We live in an age of metaphors. We use all kinds of violent terminology to denote the most peaceful of all human relationships – business. Terms like price-war, hostile takeover, predatory pricing, price gouging, etc., are common place. None of these terms has any place in discussions of business and the economy, but in the age of metaphors, anything goes.
In these times, here’s an example to demonstrate a simple point that economic theory makes – No business, however big, can defy consumer preferences for long if it wants to stay in business.
Having stayed in Ahmedabad for 3 years, I have been amazed by the preponderance of vegetarian restaurants there and by how rare are restaurants that serve non-vegetarian fare out there. That was when I understood that Gujaratis, be it Hindu or Jain, are predominantly vegetarian.
Take it from me – Gujaratis are NOT the symbol of asceticism. They love their food. They love their fun. They show their love for life on their shirt sleeves. They love eating out more than you can imagine (if you haven’t been to any part of Gujarat, you can’t know this really well). During my 3-year stay there, festival holidays were the worst days to go out to dine at a restaurant. The queue everywhere, especially at the good and sought after restaurants, would take 40-45 minutes to clear. And let’s not discuss Sundays.
With all this culture of eating out, Gujarat must be the dream of any restaurant chain, right? Wrong! Especially if your brand is Whatever Fried Chicken and your menu largely revolves around the different ways in which you could cook and serve the meat of that bird. For how many years can franchisees of the biggest international chain wait till the magic of the brand will cause the preferences of the Gujarati to change enough to draw them in droves to chomp on the chicken nuggets? The interest costs sure must have been piling up.
It comes as no surprise that KFC decided to go veg. Personally, I knew it was only a matter of time before it happened. As I understand economics and marketing, the way a business makes money is by offering goods and services that people value, i.e., express a preference for over the money they have in hand (or in fact the other goods they could buy with that money). Those that fail to do so will not get the business. There are only 2 ways to address this
1. Go out of business
2. Change your products to meet customer preferences
What has happened is to be celebrated, for the free market has won and once again demonstrated that no business entity, however large, can act against consumer preferences for long. It has demonstrated that no business entity is immune to the forces of supply and demand, and the law of scarcity.
The best part of this is that no one has lost. If KFC does perform well going forward, it would have won customers over. If customers do find KFC’s veg menu good, they would have won the challenge of communicating their preferences to the producers. Above all, it is a victory for the free-market (as I’ve already said) and, it goes without saying, for those (like me) who proclaim its virtues from the rooftops.
p.s: As a vegetarian, I am yet to step into an outlet of KFC till-date, not even for their low-price ice-creams.