Life Project Analysis of Fast Food Services in Australia

1. Overview and Market structure

I. Overview

The fast food industry mainly serves the customers with high energy nutritious and health foods. The main products of the industry include chips, burger, grilled chicken, fried chicken, sandwich, yoghurt, sausages desserts and confectionaries (Magner, 2015).

II. Market structure

In the fast food industry, there are many competitors that sell the products found in the industry. As a result of high number of competitors in the market, the competition is quite intense. The products of the competitors in the market are differentiated by quality and barding. This therefore indicates that the market structure is monopolistic. In a monopolistic market structure, the prices of the products of the company are influenced by the intensity of the competition (Taussig, 2013). In the fast food industry, the prices are usually dependent on the prices that are offered by the competitors. This has made the prices of the products almost similar. There are only a few barriers to the market entry and hence the high number of businesses operating in the industry. The number of producers and consumers is unlimited. A market that has unlimited number of producers and consumers is referred to as a perfect market. However, a perfect market only exists theoretically. The market structure in the fast food industry therefore displays monopolistic as well as perfect market structures. The number of restaurants has been increasing over the years and so is the number of consumers.

2. Demand and supply analysis

III. Demand theory

One of the conditions that are a determinant of demand in the industry is the need to satisfy the taste of the customers. According to the theory of demand, people demand goods and services for the purposes of satisfying a want (Sloman, Norris & Garrett, 2013). The need to satisfy certain cravings is a major driver of demand among the younger customers. The growth in the disposable income is also one of the major drivers of demand in the market. There has been an increase in the amount of disposable income in most households which makes it possible for the people to buy luxurious products. According to the demand theory, the ability of the customers to procure the goods is an important driving force for the demand. Most of the customers in the industry are the working class. This includes the parents who provide their children the money to purchase the products of the industry. The willingness of the customers is also a determinant of demand in the industry. The industry has increasingly been focusing on the production of healthy food. This has increased the willingness of the customers to consume the products of the industry. Willingness by the customers to purchase the products is an important aspect in the demand theory.

IV. Supply theory

According to the theory of supply, the cost of production is one of the determinants of supply. The supply is high when the cost of production is low. However, the supply is low when the cost of production is high. In the industry, the cost of production is relatively low. The main costs in the industry mainly involve labour. The other expenses are relatively low and this favours the supply of the products in the market. According to the supply theory, technology is one of the factors that determine the supply of products. In the fast food industry, the frequent changes in the industry does not increases costs in the industry. The fast food chain like KFC utilizes the modern technology for the purposes of increasing its levels of production. This has played an important role in terms of increasing the levels of supply. According to the theory of supply the indirect taxation plays an important role in terms of determining the level s of supply (Rios, McConnell & Brue, 2013). In the fast food industry, the levels of taxation are quite low and this has contributed to an increase in the levels of supply.

3. Market analysis

V. Market for traditional fast food

A. Market for traditional fast food

Market equilibrium

Initially, the demand for the traditional fast food was very high. This was attributed to the lack of social awareness of the health problems associated with the traditional fast food. The high levels of demand for the traditional fast food resulted to the high levels of supply. An increase in demand usually leads to an increase in supply for the purposes of meeting the needs of the consumers (Marshall, 2009). An increase in demand usually shifts the demand curve to the right. This has the potential of leading to an increase in the process of the product. The shift of the demand curve to the right only creates a temporary shortage in the market. The supply has to increase in order to meet the demand in the market. An increase in the supply creates a surplus in the market (Marshall, 2009). This leads to the reduction in the prices. The situation was the same for the traditional fast food as the surplus was created by an increase in the number fast food chain leading to the increase in the supply. However, with the increasing social awareness, the demand for traditional fast food started reducing. The reduction in demand and supply led to the development of the equilibrium price. The point in which the supply and demand curves intersect is referred to as an equilibrium price. At the point equilibrium price, the prices for the fast food are steady. The price of the traditional fast food has thus remained constant over a period of time as a result of changes in the supply and demand.

B. Overall changes to demand

A decrease in demand

The demand for the traditional fast food has been changing over the years as a result of social awareness which has led to a reduction in its consumption. A new equilibrium price is developed when the demand is changes (Cowen & Tabarrok, 2009). A change in demand also leads to the changes in supply of the product. In the fast food industry, the number of restaurants and fast food chains that produces the traditional fast food has reduced drastically. The traditional fast food occupies only 5.6% of the market share. This is as a result of the changes in the demand. Most of the people are concerned about their health and do not consume the traditional fast food. As a result of the changes in the demand, there have also been changes to the prices of the traditional fast food. The prices are currently lower as compared to the past. The reduction in the process can be attributed to the low number of customers despite their purchasing powers. A decrease in demand results to a decrease in supply and a drop in the prices.

VI. Elasticity

A. Own price elasticity

According to the elasticity of demand, a change in own price leads to a change in the quantity demanded (Taussig, 2013). In the fast food industry a temporary change in the traditional fast food led to a decrease in the quantity demanded. According to income elasticity, the responsiveness of the quantity demanded for a commodity changes with income. An increase in the income leads to an increase in the demand of the traditional fast food.

B. Probable price sensitivity

The prices of the traditional fast food are sensitive to the income as well as the demand. Since it is considered as a luxurious food product, it is mainly purchased when people have a high income. The price of the traditional fast food therefore increases depending on the income.

C. Price increase

A rise in the price of the traditional fast food will have a positive impact on the healthier food alternatives. The number of customers purchasing the healthier food alternative will increase while the number of customers purchasing