Retailing Characteristics of Fast Food Stores and Their Impact on Customer Sales and Satisfaction Essay
“Retailing characteristics of fast food stores and their impact on customer sales and satisfaction” By:- Rajul Bhardwaj Lecturer, Faculty of Management Studies, Gurukul Kangri University, Haridwar(Uttarakhand), India Table Of Contents:- ?Chap-1 Introduction 1. 1Global Retailing Industry.. …………………… 1. 2 The Far East Experience.. …………………… 1. 3 The Changing Food Retailing sector in Asia.. 1. 4Recognition of a Problem……………………… 1. 5Objectives of the study………………………… ?Chap-2 Literature Review 2. 1 Passage to India………………………………. 2. Food Retailing in India. ………………………. 2. 3Useful Information regarding McDonald’s Corporation…. ……… 2. 4Useful Information regarding Pizzahut Inc………………………. 2. 5 Useful Information regarding Domino’s Inc…………………… ? Chap-3 Research Framework and Methodology 3. 1Research purpose……………………………… 3. 2 Hypothesis…………………………………….. 3. 3Data Collection………………………………… 3. 4Methodology…………………………………… 3. 5Factor Analysis………………………………… ?Chap-4 Result and Interpretation 4. 1Interpretation of Result………….. ………….. ?Chap-5 Suggestions and Managerial Implications ?Chap-6 Limitations of the study References……………………………………….. Chapter – 1 Introduction (Global Retailing Industry) 1. 1Global Retailing Industry 1. 2 The Far East Experience 1. 3 The Changing Food Retailing sector in Asia 1. 4Recognition of a Problem 1. 5Objectives of the study INTRODUCTION: 1. 1 GLOBAL RETAILING INDUSTRY: The latter half of the 20th Century, in both Europe and North America, has seen the emergence of the supermarket as the dominant grocery retail form.
The reasons why supermarkets have come to dominate food retailing are not hard to find. The search for convenience in food shopping and consumption, coupled to car ownership, led to the birth of the supermarket. As incomes rose and shoppers sought both convenience and new tastes and stimulation, supermarkets were able to expand the products offered. The invention of the bar code allowed a store to manage thousands of items and their prices and led to ‘just-in-time’ store replenishment and the ability to carry tens of thousands of individual items.
Computer-operated depots and logistical systems integrated store replenishment with consumer demand in a single electronic system. The superstore was born. On the Global Retail Stage, little has remained the same over the last decade. One of the few similarities with today is that Wal-Mart was ranked the top retailer in the world then and it still holds that distinction. Other than Wal-Mart’s dominance, there’s little about today’s environment that looks like the mid-1990s. The global economy has changed, consumer demand has shifted, and retailers’ operating systems today are infused with ar more technology than was the case six years ago. Saturated home markets, fierce competition and restrictive legislation have relentlessly pushed major food retailers into the globalization mode. Since the mid-1990s, numerous governments have opened up their economies as well, to the free markets and foreign investment that has been a plus for many a retailer. However, a more near-term concern, has been the global economic slowdown that has resulted from dramatic cutback in corporate IT and other types of capital spending.
Consumers themselves have become much more price sensitive and conservative in their buying, particularly in the more advanced economies. From an operational point of view, active practitioners have voiced their opinion that retailer concerns in 2003 have turned to deflation, lack of pricing power, global over-capacity, low interest rates, economic stagnation, slump in world tourism and declining consumer confidence. But, even before the global economic slowdown that forced retailers into monitoring costs more effectively, technological advances were a way of life in retail organizations.
Technology has become the real enabler for retailers over the last six years. Supply chain innovations for retailers were particularly strong in the second half of the 1990s and have continued into today. With all the emphasis on technology and cost-cutting, a major thrust of retailers continues to be demand-based: finding new markets through globalization efforts. Four years ago, more than half (53 per cent) of the top 200 retailers operated in only one country. Today, only 44 per cent remain single-country merchants. This globalization trend can only intensify in the years ahead.
The benefits of increased sales and greater economies of scale are too large to be ignored. where the world wide retail sales alone is valued at $ 7 trillion . The top 200 retailers alone account for 30% of worldwide demand. Retail sales being generally driven by people’s ability (disposable income) and willingness (consumer confidence) to buy, compliments the fact that the money spent on household consumption worldwide increased 68% between 1980 and 2003. The leader has in-disputably been the USA where some two-thirds or $ 6. 6 trillions out of the $ 10 trillions American economy is consumer spending.
About 40% of that ($ 3 trillions) is spending on discretionary products and services. Retail turnover in the EU is approximately Euros 2000 billion and the sector average growth looks to be following an upward pattern. The Asian economies (excluding Japan) are expected to grow at 6% consistently till 2005-06. Positive forces at work in retail consumer markets today include high rates of personal expenditures, low interest rates, low unemployment and very low inflation. Negative factors that hold retail sales back involve weakening consumer confidence. 1. 2 The Far East Experience
The Food Retail Industry in the Far East has evolved into what could be called ‘the breeding ground’ for emerging models with countries like Singapore being the home to some of the big players in the industry in these parts of the world. The presence of all the major players of the retailing industry is found in Singapore. Singapore has 2 hypermarkets, one run by Carrefour and the other by Giant Hypermarket, part of Dairy Farm International. According to the government, there are slightly more than 11,000 market stalls operating in 150 markets located all across Singapore Island.
The markets further spread to China, Thailand, and Malaysia thanks to the major support that the local governments provided in creating the necessary regulatory framework in establishing their presence. Singapore, Malaysia and Thailand not only fueled the retail industry within the country, but also attracted hordes of tourists to experience the shopping “experiences” that they created in these islands. The markets are now saturated with no additional space for a new entrant and are expected to consolidate within the next few years. Apart from Singapore, which is a more recent development, Japan enjoys an active spot on the retailers’ map.
The retail industry is as huge as US$ 1088 Billion, with a split of US$ 594. 8 Billion in the non-food segment and US$ 493. 2 Billion in the food-retailing sector. The leaders in sales are Ito-Yokado, Aeon, Daiei, Takashimaya, and Uny, in that order. Several retailers, however, have made recent improvements in their warehousing and distribution technologies to make their presence felt in the Japanese market. Convenience stores, which are small and suitable in a country where land is very expensive, continue to do well. Food, in fact, has been one of the few sectors that have experienced growth over the last several years.
A period of shake up in the industry is likely now that Wal-Mart has entered Japan. Numerous smaller, less efficient retailers may become takeover targets. The entire Japanese retail sector will likely undergo some form of restructuring over the next decade as a result of overcapacity, dismal profits and the Wal-Mart factor. In Mainland China, the retail markets have mushroomed over the years of intense economic development to a very considerable size. The total volume of retail sales for consumer goods and food increased by 10. 6 percent in China over the last couple of years which shows tremendous growth.
Consumer spending has held strong. A decade ago, the top five retail enterprises in China were all traditional merchandise companies, but now the top five are mainly supermarkets and chain stores. The world is enamored with China’s potential and opportunities. But in medium-sized and small cities and rural areas, traditional retailing methods, such as department stores and local retailing networks, will be sufficient, as consumption is lower. In Indonesia, Wet markets and supermarkets remained the major distribution channels for food products.
Although these retail sub-sectors also offered non-food products, such as household goods, food products remained dominant in terms of the number of items. Wet markets’ distribution of food products tended to be much greater than non-food as these retail channels mainly provided fresh produce. Conversely, supermarkets had an almost equal distribution, with food taking up the greater proportion. On the other hand, the distribution of non-food products benefited from both food and non-food retailers. For example, some food retail formats offered non-food items, such as supermarkets, hypermarkets, and convenience stores.
These retail outlets provided some basic non-food products, such as toothpaste, soap, or detergent. However, non-food retail outlets rarely provided food items, except certain department stores or druggists. In Malaysia, a majority of food retailer outlets offer food and non-food items, with at least a 70:30 distribution. The traditional food distribution system in Thailand is through so-called ‘wet markets’ which sell fruits, vegetables, meat and fish, together with small ‘mom and pop’ food stores which distribute dry goods. However, the apid growth of the economy, particularly during the decade before the financial crisis began, has led to dramatic changes in the structure of the food-retailing sector. Modern supermarkets, superstores, hypermarkets and convenience stores developed at breakneck pace to service the growing middle class with their demand for more sophisticated food stores and a greater variety of products many of which were imported. 1. 3 The changing food retail sector in Asia In much of Western Europe and in North America, supermarkets and hypermarkets now account for well over two-thirds of all food retailing.
This dominance is also seen in other areas of the developing world, such as in Latin America and South Africa, where supermarkets control 50 to 60 percent of the food retail sector . There has certainly be en a rapid growth in the role of supermarkets in almost all parts of the world although measuring the exact market shares is complicated by a lack of reliable data and difficulties in defining exactly what is meant by “supermarket”. It is particularly difficult to obtain information on the market share of fresh produce being sold by supermarkets.
While the quantities sold by supermarkets c an be accurately calculated, it is almost impossible in most countries to know the quantities of fruits and vegetables being sold through traditional marketing channels. Supermarket growth around the world has, in part, resulted from the considerable competition between supermarket chains, particularly in the United States and Europe. In the West this competition has led to increased supermarket share by the squeezing out of smaller, less efficient retailers.
Chains in developed countries have responded to the impact of fierce domestic competition on margins by seeking opportunities overseas, a move that has be en helped by the liberalization in many countries of rules relating to Foreign Direct Investment. Reliable information on developments in Asia is not always easy to obtain. In some countries this difficulty stems from the previously noted problem of defining what is meant by a supermarket. In other countries there are no agencies to collect accurate data.
Nevertheless, it is clear that there has been a significant growth both in the number of supermarkets and convenience stores and in the role of multinational chains such as Carrefour and Tesco. Developments have not been driven only by international companies; the past decade has also witnessed the emergence of national chains of some significance. Care must be taken in drawing conclusions about the impact of these trends on the fresh produce sector. Firstly, retail sales do not equate to total consumption.
Institutions bypass the retail sector, as do caterers, although in some Asian countries supermarket-style cash-and-carry wholesale chains, such as Metro and Mako, which handle fresh produce and supply the catering sector, are beginning to develop. Secondly, the growth in sales by supermarkets of fresh fruits and vegetables tends to lag behind the growth in sales of processed food products. The logistics of fresh produce supply are much more complicated than they are for dry goods and thus take supermarket chains much longer to organize.
Thirdly, while there has certainly been growth in fresh produce marketing by Asian supermarkets, imported produce accounts for a significant proportion of their fruit and vegetable sales. Furthermore, supermarket supply chains for domestically grown produce may be relatively easy to develop for produce that is less perishable, such as watermelons, but much more difficult for produce that has a limited shelf life and/or requires cold chains. Indeed, many smaller supermarkets stock only those products that have a long shelf life.
Lacking detailed information on the importance of supermarkets for different fruit and vegetable categories, it is not yet possible to fully assess the implications of supermarket growth for domestic producers. The following discussion should be considered with this in mind. Growth of hypermarkets and convenience stores Various modern retail outlets, including conventional supermarkets, hypermarkets, discount stores, convenience stores and department store s, have been developed. Different definitions are used for the size of various retail utlets and it is possible that a hypermarket in one country may be considered as a conventional supermarket in another. For example, in Malaysia, which has recently adopted the standards of the OECD (Organisation for Economic Co-operation and Development), a convenience store is considered smaller than 500 m2, a conventional supermarket is between 500 and 2 000 m2, a superstore is between 2000 and 5000 m2, and a hypermarket is above 5 000 m2 . In China, a size above 10 000 m2 is considered to be a hypermarket.
Though conventional supermarkets are still very important in most countries, there has been a trend toward increased penetration of large hypermarkets and small convenience stores. In China, 40 percent of urban shoppers already claim to spend more in hypermarkets than elsewhere. Japan leads the way in the development of convenience stores. Local convenience stores still have plenty of room for development and offer a significant threat to the traditional grocery store.
For example, Tops in Thailand moved to counter the impact of giants such as Carrefour (with 21 supermarkets in Thailand) and Tesco Lotus (a joint venture of Tesco UK, and the CP Group of Thailand with around 50 supermarkets and hypermarkets) by finding new niches, such as smaller outlets in inner-city areas that combine the features of convenience stores and supermarkets. Tops now has 48 stores. Tesco Lotus opened some of its 31 Express stores in partnership with ESSO.
Higher growth for packaged produce W hen discussing the implications of modern trade for food, it is, as noted, important to make a distinction between packaged groceries and fresh produce. Fresh produce sales in supermarkets are much lower than packaged produce sales. In the case of packaged grocery sales, the share of sales by modern self-service stores in Asia grew by around 3 percent a year for the period from 1999 to 2002 (ACNielsen, 2003).
It grew by 0. 8 percent and 2. 2 percent during 2002 in Thailand and Malaysia, respectively, while supermarkets in China led the way, gaining 5 percent. Excluding Japan, a typical Asian urban consumer purchases about 40 percent of his or her packaged groceries from modern self-service stores (ACNielsen, 2003). It should be noted that available statistics relate mainly to urban markets and the percentage s quoted are higher than those for the countries as a whole.
The move to purchase packaged groceries at modern self-service stores is taking place in Asian urban areas, but the pace at which this is happening varies greatly because of different stages of economic development. For example, in Viet Nam, traditional stores account for more than 80 percent of sales even in the main cities, while in Hong Kong and Singapore, the share of trade for these outlets is less than 20 percent. Consumers still prefer traditional outlets for fresh food
Recognizing the importance of selling fresh food in order to attract customers, modern self-service store s have made significant progress in improving their supply and display of fresh produce. The results have been mixed. A large percentage of consumers in Asia still prefers traditional markets for fruits and vegetables. ACNielsen (2003) reports that in most Asian countries between 80 and 90 percent of urban shoppers use wet markets regularly. Only in Japan and the Republic of Korea do less than 50 percent of urban shoppers use them on a regular basis.
Malaysia is probably the country where the trend is most advanced. Available data suggest that supermarkets and hypermarkets accounted for 60 percent of fruit sales and 35 percent of vegetable sales in 2002, although this may be an exaggeration. Not far behind is Thailand where 40 percent of fruits and 30 percent of vegetables were sold through supermarkets and hypermarkets in the Bangkok area, but a lower percentage in the context of the country as a whole.
In the Philippines 15 percent of vegetables are said to be sold through supermarkets in Metro Manila but a smaller percentage in the country as a whole (Digal and Concepcion, 2004). In the Republic of Korea there has been a rapid growth in hypermarkets since 1993 but, even so, such stores still account for only 11 percent of fresh produce sales. In China, less than 10 percent of fruits and vegetables were sold through supermarkets in 2002. However, the rate of supermarket growth continues to be rapid. Thus most households continue to buy fruits and vegetables from raditional retailers even though they may use supermarkets for other products. The perception, and possibly the reality, is that wet market supplies are fresher and often cheaper. This is recognized by one chain in Thailand that focuses on fresh produce and aims to create stores that resemble “shopping at the wet market near home” Unless a consumer happens to live close to a supermarket, wet markets are also more convenient for consumers accustomed to walking to make daily purchases of fruits and vegetables.
Supermarkets often lack a sufficient range of horticultural produce to encourage consumers to switch from wet markets, particularly outside the major cities (Digal and Concepcion, 2004). Nevertheless, they continue to make inroads because of their competitive prices, more reliable if not better quality and the fact that they offer “one-stop” shopping. Supermarkets have also to some extent benefited from government regulations attempting to control hygiene and congestion in traditional markets, for example, in China and Viet Nam.
Supermarkets have started to spread to towns In gene ral there has been a trend for supermarkets, which until rec ently occupied only a small niche in capital cities and served only the rich and upper middle class, to spread well beyond cities in order to penetrate into the mass food markets. They have spread from big cities to intermediate towns and then to small towns. ACNielsen’s recent studies show the staggering development of modern trade across China’s key cities in 2002.
There has been increased penetration of chain store operations and supermarkets in non-metropolitan areas. In Thailand, for example, supermarkets were until recently centered in Bangkok but the trend has been to move to other provinces. With more than 100 hypermarkets in Bangkok, there is little room left for further expansion. The chains are looking up-country for outlet expansion be cause provincial outlet sales have been growing four time s faster than sales in Bangkok.
At present, however, in the poor states or provinces, and in most rural areas of Thailand, Malaysia and China, supermarkets are still rare . Given that supermarket growth is driven by urbanization and per caput income levels, countries with low rates of urbanization and/or low income levels are likely to witness only slow growth. In Bangladesh, for example, the few supermarkets in Dhaka and Chittagong cater primarily to expatriates and the urban elite; this is unlikely to change rapidly given the lack of purchasing power and the unavailability of suitable transport for the bulk of the population.
Time remains for more traditional marketing chains to adapt and for policy-makers to formulate policies to assist farmers in working with the supermarket sector. In these countries, the provision of basic marketing support services and infrastructure to improve marketing must be addressed. Increased consolidation in the retail sector Consolidation has taken place mainly through foreign acquisition of local chains and by larger domestic chains absorbing smaller chains and independents. Smaller supermarkets have been forced to reposition themselves to focus on niche markets.
Japan-based Seiyu Supermarkets, for example, sold its business to Tops in Thailand, while Tops sold its business in Malaysia to Giant. The two largest domestic supermarket chains in China (Hualian and LianHua) merged in 2002 to become the largest retailer in the country with around 2700 supermarkets and convenience stores. However, while further consolidation is inevitable, the retail trade still remains fragmented in most Asian countries. Share of total sales for the top five chains is 2 percent, 25 percent and 15 percent for China, Thailand and Malaysia respectively.
Key drivers of the changes : Many factors contribute to the changing food distribution systems in Asia, both on the demand and supply sides. These include: Income growth with increasing urbanization: Except in Japan, real per caput income growth occurred in many Asian countries during the 1990s, along with the rapid rise of the middle class. This is the main factor behind the growing demand for processed foods. The rapid increase in the number of people owning refrigerators induced a shift from daily shopping in traditional retail outlets to weekly shopping in modern self-service stores.
The increasing number of motor vehicle owners prompted larger volume grocery shopping at more distant locations. Changing consumer preferences:- Consumers are changing. The entry of women into the workforce outside of the home has increased the opportunity cost of women’s time and their incentive to seek one-stop, fast, convenient, and value-for-money grocery shopping. Because of the increased problems with food safety, consumers have placed greater importance on this issue. Quality and safety standards are perceived as being better in modern stores.
The importance of food safety and quality standards and of their incorporation into marketing strategies is growing in both international and domestic markets. There are also rising concerns about food wholesomeness. Supermarkets tend to have superior product shelf life through the availability of cold storage and refrigeration. Changing consumer eating habbits:- W ith more women working and families travelling greater distances between home and work, there is a definite increase in the demand for proc essed foods and easy-to-prepare meals that are found in modern supermarkets.
Increased Infrastructure development: – The development of supermarket chains in Asia has been partially spurred by infrastructure development, such as highways, retail technology and logistics. Logistics technology and inventory management for retail procurement (efficient consumer response , a zero inventory concept, category management, use of Internet and computers for inventory control and supplier-retailer coordination) were revolutionized in the 1990s.
This was led by global chains and is diffusing into developing regions of Asia through knowledge transfer and imitation and innovation by domestic supermarket chains. The development enabled chain stores to build their own distribution centers and to accommodate a high volume of direct shipments from producers under central inventory control. Importantly, stores should be able to forecast daily sales with a considerable degree of accuracy , thus reducing wastage levels.
Low margins and high competition: – Multinational chains arrived in Asia with many years of experience and development in the very competitive environments of their respective countries. Their extensive experience included modern technologies and know-how regarding supply chain management, procurement arrangements, stock optimization, quality standards control, cold storage maintenance, product handling, shelf-life preservation, and consumer services. Consumers enthusiastically received the unprecedented services and quality provided by these new chains.
The competition forced local firms to enhance their services and efficiency, generating a chain reaction of improved services and modernization throughout the grocery sector. Competition among retailers is fierce. Asian agri-food distribution companies are aiming to lift competitive ness, and the phrase “drive costs out of the system” has been used widely in the retail industry. Supermarket chains are constantly seeking substantial savings through efficiency gains, economies of scale, and coordinated cost reductions.
Furthermore, with the number of modern trade stores growing faster than total sales, as is the case in China, the share of trade for an individual retailer is actually in decline. At the same time, consumer loyalty to individual stores is low. Shoppers in China continue to switch between outlets, including the wet markets. As a result, all supermarkets appear to be extremely price conscious. Demographic, cultural and social changes:- The percentage of young people in the population of Asia is increasing.
A westernization of lifestyles is also increasing, particularly among younger people. Changes in family structure in Asia are being witnessed, with a growing number of nuclear families and one-person households, as opposed to extended families. Finally, there has been an upward trend in the use of credit cards, which are rarely accepted by corner shops or traditional wet markets in developing countries. All of these factors have contributed to the attractiveness of supermarkets to consumers.
Increased travel:- More travel has exposed people to modern retailing techniques in the United States and parts of Europe, to a wider range of products and, particularly for fresh fruits and vegetables, to the possibility of being able to consume many out-of-season products. 1. 4 RECOGNITION OF A PROBLEM Food retailers recognize that consumer satisfaction (CS) plays a key role in a successful business strategy. What is unclear is the exact nature of that role, how precisely satisfaction should be managed, and whether managerial efforts aimed at increasing satisfaction lead to higher store sales.
Today, managers in the food retail sector undertake substantial efforts to conduct CS surveys. Yet it appears that in most cases the data are used to simply monitor specific store attributes, and especially overall satisfaction, over time. Unless the impact of consumer satisfaction on store revenues is assessed, managers have little basis for allocation of resources. In general, the linkages between drivers of consumer satisfaction and sales performance have not been firmly established in the food industry.
For the estimation of these linkages, recent research indicates that several issues must be addressed We measure the links between attribute perceptions and consumer satisfaction, and between consumer satisfaction and sales performance, in the food retail sector. The study relies upon an extensive data set comprised of five waves of consumer satisfaction and sales information from approximately 180 consumers. We construct a hypothesis in first differences that addresses the inherent nonlinearities and asymmetries in these links.
We also provide an example of how firms can use the estimated linkages to develop satisfaction policies that are predicted to increase store revenues. Our study makes three contributions to the literature, one methodological and two substantive. First, we examine nonlinearities and asymmetries in the satisfaction-sales performance links based on an empirical model expressed in first differences. Second, the study advances the measurement of behavioral links between consumer satisfaction and performance in the food retail sector with firm-specific data.
Third, our study shows how firms can employ such results to develop appropriate consumer satisfaction policies. Many retailers suffer from a variety of problems and difficulties . These can be classified as : A) ??? Inadequacies in the trading environment (e. g. economic and social change, competition from multiple retailers); B) Inadequacies in the retail form (e. g. operating costs, investment capital availability, supply problems); C) Inadequacies in management (e. g. management expertise and techniques). ther prominent problems with Indian Food retailers are:- 1)Retailers are facing high degree of competition these days as there are several retail outlet of the same food product in metropolitan cities, so retailers are not only facing competition from other food product outlet but they are facing a stiff competition from his own counterpart also.. 2)Due to increased literacy rate and widespread of media, customers are extra aware about the food products as well as the ingredients and promotion schemes given by different retailers. )Many customers want to eat those food products which are of foreign origin but with Indian ingredients (According to their customs and traditions). 4)Young generation is a big consumer of fast food these days. They want to take fast food from those retail outlets where they can eat those products with their friends and can also get the Home delivery of the same, so to meet these requirements of young customers, retailers have to invest more in their retail outlets. 5)Rapidly changing tastes of customers due to increased marketing and advertising . 1. OBJECTIVE OF THE STUDY Objective 1:- To study the relationship between store attribute perceptions and consumer satisfaction. Objective 2:- To examine non – linearities and asymmetric affects in the satisfaction – sales performance links based on mathematical empirical study . Objective 3:- Measurement of behavioral links between customer satisfaction and performance in food retail sector. Objective 4:- How firms can employ such results to develop appropriate customer satisfaction policies. Chapter – 2 Literature Review 2. 1Passage to India 2. 2Food Retailing in India 2. Useful Information regarding McDonald’s Corporation 2. 4Useful Information regarding Pizzahut Inc. 2. 5Useful Information regarding Domino’s Inc. LITERATURE REVIEW Our study focuses on the relations between attribute perceptions, overall customer satisfaction and store sales performance. Such links are part of a broader conceptual framework proposed by Heskett et al. (1994), namely the Service-Profit Chain. Anderson and Mittal (2000) strengthened this framework by accommodating nonlinearities and asymmetries in the links, and they renamed it the Satisfaction-Profit Chain.
Hereafter we use the acronym CSSP, Customer Satisfaction-Sales Performance, to refer to the links of interest. To capture the relationship between attribute perceptions and overall customer satisfaction, we must identify how customers interpret and respond to the products and services they buy and experience. Here it is essential to distinguish between specific attributes of a product or a service and the satisfaction factor they represent. In food retailing, for instance, consumers may put high value on a factor that might be called “customer service” provided by the supermarket.
This is an example of an abstract or subjective benefit. This abstract benefit depends on a set of related measurable attributes such as the disposition of the cashiers and sales associates, speed and accuracy of checkout, and availability of everyday grocery items and store cleanliness, among others. In addition to customer service, other relevant factors affecting overall customer satisfaction in grocery stores include the store ambiance, the perceived roduct quality of (growing) perishables departments–now 50 percent or more of store sales in some stores–such as fresh produce, deli/bakery, seafood, fresh meat and floral, as well as the perceived value of products relative to their price. These links have been the subject of intense scrutiny by marketing researchers. Since the seminal behavior-oriented research by Oliver (1981), several articles have focused on the antecedents of customer satisfaction in a wide variety of contexts, ranging from firm-specific studies to nation-wide assessments.
Although satisfaction factors vary according to the type of products, services and business sectors considered, empirical studies provide vast evidence of their impact on overall satisfaction (e. g. Szymansky and Henard 2001). Most studies on antecedents of customer satisfaction utilize models reviewed by Johnson (1998) and show significant correlation between various satisfaction factors and overall satisfaction (Szymansky and Henard 2001; Bernhardt, Donthu and Kennett 2000; Mittal, Ross and Baldasare 1998; Wittink and Bayer 1994).
In general, these studies tend to collect information on consumer ratings of specific attributes. Often, multivariate statistical models are constructed to identify latent variables representing satisfaction factors (e. g. Johnson and Gustafsson 2000; Johnson 1998; Fornell et al. 1996; Bolton and Drew 1991). In the majority of past research, overall customer satisfaction is then modeled as a linear function of these latent variables. Much recent research, however, is critical of the incomplete treatment of the CSSP links, and researchers call for more elaborate analysis (e. g. , Anderson and Mittal 2000).
Addressing the Consequences of Customer Satisfaction Unlike the antecedents of satisfied customers, the consequences of satisfied (or dissatisfied) customers have received little attention from researchers (Szymanski and Henard 2001). Perhaps the first study was the pioneering research conducted by Zahorik and Rust (1992) on the consequences of customer satisfaction. Their work included a mathematical framework to evaluate the financial value of satisfaction (Rust and Zahorik 1993) based on the effect of satisfaction on customer retention, and the subsequent impact on market share.
Anderson and Sullivan (1993) addressed the simultaneous estimation of the antecedents to and consequences of customer satisfaction, with data from more than twenty thousand Swedish consumers patronizing a hundred or so Swedish companies. Their model identifies factors that determine customer satisfaction, which in turn have a positive association with financial performance. Perhaps the most important contribution of this work is the identification of asymmetries in the linkages between disconfirmation of expectations and customer satisfaction.
After Anderson and Sullivan (1993) , several studies have examined the relationships in the Satisfaction-Profit (or Service- Profit) Chain with data from a variety of channels (c. f. , Kamakura et al. , 2002; Scharitzer and Kollarits 2000; Soteriou and Zenios, 1999; Johnson 1998; Loveman 1998; Anderson, Fornell and Lehmann 1994). Mittal, Ross and Baldasare (1998) and Anderson and Mittal (2000) point out that, for the most part, earlier research ignored nonlinearities and asymmetries in the links of the CSSP chain.
They maintain that the relationships in the CSSP chain are far more complex than originally postulated and, specifically, that linear models are insufficient. To illustrate the asymmetry concept, consider the quality of the produce department and the friendliness of cashiers in a supermarket. Stronger consumer evaluations of the quality of the produce department might not imply strongly positive effects on customer satisfaction, while weaker quality might be quite damaging.
Or, improvements in customer-oriented dispositions of cashiers and associates could have a large positive impact on customer satisfaction while reductions in cashier performance may be only mildly negative. Now consider the potential role of nonlinearity in the link between customer satisfaction and sales performance. A retail store with low current levels of customer satisfaction may require only small investments in satisfaction drivers to improve sales performance. In contrast, a store with high current levels of satisfaction is likely to need a much larger investment in drivers to produce impacts on performance of a similar magnitude.
Ignoring relevant nonlinearities and asymmetries inevitably leads to incorrect estimates of the linkages in the CSSP chain. Furthermore, if the results of CSSP chain research are to be adopted by retail managers, incorrect measures are certain to lead to incorrect strategy formulation thus dooming further strategic use of satisfaction data. Bernhardt, Donthu and Kennett (2000) suggest that another pitfall of many satisfaction studies is the tendency to rely on cross sectional analysis for statistical inference (Anderson, Fornell and Lehmann 1994, provides an exception).
Bernhardt, Donthu and Kennett argue that a proper analysis of the links between satisfaction and performance requires a dynamic approach. This argument echoes Rust and Zahorik’s (1993) contention that efforts to improve customer satisfaction must be financially accountable over time. Bernhardt, Donthu and Kennett (2000) study customer satisfaction in a fast-food chain based on monthly data. Although based on simple correlations, the study shows that a dynamic model outperforms a cross-sectional model in the examination of the CSSP links.
Extant research has focused primarily on the CSSP links at the aggregate level and for selected sectors such as telecommunications, banking, healthcare, automobile and pharmaceuticals, among others (cf. , Anderson and Fornell 2000; Scharitzer and Kollarits 2000; Mittal, Ross and Baldasare 1998; Bryant and Cha 1996; Anderson, Fornell and Lehmann 1994). Conversely, only a few firm-specific CSSP assessments have been conducted. Examples include fast-food restaurants (Bernhardt, Donthu and Kennett 2000) and department stores (Rucci, Kirn and Quinn 1998) .
Anderson and Mittal (2000) discuss several examples where the incorporation of non-linearities and asymmetries added significant value to a firm’s understanding of the CSSP links. It is especially desirable to use firm-specific data so the linkages between satisfaction and performance are examined in the context of a firm’s strategy. We note that academic research on the CSSP linkages in the food retail sector is scarce. Practically all empirical investigations on food retailing, in the U. S. as well as internationally, address the drivers of customer satisfaction but do not address their ultimate impact on store revenues.
Among the drivers often identified are: perceived value of products relative to their prices, staff friendliness and willingness to help, quality and freshness of products, store appearance, and the degree of customer service (cf. , Jin and Jai-Ok 2001; Hackl, Scharitzer and Zuba 2000 ; Gail and Scott 1995). However, while the drivers of satisfaction are known qualitatively, and managers believe that satisfaction affects performance, it is necessary to measure explicitly the impact of satisfaction on store sales in order to prioritize strategies to manage the drivers of atisfaction. This study advances the measurement of the behavioral links in the CSSP Chain in the food retail sector. We link attribute perceptions, overall satisfaction, and store sales, and we allow for nonlinear and asymmetric effects. We specify the model in first differences and we allow for time lags between changes in satisfaction and changes in store sales performance. We also provide an example to show how managers can use the results to develop appropriate customer satisfaction policies. 2. FOOD RETAILING: FAST FOOD INDUSTRY IN INDIA The concept of fast food isn’t new. Early in the 19th century, at the start of the Industrial Age when people had to work 12 to 14 hours a day, there was scarcely any time for long breaks for eating. The first snack bars and kiosks arose in front of factories. Today, quick meals outside the home have become an essential part of our lifestyle. The term “fast food” means just that. However, the boundary between fast foods and traditional dishes is fluid.
In particular, it’s difficult to provide a qualitative distinction because fast foods can also include salads and fruit in addition to classic offerings such as hamburgers, hot dogs, sandwiches, patties, French-fries, fish and chips, etc. The best way to distinguish fast foods is to use formal characteristics: Time required – those who eat fast foods do not want to spend a lot of time selecting and eating, and if necessary will eat standing or walking, on the bus, park bench, or at work. The variety of foods and beverages is usually very limited Fast food frequently does not come with knives and forks, making it “finger food. When silverware, cups and plates are necessary, they are disposable. The characteristics of fast food, therefore, are that they require little time, offer a limited selection, are finger food, and the silverware and plates are disposable. These characteristics readily illustrate the difference from traditional dining culture. Many people equate fast foods with convenience foods. This is incorrect since convenience products are often eaten at home. They require active participation because they must be heated, stirred, baked, thawed, etc. , and are supplemented with other foods. There are three eneral categories of fast food businesses: Self-service restaurants with a fast-food palette like McDonalds, Wendy’s, Burger King, Pizza Hut, etc. Take-out (or take-away) businesses that sell ready-to-eat foods and beverages “on the street corner” Hot-dog stands and snack stands with counters or a pair of stand-up tables. FAST FOOD INDUSTRY OVERVIEW Fast food is a food prepared and served quickly at a fast food restaurant or a shop. It is served usually in a carton or bags in order to minimize cost. Fast food outlets often provide take away or take out foods in addition to sit down services.
Fast food is a multi billion industry continuing to grow at a rapid pace in coming years. Fast food is often highly processed and prepared in an industrial fashion i. e. , with standard ingredient, methodical cooking and production methods. THE START OF FAST FOOD CULTURE The concept of fast food pops up during 1920s. The 1950s first witnessed their rapid proliferation. Several factors that contributed to this explosive growth in 50’s were: (1) America’s love affair with the automobiles. (2) The construction of a major new highway system. (3) The development of sub-urban communities. 4) The baby boom subsequent to world war second. “Fast-food chains initially catered to automobile owners in suburbia. The notion of “fast” food reflected American culture in which speed and efficiency are highly prized. ” INDIA – EMERGING MARKET FOR GLOBAL PLAYERS The percentage share held by foodservice of total consumer expenditure on food has increased from a very low base to stand at 2. 6% in 2001. Eating at home remains very much ingrained in Indian culture and changes in eating habits are very slow moving with barriers to eating out entrenched in certain sectors of Indian society.
Traditionally, eating out was looked down upon in Indian society. The growth in nuclear families, particularly in urban India, exposure to global media and Western cuisine and an increasing number of women joining the workforce have had an impact on eating out trends. Increasingly, eating out is becoming synonymous with entertainment. And very often, it is preferred as a time-saving option to cooking. Not surprisingly, takeaways are becoming increasingly popular India is among the top three countries globally having highest number of people in the spending capacities in the age group of 25-49 yrs.
India is placed at the second rank in the 2004 global retail development index an annual ranking of retail investment attractiveness among 30 emerging markets. The lack of consolidation and model retail concepts in India presents better opportunity to global players. Over 400 shopping malls, multiplexes, fast food giants, restaurants etc. are in planning or construction stage across the country FACTS AND FIGURES Fast food is one of the worlds largest growing food type. India’s fast food industry is growing by 40% a year and is expected to generate a billion dollars in sales by 2005.
The multinational segment of Indian fast food industry is up to Rs. 6 bn, a figure expected to zoom to Rs. 70 bn by 2005. By 2005, the value of Indian dairy products is expected to be Rs. 1, 00,000 million. In last 6 years, foreign investment in this sector stood at Rs. 3600 million which is about one-fourth of total investment made in this sector. Because of the availability of raw material for fast food, Global chains are flooding into the country. MARKET SIZE & MAJOR PLAYERS ?Dominated by McDonalds having as many as 75 outlets. Domino’s pizza is present in around 100 locations. ?Pizza hut is also catching up and it has planned to establish 125 outlets at the end of 2005. ?Subways has established around 40 outlets ?Nirulas is established at Delhi and Noida only. However, it claims to cater 50,000 guests everyday. Major players in fast food are: ?MCDONALDS ?PIZZA HUT ?DOMINOS PIZZA Multinational fast-food companies have given domestic competition a run for its money. While McDonalds sells more than Nirulas, Pizza Hut and Dominos are doing more business than Pizza Corner.
Within nine years of their existence in India since 1996, the multinationals have grown at a faster pace than their Indian counterparts. According to industry estimates, in 2001, while McDonald’s clocked a turnover of about Rs 125 crore (Rs 1. 25 billion), the home-grown Nirulas, which has been present in the country since 1934, could only garner Rs 100 crore (Rs 1 billion) turnover. Also, both Dominos Pizza Hut and Dominos clocked a turnover of about Rs 60 crore (Rs 600 million) but Pizza Corner lagged behind with a turnover of Rs 25-30 crore (Rs 250-300 million).
The main reason behind the success of the multinational chains is their expertise in product development, sourcing practices, quality standards, service levels and standardized operating procedures in their restaurants, a strength that they have developed over years of experience around the world. The home grown chains have in the past few years of competition with the MNCs, learnt a few things but there is still a lot of scope for improvement. We have applied our learning experience from other countries in all the processes including consistency, marketing, distribution and training to the local market conditions.
It’s now that the domestic chains have realized the importance of such practices. Nirulas is thus beefing up its organizational structure. Another key reason behind the success of multinationals is the ability to attract youngsters. While McDonalds has been able to attract people below 30, Dominos is targeting the ‘convenience-seeker. ‘ Nirulas, on the other hand, is known to appeal more to the 30-plus consumer. Small wonder, Nirulas has launched its ’21’ range if ice cream cafes to attract the younger lot. The challenge for the home grown chains is also to reinvent themselves to appeal to the younger consumer.
However, the domestic chains are at an advantage since they understand the Indian consumer behaviour and eating habits and their product offerings have been tailored accordingly. Multinational chains like McDonalds and Pizza Hut are still on a learning curve trying to customize their menu to the Indian taste and food preferences. Pizza Hut, for example, launched its masala range of pizzas and also opened the world’s first 100 per cent vegetarian outlet in India. Domino, on the other hand, has launched its peppy paneer pizza keeping in mind the Indian taste buds.
The food service market in India is estimated to be around Rs 36,000 crore (Rs 360 billion), of which the urban fast food quick service restaurants is around Rs 1,000 crore (Rs 10 billion). This segment is witnessing high growth of around 25-30 per cent per annum so the market has a lot of potential to grow. REASON FOR EMERGENCE GENDER ROLES: gender roles are now changing. Females have started working outside. So, they have no time for there home and cooking food. Fast food is an easy way out because these can be prepared easily. CONSUMER SOPHISTICATION AND CONFIDENCE: consumers are becoming more sophisticated now.
They do not want to prepare food and spend there time and energy in house hold works. They are building there confidence more on ‘ready to eat and easy to serve’ kind of foods PAUCITY OF TIME: people have no time for cooking. Because of emergence of working women and also number of other entertainment items. Most of the time either people work or want to enjoy with their family. DOUBLE INCOME GROUP: emergence of double income group leads to increase in disposable income. Now people have more disposable income so they can spend easily in fast food and other activities.
WORKING WOMEN: working women have no time for cooking, and if they have then also they don’t want to cook. Because they want to come out of the traditionally defined gender roles. They do not want to confine themselves to household work and upbringing of children’s. MACRO-ECONMIC FACTOR AFFECTING THE INDUSTRY ?Increase in per capita income: There is continuous increase in the per capita income of the Indian citizens. More income in hand results into more spending in comforts and entertainment and thus results into more and more spending on fast and ready to serve kind of foods. Economic growth: With economic liberalization of 1991, more foreign and private industries entered the Indian market that result into income generation of the Indian residents – more income results into ore savings— more savings means more investment – more investment results into overall growth of the economy. ?Large population: India being a second largest country in terms of population possesses large potential market for all the products/services. This results into entry of large number of fast food players in the country. Relaxation in rules and regulations: with the economic liberalization of 1991, most of the tariff and non tariff barriers from the Indian boundaries are either removed or minimized. This helped significantly the MNC’s to enter in the country. ?Growth in number of women’s in the work force: there is increase in the number of women work force in the recent years because of the improvement in the literacy rate and also because of the large number of jobs are now available because of the entry of foreign and private players in the Indian market. Menu diversification– increase in consumption of pizzas, burgers and other type of fast foods. CHALLENGES FOR THE INDUSTRY ?Social and cultural implications of Indians switching to western breakfast food: Generally, Hindus avoid all foods that are believed to inhibit physical and spiritual development. Eating meat is not explicitly prohibited, but many Hindus are vegetarian because they adhere to the concept of ahimsa. Those seeking spiritual unity may avoid garlic and onions. The concept of purity influences Hindu food practices.
Products from cows (e. g. , milk, yogurt, ghee-clarified butter) are considered pure. Pure foods can improve the purity of impure foods when they are prepared together. Some foods, such as beef or alcohol, are innately polluted and can never be made pure. But now, Indians are switching to fast food that contain all those things that are considered impure or against there beliefs. Some traditional and fundamentalist are against this transformation of food habit and number of times they provoke their counterparts to revolt against such foods.
And that is what happened when McDonald’s decided to enter the complexity of Indian business landscape, counting only on its “fast food global formula”, without any apparent previous cultural training. ?Emphasis on the usage of bio-degradable products: Glasses, silverware, plates and cloth napkins are never provided with fast food. Instead, paper plates and napkins, polyurethane containers, plastic cups and tableware, drinking cartons or PET (polyethylene terephthalate) bottles are used, and these are all disposable. Many of these items are tossed in the garbage instead of being recycled, or even worse, merely thrown on the ground.
This burdens nature unnecessarily and squanders raw materials. In order to reduce soil and water pollution, government now emphasis more on the usage of bio-degradable products. ?Retrenchment of employees: Most of new industries will be capital intensive and may drive local competitors, which have more workers, out of business. ?Profit repatriation: Repatriation of profits is another area of concern for Indian economy. As when multinational enters the any countries, people and government hope that it will increase the employment rate and result in economic growth.
However, with the multinational operation, host country experiences these benefits for a short time period. In long run neither employment increases (because of capital intensive nature of MNC’s) nor it increases the GDP or GNP because whatever MNC’s earn they repatriate that profit back to their home country. PROBLEMS OF INDUSTRY ?Environmental friendly products cost high: Government is legislating laws in order to keep check on the fast food industry and it is emphasizing more on the usage of bio-degradable and environment friendly products.
But associated with this issue is the problem that fast food player faces – the cost associated with the environment friendly product. They cost much higher then the normal products that companies uses for packaging or wrapping their products. ?Balance between societal expectation and companies economic objectives: To balance a society’s expectation regarding environment with the economic burden of protecting the environment. Thus, one can see that one side pushes for higher standards and other side tries to beat the standard back, thereby making it a arm wrestling and mind boggling exercise. ?Health related issues: obesity: Studies have shown that a typical fast food has very high density and food with high density causes people to eat more then they usually need. ?Low calories food: Emphasis is now more on low calorie food. In this line McDonald has a plan to introduce all white meat chicken Mcnuugget with les fat and fewer calories. TRENDS IN INDIAN MARKET ?Marketing to children’s: Fast food outlets in India target children’s as their major customers. They introduce varieties of things that will attract the children’s attention and by targeting children’s they automatically target their parents because Children’s are always accompanied by their parents. Low level customer commitment: Because of the large number of food retail outlets and also because of the tendency of customer to switch from one product to other (as food is one areas where customer wants to try everything new that comes to the market), this industry faces low level customer commitment. ?Value added technology services: There is continuous improvement in the technology as far as fast food market in India is considered. The reason behind that is food is a perishable item and in order to ensure that it remain fresh for a longer period of time, there is a need for continuous upgradation in technology.
Earlier, Indian people prefer eating at home but now with the change in trend there is also need for improvement and upgradation of technology in food sector. ?Attracting different segments of the market: Fast food outlets are introducing varieties of products in order to cater the demands of each and every segment of the market. They are introducing all categories of product so that people of all age, sex, class, income group etc can come and become a customer of their food line. INTERNATIONAL TRENDS USA: ?Fast food chains are under fire from legal action. ?A Fat tax is being considered for implementation. North America, Western Europe and Japan together account 86% of total fast food market. UK: ?Fast food has grown by 5% since 2001and reached to $10. 1 billion. ?Bakery sector dominates in fast food. ?Largest market is of sandwiches. ?Burger is one of the weaker performing sector‘ German: ?Grown by 2% since 2001. ?Primarily younger generation and single ones visit such outlets. ?Burger is the largest sector. ?Government policy is towards the reduction of garbage. Japan: ?Grown by 1. 5% since 2001 ?Japan has tailored its fast food to its countries population without sacrificing nutritional value. China: Growth of 14. 6% since 2001. ?Western style fast food successful in china market. France: ?Growth of 5. 8% since 2001. ?McDonalds France –most profitable subsidiary in Europe The success of fast foods arose from the changes in our living conditions: ? Many women or both parents now work ?There are increased numbers of single-parent households ?Long distances to school and work are common ?Usually, lunch times are short ?There’s often not enough time or opportunity to shop carefully for groceries, or to cook and eat with one’s family. Especially on weekdays, fast food outside the home is the only solution.
Today, only 40% of young college-age people eat lunch at home. Chiefly, but not exclusively, teenagers and young adults use fast food facilities when they need to catch a bite on the go. According to studies, 66% of young men and 33% of women in Switzerland eat one to two hamburgers a week, and half the teenagers eat French-fries once a week. The large chains have pulled out all the stops of modern marketing, targeting primarily young consumers. They entice their potential customers with TV spots, children’s parties, gifts for small children, and an ambiance that is generally child- and teenager-friendly.
Large distributors, bakers and butchers, snack bars, and so on, also exploit the fast food trend and offer more take-out products. It’s obvious that these campaigns are at the expense of traditional home dining culture. Experts have coined the term “McDonaldization” to describe this phenomenon. Some noticeable facts about fast food industry are: Fast food had experienced fast growth in past decade. Changing lifestyles, breakdown of joint family system, increasing number of working women’s and western influence in urban areas are fuelling the demand for fast food.
India already has the entire requirement for a head start in food industry. Basic materials such as food, vegetables and meat can be sourced locally or easily imported if local availability is not adequate. Food outlets are just beginning to appear in India’s big cities and this is a time for international chains to set a foothold. Competition will increase only with time Food Service Sector The food service sector in India consists of approximately 22,000 registered restaurants with sales of over $15,000 per month.
In addition, there are more than 100,000 roadside restaurants (dhabas) in small stalls in cities and on highways, and 1,700 registered restaurants in hotels. The institutional sector consists of hospitals, prisons, defense establishments, schools, company canteens, railways, and airlines. The opportunity for U. S. food companies in India’s food service market is small but growing. Sales by Indian food service companies totaled approximately $6 billion in fiscal year 1999 (latest available data). Restaurants account for approximately 56 percent of Indian food service sales and institutional sales, about 39 ercent. Indian consumers spent only 2. 4 percent of their food expenditures in hotels and restaurants in fiscal year 1996. American consumers, by comparison, spent 46 percent of their food expenditures on away from- home meals. Hotel Restaurants The hotel industry is growing, and major hotel companies are currently expanding in the premium segment. An increase in Indian budget travelers is expected to drive the long-term growth in the mid-range hotel sector. India has some excellent hotel chains, including: Indian Hotels Ltd. (Taj Group); East India Hotels Company Ltd. Oberoi Group); ITC Ltd. (Welcome Group); Asian Hotels; and Leela Venture. Several international chains such as Radisson, Best Western, and Quality Inn have also established a presence through franchising. These chains import around $30 million of food products, mainly wine and alcoholic beverages, fruits and vegetables, meat, sauces, and cheese. Growing demand from Indian hotels and consumers is driving growth in liquor imports. Sales of imported alcoholic beverages are growing at more than 50 percent per year despite very high duties.
India’s current imports of processed vegetables are low, but have grown at more than 250 percent per year from fiscal year 1994 to 1998. The Indian government has recently allowed the import of many semi-processed vegetable preparations (previously restricted) under a special import license. While leading hotels note the excellent reputation of U. S. food products, cost is often identified as the constraint. Nevertheless, the hotel and tourism sectors (which have great potential in India) provide opportunities for U. S. exporters to position themselves. Hotels procure imported products through several chann