Fast Food Franchises Pakistan Essay

A survey was conducted amongst several people from different categories of the society to determine the conclusion of this report’s research. Also, certain threats to western fast food franchise were discussed. In this report we covered McDonalds, KFC and Pizza Hut as the main western franchise restaurants, with a few references to the Subway chain. 2. Introduction 2. 1. WHAT IS A FRANCHISE? A franchise is defined as a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. Each franchise business has been authorized by a parent company, or franchisor, to sell their goods or services either in a retail space or a designated geographical location. The franchise administers the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor’s quality standards. The franchisee has the rights to market the product or service using the operating methods of the franchisor. The franchisee has the obligation to pay the franchisor certain fees and royalties in exchange for these rights. The franchisor has the obligation to provide these rights and generally support the franchisee. In this sense, franchising is not a business or an industry, but a method used by businesses for the marketing and distribution of their products or services. Both franchisor and franchisee have a strong vested interest in the success of the brand and keeping their customers happy. 2. 2. WHAT IS FAST FOOD? Fast food is any food that is quick, convenient, and usually inexpensive. It is a type of food that can be prepared and served very quickly. While any meal with low preparation time can be considered to be fast food, typically the term refers to food sold in a restaurant or store with low quality preparation and served to the customer in a packaged form for take-away. Fast food can be bought just about anywhere that sells food and snacks. Street vendors and drive-thru restaurants are probably the most common places to find fast food. It’s so popular because for a cheap price you can usually get a meal that’s satisfying. But fast food is inexpensive because it is usually made with cheaper ingredients such as high fat meat and foods that contain lots of unhealthy fats (saturated and trans-fats) and cholesterol, instead of nutritious foods such as lean meats, fresh fruits, and vegetables. Fast food in Pakistan is available almost anywhere, and the franchising of international fast food brands has created a new and successful market. 1 2. 3. WESTERN FAST FOOD CHAINS IN PAKISTAN Globalization has made our world a smaller place. Cultural exchange has exposed our society to foreign ideas and foreign foods have entered our country. The following is an introduction of the three most famous western franchises in Pakistan: 2. 4. McDonalds [pic] McDonalds first opened its store in Pakistan in September 1998. Since then, they have opened seventeen new stores throughout Pakistan. Today, millions of Pakistanis place their trust in McDonald’s everyday to provide them with food of a very high quality as well as good service. In the past five years, the response to McDonalds coming from Pakistanis has been overwhelming. Currently, Lakson Group Companies has taken over McDonalds Corporation, USA and a local partner making it a 100% owned and operated Pakistani company. The first set of golden arches began shining back in September 1998 in the city of Lahore. The opening was met with great excitement, and about a week later the McDonalds in Karachi opened. As of 2005, there were 18 restaurants in Pakistan: 7 in Karachi, 1 in Hyderabad, 9 in Lahore, and 1 in Faisalabad. [1] 2. 5. KFC [pic] In Pakistan KFC was franchised by Artal Restaurants International in 1997. it was a Belgium based business group. KFC opened its first restaurant in Pakistan in 1997 at Nipa Chorangi, Gulshan-e-Iqbal, Karachi. KFC opened its first restaurant in Lahore, in June 1997, which was third in Pakistan. Today, KFC has more than 43 restaurants in Pakistan. The market is ripe for many more restaurants and the investors are keen to invest. In 2001, KFC franchise was taken over by Gray Mackenzie Restaurants International. Currently KFC in Pakistan is owned by a Dubai based company Cupola which is the world’s largest restaurant system with over 32,500 restaurants in more than 100 countries and territories. KFC is in a phase of growth and is expanding rapidly. The quality of their product is convincing the customers not to shift to any other brand. KFC has won several awards for there good food quality, customer relationship and for providing means of income for the masses of the country. The company is presently a giant in the fried chicken industry as there competitors are far behind. Presently they are trying to innovate there products for the ease of the customers, and they are also focusing on providing there customers with more healthy food. KFC is expected to dominate the huge local market of fast food restaurants in the Pakistan and provide high quality and healthier food to their customers. KFC has a huge scope of progressing further and has lots of opportunities in local market. KFC is expected to have more than 100 branches all over Pakistan in the near future. [2] 2. 6. PIZZA HUT [pic] When it was initially opened in Pakistan, over 10 years ago in December 1993, Pizza Hut got a very good response by the Pakistani consumer base. Pizza Hut–Pakistan is working under a franchise agreement between MCR (Private) Limited and TRICON Restaurants International (Former Pepsi Co restaurant International). Pizza Hut Pakistan reports to TRICON (India) & TRICON Singapore simultaneously. Pizza Hut opened its first outlet in Clifton Karachi and the people of Pakistan welcomed them with open arms. As most restaurants do, Pizza Hut did not face the problem of taste development because it introduced some of the local taste in their Pizzas, like Chicken Tikka Pizza, Masala Pizza and Chappli Kebab Pizza. Currently, Pizza Hut has 14 outlets in all over Pakistan and it still aiming to further expand. It is the market leader in the pizza market within Pakistan. [3] 3. ECONOMIC AND SOCIAL IMPACT The establishment of western franchise fast food chains in Pakistan has affected the business activities to some extent. They have also developed new tastes for our society and lifestyles. Here are a few aspects of how McDonalds, KFC and Pizza Hut have contributed in our economy and social lives. 3. 1. [pic] †¢ McDonald’s in Pakistan is currently employing about 1,000 Pakistanis and each store is managed by Pakistani managers. †¢ McDonalds has investment of over Rs 300 crore in the country and payment of taxes and duties amounting to more than Rs 100 crore. †¢ Since McDonalds is doing so well in Pakistan they will continue to grow and add more stores in more cities in the future. †¢ The managers working for Lakson, reportedly monthly to the McDonalds headquarter located in Illinois. In the eighteen restaurant located in Pakistan all of the employees, managers as well as those working for Lakson are of Pakistani descent. †¢ Since McDonald’s first opened in Pakistan back in September of 1998 they have been able to add things to their menu that cater to the needs of the Pakistani’s culture. Almost all the people of Pakistan practice Islam. The Islamic dietary laws are called Halal. Halal is also the term for permitted foods. Prohibited foods as described in the Quran are called Haram. Some of these foods include pork and birds of prey, alcohol is also prohibited and stimulants, such as coffee and tea, are avoided by the most devout. There are also guidelines on how meat must be slaughtered. McDonalds has tried to work with this by offering menu choices such as the McArabia that are acceptable for Muslims. In Muslim countries all of McDonald’s meat is slaughtered and prepared according to Islamic Halal standards. Not that long ago McDonalds change their burgers, cookies, and hamburger buns so they do not contain any lard, making more acceptable to more people in Pakistan. †¢ They also keep the classics on the menu. They do offer what they call a McArabia, which is chicken on flatbread with a special sauce and they also offer many of the originals such as the Big Mac and hamburger with chicken. So while McDonalds has modified their menu to include some local favorites they have also kept the infamous burgers and meals. †¢ As does the McDonalds in the United States, the McDonald’s in Pakistan also caters to the children of the community. They offer four types of happy meals, which of course include a toy. Currently with the purchase of a happy meal the kids get a Kung Fu Panda Movie toy. †¢ Another exciting fixation that McDonald’s Pakistan is doing is they are now offering their McDelivery service free of charge. This delivery service will deliver all menu items to customers with order of RS 150 or more. Since this service is relatively new it is only offered at two stores at this time. They include Karachi and Lahore, but other locations will be added to this list soon. †¢ Just like the McDonalds in the United States they also hold birthday parties at McDonald’s in Pakistan. They even offer birthday packages with food and surprises for the kids. †¢ McDonalds has also become involved in the Pakistani community by taking part in local projects and charities. As stated in their vision McDonalds is firmly committed to giving back to the communities they operate in. They take part by giving money they receive in stores every month to Darul Skoon (orphan house). †¢ When McDonalds opened its first store in Pakistan the drive through lines were seven kilometers long. With lines this long is was obvious that many Pakistanis were happy to welcome McDonalds into their homes. †¢ According to The News International McDonalds in Pakistan has sold more burgers in Pakistan than anywhere else in the world. With only 18 stores currently in Pakistan this shows how busy McDonalds is. Many people are excited to have McDonalds because it is a â€Å"brand-name† and it gives them the opportunity to enjoy the same things that foreigners enjoy. †¢ McDonald’s costs the same in Pakistan as in the US, and given the per capita GDP disparity between the two countries, it is the cheapest food in the United States, while being one of the most expensive in Pakistan. Even with the high cost people are still flocking to McDonalds. †¢ McDonald’s business operation in Pakistan overall has been a complete success for the McDonalds Corporation as well as the Pakistani community. Both parties involved have gained more than their anticipated outcome from the arrival of McDonalds back in 1998. †¢ In the future it is believed that McDonalds will continue to grow within Pakistan and throughout the world. It is also felt that the Pakistani people will work very hard to keep McDonalds name and food service at the high quality people are used to. [4] 3. 2. †¢ [pic]The government of Pakistan receives over Rs. 10 million per month from KFC Pakistan as direct taxes. †¢ Around 95% of all food and packaging material used in KFC Pakistan is produced locally, which sums up to a purchase of over Rs. 35 million per month. †¢ For each new outlet developed by KFC Pakistan, it costs approximately Rs. 40 million, which is a huge amount for Pakistani construction industry. †¢ The products of KFC are not comparatively cheaper than the other brands in the market but still it doesn’t matter much because the quality as compared to there competitors is so good that people still go to KFC. KFC has tried to cater to the local environment in recent years and some achievements and adaptations include: †¢ Offered discounts on festival like Eid and Ramzan (all you can eat deals). †¢ Expansion of outlets throughout Pakistan. †¢ Children diversified products (nuggets, chicky meals). †¢ Improved dessert section (deal with Wall’s ice cream). †¢ Employing over 1000 Pakistanis. †¢ Introduction of local menu such as Arabian rice. [5] 3. 3. [pic]One of the greatest strengths of Pizza Hut is its strong brand name. Pizza hut is a well-known and popular chain of restaurants not only all over the world but also in Pakistan as well. Its positive brand image has furthered helped it gain a competitive edge in the market. †¢ Pizza Hut offers a different varieties of pizzas that agree with the tastes of all members of the target market. †¢ Main strength lies in the variety of deals offered by Pizza Hut from time to time. Deals such as â€Å"Midnight Deal† and â€Å"Rupee 1 Deal† actually help attract customers from different income segments. It has also pioneered in introducing membership cards to offer the members pizza at discounted rate. Special dicount cards are also offered. †¢ Yet strength of Pizza Hut is the large number of outlets that can be found all over Karachi and also within Pakistan. Pizza Hut has its outlets in all major areas of Karachi. †¢ Pizza Hut branches also have an unmatched ambiance not found in other restaurants. The ambiance and the environment and the feeling of just being there and being seen there is also unmatched by its competitors. †¢ Pizza Hut employs thosuands of Pakistanis. Another internal strength of Pizza Hut is that it has an attractive compensation program and low employee turnover. It provides best compensation package in the industry. It has a Health Care Policy, according to which it provides medical facilities to all its employees. Thus resulting in lower employee turnover rate. †¢ Pizza hut branches,such as the one in Clifton, Karachi , have installed arcades to provide recreation for children. Dot puzzles and a colouring layout is designed behind te dinner mats for the children. [6] 3. 4. PUBLIC SURVEY ON ECONOMIC AND SOCIAL IMPACT A host of people were surveyed during this research to obtain the general public opinion on western franchises contributions : [pic] The survey conducted amongst several people in the writing of this report shows a general agreement that international franchise does bring valuable investment and income to Pakistan. Most people agree that there was an increment in government revenue since franchises were established here. [pic] The general survey suggests that most people consider the investment and revenue generated by the franchise industry as the most valuable contribution. Social progress was considered least important whereas the various career opportunities opened up by the franchise industry fared as the second best contribution. Many people agreed that the exposure to western culture through fast food was important too. [pic] In recent years, the health oriented approach to diet has taken a grasp over our society. Fast food is generally considered unhealthy because it is usually made with cheaper ingredients such as high fat meat and foods that contain lots of unhealthy fats (saturated and trans-fats) and cholesterol, instead of nutritious foods. However, the survey indicated that though the fast food maybe considered as unhealthy, the healthy approach to life does not affect the fast food industry very much. However, most people surveyed (33%) were not sure about this factor’s impact on business. 4. PROBLEMS AND THREATS FACED BY WESTERN FAST FOOD FRANCHISE Every business in Pakistan faces certain problems, and the western fast food franchises are no exceptions. Developing a franchise restaurant in a new country is difficult, and maintainence of business and market strenght is the toughest job for theses franchises. Here are a few problems they faced by Mcdonalds, KFC and Pizza Hut once they were established in Paksitan : 4. 1. PROBLEMS AND THREATS. †¢ [pic] POLITICAL: McDonalds, being an American restaurant, has faced problems due to politics and had to deal with the instability of the government. In 2007-08, Pakistan was having problems with their President Pervez Musharraf, an important US ally. There is also the conflict with Kashmir which could cause U. S. relations to deteriorate and cause McDonalds business in Pakistan to drop dramatically. †¢ GLOBAL: Another worry that can cause future problems for McDonalds is if the United States were to pull out the aid they are providing Pakistan for any reason. At that time since Musharraf was backing President Bush in the war on terror the United States was giving a large amount of aid and highly beneficial trade deals to Pakistan. Any mishap between the US and current Pakistani government can destroy the American business and influence. †¢ SECURITY: Some people who were angry about the bombings in Afghanistan in 2001immediately related McDonald’s back to the United States and began to vandalize the property. Many people believe that McDonald’s in one of the most popular American symbols, which of course puts it at risk when political upheaval begins. So while many Pakistanis enjoy McDonalds others see it as an American company and proceed to vandalize it due to what is going on with the war. There has been protesting against U. S. led attacks against Iraq and some groups have chosen to boycott against all western products including McDonalds. Along with these boycotts sales dropped a little, but there were not any drastic changes. [7] †¢ [pic] LOCAL FOODS: One of the mian competion for western franchises is the local food industry. Pakistan has a vast arsenal of traditional local menus. Hence, KFC still needs to capture fast food market because their market share in Pakistan is still low as compared to their competitor. †¢ DIESEASE: In 2005-07, Pakistan faced major a crises on the breakage of the bird flu virus. As KFC’s main specialty is chicken, in time of epedemics like bird flu they face heavy losses. KFC still needs to innovate their products to maintain competitive advantage. †¢ POLITICS: Politics has played a major role in the franchise food business. A couple of years back in Pakistan a few of KFCs branches were burned because the people thought that they were generating money for the US. †¢ HEALTH FACTOR : Fried Chicken is usually considered the most fat-containing food item. Oil in which chicken is fried is high in cholestrol, and the healthy approach to diet in recent years may hinder KFC’s growth. †¢ [pic]LOCAL FOODS: A major threat for Pizza Hut is the competition from local restaurants. Not only are other franchises a threat but also local restaurants such as Lal Qila, Usmania, Village etc. these restaurants pose as a potential threat to Pizza Hut because they also offer food which is the ultimate aim of the customer. †¢ POLITICAL: Pizza Hut, being an American franchise restaurant, has faced problems similar to that of KFC and McDonalds due to politcal reasons. Hostilty towards American influences can lead to a decrease in sales and hamper business activity. †¢ HEALTH FACTOR: Food form Pizza Hut is considered relatively heavy, due to the massive amounts of cheese used in their pizzas. The ever present salad bar has not dispelled health concerns as people believe that the sauces used in the salad themselves contain heavy fat contents. Pizza Hut has, however, tried to diversify its menu with the introduction of new appetizers. 4. 2. PUBLIC SURVEY ON PROBLEMS AND THREATS FACED BY WESTERN FAST FOOD Many people had their own opinions on which problem threatens the western fast food industry the most in Pakistan. One of the major issues was the health factor as the point of â€Å"well balanced diet† is highly debatable in terms of fast food. [pic] Many people believe that the most important threat faced by western fast food franchise is the security. Most franchises are of American origin, and hence the on going war on terror hugely affect Pak-US relations. Also, any instabilty in the political system can turn the franchise into victims of vandalism. A large propotion of people also expressed that the vast local food industry challenges the strenght of the western fast food franchise. They argued that since local foods are cheaper, few people can afford western fast food. Those who argued for global crises claimed that the recent recession can make western fast food unaffordable. 4. 3. HEALTH FACTOR AS A THREAT [pic] A majority of people agreed that the main rival to KFC, McDonalds and Pizza Hut is the more healthier menu of Subway. Subway offers a large variety of healthy meals with heavy vegetable and protein content as compared to other franchises. Hence Subway is a major threat to the business of these franchises. [pic] This survey on health was again conducted, but from a different angle. KFC and its fried chicken, which is highly oily, was considered appropriately as the most unhealthiest restaurant. However, in this second survey most people also argued that the many sauces used by Subway in its sandwiches contain large fat contents, so Subway may not necessarily pose a huge threat to the other franchises. 5. GENERAL CONSUMER RESPONSE In this report, research was also conducted on factors which compell the people to dine in these western fast food franchises. For this purpose we would like to like to categorize people as follows: i) Low category people ii) Middle category people iii) High category people Their responses are: i) Low category people:- These people eat fast food very seldom. They visit fast food restaurants only at special occassions,as it is not that much easy for everyone to afford the quality food provided by the western fast food franchises like KFC, McDonalds etc. Some of these people dont want to waste their money on fast food, and rather have food at their own homes. Besides this, these people are also not habitual of fast food. They are not encouraging the fast food business in Pakistan. Even if fast food has been banned in this country, these people won’t be affected in any way. ii) Middle category people:- These people consume fast foods on a consistent basis. It depends upon the status factor. Many people like to boast about having dinner in a â€Å"foreign† and â€Å"branded† restaurant. They eat out in these restaurants once or even twice in a week. They pay a valuable response to fast food as they look for quality food and this response encourages the western fast food franchises. iii) High category people:- The people in this category have fast foods very often. They not only look for quality foods but they consider it as a means of having fun with friends. The natural ambience of these restaurants is also a major attraction to them. No matter how high the prices of food items at western fast food franchises go, these people are always ready to pay. They are helping to increase the trend of fast foods in Pakistan, which definitely encourages their business. Besides these categories there are also some health conscious people (as discussed previoulsy) who donot want eat fast food because of fat contents in these fast foods. Such people can be found in all categories discuused above. Reasearch on most important factor for dining in a western franchise fast food is as follows: [pic] The unmatchable quality of food offered by the western franchise fast food restaurants is the main factor of attracting people. Fast food is also widley considers to be tasty, as proved by the above consesnus. The price of food at these restaurants is also significant when opting to dine there. A very few people just dine in these restaurants because of the ambience and its attractiveness. The following is the survey on peoples preferences of various fast food franchises: [pic] Most people, particularly here in Karachi, prefer to dine at Pizza Hut. It is the different variety of pizzas offered that has given Pizza Hut its widespread popularity. Also most Pakistanis generally enjoy heavy diet, and pizzas fulfill this desire. As seen above, very few people enjoy the light delicacies offered by Subway. Chicken constitutes in the basic diet of people here, and it is no surprise to see KFC score 31%. 6. CONCLUSION In culmination, we would like to conclude that the establishment of western fast food franchises in Pakistan has indeed proved to be a successful business endeavor. The economic and social contributions outweigh the threats they face by a greater margin. With greater and successful planning, the western fast food franchises can easily minimize their threats and problems. Doing so can speed their progressive activities in Pakistan. We can also conclude that the general public response to these franchises in Pakistan is positive and many people are willing to dine at these franchise restaurants because of they high quality and standard they deliver. 7. QUESTIONNAIRE Franchise Food Chains in Pakistan Questionnaire 1. Select below the income band you fall under: o Rs. 5000-10,000 pm o Rs. 10,000-20,000 pm o Rs. 20,000-40,000 pm o Rs. 40,000 & above pm 2. How often do you dine out in a month: o Once o Twice o Thrice o Never 3. Do you prefer Pakistani restaurants or western franchise? o Pakistani o Western 4. For western, kindly rate the following restaurants according to your preferences on a scale from 1-5 (1 being the highest): o KFC_____ o Pizza Hut_____ o Subway _____ o McDonalds _____ 5. What are the factors you consider most important when dining out in a western franchise? (Rank from 1-5, 1 being the highest) o Price_______ o Ambience_______ o Status Quo_______ o Taste_______. o Quality_______ 6. Do you think western franchise in food industry is bringing good investments in Pakistan? o Yes________ o If No, then why? 7. In recent years do you think that the more health oriented approach of people has affected the franchise food industry: o Yes o No o Not sure 8. Do you agree that Subway offers a healthier alternative to fast food? o Yes o No o Not sure 9. Rank on a scale from 1-5 (1 being the highest) the most important contributions of fast food chains in Pakistan: o Career Opportunities ________ o Investment/Revenues ________ o Social Progress ________ o Cultural Exchange ________. 10. Has the political situation in Pakistan drastically affected franchise food business: o Yes o No o To some extent o Not sure 11. What are the factors that can hinder the growth of Franchise food industry in our country? o Political Instability o Global Crisis o Security Concerns o Local Food industry o Others, Please specify: 12. On a scale of 1-4 (1 being the highest) rate the restaurants which offer the healthiest food. o Pizza Hut _______ o Subway _______ o McDonalds _______ o KFC _______ 13. According to you what percentage of the urban population consumes franchise fast food? o 60%-40% o 40%-20%. o 20%-10% o Less than 10% 9. BIBLIOGRAPHY WEBSITES: †¢ Corporate Webpage of McDonalds. McDonalds Corporate. 2004. Mar. 2005. . †¢  ¦Corporate Website of Pakistan McDonalds. McDonalds Pakistan. Aug. 2002. Mar. 2005. †¢ http://www. fratfiles. com/topics/kfc+pakistan/0 †¢ http://www. fratfiles. com/essays/55556. html †¢ http://en. wikipedia. org/wiki/Fast-food_restaurant †¢ http://answers. yahoo. com/question/index? qid= †¢ http://www. fratfiles. com/topics/pizza+hut+pakistan/0 ———————– [1] Reference: http://en. wikipedia. org/wiki/Fast-food_restaurant [2] Refer.ence:  §? Corporate Website of Pakistan McDonalds. McDonalds Pakistan. Aug. 2002. Mar. 2005. †¢ [3] Reference: http://www. fratfiles. com/topics/ ¦Corporate Website of Pakistan McDonalds. McDonalds Pakistan. Aug. 2002. Mar. 2005. [4] Reference: http://www. fratfiles. com/topics/kfc+pakistan/0 †¢ [5] Reference: http://www. fratfiles. com/topics/pizza+hut+pakistan/0 †¢ [6] Reference: Corporate Website of Pakistan McDonalds. McDonalds Pakistan. Aug. 2002. Mar. 2005. [7] Reference: http://www. fratfiles. com/topics/kfc+pakistan/0 [8] Reference: http://www. fratfiles. com/topics/pizza+hut+pakistan/0 [9] Reference: http://www. fratfiles. com/essays/55556. html.