Business Essay

384 Words2 Pages
‘Burgers: big or small?’ Despite concerns about obesity, the UK market for fast food is still growing. The market leader in the UK remains McDonald’s, which has 1225 UK outlets. The sheer scale of McDonald’s UK operation creates significant economies of scale. For example, by rolling out the brand across the UK, McDonald’s has managed to create substantial marketing economies of scale. Economies of scale enjoyed by dominant companies can make life extremely tough for smaller companies battling to make headway in the same market. A new entrant to the UK fast-food market dominated by McDonald’s is the Gourmet Burger Kitchen (GBK). The business was set up by three ex-pat New-Zealanders who spotted a gap in the market for premium-quality gourmet burgers, freshly prepared to order. In addition to a standard burger and chips, the GBK menu also includes more esoteric menu items such as a chorizo spicy Spanish burger and a hot chicken satay sandwich. On average, a burger at GBK costs nearly £8. In 2007, GBK had just 28 restaurants in the UK, most of which were located in the Greater London area. The company has already won several ‘Best Burger’ and ‘Best Eats’ awards in the capital. The management of GBK has set an objective of growth. In five years’ time they want to have 350 restaurants in the UK. Business analysts believe the GBK’s programme of growth could yield substantially more economies of scale than diseconomies of scale. Questions: 1. What is meant by the term ‘economies of scale’? (2 marks) 2. Explain why economies of scale are important to companies such as McDonald’s and GBK? (7 marks) 3. a. What are marketing economies of scale? (2 marks) b. Explain two reasons why McDonald’s will be able to achieve more marketing economies of scale than GBK. (4 marks) 4. Identify and explain two

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