ECO600 Industry Analysis: KFC vs Oporto Business and Growth Strategies

This report analyzes the market structure and competitive strategies of KFC and Oporto in the Australian fast food industry. It identifies the monopolistic competitive nature of the market, highlighting the online ordering trend and barriers to entry. KFC employs a product differentiation strategy, while Oporto focuses on cost leadership. The report discusses their growth strategies, with KFC branching into new products and Oporto maintaining core competencies. It recommends that KFC pursue horizontal growth in developing economies and organic growth to mitigate financial risks. Pricing and non-pricing strategies are compared, and the report suggests KFC should adopt cost leadership to increase market share. The analysis includes primary data from executive interviews and secondary data to assess market dynamics and competitive positioning.

Running head: INDUSTRY ANALYSIS
Industry analysis: the competition between KFC and Oporto and their business strategies
Name of the student
Name of the university
Author note

1INDUSTRY ANALYSIS
Executive summary
The aim of this report is to discuss about the market structure and situation of fast food industry
in Australia. In doing so, this report discussed about the major competitors operating in this
industry along with their market share. In addition, the growth strategies of KFC and Oporto are
also discussed in this report and it is identified that both are having different take towards the
growth strategies. The pricing and non pricing strategies of both the companies are discussed and
a few differences are identified. This report recommended that KFC should follow horizontal
strategies in expanding their business in the developing countries.

2INDUSTRY ANALYSIS
Table of Contents
Introduction......................................................................................................................................3
Market structure...............................................................................................................................4
Competitive strategies.....................................................................................................................7
Determination of the growth strategies............................................................................................7
Determination of the pricing and non pricing strategies.................................................................9
Non pricing strategies................................................................................................................14
Recommendations......................................................................................................................15
Conclusion.....................................................................................................................................16
Reference.......................................................................................................................................17

3INDUSTRY ANALYSIS
Introduction
The contemporary business scenario demands the effective and efficient business level
strategies from the organizations. This is due to the reason that current market scenario is highly
competitive in nature and effective business strategies will ensure in staying ahead of the
competition and gaining the maximum outcome from the market. In determination of any of
business sector conditions, it is best to compared the two leading operators in the same sector,
which will help to identify the trends being followed in the industry along with the business
strategies initiated by the respective organizations (Richards, Kjaernes & Vik, 2016). In
Australia, fast food sector is one of the most competitive sectors due to the presence of number
of global and local brands operating in the saturated market situations.
This report will discuss the business level strategies being followed by international
brand KFC and the home grown brand Oporto. While KFC is well established across the world
for their fried chicken menus, Oporto is having high market penetration across Australia and
New Zealand and they are also offering various chicken based menus. Thus, both are competing
in the same sector in Australia. In doing this report, both the primary and secondary data will be
used, which will involve both quantitative and qualitative approach. The primary data is
collected by interviewing the executives of both the brands in Australia through questionnaire.
This report will discuss about the current market structure in the fast food sector in Australia
along with the potential barriers in the market. In addition, the market position of each of these
selected brands will be analyzed. The growth approach of the two companies will also be
discussed along with their respective pricing and non-pricing strategies. Based on the identified
limitations, a few recommended steps will be discussed.

4INDUSTRY ANALYSIS
Market structure
As per the current trends and reports, it is identified that the market structure of the fast
food sector is monopolistic competitive. This is due to the reason that there are number of brands
operating in this sector with having similar value propositions for the customers. However, these
value propositions are different in terms of product levels. For example, both KFC and Oporto
are offering chicken based foods but with different styles, taste and forms. According to the
concept of the monopolistic competition, different companies are operating in the market with
having differentiated products for the customers. Each of them are trying to create distinctiveness
in order to attract more customers. There are number of global and domestic brands operating in
the Australian fast food industry including Nando’s, Red Rooster and Hungry Jack (Thornton,
Lamb & Ball, 2016). In the current time, it is reported that one of the major trends emerging in
the recent time in the Australian fast food industry is the online ordering. With the popularization
of the concept of convenience is king, people are more ordering online in getting the food
delivered at their doorstep. The concept of online ordering was there in the past but the third
party ordering vendors got popular in the recent time. Thus, each of the competitors operating in
this sector is having dedicated home delivery section to deliver the prepared food in minimum
time.
In this case, the executives of KFC and Oporto are interviewed about the ratio of online
food ordering and n store purchase among the customers. According to their response, 66 percent
of the total orders are being done in stores by the customers, while the remaining 34 are done by
online ordering. On the other hand, in the case of Oporto, 62 percent of orders are done in store
while 38 are through online ordering. Thus, it is identified that in store purchase in still constitute
the highest share of revenue but the trend of online ordering is increasing. Executives from both

5INDUSTRY ANALYSIS
the companies stated that the percentage of online ordering is increasing. This denotes that online
food ordering and delivering service is one of major trends in the Australian fast food industry.
Question: 1. what is the ratio between online ordering and in-store purchase?
In-Store purchase Online ordering Total
KFC 66 34 100
Oporto 62 38 100
In-Store purchase Online ordering
0
10
20
30
40
50
60
70
KFC
Oporto
It is also identified that majority of the competitors operating in the Australian fast food
industry are existing and they started their business in Australia by late nineties to be newest
entry in the market. Thus, each of them are well established and well penetrated in the market.
However, on the other hand, the threat of new entrants is there due to the reason that different
domestic fast food brands are coming up and starting their business in local scale. This is helping
them to start their business with low requirement for investments. Still there are few barriers to

6INDUSTRY ANALYSIS
be faced by the new entrants in the market including matching the economies of scale. Due to the
extensive operations of KFC and Oporto, they are lower average cost of operation, which will
not be in the case of the new entrants. Thus, the new entrants will face the challenge of offering
competitive price points. Another barrier to the entry is huge brand identity of the existing
players. The brand value of KFC is difficult to match and customers will always get attracted
towards the known brands.
As per the reports, it is identified that McDonalds is the market leader in the Australian
fast food industry with having the market share of 30 percent, followed by KFC with 20 percent
and Subway with 18 percent, Hungry Jack with 13 percent, Dominos with 10 percent and Red
Rooster with 9 percent. The following section will discuss the Herfindahl-Hirschman index.
Brands Market share (%) Squared off
McDonalds 30 900
KFC 20 400
Subway 18 324
Hungry Jack 13 169
Dominos 10 100
Red Rooster 9 81
Total 100% 1974
Thus, as per the above analysis, the total value of 1974 denotes that concentration of the
competitors is low in the market and thus none of them are having monopoly power or
advantages.

7INDUSTRY ANALYSIS
Competitive strategies
It is identified that KFC is following product differentiation strategy in their business
operation. This is due to the fact that price of the products of KFC are on the higher side that
denotes that cost leadership is not followed. On the other hand, with the help of the
differentiation strategy, the food menus offered by KFC are unique and distinctive compared to
their competitors (Becerra, Santalo & Silva, 2013). This is helping them in fending off the
competition. In terms of the competitive strategies of Oporto, it is identified that they are
following cost leadership strategy. This is due to the reason that the average price of the food
items of Oporto s low compared to their competitors. Oporto is having lower brand value and
identity compared to their global competitors. Thus, with the help of the cost leadership
strategies, they are following market penetration approach (Kaliappen & Hilman, 2013).
It is recommended that KFC should also follow cost leadership in their business. This is
due to the fact that premium pricing of them is restricting the mass market segments in getting
tapped. With the help of the cost leadership strategy, the profitability might get lowered for them
but it will again get adjusted with the higher market share and sales revenue (Yunis, Jung &
Chen, 2013). Thus, they will able to gain the market leadership status. KFC is already a known
brand among the customers and with the competitive pricing, the value proposition for the
customers will get further increased.
Determination of the growth strategies
In terms of the growth strategies, KFC and Oporto is having different approach due to the
fact that Oporto is concentrating on their core competencies while KFC is branching out newer
products with different taste and for different customer segments. For example, recently KFC

8INDUSTRY ANALYSIS
introduced Chizza to tap the pizza lovers. This is made wholly of chicken but will attract the
customers seeking pizza. This is helping KFC in expanding their target customer bases. On the
other hand, Oporto is maintaining their existing core competencies (Moatti et al., 2015). This is
due to the reason that they do not have the brand power and value as KFC in pushing the sales of
the new products in the market. Moreover, due to their relatively small scale operation,
expansion of the product line will dilute their core competencies. In the case of KFC, the
probability of favorable return from their new products is more due to their worldwide presence.
This is due to the reason that KFC is having stores across the world and dealing with different
taste and preferences patterns of the customers (Bamiatzi & Kirchmaier, 2014). On the other
hand, Oporto is operating only in Australia and New Zealand with relatively similar sets of
culture. Thus, the probability of failing with the new products in the market is more for them.
This external situation is influencing in the different approach of KFC and Oporto towards
leveraging on their core competencies.
It is recommended that KFC should initiate horizontal growth. This is due to the reason
that in the current competitive scenario, growing in different markets and regions will only help
them to increase their revenue. In the above section, it is identified that KFC is competing with
number of competitors and there are low differences in terms of market share of them. Thus, it is
recommended that developed markets are already saturated for KFC and they should tap the
developing economies (Tassey, 2014). Countries such as China and India are witnessing the
highest growth rate in the world. KFC is already having presence in these countries but it should
be increased and market penetration approach should be followed. This will increase their sales
volume and revenue along with reducing their dependency from their existing markets.

9INDUSTRY ANALYSIS
However, apart from the horizontal growth, it is also recommended that KFC should
follow the concept of organic growth. This is due to the reason that entering in the foreign and
new markets involves huge risks and it is important for KFC to review the potential risks in the
host country prior to the entry. In addition, they should also review the market potentiality in the
host country rather than just increasing the global presence. Initiation of the organic growth will
also ensure that financial risks are less for KFC.
Determination of the pricing and non pricing strategies
It is identified that KFC and Oporto are following different pricing and non-pricing
strategies as per their respective business situations. The following table will discuss about the
major pricing and non pricing strategies of both the companies.
Pricing strategy Non pricing strategy
KFC Oporto KFC Oporto
Psychological
pricing
Penetration pricing More market
presence
Narrow food menu
Discriminating
pricing
Price skimming More product
diversity
Australian based
promotion
Product bundling

10INDUSTRY ANALYSIS

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It is identified that one of the major pricing strategies being followed by KFC is the
psychological pricing. This is due to the reason that with help of the psychological pricing,
customers are created a sense of lower price even after the charging the same.
During the visit in the store of KFC in New South Wales, it is denoted that meal is
offered at $ 20.95. The customers will have the feel that they are not paying $21 for the product
but the fact is they are just paying 0.05 less than it, which is negligible. Thus, with the help of the
psychological pricing, positive impression is being created among the customers even by
charging the same.
Question: 2 do KFC have standardized price across all their stores in Australia and abroad?
Yes No Total
35% 65% 100%

12INDUSTRY ANALYSIS
KFC Oporto
0%
10%
20%
30%
40%
50%
60%
70%
80%
The executives of KFC are asked if KFC is following standardized pricing strategy in
their worldwide operations. Only 35 percent of responses came in positive that denotes that
discriminatory pricing is being followed. This is mainly due to the reason that stores of KFC are
having in different market with different economic situations. On the basis of the economic
situations, pricing of the products is being done.
The menu list of Oporto restaurant in Oaklands Park shows that the burgers are priced
lower compared to their competitors. This is the example of market penetration pricing strategy

13INDUSTRY ANALYSIS
is being followed by them. This is helping in attracting the customers by offering more value for
money food items.
Question: 3 does Oporto reduces the price of their older food items?
Yes No Total
64% 36% 100%
KFC Oporto
0%
10%
20%
30%
40%
50%
60%
70%
80%
The executives at Oporto are asked about the fact that if Oporto reduces the price of their
existing products. Majority of the response got is positive, which denotes that price skimming
strategy is being followed by them. According to the price skimming strategy, higher price is
charged by Oporto in the initial stage of market launch. Afterwards it is reduced as per the
market demand and the product lifecycle. Thus, it is enabling Oporto to gain the maximum
profitability from their products.

14INDUSTRY ANALYSIS
Non pricing strategies
Apart from the store executives, random customers are also being interviewed and they
have been asked about the diversity of products in KFC and Oporto. As per the response, 70
percent is having the opinion that KFC is having larger product diversity in their menu compared
to the Oporto.
KFC Oporto Total
70% 30% 100%
KFC Oporto
0%
10%
20%
30%
40%
50%
60%
70%
80%
This denotes that customers are having more options in KFC and it is beneficial for KFC
due to the reason that they are operating in large scale, which required diverse food menu to cater
to different taste and preference pattern of the customers. On the other hand, Oporto is catering
to narrow market regions and it is being done by having narrower product line.

15INDUSTRY ANALYSIS
Both the above food menus denote that KFC and Oporto is following product bundling
strategy as non pricing strategy. This is due to the fact that KFC and Oporto is selling the
bundled products as whole meal, which is more value creating for the customers. Thus, this is
one similar non pricing strategy being followed by both.
Recommendations
It is recommended that KFC should come up with a different product category or line,
which is will follow market penetration pricing. This will help them to cater to their existing
customers as well as targeting more mass market segments. In terms of the non pricing decision,
it is recommended that they should initiate market adaptable approach in offering food items in
Australia. Thus, apart from their global standardized product portfolio, Australian specific food
items should also be offered, which will help KFC to further penetrate in the local market.

16INDUSTRY ANALYSIS
However, in this case, they will have the risk of losing their core competency because they do
not have expertise in making Australia specific food items.
Conclusion
This report concludes that KFC and Oporto are operating in highly competitive business
situation in Australia. However, their business strategies and approaches are different according
to their respective situations. In this report, it is identified that KFC is operating on international
basis while Oporto is operating majorly on national basis. This is reflecting in their food menus.
It is recommended that KFC should initiate for horizontal growth while Oporto should penetrate
further in their existing market.

17INDUSTRY ANALYSIS
Reference
Bamiatzi, V. C., & Kirchmaier, T. (2014). Strategies for superior performance under adverse
conditions: A focus on small and medium-sized high-growth firms. International Small
Business Journal, 32(3), 259-284.
Becerra, M., Santaló, J., & Silva, R. (2013). Being better vs. being different: Differentiation,
competition, and pricing strategies in the Spanish hotel industry. Tourism Management,
34, 71-79.
Kaliappen, N., & Hilman, H. (2013). Enhancing organizational performance through strategic
alignment of cost leadership strategy and competitor orientation. Middle-East Journal of
Scientific Research, 18(10), 1411-1416.
Moatti, V., Ren, C. R., Anand, J., & Dussauge, P. (2015). Disentangling the performance effects
of efficiency and bargaining power in horizontal growth strategies: An empirical
investigation in the global retail industry. Strategic Management Journal, 36(5), 745-757.
Richards, C., Kjærnes, U., & Vik, J. (2016). Food security in welfare capitalism: Comparing
social entitlements to food in Australia and Norway. Journal of Rural Studies, 43, 61-70.
Tassey, G. (2014). Competing in advanced manufacturing: The need for improved growth
models and policies. Journal of Economic Perspectives, 28(1), 27-48.
Thornton, L. E., Lamb, K. E., & Ball, K. (2016). Fast food restaurant locations according to
socioeconomic disadvantage, urban–regional locality, and schools within Victoria,
Australia. SSM-population health, 2, 1-9.

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Yunis, M., Jung, J., & Chen, S. (2013). TQM, strategy, and performance: a firm-level analysis.
International Journal of Quality & Reliability Management, 30(6), 690-714.