War of Attrition - India
War of Attrition – KFC Vs McDonald’s
War of attrition arises when two or more parties compete with each other for a resource; each competitor losing money hoping that the competitor will eventually give up and exit. To illustrate war of attrition, I am going to use the example KFC and McDonald’s competition for the Indian fast food market.
With high growth in India and changing food patterns of urban Indian families, the Indian fast food market was forecasted to reach $4bn by 2014. Both KFC and Mc Donald’s have been competing fiercely to capture this market. The competition has led to both fast food chains replicating each other’s offerings to an extent that there is little differentiation between the two. Unlike, in North America, KFC offers vegetarian and local Indian flavors. While McDonald’s has introduced spicy fried chicken burgers and chicken nuggets to compete with KFC’s Zinger range. Since McDonald’s has been in India for longer and already has 235 outlets, KFC is now following and opening outlets often a stone throw’s distance from its rival. Because of low differentiation, they have to compete on price, and now both chains offer items that are priced below Rs 25 ($0.50).
Recently, McDonald’s India announced that it was not performing up to expectations and decided to slash prices 15-16% across its offering to boost sales. With rising wages and inflation in India; low prices will put pressure on both rival’s margins. The Indian consumer is proving hard to acquire and price sensitive, which casts a shadow of on their expectations from the Indian fast food market.
It seems that both players want to be established as the sole provider in the industry and hence have started offering similar products. However, both companies are losing money due to lower margins and high marketing costs.
References:
Economic Times - http://articles.economictimes.indiatimes.com/2011-08-28/news/29935857_1_kafeccino-kfc-s-krushers-colonel-sanders/2
Economic Times -
War of attrition arises when two or more parties compete with each other for a resource; each competitor losing money hoping that the competitor will eventually give up and exit. To illustrate war of attrition, I am going to use the example KFC and McDonald’s competition for the Indian fast food market.
With high growth in India and changing food patterns of urban Indian families, the Indian fast food market was forecasted to reach $4bn by 2014. Both KFC and Mc Donald’s have been competing fiercely to capture this market. The competition has led to both fast food chains replicating each other’s offerings to an extent that there is little differentiation between the two. Unlike, in North America, KFC offers vegetarian and local Indian flavors. While McDonald’s has introduced spicy fried chicken burgers and chicken nuggets to compete with KFC’s Zinger range. Since McDonald’s has been in India for longer and already has 235 outlets, KFC is now following and opening outlets often a stone throw’s distance from its rival. Because of low differentiation, they have to compete on price, and now both chains offer items that are priced below Rs 25 ($0.50).
Recently, McDonald’s India announced that it was not performing up to expectations and decided to slash prices 15-16% across its offering to boost sales. With rising wages and inflation in India; low prices will put pressure on both rival’s margins. The Indian consumer is proving hard to acquire and price sensitive, which casts a shadow of on their expectations from the Indian fast food market.
It seems that both players want to be established as the sole provider in the industry and hence have started offering similar products. However, both companies are losing money due to lower margins and high marketing costs.
References:
Economic Times - http://articles.economictimes.indiatimes.com/2011-08-28/news/29935857_1_kafeccino-kfc-s-krushers-colonel-sanders/2
Economic Times -
References: Economic Times - http://articles.economictimes.indiatimes.com/2011-08-28/news/29935857_1_kafeccino-kfc-s-krushers-colonel-sanders/2 Economic Times - http://articles.economictimes.indiatimes.com/2012-07-23/news/32804614_1_food-price-inflation-drop-prices-price-rationalisation Forbes – 22/7/2012 http://www.forbes.com/sites/kenrapoza/2012/07/22/mcdonalds-struggles-to-serve-in-india/