II.

INDUSTRY ANALYSIS

A. Threat of Substitutes

THREAT
EXPLANATION
LEVEL
Availability of substitutes for customers to choose
from comes in a wide range of variety of product
options. As presented in the case, market niches of
the fast food industry range from hamburgers,
chicken, and pizza stores to steak and seafood
houses.
Availability of
Substitutes and
Substitutes available in the industry may offer the High
Price-Performance
same price but with better or lower quality taste.
Ratio
Restaurants can charge a premium price from
customers for more quality and fine dining
experience, while cost-effective options are
available for customers looking for more
economical choices.

The increase in other food industries will not pose

Extra-Industry significant threat to the fast food industry as there
Moderate
Effects are already a number of existing food industries.

Switching cost, or the cost that a consumer incurs

from switching brands, for the industry is
Switching Cost considered low. Customers can easily shift their High
loyalty from one brand to another.

The ease of switching from one restaurant to

another considering the number of substitutes, in
case the experience is not according to the
Conclusion customers’ preference and expectations makes the High
fast food industry having a high threat of substitute
products.
B. Threat of New Entrants

THREAT
EXPLANATION
LEVEL
Setting up a new restaurant or player in the fast
Level of Investment food industry requires moderate to high level of
Moderate
Needed investment.

Locations and supplies distribution can be easily

accessed but costs may vary for each different
country. Another factor affecting the ease of entry
Scale and
in the industry is the economies of scale, which can Moderate
Experience
be established production and other operations
achieved efficiency

According to the case, there is 43% of franchised

establishments of fast food items in 1995. The high
Access to Customers
distribution network of fast food franchise supply
or Distribution Moderate
chain can be easily accessed by potential players in
Channels
the market.

The competition field is high as there are a number

of fast food chains and the differentiation factor is
the food taste and quality. Product and services
differentiation is low due to the uniformity in their
Differentiation offerings though standardization of services, High
production processes, raw material quality,
appearance of outlets, and service levels
differentiates each player in the industry.

The access to supplies and distribution networks for

the industry is considered easy, though the
investment level can hinder potential players from
Conclusion entering. Keeping this points into view, it can be Moderate
stated that the fast food industry has moderate
threat of new entrants.

C. Rivalry Among Competitors

THREAT
EXPLANATION
LEVEL
The higher the number of competitors, the more
Competitor Balance intense would be the competitive rivalry in the fast High
food industry. This is also due to the diversification
 of the industry into different niches and categories.

The high threat of rivalry makes it hard to maintain

high profitability for smaller players in the industry.

There is moderate growth rate for the fast food

industry as industry-wide sales increases only at
Industry Growth Moderate
about 5% annually in the United States.

Exit barriers is low for the industry, due to the high

number of competitors and low switching cost and
Exit Barriers High
brand loyalty among customers

There is a high similarity in the products offered by

fast food stores.

On the other hand, one of the factors for the success

of any fast food store is its commitment to
Differentiation High
providing high-quality products to customers.
Because of this, each competitor in the industry
employs quality standards. Thus, differentiation as
to quality is also low.

The fast food industry has intense competition,

owing to the high number of players in the market,
specially the presence of fast food franchises.
Conclusion Moreover, there is little customer loyalty and High
customers can switch from one brand to another
according to demand and preference.

D. Threat of Buyer Power

THREAT
EXPLANATION
LEVEL
There is a high concentration of customers in the
Concentration of industry due to the increase in consumer spending
Low
Buyers for fast food

Fast food stores cannot offer over-priced items,

since it will limit the number of customers. An
increase in the price of products offered could have
Price Sensitivity Moderate
a moderate effect on the sales of the company.
Prices need to be adjusted according to the target
market and the affordability of the market segment.
 Demands and preferences dictate choice of
products and services for consumers. Also, due to
Ability to Substitute high number of substitutes, there is a low switching High
cost for customers.

The fast food industry has high number of

substitute products and low switching cost.
However, price sensitivity is at a moderate level.
Conclusion Moderate
Based on the analysis, buyers have a moderate
bargaining power in the fast food industry.

E. Threat of Supplier Power

THREAT
EXPLANATION
LEVEL
The number of suppliers in the industry determine
the level of influence it can have on the buying
company. For the fast food industry, there is a high
Concentration of
number of suppliers for similar raw materials. Low
Suppliers
There is also high number of suppliers for the
location of fast food stores.

Agreements are often made with suppliers in order

to ensure adequate and consistent supplies of raw
materials for the production of products. These also
helps on reducing costs in the long run towards
achieving economies of scale.
Switching Cost High
However, a change in the supplier may impose
risks and high switching costs for the buying
company.

Competition among suppliers is also high,

considering the low differentiation of products
offered by suppliers. Thus, in order to maintain
Importance of
business ties with larger firms equating to more
Industry in Low
profits, suppliers have to adjust the price of raw
Supplier’s Profit
materials according to the demand of this
businesses.

Conclusion Overall, there is a high number of suppliers and Low

 lack of differentiation among products of suppliers.

VI. STRATEGIC ALTERNATIVES

 INTERNATIONAL STRATEGIES

One of the factors towards success of Tricon Restaurants International is on how it

handles its opportunity towards internationalization. Increase in demand for fast food and
easier access to distribution channel gives an opportunity for TRI to expand in overseas
market. Expanding would help the company in obtaining larger global market share and
establish brand loyalty worldwide. TRI may use transnational strategy – the combination
of global and multinational for its international operations. Examples of these strategies
are:

o For its products and services, same brand names and same core menu items may
be retained in order to promote brand image. However, concessions may be made
to cater local tastes. For example, chicken meals offered by KFC may include
international flavors unique to a specific country.

o Marketing schemes, advertising campaigns, strategies can be geographically

transferred with little adjustment. This enables the use of uniform marketing
strategies getting to a worldwide brand uniformity that will drive to market
globalization. Marketing

o Local decisions on operations may be made by local subsidiaries, yet central

coordination and strategic decisions is handled by the headquarters. The
transnational strategy relies on the coordination of the center the operation units
and the local subsidiaries for efficient and effective reach. This would also enable
the subsidiaries to develop solutions on international threats such as currency
fluctuations, taxations and other specific country risks.