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Quick-Service Foods Sector

Quick-Service Foods Sector. Compiled By: Laura Keller Stephanie Latimer Nate Tuenge Steven Austed Shelly LiaBraaten Aaron Lum. Sector Definition. Commercial restaurant service comprises everything from restaurants and cafeterias to ice cream parlors, bars, and cafes

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Quick-Service Foods Sector

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  1. Quick-Service Foods Sector Compiled By: Laura Keller Stephanie Latimer Nate Tuenge Steven Austed Shelly LiaBraaten Aaron Lum

  2. Sector Definition • Commercial restaurant service comprises everything from restaurants and cafeterias to ice cream parlors, bars, and cafes • Focus on limited-service restaurants which offer rapid food preparation and low prices, with or without seating. The average check price is usually less than $7.

  3. Sector’s Dominate Traits(AKA Fun with Statistics) • Market Size: $128.2 billion, 28.2% of total foodservice sales • Market Growth Rate: 4.2% in 2003 and slowing

  4. Fun with Statistics continued.. • Industry Profitability:

  5. Fun with Statistics continued.. • Stage in the Growth Cycle: Maturing industry, focusing on growing same-store sales • Capital Requirements: High fixed costs. Food & beverages, labor, and real estate top costs • Focus on Product innovation • Prevalence of integration: Stores integrating into quick-service (Delis) • Rivalry: Highly competitive market, several companies vying for our meal dollars

  6. Competitive Forces • Food Prices Supply Shock & Fuel Costs • Product Differentiation Price Discounting vs. Innovation • Government Regulation Smoking & Minimum Wage “Beef it’s what's for dinner”-(US) Cattlemen's Beef Board

  7. Industry Expected to Grow • Growing Industry – more people are eating out than ever before • 2003 – 46.9% of meals away from home • 2010 – will spend 53% of meals away from home

  8. Industry Expected to Grow (continued) • Why are Americans spending more money on meals away from home? • Decline in cost difference between eating out and eating in • 2002 – only cost 25% more to eat at a restaurant • Less free time • 2003 – over 50% of U.S. families were dual-earner households • More disposable income • Aging baby boomers are progressively wealthier • 1999 to 2004 – real disposable income increased at 1.8% per year

  9. Shift in Industry Focus:From Discounting to Innovation • Price Wars of 2000 - 2002 • Saturated markets resulted in fierce competition between rivals (McDonald’s vs. Burger King) • To compete for the economically downtrodden customer base, major competitors drastically lowered prices ($0.99 value menus) • Discounting greatly hurt profitability – not a sustainable strategy

  10. Shift in Industry Focus:From Discounting to Innovation (continued) • Product Innovation – 2003 • Mimicked the success of the new “quick-casual” concept – higher quality, higher prices • At fast-food restaurants, sales grew 5.4% in 2003 • Found that people are willing to pay more for quality products • Health food craze

  11. Future Focus • Less emphasis on U.S. expansion and price discounting • Continued focus on product innovation and current store improvements • Remodeling stores to improve image • Wendy’s, McDonald’s, and Jack in the Box have announced accelerated remodeling plans for 2005

  12. International Expansion: China • U.S. fast food market is saturated and firms are looking to expand abroad • Large Chinese market • 25% of World’s population • KFC – rated #1 consumer brand in China • McDonald’s and Starbuck’s plan to focus their international expansion on China over the next several years • Hoping to establish themselves in the market by the 2008 Beijing Olympics

  13. Strong companies • McDonald’s Corporation • Aroma Café, Boston Market, Chipotle Mexican Grill • Panera Bread Co. • Was known as St. Louis Bread Company • Wendy’s International • Baja Fresh, Tim Hortons, Café Express, Pasta Pomodoro

  14. McDonald’s Corporation • Strong brand name • Worldwide presence • 18,000 stores • Mixes McDonald’s American style with local tastes • Systemwide sales of $4.2 billion • “As a condition of the franchise agreement, McDonald's owns the property on which most McDonald's franchises are located.”

  15. Panera Bread Co. • Systemwide sales of nearly $1 billion in 2003 • Second fastest growing chain in 2004 • Stores in 35 states • Moved into the quick-service market before many of the others did • “There are currently 656 Wi-Fi enabled Panera Bread bakery-cafes, from California to Virginia.”

  16. Wendy’s International • Systemwide sales of $11.6 billion • Restaurants in the US and Canada • 6000 • Different restaurant segments are broken up

  17. Stock Comparison

  18. What key factors will determine competitive success or failure? • Following Demographics • Understanding the economy • International Markets

  19. Following Demographics • Chiptole Mexican Grill (McDonald’s Corp.) • Baja Fresh (Wendy’s International) • Qdoba (Jack In a Box)

  20. Understanding the Economy • Economic Recession: • Promoting a more positive supply / demand relationships, which resulted in a stable sales growth • Economic Boom: • Focus capital expenditures on new units, focus on new products

  21. Industry Attractiveness • Industry attractive to investors, especially franchising • Industry very profitable, and expected to keep growing because of increases in disposable income and dual worker homes • Low barriers to entry, but intense competition and high fixed costs cause many ventures to fail

  22. Sources • Restaurant Research: Operators Focusing on Same-Store Sales - May 2005 - Franchising World - Franchising World - International Franchise Association • Industry Trends: Restaurants • Industry Profile: Restaurants • How the Industry Operates: Restaurants

  23. Sources • Milton, Dennis P.; Standard & Poor’s Industry Surveys: Industry Trends - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst20405.htm#trends. • Milton, Dennis P.; Standard & Poor’s Industry Surveys: Current Environment - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst_0405.htm#environ. • Milton, Dennis P.; Standard & Poor’s Industry Surveys: Industry Profile - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst10405.htm#profile. • Milton, Dennis P.; Standard & Poor’s Industry Surveys: How the Industry Operates - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst30405.htm#operates. • Restaurant Research: Operators Focusing on Same-Store Sales - May 2005 - Franchising World - Franchising World - International Franchise Association • http://quotes.nasdaq.com/quote.dll?mode=basics&kind=&timeframe=10y&intraday=off&charttype=ohlc&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=on&index=&symbol=WEN&symbol=MCD&symbol=PNRA&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&FormType=&mkttype=&pathname=&page=charting&selected=PNRA • http://en.wikipedia.org/wiki/Mcdonald%27s

  24. Image Sources • http://timmyray.typepad.com/timmy_ray/weird/ • http://www.6foot6.com/fr/agfaimages/china/ChBeijing_BrandKFC.jpg • http://www.dw-world.de/dw/image/detail/1,1599,1076556_3,00.html • http://www.mccscamppendleton.com/clubs/fast_food/fast_food.html • http://www.mcdonalds.com/usa/eat/features.html • http://www.starbucks.com/aboutus/internationaldev.asp • http://www.wendys.com/food/Family.jsp?family=4 • www.google.com

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