The UK Fast Food Market

UK is the country which has the highest fast-food consumption in the world. The country is known for having different cultures and a different cultural taste has a large impact on the global success of the fast food industry at national level.

“The UK fast food market grew by 5.2% to reach a value of $2.2 billion in 2008” (Datamonitor August 2009)

The main players in the fast food industry:

• Sandwiches: Greggs, Subway and Thurstens
• Burgers: McDonalds and Burger King
• Chicken: KFC
• Pizza: Pizza Hut Domino’s Pizza
• Fish and Chips
• Indian and Chinese Takeaway

The external environment of the fast food industry can be properly analysed by applying PESTEL. It is a tool which helps in analysing the Political, Economic, Social and Technological environment of an industry.

“PESTEL analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.” (Kotler 1998)

PESTEL Analysis of the UK fast food industry:

(P)olitical:

• The labelling of GM (Genetically Modified) food became important since April 2004 as new rules relating to GM labelling came into force. The motive behind GM labelling is to inform the customers if any ingredients in the food are genetically modified as it is the customers right to take a decision whether or not to buy such a product. The UK government is bringing strict regulations for the food sellers to inform the customers if the food items contain genetically modified ingredients.
• The political surrounding can be strongly affected marketers decisions. There has been increased regulation of business in recent times. The fast-food market was highly affected by the introduction of (GST) Goods & Service Tax which resulted in the changes of prices in fast food outlets while the prices of other food items remained unchanged. Therefore, the fast food industry gives more emphasis on service rather than product stating that the customer will not get such type of service in their homes to differentiate them.

(E)conomic

• The cost for setting-up a fast food joint or an outlet is very low. Therefore it becomes comparatively easy to enter the market.
• Franchising is an added beneficial factor and helps in setting up a good brand image.
• The market is growing as ever and a growing market is very important for the fast food industry.
• At the time of recession, the fast food restaurants do better business than other expensive restaurants as the price factor becomes important at such times. People tend to cut-down their expenses as their disposable income is less.

(S)ocial

• The fast food industry in the UK pays a close attention to the requirements of the UK society.
• The people in UK have busy lifestyles and the fact that fast food restaurants are known for a quick and convenient service, they have become a part of the fast paced UK lifestyle.
• The people are a becoming more health conscious and have started adopting healthy eating as obesity is a known problem in UK. The fast food restaurants are known for serving foods which are high on calories.

(T)echnological

• The fast food industry is a growing industry and technology has played an important role for the ongoing success. They have to keep up with the fast pace of changing technology to keep themselves in competition. A recent example to this is McDonalds installing Electronic Funds Transfer at Point of Sale (EFTPOS) which is accepting debit or credit cards from customers at the time of their purchase.
• Online marketing for kids such as games, promotions of new products and offers on the website.
• Computerised order-taking and billing systems (till system).
• The recent improvements in technology especially in the fast food industry have been due to increased regulation. The increased regulation on health has resulted in the standards of safety to be stricter. This means that the customers have no doubt about the quality and service and they know that it is of the finest possible standard and so they can enjoy the product.

(E)nvironmental

• Fast food outlets like KFC, McDonalds and Burger King are majorly known for the production and consumption of food derived from animals. Proper measures have to be taken to consider animal rights campaigns as there have been many campaigns relating to mistreatment of animals in slaughter houses.
• Prices of resources like oil and coal are on a rise and therefore the prices of fast food products are likely to increase as the cost of transportation increases.
• An environmentally friendly company has a good image in the minds of consumers. The packaging in McDonalds was changed to paper in 1991 from polystyrene boxes as the consumers demanded for a more environmentally friendly packaging. This has a good effect on the minds of the consumers that the food they are eating does not affect the environment.

(L)egal

• The fast food industry has to adopt proper Health and Safety guidelines as they are associated with food. Such political factors are of great importance to the fast food industry as it can affect the industry to a great extent.
• Food standard agency is an agency which is responsible for the health of public in relation to food in the UK. It is important for the fast food industry to follow the regulations imposed by the FSA (Food Standard Agency) in the interest of public health.

Porter’s Five forces model is designed to analyse the structure of the industry.

Porter’s 5 Forces Analysis of UK Fast Food Market

Buyer Power

The fact that not everyone enjoys fast food has resulted in the weakening of buyer power in fast food industry but it is highly popular with maximum UK consumers. Brakes and 3663 are the leading suppliers/distributers in the UK which has concentrated the food service supply market. The fast food companies offer different range of foods and keep them differentiated from others. Major companies invest heavily in brand building with the help of advertising and keeping a unique and uniform visual style of their restaurants. Hence, buyer power is weakened and consumer loyalty is strengthened. Consumer loyalty is increased by some companies by rewards programs, competition and giving free gifts for example McDonalds offer a free toy in Happy Meals. The buyer power is however strengthened to an extent by insignificant costs of switching and a quantity of price sensitivity. Therefore buyer power is not high or low, it is moderate. (Datamonitor August 2009)

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Supplier Power

One important input in the fast food market is food. UK has a concentrated food supply market with Brakes and 3663 as the leading suppliers or distributors. The suppliers have decreased their dependence on the fast food companies as they have other kinds of profit foodservice and cost foodservice customers. It is important for the fast food companies to maintain their suppliers who offer marketable quality food which is at a low cost. Therefore, the supplier power is increased in the UK market. Labour plays an important part in the fast food business and the laws in UK like the minimum wage law strengthens the employees who are considered as the suppliers of labour. This indicates that the supplier power is high and strong. (Datamonitor August 2009)

Threat of new entrants

The rules and regulations in the UK have certain barriers to entry. There may be some limitations implied by the local authority on the number of restaurants of a particular type, but this type of barrier is limited to an extent. It is difficult for a new entrant in the industry to gain profits and do well in the initial stage as there is low consumer loyalty and some barriers to gain entry in the fast food industry. There may be problems on getting into prime locations and places which are busy like high streets. Some fast food chains get into a location by buying or signing leases just to prevent a rival getting into that location. The cost of setting up a new chain is relatively low and recent years have seen many new entrants in the market. The ease of entering a market and expanding has been demonstrated by chains like Subway. Thus this can prove to be a serious threat which is more serious to smaller chains that have the benefit of wide market support. Therefore, the likelihood of new entrants is high.

(Datamonitor August 2009)

Threat of substitutes

The fast food substitutes include other forms of food service and retails like ready-to-eat meals, frozen foods etc for home cooking. As fast food is cheaper than any other form of food service, substitutes do not challenge the price of fast food and the main purpose of fast food does not comply with substitutes as the convenience factor in fast food goes missing. Fast food has faced many forms of criticism of being unhealthy while retail food promises to consumers of being healthy. Substitutes also offer a wide range of products. Therefore substitutes pose a moderate threat to the fast food industry. (Datamonitor August 2009)

Rivalry of existing customers

There is a huge competition in the fast food industry in which McDonalds in the leading fast food which serves more than 2.5 million customers on a daily basis company in the industry (McDonalds 2008). Other competitors in the market include Burger King, KFC and Subway. There are other small independent fish and chip outlets, burger shops and kebab corners which include in the competition.

The dominant firms control a larger share of the fast food industry and they are able to hold this share due to the high amount of marketing done by them. Ready-prepared sandwich market is the most popular fast food which accounts of 1/3rd of the food market. It is followed by the burger which is dominated by McDonalds and Burger King. The fish and chip sector comes next which is made of independent shops and has a market share which is half to that of the burger. The location of the fast food restaurant acts as an important key in the rivalry of the food industry. Therefore, threat of existing customers is high in the fast food industry. (Datamonitor August 2009)

Swot analysis is a tool for auditing and analysing the environment of a company. It stands for strengths, weakness, opportunity and threats.

SWOT analysis of McDonalds

(S)trengths

• McDonalds is been in business since 1955 and has built up huge brand equity. “It is the number one fast food company in UK in terms of food service sales with 12% share of the total sector in 2008.” (Euromonitor International 2008). It has 31000 restaurants across the world which serves fries and burgers in nearly 120 countries.
• It retains its customers through continuous innovation and product development. It also provides a clean environment for customers.
• Due to its wide reach across the world, it gives McDonalds to handle economic fluctuations which can arise in a country. It can operate effectively even at times of recessions as there a social need among the people to get comparatively cheap and good quality food.
• Their global restaurants are adapted to meet the requirements of different cultures. For example, lamb burgers are served in India and they have separate entrances for families and single women in the Middle East.
• Large scale investment has carried to support the franchise network of McDonalds. Approximately 85% of restaurants worldwide are owned and operated by franchisees. In 1997, it was named Entrepreneur’s number one franchise.
• Food safety is taken very seriously in McDonalds and there are around 2000 checks performed on every stage of food preparation
• It has a loyal staff and a strong management team. It provides professional training for its employees. More than 250,000 employees graduate from the Hamburger university which is a McDonalds training facility.

(W)eaknesses

• McDonalds could not compete with the fast food pizza chain as it failed to test market pizza as a substantial product.
• More money spent on training due to employee turnover.
• The customers are becoming more health conscious which has been reflected in the sales in McDonalds to an extent as burgers and fries are known to be high on calories.

(O)pportunities

• In this health conscious society, a need for low calorie food has arisen. Introduction of low calorie foods like low calorie burger and fries cooked in low calorie oil can be a great opportunity.
• Some McDonald’s outlets have a playground for kids which are an attraction for kids. More outlets should have such playgrounds to attract families with kids.
• A dining-out market is a recent hit among the young generation and the middle age group. This can be seen as an opportunity for McDonalds in attracting more young and middle aged group by having restaurants which have a dine-out section.
• With the upcoming Olympics in 2012 and the FIFA World Cup in South Africa is a great opportunity and is predicted to have a positive impact on McDonalds as it is a principle sponsor of both football and Olympics.
• Enter the coffee selling market and compete with coffee shops like Costa and Starbucks by opening McCafe which is especially dedicated in selling coffee and having Wi-Fi internet to attract coffee shop goers. Also, get into the sandwich making segment which McDonalds is left out of.
• Provide optional food for people with allergies like nut free and gluten free.
• Expanding more into the emerging markets of India and China.

(T)hreats

• Consumers adopting healthier lifestyles and nutrition can prove as a threat as McDonalds is known for serving food which is high on calories.
• McDonalds has been criticized by parents for spoiling their children as young as one year olds by their marketing tactics which include happy meals with toys and popular movie tie-ups.
• Threats from local competitors like Burger King, KFC, Subway and other individual burger outlets.
• Recession may reduce the sales in McDonalds to an extent as the spending among people is reduced due to less disposable income.
• Threats from contamination of the food like e-coli which was recent in the UK.

Sources

(Hoovers (2008), http://www.hoovers.com/mcdonald’s/-ID__10974-/freeuk-co-factsheet.xhtml

[2] McDonalds Annual Report (2008)

[3] http://www.dlea.com.au/?Community/Health_and_Nutrition/Health_and_Nutrition

[4] Jobber, (2006), Principles and Practices of Marketing, 3rd Edition)