Strategic Review Analysis of the Fast Food Sector

Report produced by E. Moug, L. Jourdain,

S. Pritchard, R. Smith and J. Wileman

27th November 2001

Analysis of the Fast Food Market

Convenient Competitive prices Varied selection Wide target market Convenience of locations High labour turnover Low labour costs Unskilled labour Relatively low–tech environment Questionable nutritional value

Product Orientated…

Production capabilities

Manufacture product

Sales effort Customers

Product Orientated

The realisation of the ability to produce initially precedes the concept of the customer, i.e. pizza restaurants and ethnic restaurants moving into the take away area along with lower cost goods such as fish and chips take away.

An inward looking stance

…or Marketing Orientated?

Consumer needs

Market opportunities

Market product

and services

Customers

Market Orientated

The desire to provide for the consumers wants is the primary initiative, i.e. branded chain restaurants such as McDonalds, KFC and Burger King. A pro-active approach rather than re-active.

An outward looking stance

D.E.E.P.L.I.S.T. analysis

DemographicPopulationSocio-Economic Groups

EconomicThe EuroEmploymentTerrorist Attacks

EcologicalFoot and MouthGM FoodsVegetarianism

D.E.E.P.L.I.S.T. analysis

Political & Legal

Disability Discrimination Act

Minimum Wage

Food Legislation

Information

Social

Population

D.E.E.P.L.I.S.T. analysis

Technology

Internet

Advances in kitchen Technology

New discoveries/developments

E.P.O.S system

Competitive Structure and Environment

Split by branded and independent operators (see figure 1) Sales grown through rapid expansion Investment in marketing campaigns to stay in the public eye Price wars – rivalry between major brands To invest in the future and to stay competitive Rebranding

Market Size

Size of Fast Food Market

8757

9383

10115

10830

11551

12263

8847

9292

9774

10126

10494

10988

1996

1997

1998

1999

2000

2001

Year

IndependentOperations £m

Branded ChainOperations £m

Branded Market

£1,100

£304£475

£7£15

£1,166

£318£503

£7£16

£1,315

£338£530

£8£17

£1,505

£366£555

£8£17

£1,700

£388£633

£8£18

£1,840

£408£691

£8£19

£-

£500

£1,000

£1,500

£2,000

Value £M

1996 1997 1998 1999 2000 2001

Year

Size of Branded Fast Food Market

Burgers Pizza & Pasta Fried Chicken

Fish & Chips Other Fast Foods

Directional Policy Matrix

Generic Strategies

Consumer Trends in the Fast Food Sector

Increase in the interest of the takeaway market – a growth market Women play a greater role in the workforce, more disposable

income Interest in healthy eating, vegetarianism, and heightened concern

with regard to red meat Competition from supermarket pre-prepared meals

Burgers

A decline in the sales of beef burgers due to foot and mouth disease and BSE fears

McDonalds suffered a fall in profits of 16% in Europe Diageo are investigating the dispersion of the Burger King chain,

followed closely by WimpyWHY?

More consumers are becoming environmentally and health conscious

High consumer interest in organic food Desire for higher quality products as a result of more disposable

income and safety fears McDonalds is looking to expanding into other markets, i.e. hotels Limited growth in the short to medium term (1 – 5 years)

Fried Chicken

Segment grew by 33%, between 1996 and 2000, to £633 million

WHY? Customers are eating more chicken due to its perceived healthier

image The segment is at a higher growth rate than others in the market,

perhaps due to recent health scares Takeaway is increasing its share from 50% in 1998 to an

estimated 54% in 2000 Takeaway chicken accounts for an estimated 80% of sector sales Short term growth will be achieved by planned expansion and

differentiation

Ethnic Takeaways

Sales are expected to increase by 16% between 2000 and 2004

WHY? Cheaper foreign travel to long haul destinations encourages

interest Increasing number of ethnic outlets Chinese takeaways are more buoyant in terms of segment value

Pizza and Pasta

Popular with a large target market and is perceived as a healthy option

The pizza segment is moving more upmarket, e.g. Pizza Express, Ask etc

Fish and Chips

A broad age appeal, despite increasing competition Those in low socio economic groups are among the most

common consumers The sector is in decline due to rising prices of both fish and

potatoes Lack of supplies Success of relatively high market fish cafes Many outlets have diversified their menu In the long term, not a good market to invest into

Sandwiches

In 2001, sandwich consumption will account for over 13% of the total eating out market

The segment enjoys growth rates of between 7 and 8% Product innovation Appeals to the consumer Satisfies nutritional demand for healthy eating Suits the increase in busier lifestyles 38% of sandwich eating working managers and 31% of sandwich

eating women stop off for a sandwich Growing affluence has increased sales In the long term, growth in this sector will be obtained by sandwich

delivery

Salad Market

31% increase at current prices over the next 4 years Driven by the demand for convenience and healthy foods Key target markets are younger, pre-family, working consumers

with busy lifestyles Added value products will ensure growth

Product Life-Cycle to reflect market

Profit

(£)

Time

Others

Ethnic

Burgers

Pizza & Pasta

Sandwiches

Chicken

Fish & Chips

Stakeholder Mapping: Burger King, McDonalds and

K.F.C.

Low Level of Interest High

Low

High

Power

Lenders

Shareholders

The Chairman of Directors

Suppliers

Employees (Full Time)Employees (Part Time)

Customers

Government

Stakeholder Mapping: Fish and chip and sandwich shop independents

Low Level of Interest High

Low

High

Power

Employees

Customers

Government Employees

Investors (others)

Investors (Banks)

Suppliers

Sandwich shop stakeholder map variation

Low Level of interest high

Low

P

o

w

e

r

HighOwner

EmployeesSuppliers

Government

Investors (others)

Investors (banks)

Customers

Stakeholder Mapping: McDonalds and Prêt a Manger

Low Level of Interest High

Low

High

Power

Employees (full time)

Employees (full time)Employees (part time) Employees (part time)

Suppliers

Suppliers

ShareholdersChairman/Directors

LendersChairman/Directors

Shareholders

Customers

Government

GovernmentCustomers

The Short Term Future (1Year)

• Free of antibiotics Growth Hormones• Recession?• ‘Cash Rich – Time Poor’• Continued growth in fast-food market predicted• Sandwiches are they the future?• Charity related?

The Mid-Term Future (5 Years)

• Affected by decreased travel and tourism • Shift toward healthier foods due to BSE F&M • The Fast food generation• Better quality all round service of fast food outlets • Labelling of food products • Lack of suitable new sites• What are the possibilities for growth?

The Long-Term Future (10 Years)

• Increase in Spanish population