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Industry Analysis Fast Food Industry. Anna Sterling Johnnie Davis Zane Barnes Kimberly Smith Nolan Bosworth Shaina Weaver Clay Jones. History of Industry Competitors. McDonalds First store opened in 1940 by the McDonald brothers Headquarters- Oak Brook, IL Sonic

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Industry analysis fast food industry

Industry AnalysisFast Food Industry

Anna Sterling

Johnnie Davis

Zane Barnes

Kimberly Smith

Nolan Bosworth

Shaina Weaver

Clay Jones


History of industry competitors
History of Industry Competitors

  • McDonalds

    • 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
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
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


The fast food industry s dominant economic political and social features
The Fast Food Industry’s Dominant Economic, Political, and Social Features

  • Industry break down

  • Restaurant Industry

    • Full-service

    • Limited-service(NAICS 722211)

      • Burger Segment

      • Sandwiches

      • Pizza/pasta

      • Chicken

      • Mexican

      • Etc.


2008 burger segment annual sales http www qsrmagazine com reports qsr50 2008 burgers phtml
2008 Burger segment Annual Sales Social Features(http://www.qsrmagazine.com/reports/qsr50/2008/burgers.phtml)


Economic factors
Economic Factors Social Features

  • How does a Recession affect the limited-service 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
Political Factors Social Features

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 ½ years.

    • Ex: on a $700,000 project it would save $7,000 a year versus the 39 ½ year schedule.


Social factors
Social Factors Social Features

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
The Five Forces Model Social Features

  • 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” (referenceforbusiness.com). 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
The Five Forces Model Cont. Social Features

  • 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.

    • Conclusion:

      • 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 cont1
The Five Forces Model Cont. Social Features

  • 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 supplier’s revenue. This severely limits the bargaining power of suppliers.


The five forces model cont2
The Five Forces Model Cont. Social Features

  • 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.

  • 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 Social Features


Price performance1
Price Performance Social Features


Changes in social norms
Changes in Social Norms Social Features

  • Changing American attitudes toward food.

  • Companies Answers

  • New Competition


Industry risks factors
Industry Risks Factors Social Features

  • Events Reported by Media

  • Competition of Industry

  • Changes in Economic and Market Conditions


Industry risks factors1
Industry Risks Factors Social Features

  • Earnings Dependant on Franchise

  • Litigation Affects all Members of Chain


Positions within the industry
Positions Within the Industry Social Features

  • Jack in the Box- The first mover.

  • McDonalds- Universally accepted name.

  • Burger King- Competing with McDonalds.

  • Sonic- American values.


Strategies
Strategies Social Features

  • Jack in the Box- “We don’t make it ‘till you order it.”

  • McDonalds- Global.

  • Burger King- “Have it your way.”

  • Sonic- “America’s Drive-In” and “Your ultimate drink stop!”


Financial performance last 12 months
Financial Performance: Last 12 Months Social Features

  • 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
Stock Price History Social Features


Key success factors
Key Success Factors Social Features

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


Misconception
Misconception Social Features

  • 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 factors1
Key Success Factors Social Features

  • Differentiation-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 factors2
Key Success Factors Social Features


Key success factors3
Key Success Factors Social Features

  • 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
Quick-Service Restaurant Segment (QSR) Social Features

  • 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
Industry Attractiveness Social Features

  • 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 quick service restaurant industry
Factors that could affect the quick-service 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


Growth
Growth industry

  • 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. Quick-service restaurants are projected to post sales of $163.8 billion in 2009.


Growth1
Growth industry

  • 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 industry’s 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
Prospects for long-term profitability industry

  • 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
National Restaurant Association industry

  • 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.”


Conclusion
Conclusion industry

  • 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.


Conclusion1
Conclusion industry

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