The document provides an overview of the fast food industry including its history, major competitors, and current state. It discusses how the industry is made up of about 200,000 restaurants generating over $120 billion in annual revenue. While highly fragmented, the top 50 companies hold 25% of total sales. The industry is also highly labor intensive, with the average annual revenue per worker being just under $40,000. The document then analyzes the industry using Porter's Five Forces model to evaluate the competitive environment and factors like threat of new entrants, bargaining power of customers, and threat of substitute products.

1. Industry AnalysisIndustry Analysis
Fast Food IndustryFast Food Industry
Anna SterlingAnna Sterling
Johnnie DavisJohnnie Davis
Zane BarnesZane Barnes
Kimberly SmithKimberly Smith
Nolan BosworthNolan Bosworth
Shaina WeaverShaina Weaver
Clay JonesClay Jones

2. History of Industry CompetitorsHistory of Industry Competitors
 McDonaldsMcDonalds
 First store opened in 1940 by the McDonald brothersFirst store opened in 1940 by the McDonald brothers
 Headquarters- Oak Brook, ILHeadquarters- Oak Brook, IL
 SonicSonic
 First store opened in 1945First store opened in 1945
 Headquarters- Oklahoma CityHeadquarters- Oklahoma City
 Jack-In-The-BoxJack-In-The-Box
 Founded in 1951Founded in 1951
 Headquarters in San Diego, CAHeadquarters in San Diego, CA
 Burger KingBurger King
 Founded in 1954Founded in 1954
 Headquarters in Miami, FloridaHeadquarters in Miami, Florida

3. Industry OverviewIndustry Overview
 Fast-food industry includes about 200,000Fast-food industry includes about 200,000
restaurantsrestaurants
 Combined annual revenue of about $120Combined annual revenue of about $120
billionbillion
 Industry is highly fragmented: the top 50Industry is highly fragmented: the top 50
companies hold 25% of salescompanies hold 25% of sales

4. Industry DetailsIndustry Details
 The industry is highly labor-intensive: the averageThe industry is highly labor-intensive: the average
annual revenue per worker is just under $40,000annual revenue per worker is just under $40,000
 Most fast-food restaurants specialize in a few mainMost fast-food restaurants specialize in a few main
dishesdishes
 Restaurants include national and regional chains,Restaurants include national and regional chains,
franchises, and independent operatorsfranchises, and independent operators
 Most fast-food restaurants use a POS (point of sale)Most fast-food restaurants use a POS (point of sale)
system to take orders from drive-thrus and thesystem to take orders from drive-thrus and the
registerregister

5. The Fast Food Industry’s Dominant
Economic, Political, and Social
Features
 Industry break downIndustry break down
 Restaurant IndustryRestaurant Industry
• Full-serviceFull-service
• Limited-serviceLimited-service (NAICS 722211)(NAICS 722211)
• Burger SegmentBurger Segment
• SandwichesSandwiches
• Pizza/pastaPizza/pasta
• ChickenChicken
• MexicanMexican
• Etc.Etc.

6. 2008 Burger segment Annual Sales
(http://www.qsrmagazine.com/reports/qsr50/2008/burgers.phtml)
RankRank QSR 50QSR 50 ChainChain Sales ($MilSales ($Mil))
11 11 McDonald’sMcDonald’s $28,666$28,666
22 22 Burger King (U.S. & Canada)Burger King (U.S. & Canada) $8,781.0$8,781.0
33 44 Wendy’sWendy’s11
$7,956.0$7,956.0
44 1010 Sonic Drive-InSonic Drive-In $3,608.8$3,608.8
55 1313 Jack in the BoxJack in the Box11
$2,975.0$2,975.0

7. Economic Factors
 How does aHow does a RecessionRecession affect the limited-affect the limited-
service restaurant industry?service restaurant industry?
 As a general rule, when disposable personalAs a general rule, when disposable personal
income is tight, fast food restaurants fareincome is tight, fast food restaurants fare
better than their casual and high end cousinsbetter than their casual and high end cousins
because people will shift their purchasesbecause people will shift their purchases
downward.downward.
 The best recession survival plan is having aThe best recession survival plan is having a
well advertized $Dollar menu and tight costwell advertized $Dollar menu and tight cost
controls in place .controls in place .

8. Political Factors
EconomicEconomic Stabilization Act of 2008Stabilization Act of 2008 givesgives
restaurants two helpful benefits duringrestaurants two helpful benefits during
recession.recession.
 Banks have an injection of capital and are beingBanks have an injection of capital and are being
urged by the government to make loans.urged by the government to make loans.
 Restaurants must acquire loans form banks to make muchRestaurants must acquire loans form banks to make much
need expansions or updates.need expansions or updates.
 Accelerated 15 year depreciation schedule for newAccelerated 15 year depreciation schedule for new
construction on restaurants saves money.construction on restaurants saves money.
 Old depreciation schedule was 39 ½ years.Old depreciation schedule was 39 ½ years.
 Ex: on a $700,000 project it would save $7,000 a yearEx: on a $700,000 project it would save $7,000 a year
versus the 39 ½ year schedule.versus the 39 ½ year schedule.

9. Social Factors
The fast food industry pays close attention toThe fast food industry pays close attention to
what the American society wants and needs.what the American society wants and needs.
 Must add value by beingMust add value by being affordableaffordable and ofand of
consistent quality.consistent quality.
 Menus with a vastMenus with a vast varietyvariety of productsof products
 HealthierHealthier options and brand Image needs to beoptions and brand Image needs to be
providedprovided
 Must beMust be convenientconvenient and fast to accommodateand fast to accommodate
the fast pace of American lifestyles.the fast pace of American lifestyles.

10. The Five Forces ModelThe Five Forces Model
 Threat of New EntrantsThreat of New Entrants
 Economies of Scale:Economies of Scale:
 The firms in the limited-service restaurant class do see some advantages to economiesThe firms in the limited-service restaurant class do see some advantages to economies
of scale, but these advantages are undermined by the ease of creating a quick serviceof scale, but these advantages are undermined by the ease of creating a quick service
restaurant. The saturation of the industry is also a huge limiter of how much anrestaurant. The saturation of the industry is also a huge limiter of how much an
advantage can be attained by economies of scale.advantage can be attained by economies of scale.
 Product Differentiation:Product Differentiation:
 While differentiation is a large and necessary expense for the large fast food chains inWhile differentiation is a large and necessary expense for the large fast food chains in
the industry, it is not difficult for private startups to overcome and thus not a significantthe industry, it is not difficult for private startups to overcome and thus not a significant
barrier to market entry.barrier to market entry.
 Capital Requirements:Capital Requirements:
 Capital requirements will quell the formation of new, national competitors, but is not aCapital requirements will quell the formation of new, national competitors, but is not a
significant barrier to private startups.significant barrier to private startups.
 Cost Disadvantages:Cost Disadvantages:
 These disadvantages stem form the fact that “established companies already haveThese disadvantages stem form the fact that “established companies already have
product technology, access to raw materials, favorable sites, advantages in the form ofproduct technology, access to raw materials, favorable sites, advantages in the form of
government subsidies, and experience” (referenceforbusiness.com). The extremegovernment subsidies, and experience” (referenceforbusiness.com). The extreme
saturation and similarity in product offering make convenient locations essential forsaturation and similarity in product offering make convenient locations essential for
quick service restaurants large and small. This is a significant barrier to entry.quick service restaurants large and small. This is a significant barrier to entry.

11. The Five Forces Model Cont.The Five Forces Model Cont.
 Threat of New Entrants Cont.Threat of New Entrants Cont.
 Distribution Channels:Distribution Channels:
 Speedy and reliable channels are essential among all firms in the industry, they are notSpeedy and reliable channels are essential among all firms in the industry, they are not
necessarily difficult for new comers to attain, however. Also the economies of scalenecessarily difficult for new comers to attain, however. Also the economies of scale
enjoyed by large firms are not so great as to shut out smaller competitors.enjoyed by large firms are not so great as to shut out smaller competitors.
 Government Regulation:Government Regulation:
 Government regulation is more intense for the larger firms which have to deal withGovernment regulation is more intense for the larger firms which have to deal with
franchising regulations. Smaller establishments are subject to the standard array offranchising regulations. Smaller establishments are subject to the standard array of
government regulations including: zoning, health, safety, sanitation, and building.government regulations including: zoning, health, safety, sanitation, and building.
These are standard for almost any new business and thus do not pose large threat toThese are standard for almost any new business and thus do not pose large threat to
new comers.new comers.
 Conclusion:Conclusion:
 Due to the lack of any of the barriers to entry being so significant as to thwart theDue to the lack of any of the barriers to entry being so significant as to thwart the
majority of private startups, we feel the threat of new entrants is high.majority of private startups, we feel the threat of new entrants is high.

12. The Five Forces Model Cont.The Five Forces Model Cont.
 Bargaining Power of CustomersBargaining Power of Customers
 Even though customer switching costs are nearly zero, the fast foodEven though customer switching costs are nearly zero, the fast food
industry does not worry about loyalty because “On average, one-fifth ofindustry does not worry about loyalty because “On average, one-fifth of
the population of the USA eats in a fast-food restaurant each day”the population of the USA eats in a fast-food restaurant each day”
(Oxford University Press). It is this volume that keeps customer(Oxford University Press). It is this volume that keeps customer
bargaining power low by diluting the effect of a few picky customers.bargaining power low by diluting the effect of a few picky customers.
 Bargaining Power of SuppliersBargaining Power of Suppliers
 Large fast food chains thousands of suppliers to choose from and selectLarge fast food chains thousands of suppliers to choose from and select
theirs through a competitive bid process. They can switch supplierstheirs through a competitive bid process. They can switch suppliers
easily and tend to make up a large portion of the supplier’s revenue.easily and tend to make up a large portion of the supplier’s revenue.
This severely limits the bargaining power of suppliers.This severely limits the bargaining power of suppliers.

13. The Five Forces Model Cont.The Five Forces Model Cont.
 Threat of SubstitutesThreat of Substitutes
 With so many firms in the quickWith so many firms in the quick
service/burger industry, lowservice/burger industry, low
switching costs, similar products,switching costs, similar products,
and healthier options, the threat ofand healthier options, the threat of
substitutes is very high.substitutes is very high.
 Rivalry Among Existing FirmsRivalry Among Existing Firms
 The limited-service industryThe limited-service industry
defines a red ocean industry.defines a red ocean industry.
Firms compete for market share inFirms compete for market share in
a saturated market. Growth,a saturated market. Growth,
particularly in hamburger chains,particularly in hamburger chains,
is very slow so the customer baseis very slow so the customer base
is not growing as fast as theis not growing as fast as the
industry. This leads to high rivalryindustry. This leads to high rivalry
among firms.among firms.
ConclusionConclusion
Threat of NewThreat of New
EntrantsEntrants
HighHigh
Bargaining Power ofBargaining Power of
CustomersCustomers
LowLow
Bargaining Power ofBargaining Power of
SuppliersSuppliers
LowLow
Threat of SubstitutesThreat of Substitutes HighHigh
Rivalry Among FirmsRivalry Among Firms HighHigh

14. Price PerformancePrice Performance

15. Price PerformancePrice Performance

16. Changes in Social NormsChanges in Social Norms
 Changing American attitudes toward food.Changing American attitudes toward food.
 Companies AnswersCompanies Answers
 New CompetitionNew Competition

17. Industry Risks FactorsIndustry Risks Factors
 Events Reported by MediaEvents Reported by Media
 Competition of IndustryCompetition of Industry
 Changes in Economic and MarketChanges in Economic and Market
ConditionsConditions

18. Industry Risks FactorsIndustry Risks Factors
 Earnings Dependant on FranchiseEarnings Dependant on Franchise
 Litigation Affects all Members of ChainLitigation Affects all Members of Chain

19. Positions Within the IndustryPositions Within the Industry
 Jack in the Box-Jack in the Box- The first mover.The first mover.
 McDonalds-McDonalds- Universally accepted name.Universally accepted name.
 Burger King-Burger King- Competing with McDonalds.Competing with McDonalds.
 Sonic-Sonic- American values.American values.

20. StrategiesStrategies
• Jack in the Box- “We don’t make it ‘till you order it.”Jack in the Box- “We don’t make it ‘till you order it.”
• McDonalds- Global.McDonalds- Global.
• Burger King- “Have it your way.”Burger King- “Have it your way.”
• Sonic- “America’s Drive-In” and “Your ultimate drinkSonic- “America’s Drive-In” and “Your ultimate drink
stop!”stop!”

21. Financial Performance: Last 12Financial Performance: Last 12
MonthsMonths
 Jack in the Box- sales were 2.54 billion, incomeJack in the Box- sales were 2.54 billion, income
was 118.21 million, sales growth was up 1%, andwas 118.21 million, sales growth was up 1%, and
income growth was down 23%.income growth was down 23%.
 McDonald- sales were 23.52 billion, income wasMcDonald- sales were 23.52 billion, income was
4.31 billion, sales growth was up 3.2%, and4.31 billion, sales growth was up 3.2%, and
income growth was down 22.6%.income growth was down 22.6%.
 Burger King- sales were 2.55 billion, income wasBurger King- sales were 2.55 billion, income was
186 million, sales growth was up 9.9%, and186 million, sales growth was up 9.9%, and
income growth was down 10.2%.income growth was down 10.2%.
 Sonic- sales were 798.6 million, income was 53.87Sonic- sales were 798.6 million, income was 53.87
million, sales growth was up 4.4%, and incomemillion, sales growth was up 4.4%, and income
growth was down 47.5%.growth was down 47.5%.

22. Stock Price HistoryStock Price History

23. Key Success FactorsKey Success Factors
 What are key success factors?What are key success factors?
-Things that a company must do to be-Things that a company must do to be
successful in an industrysuccessful in an industry

24. MisconceptionMisconception
 Key success factors are often looked at asKey success factors are often looked at as
core-competencies, which are sets ofcore-competencies, which are sets of
skills or systems that create a uniquelyskills or systems that create a uniquely
high value for customershigh value for customers

25. Key Success FactorsKey Success Factors
 DifferentiationDifferentiation
-The fast-food burger industry is difficult to-The fast-food burger industry is difficult to
differentiate on a single product, such as thedifferentiate on a single product, such as the
burgerburger
-Differentiation in this industry can be focused-Differentiation in this industry can be focused
more towards your atmosphere and uniquemore towards your atmosphere and unique
menu itemsmenu items
-Brand and product advertisement can also be-Brand and product advertisement can also be
major players in becoming a household namemajor players in becoming a household name
and bringing customers in to your industryand bringing customers in to your industry

26. Key Success FactorsKey Success Factors
AnswerAnswer TotalTotal
PercentagePercentage
AgreeAgree 41%41%
NeitherNeither
Agree/DisagreeAgree/Disagree
29%29%
DisagreeDisagree 18%18%
Strongly AgreeStrongly Agree 10%10%
StronglyStrongly
DisagreeDisagree
3%3%

27. Key Success FactorsKey Success Factors
 Competing on Low CostCompeting on Low Cost
-In a synonymous industry, consumers-In a synonymous industry, consumers
can find a good burger at a comparablecan find a good burger at a comparable
price from just about any of theprice from just about any of the
competitorscompetitors
-It is important to cut down on overhead-It is important to cut down on overhead
cost of your firm in order to make the mostcost of your firm in order to make the most
off of your salesoff of your sales

28. Quick-Service Restaurant SegmentQuick-Service Restaurant Segment
(QSR)(QSR)
 In the United States QSR is the largest segmentIn the United States QSR is the largest segment
of the restaurant industryof the restaurant industry
 Growth in sales include…Growth in sales include…
-Rising population-Rising population
-increases in real disposable income-increases in real disposable income
-busier lifestyles-busier lifestyles
 Fast food chains provide consumers with food atFast food chains provide consumers with food at
reasonable prices which offers an alternative toreasonable prices which offers an alternative to
cooking at homecooking at home

29. Industry AttractivenessIndustry Attractiveness
 The restaurant industry is highly competitive in terms ofThe restaurant industry is highly competitive in terms of
price, service, location, and food quality and is oftenprice, service, location, and food quality and is often
affected by changes in consumer trends, economicaffected by changes in consumer trends, economic
conditions, demographics, traffic patterns, and concernsconditions, demographics, traffic patterns, and concerns
about the nutritional content of quick-service foods.about the nutritional content of quick-service foods.

30. Factors that could affect the quick-Factors that could affect the quick-
service restaurant industryservice restaurant industry
 Changing dietary preferences amongChanging dietary preferences among
consumers in favor of alternative foodsconsumers in favor of alternative foods
 Changes in economic conditions, consumerChanges in economic conditions, consumer
tastes and preferences, and the type andtastes and preferences, and the type and
location of competing restaurantslocation of competing restaurants
 Sales promotions by competitors, changes inSales promotions by competitors, changes in
customer visits, and changes in things such ascustomer visits, and changes in things such as
energy costsenergy costs

31. GrowthGrowth
 According to Dun and BradstreetAccording to Dun and Bradstreet
subsidiary First Research, the output ofsubsidiary First Research, the output of
US food and drinking places, whichUS food and drinking places, which
includes fast food restaurants, is forecastincludes fast food restaurants, is forecast
to grow at an annual compounded rate ofto grow at an annual compounded rate of
4.3% between 2007 and 2012. Quick-4.3% between 2007 and 2012. Quick-
service restaurants are projected to postservice restaurants are projected to post
sales of $163.8 billion in 2009.sales of $163.8 billion in 2009.

32. GrowthGrowth
 According to a leading marketing research company, the NPDAccording to a leading marketing research company, the NPD
Group, the restaurant industry remained stable for most of 2008,Group, the restaurant industry remained stable for most of 2008,
although traffic dipped in the fourth quarter, leading to the industry’salthough traffic dipped in the fourth quarter, leading to the industry’s
slowest traffic and dollar growth since the recession of 2002-2003…slowest traffic and dollar growth since the recession of 2002-2003…
 The graph shows the total restaurant industry traffic from NovemberThe graph shows the total restaurant industry traffic from November
2003 up until November 2008.2003 up until November 2008.

33. Prospects for long-term profitabilityProspects for long-term profitability
 The QSR segment is generally less vulnerable toThe QSR segment is generally less vulnerable to
economic downturns and increases in energy prices thaneconomic downturns and increases in energy prices than
the casual dining segment is, although the economy maythe casual dining segment is, although the economy may
adversely impact QSR chains.adversely impact QSR chains.
 The following information in the graph is done by FirstThe following information in the graph is done by First
Research and forecasts the estimated growth of the foodResearch and forecasts the estimated growth of the food
industry in relation to the economy…industry in relation to the economy…

34. National Restaurant AssociationNational Restaurant Association
 According to QSR Magazine, “Nearly 7 in 10According to QSR Magazine, “Nearly 7 in 10
adults agreed in a recent National Restaurantadults agreed in a recent National Restaurant
Association survey that purchasing meals fromAssociation survey that purchasing meals from
restaurants, take-out and delivery places makesrestaurants, take-out and delivery places makes
it easier for families with children to manageit easier for families with children to manage
their day-to-day lives, and nearly eight in tentheir day-to-day lives, and nearly eight in ten
agreed that it is a better way for them to makeagreed that it is a better way for them to make
use of their leisure time rather than cooking atuse of their leisure time rather than cooking at
home.”home.”

35. ConclusionConclusion
 Despite the downturn in the economy, the QSR industryDespite the downturn in the economy, the QSR industry
will remain a cornerstone of the economy, representingwill remain a cornerstone of the economy, representing
4% of the U.S. gross domestic product and employing4% of the U.S. gross domestic product and employing
9% of the U.S. workforce.9% of the U.S. workforce.
 Future growth in the fast-food restaurant industryFuture growth in the fast-food restaurant industry
depends on how well retailers are able to innovate,depends on how well retailers are able to innovate,
provide value for money, and keep up and surpassprovide value for money, and keep up and surpass
competitors.competitors.

36. ConclusionConclusion
 The fast-food industry is becoming moreThe fast-food industry is becoming more
global and it seems that will continueglobal and it seems that will continue
 Fast-food restaurants mostly compete onFast-food restaurants mostly compete on
price, location, and food qualityprice, location, and food quality
 The growth of the fast-food industry isThe growth of the fast-food industry is
expected to generally stay the same overexpected to generally stay the same over
the next few yearsthe next few years