Marketing Proposal – Fast Food House of Kebab Contents 1 Introduction 2 1. 1 Company Summary 2 1. 2 Company Ownership 3 2 Five Forces Model and Analysis 4 2. 1 Barriers To Entry 5 2. 2 Supplier Power 8 2. 3 Buyer Power 10 2. 4 Threat of Substitutes 11 2. 4. 1 The Threat of Substitutes are High 11 2. 5 Rivalry among Existing Firms 12 3 Conclusion 17 INTRODUCTION House of Kebab is a locally owned fast food outlet that will be positioned as an international franchise through our creative approach to the company’s image and detail presentation.
House of Kebab will provide a combination of excellent food at value pricing, with fun packaging and atmosphere.
House of Kebab is the answer to an increasing demand for kebab and shawarma fast food. In today’s highly competitive environment, it is becoming increasingly difficult to differentiate one fast food outlet from another. Our main priority is to establish one outlet in Kuala Lumpur, preferably in one of prominent housing estate. Later, our effort will be a further development of more retail outlets in the surrounding area.
House of Kebab will entice youngsters to bring their friends and family with our innovative environment and our main focus will be serving high-quality food at a great value.
COMPANY SUMMARY House of kebab sells specially made shawarma sandwich-like wrap usually composed of shaved lamb, goat, chicken, turkey, beef, or a mixture of meats and kebab which consist of thin slices cut from a cylindrical block of minced and seasoned meat or chicken, eaten in a roll of unleavened bread with fresh salad and sauce. The meat (usually lamb, chicken or beef) is grilled on a vertical, rotating spit.
Our store will feature display cooking of our featured Turkish Kebab and Shawarma from cutting to frying. Our customers will also be able to read our in-house brochures in regards to all knowledge about Kebab and our featured sauces. Our store will be decorated with fast food setting, such as a bright counter and display menu on the wall. COMPANY OWNERSHIP House of Kebab is a privately held company. It will be registered as a Limited company, with ownership 25% – Sarawanan, 25% – Mahendran, 25% – Che Rosmawati and 25% – Emmanuel. To succeed in this business we: Create a unique, innovative, entertaining menu that will differentiate us from the rest of the competition. • Control costs at all times, in all areas and implement a conservative approach to growth policy. Although, we provide more than enough fund to open more than one outlet, we want to be on the safe side of the business. • Sell the products that are of the highest quality, as well as keeping the customers happy with all of our product categories from food to store merchandising. • Provide 100% satisfaction to our customers and maintaining the level of excellent services among other competitors. Encourage the two most important values in fast food business: brand and image, as these two ingredients is a couple of main drivers in marketing communications. • Promote good values of company culture and business philosophy. Moreover, a Porter’s 5 forces model was used to analyze the business further. FIVE FORCES The fast-food industry includes group of companies that are offering different products and services, which satisfy customers’ needs. These products and services might be considered as close substitutes for each other.
Therefore, the critical task of managers is to analyze the competitive forces in the industry’s environment in order to identify the threats and opportunities that the firm can protect or get benefit from. Porter’s five forces model helps manager to identify and analyze the competitive force within the industry. This model stated that the increase in the strength of a particular force limits and reduces the ability of established companies to increase their prices and earn more profits. By using this model, managers would be able to identify new opportunities or threats that might affect their businesses’ operations. BARRIERS TO ENTRY
The fast food industry is a very competitive industry to join. This is because there is a high demand for the product and competitors are popping up like wild mushrooms all over the country. However this sort of an industry is rather competitive as there is constant threat of new entrants. Thus it is vital that a very high barrier to entry is set by the business in order to sustain in the market until another competitor succeeds to break that barrier of entry. In the food industry, the best barriers to entry are by having a large variety of foods served as well as a huge price difference as compared to its competitors.
The more attractive barrier would have to be the pricing of the product. In order to be able to come up with a low price and at the same time to achieve profit, it’s important that the business is able to attain economy of scale by increasing production and bringing down the costs. Unlike a fancy restaurant, fast food joints don’t cater for candle lit dinners and fine dining where costs are usually high, thus fast food operators have the option to bring down fixed costs such as rental. Lower fixed cost and mass production means that prices can be lower and thus capture market share.
The higher the market share obtained, the higher the profit gained thus leading to possible expansion of business. It is important that every business has got good marketing strategies in order to attract its customers. A good example is McDonalds. Their marketing tactic is to attract children by introducing mascots such as Ronald Mc Donald and so on, Also, Happy Meals which are sold by Mc Donald’s, are another attraction to children. This creates an identity to the business as well as product differentiations. The downfall of this is that many competitors tend to copy this tactic and apply it to their businesses.
Therefore, in order to enter into an industry, it is important that sufficient capital to invest is available to build a strong foundation in the business. It is also important to create a good brand name for the product as customer loyalty will enable a business to gain market strength thus gaining an edge over its competitors. For example, Kentucky Fried Chicken is a well known brand for fried chicken. Just mention fried chicken and KFC is in mind. This is an extremely good branding strategy that KFC has obtained by consistency of quality in meals that they serve.
Where there is customer loyalty, it is extremely difficult for competitors to persuade customers to switch over to their product even if prices are brought down. Abiding to government policies are another important barrier to entry as if the product does not fulfil the government’s regulations, it will surely fail and not be able to penetrate into the market. Being in the fast food industry and operating in a Muslim country, it is important that if the product sold consists of pork, a ‘Non Halal’ sign has to be present on its packing as well as in its restaurants where the food is sold.
However, should the product be Non Halal, a large buying power will be lost as the majority of Malaysians are Muslims. There should be no barriers to distribution channels to market the food as the fast food industry is easily accessible to many. Product distribution should be done easily provide strategic locations are selected to sell the food. The most common place for fast food joints are in the town and near offices. However, the latest trend has been to open up fast food joints in petrol pumps for the convenience of the people. How Barriers to Entry is Addressed by House of Kebab?
House of Kebab has overcome all significant barriers to entry. Each barrier are analysed separately:- 1) Government Regulation Kebab being a food traditionally from Middle Eastern country it is well in demand for Malaysians whom vast majority are Muslims. Government Halal requirements are also addressed and met via procuring meat from suppliers whom already hold a Halal certificate. This way one barrier is well addressed. 2) Marketing Strategy House of Kebab’s marketing would be done via all print medias and also online expiate web pages.
This in a way will promote House of Kebab to the high number of Arabian experts whom are in this country. Due to lack of Kebab fast food outlets in Malaysia, House of Kebab’s marketing activity will be able to overcome another form of barriers to entry. 3) Location House of Kebab’s locations are well chosen to be suburbs of Klang Valley where Malay population are significantly higher. Locations such as Pantai Dalam, Shah Alam and Klang were chosen. This in turn would be another giant step forward for House of Kebab to overcome the barriers of entry. 4) Competitor’s Reaction
Competitor reaction against House of Kebab is expected to be significantly lower compared to other fast food outlets due to its core business being Kebab. In Malaysia there are very fewer fast food outlets selling Kebabs. This equates to no direct retaliation from other giants such as McDonalds and Kentucky Fried Chicken. This in turn will prove to be a positive factor for Rose Kebab’s success. SUPPLIER POWER ‘Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants.
Powerful suppliers, including suppliers of labor can squeeze profitability out of an industry that is unable to pass on cost increases its own prices. Example, Microsoft has contributed to the erosion of profitability among PC industries by making it difficult to accessibility of its soft ware’. However, the impact of suppliers’ power is unique to different industries. A high velocity industry like fast food industry where rivalry, fierce competition and relative ease of entry and exits is very common cannot be hugely affected by suppliers’ power.
Due to the fierce competition and relative ease of entry and exits in the fast food industry, industry leaders like McDonalds, KFC, Burger King etc cannot afford to charge exorbitant price as compared to the ever increasing competitors. House of Kebab as a fast food chain have taken this fact into consideration and designed the following strategy to check any untoward move by our competitors. a. Establish our own poultry farm with better emphasis on organic and health b. Create recreational room for our customers in all our locations at no extra costs c. Organize children parties on weekly basis with minimal/affordable charges. . Conduct customer surveys regularly to know area of improvements e. Maintain a steady improvement on our menus with varieties of dishes as suggested by our customers. (Defensive strategy) Supplier power is higher in a monopolistic setting where suppliers caters for several buyers and their product is in high demand without close substitutes, at House of Kebab fast food chain, we have created a department of research and development R&D, and encourage local farmers to produce more of our major raw materials (chicken) by giving grants to acquire machineries for mechanized farming.
This strategy is to ensure availability of our raw material and to keep price low among our suppliers and to avoid having to switch cost which is capital intensive. Because differentiated products offers supplier a bargaining advantage, we have created a uniform standard for our meat and groceries suppliers that a similar to each other. At House of Kebab, we have a policy (Memorandum of Understanding) with our suppliers barring them from venturing into our industry with an agreement of maintaining our grants to them and sharing research information on new farm products improvement.
BUYER POWER Buyer power is one of the two horizontal forces that influence the appropriation of the value created by an industry. The most important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed and the concentration or differentiation of the competitors. Kippenberger (1998) states that it is often useful to distinguish potential buyer power from the buyer’s willingness or incentive to use that power, willingness that derives mainly from the “risk of failure” associated with a product’s use. This force is relatively high where there a few, large players in the market, as it is the case with retailers an grocery stores; ? Present where there is a large number of undifferentiated, small suppliers, such as small farming businesses supplying large grocery companies; ? Low cost of switching between suppliers, such as from one fleet supplier of trucks to another. Other factors that influence the buyer power are the price sensitivity. Thus we have decided that our price in the market for the House of Kebab is reasonable and possibly cheaper than our competitor.
The reason for this is conquer sizeable market share within 3-4 years period based our company vision with the cooperation of the all management team. In the other hand volume of production also influence the buying power. Its well known in law of demand and supply that if a particular product volume demand is high in the market than the price increase and if the volume demanded is low than the price will be decreased. Thus management of House of Kebab has decided to study the demand from time to time and in this early stage we will supply based on current demand whereby the research is already conducted by our sales team.
The factor which influences the buying factor is the substitute’s products. The competition form substitutes are affected by the ease with which buyers can change over to a substitute. A key consideration is usually the buyers switching cost which considered as one time costs facing the buyers in switching from use of one product to a substitute product. In our case for time being we have found out that or competitor can be a substitute product if the current product does not meet customers needs. Based on the review results, the economic power of customers does influence the buyer power.
So we believe House of Kebab sales will hit the profit if the current demand and buying power remains. The leverage and bargaining power of customers tend to be relatively greater when customers are few in numbers and when they purchase larger quantities and same scenario also occurs when customer’s purchasers represent a sizeable percentage of the selling industries total sales. On top of that, the buying power is affected when customers pose a creditable threat of backward integration perhaps when the item bought is not an important input.
When relates to our product House of Kebab, based on our research before we plan to start the business, we found that consumers do have strong buying power in the market for Kebabs. One of the main reasons is because we don’t have high competition if compared to other fast foods. A calculated assumption of a good profit margin would be met if the current market outlook remains is made. THREAT OF SUBSTITUTES Substitutes perform the same or similar function as an industry’s product by a different means. Plastics are substitutes to aluminums, just as email is a substitute for express mail.
However some substitutes are more downstream in their threat than while others are indirect e. g day care services are threatened when baby-sitters are hired, air- ticketing agents services are threatened when airlines decides to sell online tickets. In the fast food industry, the threat of substitutes is more pronounced and direct, since the primary product is to satisfy hunger, however, at House of Kebab, we have developed a focused differentiation strategy to eliminate the threat of substitutes, our whole meat delicacy comes with garnished soya sauce and a free gift of key-holder/ball-pen/ 10% discount voucher for another purchase.
Our tagline ’Original Kebab with traditional dish; and the ultimate shawarma with a different taste’ Again the prices for our kebab and shawarma are relatively cheaper than our competitors (low price strategy). The Threat of Substitutes is high When the substitutes offers an attractive price-performance trade-off to the industry’s product, substitutes with a high values satisfying traits will drastically reduce the profit potential of the industry. e. g Kebab fast food has greatly reduced Kyros Kebab or Kebab Melawati.
When the cost of switching to substitutes is low for the consumer, threat of substitute is high since the consumers can easily obtain the substitute at a lower price. Technological advancement/improvement in other industries creates substitution threat when the new product offer a better value than the existing product, thus at House of Kebab, continuous innovation and improvement is our watch word. RIVALRY AMONG EXISTING FIRMS Rivalry among existing competitors takes many familiar forms, including price discounting, new product introductions, advertising campaigns, and service improvements.
High rivalry limits the profitability of an industry. The degree to which rivalry drives down an industry’s profit potential depends, first, on the intensity with which companies compete and, second, on the basis on which they compete. The intensity of rivalry is greatest if: • Competitors are numerous or are roughly equal in size and power. • Industry growth is slow. Slow growth precipitates fights for market share. • Exit barriers are high. These barriers keep companies in the market even though they may be earning low or negative returns. Rivals are highly committed to the business and have aspirations for leadership, especially if they have goals that go beyond economic performance in the particular industry. • Firms cannot read each other’s signals well because of lack of familiarity with one another, diverse approaches to competing, or differing goals. The strength of rivalry reflects not just the intensity of competition but also the basis of competition. The dimensions on which competition takes place, and whether rivals converge to compete on the same dimensions, have a major influence on profitability.
Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers. Price cuts are usually easy for competitors to see and match, making successive rounds of retaliation likely. Sustained price competition also trains customers to pay less attention to product features and service. Price competition is most liable to occur if: • Products or services of rivals are nearly identical and there are few switching costs for buyers. • Fixed costs are high and marginal costs are low. Capacity must be expanded in large increments to be efficient. • The product is perishable. Competition on dimensions other than price – on product features, support services, delivery time, or brand image, for instance – is less likely to erode profitability because it improves customer value and can support higher prices. Also, rivalry focused on such dimensions can improve value relative to substitutes or raise the barriers facing new entrants. While non-price rivalry sometimes escalates to levels that undermine industry profitability, this is less likely to occur than it is with price rivalry.
As important as the dimensions of rivalry is whether rivals compete on the same dimensions. When all or many competitors aim to meet the same needs or compete on the same attributes, the result is zero-sum competition. Here, one firm’s gain is often another’s loss, driving down profitability. While price competition runs a stronger risk than non-price competition of becoming zero sum, this may not happen if companies take care to segment their markets, targeting their low-price offerings to different customers.
Rivalry can be positive sum, or actually increase the average profitability of an industry, when each competitor aims to serve the needs of different customer segments, with different mixes of price, products, services, features, or brand identities. Such competition can not only support higher average profitability but also expand the industry, as the needs of more customer groups are better met. The opportunity for positive-sum competition will be greater in industries serving diverse customer groups.
With a clear understanding of the structural underpinnings of rivalry, strategists can sometimes take steps to shift the nature of competition in a more positive direction. As it was mentioned previously, the fast food industry is growing rapidly, which increases the competition among its existed companies to increase their sales, profits and market share. Therefore, each company is doing its best to acquire more of the sales and market share. For instance, there is a huge competition between KFC and McDonald’s as each of them is competing to improve its customer services such as introducing new items in its menu and home delivery service.
The consolidated competitive structure of fast food industry has a small number of big companies. These firms have a huge and powerful financial situation, which provides them with the required funds and resources to help them to outgrow their smaller competitors and eliminate new entrants. In addition, the fast food industry has a huge demand for its products (demand condition). It is expected that the demand for fast food in the Malaysia would continue. Also, the introduction of microwaves has increased the demand for fast-food industry products that can be quickly and easily prepared in microwaves.
This would help to moderate the competition as it provides companies with greater opportunity to sell more and increase their profits and market share. Moreover, the various demographic and social trends might affect the future demand for fast food in different ways. From this it’s clear that as the rivalry decreases, companies have an opportunity to increase their prices and gain more profits. However, the opposite can happen if the rivalry increases among established competitors. Determinants of Rivalry Among Existing Competitors a.
The industry is beginning to grow more rapidly, as KFC and McDonalds are ramping up their efforts in Malaysia. b. Our industry is not cyclical and there is no intermittent over-capacity. c. The fixed costs of the business are a relatively low cost of the business, as food costs will make up about 30% and labor will make up roughly 20%, given the lower wage rates expected in Malaysia. d. There are definitely significant product differences and brand identities among the competitors. Most of our competitors, and the ‘night market’ food industry as a whole, have no real brand.
However, Kyros Kebab and Kebab Melawati have very identifiable brands and they will be our primary fast food competition. e. The smaller locally-owned competitors typically do not have the capital or management skills to make the jump to chain restaurants. Because most owners have little funding and sparse education, the restaurants are usually less sanitary, smaller, and lower quality than foreign-owned competitors. f. The competitors are mostly specialized in a few types and offerings of food. g. Our customers would not incur significant costs in switching to our competitors. h.
Our product is very simple and requires little of our customer. The extent of rivalry among established companies depends on the following factors: • Competitive Structure The industry’s competitive structure refers to the number and the size of distribution of companies in the industry. The structure might be fragmented or consolidated to have different rivalry implications. A fragmented industry includes a large member of small or medium sized companies, where no company dominates the industry. It characterized by low barriers to entry and its products are hard to differentiate.
Therefore, whenever demand and profit are high, there will be a flood of new entrants who hope to enter the market. A consolidated industry is dominated by a small number of large companies (oligopoly) or in other cases by just one company (monopoly). In this industry, companies are interdependent, which means the competitive actions of one company directly affect other competitors’ profitability and market share. • Demand Conditions: The growing demand from new customers or additional purchases by existing customers helps to moderate competition as it provides companies with greater ability for expansion.
House of Kebab plan to open the outlet at the sub-urban area such as Pantai Dalam which will cover Pantai Hill Park, Shah Alam and Klang because this area is dominated by Malay community who are concern on their own ‘halal’ local product compare to the US product. Furthermore, Pantai Hill Park has been dominated by the Middle East expatriate community. In addition, it could reduce rivalry because all companies can sell more without affecting other competitors’ market share, which increases their profits. While the reduction in demand increases rivalry in the industry as companies fight to maintain their market share and revenues.
Therefore, companies can grow by taking market share away from competitors, which represents the decrease in demand to be viewed as a threat for companies. • Exit Barriers: They are strategic, economic and emotional factors that keep companies in the industry even when returns are low. If exist barriers are high companies would be locked into an unprofitable industry where the overall demand is unstable or declining. This would result in an excess production capacity that would lead to a strong price competition, as companies would tend to reduce their prices to get rid of their idle capacity.
The exit barriers include high fixed costs of exit (severance pay for large number of employees) and investment in plant and equipment that have no other uses and cannot be sold off. In addition, if the company is not diversified and highly depends on the industry as a source of income. The consolidated competitive structure of fast food industry has a small number of big companies. These firms have a huge and powerful financial situation, which provides them with the required funds and resources to help them to outgrow their smaller competitors and eliminate new entrants.
In addition, the fast food industry has a huge demand for its products (demand condition). It is expected that the demand for fast food in the Malaysia would continue. Also, the introduction of microwaves has increased the demand for fast-food industry products that can be quickly and easily prepared in microwaves. This would help to moderate the competition as it provides companies with greater opportunity to sell more and increase their profits and market share. Moreover, the various demographic and social trends might affect the future demand for fast food in different ways.
From this it’s clear that as the rivalry decreases, companies have an opportunity to increase their prices and gain more profits. However, the opposite can happen if the rivalry increases among established competitors. CONCLUSION After carrying out a competent Porter’s Five Forces Model Analysis to evaluate the nature of the fast food industry and its competitiveness the share holders strongly believe House of Kebab would be a big success if the strategies discussed above is executed accordingly.
The advantages that House of Kebab currently possesses to position itself well in the market are listed:- 1) Fewer competition in the Kebab Fast Food industry 2) A well crafted strategy which includes two of very strong strategy which is low cost and product differentiation. 3) A qualified and competent management team 4) Prior experience dealing with meat suppliers 5) High sales potential locations for Halal Food 6) Strong emphasis on customer satisfaction
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