ECO600 : Economics and Finance for Business : Industry Competitiveness

The introduction

A literature review (an overview) of the state of competition in the industry in recent times, and developments that have and might occur in it

Write about how the companies are trying to grow their business. Recommend growth strategies.

Evaluate the pricing and non-pricing strategies used by the businesses (based on your observations). You may support these observations by citing published works that speak about similar used elsewhere (news articles, books, reports, journal papers). Recommend strategies.

Introduction:  

In the fast food industry, marketing information revolves around changing consumers preferences, convenient location, food quality, pricing, targeted customers, customers' age, market diversification, service quality, and menu selection (Solomon, 2012). With stiff competition, companies employ different strategies to gain a competitive advantage in the industry. Even though all the factors mentioned above, customers consider pricing and quality as more significant factors. For example, fast food companies combine low pricing strategies and food quality to develop value menu which cannot be afforded by a large portion of customers. Marketing research plays an important role in the identification of the customers' needs and wants then develop products that satisfy them (Solomon, Hughes, Chitty, Marshall, & Stuart, 2013).

The study seeks to discuss the Australian fast food industry by explicitly analysing the performance and strategies used by the MacDonald and Hungry Jack’s companies to retain or expand their market share. The objective will be achieved by comparing and contrasting the pricing and growth strategies applied by the two companies (B&T Magazine, 2018). The research was carried out by analysing both the primary data and secondary data on the Australian fast food industry. Primary data was located through interviewing personnel of the Mac Donald and Hungry Jack’s stores located at town hall Sydney. Sources of data included periodical articles, electronic sources, new papers, news release by the two companies as well as searching through the websites of the two companies.

The study was divided into five sections. The first section is the introduction which provides a summarised background and purpose of the report. The second section discusses the market structure of the industry. The third section compares the growth strategies used by MacDonald and Hungry Jack’s. The fourth section examines the pricing and non-pricing strategy used by MacDonald and Hungry Jack’s. The fifth section is the conclusion which summarises the report findings.

Market Structure

Industry Overview

The Australian fast food industry is purely standardised. Restaurants and Food stores pay more attention to maintaining their customer base/ market shares. With the expanding fast food market in Australia, restaurants have turned to this segment to increase their financial position and competitive advantage. In 2017, the growth in the fast food industry increased cumulatively by $53.7 billion (Hitt, Ireland, & Hoskisson, 2012).

A study by Solomon, Hughes, Chitty, Marshall, & Stuart (2013), found out that the Australian fast food industry comprises of top food chains with more substantial and better market control. The trend in the industry can be asserted by looking at the performance of the MacDonald and Hungry Jack's performance in 2017. MacDonald and Hungry Jack are among the top ten performers in the Australian fast food industry. The companies used their asset base to increase revenue and customer growths (Hasan, 2013).

Industry Competitiveness

The level of competition in the Australian food industry is majorly influenced by consumer taste and preference based on the Porters Five Forces Analysis (Arrow, 2011).

Suppliers bargaining powers: Suppliers have high influence in the industry. They are in a position which they can directly influence the prices and quality of fast food. The cost of shifting is insignificant making it easier for suppliers to switch from one store to another (Galanakis, 2016).

Buyers bargaining power: Price and service quality influence the customers buying behaviours in the industry. Increase in prices or reduced quality might force buyers to switch to another competitor in the market. Therefore, the buyers bargaining power is high (Hubbard, Rice, & Galvin, 2014).

Threats of substitutes: MacDonald and Hungry Jack's complete to be among the top four market performers in the industry. The stores face stiff competition from other stores such as KFC, Subway, Red Rooster and Domino's Pizza. Only top performing restaurants and stores can attract more customers.

Threats of new entrants: Companies use their financial position as a basis of competition. With the high level of required market capitalisation to operate in the Australian fast food industry, newcomers need high initial capital. Therefore, the threat of new entrant is low.

Industrial rivalry: Other players in the hospitality sector have little influence on the performance of the MacDonald and Hungry Jack's. Top players use their strong brand image and a considerable asset base to assert their dominance in the industry (Hitt, Ireland, & Hoskisson, 2012).

Market shares for different players

The top players in the Australian Fast Food industry has been summarised as shown in the table below;

                                                                                         Source: B&T Magazine (2018)

Competitive strategies of the market 

With high competition in the industry, Companies use several competitive strategies to gain competitive advantage. The strategy revolves around social trends, technology and innovation and regulations. Likewise, McDonald and Hungry Jacks have turned to low-cost strategy to win more customers (Galanakis, 2016). Consumers have become conscious of their eating habits. Many customers are now shifting towards healthier food products. As such, fast food stores have been forced to shift as well or risk being kicked out of the market. Lastly, innovation and technology allow players in the industry to plan and appraise their future investment options in advance. This is to ensure that risks associated with investments have been minimised (Arrow, 2011).

Growth Strategies

The Australian fast food industry is very competitive. Both McDonald and Hungry Jacks entered the Australian market in 1971. McDonald has a larger market share compared to Hungary Jacks. By 2017, the former had 850 stores while the latter had approximately 340 stores. Regardless of their respective market shares, the two companies are always engaged in aggressive wars using different growth strategies (Galanakis, 2016).

Grow/expand strategies for McDonald and Hungry Jacks

The two companies use two different strategies. While McDonald is a defender, Hungry Jacks is an analyser. Six key pillar of Retain supports McDonald's growth strategy, Regain, Convert, Digital, Delivery, and Future expectation. First, McDonald focuses on retaining its current customers by using its strengths to extend its services into family occasions and breakfast segments (Kroc, 2016). Second, the Regain strategy is aimed at regaining the customers that were previously lost by providing strong value, enhancing convenience, and improving the quality and taste of food. Third, Convert strategy is aimed at using snacks and coffee products to convert causal/irregular customers into committed, loyal and regular customers. Fourth, McDonald had turned into digital marketing as a strategy to interact more with customers. Fifth, delivery strategy focus on increasing the customers' experience with McDonald brands closer to their homes and workplaces. Lastly, enhancing service quality by developing a reliable support team (Steenkamp, 2017).

On the other hand, Hungry Jacks focus more on the expansion strategy. Hungry Jack analyses the market trends before developing products that satisfy customers' needs. For example, the company recently launched a new burger brand which presented quality which the aim of boosting the reputation of its brands in the market. The launch marked the beginning of re-evaluating customers' expectation as the best way of adapting to the changing taste and preferences (Hasan, 2013). The company understands that the taste and expectation of its Australian customers keep changing. While McDonald is focussed more on defending its market share, Hungry Jacks uses innovation and constant menu improvement as the essential elements of its growth strategy (Kotler & Lance, 2006).

The two companies have also engaged in anti-competitive strategies in the past. In 2014, Hungry Jacks hijacked McDonald promotion campaign. McDonald is known of running Monopoly campaigns frequently to promote its burgers. Shortly, after McDonald had launched its promotional campaign, Hungry Jacks launched a counter-campaign, "Flame their McOpoly, Redeem your free tickets with us instead". Therefore, the rivalry between the two companies is so intense, that they sometimes use anticompetitive strategies to win more customers (Dominici, 2009).

Opportunities for growing for McDonald and Hungry Jacks

Compared to McDonald, Hungry Jacks has not fully exploited the Australian fast food market. The former has over 800 stores across Australia while the latter has slightly over 340 stores within the same jurisdiction.

For growth and expansion, Hungry Jacks should focus on using its constant improvement and innovation to venture into new markets. Hungry Jack should increase its current stores from 340 to at least 800 to remain competitive in the market. In the raking of market controllers, Hungry Jacks comes fifth (Amor, 2014).

On the other hand, McDonald has fewer brands and products in the market compared to Hungry Jacks. Therefore, McDonald should focus more on developing new products and enhancing its service quality. With the increasing competition from Hungry Jack and other companies, McDonald is likely to lose a significant option of its market share if it chooses to stick with its existing products (Steenkamp, 2017).

Pricing and non-pricing strategies

Based on the visit is done, data has been collected on the specific pricing used by McDonald and Hungry Jacks. This section will contrast them, and highlight the interesting differences, similarities and other insights gained about how they compete on this front.

Likewise, the non-price strategies were also analysed, and the reasons behind the similarities and differences will be presented (Goi, 2009).

In view of these, the strategic advantages enjoyed by either MacDonald or Hungry Jacks are discussed.

A contrasting of the pricing strategies of  McDonald and Hungry Jacks in Australia 

The products offered by McDonald and Hungry Jacks are similar: They both sell fast food products in the Australian fast food industry. The two businesses use almost similar pricing strategies to compete in the market.

McDonald uses a combination of pricing strategies to maximise its sale volume and profit margins. McDonald uses bundle pricing strategy and psychological pricing strategy. Under the bundle pricing strategy, McDonald provides at least two products at a discounted price which is lower as compared to buying each product separately. Bundle pricing strategy ensures that customers have extra value at a reduced cost while the company increases its sale and profit volume. Likewise, psychological pricing strategy is used by McDonald to make its prices appear cheaper and affordable. For example, the company offers its prices $_.99 or $_.75 instead of rounding them off to the nearest Australian dollars. Customers perceive the products as more affordable which encourage them to buy more (Hisrich & Ramadani, 2017).

On the other hand, Hungry Jacks cost-effective pricing strategies to attract more customers. Hungry Jacks uses market-based pricing strategy and bundle pricing strategy. Under the market-based pricing strategy, Hungry Jacks determine its prices using the demand and supply in the market (Stiving, 2011). The market-based pricing strategy offers the company the required competitive option with similar products. For example, Hungry Jacks offer its burger products a price range of AU$1 and AU$3 from small to large burgers. Likewise, the company uses bundle pricing strategy to maximise its revenue generation. Currently, the company is offering a combination of its value meal and kid's meal for its bundled option. Bundled sales offer an economic incentive to customers by purchasing more products at a discounted price. On its part, Hungry Jacks attracts more customers (Rajagopal, 2012).

Table 1: Shows a comparison of McDonald's and Hungry Jack's pricing for their most popular products, and the associated pricing strategies used.

Major Products	McDonald (AU $)	Hungry Jacks (AU $)
Bacon & Eggs	4	3.35
Burgers & Combos
Meal Medium	10	10.20
Beef Burgers & Combos
Medium	12.25	9.90
Sides & Snacks
Small	2.15	1.00
Medium	2.80	3.00
Kid’s Menu
Three Nuggets	5.30	4.95
Six Nuggets	7.55	6.95