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Title: Fast-Food%20Restaurant%20Industry%20Analysis


1
Fast-Food Restaurant Industry Analysis
  • Management 182
  • Lindsey Hicks Joshua Price
  • Eva Ho Suren Divanyan
  • May 16, 2002

2
Fast-Food Restaurant Industry
  • Dominant Economic Characteristics
  • Competition Analysis
  • Driving Forces
  • Competitive Position of Major Companies
  • Competitor Analysis
  • Key Success Factors
  • Industry Prospects and Overall Attractiveness

3
Dominant Economic Characteristics
4
Dominant Economic Characteristics
  • Market Size (2002)
  • Projected Sales (Billion ) 407.8
  • Sales increase of 3.9
  • Locations 858,000
  • industry employs 11.6 million people
  • Revenues (billion) 131.7

5
Dominant Economic Characteristics
  • Scope of Competitive rivalry
  • International Most companies of the industry
    operate stores in many countries and compete with
    each other in specific country markets.

6
Dominant Economic Characteristics
  • Market Growth Rate
  • McDonald's Revenue 2.1 , Earnings Per Share
    1.47, Operating Income 4
  • Burger King Revenue (1), Earnings Per Share N/A
    Operating Income N/A
  • Taco Bell Revenue 6, Earnings Per Share 41,
    Operating Income 25

7
Dominant Economic Characteristics
  • Stage in life cycle
  • Mature
  • Growth opportunity still exists in new countries
    and markets
  • Diversification into related businesses
    attractive for sustained growth
  • Introduction of new line of products and services
    to differentiate from rivals is practiced

8
Dominant Economic Characteristics
  • Companies in Industry
  • There are 8 main companies that captures 89 of
    fast-food Market
  • McDonald's 34.7
  • Burger King 15.8
  • Taco Bell 9.6
  • Wendy's International 9.5
  • Subway 5.9
  • Hardee's 4.6
  • Arby's 3.9
  • Dairy Queen 3.8
  • Other 11.7

9
Dominant Economic Characteristics
  • Ease of Entry Globally
  • Relatively hard to enter, because of strong
    competition and high capital requirements
  • In order to franchise the entrepreneur should be
    at least 1 million worth
  • Efficient operations is the key to faster product
    delivery and lower costs
  • Requires diverse supply materials, which
    complicates entry
  • Customers are price sensitive and promotion
    driven

10
Dominant Economic Characteristics
  • Exit of Industry
  • Mergers and Acquisitions are common ways of exit
    strategies (Ex. McDonalds acquired Boston Market
    restaurant chain)
  • Companies like Taco Bell and KFC were parts of a
    diversified company, which in 97 were spun off as
    publicly traded companies

11
Dominant Economic Characteristics
  • Technology and Innovation
  • Automated Inventory Ordering System
  • Just in Time operations
  • Fast order taking systems
  • More efficient operations
  • Reduces operating costs
  • Increases profit margin

12
Dominant Economic Characteristics
  • Processes and Innovation
  • Introduction of new order-to-make burger or
    sandwich assembly process
  • Reduces waists
  • Increases food freshness
  • Increases customer satisfaction
  • Custom orders

13
Dominant Economic Characteristics
  • Product Innovation
  • New products are introduced to meet changing
    customer needs or to serve new market niches
  • Introduction of new sauces and burger innovation
  • Burger Kings introduction of Vegetarian Burgers
  • Taco Bells new gorditas

14
Dominant Economic Characteristics
  • Distribution Channels
  • Supply distribution is managed by the centralized
    corporate headquarters because it enforces
    standardization of supply materials and gives the
    companies greater bargaining power
  • The product and services are distributed to
    customers by individual stores

15
Dominant Economic Characteristics
  • Products and Services
  • Products and Services are differentiated among
    the rivals
  • Taco Bell is the most differentiated
  • McDonalds and Burger King are weakly
    differentiated. They each have their own special
    ingredients but offer the same satisfaction
  • Speed of delivery and freshness are the main
    characteristics of product

16
Dominant Economic Characteristics
  • Economies of Scale
  • Big companies have economies of scale in
    purchasing, manufacturing, transportation, and
    advertising
  • Bargaining power in supply purchasing
  • Lower per unit cost in mass manufacturing of
    pre-made supplies
  • Transportation costs are distributed among
    several restaurants in the same geographic area
  • Advertising aides many restaurants

17
Dominant Economic Characteristics
  • Industry Location
  • Fast-food restaurants are strategically located
    in most geographic areas with a population that
    could sustain business
  • The big companies are also growing into other
    national markets
  • For example, McDonalds operates in 121 countries

18
Dominant Economic Characteristics
  • Capacity Utilization
  • Effective and efficient operations results in
    lower burger or sandwich assembly costs, which in
    turn results in higher profits margins
  • Capacity Utilization is important to spread high
    fixed costs over greater number of products and
    services produced

19
Dominant Economic Characteristics
  • Profit Margin (1998-2002)
  • Moderate profit margins, 8.0 - 8.4
  • Intense competition and price wars reduce profit
    margins
  • Efficiency and cost reduction is key in sustained
    profit margin

20
Competition Analysis
21
Competitive Analysis
  • Forces of Competitive Analysis
  • Rivalry among competing sellers
  • Potential of new entry into market
  • Pressures from substitute products
  • Supplier bargaining power and competitive
    pressures
  • Pressures from buyer bargaining power
  • Other Factors which affect Fast Food Sellers

22
Competitive Analysis
  • Rivalry among competing sellers
  • In the fast food industry Competition is high
  • Many options for customers
  • Low prices/price wars
  • Many substitute products easily available
  • Customer decisions based on what is available at
    time
  • Advertising
  • Promotional incentives
  • Products differentiated

23
Competitive Analysis
  • Rivalry among competing sellers
  • Companies striving to better market share
  • Continuous growth into new markets, with new
    products offerings and growth into new geographic
    markets.
  • Diverse menus and competitors willing to make
    exactly what customers want.
  • Demand for fast food growing with the fast pace
    of life around the world
  • Fast food restaurants are worldwide and have
    relatively equal resources for growth

24
Competitive Analysis
  • Potential of new entry into market
  • Competitors well established
  • Brands well known around world
  • Customers like restaurants they know
  • Economies of Scale, with many world wide
    companies entrants can enter small although
    difficult to establish name in an already
    saturated market

25
Competitive Analysis
  • Potential of new entry into market
  • Advantages of large food chains
  • Lower costs due to buying volume
  • Already established name
  • Learning curve (they know what customers want and
    have perfected speed at which to serve customers)
  • Established suppliers for specialized products
  • Established in most major metropolitan markets,
    in prime locations

26
Competitive Analysis
  • Pressures from substitute products
  • In the food market there are many substitutes to
    any one restaurant
  • Customers who desire more well rounded meals
    threaten fast food
  • The traditional sit down restaurant is a threat
    to fast food as customers are not in a rush
  • Then the grocery store with so many meals which
    can be prepared in minutes poses threats for the
    fast food industry

27
Competitive Analysis
  • Pressures from substitute products
  • The food and grocery market currently is
    saturated with many buyer and sellers making it
    difficult for any one vendor to take over all
    head of market. The health of vendors in the
    food industry depend heavily on the preferences
    of the consumers in the market. Currently more
    and more people are eating out, giving the fast
    food industry many chances for advance. With so
    many substitutes available sellers must continue
    to set themselves apart from the rest to keep
    ahead of the changing market conditions.

28
Competitive Analysis
  • Supplier bargaining power and competitive
    pressures
  • Highly competitive
  • Suppliers who support rivals puts them in charge
    of prices for commodities which rivals must have
    to perform and compete well
  • As companies and suppliers work together, they
    can benefit both as far as consistent revenue for
    the supplier and on time deliveries for companies
    to cut inventory costs

29
Competitive Analysis
  • Pressures from buyer bargaining power
  • With many fast food restaurants buyers switching
    costs are low, which causes companies to lower
    prices and increase incentives to keep customers
    coming back, giving the customer power in price
    and product control
  • Prices fast food restaurants are open books to
    customers along with products prices so price
    changes affect local competitors
  • Example the Whopper and Big Mac which are very
    comparable hamburgers if the price of one was to
    go up the sales of the other can benefit

30
Competitive Analysis
  • Other Forces which affect Fast Food Sellers
  • Many fast food chains are operating in many
    diverse countries where customs and norms are
    very different from one another. Because markets
    are so diversified many chains must operate
    differently depending on the particular market.
    For example in China many fast food restaurants
    are rethinking the packaging used in service
    because many people are beginning to drive and
    eat at the same time while still in other markets
    this is not seen. There are numerous other
    forces affecting the market in particular areas
    but relatively few which effect the fast food
    market as a whole.

31
Competitive Analysis
  • Key findings
  • The fast food industry is very strong with many
    sellers and customers. Many competitive forces
    effect the already established companies, which
    keep the prices down and the quality of food up.
    All of this will keep the big players in the
    game and will make it very difficult for the new
    entrants to come in and take over.

32
Driving Forces
33
Driving Forces
  • Factors that effect Driving Forces
  • Globalization of the Fast Food industry
  • Opportunity for long term growth
  • Fast Food and differentiation of product
  • Forces with minor effect
  • Changing Societal Concerns and lifestyles
  • Uncertainty and business risk

34
Driving Forces
  • Globalization of the Fast Food industry
  • The fast food industry is a labor intensive
    market requiring employees at all locations of
    business, this does not give them the opportunity
    to cut costs with cheap labor in other countries
  • Although the large scale of operations gives the
    restaurants economies of scale in their purchase
    of disposable items made for the particular chain
    such as cups and boxes for food prepared

35
Driving Forces
  • Opportunity for long term growth
  • The fast food industry is already well
    established in many countries across the the
    world. McDonald's is in 121, while Burger King
    is only in 57, with many other sellers competing
    in varying markets across the world, majority of
    sellers only compete locally
  • Although many that are already global look for
    the industry to continue to expand into new
    markets as well as with countries as the
    population of the world grows and the demand for
    fast food increases

36
Driving Forces
  • Fast Food and differentiation of product
  • Many fast food restaurants are diversifying their
    menus example Jack in the Box with tacos and
    rice bowls and also the traditional hamburger.
    By differentiating in this way it give customers
    more options which will keep them coming back
    instead of going to a different place
  • This can be very important with many food
    restaurants located close together the buyer
    preference of differentiation is what keeps
    buyers coming back and not changing restaurants
  • Other than different offering the food industry
    is very standard

37
Driving Forces
  • Forces with minor effects
  • Technological Change
  • New technology can increase productivity and
    reduce costs
  • Customer base
  • Broad base of customers although some more than
    others
  • Product innovation
  • Changes in offerings and extras are very common
    in the market, but innovation in food is rare

38
Driving Forces
  • Changing Societal Concerns and lifestyles
  • With many American's becoming more aware of their
    health the traditional greasy and fatty food of
    the fast food industry are changing their
    offering, with many places offering veggie
    burgers and low fat products
  • The health conscious customers are also opting to
    eat at home
  • There is also the opposite of this with many
    peoples lifestyles getting so busy they do not
    have time to eat or even prepare meals for their
    children and many fast food restaurants benefit
    from this

39
Driving Forces
  • Uncertainty and business risk
  • With no agreements with customers this makes for
    no predictable revenue
  • Although the health of the food industry has been
    very strong over the past years
  • McDonald's revenue has gone up every year for the
    past 10 years and they have no foreseeable reason
    for it not to continue

40
Competitive Position of Major Companies
41
Fast Food Industrys Major Players
  • McDonalds
  • Burger King (Diageo)
  • Taco Bell (Tricon Global)
  • Wendys International
  • Subway
  • Hardees
  • Arbys
  • Dairy Queen

42
Top Three AnalysisMcDonalds
  • Chairman and CEO
  • Jack M. Greenberg
  • Ticker
  • MCD
  • 2001 Sales
  • 20,051,000,000
  • Major Industry
  • Food Service
  • Sub Industry
  • Fast Food
  • Country
  • United States
  • Currency
  • U.S. Dollars
  • Fiscal Year End
  • December 31st

43
Top Three Analysis McDonalds (cont.)
  • Number of Restaurants
  • 13,099
  • Number of Employees
  • 1,500,000
  • Exchange
  • NYSE, CSE
  • Market Capitalization
  • 37,918,000,000

44
Top Three AnalysisBurger King(Part of Diageo
Company)
  • Chairman, CEO and President
  • John Dasburg
  • Ticker
  • DEO
  • 2001 Sales
  • 8,500,000,000
  • Major Industry
  • Food and Beverages
  • Sub Industry
  • Fast Food
  • Country
  • United States
  • Currency
  • U.S. Dollars
  • Fiscal Year End
  • December 31st

45
Top Three AnalysisBurger King (cont.)
  • Number of Restaurants
  • 8,248
  • Number of Employees
  • 360,000
  • Exchange
  • NYSE
  • Market Capitalization
  • 43,789,000,000

46
Top Three AnalysisTaco Bell(Part of Tricon
Global Restaurants)
  • Chairman and CEO
  • David Novak
  • Ticker
  • YUM
  • 2001 Sales
  • 4,800,000,000
  • Major Industry
  • Fast Food
  • Country
  • United States
  • Currency
  • U.S. Dollars
  • Fiscal Year End
  • Last Saturday in December

47
Top Three AnalysisTaco Bell (cont.)
  • Number of Restaurants
  • 6,444
  • Number of Employees
  • 320,000
  • Exchange
  • NYSE
  • Market Capitalization
  • 9,370,000,000

48
Competitor Analysis
49
Competitor Analysis
  • Which companies are in the strongest/ weakest
    position?
  • Strategic Group Mapping
  • A technique for revealing the competitive
    positions of industry participants.

50
Competitor AnalysisStrategic Group Mapping
51
Competitor AnalysisStrategic Group Mapping
  • The positions of each company are represented by
    the circles in the strategic group map.
  • The size of the circles represents each companys
    respective share of total industry sales.

52
Competitor AnalysisStrategic Group Mapping
  • McDonalds
  • Growth
  • In 2001, McDonalds took actions to streamline
    operations in an effort to realize sales growth
    through improved operations and customer service.
  • McDonalds plans to add up to 1,400 restaurants
    in 2002.
  • Geographic coverage
  • McDonald's serves 46 million people every day in
    about 30,000 restaurants in 121 countries.
  • Share of industry revenues
  • Market share 34.7
  • 2001 Sales revenues 14.87 billion

53
Competitor AnalysisStrategic Group Mapping
  • Burger King
  • Growth
  • In 2001, Burger King announced it is launching 14
    new and improved menu items.
  • Geographic coverage
  • Burger King currently operates 11,435 restaurants
    in 57 countries and territories worldwide.
  • Share of industry revenues
  • Market share 15.8
  • 2001 Sales revenues 8.5 billion

54
Competitor AnalysisStrategic Group Mapping
  • Taco Bell
  • Growth
  • Taco Bell reported an increase in sales of 12
    from the previous year in December 2001.
  • Taco Bell dominated the Mexican QSR Sales with a
    64 share as of year end 2001.
  • Geographic coverage
  • Taco Bell operates 239 of its total 6,683
    restaurants in 14 countries worldwide.
  • Share of industry revenues
  • Market share 9.6
  • 2001 Sales revenues 4.8 billion

55
Competitor AnalysisConclusions
  • The three circles on the strategic map are very
    close together, which suggests strong competitive
    rivalry among the companies.
  • McDonalds is clearly the industry leader.
  • They have over one-third of the total market
    share.
  • They have advanced the furthest into the global
    market.
  • Taco Bell has the most growth potential.
  • Although they currently have a smaller market
    share, they have a lot of potential if they
    increase their expansion globally.

56
Competitor AnalysisConclusions (cont.)
  • Although Burger King has over 15 of the market
    share, they do not have much potential for
    growth.
  • Burger Kings parent company, Diageo, is planning
    to spin off the company in order to focus more on
    beverages.
  • Burger King is quickly losing market share to
    both McDonalds and Wendys International.

57
Competitor AnalysisCompetitors Next Moves
  • McDonalds
  • Currently, McDonalds strategy is working well
    for them.
  • Being the market leader, they are under no
    pressure to change the path they are currently
    on.
  • Burger King
  • Burger King has recently made some changes in
    management and marketing that have hurt their
    operating results.

58
Competitor AnalysisCompetitors Next Moves
  • Burger King (cont.)
  • In order to improve their position, Burger King
    has moved its focus from its current franchises
    to seeking potential new franchisees.
  • Burger Kings new management is focusing on
    strengthening the brand name through improved
    marketing, product pipeline, cooking platform and
    emphasis on service and friendliness.

59
Competitor AnalysisCompetitors Next Moves
  • Taco Bell
  • In order to boost sales, Taco Bells parent
    company, Tricon Global Restaurants, has been
    aggressively co-branding its products.
  • Tricon Global consists of Taco Bell, KFC, Pizza
    Hut, and has recently acquired Long John Silvers
    and AW Restaurants.
  • With the combined strength of the 5 companies,
    Tricon is focusing its growth on international
    expansion.

60
Key Success Factors
61
Key Success Factors
  • The Key Success Factors of Fast-Food Restaurant
    Industry are
  • Convenient Locations
  • Clever Advertisement
  • Consistency
  • Food Quality
  • Food Innovation
  • Cost Control
  • Favorable Image Good Reputation
  • Fast Services

62
Key Success Factors
  • Convenient Locations
  • Fast-food restaurants must be easily visible and
    accessible for quick entry by the customers. An
    establishment which is on the wrong side of the
    street and does not take advantage of traffic
    flow could be doomed to failure unless the unit
    is a well established chain.
  • As competition gets tougher, the fast-food
    restaurants strive to make their outlets more
    convenient.

63
Key Success Factors
  • Convenient Locations
  • There are fast-food restaurants in shopping
    malls, in hospitals, on military bases, and on
    college campus, airports etc.
  • Some fast-food restaurants are operated in
    convenience stores therefore, they can be
    accessed for quick entry by customers. For
    example, McDonalds are operated in Wal-Mart.

64
Key Success Factors
  • Clever Advertisement
  • Advertising is an important element of the
    success of fast-food restaurant industry. It can
    induce customers to patronize the fast-food
    restaurant in order to increase sales. For
    example
  • The 1990 Super Bowl was a key advertisement year
    for McDonald's. McDonalds promised to cut prices
    of its bacon, lettuce, and tomato sandwiches if
    the 49ers won or cut the price of the BigMac if
    the Denver Bronco's won.

65
Key Success Factors
  • Clever Advertisement
  • Wendy's earned national recognition with their
    "Where's the Beef?" campaign.
  • Burger King has used memorable campaign such as
    Have it your way and We do it like youd do
    it.

66
Key Success Factors
  • Consistency
  • Consistency of food is particularly important to
    fast-food patrons. It is a quality that attracts
    many customers.
  • According to National Restaurant Association,
    92.2 of the respondents strongly agreed or
    agreed that they expect consistency from one
    visit to the next when they patronize fast-food
    restaurants. Therefore, the one of the key to a
    successful franchise of fast-food restaurant
    chains is to offer exactly the same product or
    service at numerous locations.

67
Key Success Factors
  • Food Quality
  • Many fast-food restaurants enact stricter quality
    control guidelines for their food. It is because
    stricter quality control can ensure food safety.
  • For example, McDonalds keeps tight control over
    its suppliers shipping frozen prepattied beef to
    its restaurants and drawing strict specifications
    for its potatoes.

68
Key Success Factors
  • Food Innovation
  • The fast-food restaurant industry requires a
    product innovation capability because of the
    changing tastes of consumers. In order to
    succeed today, fast-food restaurants must cater
    the tastes of consumers.
  • Many fast-food restaurants offers signature
    items, and diversified menus in order to meet
    customers needs. Many new products are always
    under development in food lab kitchen for
    evaluation in selected markets.

69
Key Success Factors
  • Food Innovation
  • For example, McDonalds menu is often enhanced
    with promotional products to add variety on
    limited time basis. The menus are constantly
    examined around the world in the light of
    changing customers taste, as well as local
    customs. In U.S., customers now have more
    choices in McDonalds, including Fruit N Yogurt
    Parfaits, McSalad Shakers, and Breakfast Bagel
    sandwiches.

70
Key Success Factors
  • Cost Control
  • Cost control is important to the success of
    fast-food restaurants because their revenues are
    based on smaller average checks compared to the
    cafeterias, theme restaurants, and fine-dining
    restaurants.
  • Low cost enables fast-food restaurants to make
    higher profits and compete with rivals. For
    example, minimum wage labor which has been
    traditional routes this phase of fast-food
    restaurant industry has taken to build up profit
    margins.

71
Key Success Factors
  • Favorable Image Good Reputation
  • Fast-food restaurant which has a favorable image
    and good reputation can bring confidence to the
    customers.
  • For example, McDonalds is one of the most
    powerful brands in the world. It has earned the
    trust and confidence of people the world over
    because of its favorable image and good
    reputation. McDonalds is known as a great place
    for kids and families for convenient, hand-held
    meals for World Famous Fries and Big Macs and
    for outstanding value.

72
Key Success Factors
  • Fast Services
  • Accurate filling customer orders, and short
    delivery times are important to satisfy
    customers immediate needs of the fresh food.
  • Many fast-food restaurants have drive-thru
    service because many people tend to be pressed
    for time. Therefore, fast-food restaurants
    should continue focus on improving the speed of
    drive-thru service.

73
Key Success Factors
  • Fast Services
  • For example, McDonalds enhance the drive-thru
    experience by serving two cars at a time. In
    some locations, McDonalds are using double-lane
    drive-thrus. In other locations, the employees
    of McDonalds use remote order-taking devices to
    take order for the drive-thru customers during
    busy periods.

74
Industry Prospects and Overall Attractiveness
75
Industry Prospects and Overall Attractiveness
  • Factors Making Fast-Food Restaurant Industry
    Attractive
  • Factors Making Fast-Food Restaurant industry
    Unattractive
  • Special Fast-Food Restaurant Industry Issues
  • Profit Outlook

76
Industry Prospects and Overall Attractiveness
  • Factors Making the Fast-Food Restaurant Industry
    Attractive
  • Consumer Trend
  • Growth Potential
  • Healthy Profitability

77
Industry Prospects and Overall Attractiveness
  • Consumer Trend
  • Nowadays, people are eating out more than ever
    before. More people are cooking fewer meals at
    home. According to National Restaurant
    Association, more than 40 of consumers say that
    they are cooking fewer meals at home. In 1955,
    25 of household food expenditures was spent at
    restaurants. In 2001, this figure grew to 46 .
    In 2010, this figure is projected to increase to
    53 .

78
Industry Prospects and Overall Attractiveness
  • Growth Potential
  • Although fast-food restaurant industry is a
    mature industry in U.S, there is room for it to
    grow locally and globally.
  • Therefore, as long as the participants of the
    fast-food restaurants put the efforts into
    strategic plans, marketing, product innovation
    etc., there are great opportunities for growth in
    the fast-food restaurant industry.

79
Industry Prospects and Overall Attractiveness
  • Growth Potential
  • According to National Restaurant Association
    (NRA), in 2002, the sales of fast-food
    restaurants are expected to grow at a slower 3.7
    percent rate, adjusted for inflation to 1.3
    percent and resulting in sales of 115.2 billion,
    a 4.1 billion increase.

80
Industry Prospects and Overall Attractiveness
  • Growth Potential
  • Even though the projected growth rate in 2002
    will be low, a number of factors will combine to
    generate additional sales this year. The factors
    include an expected economic upturn later in the
    year, the growing strength of major fast-food
    restaurant brands and the continuing impact of
    industry-favorable demographic changes.

81
Industry Prospects and Overall Attractiveness
  • Growth Potential
  • Fast-food restaurant industry has tremendous
    potential growth in other countries.
  • For example, the number and diversity of
    fast-food restaurants across east China has
    mushroomed in the past several years with no end
    in sight. In China, there is enormous short-term
    and long-term growth opportunities of the
    fast-food restaurant industry.

82
Industry Prospects and Overall Attractiveness
  • Healthy Profitability
  • Fast-food restaurant industry has a healthy
    profit margin. The 2001 net profit margins of
    the market leaders in fast-food restaurant
    industry are listed as follows
  • Net Profit Margin
  • McDonalds 11.0
  • Wendys 8.1

83
Industry Prospects and Overall Attractiveness
  • Factors Making the Fast-Food Restaurant Industry
    Unattractive
  • Rivals from Other Markets
  • Fierce Product/Price Competition

84
Industry Prospects and Overall Attractiveness
  • Rivals from Other Markets
  • The competitive force will become stronger. The
    fast-food restaurant industry has begun to suffer
    increasing loss of market share to convenience
    stores, prepared food offerings at grocery
    stores, microwave preparation at home. Although
    not large in absolute sense, these competitors
    are capturing a large portion of growth
    experienced in food service.

85
Industry Prospects and Overall Attractiveness
  • Fierce Product/Price Competition
  • Competitions among rivals drive the prices of
    fast-food items down as a result, industry
    profitability will be affected.
  • For example, McDonalds, Burger King, Wendys
    always use 99 cents of burger promotion
    campaigns to induce customers to patronize them.

86
Industry Prospects and Overall Attractiveness
  • Fast-Food Restaurant Industry Issues
  • Food Safety Issue
  • Health Issue
  • Toys Issue
  • Staffing Shortage Issue

87
Industry Prospects and Overall Attractiveness
  • Food Safety Issue
  • Hamburger has become U.S. national food. U.S.
    people eat more meat than any other people in the
    world. The mad cow disease abroad (in Europe and
    Japan) made people fear and concerned about the
    food safety. As a result, the beef problem
    brought some decline of the sales of fast-food
    restaurants.

88
Industry Prospects and Overall Attractiveness
  • Food Safety Issue
  • In U.S, since 1998 due to suspected bacterial
    contamination, more than 100 million pounds of
    meat has been recalled.
  • High-volume meat production makes it easy for
    virulent strains of bacteria to travel far and
    wide. Therefore, fast-food restaurant operators
    have to ensure food safety control in order to
    give sufficient confidence to customers.

89
Industry Prospects and Overall Attractiveness
  • Health Issue
  • Nowadays, a growing number of people deeply
    concern about the quality of their own diets and
    their kid diets. Nutrition experts point out
    that fast food is often high in calories, sodium,
    fat and cholesterol. On the other hand, people
    with food allergies or other health concerns
    often ask specific questions about preservatives,
    artificial colorings, and other additives.

90
Industry Prospects and Overall Attractiveness
  • Health Issue
  • As people are concerned about their health, they
    prefer to eat healthy food. As a result, some
    fast-food restaurants provide healthful
    offerings, for example, vegetarian, and non-fried
    food. Therefore, fast-food restaurants have to
    adjust their menus and offer new products in
    order to cater the changing tastes of consumers.

91
Industry Prospects and Overall Attractiveness
  • Toys Issue
  • Many fast-food restaurants distributed toys with
    the purchase of Happy/Kid Meals to induce
    purchases. However, reports showed that some
    toys have potential choking hazard to young
    children. As a result, the fast-food restaurants
    had to recall the toys that have problems.
    Customers can return the toys for for free fries
    or drinks.

92
Industry Prospects and Overall Attractiveness
  • Toys Issue
  • The largest fast-food toy recall came in December
    1999 when Burger King recalled more than 25
    million Pokemon balls that had been distributed
    with kids meals. The U.S. Consumer Products
    Safety Commission (CPSC) and Burger King said the
    balls posed a suffocation risk to small children.
    A 13-month-old girl suffocated on the toy and a
    4-month-old boy died when the ball-shaped
    container lodged over his mouth and nose.

93
Industry Prospects and Overall Attractiveness
  • Toys Issue
  • Problems with the safety of fast-food toy
    promotions have affected the sales of fast-food
    restaurant chains. Therefore, fast-food
    restaurants should ensure high-quality and safety
    standards of toys from the toy suppliers.

94
Industry Prospects and Overall Attractiveness
  • Staffing Shortage Issue
  • Fast-food restaurants had a high employee
    turnover rate because the compensation is usually
    paid at minimum-labor wage. According to the
    1998 survey by the National Restaurant
    Association, fast-food restaurants had the
    highest employee turnover on average with 117 .

95
Industry Prospects and Overall Attractiveness
  • Staffing Shortage Issue
  • Costs to find, fill, and train employee
    replacements can bring high costs to businesses.
  • Therefore, fast-food restaurant operators have to
    respond this problem. They should offer rewards
    and incentives, e.g., health insurance, to retain
    qualified and motivated employees.

96
Industry Prospects and Overall Attractiveness
  • Profit Outlook
  • Much of the success of the fast-food restaurant
    industry is dependent on the state of the overall
    economy. Because of the current economic
    downturn, fast-food restaurant industry has slow
    growth rate.
  • An improving economy and continued growth in
    disposable personal income will be the catalysts
    to propel the fast-food restaurant industry into
    another year of real growth.

97
Industry Prospects and Overall Attractiveness
  • Profit Outlook
  • The fast-food restaurant industrys overall
    profit prospects are above average therefore, it
    can be considered attractive/favorable even
    though fast-food restaurant industry is highly
    competitive business.
  • If the industry participants continue to
    strengthen their long-term competitiveness
    positions in the fast-food restaurant industry,
    expand sales effort, and look for ways to protect
    their competitiveness, they can earn good profits.

98
END
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