Industry Analysis PP

Industry Analysis Fast Food Industry
Anna Sterling Johnnie Davis Zane Barnes Kimberly Smith Nolan Bosworth Shaina Weaver Clay Jones
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
Industry break down Restaurant Industry

Burger Segment Sandwiches Pizza/pasta Chicken Mexican Etc.
The Fast Food Industrys Dominant Economic, Political, and Social Features
Full-service Limited-service (NAICS 722211)
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 Box1
$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.
The Five Forces Model

Threat of New Entrants
Economies 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.

Bargaining Power of Customers
Even 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 Suppliers

Large 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.

Threat of Substitutes
With so many firms in the quick service/burger industry, low switching costs, similar products, and healthier options, the threat of substitutes is very high.
Conclusion
Threat of New Entrants Bargaining Power of Customers Bargaining Power of Suppliers Threat of Substitutes Rivalry Among Firms High Low Low High High
Rivalry Among Existing Firms

The 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.
Price Performance
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
Industry Risks Factors

Earnings Dependant on Franchise Litigation Affects all Members of Chain
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

Jack 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%.
Key Success Factors

What are key success factors?
-Things that a company must do to be successful in an industry
Misconception
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 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

Answer Agree Neither Agree/Disagree Disagree Strongly Agree Strongly Disagree Total Percentage 41% 29%
18% 10% 3%
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

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Industry Analysis Fast Food Industry

History of Industry Competitors

Industry break down Restaurant Industry

2008 Burger segment Annual Sales

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

The Five Forces Model

The Five Forces Model Cont.

The Five Forces Model Cont.

Bargaining Power of Suppliers

The Five Forces Model Cont.

Rivalry Among Existing Firms

Changes in Social Norms

Industry Risks Factors

Industry Risks Factors

Positions Within the Industry

Sonic- American values.

Burger King- Have it your way.

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

Financial Performance: Last 12 Months

Key Success Factors

Key Success Factors

Key Success Factors

Key Success Factors

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