Transcript chapter 6 – competitive forces in food service

Chapter 6
Competitive Forces in Food Service
COMPETITIVE FORCES IN
FOOD SERVICE
Managers must pay attention to competition
now more than ever because of the following:
 There are more competitors than ever
 The “pie” is only so big
 The market is growing more slowly than in
the past
 Markets are changing
COMPETITIVE CONDITIONS
Some notes to consider:
 Slim profit margins at risk
 Shortage of prime locations left
 Entry of more domestic competitors
 Entry of international competitors
 Continued dominance of chains
 New business environment - some
companies have left food service
COMPETITION = MARKETING
 Companies must try harder than ever before
through their marketing efforts
 Marketing is not just advertising…..
 Marketing is “communicating to and
giving…customers what they want, when they
want it, where they want it, at a price they are
willing to pay” (Lewis, 2000).
PRODUCT LIFE CYCLE
 Review Product Life Cycle from book
MARKETING EXPENDITURES
Full Service
(under $15)
0.8% – 3.3%
Full Service
($15-$25)
1.1% – 4.4%
QSR
0.6% – 4.0%
COMPETITIVE CONDITIONS
The Marketing Mix consists of four main
activities (the 4 Ps – sometimes the 6 Ps):
 Promotion
 Product
 Price
 Place
PROMOTION
 Two major forms of Promotion (paid communications)
are:


(1) advertising and
(2) sales promotion
 Companies spent $175 billion on paid advertising in
2006
 The food service industry spends over $5 billion each
year on advertising (most is still radio and television)
 Less is spent on the Internet (only about 10%)
PROMOTION
Sales promotion consists of paid activities
other than advertising and include:
 Coupons (Applebee’s, Doug’s Fish Fry)
 Games/Contests (“Roll up the Rim”)
 Promotional merchandise (QSR - toys,
DVD’s)
 The use of all three are increasing in
restaurants
ADVERTISING MEDIA
The Marketing Mix
MEDIUM CHARACTERISTICS
BROADCAST MEDIA
Television
Large audience, low cost per viewer but high total cost.
Combines sight, motion, and sound.
Radio
Highly targetable, lower cost than TV.
Cable TV
Highly targetable, fragmented market.
PRINT MEDIA
Newspapers Limited targeting possible. Printed word is regarded as credible by many
Magazines Targetable, generally prestigious, high-quality reproduction of photos.
ROADSIDE Excellent for directions. Message limited to about eight words.
DIRECT MEDIA
Excellent targeting but costly per prospect reached.
Good coupon distribution vehicle.
PRODUCT
 The “product’ in hospitality is actually the
guest experience
 This represents some combination of the
tangible and intangible aspects of that
experience
 Food and service are large parts of the
experience
PRODUCT
 The product (food) is obviously a very
important part of what a restaurant has to
offer
 Elements of this P may include: variety,
creativity, quality, etc.
 Because of the importance of Product, adding
new menu items is becoming increasingly
important
 Restaurants have added salads, wraps and
more international items recently.
PRODUCT
The process of adding a new menu item to a
restaurant menu can be quite extensive:
Idea
generation
Screening
Development
and testing
Test
marketing
PRODUCT
 Taking a broader view, the “Product” can also
be viewed as the overall concept
 To capitalize on additional markets (and to
combat maturity), some chains have
developed or purchased new concepts
PRICE
 Price, the second P, is also important and not
just in the eating markets
 The eating markets is often the one that gets
attention in this area though because of price
wars
 One could argue that price is a more
important differentiating factor in the eating
market
PRICE
 Price is the only P that produces revenue!
Others incur cost.
 Changing prices is a key strategic decision,
and can have critical consequences
 However, there is always pressure from
internal and external forces to adjust price
PRICE
Price is often determined based upon three
factors:
 Cost
 Competition
 Demand
PLACE
 Place refers to the location – or where the
product/service is sold/delivered
 Place is also known as Distribution
 As we have discussed, the notion of Place is
changing – from traditional locations to
“alternative” locations
 Essentially, restaurants are looking to bring
their product to the customer
COMPETITION WITH OTHER
INDUSTRIES
 Is food service a “generic” industry? That is,
can the experience be substituted with
another purchase?
 If we take a more limited view, we can accept
that there are more competitors than there
have ever been: convenience stores ($13 B),
supermarkets (becoming a main source for
take-out food) and Home!