You are on page 1of 36

Industry Analysis Fast Food Industry

Anna Sterling Johnnie Davis Zane Barnes Kimberly Smith Nolan Bosworth Shaina Weaver Clay Jones

History of Industry Competitors

First store opened in 1940 by the McDonald brothers Headquarters- Oak Brook, IL Sonic First store opened in 1945 Headquarters- Oklahoma City Jack-In-The-Box Founded in 1951 Headquarters in San Diego, CA Burger King
Founded in 1954 Headquarters in Miami, Florida

Industry Overview
Fast-food industry includes about 200,000
restaurants Combined annual revenue of about $120 billion Industry is highly fragmented: the top 50 companies hold 25% of sales

Industry Details
The industry is highly labor-intensive: the average
annual revenue per worker is just under $40,000 Most fast-food restaurants specialize in a few main dishes Restaurants include national and regional chains, franchises, and independent operators Most fast-food restaurants use a POS (point of sale) system to take orders from drive-thrus and the register

Industry break down Restaurant Industry

Burger Segment Sandwiches Pizza/pasta Chicken Mexican Etc.

The Fast Food Industrys Dominant Economic, Political, and Social Features
Full-service Limited-service (NAICS 722211)

2008 Burger segment Annual Sales

( Rank QSR 50 Chain
Sales ($Mil)

1 2 3 4 5

1 McDonalds 2 Burger King (U.S. & Canada) 4 Wendys1 10 Sonic Drive-In 13 Jack in the Box1

$28,666 $8,781.0 $7,956.0


Economic Factors
How does a Recession affect the limitedservice restaurant industry?
As a general rule, when disposable personal income is tight, fast food restaurants fare better than their casual and high end cousins because people will shift their purchases downward. The best recession survival plan is having a well advertized $Dollar menu and tight cost controls in place .

Political Factors
Economic Stabilization Act of 2008 gives restaurants two helpful benefits during recession. Banks have an injection of capital and are being urged by the government to make loans.
Restaurants must acquire loans form banks to make much need expansions or updates.

Accelerated 15 year depreciation schedule for new

construction on restaurants saves money.
Old depreciation schedule was 39 years. Ex: on a $700,000 project it would save $7,000 a year versus the 39 year schedule.

Social Factors
The fast food industry pays close attention to what the American society wants and needs. Must add value by being affordable and of consistent quality. Menus with a vast variety of products Healthier options and brand Image needs to be provided Must be convenient and fast to accommodate the fast pace of American lifestyles.

The Five Forces Model

Threat of New Entrants
Economies of Scale:
The firms in the limited-service restaurant class do see some advantages to economies
of scale, but these advantages are undermined by the ease of creating a quick service restaurant. The saturation of the industry is also a huge limiter of how much an advantage can be attained by economies of scale.

Product Differentiation:
While differentiation is a large and necessary expense for the large fast food chains in
the industry, it is not difficult for private startups to overcome and thus not a significant barrier to market entry.

Capital Requirements:
Capital requirements will quell the formation of new, national competitors, but is not a
significant barrier to private startups.

Cost Disadvantages:
These disadvantages stem form the fact that established companies already have
product technology, access to raw materials, favorable sites, advantages in the form of government subsidies, and experience ( The extreme saturation and similarity in product offering make convenient locations essential for quick service restaurants large and small. This is a significant barrier to entry.

The Five Forces Model Cont.

Threat of New Entrants Cont.
Distribution Channels:
Speedy and reliable channels are essential among all firms in the industry, they are not
necessarily difficult for new comers to attain, however. Also the economies of scale enjoyed by large firms are not so great as to shut out smaller competitors.

Government Regulation:
Government regulation is more intense for the larger firms which have to deal with
franchising regulations. Smaller establishments are subject to the standard array of government regulations including: zoning, health, safety, sanitation, and building. These are standard for almost any new business and thus do not pose large threat to new comers.

Due to the lack of any of the barriers to entry being so significant as to thwart the
majority of private startups, we feel the threat of new entrants is high.

The Five Forces Model Cont.

Bargaining Power of Customers
Even though customer switching costs are nearly zero, the fast food industry does not worry about loyalty because On average, one-fifth of the population of the USA eats in a fast-food restaurant each day (Oxford University Press). It is this volume that keeps customer bargaining power low by diluting the effect of a few picky customers.

Bargaining Power of Suppliers

Large fast food chains thousands of suppliers to choose from and select theirs through a competitive bid process. They can switch suppliers easily and tend to make up a large portion of the suppliers revenue. This severely limits the bargaining power of suppliers.

The Five Forces Model Cont.

Threat of Substitutes
With so many firms in the quick service/burger industry, low switching costs, similar products, and healthier options, the threat of substitutes is very high.

Threat of New Entrants Bargaining Power of Customers Bargaining Power of Suppliers Threat of Substitutes Rivalry Among Firms High Low Low High High

Rivalry Among Existing Firms

The limited-service industry defines a red ocean industry. Firms compete for market share in a saturated market. Growth, particularly in hamburger chains, is very slow so the customer base is not growing as fast as the industry. This leads to high rivalry among firms.

Price Performance

Price Performance

Changes in Social Norms

Changing American attitudes toward food. Companies Answers New Competition

Industry Risks Factors

Events Reported by Media Competition of Industry Changes in Economic and Market

Industry Risks Factors

Earnings Dependant on Franchise Litigation Affects all Members of Chain

Positions Within the Industry

Jack in the Box- The first mover. McDonalds- Universally accepted name. Burger King- Competing with McDonalds.

Sonic- American values.

Jack in the Box- We dont make it till you order it. McDonalds- Global.

Burger King- Have it your way.

Sonic- Americas Drive-In and Your ultimate drink stop!

Financial Performance: Last 12 Months

Jack in the Box- sales were 2.54 billion, income
was 118.21 million, sales growth was up 1%, and income growth was down 23%. McDonald- sales were 23.52 billion, income was 4.31 billion, sales growth was up 3.2%, and income growth was down 22.6%. Burger King- sales were 2.55 billion, income was 186 million, sales growth was up 9.9%, and income growth was down 10.2%. Sonic- sales were 798.6 million, income was 53.87 million, sales growth was up 4.4%, and income growth was down 47.5%.

Stock Price History

Key Success Factors

What are key success factors?
-Things that a company must do to be successful in an industry

Key success factors are often looked at as
core-competencies, which are sets of skills or systems that create a uniquely high value for customers

Key Success Factors

-The fast-food burger industry is difficult to differentiate on a single product, such as the burger -Differentiation in this industry can be focused more towards your atmosphere and unique menu items -Brand and product advertisement can also be major players in becoming a household name and bringing customers in to your industry

Key Success Factors

Answer Agree Neither Agree/Disagree Disagree Strongly Agree Strongly Disagree Total Percentage 41% 29%
18% 10% 3%

Key Success Factors

Competing on Low Cost
-In a synonymous industry, consumers can find a good burger at a comparable price from just about any of the competitors -It is important to cut down on overhead cost of your firm in order to make the most off of your sales

Quick-Service Restaurant Segment (QSR)

In the United States QSR is the largest segment
of the restaurant industry

Growth in sales include

-Rising population -increases in real disposable income -busier lifestyles

Fast food chains provide consumers with food at

reasonable prices which offers an alternative to cooking at home

Industry Attractiveness
The restaurant industry is highly competitive in terms of
price, service, location, and food quality and is often affected by changes in consumer trends, economic conditions, demographics, traffic patterns, and concerns about the nutritional content of quick-service foods.

Factors that could affect the quickservice restaurant industry

Changing dietary preferences among
consumers in favor of alternative foods

Changes in economic conditions, consumer

tastes and preferences, and the type and location of competing restaurants

Sales promotions by competitors, changes in

customer visits, and changes in things such as energy costs

According to Dun and Bradstreet
subsidiary First Research, the output of US food and drinking places, which includes fast food restaurants, is forecast to grow at an annual compounded rate of 4.3% between 2007 and 2012. Quickservice restaurants are projected to post sales of $163.8 billion in 2009.

According to a leading marketing research company, the NPD
Group, the restaurant industry remained stable for most of 2008, although traffic dipped in the fourth quarter, leading to the industrys slowest traffic and dollar growth since the recession of 2002-2003

The graph shows the total restaurant industry traffic from November
2003 up until November 2008.

Prospects for long-term profitability

The QSR segment is generally less vulnerable to
economic downturns and increases in energy prices than the casual dining segment is, although the economy may adversely impact QSR chains.

The following information in the graph is done by First

Research and forecasts the estimated growth of the food industry in relation to the economy

National Restaurant Association

According to QSR Magazine, Nearly 7 in 10
adults agreed in a recent National Restaurant Association survey that purchasing meals from restaurants, take-out and delivery places makes it easier for families with children to manage their day-to-day lives, and nearly eight in ten agreed that it is a better way for them to make use of their leisure time rather than cooking at home.

Despite the downturn in the economy, the QSR industry
will remain a cornerstone of the economy, representing 4% of the U.S. gross domestic product and employing 9% of the U.S. workforce.

Future growth in the fast-food restaurant industry

depends on how well retailers are able to innovate, provide value for money, and keep up and surpass competitors.

The fast-food industry is becoming more
global and it seems that will continue Fast-food restaurants mostly compete on price, location, and food quality The growth of the fast-food industry is expected to generally stay the same over the next few years