1. Competitive Forces in Food Service
Chapter 6
Competitive Forces in Food Service

2. 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

3. 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

4. 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).

5. PRODUCT LIFE CYCLE
Review Product Life Cycle from book

6. MARKETING EXPENDITURES
Full Service (under $15)
0.8% – 3.3%
Full Service
($15-$25)
1.1% – 4.4%
QSR
0.6% – 4.0%

7. COMPETITIVE CONDITIONS
The Marketing Mix consists of four main activities (the 4 Ps – sometimes the 6 Ps):
Promotion
Product
Price
Place

8. 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%)

9. 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

10. ADVERTISING MEDIA The Marketing Mix MEDIUM CHARACTERISTICS
BROADCAST MEDIA
Television 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 MEDIA
Newspapers Limited targeting possible. Printed word is regarded as credible by many
Magazines 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.

11. 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

12. 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.

13. PRODUCT
The process of adding a new menu item to a restaurant menu can be quite extensive:
Idea
generation
Screening
Development
and testing
Test
marketing

14. 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

15. 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

16. 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

17. PRICE Price is often determined based upon three factors: Cost
Competition
Demand

18. 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

19. 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!