Fast food restaurant analysis is a marketing research function that shows how certain fast food restaurants compare with their competitors on sales, service and even product quality. 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.
Industry Analysis Fast Food Industry
1. History of Industry Competitors:
- 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
3. 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
4. The Fast Food Industry’s Dominant Economic, Political, and Social Features:
Industry break down
- Burger King (U.S. & Canada)
- Sonic Drive-In
- Jack in the Box
6. Economic Factors:
- 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 .
7. 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 ½ years.
- Ex: on a $700,000 project it would save $7,000 a year versus the 39 ½ year schedule.
8. 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.
9. 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.
- 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 will quell the formation of new, national competitors, but is not a significant barrier to private startups.
- 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.
12. Threat of Substitutes
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.
- Changing American attitudes toward food.
- Companies Answers
- New Competition
14. Industry Risks Factors:
- Events Reported by Media
- Competition of Industry
- Changes in Economic and Market Conditions
- Earnings Dependant on Franchise
- Litigation Affects all Members of Chain
15. 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- 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%.
18. Stock Price History
19. Key Success Factors:
What are key success factors?
-Things that a company must do to be successful in an industry
-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.
-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.
- Rising population
- Increases in real disposable income
- Busier lifestyles
- 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.
26. Growth :
- 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.
- 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.
27. 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
28. National Restaurant Association:
- 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