What are the implications of industry transition to maturity for existing fast-food chains?****

Question

What will be an ideal response?

Answer 1

• A conflict often develops over the choice of a business strategy (differentiation, cost, or focus). During the early stages of the product life cycle, most fast-food chains attracted customers based on the specific characteristics of their menu offerings (KFC’s Original Recipe Fried Chicken with its eleven herbs and spices, McDonald’s Big Mac, and Burger King’s Whopper “Made Your Way”). During this period, differentiation of the product was more important than cost. Today, consumers are demanding more value for their dollar, better and quicker service, and greater menu selection. This has forced competitors to promote more heavily, invest in product development, spend more to improve service, and offer greater value by lowering prices. This has caused a conflict over whether a competitor’s business strategy should be based on differentiation or cost.*
• Improved cost analysis becomes critical. The fact that competitors continue to invest in new product development is one sign that the food service industry has not yet reached full maturity, but is in the beginning phases of maturity. While competitors continue to search for new products to draw customers away from their competitors, they are forced to more closely analyze the contribution to profit from individual products, cannibalization of sales from existing products as a result of new product offerings, and elimination of unprofitable products.*
• Process innovations are necessary to lower costs. As consumers demand greater value and competitors search for ways to lower costs, pressures have increased to improve efficiency in operations. KFC, for example, has invested heavily in computerized pressure cookers, which have improved product consistency and lowered cooking costs.*
• Growth is often accomplished by increasing the frequency of visits of existing customers rather than through new restaurant growth. While industry sales growth has slowed, competitors have been forced to grow by (1) taking customers away from competitors or (2) increasing the frequency of visits of their existing customers. Fast-food chains have done this by offering new products, increasing promotions, and improving service.*
• New restaurant growth may be possible by acquiring unprofitable competitors. By acquiring unprofitable or financially distressed competitors, often at below-market prices, competitors may increase new store growth by converting the acquired stores into their own units. At the same time, they eliminate a competitor from the marketplace.*
• International expansion may be necessary to ensure future growth and to extend the industry’s product life cycle.*