Fast Food and Quickservice Restaurants
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Industry Overview
The fast food and quickservice (fast food) restaurant industry includes about 200,000 restaurants with combined annual revenue of about $120 billion. Major companies include McDonald's, Burger King, Taco Bell, Subway, and Panera Bread. The industry is highly fragmented: the top 50 companies hold about 25 percent of industry sales.
Competitive Landscape
Demographics and personal income drive demand. The profitability of individual companies depends on efficient operations, effective marketing, and the ability to provide fast service. Large companies have advantages in purchasing, financing, and marketing. Small companies can compete by offering unique products or serving a local market. The industry is highly labor-intensive: average annual revenue per worker is just under $40,000.
Fast food restaurants differ from fullservice restaurants in that customers generally order and pay before eating. The category includes fast-casual restaurants, which offer higher quality, more expensive food without waitstaff. Fast food restaurants compete with companies that offer meals or prepared foods, including fullservice restaurants; supermarkets; delis; convenience stores; snack shops (donut or bagel shops); and cafeterias.
Products, Operations & Technology
Most restaurants specialize in main dish categories, including hamburgers, sandwiches, chicken, pizza/pasta, Mexican food, Asian food, or snacks. Among the major fast food chains, hamburger restaurants are 50 percent of the market; sandwich, pizza, chicken, and snack shops are each 10 percent; and Mexican food is about 5 percent, according to QSR magazine. Side dishes include French fries, baked potatoes, soup, chili, onion rings, salads, and desserts. Beverages include soft drinks, bottled water, coffee, tea, juice, beer, and milkshakes. Restaurants may also offer breakfast items, children’s meals, or meal packages. Customers consume about 60 percent of food off-premise.
Fast food restaurants include national and regional chains, franchises, and independent operators. The majority of companies are single restaurant operations. Franchises allow independent owners to leverage a well-known brand name and benefit from the purchasing efficiencies and operational expertise of the franchiser. Large companies may have both corporate and franchise-owned stores. Companies may issue franchises for an individual store or a geographical market. Franchisees must adhere to quality and operational guidelines dictated by franchisers, and may have limited control over menu offerings, hours of operation, pricing, and store design.
Most fast food restaurants have a food preparation area, dining area, and parking lot, and many have a drive- thru section. Drive-thru sales can be important and double windows help speed transaction times. Some restaurants have children’s play areas.
Because customer convenience is critical, most fast food restaurants are located in high traffic areas. Companies carefully evaluate potential restaurant sites, considering population, traffic flow, and walking patterns. Restaurants may be freestanding or located inside another building. Companies may place kiosks, with limited or no seating, in tight spaces like airports or train stations. The average size of a fast food restaurant varies, depending on seating and equipment requirements. A Subway averages 1,200 square feet and typically seats about 30; a Wendy’s ranges between 2,000 and 3,000 square feet and seats 60 to 90.
A typical fast food restaurant generates $670,000 annually, according to the National Restaurant Association (NRA). A franchised fast food restaurant can generate $1 to $2 million annually.
Fast food is a volume-driven business, and transaction speed is extremely important. Process improvement in every part of operations, including customer ordering, food preparation, packaging, and final order assembly, can help companies serve more customers and drive sales. Limited menus also help, since fewer ingredients reduce costs and make food assembly easier. Simplifying food preparation helps control quality by minimizing worker error. Lunch is the most important time of day, and most restaurants increase staff and food production to meet demand. Cleanliness is important, not just for customers, but also to ensure compliance with local health and sanitation codes. Most franchises have cleaning schedules for facilities and equipment.
Supplies vary, depending on the menu, but include beef, poultry, pork, cheese, produce, buns/bread, cooking oil, paper and packaging material, and beverages. Inventory management is important because fast food restaurants use perishable items. Companies often have long-term contracts with soft drink suppliers. Most franchisees must buy food, packaging, and equipment from approved distributors.
Equipment typically includes commercial ovens, broilers, grills, toasters, deep fryers, warming devices, refrigerators, coolers, freezers, and beverage dispensing systems. Fast food restaurants typically deal with limited room, and may use space-saving or ventless equipment. New technology in ovens that combines convection heat; air impingement (high velocity jets of hot air); and microwave energy helps food cook faster.
Fast food restaurants may use computerized point of sale (POS) systems that link to the kitchen, and possibly the drive-thru, to reduce ordering errors. Most franchises have proprietary POS systems that link to corporate headquarters so management can monitor sales. Some large companies have integrated inventory management systems that communicate with suppliers via the Internet, allowing for automated replenishment. A few companies allow online orders for customer pick-up or delivery. By using American Express’ radio frequency identification-based (RFID) Express Pay, fast food restaurants can eliminate the need for a credit card payment signature, and shave up to 30 seconds off transaction time.