Quick Service Restaurant Industry Analysis

Date: September 25, 2016

Senior PartnersCopeland Associates Athens, OH 45701

To: Senior PartnersVic MattaTheo MuirAndrew PueschelLee Wakeman

From: Team 4 Shaun BentkowskiKelsey KinnerRobert LambertJack MartinErin Pursinger

Dear Senior Partners,

Subject: Analysis for the Industry, Key Competitors and Key Success Factors for the Quick-Service Restaurant Industry

As requested by the Senior Partners of the Copeland Associates Business Cluster, our team has analyzed the Quick-Service Restaurant Industry and identified the key success factors and key competitors. We have prepared a report that contains an analysis of the industry, identifies the key success factors in this industry, and the top three competitors and we have completed a Porter’s and PESTLE analysis. We analyze the industry by breaking it down into the macro/micro environments and we identify the company that we believe is best positioned for future success based on our key success factor scoring matrix.

Our report will contain the following criteria: • External Analysis of the Quick-Service Restaurant Industry• Key Competitors• Key Success Factors • Key Success Factor Scoring Matrix • Porter’s and PESTLE Analysis

Sincerely,

Team 4

Quick-Service Restaurant industry: Analysis of Key Competitors and Key

Success FactorsPrepared For:

Vic Matta, Theo Muir, Andrew Pueschel, Lee Wakeman

Jack MartinErin Pursinger

Kelsey Kinner Shaun Bentkowski

Rob Lambert

PM007 Team 4

Executive SummaryThe quick-service restaurant industry has been trying to overcome a recession in the United States, but has been thriving in other parts of the world.

Key Success FactorsCompanies in the quick-service industry need to have a main focus when operating their businesses to maintain positive growth. Even though the industry is always changing, there are key success factors that each company must adhere to if they want to be successful in the quick-service industry. The three key success factors that are discussed in this report are:

1. Marketing/Brand Recognition – Marketing and brand recognition go together because in order to build a brand you need to be successfully marketing your company to do so. Companies in the quick-service industry need to build strong brands that are incorporating the popular trends that consumers are looking for in this industry to be successful.

2. Location – One of the main reasons why the quick-service industry exists is to provide convenient and affordable food to as many people as possible. This can only be achieved if the restaurants are located in the most convenient locations, where there is a lot of traffic, to ensure that the restaurants are able to serve as many customers as possible every day.

3. Adaptation – If restaurants in this industry are not able to adapt to the consumers changing needs, then they will not be able to survive in this industry. By adapting to the consumer’s needs it allows the restaurants to continue to maintain positive growth. This is because what people enjoy most about this industry is the speed and convenience and consumers looking for the new trends will not be lost if companies are able to adapt to give the consumers what they are looking for.

Through our research, we have determined that a company in the quick-service industry cannot be successful unless it has all three of the key success factors.

Industry AnalysisThis report also gives an in-depth look at the industry as a whole. By incorporating the Porter’s Five Forces and a PESTLE analysis, we are able to give detailed information about the quick-service industry.

Table of ContentsIntroduction…………………………………………………………………………………..……..…………………….…………………………………..6Industry Analysis…………………………………………………………………………….………..………………………………………………….7-8Key Competitor Analysis: McDonald’s…………………………………….…….………..………..…………………………………………….9Key Competitor Analysis: Wendy’s………….…………………………………………………………………………………………………….10Key Competitor Analysis: Yum! Brands….………………………………………………………………………………………………………11Key Success Factor #1: Marketing/Brand Recognition……………………………..………………………………………………12-15Key Success Factor #2: Location……………………………………………………………………………………………………………..…16-18Key Success Factor #3: Adaptation……………………………………………………………………………………………………….…..19-20Key Metrics…………………………………………………………………………………..……..…………………………………………………………21Key Success Factors Scoring Matrix……………………………………………………………………………………………………………….22Conclusion…………………………………………………………………………………..……..………………………………………………..………..23Reference List…………………………………………………………………………………..……..………………………………………..………24-26Appendix A: Porter’s Analysis……………………………………………………………………………………………………………..……27-30Threat of New Entry…………………………………………………………………………….………..………………………………………….……28Threat of Substitution…………………………………………………………………………………………………………………………………….29Competitive Rivalry………………………………………………………………………………………………………………………………………..29Supplier Power…………………………………………………………………………………..……..…………………………………………………..30Buyer Power…………………………………………………………………………………..……..………………………………………………………30Appendix B: PESTLE Analysis……………………………………………………………………………………………………………………31-34Political…………………………………………………………………………………..……..……………………………………………………….…..…31Economic…………………………………………………………………………………..……..………………………………………………….………..31Technology…………………………………………………………………………………..……..………………………………………………………...32Environmental…………………………………………………………………………………..……..………………………………………………..…..32 Social…………………………………………………………………………………..……..……………………………………………………….…………33Legal…………………………………………………………………………………..……..………………………………………………………….……….34Appendix C: Business Model Canvas……………………………………………………………..…………………......…………………35-37McDonalds………………………………………………………………………………………………………………………………………..……………35Wendy’s………………………………………………………………………………………………………………………………………………….……...36Yum! Brands……………………………………………………………………………………………………………………………………………………37

IV

List of FiguresFigure 1…………………………………………………………………………………………………………………………………………………….7

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IntroductionThe purpose of this business report is to analyze the Quick-Service Restaurant Industry and determine the key success factors and the top 3 competitors in the industry that meet those factors. Through our research, we have determined all the factors that are required to have a successful Quick-Service Restaurant. We have broken down the Quick-Service Industry into two categories, Fast-Food and Fast-Casual. The majority of the industry is dominated by fast-food restaurants which make up 90% of the industry, while the fast-casual restaurants only make up 10%, so this report will be slightly more focused on the fast-food restaurants. It is important to include the fast-casual restaurants in this report, because you will see that most fast-food restaurants are adopting a lot of the fast-casual experience without losing any of the speed and convenience that the fast-food industry is known for. From analyzing the industry and our research we have concluded that these three factors are essential for success in the Quick-Service Industry; marketing/brand recognition, location, and adaptation.

Key Success Factors

Marketing/Brand Recognition Location Adaptation

Marketing/Brand Recognition is a key success factor because they are used together to create a global brand that is universally liked and respected.

Location is an important factor because without having an optimal and convenient location that has a high volume of consumers, it is difficult for a Quick-Service restaurant to be profitable with how cheap their food is sold for.

Adapting to the market is required for companies in this industry because if they are not able to adapt to trends, then they will not be able to maintain positive growth.

The research we have gathered in this report will further explain why these 3 factors are essential to having a successful restaurant in the Quick-Service Industry. Also, we will give an in-depth industry analysis, so you can understand the Quick-Service industry from a macro and micro perspective. From this analysis we found that the top three competitors in this industry are McDonald’s, Yum! Brands, and Wendy’s. We will discuss how they are meeting these success factors and ultimately decide which is best set for the future.

Intro Analysis KC #1 KC #2 KC #3 KSF #1 KSF #2 KSF#3 Metrics Matrix Conclusion

6

Industry AnalysisThe fast food industry is starting to see a much higher demand to become healthier and more environmentally friendly. This has challenged big players in the industry to find new ways to be healthy while still getting the profit they require.

• Consumers realized they should be much more health conscious after a strong connection between fast food and childhood obesity was found. Increasing health consciousness is a threat to the fast food industry because they rely on making greasy, cheap fast foods that will give them the best bang for their buck.

• Companies, along with being health conscious, have to work with the environment more. Consumers want to be environmentally friendly, so to combat this, firms like McDonald's are moving 100% of their fiber based packaging to recycled material by 2020 in an effort to appeal to this new demographic (McDonalds, 2015).

Businesses in the Quick Service Restaurant industry are always looking for new innovative technology that can give them an edge over the competitor. Online ordering has been growing steadily for years, but with the use of new mobile applications and other payment platforms, this trend is accelerating.

• Kiosks that can bypass the need for a cashier has become an increasingly popular trend throughout the industry saving restaurants time and money while also allowing the customer to personalize their meal.

• There is also a growing trend in consumers using online or mobile payments to make their fast food purchases. During 2013-2015, China had a large growth of 284%, with an absolute value increase of 18.8 billion, while PC purchases declined by 21%. The United States experienced a much less dramatic growth in mobile purchases of 98% and PC purchases increased by 42% (Euromonitor International, 2015).

Source: Euromonitor International, 20157

Figure 1


Industry Analysis (cont.)In the QSR industry, the Americas and Asia house about 83% of the global market.

We decided that fast casual restaurants such as Panera Bread and Chipotle Mexican Grill are apart of the QSR industry even though it makes up only 10% of the market. Chipotle holds the leading market share of fast casual restaurants while McDonald’s holds about 17% of the market in the U.S.

Almost 60% of the United States market share in the QSR industry is held by other low level fast food restaurants that do not classify as a big player in the industry (Statista, 2015).

Firms who hold only a market share in the U.S are attempting to globalize their business to expand to growing economies that will slow their movement towards the maturity stage in the industry lifecycle.

Source: Marketline, 2011

A micro analysis of the quick service restaurant industry reveals:

• Highly Competitive • Moderate Threat of New Entry• Buyers have the power• Many Substitutes• Suppliers lack power

Source: Statista, 2015

With over 200,000 fast food restaurants in the quick service restaurant industry, making the competition fierce among competitors. When firms experience an ongoing trend of slowed growth, they are gradually moving closer to reaching the maturity stage of the industry lifecycle.

The moderate threat of new entry in the QSR industry can be attributed to many factors, but the most important of which is big players advantage of economies of scale.

Suppliers show a trend of having weak power because firms have so many options to pick from. However, some companies, like Chipotle, use less for more quality. Firms try to combat their many substitutes by making their service the most convenient food option for a great price. A m e r i c a s A s i a - P a c i fi c E u r o p e M i d d l e

E a s t / A f r i c a

44%39%

15%

2%

Geographic Segmentation

8

Figure 2

Figure 3


Key Competitor Analysis: McDonald’s

Key Partners: • Kraft (McCafe supplier)• Angry Birds (Toys & Advertisements)• Nintendo/Pokemon GO (3,000 Japan

locations are gyms)• Coca-Cola• Social Media Partners

Management Team

In 2015, the Company and its Board of Directors took steps to reset its business and restore growth, which included the election of a new CEO in the first quarter. In May, management announced the initial steps of the Company’s turnaround plan, beginning with a worldwide restructuring in July. This resulted in a reorganization from a geographically-focused structure to segments that combine markets with similar characteristics and opportunities for growth. Management expects the new structure to enable faster decision-making and an increased ability to move proven initiates quickly across markets (McDonald’s 10-k, 2015).

International Strategy

McDonald’s has over 36,000 restaurants worldwide and operates in over 100 countries. Those two numbers alone prove that McDonald’s has a sound international strategy. McDonalds dominates the franchise business model with over 80% of restaurants owned by franchisees. McDonald’s model has become the norm for other franchise organizations. McDonald’s restaurants can be grouped according to how the market reacts and preforms. International Lead Markets are established markets including Australia, Canada, France, Germany, the U.K. and related markets. High Growth Markets are markets believed to have relatively higher restaurant expansion and franchising potential including China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands and related markets. Foundational Markets & Corporate are the remaining markets in the McDonald's system, each of which is believed to have the potential to operate under a largely franchised model (Statista, 2016).



9

Figure 4

Key Competitor Analysis: Wendy’sKey Partners:

• Clarabridge(Text Analytics Software)• Coca-Cola• Stubhub(Digital Coupon Campaign)• Social Media Partners

Management Team

Beginning in 2015, Wendy’s elevated multiple people into bigger leadership roles. Todd Penegor was promoted to Executive Vice President and Chief Financial Officer and Bob Wright was also been promoted to Chief Operations Officer. Wendy’s has the highest confidence that Todd and Bob’s new elevated leadership roles will spur even greater growth and performance. Management is focusing on its commitment to restaurant development and consumer-facing technology as growth engines for the brand. In May 2016, Penegor was promoted to Chief Executive Officer and Gunther Plosch took over as Chief financial Officer. Wendy’s executive team is a relatively young group of people that the board of directors hope will speed up decision making and further their growth in the industry (Wendys, 2016).


Wendy’s has over 6,500 restaurants in 30 countries worldwide. The Wendy’s team believes that earnings generated from the international market will be a significant component of ability to generate long term value for stockholders. In 2015, there were 5,722 Wendy’s restaurants in the United States and an additional 757 restaurants around the world; the majority of which are located in Puerto Rico, the Philippines and Indonesia. Puerto Rico houses 78 Wendy’s while Indonesia has 45 and the Philippines have 42 respectively. (Statista, 2015) Although Wendy’s was expecting to grow into the Chinese market by 2015 there still has been no sign of their expansion but are still exploring their options. Just over 90% of Wendy’s restaurants are franchised and they hope to keep increasing that number in the future. Wendy’s recently entered into a definitive agreement to acquire 100% of the equity of First Kitchen Ltd. Which involves 136 restaurants. Wendy’s First Kitchen is a hybrid concept; offering both great-tasting, high quality hamburgers and chicken sandwiches, plus pasta and other First Kitchen favorites.

Source: Statista, 20152 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5

5,133 5,374 5,558 5,847

1,427 1,183 957 632

Nu mb er o f W e n d y 's r es t a u ra n t s wo r ld wid e 2012-2015, b y mo d e o f o p er a tio n

Franchised Company-owned


10Figure 5

Key Competitor Analysis: Yum! Brands

Key Partners:• Pepsico• Frito Lays• Cinnabon• Social Media Partners

Management Team

As of May, 2016, Yum! Brands announced their Chief Executive Officer of Pizza Hut, David Gibbs, would be promoted to Chief Financial Officer of Yum! With Gibbs assuming responsibility for Yum’s global finances, Yum! ensures a smooth transition of executive leadership in advance of the Company’s separation into two publicly traded companies- Yum! Brands and Yum! China-by the end of this year. Yum! has an interesting dynamic in their management team that Wendy’s and McDonald’s do not have, since Yum! is a parent company of multiple restaurants, as well as a separate China company, they have more levels of management before you make it to the Board of Directors. Yum! Brands management sees a significant potential in expanding Taco Bell into China. They hope to see Taco Bell take off in China from the decades of accumulated customer loyalty and world-class operations like KFC and Pizza Hut (Yum, 2016).


Yum! Brands is one of worlds largest companies with nearly 43,000 restaurants in almost 140 countries and territories. After their spinoff with Pepsico in 1997 Yum! Has become a truly global company with approximately 20% of profits coming from outside the U.S. to almost 65% in 2015. Yum! announced in October of 2015 that it’s spinning off its China unit into a separate publicly traded company. This was set in place because of problems that Yum! Brands has encountered such as food-safety scares and strong competition. Yum! has done well expanding internationally through KFC and Pizza Hut but are attempting to further expand Taco Bell. They found that Taco Bell is not as easy to expand globally because outside the U.S, Mexican fare is not as familiar as pizza and chicken. However, Yum! states that they hope to open 1,000 international Taco bell locations by 2020 and 1,550 international restaurants by the end of 2023 (Bloomberg, 2015). Yum! Is dedicated to reaching a goal of 96% of their restaurants owned and operated by franchisees by the end of 2017. Worldwide, Yum! Brands system opens over six new restaurants per day on average, making it a leader in global retail development (Business Wire, 2016).


Kentucky Fried Chicken Pizza Hut** Taco Bell0

5000

10000

15000

20000

25000

14,577 13,728

6,400

5,003

1,903

372

432

7

Number of Yum! Brands Restaurants Worldwide in 2015

United States and other China India

Num

ber o

f res

taur

ants


11

Figure 6

KSF 1: Marketing/Brand RecognitionMarketing and Brand Recognition are important for the

following reasons:

• The Quick-Service Restaurant Industry is dominated by big brands like McDonald’s, KFC, and Wendy’s and to maintain positive growth these companies need to market effectively to consumers, especially millennials.

• Companies in the fast-food industry are trying to combat the reputation of serving unhealthy food by changing their company image through advertising campaigns focused on healthy eating.

• The Fast-Casual atmosphere is what the millennials prefer over the typical fast-food experience, so companies are changing décor, menu items, and resurrecting old mascots to build brands that millennials enjoy eating at.

Healthy Eating

Nearly all companies in the Quick-Service Industry are creating brands that revolve around healthy menu options and overall better quality of food. A great example of this is McDonald’s campaign to show its “brand evolution.” This was implemented in an attempt to change their brand perception by convincing parents that the Happy Meal is healthier than ever, having reduced average salt content by 47.4% since 2003 (Roderick, 2016). Changing the unhealthy reputation of fast-food is very important, especially among millennials who are looking for cheap and healthy food.

Changing Décor/Experience

Again, in an attempt to cater to millennials and to mimic the fast-casual atmosphere, fast-food restaurants are changing their décor from the traditional fast-food look.

Taco Bell has implemented a concept called Taco Bell Cantina, which has a completely different décor than traditional taco bells, unique menu items, and even sells alcohol (Bryant, 2016). Taco Bell is following what we have seen from fast-food restaurants by updating their interiors décor to be more modern and is taking it a step further by implementing the sales of alcohol, which is not typical in the Quick-Service Industry.

Fast-food restaurants are implementing these changes to try to bring millennials back into their restaurants. With fast-casual restaurants being visited 42% more and fast-food being visited 20% less, it is very important to cater to the millennials by changing the décor and overall experience.

Source: Statista 2014

Appealing to MillennialsIn order to understand why quick-service restaurants are focusing on appealing to millennials, you need to refer to Figure 7. As you can see, there has been a decrease among millennials visiting fast-food restaurants by 20% and an increase in their visitations to fast-casual restaurants by 42%.

On this graph, you can clearly see the number of millennials that are leaving the fast-food industry for fast-casual is significantly larger than Generation X and the Baby Boomers (Statista, 2014). This means that companies in the Quick-service restaurant industry need to cater to the needs of the millennials because they are currently losing a large amount of market share.

12Figure 7

Baby Boomers Generation X Millennials-30%

-20%-10%

0%10%20%30%40%

50%

-18%-11%

-20%

20%11%

42%

Fast-Food vs Fast-Casual Restaurant Visitation in the United States 2014

Fast-Food Fast-Casual

Visi

tatio

n Le

vel


Marketing/Brand Recognition(cont.) Resurrecting Old Mascots

Another way that companies in the quick-service restaurant industry are attempting to appeal to millennials through branding is by resurrecting their old mascots. Wendy’s introduced Red, a redhead millennial used in commercials to appeal to younger consumers, in 2014. In May of 2015, McDonald’s brought back the Hamburglar and KFC brought back The Colonel in an attempt to resonate with consumers.. According to YouGov, in the month following the implementation of the old mascots, McDonald’s ad awareness increased from 50 to 54 percent and KFC’s ad awareness increased from 34 to 41 percent (Kneiszel, 2015). Now this may not sound like that significant of an increase, but in companies that are appealing to millions of people any increase is extremely beneficial to the brand because millions of more people are reached.

McDonald’s Resurrection of Hamburglar

McDonald’s randomly reintroduced Hamburglar after a 13 year hiatus in an attempt to keep McDonald’s relevant and modern. This caused social media to blow up with tweets, comments, articles, and posts about the Hamburglar. McDonald’s realizes that reintroducing the Hamburglar out of complete random will probably not cause people to run to the nearest McDonald’s, but it does cause people to start talking about the brand especially on social media, which almost all millennials are extremely active on. Getting people, especially millennials, to talk about their brand is very important because it causes a person start thinking about McDonald’s again which could translate to more visits to McDonald’s stores in the near future.

Colonel Sanders Brought Back to Life by KFC

KFC brought back Colonel Sanders after abandoning him for 21 years, which was an obvious response to McDonald’s resurrecting the Hamburglar. Originally Darrell Hammond, from Saturday Night Live, was chosen to be the colonel, then Norm Macdonald, who is also from Saturday Night Live, and the company finally settled on Jim Gaffigan. Although the company keeps switching the actor, KFC is attempting to rebrand its companies to millennials by resurrecting The Colonel, who is played by popular comedians. The company hit a plateau in the United States, so it needed to attempt something to get people excited about KFC again and what better way to get people talking about your brand than resurrecting a loved mascot. They chose 3 separate comedians to play The Colonel in an attempt to appeal to a younger audience, because KFC understands that millennials are shaping the entire quick-service industry’s decisions.

Wendy’s Introduces Red for Commercials

Unlike McDonald’s and KFC, Wendy’s did not have to resurrect their mascot, Wendy, because she technically never left. In a conference call in 2014 with the chief executive, Emily Brolick, she introduced the Red character, who is a millennial herself, for Wendy’s commercials to appeal to the younger consumers (Lutz, 2014). Again, this was done because Wendy’s understands how important it is to appeal to the millennials and having a twenty-eight year old play Red is a great way for millennials to relate to her. Wendy’s also gave their sign a make-over and removed the phrase “Old-Fashioned Hamburgers,” because the company now offers salads and other healthy alternatives. Even though Wendy’s never had to resurrect their mascot, they changed the traditional Wendy’s sign and introduced Red in commercials to make Wendy’s more appealing to millennials which is exactly what McDonald’s, KFC, and other companies in the QSR industry are attempting.


13

Leaders in Quick-Service Restaurant Industry

Advertising and branding plays a giant role in the quick-service industry. As you can see in the two graphs below, the amount of advertising dollars spent by a company in this industry directly correlates to the amount of market share a company is able to attain. The pie chart at the bottom right of the page is limited to the United States as a sample because Wendy’s has such significant less international locations than McDonald’s and Yum Brands. Obviously other companies in this industry are spending millions on advertising, but McDonald’s, Yum Brands, and Wendy’s all are able to gain a competitive advantage through how they advertise.

Value Proposition

After analyzing McDonald’s, Yum Brands, and Wendy’s 10k financial reports, all three companies are modeling their businesses to create as much value as possible to the consumer. QSR restaurants are able to gain competitive advantage through having the healthiest and freshest food ingredients, combo meals, and obviously whichever is the cheapest price. The way that companies are able to promote their value proposition to the world is through their advertising and branding.

McDonald’s

Not only is McDonald’s making the switch to healthier ingredients to increase the value of their products, it is also using combo meals to give the consumer more bang for their buck. McDonald’s introduced the McPick 2, which allowed the consumer to pick two items from a list that cost two dollars for the combo.

Yum Brands

Yum Brands recognize that consumers are looking for the best value for their money, so they have also been implementing their own combo deals. Pizza Hut is offering a list of items that when you purchase two or more cost five dollars each, Taco Bell currently has a five dollar cravings deal which allows consumers to pick four items and a drink, and KFC currently is offering five dollar fill up boxes that have a few combinations to pick from as well.

Wendy’s

Just like the two leaders in the industry, Wendy’s introduced its own combo meal, the 4 for $4. It gives the consumer extra value because they are able to receive more food than usual for a much cheaper price.

Marketing/Brand Recognition(cont.)

Source: Statista 2015

McDonald's; 17.00%

Yum Brands; 10.80%

Wendy's ; 4.40%

Other; 67.80%

Market Share of Leading Fast-Food Brands in the U.S. 2015

McDonald's Yum Brands Wendy's OtherMcDonald's Yum Brands Wendy's

0

500

1,000

1,500

2,000

2,500

3,0002,670

1,650

352

2,640

1,180

346

2,490

1,770

351

Advertising Expenses - Top 3 Competitors in QSR Industry (in

million U.S. Dollars)

2012 2013 2014

Spen

ding

in U

.S. M

illio

ns o

f Dol

lars



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Figure 8 Figure 9

Marketing/Brand Recognition (cont.)

Strong Digital Presence

Another key way to connect with the consumer is to display a strong digital presence. Studies conducted by RBC Capital Markets have shown that among millennials, fast food restaurant traffic has slowed down by over 21% over the last seven years.

Despite the decrease in fast food traffic, fast-casual restaurant traffic has increased over this period. The NPD Group’s research finds that within this industry, Chipotle and Panera are two brands that have been very successful over the past seven years. One factor contributing to this success is that they both focus on branding within the digital space. Attracting millennial traffic is essential for the future of the QSR industry, and expanding digital presence has proven to be a good way to do so.

With smart phone accessibility rates at an all time high, digital advertising has been established as an essential medium for marketing. In 2015, digital marketing spending worldwide was $200.8 billion. By 2020, that number is expected to grow more than 50%, estimated at $306 billion. The chart below illustrates projected growth in the digital ad space. Social media spending for example is expected to rise by upwards of 80%.

Marketing in the QSR industry is so important because it allows companies to show the consumers what distinguishes them from their competitors. Quick service restaurants need to give customers a reason to choose their restaurant over another because of the wide range of options available to the consumer at most times.

Ability to connect with the consumer through:

• Localized Marketing Strategy• Strong Digital Presence

Localized Marketing Strategy

Many companies, depending on which industry they are in, implement a standardized marketing strategy which delivers a global brand image across various markets.

Another marketing strategy is localization, which takes into account the culture of different territories. Consumer studies have shown that in fast food chains’ marketing campaigns, consumers have a much better reaction to messages that represent their own culture. Localized marketing campaigns have shown to be essential when entering a new market.

A competitive advantage is lost when using standardization. When localizing fast food menus, customers’ satisfaction perception heightens. (Journal of Business and Retail Management Research, 2013).

Search Banner Social Media Video

$90.70

$43.50 $27.10 $20.70

$142.50

$69.80

$48.90 $45.50

Worldwide Digital Ad Revenue Forecast

2016 2021

*Dollar values expressed in billions

15

Figure 10



KSF 2:Utilizing LocationThe next key success factor in the QSR industry is utilizing location.

The key to having a smart location is making sure that the location of the restaurant is in a high traffic area and is convenient (Business Source Complete, 2012). Consumers looking to eat at quick-service restaurants are looking for convenience and for it to be a fast process. They aren’t going out of their way to dine at these restaurants.

Use of Data

In order for the restaurants in this industry to determine where the best location for their business is, a lot of them have been using specific applications that calculate geographic and demographic data. These specific applications are geographic information systems (GIS) and they are used to determine where to open up new locations (Ungerleider, 2014).

The two main competitors used are Esri and MapInfo (Ungerleider, 2014). They determine the location based off of the data overlays from auto traffic, safety information, consumer demographics, and commercial mix (Ungerleider, 2014).

Widespread Location

In addition to being smart about the specific location, in order to be successful in this business the restaurants need to have widespread locations. Figure 11 shows the revenue of the top competitors in this industry. Figure 12 shows the amount of units that these restaurants have worldwide. Having a good spread of locations is beneficial to the companies and plays a role in their success.

Emerging Economies

Making sure that they are being placed in developing economies with a rising middle class is another essential aspect for determining location. India, Brazil, Mexico, Indonesia and Vietnam are countries where placement of new QSR restaurants would be smart locations because of their emerging economies (First Research, 2016).

Mcdonalds

Subway

YUM! Brands

Chick-fil-A

Chipotle M

exican G

rill0

5,00010,00015,00020,00025,00030,00035,00040,00045,00050,000

QSR Chains worldwide locations

McDonalds Subway YUM! Brands

Chick-fil-A Chipotle Mexican

Grill

0

5

10

15

20

25

30

QSR Chains Worldwide Ranked by Revenue (In Billion U.S. Dollars)

Figure 11

Figure 12

16


Utilizing Location (cont.)India

In India, the QSR market is growing at a rate of 25% per year (The Economic Times, 2015) , and this growth is largely driven by the emergence of economies in smaller cities where real estate is cheaper and competition is limited. They are growing at such a rate because of the entry of various national and international players in the QSR industry. About 50% of India’s population eats out at least once every three months and 8 times in every month in bustling metros as compared to the US (14 times), Brazil (11 times), Thailand (10 times) and China (9 times)-according to Assocham Secretary General D S Rawat (The Economic Times, 2015).

A large share of the QSR market rests in metros and mini metros due to higher consumption, heightened consumer awareness, and exposure in key cities such as Delhi, Mumbai, Bangalore and Hyderabad (The Economic Times, 2015). There is a mix of company owned and franchised models. There are more than 120 brands with more than 4,000 outlets spread across various cities in India. By 2020 it is expected that 35% of India’s population will be in urban areas, totaling 52 crore compared to the current 34 crore (The Economic Times, 2015). India Has 356 million people between the ages of 10 and 24, giving it the world’s largest youth population (Gauba, 2015). Having a large millennial population is another reason why India is prospering in the QSR industry.

17

Industry Response- McDonald’s

McDonald’s has over 36,500 locations worldwide. China, Hong Kong and Korea collectively represent more than 2,800 locations, the majority of which are currently company owned (McDonald’s, 2016). In the next 5 years, McDonald’s plans to add more than 1,500 locations in China, Hong Kong and Korea.

Franchising

McDonald’s plans on franchising these locations out. This will allow these locations to be more localized, which will help market more towards the culture of the location. 80% of McDonald’s locations are already franchised out (McDonald’s, 2016). 44% of which are in emerging economies in China and Korea

Partnerships

By increasing the franchising in the Asian market, this will create partnerships with local vendors. This will reinvigorate growth, because McDonald’s believes that the locals have a better business model for their area, which will allow for maximized profit. In addition to creating partnerships in China, McDonald’s plans to create partnerships in Taiwan and Japan.


Source: CNBC, 2015Figure 13

Utilizing Location (cont.)

18

Industry Response- Yum! Brands

Yum! Brands has had the upper hand in the Asian market since 1987 (they opened the first KFC in China). KFC is the #1 Western QSR brand in China with more than 5,000 locations in over 1,100 cities (Yum! Brands, 2016). They have been able to localize their restaurants well because Yum! has local management teams in China.

Franchising

In addition to having local management teams in China, in 2015 Yum decided to franchise to Yum China (Bloomberg News, 2015). They were struggling and decided that this move to franchising would benefit them financially. This would also allow them to localize more efficiently with Yum China, as it is purely associated with the Chinese region.

Industry Response-Wendy’s

Similar to McDonald’s and Yum! Brands, Wendy’s has been largely focused on franchising their locations. While Wendy’s isn’t as invested in the Asian market, they are spread out across the globe. They intend to expand their franchises in the Middle East, North Africa, Singapore, Turkey, Russia, Eastern Caribbean region, Georgia, the Republic of Azerbaijan, Ecuador and Chile (Zack’s Equity Research, 2014). They also plan on exploring growth in China and Brazil. In addition to franchising out most of their locations, Wendy’s plans on creating partnerships in Argentina, the Philippines and Japan (Zack’s Equity Research, 2014).


Figure 14 above shows the revenue of Wendy’s franchised and company owned locations for each quarter between 2012 and half of 2014. This shows that the franchises are making more revenue than the company owned locations. This is because Wendy’s is able to increase revenues by charging royalties, fees and rent to the leased locations (Jones, 2014). They weren’t pushing for franchises until the third quarter in 2013 and that is where they started to see the escalation in revenue.

Figure 14

KSF3: Adapting to New Market Needs

Many different trends are expected to be changing in the quick service restaurant industry in 2016, so quick adaptation to these is crucial to succeeding in the industry. In the U.S. and globally, one of the biggest changes is the rising trend of healthy eating, which if not addressed and improved, could be a huge downfall for the industry. The trend leans strongly toward food and beverages that are considered “wholesome and real”. This has a direct link to “fresh” food as that is the mantra for healthier food choices that is growing in popularity.

AuthenticityAlong with the real food concept, adding authentic foods, such as ethnic options and ingredients from regional and local farmers, is key to adapting to this new trend. The authenticity aspect doesn’t stop at the food. Millennials want new experiences and places that are interesting to eat at.

Mindful DiningIn addition, mindful dining is a somewhat new concept that is expected to flourish in the next year. Mindful dining makes up the second level of characteristics that allow consumers to feel good about themselves while eating out. The millennial generation is leading these trends more than their elders, and as millennials are reaching their stages of success in life and acquiring more personal income, the quick service restaurant industry must be able to adapt to satisfy their new

wants and needs in order to profit.

Not only is the market changing rapidly, it’s changing differently all over the world. While broad trends are generally similar, if a corporation is global, their ability to adapt is even more crucial to ensure the different markets around the world are all satisfied.

Millennials are at the beginning of controlling the entire industry and they’re looking for stronger flavor profiles, nontraditional destinations, and savory foods that are still considered clean. Without a strong ability to adapt, quick service restaurants will not succeed.

The graph below shows the projected population of Millennials as a whole, and how far they will outgrow all surrounding generations.

19

In order to remain successful, quick service restaurants must adapt to the demands of the new generation controlling their market: Millennials

Millennials want:

• Healthier options

• Authentic foods and experiences

• “Real” Food (local or regional sources)

• Mindful Dining (ethical)

Source: Pew Research Center, 2014


Figure 15

KSF3: Adapting to New Market NeedsMcDonald’s

McDonald’s is by far the most established quick service restaurant in the world, but are they able to combat the millennial demands for healthier options that offer customizable menus? It’s possible but stats so far show a downfall in every aspect. The percentage of people aged 19-21 in the U.S. who visited McDonald’s monthly has fallen by 12.9% (Jargon, 2014).

During this same period, the percentage of 19-21 year olds increased their monthly visits to fast-casual restaurants by 2.3% (Jargon, 2014).

McDonald’s is pushing hard with new items like their McWrap sandwiches (chicken and vegetables rolled in tortillas) to hopefully capture the attention of millennials.

YUM! Brands

Millennials have a wider range of choices than any generation before them and they’re promiscuous in their brand loyalty, making it harder for QSRs to earn the loyalty of the generation.

KFC has started an effort to offer novelty and communicate with a warm, personal tone to capture the attention of millennials.

Starting in Texas, Pizza Huts everywhere are getting massive makeovers with modernized ovens and spruced up interiors (Harrison, 2016). The rebrand will include industrial-style lighting, exposed rock walls, and ovens that can cook pizzas at 575 degrees in just 3 minutes. It is expected that all Pizza Huts will be remodeled by 2022.

Wendy’s

• Creating the “Red” character for commercials

The Redhead featured in all of Wendy’s commercials is a 28 year millennial who expresses the same desires as millennials in the real world. Her desires are supposedly met in the commercials.

• Digital Marketing

The company launched their pretzel bacon cheeseburger with a digital promotion that featured carious performers singing consumers’ Facebook comments and tweets about the company. This is important for the company because they reached the millennial consumers at a fraction of the cost

• New menu items

Wendy’s is also focusing on adding healthier items to their menu. They have added a multitude of new items including the Asiago Ranch Chicken club, BBQ Ranch Chicken Salad, and the Asian Cashew Chicken Salad.

20

Source: Wall Street Journal, 2014


Figure 16

Key MetricsFinancial Performance

Current Ratio

1) McDonald’s Corporation – 3.27

2) The Wendy’s Company – 2.29

3) YUM! Brands, Inc. – 0.55

The current ratio is a measure of a company’s solvency. This ratio indicates the ability to pay obligations when they come due as well as well as the ability to meet long term fixed expenses.

Equity multiplier




An equity multiplier is a measure of a company’s financial leverage. A lower equity multiplier shows that a company uses less debt to finance its assets.

Total Asset Turnover




Total asset turnover measures the efficiency of how a company uses its assets to generate revenue. A higher ratio implies that the company is performing well.

Profit Margin

10) McDonald’s Corporation – 18.84%

11) YUM! Brands, Inc. – 10.97%


Future IndicationsP/E Ratio




A P/E ratio is a valuation metric that essentially shows how much investors are willing to pay per dollar of company earnings. A higher P/E ratio is often an implication of higher earnings growth in the future.

Currently, we see Wendy’s as the Company that is likely to experience the most growth in the future. Wendy’s had the highest one year return rate out of our three competitors at 22.06%, more than doubling that of YUM Brands.

Below is a graph that represents the growth percentage in stock price among our three competitors over the last 5 years.

Wendy’s also has the highest year over year earnings of 20%, comparing that to McDonald’s 11.83% and YUM’s 15.75%.

NASDAQ’s Estimated 5-year avg. annualized growth rate:

4) The Wendy’s Company – 14.85%

5) YUM! Brands, Inc. – 10.98%

6) McDonald’s Company – 9.66%

Wendy’s has also been able to increase net profits by over 250% in the last three years, despite a significant 22% decrease in revenues over this time.,

WEN YUMMCD

Bloomberg, 2016


21

Figure 17

Key Success Factor Scoring Matrix

Although we identified Wendy’s as most likely to see the highest growth rate in the near future, YUM Brands, Inc. is the company that we recognized as best positioned for the future according to our weighted scoring matrix. For our key success factors, “marketing/brand recognition” and “utilizing location” hold equal weights of 35%, and “adapting to new market needs” has a lower weight of 30%. The reason for these weights is that “marketing/brand recognition” and “utilizing location” are necessary to get customers in the restaurant. If these two key success factors are not utilized, then having the ability to adapt to new market needs lacks significance. Adapting to new market needs is important in maintaining customers’ satisfaction, but it does not have the ability to draw in business like the other two key success factors, therefore giving it less weight.

This scoring matrix is a good representation of how utilizing each of these key success factor is important in the QSR industry. For example, YUM only has the highest weighted score in one of the three categories, however, their ability to use all three at a high level has them scored highest among the three competitors. Despite such tremendous growth in the past few years, one of the main reasons that Wendy’s scored the lowest out of the three competitors is their low score for “utilizing location”. We see Wendy’s lack of global presence as a major restriction to their future success. McDonald’s and YUM’s ability to tap into new and emerging markets gives them a major advantage over Wendy’s.


22

ConclusionThe Quick-Service Restaurant industry is divided between fast food and fast casual. While fast food is the larger component of the industry, fast casual is the way that the consumers want to be eating. This has become a popular trend and is one that the fast food restaurants have been taking into account. It is a very competitive industry and by incorporating the following business practices into their plan, a restaurant will be able to thrive in this industry.

• Marketing efficiently and towards the right demographics. The millennials are the key buyers in this industry and the competitors in this industry need to be able to focus their attention on them. They can do so by focusing on healthy eating, localizing their marketing strategy, having a strong digital presence, bringing back old mascots and changing their décor and menu items.

• Utilizing locations. Having many different locations is one thing, but making sure that the locations are in a high traffic area and an up and coming area is where the businesses in this industry need to be.

• Being able to adapt to new market needs. As stated above, the millennials are the target consumers, and being able to adapt to their preferences is key to bringing them in to your business.

The businesses in this industry will be able to achieve these because the industry is keeping up with the trends that the millennials are looking for. The industry has been more focused on healthier food options, being environmentally friendly, incorporating different forms of online ordering and globalizing. Not only keeping up with these industry trends, but setting these industry trends is the way to prosper in this industry.

From our research and analysis of the quick-service restaurant industry, we have determined YUM! Brands, Inc. is best positioned for future success in the global quick-service restaurant industry.

23


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Balsamo, E. (2015). Changing Legislation on the Minimum Wage in the US and its Potential Impact on the Fast Food Industry. Retrieved August 25, 2016 from http://passport.com/

Bloomberg News. (2015, October). Yum Brands To Separate China Business After Three Decades. Retrieved September 14, 2016 from http://adage.com/

Bryant, C. (2015). Fast Food Slows Down. Retrieved August 24, 2016 from http://Mintel.com/

Business Source Complete. (2012). Fast Food Industry Profile: Global, 1-34. Retrieved August 25, 2016 from http://ebscohost.com/

Business Wire. (2016, April). Yum! Brands Promotes David Gibbs to President and Chief Financial Officer. Retrieved September 15, 2016 from http://www.businesswire.com/

Decker, L., Fromm, J., & Lindell, C. (2011). American Millennials: Deciphering the Enigma Generation. Retrieved from Barkley:

http://barkley.s3.amazonaws.com/barkleyus/AmericanMillennials.pdf

First Research. (2016). Fast-Food and Quick-Service Restaurants. Retrieved August 24, 2016 http://firstresearch.com/

Fry, Richard. (April 2014). Millennials overtake Baby Boomers as America’s largest generation. Retrieved from http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-

boomers/

Gauba. (2015, April). India’s fast-food industry is becoming a major market. Retrieved September 14, 2016 from http://www.cnbc.com/

Globaldata. (2016). The Wendy’s Company. Retrieved August 24, 2016 from OneSource database

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Graham, Jed. (August 2016). Fast Food Prices Have Never Risen So Fast Vs. Eating In Costs. Retrieved from: http://www.investors.com/news/fast-food-prices-have-never-risen-so-

fast-vs-eating-in-costs/

Harrison, Ian. (January 2016). The New KFC Is a Half-Baked Plea to Millennials. Retrieved from http://www.eater.com/2016/1/27/10849680/kfc-mcdonalds-pizza-hut-plea-to- millennials

Jargon, Julie. (August 2014). McDonald's Faces 'Millennial' Challenge. Retrieved from http://www.wsj.com/articles/mcdonalds-faces-millennial-challenge-1408928743

Reference List Appendix A Appendix B Appendix C

24

References (cont.)Jones. (2014, August). Must-know: Why Wendy’s is selling its company-owned restaurants. Retrieved September 25, 2016 from http://marketrealist.com

Kneiszel. (2015, September). Playing the Part. Retrieved September 15, 2016 from https://www.qsrmagazine.com/

Lutz, Ashley. (May 2014). Wendy's Is Changing Up Its Strategy To Attract Millennials. Retrieved from http://www.businessinsider.com/wendys-strategy-to-attract-millennials-2014-5

MBA Crystal Ball. Porter’s Five Forces. Retrieved August 27, 2016 from http://www.mbacrystalball.com/

McDonald’s. (2016, March). McDonald’s Announces Plans to Unlock Growth Potential in Asia. Retrieved September 14, 2016 from http://news.mcdonalds.com/

McGrath, M. (2014, April) How Millennials Will Dictate The Future Of Fast Food. Retrieved August 27, 2016 from http://www.business-source-complete.com/

Mintel. (2016 May). Quick Service Restaurants-U.S. Retrieved August 24, 2016 from http://www.mintel.com

Passport. (2016, July) Online, Mobile and Delivery: Three Trends that are Changing the Way we Dine Out. Retrieved August 26, 2016 from http://www.portal.euromonitor.com

Patton. (2015, December). Yum Lays Out Plans to Finally Go Big With Taco Bell Overseas. Retrieved September 15, 2016 from http://www.bloomberg.com/

Plunkett Research. (2016, April). Fast Food Faces Stiff Competition from Casual Dining Restaurants. Retrieved August 25, 2016, from http://plunkettresearch.com

Roderick, L. (2016). McDonald's Claims it is Showing a ‘Brand Evolution' as it Launches New Happy Meal Ad. Retrieved August 28, 2016 from http://ebscohost.com

Smith. (2011). Union Leaders Aren’t Giving Up on Your Crew. Retrieved September 2, 2016 from https://www.qsrmagazine.com/

Statista. (2013). Wages in the U.S: public opinion on raising the minimum wage 2013. Retrieved September 7, 2016 from http://statista.com/

Statista. (2014). Fast-Food and Fast-Casual Restaurant Visitation in the United States as of July 2014. Retrieved August 29, 2016 from http://Statista.com/

Statista (2015). Number of Chipotle Mexican Grill restaurants worldwide 2007-2015. Retrieved September 2, 2016 from http://www.statista.com/

25


Statista. (2015). Number of McDonald’s restaurants worldwide 2005-2015. Retrieved September 2, 2016 from http://www.statista.com/

Statista. (2015). Number of YUM! Brands units 2006-2015. Retrieved September 2, 2016 from http://www.statista.com/

Statista. (2015). Quick-service (fast food) restaurants in the U.S. - Statista Dossier. Retrieved August 22, 2016 from http://www.statista.com/

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Statista. (2016). Advertising Spending of Wendy’s in the United States from 2013 to 2015 (in million U.S. dollars). Retrieved September 13, 2016 from http://statista.com/

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http://www.prnewswire.com/

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References (cont.)

26


Supplier Power Buyer Power

Threat of New Entry

Threat of Substitution

Competitive Rivalry

Appendix A: Porter’s AnalysisThreat of New Entry

Moderate threat Barriers to entry

(regulations) Not an immediate threat

to big players Low profit margins are

unattractive to those unable to operate on large scale

Competitive Rivalry Moderate/strong threat Large amount of

competitors Several big players

dominate market share

Buyer Power Very strong force Wide variety of options to

choose from

Supplier Power Moderate force Suppliers with

established brand have more bargaining power

Multiple suppliers available for similar cost

Threat of Substitution Very strong force Many QSR’s in most

areas that offer similar products

27


Appendix A: Porter’s Analysis (cont.)

In the quick service restaurant industry, there is a moderate threat to new entry because of the barriers set in place. Some of these barriers include:

• High overhead costs• State and federal regulations• Trademarks and Patents • Capital Investment • Accessing Distribution Channels• Economies of Scale

The big players in the industry hold an advantage in mass production. In mass production, as the businesses efficiency increases their costs decrease. This makes it difficult for new entrants to gain enough ground and rise up in the industry. Along with that, the high start up costs and ongoing capital requirements involved in franchising your business. make it a headache to try and enter this industry.

Companies in the global market have to market their brand to suit the cultures and social norms of their customers. New players have a difficult time getting their name out there because advertising campaigns are so expensive and firms that are already established have the ability to retaliate aggressively against new players trying to enter the market. Social media, however, is giving new entrants an even playing field in terms of marketing communications. This allows the firms to eliminate a need for expensive advertisements and just focus on effectively communicating their message. In

addition, the big players make it difficult for new entrants to access their distribution channels. The threat of new entry isn’t an immediate concern to big players due to the number of worldwide establishments by the industries top competitors

An entrepreneur looking to join the QSR industry has a complex set of permissions before opening a restaurant. Permissions include maneuvering around different countries state and federal regulations. Some examples of this is the federal trade commission and the Americans disabilities act. As well, a new entrant would also be tasked with creating a product that is unique enough to set it apart from the competitors. This puts up a lot of barriers for new entrants in the industry making it a moderate threat to big players. Although it is very difficult to be a top company in the industry, the smaller players make up 60% of the industry in the U.S.

Threat to New Entry

Subway

McDonald's

Starbucks

Dunkin' D

onuts

Pizza Hut

Burger King

Taco Bell

Wendy's

Domino's Pizz

a

Dairy Q

ueenKFC

0

5,000

10,000

15,000

20,000

25,000

30,000

Leading quick service restaurant chains in the U.S. in 2015, by number of units

28Figure 18




There are three main threats of substitution of quick serve restaurant products.

These are meals from: • fast casual restaurants• convenience stores/grocery stores• eating at home.

The competing options are all as easy and convenient as going to a quick service restaurant so the threat of these substitute products is very high (Greenspan). There is a lack of differentiation in the QSR industry and these substitute products allow endless differentiation and can have higher quality, so these threats are something to be addressed(MBA Crystal Ball).

These ready to eat meals are popping up in local convenience stores and grocery stores and are taking away from the QSR industry because the consumers already have other reasons for being in these other businesses, so it is becoming more convenient for them to just buy their food there (Mintel).

There are over 200,000 fast food restaurants in the quick service restaurant industry, making the competitive rivalry a

very strong force. With the industry slowing down its growth, firms are starting to reach the maturity stage of the industry lifecycle. Quick service restaurants have high fixed costs, meaning they need to sell high volumes to recuperate.

Because selling high volumes is essential to staying a top competitor in the industry, quick service restaurants are going above and beyond to fight for the cheapest, yet most popular, meal on the market.

Looking at any fast food restaurant in your surroundings, you can see how obvious this is. Wendy’s 4 for $4, McDonalds McPick 2, Pizza Hut has now launched a seven-item menu for only $5, Burger King just released a 5 item meal for only $4, and there are many more.

All of these promotions are strategies with huge risk by corporations to bring in new customers.

Threat of Substitution Competitive Rivalry

29



Supplier PowerQuick Service restaurants depend on their suppliers for almost every component of their functioning operation. From the food products to something as simple as napkins, a supplier is used.

The sizeable amount of suppliers seriously limits the bargaining power of suppliers. Usually, suppliers have very weak control over the Quick-Service industry, because there are so many substitutes that can easily be attained for the same price.

To combat the fact of buyers having a multitude of choices for suppliers, an individual supplier is forced to offer incentives to buy from them to stand out from the rest of the crowd.

Incentives can range from:• Lower Prices• Faster delivery times• Flexible credit terms• Higher quality products• Volume discounts

The bargaining power of a supplier can largely depend on their consumer base. Suppliers with few customers will have to negotiate more towards their customer’s demands, whereas a supplier with a large customer base can stand to lose a buyer’s account without hurting financially.

Suppliers with an established brand have more bargaining power than those who sell generic products. This power increases greatly if the supplier has an established brand with a great reputation, in which case, the buyer can use the supplier’s brand in their marketing plans to attract more customers.

Buyer PowerIn the Quick Service Restaurant Industry, buyers have a surplus of suppliers to choose to buy their products from. Because a buyer tends to make up a large portion of the supplier’s revenue and they can replace suppliers without difficulty, the buyer generally has a larger advantage.

Buyer power can also escalate from increased supplier competition. Competition between suppliers increases the buyer’s bargaining power because the quick service restaurants are able to pick and choose, forcing the supplier to offer special deals and incentives to stand out from other suppliers.

Fortunately for buyers, a spike in supplier power usually does not last long. If the demand for supplies is high enough, other suppliers will enter the market to serve the target market. Corporations will also search more intensely to purchase, or even develop, alternatives.

30


Appendix B: PESTLE Analysis

PoliticalOn a global scale, opportunities arise in the industry to expand business based on improved international trade. The industry has the ability to reform practices and strategies to lessen the impact of the government taxation without breaking the law.

On the other hand, public health policy increasingly tends to avert people from consuming fast foods. Nonetheless, the industry and individual corporations have the opportunity to acknowledge this external factor by refining the healthfulness of its products.

In the U.S., new minimum wage laws are a possibility, making labor costs increase significantly in the quick service restaurant industry if imposed.

The European Union is beginning to monitor GMO use, typically found in fast food. To continue expansion in the EU, quick service restaurants will need to improve products to stay up to par with the EU’s standards.

Most quick service restaurants have the opportunity to internationally expand based on increasing integration and alliances among countries around the world. Most major markets are politically stable which presents minimal barriers and challenges for corporations to expand.

In the political aspect of the PESTLE Analysis of the quick service restaurant industry, the political external factors present opportunities that outweigh the threats.

EconomicWhile the U.S. Economy is mostly stable and improving after the 2008 recession, providing opportunity for growth in profit in the U.S., the Chinese economy is slowing down and the European market is very risky.

The U.S. Economy is stable, but inflation is hurting the QSR Industry that survives off their suppliers’ consistently low prices.

McDonald’s CFO stated this summer, “While we are benefiting from favorable commodity costs around the world, we are facing rising labor costs in many of our markets, as a result, we are carefully balancing price increases with a focus on maintaining our strong value proposition.” (as cited in Graham, 2016). He noted that because of this, their menu prices were up about 3% from the previous year.

Food-at-home is becoming much less expensive than in years past, while fast food prices are continually rising. Prices of limited service meals and snacks are up 6%, while food at home costs 0.7% less than it did two years ago (Graham). This is the biggest gap between the two since the Bureau of Labor Statistics began breaking out fast-food prices in the late 1990s.

http://www.investors.com/news/fast-food-prices-have-never-risen-so-fast-vs-eating-in-costs/

31 Figure 19


It is essential for brands within the QSR industry to evolve their businesses constantly in order to keep up with technological trends. Accessibility to consumers is key in acquiring customers. One way to do so is having online and mobile platforms for ordering and payments. For example, mobile orders in China make up almost 30% of all fast food sales, compared to the 10% global average.

Competitors Filling The Online and Mobile Space

Many new competitors emerging in the food industry are not even restaurants. In recent years, meal delivery subscription services and recipe box deliveries such as Blue Apron, Plated, and Hello Fresh have grown in popularity. Tech savvy consumers are changing their expectations for service, which does not necessarily involve human interaction.

Key advancements with technology

• Industry Research and Development

• Increase Business Automation

• Increase Sales Through Mobile Platform

The graph below identifies the top four out of 14 reasons that consumers use a restaurant’s smart phone app.

Climate Change plays a significant role in the Quick-Service Restaurant industry. Rising temperatures play a large role in the availability and price of produce and livestock. Warmer temperatures cause some crops to grow much faster, but with a reduction in the amount yielded. More extreme temperature and precipitation can prevent crops from growing at all.

Another factor that the rising temperature impacts is livestock. Over time, heat stress can increase the risk of disease, reduce fertility in the animals, and even reduce milk production.

Other environmental factors can cause problems to food production for the Quick-Service Industry. Extreme floods and droughts can also impact the production of crops. In 2008, an estimated $8 billion was lost for farmers due to the Mississippi River flooding right before the harvest period for many crops (EPA.Gov/ClimateChange). Losing that much product has a direct effect on the Quick-Service Industry, because in that industry prices from suppliers need to be as cheap as possible to maintain high margins for sales on cheap food.

Drought also reduces the amount of quality feed available to grazing livestock. A reduction in quality livestock with an increased risk in disease is detrimental to the Quick-Service Industry. With one of the main pros of the industry being cheap food with high quality, the climate change will surely impact the price of quality produce and livestock.

Technology

55%46% 45%

38%

Re asons for us ing Re st aurant A pp

Share of respondents Statista, 2016

Environmental

Appendix B: PESTLE Analysis (cont.)

32

Climate Change can affect crop growth and the wellbeing of livestockExtreme Floods wipe out significant amounts of harvest cropsDroughts reduces the amount of quality feed available for livestock

Figure 20


Menu/Prices Hrs. of Operation Locations Current Deals


The biggest trend affecting the social spectrum of the QSR industry is a move away from greasy, unhealthy foods. This trend can be seen as a threat to big players like McDonalds or Yum! Brands, who are often criticized for the negative health effects from their food. Consumers want more healthy options on the menu for the same great price. Subway was one of the first restaurants to capitalize on the weight and health concerns of consumers and successfully market the health benefits of their sandwiches. McDonalds introduced a new healthy choices menu that has had varying levels of success. Since healthy options cost more to the firm, companies have been investing in their international operations as a part of a long-term strategy to focus on emerging economies due to slow domestic growth.

Globally, QSR are growing at a steady rate and with that, comes a much more culturally diverse target market that they must adapt to. Many global chains are viewing China as a market that has a strong potential for growth accompanied with long term

profitability. The industry is still expecting to see growth in healthy eating in 2016, as consumers become increasingly aware of issues relating obesity and weight. Another trend seen as an opportunity is the widening wealth gap. The QSR industry’s target consumer market is mostly from medium to low-income households. With the gap widening, Companies are starting to see steady growth from the lower end of the spectrum.

An opportunity that the QSR industry can take advantage of is how increasingly busy our lifestyles are becoming. The busier that we are throughout the day the easier it is for the consumer to just give in to the cheap fast food option. Firms such as Wendy’s are attempting to improve their food quality in order to retain and gain new customers. Consumers hope with these trends in 2016 that the fast food market can add healthy options to their menu while still improving their quality.

Subway

Chick-Fil-A

Chipotle

Baja FreshArby's

Burger King

KFC

Jimmy J

ohn's

Wendy's

McDonald's

Jack In th

e BoxQdoba

Del Taco

Hardee's

Taco Bell

Five G

uys

Carl's Jr

Captain D's

Church's

In-N-O

utOther

None of these

Do not know

0

2

4

6

8

10

12

14

16

18

20 19

10 10

87

5

3 32 2

1 1 1 1 1 1 1 1 1 1 1

7

11

Global fast food chains with the healthiest food in the U.S. as of August 2014

Ranked in %

Social

33Figure 21




There are a few legal threats on the quick service restaurant industry.

The main contenders are:• the rise of minimum wage levels in the U.S.• Health and food safety regulations • support for unions in developing countries

Citizens in the U.S. are becoming more aware of the low wage of the fast food industry and this increased awareness is hurting the image of the industry. In order to regain their image, a few restaurants have mandated some legal action.

McDonalds has started implementing a minimum wage change of $1 in company owned outlets, they plan to raise this to a $10 minimum wage in 2017 (Balsamo). If the minimum wage reform goes through to $15 fast food operators will need to adjust to it and that could lead to serious job cuts in the industry in order to maintain profit when labor costs rise (Balsamo).

Figure 3 shows a public opinion in 2013 when

they believed the minimum wage should be increased to $10.10. The reform is likely to go through if the trend is similar for the increase to $15.

Health and safety regulations are a constant factor that needs to be accounted for when working in this industry. Making sure that all employees are following regulations is imperative so no lawsuits breakout against companies.

The push for unionization is another threat for the industry (Young). While many employees in the industry have attempted protests at the lack of unionization, they haven’t succeeded(Smith). The protestors have been evolving their practices though, which could lead to a bigger threat in the future.

All of these are potential threats to the industry, but at this point in time there isn’t any serious legal action taking place in the QSR industry.

Legal

34Figure 22


McDonald’s Corporation Business Model Canvas

• Kraft

• Angry Birds

• Nintendo

• PokemonGo

• Coca-Cola

• 67% Revenue stream from company-operated sales

• 33% Revenue from franchised operations

• Typically less expensive than competitors

• Fun meals for kids

• Different food combination choices

• Cooking

• Boxing

• Branding

• TV ads• Social Media• Heavy bilboard advertising

• US Market

• International Lead Markets

• High Growth Markets

• Foundational Markets and Corporate

• Raw Materials

• Labor

• New Toys

• Website

• Nutrition options and information

• Advertising/Marketing• Labor• Materials• Research


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Wendy’s Business Model Canvas

• Clarabridge (Text analytics Software)

• Coca-Cola

• Stubhub (Digital Coupon Campaign)

• Social Media Partners

• Over 90% of revenue comes from franchised restaurants and the goal is to keep growing that number

• American Market

• Asian Market

• European Market

• Millennial Generation

• Generation X

• Baby Boomers• Social Media Presence

• Huge TV Advertisements

• Labor wages• Food costs• Advertising costs

• Very cheap value menu

• 4 for $4

• Healthy and Fresh locally sourced beef

• Brand Recognition

• Customer Service

• Fast and efficient service

• Quality customer service

• Qualified employees

• Food suppliers

• Disposable kitchenware suppliers


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Yum! Brands Business Model Canvas

• Doritos

• Mountain Dew

• Food Suppliers

• Pepsi

• Cinnabon

• Marketing

• Branding

• Adapting

• Combo Meals

• Convenience

• Cheap

• Healthy Options

• Speed

• Variety of Items

• Branding• Customer Service

• American Market

• Asian Market

• European Market

• Millennials

• Generation X

• Baby Boomers• Cheap Labor• Drive-thru

• Television• Radio• Social Media• Internet

• Food• Employees Wages• Advertising

• Franchising• Customer Purchases


37

Quick Service Restaurant Industry Analysis

Business

Transcript of Quick Service Restaurant Industry Analysis