Pizza Hut. Red Lobster, Olive Garden. Expensive vs. econom

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Food Away From Home

• AG BM 102

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Introduction

• ½ of food expenditures
• 1/3 of food
• Growing business

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Categories

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

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Selling to Food Service Sector

• Commodity products
• Exceptions Coke, Pepsi, liquor, etc.
• Food distributors
• Fraternity Purchasing Association

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Restaurants

• Differentiated product usually distinct
  differences
• Price
• Service
• Location
• Taste
• Ambiance
• Lots of entry exit

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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

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Franchises

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

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Source Advertising Age
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McDonalds

• 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

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Costs

• Labor costs high
• Peak business fancy restaurant may turn tables
  once or twice
• Breakfast at McDonalds try to use facilities
  more
• College Ave McDonalds all night!

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Target Customers

• Canyon Pizza
• Brothers Pizza (downtown)
• Papa Johns
• Faccia Luna Pizza South Atherton
• Location, ads, hours, prices, décor, parking,
  specials, menu

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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

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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

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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