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  • 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 countrys 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: McDonaldss Corporation,

    Yum! Brands Inc., Wendys International and Doctors 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 McDonalds 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 industrys 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

    industrys revenue Samadi attributes to the recent recession and is not an indicator of the

    industrys 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

    years 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

    industrys 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