Executive Summary
UK Fast Food Industry is considered to be a vibrant and ever growing industry which has seen major contributions from major brands and large number of small fast food outlets. It has evolved, grown and has become one of the most culturally and socially diverse set up. Changing eating habits and lifestyles are major factors marking the expansion of the UK Fast Food Industry possible and every year millions of customers enjoy varied tastes and recipes served at fast food restaurants. There have been several researches which were previously carried out to consolidate useful information regarding the UK Fast Food Industry. In a similar manner this report will focus on the major attributes of the UK Fast Food Industry using a marketing tool of Porters Five Forces Model and it will attempt to present important findings regarding the industry, its major players, market shares, diversity in food menus, suppliers’ and customers’ profiles. Moreover, role of food regulatory bodies in the UK will be examined and their impact on the industry’s operations will be discussed.
UK Fast Food Industry – an overview
The inception of fast food industry in the UK could be traced back to the eighteen century when people living in the coastal areas started having oysters and jelly fishes as ready meals. The emergence of Fish & Chips as a popular dish back in the nineteen century actually laid grounds for the booming industry ever since. The industry typically follows the US model for food preparation and presentation and has developed and shared strong shared cultural affiliation with the US. This has allowed customers to experience a common fast food trend on both sides of Atlantic which created a major continuing response from consumers and created a synergy for companies like McDonalds, KFC, Burger King, Starbucks etc.
The early years of these companies and many others in the UK were marked by huge turnout of customers who rushed to these quick service restaurants to experience the idea which was imported from the US and something that was going to influence their lifestyles and food habits forever. This rapid change in the UK food industry as suggested by Guthman (2003) could be viewed as ‘McDonaldisation’ of the UK society that accepted food culture from the US.
The major participants of the UK Fast Food Industry are all the famous major fast food chains and a large proportion constitutes of regional chains, restaurants, kiosks, drive ins. There is a great variety of food served in these outlets including American, British, Chinese, Indian, Vegetarian and Italian dishes and variations. Different regions of the UK also have slight variations in taste and way of presenting food. Every year a large number of tourists visit British Islands from different parts of the world that creates a high demand for fast food and the industry is flourishing as the demand for quicker, tastier and juicier foods is not slowing down any time sooner.
The UK fast food industry including coffee shops was worth £11.63bn in 2007 indicating a 4.28% rise over 2006 (Just-Food 2008). Despite of the slowdown in the economy and overall lesser consumer spending in 2008 and McDonalds recorded highest number of sales with 88 million customers visiting its stores which was up by 10 million customers compared to 2007(Hawkes 2008)
Despite of many decades of successful business by fast food companies in the UK there has been a recent shift in the trend where consumers are becoming cautious and concerned regarding the food served at these fast food chains and outlets. The major criticism has been from health experts who claim that individuals suffering from obesity have high intakes of fast food (Richardson and Aguiar 2004). A report published in UK Newspaper Telegraph concluded that seven largest fast food chains of the UK are not doing sufficient to inform their customers regarding the affects of the food they serve on their health (Allen 2008).
Porters Five Forces Model
The UK Fast Food Industry can be evaluated for determining its various elements and factors affecting its participants using a simple marketing tool of Porters Five Forces Model (Porter 1980).
Degree of Rivalry
The UK Fast Food Industry is not just limited to big names and restaurant chains but there is a tough competition from small restaurants, kiosks and even retail superstores that are serving ready cook meals. The top slab of the market consists of brands such as McDonalds, KFC, Starbucks, Pizza Hut and Burger King. They share the biggest proportion of the market and implement continuous and extensive branding strategies which benefit them in terms of higher sales and higher customer turnover. The degree of rivalry between major fast food chains is tough and rigorous but McDonalds remains ahead and often blamed to be involved in unethical spying on its competitors (Meek 2001) Also as the UK government endorsed a message for the public to avoid fast food items causing obesity the trend in eating habits has been shifting to healthier and greener foods. This allowed small restaurants and super markets carrying big names of well known chefs to create a newer market which enjoys high profit margins with a strategy mostly targeted at the niche market. In addition to these ethnic restaurants do have major business particularly in major cities of the UK which are able to attract enthusiastic customers who like to taste different flavors. On the whole the rivalry is majorly classified between players serving different market segments. However, as more people are attracted towards slow down foods the competition is likely to expand its base.
Supplier Power
The suppliers of raw material for the fast food industry in the UK have very strong presence and affiliation with sellers. Leading fast food companies including McDonalds have suppliers in other countries which makes them dependent upon the factors affecting economies of those countries. In the UK there are large food suppliers which have made strong agreements to supply daily requirements of restaurants. In addition to these there are local wholesale markets from which small restaurants can purchase supplies at lower prices (Ryder and Fearne 2003).
Buyer Power
According to a research conducted by covering major fast food brands such as McDonalds, KFC, Burger King & Pizza Hut suggests that the UK Fast Food Industry is not moving as quickly to adapt to the changes in the consumer choice. There has been increasing change in the eating concepts and people are seeking healthier foods which are not available at most of the fast food outlets. Some of the fast food suppliers have realized the potential in this by adding new items on the menu list. However, there is still a need to do lots more by these companies. Food regulatory bodies such as DEFRA in the UK are also playing major role in educating public regarding the negative impacts on their health and further promoting food safety and sustainable environment affected by the food chain (DEFRA 2009). The prices of food items are controlled by the UK government to ensure that buyers are not charged high prices. Fast food vendors are often blamed by the society for not doing enough to stop litter on the streets as more than 80% of takeaway garbage comes from major fast food outlets and local restaurants and takeaways (Fernandez 2009) and the government is pushing these companies to prevent such widespread of waste. There is also a large number of tourists visiting the UK islands who prefer their local tastes or brands amongst restaurants.
Threats of Substitutes
The switching costs in fast food industry are negligible which allows consumers to try out different brands and flavors. Fast food industry suggested by the theme it follows does not have binding effect on its customers and they move freely between different vendors easily accessible to them. As understood the UK fast food industry is bifurcated into different food categories and services offered. Consumers are observed to switch between brands on a regular basis. The companies invest heavily in the several social programs and affiliate themselves with major sports in the UK to continue their linkage with their customers. Fewer market segments are easily differentiated based on their ethnic background and their customers are easily identifiable. However, amongst the leading fast food companies the differentiation between products is somewhat difficult however consumers’ do build loyal relationship with certain product / brand names such as Whooper® of Burger King and Big Mac® of McDonalds (AllExperts 2009).
Barriers to Entry
The barriers to entry vary according to the market segments within the industry. It has been observed that due to the nature of business models which resembles to duopoly (Toivanen and Waterson 2001) major companies follow the entry into that market segment is somewhat difficult for new comers. The competition between these companies is intense and a new company will find it very hard to penetrate in similar markets that these companies are catering to. Also the companies are able to generate variable profit in their outlets which makes it more difficult for new entrants. However, lower down in the market levels the competition is ever increasing with new comers in the form of regional chains of restaurants, individual restaurants, pubs, kiosks, mobile food vans etc. At these levels the barriers to entry are almost invisible due to which they are able to do good business throughout the year. Also there is plenty of room for those which can fill in the expectation gap that is created as major fast food companies fail to meet consumer demand for healthier food (Richardson and Aguiar 2004).
Conclusion
From the above analysis using Porter’s Five Forces Model important characteristics of the UK Fast Food Industry and elements contributing to its expansion are summarized. The UK Fast Food Industry is considered to be divided into well placed market segments with variations in food menu and pricing. All market segments face a unique set of challenges and the competition between them is tough. Also the major factors and conditions in the market are identified in this report which suggest long term growth expectations for the fast food industry despite of tougher regulations by the UK government regarding the quality of food and other hazards caused by companies in the industry on the society as a whole. Furthermore, it is less likely that the fast food companies will face any problems in the UK for years to come in light of their involvement in the UK society contributing to huge number of jobs for the public and tax collection.
List of References
Allen, N 2008, Fast-food meals have a whole day’s worth of fat or salt.
AllExperts 2009, Fast food. Web.
DEFRA 2009, Food and drink. Web.
Fernandez, C 2009, McDonald’s responsible for 29% of all Britain’s takeaway litter.
Guthman, J 2003, ‘Fast food/organic food: reflexive tastes and the making of yuppie chow’. Social & Cultural Geography , 45 – 58.
Hawkes, S 2008, New hunger for old favourites gets McDonald’s back in shape. Web.
Just-Food 2008, Fast food & home delivery outlets.
Meek, J 2001, May 16, Clowning around.
Porter, M 1980, Competitive Strategy, New York: Free Press.
Richardson, J and Aguiar, L K 2004, Consumer Change in Fast Food Preference, IFAMA Annual Conference 2004, College Station, Texas: International Food and Agribusiness Management Association.
Ryder, R and Fearne, A 2003, ‘Procurement best practice in the food industry: supplier clustering as a source of strategic competitive advantage’, Supply Chain Management: An International Journal , 12-16.
Toivanen, O and Waterson, M 2001, Market structure and entry: Where’s the beef? Discussion Paper, Coventry: University of Warwick, Department of Economics.