McUnderstanding Your Market

For decades McDonalds trademark golden arches have seemingly coincided with a golden touch. Today McDonalds is the largest quick service chain restaurant in the world with over 18,000 restaurants located in 91 countries. Throughout its expansion the company has faced competition from other large chains such like Burger King, Kentucky Fried Chicken, and Wendys to name a few but has maintained its global leadership position. Beyond these larger scale chains McDonalds has rarely met with any significant challenges in its efforts to expand beyond North America. However, the golden touch may be losing its luster, at least in the Philippines and its not due to competition from its usual rivals. The company beating McDonalds at their own game is Jollibees, a family owned chain with 177 restaurants in the Philippines and plans to open 36 more this year. Just how badly are they beating McDonalds? Although McDonalds only has 90 restaurants in this market, Jollibees controls a 46 percent market share to McDonalds 16 percent. McDonalds is concerned to say the least. McChallenging McDonalds Despite Jollibees $250 million in annual sales paling in comparison to McDonalds $29.9 billion, the company is the first to significantly challenge the hamburger king and has established itself as the second largest provider of consumer goods in the Philippines. Among the strategies that have helped Jollibees establish their strong market position are using some of McDonalds proven marketing strategies, attacking one of McDonalds strongest operating advantages head on, carefully selecting prime locations, targeting kids with ads and play activities, maintaining high standards of cleanliness and fast service, and pricing food items 5 to 10 percent below the competition. Adapting a McMarketing Approach Jollibees realized that it wasnt necessary to reinvent the wheel and has therefore correspondingly borrowed every marketing trick in McDonalds book. From utilizing child-friendly spokescharacters to tenuous analysis to determine key locations, the company has jumped onto the learning curve far beyond where McDonalds started years ago. More importantly, the learning hasnt stopped there. The company carefully tracks and analyzes changes in McDonalds approach in an effort to maintain its position. Attacking McDonalds worldwide consistency For years McDonalds has assured its customers that a hamburger bought in New York City would taste the same as one bought in China or Russia or anywhere else in the world. However, this approach inherently takes an ethnocentric approach to the global marketplace, ignoring the tastes of local markets. Sure there are those who wish to experience an American dining experience, but this novelty may be short-lived. Jollibees realized this and has developed a quick service menu which incorporates sweet-and-sour flavors into its burgers, fried chicken, and spaghetti.

Surrounding the competition in key locations Jollibees has followed McDonalds suit in paying particular attention to site selection. However, unlike major competitors in the quick service industry, it has chosen to go head-to-head with McDonalds by surrounding the giant with their own outlets. This apparently risky approach has actually been very successful as locals are more apt realize the locally-tailored food selection that Jollibees offers with the same quick service and clean facilities. Most importantly it does so at a lower price to the consumer. Targeting kids with ads and play activities Recognizing McDonalds success in marketing to children, Jollibees utilizes childfriendly spokescharacters like Hetty the spaghetti-haired girl and Champ the hamburger-headed boxer to appeal to the family market. The company increases the value of the dining experience by providing play activity areas to entertain children. In addition, they sell licensed toys, towels, and other novelties which promote the bunch. Sound a lot like McDonalds? You bet! And this combination of attractive spokescharacters, play areas, and toys have made Jollibees a brand name that kids associate with. The result, kids pressure their parents to take them to the restaurant frequently. High standard of cleanliness and fast service The other efforts wouldnt be enough if Jollibees didnt deliver service comparable to its main rival. This is why the company sets and achieves high standards of cleanliness and fast service. Two factors that make customers return frequently because they know that they can consistently receive high quality service. Competing on price Many books on strategic management suggest that the little guy shouldnt try to compete with the big guys on price because smaller competitors do not enjoy the advantage of economies of scale. However, Jollibees has proven itself the exception by pricing its food items 5 to 10 percent less than McDonalds does. Moreover, with the rapid expansion that Jollibees has experienced and has planned has effectively grown to the point where it is afforded the benefits of economies of scale. McDonalds Response The rapid rise of Jollibees has not gone unnoticed by McDonalds. Recently it introduced its own Filipino-style spicy burgers, marking one of the few instances in which McDonalds has actually changed the actual burger patty. However, industry analysts question whether this is enough. The company is still trying to impose a menu and experience dominated by American tastes. Jollibees climb to market dominance and international expansion plans Jollibees success has not come overnight. Throughout the 1980s the company battled McDonalds . In fact, the two were neck-and-neck until 1989 when a military coup caused foreign businesses such as McDonalds to pull back. Jollibees realized that this unstable market condition for foreign investors was an advantage for local

companies like itself and added 30 outlets in 1990. Its expansion did not stop at its national boundaries. Currently the company has 15 restaurants in Southeast Asia and the Middle East and plans to add 14-18 more this year. And, as if beating McDonalds at its own game in the Filipino market isnt enough, it plans to open restaurants in Las Angeles and San Francisco this year and future plans for Chicago, Houston, NY and Miami due to their large Filipino populations. Fierce competition on the horizon Many feel that Jollibees success may be short lived. Restrictions prohibiting foreign companies from owning stakes in retail chains are expected to be lifted within the next two years, which will change the competitive marketplace in the Philippines. For instance, McDonalds be able to operate its own stores. They could pour money in here to buy advertising, secure prime locations-to put pride before profits, says Tony Kitchner, vice president of Jollibees international unit.1 Perhaps this will remind wannabes around the world of the might of the golden arches.

Filman, Hugh, Happy Meals for a McDonalds rival, BusinessWeek, July 29, 1996, p. 77.