Wits Business School

University of the Witwatersrand

MMSM

First Quarter 2020

Advanced Strategic Marketing

Group Assignment

BUSA 7068A

Syndicate 2

Nontsikelelo Mazibuko – 1055817

Mbongeni Tshuma – 768716

Cleo Magano – 2412772

Anele Mpetshwa – 2387594

Marina Maema – 392178

Table of contents;
Executive Summary 4
1. Background 6

1.1. Environmental Influences 6

1.2. Political Factors; 6

1.3 Economic Factors; 6

1.4 Socio-cultural Factors; 7

1.5 Technological Factors; 7

1.6 Legal Factors; 8

1.7 Environmental Factors; 8

2. Diversity 8
2.1. Market Size 8

2.1.1. Growth 9
2.1.2. Major Segments 9
2.1.3. Target Market 11

3. Dynamics 13

3.1. How the target segment evolves over time 13

4. Competition 15

4.1. Major Competitors 15

4.2. How these firms compete 16

4.3. Current Competitive Issues 18

5. Constraints 19

6. Integration 22

6.1. All customers differ 24

6.2. All customers change 25

6.3. All competitors react 25

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6.4. All resources are limited 26

7. Problem Statement 26

8. Strategic Analysis Approach 26

8.1. Advantages and Limitations 26

8.1.1. Advantages 26

8.1.2. Disadvantages 27

8.2. Rationale for using this tool 28

9. Results and Recommendations 28

9.1. Rivalry among existing competitors 28

9.2. Threat of new entrants 29

9.3. Bargaining power of buyers 30

9.4. Threat of substitute products 32

9.5. Bargaining power of suppliers 33

10. Recommendations 33

10.1. Pre-emptive move 34

10.2. Synergy 36

10.3. Low Cost 37

10.4. Differentiation & Positioning 37

10.5. Focus 37

References 39

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Executive Summary
Kauai, a subsidiary of Real Foods (Pty) Ltd, has, since its introduction in South Africa
in 1996, enjoyed a unique positioning even though it can be argued that it was seen
as a nicher then. It has over the years scaled and evolved into a much-loved brand
and no longer a niche. Kauai has over the years been quite consistent as a healthy
food chain. its memory imprint on customers mind has been and still is healthy food
and convenience.

As Kauai’s current slogan “Made Naturally. Served happily” does indicate; it’s
certainly all about providing customers with nutritious real food and an amazing in-
store experience. Their key strategic differentiator of serving the best quality
seasonal ingredients means that Kauai brings its customers organic food that has no
additives, preservatives, artificial colourants and flavourants.

Kauai’s traditional main target group, upper middle class, easily identify with Kauai
and its menu offering and theirs is a day to day routine consumption with minimal
consideration for alternative food providers or even price as Kauai has been able to
over the years address their healthy needs and they are already familiar with the
menu items offer.

Kauai continues to embark on its journey of what they termed as “Real Food
Revolution” which has been largely characterized by a unique grassroots approach
to healthy, natural food, innovation, social responsibility and integrity through a
number of innovative initiatives with its key partners such as Discovery Vitality, Virgin
Active and Pick & Pay, fast expanding its physical footprint.

This journey has not been without its challenges though as Kauai has in recent years
inevitably witnessed increased competition as more and more firms or restaurants
continue to respond to customers increasing need or pressure for healthier
alternatives. Kauai is experiencing tough competition not only from its traditional
competitors but also from indirect competitors such as retailers as with as lifestyle
pop-up stores all trying to capture the growing health-conscious market.

Shrinking consumer spending and a decline in the number of the middle class as a
direct outcome of what appears to be depressed global economies, largely felt in
emerging markets, is of greater concern. It goes without saying that, a squeezed

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middle class and/or upper middle class will negatively affect surplus incomes and
affordability in general.

Our analysis also seeks to not only highlight Kauai’s challenges, but it also does
provide a few innovative recommendations on how Kauai can proactively rise above
these challenges in order to continue enjoying its niche market leader position over a
sustained period of time. These recommendations could also Kauai with a further
thorough understanding of their customers and also with getting even more intimate
with them.

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1. Background

Virgin Active is one of the largest gym facilities providers in South Africa. The Group
had over 715 000 members in 142 clubs in South Africa in 2018
(businesstech.co.za). Discovery Health is the leading medical scheme administrator
in South Africa with a market share of over 40% of the overall medical scheme
market in South Africa (discovery.co.za). Kauai also partnered with Pick n Pay to
have their products available at these stores. These include healthy frozen
smoothies, frozen meals and side dishes. This was to help meet the demand of
customers who want healthier ready-to eat meals that can be enjoyed at home. Pick
n Pay has over 160 stores across South Africa, with stores in the Netherlands and
Thailand.

1.1. Environmental Influences

The environment of an organization can be divided into three distinct layers;

competitors and the market, industry and the macro environment (Alanzi: 2018).
There are different tools that can be used to evaluate the environment under which a
business operates. One such tool is the PESTEL Model (Political, Economic, Social,
Technological, Environmental and Legal variables).

The Environmental Influences of Kauai are;

1.2. Political Factors;

The political trends in a country influence how businesses operate. South Africa is a
politically stable country that gained independence in 1994, it has been ruled by the
African National Congress (ANC) since then. The political stability of the country
allows for the ease of doing business. The levels of corruption in a country would
also affect how businesses operate coupled with the level of state intervention. The
South African Government has established different bodies that allow businesses to
operate with ease. These include the Franchise Association of South Africa, which
helps businesses sell and buy franchise opportunities. It is important to note that
50% of Kauai outlets are owned by Franchisees.

1.3 Economic Factors;

Economic factors that can affect a business include the tax in a country, consumer
purchasing power and country CDP. If the economy of the country is not growing, it

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means that consumers have less disposable income which means that they will not
afford such luxuries as eating out. Businesses in South Africa pay a corporate tax of
28% which is lower than the average of 28.45% average in Africa, but higher than
the 24.18 global average. This means that businesses can operate profitably in the
country without having to forfeit a large chunk of their profits to the government.
Other factors include the fact that the South African economy entered its third
recession at the close of the fourth quarter in 2019. Inflation stood at 4.5% in
January 2020 (StatsSA.gov.za). In an effort to stimulate the economy and put some
cash back into the consumer’s pockets, the South African Reserve Bank readjusted
the Prime Lending Rate by 1% in March 2020. This means that consumers will have
extra money that they can spend on other things, such as eating out.

1.4 Socio-cultural Factors;

This includes knowing the characteristics of the population in an effort to understand

its buying behaviour. Such factors as history, roots and traditions as well as religious
and socio-cultural influences enable companies to refine products to meet the needs
of specific individuals. South Africa only gained independence in 1994 after being
plagued by apartheid for many years. A majority of the people are black people and
they are very cultural. There are 11 official languages spoken across 9 provinces in
the country, which speaks to the diversity of the people. Kauai was started in 1996 in
post-apartheid South Africa. This is important because it means that the business
would not be associated with the apartheid era.

1.5 Technological Factors;

The age of the Internet of Things and the Fourth Industrial Revolution means that it
now easier for companies to reach customers. It also means that customers have
access to a lot of information at the touch of a button, which means that they can
look things up and learn all they need to know. It also means that companies can be
taken to task online infront of millions of people. The advancement of technology
also provides positives though, it means that companies are able to interact with
their customers at ease and have ‘virtual’ stores. Kauai has a website (which is also
mobile device friendly) that details the variety of food the company offers, where
outlets are located, the menu, company history and other services on offer. The
company is present on social media, one can download the Kauai App and be able
to place and pay for orders via the app using a smartphone. This means that

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customers would only need to get to the outlet to pick up their order, thus avoiding
queues.

1.6 Legal Factors;

It is important that companies are abreast with the regulations of the country in which
they plan to operate. The South African Government introduced a new policy in 2003
that was meant to empower previously disadvantaged groups to be more active in
the economy of the country. This was known as Broad – Based Black Economic
Empowerment. Companies are given compliance certificates which make it easier
for them to do business in South Africa. Whilst it is not illegal to not be BBBEE
compliant, it benefits the business to comply. Kauai is BBBEE compliant through its
franchising opportunities.

1.7 Environmental Factors;

As consumers have evolved over the years, so has their desire to protect the
environment. With the planet experiencing alarming levels of Global Warming, it has
become more apparent that more needs to be done to protect the environment. Now
consumers look for how products are made, where they are made and how they are
made. This is to satisfy themselves of the ingredients that are put into products at
production, the way in which products are sourced (empower local producers) and
being environmentally friendly.

Kauai sources ingredients from local farmers, thus the company empowers local
communities. The company further produces organic, healthy foods which have a
positive impact on the environment. The company offers discounts for customers
using the reusable cup, those that have brought back the reusable smoothie cup as
well as offering paper or corn starch plastic straws. The cups are made up of 80%
recycled plastic and can be recycled again and again. The company further picks
suppliers based on sustainability, they source ethically and choose local.

2. Diversity

2.1. Market Size

The South African Fast Food Market generated ZAR68.27 billion in 2018,
contributing 13.3% to the GDP of the country. The sector contributed 35.02% of the
income in the food and beverage sector (Martinuzzi: 2019). The 20 – 35 years

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segment accounted for the highest market share in the age group segment for the
fast food market in South Africa. While processed chicken held the maximum
revenue share in the fast food market, Pizza and Sandwiches were expected to grow
in revenue generation.

2.1.4. Growth

Kauai started with a kiosk in Cape Town in 1996 and has now grown to over 164
outlets in South Africa, Namibia, Botswana, the Netherlands and Thailand. The
company has recorded a four-year compound annual growth rate in revenue of 20%
and over 70% for earnings. With the increasing popularity of healthy foods, the
company is expected to grow further (foodstuffsa.co.za). Kauai recorded ZAR226.6
million in revenue in 2017, this was an increase of 8.3% from 2016. The company
had 135 franchises in 2017 and each outlet generated ZAR1.68 million on average.

2.1.5. Major Segments

It is not possible to have one product or service that will satisfy everybody’s needs.
Therefore; it becomes important for companies to segment the available markets
with the aim of then targeting the specific segment which is suited by their product.
This mean that market segmentation is very important and companies would not be
able to survive if the market was not segregated (Sulekha and Mor, 2014). The
process of identifying the parts of the market that a company should act on is also
known as market segmentation (Radulescu: 2012).

Dumitru (2004) states further that segmentation is performed by different criteria.

This can be geographic, demographic, psychographic, behavioural and product-
related. Whichever criteria is used however, should result in consumers being clearly
differentiated. Sulekha and Mor (2014) concur with this assertion and elaborate that
without a company knowing the different segments, it would not be possible to
promote the product to reach the correct group of buyers.

Kotler and Armstrong (2003) state that a segment must considered based on certain
criteria. That is, a segment must be; measurable, accessible, sustainable,
differentiable and actionable to be viable. Morrison (2009) concurred and elaborated
further that a market segment should take into consideration;
homogeneity/heterogeneity, defensibility, competitiveness, durability and

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compatibility. Profitability and risk should also be considered when selecting a
market segment (Jang et al: 2002).

Some of the segments that can be identified from Kauai are:

 Health conscious

o Can only eat specific food [medical reasons or dietary needs]

o Conscious about the calories and type of food they are consuming/
health benefits

o Trying to lose weight

o People who work out

 Hungry (people looking for food)

o Looking for healthy food that tastes good

 Looking for an alternative to traditional QSR

 Supplement for their workout

o Compliments their active lifestyle

 People looking for take away

o Looking for a place to eat because they do not want to cook

 Status (as it is a high-end premium brand)

o Association with the brand puts them in a specific social group

o People thinking that it is a Eurocentric brand

Through the different segments, one would then be able to look at the descriptors,
that is, observable customer characteristics. These are;

 Kauai Retail – which is found in local shopping centres like Rosebank and
Cresta shopping centres.

 Kauai In Motion – these are the stores strategically located at Virgin Active
health clubs, taking advantage of the healthy living Virgin Active members.

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 These stores have tailor made the menu to meet the needs of people at the
Gym.

 KOHU – this model is targeted specifically for the Virgin Active classic health
clubs and incorporates a niche and service experience.

 Kauai@school – this model was created for those schools who had adopted
to healthy eating concept for their students. This menu will be available at
their canteens.

In conclusion, Kauai serves the health conscious. This can be further broken down to
health-conscious families, young adults, children as well as older people (the
company was founded in 1996 therefore early adopters would have grown with the
company over the years). Although the company serviced what used to be a Niche
market at the time, this market has been growing over time and the company has
also adapted to the ever-changing needs of this market. This is evidenced by the
different products that the company offers, as well as the availability of these
products and the fact that

2.1.6. Target Market

Companies will first break the market down into segments and then target the most
profitable segments. These companies would then adapt the marketing mix elements
to suit the requirements of these groups (Camilleri: 2018).

A company may then choose to develop products or services that will satisfy each
selected target whilst keeping in mind that different customers will have different
expectations (Camilleri: 2018).

From the different segments identified, it is then important to identify the target
market based off the main segments. “Targeting helps a firm manage customer
heterogeneity by purposely focusing its efforts on customers that are more similar
and aligned with its own capabilities”. For Kauai, this would be the health-conscious
segment. This segment can further be sub-segmented in the following way to identify
key targeted customers:

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 Vegans
Based on Dietary
needs
Vegetarians

trying to lose
weight

Health Conscious about

food being Workout
conscious consumed

seeking health
benefits

Diebetic
For Medical
Reasons
Gluton tolerant

Figure 1; Kauai Segmentation

The descriptors that can be used from the above segment highlighted and
subsequent sub-segments are customers that are from the upper middle-class
customers. Kauai products are ideally targeted towards a high LSM group. There are
two distinct target segments that can be built from this segment analysis:

 21 -45 year old Female  25- 45 year old Male

Lifestyle: healthy eating Lifestyle: active/gym goer

Ambition: To have dream body Ambition: remain healthy

High income earner High income earner

Single I, Full Nest I & Young married Single I & young

no children
married no children

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By having clear targets from the main segment, it is the important for Kauai to be able to
develop products and propositions that speak to the segment and various subsegments
that can emerge from the targets. The importance of segmentation and targeting is seen
through this and companies are then able to effectively position themselves in the
market to be attractive to customers.

3. Dynamics

3.1. How the target segment evolves over time

The second marketing principle states that all customers change, and it is important to
manage the various dynamics in the customers. Over time, customer’s needs and
desires may change and it is important for a company to be able to keep up with the
changes and to act accordingly to avoid losing customers not only to the competition but
to the risk of being irrelevant in the market. It is important to note that customer
segments while they have similar characteristics, they are all not homogenous and it is
also important to take note of individual needs and preferences and this can help in
implementing the correct strategy going forward. The processes by which customers’
desires and needs change over time are customer dynamics.

Palmatar & Sridhar (2017, pg. 14) have identified five sources and drivers that make
changes in customer dynamics inevitable and these are: seminal events, life stages,
knowledge/expertise, product category maturity and regular exposure to relevant
information. These changes acknowledge how customer preferences and desires
change over time. For Kauai they have been able to identify customer dynamics through
these different drivers.

Seminal events entail when a customer’s consumption habits change due to specific life
events in their lives, anticipated or not (Palmatar & Sridhar,2017, pg. 14). Changing
customer dynamics would require for not only for the marketing strategy to change but
for the product to be able to change as well to accommodate customer desire changes.
With the advancement of technology customers expect immediate and responsive
service. The organisation has moved along with times and invested in their own app
which allows clients to order and pay and don’t have to queue. Through the app clients

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earn loyalty points and are also able to benefit from promotions as a way to reward
them for loyalty.

Over time, the targeted customer segment at Kauai has changed and in turn, the brand
has evolved with them. Kauai had for a time remained to be one of the top fast casual
restaurants in the healthy eating sector for a long time and had used the same brand CI
(corporate Identity design document) and customer experience since its inception in
1996. The CEO Dean Kowarski who took over the company in 2015, was able to
identify that the company up until that point had not evolved with its customers, also the
company was trying to target a new segment altogether and it was important that the
company identity reflect the targeted segment and clearly position itself as a premium
brand.

Customers are not static and while their tastes and preferences change, this is also
aligned with the changes in their personal lives. Groups in different household cycles
consume products differently and as consumers pass through the different stages, it is
important that the company is still relatable through the different stages. Kauai’s product
offering is dynamic enough to be relatable through the different life stages that the
target segment goes through. The first identified target will start off being part of the
Single I household cycle and then transition into being married with no children and
ultimately going into the full nest household cycle. The needs in each cycle are different
and Kauai through diverse product offering has been able to accommodate that and
have with time included a children’s menu as well knowing that mothers would be
looking for a healthy alternative for their children as well. This reflects the second
drivers to customer dynamics of life stages.

Knowledge and expertise as well as regular exposure to relevant information as a

source of customer dynamics. The more customers become more knowledgeable on
certain things and the more exposed they are to not only information but to a range of
options, it has an influence in the way they consume products. Information technology
has made it easy for customers to access information about food and its benefits.
consumers are becoming more aware about the food they buy and want to know which
ingredients have been used and what is the calorie content of their meals. This has

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resulted in Kauai being more transparent with their customers and making information
available about their meals. Kauai menus on their website/app provides detailed
information about each meal focusing on the ingredients, allergens and calorie content
(carbs, fibre sodium, proteins, etc.). This way they can cater for the evolving needs of
customers and preferences.

With rising obesity in the country, customers have become more health conscious and
are opting for a healthier alternative which is where Kauai has been able to capitalise
and dominate this niche market. The event planners who place large orders on behalf of
their clients is another way how clients evolved. As a result of this need Kauai have
made provisions in their menu and have a catering menu which allows their customer to
order for an event set-up. Kauai have adapted their portion sizes to the needs of this
type of client and still preserve the quality of their product offering and consistency.

There is a growing number of customers who don't have the time and will like to be able
to buy Kauai food at their retail store which they can prepare at the comfort of their
homes. As a result, Kauai have recognised this need and have developed a retail
range. Through the grocery stores and retail outlets Kauai have increasingly made their
restaurant offering available to their customer. Customers can buy frozen smoothie
ingredients, protein powder, meals, sparkling soda and snacks. With this variety the
gym going customer that is interested in body building and require protein supplements
for their smoothies are able to access the product and are able to consume it at home
after exercise without the need to leave their homes. Providing convenience to
customers is important and this can be observed through the product range of Kauai
and the touchpoints the organisation has developed.

4. Competition

4.1. Major Competitors

Competition plays a very important role in determining the success of a company.

Companies look at the competitor’s financial performance and how customers react to it
and can make decisions based on that. It is important to have an eye on the
competition to ensure that the company is still meeting the customers’ needs and

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demands more effectively than the competition. One of the first principles of marketing
states that all competitors react and the difference in being an effective market leader
and a struggling follower lies in managing a sustainable competitive advantage.

The direct competition that Kauai faces in the fast-casual healthy eating space are Nü
(which is a sister brand at Real foods), Woolworths Food, Nandos, Anat, Boost Juice
Wellness warehouse and other niche brands in the different cities around South Africa
including Osumo and Hokey Poke in Cape Town. The Indirect competition would be
traditional QSR’s like McDonald’s. KFC, Steers, Debonairs, Wimpy and Romans Pizza.
Competition for Kauai that does not fall in the traditional fast casual or fast food
segment would be healthy delivery food services that operate online and do not have a
retail presence companies like FitChef, iHealth meals and Good snacks to name a few.
Another competitor worth nothing is Nando’s due to how it is perceived and how they
have been able to position themselves in the market as a healthier alternative to the
likes of McDonald’s and KFC.

Direct competitors like Nü, Woolworths food and Wellness warehouse have similar
target markets. In the healthy eating space they are competing for the same customers.
Nü offers a very similar product offering to Kauai and would have the same segment
analysis as Kauai. Looking at the menu, they are priced slightly differently. The menu at
Nü is price slightly lower than that of Kauai and this allows for them to position and
target their customers differently. Kauai would be more of a premium brand targeted
towards a higher LSM compared to Nü, however despite the growing upper middle-
class having access to more funds, there is a threat for them to chose a cheaper
alternative for those that are still price sensitive. Woolworths Food is where the targeted
segment would do most of their grocery shopping. Woolworths has over time extended
the offerings that they have to include smoothies and some of the offerings that may be
similar to Kauai. The threat of new entrants in this regard is high and barriers to entry
may be considered to be low.

Competition in this space is high as the health-conscious niche market is increasing as

the consumer becomes more aware of the type of food that they are consuming on a
daily basis and as more people strive to opt for more of a healthier lifestyle.

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4.2. How these firms compete

“The more successful a firm is, as reflected in its sales, profits, and stock prices, the
more effort its competitors expend to attack its financially successful position” (Palmatar
& Sridhar, 2017). Kauai is currently the market leader in the healthy eating sector for
QSR’s. Kauai has direct competitors in the fast-casual healthy eating space however, it
also has competitors in the general fast food space and other companies that offer
healthy supplements which do not necessarily fall in the fast food space due to Kauai’s
vast product offering.

According to Palmatar & Sridhar (2017) there are different ways in which competitors
can gain an advantage over its competitors and this includes: technological innovations,
adjusting and accommodating changing customer behaviours and desires which can be
influenced by macroenvironmental factors, creative and innovative solutions that
emerge from entrepreneurships and lastly directly copying and executing strategy from
the other firms. The different ways that competitors react, it is important for companies
to be able to build and maintain the best barriers in to be able to address them
effectively (Palmatar & Sridhar, 2017).

While Kauai identified the healthy food segment earlier and is thus the leader in this
segment in South Africa, other competitors are also shifting and tailoring their menus to
attract the ‘healthy’ customer. While all the firms seek to attract a different segment and
thus target different LSM groups, these customers can sometimes overlap. One of the
biggest threats to Kauai are the healthy food delivery services including FitChef, O’ My
Goodness, Serv’d Fresh, iHealth meals and Good snacks. These are online based
services and have removed the aspect of a customer having to go into a retail store.
The competitors have recognised that there is need for people who would like to switch
to a more health conscious diet but would like to do it on a more consistent basis. They
have taken into account the technological microenvironmental influences on customers
and have turned it into a competitive advantage. FitChef for example provides advice
from qualified dieticians on what customers are hoping to achieve, they provide meal
plans and are able to deliver groceries as well.

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McDonald’s, Steers, Spur, Mugg & Bean and Sandwich Baron all offer healthy
alternatives to their menus. These companies have outlets in urban areas, which is
where Kauai is also present. Over and above this, these companies have outlets across
South Africa which gives them a larger market share. In an effort to retain the consumer
that has now adopted a healthy lifestyle, these companies have started to offer healthy
foods across their menu. Steers and Spur offer chicken and vegetarian options for their
burgers all grilled.

4.3. Current Competitive Issues

Approximately 62% of fast food restaurants fail within the first year of operation, while
87% fail within five years (SSA: 2016), this is despite the increase in customer demand
for fast foods (Mhlanga et al: 2015). The failure of fast food restaurants is considered to
be higher than the average failure rate for small businesses and this can be attributed to
the intense industry rivalry which influences the fast food sector performance in South
Africa (Mhlanga: 2018). The large number of fast food restaurants has resulted in cut-
throat competition (Swart: 2017), this has been worsened by major supermarkets; Spar,
Woolworths, Shoprite, Checkers pick n Pay, who now also provide food in their deli
sections (Insight Survey: 2016).

The South African market is not large enough to support the growing number of fast
food restaurants with 8661 fast food restaurants supporting 25 million people per year in
2014 (Perreira: 2014, Green:2014). The presence of food delivery companies with
online apps have added to shift demand across restaurants (Swart: 2017). This is
because customers can now order vial Mr D Food or UberEats and have their food
delivered to their doors. This also means that they can view the different prices offered
by different restaurants as well as order from multiple restaurants at the click of a
button.

Restaurants have also developed apps of their own and have tried to ensure that
customers use the apps through offering rewards and discount incentives. Kauai has
taken it a step further and enables customers to place and pay for orders via the app
and then pick up in store without queueing. Green (2014) states that over and above
this, supermarkets and retailers now offer in-store food service through in-store cafes or

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convenience foods that are ready-made. Goko (2017) states that these in-store food
services are a substitute for fast food restaurants since they offer attractive prices for
the customer.

Setting prices very low with the intention of driving competitors out of the market or
creating barriers to entry by potential new competitors is called predatory pricing
(Sharebox: 2017). This strategy has been used by fast food restaurants in South Africa
to discourage new entry into the market or to drive competitors out of business.
McDonald’s and Steers used predatory pricing when Burger King first came to South
Africa. They dropped their prices, increased their portions and opened outlets in areas
where Burger King had opened (Nair, 2016). Debonaires and Romans Pizza both
dropped their prices by 36% after the introduction of Domino’s Pizza into the South
African market (Sharebox: 2017).

5. Constraints

The major constraint for Kauai and other fast food restaurants will be the low growth of
the South African economy as this will impact negatively on their growth prospects and
the existing stores sales. As the incomes of people shrinks, they no longer go and eat
out and this will negatively impact on the sales and will results in stores closing as a
result of not being profitable. Currently the company website shows there are existing
Kauai stores which are available in the market and this is an area of concern (Kauai,
2020). The high number of in motion stores can demonstrate there are issues with the
which could be closed due to profitability issues and tough competition. This can also
demonstrate the changes in the client’s preferences in these areas in terms of touch
points.

Shrinking consumer spending and the decline in the number of the middle class is of
concern. The South African middle class can be subdivided into stable middle class and
vulnerable middle class (Zizzamia, Schotte, & Leibbrandt, 2019). Furthermore, the
researchers have discovered that the stable middle class is shrinking while the
vulnerable middle class is increasing. The increasing number of the struggling middle
class due to tough economic conditions and indebtedness is key a constraint for the

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company. The aspired target market is shrinking, and this will impact on their business
sales.

Another potential constraint for the Kauai brand will be pricing when taking the current
tough economic conditions. Their products are priced for the people with higher LSM (7-
10), that is people with monthly income and some surplus to spend. The low end of the
population who are health conscious are excluded with the current pricing especially
when it comes to meals. When comparing what at an average meal cost which is not
considered healthy and the healthy one there is a huge difference in pricing, and this
will continue to increase the gap on inequality for healthy food options. Healthy food is
supposed to be fairly priced and not expensive and currently this is not the case. With
Kauai been able to source their fruit and vegetables directly from farmers, there is an
expectation that it should be able to do better in pricing of their products. The
advantage of directly sourcing fruits and vegetables from farms will mean there is no
intermediation fees and as result the company should be able to competitively price
their products and expand their target market that they are focusing on.

The fruit and vegetable industry is very cyclical and with climate change deviations the
company is at risk of not being able to secure the right produce at the right quality for
their clients. These can impact negatively on their business sales and result in
unsatisfied clients to the lack of ingredients. Also, the poor yields as a result of frequent
droughts can drive prices upwards and lead to price increases by suppliers and/or
farmers.

Loyalty rewards programs have gained momentum over the years as organisations
build intimacy with their customers. Kauai have done well in this in relation to their
relationship with discovery insurance for its vitality program. The challenge is that the
loyalty program only accommodates Discovery vitality affiliated members and side-lines
non-discovery Kauai customers who would like to enjoy those benefits. Also, through
the organisation policy on sustainable environment, Kauai has created initiatives for its
customers which encourages customers to buy refill cups (smoothies/coffee). Kauai
reward its customers who bought cups with a R1/2 discount whenever they use them
when buying their drink. A future opportunity for Kauai when it comes to loyalty health

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programs will be on tapping on the Momentum health rewards program and be a
service provider. The organisation needs to find a way of dealing with competing brands
and not lock itself in exclusive contracts spanning a long period of time. This will impact
negatively on the brand and its potential to expand its market.

Also, the global pandemic of Covid -19 will inevitably also present a temporal
challenging effect on Kauai restaurants due to the lockdown period which has instituted
businesses which are not essential services to close. The interruption in the operations
of the business will result in low profits and can result in some businesses ceasing to
operate if not provided with additional support post the covid-19 pandemic. Because of
the lockdown period the business will need time to pick up sales as the economy will be
depressed.

As restaurants embrace technologies and use them in their business, they are faced
with cybercrime issues. They need to protect their brand against scams and theft of
their customers sensitive data. The organisation needs to keep up with the fast-
changing technological developments and find ways to stay relevant with how it
interacts with its customers. Also, the implementation of the 4th Industrial revolution is
expected to impact on restaurants and Kauai as an institution need to plan on how it will
make use of this technologies (automation, artificial intelligence, big data) in their
business.

Areas of concern impacting the industry currently is the low economic growth which
impacts on household’s disposable income. This sector is vulnerable to economic
decline as eating out is considered not essential but luxurious expenditure. Therefore,
the profitability of the Kauai restaurant is disposable income sensitive. Increase of living
costs by consumers as a result of high prices of electricity and fuel erodes incomes of
consumers.

The high level of crime is a hindrance to restaurants because of their vulnerability to

robberies and this impacts on the insurance premiums because of the businesses risk
factor involved.

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High operating costs pose a threat to the sustainability of Kauai and restaurants in
general due to finely balanced profit margins. The increase in input costs is a great
concern. The escalating prices of electricity, fuel and transport costs can result in high
operating costs for the restaurant industry in general. Also, the power outages issue has
resulted in unreliable power supply for restaurants and this has required businesses to
spend on generating alternative power (generators, solar, Uninterruptable power supply
(UPS)) as way to curb loss of lost sales.

South Africa has experienced climate change issues (droughts and floods) over the
recent years, and this is a huge risk for Kauai as their fresh produce is dependent on
water. The South African agricultural productions sector uses about 61% of water
resources in South Africa (Veitch, 2017). South Africa is water scarce country and relies
on rain for most of its fresh produce. The ageing water infrastructure is negatively
impacting water supply and the growing demand of water due to the increasing
population threatens food security. The production of fruit and vegetables is cyclical and
climatic deviations such as drought can upset the cycle of fresh produce. Poor yields in
fresh produce can have serious impact on prices and supply.

6. Integration

The Kauai brand has over time mastered their customers and their journey and have
made effort to cater for the change. The organisation became aware of the differing
needs of the health - conscious customer and the reality that one size fit all approach
will not work.

Kauai has demonstrated that it is important to take control of their customers destiny
and guide the customer journey. The organisation understands that you can’t leave
customers’ paths to chance. Through the different touch points created over time the
organisation has tried to create a seamless way to intimately engage with their target
market. Through the app the organisation has manged to get personal with their clients
and are designing promotions and rewards that are specific to their clients.

However, the Kauai brand products are priced to cater for higher LSM target market and
excludes the low end of the market. The low end of the population who are health

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conscious are excluded with the current pricing especially when it comes to meals.
When comparing what at an average meal cost which is not considered healthy and the
healthy one there is a huge difference in pricing, and this will continue to increase the
gap on inequality for healthy food options. Healthy food is supposed to be fairly priced
and not expensive and currently this is not the case. With Kauai been able to source
their fruit and vegetables directly from farmers, there is an expectation that it should be
able to do better in pricing of their products. The advantage of directly sourcing fruits
and vegetables from farms will mean there is no intermediation fees and as result the
company should be able to competitively price their products and expand their target
market that they are focusing on. There is an opportunity for a budget healthy meal
option for people that are health conscious earning low income.

As much as the partnership of virgin active gyms provides Kauai in motion/gym

restaurants with access to market it is also limiting. The design of the store is as such
that it provides exclusive access to members only and this can be limiting in terms of
sales for the owners. Therefore, there is a need to reconsider the design of stores to be
more accommodative. That is not be restrictive to other health conscious consumers
who are not virgin active members who might be closer to the motion facility compared
to a store and wants to buy. This can potentially increase the attractiveness of operating
the in-motion stores. Also, there exist an opportunity to also consider other fitness gym
brands which are growing in South Africa and require a fitness meal-bar.

Kauai has found a good complimenting way to use the two well-known food delivery
services in South Africa to enhance its service to its clients. Through the two channels
Kauai can serve its customers. UberEats is used to service clients who wants to buy the
retail range products (box meals, protein, snacks, sodas) while MrDFoods is used to
cater for clients that need freshly prepared meals from restaurants.

Loyalty rewards programs have gained momentum over the years as organisations
build intimacy with their customers. Kauai have done well in this in relation to their
relationship with discovery insurance for its vitality program. Also, through the
organisation policy on sustainable environment, Kauai has created initiatives for its
customers which encourages customers to buy refill cups (smoothies/coffee). Kauai

23 | P a g e
reward its customers who bought cups with a R1/2 discount whenever they use them
when buying their drink. A future opportunity for Kauai when it comes to loyalty health
programs will be on tapping on the Momentum health rewards program and be a
service provider. The organisation needs to find a way of dealing with competing brands
and not lock itself in exclusive contracts spanning a long period of time. This will impact
negatively on the brand and its potential to expand its market.

Kauai is in a unique position where it is in pole position as it is the market leader in the
fast-casual healthy eating space. In order to maintain its place as the market leader,
there are a few things that they need to consider in this growing market. Taking into
account the importance of the four principles of marketing and execute accordingly to
be able to have a successful marketing strategy and remain the market leader. The four
principles are important and do not work in isolation and therefore when solving one
problem, the others would need to be taken into consideration as well. As stated by
Palmatar & Sridhar (2017, p,269) “to develop an effective marketing strategy requires
the understanding that the four MPs are interconnected, in a natural sequence”. It is
important to distinguish what are the different areas that the management can work on
in line with the four principles.

6.1. All customers differ

Kauai has up until this point been able to identify that there is a segment of people who
purchase fast food who would want to change their lifestyle and opt for a healthier
alternative and have been able to tap into that segment successfully. The management,
however, have not been able to successfully segment this market as effectively as they
could. The focus is largely on descriptor-based segmentation which eliminates the
possibility of more effective segmentation taking place. We have identified segments
that can be taken into consideration and they would be able to target them more
efficiently and would be able to maximise profit through the correct product development
and deploying the correct marketing campaigns aimed at the correct segment. This will
allow for them to position themselves accurately in the market and to target segments
that the competitors may not be serving effectively.

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The process of segmentation, targeting and positioning analysis is important in
deploying effective marketing strategies. In order to segment and target the right
customers, it is important for the company to have a cluster analysis. A cluster analysis
would allow Kauai to confirm the segments in terms of their homogenous traits before
having to look into individual needs and desires. Managing customer homogeneity is
important but even more so important is managing customer heterogeneity. Kauai
product offering and the customer experience is largely similar across the board and
this is where competitors like FitChef have been able to take advantage in recognising
that all customers are different and being able to create an even more personalised
experience. Differentiation in a market that is being flooded with new entries and with
traditional QSR’s having healthier alternatives would require Kauai to be more focused
on some of the individual needs.

6.2. All customers change

In addition to acknowledging that customers are different and segmenting and targeting
them accordingly, we established that the second principle focuses on customers being
dynamic. Customers desires, needs and wants, change all the time and hardly remain
static. It is important for Kauai to recognise this while also being cognisant of the trends
that are happening across the globe. One of the problems that Kauai does not consider
in this regard is that the menu and the offerings that they have are largely Eurocentric,
this makes it difficult for customers that have a localised palate. Further segmentation
would be required in order for this to be successful, a dynamic segmentation that takes
into account the dynamic changes that the customer goes through. A successful way
that Kauai however has been able to show that they understand that customers are
different is that on their menu they have summer and winter menus which acknowledge
that they are aware that the way customers consumer certain foods during particular
seasons are different.

6.3. All competitors react

All competitors react in the market and it is up to Kauai to remain as the market leader
and would need to deploy strategies that would create a sustainable competitive
advantage that could manage the way that the competitors react. It is important for

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Kauai to be able to maintain and build strong barriers to withstand any attacks that are
brought about by the competition whether this is through direct or indirect competition.
This would be the marketing principle that Kauai would need to address more than the
others and will be addressed. According to Palmatar & Sridhar (2017, pg. 268)
“regression analysis helps firms gauge the effectiveness of its brand, offering, and
relationship marketing efforts”. This would be an effective tool in helping the company
have a view of where they stand with their competitors and in the market overall.

6.4. All resources are limited

The fourth and final principle states that all resources are limited. “The solution to limited
resources lies in understanding the marginal benefit and costs of every incremental
dollar across segments and products, such that the ultimate allocation decision made by
the firm is proportional to the marginal benefit and cost trade-off associated with each
segment or product” (Palmatar & Sridhar, 2017, pg.268).

7. Problem Statement

The four principles of marketing state that in order for a company to have an effective
marketing strategy there are four key factors that need to be taken into consideration.
Kauai has been largely effective in applying the four principles which is how it has been
able to remain the market leader for an extended period of time. One thing to note
however is despite being the market leader, the threats to new entrants in this market
are high and the competition that they are facing are becoming more innovative and
have more creative ways to gain more customers. The problem is that Kauai does not
have a clear and effective sustainable competitive advantage to remain as the market
leader.

8. Strategic Analysis Approach

8.1. Advantages and Limitations

8.1.1. Advantages;

 The tool can help identify critical factors that govern competition. This is because
the model looks at; the intensity of rivalry among competitors, the threat of

26 | P a g e
 potential entry, the bargaining power of suppliers, the bargaining power of buyers
as well as, the threat of substitution.
 The model can help an organisation to evaluate its competitive position by using
the framework. This would in turn enable the organisation to identify opportunities
and threats which are from the external environment. Knowing these
opportunities and threats would help an organisation to make informed strategic
decisions.
 Applying the five forces to an organisation would help understand organisational
performance and thus improve understanding of the levels of competition within
the industry or the market in which it operates.
 The model does not require specialised skills. An organisation can choose
workers from within evaluate the company based on the model.
 The model can easily be integrated with other analytical frameworks. Porter’s five
forces model can be used to expand the SWOT and PEST analytical frameworks
since it would provide an analysis of the external environment.

8.1.2. Disadvantages;

 The tool is too general as it only provides a list of factors that can be either
advantageous or disadvantageous to an organisation. It serves as a starting
point for a deeper analysis of organisational performance.
 The model is susceptible to subjectivity in that it promotes the identification of
qualitative data.
 The model lacks a quantitative dimension. While quantitative data can be
incorporated into the model, there is no built-in mechanism on how to do this.
 The model does not have guidelines for ranking factors based on their
importance.
 The model is susceptible to biased results. If one is not trained properly in
research, they could then produce results that are too short-sighted.
 The model is not suitable for complex firms. It is difficult to apply the model to
organisations that have a large portfolio of products, or those that operate in
multiple industries.

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  The model is not applicable to Non-profit organisations. This is because the
model seeks to identify competitors, substitutes, rivalries from the market or
risks from suppliers and consumers.
 The model disregards collusion among suppliers, competitors and buyers. It
does not take into account strategic alliances or the dynamism of the
competition. This is because the model is a one-dimensional framework that
does not take complexities into account. (Konsyse: 2019)

8.2. Rationale for using this tool

Martin (2019), states that it is important for companies to know the competition, their
products and strategies as this will ensure that a company has a better chance at
survival. Porter’s Five Forces Model helps companies to understand their standing as
well as analyse the competition. Since Porter’s Model looks at the macro environment, it
will look at the industry’s economy as a whole.

This model was selected because it will allow us to look at each competitive force
individually, this will then enable us to map out the focal point of the fast food industry in
South Africa and its attractiveness.

9. Results and Recommendations

Figure 2; Porters 5 Forces. Source; present5.com

9.1. Rivalry among existing competitors;

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 Number of competitors; Kauai has over 20 prominent competitors within the fast
food chain restaurants in South Africa. Theseare further increased by Checker’s
Stores, Pick n Pay, Woolworths and Spar, who now have in-store delis.

 Diversity of competitors; The competitors in the fast food space are vast. This is
because there are those that serve only pizza, fried/grilled chicken, burgers,
sandwiches and even those that offer a variety of meals within the menu.

 Industry concentration; The fast food industry in South Africa is very

concentrated. There were over 10 302 fast food outlets in South Africa in 2015
(Euromonitor International: 2015).

 Industry growth; The fast food industry in South Africa generated ZAR587 billion
in 2018 and this is expected to grow at a compound rate of 9% by 2026.

 Brand loyalty; Consumers are very loyal to brands that they know very well (KFC,
Nandos, McDonald’s).

 Quality differences; While a majority of the fast food outlets serve processed
food, there is an emerging change and shift towards organic, fresh and free -
range food that is healthy. While some companies have led with this strategy
(Woolworths Food, Kauai), other companies such as Nandos are not far behind.

 Barriers to exit; A majority of the fast food outlets in South Africa are franchised,
making it difficult to exit the space. It is not easy for a company to just close up
shop. Bigger brands have bought out smaller, competing firms in an effort to cut
out the competition.

 Switching costs; fast food outlets that traditionally serve processed foods would
not find it easy to switch to healthier alternatives because the cost of producing
these are higher thus it would affect operating costs and result in higher prices
which might alienate existing customers. For food to be fresh it must be produced

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 locally, otherwise there would be added transportation costs if produced far,
organic food that is free range is also more expensive.

9.2. Threat of new entrants

 Economies of Scale; The fast food market is already saturated in South Africa.
There are more restaurants than needed by the 25 million buyers and this means
that some fast food outlets end up closing shop within 1 year of opening and 86%
within 5 years.

 Barriers to entry; Established brands tend to use prices to keep customers loyal
thus cutting the market share for new entrants.

 Brand loyalty; Customers will want to use a brand that they are used to and it is
not easy to venture out and try food from a relatively unknown place. This is
because a new brand has not been established as yet thus it is not easy to
spend on an unknown.

 Capital requirements; It is expensive to start a fast food restaurant in South Africa

or anywhere in the world. Franchises sell from ZAR650 000 and up to ZAR7
Million, thus it is not easy to enter the fast food space.

 Cumulative experience; International fast food brands are entering the South
African fast food market (Dominos, Burger King, Chipotle), these are well
established and have been successful in their countries of origin (USA). Over
and above this, these brands have experience in venturing to new markets.

 Government policies; Government encourages businesses to be BBBEE

compliant as this will help with the ease of doing business. Companies must also
pay a corporate tax of 28% to operate in the country. Businesses are encouraged
to be members of corporate bodies so that they can benefit from group settings.

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  Access to distribution channels; there is currently 0.4sqm per capita retail space
in South Africa, online stores, Mr D and UberEats. This means that new
companies can get space in malls, online and use the two companies to reach
customers.

 Switching costs;

9.3. Bargaining power of buyers

 Number of customers;

 Size of each customer order; Customers can expect to spend a minimum of at

least ZAR8 for a snack, ZAR20 for a light breakfast, ZAR25 for a sandwich,
ZAR36 for a wrap, ZAR36 for a salad, ZAR20 for a hot meal (pizza slice), ZAR82
for a warm bowl, ZAR 34 for a smoothie and ZAR42 for a protein smoothie.
These are just the minimum entry level prices for each of the different menu
items at Kauai.

 Differences between competitors; Competitors differ significantly because while

some competitors will offer ‘meal’ (with a side of cold drink and chips) options for
foods, Kauai does not have this option. Some competitors will offer the same
meal but with a vegetarian, chicken option, and this is not available for Kauai.
The menu has foods that are vegan, vegetarian and for those that eat meat.
Kauai offers filling smoothies that will satisfy a customer.

 Price sensitivity; Customers within the Kauai target market want healthy food and
are willing to pay extra for it. They are not price sensitive as they understand that
organic, free range food that is good for the body will cost a little extra. They are
also not price sensitive because they look at the cost of the food holistically, that
is to say, since Kauai supports local farmers and local communities and is also
protecting the environment and is trying to keep kids eating healthy, this segment
feels that they have helped the cause whenever they buy from Kauai.

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  Buyer’s ability to substitute; Once customers have developed a taste for the
healthy, organic, free range food, it becomes very hard to substitute. This is
because they now know what goes into their food and can easily tell if a certain
substitute is not authentic. While there are alternatives to Kauai on the market,
these fall below the Kauai standard.

 Buyer’s information availability; The exact ingredients are listed on each menu
item. Customers can also do a quick Google search to find out about the
company and what it stands for. The availability of information means that
customers can also find reviews on the company as well as follow the company
through social media platforms. Loyalty and rewards programmes also mean that
customers will be kept abreast of the company’s offerings periodically.

 Switching costs; It would not be expensive for customers to switch from Kauai as
this is a high-end product. Kauai prices are competitive, however, and do not
differ much to those of similar products available from competitors.

9.4. Threat of substitute products

 Number of substitute products available; Other fast food outlets sell the products
that Kauai has on the menu, the only difference is the quality of ingredients and
method of preparation.

 Buyer propensity to substitute; There are different times of the month when a
customer will want Kauai but find that they cannot afford it at the time or only to
find that there is not Kauai nearby. This would result in seeking a substitute
product, although these will not be the same as Kauai.

 Relative price performance of substitute; The pricing of the Kauai products

means that the menu items are affordable. This means that even if customers
were to seek a substitute, they would find that there is minimal difference in price.
However, the taste and ingredients cannot be substituted.

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  Perceived level of product differentiation; competitors sell different products that
could be substitutes. While these products can be substitutes, they are sub-par in
quality as the ingredients used are not as fresh as the ones used at Kauai.
Smoothies are prepared in front of customers and a customer can even choose
what to put in their smoothies, this allows for differentiation.

 Switching costs; While there would be cheaper products, these are not of the
quality that Kauai prides itself in.

9.5. Bargaining power of suppliers;

 Number and size of suppliers; With over 160 stores nationwide, Kauai has a lot
of suppliers. These include suppliers for ingredients (vegetables, fruits, eggs, free
range meat), serving equipment, staff uniforms, retail space, delivery partners,
cleaning services and staff.

 Uniqueness of each supplier’s product; Kauai uses fresh ingredients. These are
also organic and free range without using chemicals, sourced locally from
farmers within the communities in South Africa in an effort to empower them.
Kauai also serves meat products, and these are also organic and free range. The
use of recyclable and bio-degradable cups and straws means that the company
had to select specific suppliers.

 Focal company’s ability to substitute; Kauai has developed a frozen range that is
available at retail outlets (this is a substitute to the fresh smoothies the company
is known for). The company has also developed a ready-made, frozen food
selection that is available at pick n pay. This will cater to those customers who do
not want to eat out, they can busy the food and re-heat at home. Though not
freshly prepared, these are still Kauai products that use fresh ingredients.

10. Recommendations;

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Figure 3: Source: Asker (1992) Strategic Market Management

10.1. Pre-emptive move

A pre-emptive strategic move appears to be a most viable response to most of the

challenges and constraints Kauai is faced with in ensuring that they remain a step
ahead of its competitors. This may also assist them in retaining their healthy market
niche leader position. This move could also assist them with further thorough
understanding of their customers and also getting even more intimate with them. Below
are some of the recommendation on how that be achieved:

- Strategic partnerships with farmers and meat producers can be another approach
worth exploring

Partnering with farmers and/or farmers association could not only assist Kauai with
effectively addressing currently existing challenges around seasonal availability of
certain ingredients, vegetables or fruits as Kauai but it will also assist them with costs
containment efforts as suppliers/farmers could perhaps then not charge them increased
prices in the event of increased demand or seasonal scarcity of certain items. Kauai will

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then, in this case, have the ability of being in full control of their overheads as a result
of the cost containment efforts which could them ensure that they don’t increase their
prices to end consumers in the context of a squeezed middle class resulting from
depressed emerging and to some extent global markets economies.

- Or explore introducing an internal loyalty points system linked to the app,

redeemable over a period of time using QR coding system – to their entire
customer base

Loyalty rewards programs have gained momentum over the years as organisations
build intimacy with their customers. Kauai have done well in this in relation to their
relationship with discovery insurance for its vitality program. The current challenge with
their existing loyalty program is that it only accommodates Discovery vitality affiliated
members and side-lines non-discovery Kauai customers who would like to enjoy those
benefits. Also, through the organisation policy on sustainable environment, Kauai has
created initiatives for its customers which encourages customers to buy refill cups
(smoothies/coffee). Kauai reward its customers who bought cups with a R1/R2 discount
whenever they use them when buying their drink. A future opportunity for Kauai when it
comes to loyalty health programs will be on tapping on the Momentum health rewards
program and be a service provider. The organisation needs to find a way of dealing
with competing brands and not lock itself in exclusive contracts spanning a long period
of time. This will impact negatively on the brand and its potential to expand its market.

Kauai should then explore introducing their own internal loyalty points system linked to
the app, redeemable over a period of time using QR coding system – to their entire
customer base. This will then ensure customer loyalty which could then result in repeat
purchases. This loyalty program will be embraced by customers as it will be inclusive of
their entire customer base and not just excusive certain customers affiliated to a
particular scheme as it is the case now with Discovery vitality.

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- Enhanced CRM approach to enable Kauai to get closer to its customers and to also
better understand its consumers

Kauai currently interacts with its thousands of customers everyday without any little
understanding or effort of understanding them and their buying or consumption patterns.
It treats its customers as a mere order number. Much like in a case of Star Bucks which
constantly seek ways of personalizing their customer service; Kauai could within the
confines of the POPI seek to explore gathering some basic understanding of a customer
as every single point of interface, especially offline store environments. This can further
be assisted by the above proposed loyalty program. This data can then be utilized to
create enhanced intimacy with their customers and to also better appreciate customer
current and future consumption and buying preferences or patterns.

Distribution; Kauai currently offers products on Mr D and UberEats, over above their
outlets, this means that customers can enjoy a good meal from the comfort of their own
homes. Customers incur extra charges when they order through these third-party
delivery sites. Kauai has attempted to make things easier for the customer by
introducing their own app which customers can use to place and pay for orders then
skip queues when they get in outlets to pick up the food. For other outlets a customer
can place the order or call ahead to place the order, but the customer will still queue to
pay for and collect the order.

Kauai has further partnered with Pick n Pay and now offers their food in the frozen
foods section of the stores. Where previously, the company offered smoothies in this
section, this has now expanded to food which customers can reheat when they get
home. This is an effort by the company to reach their customers. While other fast food
outlets only offer their sauces and seasoning at supermarkets, Kauai has been pre-
emptive and offers meals. This means that even if customers cannot get to an outlet,
they will still enjoy Kauai after visiting Pick n Pay.

Kauai would also benefit greatly by increasing online presence. While the company has
a website, one needs to specify that it is “Kauai restaurants South Africa” that is sought
before the results are populated to include the outlet, otherwise the search takes you to

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Hawaii. Companies are now using their websites as online stores and are thus able to
reach a larger segment than before. Kauai can launch an online campaign that would
drive customers to the website and offer rewards and discounts for people buying or
ordering from the website.

10.2. Synergy

Kauai’s recent very bold efforts of revamping their physical in-store look and feel in
order to ensure that they create or introduce a welcoming ambiance is another
indication of their attempts to enhance their customer experience and customer value.
This revamp will also be seen as a response to the emerging fast casual dining
restaurant which continue to threaten their market share.

Their bold rebranding efforts can also be seen as a repositioning effort to attract new
customers, especially men as they historically perceived Kauai as brand largely
appealing or targeting women who are predominantly known for their dietary eating.

10.3. Low Cost

Healthy eating is perceived by many as being slightly more somewhat expensive

generally. This then goes without saying that organic and healthy ingredients
(Vegetables, fruits, etc.) as required by healthy eating providers such as Kauai will also
present them with slightly increased cost lines. As discussed earlier, Strategic
partnering with farmers or farmers association could assist as a cost containment
measure. Kauai will then, in this case, have the ability of being in full control of their
overheads as a result of the cost containment efforts which could them ensure that they
don’t increase their prices to end consumers in the context of a squeezed middle class
resulting from depressed emerging and to some extent global markets economies.

10.4. Differentiation & Positioning

The customer is evolving and that are beginning to see fast food outlets as major
contributors of high rates of diabetes, heart disease and childhood obesity in most
emerging markets and the world over.

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Kauai is already recognised as South Africa’s leading healthy fast food franchise and it
remains to be seen what the future holds for fast food industry as governments are also
beginning to raise the awareness on healthy eating and lifestyle related diseases. Kauai
now seeks to further consolidate its niche market leader position, this is despite glaring
increased competition in recent years.

Global Market shifts in the fast food industry indicates that customers today are health
conscious and that they are to make their purchasing behaviours in line with the quality
of the food based on that.

10.5. Focus

Kauai is fully dedicated to healthy, natural food, innovation, social responsibility, and
“the real food revolution”. Kauai was repositioned from being a healthy quick service
restaurant, to a fast-casual restaurant following their recent make over.

They should continue consolidating their strengths in this market and seek to explore
diversification in their distribution model or approach i.e. explore further presence in
other physical touch points beyond the currently existing Pick & Pay as well and Virgin
Active gym partnership.

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References;

Fasa. https://www.fasa.co.za/directory-accredited_f/listing/kauai-franchise/
https://kauai.co.za/healthy-bodies-need-a-healthy-planet/
https://kauai.co.za/sustainability/
Statistical release P6420. 2017. Food and beverages.
http://www.statssa.gov.za/publications/P6420/P6420June2017.pdf
Veitch, C. 2017. The Restaurant, Fast Food, and Catering Industry. Who owns whom.
Lodestar Marketing Research.2013. Premium food and beverage market in South
Africa. Switzerland Global Enterprise program.
Zizzamia, R., Schotte, S., and Leibbrandt, M.2019. Snakes and ladders and loaded dice
Poverty: dynamics and inequality in South Africa, 2008 –2017
Mapumulo, Z.2017. SA gym clubs making R12.5 billion in revenue every year
https://www.w24.co.za/SelfCare/Wellness/Body/sa-gym-clubs-making-r125-billion-in-
revenue-every-year-20170115
De Reuck, S; Kauai: Fast Food Brand Extension into traditional retail as a strategy for
sustainable growth in an emerging market; UCT; December 2018
Palmatar, R. W. & Sridhar, S. (2017). Marketing Strategy: based on first principles and
Data Analysis. Palgrave & Macmillain: London.

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