The National Restaurant Association publishes an annual industry fact book that can be found

atwww.restaurant.org. based on information in the latest report, does it appear that macro-
environmental factors and the economic characteristics of the industry will present industry
participants with attractive opportunities for growth and profitability? Explain.

Answer: You can include the following or some in your answer. From publically available news
stories and research items, students should identify factors shaping the competitive arena. These
might include:

There are a growing number of restaurants – 980,000: Number of restaurant locations in the
United States.

Restaurants represent a growing percentage of overall food dollars – 47%: Restaurant industry
share of the food dollar.

Fewer restaurants are purchasing capital equipment due to economic concerns.

The strongest growth in Quick service market segment rather than the traditional restaurant.

Restaurants are facing wage pressure as workers and government push foe increases in
minimum wage.

Most restaurant owners are downgrading future revenue due to economic forecasts.

Economists are predicting the strongest gain in wholesale food prices in three decades. The
student could use a five-forces diagram similar to figure 3.9 in the text in order to conduct this
analysis.

The diagram should show that the five forces are:

(1) firms in other industries offering substitute products,

(2) buyers,

(3) potential new entrants,

(4) suppliers of raw materials, parts, components, or other resource inputs, and

(5) rivalry among competing sellers in the industry. From the perspective of the traditional
restaurant, the student might find that

1)the Quick service segment offers a strong substitute choice over the traditional restaurant,
2) buyers are in a strong position with many choices in the industry,

3) there is pressure from new entrants,

4) there is supply pressure from wages and wholesale food prices, and

5) there is pressure from rivalry among competing sellers based upon the large number of

restaurants in the industry.

Taken to together, costs are being forced higher and prices are being forced lower, putting

pressure on profits. While at the same rivalry, new entrants, and substitute are putting pressure

on restaurants to gain and maintain customers. The student might conclude that overall, the profit

outlook for the traditional restaurant segment is not favorable. A follow-on analysis of strategic

choice might reveal that an effective way to reduce the pressures from substitute, buyer power,

rivalry, and new entrants might be differentiation. This analysis is supported by the growth of the

Quick service restaurant segment which differentiates itself from the traditional restaurant in the

meaningful way that resonates with their customer base.

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