Economics and Finance for Business

This report analyzes the competition prevailing in the fast food industry of Sydney, focusing on McDonald's and Hungry Jacks. It covers market structure, growth strategies, pricing and non-pricing strategies, and concludes with recommendations based on findings.

Running head: ECONOMICS AND FINANCE FOR BUSINESS
Economics and Finance for Business
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Abstract
The report is designed to analyze the different aspects of competition that prevails in the fast
food industry of Sydney. For comparison analysis the two most competitive companies in the
industry is taken. McDonalds and Hungryjacks. The research done in the report is based on the
primary and secondary data. In the secondary data, it explains about the market structure of the
industry as well as both the companies. The other part in the report gives the comparison
between the growth, price and non-price strategies of McDonalds and Hungry Jacks. The report
is concluded by summarizing the evaluation of the research.
1. Introduction
In the present face of the globalization world, there are immense increase in the rate of
competition especially in fast food industry. The report is being designed to provide an overview
about the companies in the market about their price and non- price strategies, products,
companies market structure and growth strategies. For analyzing and obtaining, the objective of
the report analysis on the two most common companies of the industry as competitors. The
research is based on McDonald`s and HungryJacks situated at Sydney CBD. McDonald`s is a
Centralized International Company deals in supplying fast food. It provide eatables product with
high standardization. McDonald`s serves in 121 countries and 30,000 restaurants globally.
Hungry jack is a franchise of Burger King. It situated in 390 locations in Australia. It is ranked as
the second position of the franchise list of Burger King.
The research based on primary and secondary data that has been collected. The report has
certain sections. The primary data is collected from the employees of the concerned companies.
Secondary Data is collected from the journals, website and newspaper.
Market structure describes about the market position of the industry and deals in comparison
of Mc Donald`s and Hungry jacks. The threat and opportunities available for the companies. The
market share hold by each of them. The market structure holds brief history of the market of
industry itself. In growth strategies explains about the expansion plans and the opportunities of
the growth as well a brief comparison is also provided. At end the pricing and non-pricing
strategies of the two-selected company is analyzed and comparison between them is done. The
report is concluded by the recommendations based on the findings and observations of the
project two both of the companies.
2. Market Structure:
Australia`s fast food industry is representing a market structure oligopolistic nature.
Structure of oligopoly market is between wholly monopoly and monopolistic competition. It
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means that market is under dominance of the
few seller and control the prices of the
product. Oligopoly market is identified
where there is few seller of homogenous
products is available. Oligopolistic
competition is termed that two different
companies are dealing in regular selling of
same products but yet their prevails certain
amount of unlikeness. This is also
considered as another base of competition
along with the price. Characteristics of
market structure can be products
differentiation, barriers of entry is having low medium range and numbers of sellers is large.
According to "Industry Research Reports", (2018) in food industry the major product of the
industry are pizza, sandwiches, juices, fast food containing chicken, salads and burgers. Products
are grouped as heterogeneous products. The group product signifies the market to be
oligopolistic market. Barrier to entry for this industry is medium. This means easy entry is
available for the operators in the industry. Market share of the industry is also at medium level.
The revenue earned by the fast food industry yearly is approximately $8 billion. The
chief categories covered by the prime competitors of the industry are hamburger, pizza, chicken
base stuffs and salads. The market share hold by different fast food industry in Australia are:
• Domino's Pizza - 5%
• Competitive Foods Australia (Hungry Jack's) – 8%
• McDonald’s Corporation - 20%
• Quick Service Restaurants (Red Rooster; Chicken Treat; Oporto) – 3%
• Yum! Restaurants (Pizza Hut and KFC) –17%
The Herfindal- Hirschman Index (HHI) is one of the measurements of market concentration
that is mainly used for determining market competitiveness. The market concentration in the
sector is mainly determined by assessing the enterprise that produces or market specific product
line along with relative market share distribution in terms of sales within the sector. The HHI
number of both the companies is medium as both are consistently competent in the industry to
each other. However, the fast food sector in Australia is mainly characterized by medium level of
market share concentration. Over the last five years, the concentration in this sector has remained
more or less constant. Both the McDonalds and Hungry Jacks have moved towards the healthier
options and thereby away from traditional fast food resulted in entry of small players. This in
turn provide huge competition to the larger players operating in this industry. While entry
barriers as well as capital requirements for the new operators are low, huge competition and
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status of mature life cycle hinders new entrants from entering the sector as well as gaining higher
market share.
The level of competition within fast food sector in Australia has been high and well-
regulated with consumers preference. New entrants in this sector does not find imperative to
business operations. The reason behind this is that with market capitalization that this sector has,
any new entrants focuses on the brand imaging and inclination to its capital outlay (Richards,
Kjærnes & Vik, 2016). The rivalries within this industry are not very influential on performance
and thus competition within these companies’ brands have their open clientele. The
developments that have occurred within the fast food industry in Australia are- improvement in
pricing strategies, better margin on real value of products and providing discounts to customers.
In future, the company might have huge prospects regarding increase in employment
opportunities. The Australian government has integrated program initiatives such as- AWT
(Australian Working Together) platform for promoting contribution rates. They have launched
welfare- to-work schemes for rising the employment opportunities. This initiative will aid to
retain employees within these two fast food companies. The company will also have huge
prospects regarding international cooperation on science. However, this will aid the fast food
companies to improve their business operations and expand the business around the global
regions. The governments restructuring of competition law will also provide them several future
prospects in gaining competitive advantage over its rivalries (Liu, Lee & Hung, 2017).
3. Growth Strategies
The venture of Hungry jack and McDonald`s is specifically oligopolistic as a whole in
Australia and in Sydney. Both the selected companies is a vertical organization. As it has
different levels of management for supervising different domains of the organization. As in the
vertical organization gives vision of the authority, control over the operations of business. In this
type of organization, the business activities are grouped into several departments so that a close
watch over the activities can be done. In this type of organization, employees at low level are
being motivated for being promoted in the senior level of management. This also add value in
the growth strategies of the organization. Customer preference very well supervises the level of
competition in the fast food industry. The growth in past year is 3% .The porter’s five forces is
applicable on the competition within the fast food industry. The competitors of the fast food
industry are known as the direct manipulating associates, the prices explains their bargaining
power. Hungry jacks bargaining power is based on the price fluctuation. As there exists
suppliers, who has low bargaining power Hungry jacks skips in facing the issues regarding
switching costs. The factors that most affect the bargaining power of Hungry jacks are
distinction in input, availability of substitutes, and the mapping of distribution centers.
McDonald`s bargaining power is low as it base upon number of suppliers that are independent
even the raw material and service provider is independent. Australia`s customer market focuses
on the bargaining power of buyers. The price fluctuations of the product follows the demand and
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supply chain. The report indicated that the McDonald`s is expected to be additional experienced
with burgers and chips fries. There are certain strategies adopted by the companies for their
growth. The companies aim for expanding their businesses. The growth strategies of
McDonald`s is grounded on three fundamentals improving profitability internationally,
expanding restaurants and reaching the maximum level of profits at the existing bistros. Better
operations, refinement, development of product, lower marketing cost and operating cost could
help McDonald`s to reach the maximum level of sales and earn desire profits. The long-term
growth and survival of McDonald`s is based on profitable franchises and suppliers. International
profit to the company is based on economies of scale on the individual market. As the worldwide
infrastructure, provide advantage to the company. McDonalds earn from its domestic market as
well as foreign merchandise. As it is the phase of globalization, earnings of foreign is showing a
rapid growth. McDonalds are facing cost expansion within the markets as well as new markets.
As it assesses the entrance prospects in new market and the survival percentage, it takes the
decision based on that to enter the new market. In case of Hungry jacks the growth strategies are
same as to McDonald`s with slight difference. Both of the competitors has same growth
strategies. (Grant, 2016).
4. Pricing and non- pricing strategies
McDonalds pricing strategy has been developed to highlight affordability of customer. One
of the main values of McDonald is that it integrates affordable price for its products so that it
attracts middle-income consumers. McDonald’s utilizes combination of two pricing strategies
such as- bundle pricing and psychological strategy. When varied kinds if products occur
collectively in a package, it is termed as product bundle pricing (Rao, et al., 2017). They focuses
on this kind of pricing strategy for combining different food commodities in one bundle. In
addition to this, this enterprise has unique promotional pricing via its goods and it has been
offering discounts on commodities that are combined together in same package. However, this
pricing strategy aids to motivate customers for buying goods based on the perceived
affordability. Furthermore, McDonald also uses non- pricing strategies for increasing sales as
well as market share through increasing public awareness. The non- pricing strategies include-
different types of advertising techniques such as radio, internet, sponsorship to AL and
improving customer’s services.
Hungry Jacks pricing strategy is mainly done in cost – effective way. This pricing strategy
usually takes care of commodity prices in the way that reduces costs as well as prices. There has
been market based pricing approach in which prices are mainly laid out by focusing on market
supply as well as demand along with competitive pricing of same goods. They also adopts
bundle-pricing strategy that aids this business to gain larger revenues. Moreover, Hungry Jacks
non- pricing strategies also involve marketing campaigns and various advertising methods (An,
2013).
Mc Donald being the market leader in Australia fast food sector, it has attained economies of
scales as well as taken cost benefit for offering higher deals at lowest prices in market. The main
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pricing strategy difference between these enterprises is that -McDonalds has adopted value-
based pricing strategies for offering consumers products of best value for the money while
Hungry Jacks has adopted competitor- based pricing strategies where pricing keeps up with the
pricing policy of McDonald (Baker, Collier & Jayaraman, 2017).
4.1 Both these fast food companies uses different pricing strategies for its main products such as
burgers, happy meals including French fries, coke and burgers, Hamburgers. McDonald has
been using product bundle pricing for Happy Meal and Hamburgers. On the other hand,
Hungry Jacks has been using competitive pricing for Burgers and bundle pricing strategies
for two meals option- kids’ meal and value meal. Thus highlights that these two companies
are using their pricing strategies in such a way so that it attracts large number of customers as
well as give them economic incentive in purchasing more commodities as part of bundles
than individual goods alone (Esmaeilpour, Mohamadi & Rajabi, 2016).
4.2 The most common non- pricing strategies used by both these businesses is to provide combo
meals at low price. This in turn helped them to attract more customers since they are
providing more meals at less money. In addition to this, McDonald has been using product
differentiation strategies through different advertising methods and improving customer
service. On the contrary, Hungry Jack is not using customer service method for attracting
customers. Furthermore, Hungry Jack uses marketing campaigning method for improving
their brand image in the market and competing with its rivalries.
4.3 McDonald’s business can benefit by inventing new food items or services as it can attract
large number of customers as well as boost up sales. During slowdown of economy, the
consumers might avoid expending money on the luxury items but could not avoid buying
foods. However, they can take this opportunity by setting affordable price for the products. In
fact, they can integrate new technologies for designing and manufacturing its products
(Namin, 2017). For instance, they must include entertaining elements in the store located in
this region. Furthermore, by sponsoring community support, it might work for humanity as
well as promote the business in effective way. Moreover, this company must change Burgers,
French fries or Happy Meal product bundling pricing strategy to promotional pricing strategy
as it can help to attract low-income consumers due to offering of discounts. Moreover,
Hungry Jacks should retaliate this pricing strategy on its kid’s meal or value meal for
attracting or retailing its customers in market.
5 Conclusion
It is clear that this industry is not an easy one to enter because there prevails strong
competitions in the fast food industry. MacDonald’s and Hungry jack is not the only competitors
of each other. There are other companies as well that exist in the fast food industry of Sydney. It
was found that McDonald`s and Hungry jacks are very similar in terms of pricing strategies but
were very different when it came to non-price strategy. It was argued that their current growth
strategies would be ineffectual because both of them has adopted similar strategies to some
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extent. We saw that the key move that McDonalds could make to capture a greater market share
is 20%. However, the future is uncertain: a few new shops around the corner are opening and
might pose a danger to both McDonald`s and Hungry jacks viability.
Although capacity is a rising issue external, it was noted earlier that external processes are now
additional than always, a foremost element of the selected companies mainly McDonalds. As a
result, there is a continuous clash completed independence. The franchises, specially the
knowledgeable outlets with over a period of achievement, want additional independence to
familiarize to local sensitivities and partialities. The franchises sense that as the arcade develops
more modest, it determination be vigorous for modifications and versions to occur earlier and
calmer than they ever have in the historical. The market analysis conducted in this report could
be extended in the future to include these newer businesses to derive a better picture of what can
happen soon in this very dynamic industry in Sydney.
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