#1: Recession? What Recession?

6 05 2009

Unemployment, manufacturing output down, GDP growth revised downward, fall in stock markets… The list of bad economic news never ends, or so it seems.

There are some bright spots amidst the financial gloom of retrenchments and closures. Take the fast food industry as described in this article (The Straits Times- Fast Food Chains are expanding). Despite the economic downturn, fast food restaurants in Singapore are actually expanding and hiring more workers!

fries1

The article claims that “the success these restaurants are enjoying comes from their affordable well-loved meals, served up in pleasant settings”. Do you agree with the reasons listed? Is it possible to explain why the fast food industry is able to do well in spite of harsh economic conditions using greater economic analysis/ reasoning?

Given that the fast food industry is able to enjoy good business during times of recession, it seems like the fast food industry is “recession proof”. Are there any other industries that display such characteristics of being “recession proof”?

The article also mentions that customers who especially enjoy fast food are children and students. What strategies do you think fast food companies have implemented to woo such customers and do you think the success of fast food restaurants largely hinge on these target groups/ strategies?





IMPORTANT! Do remember to fill in your particulars in the following format:

NAME: Name / Institution / Team Name (e.g. Xavier/ XJC/ XXX Team)

EMAIL: Your email (e.g. xavier@xmail.com)

This is how we keep track of your comments (read ABOUT section for more details!)

Advertisements

Actions

Information

41 responses

11 05 2009
Denise/NJC/NJC2

It is true that affordable meals and pleasant settings draw people to these fastfood restaurants. When compared to foodfare in hawker centres, fast food is definitely seen to be a cheaper alternative to luxurious, western food. Many of the fastfood joints in Singapore have established a good network with their customers throughout the years, hence, it is unlikely that people would stop buying fast food in the short run due to the recession, for consumer patterns are unlikely to change that rapidly- especially when it comes to food.

In today’s harsh economic conditions, people would tend to want to save more because they have been directly affected by the downturn, or because they expect to be affected. Hence, they reduce their spending on luxury foods by turning away from restaurants. Fastfood joints, with cleaner, cooler (literally) and more pleasant surroundings, are favoured by many above places selling cheaper food such as hawker centres. In this sense, it could be said that the price elasticity of demand for fast food lies in between that of restaurant food and hawker centre food. Also, many who are affected by harsh economic conditions may find eating at fast-food restaurants more worth the cost as compared to eating at other air-conditioned places such as Kopitiam which have high costs despite selling the same things you can get at normal coffee shops. Fast-food industries are also able to do well as they do not have to cut down costs as much as other food industries as their payouts for employees are generally much lower, and mostly directed at students or older workers.

Of course, advertising plays a very big role in attracting customers as well, especially when they create “economic” meals which give the impression that their already cheap meals are becoming cheaper. (Eg. Mcdonalds/KFC advertisements tend to look “cool” to attract the younger crowd + they have their lunchtime ‘Great Value Meals’). Also, their cost of production is not very high since the food is mass produced. Most fast food companies like Mcdonalds have chains around the world, like Multinational Corporations. So their target audience is large- catering to almost every single individual in the countries they operate in. Coupled with the food they create that is especially fine tuned for the local culture, they are able to create a demand for their food. Hence, their revenue comes from many countries, so the effect of the downturn is spread out.

Other industries may, likewise, receive minimal impact from the adverse economic conditions we experience today. The quantity demanded for daily necessities such as cooking ingredients and toiletries, and stationery is unlikely to decrease, though there may be a drop in expenditure as people may decide to opt for cheaper brands of lower quality. Also, the government is unlikely to reduce expenditure on science, technology, education, defence and environmental conservation.

The largest group of fastfood consumers would be the students and teenagers, primarily because students may be looking for a light snack after school or a quick breakfast, and fast foods and finger foods are most probably the things which come to mind first. This group of people do not have as much financial capabilities as adults, and are more likely to want to dine in groups at places which may be conducive for social interactions or studying. Hence, low prices and a pleasant environment are key factors to attracting these people.

Fast food outlets provide large group tables, bright lighting and even study corners for students. Popular radio stations for teenagers such as 98.7fm are also frequently aired. Outlets are also opened at strategic locations near to schools (for instance, Mcdonalds at King Albert’s Park). These provide even reasons for students to visit fastfood outlets.

However, we realise that fast food joints in Singapore aspire more to be just a hangout place for teens; the older generations and the masses at large have also been taken into consideration. Healthier food options such as the KFC’s salads and Mcdonald’s grilled chicken foldover, delivery services, halal food, charity drives and family/big-group promotions and packages serve to entice the masses. Macdonald’s even offers Mc Cafe – which sells more expensive, higher quality drinks and cakes for the working adults.

Success largely hinges on these policies because the fastfood chains face a large number of competitors in the F&B industry. Survival is dependent on the demand from people’s interest in their food. So, yes, to a large extent, without these policies/strategies, they will not be able to reach out to the masses.

However, their success also hinges on their low costs of production and monopoly power. The industry is an oligopoly in Singapore, with Mcdonalds leading the pack. So, profits are quite large, economies of scales can be achieved, costs goes down. Some cost cutting is transferred to consumers — consumers gain from lower prices even though prices can be pushed lower without the oligopolists’ price rigidity, whereas firms gain with higher profits.

14 05 2009
Nguyen Duc Chinh/NJC/High In Demand

It’s been widely agreed that people go to fastfood restaurants for affordable meals and comfortable settings. But is this the reason why fastfood chains are still doing well, even considering expansion in the face of recession? These fastfood chains are so franchised in Singapore that it’s impossible to walk around any neighbourhood without seeing McDonald’s, KFC or Burger King etc. Singaporean, like Americans, are so used to eating this kind of food that it’s not likely this habit will change in a short period of time, even because of recession.

To understand why fastfood chains are still doing so well in Singapore, we have to acknowledge the fact that these restaurants offer food at an comparatively inexpensive price level than other typical fancy restaurants, with a lot of promotional packages like Student Meal or Great Value Meal at McDonald’s or chance to win money from KFC Delivery, in order to attract their target customers, which are students, elderly etc or in short, groups with low income level, or low purchasing power. In Singapore, people have very high marginal propensity to save and in the wake of the economic crisis, this index gets larger and larger everyday. Therefore, more people will fall under the category of “low purchasing power”, even though their income level is not that bad. It’s easy to understand when people choose to eat fastfood over proper restaurant with proper menu and well-dressed waiters to save money in this economic turmoil. As a direct result of this, the demand for fastfood rises and the demand curve will shift to the right and increase the total quantity transacted which, in this case, is indicated by the rise in sales of all the fastfood branches in Singapore.

Another reason that can be attributed to this proliferation of fastfood chains despite of the economic downturn is that these fastfood chains are mostly Multinational Corporations (MNCs) with thousands of ubiquitous outlets, they are able to create a rather stable group of target consumers (there are only 2 substitutes to fastfood: home-cooked food and hawker center food. Since people are too busy to eat at home and hawker center food are viewed as not worth it compared to fastfood because the meal is not as filling and there’s no air-conditioning, or at the places where there’s air-conditioning, the price is too expensive, fastfood is rather price inelastic in this sense). And it’s understandable that these corporations are enjoying great economies of scales whereby the cost in production is minimized by the mass production of food and packages, coupled with easy access to raw materials, which are mainly farm products that are cheap and widely available, together with a low wage range paid to their employees. Also, even though it’s common sense that we have to save money during recession, we tend to choose to save on those luxurious and expensive goods and services and obviously fastfood does not fall under this category. And while these fastfood corporations still have a reach into a society like America where there is a super high marginal propensity to consume, despite the recession (Consumption component comprises of about 70% of this country’s total GDP) and people are still craving for burgers and fries, their revenues will continue to rise.

However, this good news is not going to last long for these fastfood companies. People have a general perception that fastfood is more economical than a home-cooked meal. And this is not the case. Research has shown that a $70 investment in the backyard garden can yield up to $600 worth of produce in the first year. Even though Singapore is deprived of land and not every family has a backyard garden, but the general idea still applies. Going to the market to buy supplements for the whole week and having meals at home is a smarter way to save money. Even though bad habits die hard, soon people will realise this and as the economic situation gets worse (it has been predicted that the global economy will only start to recover by mid 2010), fastfood restaurants will feel the impact of the economic downturn soon, though it will be not as severe as other industries.

Other than fastfood, there are other industries that possess the characteristic of being “recession proof”. One example of these industries is the low-cost retailing industry. With the same analysis, during recession period, people will try to cut cost on expensive, luxurious and unnecessary goods and services. Singaporeans will most likely cut back on the consumptions of high-end, expensive products and choose to go to cheaper retailers. People will choose NTUC over Cold Storage or The Market Place or Isetan. Also, the demand for necessities like toiletries, raw ingredients for cooking etc will be quite inelastic despite the downturn of the economy. So the producers of these products may be assured that their sale will not be affected badly. In Time magazine Vol. 173, No.18 2009, it has been reported that the sales of certain goods such as canning/freezing supplies, seasonal merchandise, vegetables/dry grains, or even family planning products like condoms has also risen during the recession period.

It can be said that students/teenagers is the largest group of consumers for the fastfood industry, especially in Singapore. These fastfood outlets provide fast and neat services, pleasant settings with flexible and rearrangeable tables that can fit any kind of group of students, from a single one to a group of 10 or more. If you are waiting in school for your CCA to start and want to hang out with your friends somewhere else rather than the normal boring school canteen, fastfood outlet is the first thing comes to your mind. The same goes when you want to grab a late night snack or an early but fast breakfast. In short, fastfood outlets are a very common place for students to hang out because they provide affordable services, given that most of us are living on allowances from parents, or they also try to create conducive environment for students to either study or just have fun there. Moreover, some fastfood companies are smart enough to put their outlets near the school area or even in the school area to make it more convenient for the students, like the McDonald’s outlet at King Albert’s Park or the Subway outlet at SMU, the KFC outlet in NUS etc

However, it would be ignorant if we say the target group of these fastfood corporations in Singapore stops at students and teenagers. They now aim at the general masses and have come up with many new ideas, policies to entice costumers. McDonald’s outlet at King Albert’s Park has an entire playground section for kids. KFC, McDonald’s, Burger King and the likes have many promotional offers for big family gathering or big-group celebrations of the sorts. They develop new concepts, new collaborations and new packages to attract consumers. Subway has Special Sub of the Day, Snaple Meal, Pizza Hut has Family Package with free drinks, McDonald’s has new Mc Cafe for adults and other working class consumers. I remember there was time when there were small sand-clocks on the counter at every McDonald’s outlet and when time ran out and you hadn’t received your meal, you got something free.

In an industry as competitive as F&B, these policies are a must for these fastfood corporations to survive. And the consumers’ preference plays an important part in these companies’ success. It decides the level of demand for these outlets’ food and thus, indirectly determine their revenues. Therefore, it’s correct to say that the success of these fastfood restaurants largely depends on their marketing strategies and their target consumers. However, those things are not everything. It’s also important for these companies to have a well running administrative staff and a smooth and organized operation, as well as good planning and allocations of resources to overcome the diseconomies of scales they may face by being MNCs and to maximizes the benefits they get from economies of scales.

14 05 2009
Nguyen Khanh Linh/ACJC/John Nash

The reasons which were cited in the original article for the success of fast food restaurants are agreeable.

Fast food is affordable in the sense that it is comparatively inexpensive than restaurants food and is only slightly more expensive than food sold in food courts. It is well-loved because Singaporeans have the habit of eating out and fast food is generally one of the most popular choices due to the conveniences. Therefore, in the wake of economic crisis, the demand is still relatively strong as people are used to eating fast food and people tend not to hesitate to buy things which are not too expensive.

Moreover, fast food restaurants create pleasant settings and ambience by having air conditioning, soothing music, cushioned chairs, plasma TV. Beside the quality of the food, these settings also play a role in influencing people’s preference for a fast food restaurant over others. For instance, if two restaurants serve food of the same quality, I believe the restaurant with the more pleasant ambience will tend to draw in more customers. The ambiance may stimulate demand and contribute to the success of fast food industries.

However, there are other reasons that need to be considered. Firstly, one reason for the booming business of fast food chains is the “fast” factor. The lifestyle of Singaporeans has become more and more similar to the Western one. People are always in a hurry, busy at work and have less time to cook, even to eat. Thus fast food seems like a very good solution because it is convenient and eating fast food would take up very little time.

Secondly, the success of fast food restaurants is due to their income inelastic demand. To explain the concept of income elasticity of demand (YED), it is the percentage change in the demand for a product divided by the percentage change in income, ceteris paribus. Usually the YED is positive because lower consumer income usually means decreased spending and firms experience lower demand. We generally define necessities as products that have YED less than 1 and luxuries as those that have YED greater than 1. Fast food is no where near luxury and is closer to a necessity. Thus, the demand for fast food is almost income inelastic. So even in times of recession when people lose jobs or earn less salary, the demand for fast food does not decrease significantly.
On the contrary, the demand for fast food increases because the demand for its substitute – the higher class restaurant food – is decreasing because the latter, being luxury, is income elastic (YED greater than 1).

Basically, “recession proof” industries are those that will keep on growing and hiring people despite the hard times, making them a safe bet for businesses. These industries are most likely those that cater for basic necessities or services that are not in the influence sphere of the recession. The two most outstanding examples are the medical and educational industries. They are immune to economics ups and downs because sickness still occurs and knowledge is always needed regardless of economic vitality.

The medicinal and biological products industry, the medical equipment industry thrive thanks to the fact that people do fall sick, even during recessions. The broader state of the economy has little or no bearing on how often people get sick or require treatments. The market for defibrillators, diabetes testing supplies and other medical equipment is still growing as always for the same reason. Especially, direct health and medical insurers have also grown during the most recent economic plunges. One possible reason is that people are more prone to stress and anxiety-related illnesses and disorders since in times of recessions, people fear for their jobs, homes, and livelihoods.

Junior colleges, colleges, universities and educational support services also seem to be enjoying a blissful grow despite the economic downturns. Arguably, recessions serve as a wake-up call to those who lack the skills or credentials to get well-paying jobs. This, in turn, motivates many people who chose not to get an education sooner to get one now. In light of the extremely tight job markets nowadays, having a two or four-year college degree can make someone more marketable in the labor market, which is why college enrollment tends to spike during recessions. Since the schools have more money to spend during recessions, they are, in turn, able to spread that money around in providing for their own needs. This is partially why educational support services have some of the most robust recession growth rates of any other industry.

Let me move on to comment on the strategies to woo children and students by fast food companies.
Some strategies include value meals and lunch promotions. Since students do not have as much as money as the working adults, selective discounts never fail to draw them in. Also, students tend to go in groups, so special set meals for 4, 5 or more students are real treats for them.

Besides, like Jane Tay from the article said, eating fast food is a “lifestyle choice.” Nowadays many students consider dining together as a convenient and fashionable way to “hang out” and socialize. Thus Fast Food Companies can work on creating an environment that suits this demand. A nicely decorated and trendy-styled fast food restaurant is always attractive to the youth, and an environment conducive for group studying is another good idea.

With regards to small children, many fast food companies tie in with movie companies to sell action-figure toys with their kids’ meals. For instance, McDonald’s Happy Meal and KFC “Chicky Meal” are accompanied with toys based on the movie like Kung Fu Panda, Wall-E. Fast Food Chains use this strategy to play on children’s “Pester Power”, which refers to children’s ability to nag their parents into purchasing items they may not otherwise buy. So with the cost of the toys cleverly incorporated into the meal’s price, those “give-away” toys can draw many little customers to the fast food restaurants.

Furthermore, there has been strong and ubiquitous advertising to attract people’s attention using popular mass media such as the Internet, television and newspapers. Fast Food companies take advantage of the increasing popularity of the internet of these media to broaden the customer base and appeal to more people. They even advertise on Facebook, MySpace and Flickr, which are popular sites with very high usage frequency. This kind of virtual advertising is advantageous because of the cost efficiency.

In order to gain a competitive edge, Fast food companies are constantly innovating new food products that appeals to the local tastes of Singaporeans. For example, Mc Donalds previously launched the Wasabi Fish Burger and Shaker French Fries and recently released the new McSpicy Chicken Wrap. Also, they tap on festive seasons to capture the surge in consumption, such as the Mc Donald’s Prosperity Burger and Pizza Hut’s Ingot Crust Prosperity Pizza during Chinese New Year.
I must say these undoubtedly-effective strategies are indeed the reasons for the success of fast food restaurants. Firms are making many attempts to broaden the customer base, not just focusing on the students and children groups. This lays a firmer foundation for the industry to thrive even during times of difficulty. However, the strategies adopted are mostly short term measures. For example, the tie-in with movies companies to sell toys and the new food for certain festivals will not be able to retain their popularity and attractiveness once the movie is outdated and festivals over respectively. These strategies may no long work to ensure the continued success of fast food restaurants. Value meals and lunch promotion also have mainly short term effects because in the long run, customers get used to the lowered prices of the meals and they may develop the mentality that the value meals are no longer any cheaper. Even though the effects are short term, the fast food restaurants still have constant success and I believe this success can be attributed to their continual efforts to flexibly renew their strategies and devise new measures to suit and meet the demands of the different situations.

The success of fast food restaurants can also be credited to the children and students. The younger ones are more easily influenced and coaxed into buying the food and the toys, thus generating demand for fast food. Plus, targeting the young ones actually also means indirectly targeting the adults due to “pester power” as mentioned earlier. So overall it may seem like fast food restaurants are focusing mainly on the students and children, but in actual fact, they are targeting both the younger ones and the adults.

15 05 2009
Goh Zuo Qi/TJC/Scimonoce

Amidst the gloom of the worldwide recession, it may seem that the fast food industry has been insulted from the external shocks stemming from America’s subprime crisis. The reasons that the article puts forth for the success of the fast food industry is inadequate. Affordability, good taste and pleasant surroundings may be enough to attract consumers in the upswing stages of the trade cycle i.e. boom and recovery periods but in a recession, these reasons are insufficient. Economic analysis may be better able explain this trend.

Fast food can be classified as an inferior good (as compared to restaurant meals) with a negative income elasticity of demand. Therefore, in a recession where consumers’ disposable income decreases, demand for luxury goods will decrease and they will switch their expenditure to inferior goods i.e. the income substitution effect. A simple example to illustrate this would be during a recession a consumer may consume less steak and eat hamburgers instead. Hence, the increased demand for fast food.

In addition, the fast food industry is dominated by a few large firms e.g. McDonalds’, KFC, Carl’s Junior etc. These oligopolies are big enough to exploit economies of scale to price their products very competitively. Such low prices will definitely attract consumers and also those whom are tightening their waist belts with the onset of the recession. In fact, McDonalds’ have increased their promotions and are offering special value-added set meals at very low prices. Therefore, the fact that fast food is an inferior good (as compared to restaurant meals), in addition to the fast food companies’ non-price competition through advertising and convenience (delivery to home), will make it “recession proof”.

Other industries that display characteristics of being “recession proof” include those which sell inferior goods or goods which have a negative income elasticity of demand. Industries such as public transport and canned foods will also be better equipped to handle the recession due to the nature of the goods they sell. Of course, firms which adopt smart strategies to attract consumers will also protect themselves more from the recession.

The strategies employed by fast food companies are mainly non-price competition because of their oligopoly structure. Slashing prices would be unwise in the long-run as this may spark off a price war and there is price rigitdity in the oligopoly market structure as seen in the Kinked Demand Curve. Fast food companies are generally more popular among the young because of their taste & preferences and the price range. Thus, fast food companies would try to market their product to cater to the younger age group by advertising and practicing price discrimination. For example, Carl’s Junior chose to engage Paris Hilton as their ambassador and this would appeal to the teenager/student market. Also McDonalds’ practices first degree price discrimination by having student meals. They also cater to young children as they are banking on the wallets of parents to succumb to the wants of their children; as such McDonalds’ have introduced special birthday party initiatives especially for toddlers and nursery-school age children and amenities like playgrounds. In addition to catering to the main market of children and students, fast food companies are also marketing themselves to the adult crowd e.g. McCafe (which has done so well that it is threatening Starbucks) by offering a cheaper alternative.

In conclusion, the fast food industry seems to be doing well relative to other industries. However, one must realize that no industry can truly be “recession proof”. The fast food industry adopted many strategies to ensure its survival in the poor economic times and we cannot overlook this. In reality, these fast food chains may not be doing as well as the article suggests because the cuts in prices during the recession and the increased expenditure on advertising to draw the crowds may affect the profits. Moreover, looking at the entire economy as a whole, the fast food industry is bound to take a hit as even higher-end F&B retail firms e.g. Swensons are also adopting very aggressive pricing policies (1-1 meals during the lunch hour). Thus, the fast food industry may have to compete with these firms who used to be family-orientated and higher-end.

16 05 2009
Penghui

Hello dear organizers and participants,

I believe the participants are supposed to post “comments” on what they think about the initial post on the blog.

A little definition of comment: “a remark, observation, or criticism: a short statement about a point of view of the commentor.”

What I see now are essays; long, long wordy essays, especially that of Nguyen Khanh Linh’s post, which is ridiculously prolix. I doubt this would be the wish of the organisers, but correct me if I’m wrong.

I propose something else – perhaps a 200-300 word limit on the amount of words to be posted. Maybe that would promote some rigour in the thought-processes behind such comments, as well as them being more concise and generally easier on the eyes.

And of course the eyes of those grading the comments.

Sincerely,
Penghui

16 05 2009
nefmq

Hi all!

We were definitely not expecting the comment posts to become long essay posts. If we knew you guys were such good writers, we would have incorporated an essay component into the quiz! (JUST joking!)

Anyway, we did drop hints in the ABOUT section regarding the length of the posts, and maybe we should make it less ambiguous here- discuss one, two but no more than three points and make your points clear! That should give you a decent post! You do not have to cover every point =) Also take note of the past comments and avoid repeating the same points. As mentioned in the ABOUT section, you can agree or disagree what the past commenters have said (of course, in a mature manner)

Thank you, Penghui for pointing out that the comments are too long. We did consider imposing a word limit, but it seemed like a harsh action and can be very restrictive. We trust that participants can decide if their posts are too long and do the necessary adjustments.

And one more thing to add- we decided to engage you guys using a blog because we hope to foster an informal environment where people of different views and sentiments can come together and share their insights on economics and finance. So it’s okay if your post is a one liner, a joke, or some random thought. Just do not offend anyone and strictly no vulgarities!

So have fun, and we look forward to seeing your comments =)

17 05 2009
Benjamin / VJC / VJC012

Basically I agree with the points listed in the article but I believe there are more factors to be accounted for in the success formula of the fast food industry.

[As a side note, I take the phrase ‘the fast food industry is doing well’ to be ‘the fast food industry is doing relatively well as compared to the other industries’, meaning I am comparing between industries and not looking at the fast food industry itself.]

Besides the microeconomics analysis of demand, supply and their elasticity concepts along with the analysis of the market structure of the fast food industry mentioned in the other entries, I will account the thriving of the industry in such trying times to the concept of globalization.

Basically, in the globalized world of today, almost all the industries in a country are engaged in economic activities. The main reason why the fast food industry is able to thrive is due to its relatively small size and simpler functions of the industry. In my opinion, the fast food industry generally has to worry about two areas, one, customers and two, raw materials. The industry is rather individualistic in a way that it is not affected much by other industries and does not affect other industries as well.

Whereas bigger industries like IT and manufacturing have more things to worry about other than customers for their finished products and raw materials to make them. These bigger industries have large volumes of inputs, e.g labour and capital, and they are intertwined with other industries. If one industry collapses, for example the manufacturing industry, the aggregate demand of the entire economy will fall greatly due to the large employment of labour in such a big industry. As unemployment takes place, people tend to save when they are out of job, sacrificing the purchase of luxury goods, affecting the basic demand of consumer goods. This will in turn affect, say the IT industry, because of the high prices of the end product. Thus, these big and interlinked industries will be dragged down altogether.

However, in the case of fast food industry, due to its rather individualistic character, it is not affected much. Thus, firms in the industry can afford to care less about other industries and focus more on increasing their own profit margins and perhaps more efficient in its use of resources. Also, food is a basic necessity, making it a demand inelastic good and as explained by earlier posts, the profit margins will not be squeezed as much, allowing it to thrive, relative to the other industries.

Some would classify the fast food industry as ‘recession proof’ but as a sportsperson myself; I think the sports industry can also be classified as ‘recession proof’ as well. Sports is a form of leisure. With or without recession, people engage in sports and given the high levels of stress in the society nowadays, there are more reasons for people to take part in sports, whether as a spectator or a participant. In any case, the amount of publicity will hardly decrease, as seen in the clash of the 2008 Olympics and the sub-prime crisis in America. Hence, in my opinion, the economy does not rely entirely on the buying, selling and trading of goods, human behavioral norms and habits have a part to play in deciding where the economy is heading.
Concluding my comments would be my take on the strategies adopted by firms in the industry to thrive.

Firstly, there seems to be a misconception by many that price is part of the success formula of the fast food industry. Fast food is thought to be relatively cheaper than ‘hawker center food’. A walk in a hawker center or any food court in Singapore and it is easy to notice that the price of a meal is much cheaper than that in KFC or MacDonald’s. For example, a plate of noodles and a drink at a hawker center will cost around 5 dollars in Singapore. A set meal in MacDonald’s will easily cost about 6 dollars, excluding sides if one is asking for a satisfactory meal. Not to mention, the serving in hawker centers and food courts are more filling than a regular Mac meal. Thus in nominal terms, fast food is generally more expensive. However, I do not dispute with the fact that people also turn to fast food as compared to dining at high-class restaurants.

In fact, I agree more with the point raised that appealing to their target audience contributes more to their success.

The first group to address is the students. Wireless networking and rather comfortable environment in some fast food outlets have made them a suitable place for students to visit after school hours, whether to snack or to study. Inevitably, purchases will be made and this contributes to the sales volume.

The second group is the adults. The key point to appeal to them is ‘efficiency’, fast in serving customers; working adults can save more time and will be inclined to dine at a fast food restaurant as compared to queuing up at stuffy hawker centers. Not to mention, the recent hype on healthy food has encouraged the growth of healthy fast food like subway, which appeals to more health conscious adults.

The last and most important group is the children. Appeal using toys and burning images of their mascots into the children’s mind is a common tactic. Firms like Mac and KFC, with their toys included together with meals, tend to attract children who pester their parents to buy the toys for them, as explained in an earlier post. An implication of this is that, children will ‘drag’ their parents along to have a meal with them at the outlet for ‘convenience sake’ since it will be illogical for the child to dine and the parents opting not to dine, thus, the children category which the firms had originally intended to appeal to, evolved to a larger category, the ‘family’, which means that the profit margins will increase.

Lastly, as mentioned above, firms in this industry only have to worry about two things, customers and raw materials. With falling food prices in recent years, the cost of production for firms have decreased significantly, leading to higher profit margins.

With the unique combination of factors as mentioned above, I believe that these factors allow the fast food industry to set itself apart from the others and survive in such trying times.

P.S. I apologize if the comments are too long.

17 05 2009
Rachel Er/ TJC/ Oikonomia

The fast food industry appears to be “recession proof” largely because of its consistently low prices in a comfortable air-conditioned setting that wouldn’t burn a hole in consumer’s pockets. (In times of economic downturn, demand for fast food, which has a negative income elasticity of demand would naturally increase as people cut back on expensive meals in order to save more and settle for the cheaper and ubiquitous/”omnipresent” fast food.) They also frequently introduce promotions that cater to the lunch time crowd and students by having lunch time specials and student meals. Another significant factor in their popularity is due to consumers’ tastes and preferences which are largely influenced by the myriad of advertisements that the fast food companies flood Singaporeans with (flyers hidden between newspapers, spam mails, and even posters at every alternative bus-stop hoping to eventually catch your attention!). However, the main reason for their success is due to their effective market research which finds out what different demographics of Singapore desires and cater to their needs. They “personalize” their goods and services to each country and in McDonalds Singapore’s case, by providing free wireless to a tech-savvy community, extending their opening and delivery hours for an emerging night life and creating new flavours that is uniquely local such as the Rendang Beef burger.

Hence, being “recession proof” for fast food restaurants is not without much effort. They have to be current and go along with the times, cutting profits in the short run in order to maintain their consumer base and cater to consumers’ desire for a wide variety of products while constantly introducing new flavours to whet their appetites. Of course, throwing in freebies, promotions and coupons to attract those value-obsessed/ “kiasu” mentality Singaporeans wouldn’t hurt either.

17 05 2009
anon

In times of “recession”, there are many industries that are recession proof, these industries usually being those whose goods and services are so entrenched into the societal architecture that they have become a necessity.

Some examples spring into mind – Hawker centres, Fast Food Outlets, pretty much any non-luxurious goods probably fall into this category. Yet one must also note thus: a recession-proof good usually has similar earnings throughout periods of boom and recession. Such is the curse of a “recession-proof” good, or rather something that is of a necessity for a society.

You see, McDonalds is smart. The real “McDonalds” behind all those fast food outlets is simply printing machine handing out franchises. This is the entity that earns cash from everyone else working for it. Taking into account only 15% of the worlds’ Golden Arches are owned by McDonalds. co, where does McDonalds make its’ money?

Stable income at all periods of time spent on? Perhaps someone else may comment on this?

Also, check this out – it’s very interesting. Perhaps not very related, but relevant to our economic situation at the moment.

“Golden Arches Theory of Conflict Prevention”

18 05 2009
Goh Zhi Cheng/ACJC/John Nash

Hm…I find Penghui’s comment very interesting.

I hope my post is concise enough. 🙂

18 05 2009
Tay Wenyao/ACJC/John Nash

Hello,

We are currently upset about Penghui’s post, especially the part which criticises: “especially that of Nguyen Khanh Linh’s post, which is ridiculously prolix”.

When we were typing the post, we didn’t have a clear idea about what the length should be. So, we just wanted to express all we could about the issue mentioned above to make a significant contribution to this blog. We really put in alot of effort into this – we did research and made several editions to ensure that it was sound. We were just contributing as much as we can.

We do take your comment into consideration and understand that our comments should be more concise.

We think its reasonable to make a general statement that the posts here are too long and suggest that everyone’s posts should be shorter. However, we don’t think its right that you specifically pin-point and judge our post for being “ridiculously prolix”. We question Penghui’s intention to criticise specifically on our post.

We were just trying to be exhaustive in our comments.

We hope you take this comment in good faith.

Thanks,
ACJC Team

19 05 2009
Penghui

Dear ACJC team,

Please take my comment in good faith, I had no intention to criticise specifically on your post. It was simply (amongst the comments posted) the longest one I could find, nothing more. Simply as an example of perhaps, a misunderstanding between the participants and the organizers. I hope to clarify that it was never a deliberate attempt at pinpointing any of your team’s deficiencies or whatsoever.

There is little need to be upset, I hope, for it was not my intention of causing it with the comment. I apologize to the organizers if my post was detrimental to the spirit of the blog. I hope that, at the very least, perhaps the teams are a bit clearer on the objectives of the blog’s comments and such. I was, after all, just contributing as much as I can.

If the ACJC team do wish to discuss this further, you can always reach me at penghui.zhou@gmail.com.

Thank you very much.

-Penghui

21 05 2009
Leonard / DHS / Invisible Hand

In response to Benjamin’s (VJC012) post, I would like to raise a few concerns.

1) I would like to mention that the “fast food industry being able to thrive is due to its relatively small size and simpler functions of the industry” should not be the main reason to account for its survival in the recession. Being a small sized industry comes with large demerits such as being unable to enjoy economies of scale from an increased output. In fact, small industries will be worse hit during a recession. Then again, the fast food industry is not widely regarded to be small. Because of the various interesting analysis that were brought forth in Rachel Er’s post and all the microeconomic analysis that has been applied to fast food (low cost, comfort, etc..), we can thus infer that the fast food industry is already a large player in our economy (and probably even growing due to increasing taste and preferences for fast food).

2) In today’s globalised world where countries resort to specialisation to boost their comparative advantages and engage in trade with other countries (thus creating major supply chains), no one industry is individualistic. You did mention that fast food restaurants have to “worry about raw materials”. These raw materials probably come from primary industries or industries that fast food restaurant have established backward integration with. In the event of a recession, the production of these primary industries could be severely harmed, resultantly harming these fast food restaurants themselves.

3) I do not disagree that food is a basic necessity. However, I would like to strongly reject the view that fast food is a basic necessity. It is widely argued that fast food takes up only a small proportion of consumers’ incomes and can be regarded as a necessity. However, the food market in countries across the world is widely littered with all kinds of restaurants and even hawker centres which have even lower prices of food! The presence of this huge number of substitutes for fast food is actually lowering the necessity of fast food. An alternative view is that fast food could be described as a ‘non-luxurious’ good.

4) It might be true that consumers are growing more health-conscious, but (in my honest opinion) it is myopic to regard it to fast food being able to thrive in the recession. I do not reject the idea of subway being a healthy version of fast food, but subway is but a small player in the fast food industry (larger players like Macs and KFC). Furthermore, there is a general perception of fast food as being widely (maybe even severely) unhealthy and this clearly exemplified in several instances throughout the years.

Nonetheless, I do agree with majority of your factors and I have indeed gained some insights from your post.

21 05 2009
Leonard / DHS / Invisible Hand

Anyway, I would like to comment that majority of the replies to this post are only limited to Singapore’s fast food industry. Although the article is based on Singapore’s situation, it should be understood that the fast food industries in many other countries are small and are clearly not resistant to recessions. Highly religious countries such as Rome believed that fast food is a sign of westernisation (which erodes away their culture and religion) and occasionally stage riots to tear these fast food restaurants down. Fast food restaurants clearly do not have a place to stay in such countries. Furthermore, fast food restaurants might not necessarily be cheap! In the undeveloped cities of India, fast food is a luxury good. A recession is more than enough to render fast food restaurants in such countries low sales and eventually: non-survival or bankruptcy.

I do not disagree with the facts presented in the article that the fast food industry is thriving in the recession. Well, this might be largely true in Singapore as various previous comments have successfully explained why. However, based on my own research, I could find numerous other articles that exclaim how fast food restaurants worldwide suffer in the recession. The current global recession is on an unprecendentedly depressing level and is even often compared to the Great Depression in the 1930s. Such a serious recession should actually render fast food restaurants small hopes of surviving.

21 05 2009
Benjamin / VJC / VJC012

Thank you, Leonard. I have read through your points and I certainly do agree with some of them but I would also like to elaborate on some too.

)1 and 2) I acknowledge that I have used the wrong description of the industry as being ‘small’, but my main points are that, the fast food industry is simple in its functions and is individualistic. Being simple means having lesser worries and its individualistic because it is less affected by other industries. So I will include a more elaborate e.g. Mac only have to worry about the source of agriculture products in say, making fries (well, if there ain’t enough potatoes, Mac can just take it out of the set meal, but it wouldn’t appeal to me anymore cause I simply love fries, haha) and the demand for these fries, comparatively, a car making industry will have to consider the source of steel, the source of glass, the source of rubber etc to make a car (it would be funny if a car can operate without a frame or without tires haha) , in addition to the worry for the demand for the cars. So, if an industry is less independent, it is less prone to external shocks. And as a gentle reminder, I’m comparing the ‘survival rate’ of industries relative to each other, and not the industry itself, which is why I did not mention the point on backward integration.

3) Well, I do not dispute on the point raised that fast food cannot be considered a basic necessity. But at the point in time as i typed the comment, I was looking at a general level where fast food is a subset of the bigger group under food. And, I also did a minor breakdown on the costs of fast food vs ‘food court food’ as well, which is a more detailed view into the situation and have arrived at the same conclusion as you.
P.S. Thanks for pointing it out because I have overlooked the disputable fact that fast food is a necessity. Insightful (:

4) No dispute on this one. But, it just occurred to me how business strategists tend to follow trends so quickly in order not to ‘lose their edge’. Before the appearance of Subway, since when was fast food ‘healthy’? Words of ‘Eat healthily !’ are actually coming from people producing and selling non-healthy food. Wow! I wonder what else is coming? Haha.

21 05 2009
Leonard / DHS / Invisible Hand

Thanks for the fast reply!

Hmmmm I still don’t quite understand what you’re hitting at for your reply to 1) and 2)….
Sorry for being a bit slow haha.

Are you saying that the fast food firms are individualistic because they are not as heavily reliant on raw materials than other firms from other industries? Or are you saying that fast food firms are individualistic because they are not really bothered by pricing issues (price wars, etc..) with other competing fast food firms? I am skeptical of the former and disagreeable with the latter. For the former, there is a lack of evidence that states that fast food firms are less reliant on raw materials than other firms (particularly if I want to compare with other food firms such as hawkers). For the latter, the fast food industry in well, Singapore is that of an oligopoly (as mentioned in numerous previous comments) and mutual interdependence of oligopolistic firms is rather obvious.

Or do you mean something else?

Haha will you mind to clarify a bit?
Thanks loads =)

22 05 2009
Joel Yap / NJC / Team Koinonia

The advent of fast food in the 20th century has changed the face of many modern societies, & its impact on the lives of people grow increasingly great due to its unceasing proliferation.

Despite the current economic crisis, the expansion of fast food chains seems to be completely unimpeded. On the contrary, they continue to expand at alarming rates when countless other food outlets are feeling the “heat” & experiencing serious dips in their profit margins. This might seem to be a baffling phenomena, but closer analysis yields a logical explanation as to why this is the case.

Firstly, many fast food chains are large Multi-National Corporations (MNCs) with adequate funds to support extensive advertising campaigns. McDonald’s, Kentucky Fried Chicken (KFC) & Subway are but just a few prominent examples. Being large private corporations, they employ people from all over the world & their impacts are far-reaching. McDonald’s & Burger King make great use of the media to promote its image. It is not uncommon to see cut-out discount coupons offered by these fast food brands in newspapers. Such promotions serve 2 purposes. Firstly, by offering discounts, they entice the reader to take full advantage of cheaper prices & use the coupons to order future meals. Secondly, they promote the brand image of the fast food chains through creative visual advertising (e.g. the background of the cut-out features a “happy” family enjoying a meal at McDonald’s). Also, their emphasis on advertisement supported by strong financial backing allows them to sponsor major events & celebrity personalities, watched & followed by many in the world. For example, McDonald’s has been a sponsor of several Olympic Games, including the Beijing Olympics which concluded last year, of which it was a “worldwide partner”. Also, having celebrity spokespersons such as Justin Timberlake & Venus Williams definitely helps promotes McDonald’s image to both tennis enthusiasts & pop music fans. From this, we are able to see how advertising campaigns of fast food chains are all-encompassing, targeting almost every audience, from the individual to the family. Although very costly, such campaigns are justified by the fact that they ultimately benefit the advertisors in the Long-Run as demand for their products become highly inelastic, since they are now perceived as being superior “lifestyle” goods.

This “first-class” image of McDonald’s ingrained in the minds of countless consumers contributes to the indispensability & love for its products, eventually insulating corporations that are able to achieve similar heights of brand reputation even from the effects of a recession. Thus, this is 1 possible way through which companies can “recession-proof” themselves.

Generally, no industry is fully “recession-proof”, but within certain industries there are companies that are. For example, Apple Inc, a brand which people all over the world have come to associate with the need to feel different in a world driven by automation & uniform conformity. The “creativity & uniqueness” of the “Apple” has allowed it to defy economic gravity. Announcing its first quarter 2009 sales to Wall Street, Apple revealed a net profit of $1.2 billion on overall sales of over $8 billion. Leading the Apple miracle were 3.79 million iPhones sold in 81 countries, more than double the number from the same quarter last year (Source: http://andrewkeen.typepad.com/the_great_seduction/2009/04/apple-defies-economic-gravity.html). Thus ultimately, an unshakeable, intricately-woven superior brand image ingrained into the minds of consumers is what fireproofs firms from the effects of a recession.

Teenagers & children are generally more impressionable than adults, & this has been proven in countless psychological studies. Thus it can be seen that even within their extensive advertising campaigns, fast food companies place great emphasis on the young. Not only are advertisements focused on the young more effective than those targeted at adults (due to the former’s greater impressionability), but by targeting younger people, the advertisor is essentially securing for itself the loyalty of these people in the Long-Run. This ensures it continues to enjoy a consistent flow of revenue accruing to the sustained trust of the young in their brands. It is common for fast food chains to offer special discounts to students through “student meals”. A typical example would be McDonald’s (Singapore) S$4.50 student meals, which normally cost more than S$6.00. Also, the McDonald’s “Happy Meal” is a meal specially designed for young children. In place since June 1979 & in more than 30 countries, its distinguishing characteristic is a toy (that is usually a tie-in with some popular kid’s programme or movie) that aims to appeal to young children. Of course, these are just 2 (out of the countless) ways in which fast food outlets entice the young to consumer their products.

In general, although children & students do constitute a large portion of the consumer base & hence revenue earnings of fast food chains, their success does not hinge on the aforementioned target groups. This is simply because fast food companies do also consider adults as forming a significant part of their consumer base & are flexible enough to cater to both the young & old. For example, McDonald’s recently launched its 12-2pm “McValue Lunch Meals”, which offer a variety of set meals at a fixed discounted price of S$4.50. Evidently, such promotions are targeted at lunchtime crowds which mostly consist of adults, since most students are still in school at this time. Also, company slogans such as “It’s finger lickin’ good” (KFC), “Subway. Eat Fresh.” & “i’m lovin’ it” (McDonald’s) aim to portray a certain “lifestyle” image that is applicable to people from all walks of life. Hence, it is easily seen that fast food companies do place great emphasis on older age groups & consider them an integral part of their consumer population. Therefore, although profits may fall if strategies targeted at the young do not yield dividends, it will not suddenly cause fast food companies to become “unsuccessful” as they have spread their risks & investments proportionately across a wide range of age groups.

22 05 2009
Benjamin / VJC / VJC012

Oh, I see. By means of individualistic, I mean that the fast food industry has lesser .. erm, ‘links’. For the e.g i quoted, in sourcing for raw materials itself, Mac only has to worry about the agriculture industry’s well being. But for a car making industry, it has to worry about the steel industry, the rubber industry and the ‘glass making’ industry (if there is one, cause i’m just quoting a theoretical example you see). So in the case of Mac, only the downfall of the agriculture industry will affect its performance, but if any of the steel, rubber or glass fail to reach the car making industry, its toast. Which is why i say, the fast food industry has ‘lesser worries’ and is more ‘individualistic’. Well, this can be proven wrong if there is statistical data that there are ‘equal worries’ in both industries because my example is in theoretical terms.

Hope this answers your question. (:

22 05 2009
Zhen Yi/TJC/Team Scimonoce

Before we jump into explaining why Fast-food restaurants are “recession-resistance”, we need to look at some characteristics of these fast-food restaurants and at how it compare against other type of restaurants(e.g. hawker centres, high-end). We can quickly tell that there isn’t any real good substitutes against fast-food restaurants. The high ends are expensive and hawker centre is hot. This makes the demand of fast-food restaurant quite recession-resistance, since there are no good substitutes while food is obviously very important. Then, what makes them grow in recession then? It is probably cost factor, other alternatives include low-cost hawker centres, or high end restaurants. During recession, high-ends are forgone while, Singaporeans who are generally still relatively affluent, is likely to settle for the more comfortable fast food restaurants. While, It is true that there are other restaurants that have comfortable settings with low pricing as well, but here, Branding comes into play, Well-known brands that come with fast-food restaurant like Mcdonalds, KFC and Subway, makes them an obvious and convenient choice for consumers.

Fast food restaurants, generally tastes good, have comfortable environments and the pricing is good as well. The alternatives are in the general sense, Hawker food or high-end restaurants. Hawker food is cheap as well, but the environment is HOT,
on the other high, high-ends are obviously expensive. In a recession, people generally do not want to spend their money at Din Tai Feng or Crystal Jade, as a basic 3 person sitting will already cost around 50 bucks. Imagine that for 3 meals 30 days. Therefore, people will rather settle for lower cost food, however, Singaporeans in this hot weather will still want a comfortable environment and Fast-food offers that to us, whereas hawker food obviously does not. During a recession, more will thus go for MCdonalds.

Another obvious explanation for Mcdonalds resistance to recession is of course the students. Goods demanded by students are generally recession resistant as they will not be hit by the recession directly, moreover Mcdonalds have successfully created a very good environment for students. Wireless is also in effect. Students now uses Starbucks especially as a study area and with the air conditioning and for NOT being chased out when doing homework, students generally prefer Mcdonalds and Fast-food. In fact, there are not many other places students can go, so that they can have food and do their work at the same time. But perhaps, it is not true that all hinges on the students, as Fast food restaurants have successfully meet the demand by EVERYONE for comfortable, low cost , easy to remember brand of restaurants for food. This makes fast food restaurant very low in goods substitution as there is simply no such alternative to fast-food restaurants. In fact, all such restaurants have come to be called fast-food restaurants.

23 05 2009
Leonard / DHS / Invisible Hand

Haha thank you, benjamin.
I can now understand what you’re hitting at! =)

Well, like I’ve mentioned earlier in my post, the establishment of major supply chains across the world due to globalisation is leading to increased links across all industries. Macdonalds is therefore not spared. However, in relative terms, it is questionable as to whether Macdonalds has more or fewer links than a car making industry. Do not forget that the machines used to produce your burgers, the wrappers of your burgers, etc… are also considered as raw materials!

Nonetheless, thank you for clarifying. =)

23 05 2009
Leonard / DHS / Invisible Hand

Having seen that this discussion is twisting into an interesting direction, I would just like to address some concerns that I have repeatedly seen in previous posts:

1) The food market is not clearly subdivided into hawker centres, high-end restaurants and fast food restaurants. There are many eateries that lie in the shady areas. Take for example, an air-conditioned food court or a highly appealing low-cost western restaurant like pizza hut and pastamania (well, are they considered fast food?) do promote convenience, comfortability and low prices too. How then can one apply the analysis of a lack of substitutes to fast food to explain its survival in a recession?

2) Branding is another factor that enable fast food restaurants to survive. While I do not totally disagree to this factor, one should acknowledge that branding actually lifts the luxury of a good. During a recession, branded and luxurious goods which are income elastic, would enjoy a decreased demand for their good. Furthermore, a lack of empirical evidence makes it questionable as to whether fast food restaurants brand/advertise less or more than other eateries. In my opinion, the success of fast food restaurants is mainly due to its long lasting prescence in the market – e.g. Macdonalds being in the market for 70 years. Such a long lasting prescence have already endowed fast food restaurants with the brand that they now enjoy.

3) While it is true that wireless, etc.. would attract students to fast food restaurants, one should realise that these students might also not necessarily consume in large amounts and merely take up seats. Just to add on to the explanation of fast food restaurants targeting various age groups: Fast food restaurants are successfully identifying and catering to the different price elastic demands in the various age groups.

Cheeers.

23 05 2009
Benjamin / VJC / VJC012

Comprehensive summary by Leonard. (:

Hm, but i guess the definition of fast food should have the characteristics of being ‘fast’, primarily fast in their serving of food. So, I don’t think pizza hut and pastamania should be included. They are more of, erm, restaurants? Fast would mean like, having to get your meal within ‘a snap of the finger’, like Mac, KFC, Subway, Mos burger etc.

Of course, the definition of fast differs from person to person and I do agree that there are certain shady areas like food courts. Perhaps one can give his/her own definition before discussing their point?

Cheers.

23 05 2009
Yeo Jia Wen TJC Scimonoce

The teaching/education industry is one obvious example of a recession proof industry. Regardless of whether it is a boom or slump period for an economy, the demand for teachers will likely not be reduced. Teachers are needed to educate the population, raise labour productivity and shift an economy’s PPC outwards. Such potential growth increases the capacity of an economy to increase output to greater extents in the future, generating national income and employment through the multiplier effect. In Singapore’s case, the government is even emphasizing on education more than ever before in this current global recession. This is in the hope that Singapore will be better placed than other countries pick ourselves up once the global economic conditions brightens up. As such, the government has poured in large amounts of money to the Skills Program for Upgrading and Resilence, to subsidise and encourage firms to send their workers for retraining and increase their productivity. After all, where demand for firms’ goods are likely lower than usual in this current recession, there is no urgent need for much labour since production levels are likely to remain relatively constant or even decrease. It would be most prudent for firms to seize the opportunity to send their workers for training now. Higher labour productivity that results would benefit firms through more efficient production processes.

Fastfood chains like Macdonalds, Burger King and KFC has attempted to attract students by practising price discimination. Students can buy the exact same meal as adults for a lower price. Surely, these fastfood chains must have considered that it is impossible to entirely prevent market seepage in this case, a criteria for price discimination. Parents can easily ask their children to buy student meals for the whole family at student-meal price, thereby allowing adults access to lower prices enjoyed by students as well. However, such cases are largely rare (it’s perhaps only applicable to the most ‘kiasu’ of singaporeans). These fastfood chains also probably expect that the increase in revenue earned from an increase in quantity demanded of student meals by students (due to lower price) would outweigh the decrease in revenue earned from a decrease in quantity demanded of adult meals. This is reasonable because students often do not have large amounts of pocket money and hence, fastfood meals make up a large proportion of their small amounts of income, making the demand for fastfood meals price elastic. Also, fastfood chains have attempted to come up with a wide variety of goods to keep their consumers enticed. This ranges from curly fries, grilled chicken foldover and spicy drumlets. As such, consumers continue to patronise such fastfood chains, allowing the latter to keep their revenues flowing in. So long as P<AVC, these fastfood chains will continue production and possibly survive the economic downturn.

24 05 2009
Jolene seah/NYJC/Nyjc0823

People who are too used to luxury lifestyle in the past but due to this global economic crisis(lost their high paying jobs or their company goes bankrupt) cannot continue their high-class life style of dining in restraunt, but is unwilling to change their meals in hawker centre as they view it as unpleasant ( no air-con, dirty,rats) hence fast food restraunt becomes a better alternative choice.
Middle income earners, usually visit Mc occassionally, and since Mc prices does not differ much from hawker centre foods(the western foods sold in hawkers) as compared to restraunts, hence economic crisis or not it does not prevent them from their usual visit to Mc.
low income earners,almost does not visit Mcdonald at all.
Therefore…of course Mcdonald sales will increase!

24 05 2009
Yan Ting/NYJC/Nyjc0823

Hi to all!
I believe there are other reasons:

1. They are fast to respond to market demand and conditions as most fast food restaurants have many chains in different parts of Singapore. As people are more health-conscious, thus fast-food chains want to portray “healthier choice’ from the conventional prespective. e.g. MacDonald introduce new menu with choices like salad. Customers can choose their set meals accompanied with healthy side dishes. They aim to create/sustain more inelastic demand/demand to ensure royalty of customers.

2. Locations of the outlets are extremely important. Most fast food restaurants are always located in either in shopping malls, neighborhood and community centers or even in school compounds contributing to ensure the continuous flow of loyal customers.

3. Fast service helps the fast-food chains to keep up with the fast pace of Singaporeans by providing “take and go service” and free delivery that saves a lot of time compared to visiting food courts which do not provide such services at convenience for working adults and students.

4. Fourthly, constant changes and innovations in menus and products available give a wide variety of choices and more are providing Halal food.

Have you ever heard that “Children and students are under Fast-food epidemic?”
(link: http://www.asiaone.com/Health/News/Story/A1Story20071115-37034.html)
I always believed that the fast food chains attract their customers from young and eventually as they grow up they will continue. It starts off by attracting children via attractive toys via children meals to attract them to the fast-food products itself.

Students nowadays find fast food outlets more than a place to dine but a place for leisure. To attract them to continue patronizing they come up with students meals with other sales tactics like ‘value meals’, ‘family pack’ too.
In the eyes of a customer, it appears to be appealing as it claims to be cheaper/ more cost saving to the customers even if in actual fact that it is perceived. Thus, it is proved effective as consumers come back for more.

A good e.g for pleasant environment will be macdonalds: providing free Wifi-internet service for the convenience of students and working adults. As a result, they patronize frequently to dine. The environment thus, is a type of advertisement itself.

24 05 2009
Benjamin / VJC / VJC012

Oh, Yan Ting reminded me of the cost-benefit analysis.

Perhaps it is the dining comfort, ambience etc that make the prices of fast food meals seem worth it as compared to a food court (Refer to my previous entry consisting of the comparison between the prices of the two). So, in real terms, fast food actually seem cheaper; another reason why people choose to dine at fast food outlets.

Cheers.

8 06 2009
Seng En Quan/ TJC/ Team Patrick

I do agree that the success of the fast food restaurants are enjoying “comes from their affordable well-loved meals, served up in pleasant settings”.

This can be seen through strategic pricing through “extra value meals, student meals and periodic offers”. However, other than reducing the cost of a typical fast food meal, fast food firms are effectively gaining more customers through their brilliant dining concepts (i.e. restaurant setting), aggressive promotion (e.g. advertisements on ‘macservice’ and food quality) as well as strategic dinning locations. While this demand and supply determinants contributes to the edge which fast food restaurants have over their closest F&B competitors (food courts), I believe the key to the fast food outlets’ success is the lower opportunity cost (in terms of time) for dinning at the outlets.

Singapore is a fast paced society. Fast food outlets offer just what this society needs: kitchens which churn out food and take aways within minutes. Compared to the food preparation time in food courts, fast food outlets really help you save time. ‘Go to a fast food outlet and avoid the 20 minutes spent on queuing and food preparation in the food court’. You probably could earn an extra 10 bucks utilising that 20 minutes on work.

Other industries which have exhibited “recession proof” traits include thoes dealing with the provision of necessity goods or of low subsitutability (e.g. oil, rice, products with inelastic demand curve).

Lastly, i do believe that the success of fast food outlets largely hinge on their target groups of students and children. The use of a third degree price system effectively reap profits as a result of the price elastic demand for fast food by the youth (due to their lower allowance). In addition, clever use of sale gimmicks coupled with lovely grins (e.g. the occasional ‘do you want an upsize? Or an additional $1apple/ hersey pie) raise their daily revenue with a snap of a finger.

13 06 2009
Leo Yan Hua / NYP / Team B

I agree with the reasons listed in the article, that affordable, well loved meals served in a pleasant setting has left the fast food industry booming despite the current harsh economic conditions.

With more children growing in a fast paced environment where both parents are working, there would not be anyone to cook for these childen, therefore they would usually be dining out most of the time. Most would usually opt to dine in fast food restaurants, where the ambience is better than that of coffee shops. Also, price is reasonable and food served is fairly “fast”, hence the word fast food restaurant. With this lifestyle inculcated to them from young, it is a norm to eat fast food almost everyday.

No matter how bad the economy is doing right now, people still need to eat, just like one needs to sleep everyday. People view fast food as convenience food, thus, it is “recession proof”.

As to fast food companies targeting children/ students, i think this is very true. Why children? This is because children would rather eat fries than green stuff called veggies. Parents, have little choice but to give in to their request of eating fast food lest they throw tantrums and start crying in the public. Why students? After school, they would rather hand out at fast food restaurants than to eat in the school canteen. It is convenient, air-conditioned, where they can hang out with friends. Also, busy parents gives them more pocket money to make up for the lesser time spent with their children. Thus, with more pocket money, they have more spending power and thus they pamper themselves by dining out more often.

These fast food restaurants often uses student prices to lure their target customers. Since the meals are priced lower than what the others (adults) pay, hence students would be attracted to it. Also, as students are not working, meals are priced at a reasonable rate thay students can afford. Other than the price, restaurants also tie-in products to these meals to attract them to make purchases. For example, Macdonalds gives a free coke glass for every upsized value meal purchased. If one wants the product, they would need to purchase the meal in order to get the freebie, thus the likelihood of purchase increases.

All in all, with the ever increasing consumption of fast food, it is hard to replace the fast food industry!

14 06 2009
Muhammad B Rahmat/vjc/vjc006

Is it possible to explain why the fast food industry is able to do well in spite of harsh economic conditions using greater economic analysis/ reasoning?
We can use the concept on income elasticity of demand to study the effects of the recession on consumer behaviour towards fast food restaurants. What sort of goods are fast food meals? Well it depends largely on the level of income of the consumers. At low income levels, a fast food meal can be a luxury as there are cheaper alternatives. As income levels increase, fast food can be seen as a necessity and at the higher end of the spectrum it can be an inferior good. As income decrease during a recession,people who view fast food as a luxury would move to cheaper alternatives. the demand would be relatively unchanged for those who see it as a necessity and would increase for those who view it as inferior. Based on the increase in demand despite a recession, we can assume that more singaporeans see a fast food meal as a neccesity or an inferior good compared to those who see it as a luxury. this is quite reasonable considering Singapore is a developed and affluent country.
Some have pointed to hawker centres as better and more value for money alternatives but are they really close substitutes? Firstly, it can be said that they cater to a different taste and preference in terms of type of food and environment. also, we have to consider their location. Fast food chains are more common and spread out. Also hawker fare in terms of food courts in certain locations such as shopping malls are not neccessarily cheaper than fast food meals.

18 06 2009
Kenneth Su/SRJC

I agree with the reasons listed in the article on why the fast food industry is able to do well in spite of the recession. At the same time, I believe that the fast food restaurants could be using the recession as a time to expand as rental prices would drop and the firms would be able to open more outlets. Plus during harsher economic times, people would not expect high wages so it would be a good time for fast food restaurants to hire more workers. Being big firms, fast food restaurants like Macdonald’s and KFC would be able to enjoy economies of scale and as such the lower rental prices would help to reduce their costs of production even more. WIth a lower cost of production, and constant prices, total revenue for fast food restaurants would increase.

18 06 2009
Sam / RIJC / TTWW

These are some of the ways in which fast food chains have sought to increase their market share in order to combat the recession:

Bundling of goods and product differentiation. As opposed to standard forms of fast food packages which serve to provide the consumer with only food and drinks, Macs has developed a new EVM upgrade that comes with a free cup in collectible sets of 6. By designing these in attractive colours and creating a range of cups with release dates spread across time periods, it has effectively increased the inelasticity of the demand curve by making the collection of the entire set an objective for consumers to fulfill, which would cause them to consume Macs consistently instead of rival competitors’ products.

In addition, Macs has also cut costs in order to cope with the downturn. Doublecheeseburgers currently cost $2 instead of the usual $2.50, which has led to a more than proportionate increase in the quantity consumed, now that the economic downturn has led to a decrease in incomes of all individuals.

Macs has also managed to tap on the supernormal profits earned from its F&B sector to create a coffee branch. Compared to other flagship companies in the industry such as Starbucks, coffee is sold at lower cost, which erodes the market share of these established giants. In addition, Macs will stand to gain profits as the marginal cost of supporting these campaigns is insignificant, due to the existing large scale of advertisements it already has (advertizing economies of scale) and its ability to leverage on the comfy atmosphere at most outlets which complements the enjoyment of coffee.

18 06 2009
Bobby / VJC / VJC008

In our opinion, consumer preference – one that comes from the quick service, affordable prices, ‘fulfilling’ meals with reasonable portions and nutrition contents, especially in this time when people’s general income is falling and they are busy to find new sources of income – does help to boost the demand of the fast food in this recession times. However, there are also the new ‘economic’ meals ($2 of McChicken, etc.) introduced in lieu of recession, which are most likely price elastic as they generally take low proportion of people’s income, including students’ pocket money. The lowered prices of the ‘economic’ meals will induce people to buy more, increasing the quantity demanded and the revenue of the fast-food joints offering them. This method is boosted by the advertising done by these joints. These fast food joints are also comparatively cleaner than hawker centres which might offer same or even lower prices, and in the light of recent deaths caused by eating some hawker centre food, the demand shift towards fast food as the substitutes may be significant.
In the long run, if the recession persists, there might be jobseekers or workers who are willing to have their wages reduced, especially those who have their wages ‘tied’ to the company’s economic performance. In this way, the firms will be able to cut production cost, and if they keep their production level constant, they may see their profit margin increasing in this downturn.

In the excerpt, one of the indicators of the ability of fast food joints to weather recession is to open new outlets. However, this might be due to other reasons besides higher profits gained; the fast food companies might use the supernormal profits reaped earlier when the economy is booming to gain market power and market share and provide formidable barriers towards newcomers, thus ensuring higher demand in the future. This can be done through the use of advertising, which makes the price of the good elastic, as consumers like us are tricked into believing that there are no other substitutes for that McChicken. Hence even though there is a recession, a fall in price of the McChicken would actually generate more revenue for the company ( assuming price>marginal cost) .

Other recession proof industries might include the healthcare industry, pharmaceuticals, fuel industry and public transport. These industries, and other recession-proof industries, are blessed by this ability mainly due to the nature of the goods they offered; the goods are mainly necessities, such as food and health and one cannot have a decent living standard without them.

Fast food industry has been implementing methods to attract consumers from the school-going age people, such as student meals, freebies (Hello Kitty much?), and membership deals or bonuses for students. As mostly they have relatively low ‘income’ (small pocket money), when the prices are lower due to these deals, their purchasing power will increase and they will consume more of it. In Singapore, whereby the proportion of consumers from school-going age might be large for fast food joints, the success may be hinged more on this target groups instead of working-age people. This also explains why fast food companies all have student deals or similar sorts. Working age and elderlies would contribute more towards restaurants, whereby the food is generally pricier. However, this trend (and hinge) might have shifted during recession times in the short run, whereby there are more adults consuming fast food to save money and there are lesser students consuming them due to lesser pocket money.

20 06 2009
SYLVIA/NYP/Team A

The reason that fastfood outlets are hiring more workers may be the fact that Singapore does not want to achieve high unemployment rate in such difficult times which will cause fear and uncertainty amongst its citizens. Plus, look at the influx of workers coming from countries like China. They seek employment here too. Of course we have to provide a place for them.

Why is it that only the fastfood industry is increasing its number of employees? Well, it may be due to the lower wages paid to these workers as compared to the amount offered by retaurants for their part-timers/full-timers.

Fastfood has always been popular amongst students and children, it’s not only during these difficult times. Today, everyone lives in a more-money-less-time society so they will opt for convenience whenever possible. Fastfood = convenience for most people.

Furthermore, a Macs meal today can easily add up to $8-9, I don’t think anyone would consider that affordable.

20 06 2009
Tay Jian Hua/HCI/Team10

Unlike what SYLVIA/NYP/Team A and a few others have asserted, I believe the reason behind the expansion of fastfood chains amid all the gloom in the economy due to the downturn is nonetheless its plain, simple affordability. Affordability is relative – costing $8-$9 dollars does not necessarily mean that fastfood is now more expensive compared to other places. Furthermore, even if there are (there should actually be) places that cost cheaper than fastfood, perceived “affordability” could still be the reason why consumers still turn to fastfood. Also, those consumers responsible for the spike in demand for fastfood could also come from mid-class or average-income households who cannot take anything that is comparatively more (to them) “inferior” in terms of quality as fastfood.

This is especially true if one considers the fact that increasingly, parents substitute cheap, fast food for healthy meals to try to weather the economic slump. Whether these fastfood meals are “well-loved” and “served up in pleasant settings” is yet another topic of discussion, but the major determinant does seem to stem from the inexpensive nature of fastfood that leads to widespread availability.

Drawing the parallels between fast-food and fitness centres, the similarity of both being “recession-proof” to some extent is immediately obvious. It is not difficult to see how with more time on their hands because business is slow, and with stress levels rising as they struggle to deal with the economic downturn, more people are turning to fitness as a salve. Interestingly, these gyms are clearly in good shape amid the lean times!

Of course, in the bid to woo children and students as major consumers of fastfood, these fastfood companies have marketed the entire fastfood dining experience as being fashionable and trendy and this explains its appeal to the younger consumers. This is a particularly effective strategy because it is often the young who have (ironically) the greater purchasing power despite no income because increasingly, it is not uncommon to see how parents give in to their childrens’ requests for fastfood. These fastfood chains also constantly reinvent themselves by creating new products to keep in line with the perception that they are “fashionable” and “trendy” and this is quite noticeably reflected in the strategies of the various fastfood chains today.

21 06 2009
Glen Tan / ACJC/ Fiducia

Frankly, I’m not very convinced that the expansion of fast food joints and the corresponding increase in job opportunities will be beneficial. I believe that structural unemployment might be the only reason for people to take up jobs at fast food joints. People who are structurally unemployed often must either take jobs with lower pay or switch into a different field,perhaps with retraining. Cyclical umemployment as we all know results from fluctuations in the business cycle. The workers who are laid off because of a recession are cyclically unemployed. Their skills are not obsolete, so most of them will probably be working again when the economy recovers. Therefore, I cast doubt on the filling of vacancies for jobs at fast food joints as the workers retrenched from the electronics sector for example, certainly won’t find themselves at a job interview at a fast food joint with the exception of an extraordinary circumstance. They will be more preoccupied with gearing themselves up for jobs in their specialized area. Most people who work at fast food joints tend to be those of lower academic qualifications or find themselves unskilled for a particular profession. Degree holders serving you at the counter? Unlikely. Typical expectations for a crew member or manager at Macs include just a GCE ‘O’ Level qualification.

Moving onto my substantive, in the later parts of this commentary, I shall discuss some points which might add value to this discussion and perhaps acknowledge and supplement previously mentioned points with some of my takes on the issue. Singaporeans have been cruel and extremely fickle to its food fads in recent years. Products always enjoy the label of ‘The Next Big Thing’, gaining intense demand for it from nowhere (think bubble tea, coffee bun). But it always does not last, as Singaporeans give up on the latest fad, and revert back to their staple food. In this light, it may be very puzzling why fast food restaurants are able to remain strong in their growth. The article attributes a pleasant environment as a reason for the success of fast food restaurants in creating demand in spite of the adverse economic conditions. ‘The Third Place’ concept coined by Ray Oldenburg, argues that the 3rds are ‘anchors’ of community life and facilitate and foster broader , more creative interaction among people. He even went on to suggest the hallmarks of a ‘third place’ namely, food and drinks being cheap, highly accessible, involve regular, welcoming and comfortable and both new and old friends can be found there. (http://en.wikipedia.org/wiki/Third_Place). I find this theory especially appealing in explaining the inelastic demand created by these fast food restaurants. The ‘comfortable’ factor is surely present with air-con in this hot equatorial climate, al-fresco for those who prefer the sun, adequate staff to ensure that the place remains clean consistently. While the name inherently refers to fast moving crowd, in Singapore ironically, fastfood restaurants often have facilities such as Wi-Fi (Catering to the young and savy), Newspaper available (for the working adults and elderly). This service oriented business, takes the welfare of customers into account, creating a form of brand loyalty. Also allowing them to stay longer, room for interaction, people feel more attached and in the long run they will revisit the fast food restaurant, making it more inelastic in nature. This is especially compounded by the fact that we are suffering from long standing malady, an increasing feeling of disconnection from one another. In comparison to the past generations, we are now faced with more unwilling individuals to interact with the community and participate in community activities. (increasing social dislocation).Fast food restaurants offer an antidote to these social deficiencies: a cool place for all to hang out, a form of positive externalities, whereby it is a meeting point, landmark, just the right place to hang out. A temporary respite from the frenetic pace of living. (pretty ironic at a fast-food restaurant haha)

Also, more established fast food restaurant such as MacDonald’s and KFC position themselves in a position that aligns themselves with being seen as righteous in the consumer’s mind- making the consumer feel that purchasing the product is a form of global altruism. (Contribution to society).It can be seen as welfare economies of scale. MacDonald’s previously adopted a local campaign called ‘It’s what I eat and what I do’, which promoted a balanced lifestyle (which I think is mildly ironic), selling over-sized yellow gloves to raise funds for needy children and alsowas the sponsor for Olympics promoting the values of the Olympic games. For KFC locally, there have been funds raised by selling special food items such as Christmas Happy Meal, through which $48 000 was raised to help the Singapore Association for the Deaf. This feeling of doing good will certainly stir up the feelings in everyone leading them to buy more to help, increasing the demand, and correspondingly heighten profit level, portraying the using of welfare economies of scale.

Furthermore, I’d like to add that not all strategies adopted have reaped the intended success. Mccafe has not been really successful as seen from sales figures. Hence, despite the apparent overwhelming success in strategies adopted by fast food restaurants, they may not often work, especially in times of recession when the consumer will be more discerning with his/her own spending. MacDonalds took a shot at an attempt to replicate coffeehouses , hoping to simulate Starbucks’ success. But by dubbing its concept ‘McCafe’, it has ‘cheap, plastic and tacky’ written all over by slapping the prefix Mc- in front of a word. There exists a lack of effort by basically re-designing outlets, in an attempt to propel them to the sophiscated and long thought out design of cafes that of Starbucks, and only managed to make her look like a poorer cousin, out dressed during a party. Starbucks managed to decimate McDonald’s coffee sales, taking down by a third over last decade. This thus shows that not all strategies are successful, in the growing discerning eyes of the public. The fast food joints have to come up with newer and better thought of tactics, or else they will be easily overtaken by substitutes.

With regards to industries that are recession proof, I would reckon in today’s context there are a few of such industries. To mention a few previously unmentioned:
i. Debt Collection- As recessions looms, creditors will naturally hire more debt collector to try and minimise any potential losses before it is too late, in actual fact, increasing this industry’s demand in times of recession
ii. Funerals- The natural cycle of birth and death does not end in recession times! Thus, in this particular industry, business level does not drop due to recession.
iii. Utilities- In the world we live today, it is almost impossible to imagine spending a day without electricity. Thus, again, even though there is recession, and people may reduce consumption of electricity, by buying ‘energy-saving’ products, this industry will never be hit severely, due to the constant, inelastic high demand level.

21 06 2009
Glen Tan / ACJC/ Fiducia

Scrutinizing the previous responses , I firmly believe that the previous comment by Sylvia of NYP who asserted that ”only the fastfood industry is increasing its number of employees and said that it may be due to the lower wages paid to these workers as compared to the amount offered by restaurants for their part-timers/full-timers”. might have made mistake in phrasing that statement. I don’t think people would want to work if the wages paid to them are lower as compared to the amount offered bt restaurants.
Drawing a parallel , in the USA, Wal-mart has faced complaints over the low wages paid to the workers, so yes, i think that might substantiate why I highly doubt that the increasing the number of employee spaces and the low wages will attract many job-takers.

Also, in a previous comment by Jian Hua of HCI: Drawing the parallels between fast-food and fitness centres, the similarity of both being “recession-proof” to some extent is immediately obvious. It is not difficult to see how with more time on their hands because business is slow, and with stress levels rising as they struggle to deal with the economic downturn, more people are turning to fitness as a salve. Interestingly, these gyms are clearly in good shape amid the lean times! Personally, i don’t totally agree with the fitness centre increase in patronization idea. I find it a bit contentious. Would you mind clarifying how you got that idea from as it is interesting and I would like to know more=) . Thank You and I look forward for greater discourse

23 06 2009
YF + HW + WF/DHS/DHS Team 4

Fast food is indeed commonly categorized as an inferior good with a negative income elasticity of demand. However, the advertising strategies adopted by the companies have changed this notion among the targeted groups successfully. MacDonald’s have been trying to link its products with healthy lifestyles. You may think that is ridiculous; but the advertisements showing the non-oily-looking grilled meat patties and ever-greenish fresh vegetables are constantly instilling this new idea into your head. The printing of the nutritional value of the food items also adds credibility to the scene: trust me Macs is not that unhealthy. This element of healthy lifestyles enables Macdonald to buy the hearts of many mums and one starts to see more and more families having Macdonald breakfasts on weekends. Similarly, slogans like ‘I’m lovin it’ woos the youngsters and maintains the position of fast food restaurant as the cool but cheap place to hang out. I cannot say that the advertising strategies by companies have made fast food ‘ascend’ to the status of necessity or luxury good, but it evidently is not an inferior good that people can’t wait to stop consuming.

23 06 2009
Goh Yi Le / NJC / The Oppposing Team

Given that the fast food industry is able to enjoy good business during times of recession, it seems like the fast food industry is “recession proof”. Are there any other industries that display such characteristics of being “recession proof”?

I would think that most industries are capable of being recession proof as it is the strategies that are being employed by the individual company that matters most. Each fresh crisis is an opportunity in disguise, and anyone who can grasp this opportunity can be a winner. Generally speaking, in times of recession, people are more cautious of their spending and would only buy products that are cheap and good. This does not mean that consumers will only go for products that are very cheap, although some do, but rather they will want to buy products that still have a decent level of quality and innovation at an affordable price. Illustrations can be found when one looks at companies such as Acer. Acer launched a new line of ultra-thin notebooks that can run for more than eight hours without recharging yet cost as little as $699. Clearly, it is both competitive pricing and innovation that has allowed the company to become the world’s second largest notebook maker and triumph its competitors during the downturn. Many other examples can be found across the various industries as long as there is an intelligent strategist in the company that can take advantage of the situation.

23 06 2009
Yilin

YiLin / Millennia Institute / MI

Personally, I think that dining in a fast food restaurant is a good alternative for busy people. Fast food restaurants adopt the concept of ‘eat-on-the-go.’They are well-known for “convenient eating”. Purchasing food from the food court or restaurants etc does not come in the ‘all in one’ package. At many instances, we would have to purchase food and drinks separately which takes up time. The meals in the fast food restaurants are affordable to me, and the other school-going teenagers of my age.

In fact, I believe that fast food restaurants made up a part of our childhood. Remember the craze over the hello kitties by Macdonalds? The ever popular happy meal that many children used to love? Fast food restaurants such as Macdonalds marketing approach mainly targets the young children. They target the young market to create the lasting “Macdonald culture” in us as we grow up to become adults.

I hope say that Macdonalds is successful in targeting the young market, I believe that out of 10 children we ask, at least 8 would have been to Macdonald for several times. And I believe that this fact would not surprise us!

Recession would have more or less boost the fast food industry in one way or another. But, this trend would not sustain for long. With the thought of health- consciousness in mind, the rest of the food sector/ industry still has a place to stand in the market. Whatever it is, Health is still wealth!

23 06 2009
Julius Eleazar Tan/NYP/TeamB

In my opinion, I believe that the reason McDonald’s sales is not being affected by the recession and is in fact even rising is due to two factors: 1) Their position on the value-chain 2) Their branding, built through very clever marketing.

1) Let us first understand the value chain using the context of food. The primary need of a person is food. So let’s say a pound of raw beef in the supermarket costs you $1. Someone out there will be thinking “Hey, I can save you the trouble of buying, cooking and preparing that pound of beef. In return, after factoring in all my costs, I’ll add my margin and make some money from you by charging you $5”. So this person is adding value to the beef, thus he is higher on the value chain now. Another person will be thinking “Hey, I can do everything the other guy is doing, but I’ll provide you with a nice place to eat, comfortable seats and some music, then after adding all my costs, I’ll decide to make more money from you so I’ll be charging you $15”. The person added more value to the raw beef at the start and also charges more, thus he moves up the value chain.

In the present context, fine dining restaurants are hit hard by the crisis because what people really need at the end of the day is just the food not all that fancy service and hundreds of shiny silver cutlery. So why isn’t everyone going to hawker centres then, which offers the lowest cost for food while still being convenient? The reason is because McDonald’s is just at the right place in the value chain. They provide the basic food that people want as well as enough added amenities not present in hawker centres that people are willing to pay for, especially students. For example, air-conditioning, wireless internet, power points and a comparatively more colourful and pleasant looking environment. So we can say that McDonald’s strikes the right balance in terms of adding value yet keeping low enough on the value chain that most people can afford them.

2) The second reason why fast food chains, especially McDonald’s are so successful right now is because of their clever marketing. McDonald’s has worked so hard and spent so much in their advertising campaigns to equate their brand with happiness. A famous example would be the “I’m lovin it” campaign which incorporates a catchy tune sung by Justin Timberlake. They do this simply because happy people are good for business. They will keep coming back to your brand because you offer them more than just the food and the amenities, but because you offer them to be a part of the “I’m lovin it” experience. That is why we see many students opting for a meal at McDonald’s after a long day because they just want to de-stress at a place which has been registered in their mind to create happiness. Even the colours of the McDonald’s outlets (red and gold) have been proven to stimulate happiness and appetite in people.

So yes, brands like McDonald’s do seem recession proof as even more unhappy and jobless people will opt for a meal at a place which offers them the right balance of food, amenities and happiness for the right price.
However, for other companies in other industries who are not as lucky to be the giant that McDonald’s is, there is still hope. When there is a recession, buying and demand does not stop, it merely slows. People still buy; in fact, billions of people around the world still buy. So the trick to get them to buy from YOU, is to focus on a specific group of people, study them (their buying habits, psychology and behaviour) and then offer them something specific to those needs in terms of either product of service.

In fact, a recession may even be an opportunity if tackled correctly. The keyword in all of this is: adapt. Adapt quickly and accurately and you may even take market share and profit from your less nimble competitors. Recessions come and go and so do crises. One thing we should always do is learn how to adapt to them and seize the opportunity.

15 08 2014
Johne558

I really like your writing style, great info, thank you for putting up fcecbcbgkecf

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




%d bloggers like this: