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A & W Drive-Ins Limited Strategic Analysis
Statement of the Problem
Mr. Ed Drayson must prepare a set of recommendations for Mr. Harry Braithwaite about the A & W Drive Ins in North Eastern Canada. The drive-ins are facing the challenge of rising costs at the same time as increasing competition. The McDonald's Corporation appears to be targeting A & W specifically by opening restaurants in close proximity to A & W drive-ins.Furthermore, the cost of meat is rising approximately 40 percent. Not every restaurant is facing the same price increases. The meat cost increase may be temporary but the labor costs will be permanent.The decisions that have to be made are very serious are require careful analysis with long-term consequences in mind.
Analysis
The fast food industry is growing rapidly. In the area of New Brunswick, Nova Scotia and Prince Edward Island, the growth of fast food restaurants has more than doubled in a few years. The introduction of new restaurants has only had a temporary negative impact on existing restaurants indicating a general increase in the numbers of people eating outside the home.
The characteristics of the industry are to provide food that is fast and reasonably inexpensive to the customer. The food is packaged so that the customer may eat the food in their car or take home to eat. They may also eat at the restaurant but the food is still expected in a very short period of time. The foods are generally food that can be eaten with the hands. The industry is also characterized by a growing number of national chains challenging local restaurants. The national chains have a predetermined menu which does not vary from store to store throughout the chain to provide consistency and continuity so people know what to expect no matter where the restaurant is geographically. The service is fast which means people on their lunch breaks can go get a meal from outside their place of business and have time to eat it and get back to work. This convenience is one of the success factors and also a driving force behind the industry.
A & W Company Analysis shows strong distinguishing factors that create a specialized niche for the company in the industry. First, A & W is known for its root beer. This root beer is identifiable by its taste and texture from other brands. Second, the A & W drive-ins have car hops that come to the car instead of having a drive through window. The root beer is served in iced mugs in various sizes. The food can be eaten in the car or taken home. The A & W company requires the franchises to use the main menu but does allow some flexibility for local tastes. For example, in the northeastern Canadian locations the menus include a local favorite of fried clams, something not offered at other chain restaurants.
The primary driving force behind the fast food industry is the mobility of society. The fast pace of life in industrialized centers makes it very difficult for people to work all day without having a break. Taking lunch becomes complicated in a large workforce as foods generally require refrigeration or heating and there is not enough storage space in the work place for storing lunches from home. Furthermore, the food is not safe from being mistaken or stolen by other people. The unique needs of the workforce has made the fast food industry with its speed, low costs and convenience the popular alternative to bring lunch from home.
Forces of Competition
Bargaining power The bargaining power of the customers is that there are so many choices of fast food restaurants. The bigger the chain the lower the costs of the production and the cheaper the food to the customer. With a broad range of prices between the fast food the customer decides what his or her budget will allow. It is in the interests of the chains to keep the costs to the customer as low as possible and the quality of the food as high as possible in order to keep the customer returning.
The bargaining power of the suppliers is that they are offering a variety of foods at a variety of prices for the customers. They have an understanding that people get bored and want a variety of foods and options.People do not want the same thing every day and therefore it is not necessarily a bad thing to havecompetitors in close proximity.
SubstitutesThe substitute for fast food is either taking more time for lunch to go home or eat at a slower-paced restaurant, or to bring food from home, which has already been explained as problematic. For many people there are no viable alternatives to fast food lunches.
Threat of entry The entry of new restaurants is not a serious threat to existing fast food because of the changes in society. The more people enter the workplace, the less time they have to cook and prepare lunches at home. it is easier and more convenient to eat out. It is also a social time because many people socialize with co-workers by eating out. Furthermore, as more people work and the demands on time become greater, more restaurants means more people will be able to eat at the same time. There is currently more demand than supply.
Intensity of Competition The competition is intense, especially due to the McDonald's Chain which is selling at the lowest prices. McDonalds is drawing a strong market share but they are not threatening the other franchises or local restaurants in the area.
Strategic Group AnalysisMr. Drayson has identified the challenges facing A & W as the rising cost of beef, the rising cost of labor and the competition from McDonalds. He must advise the company what actions to take and this is more complicated by the fact that some areas will have higher expenses than others. The advice may help some stores, therefore, while not helping and perhaps hurting, others. Although A & W is not in a bad position financially, they have to be careful of their actions in order to maintain the delicate balance of competitiveness and profit.
Competitor Analysis The competition is not too much trouble at this moment, but with the rising cost of beef A & W is worried that they will lose to the competition if it raises prices and lose profits and investors if it does not. McDonald's seems to target the A & W geographic locations as it consistently choses to build its restaurants near A & W drive-ins.
Company Analysis
A & W has done very well in the northeastern corner of Canada. The McDonald's company has apparently decided that A & W is its main competitor. A & W has, however, only experienced temporary decreases in income when a new McDonalds opens. After the initial opening, A & W income returns to previous levels.
The strategic cost and value chain comes from the company products. No other restaurant offers the root beer, root beer floats, car-side service and variety of menu of A & W. These features make A & W different from other companies and can not be underestimated as factors that draw customers to the restaurant.
The competitive position of the company is excellent. The other restaurant chains are more locked into a set menu than A & W. A family can order a wider variety of foods at A & W, which offers burgers, chicken and fish products, making it highly competitive with McDonalds and Kentucky Fried Chicken.
Alternatives Strategies and Evaluations
•Reduce the size of the meat patties very slightly.
oPro more patties per pound will probably not be noticed and will save significant amount of money with the volume sold.
oCon the psychological superiority of the products are very important in the competitiveness of the two companies.
oCon the "merchandising appeal" will be lost and the public may not feel there is enough difference between McDonalds and A & W to justify going to the higher priced restaurant.
•Cutting out the carhop service
oPro savings in labor costs.
oCop the car hop is what makes A & W different from other restaurants.
oCon if the car hops are eliminated, the customer will have to get out of the car to obtain the food, which will make the restaurant lose its 'fast food' feel psychologically.
• Reduce advertising costs
oProsave money without sacrificing labor or product quality.
oCon the other companies will be advertised more.
Strategic Recommendations
The recommendation that I will make is to reduce the advertising costs by cutting back on the number of advertisements in the media. It is more important to keep the existing customers happy and returning than attract new customers through costly ads. Word-of-mouth testimonials are the most effective advertising. If the company sacrifices quality and service the ads won't matter anyway.
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