T he lifestyle of today’s fast-paced economy has required the use of many mediums to meet the needs of the efficient employee, the productive entrepreneur, and the stressed college student. These people are confined by the demands of the workplace and the classroom to accomplish tasks in a very restricted timeframe. As such, they need efficient schedules in order to minimize time spent off work.
These include time spent to rest, to eat, to prepare and much more. If these times are spent as efficiently as each individual would require, productivity in work and in studies can potentially be increased. Modern man has invented so many mediums to suit such needs in this developing global economy. The process begins from a concept then it is made tangible for the use of the many in need of it. One such concept that has become a reality today is the concept of “fast” food.
Instant foods have made it possible to shorten time spent on eating. Foods like instant noodles, instant coffee and instant oatmeal have made
differences in time efficiency in terms of taking snacks in between hours. Yet the need for full meals is not answered by these foods. The advent of “fast” food has created for students and workers, which we will refer to from now on as the market, the answer to that problem. The ability to efficiently and significantly reduce the time spent eating while replenishing precious energy is now readily available to them through the concept of fast food.
Spread all throughout the globe, fast food restaurants have dominated the world market. In the light of its global acceptance, many entrepreneurs and business leaders have become aware of the potential to create huge volumes of sales taken from the masses. The first ever fast food chain established was an American fast food chain called A&W Restaurants in the year 1919 with its well-known root beer and root beer floats.
Today, the world’s largest fast food restaurant is the United States’ McDonald’s Corporation. Other countries have created their own brands to meet the needs of their people. Global fast food companies include Australia’s Red Rooster, New Zealand’s Kentucky Fried Chicken, and South Africa’s Chicken Licken. The Philippines has also created its own chains. The most noted is its global brand Jollibee. With the rise of Jollibee in the global market, the American fast food chain McDonald’s has become the number one contender of the locally established fast food restaurant, Jollibee, in the Philippines..
Jollibee is the current market leader, dominating all other fast food restaurants even the international brands that have entered the country. This study’s interest lies on the current situation of Dumaguete City’s fast food market which is dominated by both Jollibee and McDonald’s. The purpose of this study is to enlighten those interested parties on the underlying factors that would allow current and emerging fast food chains to successfully establish their brand in Dumaguete. These interested parties may include, but are not limited to, students, employees and business owners of Dumaguete. The information may also help explain other unanswered questions regarding the current and future market trends of the city. Essentially, this paper will give its readers predictive and confirmatory value on their information needs.
The study is based on past and present locally surveyed information supported by well-established and generally accepted business concepts and practices taken from different references. Additionally, this paper focuses on the fast food market of Dumaguete only. The Webster’s II New Riverside desk dictionary defines fast food as “specializing in foods prepared and served quickly” (Fastfood, 1988). True enough, the world has accepted and adopted different definitions to this word yet all of them circulate on the terms “food” and “fast.”
The fields of health science, particularly nutrition, and business have created their own definitions of this term. Both definitions, although entirely different in context, are not distant from the definitions coined by others. Again, fast food is a term essentially related to food and quickness. Health science, as one would expect, uses the term fast food to mean the food itself and further describes the food’s nutritional aspects. In fact, the U.S.
National Institutes of Health (National Institutes of Health, 2011) defines fast foods as those that are “quick, reasonably priced and readily available alternatives to home cooking.” In addition to that, the definition describes the nutritional facts about these foods which include high amounts of calories, fat, saturated fat, sugar, and salt. The NIH also warns that these nutritional values contribute to weight problems.
Health science has enumerated the pros and cons of fast food but this study will focus more on the definition of fast food in the context of business. The corporate world uses the term fast food restaurant and, alternatively, quick service restaurant to refer to those types of restaurants that are “characterized by fast food cuisine and minimal table service” (Fast food restaurant, n.d.). Fast food restaurants are designed to be accessible to anyone and provide as much convenience as it is possible. In order to provide fast food to as many people as one company can handle, businesses have used the franchise scheme.
It is the foremost leading business practice accepted globally by international business owners. Such owners are well aware of the many of concepts that are fundamental to go about franchising and simple businesses. In order to support the argument of this study, the focus will be on the concepts of costumer, pricing and strategy. The reason why these concepts are chosen is found on William Smith’s (1994) statement: “… a successful (and profitable) business is one that gets the right quantity of the right merchandise to the right place at the right time and at the right price.” The right quantity, right merchandise, right place and right time will be discussed further under the concept of strategy.
The right price is of course explained under pricing which will be a moderately extensive discussion. The customer is the very core of every business and as such it will be discussed in addition to pricing and strategy, despite it not being stated in Smith’s statement. The world of business has come to create the understanding that the customer, consumer and customer will be used to mean market, is king. This concept of consumer sovereignty is still true and relevant after about a century of existence. In this theory, the consumer serves as the guide of the economy in producing the products and services he or she needs and wants. Economists usually do not value the judgement of consumers, and customers. To them, it only matters that he or she is free to decide on what he or she wants.
Arch Troelstrup (1965) tells us, “In short, the consumer expresses his wishes by casting dollar votes. In this way, the consumer is supposed to determine what shall be produced.” In a perfect economy, consumers and costumers alike would be the primary drivers of economy. But Arch Troelstrup (1965) discusses in his book Consumer Problems and Personal Finance the decline of the consumer as “king” in the economy. Consumers in our present economy are not ready to guide our financial system to where they need and want it to go because of gullibility and ignorance. Consumers are easily manipulated by the market place and are ignorant of the questions and answers they ought to know.
Consumers must know the answer to such questions as “Are present-day prices competitive?” “Does the quality match expectations?”, and “Are these products beneficial to me?” It follows that the basic judgement of a customer on a particular product or service is on the cost-benefit constraint. The benefits of fast food are known to the customer. But the problem lies on the prices not meeting the perceived benefits that an individual customer would receive. As such, customers bestow their personal and sound judgement upon these items. Consumers therefore require the help of the just price. Andre Gabor (1998) wrote:
The idea that there is such a thing as the just price is of very ancient origin. It is many centuries older than the proposition that the proper price of any good or service is that which emerges in a competitive market untrammeled either by monopolies or state regulations.
Since time immemorial, customers have used the concept of a just price to judge products and services offered by the market, which in this paper is the fast food market. The consumers’ just price is a tool used by businesses to better understand the role of it in purchase decisions. The process begins with consumers comparing the price of a certain item to some sort of subconscious standard set in their minds. These standards are not the same for each person but it is noted that a population with the same living conditions tend to have similar judgements.
Producers and retailers are not confined by this concept because the overriding factor of the just price is bargaining. If people think that a product’s cost matches the benefits received, it is highly likely that they will purchase it (Gabor, 1998). The basics of fast food restaurant pricing are similar to traditional restaurant pricing. Food and beverage management uses the term “range of price discretion” to mean the price setter’s option to raise or lower prices based on a products relative cost to complete. It is formally defined as the range of the extent of the prices that the price setter should set. The simple formula is selling price equals variable cost plus contribution.
Variable cost refers to the costs to complete and sell a product while contribution is the same as range of price discretion. From that equation, it is deduced that low portion variable costs gives the price setter a wide range of price discretion. In contrast, high portion costs create a narrow range of price discretion (Jayawardena, 1994). The strategies employed on fast food franchises include calculability, menu adaptation, and predictability. George Ritzer’s book The McDonaldization of Society (2000) is dedicated solely on the factors of McDonald’s’ success around the world. He discusses fully the strategies that contribute to fast food business success.
The emphasis of quantity has contributed to the success of McDonald’s. The fast food giant employs “big” on every franchise store it opens. Even its burger “Big Mac” is named this way in order to invoke quantity and calculability. Sign boards and statues are also designed to be big and noticeable. By doing this, consumers are led to believe that they receive a lot for relatively low prices just because of the “big” on everything McDonald’s creates and offers. Contrary to customer belief, not everything on the menu is literally big. George Ritzer noted that French fries packaging is illusory. Special scoops are used to give the customers the idea that fries served are large in quantity. The bags and boxes are also made in a way that it seems to be overflowing with fries at the top.
The striped prints of McDonald’s large fries add to the illusion. The fact then exists that the cost of making French fries relates to few pieces fries in each package given its price. In line with illusory packaging, Reiter reports that Burger King’s fries are four hundred percent their cost. This proves that consumers are wrong in believeing that they are getting a lot for spending little. This is not applicable to only French fries but also to all menu items (Ritzer, 2000). The bargain factor is present in this example. Customers think that the cost of their purchase gives them the right amount of satisfaction. Fast food franchises have struck to the heart of food business. They have learned that food culture plays an important role in determining recurring purchases by customers.
Thus, menus of fast food restaurants are created to match the tastes of the target geographical markets. Evident examples include the Australian McDonald’s’ vegemite, an Aussie breakfast favorite which is a sandwich toast, the Thai KFC’s “Wing Zeed”, a spicy fried chili lime chicken with lime juice, and the Canadian Wendy’s poutine, a common Canadian dish of French fries doused with a gravy-like sauce and cheese curds. The efforts to match traditional menu and even add to it is extensive and necessary for any fast food brand looking to franchise globally. With that said, international franchises must be wary of competition in similar areas. The poutine, for example, is in the menu of three franchises in Canada, Burger King, McDonald’s and Wendy’s. This poses a big threat to each brand.
The only competing factor they would rely on is taste. Assumingly, the better tasting poutine becomes the market leader. In regards to taste as a factor, fast food items have relatively common characteristics. Ritzer states that, at best, expectations of customers from fast food restaurants are only modestly good, yet powerful tasting food. Hence, the main point is on strong, simple tastes like salty or sweet fries, special sauces and shakes. With modest expectations, the customers expect more of the quantity. They therefore, again, expect to pay less for more food. This is the relationship of calculability and taste. The last strategy concept is predictability. Consider Ritzer’s statement:
Replicated color and symbol, mile after mile, city after city, act as a tacit promise of predictability and stability between McDonald’s and its millions of customers, year after year, meal after meal.
Undeniably, this is very true among fast food brands. Physically, colors and symbols tend to be effective in capturing the attention of customers. When customers see these signs, they are assured of the same products and the same services offered by the brand. This opens the characteristic of customer loyalty which is the determining factor of long-term frequent and habitual purchases from the market. Predictability is a key to surviving in the fast food business. Colors have a psychological effect on humans. Red, orange, and yellow for example are attention-getting colors. Blue, green, and yellow are for comfort. And red, white and yellow depict largeness. Yellow is noticeably very useful for fast food chains (Marvin, 1973). It is probable that McDonald’s’ trademark colors consisting of red and yellow are the results of psychological studies.
Moving on to the argument of the study, this next section examines both Jollibee and McDonald’s’ histories and current market positions in both international and Philippine markets. This discussion will then be narrowed down to the current situation in Dumaguete City. McDonald’s started off as a barbeque joint in San Bernardo, California in the year 1940 by Dick and Mac McDonald. In 1948, the barbeque restaurant closed for three months and then reopened again with a smaller menu of hamburger, cheeseburger, milk, potato chips, and pie.
The potato chips then evolved to today’s French fries, and thus eliminating the chips from the menu. With the help of multimixer salesman Ray Kroc, the McDonalds expanded Des Plaines, Illinois on the fifteenth of April, 1955. This was the first McDonald’s franchise in history. By the year 1958, the brand sold its one hundred millionth hamburger and, within the next year, opened its one hundredth restaurant in Du Lac, Wisconsin. In 1963, it opened its five hundredth hamburger joint.
Four years later, the McDonald’s empire would take over the world. Today, the clown is in one hundred nineteen countries across the globe. In 1978, it opened its five thousandth restaurant in Kanagawa, Japan. And the year 1981 marked McDonald’s first ever Philippine restaurant which would be later contended with the local Jollibee brand (McDonald’s history, 2013).
McDonald’s is currently the world’s largest fast food franchise with a hundred and nineteen restaurants to date. This growth, in a span of sixty five years, is very likely to increase with its rigorous marketing efforts. In McDonald’s 2012 financial report, their net income for 2008 increased greatly by $ 1,918,000,000 from 2007. The brand’s net income for five years starting from 2008 up until 2012 averaged $ 4,955,600,000. With that growth in net income, McDonald’s is gearing up to mark half of ten billion dollars in net income by next year (McDonald’s Corporation, 2012). In the Philippines, McDonald’s has yet to beat Jollibee in terms of market share. McDonald’s has two hundred ninety three stores in the Philippines.
Jollibee, on the other hand, began as a Magnolia ice cream parlor owned by Tony Tan in Cubao, Philippines in the year 1975. In the year 1978, the company operated seven fast food joints and reported P 2,000,000 in sales with its flagship product, the “Yumburger.” In 1980, the brand introduced the first “Chicken Joy” and French fries to the market. By 1981, the company entered the list of the top one thousand corporations with ten stores established. This also marked the year of the entrance of Jollibee’s number one international contender McDonald’s into the Philippines.
Two years later, it entered the top five hundred corporations and assumed leadership in the fast food industry. In 1986, it became part of the top two hundred fifty corporations and opened its first international outlet in Taiwan. A year after 1986, the company became part of the top one hundred corporations while opening its second outlet in Taiwan and first outlet in Brunei. Its one hundredth restaurant opened in 1991 in the city of Davao. The two hundredth store opened in 1996 and its four hundredth by 2001 (Jollibee history, 2013).
Jollibee is currently planning to expand to the European continent, which will be its first. It has already entered the Asian and American markets (Garcia, 2013). Jollibee is the current market leader for the fast food industry in the Philippines. The 2012 consolidated financial report of Jollibee Foods Corporation includes a total comprehensive income amounting to P 3,531,000,000. That is an increase of P 149,000,000 from the past year
(Jollibee Foods Corporation, 2013). Both brand names have well established themselves in both international and domestic markets. The city of particular concern is Dumaguete city in the province of Negros Oriental. It is a university town.
The city is well-known for the prestigious Silliman University, an American institution. Other universities exist such as the Foundation University and St. Paul University. Indeed, the active population is composed of mostly students (City of gentle people, n.d.). With analysis and observation, there are many employees working in Dumaguete in addition to students as the market. Most of these workers come from call center agencies. The students, workers, and even student-workers of Dumaguete are the target market for most fast food franchises with evident architectural designs created to suit the needs of students and workers alike to do homework and create projects. The lifestyle of this market demands quick alternatives for home-cooked meals.
The market tends to favor moderately priced food service joints with quick service. The trend seems to be that which the target markets assess a number of restaurants before giving their loyalty to a particular business. With that, the market is generally adventurous with their taste buds. The fast food restaurants of Dumaguete include the local Chowking, Greenwich, Jollibee Mang Inasal, Scooby’s, Shakey’s, and Sunburs. Foreign restaurants include Dunkin’ Donuts, Kentucky Fried Chicken, and McDonald’s.
The current fast food market leaders with high market shares in the city are Jollibee and McDonald’s. Currently, Jollibee has four outlets in the city with three of them concentrated in the downtown area. The other is located in a local mall. Jollibee first opened in Dumaguete on June 29, 1997. Since its opening, the local market has gained trust and loyalty to the brand. Jollibee has sixteen years of experience in the local market. It has eleven breakfast meals with prices ranging from P39 to P99, four burger meals with prices from P28 to P143 and chicken meals worth P69 to P130.
French fries cost P28 to P59 and cold desserts cost P10 to P50. In addition to the typical menus, it offers six rice meals with Filipino viand with price ranging from P39 to P119. From observation, Jollibee’s restaurants have many customers during lunch time and dinner time. In contrast, McDonald’s has two outlets, both of which are located in Dumaguete’s downtown area. McDonald’s first opened in Dumaguete on March 25, 2007.
The brand is widely accepted by the target market due to its flexible and innovative efforts to meet the needs of both students and workers. McDonald’s has six years of experience in the local market. It has fourteen breakfast meals with prices ranging from P36 to P112, six burger meals with prices from P29 to P175 and chicken meals worth P47 to P153. French fries cost P27 to P59 and cold desserts cost P15 to P49.
There are no rice meals with Filipino viand offered. From observation, McDonald’s restaurants have many costumers during lunch time and late at night. To evaluate the success of both Jollibee and McDonald’s, this study required testing to prove which brand had the upper hand in market shares. In the survey test of thirty six random people from Dumagutee, the expectations based on accessibility, ambience, brand name, convenience, friendly staff, great taste, reasonable prices, services offered, and others, which were alphabetically arranged in the survey to prevent bias, tend to be equally important to each of them. The test made the respondents rank these nine factors from one to nine with one being the highest.
The results therefore are favorable to the factors that score low in the test. The factor that scored the lowest was great taste followed by reasonable prices. The factor that scored the highest was others followed by services offered. The calculations ranked all factors as follows: (1) Great Taste, (2) Reasonable Prices, (3) Convenience, (4) Accessibility, (5) Brand Name, (6) Ambience, (7) Friendly Staff, (8) Services Offered, and (9) Others. From this we can deduce that customers judge fast food primarily by the taste of their food and then they evaluate the prices. An outlet that is convenient and accessible has more bearing in customer preference than brand name. Ambience follows from there. Once the first six factors are determined, friendly staff and services offered become minor determinants.
In an older test of three hundred and sixty six respondents, great taste ranked first while convenience ranked second followed by reasonable prices(Acac, 2006). The current test conducted reflects, in a direct way, the results of the older test. Therefore, past expectations still hold true in today’s expectations of fast food experience despite having minor differences. The survey also included each respondent’s preference on fast food chain. They were asked to choose between Dumaguete’s market leaders Jollibee and McDonald’s. The results showed that the random sample, the respondents, preferred Jollibee ove McDonald’s but only slightly.
The calculations showed that 52.63% preferred Jollibee and 47.37% preferred McDonald’s. That is a marginal difference of 5.26%. The results of the survey on preferred fast food chain is related to the expected factor of brand name. The Dumaguete market, in respect of the results, is not really brand conscious. It is possible that this may be the reason why the respondents almost equally preferred both brands. International or not, the respondents did not mind. It follows that the fast food concept of calculability and predictability strategies are ignored in determining which one had the better market share because both Jollibee and McDonald’s have apparently similar marketing and franchising strategies.
The slight difference in preference therefore lies on the top factors of great taste, reasonable prices and convenience that each brand employs on its products, service and others. Jollibee has evidently applied the menu adaptation concept since it has menu items that include rice meals with different Filipino viands such as lumpia and bangus while McDonald’s has given little effort to actually adapt to the Dumaguete palate. Current prices also indicate that Jollibee has more moderately priced items that are found within the range of McDonald’s prices. McDonald’s on the other hand, has a wider range on its prices that vary from the reasonably low P27 regular French fries to the extremely pricey P175 burgers. Having more outlets may indeed be another factor that benefits Jollibee since it has twice as many outlets as McDonald’s currently.
This makes up for more convenience and accessibility on the part of its customers. Jollibee’s success is greatly influenced by McDonald’s. In fact, Jollibee’s techniques are a copy of McDonald’s’. Mr. Tony Tan, the founder of Jollibee, was well aware of the American fast food brand’s plan to expand to the Philippines and so Mr. Tan actually flew to the States in order to study his competition. In an internet article by Carlos Conde (2005), Jollibee is flexible in terms of taste. Even Jollibee’s own company officials and food experts credit the brand’s success to the fact that the bee respects local tastes as opposed to McDonald’s which remained faithful to its core products, and thus core tastes.
But Carlos Conde (2005) also adds: “And fight he did, using as weapons the very things that made McDonald’s successful: the mascot, the colorful uniforms of the crew, their cheerful greetings, French fries, fried chicken and a burger aimed at Filipino tastes and priced much lower.” Although many fast food brands have begun to expand, it is clear that the Philippines will be a tough market because of the very large bee, Jollibee, that’s getting bigger and bigger in the country. In time, this Philippine brand may potentially become a global competitor in providing easy, convenient and fast food to the masses of different cultures. If Jollibee continues to understand the culture of different countries, just as it has understood Dumaguete market and the whole Philippines, it may well become the largest fast food restaurant in the world.
In conclusion, Jollibee is in fact marginally more dominant than McDonald’s in Dumaguete’s fast food market because of the meal options that have tastes that appeal more to the people of Dumaguete, and the designed price ranges of menu items that are more reasonably priced. As of the duration and date of this study, Jollibee is, as William Smith puts it, a successful business that got the right quantity of the right merchandise to the right place at the right time and at the right price, with the right taste.
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