Question

Walt Disney Company is famed for its creativity, strong global brand, and uncanny ability to take service and experience businesses to higher levels. In the early 1990s, then-CEO Michael Eisner looked to the fast-food industry as a way to draw additional attention to the Disney presence outside of its theme parks—its retail chain was highly successful and growing rapidly. A fast-food restaurant made sense from Eisner's perspective since Disney's theme parks had already mastered rapid, high-volume food preparation, and, despite somewhat undistinguished food and high prices (or perhaps because of), all its in-park restaurants were extremely profitable. From this inspiration, Mickey's Kitchen was launched. The first two locations were opened in California and in a suburb of Chicago, adjacent to existing Disney stores. Menu items included healthy, child-oriented fare like Jumbo Dumbo burgers and even a meatless Mickey Burger. Eisner thought that locating each restaurant next to existing Disney stores was sure to increase foot traffic through both venues. Less than 2 years later Disney closed down the California and Chicago stores and shuttered further expansion plans. Eisner cited overwhelming competition from McDonalds and general oversaturation in the fast-food industry as the primary reasons for closing down the failing Mickey's Kitchen.

-Based on your own knowledge of Disney and the information provided in the scenario, does Disney appear to create value in its businesses primarily through a cost leadership or through a differentiation strategy?

-Why do you think that Mickey's Kitchen failed? Support your answer with a logical argument, using information learned in chapter 4.

Answer 1

1) Disney create value in its business by offering a special entertainment service within its theme parks and the environment provided is completely different than what is available anywhere outside. So clearly Disney competes on the basis of differentiation and not based on cost advantages. This is also proven by the in park restaurants which provide food but the margins are quite high as the offering is a bundled one of entertainment and food.

2) Mickey’s kitchen failed because it was difficult to provide a differentiated environment outside the theme park and these restaurants could not compete on cost with its competitors. The resources employed by Disney seeks to create a differentiated environment but it was not successful and because of the high margins, it could not compete with the low cost providers in the price sensitive fast food segment. The in park restaurants succeeded because of a captive audience base who had limited options for food inside the park. But on the outside this was not the case.