Essay: Competition & Pricing In Australian Fast Food Industry.

Research Methodology

Write a report about the state of competition in this industry (Week 4’s topic) and how the companies price their product or use non-price strategies to get customers, and how they grow their businesses. Recommend how they could grow and improve their pricing and non-price strategies.

How many parts will the report have?

The report will have three key parts:

(i)Part I: write a literature review (an overview) of the state of competition in the industry in recent times, and developments that have and might occur in it

(ii)Part II: write about how the companies are trying to grow their business. Recommend growth strategies.

(iii)Part III: discuss the pricing and non-pricing strategies used by the businesses (based on your observations). You may support these observations by citing published works that speak about similar used elsewhere (news articles, books, reports, journal papers). Recommend strategies.

Critical analysis is important to get good marks

Use critical analysis throughout your report.

Critical analysis means demonstrate you have analysed your observations in an intelligent and creative way to unearth and identify patterns, motives or some interesting insight.

It is not merely saying, “I saw this… I saw that”. It is about “I saw Company A do this…, but this was not done by Company B. I noticed that because Company A had less staff, they could not do that. Also, I observed that Company A priced certain products like this… but the other company prices them differently, like this..., possibly because...”.

When citing published works, students should use credible, reputable Internet articles and/or books, journals and government, industry or other reports to support and enrich their findings. Do not cite blogs written by people who are not authorities in the subject. Do not cite a Facebook page.

Analysis refers to the ability to examine something in detail or carefully, and say something insightful or interesting. Tease out interesting points, patterns, behaviours or complexities. Offer a critique if possible.

Analysis shows that you had thought about the matter in a careful, creative or deep way. It is ‘perspicacious’, meaning ‘having or showing an ability to notice and understand things that are difficult or not obvious’ (Merriam-Webster Dictionary).

When writing, therefore, dig deep and look for interesting details that are not so obvious, or contrasting points of view, opinions or highlight a related, published finding.

Reports that describe observations or provides information from a reference source are fine. However, reports that largely contain only descriptive material are not desirable. Marks will be lost.

Industry Analysis

These types of reports normally contain

(i) simplistic observations without any analysis;

(ii) long background sections about the subject of your study but does not address the core task adequately; or

(iii)  lengthy repetitions of textbook theory or concepts that is already obvious.

Avoid relying on simplistic and general statements (example: “If prices go up for this product, demand should fall according to the law of demand”).

Analysis is evident when you curiously inquire. Think, investigate for information, write. For example, is the demand for Samsung smartphones rising over time, or is plateauing? Does this reveal something interesting about the nature of demand for smartphones (a bit of research might reveal that the market for smartphones in general is saturated— everybody already has one)? Higher marks for such type of analysis.

Mistakes in spelling, grammar and in the use of punctuation will be penalised. Marks will be deducted for incomplete sentences or sentences that do not make sense.

The style, formatting, and language used should be neat and consistent.

The components of the report (the table of contents, the abstract, and the various sections of the report and the figures and tables used within it) should be either in accordance with the ICMS Style Guide or any other guideline suggested by the lecturer.

Thus figures and tables must be properly numbered and have a caption. Black-and-white words and headings should be used. Otherwise, marks will be deducted.

Use Calibri or Times New Roman font. Use font size of 12 points. Use single spacing. Have a line of spacing between paragraphs.

Inconsistent font type or font size, improper spacing between paragraphs (paragraphs should be separated from each other by a line of spacing) and a poorly-organised reference section result in lower marks.

When you support your writing with reference sources (secondary data), ensure these are good sources of information. Ensure they are credible (avoid Wikipedia and blogs, unless these blogs are written by someone authoritative, e.g., an economist).

Acceptable literature includes news or business articles from the Internet (good sources such as BBC, The Australian Financial Review etc.), government reports, journal articles, academic or other published books.

Cite your sources in the main text, and include the full reference in the references section.

The more sources, the better, but within reasonable limits – use your judgement whether you have time or space in your report. However, have at least five items in your references to qualify for a pass grade.

Research Methodology

The report aims to analyze competitiveness of fast food industry in Australia. A comparative analysis has been conducted between the two leading fast food centers of Australia – McDonald and Hungry Jack. In the fast food industry of Australia, Mc Donald first stepped in 1971. The first outlet of the company was located at Yagoona, a suburb situated near Sydney. Now, the company has more than 900 outlets including both wholly owned and franchises having more than 90,000 employees (mcdonalds.com.au, 2018). Mc Donald enjoys a leading position in the market capturing largest share in the industry. The retail outlets of Mc Donald in Australia follows the format of global standardized restaurant.

Mc Donald however faces a larger competitive threat from Hungry Jack especially in the hamburger segment. Hungry Jack one franchise of Burger King Corporation. Like Mc Donald Hungry Jack started its operation in Australia since 1971 having its first outlet in Perth. Within ten years of operation, the number of stores in Australia increased to 26. In 1990, Hungry Jack got the permission to operate independently in the food industry. Currently Hungry Jack has nearly 390 stores in Australia (hungryjacks.com.au, 2018). Mc Donald holds the leading position in the industry while Hungry Jack is considered as the most featured follower or runner up. Hungry Jack mostly follows the strategy of Mc Donald and tries its best to modify its marketing strategy in line with the most dominating player in the industry.

The research report includes both primary and secondary researches for drawing conclusion. The primary research is based on interviewing managers and employers of local outlets of McDonald and Hungry Jack in Sydney. The growth strategies and pricing and non-pricing strategies are of the two companies are mostly based on primary research. The secondary data related to the industry or particular strategies of the company are collected from company’s website and published new articles.

Section 3 consists the industry analysis. This section has three subsections. Section 3.1 provides a brief overview of fast food industry in Australia to understand the degree of competition in the industry. Section 3.2 examines the growth strategies of the two selected fast food shops using information gathered from primary research. Finally, section 3.3 analyzes pricing and non-pricing strategies of two leading companies using supportive evidences from secondary researches.

The fast food industry in Australia is found to be concentrated entirely with degree of standardization. This indicates that the existing restaurant in the industry deeply focuses on maintain their customer base despite having considerable competition in the industry. Since the end of financial year of 2014, concentration by some dominating players has drawn major attention of industry analyst (Sacks et al., 2015). Australian fast food industry holds an important position in the chain of restaurant industry attracting significant attention. The concerned industry has a larger and better control in the industry.

Industry Analysis

The degree of competitiveness in the industry is well regulated and aligned with customer preferences. The competitiveness of fast food industry in Australia can be analyzed using porter’s five forces of competition. These forces include bargaining power of buyers and sellers, threat of substitute products, fear of new entry and rivalry in the industry.

Bargaining power of sellers: The sellers of fast food are in a position to influence the market price. This is reflected from shift in price within the financial year. The risk management strategies are such that they get significant power to influence other suppliers and price in the market.

Threat of substitutes: Players in the fast food industry compete to hold the top four shares in the market. The threat of substitution in the industry come from the fact that which of the dominating competitor is able to attract more customers.

Bargaining power of buyers: The market for consumer is the most interesting aspect analyzing competition in the industry. In the market, price keeps on changing depending on preference and demand of buyers. Restaurants design their marketing strategy depending on structure of cost and consumers’ preference. In order to meet specific preference of customers, the restaurants go for specialization (Palmer & Grace, 2014) For example, while Mc Donald focuses on diversifying burgers and French fries, Subway is more focused to boost its sale of hotdogs.

New entrants: The fear of new entrants is relatively less imperative for Australian fast food industry. One factor that restricts entry is the market capitalization. The new entrants not only need to focus on developing their grand image but also consider the capital outlay.

Rivalry among competitors: The industry faces high degree of competition among the rivals. In the industry there are big brands like Mc Donald and KFC along with several medium and smaller brands as well selling wide variety of snacks and other quick eats (Han, 2018).

The top fast food chains in Australia include McDonald’s, KFC, Subway, Hungry Jack’s, Domino’s pizza, Red Rooster, Nando’s, Eagle Boys Pizza and Oporto.

As shown from the figure Mc Donald is the number one quick service restaurant. It accounts 52.7 percent of eating or take away food in the industry. In the second position, there is KFC followed by subway and Hungry Jack

Table 1: Average number of visits per customers in an average four weeks

Fast food shop	Average number of customers
Mc Donald	2.7
Subway	2.3
Hungry Jack's	2.2
Nando's	2
KFC	1.9
Pizza Hut	1.9
Domino's Pizza	1.8
Red Rooster	1.8
Oporto	1.7
Eagle Boys Pizza	1.6

The fast food marker however is unfolding new era of competition. The health awareness of competitors has rapidly transformed the fast food industry in the last five years. Customers now have become increasingly aware about the nutritional content in the offered food. The efforts of customers to find out healthy food option have influenced demand of fast food centers (ibisworld.com.au, 2018). The existing operators in the industry have now come with a range of healthy food option containing less fat, salt and sugar. Along with changing product option for existing competitors, it also open avenues for new entrants coming with higher quality fast food.

Growth Strategies

This section discusses the generic and intensive growth strategy of Mc Donald and Hungry Jack based on the primary survey conducted in outlets located in Sydney. The company’s managers and employers are asked question related strategies adapted for business expansion. The survey result summarizes that both Mc Donald and Hungry Jack have some similar kind of strategy. In order to maintain core competencies, the primary focus of both the fast food shop focus on cost leadership. That is, they intend to minimize cost as low as possible to offer products at a cheaper price.

The second generic growth strategy of the two companies include product differentiation. Both aim to differentiate their product to establish a unique identity in the market. Mc Donald devices the broad differentiation strategy through its Mc café products. In order to win over burger wars, Hungry Jack recently launch Grill Master beef burger. The working staff in Hungry Jacks confirms that in order to differentiate its coffee from other similar restaurant particular focus has been given on improving tastes. Hungry Jack offers coffee prepared with 100 percent good quality of Arabica beans.

The chief marketing officer of Hungry Jack informs that the company is facing an increasing competition from opening up of new burger stores. To maintain a competitive edge in the market they continuously review customers’ feedback and add changes to their menu. Mc Donald has launched the biggest lunchbox. Initially company offered free sampling to the customer to have a taste of it. Asking customer about the new lunchbox, the study reveals that it was very successful in Sydney gaining high popularity among the buyers. After sample testing in Sydney, the company has attempted to move the product around different cities of Australia.

Market penetration and market development are part of two intensive growth strategy of both Mc Donald and Hungry Jack. Through these two strategies, companies focus on expanding their business and increase their revenue. For Mc Donald product development is an important intensive growth strategy. Under this strategy the company focuses on introducing newer products. These new products can be either differentiation of existing products or introduction of a completely new product. It develops new product overtime such as Mc Café products. Product development though is relatively less significant for Hungry Jack; it recently focuses on introducing new product to compete in the industry.

The analysis of growth strategies of the two company reveal that both the companies are taking generic and intensive growth strategies overtime. With a love for fast food among Australian and continuous product development, there are considerable opportunity. The companies are planning to open new stores in Sydney with a better outlook. In Sydney, Mc Donald closed its outlets in George Street to open a new larger store following a larger format at the Circular Quay. Hungry Jack is also planning to open an “up-market” Flagship store in Galeries at the corner of Pitt Street (smh.com.au, 2018). Besides, both are planning to open new stores across Australia ensuring horizontal growth in the industry.

The section discusses pricing and non-pricing strategies of the two companies using evidences from primary researches. Local stores in Sydney have been visited and questions were asked to mangers, employees and buyers to understand relevant strategies.

The two leading fast food restaurant McDonald and Hungry Jack follow different pricing strategies as part of their marketing mix. Mc Donald takes the strategy of price bundling in the form of meals and others. It is an effective strategy for boosting sales as company bundles up several products with cheaper packages. Customers appreciate bundles at McDonald as they are able to purchase burgers, soft drinks and fries at a cheaper price compared to the cost if they are purchased individually. Mc Donald also uses a psychological pricing strategy to make the product more affordable. Pricing in Hungry Jack is done in a cost effective manner. Hungry Jack faces competition with major players in the fast food industry such as Mc Donald, KFC, Subway and others. Hungry Jack sets prices in such a way that minimize their costs.  The company takes a market based strategy for designing price where prices are set taking into consideration demand and supply condition in the market. Burgers of Hungry jack fall in the price range from 1 to 3 Australian dollar. Like Mc Donald Hungry Jack also offers product bundling in order to increase their market share and earns a larger revenue. Currently, Hungry Jack has two different options for meals – the kid’s meal and the value meal. Burgers of Hungry Jack comes at a much more reasonable price. The focus on cost effectiveness allows Hungry Jack to offer burgers and meals at a lower price compared to Mc Donald. Apart from delicious burgers Hungry Jack is in a comparatively advantageous position in terms of price. The menu prices of Hungry Jack come at considerably low price than rivals like McDonald, KFC, Chicken treat and others.

In order to compare prices, menu price of Mc Donald and Hungry Jacks are collected from the stores.  Given below the are list of menu price in Mc Donald and Hungry Jack

Burger and Combos
	Mc Donald (Big Mac)	Hungry Jack
Burger only	$5.85	$5.90
Meal (Small)	$9.35	$9.20
Meal (medium)	$10.00	$9.90
Meal (Large)	$10.65	$10.60

Desserts
	Mc Donald	Hungry Jack
Sundae (small)	$3.05	$2.00
Sundae (Large)	$3.85	$4.15

Cold Drinks
	Mc Donald	Hungry Jack
Soft Drink (small)	$2.50	$2.70
Soft Drink (Medium)	$3.00	$3.20
Soft Drinks (Large)	$3.65	$3.65
Shake (Small)	$3.50	$3.05
Shake (medium)	$4.05	$3.55
Shake (large)	$4.50	$4.65

Kids Menu
	Mc Donald	Hungry Jack
Cheeseburger Happy meal	$5.30	$5.25
Chicken nuggets happy meal- 3 pc	$5.30	$4.95
Chicken nuggets happy meal- 6 pc	$7.55	$6.95

Mc Donald and Hungry Jack offer similar kinds of products which include hamburgers or cheeseburgers available in small, medium and large size, chicken or beef filling, sides, desserts and drinks. Both of them offers customer convenient and quick meal service either at the restaurant or take away food to enjoy the food at home. Despite offering similar products, they use different strategies to promote tangible and intangible products. McDonald though provides a wider choice for each category, the company however does not define any unique selling point to address unique features and benefits. Hungry Jack on the other hand focuses on developing superior quality of product. For this they have declared their products as “Better Eggs”, “Better Beef”, “Better Chips”, “Better Coffee”. Both Hungry Jack and Mc Donald though source fresh quality of Australian beef, however only Hungry Jack ensures that the beef is raised that are free from added hormones used for growth. Similarly, both the fast food shop offers coffee prepared with 100 percent Arabica coffee beans. Hungry Jack however ensures best quality coffee with by sourcing coffee from Brazil, Mexico and Papua New Guinea.

Promotion of the products is another important part of marketing strategy. Mc Donald spends a larger sum of money in promotional activities compared to other competitors in the industry. The company attempts to promote its product through different communication media such as advertising in radio, televisions, internet, offering sponsorship to local basketball, AFL, McDoanld charity fund and other attractive sales promotion. Direct marketing program of Mc Donald include McHappy Day and other programs in social media. In order to compete with Mc Donald Hungry Jack also gives attention to promotional activities. The investment in promotional activities by Mc Donald is relatively lower compared to Mc Donald. Hungry Jack allows the customers to send mail and registered themselves to enjoy super deals more frequently. It then used as a direct marketing strategy of the company.

The primary and secondary research on pricing and non-pricing strategies reveal that product bundling, advertisement or promotional strategy and product differentiation are important part of their marketing strategy. Any new entrants or existing competitors thus should be aware of these strategies and should be able to incorporate these strategies in their marketing plan. Differentiating product should be primary strategy to make own place in the business. Focus should also be given on promotion of product beyond that done by the existing players.

Conclusion 

The research report presents a brief analysis of competitive strategy in fast food industry in Australia. The fast food industry in Australia is highly competitive having structure of monopolistically competitive market. The bargaining power of buyers are substantially larger than that of the sellers. As the fast food shops sell close substitute products they face a considerable threat of substitute products. There is intense rivalry among the existing sellers in the industry. Among them Mc Donald enjoys a dominating position in the market followed by KFC, Subway, Hungry Jack and others. Both Mc Donald and Hungry Jack adapt intensive and generic growth strategies to expand its business. Both focuses on cost minimization to make their product available at a cheaper price. Brand differentiation is an integral part of their marketing strategy. Both launch new and differentiated products to capture a larger market share. Besides, they are planning to open up new stores in Australia to sustain growth in future. The pricing and non-pricing strategies of the companies include product bundling, brand promotion and product differentiation. It is interesting to find that despite having a relatively less market share, Hungry Jack is trying to improve its competitive position through new and interesting strategies.

References 

Sacks, G., Mialon, M., Vandevijvere, S., Trevena, H., Snowdon, W., Crino, M., & Swinburn, B. (2015). Comparison of food industry policies and commitments on marketing to children and product (re) formulation in Australia, New Zealand and Fiji. Critical Public Health, 25(3), 299-319.

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Han, R. (2018). Fast food evolution - global super-brands are having to reinvent themselves to keep up. Retrieved from https://www.smh.com.au/national/nsw/fast-food-evolution--global-superbrands-are-having-to-reinvent-themselves-to-keep-up-20150107-12j7mc.html

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hungryjacks.com.au. (2018). Home. Retrieved from https://www.hungryjacks.com.au/home

Ibisworld.com.au. (2018). Fast Food Burger Shops – Australia Industry Report | IBISWorld. Retrieved from https://www.ibisworld.com.au/industry-trends/specialised-market-research-reports/consumer-goods-services/fast-food-burger-shops.html

mcdonalds.com.au. (2018). McDonald's Australia. Retrieved from https://mcdonalds.com.au/

news.com.au. (2018). Hungry Jack’s launches Grill Masters burger range, new fries, coffee and revamps stores. Retrieved from https://www.news.com.au/lifestyle/food/restaurants-bars/hungry-jacks-launches-grill-masters-burger-range-new-fries-coffee-and-modern-store-look/news-story/3991043944bf9dfa18d4694cbc4a9374

Whitley, A. (2018). The McDonald's of the Future is....in Australia?. Retrieved from https://www.smh.com.au/business/companies/the-mcdonalds-of-the-future-isin-australia-20150506-gguzch.html

Palmer, J. E., & Grace, A. R. (2014, July). The Homogeneity of Society: The Role of Franchising. In Proceedings of the International Association for Business and Society (Vol. 25, pp. 14-19).