cDonalds Industry AnalysisGroup 3Chase MuellerAshley HoptayOlivia ErwinTanner GilreathPaige StoneBrandon LaviageAnna Rendon

SIC CodesThe 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, full-service restaurants, limited-service restaurants, cafeterias, snacks and nonalcoholic beverage bars, food service contractors, and caterers.

NAICS CodesWith the replacement of the SIC Codes, the fast food industry is categorized under:NAICS 722211, Limited-Service Restaurantsestablishments 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 Industry1921 White Castle is viewed as the beginning of fast foodChanged the publics perception; gave hamburgers a better reputation of quality and gave the image of cleanliness through its use of whiteRise of cars also gave rise to the industryMany 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 Industry1948 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 IndustryRay Kroc capitalized on the blue ocean that the McDonalds brothers created1955 Ray Kroc opened the first restaurant in the McDonalds CorporationAs other fast food restaurants opened in the mid-1950s to the late-1960s, they imitated and implemented the Speedee Service System.

The Four Major PlayersMcDonalds 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 restaurantsYUM! Brands Incorporated consists of KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W All-American Food Restaurants.35,000 restaurants in 100 countries and territories80% owned by independent franchise operators.

The Four Major PlayersBurger King Holdings, IncorporatedOperates 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 PlayersHedgehog ConceptThe 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 PlayersHedgehog ConceptOne 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 CharacteristicsFast 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 CharacteristicsIndustry is made up of international, national, regional and local chainsChains can be corporate owned or franchised

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Chief Business and Economic CharacteristicsFranchising:The fast food industry can contribute much of its growth and success to franchisingWhy 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 CharacteristicsFranchising 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 worldMakes most of its profits from rent it receives from its franchisees

Chief Business and Economic CharacteristicsConvenienceVolume-driven business so customer convenience is keyLocated in high traffic areasTransaction speed is vital to ensure more customers are served in a given amount of timeLimited menus speed the food preparation process and help with quality control by reducing the amount of worker error

Chief Business and Economic CharacteristicsTechnologyUsed to maximize efficiency and effectivenessDouble drive-thru windows speed transaction timeInventory management/automated replenishment important since dealing with perishable items; saves time dealing with suppliers, new equipment, and computerizationNew equipment - ovens that combine convection heat, air impingement, and microwave energy to help cook the food fasterComputerization Point-of-Sale (POS) Systems and Express pay; reduce ordering errors and cut down transaction time

Chief Business and Economic CharacteristicsTechnology and McDonaldsMcDonalds has been at the forefront of fast food technology since the company openedImplemented E-ZPass, FasTrak, and FreedomPay on top of Express PayMcDonalds Philippines Help Desk ServiceEchelons LonWorks Technology

Chief Business and Economic CharacteristicsRole of GovernmentThe 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 businessDeveloping markets also bring risks associated with new and untested laws and judicial systems

Chief Business and Economic CharacteristicsRole of Government: Intellectual PropertyEach 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 CharacteristicsRole of Government and McDonaldsThe 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 CharacteristicsProblems and IssuesThe fast food industry has taken a lot of heat for:Advertising to children it sparks obesity at a young ageHealth concerns taking the blame for peoples diet issues and weight related diseasesEnvironment no federal laws or regulations; must follow local laws; largest consumer of electricity in the American retail sector; accounts for 20% of U.S. litterEmployment 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 CharacteristicsMass Production and Control of SuppliersMass production is utilized to retain consistency and uniformity in products Food is mass produced in a factorySince 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 CharacteristicsMass Production and Control of SuppliersA 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 CharacteristicsMass Production, Control of Suppliers and McDonaldsSafety control through Echelons LonWorks TechnologyTaken stands against the meatpacking industry by only purchasing the meat that followed FDA rules

Chief Business and Economic CharacteristicsCompetitive Environment All companies compete on the basis of quality of food and quick service; therefore, differentiation is keyService, experience and brand nameHigh levels of competition have caused bloody red oceans in this industryDollar menus and value mealsChains 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 CharacteristicsEconomic Factors: State of the economyThe spending slowdown and high food and energy prices have caused a slowdown in growth in the fast food industryIn 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 CharacteristicsEconomic Factors: State of the economyExplosive growth in foreign markets offset slowing growth in the United StatesPrices are being cut in China, which is McDonalds and YUM! Brands largest market for growthHowever, 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 CharacteristicsEconomic Factors: Market GrowthGaining new customers as consumers are looking for the convenience of eating out and quality meals at lower pricesDue to Chinas size and growth rate, it still remains an attractive marketVast room for international growth as well as exploring strategy canvases enables the industry to grow and remain attractiveMcDonalds utilizes research and development to cater to international tastes and attain customers

Chief Business and Economic CharacteristicsStrategy Canvases and McDonaldsMcCafes increase customer base and redefine McDonalds imageRevamping stores in the United Kingdom to appeal to businessmen/women and increase the experience of all customersConstantly 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 FactorsHealth FoodNew menu itemsListing nutritional factsCorporate Social ResponsibilityRonald McDonald HouseDave Thomas Foundation

Social FactorsDiversityWorkersPride 360Going GreenPackagingBuildings

Technological TrendsWi-Fi15,000 McDonaldsBurger King, Wendys, Subway, Taco BellEquipmentDrive ThrusOutsourcing ordersTime Clocks

Economic FactorsCurrent Economic StatusPeople want cheap foodMinimum WageHigh percent of workers make minimum wageRaise food prices

Political and LegalCheeseburger BillPrevent law suitsState IssuesCalifornia - ban on fast food International IssuesCanada - calorie countLaw Suits

Geographical FactorsGlobalizationMcDonalds - 60%Yum! Brands - 50%Convenient locationsWay home from workCorner of blockMalls, Supermarkets, Gas StationsMcDonalds - Wal-MartLittle Caesars - K-Mart

Competitive FactorsAll other factorsSocialTechnologicalEconomicPolitical/LegalGeographicalPredicting next move

5 Forces ModelRivalry Among Existing FirmsMain CompetitorsMcDonald's, Yum! Brands, Wendys, Burger King Total Industry Sales Growth

5 Forces ModelConcentration of Competitors

5 Forces ModelDifferentiation Hard to separate each other because they offer similar productsSo they compete on priceMcDonalds able to dominate the market because of the size of the companySwitching CostsHard to do, why?Real Estate, franchisees, and many employees

5 Forces ModelEconomies of ScaleEfficiencyR&D, New TechnologyEconomies of ScopeLearning from past experiencesExample: Dollar Menu

5 Forces ModelThreat of New EntrantsEconomies of Scale

5 Force ModelFirst Mover AdvantageGet in while its early, and grasp suppliers and consumersLegal BarriersPatents, trademarks, contracts, licenses, and government regulations to limit new companies

5 Forces ModelThreat of Substitute ProductsRelative Price and PerformanceEveryone produces the same products, need to compete on price and convenience Buyers Willingness to SwitchBrand performance, and high quality relationships with customers

5 Forces ModelBargaining Power of BuyersPrice SensitivityDifferentiation of products, and cost of switching to another firm, easy in the fast food industryRelative Bargaining PowerReal vs. Nominal buying powerCustomer Loyalty

5 Forces ModelBargaining Power of SuppliersPrice SensitivityLeverage over small suppliersLarge Industry, companies name prices and quantitiesSupplier relations and price breaksStrategic Alliances

Competitive MovesMcDonaldsis 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 franchiseesThey were also the first to advertise with an character , which strengthened their brand equity

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

Competitive Moves KFCWas the first company to franchisee its businessesMade the strategic move of offering home cooked style meals, which included coleslaw, macaroni and cheese, baked beans, and riceBurger King Was the first to emphasize customized order with its Have It Your Way campaign

Competitive MovesWendysFirst to implement value menu, also referred to as the dollar menuFirst to create a super bar which was their concept of an all you can eat buffetFirst to introduce salads and grilled chicken sandwiches

Next Competitive MovesMcDonalds 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 shopsFirst to respond to economic downturn by lowering prices

Competitive SuccessCustomers 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 ApproachOne of the biggest key success factors for the fast food industry is their ability to offer consistent products and services at every locationFranchises 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

IconsAnother driving force of the fast food industry has been its ability to capture both young and old audiencesEach 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

ConvenienceConsumers look to quick services restaurants to provide them with a quality meal that will fit into the pace of their fast moving lifestylesThe large number of locations within close proximity to each other is ensure customer convenience at every turnMany fast food chains can be spotted at shopping centers, airports, gas stations

Franchising the IndustryFranchising has played a key role in the success and growth of the fast food industry

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Inside Out Approach: Focusing on QualityMcDonalds 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 PeopleIn order to ensure a friendlier and more customer focused support staff the emphasize hospitality training known as the People Approach - Respect, Commitment Enhancement, & Talent ManagementProductsIncorporates uniform quality products and implemented the McDonalds Holistic Approach- High Quality Choices, Consumer Friendly Nutrition Information, & Communicate ResponsiblyPlaceEach 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 PriceAllows customers to enjoy a quality meal without a hefty priceCreated the Value Menu (Dollar Menu) to get great food at bargain pricesAlthough 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 profitablePromotionPromotional character and symbolsSubliminal MarketingCo-operative MarketingTraditional Advertising

ConclusionAfter 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.

ConclusionSome 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.

ConclusionMcDonalds 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.