Fast Food Industry

Lauren Brockhurst Kristen Ruff Rachel Mack Madison Burachio

Agenda
Introduction

Brief History

Industry Analysis

Advertising Strategies

Data Analysis

Recommendations
Introduction
Why Fast Food Industry?
Hundreds of Thousands of Restaurants

High Brand Recognition

Dramatic Shift in industry trending towards health

Prolific Advertising

Saturated, Competitive Market

What is Fast Food?
Includes restaurants where patrons pay for quick-service
food products before eating

Purchases may be consumed on-site, taken out or delivered

Brief History
Brief History
History of fast food industry intertwined with the inception
of the automobile industry: Curb service, carhops and
drive-thru windows

1921: White Castle was the first fast food chain and
changed the public’s negative perception of hamburgers.

Franchising introduced by A&W Root Beer

McDonald’s first to use the assembly-line system

1950’s: Fast food industry in full swing

1960s: Children’s menus and heavy advertising targeting

children was prevalent
Fast Food Today
US claims the largest fast food industry in the world

Most successful franchises have gone global

Menus are diversifying: shift from exclusively offering

burgers and fries to more eclectic and ethnic foods
Industry Analysis
About the Industry
Mature Industry

● Key Economic Drivers

○ Consumer Spending
○ Healthy Eating Index
○ Consumer Confidence Index
● Supply Industries
○ Beef and Pork Wholesaling
○ Dairy Wholesaling
○ Egg and Poultry Wholesaling
● Demand Industries
○ Consumers
Statistics
Franchise Model
Major fast food brands primarily franchise restaurants

The franchisor controls the business concept while the

franchisee purchases the license, but is seen as an
independent merchant

Franchisor receives a royalty from the franchisee for use

of the trademark and any other advisory services given to
the franchisee
Barriers to Entry
Low Barriers to entry, but high risk/high return

● Franchising allows operator to lease the premises,

equipment, furniture and fittings from the franchisor,
cutting down initial capital costs.
● Franchisors provide training, food and beverage, and
financial and accounting functions for a proportional
share of revenue from their franchisees.
● Allows for lower operational costs and minimizes risk.
Concentration
Four-Firm Concentration Ratio (CR4): 34

HHI using top 8 companies: 362.54

Concentration is extremely low

Small operators run a majority of all restaurants.

90% of all operators have fewer than 50 employees.

Low barriers to entry allow for the high number of small-scale entrepreneurs.
Competition
3 Top Players (Market Share) Others:

McDonald's: 15.2% The Wendy’s Co: 3.8%

Yum! Brands Inc.: 8.4% Burger King Corp: 3.4%

Subway: 4.6%
Regulations
FDA Menu Labeling Requirements: By May 2017, all
restaurants must display calorie information on menus and
menu boards.

The National Salt Reduction Initiative (NSRI): partnership of

health organization set voluntary targets for salt levels in
attempt to reduce sodium in restaurant food by 20% in 5
years. Taco Bell and KFC have reduced sodium in line with this
program.

NYC requires chain restaurants to post warning labels next to

menu items containing high levels of sodium.
Fast Food Advertising Regulation
Federal Regulations:

FTC requires fast food ads to be truthful and non-deceptive

Must back up claims with evidence

Local Regulations:

Ex: San Francisco requires that children’s meals meet specific

nutritional standards before toys can be included with their
purchase
Major Trend Towards Health
Increased consumer demand for healthy and convenient
options

Industry has struggled with consumer preferences moving

away from traditional unhealthy foods.

Restaurants responding by expanding the number of healthy

menu items

Healthy Eating Index: 66.9% in 2017. Percentage

representing the degree that the average American adheres
to the consumption guidelines set out by the USDA.
Rising Costs: In order to keep prices low, rising costs cut into profit
margins
Labor Costs

● Hourly compensation rising due to

increases in the federal minimum wage
● Legislation to push for $15/hr for fast
food workers
● Solutions: Automation - installation of
self-ordering kiosks

Commodity Costs

● Dairy, grain, beef and corn prices have

increased throughout the past decade
● Customers are price sensitive so increased
costs must be matched with increased
efficiency, portion control and menu
changes
 Weaknesses:
Strengths:
Negative publicity
Low prices
Unhealthy food menu
Convenience
Customer retention
Locations everywhere
challenges
Economies of Scale

Threats:
Shifting consumer
Opportunities: preferences
International Expansion Increasing labor and
New product development commodity costs
More Healthy Options Emerging competitors
Consumer Spending (fast casual and meal
Increasing delivery services)
Future Innovations
Self-Serve Kiosks

Fast Casual Formats

Delivery Services

Mobile Ordering
Advertising Strategies
Cable TV Dominates Advertising Expenditure
Brand values (2016)
$88.65 billion

$4.7 billion

$3.69 billion

$2 billion
Ad-to-Sales Ratio
Total Industry 2013: 2.93%

McDonald’s 2016: 2.98%

Burger King 2013: 5.40%

Wendy’s 2017: 5.28%

 Focus: consumer’s wants and needs
Persuasive
→ Desire for tasty meals,
Advertising convenience & collectibles

Result: Alters consumer tastes and

create product differentiation
(unrealistic perception)

→ 2011: 57% of visits made were done

without stepping out of car

→ Nearly $2 billion is spent (yearly)

by U.S. food and beverage companies
to market products towards children
McDonald’s Persuasive Advertising
 Interactive Marketing In the Digital Era

-Purpose: to promote addictive and compulsive consumption by kids and adults

-Example: McDonald's introduced the McPlay mobile app (2013)

 Focus: continuously diminishing
others’ perceived quality

Comparative Result: effective way to reduce

quality of competition &
exaggerates the prisoner’s
Advertising
Est. 1986 dilemma

→ Examples: Wendy’s “where’s

the beef” (vs. McDonald’s),
Subway claim having healthier
sandwiches (vs. McDonald’s), etc.
Wendy’s Super Bowl Commercial
 Shifts consumer preferences

Combative towards the advertising firm but

does NOT expand category

Advertising demand

→ Basis of Prisoner’s Dilemma in

advertising

Result: advertising wars

 Focus: why do familiar brands
advertise so heavily?

Reasons: advertising can influence

Memory the way consumers encode and
recall their consumption
Jamming experiences (favorable)

Examples: memorable slogans,

paired with creative cartoons
 Advertising used to convey
Informative information to consumers

Advertising Reduce consumers’ search costs

Informs consumers about new

price promotions and new
products

Reduces price dispersion

Ex: McPick 2 and Naked Chicken

Chalupa
Data Analysis
Trends in the Fast Food Industry
Trends: breakfast foods and coffee, healthy menu items
advertised in the Spring

More value ads around the new year and start of school

Happy Meal ads were played on a wide variety of television

shows, not just children/animation shows

13.2% of ads are played at a sporting game, only .4% of ads

played on kids tv
Seasonal Trends in Advertisements
Seasonal Trends in Advertisements
For the entire
industry,
unhealthy
advertisements
make up 78.2%
of the data
Advertising health trends
Types of advertisements (industry)
 Types of advertisements
Number of Ads
Value Advertisements
Breakfast ads
 Total advertisements (2014)

McDonald’s
leads with
over 4x the
amount of
ads as its
closest
competitor,
Wendy’s

McDonald’s spent $5,992,005,200 on advertisements in 2014.

Top programs (2014)
1. Simpsons - FOX

2. American Idol - FOX

3. Big Brother 16 - CBS

4. Family Guy - FOX

5. Winter Olympics - NBC

Target Audience of Mcdonald’s ads

146 kid
ads
versus
2,294
adult ads
Seasonal trends (2014)
Content Analysis
Content Analysis
Recommendations
How to Escape the Prisoner’s Dilemma?
Loyalty programs to generate a consistent consumer base for
an elastic good

personalized recommendations

targeted e-mail and mail promotions

assess what products, services and price points customers prefer

Investment Strategies
Identify how other firms are capitalizing on changing preferences
→ Example: healthy menu options that consumers can eat on the go

Technological innovation
→ Example: mobile ordering apps

Advertising Strategies
Adapt to consumer shifts in preferences

Focus on quality of food and experience

Continue to leverage impulse buying & low prices

 Thank you!

Lauren Brockhurst Kristen Ruff Rachel Mack Madison Burachio