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QUICK-SERVICE INDUSTRY OVERVIEW

QUICK-SERVICE INDUSTRY OVERVIEW. SONGKI KIM JEFF OHLMAN NADINE CHAMSEDDINE. DANA WILLIAMS JORGE DIETRICH JOSE GUZMAN. Margin Trends 2004 Burger’s Big Three. McDonald % 10 Burger King % -10.5 Wendy’s % 3 McKey Foods: Burgers [McDonalds sub.] Sun Valley: Chicken [TGWU union]

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QUICK-SERVICE INDUSTRY OVERVIEW

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  1. QUICK-SERVICE INDUSTRY OVERVIEW SONGKI KIM JEFF OHLMAN NADINE CHAMSEDDINE DANA WILLIAMS JORGE DIETRICH JOSE GUZMAN

  2. Margin Trends 2004Burger’s Big Three • McDonald % 10 • Burger King % -10.5 • Wendy’s % 3 • McKey Foods: Burgers [McDonalds sub.] • Sun Valley: Chicken [TGWU union] • McCain Foods GB Ltd: Chips [North York] • Sweetheart International: Ronald McDonald cups and straws [Holland]

  3. Compare 2004 Sales (Mil.) McDonald Yum

  4. Market Share 2004Burger’s Big Three McDonald % 59 Burger King % 21 Wendy’s % 20

  5. Porter’s Five Competitive Forces • Entrants - Low/Moderate- Brand awareness and lower cost competitive advantage. Require time and large capital Investment • Rivalry – High- Burger King, Wendy’s, J.B., are heavy competitors • Power of Suppliers – Low- Most have the purchasing power to negotiate lower prices

  6. Porter’s Five Competitive Forces • Competitive Force - Threat/Power- Prices and product offering are the main sources of competition • Substitutes- Low/Moderate- Trends show consumers prefer healthier and more exotic alternatives • Buying power -Most players have a lower cost competitive advantage. Top players also achieve economies of scale via this

  7. Rivalry among Existing Competitors • Intense rivalry and competition market share among existing fast-food competitors • Slowing growth rate of sales • To attract customers…. - increase advertising - price discount - offer new product

  8. Threat of New Entrants • Economies of scale force new entrants to enter at a cost disadvantage • Require higher fixed costs to enter existing market • Have strong customer loyalty • Willing to defend new entrants with price discounting and advertising

  9. Threat of Substitute Products • There are…. - numerous restaurants and other eating alternatives - a variety of high-quality, reasonably priced eating alternatives • Customer switching costs are low

  10. McDonalds Corporation

  11. McDonald’s History • In 1955 Milkshake-Machine Salesman Ray Kroc took out a franchise on a hamburger store owned by two McDonald brothers. Today McDonald’s is the largest fast food operator in the world. • 50 Million customers every day, 12000 Restaurants in the USA, and 30,000 Worldwide in 119 countries • The chain has grown by one new outlet every 17 hours in the last decade.

  12. Marketing Strategy • Global Brand Awareness ‘Golden Arches” • Marketing Alliances • Global Sponsorship • Alignment with country-level marketing activities • Focused on its customers

  13. Marketing Budget • Advertising Costs: • [In Millions] • 2004 $ 619.50 • 2003 $ 596.70 • 2002 $ 532.30

  14. Subsidiaries • Boston Market • Chipotle Mexican Grill • Donatos Pizzeria Business • Note: in December 2003 McDonalds sold Donatos Pizzeria Business

  15. Suppliers Europe • Golden West Foods: Buns, Ketchup, Syrup, milkshake mix [McDonald’s subsidiary]

  16. SWOT Analysis Strengths • Financial Power- McDonald’s spends more on advertising on a single brand than any other organization. In 1986 a colossal $789m, or 6.3% of system wide sales, went to advertising. It is one of the five largest television advertisers in the US, with children as its prime target. After Santa Claus, Ronald McDonald is the figure best known to US Children. • Recipe for Success- McDonalds revolutionized the fast food Industry. They introduced a new production process that lowered labor costs.

  17. SWOT Analysis Weaknesses/Opportunities/Threats • Weakness-It is possible that a company can become so large it saturates the market. • Opportunities- Because of its financial power McDonalds could move into to other industries/products at any time. • Threats- Competitors, Suppliers, Workers Unions, Attacks of health campaigns, and Environment.

  18. Burger King Competitive Trend Analysis

  19. BK Background • Founded in 1954 • Second Largest Fast Food Chain Worldwide • Global operations of the $11.3 billion company • BURGER KING® restaurants serve approximately 1,072 customers per restaurant, per day, or approximately 11.8 million customers daily worldwide • The BURGER KING® system employs more than 300,000 people system wide

  20. Fascinating BK Facts • Today, Burger King operates the #2 hamburger chain (behind McDonald's) with more than 11,200 restaurants across the US and in about 55 other countries • Since its founding in 1955, BURGER KING® has sold well over 2.1 billion hamburgers annually

  21. BK Brand Strategy • Brand image • Masculine oriented (Burger ‘King’– not Burger Queen) • ‘‘King’: The larger size than the average burger • Food • Great-taste • High quality • Fun • Value • Portability • Slogan: ‘Have it your way’ • Customized • Customer-oriented • Differentiation from other fast-food competitors

  22. BK Marketing Mix Strategy • Product (Whopper) • Price (Compare with McDonald, Wendy’s, Yum! and Subway) • Promotion (Stick with the jumbo size burger – the opposite force against the recent trend of Low Carb) • Place(Distribution)

  23. BK Marketing Mix-Product • Whopper Sandwich • Fire Grilled Burgers • Chicken, Fish & Veggies • Salads • Breakfast • Treats • Sides & Beverages • Kids Menu

  24. BK Marketing Mix-Price • Price Range - $4 - $8 for a value meal • The value meal for breakfast - For example, suggested Enormous Omelet Sandwich retail price: $2.99, or $3.49

  25. BK Marketing Mix-Promotion • Advertising Slogan (2004-present) “Have it your way” • Star Wars deal - The fast-food chain's first global promotion • Burger King Offering Low Carb - Allow substitutions of french fries with salads and bottled water for soft drinks • A Big Breakfast at Burger King- Debuts Enormous Omelet Sandwich

  26. Burger King Target Audience • Customer with the sophisticated taste but still need fast food service • Middle class household with the discretionary income • Family with kids

  27. Financial Picture • Private company – hard to obtain numbers • 11,200 restaurants • 2004 sales 13 billion • 2004 sales growth 18.2

  28. AAFES AmeriKing Aramark C&L Carrolls Corp #1 franchise Cimm's Compass Deignan-Kauffman HMS Host Nath Quality Dining Sodexho-Marriott Sydran TA Operating Group Veterans Canteen Westwind Burger King Largest Franchises

  29. Exclusive Supplier • Restaurant Services, Inc. (RSI) • Cooperative serving BURGER KING® restaurant owners in the United States. • Founded in 1991 • Purchasing agent for U. S. Burger King system.

  30. SWOT Analysis Strengths • Global Brand Equity • The second largest fast food chain (18.8% of US fast-food hamburger business) • Successful items: WHOPPER® Sandwich • More than 55 Global market operations • Customized Fast Food service • Real Estate investment (pursuit of the best location in town) • Financial support from the parent company (Texas Pacific Group)

  31. Strengths • 2nd Largest burger chain • Brand recognition and recall • Over 11,000 locations worldwide • WHOPPER has highest brand recognition • Economy of scale provides buying power • Unique product to differentiate product (flame broiled). • Customization allows customer to “have it your way”

  32. Weaknesses • Declining market share • Self-restricted the diversification of product development because of stickiness to strong ‘Burger King’ brand image • Weak product development • Slowed revenue and income growth

  33. Weakness • We are in a “Burger Slump” • BK has no other business segment • Ameriking , 2nd largest franchise filed for Chapter 11 • “Revolving” door in corporate board room, 10 CEOs in 14 years • High franchise rate makes BK vulnerable to multiple disparate policies • Failure to introduce new brand lines • 3 of 10 largest franchises are in chapter 11 • Lackluster marketing

  34. Opportunities • International expansion • Only serving 1% of the world’s population (Potential growth in China & India with new product development) • Growing dining-out market

  35. Opportunities • Consumers have positive perception of brand. • Take advantage of healthy eating trend. • Consider new brands and franchises. • Reduce cost of entry for BK franchise • Expand in Asia market • Reduce underperforming outlets

  36. THREATS • Mature industry • Fiercely competitive environment • With other franchises (McDonald) • With the local competitor • Growing health-conscious consumers (Low Carb Trend) • The social issue of McDonald’s ‘Supersize me’ • Changing demographics (Rapid transition into the aging society) • Vulnerability to the fluctuation of foreign exchange rates from expanding global operations • Unreliability of supplier for the recent cow-related disease (i.e. Mad Cow Disease)

  37. BK Marketing Mix-Place • AmeriServe Food Distribution - It plans an orderly transition of distribution services - Approximately 5,800 Burger King restaurants currently served • H & H Foods - Supply South Texas-area Burger King ® restaurants with beef patties • Restaurant Services, Inc. (RSI) - The exclusive purchasing agent for the vast majority of products and services used by BURGER KING® restaurant owners in the United States and is manager of the system's supply chain.

  38. Bibliography Corporate Information http://proquest.umi.com/pqdweb?index=0&did=168203801&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1126476479&clientId=30358 Franchise list http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=105&STORY=/www/story/11-12-2002/0001839842 Marketing Strategy http://proquest.umi.com/pqdweb?index=3&did=818659331&SrchMode=1&sid=1&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName =PQD&TS=1126477227&clientId=30358 SWOT http://search.epnet.com/login.aspx?direct=true&db=buh&an=16823714 Corporate Info - http://www.bk.com/CompanyInfo/index.aspx Sonics Annual Report (2004) - http://www.sonicdrivein.com/pdfs/annualReports/04_12annualReport.pdf Financial Info - http://www.hoovers.com/burger-king/--ID__54531,ticker__--/free-co-fin-factsheet.xhtml

  39. SONIC DRIVE-IN • Sonic, America’s drive-in, originally Top Hat drive-in,started as a hamburger and root beer stand in 1953. • Sonic is the largest chain of drive-in restaurants in the United States and Mexico, with more than 1 million customers a day • Sonic has 3000 drive-ins coast to coast

  40. Sonic Marketing strategy • Multi-layered growth strategy, targeting earnings per share of approximately 20% for the year ending September 2005. • Addition of drive-ins • Increasing media expenditure to boost brand awareness • Accelerating franchise development and ascending royalty rate

  41. Sonic Marketing strategy • Highly differentiated concept, through personalized carhop service, and a variety of menu choices. • Accelerated Expansion program • Opening 167 new franchises in 2004 • Opening 188 new drive-ins in 2004 • Planning to open 185 drive-ins in 2005

  42. Sonic Marketing strategy • Solid Sales Trends • Sales increase of 13% in 2004, and 6.5% same store sales • Sales increase of 18% in 2005, and 6.8% same store sales

  43. Sonic Marketing strategy • Solid Financial performance • Revenues rose 20% to $536 million 2004 and 18% in the first nine months of 2005 • Net income per diluted share rose 19% in 2004 and is up to 21% the first nine months of 2005 • ROE has exceeded 20% for five consecutive years.

  44. Sonic Subsidiaries • Sonic Industries • Sonic Restaurant

  45. Sonic Strengths • Carhop Service: many customers enjoy the personal carhop who delivers the order to the car with a free mint • Overall Good Company: Listed for the 10th consecutive year by Forbes magazine to be one of the “ 200 best small companies in America”

  46. Sonic Strengths • Multi-layered growth strategy: • Listed at number 50 for percentage increase in sales on the top 50 Growth chains list( Restaurant Business, July 2003) • Ranked number 80 on the Hot Growth Companies list ( Business Week, June 2003) • Good Franchise: Listed in the top 10 on Entrepreneur magazine’s “Franchise 500 list” (January 2003) • Great Sales Records: Increase of 13% in 2004 , and 18% in the first 9 months of 2005. • Continuously increased revenue ( chart 1)

  47. SonicStrengths • Menu • Unique menu items that include Toaster Sandwiches, extra- long cheese coneys, hand battered onion rings, and a variety of drinks and deserts • Quality Burgers: named one of the top three in the Best Overall burger QSR category for seven consecutive years( Restaurants & Institutions Annual Choice in Chains Awards, March 2003) • Cream pie shake distinguished as most appealing and unique beverage in its category and receives “Best in Class” award ( Restaurant Business, May 2001)

  48. Sonic Weaknesses • International Presence: Except for 7 drive-ins in Mexico, Sonic Does not have a well established international market • Brand awareness: although Sonic has a differentiated service that is the carhop, and a quality burger, it is still not viewed as the leader in the fast food industry. • Cost of the international franchise: To get a Sonic international franchise, the investor must have $3.5 million in assets and $2.5 million in cash which could hinder the development of new franchises abroad

  49. SonicOpportunities • International market growth • National market: more than half of the 3000 drive-ins are located in 9 states, the rest are developing markets

  50. Sonic Threats • Obesity awareness: this will push sonic to include light meals • Gas prices: the rise of gas prices will increase the prices of sonic • Hurricane Katrina will have negative impact on the Sonic Franchises since Louisiana and Mississippi are two core markets for Sonic. 60 restaurants in Louisiana, Mississippi and Alabama were damaged by Katrina. • Mad Cow disease: This may eventually lead to customers shifting to other fast foods alternatives

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