Qsr_Indus

QUICK SERVICE INDUSTRY Simmons Comparative Survey on Burger King, Mc Donald’s Taco Bell and Wendy’s 547 P - Case Write Up 1 19 October, 2010 Shivanee Nanda Ev MBA 2012 1 INDUSTRY PROFILE QSRs or Quick Service restaurants are a form of limitedservice restaurants (LSR) that provide inexpensive food and quick service, defined by the absence of table service or other frills of a “dine- in” experience. Typically, food is ordered and paid for at the counter or drive-thru window at the time of ordering, prior to eating, and is either eaten on the premises or taken out. Typical check sizes for this segment are $8 or less per person. The QSR segment in the US has demonstrated steady growth over a long period of time. According to industry sources, QSR sales have grown at an annual rate of 3% over the past 10 years, totaling approximately $231.4 billion for the 12-month period ended June 2009. 2 2 INDUSTRY TRENDS 1) QSRs are a casualty of the Recession: Restaurant sales have slumped as the U.S. slipped into recession. QSRs fought for customers with aggressive pricing and have been able to fare better than many restaurants in other segments. Despite growing at more than 3% throughout the early part of the decade, QSRs struggled to grow just 1.6% in 2009 to $168.9 billion And even with what appears to be a rebounding economy, QSR sales are forecast to grow just 2.4% in 2010 to $173 billion. 2) Healthy Menu is still lacking in most QSRs: The QSR segment has come under fire in the fight against obesity and government regulation is adding another layer of nutritional transparency to QSR menus. Sufficient customer demand warrants greater efforts to provide healthier menu options and many believe QSRs could do better, particularly regarding the kids’ menu. 3) Retailers are horning in on QSRs:Retailers are taking advantage of restaurant trip attrition and selling convenience foods that emulate what is found on QSR menus. This is evidenced by the likes of heat-and-eat burgers and chicken sandwiches and breakfasts that in some cases have the added advantage of a BFY( Better for you) component. 4) Value menu reign supreme:QSRs across all segments are ramping up value menus as a way to lure in traffic during a tight economy when consumers are trading down to save money. The lines are also becoming increasingly blurry as chains diversify the menu to meet a wide range of tastes, appetites and budgets. 5) QSRs vs Fast Casual Dining: QSRs trump fast casual for value/dollar menu offerings above all, yet value and convenience are also leading factors. Fast casual has the upper hand for a nice environment and the balance of healthy and indulgent menu items. Source: Mintel “ Quick Service Restaurants - US - August 2010 3 3 INDUSTRY FORECASTS &#!$!!!" &!!#" &!!$!!!" %#!$!!!" %!!$!!!" #!$!!!" !" '()*+"(,"-.//*0,"1/2-*+3"456" &!!7" &!!8" &!!9" &!!:" &!%!"3*+,;6" &!%%"3/#68.#.3>/# ;#,'/:@/3.# -:/A8/0.=4# 1037>1#3:/# 0/2#5:;0>1# 7,89,01#.,# 2;.# -,,5# All brands from Mc Donald!s to Wendy!s have introduced kids menu, snack sizes and salad options to cater to these wide range of preferences. 10 KEY BRANDS: MC DONALD’S Mc Donald’s, the most successful companies QSR’s today, is positioned as a family friendly, kid-oriented fast food restaurant offering low cost meals that taste great. Its target audience consist of 18-34 young white and african american families families with kids. Mc Donald’s has unabashedly focused on hooking its TA through the actual “purchase decision makers” in the family -children! It has developed ads that targeted kids, sold franchises in urban areas located close to schools and family neighborhoods, and so on. Besides being the first to float a “ happy meal” ( their kids menu),they were also the first to include indoor playgrounds at most of their locations - a dead giveaway that they are catering to children as part of their marketing strategy. All of these tactics have helped Mc Donald to not only become “bigger but better” through philanthropic initiatives such as the Ronald House of Charity, through which it has donated millions of dollars. Recent product extensions into the breakfast, value menu and beverage (hot and cold) segment have helped the company to successfully ride over the recession. Marketing: Recently, Mc Donald!s has been particularly successful in targeting the lucrative Hispanic market, due in part to directed advertising campaigns with an emphasis on the blending of cultures and “keeping it real.” 11 11 KEY BRANDS: BURGER KING Burger King has started to establish themselves as the affordable fast food choice of the irreverent young adults. It has found success in tailoring its menu and messaging for high school and collegiate teens and 18-24 young singles (especially men) “to do it my way”! Burger King pop culture associations such as movie tie ins and other film related merchandising and promotions ensure that the brand stays relevant to the youth. Since affordability, taste and variety are key for its TA, Burger King constantly experiments with limited time offer (LTO) special introductions which when successful find their way to the regular menu. In a tough year, with sales falling faster than most of the restaurant industry (Q4 2010, revenue drop of 17%), Burger king has been forced to adopt some dollar and Kids menu options. Burger King, which does about 14% of its business during breakfast, is trying to make up ground during the morning, and the company indicates that sales in the U.S. have been strongest at breakfast since the introduction of the BK dollar muffins. Marketing: Recently, to highlight the Value Menu, -a concept obviously borrowed from Mc Donald!s, BK floats the cheeky tag line, typical of its generation - “It!s not that original, but it!s only a buck.” Source: Mintel “ Quick Service Restaurants - US - August 2010 12 12 CONCLUSION The industry is still recovering from the effects of the recession. Analysts report that about 53% of fast food users claim to spend the same at QSRs, while 40% report spending less.Women are especially likely to say they are spending less, which may equate to a drop in family spending. Those from the highest-earning households are spending more, suggesting that they are trading down to QSRs. A full 57% of QSR customers have ordered off the dollar/value menu in the past month, with younger patrons and women most likely to have done so. The majority of those ordering off the dollar/value menu are doing so by making “mini-combo meals” and ordering multiple items. However, changes in lifestyle such as divorce, late marriages, an increase in single-parent households, homes with two working parents, an aging population, increased hours spent working, and an increase in commuting time are driving more consumers into the QSRs. Demographic changes have been further pushing consumers towards fewer meals, a preference for less meal preparation time, and more frequent snacking in lieu of sit-down meals. All QSRs especially Mc Donald!s need to take on the arduous task of the two fold strategy: One, to continually provide more value- driven dollar options and stay socially networked,engaged and relevant for the younger customers Second, to innovate and introduce“healthier”and “better- for- you” recipes on their menus that keep the older customers coming back as well. Source: Mintel “ Quick Service Restaurants - US - August 2010 13 13