Factors like speed and price, which are so important to fast food players, became secondary to more significant aspects that customers care about.Ĭonventional Advertising:Shake Shack brings cost further down by significantly reducing spend on conventional TV, radio and magazine advertising – that typical fast food chains more than rely on. In a functional-oriented fast food restaurants industry, Shake Shack is thriving by creating emotional experiences for its customers. Speed of Service: Fast food restaurants emphasize speed over customer care – a critical factor in the fast food industry. What factors should be reduced well below the industry standard? From a psychological perspective, this attracts more customers and makes Shake Shack distinct from the local bar and grills where tips are standard. The company compensates employees by providing above average compensation and benefits. Tipping: Shake Shack has also eliminated tipping, offering customers a worry-free dining experience. Gone are the costs associated with building play places and offering happy meals. Whether it is the quiet green and black color scheme, a modern sleek logo, or an open kitchen layout that is visible upfront rather than hidden in the back, Shake Shack attracts the millennial adult who is willing to pay more for an informal and comfortable dining and hangout experience. Kids Place and Happy Meals: Shake Shacks are built to feel more modern and grown-up than the cartoony, red-and-yellow-decorated fast food chains that lure kids with happy meals, toy gifts and play places. What factors should be eliminated that the industry has taken for granted? Customers are generally the young middle-class segment that can afford to pay a relatively higher price for fast food.ġ. Other players sought to reduce menu choices and improve quality such as the hamburger chain, Five Guys. For example, Panera Bread, the largest restaurant in this category, targeted customers demanding healthier options that used fresh and organic food. In general, players in this category open restaurants based to satisfy certain market niches. Premium fast food is a hybrid category that combines high-level customer experience and convenience with moderate price. Second is the weak bargaining power of their suppliers – fast food restaurants can negotiate the best deal as there are so many suppliers of meat, flour, and potatoes to choose from. First is the high barrier to entry – new fast-food restaurants simply cannot compete on the economy of scale or brand recognition of established chains. However, players in this category have two advantages. Not surprisingly, the fierce rivalry among competitors is accompanied by high marketing budgets. Customers have plenty of fast food options to choose from, making price an important competitive factor in this category. The success of these companies is largely dependent on huge media expenditure and economies of scale. Despite its huge size, it represents a typical red ocean market dominated by McDonald’s for now. Nine out of the top ten restaurants in the United States by revenue come from this category. In many cases, the ingredients used are scarce, forcing premium restaurants to accept prevailing market prices. Also, premium restaurants do not have strong bargaining power with their suppliers. However, the fragmented nature of this market means customers can easily find substitutes and new restaurants can enter the market relatively easily. The main advantages in this category are that customers are willing to pay premium prices for the high-quality dining experience on offer. Even if they can afford to expand and open new restaurants, they are often reluctant to because it may negatively affect this reputation in the perception of customers. Market players strive to maintain a reputation for delivering a unique, satisfying and memorable customer experience. Premium restaurants represent 48% of the industry but it is a highly fragmented market, consisting of many small businesses rather than a few big ones. The restaurant industry can be segmented into three major categories: 1. These include the traditional fast food outlets like McDonald’s and also the newer category of gourmet fast food outlets – like Panera Bread and Shake Shack. The limited-service restaurant sector represented US$223 billion of sales. US$259 billion was attributed to the full-service restaurant sector, which includes premium restaurants and fine dining. Restaurant industry sales in the United States have been growing over the past decade and exceeded US$536 billion in 2016. The Restaurant Industry in the United States
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