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Fast Food Industry                       Analysis                      MBA 615                         Prepared By        ...
Agenda• Elasticities & Supply and Demand conditions- Presented by Andrew Newman• Porters 5 Forces Analysis – Presented by ...
IntroductionIndustry Definition    Fast Food industry also known as the QSR (Quick service Industry) comprises    establis...
Market ConditionsSaturated Market        Output increases as price remains steady (Supply curve shift to the        right)...
Industry Make UpMonopolistic Competition to Oligopoly      Does McDonalds run the show?Industry Subset         Why did the...
Market ConditionsHorizontal Marketing System        McDonalds and Walmart        Starbucks and TargetHires 3.5 Million Emp...
ElasticityPrice elasticity is HIGH• High availability of substitutes• Consumer tastes & preferences vary one day to next• ...
Supply & Demand DeterminantsDemand determinants•   Advertising and promotion•   Consumer tastes & preferences (i.e. health...
Cost DriversCost-intensive industry• High cost of labor (25-30% costs)• Rising commodity and energy prices• Lower operatin...
Porters Five ForcesBuyer Power (MODERATE)                 Supplier Power (HIGH)• Financial crisis strengthens Power   • Vi...
Porters Five ForcesThreat Of Substitutes (MODERATE)     Threat Of New Entrants (HIGH) •Frozen meals, home                 ...
Industry Performance - United States• Market Value $ 71billion -2009      Year                  $ Billion      2005       ...
Industry Performance - United States• Market Volume 40.3 billion transactions in 2009      Year                  Billion t...
Industry Performance - United States• Sales performance            Year      Sales in Millions $     % change            2...
Fast food in United States
Market Forecast• In 2014, Market Value is forecasted to   In 2014, Market Volume (# ofbe $77.5 billion increase by 8.9% (2...
Worldwide Fast Food IndustryAnalysis• United States and the AsiaPacific accounts for 70% ofthe global food market(35% each...
Global Markets                                                                   TOP Fast Food Chains in EuropeUnited Stat...
Reflection Analysis•   Surprised by how easy it is for new firms to enter the market and how    large firms like McDonald’...
Sources1.    Fast Food, Health, and Fitness Trends. Practical Nutrition. August 30th, 20102.    The Future of Fast Foods. ...
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Fast food 1

  1. 1. Fast Food Industry Analysis MBA 615 Prepared By Elizabeth Minder Theshin Angulugaha Matthew MillerMarch 7th, 2011 Andrew Newman
  2. 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. 3. IntroductionIndustry 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. 4. Market ConditionsSaturated 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. 5. Industry Make UpMonopolistic 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. 6. Market ConditionsHorizontal Marketing System McDonalds and Walmart Starbucks and TargetHires 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. 7. ElasticityPrice elasticity is HIGH• High availability of substitutes• Consumer tastes & preferences vary one day to next• Low proportion of overall budgetIncome 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. 8. Supply & Demand DeterminantsDemand determinants• Advertising and promotion• Consumer tastes & preferences (i.e. health awareness)• Negative publicity (i.e. food scandals)• Seasonality• Prices of related productsSupply determinants• Environmental conditions (weather, seasonality, etc.)• Government regulations (food and labor laws)• Supplier relationships• Costs & technology
  9. 9. Cost DriversCost-intensive industry• High cost of labor (25-30% costs)• Rising commodity and energy prices• Lower operating marginsSolutions• Technology innovation• Economies of scale/scope
  10. 10. Porters Five ForcesBuyer 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 marketsday • Minimum wage laws and healthcare reform strengthensIntensity of Rivalry (HIGH) employees (supplier of labor)• Large number of competitors• Dominated by Oligopoly of players• Key Success Factors includelocation and cost advantages• Advertising budgets.2009, McDonald’s spent $650.8million Globally
  11. 11. Porters Five ForcesThreat 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
  12. 12. 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%
  13. 13. 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
  14. 14. 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%
  15. 15. Fast food in United States
  16. 16. Market Forecast• In 2014, Market Value is forecasted to In 2014, Market Volume (# ofbe $77.5 billion increase by 8.9% (2009 transactions) is forecasted to be $42.9 billion increase by 6.3%
  17. 17. Worldwide Fast Food IndustryAnalysis• United States and the AsiaPacific accounts for 70% ofthe global food market(35% each)•McDonalds- 28,000 storesoutside US in 119countries, close to 50% ofthe total revenue fromglobal operations•Yum Brands (KFC, PizzaHut, Taco Bell) 14,000stores outside US, 110countries
  18. 18. Global Markets TOP Fast Food Chains in EuropeUnited States dominates the Turnover 2007 in million €global fast food industry Rank Operator Brand Turnover Outlets Countries BannerTop ten fast food chains are (sales, and # ofrestaurants) US companies McDonald McDonald 1 5660 6400 40 s s KFC, Pizza 2 Yum! 1880 HutChina 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
  19. 19. 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)
  20. 20. Sources1. Fast Food, Health, and Fitness Trends. Practical Nutrition. August 30th, 20102. The Future of Fast Foods. Healthy Habits. March 19th, 20093. Tough Economic Times Demand Tighter Spending. B. Bead. Arizona Times. May 23, 2010.4. Fast Food in the United States. DataMonitor. Industry Analysis. September 20105. Worldwide Fastfood Restaurants Industry. (NAICS 72221) Barnes Report. 2010 edition. © C. Barnes & Co6. The Economics of the Fast Food Industry. Social Alternatives Publications7. Jekanowski, Mark, Binkley, James, Eales, James. (2001). Convenience, Assessibility, and the Demand for8. Fast Food. Journal of Agricultural and Resource Economics. 2001.9. Fast food Nation by Eric Schlosser – 200110. www.mcdonalds.com, www.yum.com11. Wikiinvest.com12. Economist.com

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