Byrons Hamburger' Firm in Saudi Arabia | Free Essay Example

Byrons Hamburger’ Firm in Saudi Arabia

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Topic: Business & Economics
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Introduction

The issue is whether Byron’s Hamburger should establish a branch in Riyadh, Saudi Arabia. The answer is yes. The reason is that Saudi Arabia is currently one of the biggest markets for fast food. As such, Byron’s Hamburger should establish a branch in Riyadh to capture this market. Fast food is now becoming popular among Saudi citizens. Studies indicate that about 76.4% of the population takes at least a junk meal in a day.

The fast food intake is also popular among the younger generation, particularly, women and children. Stable growth in individual wealth combined with a sedentary lifestyle is a possible explanation for the increased consumption of fast food among the Saudi population (Naeem V).

Saudi Arabia’s fast food market is estimated to be about $4.54 billion by 2015 in terms of gross sales. The growth is majorly driven by the internal demand of the population. Therefore, Byron’s Hamburger should take advantage of and establish its branch in Saudi Arabia. However, the firm must expect intense competition from the already existing firms such as McDonald’s.

The main players (competitors) in the market

The fast-food industry is not a new business in Saudi Arabia. It is one of the major enterprises that have attracted large fast-food chains around the globe (Cole 58). The most common fast firm chain is McDonald’s. Other global big players include Pizza, Burger King, and Donuts. Major firms such as Hut, Hardees, Subway, and Little Caesars have also made a recognizable footprint in the fast food market in Saudi Arabia.

Besides the global multi-national food chains, local firms including Al-Baik, Shawerma, and Kudu have also become popular brands among the Saudi nationals. Both the multi-nationals and the local firms would offer cutthroat competition to Byron’s Hamburger. However, Byron’s Hamburger should be innovative in its fast food offerings to remain competitive. Recent studies indicate that most meal packages combined with fries and coke have gained considerable popularity.

The trends of Fast Food in Saudi Arabia

Saudi Arabia is one of the fast-growing economies in the Gulf region recording over six percent growth in the last two years. The growth is mainly driven by oil exports as well as other upcoming non-oil industries. Besides, Saudi Arabian demographics consists of a fast growing, young and increasingly wealthy population. Over 60% of the population are young middle-class of below 29 years with an average per capita income of about $33, 500 in 2014 (Foodex 3).

The population is expected to expand rapidly incommensurate with economic growth due to the current stability in the oil prices. It is estimated that the population will expand exponentially by 3.5% annually through to 2018. Besides, the country records a high industrial expansion with fast food commercial activities alone, recording over 8.8% growth annually. The growth in the food industry is supported by increased consumption of non-staple foods such as poultry, fish, vegetables, egg, and cheese.

Also, the country is currently experiencing easy capital movements and profit repatriations for foreign investments. The country’s boom in economic growth is being experienced and exploited by the local food producers, retailers, and service providers (Foodex 3). Similarly, global firms can also take advantage of an exceptional perspective. The Kingdom of Saudi Arabia is one of the most secure countries in the Middle East with a low-cost exporting base coupled with a significant increase in consumption.

Specifically, the food consumption in Saudi Arabia is estimated to be over 3100 calories daily per capita with the food sector experiencing a yearly expansion of over 18.5% (Foodex 3). The annual food and drink importation are estimated to be about $14.4 billion.

Due to rapid expansion in population and economy, the food consumption is expected to rise by over 55.3% in the next four years to be over $70 billion in 2018. The increase in food consumption has been boosted by the $800 million food security policy initiative recently launched by the government (see more statistics in the appendix).

PESTEL analysis

Political environment

The political system in the Kingdom of Saudi Arabia is highly committed in its economic growth and development. Even though the Kingdom is established under Islamic laws, it has been open to economic aspects and established policies that spurred this growth (Bradley 50).

The political situation in the Kingdom has impacted on the fast food industry positively. The consumption of fast food has remained to be the uncontested form of entertainment among the Saudi population. With the ban on cinemas and nightclubs, eating out remains the only form of entertainment.

Essentially, the political aspects are a predominant influencing factor in the management and operations of both local and international fast food chains in Saudi Arabia. Like any other industry or business, the fast food industry requires a politically stable environment to achieve its goals. However, the Kingdom, particularly in Riyadh, where the business is supposed to be situated, is enjoying both political and social stability. Byron’s Hamburger will thrive to expand since the country in which it operates enjoys political stability.

Economic environment

The recent accelerated growth in the Kingdom’s economy is one of the main aspects that drive the industries. The rapid growth in the economy has resulted in an increase in the per capita GDP by about 8%, which is the highest in the region. Besides, the Kingdom’s population is one of the fastest growing.

The growth is expected to exceed 4% per year by 2015. The growth in population presents an expanded market with high disposable income levels. According to Foodex Saudi 2013 survey, the Kingdom’s economy is expected to grow by about 11% by the end of 2014 mainly driven by stable oil prices and the growth in the private sector. Among the countries in the Gulf region, Saudi Arabia is the largest market.

The recent economic boom in Saudi Arabia has resulted in many smaller businesses sprouting up due to increased demand for products and services. The disposable income has increased considerably, and most businesses are transacted. Besides, spending on a sedentary lifestyle has increased tremendously. Therefore, improved economic situations will greatly influence the growth and development of Byron’s Hamburger.

Social environment

Many social issues affect the industry. However, Byron’s Hamburger will align its products with the target market needs, including age and culture. The most important social factor influencing the industry is culture (Pinson 56). For instance, Muslim tradition encourages hospitality.

As such, it is a norm in Saudi Arabia for guests to be invited to in-home parties and banquets. As a result, the demands for fast foods in such parties are often high. Besides, Muslim communities do not take meals related to pig products such as pork and bacon. Such food products are always against the Muslim religion and are prohibited in most of the Islamic states such as Saudi Arabia.

Cultural consideration is critical for most of the firms in the fast food industry. The production of such food or just traces of the elements in the final product has always proved counterproductive to most of the firms operating in the Islamic states. In some cases, the traces of the pig products in the foodstuffs have led to the closure of some of the firms in the Middle East, particularly in Saudi Arabia.

The contravention of the culturally oriented laws is very detrimental to some of the foreign firms that are not conversant with Muslim beliefs and practices. Byron’s Hamburger has greater chances of success by taking into consideration such beliefs and practices and aligning its products to the social and cultural needs of Saudi society.

Similar considerations are also important for alcoholic drinks. Alcoholic drinks are highly discouraged in Saudi Arabia, making the majority to rely on other drinks for refreshment. Therefore, Byron’s Hamburger must ensure that all its products are free from alcohol content to capture the wider Saudi young market.

Cultural restrictions are critical considerations that the firm has to take seriously. While these restrictions might seem to be risky, the firm can take advantage through investments in soft and refreshment drinks, which is highly popular with the locals. Besides, the firm can increase poultry, fish, vegetables, egg and cheese end products, which are also common with the locals.

Other social factors, such as gender are also important. The firm must consider the behavior of women not only in terms of market segmentation but also in terms of cultural aspects. For instance, the firm should understand the eating habits of women and the most likely foods they are allowed to take.

As indicated, due to other religious aspects such as the ban on other forms of entertainment including night clubs, dining out is the norm in the Kingdom and the trend is continuously growing. Therefore, investments in areas where socio-cultural factors are considered will promote the sales of the product.

Further, the presence and fast-growing young population is also another important feature in the demographics. Studies indicate that about 59% of the population is below 24 years. The larger young population not only increases the market due to the newly adopted lifestyle but also offer a large workforce for the new firms.

The interaction of the young people with the rest of the world through education and social networking has opened doors for the international franchise with multinational food chains such as McDonald’s taking the larger market share. International corporations are currently becoming very popular among the young population.

Technological environment

In the Kingdom, technology in the fast food industry is not only limited to basic productions in the processing plants, but has also incorporated a modern method of food processing, packaging, and distribution. Besides, social media aspects have also been incorporated into the marketing and popularity of the brands. In other word, firms in the industry are continuously incorporating online activities in their operations.

As such, technology is integral to the success of firms. However, the developed ICT infrastructures in the Kingdom only support large businesses (Burns 78). As most of the operations currently rely on the availability and usability of information technology, Byron’s Hamburger should thrive on applying available technology to develop. In essence, technology would form an integral part of the firm.

All aspects of the firm, including sales, purchases, marketing, management, and operations, depending on the development of technology. Therefore, Byron’s Hamburger should invest in the available cost-effective technology to ensure the increased presence of the products in the market.

Legal environment

Legal factors are critical to the establishment and operations of firms and the fast food industry as a whole (Solomon 47). The efforts that have been made by the Saudi government through increased spending on reforms have spurred the economic growth of the country. The legal requirements that have been put in place by the government support the establishment and growth of businesses.

The first step towards economic leverage through regulations was the adoption of the World Trade Organization (WTO) terms and conditions and making the requirements to be consistent with the local laws and regulations. However, these changes have been criticized over bureaucratic and inappropriate policies, which predominantly affect the private sector particularly in a competitive market the country is aspiring to create.

Businesses are expected to comply with the available legal requirements in order to effectively operate in the kingdom. For instance, private businesses are expected to have a minimum of ten thousand dollars to start their operations. As such, Byron’s Hamburger would be expected to comply with the legal requirements in order to operate effectively. Moreover, the regulations require that the foreign firms must partner with the local company and the local firms should have the majority shares.

Even though the regulations seem to be complex and financially risky, foreign investments have been thriving. The government has recently come up with various policies and strategies that have enabled foreign investments to thrive.

Essentially, the legal environment in Saudi Arabia is encouraging and supports the growth and development of firms particularly businesses that adhere to the required regulations. Byron’s Hamburger should take advantage of the supportive legal environment to establish and ensure the products reach the target customers.

SWOT analysis for Byron’s Hamburger

Strengths

The firm’s product brands will form its major strength. Byron’s Hamburger will be a brand known to all particularly consumers. In addition, the firm’s trademark will also provide an additional competitive advantage. Consumers will perceive Byron’s Hamburger brands as superior and original. The brand name will differentiate the firm’s products from other similar brands of fast foods. Moreover, the firm should come up with distribution channels that would ensure the presence of the products to the target consumers.

Further, the perceived value of the products will make the firm more appealing to the clientele (Keller and Kotler 202). The firm should keep the originality and flavor of its products. In fact, Byron’s Hamburger will be preferred among consumers for its originality and contents. The branded product will be offered in diverse quantity and prices ranging from the up-market finest to low-price value. The strategy will be useful in covering diverse classes of clientele from low-income to high-end consumers.

Weaknesses

Byron’s Hamburger will find it hard to enter into the market given the increased competition and lack of the consumer knowledge of its brand. As such, attracting and retaining clientele would take a long time. Besides, the aim of capturing and maintaining a sizable market share needs a strategy that will take in more investments.

At first, the firm will be forced to charge lower prices in all market segmentation, which in effect will squeeze its margins. The other weakness Byron’s Hamburger will encounter arises from the fact that numerous brands of fast food firms already exist in the market, which in effect, offers stiff competition (Lee 89).

Threats

The ever-emerging fast food brands and substitute flavors will have greater effects on the client’s purchase tendencies. Byron’s Hamburger has the responsibility of regularly appraising its product offerings to meet the expectations of the customers. Further, the probable slump in the consumption of the product due to increased competition is likely to initiate decreased proceeds.

The outcome would divert the firm’s attention from high to low-pricing strategies, thereby restructuring the pricing system. Byron’s Hamburger also faces the threat of competition from various similar firms that has been pursuing the motive of invading the market. Also, the steady increase in the cost of production is a concern for Byron’s Hamburger since it has an impact on the product’s price and revenue (Keller and Kotler 201).

Opportunities

Byron’s Hamburger has the prospect of expanding into new markets through the application of various strategies. In other words, the firm has increased opportunities to expand in new markets not only in Riyadh but also in other cities where the product is not present.

Also, Byron’s Hamburger has a prospect of developing its customer base through the application of its advanced technological prowess (Vernon 123). Further, there is a prospect of immense online business developments, including catalog purchases through the application of online facility enabling the firm to serve a large customer base. As a result, the firm will be able to achieve increased revenue margins.

Moreover, according to the industry trends, the increased consumption of fast foods among the younger generation as well as middle and high-income households offer a greater opportunity for the firm to launch the new product in the market (Vernon 123).

Besides, novel prospects for the launch of the firm’s new products are emerging in the young and middle-aged category of the market. The young and middle-aged is the highest in terms of demographic market segmentation.

Market analysis for Byron’s Hamburger in Riyadh

Target market and competitors

Target market

The main target market for Byron’s will be middle-income earners that form the largest volume of the middle-class populace. The reason is that the consumption of fast foods is experiencing increasing trends, particularly among the middle-class whose income can support such consumption.

Moreover, they represent the working class which has little time to prepare their meals (Stutely 31). Also, the consumption of fast foods increases among the youth as well as middle-age customers. The firm will take advantage of these inclinations to increase its market share.

According to the survey, the target market for Byron’s will mainly consist of Riyadh residents of between twenty-one and thirty years as well as those between thirty-one and forty years. Generally, the firm will target the younger generation and the middle-ages customers, particularly women. In other words, the market will consist of individuals who are young, outgoing, and full of life.

Also, Byron will utilize premium tactics to appeal to the specific consumer division, thereby augmenting the volume of sales. The market survey indicates that male consumers represent approximately twelve percent of fast food consumers, while females account for the remaining proportion.

Most importantly, the young populace between the ages of twenty-one to thirty years forms the bulk of the fast food market since the age bracket accounts for over sixty-two percent of entire product consumers. Besides, individuals between the ages of thirty-one to forty years account for approximately eighteen percent. Moreover, individuals of over forty years consume estimated over twelve percent.

Young women populace, especially between the ages of twenty-one to thirty years, will also be a major market target for Byron due to their elastic reactions to market demands. Additionally, Byron will target classy and high-income customers since the individuals consume at least twice what other consumers take (Kotler and Armstrong 345).

Competitors

As indicated, the fast food industry is not a new business in Saudi Arabia. The industry is a major enterprise that has attracted large fast-food chains around the globe. The fast-food chains have already been established in the market, blocking the entries of new firms into the market. Besides, they form the largest competitors in the market. The highly prospective competitors include the major global players such as McDonald’s, Pizza, Burger King, and Donuts.

Major firms such as Hut, Hardees, Subway, and Little Caesars will also offer very stiff competition. Besides the global multi-national food chains, Byron’s Hamburger also faces stiff competition from local firms including Al-Baik, Shawerma, and Kudu. In essence, both the multi-nationals and the local firms would offer cutthroat competition to Byron’s Hamburger. However, Byron’s Hamburger should be innovative in its fast food offerings to remain competitive.

Competitor analysis

As indicated, Byron’s Hamburger will continue to experience stiff competition from various firms in the industry, including McDonald’s, Burger King, and Al-Baik. Currently, McDonald’s, Burger King, and Al-Baik have market shares of approximately twenty-five percent, twenty percent, and fifteen percent respectively. The firms are the major players in the market.

McDonald’s

McDonald’s is the leader in the industry and controls approximately twenty-five percent of the entire market share. Also, McDonald’s has become tantamount to quality flavored fast food products. McDonald’s has numerous fast food outlets in Riyadh, making its products be known by the majority of the consumers. Further, the firm has a distinct trademark as well as efficient delivery channels. Moreover, McDonald’s product philosophy is centered on quality and consumer satisfaction, thereby gaining a competitive advantage over rivals.

Burger King

Burger King is the second largest in the industry, with over twenty percent of the market share. The firm has diversified its operations in over 100 food outlets, including the collaboration of some of the shopping malls across Riyadh. The business brilliance of the firm’s management has led to its rapid expansion within the country.

Further, the low-pricing strategy of Burger King has been vital in the attraction of consumers. The firm has also received various international quality accolades, thereby amassing numerous consumers. Moreover, Burger King has experienced an increasing trend in revenues leading to augmented levels of growth.

Al-Baik

The firm claims fifteen percent market share and rapid growth within three years. Al-Baik has experienced massive growth due to its aggressive promotion strategies as well as being a local dominating firm. Through the production of super-premium seasoned fast-food products, the firm creates a better creation that suits the consumers’ demands. Additionally, Al-Baik was the first to utilize local mix innovation in the manufacture of its products leading to the attraction of a large customer base. Researches show that the Al-Baik brands go down smoothly compared to brands of other companies making it preferable among various consumers.

Byron’s Hamburger market position map

High quality Byron’s Hamburger will be utilizing the perceptual map to position its products into the new market. Given the fact that the products are new in the market, high prices would not be effective for the firm. Similarly, the low quality will not attract new clients. The reason is that there are already established firms in the market.

The firms are the price leaders. Such firms also have a better understanding of the market compared with Byron’s Hamburger. Therefore, the firm has to provide high-quality products with moderate prices to attract new customers. Byron’s Hamburger’s position in this market can be indicated with a circle on the perceptual map below. The indication is that the firm’s products must be at moderate prices and reasonably high quality.

Byron's Hamburger market position map

Porter’s five forces

Competitive rivalry

Increased competition is one of the major barriers to entry into the Saudi Arabian market (Mckeever 121). The purchasing patterns of consumers depend on products’ eminence, price, delivery period, market closeness and the firm’s repute. As such, the firm will have to look into the quality, prices and delivery times of products to attract numerous buyers. Moreover, the firm will consider locating its operations near the market to capture more buyers.

Threats of new entrants

The fast-food industry is one of the industries in which barriers to entry is highly reduced. Any firm can enter into this industry with minimal capital requirements. In Riyadh, barriers to entry into the fast food industry are the bureaucratic procedures that normally take time to complete.

The suppliers’ power

The environment in which Byron’s Hamburger is expecting to operate has high suppliers power. In fact, most of the food supplies in Saudi Arabia are imported. Almost all the raw materials that would be needed for fast food processing will be imported. The major suppliers are controlled by the government making it difficult for firms to control their supply chain.

The buyers’ power

With several fast food firms operating in Riyadh alone, the balance of power shifts towards the buyers. In this scenario, the quality of fast food products will be the determining factor. However, as in all places, consumers will be willing to try something new. Byron’s Hamburger will take advantage. Besides, offering variety would also influence the clients.

Availability of substitutes

Shopping malls are the only alternative to fast food restaurants in Riyadh. In fact, the fast food markets in shopping malls are growing considerably offering stiff competition to the first food firms.

The increased cost of establishment

The expenses incurred in the establishment of plants are expensive and industry-specific. As such, the firm will incur the additional costs in sustaining trademark devotion as well as establishing plants (McKeever 121). Most importantly, the business will consider its delivery chains, localities, and trademark as well as the financial capital to gain the advantage of warding off potential competitors.

The reactions of firms to the barriers of entry

The industry is highly competitive with players offering diverse similar products. As such, most firms consider employing convenience and low-price strategies to counter substitute threats. Moreover, firms exploit technological advancements as well as the financial strengths to increase competitive edge (Kraten 99). Also, firms consider using various advanced flavors to produce high-quality products.

Conclusion

Considering the external and internal analysis of the firm, the market situation, and trends in the industry, there are still increasing opportunities for Byron’s to invest in Riyadh. According to the industry and market trends, the increased consumption of fast foods among the younger generation as well as middle and high-income households offer a greater opportunity for the firm to launch the new product.

Moreover, new prospects for the firm are emerging in the young and middle-aged category of the market. In fact, the young and middle-aged is the highest in terms of demographic market segmentation. Further, Saudi Arabia presents one of the fast-growing markets for fast food.

In the Middle East, it is the biggest in terms of market share. The market is majorly driven by the internal demand characterized by the growth of individual wealth combined with the sedentary lifestyle. However, the firm has to take cognizance of the threat posed by increased competition from already established firms.

Works Cited

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Appendix

Massive growth in consumption

Massive growth in consumption

Massive growth in MGR sector

Massive growth in MGR sector

BMI’s risk reward ratings

BMI’s risk reward ratings

BMI’s risk reward ratings