This document analyzes the fast food industry through an overview of market conditions, industry structure, performance and global trends. It finds that while the US dominates the global market, growth opportunities exist in emerging markets like China. The industry faces challenges from health concerns, economic pressures, and competition from substitutes, but continues to benefit from factors like convenience and large marketing budgets.

1. Fast Food Industry
Analysis
MBA 615
Prepared By
Elizabeth Minder
Theshin Angulugaha
Matthew Miller
March 7th, 2011 Andrew Newman

2. Agenda
• Elasticities & Supply and Demand conditions- Presented by Andrew Newman
• Porters 5 Forces Analysis – Presented by Matthew Miller
• Market Structure - Presented by Elizabeth Minder
• Industry Performance, Market forecast and Global Industry Analysis
Presented by Theshin Angulugaha

3. Introduction
Industry Definition
Fast Food industry also known as the QSR (Quick service Industry) comprises
establishments primarily engaged in the retail sale of prepared food and drinks for
on-premise or immediate consumption. Caterers and industrial and institutional
food service establishments are also included in this business.
Industry Segments
• Quick Service Restaurants
• Takeaways
• Mobile & Street Vendors
• Leisure Locations (Cinemas, Racecourses..etc)

4. Market Conditions
Saturated Market
Output increases as price remains steady (Supply curve shift to the
right)
Franchised Store
Give owners the control to run the restaurant best suited to the
location

5. Industry Make Up
Monopolistic Competition to Oligopoly
Does McDonalds run the show?
Industry Subset
Why did the chicken cross the road? To show the cheeseburger
who’s boss.

6. Market Conditions
Horizontal Marketing System
McDonalds and Walmart
Starbucks and Target
Hires 3.5 Million Employees
• Pays lower wages, simply minimum wage, to a higher percentage
of workers than any other industry.
• 90% of workers receive no benefits.

7. Elasticity
Price elasticity is HIGH
• High availability of substitutes
• Consumer tastes & preferences vary one day to next
• Low proportion of overall budget
Income elasticity is LOW to MODERATE
• Latest study showed elasticity as 0.386
• Overall market is income inelastic and normal goods
• Premium fast food chains may be more income elastic (i.e. Chipotle, Five
Guys, etc.)

8. Supply & Demand Determinants
Demand determinants
• Advertising and promotion
• Consumer tastes & preferences (i.e. health awareness)
• Negative publicity (i.e. food scandals)
• Seasonality
• Prices of related products
Supply determinants
• Environmental conditions (weather, seasonality, etc.)
• Government regulations (food and labor laws)
• Supplier relationships
• Costs & technology

9. Cost Drivers
Cost-intensive industry
• High cost of labor (25-30% costs)
• Rising commodity and energy prices
• Lower operating margins
Solutions
• Technology innovation
• Economies of scale/scope

11. Porters Five Forces
Buyer Power (MODERATE) Supplier Power (HIGH)
• Financial crisis strengthens Power • Vital to maintain reliable product
• No switching costs • Supplier market is consolidated
(Sysco and US Food Services, Inc.)
• High price elasticity of demand
• Suppliers service many other
• Consumer tastes can very day to
markets
day
• Minimum wage laws and
healthcare reform strengthens
Intensity of Rivalry (HIGH) employees (supplier of labor)
• Large number of competitors
• Dominated by Oligopoly of players
• Key Success Factors include
location and cost advantages
• Advertising budgets.
2009, McDonald’s spent $650.8
million Globally

12. Porters Five Forces
Threat Of Substitutes (MODERATE) Threat Of New Entrants (HIGH)
•Frozen meals, home • Does not require large capital
cooking, etc.. • Expansion using Franchise model
•Healthier options • No switching costs for consumers
•America’s Health reform bill • They do face barriers such as
requires fast food chains to post price wars from competitions
calorie content on menu
• Optimistic growth rates predicted
•Main substitute is home for the industry
cooking where the only
switching cost is the opportunity • Low consumer loyalty
cost of the time spent in the
kitchen
•Main driver of fast food is
convenience

13. Industry Performance - United States
• Market Value $ 71billion -2009
Year $ Billion
2005 61.8
2006 64.7
2007 68.6
2008 71.4
2009 71.3
• Compound annual growth rate of the Market Value (2005-2009) 3.7%, in
comparison Europe 4.7%, Asia 6.1%

14. Industry Performance - United States
• Market Volume 40.3 billion transactions in 2009
Year Billion transactions
2005 36.1
2006 37.5
2007 39.1
2008 40.0
2009 40.3
• Compound annual growth rate of the Market Volume (2005-2009) 2.8%
• Industry production -12% of the GDP

15. Industry Performance - United States
• Sales performance
Year Sales in Millions $ % change
2007 156694
2008 160909 2.7%
2009 159415 -0.9%
2010 166238 4.3%
2011 174611 5.0%
Year Sales $ per % change
Employee
2007 32569
2008 32536 -0.7%
2009 32145 -0.7%
2010 32576 1.3%
2011 33349 2.4%

16. Fast food in United States

17. Market Forecast
• In 2014, Market Value is forecasted to In 2014, Market Volume (# of
be $77.5 billion increase by 8.9% (2009 transactions) is forecasted to be $42.9
billion increase by 6.3%

18. Worldwide Fast Food Industry
Analysis
• United States and the Asia
Pacific accounts for 70% of
the global food market
(35% each)
•McDonalds- 28,000 stores
outside US in 119
countries, close to 50% of
the total revenue from
global operations
•Yum Brands (KFC, Pizza
Hut, Taco Bell) 14,000
stores outside US, 110
countries

19. Global Markets
TOP Fast Food Chains in Europe
United States dominates the Turnover 2007 in million €
global fast food industry Rank Operator
Brand
Turnover Outlets Countries
Banner
Top ten fast food chains are (sales, and # of
restaurants) US companies McDonald McDonald
1 5660 6400 40
s s
KFC, Pizza
2 Yum! 1880
Hut
China 3
Burger Burger
1,800e 17
King King
• 1.3 billion population
Autogrill,
• KFC, McDonalds major US players 4 Autogrill
BK, a.o.
1,700e 900e 12
• McDonalds currently 800 restaurants,5 Quick Quick 900 400 3
potential 10,000 to 15,000 stores Greggs,
6 Greggs Bakers 860 1368 2
• Drive through a brand new concept Oven
• McDonalds signed a contract with 7 Telepizza Telepizza 800e 820 16
Chinese oil company 8 Le Duff
Brioche
455 440 4
Doree
9 Starbucks Starbucks 350e 743 7
10 Nordsee Nordsee 305 360 4

20. Reflection Analysis
• Surprised by how easy it is for new firms to enter the market and how
large firms like McDonald’s create brand awareness through large
marketing campaigns….(MATT)
• The fast food industry is recession proof. There will always be a need
for a quick convenient dinner. There may be subsets in both the US
and international markets but the cheeseburger will always be
king…(Elizabeth)
• Methods and ways in which the different companies differentiate
their product vary across the board…(Andrew)
• Surprised by how US companies dominates the global fast food
industry. Why they have not yet successful in the Chinese market
compared to other markets. Recession and Fast food industry, how
massive the industry, US impact in other cultures, industry’s impact in
US economy (GDP)

21. Sources
1. Fast Food, Health, and Fitness Trends. Practical Nutrition. August 30th, 2010
2. The Future of Fast Foods. Healthy Habits. March 19th, 2009
3. Tough Economic Times Demand Tighter Spending. B. Bead. Arizona Times. May 23, 2010.
4. Fast Food in the United States. DataMonitor. Industry Analysis. September 2010
5. Worldwide Fastfood Restaurants Industry. (NAICS 72221) Barnes Report. 2010 edition. © C. Barnes & Co
6. The Economics of the Fast Food Industry. Social Alternatives Publications
7. Jekanowski, Mark, Binkley, James, Eales, James. (2001). Convenience, Assessibility, and the Demand for
8. Fast Food. Journal of Agricultural and Resource Economics. 2001.
9. Fast food Nation by Eric Schlosser – 2001
10. www.mcdonalds.com, www.yum.com
11. Wikiinvest.com
12. Economist.com