Fast Food Sector Industry Overview Industry Structure Marketing Essay

According to Wallop (2012), NPD, a market research company has tracked consumers’ spending in fast food; results showed that in 2011, 5.54 billion visits were made to a fast food chain, out of the 11 billion meals eaten in total out of the house. However, according to IBISWorld (2012), stated that Take-away businesses and fast-food restaurants have been suffering during the last five years as deteriorating economic conditions led consumers to cut back on discretionary spending.

On the other, According to Fast-Food and Home-Delivery Outlets (2011), in the UK, the amount of fast food restaurants such as KFC, McDonalds and Domino’s have been increasing dramatically over the last 5 years. An explosion was seen, in the amount of high-street outlets of Subway.

Market Value

According to Druce (2008), mentioned in the article from 2007 UK consumers have spent £82 per head in fast food restaurants (2006: £77.37) and Horizons predicts this growth will continue with the likes of McDonald’s and Burger King to benefit. Fast-food and Home-Delivery Outlets (2011) addressed that over the past 5 years the market value of fast food industry has risen by 16.4%. It’s increasing from £8.33bn in 2006 to £9.7bn in 2010. Nevertheless, Key Note (2010) projected that further increase for the future of the fast food industry that value sales of will be around £10.08bn for the first time in 2011. Furthermore, Key Note (2011) has forecasted that in the long term, fast-food and home-delivery sector will be able to generate £11.86bn by 2015, which means it will go up by 17.7% from 2011 and up by 42.3% from 2006. According to Kuhn (2009), Independent fast-food operators have increased their market share by 2.2% across the UK’s top ten cities to further fuel the feeling that many high streets are turning England into ‘fried chicken Britain’.

The UK’s Fast-Food Market Value in Percentage (From 2006 to 2010)

Source: Key Note (2011)

Market Sectors

Sandwiches

According to The British Sandwich Association (BSA), stated that UK’s sandwiches market size was reported to be 1.8 billion and 29.7% share in 2009. Mintel (2012) added, in 2011, 1.60 billion sandwiches were sold, 62% population consumes sandwich per year, age recorded to be 24 – 24 year old which is one third of the market and The British sandwich market is worth of £2.8 billion.

Keynote (2010), it is estimated that 55 % of sandwiches are consumed at lunchtime, 13% are consumed at coffee time, evening meal 11% and snack time 7%, and 14% were consumed at breakfast time. In 2009, sandwich retail chains, including Subway and Greggs have increased their outlets. The worth of commercial sandwich market was seen about £3.5 billion by comparison the pizza market in the UK is worth around £1 billion. 

Burgers

According to Keynote (2011) addressed that multinational fast-food chains McDonald’s and Burger King have been dominating the burger market sector. It is calculated that burger market holds 6.8% share of the whole market. Mintel (2011), the burger market will be worth £3.69 billion by the end September of 2011. On the other hand, KFC’s Former Marketing Director, John Prior, stated in Mintel’s report, believes will have a projected turnover of £457 million – up from £241 million in 2000.

Taylor Nelson (2009) estimated that at end of July, KFC is starting to pull ahead of Burger King with a larger share of the quick service restaurant (QSR) sector. The market share figures display that McDonald’s is still in the lead of burger market with 26%. It is recorded that KFC has 5.6% and Burger King has 5.1%. The fried chicken market has grown, while the burger market has declined.

Pizza

According to Mintel (2012), stated that between 2007 and 2011, The UK’s pizza market has achieved a 17% market share, reached at £814 million of market value. The pizza sector includes leading international and national brands such as Pizza Hut and Domino’s Pizza which are the most popularly known fast food pizza outlets.

According to (DEFRA, 2012), pizza sales figures are forecast to averagely advance in 2012 as consumers retain to keep a habit on eating out and ignoring the fact of comfort foods at home, in the appearance of this economic crunch.

Fish and Chips

According Keynote (2010), the market for fish and fish products increased in value by 25.8% between 2006 and 2010. The UK Sea Fisheries Statistics (2009) mentioned that UK’s consumers purchased approximately £3.7 billion of seafood each year.

On the other hand, Marine Management Organization (2012), the total financial worth of the fish market is 11 billion, the sector’s hold on the market is faltering slightly, despite, it is projected to be the UK’s fourth-biggest fast food market.

Chicken

According to Deliott (2010), the chicken sector’s market share of the UK’s fast-food sector had grown to £700 million, or market share of 7.2%, increased 23.9% from 2009. Chicken sector is the second-largest in means of entire market percentages. On the other hand, Keynote (2010), in 2009, revenue of chicken through chicken outlets is calculated to have grown by 5.6%, hitting a financial worth of £660 million. Chicken is seen as a generally healthier choice as compared to other sorts of fast food, and this may has been the reason to have maintained sales growth (DEFRA, 2012).

Other Fast Food/Takeaways

According to Keynote (2009), the ‘other fast-food and takeaway’ sector includes a wide range of eating outlets, containing noodle and sushi bars, tea shops and ethnic restaurants. In 2009, was projected that the market value of this sector reached at £1.43 billion. Furthermore, it’s reported to have huge consumer base, amazingly this sector has advanced by 7.8% in 2009 and 26.4% in 2010. The sector offers a wide range of more innovative foods which appeal to a variety of consumers, and sales growth is benefiting as a consequence (Mintel, 2009).

The Forecasted Growth of Fast-Food

Market by Sector (From 2012 to 2015, £m)

Source: Key Note (2011)

INDUSTRY CHARACTERISTICS

2.1 Value chain of the Fast-Food Industry

SERVICE

MARKETING & SALE

OUTBOUND

LOGISTICS

OPERATIONS

INBOUND

LOGISTICS

Firm

Structure

Human

Resources

Technology

Procurement

2.2 Key Trends

2.2.1 Market Trends

According to the British Retail Consortium (BRC), in May, UK’s food inflation has reached up to 4.9%. The increasing costs of raw materials such as wheat and oil have increased to 72% and 50%. In recent years competition between fast-food outlets is amplifying rapidly. Subway has expanded its outlets in a larger amount which has dent McDonald’s market sales volume. Subway is competing with McDonald’s on the fact of have healthier and lighter choices of products (Mintel, 2011).

According to Keynote (2011) Fast-food shops price their products at a low value as compared with those food and catering service such as restaurants. Therefore, since the country is in the recession, UK’s fast-food industry has benefited 8% in the last year due to the fact that money is tight and consumers need eating and entertaining experience.

Economic Trends

Population

According to Trading Economics (2012) addressed that the UK’s total population last projected to be at 62.64 million people in 2012. It is been increasing slowly with a rate 0.7% every year.

 

UK’s Population by Sex from 2012 to 2015 (000)

 

 

 

 

 

2012

2013

2014

2015

 

Male

32,001

32,196

32,196

32,587

 

Female

31,073

31,302

31,530

31,757

 

Total

63,074

63,498

63,921

64,344

 

Percentage Change

0.7

0.7

0.7

0.7

Year-on-year

 

 

 

 

 

 

 

Source: Population Projections Database

Gross Domestic Product

Office for National Statistics (ONS) has revealed latest figures displaying that the growth of UK’s Gross Domestic Product (GDP) has fallen to 0.7% from 0.4% in the second quarter of this year (BBC, 2012). According Sjolin (2012), stated in the article that Office of National Statistics (ONS) has said that in the three months to June 2012 the UK’s unemployment rate has fallen to 8%.

UK Growth in Gross Domestic Product (%), 2012 – 2015

 

 

 

2012

2013

2014

2015

 

GDP product growth %

2.2

2.4

2.5

2.5

 

Percentage point change

0.7

-0.2

0.1

0

year on year

 

 

 

 

 

 

 

 

Source: HM Treasury

Inflation

On the other hand, Office for National Statistics (ONS) has announced UK’s inflation rate stood with rate of 2.6% dropped down from 4.6%, in 2010. This has caused rises in the price of food and commodities use on a daily basis such as grain, sugar, wheat, rice, gas water and energy, and consumers have face these rises (Rogers et al, 2012).

 

UK’s Inflation Rate (%), 2012 – 2015

 

 

 

 

2012

2013

2014

2015

Inflation %

3.6

3.4

3.4

3.1

Percentage point change

-1.5

-0.2

0

-0.3

year on year

Note: inflation is at retail price Index (RPI)

 

 

 

 

 

 

 

Source: HM Treasury

According to Moulds (2012), in the first three months of 2012, disposable household income has fallen to 0.6%, rising prices have defeated wages and pressured finances of the audience, confirmed by the Office for National Statistics.

2.3 Growth Drivers

UK’s fast-food outlets are dominating the eating-out market growth (The University Caterers Organization Ltd, 2012).  According to The Eating Out’s (2012) report forecasted that fast-fast sector will be set to grow quicker than any other sector such as hospitality or retail, projected annual growth going to be 3% to 52 billion by the of 2012.

Key growth drivers that are boosting the fast-food sector; 45% consumers’ attitudes and confidence are breakable and they don’t secure about their future disposable income and, which influences 65% public to eat-out because it’s rather affordable and ultra convenient.

Another growth driver is ‘recession’, which has been profitable and successful for the fast-food outlets. The amount of UK’s fast-food outlets in the top 10 cities has risen 8.2% as compared to previous year which was 6.6% (Local Data Company, 2012).

2.4 Major Challenges

UK’s fast-food market is massively competitive; the amount of rivalry is intensive. Fast-food brands are expanding and multi-unit development is been introduced everywhere (Mintel, 2010). Fast-food sector have to face the legal attention from the UK’s government which is encouraging that fast-food outlets must promote healthier lifestyles in their menus (Keynote, 2011).

Rising prices of commodities have brought a challenge to the UK’s fast-foot sector which people’s disposable income has not been supportive when it comes to eating-out (Fast Food Nation, 2012).

People are looking for justification if they buy fast food – yes, we all want a quick, filling meal but with pennies being harder to come by, we also want value for money – something that tastes good but that we can justify on health grounds. The big fast food chains are rushing to point out that their foods are healthier than we think – a case in point being recent KFC adverts showing a trainee ‘chef’ preparing the KFC chicken ‘fresh in today’ and showing a mountain of salad (DEFRA, 2012).

Macro – Environment Analysis (PEST)

3.1 Political

UK’s government reducing rate of obesity, implementing restrictions on the TV adverts of promotion fast-food to the audience, specially targeting kids. The Government wants to promote healthy eating habits and reduce health inequalities by providing the public of health awareness to have a healthy lifestyle (BBC, 2012). According to National Health Service (2012) revealed the figures that displayed rate of obesity rate of female population is 14.6% and male population is 26.2% in England.

Regulations related to the food sector such as Food Safety, The Clean Neighbourhood and Environment Protection Act are been in place for the establishments to prevent any sort contribution to carbon foot print and global warming (Legislation.gov.uk, 2012).

3. 2 Economical

Supporting factors of fast-food culture and high consumption of fast-food are economy trends, household disposable income, interest rates, taxation percentage, rate of unemployment, rate of inflation. These factors pursue the consumers to adopt fast-food lifestyle (Euro Monitor, 2012).

According to HM Revenue and Customs (2012), Standard rated VAT 20% is been added to the selling price of every products. Rate of Inflation by between 0.6% to 0.8% and rising expenditure by £520 per family’s household.

3.3 Social

The increasing demand for fast-food has affected the society’s eating style. Because people are living on their own, some have working women, others are busy in their work this, smaller family sizes and less disposable income and single-person households. All these reason boosted demand for fast-food in the society (BBC, 2012).

The main factors driving fast food industry over the year has been the increasing rate of obesity and increasing consideration in health and diet. Thus suppliers have been attentive on, sugar, reducing salt and fat related ingredient and have been promoting the benefits of healthy products (National Health Service, 2012).

3.4 Technological

Technology has always been there to play its important part in the enhancement and development of new products and services which further helps the prosperity of the industry. According to National Statistics (2012), online sales service has helped the growth of online shopping, consumers are reducing the travel cost and other costs related to store shopping.

According to QSR Magazine (2012), the development of Electron Point of Sales (EPOS) technology which enables the fast-food outlets to sell and store reams of data of their customers’ spending habits and also allows to check the stock used and left.

Competitor Analysis

4.1.1 Industry Leaders

According to Customer Experience Matters’ (2012) survey, reported that the industry leaders in the UK’s fast-food sector are currently Chick-Fil-A, Subway and Pizza Hut. However McDonalds, KFC and Burger were not positioned at top three places but were mentioned in the top ten.

4.1.1Business Description

According to Key Note (2011), explained the business description of the known fast-food outlets. These businesses offer takeaway hot service or cold food and eat-in experience, meals such as burger, pizza and sandwiches branded high-street names such as McDonald’s, Burger King, Subway, Kentucky Fried Chicken and Pizza Hut.

4.1.2 Strategic Initiatives

UK government has brought a strategic initiative for the fast-food industry which has been affecting massively to the public in the means of obesity rate (BBC, 2012). Moreover government is encouraging the trend of healthy eating as part of its Change4Life programme, aimed at combating the high rate obesity by promoting audience to eat healthier food and exercise more. Fast-food Industry has a challenge to compete as they know people call it ‘junk food’ but Department of Environment and Rural Affair has launched the ‘Green Food Project’ which to achieve of improving food production and healthy eating (DEFRA, 2012).

4.2 Competitor Array

4.3 Comparables Analysis

4.3.1 Sales & Earnings Comparison

4.3.2 Ratio Analysis

Burger king LTD

Balance Sheet/Ratios

 

 

 

Capital Employed (£000)

-4,177

-12,438

-2,903

Return on Capital (%)

0

0

0

Net Worth (£000)

-9,510

-17,361

-8,703

Current Ratio

0.38

0.28

0.44

Liquidity Ratio

0.37

0

0

Domino’s Pizza UK and IRL PLC

Balance Sheet/Ratios

 

 

 

 

 

Capital Employed (£000)

95,443

80,167

36,086

Return on Capital (%)

37%

51.1

62.38

Net Worth (£000)

39,277

19,820

11,481

Current Ratio

1.37

1.04

1.3

Liquidity Ratio

1.24

0.97

1.21

Kentucky Fried Chicken LTD.

Balance Sheet/Ratios

 

 

 

 

 

Capital Employed (£000)

79,052

81,528

73,332

Return on Capital (%)

49

51.5

37.98

Net Worth (£000)

60,100

58,580

49,954

Current Ratio

0.37

0.46

0.39

Liquidity Ratio

0.36

0.45

0.37

McDonald’s Restaurant LTD

Balance Sheet/Ratios

 

 

 

 

 

Capital Employed (£000)

430,711

338,835

255,699

Return on Capital (%)

37

33.66

30.4

Net Worth (£000)

355,953

212,672

137,371

Current Ratio

0.18

0.15

0.19

Liquidity Ratio

0.16

0.14

0.18

Pizza Hut LTD

Balance Sheet/Ratios

 

 

 

 

 

Capital Employed (£000)

41,759

27,690

43,171

Return on Capital (%)

-29%

-48.05

-14.75

Net Worth (£000)

31,470

4,724

22,827

Current Ratio

0.24

0.16

0.15

Liquidity Ratio

0.22

0.14

0.18

4.3.3 Stock Performance