Industry Analysis Limited Service Eating Places Industry

Topics: McDonald's, Fast food, Fast food restaurant Pages: 9 (2844 words) Published: November 24, 2007
Part I – Industry Definition
Limited-Service Eating Places Industry

"Limited-Service Eating Places in the US" (NAICS 72221 and SIC 5812) is an industry that consist mainly of establishments that provide food service where customers usually order and pay for the items before eating. This industry, which accounts for more than one third of the entire restaurant dining industry, is categorized into three main segments (Bramhall). The first segment is limited service restaurants, which include drive thru and take out facilities. This segment currently has the largest market share. These establishments tend to specialize in limited menu items, such as hamburgers, pizza, sandwiches, and/or chicken (Basham 9). The second segment includes coffee shops, ice cream and donut shops. And the last segment consists of cafeterias. Establishments such as ice cream or yogurt shops, doughnut shops, bagel shops and cookie shops are also categorized under this industry. Key players in this industry are McDonald's Corporation, Starbucks Corporation, Yum! Brands, Incorporated and Doctor's Associates Inc.

Part II – Industry Size, Growth Rate, and Sales Projections Limited-Service Eating Places Industry

Industry Size – Constant Prices

Industry Revenue151,934150,270155,010159,350162,856$Mil Number of Establishments271,640277,616284,279288,259292,583Units Employment3,579,2083,625,7383,676,4983,716,9403,754,109Units

Industry Growth Rate

Industry Revenue(1.8)(1.1)
Number of Establishments(1.0)

Industry Sales Projections

Industry Revenue164,810169,260173,830179,045183,700$Mil Growth1.


Source: IBISWorld Inc.

The industry is in the mature stage of its life cycle. Some of the primary reasons for this are that it's in a low growth phase, slower growth in the opening of new stores and low profitability. The industry is also nearing its saturation point (Limited-Service 14). Most the establishments being opened are franchise operations located overseas. Although competition is very high, the amount of internal competition alone continuously increases. The main point for internal competition is food quality and consistency, but there is increased competition in the range of products being offered. The changing consumer demands of being a health conscious society have not been easy for the fast food service establishments. A trend for 2007 was an increased focus on enhancing breakfast menu items. Many establishments, such as Wendy's and Burger King, are expanding their breakfast menu items in order to try and compete with the leader, McDonald's Corporation. Even coffee giant, Starbucks Corporation, has started to offer hot breakfast sandwiches in a few of their establishments (Basham 3). There has also been an increase in the enhancement of drive-thru services. It is becoming evident that the consumer is always on-the-go and always looking for dining options that are quick and easy. A recent survey of 1,000 consumers by QSR Magazine reported that consumers visit a drive-thru service an average of 5.7 times over 60 days, more than one third use a drive-thru service more than six times over 60 days and 45 percent prefer the drive-thru option versus dining in (Nuckolls 1). An important factor in the success of drive-thru establishments is that consumers are looking for accuracy. Consumers are simply asking that at most, the order has to be right.

Part III – Industry Characteristics
Limited-Service Eating Places Industry

Industry Structure

Even though the level of capital intensity for this industry is low, it is very labor intensive. Labor intensity occurs mainly in the ordering, food preparation and service of customers (Limited-Service 18). Since this industry is quite mature, one...
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