McDonalds is the leader of the industry with more than 33 500 restaurants serving nearly 68 million people in 119 countries each day. McDonalds, with headquarters in the United States, opened First store in 1940 by the McDonald brothers. The Industry is the Global Food Service. The Industry is at mature stage of its cycle in US. This is demonstrated by the low average growth rate about 4%-6%. * Combined annual revenue of about $120 billion
* Industry is highly fragmented: the top 50 companies hold 25% of sales * The industry is highly labor-intensive: the average annual revenue per worker is just under $40,000 * Most fast-food restaurants specialize in a few main dishes * Restaurants include national and regional chains, franchises, and independent operators * Most fast-food restaurants use a POS (point of sale) system to take orders from drive-thrus and the register Product Segments in Fast-food Services are:
* Burger Segment
Economic Factors affecting Industry
* How does a Recession affect the limited-service restaurant industry? * As a general rule, when disposable personal income is tight, fast food restaurants fare better than their casual and high end cousins because people will shift their purchases downward. * The best recession survival plan is having a well-advertised $Dollar menu and tight cost controls in place.
* Banks have an injection of capital and are being urged by the government to make loans. * More stringent rules on obtaining loans from banks to make much need expansions or updates. . * Social Factors
* The fast food industry pays close attention to what the society wants and needs. * Must add value by being affordable and of consistent quality. * Menus with a vast variety of products
* Healthier options and brand Image needs to be provided
* Must be convenient and fast to accommodate the fast pace of customers lifestyles.
The Five forces Model
* Threat of New Entrants
* Economies of Scale:
The firms in the limited-service restaurant class do see some advantages to economies of scale, but these advantages are undermined by the ease of creating a quick service restaurant. The saturation of the industry is also a huge limiter of how much an advantage can be attained by economies of scale. Product Differentiation:
While differentiation is a large and necessary expense for the large fast food chains in the industry, it is not difficult for private startups to overcome and thus not a significant barrier to market entry. * Capital Requirements:
Capital requirements will quell the formation of new, national competitors, but is not a significant barrier to private startups. * Cost Disadvantages:
These disadvantages stem form the fact that “established companies already have product technology, access to raw materials, favorable sites, advantages in the form of government subsidies, and experience” (referenceforbusiness.com). The extreme saturation and similarity in product offering make convenient locations essential for quick service restaurants large and small. This is a significant barrier to entry. * Distribution Channels:
Speedy and reliable channels are essential among all firms in the industry, they are not necessarily difficult for new comers to attain, however. Also the economies of scale enjoyed by large firms are not so great as to shut out smaller competitors. * Government Regulation:
Government regulation is more intense for the larger firms which have to deal with franchising regulations. Smaller establishments are subject to the standard array of government regulations including: zoning, health, safety, sanitation, and building. These are standard for almost any new business and...
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