Fast Food (Quick Service Restaurants) Industry

The fast-food industry has been in perennial boom since the last two decades. Much of this boom can be attributed to internationalization by fast food joints who have sustained their growth despite political, regulatory, environmental and health issues. This paper examines the internationalisation of the industry over 2002-2007 to argue opportunities and limitations that confront the industry. In context of this paper a fast food market is taken to be a serviced sale of food or drinks for immediate consumption on or off the premises. The market is seen to be comprised of Quick Service Restaurants (QSRs), Takeaways, Mobile vending and Leisure site based sales. Since the quick service restaurants account for 67.4 % of the market - for the scope of this paper this part of the industry has been focussed upon (Datamonitor, 2007a). The paper discusses the internationalisation of fast food majors and the issues that have come with such trans-national agendas. The discussion provides a basis to posit opportunities and limitations for the industry. This is provided under a sectionalised scheme of key aspects that have been considered in extant literature as crucial variables defining globalisation. The paper closes by providing a synthesis of ongoing growth through internationalisation for the industry and a perspective on the future that beckons.

The Fast Food (QSRs) Industry: A Snapshot

As the fast food industry has beefed up to a massive 102.6 billion in revenues of which more than two thirds is accounted for by the QSRs and with predicted growth rates of around 5% it seems a lucrative meal in the making for the industry and the giants in particular. The giants list usually comprises McDonald's, Pizza Hut, KFC, Wendy's and Burger King. McDonald's is clearly far above the rest accounting for nearly 20 billion in sales while the rest together muster nearly two thirds of this figure. Yum Brands! - a company headquartered in the US is effectively the second major player as it operates, licences and franchises some of the leading brands including Pizza Hut across the globe (Louisville, 2005; Datamonitor, 2007a,b,c). An overview of the upstream downstream system that refers to the industry is provided as an appendix to this paper. This is an approximation that attempts to provide a broad sketch of the industry value system.

Opportunities and Limitations

Globalisation and Customisation

As far as the product portfolio goes- in the last few years a move to healthier offerings has seen the western markets warm up to the idea of ‘healthy' fast food once again (Case, 2007). However, as consumer tastes remain fickle the recent success of some products that are again configured around the traditional juicy and unhealthy burgerthe QSRs face a continuous challenge to reshape their offerings to strive for the most lucrative combination of attributes on the menu. In a trans-national context this becomes difficult as it entails a further complexity of customisation to specific markets tastes while keeping the core competency that stems from product design aspects and identity attributes (Baden-fuller and Stopford,1991; Mintzberg, 1983 ; Bartlett and Ghoshal, 1987,1989). The limitations and opportunities in this case lie along a continuum that is also mapped by risk and product innovation. While customising to local tastes may work at eroding the identity of the core products - in a balance it can help provide for effectively extending the core competencies to inform customisation in a unique way. For instance, the ‘rice burger' of McDonald's introducing regional flavours like ‘curry' in product variants and also using sauces to be aligned with the local tastes of say more spices- while the basic architecture of the sandwich, packaging, service and ambience is used to keep it an experience unique to the fast food label (McDonald's, 2005; Anzola, 2007; Cullen et al, 2008).

Interdependencies

In the case of a global fast food firm the aforesaid local - global dichotomy can be extended to the idea of interdependencies. Spread out units across the globe have to be independent and flexible enough to tackle the localised business realties - while at the same time, have to harness the competency and resource base that defines the globally successful parent firm. This balance or synergy to adapt and extend symbiotically is a crucial factor for success (Bartlett and Ghoshal, 1987, 1989; Yip, 1989). In the fast food industry interdependencies are a challenge due to the sheer number of outlets that comprise the global network of franchisee units (McDonald-s 2003; Burger King, 2005;Yum Brands Inc., 2006). Though it is the country headquarters that is the conduit for delivering such interdependencies- the variation in the nature of local markets makes handling of each franchisee a balancing act. For instance KFC faced a politically motivated agitation in Bangalore-India, while the rest of the country remained passive about KFC-s business (Business Line-Hindu, 2003; KFC, 2003). Such issues call for a multi level interdependency goal that is rather complex to realise and a limitation given the configuration of the fast food-QSR business. Furthermore, as the fast food giants move overseas the concept already exists in some shape or form and the QSRs try to ‘buy out' or ‘out run' the other fast food operators like street vendors. Cross subsidizing has been used effectively and so have acquisitions (Kokko,1996; Watson 1997). While financial muscle given the size skewness and also arguable increasing concentration in the global industry gives big players the opportunity to be aggressive in international market - this has to be delivered carefully. The anti Multi National Corporation (MNC) perceptions frequently come to serve political interests, regulatory concerns and public sentiments if such moves are too overt (Business Line, 2003; Beaulier and Caplan, 2007)

Configuration -Coordination Dichotomy

Michael Porter (1986) introduced the Coordination-Configuration framework to emphasise the demands that globalisation brings with it in terms of spread versus the proportional effort at coordination to realise synergies. The important addition is that there is a suggestion for looking at the ‘value chain' (Porter, 1980) in terms of where in the global context do the activities stem from (configuration) and how do they link up (coordination). The fast food industry in contrast to some other industries has less of a gamble on resource cost differences across countries. In contemporary times it is even more so as localised resource linkages have become an important aspect guiding physical resourcing at least (Rangan, 2000; Rugman and Collinson, 2006). The nature of product and manufacturing in the industry can easily take advantage of localised inputs and ‘successfully flexible' product architecture (e.g. the rice burger mentioned before!). However, while this opportunity beckons, the limitations arise in terms of deals struck with local stake holders for instance the farmers. The rent appropriation in lieu of inputs in the value chain is frequently much contested and often levy has to be given to local public and political concerns - for instance, fast food giants are seen as taking control of farming (Kostova and Zaheer, 1999; Netto, 2007)

Other issues

In addition to the discussion from a theoretically embedded point of view a reiteration of some specific issues is merited. Health concerns related poor publicity has hit the industry hard and growth has been sustained primarily through expansion. The ‘West' specifically the Americas comprise for more than half of the revenues of the all the big players and health concerns here are particularly limiting in one sense. However, they are also an impetus that has seen aggressive moves in other parts of the World e.g. south-east Asia. Again, ethical issues come to the fore as in loading the ‘fat' of the west on ‘east' (Schlosser, 2001; Cullen et al, 2008). Regulatory aspects are vary of the fast food giants' growth and market control strategies like acquisitions because this has an significant impact on the perceptions in the masses -through allowing what is usually seen as an attempt to control farming in agrarian economies, and is politically detrimental for governments if they turn a blind eye to it (Netto, 2007). Fair trade issues also run in the value appropriation stream. This is as an opportunity for the MNCs to show their concern and is very much a strategy adopted by fast food giants to improve their Corporate Social Responsibility (CSR) profile (Kaplinsky, 2000). This could help moderate the impact of adverse aspects like health issues that have particularly been a cause of concern in traditional markets like the US. Such activities are a clear ‘re-buy in' for estranged customers in traditional markets- of course in combination with an attempt to address other concerns like healthy eating.

Conclusions

There are some generic factors that beckon organisations with moorings in the West to go trans-national and are common across industries. For instance, rising disposable incomes and the arrival of the middle class in third world countries, mass markets, saturation or other issues in the home market, and cheaper labour -to name a few and aft contextualised in literature (e.g. Laurent, 1983; Watson, 2000; Tschoegl, 2007). However, these need to be seen in terms of specificities of the industry to hand - for making sense of limitations and opportunities that can provide a basis for shaping the strategic direction for the industry (Porter, 1986; Bartlett and Ghoshal, 1987). In reflecting on central conceptual framework that affect internationalisation this paper has attempted to distil a perspective on opportunities and limitations for the fast food industry-focussing on the QSR business. Rangan (2000) in his article on myths related to globalisation provides some useful cues to synthesise the discussion in this paper. For instance, as discussed-the tendency to approach regulatory and governmental concerns without due importance is likely to generate bad publicity and poor local alliancing- positing multinational QSRs as exploitative entities. Furthermore, given the nature of the ‘food based' product architecture - in agrarian economies of the third world such a perception is to some extent difficult to control for. However, any concessions here and otherwise - say channelled through the fair trade mandate might be a selling point in the developed world where health issues have impacted adversely on consumer perceptions of fast food. While the traditional image of being unhealthy is likely to be a limitation, innovative attempts at a balance between traditional offering and healthier products are bearing fruit - as is the customisation of products to suite local palettes across the globe.

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