Research Report : US Fast Food Market

Done by Aditya Chokhani 3-C BBA

Brief Introduction To The US Economy

The United States is the world's largest nominal economy Its nominal GDP was estimated at $14.2 trillion in 2009, which is about three times that of the world's second largest national economy, Japan Its GDP by PPP is almost twice that of the second largest, China

What is Fast Food?

A fast food restaurant is a restaurant that prepares food quickly and offers minimal service to its customers. Fast food franchises often ship standardized foodstuffs to each restaurant location where the food is cooked in bulk and kept warm.

It was estimated that in 2010 alone Americans will spend $142 billion dollars in fast food restaurants.
Because the concept of fast food is based on selling in bulk in a cheap sufficient manner, there is a great deal of food engineering done to fast food products. Additives and processing techniques take away from the nutritional value of the food. Food Engineering: chemical engineering principles to food materials, changing materials to package the food and preserve

History of Industry Competitors

McDonalds First store opened in 1940 by the McDonald brothers Headquarters- Oak Brook, IL Sonic First store opened in 1945 Headquarters- Oklahoma City Jack-In-The-Box Founded in 1951 Headquarters in San Diego, CA Burger King
Founded in 1954 Headquarters in Miami, Florida

Industry Overview

Fast-food industry includes about 200,000 restaurants Combined annual revenue of about $120 billion Industry is highly fragmented: the top 50 companies hold 25% of sales

Industry Details

The industry is highly labor-intensive: the average annual revenue per worker is just under $40,000 Most fast-food restaurants specialize in a few main dishes Restaurants include national and regional chains, franchises, and independent operators Most 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 Features Industry break down Restaurant Industry

Full-service Limited-service
Burger Segment Sandwiches Pizza/pasta Chicken Mexican Etc.

2008 Burger segment Annual Sales

(http://www.qsrmagazine.com/reports/qsr50/2008/burgers.phtml) Rank QSR 50 Chain
Sales ($Mil)

1 2 3 4 5

1 McDonalds 2 Burger King (U.S. & Canada) 4 Wendys1 10 Sonic Drive-In 13 Jack in the Box

$28,666 $8,781.0 $7,956.0

$3,608.8
$2,975.0

Economic Factors

How does a Recession affect the limitedservice 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 .

Social Factors
The 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 provided Must be convenient and fast to accommodate the fast pace of American lifestyles.

Changes in Social Norms

Changing American attitudes toward food. Companies Answers New Competition

Industry Risks Factors

Events Reported by Media Competition of Industry Changes in Economic and Market Conditions

Positions Within the Industry

Jack in the Box- The first mover. McDonalds- Universally accepted name.

Burger King- Competing with McDonalds.

Sonic- American values.

Strategies
Jack in the Box- We dont make it till you order it. McDonalds- Global.

Burger King- Have it your way.

Sonic- Americas Drive-In and Your ultimate drink stop!

Financial Performance: Last 12 Months

McDonalds: Wendys: Burger King: Subway: Taco Bell: Pizza Hut: KFC: Arbys: Sonic: Jack in the Box:

$24.3 billion $7.7 billion $7.7 billion $6.3 billion $5.7 billion $5.2 billion $5.0 billion $2.8 billion $2.7 billion $2.5 billion

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

Differentiation -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

Competing 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 to cooking at home

Factors that could affect the US quickservice restaurant industry

Changing dietary preferences among consumers in favor of alternative foods Changes in economic conditions, consumer tastes and preferences, and the type and location of competing restaurants Sales promotions by competitors, changes in customer visits, and changes in things such as energy costs

Growth

According to Dun and Bradstreet subsidiary First Research, the output of US food and drinking places, which includes fast food restaurants, is forecast to grow at an annual compounded rate of 4.3% between 2007 and 2012. Quickservice restaurants are projected to post sales of $163.8 billion in 2009.

Prospects for long-term profitability

The QSR segment is generally less vulnerable to economic downturns and increases in energy prices than the casual dining segment is, although the economy may adversely impact QSR chains. The following information in the graph is done by First Research and forecasts the estimated growth of the food industry in relation to the economy

Conclusion

Despite the downturn in the economy, the QSR industry will remain a cornerstone of the economy, representing 4% of the U.S. gross domestic product and employing 9% of the U.S. workforce. Future growth in the fast-food restaurant industry depends on how well retailers are able to innovate, provide value for money, and keep up and surpass competitors.

Case Study

Burger King

Burger King System Fast Facts

11,350 restaurants worldwide
91% franchised

$11.5 billion system sales 340,000 people employed, system wide 15 million customers served every day
1,320 customers per restaurant per day

2.4 billion hamburgers sold system-wide, annually 5 million Kids Club members

Burger King

Burger King Supply Chain

120 Million cases/year
400+ Primary Suppliers; High commodity content 27 Distribution Centers 250 million toys manufacturing in China Factory direct kitchen equipment and supplies
Boilers/fryers/microwaves/stainless steel Signs/furniture/dcor/lighting/HVAV 300 restaurants/DC (average) 12 Regional Distribution Companies 15,000 cases per restaurant

Purchasing Scope
$ Mill

Food & Packaging Equipment & Dcor Premiums & SLOs Distribution Services TOTAL

$2,400 200 200 200 $3.0 billion

Key Products
$ Mill % of total

Beef Chicken Soft Drinks Packaging Fries Buns Dairy Fresh Produce 3

426 285 262 229 222 199 154

77

18% 12 11 9 9 8 6

Supply Chain Value Added

Supplier Manufacturing Freight Raw Materials + $15K

Freight Warehousing Delivery + $25K = $350K Restaurants

$250K
+ $60K

Customers $1,100K

Consumer Research
Results often (usually) ambiguous
Lean chicken breast w/fudge overboard Low fat yogurt w/hot fudge toppings Whopper combo, large fries and diet coke Crispy Chicken Cobb salad w/ranch dressing
670 calories; 53 grams fat

What they say vs what they do Advertising healthy food is often problematic
Assumes compromise in taste? McLean Veggie Burgers

What do they want? What we think we know:

Taste Rules High Quality Safe Consistent Reliable Fresher; fewer preservatives Variety Good value

Emerging Consumer Attitudes

Increasing health awareness
Fat
Saturated fats; healthy oils

Calories Additives But, reluctant to sacrifice flavor

Organics and natural foods No compromise on food safety; food security Biogenetics awareness Animal Welfare

Implications for food industry:

Less fat, more lean Less calories More vegetables More natural and organic More R&D for healthy products that are flavorful

The Elusive Consumer: What do they want?

The subject of intense research by food and restaurant companies No easy answer; no typical consumer Changing demographics
Age Regional patterns Diversity of population

Changing attitudes
Tastes & preferences Short term vs long term trends

Changing Economics

Nations Restaurant News May 23, 2005

Burger King restaurant typical daily sales

525 soft drinks 500 fries and rings 300 Whoppers 220 Burgers 220 Chicken 25 Fish 13 Salads 2 Veggie Burgers

Findings & Recomendations

The future lies with the consumer : Watch what they do; where and how do they spend their money Not necessarily what they say; their aspirations may be different than reality Recent trends in health and nutrition awareness are more significant than in the past
More than lip service Consumers are voting with their pocketbooks Expect fundamental changes in food service and food retailing in next several years

However, we need to remember consumers will always reserve their right to change their minds and either accept or reject products without regard for:
Logic Facts

Bibliography and References

The data presented in this report is collected from :

Company web sites like burgerking.com, bk.com Informational web sites like Wikipedia.com, google.com

Thank You