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  • The Fast Food Industry

    Amyn Bandali Meghan Holleran Stephanie Menke Philip Nachbar

    AEM 4550 April 14, 2010

  • Agenda

    Introduction Industry Analysis

    Advertising Strategies Investment Recommendations

  • Why the Fast Food Industry?

    In 1970, Americans spent about $6 billion on fast food; in 2000, they spent more than $110 billion. Americans now spend more money on fast food than on higher education, personal computers,

    computer software, or new cars. They spend more on fast food than on movies, books, magazines,

    newspapers, videos, and recorded music - combined.

    ~Fast Food Nation, 2001

  • Industry Analysis

  • Industry Definition

    Companies that own, operate, and/or franchise eating places that provide a casual dining experience in a compressed time frame

    Primary activities: Quick-service restaurants (QSR) Fast-food services Drive-thru and take-out facilities

  • Industry Structure HHI = 3,208 Slightly skewed by

    other representing 53.1% of small other firms

    Four-Firm Concentration Ratio: 35%

    Within regions and cities the industry tends to have a higher concentration in areas where households have an annual income of at least $50,000 per annum.

    13%

    10%

    6%

    6%

    5% 5%

    2%

    53%

    McDonald's Corporation

    Yum! Brands, Incorporated

    Wendy's/Arby's Group, Inc.

    Starbucks Corporation

    Burger King Corporation

    Doctor's Associates Inc

    Domino's Inc

    Other

  • Industry Structure Industry itself is an

    oligopolistic market, but operates under monopolistic competitive market of restaurants

    Franchises account for about 10% all establishments, 65% of total revenue

  • Industry Analysis Customer buying power: Moderate Negotiable switching costs

    Supplier buying power: Strong Consolidated marketSysco, US Foodservice Inc

    Barriers to Entry: Low Operators can lease premises and equipment,

    furniture and fittings lowers the initial capital costs, outlays and

    borrowings Franchise agreements include equipment and

    training systems

  • Internal Competition Location

    Food Quality & Consistency

    Style & Presentation

    Food Range with New Products

    Variety & Service

    Health & Nutrition Value &

    Information

    Price

  • Finances 2006 2007 2008 2009 2010 Scale

    Industry Revenue *173,255 *175,334 *170,074 *162,081 *164,025 $Mil

    Industry Gross Product

    *46,538 *46,910 *45,034 *42,872 *43,172 $Mil

    Number of Establishments

    *292,583 *295,801 *291,364 *284,663 *281,532 Units

    Number of Enterprises

    *228,102 *229,014 *226,037 *221,742 *219,525 Units Employment

    *3,754,109 *3,784,142 *3,700,891 *3,597,266 *3,561,293 Units

  • Costs

    31%

    27%

    7%

    4%

    3% 2%

    21%

    5%

    Purchases

    Wages

    Rent

    Depreciation

    Advertising and Promotions Utilities

    Other

    Profit

  • Industry Trends: Slowed Growth Slowed Growth Positive Signs

    High prices of commodities Energy, oil, food

    US economic downturn Suffering job market Weak US dollar

    Growing health and wellness concerns

    Competition from gourmet restuarants Chipotle, Cosi, Panera

    Changing customer base Fast food is an inferior good

    Increased pace of life On-the-go food

  • Employment 2006 2007 2008 2009 2010 Scale

    Total Wages *45,629 *46,085 *45,578 *44,530 *44,530 $Mil

  • Imports and Exports In recent years exports have been accounting for an

    increasing share of total revenue of major operators

    2005: Yum Brands opened 409 new restaurants in China to make a total of 2,291. By mid-2009, store numbers increased to 3,208, or by a

    further 40%, with 2,670 KFC, 435 Pizza Hut Casual Dining and 81 Pizza Hut Home Service stores in China.

    June 2009: Domino's Inc. had 489 domestic company-owned stores, 4,498 domestic franchise stores , and 3,742 international stores (42.9% of total stores).

    There are no reliable estimates of import and export flows for this industry over time (IBISWorld).

  • Regional Population Compared with Industry

    Region Population (%) Establishments (%) Employment (%) Revenue (%)

    Far West 17 17.6 16 17.7

    Great Lakes 15.8 16.6 17.5 16.8

    Mid East 16.2 16.7 11.8 13.4

    New England 4.9 5.8 4.4 4.9

    Plains 6.7 7.1 7.7 6.6

    Rocky Mountains 3.3 3.4 3.5 3.2

    South East 24.7 22.4 27.5 25.5

    South West 11.4 10.4 11.6 11.9

    Total 100 100 100 100

  • Ad-Sales Ratios Across Industries

    0%

    1%

    2%

    3%

    4%

    5%

    6%

    7%

    8%

    9%

    10%

    1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

    McDonald's Corp

    Yum! Brands, Inc.

    Wireless Telephone Industry

    Automobile Industry

    Softdrink Industry

    Alcoholic Industry

  • Advertising Strategies

  • Primary Advertising Methods

    Persuasive Comedy Celebrities Sex Specific Promotions & Giveaways

  • Advertising Mediums

    Television Corporate Sp0nsorship Product Placement Paid Search Online Display Advertising Print Advertising Brand-Interactions

  • Television Advertising

  • Total Ad Spending By Brand

    KFC $179,377,200

    Burger King $188,483,700

    Taco Bell $212,286,900

    Subway $245,505,700

    Wendys $249,962,500

    McDonalds $472,219,000

  • Total Ad Spending Cont.

    11%

    11%

    10%

    28%

    14%

    12%

    14% Other

    Burger King

    KFC

    McDonalds

    Subway

    Taco Bell

    Wendys

  • Most Expensive Ad Spots in 2008 and 2009

    $1,500,000 - $3,000,000 Super Bowl

    $1,111,000 $2,222,000 AFC Championship Game

    $1,940,000 Baseball All-Star Game

    $1,307,000 $1,689,000 Academy Awards

    $1,389,000 $1,424,000 American Idol Finale

    $1,195,000 $1,241,000 NCAA Basketball Championship Game

    $1,207,000 Summer Olympics Opening Ceremony

  • Average Ad Expenditures

    0

    20000

    40000

    60000

    80000

    100000

    120000

    140000

    Burger King KFC McDonalds Subway Taco Bell Wendys

  • Most Popular Day Parts for Advertising

    Prime Late Fringe (BK & Wendys) Sunday Afternoon (KFC & Taco Bell) Saturday Morning (McDonalds) Overnight (BK & Subway)

  • Average Costs of Top Day Parts Most Expensive: Prime Access 2 ($208,000) Late News ($184,000) Prime Access 1($183,000)

    Least Expensive: Saturday Morning ($5,000) Overnight ($6,300) Morning Daytime 2 ($17,000)

  • Average Cost/Ad by Day of Week

    0

    20000

    40000

    60000

    80000

    100000

    120000

    140000

    SUN TUE THU MON WED FRI SAT

    Avg

    Cos

    t/A

    d (

    Dol

    lars

    )

  • Most Common Types of Products Advertised

    20%

    15%

    13% 11%

    10%

    8%

    5%

    3% 3%

    10% General Promotion - QSR Count

    Burger Product Count

    Sandwich Product Count

    Chicken Product Count

    Value Product Count

    Kids Meal Count

    Sponsored Event Count

    Breakfast Product Count

    Coffee Product Count

    Other

  • Number of Ads by Program Type

    0

    500

    1000

    1500

    2000

    2500

    3000

    Burger King KFC McDonalds Subway Taco Bell Wendys

    Fre

    qu

    ency

    of

    Ad

    s

    Childrens (Childrens/family & animation) DRAMA/ADVENTURE

    FEATURE FILM

    GAME SHOW

    News

    POLICE/SUSPENSE/MYSTERY

    SITUATION COMEDY

    SLICE-OF-LIFE

    SOAP OPERA

    Sports

    TALK

    VARIETY - GENERAL

  • Products Advertised by TV Program

    Findings: Coffee & Breakfast products highly concentrated to

    News Programs Desserts concentrated on Childrens Programs and Talk

    Shows 80% of Kids Meals targeted to Childrens Programs 70% of burrito ads, 80% of taco ads, and 68% of

    Mexican-style products are targeted to sports (Taco Bell)

  • Products Advertised by TV Program Cont. Findings: Chicken highly targeted to Slice of Life Programs 38% of Fish Product Ads concentrated on Soap

    Operas of Salads targeted to Slice of Life, another of

    Salads targeted to Soap Operas Value Meal Products concentrated on Sports

    Programs (36% of Value Meal products targeted towards Sports)

  • Company Overview: McDonalds Highest total ad expenditure Lowest average ad expenditures (of top

    competitors) Advertises primarily during primetime, Saturday

    mornings Targets primarily children (and sports shows Only top brand which targets

    primarily childrens programs

  • Company Overview: Burger King

    4th highest total ad expenditure 2nd lowest average expenditure per ad (of top

    competitors) Advertises primarily during

    primetime, late fringe, overnight Targets talk shows and

    sports programs

  • Company Overview: Wendys 2nd highest total ad expenditures 2nd highest average expenditure per ad Advertises primarily during primetime and late

    fringe Targets slice of life,

    sports programs, drama/adventure programs

  • Company Overview: KFC Lowest total