Fast Food Industry Analysis
Team: The Leftovers
March 16, 2012
Marketing 305: Section 01
The Leftovers
Kathleen Tam, Amber Zut, Lauren Krohn, Cynthia Garcia, Shawn Czirban
Executive Summary
The fast food industry produces $165.4 billion in revenue annually. The industry has an
international presence with the United States holding the greatest geographical
segment and the Asia-Pacific region being the second. Currently, the industry is
recovering from the global economic recession, but as a whole, growth is projected at
2.0% until 2016.
The industry targets all age groups and income levels, though focuses on the younger
demographic which statistically hold a greater amount of discretionary income to spend
on eating out. Furthermore, the industry focuses on satisfying consumer demands while
delivering convenience, utilizing technological developments to maximize efficiency and
customer satisfaction.
Currently there are few regulatory affecting the industry as a whole, but is expected to
grow in the future. The Patient Protection and Affordable Care Act, for instance, require the
nutritional value of products offered to be available to the customer. This government
regulation has also catalyzed a growing trend in developing healthier options for customers
as health and obesity awareness grows.
The fast food industry is one of the country’s top employers. Employees are primarily ages
16-24 with a marginal percentage of senior citizens. Union membership is uncommon
amongst employees with only two percent belonging to unions.
Competition exhibits oligopolistic features with four corporations: McDonalds’s Corporation,
Yum! Brands Inc., Wendy’s International and Doctor’s Associates Inc. holding
approximately 40% of the market and the remaining being small businesses. Price and
quick-service are the key advantages the fast food industry holds, though the need to
diversify into ethnic and health conscious options are increasing steadily. Furthermore,
many market share holders are expanding to the international market in order to maintain
steady profits.
Table of Contents
The Fast Food Industry ............................................................................................................1
Growth .......................................................................................................................................2
Customer Characteristics ........................................................................................................3
Competition ...............................................................................................................................4
Macro-Envrionmental Factors .................................................................................................5
Regulatory Factors: ..............................................................................................................5
Social Factors .......................................................................................................................6
Demographic Factor .............................................................................................................7
Micro-Environmental Factors ..................................................................................................8
Suppliers ................................................................................................................................8
Distributors ............................................................................................................................8
Labor ......................................................................................................................................9
Future of the Industry ...............................................................................................................9
Appendix ................................................................................................................................. 11
Appendix A .......................................................................................................................... 11
APA Citation ........................................................................................................................ 12
Fast Food Industry Analysis | 1
The Fast Food Industry
The fast food industry, otherwise known as industry code number 72221 by the 2007 North
American Classification System, is composed of restaurants that “primarily engaged in (1)
providing food services where patrons generally order or select items and pay before eating
or (2) selling a specialty snack or nonalcoholic beverage for consumption on or near the
premises (U.S. Census Bureau, 2007). Activities and products which define a business as
a part of the fast food industry include operation of drive-thru and take out facilities, quick-
service as well as cafeterias and buffets. Gross profit of the industry as a whole is
comprised from fees from official franchises and company-owned stores. Currently, the fast
food industry as a whole is worth $165.4 billion with a positive 2.0% growth rate (IBIS World,
2011).
The fast food industry exists in both the international and national sphere, with the United
States (32.5%) being second to the Asia-Pacific region (39%) in accounting for global fast
food market value (MarketLine, 2012). An increasing amount of fast food companies such
as McDonald’s Corporation which holds a 12.9% market share of the industry as a whole
“are also investing in international growth as part of their long-term strategy” (IBIS World,
2011) as a greater number of countries develop and become potential avenues for growth
and profitability.
Fast Food Industry Analysis | 2
At present, the fast food industry is in the mature stage of its life cycle. (IBIS World, 2011).
Appendix A, Figure 1 provides a graphic perspective on what the food industry’s position in
its life cycle is. According to Samadi, a mature industry exhibits “slow and steady long-term
growth compared to the economy as a whole” (Samadi, 2011). The current dip in the
industry’s revenue Samadi attributes to the recent recession and is not an indicator of the
industry’s decline, but a result of economic strain due to recession. Furthermore, the
potential for expansion domestically has decreased and industry leaders have gradually
relied on international expansions to maintain sales. The fast food industry is also in at risk
to be pushed into the “decline” stage of the life cycle due to changes in customer
preferences and health risks attributed to consumption of fast food products (IBIS World,
2011).
Growth
Over the course of the last ten years, the fast food industry has taken some major declines
in its rate of growth. Beginning in 2004, the industry dropped from a 10.6% annual growth
rate to a negative 4.2% growth rate in 2009. This dramatic loss equates to a $17 billion
decline in revenue over the course of just 5 years (IBIS World, 2011). This major loss in
profits is a result of a combination of two factors, the economic recession that America has
experienced as well as the rising awareness and importance being placed on healthy eating.
Aside from shifting towards a health driven market, the economic recession has also forced
companies to further invest in international growth; anticipating a large potential for growth
and long term profitability, Yum! Brands (KFC, Pizza Hut and Taco Bell) increased its sales
in China in 2010 by 26.9% (IBIS World, 2011).
At current, the industry is experiencing growth and on its way to a full recovery of previous
year’s economic decline. In 2011 the industry had its second consecutive positive annual
growth with a 2.1% increase bringing it up to$165 billion revenue. In the next six years,
quick-service restaurants are projected to increase an average of 2% a year through 2017,
bringing the industries prospected annual revenue to $186 billion, surpassing industry highs
held prior to the economic recession (IBIS World, 2011).
Fast Food Industry Analysis | 3
Customer Characteristics
The fast food restaurant industry attracts customers of every age group and income level.
These two factors typically determine the frequency and recurrence of customer
concentrations at any given time. Households that make less than $50,000 annually spend
36.6% of their food budget dining out; this percentage averages out to $1,626 annually.
Households that make between $50,000 and $75,000 annually spend 42.4% of their food
budget on dining out; this percentage averages to $2,711 annually. Lastly, households with
earnings of more than $75,000 annually spend 45.7% of their food budget on dining out;
this figure amounts to an average of $4,490 spent annually (IBIS World, 2011). This
industry’s customer breakdown, according to age group, is made up of customers ages, 18-
25, 25-30, 35-50, 50-65 and 65 or older. Customers in the age bracket of 18-25 spend more
of their food budget on dining out, while customers that are 65 or older spend the least of
their food budget on dining out with percentages of 46.4 and 37, respectively.
The various businesses that make up fast-food industry are distributed according to
population. The goal of these establishments is to provide quick-meals to customers;
therefore, operators must be located near their customer base. The largest share of fast
food establishments can be found in the Great Lakes, New England, and the Plains regions.
While the smallest concentration is found in the Southeast and Southwest regions.
California has the largest proportion of establishments due to their large population. This
industry typically has a higher concentration of establishments in areas where households
have an annual income of at least $50,000 (IBIS World, 2011).
In general, selling strategies in this industry are based on consumer trends. Companies
within the industry will typically sell what the consumer requests in order to increase the
company as a whole’s selling potential. Typically, targeted consumers for this industry will
be influenced by changes in preferences within their households, their level of disposable
income, and other health and food safety concerns. Therefore, an establishment within this
industry must have a clear marketing position; meaning a business must determine and
stand-by their target market. Because this industry is about providing convenience to their
customers, an establishment must offer services which will accomplish this need in order to
Fast Food Industry Analysis | 4
be successful. Such services must include having high-profile locations for stores, with easy
access and drive-through services (IBIS World, 2011). The larger companies that constitute
the fast food industry will typically use varied media outlets such as magazines, television
commercials, and radio advertisements as a method to reach the targeted markets. The
smaller establishments, such as locally owned businesses, must connect with the
community directly in which they operate their business in order to increase their selling
potential.
Competition
The fast food industry’s competitive landscape is composed primarily of smaller businesses.
Nearly 48% of the establishments are small-business operators that have nine or fewer
employees; whereas, 52% of establishments have between 10 and 99 employees. However,
there is a very small number of larger and more dominant chain and franchised operators.
The top four corporations in this industry make up less than 40% of the available market
share: (IBIS World, 2011) McDonald’s holds a 12.9% market share, followed by Yum!
Brands Inc. with a market share of 9.7%, Doctor’s Associates holds a market share of 8.9%,
Wendy’s International, Inc. with a 4.5% market share and Burger King Corporation, the
smallest market share at 2.1%. The remaining smaller establishments combined have an
estimated market share of at least 61.9%.
Price-based competition is of highest importance in this industry, though, many of the
industry’s quick-service establishments also compete based on location, food quality and
consistency, and style and presentation. Food product range must also be consistently
changing due to shifting trends found in customers, for instance, rising concern for healthier
options as well as accommodating older demographics with differing tastes. Additionally,
Fast Food Industry Analysis | 5
establishments within the fast food restaurant industry will also compete based on variety
and service, including drive-thru availability, staff training, and attitudes. Competition also
arises from fast food establishments that are located within the same geographical area.
External competition results from other food service based industries such as the full-
service restaurants industry that offer take-out services (IBIS World, 2011).
Macro-Envrionmental Factors
Regulatory Factors:
According to IBISWorld Analysis, the regulations affecting the fast food industry are limited,
but steadily increasing. These regulations set by the federal government have slowly begun
to guide the fast food industry in the method in which they operate their businesses on a
large scale. Since mainly low wage and low skill workers are generally employed by fast
food restaurants, regulatory conditions establishing minimum wages, and employee benefits
such as health insurance, workers’ compensation, and higher standards for working
conditions have greatly improved the work environment for employees.
Passed in 2010, The Patient Protection and Affordable Care Act will require chain
restaurants to post the number of calories in each standard menu item on the display board
or menu that customers view their selections (Mancino, Morrison, & Variyam, 2011).
Although it has been required for some time that nutrition information must be available on
request at every establishment, recent studies still show that people are mostly unaware
that this information is available and most fail to consult it when making their dining choices.
It is shown that people generally underestimate the calories and fat content in fast food
menu items and the new regulation requiring nutritional information to be posted is assumed
to greatly influence the ordering decisions made by consumers (Mancino et al., 2011). In
addition to being required to post calorie content information, the menu and menu board
must also include a statement that additional information regarding saturated fat,
carbohydrate, and sodium content (Mancino et al, 2011). As consumers become
increasingly aware of the true calorie content of their favorite fast food items, they may
choose to make alternative food choices (increasing or decreasing demand for certain
products) or possibly reduce their visits to restaurants that have fewer lower calorie options.
Fast Food Industry Analysis | 6
As a result of The Patient Protection and Affordable Care Act, many leaders in the fast food
industry are introducing new products and reformulating the recipes of their original items to
appeal to this growing trend of lower calorie options.
Technological Factors
The fast food industry has always relied heavily on technological advances to help improve
customer experience and decrease wait times after ordering all while consistently driving up
their overall profits. New LED displays at drive-thrus allow for artificial face to face
communication which has improved customer experiences by decreasing incorrect
deliveries. In recent years, most fast food service establishments have installed high tech
point-of-sale (POS) systems that are shown to lead to quicker service as well as larger
customer purchases (Carpenter, 2003). Restaurant kitchen equipment standardization has
improved alongside ordering technology allowing fast food establishments to have more
consistent products with little to no culinary training required for their employees and as a
result, lowering training costs. Several new technological concepts are under serious
consideration by major corporate plays like McDonald’s including items such as self-service
kiosks, automated vertical grills, and automated French-fry systems (Carpenter, 2003).
Innovative contactless payment kiosks include colorful and animated touch-screen menus
give customers the ability to browse entire menus and customize their order while paying
with either cash or a credit card. McDonald’s has also begun to utilize technology to train
their employees using specialized interactive CDs on computer terminals that work similarly
to video game entertainment and constantly urge good customer service through flashing
smiles, greetings, and thank you’s throughout the display (Carpenter, 2003). In addition to
behind the counter improvements, fast food restaurants are also attempting to attract
customers to by offering wireless internet connections, either for free or a low cost.
Social Factors
Many patrons frequent fast food establishments due to the convenience and their ability to
accommodate the fast paced style of American life. Although the healthfulness of the
American diet has decreased since the 1990’s, consumers are concurrently becoming more
health conscious causing fast food retailers to rethink their strategies to retain customers
Fast Food Industry Analysis | 7
(IBIS World, 2011). In light of the obesity epidemic that is now spreading worldwide, issues
related to weight, fatty food intake, and food safety issues are guiding forces for both
consumers and retailers. New regulations on posting nutritional information has caused
“healthy options” on menus to become a cornerstone marketing strategy that allows these
establishments to target a new segment of the consumer market. Fast food restaurants
have traditionally specialized in hamburger and french-fries, nonetheless, new social trends
have pushed them to expand into new area such as chicken dishes, Italian and Mexican
inspired items, salads, and coffee beverages (IBIS World, 2011). Menus with a variety of
products appeal to a larger range of customers and increase the possibilities of customer
satisfaction. Furthermore, international growth remains a large part of much major chain’s
long term strategy. This movement into international markets causes regional product
variations and different employed marketing strategies.
Demographic Factor
Surveys reveal every age group and income level consumes fast food. However, the extent
to which they purchase meals outside the home can most often be predicted based on
these demographics (IBIS World, 2011). The changing age structure in the United States is
a significant factor in marketing campaigns employed by most fast food restaurants. The
baby boomer generations are a major group affecting revenue growth due to being
composed of a high number of the population and possessing a large portion of the
country’s disposable income. Consequently, as disposable income increases, the frequency
of visits to fast food restaurants also increases. During the last few years soaring
unemployment rates and economic turmoil worldwide has caused many individuals in the
baby boomer generation’s to lose their retirement and savings accounts which in turn have
decreased visits to fast food restaurants. This fast food industry as a whole is extremely
sensitive to the factors that affect growth in household disposable income such as
unemployment rates. In addition, changes in the labor market, increasing or decreasing tax
and interest rates, and high and increasing gas prices tend to have negative effects on the
profits of this industry (IBIS World, 2011). The current recession has caused international
consumers to become pessimistic in their economic outlook. However, the demand for
lower priced products from fast food restaurants is still predicted to increase in coming
years.
Fast Food Industry Analysis | 8
Micro-Environmental Factors
Suppliers
Crucial suppliers required by the varrying fast food restaurants include retailers of meat
products and produce. The various components of the fast food industry’s supply chain
include Frozen Food Wholesaling in the U.S., Dairy Wholesaling in the U.S., Egg & Poultry
Wholesaling in the U.S., Fish & Seafood Wholesaling in the U.S., Beef & Pork Wholesaling
in the U.S., and Fruit & Vegetable Wholesaling in the U.S. (IBIS World, 2011). Larger
companies in the fast food industry, such as McDonald’s which hold a greater market share,
have their own agricultural practices and distributions throughout America. The different
locations of operations for distributions are dependent to the population, establishment,
employment and revenue.
Distributors
The fast food industry is the primary distributor and retailer in which the product reaches the
end consumer. The product reaches the end consumer through the two main services the
fast food industry offers, limited-service restaurants which comprise of both drive-thru and
on on-premise restaurants and cafeterias and buffets (IBIS World, 2011). The chart below
displays the service segmentation in the industry.
Fast Food Industry Analysis | 9
Labor
In 2008, approximately 9.6 million individuals were employed by various food serving
industries as a whole, the majority of the workforce, 41%, consisting of 16-24 year olds
(Bureau of Labor Statistics, 2009).
Percent distribution of employment, by age group, 2008
Age group Food services and drinking places All industries
Total 100.0% 100.0%
16-19 19.9 3.8
20-24 22.0 9.4
25-34 23.9 21.6
35-44 15.5 23.0
45-54 11.5 23.8
55-64 5.4 14.3
65 and older 1.8 4.1
SOURCE: BLS Current Population Survey, 2008.
Hourly wages in the fast food industry are usually based on the federal minimum wage,
$7.25 as of 2009, though can vary based on location and size of the business (Bureau of
Labor Statistics). The majority of fast food industry employees are not union members and
only two percent belong to unions.
Fast Food Industry Analysis | 10
Future of the Industry
The growing epidemic of obesity that is gaining increasing notoriety in the United States has
in turn led to a trend that places greater value on healthier foods as opposed to traditional
fast food staples. With the general population avoiding non-nutritional, high-caloric foods
offered by the majority of fast food companies, the industry is being forced to change its
marketing strategies and products overall. Most fast-food chains being to offer new healthy
alternatives on their menu along with alternatives to red meat such as chicken burgers,
salads and pastas (IBIS World, 2011). The industry will also continue to increase its
profitability by offering a variety of high-margin items such as such as coffee drinks and
other beverages. The numerous changes in the industry will also entice new customers
through further investing in chains that specialize in a specific ethnic cuisine such as
Mexican food or Chinese food, as they tend to be a safe investment, proving a steady
popularity in previous and projected, future years. Aside from offering high-profit products
and investing in specialty ethnic food chains, one additional outlook the industry is expected
to utilize is multiple restaurants under one roof and unique locations within gas stations,
new cafes and full-service restaurants. Such tactics are already being used by Yum! Brands,
and are expected to be more common in the future (IBIS World, 2011).
Technology in quick service restaurants are also expected to impact the future of the
industry in many different ways. According to a recent study jointly conducted by Hospitality
Technology and Deloitte & Touche LLP, the fast food industry regularly uses technology to
reduce labor, food costs, and waste and increase sales. The industry utilizes technology to
support growth, improve meal experiences, reduce wait times and help gain an advantage
over their competition (IBIS World, 2011). New drive-through technologies such as LED
displays and enhanced point-of-sale (POS) systems (cash register touch screen ordering
operating systems) are expected to better connect the customers to the kitchens which will
facilitate a smoother, and less stressful ordering process.
Although the fast food industry is under major pressures from its environment and target
market to undergo serious changes in its operations and products, it is likely that the
forecasts for this industry will remain high and will maintain steady growth in the future, over
Fast Food Industry Analysis | 11
just the next 6 years, the industry is expected to increase its revenue by 12%, which
equates to a $16.5 billion increase (IBIS World, 2011).
Appendix
Appendix A
Figure 1. See References: IBIS World, 2011.
Fast Food Industry Analysis | 12
APA Citation
Bureau of Labor Statistics. (2009, December). Food services and drinking places. Bureau of
Labor Statistics. Retrieved March 16, 2012, from
http://www.bls.gov/oco/cg/cgs023.htm.
Carpenter, D. (2003). Technology for Fast Food’s Future. Los Angeles Times. Retrieved
March 16, 2012, from http://articles.latimes.com/2003/aug/04/business/fi-mcdonalds4.
IBISWorld. (2011, December). Consumer spending in the US. Retrieved February 29, 2012,
from IBIS Business Environment Report database.
IBISWorld. (2011, December). Healthy eating index in the US. Retrieved February 29, 2012,
from IBIS Industry Market Research database.
IBISWorld. (2011, December). Restaurants will expand their menus and global operations to
boost demand. Retrieved February 29, 2012, from IBIS Industry Market Research
database.
Mancino, L., Morrison, R. M., Variyam, J. (2003). Will Calorie Labeling in Restaurants Make
a Difference? Amber Waves. Retrieved March 16, 2012, from
http://www.ers.usda.gov/AmberWaves/March11/Features/CalorieLabeling.htm.
MarketLine. (2012). Fast food in the united states. MarketLine Industry Profile, Retrieved
March 18, 2012, from http://www.ebscohost.com.
Samadi, Nima. (2011). IBIS WORLD Industry Report 72221A. Fast Food Restaurants in the
U.S.. Retreived March 2, 2012, from IBISWorld Database.
U.S. Census Bureau. (2007). 2007 NAICS Definition: Sector 72—Accommodation and Food
Services: 72221 Limited-Service Eating Places. Retrieved on March 2, 2012, from
http://www.census.gov/cgibin/sssd/naics/naicsrch?code=72221&search=2007%20N
AICS%20Search.
