Fast Food Industry By: Nichole Bell, Samuel Curby, Tony Chan, Jared Carchedi

1. Introduction "Over the last three decades, fast food has infiltrated every nook and cranny of American society. An industry that began with a handful of modest hot dog and hamburger stands in southern California has spread to every corner of the nation, selling a broad range of foods wherever paying customers may be found. Fast food is now served at restaurants and drive-thru's, at stadiums, airports, zoos, high schools, elementary schools, and universities, on cruise ships, trains, and airplanes, at K- Marts, Wal-Marts, gas stations, and even at hospital cafeterias. In 1970, Americans spent about $6 billion on fast food; in 2000, they spent more than $110 billion. Americans now spend more money on fast food than on higher education, personal computers, computer software, or new cars. They spend more on fast food than on movies, books, magazines, newspapers, videos, and recorded music -- combined." (Fast Food Nation) If there was an industry with demand and plenty of options to enter the market, the fast food industry is an optimal choice as we will show in this report. 2. History and Economic features of industry This industry is nothing new to our economy. The fast food phenomenon evolved from drive-in restaurants built in southern California in the early 1940s. With the rising popularity of cars, entrepreneurs designed restaurants that let people order and eat without leaving their vehicles. "Then, in 1948, they decided to try something new: they simplified the menu so that there was nothing that required a knife, spoon or fork; they replaced all the crockery and glassware with disposable cups, plates and bags; they dispensed with waitresses, bus boys and carhops, leaving customers to come to the counter to order and collect their food; and, most importantly (so far as the concept of fast food is concerned), they divided the food preparation tasks into a production line." In the post-World War II period in the United States, McDonald's and other fast food restaurant chains rapidly gained a

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play areas. the future of this industry becomes even more promising. with many featuring child-size menu combos.8 percent in 2006 alone.Fast Food Industry By: Nichole Bell. In 1970. people generally had a choice between greasy spoon diners where the quality of the food was often questionable and service lacking. Fast food is an important segment of the restaurant industry and the growth of this segment is outpacing the growth of overall restaurant industry". says US Fast Food Market Outlook 2010. or high-end restaurants that were expensive and impractical for families with children. designed to appeal to younger customers. consumers consume more than half of their food in restaurants. and whimsical branding campaigns.and this amount increased to $110 billion by 2000.1% since 2005. The fast food industry gave parents a chance to enjoy some time alone while the kids played with their toys or in the play areas provided in the restaurants." US fast food industry has reported remarkable growth despite being severely affected by the economic turmoil.6 billion by the end of 2010. Jared Carchedi reputation for their cleanliness. which means it is expected to drive the market to a value of $57. "In the US. The fast food industry has witnessed tremendous growth over the last few decades. Americans spent $6 billion on fast food . The fast food market is forecast to maintain its current growth expectations. Tony Chan. If the estimated figures for the last 10 years are added. Samuel Curby. fast service. According to the fast food industry statistics. which reduces the amount of time spent on preparing meals 2|Page . like the iconic Ronald McDonald. "Prior to the rise of the fast food chain restaurant." Fast food restaurants rapidly became the eatery "everyone could agree on". and a kid friendly atmosphere where families on the go could grab a quick meal and avoid hassle of cooking. The US fast food industry now employs two million workers in the United States. "Drivers of growth include increasing numbers of Americans in the workplace. "this industry experienced an overall growth of 4. and is considered to be a major asset to the US economy. an increase of 12.

576 restaurants. 2. they had a revenue increase of 5. Yum! Brand. The company seems to be behind its competitors with only 814 international units total. Wendy's: Has 6. 3. The company generated $2. with a 0. McDonalds: Located in 126 countries and on 6 continents. In 2010.3% since 2005. and Taco Bell and Pizza Hut. 5. 3|Page . “The world’s largest restaurant company in terms of units with approximately 33.2 billion in revenues each year.6% decrease in North American same store sales. Wendy's.000 restaurants worldwide consisting 60% of sales overseas. Yum! Brand: Collects 50% of sales from overseas and also owns A&W. and operates over 31.86%. This represents an increase of 5. Subway: One of the fastest growing franchises in the world with approximately 34.100 restaurants in more than 70 countries and is the second largest fast food hamburger restaurant chain in the world.Fast Food Industry By: Nichole Bell. and 5% global comparable sales growth in 2010 marks the 8th straight year of such increases. Long John Silver's.394 were owned and operated by the company and others are franchised and located in 21 countries. In 2010." The key players in the global fast food industry are McDonalds. Part of this increase is from the 541 new restaurants opened in 2010. Jared Carchedi at home.4 billion in sales in 2010. the largest in the industry. Burger King. They are also looking to expand its presence in the international space.000 restaurants in more than 100 countries and territories. Tony Chan. of which 1. Samuel Curby. 38% of operating income is in international sales. and Subway. KFC.” 4. the United States fast food market is forecast to have a volume of 37 billion transactions. Each is briefly listed below with comparable revenues in industry in Exhibit A: 1.5 billion in revenue in 2009. Burger King: Has more than 11.447 restaurants in 97 countries as of 2011 and earns $15. $2.

7% 6. Moes Southwest Grills and Bob's Big Boy are all on the expansion trail.471 $1.0% 5. Krispy Kreme.141 9.581 $2. Samuel Curby.925 2.083 $391 $372 $79 $4 $200 $131 $48 $80 $87 20.218 $3. 3.9% 5.1% 7.2% 0. Camille's Sidewalk Café.339 1.380 47% 0% 40% 80% 88% 46% 71% 91% 58% 81% Panera Bread Company (PNRA) $1.0% 10.689 6.773 1.0% 4.836 $9.4% 32.404 $4.419 $1.2% 2.775 $7.635 1.3% 3. Papa Murphy's. The competitive forces affecting industry members: Porter's five forces model analysis: • Rivalry Amongst Sellers While the fast food sector has long been regarded as competitive.4% 5. Jared Carchedi Exhibit A Company McDonald's (MCD) Yum! Brands (YUM) Starbuck’s (SBUX) Darden Restaurants (DRI) Brinker International (EAT) Wendy's International (WEN) Burger King Holdings (BKC) Jack in the Box (JACK) CKE Restaurants (CKR) Domino's Pizza (DPZ) Revenues (M) Net Income (M) Net Margin Restaurants Franchised % $22. Cosi Inc. ended January 31. Brands like Subway.537 $2. "The quick-service 4|Page .212 3. Tony Chan.551 $1. the level of rivalry only intensifies.478 37. Whataburger.451 11.353 Data from company FY 2009 annual reports (CKE data from FY annual. 2010).000 16.621 $3.Fast Food Industry By: Nichole Bell.745 $10. Multi-unit development deals are being inked left and right.

Samuel Curby.J. service. Technomic reports that 49% percent of consumers say they eat at fast-food restaurants at least once a week with one in four having increased their visits over the last year. Hottovy. or purchase equipment. slowdown." McDonald's and other chains." He added that rivalry "appears to be on the rise. customers can be fickle. In the bigger picture. Overall competition "is expected to remain fierce with respect to price. an analyst at Morningstar. with chains increasingly competing with one another on the basis of price and product differentiation. home delivery and curbside pickup. "With minimal switching costs.Fast Food Industry By: Nichole Bell. Jared Carchedi restaurant industry is intensely competitive. perform renovations. and concept in order to drive traffic. higher than in any other industry segment. marked by a history of price wars. International players such as McDonald's (MCD) and Yum! Brands (YUM) have had the most success as explosive growth in emerging markets has offset rising costs and a U." Further. "There is almost a 'how low can you go' kind of contest going on when it comes to items like double cheeseburgers and snack wraps." Technomic said. location." while "a proliferation of new menu items could slow down the speed of service." Hottovy said. "One thing that has been hurting the top and bottom lines is an combination of deep discounting and couponing. Other companies like Sonic and Domino's have turned to new marketing campaigns and product innovation to boost growth and profitability and intense competition limits the ability of fast food operators to pass along rising costs to customers. "tighter credit markets could impair franchisees' ability to add new restaurants. Tony Chan. which may adversely affect restaurant operating margins and profits. and full-service restaurants offering call-ahead and online ordering. like Starbucks and Schlotzky's have also sought to differentiate themselves by rolling out Wifi access (wireless Internet service) in many 5|Page .S. "Some competitive trends include more price-driven elements in fast-casual outlets." said R.

It is also one of the most challenging sectors to operate in.and will likely continue to be -.000 Basic royalty: 8% Advertising royalty: 3.Fast Food Industry By: Nichole Bell. the chains' worst enemies are -. Tony Chan. The fast food industry can still benefit from consumers as they trade down from more costly fast casual restaurants." • The Threat of New Entrants "The fast food sector is a dynamic industry featuring a high density of franchising. Exhibit B Franchising Costs: (**Yum! Brand owned) SUBWAY® restaurants Franchise fee: $12." (See Exhibit B) Franchisers capture a portion of revenue rather than profits so smaller fast food chains that have a lower portion of their restaurants franchised are most vulnerable to cost increases. even with the new challenges outlined by Technomic.000 Start-up cost: $69. Wendy's. "However." Ray Kroc. "Jack In The Box. once stated.each other.300 to $191. you stick a hose down their throat. "If you see a competitor drowning. the man who franchised McDonald's. This new alternative threatens to steal market share from both fast food and fine dining restaurants. and Sonic have particularly low franchised to owned restaurant ratios. due to an ever-increasing number of operations competing for the same dollar. 'Fast casual' restaurants like Chipotle. A technology-based differentiation example include Papa John's "Pizza and Entertainment" promotion giving customers a perishable DVD movie (DVD's become inactive 48 hours after removal from packaging) free with pizza.5% 6|Page . Samuel Curby. Cosi and Panera combine the convenience of fast food restaurants with the quality of casual dining." Fast casual restaurants are a growing source of competition for the fast food industry. Jared Carchedi restaurants.

000. McDonald's.000 Start-up cost: $432.000 to $250. 10.Fast Food Industry By: Nichole Bell. including a warm oatmeal bar and a Panini sandwich. Pittsburgh.3 million Basic royalty: 6. Samuel Curby.90% PIZZA HUT** Franchise fee: $25." Much is at stake as the morning meal remains an opportune spot in the restaurant industry. Shreveport and Louisville.400 to $470.000 Start-up cost: $200.000 Start-up cost: $830. which has had two years of visit declines and is now leveling out.000 Start-up cost: $191.000 in liquid assets and $1 million net worth Basic royalty: 7. plans to sell oatmeal -. purveyor of the Big Mac. Tony Chan.5% includes advertising Service fee: 4. Kansas City.90% including advertising McDONALD’S Franchise fee: $45.150 Basic royalty: 12.5% Advertising royalty: n/a TACO BELL** Franchise fee: $45.800 to $715.yes. More test markets will be added in 2011.000 to $2.000 to $1.000 Start-up cost: $218.500 to $1. in Phoenix. Breakfast sales 7|Page .485 million Basic royalty: 4% Advertising royalty: 2% • Pressure from Sellers of Substitute Products "Chick-fil-A just announced it will roll out a new spicy chicken biscuit on Jan. oatmeal. And Wendy's is testing a new breakfast menu.5 million Basic royalty: 4.5% Advertising royalty: n/a WENDY’S Franchise fee: $25.200 Basic royalty: 5. with $500. Jared Carchedi BURGER KING Franchise fee: $50.5% Advertising fund: 4% KFC** Franchise fee: $25.000 Start-up cost: $240.

250 U." The fast food chains' vast purchasing power and their demand for a uniform product have encouraged fundamental changes in how cattle are raised.79 and will replace Burger King's BK Joe brew. Family farms are now being replaced by gigantic corporate farms with absentee owners. and IBP. and processed into ground beef to keep some sort of cost control. "Farmers and cattle ranchers are losing their independence. which is a major commodity at fast food joints. "Burger King has announced that by September 2010 it would begin selling Starbucks' Seattle's Best Coffee in about 7. The market for soft drinks. • Pressure from Supplier Bargaining Power During the 1980s. such as microwave meals. Tony Chan. slaughtered. ready to go meals (whole foods). The new drinks will sell for $1 to $2. traffic into restaurants for breakfast grew an average of two percent per year. ConAgra. Samuel Curby. Over that span. Jared Carchedi accounted for 60% of growth in restaurant traffic over the past five years. large multinational supply companies such as Cargill. outlets. essentially becoming hired hands for the agribusiness giants or being forced off the land. These are all things that customers can buy and still save time and money and so could be more appealing to the customer when they think of healthy choices and cost. sit down informal dining and even home cooking (which can be an even lower cost than fast food sometimes). mostly sold in the morning with breakfast. were allowed to dominate one commodity market after another. with four of five breakfasts purchased at fast-food restaurants. is dominated by few companies: mainly Coca Cola and Pepsi." Options for substitute choices include convenience food options that are outside the fast food industry that could take away sales.S. One example is in a response to the McDonald's McCafe coffee products. "These soft drinks suppliers are 8|Page . Wheat and corn prices continue to increase causing more costs to the companies (See charts below).Fast Food Industry By: Nichole Bell.

" A few of the larger fast food companies "have realized the importance of these suppliers. The largest fast food companies do deliver a large proportion of the revenues at the suppliers and thereby there exist a mutual interest of keeping each other as suppliers/customers.Fast Food Industry By: Nichole Bell. Tony Chan. Jared Carchedi the only ones who have the capacity to match the needs of the global fast food chains. and entered strategic alliances with the suppliers to make the dependence mutual. The domination of a few suppliers in an industry with more customers sets a high bargaining power for the suppliers." 9|Page . Samuel Curby.

quality and ambiance. 41% of the eating public apparently now consider places offering 'fast food' to include fast-casual restaurants like Panera and even full-service restaurants that offer carryout or curbside service." 4.Fast Food Industry By: Nichole Bell. Fast Food products are generally high in trans fat. Tony Chan. Factors Driving Industry Changes and Their Impacts The biggest factor driving the fast food industry Health and Nutrition." affecting consumers abilities to continue eating out. Indeed. According to a new study from consulting and research firm Technomic. and low in fiber. A diet of 10 | P a g e . According to Research. "consumer perception of fast food has expanded beyond the traditional burger joint to locations that serve up the chow quickly but put more emphasis on flavor.430 calories. A regular meal at McDonald's consists of a Big Mac. high in calories. Samuel Curby. which leads to higher than normal trans fat and calorie intake. large fries. the "industry remains under pressure in the current economic downturn. which has badly affected consumers disposable income. Jared Carchedi • Pressure from Buyer Bargaining Power Bargaining power of buyers comes in their decision of which restaurant to visit and purchase from. and a large Coca-Cola drink amounting to 1.

claims that most of its sandwiches are low calorie. McDonald’s briefly offered Go Active! Happy Meals for Adults (complete with pedometer). which. Jared Carchedi approximately 2. Starbucks has Panini sandwiches with 400 calories or less. Quizno's offers a 500-calorie-and-under menu. Tony Chan. provided consumers don’t add high-fat condiments. A surprising and alarming side effect of this is that sometimes the information is not completely accurate. In 2004. This caused a decline in the customers going to fast food restaurants because customers wanted to eat healthier and live longer. like a grilled chicken sandwich. without promoting their low-fat attributes. Many of the big fast food chains realized that something needed to be done.Fast Food Industry By: Nichole Bell. These fast food restaurants have had to offer lower fat healthier options because Americans started realizing that they were becoming increasingly obese and started eating healthier. Obesity is one of the biggest problems facing Americans.000 calories is considered a healthy amount of calories for an entire day. The chain shot to diet fame 10 years ago when Jared Fogle said that he lost 245 pounds by eating Subway fare for lunch and dinner. So each meal is equivalent to almost three quarters of a person’s calorie intake for the day. but these days sells items. Fast Food restaurants are now required to post nutritional information about their products. The increased calorie intake leads to more obesity. Samuel Curby. Then there’s Subway. This was one of the major reasons these fast food restaurants started offering more nutrient rich food. Over the last few years several chains have introduced lighter menu items with less fanfare: Dunkin’ Donuts sells egg-white sandwiches. The healthy alternative foods have changed the face of the fast food industry. besides its 230-to-380-calorie Fresh Fit subs. According to the Center for Disease Control and Prevention in 2003 obesity was the leading health threat for American’s and it was the second leading cause of preventable deaths in the United States. Most people don’t know this or don’t care to know this information. According to a study published this month in The Journal of the American Dietetic Association found that the caloric content of food from 29 Boston chain 11 | P a g e .

the chain has opened more than 1. Samuel Curby. this could be a signal of a much larger issue. Market Positions of Industry Rivals The Fast food restaurant business is a very competitive business with the corporate titans often switching positions. This should increase their sales as well. Companies need to be correct with the nutritional information and even if a mistake is made. Since 29 chains were found to have these discrepancies in Boston alone.This is a testament that Americans and worldwide customers are moving towards healthier dining choices.000 new stores worldwide. McDonald’s recently unveiled its new idea $1 sodas. Their sales were nearly three times that of its nearest competitor. They are a giant in the Fast Food industry and have global reach. It is sad and immoral for a company to knowingly be fraudulent in its nutritional information. 3.) Subway $10 Billion. Subway started its upward climb to the top of the list 10 yrs ago when Jared Fogle lost weight on the “subway diet”. They have been a staple in the fast. So far this year. Jared Carchedi restaurants and 10 frozen meals sold in supermarkets. 2.) Burger King $9Billion-Burger King has slid a little over the last year they were #2 in the ranking last year.) McDonald’s $30 Billion.Fast Food Industry By: Nichole Bell. Tony Chan. In an effort to revitalize sales they have revamped their 12 | P a g e .000 stores worldwide. This catapulted Subways sales. 5.Of course McDonald’s is at the top of the list. If customers were using the charts to count their calories they would be mistaken and accidentally take in more calories than they thought. Here is the Top 10 Ranking based on total sales (all according to Quick Service Restaurant Magazine) : 1. it must be recognized and it must be fixed to keep customer loyalty and trust. This brings their total to around 33.

7.) Dunkin Donuts $5. These new product offerings have increased the customer base.They have revitalized their brand.8 Billion. It also expanded into the breakfast food menu as well which has increased their sales.) Wendy’s $8.4 Billion.) Taco Bell $6.This chain in order to improve its competitive position will be focusing on improving its breakfast menu with new breakfast offerings. 5. They are trying to improve their process to improve net profit as well as improve their menu offerings to appeal to a wider range of customers. and a new snack called bagel twists. like chicken and tuna wraps. They are starting to offer more products to compete with the Burger Kings and McDonalds offerings of breakfast food. Samuel Curby.) Pizza Hut $5 Billion. a value menu.KFC has its work cut out for them. 6. They are trying to focus more on quality of their produce as opposed to the deeply discounted burgers.3 Billion-Starbucks is a giant in the coffee industry. Tony Chan.) KFC $4.Fast Food Industry By: Nichole Bell. 13 | P a g e . 4. They started to offer a drivethru diet food menu. 8.With the addition of the $10 any pizza deal and the wings and pasta offerings this Pizza hut has grown.) Starbucks-$8.9 Billion.7 Billion. Also they will be improving the look of the stores to acquire higher quality clientele that will spend more money.The best of the Yum! Brand. They have gone from simply a donut joint to offering more products. 9. Jared Carchedi charbroiling process to include ribs and stuffed burgers. They are starting to offer Cibata bread breakfast sandwiches. The past year brought the sort of new products you might expect from a burger or sub specialist.

Based on the historical trends mentioned earlier. ) Sonic $3. the companies in the fast food industry are likely to pursue these business strategies. Even KFC.com as the most healthy fast food restaurant in America. One of the few major chains to feature hot dogs. Rivals are likely to take on the defensive by adding lighter and healthier food on its own menus. Marketing has focused on points of difference like the use of roller skaters to serve meals car-side. The restaurant offers whole grain bread. From the looks of it the Yum! Brand is sitting Pretty it has 3 of its brands in the top 10. Strategic moves rivals are likely to make The continual growth of the fast food industry will attract new entrants into the market that aims to take market share away from the big players. Subway has capitalized on this current trend and its now one of the fastest growing fast-food chain in the world.Fast Food Industry By: Nichole Bell. Jared Carchedi 10.com) Panera Bread was named by Health. health section of vegetables and sides. Sonic bulked up its Coney to four ounces and made it a true foot-long. That bodes very well for them in the future. Tony Chan. (kfc. are serving grilled chicken and an expended selection of salad that caters to health conscious eaters.Adding healthier items to its menu Americans are becoming more health conscious eaters and are increasing associating fast food as unhealthy eating due to its high-fat and calories item choices. Major fast food franchisees must continue to evaluate its business model in order to retain and attract customers. • Strategy 1 . Samuel Curby. known for its greasy fried chicken. and hormone and 14 | P a g e .8 Billion-Sonic hopes to rebound by playing up its quick-service quirks. 6. Also they are trying to come up with new beverages to compliment their “Limade”.

Tony Chan. ingredients were not fresh since it’s precooked or pre-cut in the processing facility outside the restaurant. Customer flock to its restaurants to get a burger that is much higher quality than other fast food restaurants. Hamburger chains. In-N-Out uses 100% pure beef free of additives. or even a freezer. heat lamp.Fast Food Industry By: Nichole Bell. Food preparations were standardized so workers require little culinary training. a handful on fast food restaurant. such as the California chain In-N-Out. Jared Carchedi antibiotic free chicken. Its competitive strategy is considered a best cost approach since it gives customers more value for the money.Higher quality foods In the past. However. (In-N-Out) Other fast food restaurants are realizing the trend of customers demanding high quality food at fast food restaurants. almost all Fast food chains use a low cost competitive strategy. The chains believed lowering overall cost than competitors would attract more revenue generating customers. and calories. sodium. (health. The chain doesn’t use microwave. Also. In-N-Out competitiveness is serving high or even gourmet quality burgers at an affordable cost. fillers and preservatives.com) Most fast-food restaurant would likely add some type of healthy items to broaden its reach of customers. In 15 | P a g e . The chain boosts its Chicken McNuggets are made with white meat and is relatively low in fat. According to its website. • Strategy 2 . made to order food to its customers. McDonalds is also creating an extensive website trying to educate its potential customers about nutrition and its food quality. were known to use low-quality burger meat that is high in sodium and low in nutritional value. Samuel Curby. Fast food chains strived to increase profit margin by lowering food cost and maximizing efficiency along the food production chain. start serving fresh. Even McDonalds is putting an effort into making its food more nutritious. such as McDonalds and Jack in the Box. every burger is cook one at a time and customers can customize it any way they want.

” China’s economic growth and an expending middle class have created a hotbed for fast food business in the past decade.Going Global American fast food chains are increasing becoming more focus on expanding its business aboard. Jared Carchedi addition. Five Guys Burgers. (usatoday. is using the Best Cost strategy straight from In-N-Out. “the owner of the KFC. Tony Chan. (foxbusiness.com) 7.com) In-N-Out and Five Guys would surely make other fast-food chains rethink its competitive strategies. Samuel Curby. • Strategy 3 . 75% of its profits are projected to come from its international business. by 2015. American fast food restaurants are seen in every major street intersections and shopping centers. Pizza Hut and Taco Bell fast-food chains has been reinventing itself as an internationally focused company to the extent that. Yum brands. 16 | P a g e . In cities like Shanghai and Beijing. recorded a 9. the owner of KFC. the chain is continually expanding its salad selection to cater to those looking for a fresher meal. In a resent Fox business report. serving sit down or steakhouse restaurant quality burger at a fraction of the price. The chain is now one of the fastest growing fast –food franchise in the US. An upstart chain. an increase that is almost impossible in the matured US fast food market. it is likely some would abandon the low cost and adapt the best cost strategy.5% rise in 1st quarter profit in China.Fast Food Industry By: Nichole Bell.

Samuel Curby. Jared Carchedi 17 | P a g e .Fast Food Industry By: Nichole Bell. Tony Chan.

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