Transcript chapter 6 * competitive forces in food service

Chapter 6
Competitive Forces in Food
Service
Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved
COMPETITIVE CONDITIONS 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
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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
RESTAURANT CONCEPT LIFE
CYCLE
COMPETITIVE CONDITIONS
• The Marketing Mix consists of four main
activities (the 4 Ps – sometimes the 6 Ps):
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Promotion
Product
Price
Place
PROMOTION
• Two major forms of Promotion (paid
communications) are:
– advertising
– sales promotion
• Recent data show full-service restaurants (check
averages between $15 and $24.99) spent 1.8% of
sales on marketing while QSRs spent 2%
• In total, 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
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 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?
• 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!