It’s no secret, Americans love fast food and it’s not only just them! This new trend in the food industry has spread all around the globe; thereby, making it one of the fastest growing segments in the food industry. The main characteristics of the fast food industry are quick preparation and service of food such as Burgers, Fries, Pizzas, and wraps. They provide minimal table services, and offer on-site consumption or take out services. Frequently, the food is standardized and shipped from a central location. Normally, they served pre-heated or pre-cooked fast, and efficient food at affordable prices. The demand of products in this industry is driven by consumer taste and personal income. The profitability of the companies depends on efficient operation and product marketing.
The IBISWorld, a statistics portal, that collects data and conducts research for over 1,000 industries presented facts and statistics regarding United States fast food industry. As we can see from the exhibit 1, the fast food industry in the United States generated 191.03 billion U.S dollars in 2013; this figure was forecasted to exceed 210 billion by 2018 (IBISWorld, 2014). IBISWorld also put forward that in 2013, there were more than 232,000 fast food establishments in the United States, employing over three and a half million people (IBISWorld, 2014). According to the Intelligence Report on fast food restaurants by Ideologic Branding Agency, this fast food industry in the United States is highly fragmented: the 50 largest companies account for only 20% of the revenue (Ideologic Branding Agency, 2013). Today, the United States market has one of the largest fast food industries in the world, and more than 100 countries around the world would have franchised American-owned fast food restaurants. The fast food industry in United States is highly disintegrated and therefore, for any investor to enter this industry a thorough analysis of the industry is required. This report briefly conducts comprehensive analysis of the fast food industry of the United States using Porter’s Five Forces framework. In addition, the report emphasizes how fast food industry leaders such as McDonald’s, and Yum! Brands identified their competitive advantages and took actions to sustain their above average profitability. Finally, this report concludes with the challenges theses firms are currently facing and their potential outlook for these in next five years.
Industry Analysis: Porter’s Five Forces Model
The “Porter’s Five Forces” model assisted in analyzing the competitive forces affecting the United States fast food industry. Within this framework each force is rated by its strength of the force and the degree to which it affects the industry’s profitability: “a strong competitive force can be considered as a threat because it depress profits, whereas a weak competitive force can be regarded as an opportunity because it allows the company to earn greater profit” (Hill & Jones, 2012). The following are the briefly analyzed competitive forces of the fast food industry.
Threat of New Entrants:
A) Brand Equity (High): The industry is dominated by number of Quick Service Restaurants (QSR) or fast food chains such as McDonald’s Corporations and Yum! Brand Inc. that includes KFC, Pizza hut and Taco Bell. According to IBISWorld, McDonald’s lead the market with total market shares of 21.7% followed by Yum! Brands with the total market shares of 8.1% (IBISWorld, 2014). Exhibit 3 demonstrates the market share of leading brands in the fast food industry in 2013. Reputational capital is extremely vital in this highly fragmented market to enhance the consumer perceived value. These brands have established strong recognition and customer loyalty. The new players will struggle to establish same degree of brand equity due to lack of brand awareness and reputational capital to utilize. B) High Differentiation of Products with Existing Products (Moderate): One of...
Bibliography: Yum! Brands: Growth Prospects In Future. (2014, March 30). Retrieved October 1, 2014, from www.gurufocus.com: http://www.gurufocus.com/news/253333/yum-brands-growth-prospects-in-future
YUM! Financial Data: Restaurant Counts
Vignali, C. (2001). British Food Journal , 103 (2), 97-111.
About Yum! Brands. (n.d.). Retrieved October 1, 2014, from www.yum.com: http://www.yum.com/company
Ideologic Branding Agency. (2013). Intelligence Report: Fast Food + Quick Service Restaurants . Ideologic Creative Agency.
Investors Release. (n.d.). Retrieved October 1, 2014, from investor.yum.com: http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsArticle&ID=1920889&highlight=).
Hill, C., & Jones, G
Nowak, D. (n.d.). Retrieved October 1, 2014, from www.yum.com: http://www.yum.com/investors/annualreport/03annualreport/pdf/yum_p01_p07.pdf
MCD Company Financials. (n.d.). Retrieved October 1, 2014, from www.nasdaq.com: http://www.nasdaq.com/symbol/mcd/financials?query=ratios
McDonald 's Corporation: Forecast Earnings Growth
McDonald 's Corporations . (2014, February). McDonald 's 2013 Financial Information Workbook: Survey.
Transperency Market Research Pvt. Ltd. (2014). Global Fast Food Market - Industry Analysis, Size, Share, Growth, Trends, and Forecast, 2013 - 2019. Transperency Market Research.
Please join StudyMode to read the full document