Prepared ByElizabeth Minder

Theshin AngulugahaMatthew Miller

Andrew Newman

Fast Food Industry Analysis

MBA 615

March 7th, 2011

Agenda

• Elasticities & Supply and Demand conditions- Presented by Andrew Newman

• Porters 5 Forces Analysis – Presented by Matthew Miller

• Market Structure - Presented by Elizabeth Minder

• Industry Performance, Market forecast and Global Industry Analysis Presented by Theshin Angulugaha

IntroductionIndustry Definition

Fast Food industry also known as the QSR (Quick service Industry) comprises establishments primarily engaged in the retail sale of prepared food and drinks for on-premise or immediate consumption. Caterers and industrial and institutional food service establishments are also included in this business.

Industry Segments• Quick Service Restaurants • Takeaways• Mobile & Street Vendors• Leisure Locations (Cinemas, Racecourses..etc)

Market ConditionsSaturated Market

Output increases as price remains steady (Supply curve shift to the right)

Franchised StoreGive owners the control to run the restaurant best suited to the location

Industry Make UpMonopolistic Competition to Oligopoly

Does McDonalds run the show?

Industry SubsetWhy did the chicken cross the road? To show the cheeseburger who’s boss.

Market ConditionsHorizontal Marketing System

McDonalds and WalmartStarbucks and Target

Hires 3.5 Million Employees• Pays lower wages, simply minimum wage, to a higher percentage

of workers than any other industry.• 90% of workers receive no benefits.

ElasticityPrice elasticity is HIGH• High availability of substitutes• Consumer tastes & preferences vary one day to next• Low proportion of overall budget

Income elasticity is LOW to MODERATE• Latest study showed elasticity as 0.386• Overall market is income inelastic and normal goods• Premium fast food chains may be more income elastic (i.e. Chipotle, Five

Guys, etc.)

Supply & Demand Determinants

Demand determinants• Advertising and promotion• Consumer tastes & preferences (i.e. health awareness) • Negative publicity (i.e. food scandals)• Seasonality• Prices of related products

Supply determinants• Environmental conditions (weather, seasonality, etc.)• Government regulations (food and labor laws)• Supplier relationships• Costs & technology

Cost DriversCost-intensive industry• High cost of labor (25-30% costs)• Rising commodity and energy prices• Lower operating margins

Solutions• Technology innovation• Economies of scale/scope

Buyer Power (MODERATE) Supplier Power (HIGH)

Intensity of Rivalry (HIGH)

Porters Five Forces

• Large number of competitors• Dominated by Oligopoly of

players• Key Success Factors include

location and cost advantages• Advertising budgets. 2009,

McDonald’s spent $650.8 million Globally

• Financial crisis strengthens Power

• No switching costs• High price elasticity of demand• Consumer tastes can very day to

day

• Vital to maintain reliable product• Supplier market is consolidated

(Sysco and US Food Services, Inc.)

• Suppliers service many other markets

• Minimum wage laws and healthcare reform strengthens employees (supplier of labor)

Threat Of Substitutes (MODERATE) Threat Of New Entrants (HIGH)

Porters Five Forces

• Frozen meals, home cooking, etc..

• Healthier options• America’s Health reform bill

requires fast food chains to post calorie content on menu

• Main substitute is home cooking where the only switching cost is the opportunity cost of the time spent in the kitchen

• Main driver of fast food is convenience

• Does not require large capital• Expansion using Franchise

model• No switching costs for

consumers• They do face barriers such as

price wars from competitions• Optimistic growth rates predicted

for the industry• Low consumer loyalty

Industry Performance - United States

• Market Value $ 71billion -2009

• Compound annual growth rate of the Market Value (2005-2009) 3.7%, in comparison Europe 4.7%, Asia 6.1%

Year $ Billion2005 61.82006 64.72007 68.62008 71.42009 71.3

Industry Performance - United States

• Market Volume 40.3 billion transactions in 2009

• Compound annual growth rate of the Market Volume (2005-2009) 2.8%• Industry production -12% of the GDP

Year Billion transactions2005 36.12006 37.52007 39.12008 40.02009 40.3

Industry Performance - United States• Sales performance

Year Sales in Millions $ % change2007 1566942008 160909 2.7%2009 159415 -0.9%2010 166238 4.3%2011 174611 5.0%

Year Sales $ per Employee

% change

2007 32569

2008 32536 -0.7%

2009 32145 -0.7%

2010 32576 1.3%

2011 33349 2.4%

Fast food in United States

Market Forecast

• In 2014, Market Value is forecasted to be $77.5 billion increase by 8.9% (2009

In 2014, Market Volume (# of transactions) is forecasted to be $42.9 billion increase by 6.3%

Worldwide Fast Food Industry Analysis• United States and the Asia Pacific accounts for 70% of the global food market (35% each)

•McDonalds- 28,000 stores outside US in 119 countries, close to 50% of the total revenue from global operations

•Yum Brands (KFC, Pizza Hut, Taco Bell) 14,000 stores outside US, 110 countries

Global MarketsUnited States dominates the global fast food industryTop ten fast food chains are (sales, and # of restaurants) US companies

China• 1.3 billion population• KFC, McDonalds major US players• McDonalds currently 800 restaurants,

potential 10,000 to 15,000 stores• Drive through a brand new concept • McDonalds signed a contract with

Chinese oil company

TOP Fast Food Chains in Europe

Turnover 2007 in million €

Rank Operator Brand Banner Turnover Outlets Countries

1 McDonalds

McDonalds 5660 6400 40

2 Yum! KFC, Pizza Hut 1880

3 Burger King

Burger King 1,800e 17

4 Autogrill Autogrill, BK, a.o. 1,700e 900e 12

5 Quick Quick 900 400 3

6 GreggsGreggs, Bakers Oven

860 1368 2

7 Telepizza Telepizza 800e 820 16

8 Le Duff Brioche Doree 455 440 4

9 Starbucks Starbucks 350e 743 7

10 Nordsee Nordsee 305 360 4

Reflection Analysis• Surprised by how easy it is for new firms to enter the market and how

large firms like McDonald’s create brand awareness through large marketing campaigns….(MATT)

• The fast food industry is recession proof. There will always be a need for a quick convenient dinner. There may be subsets in both the US and international markets but the cheeseburger will always be king…(Elizabeth)

• Methods and ways in which the different companies differentiate their product vary across the board…(Andrew)

• Surprised by how US companies dominates the global fast food industry. Why they have not yet successful in the Chinese market compared to other markets. Recession and Fast food industry, how massive the industry, US impact in other cultures, industry’s impact in US economy (GDP)

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