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 MEDIAThe Marketing Mix MEDIUM CHARACTERISTICS

BROADCAST MEDIATelevision 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 MEDIANewspapers Limited targeting possible. Printed word is regarded as credible by manyMagazines 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

ScreeningDevelopment

and testingTest

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!