Quick-Service Foods Sector

Compiled By:Laura KellerStephanie LatimerNate TuengeSteven AustedShelly LiaBraatenAaron Lum

Sector Definition

Commercial restaurant service comprises everything from restaurants and cafeterias to ice cream parlors, bars, and cafes

Focus on limited-service restaurants which offer rapid food preparation and low prices, with or without seating. The average check price is usually less than $7.

Sector’s Dominate Traits(AKA Fun with Statistics)

Market Size: $128.2 billion, 28.2% of total foodservice sales

Market Growth Rate: 4.2% in 2003 and slowing

Fun with Statistics continued..

Industry Profitability:

Fun with Statistics continued..

Stage in the Growth Cycle: Maturing industry, focusing on growing same-store sales

Capital Requirements: High fixed costs. Food & beverages, labor, and real estate top costs

Focus on Product innovation

Prevalence of integration: Stores integrating into quick-service (Delis)

Rivalry: Highly competitive market, several companies vying for our meal dollars

Competitive Forces

Food Prices

Supply Shock & Fuel Costs

Product Differentiation Price Discounting vs. Innovation

Government Regulation

Smoking & Minimum Wage

“Beef it’s what's for dinner”-(US) Cattlemen's Beef Board

Industry Expected to Grow

Growing Industry – more people are eating out than ever before

2003 – 46.9% of meals away from home

2010 – will spend 53% of meals away from home

Industry Expected to Grow (continued)

Why are Americans spending more money on meals away from home?

Decline in cost difference between eating out and eating in

2002 – only cost 25% more to eat at a restaurant Less free time

2003 – over 50% of U.S. families were dual-earner households

More disposable income Aging baby boomers are progressively wealthier 1999 to 2004 – real disposable income increased

at 1.8% per year

Shift in Industry Focus:From Discounting to Innovation

Price Wars of 2000 - 2002

Saturated markets resulted in fierce competition between rivals (McDonald’s vs. Burger King)

To compete for the economically downtrodden customer base, major competitors drastically lowered prices ($0.99 value menus)

Discounting greatly hurt profitability – not a sustainable strategy

Shift in Industry Focus:From Discounting to Innovation (continued)

Product Innovation – 2003

Mimicked the success of the new “quick-casual” concept – higher quality, higher prices

At fast-food restaurants, sales grew 5.4% in 2003

Found that people are willing to pay more for quality products

Health food craze

Future Focus

Less emphasis on U.S. expansion and price discounting

Continued focus on product innovation and current store improvements

Remodeling stores to improve image

Wendy’s, McDonald’s, and Jack in the Box have announced accelerated remodeling plans for 2005

International Expansion: China U.S. fast food market is

saturated and firms are looking to expand abroad

Large Chinese market 25% of World’s population

KFC – rated #1 consumer brand in China

McDonald’s and Starbuck’s plan to focus their international expansion on China over the next several years

Hoping to establish themselves in the market by the 2008 Beijing Olympics

Strong companies

McDonald’s Corporation

Aroma Café, Boston Market, Chipotle Mexican Grill

Panera Bread Co.

Was known as St. Louis Bread Company

Wendy’s International

Baja Fresh, Tim Hortons, Café Express, Pasta Pomodoro

McDonald’s Corporation

Strong brand name

Worldwide presence 18,000 stores

Mixes McDonald’s American style with local tastes

Systemwide sales of $4.2 billion

“As a condition of the franchise agreement, McDonald's owns the property on which most McDonald's franchises are located.”

Panera Bread Co.

Systemwide sales of nearly $1 billion in 2003

Second fastest growing chain in 2004

Stores in 35 states

Moved into the quick-service market before many of the others did

“There are currently 656 Wi-Fi enabled Panera Bread bakery-cafes, from California to Virginia.”

Wendy’s International

Systemwide sales of $11.6 billion

Restaurants in the US and Canada

6000

Different restaurant segments are broken up

Stock Comparison

What key factors will determine competitive success or failure?

o Following Demographics

o Understanding the economy

o International Markets

Following Demographics

Chiptole Mexican Grill (McDonald’s Corp.)

Baja Fresh (Wendy’s International)

Qdoba (Jack In a Box)

Understanding the Economy

Economic Recession:

Promoting a more positive supply / demand relationships, which resulted in a stable sales growth

Economic Boom:

Focus capital expenditures on new units, focus on new products

Industry Attractiveness

Industry attractive to investors, especially franchising

Industry very profitable, and expected to keep growing because of increases in disposable income and dual worker homes

Low barriers to entry, but intense competition and high fixed costs cause many ventures to fail

Sources

Restaurant Research: Operators Focusing on Same-Store Sales - May 2005 - Franchising World - Franchising World - International Franchise Association

Industry Trends: Restaurants Industry Profile: Restaurants How the Industry Operates: Restaurants

Sources

Milton, Dennis P.; Standard & Poor’s Industry Surveys: Industry Trends - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst20405.htm#trends.

Milton, Dennis P.; Standard & Poor’s Industry Surveys: Current Environment - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst_0405.htm#environ.

Milton, Dennis P.; Standard & Poor’s Industry Surveys: Industry Profile - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst10405.htm#profile.

Milton, Dennis P.; Standard & Poor’s Industry Surveys: How the Industry Operates - Restaurants; 21 April 2005; http://0-www.netadvantage.standardandpoors.com.oasis.oregonstate.edu/docs/indsur/rst_0405/rst30405.htm#operates.

Restaurant Research: Operators Focusing on Same-Store Sales - May 2005 - Franchising World - Franchising World - International Franchise Association

http://quotes.nasdaq.com/quote.dll?mode=basics&kind=&timeframe=10y&intraday=off&charttype=ohlc&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=on&index=&symbol=WEN&symbol=MCD&symbol=PNRA&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&FormType=&mkttype=&pathname=&page=charting&selected=PNRA

http://en.wikipedia.org/wiki/Mcdonald%27s

Image Sources

http://timmyray.typepad.com/timmy_ray/weird/ http://www.6foot6.com/fr/agfaimages/china/ChBeijing_B

randKFC.jpg http://www.dw-world.de/dw/image/detail/

1,1599,1076556_3,00.html http://www.mccscamppendleton.com/clubs/fast_food/

fast_food.html http://www.mcdonalds.com/usa/eat/features.html http://www.starbucks.com/aboutus/internationaldev.asp http://www.wendys.com/food/Family.jsp?family=4 www.google.com