Deals in a downturn

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Value and discount deals are a recurring feature of the fast food industry, but recently, the volume of such promotions that are being offered to consumers has reached new heights.

You would be hard pressed to drive down the streets of any major city and miss a billboard advertising a glaring price point intermingled with burgers, chips, pizzas and soft drinks, enticing you to buy ‘more for less’ at lower and lower costs.

So why this intense focus on promoting value deals at this time? To begin with, Pakistan is facing an economic downturn and inflation is in double digits. Fast food is a luxury for the majority of the public, and even the upper SECs of society are feeling the compulsion, at least psychologically, to conserve, consolidate and hold back on cash. Add to this a turbulent law and order situation which has affected the number of customers visiting food outlets, and you get the full picture of the challenge facing the marketing teams in the food service industry.

Given this environment, KFC, McDonald’s and Pizza Hut testify that the value deal strategy is aimed at ensuring a steady revenue stream, even if ‘value’ and discounts mean that an added cost has to be borne for every deal offered. Strategically, all three franchises hope to offset this cost by pulling in existing customers who may be wary of venturing out, as well as new customers. However, all three franchises have taken different approaches in reaching this clientele.

KFC Double Deal

KFC, which is promoting multiple value deals back to back, including the current ‘Double the Deal’ (buy a Zinger meal and get another burger and soft drink for an additional 10 rupees) aims to focus on what Fuad Hameed, Marketing Manager, Cupola (the company which owns the KFC franchise), terms the “value seekers”.

“Value seekers look for value in terms of getting a desired product at a lower cost with perceived value differing on an individual basis.”

Accordingly, this value seeking segment is more interested in finding franchises that offer the cheapest option and will switch from one to the other with relative ease.

While this group does not contribute to the majority of KFC’s sales, in these tough times they have become a key market to play to, although Hameed clarifies that they are not necessarily from the lower SECs as “spending any amount on fast food is a stretch in the prevailing economic conditions.”

The competition for this value seeking segment is particularly stiff between KFC and McDonald’s which are both positioned as quick service restaurants (QSRs) with similar offerings, while Pizza Hut maintains its positioning between QSRs and an informal dining restaurant.

McDonald's snack time

To counter KFC’s value deals, McDonald’s has its own set of value offers such as the ‘Snack Time’ deal, which consists of multiple deals, all for 99 rupees. However, unlike KFC, McDonald’s aims to appeal to the lower SECs with value deals and offerings that start at a significantly low 30 rupees.

Terming it a “penetration strategy”, Raza Ali, Country Marketing Manager, McDonald’s, emphasises that “we are focusing on affordability and although a major portion of our sales come from our main menu, these deals ensure that people keep coming and our outlets remain busy.”

Pizza Hut has also been looking to grow the market with the launch of their first-ever offering for a single person, the ‘124’ deal (a small pizza and a soft drink for 124 rupees) – a big shift away from their family positioning. As Marya Khan, Senior Marketing Manager, Pizza Hut, explains:

“It was an extremely successful campaign in terms of the transactions we were able to do and the share it took up. Normally our product offering is only targeted at families.”

Pizza Hut

Pizza Hut also promotes discount deals to the family segment; their current one being the Panormous deal – two large pizzas for a discounted 860 rupees.

With so much competition and the pressure to retain existing, and attract new customers, the role of advertising has been pivotal, and none of the three franchises have held back in making their deals highly visible, with emphasis put on the price point and the dial-in number.

For all three franchises, ATL media has been the major focus, exclusive of TV, possibly due to the cost of producing/placing back to back TVCs for multiple promotions. KFC and Pizza Hut have also turned to the internet as part of their promotion strategy.

With such emphasis being placed on value deals and lower price points, will consumers ever return to an era of upsized meals and promotions featuring excess rather than savings?

While there is a school of thought which says that consumer behaviour can be permanently changed after an extended economic downturn, the marketing teams at KFC, McDonald’s and Pizza Hut are convinced that the market will bounce back to ‘splurge’ the moment the law and order situation improves and economic stability returns.

A positive indicator has been the recent launch of Hardee’s despite the prevailing environment.

The central question however, remains largely unanswered: will 2010 see a return to splurge with the promise of economic stability, or will the food service industry giants be forced to build yet another marketing calendar dotted with value promotions at ultra-low costs, battling it out like the telecom sector’s price wars?

First published in Aurora January-February 2010 issue.

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