the fast food industry - cornell university food... · the fast food industry amyn bandali ......
TRANSCRIPT
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The Fast Food Industry
Amyn Bandali Meghan Holleran Stephanie Menke Philip Nachbar
AEM 4550 April 14, 2010
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Agenda
Introduction
Industry Analysis
Advertising Strategies
Investment Recommendations
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Why the Fast Food Industry?
“In 1970, Americans spent about $6 billion on fast food; in 2000, they spent more than $110 billion. Americans now spend more money on fast food than on higher education, personal computers,
computer software, or new cars. They spend more on fast food than on movies, books, magazines,
newspapers, videos, and recorded music - combined.”
~Fast Food Nation, 2001
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Industry Analysis
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Industry Definition
• Companies that own, operate, and/or franchise eating places that provide a casual dining experience in a compressed time frame
• Primary activities: ▫ Quick-service restaurants (QSR) ▫ Fast-food services ▫ Drive-thru and take-out facilities
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Industry Structure HHI = 3,208 Slightly skewed by
“other” representing 53.1% of small other firms
Four-Firm Concentration Ratio: 35%
Within regions and cities the industry tends to have a higher concentration in areas where households have an annual income of at least $50,000 per annum.
13%
10%
6%
6%
5% 5%
2%
53%
McDonald's Corporation
Yum! Brands, Incorporated
Wendy's/Arby's Group, Inc.
Starbucks Corporation
Burger King Corporation
Doctor's Associates Inc
Domino's Inc
Other
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Industry Structure • Industry itself is an
oligopolistic market, but operates under monopolistic competitive market of restaurants
• Franchises account for about 10% all establishments, 65% of total revenue
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Industry Analysis • Customer buying power: Moderate ▫ Negotiable switching costs
• Supplier buying power: Strong ▫ Consolidated market—Sysco, US Foodservice Inc
• Barriers to Entry: Low ▫ Operators can lease premises and equipment,
furniture and fittings lowers the initial capital costs, outlays and
borrowings ▫ Franchise agreements include equipment and
training systems
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Internal Competition Location
Food Quality & Consistency
Style & Presentation
Food Range with New Products
Variety & Service
Health & Nutrition Value &
Information
Price
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Finances 2006 2007 2008 2009 2010 Scale
Industry Revenue *173,255 *175,334 *170,074 *162,081 *164,025 $Mil
Industry Gross Product
*46,538 *46,910 *45,034 *42,872 *43,172 $Mil
Number of Establishments
*292,583 *295,801 *291,364 *284,663 *281,532 Units
Number of Enterprises
*228,102 *229,014 *226,037 *221,742 *219,525 Units Employment
*3,754,109 *3,784,142 *3,700,891 *3,597,266 *3,561,293 Units
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Costs
31%
27%
7%
4%
3% 2%
21%
5%
Purchases
Wages
Rent
Depreciation
Advertising and Promotions Utilities
Other
Profit
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Industry Trends: Slowed Growth Slowed Growth Positive Signs
• High prices of commodities ▫ Energy, oil, food
• US economic downturn ▫ Suffering job market ▫ Weak US dollar
• Growing health and wellness concerns
• Competition from “gourmet” restuarants ▫ Chipotle, Cosi, Panera
• Changing customer base ▫ Fast food is an inferior good
• Increased pace of life ▫ On-the-go food
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Employment 2006 2007 2008 2009 2010 Scale
Total Wages *45,629 *46,085 *45,578 *44,530 *44,530 $Mil
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Imports and Exports • In recent years exports have been accounting for an
increasing share of total revenue of major operators
• 2005: Yum Brands opened 409 new restaurants in China to make a total of 2,291. ▫ By mid-2009, store numbers increased to 3,208, or by a
further 40%, with 2,670 KFC, 435 Pizza Hut Casual Dining and 81 Pizza Hut Home Service stores in China.
• June 2009: Domino's Inc. had 489 domestic company-owned stores, 4,498 domestic franchise stores , and 3,742 international stores (42.9% of total stores).
“There are no reliable estimates of import and export flows for this industry over time” (IBISWorld).
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Regional Population Compared with Industry
Region Population (%) Establishments (%) Employment (%) Revenue (%)
Far West 17 17.6 16 17.7
Great Lakes 15.8 16.6 17.5 16.8
Mid East 16.2 16.7 11.8 13.4
New England 4.9 5.8 4.4 4.9
Plains 6.7 7.1 7.7 6.6
Rocky Mountains 3.3 3.4 3.5 3.2
South East 24.7 22.4 27.5 25.5
South West 11.4 10.4 11.6 11.9
Total 100 100 100 100
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Ad-Sales Ratios Across Industries
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
McDonald's Corp
Yum! Brands, Inc.
Wireless Telephone Industry
Automobile Industry
Softdrink Industry
Alcoholic Industry
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Advertising Strategies
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Primary Advertising Methods
• Persuasive • Comedy • Celebrities • Sex • Specific Promotions & Giveaways
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Advertising Mediums
• Television • Corporate Sp0nsorship • Product Placement • Paid Search • Online Display Advertising • Print Advertising • Brand-Interactions
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Television Advertising
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Total Ad Spending By Brand
KFC $179,377,200
Burger King $188,483,700
Taco Bell $212,286,900
Subway $245,505,700
Wendy’s $249,962,500
McDonald’s $472,219,000
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Total Ad Spending Cont.
11%
11%
10%
28%
14%
12%
14% Other
Burger King
KFC
McDonalds
Subway
Taco Bell
Wendys
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Most Expensive Ad Spots in 2008 and 2009
• $1,500,000 - $3,000,000 Super Bowl
• $1,111,000 – $2,222,000 AFC Championship Game
• $1,940,000 Baseball All-Star Game
• $1,307,000 – $1,689,000 Academy Awards
• $1,389,000 – $1,424,000 American Idol Finale
• $1,195,000 – $1,241,000 NCAA Basketball Championship Game
• $1,207,000 Summer Olympics Opening Ceremony
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Average Ad Expenditures
0
20000
40000
60000
80000
100000
120000
140000
Burger King KFC McDonalds Subway Taco Bell Wendys
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Most Popular Day Parts for Advertising
• Prime
• Late Fringe (BK & Wendy’s)
• Sunday Afternoon (KFC & Taco Bell)
• Saturday Morning (McDonalds)
• Overnight (BK & Subway)
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Average Costs of Top Day Parts • Most Expensive: ▫ Prime Access 2 ($208,000) ▫ Late News ($184,000) ▫ Prime Access 1($183,000)
• Least Expensive: ▫ Saturday Morning ($5,000) ▫ Overnight ($6,300) ▫ Morning Daytime 2 ($17,000)
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Average Cost/Ad by Day of Week
0
20000
40000
60000
80000
100000
120000
140000
SUN TUE THU MON WED FRI SAT
Avg
Cos
t/A
d (
Dol
lars
)
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Most Common Types of Products Advertised
20%
15%
13% 11%
10%
8%
5%
3% 3%
10% General Promotion - QSR Count
Burger Product Count
Sandwich Product Count
Chicken Product Count
Value Product Count
Kids Meal Count
Sponsored Event Count
Breakfast Product Count
Coffee Product Count
Other
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Number of Ads by Program Type
0
500
1000
1500
2000
2500
3000
Burger King KFC McDonalds Subway Taco Bell Wendys
Fre
qu
ency
of
Ad
s
Childrens (Childrens/family & animation) DRAMA/ADVENTURE
FEATURE FILM
GAME SHOW
News
POLICE/SUSPENSE/MYSTERY
SITUATION COMEDY
SLICE-OF-LIFE
SOAP OPERA
Sports
TALK
VARIETY - GENERAL
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Products Advertised by TV Program
• Findings: ▫ Coffee & Breakfast products highly concentrated to
News Programs ▫ Desserts concentrated on Children’s Programs and Talk
Shows ▫ 80% of Kids Meals targeted to Children’s Programs ▫ 70% of burrito ads, 80% of taco ads, and 68% of
Mexican-style products are targeted to sports (Taco Bell)
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Products Advertised by TV Program Cont. • Findings: ▫ Chicken highly targeted to Slice of Life Programs ▫ 38% of Fish Product Ads concentrated on Soap
Operas ▫ ¼ of Salads targeted to Slice of Life, another ¼ of
Salads targeted to Soap Operas ▫ Value Meal Products concentrated on Sports
Programs (36% of Value Meal products targeted towards Sports)
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Company Overview: McDonalds • Highest total ad expenditure • Lowest average ad expenditures (of top
competitors) • Advertises primarily during primetime, Saturday
mornings • Targets primarily children (and sports shows • Only top brand which targets
primarily children’s programs
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Company Overview: Burger King
• 4th highest total ad expenditure • 2nd lowest average expenditure per ad (of top
competitors) • Advertises primarily during
primetime, late fringe, overnight • Targets talk shows and
sports programs
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Company Overview: Wendy’s • 2nd highest total ad expenditures • 2nd highest average expenditure per ad • Advertises primarily during primetime and late
fringe • Targets slice of life,
sports programs, drama/adventure programs
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Company Overview: KFC • Lowest total ad expenditures among top 6
competitors • 3rd highest average expenditure per ad • Primarily advertises during primetime and
Sunday afternoons • Targets sports programs
and drama adventure programs
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Company Overview: Taco Bell • 4th highest total ad expenditures • Highest average expenditure per ad (purchases
mostly expensive ads) • Primarily advertises during
primetime and Sunday afternoons (sports)
• Targets almost entirely sports (men)
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Company Overview: Subway
• 3rd highest total ad expenditures • 4th highest average ad expenditure • Primarily advertises during primetime and
Saturday morning • Targets sports, talk, and children’s programs
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Other Advertising Mediums
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Corporate Sponsorship Expenditures 2008 & 2009
• Burger King: $11,944,300 • Chick-Fil-A: $352,800 • KFC: $153,000 • McDonalds: $49,294,900 • Subway: $22,673,800
• Total Industry: $84,418,800
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Corporate Sponsorships Cont.
0
20
40
60
80
100
120
140
160
Burger King Sponsorship McDonalds Sponsorship Subway Sponsorship
DRAMA/ADVENTURE
FEATURE FILM
GAME SHOW
News
POLICE/SUSPENSE/MYSTERY
SITUATION COMEDY
SLICE-OF-LIFE
SOAP OPERA
Sports
TALK
VARIETY - GENERAL
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Product Placement • Increasing in occurrence ▫ Tivo, DVR ▫ Viewers Tune Out Ads
• Television Shows, Films • Primarily McDonalds, Burger King, Taco Bell
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Online Advertising
• Display Advertising ▫ Relatively Common ▫ Often Floating & Expanding Ads
• Paid Search ▫ Burger King: Google & Bing ▫ Subway: Google & Yahoo! ▫ KFC: Google
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Print Advertising • Shift from Print to online • Typically Persuasive Advertising • Slogans prominent ▫ “I’m Lovin It” ▫ “We Love to See You Smile” ▫ “Have It Your Way” ▫ “Think Outside the Bun” ▫ “Do What Tastes Right”
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Brand Interactions
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Brand Interaction
• Advertising Age: Brand Interactions Are the Future ▫ Micro-Interactions: “Micro-interactions are the everyday exchanges
that we have with a product, brand and service. Each one, in and of itself, seems insignificant. But combined they define how we feel about a product, brand or service at a gut emotional level. In the case of Google, each time it helps us find what we are looking for, view a map, send an e-mail or connect with a friend, it deposits a positive impression in our memory banks. “
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Brand Interaction
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Brand Interaction
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Brand Interaction
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Brand Interaction
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Demographic Analysis
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Most Advertising: Per Capita
St Louis; 29.63
Little Rock; 24.32
Minneapolis ; 21.76
Springfield Mo; 18.29 Knoxville ; 17.01
Denver ; 15.28
Shreveport ; 15.14
Birmingham ; 14.56
Salt Lake City ; 13.17
Cedar Rapids; 12.85
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Least Advertising: Per Capita
San Francisco, 2.16
Cincinnati, 1.73
Philadelphia, 1.64
Chicago, 1.57
Boston, 1.53
Norfolk, 1.41
New York, 1.01
Cleveland, 0.87
South Bend, 0.80
Milwaukee, 0.39
Lexington, 0.05
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Fast Food Restaurant Density
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Median Income vs. Advertising
0
10,000
20,000
30,000
40,000
50,000
60,000
0 5 10 15 20 25 30 35
Inco
me
Advertising
Median Income vs. Advertising Per Capita
R: .23
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Latino Population vs. Advertising
0
5
10
15
20
25
30
35
40
45
0 5 10 15 20 25 30 35
Lati
o p
op
Advertising
Advertising Per Capita vs. Latino Population
R: -.12
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Black Population vs. Advertising
R: .37
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White Population vs. Advertising
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35
Wh
ite P
op
Advertising
Advertising Per Capita vs. White Population
White
R: .32
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Advertising Vs. Obesity
• Midwest: 8.07 • Northeast: 2.33 • Northwest: 8.01 • Southeast: 9.16 • Southwest: 8.52 • West: 6.94
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African Americans and Advertising • Obesity is higher among African Americans
▫ Women: 77% Overweight 49% obese
▫ Men: 63% overweight 28% obese
• Ads for African American television is typically for
less healthful foods
• An individual watching 2 hrs of television 52 weeks
per year would be exposed to 4888 food ads
• Twice as likely to contain low-fat claims
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Ad Clip http://www.youtube.com/watch?v=7YRcBTq6T4A
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Recommended Ad Strategies
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Demographic Targeting
• Mixed Demographic Programs: General Promos, Neutral Products
• Morning Programs (News) Breakfast/Coffee Products
• Predominantly Women’s Programs (Soap Operas, Slice of Life) Chicken, Fish, Salad Products
• Predominantly Men’s Programs (Sports) Value Meal Products
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Demographic Targeting Cont.
• African American Programming • Southeast Region • High fast food density regions and obesity rates • 35,000-40,000 income level
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Cost Analysis
• Saturday Morning Children’s Programs Cheap Kid’s Meal Products/Promotions
• Talk shows cheap Promote products based on the specific program’s demographic
• Soap Operas Cheap Products which you want to target to women
• Sports Programs Expensive Use only if you obtain a high return, Men-targeted products
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Investment Strategy
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Venture Capitalists
• Monopolistic competitive structure indicates there is opportunity for profit
• Entering market as franchiser is proven model ▫ However, corporations are closing
under-performing sites • Highly saturated market ▫ Competing against market leaders at national level
will lively prove to be unsuccessful
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Personal Investment: Industry Outlook
• 4.7% slip in industry revenues since 2008 ▫ Likely a response to the
economy as well as rising costs for the industry
• Expected to remain under significant operational pressure until economy begins to recover
YearRevenue(millions)
Growth%
2009 $162,081
2010 $164,025 1.2
2011 $169,602 3.4
2012 $174,012 2.6
2013 $177,840 2.2
2014 $181,575 2.1
2015 $185,570 2.2
Forecasted Revenue Growth (IBISWolrd)
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McDonalds (MCD): $68.92
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Yum! Brands Inc.: $41.16
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Burger King Holdings (BKC): $21.82
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Wendy’s (WEN): $5.31
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Questions?