fast food 2
Post on 14-Sep-2014
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Industry AnalysisFast Food Industry
Anna SterlingJohnnie DavisZane BarnesKimberly SmithNolan BosworthShaina WeaverClay Jones
History of Industry CompetitorsMcDonaldsFirst store opened in 1940 by the McDonald brothersHeadquarters- Oak Brook, ILSonicFirst store opened in 1945Headquarters- Oklahoma CityJack-In-The-BoxFounded in 1951 Headquarters in San Diego, CABurger KingFounded in 1954Headquarters in Miami, Florida
Industry OverviewFast-food industry includes about 200,000 restaurantsCombined annual revenue of about $120 billionIndustry is highly fragmented: the top 50 companies hold 25% of sales
Industry DetailsThe industry is highly labor-intensive: the average annual revenue per worker is just under $40,000Most fast-food restaurants specialize in a few main dishesRestaurants include national and regional chains, franchises, and independent operatorsMost fast-food restaurants use a POS (point of sale) system to take orders from drive-thrus and the register
The Fast Food Industrys Dominant Economic, Political, and Social FeaturesIndustry break downRestaurant IndustryFull-serviceLimited-service (NAICS 722211)Burger SegmentSandwichesPizza/pastaChickenMexicanEtc.
2008 Burger segment Annual Sales(http://www.qsrmagazine.com/reports/qsr50/2008/burgers.phtml)
Rank QSR 50 Chain Sales ($Mil) 1 1 McDonalds $28,666 2 2 Burger King (U.S. & Canada) $8,781.0 3 4 Wendys1 $7,956.0 4 10 Sonic Drive-In $3,608.8 5 13 Jack in the Box1 $2,975.0
Economic FactorsHow does a Recession affect the limited-service restaurant industry?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 .
Political FactorsEconomic 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 years.Ex: on a $700,000 project it would save $7,000 a year versus the 39 year schedule.
Social FactorsThe 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 providedMust be convenient and fast to accommodate the fast pace of American lifestyles.
The Five Forces ModelThreat of New EntrantsEconomies 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.Product Differentiation: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:Capital requirements will quell the formation of new, national competitors, but is not a significant barrier to private startups.Cost Disadvantages: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.
The Five Forces Model Cont.Threat of New Entrants Cont.Distribution Channels:Speedy and reliable channels are essential among all firms in the industry, they are not necessarily difficult for new comers to attain, however. Also the economies of scale enjoyed by large firms are not so great as to shut out smaller competitors. Government Regulation:Government regulation is more intense for the larger firms which have to deal with franchising regulations. Smaller establishments are subject to the standard array of government regulations including: zoning, health, safety, sanitation, and building. These are standard for almost any new business and thus do not pose large threat to new comers.Conclusion:Due to the lack of any of the barriers to entry being so significant as to thwart the majority of private startups, we feel the threat of new entrants is high.
The Five Forces Model Cont.Bargaining Power of CustomersEven though customer switching costs are nearly zero, the fast food industry does not worry about loyalty because On average, one-fifth of the population of the USA eats in a fast-food restaurant each day (Oxford University Press). It is this volume that keeps customer bargaining power low by diluting the effect of a few picky customers.Bargaining Power of SuppliersLarge fast food chains thousands of suppliers to choose from and select theirs through a competitive bid process. They can switch suppliers easily and tend to make up a large portion of the suppliers revenue. This severely limits the bargaining power of suppliers.
The Five Forces Model Cont.Threat of SubstitutesWith so many firms in the quick service/burger industry, low switching costs, similar products, and healthier options, the threat of substitutes is very high.Rivalry Among Existing FirmsThe 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.
ConclusionThreat of New EntrantsHighBargaining Power of CustomersLowBargaining Power of SuppliersLowThreat of SubstitutesHighRivalry Among FirmsHigh
1 month6 months12 months
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1 month3 months6 months
Jack in the Box-10.10%45.70%-17.60%
Burger King Holdings-8.50%5%-27%
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Changes in Social NormsChanging American attitudes toward food.
Industry Risks FactorsEvents Reported by Media
Competition of Industry
Changes in Economic and Market Conditions
Industry Risks FactorsEarnings Dependant on Franchise
Litigation Affects all Members of Chain
Positions Within the IndustryJack in the Box- The first mover.
McDonalds- Universally accepted name.
Burger King- Competing with McDonalds.
Sonic- American values.
StrategiesJack in the Box- We dont make it till you order it.
Burger King- Have it your way.
Sonic- Americas Drive-In and Your ultimate drink stop!
Financial Performance: Last 12 MonthsJack 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%.
Stock Price History
Key Success Factors
What are key success factors? -Things that a company must do to be successful in an industry
Key success factors are often looked at as core-competencies, which are sets of skills or systems that create a uniquely high value for customers
Key Success FactorsDifferentiation -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
Key Success Factors
AnswerTotal PercentageAgree41%Neither Agree/Disagree29%Disagree18%Strongly Agree10%Strongly Disagree3%
Key Success FactorsCompeting on Low Cost -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
Quick-Service Restaurant Segment (QSR)In the United States QSR is the largest segment of the restaurant industry
Growth in sales include-Rising population-increases in real disposable income-busier lifestyles
Fast food chains provide consumers with food at reasonable prices which offers an alternative t