group 3 mayra garcia garrett matthews nick watkins lindsey pacatte cory logan david hayward gary...
TRANSCRIPT
INDUSTRY ANALYSIS
Group 3Mayra GarciaGarrett MatthewsNick WatkinsLindsey PacatteCory LoganDavid HaywardGary Taylor
WENDY’S ORGANIZATION
Wendy’s founded by Dave Thomas
Went to work for Hobby House
Turned the three restaurants
around became a millionaire
FIRST WENDY’S
First Wendy’s November 15, 1969 Columbus Ohio
Offered a homey place and fast food
Made to order hamburgers
DAVE’S INNOVATION
1st to offer never frozen and fresh beef
1st to offer salad bar and baked potato
Creation of modern day pick-up window
WENDY’S/ARBY’S MERGE
April 2008 Wendy’s and Arby’s parent companies Merge
Create 3rd largest fast-food restaurant chain in the United States with 12.5 B sales, 10,000 units
Today Wendy’s has more than 6,600 restaurants in the US and other markets
INDUSTRY OVERVIEW
• 8 million restaurants in the world and some 300,000 restaurant companies
• Divided into full service and fast food
• The fast food industry is exceedingly
fragmented
• The top 50 companies hold about 25
percent of industry sales.
INDUSTRY OVERVIEW
Wendy’s is a QSR
Competitors that we compared to Wendy’s are McDonalds, Jack-in-the-Box, and Sonic
Taken as a whole, restaurant sales have been increasing just over 5% annually.
ANNUAL SALES
The full-service restaurant segment of the food industry is anticipated to generate $173 billion in sales
Fast food and quick service restaurant industry includes about 200,000 restaurants with combined annual revenue of $120 billion.
DIVERSIFYING WORKFORCE
Made up of 12.2 million employees and is highly labor intensive.
Restaurant industry workers make up 9 percent of the nation’s workforce.
By 2015, the restaurant industry is predicted to add another 1.8 million positions.
DIVERSIFYING WORKFORCE
• Increasing number of foreign-born workers in the United States
• According to the U.S. Census Bureau there are 33.5 million foreign-born individuals in the United States who make up 11.7 percent of the total population.
• Presence of foreign-born workers in the restaurant workforce is anticipated to swell in the coming years.
• The supply of workers age 16 to 24 has been declining
PORTER’S FIVE FORCES MODEL
• Rivalry Among Existing Firms• Threats of New Entrants• Threat of Substitutes• Bargaining Power of the Customer• Bargaining Power of Suppliers
RIVALRY AMONG EXISTING FIRMS
Help measure the level of profitability QSR has intense competition for
growth in the market Customers face low switching costs QSR is labor intensive with low
knowledge required Low level of growth increases the
rivalry
RIVALS CONTINUED
QSR does not face many exit barriers
The industry is risky to enter
All firms offer same basic items
Differentiate through design, variety, quality, and speed
THREAT OF NEW ENTRANTS
Economies of Scale Capital Investment Requirements Access to Distribution Channels Reaction of Other Industry Players
THREATS OF NEW ENTRANTS
Economies of Scale In mass production, as production
efficiency increases; cost decreases Total assets: cash, inventories, property
and equipment, and trademarks
THREATS OF NEW ENTRANTS
TOTAL ASSET Data (in millions) obtained from companies 10k
2003 2004 2005 2006 2007
Wendy's $1,333 $3,198 $6,440 $2,060 $1,455
McDonalds $25,838 $27,838 $29,989 $29,024 $29,392
Jack in the Box $1,142 $1,325 $1,338 $1,520 $1,375
Sonic $486 $518 $563 $638 $759
AVERAGE $7,200 $8,220 $9,583 $8,311 $8,245
THREAT OF NEW ENTRANTS
Capital Investment Requirement/Legal Barriers Stay up with location of units, quality and speed of service, attractiveness
of facilities, effectiveness of marketing and new product development High overhead cost: rent, labor, rates and bank interest charge
Franchise ($250,000 to $1M) High start-up and ongoing capital requirements
State/Federal regulation Federal Trade Commission Americans Disabilities Act
Trademarks and patents Brand awareness
THREATS OF NEW ENTRANTS
Access of Distribution Channels Acquiring subsidiaries
Wendy’s Bakery Co.
Established relationships with suppliers
THREATS OF NEW ENTRANTS
Reaction of other industry players Starbuck coffee vs. McDonalds premium coffee Dollar Menu
Who was the first to use the dollar menu?
Healthy fast food Baked potatoes salads Yogurt Bananas
THREAT OF SUBSTITUTES AND THE QUICK SERVICE RESTAURANT INDUSTRY
The threat of substitutes in the industry is very high Many store locations and companies A choice in the type of quick-service
restaurant One industry competitor of the QSR is
the Full-Service Restaurant Industry Offers higher levels of service at higher
prices More focus on food quality
THREAT OF SUBSTITUTES BASED ON ENVIRONMENTAL FACTORS
• The general state of the economy– When consumers have more disposable
income they will often choose higher quality food
• Societal views and perceptions– Consumers are becoming more health
conscious; this leads them to avoid many firms within the QSR industry
SUBSTITUTES BASED ON ENVIRONMENTAL FACTORS CONTINUED…
The age of the consumer Older customers prefer higher service and
food quality
Mood of the customer Families or couples who desire to eat and
relax will see firms in the FSR industry as the obvious choice
BARGAINING POWER OF SUPPLIERS
“Definition” Their ability to set their prices for their
customers
Truly competitive market
Best Deals = Long working relationships
BARGAINING POWER OF SUPPLIERS
“Factors” Differentiation of Inputs Switching Cost Substitute of Products Importance of Volume to the Supplier Cost Relative to the Total Purchase of
Industry
BARGAINING POWER OF SUPPLIERS
Bargaining Power is Highest When: Sellers product has few substitutes and
is important to buyer When differentiation makes it costly to
switch suppliers When suppliers can vertically integrate
and compete with buyer When buyers can’t vertically integrate
backward and supply their own needs
BARGAINING POWER OF CUSTOMERS The QSR products are undifferentiated Companies must compete on price to attract
customers This gives the customers a high amount of
bargaining power Customers determine what products are
offered Customers determine what the price the
products
ECONOMIC FACTORS IN THE ENVIRONMENT
Even though the economy is in a downturn
QSR companies sell a product that is ideal for the current economic environment
QSR companies are still posting growths in sales and revenues
QSR companies are still expanding their operations
ECONOMIC FACTORS IN THE ENVIRONMENT
Economic factor implications for the QSR The current recession gives QSR companies
the ability to weather the storm Could use the opportunity to take market
share away from full-service restaurants Low borrowing costs can allow them to
expand into new markets
COMPETITIVE FACTORS IN THE ENVIRONMENT
The firms in the QSR compete on Low price so they must continuously strive to
cut costs Competing on price forces QSR companies to
take small margins on products Successful competition depends selling a
large volume of products
COMPETITIVE FACTORS IN THE ENVIRONMENT
The competitive implications for the QSR To survive in the QSR a company must
have a large number of restaurants Only a few companies are able to compete
on a global scale However regional and hometown offerings
can compete on a small scale To compete with the smaller firms QSR
companies must improve customer service
TECHNOLOGICAL
Technology within the QSR has helped firms gain market share from other suppliers
Point of Sale (POS) Order taking
Speed of service
Computer capabilities
LEAN ACT
The Labeling Education and Nutrition Act (LEAN Act) legislation is the first of its kind affecting prepared foods which would require chains with more than 20 units to post calorie counts for all menu items
Requires packaged foods to include nutrition information.
GEOGRAPHICAL FEATURES
Wendy’s alone has over 6,600 stores in 20 countries
Though Wendy’s has merged with Triarc, both entities have decided to continue running independently of one another
GEOGRAPHICAL FEATURES CONTINUED…
In the four highest populated states, Wendy’s operates over 1,400 stores
The majority of Wendy’s locations are in the Central and Eastern regions of the United States
SOCIAL FACTORS INFLUENCING THE INDUSTRY Disposable Income
Teens in the US have large amounts of disposable income
The United States’ middle class Working adults spend 1/3 of the day
working, QSR firms rely on these individuals picking up food on their commute home
Religious and Cultural challenges McDonalds and the non-beef patty in India Social Hierarchies aren’t present in parent
country
CURRENT RATIO
Ability to pay back short-term debts with current assets Industry as a whole seems normal Inventories can be converted to cash quickly
2003 2004 2005 2006 2007
Wendy's 0.88 0.670000000000001
1.3 1.66 0.820000000000001
McDonald 0.690000000000001
0.700000000000001
1.51 1.21 0.79
Jack in the Box 0.630000000000001
0.870000000000001
1.03 1.19 0.640000000000001
Sonic 0.93 0.700000000000001
0.54 0.54 0.690000000000001
0.100.500.901.301.70
Current Ratio
2003 2004 2005 2006 2007
Wendy's 0.4862 0.4527 0.4451 0.4456 0.3321
McDonald's 0.3032 0.3175 0.3145 0.3236 0.3157
Jack in the Box 0.1762 0.1755 0.1699 0.1745 0.1652
Sonic 0.3468 0.331 0.3229 0.324 0.3402
5.00%
15.00%
25.00%
35.00%
45.00%
55.00%
Gross Profit Margin
• Measures the ability to generate earnings compared to expenses
• Ratio gives proportion of money left over for revenue after cost of goods sold
GROSS PROFIT MARGIN
2003 2004 2005 2006 2007
Wendy's 0.0932000000000001
0.0177 0.1048 0.0438 0.1257
McDonald's 0.1195 0.1225 0.1312 0.1642 0.182
Jack in the Box 0.043 0.0322 0.0366 0.0391 0.0402
Sonic 0.117 0.1082 0.1131 0.1135 0.102
1.00%3.00%5.00%7.00%9.00%
11.00%13.00%15.00%17.00%19.00%
Net Profit Margin
• Tells the company if it is effective at controlling costs
• Net Profit Margin is the return on sales
NET PROFIT MARGIN
2003 2004 2005 2006 2007
Wendy's 0.95 0.94 0.670000000000001
0.63 0.85
McDonald's 0.72 0.72 0.71 0.72 0.73
Jack in the Box 1.94 2.03 1.95 2.07 2.01
Sonic 1.1 1.1 1.2 1.23 1.22
0.25
0.75
1.25
1.75
2.25
Return on Assets
• Return on investment from stockholders and creditors
• Helps company see how efficient the company is at generating revenues compared to use of assets
RETURN ON ASSETS
RETURN ON EQUITY
2003 2004 2005 2006 2007
Wendy's 0.1629 0.0295 0.1306 0.0458 0.0347
McDonald's 0.1431 0.1902 0.1832 0.234 0.1895
Jack in the Box 0.151 0.1658 0.1654 0.1911 0.1825
Sonic 0.2266 0.2187 0.2104 0.2029 0.2204
2.50%
7.50%
12.50%
17.50%
22.50%
Return on Equity
• Rate of return on stockholders’ investment in the company
• How much profit the company is generating with the stockholders’ money
DEBT-TO-ASSET RATIO
2003 2004 2005 2006 2007
Wendy's
0.57 0.7158889 0.860000000000001
0.690000000000001
0.690000000000001
Mc-Don-ald's
0.53 0.49 0.49 0.47 0.48
Sonic 0.45 0.35 0.32 0.39 1.14
Jack in the Box
0.720000000000001
0.57 0.58 0.53 0.700000000000001
0.10.30.50.70.91.1
Debt/Asset
•Measures company’s ability to pay debt •Measures solvency •Little volatility within companies; but all are satisfying debt requirements