Fast Food Restaurants (QSR)

RECENT NEWS
MarketWatch  Sep 11  Comment 
New York (MarketWatch) -- McDonald's Corp. , seeking to reverse declining same-store sales, in July filed a trademark application for "McBrunch" with the U.S. Patent and Trademark Office, according to the government filing. The company's...
Forbes  Sep 11  Comment 
Americans are losing their taste for fast food, according to a new survey by Brand Keys.
Forbes  Sep 11  Comment 
A new study conducted by New York-based brand and customer loyalty and engagement consultancy, Brand Keys (brandkeys.com) has shown that demographics and associated core values of generational cohorts explain critical factors initiating failure of...
Forbes  Sep 10  Comment 
If you're choosing a franchise, you want a top performer. Which restaurants ring up the most sales per store? New data from QSR Magazine and Technomic, released in the QSR Fast 50 report, spotlight which stores ring up the most revenue.
Yahoo  Sep 8  Comment 
Fast casual is almost certainly going to grow in popularity. But the question of whether it can ever truly replace fast food is far more complex and far less certain.
MarketWatch  Sep 8  Comment 
Fast-food moguls outlive their customers.
Clusterstock  Sep 5  Comment 
The fast food business has completely changed over the past decade.  Dominant chains like McDonald's and Burger King have lost market share to fast-casual options like Chipotle, Panera Bread, and Buffalo Wild Wings.  This chart by Morgan...
BBC News  Sep 4  Comment 
Hundreds of US fast food workers are arrested at protests in cities across the country after staging sit-ins demanding a "living wage" of $15 an hour.
Benzinga  Sep 3  Comment 
Borrowing a page from the Willy Wonka playbook, Yum! Brands’ (NYSE: YUM) Taco Bell launched a campaign last week in which anyone who found one of 11 special “Everlasting Dollars” would win a lifetime of free Taco Bell. Taco Bell The...
Motley Fool  Sep 3  Comment 
McDonald's stock is under pressure, but the Big Mac daddy had a lot to say in its most recent earnings call.




 
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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