Fast Food Restaurants (QSR)

RECENT NEWS
Clusterstock  Nov 20  Comment 
(Reuters) - Shares of Habit Restaurants Inc , a fast food restaurant chain known for its charburgers, doubled in their market debut, valuing the company at about $909.1 million. The initial public offering of 5 million Class A shares raised $90...
Forbes  Nov 20  Comment 
Which fast-food chains get your meal to you the fastest? A new survey from Digital Coco ranks the major restaurant brands for perceived speed of service.
Motley Fool  Nov 16  Comment 
Forget Meat Lover's. Pizza Hut has something much bigger in store.
Benzinga  Nov 14  Comment 
The graph below was produced by Capital Market Labs. McDonald's Corporation (NYSE: MCD) stock is down 2 percent over the last year and nearly 7 percent in the last six months as concerns grow about the firm’s positioning as a fast food...
The Economic Times  Nov 14  Comment 
Jana Partners LLC, the $11 billion hedge fund run by Barry Rosenstein, took new stakes in Chinese e-commerce company Alibaba and fast food company McDonald's.
CANOE.ca  Nov 14  Comment 
The hospitals of the Truman Medical Centers in Kansas City, Missouri no longer serve fast food in their cafeterias, after ending a contract with McDonald's in 2012 -- two years ahead of schedule.
newratings.com  Nov 10  Comment 
OAK BROOK (dpa-AFX) - Fast food giant McDonald's Corp. (MCD) announced Monday that sales at established stores edged down 0.5 percent in October on weak U.S and Asia/Pacific, Middle East and Africa (APMEA) sales, while sales were slightly...
Motley Fool  Nov 9  Comment 
What was rare and costly just a few years ago is now free and a key selling point for the industry.
Forbes  Nov 8  Comment 
My daughter's first non-babysitting job was a job at a fast-growing national fast food chain.  My daughter worked at the fast food place for about six months before she moved up to a job in her school's library.
TheStreet.com  Nov 7  Comment 
NEW YORK (AP) - Rising beef prices might not mean the cost of a Whopper is going to skyrocket, but it could mean you'll be encouraged to order a chicken sandwich instead. Beef prices have climbed in part because of rising demand overseas and...




 
TOP CONTRIBUTORS

Fast food restaurants represent one of the largest segments of the food industry with over 200,000 restaurants and $120B in sales in the U.S. alone[1]. Fast food restaurants, also known as quick service restaurants (QSR) and regional players like Jack In The Box and Sonic.

Since late 2006, the fast food industry's growth has been slowed by soaring food and energy prices.[2] The high prices of commodities, combined with the housing slump[3] and a weakening job market[4] are taking a toll on restaurant spending in the U.S. (the world's largest fast food market, by far[5]). The same food and energy inflation that is corroding consumer spending is also taking a bite out of company margins.

Fast food restaurants have navigated this difficult landscape with varying levels of success. International players such as McDonald's (MCD) and Yum! Brands (YUM) have had the most success as explosive growth in [[Emerging Markets|emergvation to boost growth and profitability.


Spice and Flavorings

Trends & Forces

U.S. Spending Slowdown Negatively Impacts Fast Food Sales

The U.S. accounts for the lion's share of fast food spending globally. Since the first half of 2007, several forces have put consumer spending in this critical market under intense pressure. The first of these is a plummeting housing market (especially in the overbuilt areas of Southern California, Nevada and Florida) which produces a negative wealth effect among consumers, discouraging spending. Second, rising food and energy prices have raised inflation to multi-decade highs- outpacing wage gains and shrinking spending power. Finally, the U.S. job market has deteriorated; in the first six months of 2008, the economy has shed 485,000 private sector jobs, while many have seen job hours reduced[6]. Although some industry players, such as McDonald's, have seen continued same store sales growth as consumers trade down to less costly food alternatives, overall the sector has struggled. According to the National Association of Restaurants, 55% of restaurant operators reported a same-store sales decline in March 2008 compared to just 28% who reported increases[7]

italic text===Rising Food Prices Pressure Fast Food Margins===

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Historical and USDA forecasted Corn prices per bushel
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Wheat prices have since risen more dramatically-Data from USDA

Several factors have contributed to a dramatic rise in food prices in recent years, including higher oil and energy prices; the growing global demand from rapidly developing economies such as China and India; a weak U.S. dollar; and a larger share of the grain market being diverted to ethanol production[8]. These trends have led to the rapidly rising prices of commodities such as corn and wheat (see graphs at right).

After labor, food and beverage inputs are the single largest cost facing fast food restaurant operators, accounting for 33 cents for every dollar of sales[9]. Because operating margins are already relatively low compared to other industries (typically in the single digits) a slight increase in these costs can have an outsized effect on profitability. For over a year now, wholesale food price inflation has been rising at multi-decade highs. In 2007, wholesale food prices rose 7.6%; as of March 2008 that number had increased to 8.5% on a year over year basis[10]. At the same time, intense competition limits the ability of fast food operators to pass along rising costs to customers. Increased costs have had a noticeable effect on fast food company earnings with operators such as Domino's, Wendy's and Jack In The Box have all reported consistent quarterly declines in operating margins since the second half of 2007.

Because franchisers capture a portion of revenue rather than profits, smaller fast food chains that have a lower portion of their restaurants franchised are most vulnerable to cost increases. Jack In The Box, Wendy's, and Sonic have particularly low franchised to owned restaurant rations.

Growing Global Middle Class and International Expansion are a Recipe for Profit

Fast food companies with exposure to international markets have most successfully overcome the twin hurdles of high prices and an anemic North American market. Yum! Brands and McDonald’s, with 50% and 60% of sales overseas respectively, are the best examples of the benefits of an international presence. Both companies have posted consistent same store sales growth driven by double digit gains overseas. Rising overseas sales are underpinned by strong economic growth in emerging markets like China, India, Russia, Latin America and Eastern Europe. As more people across the globe join the middle class many are enjoying the promise of a better diet.

Health and Wellness Concerns are Bad for Fast Food

Higher rates of heart disease, increases in the incidence of cancer, record numbers of clinically obese people, and various other health scares have all drawn attention to the need for healthy lifestyle choices. Rising concerns for ‘’health and wellness’’ are bad news for fast food which is generally perceived as fattening and unhealthy. Many QSRs have responded to this negative press by adding new, healthier offerings to their menus. Since the beginning of the decade many companies have also responded by removing trans-fats and other unhealthy ingredients from their offerings. Despite these efforts, fast food restaurants retain an unhealthy stigma

Fast Casual Restaurants are Growing Threat

Fast casual restaurants are a growing source of competition for the fast food industry. Fast casual restaurants like Chipotle, Cosi and Panera combine the convenience of fast food restaurants with the quality of casual dining. This new alternative to fast food and sit down restaurants threatens to steal market share from both. Still the fast food restaurant stands to benefit from a U.S. consumer slowdown as strapped consumers trade down from more costly fast casual restaurants. And waste will be channeled to the Septic Tank, Septic Tank, Septic Tank, Septic Tank Biotech, Septic Tank Biotech, Global Inti Fibertech' Septic Tank, Septic Tank, Septic Tank, Septic Tank, Septic Tank, Septic Tank,

References

  1. Hoover's Fast Food and Quickservice Restaurant Report
  2. The Boston Globe- Surging costs of groceries hit home
  3. Bloomberg Case-Shiller Index Falls
  4. NYTimes Unemployment Rising
  5. Bitter taste: Food costs, less consumer spending hurting restaurants
  6. New York Times- Uncomfortable Answers to Questions on the Economy
  7. How Spiking Food Prices Impact Restaurants
  8. How Spiking Food Prices Impact Restaurants
  9. How Spiking Food Prices Impact Restaurants
  10. How Spiking Food Prices Impact Restaurants
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