The recent announcement that Wendy’s was pursuing “strategic options” for its Arby’s business and that Yum Brands (KFC, Taco Bell, Pizza Hut etc.) was divesting A&W and Long John Silver properties got me thinking. I’ve done work in this arena before, and while I don’t necessarily love this category for my family, I do appreciate that for the most part QSRs (quick serve restaurants) d fulfill a vital role in providing cheap inexpensive meals for millions of families each day.
All this said, it seems that the big chains (MacDonald’s, Wendy’s, Burger King etc.) continue to steamroller ahead domestically while growing like gangbusters overseas. At the same time, there seems to be a plethora of mom and pops willing to feed us as well as a few smaller regional players. What about medium sized chains though? Is this industry inexorably moving to a “dumbbell distribution” with a gap in the middle? If so, what are the implications?
Clearly size has its advantage. Well optimized, big companies can exercise their clout with suppliers, customers and partners. They can purchase less expensively- important in a time of rapidly rising food costs-, they can afford to advertise and promote more and arguably more effectively than their smaller brethren, and they have larger war chests for things like product development (changing their offerings to consumer preferences and emerging trends,) and investment in international expansion into markets like China- which is becoming the industry’s number one engine of growth and value creation. Given all of the afore mentioned, it’s little wonder that the big groups are looking to clear out their smaller, less competitive divisions.
Okay this is fast food, what about other consumer industries? I started thinking about it and there are a host of other examples where medium sized players are being taken out of the fray leaving only the very big and the very small:
• The progressive growth and share of the mass merchandisers led by Wall-Mart, is well documented and in category after category of retail and other areas, they have left the landscape bare of all other than very specialized small players
• In the grocery business, the smaller chains are rapidly disappearing leaving only giants and smaller specialty and convenience players. Same with drug stores.
• The book industry, we will soon be down to two national players (Amazon and Barnes and Nobel) with a scattered specialized players scrambling to adopt high-service and other “survival” business models. Can anyone really “out service” Amazon?
• I’m sure we can come up with others. Even big, major brands have stumbled (Pontiac, Oldsmobile, Saturn, Saab etc.)
What are the implications of all this? Okay broadly…
1) If you are mid-sized player, focus on getting big quickly through organic means and possibly acquisition. Get your cost structure in order. You are going to increasingly going to need funds for investment just to maintain market position and possibly advancement.
2) For smaller players in many verticals, they will increasingly need to fight to maintain market position. Many competitors, who do thrive, will do so by tailoring their value proposition in such a way that the consumer can’t live without them. Specialization and service will be the order of the day.

3) If you are lucky enough to be one of the giants, your continued top line growth in this slow growth decade (and it will absolutely be slow in the US and Euro zone) will often come through taking share from competitors, further consolidation and in many cases international expansion. Mastering your cost structure will be everything as low cost will continue to decide who among the increasingly competitive giants comes out on top.
As far back as the 1960s, based on data going back to the 1930’s, the PIMS database on (Profit Impact of Market Strategy) funded by GE And others, made a compelling case that market share correlates strongly with profitability.
Perhaps now it is not just profitability that correlates with market share. Maybe it is survival that will be influenced by market share. What’s a medium sized guy to do?

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