differentiation Creative use of channels of distribution Exploit the relationship with suppliers 6.0 Recommendation In the context of the above, Mr Cod is a fast food restaurant that caters to people on the move. The company faces immense competition from takeaways and other street corner restaurants. The company needs to improvise to categorically distinguish itself from the others. Price is an important factor in determining success and profit. Most restaurants or eateries slash prices to attract customers. This brings down their profits. Small and street corner restaurants can still manage higher profits by cutting prices, due to their lower overheads. This is not the case with more established companies like Mr Cod. Mr Cod has a reputation to maintain, quality standards to follow, and higher overheads to run the business. None of these can be compromised for higher profits. In this situation, the company can implement certain PESTEL and Porter's five forces, to achieve sustainability and growth in this highly competitive market. Favourable legislation in the form of incentives to local restaurants will help Mr Cod maintain stringent British health and quality standards. Political favours will enhance the reputation of the company in the face of foreign competition, which is ever so conspicuous. The import of foreign caterers will enhance authenticity and bring in more expatriates to the counter. As price reductions are unadvised, Mr Cod needs to look at a strong supplier-buyer relationship. This will enhance profits without cutting into prices. Customers who are health conscious would opt for higher quality products at higher prices. Health is utmost important. Medical bills are a bane to society and this is something that Mr Cod can publicise. However, to attract more street smart executives to them, the company can offer attractive add-ons or discounts on certain products to maintain a pro-customer image. Another feature that most customers are concerned at is reach. Mr Cod may not be able to service too many regions from a single base. This needs to be addressed. The opening of franchisees will help remove this stigma. Franchisees will generate more business and develop the company image. The selection of franchisees must be done with utmost care. The franchise must maintain the same quality and service offered by the parent company and for this should have the same kind of machinery and qualified staff. The company must be able to influence politicians to introduce laws to their advantage. Opening of franchisees in unrepresented and important places should be their prerogative. On the whole, Mr Cod can outsmart competition with a little more focus on these external and internal factors. 7.0 Conclusion In a service industry, innovation, quality, cost-effectiveness and customer-responsiveness is of immense importance. Mr Cod has benefited from all the above. The fast food is known for its quality and customer satisfaction. Within a highly competitive market that has many multinational giants in the fray, Mr Cod has attained a name for itself. Started in 1979, the company has grown over the years in the face of hostile competition. This speaks volume of its strategy in customer retention. The company has grown so much that it now has plans to open in more countries than the existing two in South Africa and New Zealand. Most fast food restaurants have run into legal tangles due to their health hazard ness. Mr. Cod on the other hand, has been conceptualised as a true British company that stands for health and quality. This is perhaps what stands it apart from the rest. There is no denying that the company has a long way to go before it can rub shoulders with the 'biggies'. However, having come through the rough in the 27 years of its existence, Mr. Cod has come to stay. 8.0 References 1.0 Fast Food & Home Delivery Outlets Market Report Plus, http://www.marketresearch.com/product/display.aspproductid=1370868&xs=r&SID=74219772-372876848-307570380 2.0 Mr. Cod, Mr. Cod Background and History, www.mrcod.com 3.0 PESTEL Analysis, http://www.improvementnetwork.gov.uk/imp/aio/1033478 4.0 Richard Mead, International Management, Cross-Cultural Dimensions, 3rd Edition, Blackwell Publishing, 2005 5.0 The Chartered Institute of Bankers in Scotland, Customer Relationship Management, p.70, http://www.ciobs.org.uk/qualifications/pastpapers/CharteredBankerExamsSpring2006.pdf 6.0 Michelle M. Mello, Eric B. Rimm and David M. Studdert, The McLawsuit: The Fast-Food Industry and Legal Accountability for Obesity, Health Affairs, 2003, http://healthaff.highwire.org/cgi/content/abstract/22/6/207 7.0 HM Treasury, Forecasts for the UK Economy: Index, http://www.hm-treasury.gov.uk/economic_data_and_tools/forecast_for_the_uk_economy/data_forecasts_index.cfm 8.0 Ofcom, Children's food choices, parents' understanding and influence, and the role of food promotions, Executive Summary & Conclusions, http://www.ofcom.org.uk/research/tv/reports/food_ads/ 9.0 Fast Food, September Report, http://www.keynote.co.uk/FAST%20FOOD%20_%20SEPTEMBER_1%20KN%20version.pdf Read More