FAST FOOD INDUSTRY IN THE U.S.Meredith Drummond, Jess Krause, Sofia Steinberger, & Tory Trippe

AGENDA

1. Introduction2. Industry Analysis3. Advertising Strategies4. Analysis and Recommendations

WHY FAST FOOD?

• Study impacts of health awareness trends

• Change from “fast” and “low price” to higher quality food due to consumer demands

• How fast food industry advertising has changed to adapt to trends

INDUSTRY ANALYSIS

BACKGROUND: PRODUCTS & CONSUMERS

Industry Definition: Restaurants where quick service food products are paid for before consumption.

Distribution Chain:

Restaurant

Delivery Service

Direct to Consumer

Consume on Site

Consume off Site

BACKGROUND: PRODUCTS & CONSUMERS

Burgers; 42%

Sandwiches; 14%

Asian; 10%

Chicken; 10%

Pizza & Pasta; 9%

Mexican; 8%

Other; 7%

Product & Services Segmentation in the Fast Food Restaurant Industry 2015IBISWorld.com

REVENUE

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015170,000

175,000

180,000

185,000

190,000

195,000

200,000

205,000

210,000

Re

ve

nu

e (

$ m

illi

on

s)

Revenue in the Fast Food Restaurant Industry 2006-2015IBISWorld.com

1.6% 0.2% 2.6% -0.4% 2.9% 1.3% 0.7% 0.8% 2.0% 1.4%Revenue Growth

Dip due to recession

CONSUMER SPENDING

2006 2007 2008 2009 2010 2011 2012 2013 2014 20159,000

9,500

10,000

10,500

11,000

11,500

Co

ns

um

er

Sp

en

din

g (

$ b

illi

on

s)

Consumer Spending in the Fast Food Industry 2006-2015IBISWorld.com

3.0% 2.2% -0.4% -1.6% 1.9% 2.3% 1.8% 2.4% 2.0% 2.6%Consumer Spending Growth

Dip due to recession

EMPLOYMENT

2006 2007 2008 2009 2010 2011 2012 2013 2014 20153,400,000

3,450,000

3,500,000

3,550,000

3,600,000

3,650,000

3,700,000

3,750,000

Em

plo

ym

en

t (U

nit

s)

Employment in the Fast Food Restaurant Industry 2006-2015IBISWorld.com

3.0% 0.6% 0.9% -2.6% -1.8% 2.1% 0.9% 0.9% 0.9% 0.7%Employment Growth

Dip due to recession

CONCENTRATION

Industry concentration:Low, increasing

Number of firms in the industry:

4,562

Four Firm Concentration Ratio

36.2

Mc-Don-ald's17%

Yum! Brands

Inc11%

Subway7%

Wendy's Company

4%

Other61%

Sources: IBISWorld.com, Hoovers Online

Fast Food Marketshare IBISWorld.com

INDUSTRY COMPETITION

Source: IBISWorld.com

Degree of rivalry:

high, increasing

Degree of barriers to entry:

low, increasing

Reasons for low barriers:

Franchising component

Wide array of food concepts

Primary means of differentiation:

• Price• Quality of food• Location/Convenience • Style of food• Service/Ambience

INDUSTRY PERFORMANCE

MoreImportant

LessImportant

Consumer Spending

Description 2015 Outlook ImpactRelative

Importance

Healthy Eating Index

Agricultural Price Index

Consumer Confidence Index

Total amount spent by Americans on services and new goods and net purchases of used goods

Level of confidence consumers have in the economy

Nominal prices received by farmers for US agricultural products; indicator of prices restaurants can expect to pay

Percentage of a recommended diet that an average American consumes

Expected to increase

Expected to increase

Expected to decrease

Expected to slowly increase

INDUSTRY ORGANIZATION

Source: Duke University

RestaurantConsumerDistributor

Supplier

Supplier

Supplier

Supply Chain:

Company Market Share Strategies Financial Performance for 2015 in United States

17% Focused on modernizing the format of its storesMore aggressive push into breakfast segment

Revenue expected to increase 3.7%

10.8% Opens multi-branded restaurants in high-traffic areas

Revenue expected to decrease by 12.4%

6.7% Shift to Five Dollar Footlong promotion from “Eat Fresh” campaign

Revenue expected to increase 5.6%

4.4% Strategic price increasesShift in sales mix towards more premium products

Revenue expected to increase 2%

Source: IBISWorld.com

MAJOR PLAYERS

BACKGROUND: TECHNOLOGY

● Level of technology change: Medium

● Drivers: Reduce labor and food costs

● Types of technology:

○ Wireless technology ordering systems, mobile technology○ Point-of-sale systems○ Just-in-time scheduling○ Social media

REGULATION AND ROLE OF GOVERNMENT

● Level of regulation: Medium, increasing

● Regulations around 4 main issues:o Food safety and standardso Labor relationso Smoking banso Franchising laws

ADVERTISING STRATEGIES: TV

Mc-Don-ald's

Subway Taco Bell Wendy's Burger King

Pizza Hut Applebee's Dunkin' Donuts

Starbucks Chick-fil-A$0

$200

$400

$600

$800

$1,000

$1,200

$976

$514

$327$289

$257 $247

$176$121

$89

$30

$ M

illi

on

s

Ad Spend by Restaurants in 2013Statistica

ADVERTISING SPENDING BY BRAND IN THE UNITED STATES IN 2013

McDonald's

Subway

Starbucks

KFC

Chipotle

Pizza Hut

Tim Hortons

Taco Bell

Panera Bread

Costa Coffee

$0 $5,000 $10,000 $15,000 $20,000 $25,000

$22,040

$12,246

$11,115

$4,344

$3,147

$2,579

$2,542

$1,334

$1,306

$1,230

$ Millions

2015 Value of Top 10 Fast Food Brands WorldwideStatistica

MCDONALD’S STILL LEADS THE WAY IN GLOBAL BRAND VALUE

2006 2007 2008 2009 2010 2011 2012 2013 2014 $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$ M

illio

ns

McDonald’s Global Brand Value Statistica

A Closer Look at McDonald’s Brand Value

BRAND LEADERS HAVE LOWEST AD TO SALES RATIOS

COSI Inc Dominos Pizza Inc.

Jack in the Box, Inc.

Jubilee4 Gold Inc

McDonald's Corp

Popeyes Louisiana

Kitchen Inc

Potbelly Corp

Sonic Corp. Starbucks Corp.

Wendy's Co (The)

Yum! Brands, Inc.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Ad to Sales Ratios (%) 2007-2014Source: MergentOnline

Advertising % TR - 2014 Advertising % TR - 2013 Advertising % TR - 2012 Advertising % TR - 2011

Advertising % TR - 2010 Advertising % TR - 2009 Advertising % TR - 2008 Advertising % TR - 2007

%

AVERAGE AD-TO-SALES HAS DECREASED FROM 3.0* IN 2007 TO 2.53 IN 2014 FOR THE INDUSTRY

00.5

11.5

22.5

33.5

44.5

5

2014 Ad to Sales By Company

2007 2008 2009 2010 2011 2012 2013 20140.00

0.50

1.00

1.50

2.00

2.50

3.00

3.502007 to 2014 Ad to Sales Industry

* Excludes:Jubilee4 Gold

TELEVISION DOMINATES ADVERTISING EXPENDITURE

Cable

TV

Mag

azin

e

Network

TV

Natio

nal s

pot rad

io

Inte

rnet

dis

play

Out-of-h

ome

Syndic

atio

n TV

Spanis

h languag

e TV

B2B

Local r

adio

sum

Spot TV

Local r

adio

his

t

Sunday m

agaz

ines

Network

radio

Newsp

aper

Hispan

ic n

ewsp

aper

Hispan

ic m

agaz

ines

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$M

illi

on

2013 Advertising Spend in the food & beverage industry in the US by mediumStatista

QUICK SERVICE RESTAURANTS REPRESENT THE LARGEST ADVERTISERS IN FAST FOOD SPACE

Coffee & Donut Restaurants Pizza Restaurants & Delivery Services

Quick Serve Restaurants $-

$100,000,000.00

$200,000,000.00

$300,000,000.00

$400,000,000.00

$500,000,000.00

$600,000,000.00

$17,782,400.00

$96,533,000.00

$545,781,200.00

Total TV advertising expenditureTV advertising data

Total seconds of TV advertisingTV advertising data

Coffee & Donut Restaurants

Pizza Restaurants & Delivery Services

Quick Serve Restaurants

INDUSTRY LEADERS DOMINATE TV AD AIR TIME

Dunkin D

onuts

Starb

ucks

Arbys

Burger

Kin

g

Carls

Jr

Chick-

Fil-A

Dairy

Quee

n

Hardee

s

Jim

my

Johns

KFC

McD

onalds

Popeyes

Sonic

Subway

Taco B

ell

Wen

dys

Zaxbys

Domin

os

Little

Cae

sars

Papa

Johns

Pizza

Hut

0

10000

20000

30000

40000

50000

60000

To

tal N

um

ber

of

Sec

on

ds

(th

ou

san

ds)

• McDonalds spends advertises for the most amount of time (36% of total TV Advertising time in fast food category)

• Yum! Brands, which owns Taco Bell, Pizza Hut and KFC is responsible for approximately 24% of fast food TV advertising time

Proportion of TV advertising by daypart for fast food categoriesTV advertising data

MORNING NEWS & OVERNIGHT AD SLOTS HAVE THE HIGHEST FAST FOOD ADVERTING TRAFFIC

05:00 AM-09:00 AM

12:00 PM-03:00 PM

09:00 AM-12:00 PM

07:00 PM-08:00 PM

03:00 PM-05:00 PM

05:00 PM-07:00 PM

11:00 PM-11:30 PM

11:30 PM-01:00 AM

01:00 AM-05:00 AM

08:00 PM-11:00 PM

Morning News

Morning Daytime Early Fringe

Early News

Prime Access

Prime Time

Late News

Late Fringe

Overnight0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

Coffee & Donut Restaurants

Pizza Restaurants & Delivery Ser-vices

Quick Serve Restaurants

Pro

po

rtio

n o

f A

d S

eco

nd

s

• Prime time is one of the top three most popular times for fast food advertisements as this is where viewership is highest

• The popularity of the overnight and morning news time slots are most likely due these slots being relatively cheap as well as being relevant for breakfast food items

Typical after lunch time

Total seconds of TV advertising by time of dayTV advertising data

Typical after dinner time

FAST FOOD COMPANIES ADVERTISE WHEN CUSTOMERS WILL BE MOST RECEPTIVE TO THE PRODUCTS

12:0

0:00

AM

01:0

0:00

AM

02:0

0:00

AM

03:0

0:00

AM

04:0

0:00

AM

05:0

0:00

AM

06:0

0:00

AM

07:0

0:00

AM

08:0

0:00

AM

09:0

0:00

AM

10:0

0:00

AM

11:0

0:00

AM

12:0

0:00

PM

01:0

0:00

PM

02:0

0:00

PM

03:0

0:00

PM

04:0

0:00

PM

05:0

0:00

PM

06:0

0:00

PM

07:0

0:00

PM

08:0

0:00

PM

09:0

0:00

PM

10:0

0:00

PM

11:0

0:00

PM

0.03

0.035

0.04

0.045

0.05

0.055

0.06

Quick Serve Restaurants Pizza Restaurants & Delivery Services Coffee & Donut Restaurants

Pro

po

rtio

n o

f A

dve

rtis

nin

g T

ime

• Coffee and donut advertising spikes at after-meal times to incentivize impulse buys

• Pizza Restaurants have an advertising spike at 4 PM and 11 PM to incentivize impulse & binge purchases

Total seconds of TV advertising by program typeTV advertising data

Award Show Comedy Drama Movie News Reality Sports Other0

5000

10000

15000

20000

25000

30000

35000

40000

4140

7950 5520

20554335

19455

27240

3075

7545

24000

17055

18915

Coffee & Donut Restaurants Pizza Restaurants & Delivery Services Quick Serve Restaurants

To

tal S

eco

nd

s o

f A

dve

rtis

emen

tsREALITY AND DRAMA ARE THE MOST POPULAR PROGRAMS AMONG FAST FOOD ADVERTISERS

Award Show Comedy Drama Movie News Reality Sports Other0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

3%1%

10%

1% 0%

77%

3%6%

0%

16%

30%

4%6%

21%

8%

16%

1%

16%

23%

3%6%

20%

14%16%

Coffee & Donut Restaurants Pizza Restaurants & Delivery Services Quick Serve Restaurants

Pro

po

rtio

n o

f A

dve

rtis

ing

Tim

e

Proportion of TV advertising time per program typeTV advertising data

SUBSECTIONS OF THE FAST FOOD MARKET ALLOCATE THEIR TV AD SPEND DIFFERENTLY BETWEEN PROGRAM TYPES

• Coffee and donut restaurants advertise the most heavily in reality, which accounts for 77% of their total TV adverting time

• The entirety of this reality TV spike comes from Starbucks

Proportion of TV advertising by program typeTV advertising data

Coffee & Donut Restaurants

Pizza Restaurants & Delivery Services

Quick Serve Restaurants

MOST FAST FOOD CHAINS DIVERSIFY THEIR ADVERTISING STRATEGY, BUT ADVERTISE ON ONLY ONE PROGRAM TYPE

Dunkin D

onuts

Starb

ucks

Arbys

Burger

Kin

g

Carls

Jr

Chick-

Fil-A

Dairy

Quee

n

Hardee

s

Jim

my

Johns

KFC

McD

onalds

Popeyes

Sonic

Subway

Taco B

ell

Wen

dys

Zaxbys

Domin

os

Little

Cae

sars

Papa

Johns

Pizza

Hut

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

100%

88%

15%

100%

34%

22%

100%

15%9%

0%

100%

27%18%

8%

100%

13% 35%8%

11%

26%

18%

23% 26%33%

18%

14% 30%26%

40%

31%

24%

79% 23%28%

18%

20%

17%

23%18%

23%21%

19%

17%

22%

6%

19%13% 14% 17% 16% 17%

12%21%

17% 16% 19%

4%

15%

13%

5%

3% 3%

17%

2%

4%

4%

4%

11%

3%

14%

43%

5%

100%

17% 16% 17% 13%24%

16% 13% 11%

21%

3%

8%

8%

7%9%

5%

2%

2%6%

6%

3%

6%

Other

Sports

Reality

News

Movie

Drama

Comedy

Award Show

% N

um

ber

of

Sec

on

ds

of

Ad

veti

sem

ents

• Most brands advertise across several TV show types in order to diversify their audiences

• Some brands choose to advertise on only one or two types of programs including Dunkin Donuts, Hardees and Jimmy John’s

Proportion of TV advertising spending networkTV advertising data

NBC IS THE TOP NETWORK FOR FAST FOOD ADVERTISERS

NBC FOX CBS ABC CW $-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000 Pizza HutPapa JohnsLittle CaesarsDominosZaxbysWendysTaco BellSubwaySonicPopeyesMcDonaldsKFCJimmy Johns HardeesDairy QueenChick-Fil-ACarls JrBurger King

Network

# of Viewers 5.804 mil 3.155 mil 8.089 mil 6.434 mil 1.414 mil

Median Age 49.3 46.2 55.6 52.3 47.1

# Adults 18-49 1.3 mil 0.9 mil 1.3 mil 1.4 mil 0.5

Median HH $55,00 $49,300 $43,500 $47,200 $40,600

Proportion of TV advertising networkTV advertising data

MOST FAST FOOD BRANDS ADVERTISE PRIMARILY WITH ONE OR TWO NETWORKS

Dunkin D

onuts

Starb

ucks

Arbys

Burger

Kin

g

Carls

Jr

Chick-

Fil-A

Dairy

Quee

n

Hardee

s

Jim

my

Johns

KFC

McD

onalds

Popeyes

Sonic

Subway

Taco B

ell

Wen

dys

Zaxbys

Domin

os

Little

Cae

sars

Papa

Johns

Pizza

Hut0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

100%

83%

63%

17%

100% 100%

20%24%

100%

14%

41%

16%

31%

22%26%

20%

15%

38%

13%

47%

68%

100%

16%25% 23%

18%

32%

12%

100%

12%

22%27%

34%

43%

17%

23%

25%

63%

24%3%

27%

15%

6%

25%

5%

10%

23%

8%

38%

43%

3%

32%

10%16%

42%

16%

16%

63%

23%

33%

18%

25%

23%

Other

NBC

FOX

CW

CBS

ABC

Po

rtio

n o

f A

dve

rtis

ing

Tim

e

Coffee & Donut Restaurants

Pizza Restaurants & Delivery Services

Quick Serve Restaurants

• Within the fast food space, generally the smaller brands advertise with fewer networks while larger brands such as McDonalds advertise on many. This is likely because there are network effects due to memory jamming.

• In general pizza restaurants advertise on a variety of networks despite being on the whole smaller brands

TV INSIGHTS

WHEN:

• Advertise Morning News, Overnight, Prime Time

• Coffee chains advertise after mealtime to create impulse buys

WHERE:

• Reality & Drama Shows

• Advertise on genres that match targeted audience

• Product Placement

WHO:

• Brands use network demographics with high viewership in their target audience (i.e. Spanish Language)

WHY:

• Drive impulse buys & brand recall

ADVERTISING STRATEGIES: HEALTH & OBESITY

FAST FOOD AND ADVERTISING TO CHILDREN

What we know:

• There is a correlation between exposure to fast food advertising and children’s food consumption/body weight

• Exposure to fast food television ads has been associated with a 1.1% rise in children’s consumption of fast food

ADVERTISING TO CHILDREN STRATEGIES

•In 2012, McDonald’s advertised 16% more to children than teenagers and 8% more to children than adults

•Ads for healthy kids meals only account for 25% of fast food TV ads for children

•Several Fast Food companies offer advergame apps

•Advertising for non-kids’ meals on children’s network (i.e. Subway)

Children's food and beverage advertising consumption in U.S. 2013Statista

Cerea

l

Candy

Prepar

ed M

eals

Swee

t Snac

ks

Yogurt

Juic

e, F

ruit

Drinks

, Sports

Crack

ers

and S

avory

Snac

ks

Oth

er D

airy

Carbonat

ed B

ever

ages

Bottled

Wat

er

Fruits

and V

eget

able

s

Fast F

ood Res

taura

nts

Oth

er R

esta

urants

0

200

400

600

800

1000

1200

1400

1600

1800

773

536

303 281221

162 16081 70 38 32

1121

580529

846

388331

176

281206

98142

34 36

1673

697

2-11 Years 12-17 Years

Advertisements Viewed

Ad

vert

isem

ents

Vie

wed

ADVERTISING TO CHILDREN, BY PRODUCT

INCREASE IN ADVERTISING TO MINIORITIES

• Advertising targeted at black youth contains 60% more calories and sodium compared to white peers

• In 2012, black youth saw twice as many ads for Starbucks and Popeyes than their white peers

• Combined advertising spending on Spanish-language TV by all fast food restaurants increased 8% from 2009 to 2012

Not applicable - I don't think any of them are trustworthy

Casual dining restaurants other the fast food (e.g., Applebees, Olive Garden etc.)

Clothing stores

Fast food restaurants

Consumer electronics

Cars

Household electronics and appliances

Food products (other than health foods)

Pharmaceutical products

0% 5% 10% 15% 20% 25% 30% 35%

% Trustworthy

US CONSUMERS FEEL THAT FAST FOOD ADS ARE RELATIVELY TRUSTWORTHY ADS

Which advertisements do you feel are the most trustworthy?Statista

OBESITY AND FAST FOOD AVAILABILITY

Most Obese States Highest Fast Food Per Capita States

1. South Carolina2. Mississippi3. Ohio4. Louisiana5. Nebraska6. Texas7. Indiana8. Iowa9. Tennessee10.Wyoming11.Kansas12.Arkansas13.Oklahoma14.Kentucky

HEALTH SECTION INSIGHTS & IMPLICATIONS

• Advertising fast food to children manipulates the perception of what is healthy to both children and parents

• Fast food advertisers are specifically targeting minority groups:

• Minorities are seeing more fast food advertisements

• The content contains more calories

• This will lead to a more obese minority population

RECOMMENDATIONS

RECOMMENDATIONS

Investment Strategy

• Market Leader (McDonald’s) is decreasing in brand value: look to other firms that are capitalizing on consumer’s changing preferences

• Subway exceeds McDonald’s in # of stores (US) & annual growth rate

• Highest growth sector lies with fast casual

Advertising Strategy

• Adapt to consumer’s shift in preferences • Focus on quality food & experience • Continue to capitalize on impulse buys depending on target

market

THANK YOU