Analysis of the Quick Service Restaurant Industry and Key Success Factors

To: Luke McElfresh
Theo Muir
Andrew Pueschel
Ralph Riedel
From: Team 3
Audrey Dlugosz
Gordon Domonique
Morgan Duffy
Gabriella Grosh
Sean Kilbane
Date: September 25th, 2016
Subject: Analysis of Quick Service
Restaurant Industry
Our team has performed an analysis of the Quick Service Restaurant Industry and prepared a
report for the senior partners of Copeland Associates. The report contains details about the
current state and trends within the industry. Through the analysis of the current state and
trends, we were able to identify key success factors in the industry and where the industry will
be in the future.
Key Success Factors
1. Convenience
2. Implementation of Innovative Technology
3. Adapting to Consumer Preferences
This report will provide information about the current state of the market, as well as details
about segments within the industry. At the end of the report, you will find an evaluation of our
report, an analysis on the key success factors and a conclusion on our findings.
Findings
As we researched the Quick Service Restaurant Industry, we discovered a lot of competition
the industry faces. Not only is the competition within the industry, but also competition outside
the industry as well. Our teams assessments found that the reason for the high competition is
because of consumers wants and needs, and because consumers are drawn towards healthier
lifestyles and wanting higher quality ingredients, the industry is forced to meet and exceed the
needs of its consumers.

Morgan Duffy
Sean Kilbane Gabriella Grosh
Team 3
Gordon Dominique Audrey Dlugosz

Deliverable #3: Project Briefing #2
Prepared for Senior Partners
Copeland Associates @ OHIO Integrated Business Cluster
Prepared by team #3

EXECUTIVESUMMARY
Abstract
This report is a general overview of the entire
quick service industry including macro and
microeconomic trends within the industry,
industry segmentation and competitor
identification, key success factors, and data to
support all of the analysis. We also prepared
both Porter’s analysis and PESTLE analysis to
further analyze our data and research.
Key Success Factors
We identified three key success factors that are
necessary to thrive in the future of the industry.
The first key success factor was convenience and
speed of the food. After researching, we found
that consumers eat at quick service restaurants
because they constantly on the go, and looking
for something fast and efficient. A second key
success factor that we found was the
implementation of technology. We noted this is
extremely important because in order to keep
costs low, companies must continue to adapt new
technology to increase operational efficiency.
The third and final key success factor we hit on
was the ability to adapt to consumer
preferences. Since the threat of substitution is so
high and the industry is consumer driven, it is
extremely important that these restaurants are
able to change their menus to accommodate for
consumer preferences.
PESTLE Analysis
The PESTLE Analysis is a report over political,
economic, social, technological, legal, and
environmental trends within the industry that may
have an impact. The major political impacts the
report mentions are increase in minimum wage
and taxes on fatty foods and sugars. The major
economic trends it mentions are consumer
spending and different factors that may impact
consumer spending, considering this is a major
driver in the industry. Then it mentions social
trends and appealing to the younger consumer in
order to comply with their ever-changing desires.
Next the report mentions technological trends,
which primarily deals with the use of technology
for marketing. Legal trends follow and this is
important because the food industry has a
relatively high level of regulation for safety. It
finally ends with environmental and the trends
that new upcoming restaurants are focusing on to
go green.
Porter’s Analysis
We also conducted Porter’s analysis on the
industry. This included threat of new entrants,
which we considered to be a medium threat. It
also included threat of substitution, which we
found to be very high, especially amongst the
large franchises. Next, we spoke about the
bargaining power of buyers that we found to be
relatively high considering this is a consumer
preference driven industry. Then that lead us to
the bargaining power of suppliers, resulting in
finding a high influence on companies due to the
limited number of suppliers in the market.
Following that, we discussed the competitive
rivalry and how it influences the other four
factors of the Porter Analysis. Since competition
within the Quick Service Restaurant Industry is
high, companies need to provide motives to
promote loyalty, make sure they have reliable
suppliers, find ways to lower the risks of
consumers substituting their food, and focus on
the experience they have to offer.
Company Analysis
We analyzed three major companies within the
Quick Service Restaurant Industry. These
companies were McDonalds, Chipotle Mexican
Grill, and Yum! Brands. When looking at the
companies we consider things such as the ability
to expand, the strategic plans, and general
company overviews. We also compared the
financial situations of the three companies to help
project growth into the future.

TABLEOFCONTENTS
Introduction 1
Comprehensive Industry Analysis
Industry Overview 2
Macro and Micro Key Trends 3
Industry Segmentation 4
Company Analysis: McDonalds Corporation 5
Company Analysis: Yum! Brands Inc. 6
Company Analysis: Chipotle Mexican Grill 7
Examination of Key Competitors 8
Financial Analysis 9
Key Success Factors: Convenience 10
Key Success Factors: Implementation of Innovative Technology 12
Key Success Factors: Adapting to Consumer Preferences 15
Key Success Factor Weighting Scale 18
Conclusion 20
References 21
Appendixes
Porter’s Analysis 26
PESTLE Analysis 29
Business Model Canvas 33
SWOT Analysis 36
Ratios 39

LISTOFTABLEANDFIGURES
Figure 1: Market Share of Leading Brands 2
Figure 2: QSR Industry Segments 4
Figure 3: McDonalds High Growth Segment 5
Figure 4: Restaurant Count 7
Figure 5: Market Share 8
Figure 6: Revenue Growth YoY% 9
Figure 7: Drive Thru Seconds and Cars Present 10
Figure 8: How Often Consumers ages 18-34 Eat Out 11
Figure 9: Mobile Order Forecast 13
Figure 10: % of US Social Media Usage by Age 14
Figure 11: McDonalds Number of Menu Items 15
Figure 12: Before and After Breakfast Lunch 15
Figure 13: Market Share of Fast-Food Restaurants In China 17
Figure 14: By the Numbers 27
Figure 15: Revenue Forecast 29
Figure 16: Global Obesity 31
Table 1: Sustainability of Companies 16
Table 2: Weighting Scale of KSF’s 18
Table 3: McDonalds Ratios 39
Table 4:Yum! Brands Ratios 39
Table 5: Chipotle Mexican Grill Ratios 39

INTRODUCTION
Purpose Statement
The purpose of this report is to analyze in rigorous detail the Quick Service Restaurant Industry.
Throughout our research we will identify its key successes and what influences these factors. We will do
this by analyzing companies within the industry and how they operate. Also, through the use of macro and
micro environmental statistics and our very own PESTLE analysis, we will present an extensive and in
depth overview of this massively successful industry. The results of our analysis defined which company is
the most well suited for success in the future of the industry based on the three key success factors.
Key Success Factors
Several factors are responsible for providing and continuing to present the Quick Service Restaurant
industry with much success throughout the years. Through our extensive analysis of the Quick Service
Restaurant Industry led to the finding of the following three key success factors:
1. Convenience
2. Implementation of Innovative Technology
3. Adapting to Consumer Preferences
1Introduction
Industry
Overview
KSF 1: KSF 2: KSF 3: Conclusion
Companies Analyzed
Our report summarizes the success of these three Industry's and identifies the key contributions to how
they have excelled in the Quick Service Restaurant Industry
• McDonald's Corporation
• Yum! Brands Inc.
• Chipotle Mexican Grill
QSR Criteria
A Quick Service Restaurant can be defined as:
• Previously prepared food
• Limited service provided
• Purchasing food before it is received either at a counter, drive thru or delivered

Industry Overview
The Quick Service Restaurant Industry generates billions of dollars in revenue every year. So much
revenue, that it's economical value is greater than many countries across the globe. In 2015, this massive
market industry generated over $500 billion and around $200 billion in the United States alone. In 2016,
there were 241,379 establishments accounted for in the Quick Service Restaurant Industry (Statista, 2016).
In the past few years, the industry has seen a slight down turn but this recently changed as the market is
seeing a small percentage increase this year itself, and projected years to come.
Competition Within The Industry As A Whole
The major players in the Quick Service Restaurant Industry are McDonalds who makes up 17% of the
market share, Yum! Brands who makes up 11% and Subway who makes up 7% of the market share. Each
of these restaurants within the Quick Service Restaurant Industry use fast and efficient operations which is
what makes them successful. Consumer’s eat at quick service restaurants due to low prices. Many of the
choices are inexpensive, with options usually less than $6. Most of the demand in the industry is driven by
consumers taste and personal income.
Introduction
Industry
Overview
INDUSTRYOVERVIEWANDKEYCOMPETITORS
Figure 1: Market Share of Leading Brands
(Statista, 2015)
2

Introduction
Industry
Overview
KEYTRENDS
3
Internal Trends
The Quick Service Restaurant Industry is driven by new trends of their consumers. As consumers have
become more health conscious, they are shying away from foods that have high fat and salt content. Due
to this trend, restaurants are altering their menu items, and spending money to promote these healthier
menu options. Another way this industry is keeping up their consumer trends, is by providing
convenience for those who work long hours, have busy lifestyles, and do not have time to cook. These
Quick Service Restaurants have become the easiest way for consumers to grab a cheap and quick meal
and still balance the other needs in their lives.
The Quick Service Restaurant industry is highly competitive. Not only does the quick service industry
compete with each other, but they also have other, non QSR industry, competitors such as full service
restaurants, coffee shops, grocery stores, and hotels. The quick service restaurant industry competes
internally based on price and quality. High quality ingredients are important to consumers, along with
finding a balance between quality and price. “This industry also competes with location, style, ambience,
hospitality and service” (Fast Food Restaurants in the US, 2016). The experience that consumers get at a
restaurant is the deciding factor between where they want to go. In order to be successful, the industry
needs to keep up with consumers expectations. The Quick Service Restaurant industry competes with
other food sectors because of the experience the other restaurants have to offer. Full service restaurants
offer dine in and take out to their consumers with higher quality meals. Grocery stores and convenient
stores offer low price, high quality foods, further pushing the home cooked meal experience. When the
economy is not doing well, consumers are more likely to choose the cheapest option, often sacrificing
convenience and service to save money. In order for the Quick Service Restaurant Industry to stay
competitive throughout these times, they are forced to lower their prices, focus on service, and constantly
innovate new and exciting products.
External Trends
The Quick Service Restaurant (QSR) industry is an industry within the consumer digression sector and its
performance is highly correlated directly with the strength of any given country’s economy as a whole.
However, the QSR industry tends to outperform its sector during economic downturns as well because it
can act as a less expensive alternative as opposed to other restaurants. The QSR industry faces many
external trends such as the government controlling wages, and companies all over the globe updating their
technology in order to increase efficiencies. Other external trends would include social trends such as
consumer preferences shifting to healthier, fresher food. Finally they will experience economic trends such
as international economies. Even though there is international expansion, there is little international trade
within the QSR industry. This is primarily because the food needs to remain fresh for the longest amount of
time possible, so most food is relatively local.

The Quick Service Restaurant Industry is
segmented based on menu options that a restaurant
provides. Due to the vast variety of restaurants and
what they serve, it is hard to segment them into just
one category.
The biggest competitors in the pizza segment are
Papa Johns, Pizza Hut, Little Caesar’s and
Dominos. Restaurants in this segment have been
allocating more resources towards improving and
implementing carryout or delivery services.
The Burgers segment takes up a large majority in
this industry. Some of the biggest competitors in
this segment are McDonalds, Burger King, and
Wendy’s. Recently some of these restaurants have
been outperformed by restaurants like Five Guys
and In-N-Out Burger because of their emphasis on
customizable and high quality food.
The Chicken segment in the Quick Service
Restaurant Industry is dominated by three major
restaurants. These restaurants are Chick-Fil-A,
KFC, and Popeye's. Chick-Fil-A has recently
surpassed KFC as the leader in this segment with
an average of 3.2M sales per restaurant (Bixler,
2012). The reason for this can be attributed to
Chick-Fil-A’s great customer service, high quality
food items, and menu variety.
The sandwich segment of the Quick Service
Restaurant Industry is dominated by Subway with
Panera, Arbys, and Jimmy Johns following behind.
This segment focuses primarily on specialty items,
customization, and food quality. Fresh, high quality
foods are being demanded by consumers and
sandwich restaurants are providing that, while
adding unique specialty items to their menus
Mexican food consumption has been increasing
as the Mexican population and immigration
grows. Taco Bell, Chipotle, and Qdoba are the
top competitors in this industry segment and
Chipotle has been growing very quickly.
Chipotle’s focus on high quality and
customizable food items is the reason why it has
been growing so quickly.
The Asian food segment is very different from
other quick service restaurant segments. This is
because of the relatively low amount of Asian
chain restaurants. The largest one in America is
Panda Express. The low number of chain
restaurants are due to the fact that many Asian
restaurants run as privately owned family
restaurants.
There are a very wide variety of food places and
options in this segment such as seafood, snack
foods, coffee shops, and bakeries. The top three
restaurants in this segment are Starbucks,
Dunkin Donuts, and Dairy Queen.
INDUSTRYSEGMENTATION
Introduction
Industry
Overview
42%
14%
10%
10%
9%
8%
7%
Burgers Sandwiches
Asain Food Chicken
Pizza and Pasta Mexican Food
Other (Alvaraz, 2015)
Figure 2: QSR Industry Segments
4
Major Segments

ANALYSISOFKEYCOMPETITORS
McDonald’s Overview
McDonald’s is a world leading company in the
Quick Service Restaurant industry. McDonald’s
has over 36,000 locations in over 100 countries
and is heavily reliant on franchising to expand.
McDonald’s is made up of four segments
including US Market, Foreign Leading Markets,
High-Growth Markets, Foundational Markets.
McDonald’s offers an extremely generic menu
including items such as burgers, french fries, and
salads. McDonald's is the largest company in the
quick service restaurant industry taking up about
16% of the total market share.
Marketing and Cost Structure
McDonald’s is often times referred to as a
company with an excellent marketing strategy
and a well known global brand. With a mixture
of branding and knowing what the “Golden
Arches” bring and bringing local flavor to
different regions in order to appeal to specific
geographical preferences. McDonald’s invests a
significant amount of money into marketing
because they believe it is very important to give
the best experience possible to all customers and
they want to be able to promote that.
McDonald’s also is able to control their margins
because they have had success with their cost
structure and have been able to maintain good
relationships with their suppliers. Similar to
many companies in this industry the primary
source of costs come from raw materials for their
food followed by labors costs. McDonald’s is
planning on cutting labor costs by adopting the
use of kiosks and cutting their staff number. This
will also offer a more modern, faster, customer
experience.
Expansion
McDonald’s is extremely reliant on franchising in
order to continue to grow. About 80% of its
restaurants are franchised, as McDonalds plans to
grow that number to 95% by 2018. Franchising is
so important to them because the margin on
franchising is higher than opening their own
restaurant. This is especially prevalent in their
high growth market segment, which is currently
only 44% franchised, yet makes up 25% of their
total revenue. This high growth market includes
places like China, Korea, Spain, Russia, Poland,
Italy, Netherlands, and Switzerland. If
McDonald’s is successful in its attempts to bring
franchising to these countries it could experience
a second wave of major growth. This would be
extremely important in maintaining its global
market share as many other quick service
restaurant companies continue to grow at a fast
rate.
Introduction
Industry
Overview
5
Figure 3: McDonald’s High Growth Segment
(Source:
Mcdonalds.com)

Yum! Brands Inc. Overview
Yum! Brands is one of the largest companies in
the quick service restaurant industry and owns
about 11% of the market share. The only
company bigger is McDonalds, who takes up
about 17% of the market share. As of 2014 Yum!
Brands has over 537,000 employees working at
its 41,000 locations globally. Yum! Brands is
made up of three restaurant chains that are all in
different segments of the quick service restaurant
industry. These restaurants are Kentucky Fried
Chicken (KFC), Taco Bell, and Pizza hut. They
all rank in the top two of their respective
segments according to 2015 total sales.
Key Partners
Yum! Brands has one exclusive supply chain and
they are a private company named Restaurant
Supply Chain Solutions, LLC (RSCS). RSCS
manages the supply chain of Yum! Brands
restaurants in the United States and negotiates
purchases of over $6 billion. The primary
products included in those purchases are chicken,
cheese, beef and pork products, and paper and
packaging materials. Once the purchases are
made they are distributed to the various Yum!
Brands restaurants. McLane Company Inc. is an
exclusive distributor for Yum! Brands in the
United States. They are one of the biggest
wholesale suppliers of food in the United States
with over 40 distribution centers.
In 2015 Yum! Brands decided to separate from
its China division to make them two independent,
publicly traded companies. Yum! Brands started
evaluating the decision to separate from its China
division when it became publicly known that the
Chinese supplier OSI was selling returned and
spoiled products. Yum! Brands ended their
relationship with OSI in China but still
experienced a decline in sales. Yum! Brands
China now has local management that knows the
culture, preferences, and trends in China. They
are also partnered with over 600 local suppliers.
The rapidly growing Chinese consuming class is
expected to double from 300 million in 2012 to
more than 600 million people by 2020
(Yum.com). This huge growth will give Yum
China a big opportunity to grow.
Activities
Yum! Brands is expanding quickly through
franchising, having 80% of its current stores
being franchised with goals of it being 96% by
2017. Yum! Brands strategically places these
restaurants in high traffic areas. It is common to
find KFC, Pizza Hut, and Taco Bell restaurants
near each other or even in the same building.
Having restaurants in different QSR segments
that are located near each other helps increase the
diversity of their customer base. Even with Yum!
Brands vast amounts of restaurants, they are
finding it hard to increase sales due to changing
consumer preferences and trends. As healthy
eating is becoming more popular, Yum! Brands is
adapting by implementing menu and ingredient
changes. Taco Bell has become more focused on
simple ingredients and the removal of artificial
flavors and colors. Pizza Hut has removed over 2
million pounds of salt from their menu since
2012.
Yum! Brands is quickly expanding globally, with
restaurants located in over 130 countries. Yum!
Brands is increasing its focus with emerging
economies like China and India because of their
high growth potential.
Introduction
Industry
Overview
6

Chipotle Overview and Vision Food with Integrity
Chipotle has made it an extreme initiative of
theirs to keep there food local, fresh, and organic.
Chipotle adopted this practice over 10 years ago
and ran with it. Chipotle emphasizes on the
integrity behind the farming and raisin of cattle of
their food. Chipotle also does not use any
Genetically Modified Organisms in their food.
This has led to great success in for the company
and according to Chipotle they plan on
continuing this trend long into the future. CMG
also manages to keep these practices while
maintaining a relatively high operating income.
This leads us to believe that Chipotle will have
major success in growth in the future, as long as
it is willing to continue to adapt to consumer
preferences and not break away from its core
values.
Expansion
As of the start of 2016 Chipotle had over 2000
locations and plans to add about another 230
restaurants throughout the year. CMG has also
done this with issuing only a small about of debt.
Chipotle has been growing exponentially,
however, there are concerns that their growth is
limited in the long term because CMG chooses to
not franchise their business. This allows them to
focus on their vison and values because private
owners, running their own operations, is not a
concern. Chipotle’s growth has primarily came
from the United States. Chipotle only has 13
restaurants outside of the US, in countries like
Canada, France, England, and Germany. This is
another concern for the future of Chipotle's
growth. If chipotle only limits themselves to
domestic customers they may hit a wall when it
comes to high growth. This leaves chipotle with
two options, consider franchising and sacrificing
the company brand or expanding globally to
continue high growth after the number of
restaurants in the US begins to mature.
Chipotle has an extremely unique strategy for
operating their company. It involves growth
through adapting to consumer preference and
being extremely aware of the environment, which
many consumers enjoy. They started an initiative
that involves only using the freshest, non-GMO
foods that are provided from local farms. This
has grabbed the attention of many domestic
consumers and allowed them to grow extremely
fast within the US. They do not, however, have a
very strong international presence, which limits
their growth in the future. Chipotle also chooses
to not franchise their business in order to be able
to keep their brand for what it is know for today,
which also may limit growth in the future. CMG
has a vision to change the way people look at and
eat fast food. They want to remove the negative
stigma tied to it with only unhealthy options.
They have made a promise to their customers that
they will continue to only offer options that meet
their “food with integrity” standards.
Introduction
Industry
Overview KSF 1: KSF 2: KSF 3: Conclusion
7
Figure 4: Restaurant Count
(Source: Kalogeropoulous,
2015)

Operations and Brands
The operations of these three competitors in the
Quick Service Restaurant industry are very
different. In this case McDonald’s and Yum!
Brands operate relatively similar, however,
Chipotle Mexican Grill operates significantly
different. Yum! and McDonald’s both use high
growth through franchising as a strategy for
growth, but Chipotle does not franchise and they
are in full ownership of all of their restaurants.
Chipotle also operates primarily in the US while
the other two companies have a strong
international presence. This allows McDonald’s
and Yum! Brands to continue their growth, since
they’re both limited to more growth within the
United States given their already strong presence.
McDonalds has the most valuable brand of the
three and this comes with little surprise, as shown
in the figure below. . People all over the globe
understand what the company is and what they
have to offer.
Strategy
When comparing these three different
competitors it’s important to look at their
strategies they have going into the future. For
example, McDonald’s strategy is to grow through
leveraging their alignment with franchising and
suppliers. They plan to be a modern and
progressive burger company. Chipotle too uses
progression as a growth strategy, however, there
is different. Chipotle uses a fresher/heathier
menu to appease a more modern consumer
reference. This has proven to be very successful
in recent years. Similar to McDonalds, Yum
Brands! Is also a massive Quick Service
Restaurant company that also experience growth
through large scale franchising. It also will often
put multiple restaurants in the same building in
order to control its costs.
Financial Comparisons
All three competitors are in different financial
situations. For example, Chipotle has
experienced a much stronger top line growth than
the other two companies. CMG also has a much
higher P/E ratio (59.59), showing more potential
growth as well as a negative Net Debt to
EBITDA, signifying they were able to grow with
issuing little debt. But on the other hand,
McDonald’s has a much better operating margin
and a stronger asset turnover ratio, showing a
stronger efficiency of their operations. A large
concern of Yum! Brands would be that they have
a negative Quick Ratio, which is concerning for
both them and bond investors. If YUM is unable
to pay off their short term liabilities than it would
make it much more difficult to acquire cheap
capital and limit their future growth.
Figure 5: Market Share
Introduction
Industry
Overview
8

FINANCIALANALYSIS
McDonalds’s
McDonalds has experienced top line contraction
over the past few years yet they falling from
$28.5 billion in 2013 to $25.41 billion in 2015.
However, same store sales increased 1.5% in
2015, and are currently projected to increase
3.1% in 2016. This did not hurt the performance
of the stock. The price has risen about 20% over
the past year, this is likely because of the debt
issuance in late December that was used to
unlock shareholder value through property
investments. This did however hurt them from a
creditor standpoint. Their Net Debt/EBITDA
increased from 1.09 in 2013 to 2.52 in the LTM,
which lead to a downgrade from 2 major ratings
agencies. However, with a current ratio of 3.27,
short term creditors aren’t extremely worried.
(Bloomberg, 2016)
Yum! Brands
Similar to McDonalds, Yum! Brands has
experienced no revenue growth since 2013, yet
they still managed to increase their EPS to $2.97
from $2.41, this signifies more efficiency through
operations. Which can be seen though their
increase in margins over the past couple years,
yet they still remain low compared to
McDonalds. Yum! also has concerns with its
debt. The company’s Current Ratio is currently
below 1 and the company has been increasing its
financial leverage consecutively since 2013.
(Bloomberg, 2016)
Chipotle
Chipotle has had much more success in
increasing revenue and this is likely because they
are growing as a company very quickly. Their
revenue increased from $3.2 billion to $4.5
billion in 2015. With that being said they have no
consistency with their same store sales growth.
Chipotle has also managed to maintain all of this
growth without issuing large amounts of debt.
They also have a P/E ratio of 31.22, which is
much higher than the competitors, showing they
have much more growth potential. (Bloomberg,
2016)
Figure 6: Revenue Growth YoY%
Introduction
Industry
Overview
9
0
-3.7
-7.4
0
1.5
-1.3
0
27.8
9.6
-10
-5
0
5
10
15
20
25
30
2013 2014 2015
MCD YUM CMG
(Source: Bloomberg)

KEYSUCCESSFACTOR
The QSR industry is convenient because of how
fast the food is able to be ready. Most consumers
of quick service are ones who are on the go
constantly, moving from one place to another.
The reasons for drive-thru’s is to make
consumer’s lives easier by not making them have
to get out of their car. “On average, the drive thru
represents more than 65% of the revenue quick
service restaurants bring in, says Frank Amoruso,
the CEO of HyperActive Technologies, Inc. a
provider of restaurant technology solutions.”
(Amoruso, 2010). The average amount of
seconds it takes to place an order at a drive thru
and retrieve your food is approximately 203.29
seconds, according to a study across 23 quick
service restaurant brands. McDonald’s
experienced an average speed of 189.49 seconds
with an average of 3.81 cars in the drive thru.
Yum! Brands Taco Bell experienced an average
speed of 158.03 seconds with an average of 2.11
cars in the drive thru. This data is relevant
because 81% of consumers said they are satisfied
with the convenience factor of drive thru
restaurants due to how quick, easy and efficient
they are.
Speed and Efficiency
Chipotle not offering a drive thru option has been
a controversy within the industry. Experts within
the industry believe that if Chipotle adapted a
drive thru, it would ruin the Chipotle experience,
which is being face-to-face with their employees
and having the ability to customize their entire
order with ingredients right in front of them.
Chipotle’s average service time consists of 41.6
seconds from the moment they press the tortilla
into the cast iron, to the time they wrap up the
burrito.
One of the strategies that quick service
restaurants do to increase speed is evaluating
their daily operational procedures and measure
the amount of time it takes to deliver food to their
customers. They even analyze their footsteps and
arm reaches to estimate the efforts it takes to get
the food retrieved. But all in all, customer
perception of time is more important than the
actual number of seconds. For example, food
presented with a long line moving quick and
efficiently is perceived as quicker service, than a
slow line, in the same time frame. The perceived
speed that a quick service restaurant is able to
deliver the food, the happier the customers.
The convenience of speed and efficiency within
the quick service restaurant industry is key to
success because the industry is defined by being
fast and easy. According to a recent quick service
survey, 67% of people said they eat at quick
service restaurants because they are convenient.
(Pilon, 2014). Since the majority of consumers
are on the go from one destination to another,
their own only option is something convenient,
easy, fast and efficient. The way the food is
operated in the kitchen, and focusing on food that
can be cooked quickly are ways the industry
remains successful.
10Introduction
Industry
Overview
Figure 7: Drive Thru Seconds and Cars Present
(Quick Service Restaurant Magazine, 2014)

Strategic Location
Another reason quick service restaurants are
convenient is because of where they locate
themselves. Quick service restaurants are located in
accessible high traffic areas where they see
potential growth. By placing these restaurants in
neighborhoods, shopping malls, airports, tollways,
and colleges, they gain business because of
impulse purchases from consumers. Other factors
that are researched before quick service restaurants
open are age and income levels of the locations
population.
According to qsrmagazine.com, when quick
service restaurants are targeting locations because
of age, they consider targeting millennials. They
target millennials because of all the generations,
they spend the majority of their food expenditures
on food away from home. 54% of consumers who
eat at quick service restaurants at least once a day
are between the ages of 18 and 34. 37% consumers
who eat at quick service restaurants two to six
times per week are also between the ages of 18 and
34 (Oches, 2012). Due to these statistics, quick
service restaurants locate themselves in areas
surrounding millennials, to convenience them and
drive impulse purchases.
In order for quick service restaurants to provide
convenience to consumers, they choose to put the
majority of their locations in middle class areas.
The global middle class makes up about 3 billion
(42%) of the global population and spends two-
thirds of the worlds consumer spending ($33
trillion). This statistic makes it a targetable market
because middle class areas spend a significant
amount of money annually on food away from
home. On average, household incomes that bring in
revenue of $42,000-$125,000 spend 42.78% of
their food expenditures away from home. This
provides an ideal environment for quick service
restaurants to locate their restaurants.
Introduction
Industry
Overview
KEYSUCCESSFACTOR
11
The importance of strategic location within the
quick service restaurant industry lies in the idea
that in order to be convenient, the restaurants need
to be easily accessible. For example, McDonald’s
has restaurants on some of the most prime real
estate in the world. They have 36,000 locations in
over 100 countries. They look for a location that is
50,000 square feet, even though they have some
restaurants with more or less square footage. They
also look for corner locations so they are able to
put up signs that are visible from two major streets.
The reason they are able to have so many
restaurants, especially on a global level, is due to
franchising. Franchising is key for convenience
because it allows restaurants to open multiple
locations at a lower cost, which makes it more
accessible for consumers who are on the go. The
franchising model applies to Yum! Brands as well.
It operates 40,000 stores across 125 countries. One
strategy Yum! Brands uses to be convenient to
their consumers is that, in some locations, they
have all three of their quick service restaurants in
one building (Taco Bell, KFC, and Pizza Hut).
They do this to be more accessible to consumers,
as well as cut the costs incurred with constructing
multiple buildings in different locations. Chipotle
on the other hand, does not franchise and currently
has 2,010 restaurants in 5 countries. Chipotle has
considerable growth potential through their current
business model, as they intend to grow to about
4,000 units in the coming years. Within this plan,
they are looking shift their restaurant design much
smaller as two thirds of their business is now
takeout (changing from a mostly dine in restaurant
earlier on). This model will cut occupancy costs,
lower operating expenses, and allow Chipotle to
place restaurants in higher value locations. This
will provide enhanced accessibility and
convenience to their customer base, as there will be
more locations, and more emphasis on the quicker
take out option.
Through franchising McDonalds and Yum! Brands
continue to grow their total restaurants globally,
allowing customers to access them almost
wherever, and Chipotle is set to double their
locations globally in coming years. Strategic
location is key to success in the quick service
industry by providing more accessibility to
consumers.
Figure 8:
How Often
Consumers
Ages 18-34
Eat Out
(QSR, 2014)

KEYSUCCESSFACTOR
General Overview
Implementing innovative technology is a
convenient and efficient way to improve
ordering, paying procedures, marketing and
ultimately all business processes. Through
different media outlets, small and large
businesses are able to stay up to date with the
daily demands, concerns, and the recent social
trends such as busier lifestyles and longer
working hours of the consumers. Recently, many
major industry players have even begun to
develop and release their very own applications,
downloadable onto any compatible phone across
the globe. With newly hatched businesses
popping up across the US and other countries,
comes even bigger and brighter ideas.
Digital Innovation cont..
12Introduction
Industry
Overview
Digital Innovation
One of the biggest changes in the quick service
industry is not the food being offered, it is the
rapid development of technology. McDonalds is
on the rise in improving on hospitality and on
customer experiences. They do this by
implementing new technology like kiosks. Newly
implemented Kiosks provide customers with a
new way of ordering, eliminating a face to face
experience. Kiosks have been proven to reduce
service time by 7 seconds and improve customer
satisfaction. McDonald’s customer satisfaction
increased by 6% in stores that used kiosks. A
kiosk allows customers to order their meals
specifically how they want them, which both
removes the risk of human error and also cuts
back on labor hours. Research within the pizza
industry, concluded that 14% more special
instructions were given compared to orders taken
over the phone. This concluded, customer’s
ability to remove social friction and negative
judgments from their eating habits was a key
driver in this change (Gavett, 2015).
As talks of a rising minimum wage continue
effectively controlling the cost of labor is
arguably the most important factor that
companies within the QSR industry must address,
and kiosks offer a solution. The CEO of
McDonald’s USA stated “it’s cheaper to buy a
35,000 robotic arm than it is to hire an employee
whose inefficient making $15 an hour bagging
French Fries.” Many large QSR companies are
starting to think similar to him. Taco Bell
division operating profit fell 7% to $152 million
from $163 million, due to higher expenses related
to incentive compensation and investment in
strategic growth and technology initiatives.
System sales grew 7% for the quarter and 8% for
the year. Same-store sales advanced 4% for the
quarter and 5% for the year. (Watrous, 2016)
This shows that they are investing in these
machines and they will benefit from them in the
near future. In all, kiosks act as great way for a
company to manage costs and increase margins,
while simultaneously improving customer
satisfaction.

QSR Mobile
KEYSUCCESSFACTOR
Introduction
Industry
Overview
KSF 1: KSF 2: KSF 3: Conclusion 13
Advances in mobile technology are beginning to change the way QSR industries understand and engage
with their customers. Most QSR restaurants are adopting this trend because of the success it has illustrated
through companies like Taco Bell, KFC and McDonald’s.
KFC’s mobile app presented 2 million downloads in just the first 4 months and over 30% higher average-
order values on mobile compared to in-store purchases (Borison, 2014). This shows how many customers
believe this to be an efficient and convenient way of communication to the industry. Yum brands’ Taco
Bell offers a private mobile app, allowing consumers to pay and order on their phones in advance and
even save their favorites for a more convenient future visit. In response, 3.7 million downloads and check
growth of 30% resulted from this app (Lieberman, 2015). According to Business Insider intelligence,
Quick Service Restaurants offering order placement via smartphone are projected to compose more than
10.7% of QSR sales by 2020 (Taylor, 2016).
With this much popularity surrounding mobile ordering, it is expected to be a $38 billion dollar industry
by 2020 (Bakker, 2016). The importance of mobile capabilities is huge for brands that are dependent on
delivery. Yum Brands’ Pizza Hut new idea of “Easy Beats Better” is directed linked to a positive 5%
increase in same-store sales growth. Today, food orders through digital and mobile networks accounted
for 46% of their sales and average spending per pizza increased by 18% while ordering online than over
the phone (Taylor, 2016). McDonalds has seen more than 7 million downloads from its mobile app since
the 2015 launch, ultimately proving welcome offers are directly linked to high registration rates (Jargon,
2016).
Restaurants implementing mobile devices into their company’s structure will raise customer awareness of
deals and coupons, which will in the end raise company’s revenues. A recent survey surfaced indicating
“82% of diners would do almost anything to avoid long lines at fast food restaurants when they are with
their children, and nearly half of millennial parents say they would rather not eat at all than stand in a
line.” (NACS, 2016). This indicates mobile devices will have more success because it will shorten lines by
60-70%.
Figure 9:Forecast: Mobile Order- Ahead Volume at US QSR
(Source: BI Intelligence)

KEYSUCCESSFACTOR
Introduction
Industry
Overview
KSF 1: KSF 2: KSF 3: Conclusion 14
Social Media Marketing
Social media has become a booming force behind the marketing success of many businesses throughout all
industries. Social networking from a company standpoint, allows consumers to stay in immediate contact
with new information. It can also be use it to monitor trends from the direct voices of the buyers which
eliminates many blind spots companies use to miss. This gives the people something that makes them feel
good about themselves, albeit in the moment, and the people seemingly can not live without either in this
upcoming generation.
McDonalds, being one of the strongest brands in the world, invested in $963 million in ad production last
year, going up 8.6% from the year prior (Bhasin, 2014). Through social media marketing strategies,
promotions and limited time offers, they take the reins when reaching out to a large consumer base with an
astonishing 67 million “likes” on their Facebook page (Facebook,2016). In recent years, social media has
become a booming force behind the marketing success of many businesses throughout all industries.
Unlike television ads and billboard, which are often overlooked or not heard, social media is sure to have
the American populations attention. 90% of young adults 18-29 years old use social media, a 78% increase
since 2005 and a 69% increase among the ages 30-49 (Perrin, 2015). Millennials are spending more money
in the restaurant industry than any other generations before, verifying companies need to shift their
attention to marketing them properly so they spend it accordingly.
In the recent years, its standard practice for a restaurant to be engaged through channels and a key tool in
their marketing strategy. This shift to social media reveals how big of an impact social media has on the
restaurant industry. Social media is revolutionizing the Quick Service Restaurant industry. There is a very
positive correlation between a restaurants revenue and its social media reviews. If you know how to reach
the target market properly, you have endless opportunity of grabbing the attention of a hungry follower and
publicity through social media platforms.
Figure 10: % of US social media usage by age
(Source: Pew Resource Center)

New Items Breakfast
KEYSUCCESSFACTOR
The introduction of new menu items is important
to success in the industry. This is proven by the
increase in sales due to the introduction of
different items by Chipotle, McDonald’s and
Taco Bell. Chipotle runs their business by being
very steady in their menu items so the
introduction of new items is rare. While Chipotle
is just starting to introduce a new type of meat in
order to draw in customers after their recent e-
coli scare, McDonald’s and Taco Bell have
completely launched new items with great
responses from consumers.
Taco Bell had massive success after introducing
their Doritos Locos Tacos. They sold 100
million in 10 weeks. It took McDonald’s 18
years to sell their first 100 million burgers. The
Doritos Locos Tacos increased sales by 6% in
2012, the year they were introduced (Kim
Bhasin, 2012). McDonald’s had major sales
increases from the introduction of the McGriddle,
which is a breakfast sandwich made between two
pancakes. In the year following their
introduction they contributed to 40% of same
store sales (William Harris, 2009).
A more recent example of success from new
introduction of menu items is McDonald’s garlic
fries. They were first offered at four restaurants
around the San Francisco area and sold out due to
a lack of supply in less than two weeks. The
local garlic limits the production of this item to
the San Francisco region, but they were spread to
240 restaurants in the San Francisco area due to
their booming success (Michal Addady, 2016).
Breakfast is a consumer trend that has been
dominating the industry in the last few years. An
article discussing the new type of meat which
Chipotle is beginning to introduce suggested that
the new menu item is often used in breakfast
foods (Haley Peterson, 2016). While Chipotle
does not intend to go down this route with their
menu, it illustrates the consumer demand for
breakfast food.
McDonalds and Taco Bell both saw improved
sales following their recent changes involving
breakfast food. McDonalds has been serving
breakfast food since the 1970s, but started
serving all day breakfast in October of last year.
Taco Bell only recently started serving breakfast
in March of 2014. These introductions have
increased complexity of kitchens, but have had
some significantly good impacts on the
companies.
Figure 12 above shows the average increase in
foot traffic across locations in McDonald’s and
Taco Bell during the weeks before and after their
recent breakfast changes. According to Jeff
Glueck, McDonald’s saw a 9% increase in foot
traffic immediately following the launch of all
day breakfast. This is impressive until you see
that Taco Bell saw a 20-25% increase in foot
traffic immediately after introducing breakfast
items, and these breakfast items still account for
7% of total revenue for Taco Bell. McDonald’s
same store sales increased 5.7% in the US and
5% globally. It is also noted that this launch
improved McDonalds perception (Jeff Glueck,
2015).
Introduction
Industry
Overview
15
Figure 12: Before and After Breakfast Launch
0
50
100
150
1980 1990 2004 2014
Figure 11: McDonald’s Number of Menu Items
0
0.5
1
1.5
2 weeks
before
1 week
before
1st week 2nd week
mcdonalds Taco bell

Sustainability
Brands like Chipotle have been focusing on
sustainability in their ingredients and menu items.
Chipotle only uses organically grown produce
and responsibly raised meats. This has been a
generally successful practice for Chipotle in
growing its customer base, but the high risk
associated with using these types of ingredients
was proved detrimental to the company. In 2015
there was an e-coli breakout that severely
damaged the company’s reputation and drove
customers away. This incident illustrates the
higher costs and risks of using more sustainable
ingredients.
According to ChicagoTribune.com, Yum! Brands
has been one of the few quick service companies
who have been holding out on more sustainable
practices (Roberto A. Ferdman, 2015). Reasons
for resisting include high costs and slowness of
supply chains. With so many restaurants
switching to more sustainable practices, supply
chains are having a hard time keeping up with
consumer demands. Chipotle was forced to limit
pork supplied to their restaurants because of a
supplier who was found not following practices
accepted by Chipotle. Healthy options and
higher quality food also cost more money, so
profit margins get smaller with a switch to
organic produce or cage free eggs.
McDonald’s has been using more sustainable
practices as discussed earlier with the
introduction of Gilroy Garlic Fries, which only
use locally grown garlic. McDonald’s only uses
free range eggs and fair trade tea and coffee.
McDonald’s is involved in many programs that
support sustainability like White House American
Business Act on Climate Change, and has plans
for 100% recycled packaging by 2020.
Customizable Options
Customizable options are a newer trend in the
industry, so some companies are testing new
products paired with technology to attract new
customers and keep them interested. Chipotle
has been able to succeed with almost no change
to their menu due to the customization of their
meals. With the different kinds of rice, meats,
salsas, and other toppings offered, there is a
possibility of 76,800 different combinations to
make your personalized burrito(Walter Hickey,
2013). This, along with the sustainability of their
ingredients, has been able to keep their business
steady and their customers loyal.
McDonald’s is introducing the new Create Your
Taste menu. It is currently available in Australia
and Singapore and has been a success despite
criticism about whether the new menu was worth
the time customized burgers take to make, and
money needed to launch it (Aza Wee Sile, 2015).
A customized burger costs $5.09 with the price
only rising for an extra patty or bacon and the
cost to implement the technology involved to
make these burgers costs between $100,000 and
$150,000 (Haley Peterson, 2015). One main
criticism is that Create Your Taste is not available
in the drive through. Despite this, restaurants that
have Create Your Taste hired 15-20 more staff
members to keep up with the increase in orders,
and there is a plan to launch Create your Taste
across more restaurants in Australia and
Singapore. There are also plans to introduce this
item to Shanghai and Seoul.
Taco Bell has not been as quick to give
consumers more customizable options, but they
have been slowly adding more options for their
meals. Many items have the options of different
meats and sauces, but their most recent and
customizable options involve their mobile app.
Using this app, a customer can choose their menu
item and add or remove different options which
are not advertised in store.
KEYSUCCESSFACTOR
Introduction
Industry
Overview
Cage Free Eggs? Eco-Friendly Packaging? Responsibly Raised Meats
McDonald's Yes Yes, plans for 100% recycled No, only in Canada
Yum! Brands No Yes No
Chipotle Yes Yes Yes
Table 1: Sustainability of Companies
16

Global Preferences
While some trends are worldwide, there are many
trends which are particular to certain countries or
continents. Companies are forced to change
menus, building styles, customer service and
more to meet the needs of different consumers
around the world.
McDonalds has over 36,000 locations in over 100
countries and international markets make up 30%
of McDonald’s total sales in 2015, but with
different trends across the globe they have to
make menu alterations in different countries to
stay competitive. In India, the majority of people
don’t eat beef because of religious reasons, so the
McDonald’s menu consists of mostly chicken,
vegetarian, and spicy food items. McDonalds
now generates $220 million in revenue because
of its ability to adapt to the preferences of its
consumers in India. In China, rice is a common
everyday staple of the diet in most households.
To attract customers in China, they have
introduced items like the chicken rice wrap, beef
rice wrap, chicken rice bowl, beef rice bowl, and
the McRice burger.
Yum Brands is the leading company in the quick
service restaurant industry in global store
locations. 54% of Yum Brands sales come from
foreign markets. In India, KFC has made some
menu changes to appeal to the 42% of households
in India that are vegetarian. Some of the changes
that KFC has made are introducing menu items
such as fried potato burgers, veggie burgers,
veggie strips, and veggie rice bowls. With India
becoming an emerging market for quick service
restaurants making changes like these is huge.
In China, KFC has not only adapted to the tastes
of the Consumer there, they have also altered
building styles so consumers feel more
comfortable. KFC in the United States is built to
try to maximize takeout convince but in China,
the KFC buildings are about twice the size they
are in the US to allow for bigger kitchens and
more floor space (hbr). They do this to welcome
big families into the restaurant and the bigger
kitchen is because of the increased menu options
that they offer.
Healthy Eating
As the changing market heads towards healthy
eating, companies that have been known for
unhealthy food are being forced to adapt to a
market that is rapidly changing, and are
competing with companies that were formerly
less competitive in the industry.
As consumers have been gaining more
knowledge about the food they eat, they are
becoming more conscious of what goes into the
food they are eating. Preferences are starting to
change to healthier food options. While
restaurants like Chipotle may offer menu items
with a higher calorie count than McDonald’s
KFC and Taco Bell, they also provide nutrients
that the other brands often do not. Chipotle offers
organically grown produce and uses responsibly
raised meats in their products, which causes it to
be more expensive than some other quick service
restaurants. Consumers have been shown to be
willing to pay more money for higher quality
foods. “Nielsen’s 2015 Global Health &
Wellness Survey that polled over 30,000
individuals approximately 88% of those polled
are willing to pay more for healthier foods”
(Nancy Gagliardi, 2015).
Salads were introduced to McDonald’s menus in
2003 in response to consumers looking for
healthier options without wanting to sacrifice
convenience. Since their introduction,
McDonald’s has sold more than 500 million
premium salads. An even more popular healthy
item on the McDonald’s menu is apple dippers
which were introduced in 2004 as a part of their
balanced lifestyle platform. This platform
included new menu items including apple dippers
and fruit juice with happy meals as well as easily
accessible nutritional information and sponsoring
of physical activities.
KEYSUCCESSFACTOR
Introduction
Industry
Overview
0.00%
20.00%
40.00%
60.00%
McDonald's KFC
2010 2015
Figure 13 :Market Share of Fast-Food Restaurants
17

KEYSUCCESSFACTORWEIGHTINGSCALE
Rational
After analyzing the quick service restaurant industry, we were able to rate and compare our top three
competitors within our key success factors. We rated convenience as our top key success factor because
the majority of consumers eat at quick service restaurants because of how accessible and convenient they
are. We broke up convenience into speed, efficiency, and strategic location. We then rated our
companies based on how well they do in each category. In result, McDonald’s received an 8 for speed
because of how quickly they are able to deliver their food to their consumers. McDonald’s has been
known for how quick their drive thru is, and consumers of quick service are satisfied with the
convenience factor of the drive thru. We ranked Yum! Brands as a 7 for speed because of how quickly
all of their three restaurants are able to deliver their food to their consumers. Although Taco Bell is
extremely quick with their drive thru, Pizza Hut’s wait time is longer which is why we gave them the
average of a 7. We ranked Chipotle as 7 as well because although the amount of time it takes for them to
make a burrito or a bowl is very minimum, their wait time to get into the restaurant is a lot longer than
other quick service restaurants.
We ranked McDonald’s as a 6 for efficiency because of how often consumer’s food orders are not
correct. According to a quick service restaurant survey, out of all the restaurants, McDonald’s was
ranked lowest for efficiency due to the amount of mistakes they make on a daily basis. We ranked
Chipotle as an 8 for efficiency since consumers are face to face with employees, it decreases the chance
of them messing up their order. We also ranked them as an 8 because Chipotle has a fast moving
environment, consumers see them as being more efficient. We ranked Yum! Brands as an 8 for
efficiency because they focus on setting up standardized kitchens that can cook food quickly and be
delivered to their consumers in a timely manner.
We ranked McDonald’s as a 9 for strategic location because they have 36,000 locations in over 100
countries. The locations are off almost every highway exit, in shopping malls and areas that are
accessible to consumers. McDonald’s strategically picks their locations where there are consumer
impulse purchases, which is a reason they have been so successful. We ranked Chipotle as a 5 for
strategic location because they only have 2,010 restaurants in 5 countries. Chipotle remains to be
successful because the majority of consumers are willing to drive the extra 10-20 minutes to eat
Chipotle. We ranked Yum! Brands as a 7 for strategic location because one of the reasons they
strategically locate is by placing all three of their restaurants in one area.
Introduction
Industry
Overview
18
Table 2:

KEYSUCCESSFACTORWEIGHTINGSCALE
Rational
Introduction
Industry
Overview
19
For our second key success factor, technology, we broke it up into adopting to digital technology,
adopting the use of Kiosks, and marketing. We ranked McDonald’s as an 8 for adopting to digital
technology in this portion because of their heavy emphasis on their mobile app. We ranked Chipotle as an
8 too because of the use of their app and the future it entails. Consumers are allowed to custom order their
meal through the app and skip the line to pick it up. It also has a promotional deal, Chiptopia, which helps
them retain customers through the use of their mobile app. It also gives their customers an incentive to
come back often. Yum! Brands received an 8 as well because of the success they have had with digital
ordering and the use of their apps amongst a heavy portion of their customers.
We ranked McDonald’s as a 7 for adopting use of Kiosks because of their 2,000 locations that currently
use the “Create Your Taste” Kiosks and their plans to expand them even more. Chipotle only received a 2
in this category because they have not made any effort to adopt kiosks. Yum! Brands was ranked as a 4
because they are using “Xpress Order” Kiosks at Taco Bell and KFC, however it’s not much compared to
McDonald’s.
We ranked McDonald’s as an 8 for digital marketing because of their strong social media presence. The
invest a lot of money into digital marketing and they have previous success with their digital marketing
campaigns. Chipotle received an 8 in marketing because of their social media strategy. Yum! Brands
received a 5 in this category because of the success that Taco Bell has implemented with social media. On
the other hand, KFC and Pizza Hut have not had the same success. Taco Bell is currently ranked as the
number one on Digital CoCo’s Restaurant Social Media Index. KFC and Pizza hut have humorous social
media pages, but they lack mentioning promotions and deals.
Our final key success factor is adapting to consumer preferences which we broke up into willingness to
change menu, fresh/healthy/sustainable and price. McDonald’s received an 8 in this category because they
have continuously proven that they will customize their menus based on their geographically location.
Chipotle on received a 3 because of their limited menu items and their strict strategy to keep their food
fresh. Yum! Brands received a 7 on this portion because they adopt new items to their menu such as the
grilled chicken at KFC and Doritos Locos Taco at Taco Bell as well as a breakfast menu at Taco Bell.
We ranked McDonald’s as a 4 for fresh/healthy/sustainable food because they have traditionally been
known for having not fresh food and having an unhealthy menu. Although they have made a point to offer
more salads as a healthier option, their unhealthy food is still outweighed. Chipotle received a 9 because it
is a major point of their brand to implement all of the things listed in this category. Chipotle offers high
quality meet and that’s a big part of why they have been successful. Yum! Brands received a 2 because
they’ve had a horrible history with the quality of their food. KFC was reported to have high levels of anti-
biotics in their food in China in 2014 which drew consumers away for a period of time.
We ranked McDonald’s as an 8 according to price because of their numerous cheap options. The average
amount a consumers spends at McDonald’s is only $4.72 (Lutz, 2015). Chipotle received a 4 in this
portion because the average person spends a whopping $11.00 at Chipotle per trip. This seems much
higher, however, the quantity and quality of their food is greater. Yum! Brands received a 7 in this
category because they also offer several cheap options. Taco Bell is very cheap, but KFC and Pizza Hut
are a little pricier. They average person spends $7.50 at Pizza Hut, and $5.13 at Taco Bell per order.

CONCLUSION
Industry Overview
The quick service industry is a constantly
growing, massive market with a lot of key players
which differ from each other. Quick service
includes many different kinds of food all across
the world. Companies differ from each other by
differentiating their menus and their service
across borders. The industry is most prominent in
the United States, but has global players as
well. It is estimated that fast food restaurants in
the United States see a total of 50 million
customers every day.
This industry is affected by many macro-
environmental factors including political trends,
economic trends, technological trends and social
trends. Micro-economic factors affecting the
industry include customer service experiences,
health food trends, and product price. These are
all significant trends when shaping he future of
the industry and will all have a major impact on
the industry going forward.
Segments of the industry are identified by type of
food sold at different quick service
establishments. while food is segmented, it is
difficult too place restaurants into certain
segments due to the variety of foods served at fast
food restaurants. The largest segment of the
industry is burgers at 42% followed by chicken at
14%. Other segments include sandwiches, Asian
food, pizza and pasta, and Mexican
food. Burgers and chicken are familiar foods to
Americans, which is an important part of the
industry. Consumers tend to go to fast food that
they are familiar with.
Key Success Factors
Key success factors include convenience,
adapting to consumer preferences, and
implementation of innovative
technology. Convenience is the main factor that
distinguishes fast food from other parts of the fast
food industry, so it is key in being successful in
the industry. Adapting to consumer preferences
is important currently due to Americans shifting
towards healthier food without being willing to
sacrifice speed. If companies don’t adapt to this
change they will begin to lose customers to
companies that will. Innovation and technology
are a key success factor due to the importance of
keeping up with social trends, along with
controlling and reducing costs. Technological
advancements reduce human labor while
increasing speed and efficiency.
20
Introduction
Industry
Overview

APPENDIXA:PORTER’S5FORCES
Buyer Power
Buyer power is high and extremely important in
the Quick Service Restaurant Industry due to the
competition for consumers. The brands in the
industry have to adapt to different buyers in
different countries by having different menu
items to meet all of consumers needs and
expectations. Companies must maintain a
sustainable competitive advantage in order to be
globally successful.
In the United States, buyers are drawn towards a
healthier lifestyle which has caused a change in
the Quick Service Restaurant Industry. Since
buyers are more concerned about healthier diets,
they are requesting healthier food options. This is
increasing the popularity of brands like Panera
Bread and Chipotle who revolve around business
models that provide more options and higher
quality food to consumers. The other reason that
consumers are drawn towards brands like Panera
Bread and Chipotle is because they provide more
customizable options. This trend towards fast
casual restaurants has influenced other fast food
restaurants like McDonald's to have healthier and
more customizable options to stay competitive in
the industry.
Cost of Changing (Buyer Power)
Cost of changing is currently high due to
consumers looking for restaurants that serve
healthier foods. This is illustrated by the Chipotle
E-coli scare because of their focus on locally
grown foods. Their effort to be a more
sustainable business increases their food safety
risks, which forces them to increase spending on
quality food inspections. Without these food
inspections they are ultimately losing money
when a problem arises and they lose loyal
customers. Chipotle’s stock value was $757
before the E-coli breakout and dropped to $475, a
37% decline. (CNN 2016).
26
Supplier Power
Suppliers in the quick service industry have great
influence on companies due to the limited
number of suppliers in the market. When there
are few competitors, their bargaining power is
very high, which has an impact on profit margins
for companies. The profit margin for restaurants
is very low because these suppliers have the
power to raise prices. Although the cost of
changing suppliers is high, companies may have
to change suppliers due to industry trends
towards healthier and higher quality food options.
Some companies like Panera Bread eliminate the
middle man by making their products within the
company, providing fresher food than the food
that goes through a manufacturer.
Regulation on food safety is becoming more strict
which means that suppliers are spending more
money on food inspections and are being forced
to raise prices. Not only are these food
regulations prominent in the United States, they
are also increasing regulation globally. China
especially is focusing heavily on making sure
their food is sanitary because of the evidence of
unsanitary practices in the food industry.

To be competitive, they need to maintain loyal customers as well as attract new ones. McDonald’s has
loyal customers in part because of their convenience and low prices despite ranking lowly on taste tests.
While Dominos has loyal customers because of their convenience. Chipotle and Panera Bread have
loyal customers due to their “healthy” food and sustainability. In order for other quick service
restaurants to remain competitive, they need to provide motives to promote loyalty.
Threat of substitution is important to competitive rivalry because in order to compete with rival
companies, they need to find ways to lower the risks of consumers substituting their food for another
company. In order to do this, existing companies have updated their menu items to follow the social
trends. Threat of new entry is important to competitive rivalry because if there is a new entry into the
market, then threat of substitution increases which increases competitive rivalry.
The experience operators of certain restaurants have to offer could be a deciding factor to consumers on
where they want to eat. Not only does fast food compete with other fast food and fast casual places, but
it also competes with full service restaurants, grocery stores, bakeries and cafes. For example,
consumers may go to a full service restaurant like Applebee’s for a better experience eating out, but
they also might choose to shop at the grocery store to cook at home and get the home cooked meal
experience. Market changes are effecting where and how often consumers are eating at restaurants and
ultimately trying to find the most worth while option.
Competitive Rivalry
27(The 2015 Franchise 500)
Figure 14 : By The Numbers

Threat of New Entry
In the quick service restaurant industry, the threat
of new entrants is high due to the relatively low
cost to start up a restaurant. Although major
players make up a significant portion of the
industry, new restaurants have a way of changing
food trends in growing markets, as well as pulling
customers away from the major brands.
Although the threat of new entrants is high
because so many companies are entering and
exiting the market all the time, the actual threat to
the major players isn’t high because of the
influence of franchising. It takes a lot of time for
a company to reach the level it needs to in order
for it to be a threat to a company like
McDonald’s. Consumers look for brands they
already know when they are looking for a fast
food restaurant. Economies of scale are achieved
in the fast food industry due to the popularity of
chain restaurants. Chains are more profitable as
they can bargain more with suppliers.
Its relatively easy to start a quick service
business, so time and cost are not significant
barriers in the beginning of a business venture.
The most prominent barriers to entry would be
the power of the current major players and the
increased expenses of opening a business due to
the higher regulation and minimum wage
increases. An entryway is having a brand that is
more sustainable and healthier since there aren’t
as many restaurants like that already.
Threat of Substitution
Threat of substitution is a major key that brands
focus on in order to effectively market towards
consumers and suppliers. This is the force that
drives companies to hold a sustainable
competitive advantage. The competitive
advantage of these companies revolves around
their marketing strategies and deals. For example,
Wendy’s offers the 4 items of food for $4, but
Burger King offers the 5 items of food for $4.
These differences are what influence consumers
to eat at one fast food restaurant rather than the
other, while the food is relatively the same
quality.
Chipotle and Panera Bread have a different
sustainable competitive advantage and it revolves
around the quality of their food not the pricing.
Consumers are drawn towards these fast casual
restaurants because of the quality and
customizable options they have to offer. The
prices may be higher, but consumers are
becoming more and more willing to pay for
superior foods.
Threat of substitution is so prominent within the
industry that very specific locations are
important. Many restaurants focus on location in
order to gain customers because one mile could
cause a great impact on the amount of traffic
coming through a specific restaurant. Many fast
food restaurants have locations along the same
road because of the convenient placement within
a town or city. Restaurants often have multiple
locations in a city if there are multiple heavily
trafficked areas. If they do not have locations
this close together they lose customers because
the average consumer will go to the most
accessible restaurant.
28

APPENDIXB:PESTLEANALYSIS
Economy
The Quick Service Restaurant industry plays a
large roll in both the domestic and global
economy, and as a whole makes up 80% of the
food services industry (Kell, 2016). This is
primarily due to the success of franchising and it
comes to no surprise, when 50 of the US’s largest
companies account for about 20% of total
revenue. This industry is a part of the consumer
discretionary sector and is heavily driven off of
consumer spending. Because of this it tracks the
global economy as a whole and with the recent
strength of the domestic economy the quick
service industry has seen major success as
consumer spending increases. It has grown at a
high rate since the recession in 2008 and is
expected to continue to grow at a rate between 3-
5% over the next few years (refer to figure 8).
The International Monetary Fund recently
projected a global economic slowdown and a
potential recession. A rise in the Federal Funds
Rate may possibily have a negative effect on the
economy as a whole and slow economic growth.
Given the fact that a major driver of the QSR
industry is consumer spending, an economic
retraction will slow the growth of the food
services industry significantly. The QSR industry
will have to maintain effective cost control in
order to mitigate losses and keep loyal customers.
Despite not having a positive impact on the
industry, the QSR industry tends to outperform in
economic slowdowns because it acts as a cheaper
alternative to other restaurants.
Agricultural Price Index
There has been major effects on the Agricultural
Price Index (API) over the past few years, some
of which being falling oil prices, stronger US
dollar, and inflation. These have brought the API
down from its high of 107.0 in 2013 to an
estimated 94.9 in 2016, and will continue to
decline over the next 5 years. This is important
to the Quick Service Restaurant industry because
it has a direct effect on the price of the food they
are getting from their suppliers. This leads us to
believe that if prices continue to rise the
companies might start looking for alternative
substitutes.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2015 2016 2017 2018 2019 2020
Revenue Forecast
Figure 15:
(First Research, 2016) 29

Politics
Politics have played a major roll in the shaping of the Quick Service Restaurant industry and will likely
play an even larger roll in shaping it in the future. As obesity grows at an international level it gives
governments the incentive to do something about the problem. A major way governments are starting to
address this issue is through “junk food” taxation. This slows the consumer interest in the industry and in
all makes the food more expensive. Another political influence would be that the government does not
issue food stamps to lower income families to fast food restaurants. This begins to take action against
obesity in lower income families.
A final political trend that could possibly influence the QSR industry would be the increase in minimum
wage. Since the QSR is generally made up of low paid employees, a significant increase could be a major
threat to the industry and have a negative effect on the margins of QSR companies. Since 2007, wages
have seen a small price hike every year, mainly due to strong public outcry along with political backing.
As of recent, the debate over what to do with minimum wage has grown stronger and stronger as we’ve
seen major U.S. cities set their own ground breaking precedents.
30

Social
When thinking about the progress of the quick
service restaurant industry, social trends are
perhaps the most valued when understanding
customer preferences and the future of the
industry. Health trends are continuing to be a
huge topic of discussion and more and more
people are developing these habits. Because of
this quick service restaurants will have to adapt to
their market, and if they don’t they will lose
business to substitutes that are complying with
the preferences of the consumers. This can be
problematic for all quick service company’s
because it is more expensive and inconvenient to
assure these demands.
Despite the higher cost of healthy eating, it may
outweigh the negative health complications that
go along with unhealthy food. By offering
healthier options, they are attracting a much
larger market. Historically, the quick service
industry was know for quantity over quality, but
because of recent social trends we are seeing a
dramatic shift in the menus options offered.
Today, peoples expectations for fast food are
significantly higher than past generations when
looking for quality, low cost entries.
Being aware of your demographics is very
beneficial when accurately targeting a
multicultural market. By understanding what
food is desired in specific geographic locations, a
company can precisely tailor their menus. By
knowing your market, you can take full
advantage of not only advertising strategies, but
also distribution channels, product placements,
trends and much more. In all, social trends will
have a huge impact in shaping the future of the
quick service restaurant industry.
Environmental
Environmental trends run hand in hand with
many of the social movements today. More
company's are progressively working towards
becoming earth friendly and green. This is not
only good for the environment, but surprisingly
more profitable. For instance, improving the
efficiency in the supply of their goods, initially
reduces hauling and packaging costs. Starbucks
for example offers a reusable cup for $1, which
gives the consumer incentive to return, while
simultaneously reducing waste. Another example,
chipotle is known to grow all of their organic
products locally, which reduces transportation
costs as well as reducing carbon emotions in the
atmosphere.
Quick service restaurants are also becoming more
aware to animal rights, and the morality of
farming and breading animals. For example
McDonalds, joined the coalition for Sustainable
Egg Supply, which is known for assessing the
well being of the hens and the environmental
impact associated with the production. This is
important because it shows very large companies
within the industry are already making an effort
to become more environmentally aware. As the
social awareness of the environment increases we
believe it is key to a companies reputation to
adapt eco-friendly incentives and encourage
corresponding activity.
31
0
0.5
1
1.5
2
2.5
2005 2015
Overweight Obese
(World Health Org, 2015)
Figure 16:Global Obesity

Technology
Technology will play a major role in the future
development of the quick service restaurant
industry. Not only will the advancement in
technology make service more productive but
also cut costs simultaneously. We are slowly
beginning to see a shift in robotic based
employee systems. This business is one of many
that have begun a quest to remove the human
element from your dining experience. An anti
human based staff could very well change the
environment in how you experience your nightly
meals, but it could also change job markets and
wage structures. With the elimination of human
service all together millions of people all around
the world would be left without jobs. The idea
itself has been proven feasible and profit worthy,
so more company’s will adopt to this as the price
of production increases.
Technology is also used within the quick service
restaurant industry for promotional purposes.
Social media has forever changed the world as
we know it. If the whole QSR took advantage of
these advancements and applied it to their
marketing and PR would ultimately be most
effective for reaching a wider consumer base.
The quick service industry have taken advantage
of this by using these outlets for general
communication with customers, immediate
feedback and advertising. The use of social media
has increased exponentially. In order for
industry’s to thrive, they must adapt to the
preferences of their target markets. The major
players will do and are willing to take any steps
to make sure they continue to fit into the lives of
the everyday individual. The quick service
industry is prominent because it is just that, fast.
Social networking moves in a similar way, in that
it could also be considered a sort of instant
gratification type scenario.
Social Media (Technology)
Both outlets provide people with something that
makes them feel good about themselves, albeit in
the moment, and the people seemingly can not
live without either in this upcoming generation.
Legal
Law and politics can have a major influence on
how companies within the Quick Service
Restraints operate. Similar to any other
cooperate industries, regulations are applied in
order to comply with the legal rights of humans,
especially in the food industry. FDA implements
regulations to ensure the health of the consumers
and to guarantee the safety of the food. The FDA
essentially sets guidelines for what is acceptable
within the food industry, and this is done through
a set of specific inspections on food in both large
franchises and small restaurants across the
country. The US government finds these set of
regulations extremely important and grants the
FDA a large annual budget to ensure they provide
a high quality of work and make certain that the
$1 trillion worth of food they oversee is safe
(FDA, 2015). The current level of regulation is
medium, however is increasing and becoming
more important to the industry.
Not only is food regulated in the Quick Service
Restaurant industry but there are also a set of
regulations in place on how the companies within
the industry must operate. For instance, a large
number of establishments within the industry are
engaged in franchise agreements. There are
several agencies at both the federal and state level
that implement laws on how these franchise must
operate. In general, these franchising laws fall
under three classifications including discloser,
registration and relationship laws.
32

Value Proposition
• Food deals
• Compensation and programs for
employees
• Non-profit organizations
• Franchising
Key Resources
• Raw materials
• Suppliers
• Real estate
• Employees
• Consumers
Key Partners
• Restaurant Supply Chain Solutions
• McLane Company Inc.
Channels
• Social media
• Foundations and organizations
• Global Volunteerism
• Commercial advertisements
Customer Segments
• Busy families/people
• Low income families
• International market
Cost Structure
• Real estate
• Labor
• Marketing and advertising
• Inventory
Revenue Streams
• KFC
• Pizza Hut
• Taco Bell
• Yum! China
• Yum! India
Customer Relationships
• Promote loyalty through branding
• Promote loyalty through differentiated
options
• Health and wellbeing programs
• Adapt to different consumer preferences
Key Activities
• Environmental friendliness
Green buildings
energy and water efficiency
paper based packaging
waste recovery and recycling
• Programs and foundations
Yum! Feed he world
Yum! Brands foundation
Harvest Food Donations
Global Volunteerism
• Culture and engagement
• Diversity and inclusion APPENDIXC:BUSINESSMODELCANVAS
33

Value Proposition
• Value menu
• Relatively extensive menu
• All day breakfast
Key Resources
• McDonalds well-known brand
• Labor
• Relationships with material suppliers
Key Partners
• Food suppliers
• Sponsorships
Cost Structure
• Research and marketing
• Labor
• Materials
• Monopoly encourages repeat customers
• Ronald McDonald house
• Offering different menus in different
geographical locations based off consumer
preference
Revenue Streams
• Franchised stores
• Company owned stores
Key Activities
• Growth through franchising
• Preparing food quickly
• Advertising
Customer Segments
• On the go consumers
• People of all ages
Channels
• Restaurant chains
• Mall food courts
APPENDIXC:BUSINESSMODELCANVAS
34

Value Proposition
• Simple menu
• Alcoholic beverages
• Loyalty deals
Key Resources
• Relationships with local farmers,
• Promotional events
• Well trained employees
Key Partners
• Suppliers of local grown produce
• Local Farmers
Cost Structure
• Out sourcing to local farms
• Paying employees
• High quality food is expensive
Revenue Streams
• Individual orders
• Catered orders
• Alcohol and drinks
Key Activities
• Food with integrity
• Locally grown fresh food
• Mobile app to order electronically
• Returning customers
• Chiptopia
• Sticking to quality standards to make
consumers happy
Customer Segments
• Millennials- target market
Channels
• Social Media
• In store experience
• Electronic orders
APPENDIXC:BUSINESSMODELCANVAS
35

APPENDIXD:SWOTANALYSIS
INTERNALEXAM
EXTERNALEXAM
STRENGTHS
POSITIVE INFLUENCES
NEGATIVE INFLUENCES
OPPORTUNITIES
WEAKNESSES THREATS
• Economies of scale
• Well-known brand
• 40,000 restaurants
globally
• Growth in
emerging markets
• Healthier menu
items
• Over saturated
• Limited growth
• Substitute
companies
• Altered consumer
preferences
• Cost of labor
36

INTERNALEXAM
EXTERNALEXAM
STRENGTHS
POSITIVE INFLUENCES
NEGATIVE INFLUENCES
OPPORTUNITIES
WEAKNESSES THREATS
• Economies of scale
• Diverse selection
of food
• Growth in emerging
markets
• Healthier menu
items
• New recipes
• Quality of food
• Weak R&D
• Substitute
companies
• Economic slowdown
effects pizza more
than other QSR
companies
• Cost of labor
37

INTERNALEXAM
EXTERNALEXAM
STRENGTHS
POSITIVE INFLUENCES
NEGATIVE INFLUENCES
OPPORTUNITIES
WEAKNESSES THREATS
• Rapid growth
• Good financial
strength
• Quality of ingredients
• Store expansion
• New product
categories
• High price menu items
• Limited choice of menu
• Major presence in the US
and Canada
• Additional food
safety issues
• Competition with
fast casual
38

RATIOS
39
Retrieved from Bloomberg
Table 3:
Table 4:
Table 5:

Analysis of the Quick Service Restaurant Industry and Key Success Factors

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