Market Structure and Competitive Strategies in Australia's Fast Food Industry

The report analyzes the market structure in Australia’s fast food industry and the pricing and non-pricing strategies adopted by MacDonald’s and Hungry Jack’s. It also discusses the competitive strategy used by the two firms and provides recommendations for growth strategies.

Running head: ECONOMICS AND FINANCE 1
Economics and Finance
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Executive summary
The report analyzes the market structure in Australia’s fast food industry. The second part
of the report looks at the pricing and non-pricing strategies adopted by MacDonald’s and Hungry
Jack’s. The third part of the report analyzes the competitive strategy used by the two firms
identified above, and the last part is about the growth strategies plus the recommendation for the
other strategies that could be used by one of the companies to enhance its growth.

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Introduction
MacDonald’s began its operations in 1940 as a barbeque restaurant and was founded by
then by both Richard and Maurice McDonald (McDonald's, 2019). It is since then that it has
transformed to become one of the leading fast food restaurants in Australia since 1948. With the
use of franchising model, MacDonald’s has expanded internationally becoming the largest fast-
food chain globally and operates more than 36000 franchises that are comprised of both the
small and medium restaurants with a presence in more than 115 nations (McDonald's, 2019). It
has been reported that McDonald’s serves hamburgers to roughly 68 million customers daily
internationally. Since 1971, when MacDonald’s ventured the Australian market for food with the
fast joint situated in Yagoona, it has seen more than 900 restaurants with the inclusion of both
the franchisees and fully-owned ones erected with more than 90,000 workers. The Burger King,
on the other hand, had its origins in Florida. The Burger King was, unfortunately, unable to use
its brand in Australia as another takeaway outlet in Adelaide had trademarked the brand was
during this time that saw Hungry Jack’s brand initiated with the first store situated in Inn aloo in
1971.
Pricing and non-pricing strategies by MacDonald’s and Hungry Jack’s
The use of pricing and non-pricing strategy helps a company gain a significant share with
regards to the sales and market (Davcik & Sharma, 2015). The pricing strategies entail cutting
the price to increase the level of sales and share of the market. The non-price strategy, on the
other hand, involves utilizing a variety of strategies that do not affect the price. Non-Price
strategy can be classified into two main segments. One is the product differentiation, which
involves changing the appearance of the commodity and product variation entails changing the
commodity.

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Pricing strategy by McDonald’s and Hungry Jack’s
Product Price strategy by Hungry Jack’s Price strategy by McDonald’s
Double burger $5.15 $7.25
(premium pricing)
Six nuggets kids pack $6.95
(bundle pricing)
$7.55
The pricing strategy adopted by Hungry Jack’s entails price bundling incorporated with
psychological pricing. With the use price bundling, McDonald’s offers meals and other
commodity bundles for several discounts. Using the psychological selling, McDonald’s adopts
the prices that seem to be significantly cheap such as $1.99 as opposed to round2ing of the
figures to the nearest one dollar. This component of McDonald’s pricing mix outlines the
significance of price bundling to motivate consumers to purchase more of the products.
McDonald’s offers a variety of meals to its consumers. A combo refers to a combination of
products that supplement one another and have their integrated price reduced. A good illustration
is the burger, French fries and a drink which will roughly cost $5.50 as opposed to the total cost
of $7.50. Thus, MacDonald’s uses this pricing strategy to reduce the price of collective products.
The use of combos enables consumers to see the value of their money as they pay less and get
large quantities compared to the standard prices for the same products (Faith & Agwu, 2018).
This translates to sales increment when customers buy such combos leading to an increase in the
market share while at the same time enabling the consumers deriver higher satisfaction from
such combos.
On the other hand, Hungry Jack’s product array is conducted cost-effectively. On an
individual basis, Hungry Jack’s competes with large fast food players companies such as
McDonald’s and Wendy’s. The concept of pricing integrates commodity prices in a manner that

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minimizes costs both costs and prices. In this context, the market-based pricing technique is used
where the set prices take into consideration the demand and supply in the market and also the
competitive pricing of identical commodities. For instance, Hungry Jack’s charges its burgers
between AUD1-3 and such burgers come in various sizes such as small, medium, and large. The
bundle pricing strategy used by Hungry Jack’s has enabled it to earn more revenues. Currently,
Hungry Jack’s provides two different meal varieties, that is the value meal and kid’s meal. The
meals are prepared in a manner that attracts potential consumers and offers economic subsidies
for purchasing more products as a component of the bundle as opposed to the individual
commodities purchase solely. Thus, it is clear that both McDonald’s and Hungry Jack’s use
similar pricing strategies; for instance, the bundle pricing is a common practice for both
enterprises aimed at encouraging consumers to purchase more.
Non-price strategies
Using age, McDonald’s has segmented its market into generations such as generation X,
generation Y ore generation Z. McDonald’s also has other segments such as the seniors,
teenagers, and the children where the firm targets children big time. Using lifestyle, McDonald’s
has two primary segments where the first niched demands conventional fast food joint for fast
and convenient dining at considerably low prices. However, the second niche demands premium
and food and coffee that is of high quality in an environment that is elegant and relaxing. Hungry
Jack’s, on the other hand, also segments the Australian market using the age parameter; however,
it primarily targets adults and teenagers.
McDonald’s being a fast food joint not only offers its consumers tangible products such
as hamburgers, French fries, and drinks but also offers intangible products such as quick services
which led to the concept of fast food.

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Similarities in non-pricing strategy
Both McDonald’s and Hungry Jack’s have identical product offerings in hamburgers or
the cheeseburgers of various sizes accompanied by beef or chicken fillings, drinks particularly
coffee during occasions such as breakfast, lunch, and supper. Both McDonald’s and Hungry
Jack’s use the fast food concept as their mode of operation where they offer quick and
convenient meal services to their esteemed customers in both their restaurants or the take-aways.
They both offer packages to cater for birthday parties and have in-house WIFI. Some of the
restaurants ran by McDonald’s, and Hungry Jack’s ran 24 hours a day for the whole week and
also have playgrounds for children.
Differences
Although McDonald’s offers a wide variety for each segment, it has failed to define its
particular selling points with regards to product features and benefits. However, Hungry Jack’s
concentrates more on producing superior quality products and prove its mantra, such as “better
beef,” “better coffee” among other products it offers. For instance, despite McDonald’s and
Hungry Jack’s obtaining fresh Australian beef, only Hungry Jack’s gives assurances that its beef

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has been reared without the growth hormones (Hungry Jack's, 2019). Also, both of them provide
coffee that is brewed from 100% Arabica beans though only Hungry Jack’s asserts that it offers
better coffee sourced from famous Arabica growing territories such as Mexico and Brazil and
goes further claiming that its coffee is roasted by Australian award-winning roasters to bring in
perfection. Hungry Jack’s also provides superior eggs that are cage free and raw cracked
compared to McDonald’s whose eggs are identical to what consumers take in their homes.
McDonald’s differentiates itself extensively using its superior services through its well-
trained, friendly and considerate staff and also through the general good experience it brings to
its consumers. Also, McDonald’s provides an online platform that allows its customers to place
orders which are delivered to their homes (Brown, 2015). The personalized service is one of the
strengths of McDonald’s as consumers have the leverage of placing their fillings ingredients. The
McCafé is designed to provide exceptional dining experiences for the target consumers who
demand to enjoy the fast food in a complicated manner. On the other hand, Hungry Jack’s
provides some services that McDonald’s fails to provide, for instance, Hungry Jack’s offers
nutrition and allergen directives besides their menu and also provide party theme choices.
Non-pricing strategy business advise
Since many Australian consumers prefer cooking at home or consume healthy meals as
opposed to fast food joints but whenever they are in a hurry, they eat in some of these fast food
outlets using the provided food information. It is thus imperative for McDonald’s to concentrate
on giving ingredients considered healthy in its burgers. This will ensure that McDonald’s
provides robust though gourmet burgers that align the eating requirements of groups composed
of vegetarians, semi-vegetarians, and individuals who seek to keep fit or want to lose weight.
Moreover, McDonald’s should give nutritional information of every fast food it offers with

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regards to the fat, sugar, level of salt, number of calories and fiber as such ingredients are vital to
health-conscious consumers who care most about their scales when they eat in fast food
restaurants.
Market structure and Competitive strategies
Market structure
Many markets in Australia are characterized by oligopolies or the competition among the
limited number of firms. An oligopoly market structure is characterized by a few firms that
dominate such industry. A market or industry that is shared between several firms is identified as
being highly concentrated. Despite the fact there are only several firms that dominate such a
market, it is possible that several small firms may have access to operate in such a market. The
fast food market is a perfect illustration of an oligopoly market where particular brands
command a large percentage of the market share. The major restaurants connected to the fast
food market in Australia include McDonald’s, Hungry Jack’s, KFC and subways, among others.
All these rivals are competitors that command a large part of the market share though there are
other small players in this market such as Ali Baba and Wendy’s which are also in the business
for fast food and as such fail to have much recognition compared to the major brands.
Competitive strategies
McDonald’s still holds its leadership position and commands one of the most significant
shares in the Australian fast food market for decades. All such outlets adopt MacDonald’s
international standardized restaurant format with regards to the logo, theme, the number of
individuals employed, selling mechanisms, and in-house systems (Euromonitor International,
2018). Apart from the conventional restaurant format, McDonald’s in Australia runs its online
stores for purposes of home delivery services and McCafé, also known as the Macca’s which

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serves the complicated dining trends. McDonald’s commands the largest share of the Australian
fast food industry. Apart from the Hungry Jack’s which is the primary competitor to McDonald’s
mainly in the hamburger sector, McDonald’s competes with premium gourmet shops selling
burgers and other fast food chains such as KFC, Domino’s pizza and Red Rooster among others.
The shift associated with customer preferences has reduced the market share from 38% as
reported in 2012 to 36% in 2014, amidst all endeavors in establishing and initiating healthier
menus (Euromonitor International, 2018). Despite McDonald’s and Hungry Jack’s commanding
the largest share of the market with regards to the Australian hamburger market, McDonald’s is
regarded as the market leader with the largest share in the market for fast food.
One of the features of the fast food market is the medium level of market share
concentration. The level of intensity in such an industry has been constant over the past five
years. The rising trend and demand for healthier choices and shifting away from the conventional
fast food has led to the entry of several small players, and this may increase the level of
competition for the significant players in future. Whereas the barriers to entry and capital
requirements for the new players remain low, robust competition and product life cycle will
probably deter new players from venturing the industry and gaining a market share.
Barriers to entry
One of the obstacles is the location of the restaurants as they are concentrated in
particular regions that have a high population of people such as Manly. Thus, such a place makes
it almost impossible for new entrants to venture such an industry not unless they start their
premises in such regions as they are flooded (Smith, 2014). The other barrier is that there are
dominant players that dominate the market, making it difficult for new competitors to win the
trust of the already established consumers. Lastly, there are legal obstacles, within the Australia

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food industry that demands to adhere to the standards with regards to the health requirements.
With regards to Australia and catering legal requirements, firms must adhere to the prevailing
standards before venturing into such industry. It is this and other regulatory barriers that make it
difficult for new players to enter the Australian market for fast food.
Market share
As of March 2018, McDonald's was the leading with a market share of about 52.7%,
KFC came trailing second with 40%, then third-ranked was the Subway with 30.8% and the
fourth was Hungry Jack’s 29%, and lastly, Domino’s pizza commanded a market share of 28.3%
(Statista, 2018).
McDonald
's
KFCSubway
Hungry
Jack’s
Domino’s
pizza
market share(%)
Growth strategy
Core competencies
Yes. The companies are focusing on their competencies. For instance, McDonald’s
provides convenience when individuals demand and want to consume fast food at prices that are
fair and offer the best value for their consumer’s money. One of the competitive advantages
associated with McDonald’s is its focus on always providing quality food and also the

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consistency in its production processes and effective use of raw materials (Mourdoukoutas,
2013). The McDonald brand is one that is recognized globally and is also the company’s
competitive advantage. McDonald’s also as a cost leader offers its food at prices that are slightly
lower than what other competitors charge in the market. To achieve such a position of cost
leadership, McDonald’s ensures that its stores remain efficient and always keep the operations
costs as low as they can.
Business advice
McDonald’s needs to grow as the trends that once propelled MacDonald’s growth seem
to be transforming the tailwinds to headwinds. The once upon a time, baby boomer are no longer
teenagers as they put calories and cholesterol before affordability, speed, and convenience. The
one thing that comes to the mind of such a group when the name McDonald’s gets uttered is the
menu that features low-calorie-low cholesterol products (Stern, 2019). Thus, it is imperative for
McDonald’s to reorganize the value proposition as a move to change the image that consumers
have regarding McDonald’s, for instance, it can have salads and other healthy products rather
than the beverages and hamburgers in its advertisements. The other important thing that
McDonald’s can do to enhance its growth is to acquire a restaurant chain that already possesses
the current trends such as Potbelly or The Noodle & Company given the fact that such
companies are up for sale and MacDonald’s is willing to pay huge sums to purchase such firms.
The other thing that McDonald’s can do to grow is to leverage the company’s main capabilities
in franchising and logistics to develop two different units. One unit should be for the low-calorie-
low cholesterol consumers, and the other should cater to the domestic and semiglobal niches of
the global economy.
Conclusion

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It is evident that indeed, the Australian fast food market is characterized by Oligopolistic
market structure. However, the Australian market is highly competitive with giants such as
MacDonald’s and Hungry Jack’s commanding a large share of the market. Also, due to the
changing trends in demand for healthy foods, it is imperative for fast food outlets to modify their
menus to include organic foods to cater to the health-conscious consumers.
References
Brown, R. (2015, January 10). Fast food evolution - global super-brands are having to reinvent
themselves to keep up. Retrieved from The Sydney Morning Herald:

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https://www.smh.com.au/national/nsw/fast-food-evolution--global-superbrands-are-
having-to-reinvent-themselves-to-keep-up-20150107-12j7mc.html
Davcik, N. S., & Sharma, P. (2015). Impact of product differentiation, marketing investments
and brand equity on pricing strategies: A brand level investigation. European Journal of
Marketing, 5(6), 760-781.
Euromonitor International. (2018, June 2018). Fast Food in Australia. Retrieved from Country
Report: https://www.euromonitor.com/fast-food-in-australia/report
Faith, D. O., & Agwu, E. (2018). A review of the effect of pricing strategies on the purchase of
consumer goods. International Journal of Research in Management, Science &
Technology, 2(1), 43-54.
Hungry Jack's. (2019). The Burgers are better. Retrieved from Hungry Jacks:
https://www.hungryjacks.com.au/home
McDonald's. (2019). Our History. Retrieved from McDonald's:
https://www.mcdonalds.com/us/en-us/about-us/our-history.html
Mourdoukoutas, P. (2013, November 23). McDonald's: Three Strategies To Reignite Sales
Growth. Retrieved from Forbes:
https://www.forbes.com/sites/panosmourdoukoutas/2013/11/23/mcdonalds-three-
strategies-to-re-ignite-sales-growth/#17b09f6d2db4
Smith, G. (2014, February 17). Fast Food Services in Australia Industry Market Research
Report . Retrieved from PRweb:
https://www.prweb.com/releases/2014/02/prweb11585273.htm

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Statista. (2018, March). Share of consumers who eat from quick service restaurants in an
average six months across Australia as at March 2018, by chain. Retrieved from Statista:
https://www.statista.com/statistics/871574/australia-leading-fast-food-restaurant-chains/
Stern, G. (2019, March 6). Despite Consumers' Shift Towards Healthier Food, Study Finds Fast-
Food Portions Are Only Getting Larger. Retrieved from Forbes:
https://www.forbes.com/sites/garystern/2019/03/06/new-study-reveals-more-calories-
and-larger-portions-served-at-fast-food-restaurants/#14683e9c3c17