cDonalds

Industry
Analysis
Group 3
Chase Mueller
Ashley Hoptay
Olivia Erwin
Tanner Gilreath
Paige Stone
Brandon Laviage
Anna Rendon

SIC Codes

The fast food industry is categorized under:

SIC 5812, Eating Places

establishments primarily engaged in the retail sale of

prepared food and drinks for on-premise or immediate
consumption as well as caterers and industrial and
institutional food service establishments.
Consists of seven different categories: dinner theaters, fullservice restaurants, limited-service restaurants, cafeterias,
snacks and nonalcoholic beverage bars, food service
contractors, and caterers.

NAICS Codes

With the replacement of the SIC Codes, the

fast food industry is categorized under:

NAICS 722211, Limited-Service Restaurants

establishments primarily engaged in (1) providing food

services where patrons generally order or select items and
pay before eating or (2) selling a specialty snack or
nonalcoholic beverage for consumption on or near the
premises.
Orders may be consumed on premises, carried out, or
delivered to the customers location such as pizza delivery.

History of Fast Food Industry

1921 White Castle is viewed as the beginning of

fast food

Changed the publics perception; gave hamburgers a

better reputation of quality and gave the image of
cleanliness through its use of white

Rise of cars also gave rise to the industry

Many restaurants utilized short-hand cooks, drive-ins,

and carhops to capitalize on the new craze that the
American people had with staying in the car and eating.

History of Fast Food Industry

1948 Dick and Mac McDonald reopen their

restaurant, McDonalds Famous Hamburgers,
after implementing the Speedee Service
System, which is synonymous with the
assembly line. Simplified operations.
The McDonald brothers also switched from
dishes and glassware to paper and plastic to
increase efficiency.

History of Fast Food Industry

Ray Kroc capitalized on the blue ocean that
the McDonalds brothers created
1955 Ray Kroc opened the first restaurant
in the McDonalds Corporation
As other fast food restaurants opened in the
mid-1950s to the late-1960s, they imitated
and implemented the Speedee Service
System.

The Four Major Players

McDonalds is the leading global quick service

restaurant retailer as well as one of the worlds most
well-known and valuable brands.

31,377 restaurants in 118 countries

Franchisees operate 20,505 restaurants

YUM! Brands Incorporated consists of KFC, Pizza

Hut, Taco Bell, Long John Silvers, and A&W AllAmerican Food Restaurants.

35,000 restaurants in 100 countries and territories

80% owned by independent franchise operators .

The Four Major Players

Burger King Holdings, Incorporated

Operates 11,565 restaurants in the United States, Canada,

Europe, the Middle East, Africa, the Asia Pacific, and Latin
America.
10,205 are owned by franchisees.

Wendys/Arbys Group

Operates about 10,000 restaurants in the United States and 21

countries.

6,645 of them are Wendys, and 5,231 of all Wendys fast food
restaurants are franchised.

The Four Major Players

Hedgehog Concept

The fast food industry utilizes the hedgehog

concept of doing one thing really well: to serve
the most customers as possible in a given time
period.
The four companies focus on speed, quality, and
convenience, and they keep these factors at the
forefront of their operations in every location.

The Four Major Players

Hedgehog Concept

One of the key success factors of the fast food

industry is uniformity, which has allowed the
companies to go global and exceed at their
endeavors.
Offering the same service at every location gives
customers reassurance in the brand
Ray Kroc was quoted as saying, the organization
cannot trust the individual; the individual must trust
the organization.

Chief Business and Economic

Characteristics
Fast food restaurants represent one of the
largest segments of the food industry.
In the United States alone, over 200,000
fast food restaurants are operated bringing
in $120 billion a year.
Also known as quick service restaurants.

Chief Business and Economic

Characteristics

Industry is made up
of international,
national, regional and
local chains
Chains can be
corporate owned or
franchised

Chief Business and Economic

Characteristics

Franchising:

The fast food industry can contribute much of its growth

and success to franchising
Why franchise?

Franchisees are given the ability to leverage a well-known

brand name and benefit from the purchasing efficiencies and
operational expertise of the franchiser.

Franchisers still hold the right to control operational guidelines

and quality adherence, and they also hold most of the rights
over menu offerings, hours of operation, pricing, and store
design. Gives the company the ability to grow .

Chief Business and Economic

Characteristics

Franchising and McDonalds:

Kroc realized the company could be franchised

differently than others, which would help them grow and
attain profits.
McDonalds invested in real estate and rented the
property to its franchisees, which enabled the returns to
be much higher.
Largest owner of retail property in the world
Makes most of its profits from rent it receives from its
franchisees

Chief Business and Economic

Characteristics

Convenience

Volume-driven business so customer

convenience is key
Located in high traffic areas
Transaction speed is vital to ensure more
customers are served in a given amount of time
Limited menus speed the food preparation
process and help with quality control by reducing
the amount of worker error

Chief Business and Economic

Characteristics

Technology

Used to maximize efficiency and effectiveness

Double drive-thru windows speed transaction time

Inventory management/automated replenishment important since
dealing with perishable items; saves time dealing with suppliers,
new equipment, and computerization
New equipment - ovens that combine convection heat, air
impingement, and microwave energy to help cook the food faster
Computerization Point-of-Sale (POS) Systems and Express pay;
reduce ordering errors and cut down transaction time

Chief Business and Economic

Characteristics

Technology and McDonalds

McDonalds has been at the forefront of fast food

technology since the company opened

Implemented E-ZPass, FasTrak, and FreedomPay

on top of Express Pay
McDonalds Philippines Help Desk Service
Echelons LonWorks Technology

Chief Business and Economic

Characteristics

Role of Government

The government does not control profits or contracts of the industry, but
local, state, and federal governments have adopted laws and regulations
that involve various aspects of the restaurant business, such as:

Legal and regulatory environment of the industry worldwide exposes the

companies to complex compliance, litigation, and other risks that affect
operations and increase the cost of doing business
Developing markets also bring risks associated with new and untested
laws and judicial systems

Chief Business and Economic

Characteristics

Role of Government: Intellectual Property

Each company owns or is licensed to use trademarks,

service marks, patents, copyrights, trade secrets, and
other proprietary information that is important to the
companys business.
Depending on the jurisdiction, trademarks and service
marks are generally valid as long as they are being
used or are registered.
However, patents, copyrights, and licenses only last
for various durations.

Chief Business and Economic

Characteristics

Role of Government and McDonalds

The McDonalds trademark and the Golden Arches

logo are imperative to the companys business and
brand equity.
The Golden Arches are now more widely recognized
than the Christian cross
To protect its investments in foreign operations,
McDonalds uses forward foreign exchange contracts,
foreign currency exchange agreements, and foreign
currency denominated debt

Chief Business and Economic

Characteristics

Problems and Issues

The fast food industry has taken a lot of heat for:

Advertising to children it sparks obesity at a young age

Health concerns taking the blame for peoples diet issues and
weight related diseases
Environment no federal laws or regulations; must follow local
laws; largest consumer of electricity in the American retail
sector; accounts for 20% of U.S. litter
Employment concerns largest private sector employer; do not
offer workers valuable life experience, the opportunity to move
up, safe working conditions, or satisfactory wages and benefits

Chief Business and Economic

Characteristics

Mass Production and Control of Suppliers

Mass production is utilized to retain consistency

and uniformity in products
Food is mass produced in a factory
Since this process involves sending a large
amount of food through a factory in a short
amount of time, bacteria, viruses, and parasites
can contaminate a significant portion of the food
very easily and quickly

Chief Business and Economic

Characteristics

Mass Production and Control of Suppliers

A handful of corporations have an unprecedented

degree of power over the nations food supply.
The vast purchasing power and demand for a uniform
product have encouraged fundamental changes in
how cattle are raised, slaughtered, and processed,
which has made the meatpacking industry very
dangerous for both its employees and consumers of
the product.
Can induce deadly pathogens such as E. coli.

Chief Business and Economic

Characteristics

Mass Production, Control of Suppliers and

McDonalds

Safety control through Echelons LonWorks

Technology
Taken stands against the meatpacking industry
by only purchasing the meat that followed FDA
rules

Chief Business and Economic

Characteristics

Competitive Environment

All companies compete on the basis of quality of food and

quick service; therefore, differentiation is key

High levels of competition have caused bloody red oceans

in this industry

Service, experience and brand name

Dollar menus and value meals

Chains own about 88% of the market share causing

independents to go out of business much faster than the
national failure rate; rising threat of fast casual restaurants is
currently low

Chief Business and Economic

Characteristics

Economic Factors: State of the economy

The spending slowdown and high food and energy prices have
caused a slowdown in growth in the fast food industry
In 2008, 55% of restaurant operators reported a same-store
sales decline
Food and beverage inputs account for 33 cents for every dollar
of sales. With already low operating margins, a slight increase
in these costs can have an outsized effect on profitability.
The bloody red oceans caused by price wars makes it difficult to
pass the rising costs to customers

Chief Business and Economic

Characteristics

Economic Factors: State of the economy

Explosive growth in foreign markets offset slowing

growth in the United States
Prices are being cut in China, which is McDonalds
and YUM! Brands largest market for growth
However, the limited-service eating places are in
better shape than the full-service eating places.

With the economic downturn, more people are cutting back

on how much they spend when eating out, and therefore,
are turning to fast food restaurants.

Chief Business and Economic

Characteristics

Economic Factors: Market Growth

Gaining new customers as consumers are looking for the

convenience of eating out and quality meals at lower
prices
Due to Chinas size and growth rate, it still remains an
attractive market
Vast room for international growth as well as exploring
strategy canvases enables the industry to grow and
remain attractive

McDonalds utilizes research and development to cater to

international tastes and attain customers

Chief Business and Economic

Characteristics

Strategy Canvases and McDonalds

McCafes increase customer base and redefine

McDonalds image
Revamping stores in the United Kingdom to appeal to
businessmen/women and increase the experience of
all customers
Constantly searching for ways to redefine its market
boundaries or to create blue oceans and attain a
larger market share as well as provide its customers
with more convenience and a better experience.

Social Factors

Health Food

New menu items

Listing nutritional facts

Corporate Social Responsibility

Ronald McDonald House

Dave Thomas Foundation

Social Factors

Diversity

Workers
Pride 360

Going Green

Packaging
Buildings

Technological Trends

Wi-Fi

Equipment

15,000 McDonalds
Burger King, Wendys, Subway, Taco Bell
Drive Thrus
Outsourcing orders

Time Clocks

Economic Factors

Current Economic Status

People want cheap food

Minimum Wage

High percent of workers make minimum wage

Raise food prices

Political and Legal

Cheeseburger Bill

State Issues

California - ban on fast food

International Issues

Prevent law suits

Canada - calorie count

Law Suits

Geographical Factors

Globalization

Convenient locations

McDonalds - 60%
Yum! Brands - 50%
Way home from work
Corner of block

Malls, Supermarkets, Gas Stations

McDonalds - Wal-Mart
Little Caesars - K-Mart

Competitive Factors

All other factors

Social
Technological
Economic
Political/Legal
Geographical

Predicting next move

5 Forces Model

Rivalry Among Existing Firms

Main Competitors

McDonald's, Yum! Brands, Wendys, Burger King

Total Industry Sales Growth

5 Forces Model

Concentration of Competitors

5 Forces Model

Differentiation

Hard to separate each other because they offer

similar products
So they compete on price
McDonalds able to dominate the market because of the
size of the company

Switching Costs

Hard to do, why?

Real Estate, franchisees, and many employees

5 Forces Model

Economies of Scale

Efficiency
R&D, New Technology

Economies of Scope

Learning from past experiences

Example: Dollar Menu

5 Forces Model

Threat of New Entrants

Economies of Scale

5 Force Model

First Mover Advantage

Get in while its early, and grasp suppliers and

consumers

Legal Barriers

Patents, trademarks, contracts, licenses, and

government regulations to limit new companies

5 Forces Model

Threat of Substitute Products

Relative Price and Performance

Everyone produces the same products, need to

compete on price and convenience

Buyers Willingness to Switch

Brand performance, and high quality relationships

with customers

5 Forces Model

Bargaining Power of Buyers

Price Sensitivity

Differentiation of products, and cost of switching to

another firm, easy in the fast food industry

Relative Bargaining Power

Real vs. Nominal buying power

Customer Loyalty

5 Forces Model

Bargaining Power of Suppliers

Price Sensitivity

Leverage over small suppliers

Large Industry, companies name prices and
quantities
Supplier relations and price breaks
Strategic Alliances

Competitive Moves

McDonalds

is the industry leader and has been known as the industry trend
setter, yet it has not always been at the forefront on capitalizing
new niche markets
They were the first to create and master the speedee service
system also known as the assembly line
They were also made the first strategic move of purchasing their
own land to rent to franchisees
They were also the first to advertise with an character , which
strengthened their brand equity

Competitive Moves

YUM! Brands

Taco Bell

The first fast food chain to offer free drink refills for
its customers
Also created a 3 tier pricing strategy, offering
products at 79, 89, 99
Also the first its menu completely trans-fat free

Competitive Moves

KFC

Was the first company to franchisee its

businesses
Made the strategic move of offering home cooked
style meals, which included coleslaw, macaroni
and cheese, baked beans, and rice

Burger King

Was the first to emphasize customized order

with its Have It Your Way campaign

Competitive Moves

Wendys

First to implement value menu, also referred to

as the dollar menu
First to create a super bar which was their
concept of an all you can eat buffet
First to introduce salads and grilled chicken
sandwiches

Next Competitive Moves

McDonalds is seen as being the company who

will make the next strategic moves because of
their need to be at the forefront of the market
and remain the leader in the industry.
Implementation of the McCafes to draw
customers from coffee shops
First to respond to economic downturn by
lowering prices

Competitive Success

Customers seek products that are readily

available and quickly delivered

Major fast food players look across the

industry to understand the driving forces
behind the markets competitive success, so
companies can capitalize on these concepts

Industrys Consistency Approach

One of the biggest key success factors for the fast food
industry is their ability to offer consistent products and
services at every location
Franchises and chain stores must reliably offer the
same product or service at numerous locations to build
customer loyalty
YUM! Brands, Wendys, and Burger King all take the
same approach which has made them leading
competitors with McDonalds

Icons

Another driving force of the fast food industry has been its ability to
capture both young and old audiences
Each leading competitor has easily recognizable icons that appeal
to its target audience, which in turn differentiates them from its
competitor
These icons are easily recognizable and add to the experience
when eating and also create a positive attitude

Convenience

Consumers look to quick services restaurants to

provide them with a quality meal that will fit into
the pace of their fast moving lifestyles
The large number of locations within close
proximity to each other is ensure customer
convenience at every turn
Many fast food chains can be spotted at
shopping centers, airports, gas stations

Franchising the Industry

Franchising has played a key role in the

success and growth of the fast food industry

Inside Out Approach: Focusing on Quality

McDonalds has taken an inside out approach to drive

sales, by improving its inside approaches of store
operations, product offerings, and customer experiences

McDonalds Skillful Marketing: 5Ps

People

Products

In order to ensure a friendlier and more customer focused support staff

the emphasize hospitality training known as the People Approach Respect, Commitment Enhancement, & Talent Management
Incorporates uniform quality products and implemented the McDonalds
Holistic Approach- High Quality Choices, Consumer Friendly Nutrition
Information, & Communicate Responsibly

Place

Each location is strategically analyzed based on demographics,

population, major roadways, and traffic that passes through the site to
find the best location

McDonalds Skillful Marketing: 5Ps

Price

Allows customers to enjoy a quality meal without a hefty price

Created the Value Menu (Dollar Menu) to get great food at bargain
prices
Although McDonalds is taking dollar menu items as a loss leader
adding to the menu such as large fries and a drink has allowed the
restaurant to be profitable

Promotion

Promotional character and symbols

Subliminal Marketing
Co-operative Marketing
Traditional Advertising

Conclusion

After analyzing the fast food industrys history, growth, and

current success factors, one can conclude that it is safe to
stay in this particular industry.
The fast food industry has seen substantial growth since its
creation through the proliferation of its chains through
franchises. By franchising the industry, chains have been
able to rapidly expand and quickly capture a large
percentage of the market share at a cheaper cost to them.
The major players in the fast food industry offer consistency
and convenience, which are two characteristics of
commodities that people search for because these needs
have been instilled in people since they were born.

Conclusion

Some may argue that the industry is coming to a halt due to the
market saturation in the United States, but there is a lot of room for
growth nationally and internationally.
The industry also does not need to worry about new threats
entering the market at this time because of the state of the
economy.
McDonalds understands the importance of brand awareness and
recognition, so it consistently spends the most on advertising,
which has solidified its position as one of the most well known
brands in the world.

Conclusion

McDonalds stands at the forefront of the fast food industry. Another

driving force that keeps the company locked in its position is the
large amount of capital that McDonalds owns as well as its
influence with other industries.
McDonalds is the largest private real estate owner, and the
company employs about 1.6 million people worldwide, plus it is a
large purchaser of beef, poultry, pork, cheese, beverages, and
paper and packaging material.
Therefore, the company is extremely vital to the industry as well as
the economy as a whole because its presence impacts jobs and the
success of other industries. This also reinforces the companys and
the industrys market strength and attractiveness.