Food Away From Home

AG BM 102

Introduction

• ½ of food expenditures

• 1/3 of food

• Growing business

1960 1970 1980 1990 20000

10

20

30

40

50

60

70

80

90

Percent of total food expenditures

Other Fast food Grocery store

Eating Preferences are ReshapingFood Expenditure Patterns

Demographics and restructuring

Categories

• Restaurant (74.3%)• Dining hall (6.3%)• Hospital• Prison• Carry-out or delivered food• Military • Economics somewhat different by

category

Selling to Food Service Sector

• Commodity products

• Exceptions: Coke, Pepsi, liquor, etc.

• Food distributors

• Fraternity Purchasing Association

Restaurants

• Differentiated product – usually distinct differences– Price– Service– Location– Taste– Ambiance

• Lots of entry & exit

Prices

• Low for entrees

• High for appetizers, desserts & drinks

• Specials – often expensive

• Value meals – interesting how much different the value meal increment is on different sandwiches at McDonalds & Burger King

Franchises

• Half of restaurants in Twin Cities are chains• McDonald’s, Burger King• KFC, Taco Bell• Pizza Hut, Papa John’s, Dominos • Red Lobster, Olive Garden• Subway• Expensive vs. economy establishments• Big orders – low margins• Franchise fees• Good will

Top 10 fast-food burger brandsAdvertizing2000.0Brand

$664.843.1McDonald's$385.321.1Burger King$241.812.7Wendy's

$36.35.3Hardee's$70.64.4Jack in the Box$41.94.0Sonic$41.62.1Carl's Jr.$10.41.4Whataburger$8.31.1Steak n Shake

$10.81.1White Castle$1,512.196.3Top 10

$45.4Total burger market in $ billions $45.4

Source: Advertising Age

McDonald’s

• 20 million people per day in US (1 in 14 people)• 12,000 restaurants in U.S.• $2 billion per year in advertising worldwide• 12.7 % of fast food market in 2010• Average store grossed $2.6 million in 2011• Subway has more outlets• New products mostly flop – Chicken McNugget

last success• A franchise costs $500,000-$800,000+• Not growing in US

Costs

• Labor costs high

• Peak business – fancy restaurant may turn tables once or twice

• Breakfast at McDonald’s – try to use facilities more

• College Ave McDonald’s – all night!

Target Customers

• Canyon Pizza

• Brother’s Pizza (downtown)

• Papa John’s

• Faccia Luna Pizza – South Atherton

• Location, ads, hours, prices, décor, parking, specials, menu

Barriers to Entry

• Low• Everyone thinks they are an expert• Low capital requirements• Location, location, location• Know your market• Cash flow issues• Managing people• Advertising

Dining Halls, etc.

• Captive audience, esp. prisons, & hospitals

• Budget for month – feed everyone with it

• End of the semester food

• Try to fill people up with cheap stuff

Concluding Remarks

• Not like grocery business

• Food distributors have key role

• Restaurant vs. institutional

• Franchises – like chain grocery stores in purchasing

• Lots of money

• Few barriers to entry