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WWW.IBISWORLD.COM Fast Food Restaurants in the US October 2018 1

IBISWorld Industry Report 72221aFast Food Restaurants in the USOctober 2018 Rachel Hyland

Ready to go: Consumers will continue to seek healthier and convenient meal options

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

10 Industry Outlook

12 Industry Life Cycle

14 Products and Markets14 Supply Chain

14 Products and Services

17 Demand Determinants

18 Major Markets

19 International Trade

20 Business Locations

22 Competitive Landscape22 Market Share Concentration

22 Key Success Factors

23 Cost Structure Benchmarks

25 Basis of Competition

26 Barriers to Entry

26 Industry Globalization

28 Major Companies28 McDonald’s Corporation

30 Yum! Brands Inc.

30 Chipotle Mexican Grill Inc.

31 Restaurant Brands International Inc.

32 The Wendy’s Company

33 Domino’s Pizza Inc.

34 Subway

35 Chick-fil-A

36 Operating Conditions36 Capital Intensity

37 Technology and Systems

38 Revenue Volatility

39 Regulation and Policy

40 Industry Assistance

41 Key Statistics41 Industry Data

41 Annual Change

41 Key Ratios

42 Industry Financial Ratios

43 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]

This report was provided toPurdue University (2131791575)by IBISWorld on 19 March 2019 in accordance with their license agreement with IBISWorld


This industry comprises restaurants where patrons pay for quick-service food products before eating. Purchases may be consumed on-site, taken out or delivered. Gross revenue is derived from both franchised and company-owned stores. Franchise fees (up-front

costs associated with opening a franchise) are accounted for in industry revenue. This industry excludes coffee and snack shops. Most industry establishments also sell beverages, such as water, juice and sodas, but usually not alcohol.

The primary activities of this industry are

Operating quick-service restaurants

Operating fast food services

Operating drive-thru and take-out facilities

44529 Specialty Food Stores in the USEstablishments in this industry primarily retail confectionery goods and nuts that are not packaged for immediate consumption.

72211a Chain Restaurants in the USEstablishments in this industry primarily include chain and franchised restaurants that provide food services to patrons who order and are served while seated and pay after eating.

72211b Single Location Full-Service Restaurants in the USEstablishments in this industry primarily include single-location, independent or family-operated restaurants that provide food services to patrons.

72232 Caterers in the USEstablishments in this industry primarily provide individual event-based food services.

72233 Street Vendors in the USEstablishments in this industry are primarily engaged in preparing and serving meals and snacks for immediate consumption from motorized vehicles or nonmotorized carts.

72241 Bars & Nightclubs in the USEstablishments in this industry includes bars, taverns, pubs, lounges, nightclubs and other drinking places that primarily prepare and serve alcoholic beverages for immediate consumption.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Asian

Burgers

Chicken

Mexican

Sandwiches

Pizza and pasta

Other

Provided to: Purdue University (2131791575) | 19 March 2019


About this Industry

For additional information on this industry

www.entrepreneur.com Entrepreneur Magazine

www.nrn.com Nation’s Restaurant News

www.restaurant.org National Restaurant Association

www.bls.gov US Bureau of Labor Statistics

www.census.gov US Census Bureau

Additional Resources

IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com



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Consumer spending

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2018)

34.3%Burgers

7.5%Mexican

26.0%Other

1.6%Asian

11.3%Sandwiches

10.5%Chicken

8.8%Pizza and pasta


Key Statistics Snapshot

Industry at a GlanceFast Food Restaurants in 2018

Industry Structure Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance None

Concentration Level Low

Regulation Level Medium

Technology Change Medium

Barriers to Entry Low

Industry Globalization Low

Competition Level High

Revenue

$255.6bnProfit

$15.6bnWages

$67.3bnBusinesses

198,892

Annual Growth 18–23

1.2%Annual Growth 13–18

3.8%

Key External DriversConsumer spending

Healthy eating index

Consumer Confidence Index

Domestic trips by US residents

Market ShareThere are no major players in this industry

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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 41



Key External Drivers Consumer spendingIndustry growth is sensitive to changes in consumer spending. For example, during the recession, the spike in unemployment led to declines in consumption levels, including the consumption of fast food. However, when personal consumption expenditure is high, consumers are more likely to spend money on eating out at industry restaurants. Consumer spending

is expected to increase in 2018, providing a potential opportunity for the industry.

Healthy eating indexThe healthy eating index is expected to remain steady in 2018, as consumers become increasingly aware of issues related to weight and obesity, fatty-food intake and food safety issues. This factor particularly affects the often meat- and

Executive Summary Over the past five years, the Fast Food Restaurants industry has grappled with consumer preferences shifting from unhealthy foods, as well as a saturated food service landscape that has kept prices low. However, compared with other operators in the hospitality sector, fast food restaurants have still performed well over the five years to 2018 due to their low prices and convenience they offer. While heavy competition from other segments of the food services sector has forced fast-food operators to emphasize low prices in a continuing battle to attract consumers, steady

consumer spending has curtailed revenue losses during the period. As a result, industry revenue is expected to grow an annualized 3.8% to $255.6 billion over the five years to 2018. In 2018, growth is expected to reach 2.0% amid tempered consumer confidence and heightened competition.

Eating habits have changed as people have become increasingly health conscious, demanding alternatives to traditional fast food options. While major fast food retailers have responded by expanding their healthy offerings, the general trend toward health awareness

has decreased demand for traditional fast food restaurants in favor of growing fast-casual restaurants. Many major chains have also invested in their international operations as part of a long-term strategy to focus on emerging economies due to slow domestic growth. Fast food restaurants view China as a market that has particularly strong potential for growth and long-term profitability.

Industry growth is expected to slow over the next five years even as the domestic economy continues to improve. Competition is expected to remain high, contributing to much of the industry’s anticipated tepid growth. While no severe revenue declines are expected, fast food restaurants will continue to operate in a slow-growth environment, as many segments of the industry have reached a saturation point. Further, consumers will continue to seek healthier and convenient meal options. Successful operators will therefore need to adapt to changing consumer preferences as the traditional concept of fast food evolves to include a wider variety of options. Plenty of opportunities remain for new fast food concepts and products; nevertheless, competition will keep prices low, cutting into overall growth over the next five years. As a result of these trends, industry revenue is expected to grow at an annualized rate of 1.2% over the five years to 2023 to $271.8 billion.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Competition will keep prices low, cutting into overall growth over the next five years



Industry Performance

Key External Driverscontinued

grease-heavy fast food industry. Despite any long-term aggregate declines in healthy eating, consumers are now more aware of the health issues associated with fatty foods and are increasingly going out of their way to avoid them, which is a potential threat to the industry.

Consumer Confidence IndexChanges in consumer sentiment have a significant effect on household expenditure on discretionary items, including restaurant dining. During a recession, consumer demand for lower-priced value products from restaurants

increases. The Consumer Confidence Index is expected to increase in 2018.

Domestic trips by US residentsLarge numbers of industry establishments are located next to highways and in airports, making them convenient for customers who are looking for a quick and inexpensive meal option while they travel. The more road trips and domestic flights for work or leisure increases, the more people will spend at industry establishments. The number of domestic trips by US residents is expected to increase in 2018.

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Healthy eating index


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Current Performance

The Fast Food Restaurants industry has experienced steady growth over the five years to 2018, as convenient and affordable food remains popular with consumers. While the low price point of the industry’s products typically gives fast food restaurants a competitive advantage over other segments of the food services sector, rising consumer sentiment, which has spurred a greater amount of spending on discretionary items such as meals, has increased competition overall. Furthermore, with the rise of fast-casual and independent chains rapidly gaining market share, major industry operators have had to alter their offerings to effectively compete. During the five-year period, the industry’s response to changes in consumer preferences away from processed foods high in sugar, fat and

salt has helped spur demand. Over the five years to 2018, industry revenue is expected to grow at an annualized rate of 3.8%. In 2018 alone, revenue is expected to rise 2.0% to total $255.6 billion.

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Industry revenue


Improved consumer spending

The industry comprises establishments where consumers pay for quick-service food products that are consumed on-site, taken out or delivered. As a consumer-focused industry, fast food restaurants rely heavily on levels of consumer spending and confidence. Over the past five years, consumer spending has increased at an annualized

rate of 2.9%, which has spurred consumers to flock to fast food restaurants during the period, as they provide convenient meals at competitive price points. However, as consumer spending has increased, consumers have also increased visits to full-service restaurants, tempering industry growth somewhat over the past five years.

Consumer trends drive new strategies

Consumers have become increasingly health conscious, and major fast food retailers have responded by expanding the number of healthy options on their menus. For many fast food chains, this has become a marketing strategy cornerstone, enabling them to target a new segment of the market and also renew interest in their products. Subway, for example, was one of the first restaurants to capitalize on the health and weight concerns of consumers and successfully market the health benefits of

its sandwiches. However, their monopoly in this market has been dismantled as other operators have entered into the health space. After sales plummeted in response to health concerns about its food, McDonald’s introduced a healthy choices menu and began altering menu options to have less fat and salt content, which has garnered both negative and positive reactions among consumers.

Over the past five years, fast food operators have performed with varying degrees of success depending on the




Consumer trends drive new strategies continued

products they offer and their method of service. Fast-casual restaurants that do not offer table service but provide a higher quality of food and ambiance compared with traditional fast food restaurants have been experiencing particularly strong growth over the past five years. For instance, fast-casual restaurants, such as Chipotle and Five Guys, which offer customizable, higher-end meals have taken market share away from operators such as McDonald’s and Burger King. Moreover, following Shake Shack’s initial public offering in January 2015, fast-casual concepts have been growing at a rapid pace and increasing their scale to compete more effectively with the industry’s larger juggernauts. As a result, major players have introduced their own fast-casual concepts. For example, Yum! Brands opened KFC Eleven in Louisville, KY, in 2013, offering products such as rice bowls and salads not traditionally associated with KFC. However, the store was unsuccessful and closed in 2015. Since then, the company announced that it will open over 300 locations of its upscale version of Taco Bell. Named Taco Bell Cantina, the company plans to position these restaurants in high-density areas, providing no drive-thru service and including value-added menu items, such as alcoholic beverages, to pique the interest of consumers. Similarly, McDonald’s has also opened experimental locations that use fast-casual concepts to gauge the success of both new brand concepts and the reintroduction of more traditional offerings to consumers. Consequently, the total number of industry establishments has increased at an annualized rate of 2.0% to 290,453 locations over the five years to 2018.

However, even as consumer spending has improved, some consumers have remained less willing to spend on meals outside of the home. Instead, a

confluence of factors ranging from volatile food prices, increased internal and external competition and changes in consumer preference, have all worked to weaken foot traffic and overall sales for many operators. According to data from the US Department of Agriculture (USDA), the price of food according to the agricultural price index has decreased an annualized 3.3%. This will cause some consumers to increase overall spending on food to cook at home or seek to dine on a budget when eating out. Furthermore, according to the Bureau of Labor Statistics, the Consumer Price Index for food consumed away from home at industry operators and food consumed at home increased at annualized rates of 2.6% and 0.5%, respectively, over the 12 months to February 2018. This has compelled many consumers to seek alternatives to eating and search for deals. This increase in price has also contributed to the rise in popularity of prepared food. Consequently, more consumers, particularly time-poor consumers, have shown a preference for other low-cost concepts, such as the increased offerings from operators in the Convenience Stores industry (IBISWorld report 44512) and the Supermarkets and Grocery Stores industry (44511). Lastly, boxed meal delivery services such as Blue Apron and other delivery services that facilitate consumers preparing their own meals have also challenged industry demand, providing a wider array of gourmet options to consumers who still seek convenience, yet prefer not to eat away from home. These factors have significantly increased the competitive landscape for industry operators. As a result, many operators have chosen to slash prices further to stay ahead of the pack, while many have also experienced declines in guest counts during the latter half of the five-year period, which has tempered revenue growth somewhat.




Overseas expansion Due to slow domestic growth, many fast food chains have increased their overseas stores to access faster-growing markets. The long-term strategy of most major chains involves international expansion. Consequently, international sales represent an increasingly larger part of operators’ total revenue, which has been the case for McDonald’s. In particular, China’s market has a huge potential to drive long-term revenue and profit. Over the past five years, Yum! Brands decided to increase its focus on its China growth strategy. While Yum has had some setbacks in China and is experiencing increased competition from other Western food chains, the move is

expected to pay healthy long-term dividends. The company recently separated its China business into an independent entity in 2017. This move is expected to provide stability for the company’s already-saturated markets while enabling the new business to compete more efficiently and grow its market share in a still-expanding market.

Wages and profit Total industry wages are estimated to increase at an annualized rate of 4.5% to $67.3 billion, over the five years to 2018, which is faster than that of revenue. This increase has occurred in line with declining unemployment over the five years to 2018. As the unemployment rate drops, it will be harder for operators to find labor, forcing them to increase wages to attract workers. Many individuals are leaving part-time employment offered by many operators for full-time positions in other fields. The industry remains highly labor intensive due to its service-orientated nature. Labor is required throughout every aspect of the supply chain, from front-of-house service to cleaning tables and cooking food. Furthermore, recent gains by employees and unions alike to increase the minimum wage in parts of

the United States have also placed pressure on industry operators to increase wages. As a result, wages as a share of revenue are expected to increase over the five years to 2018.

Regardless of the increased wages, the average industry profit margin has increased slightly over the past five years. Although customers have retained a preference for lower-priced items, operators have achieved increased sales volumes and have been able to increase prices slightly while still remaining competitive. Additionally, other input costs such as food have fallen over the five years to 2018 reducing purchase costs for industry operators. Therefore, high product turnover has been critical to the success of operators. Industry profitability is estimated to reach 6.1% of total industry revenue in 2018.

Many fast food chains have increased their overseas stores to access faster-growing markets




Industry Outlook

The Fast Food Restaurants industry will continue to play an influential role in the US food service sector over the next five years. The industry’s ability to provide convenient food at a low price will remain popular, especially with consumers seeking affordable and convenient food options. However, the industry will remain highly competitive, forcing fast food chains to compete on price and service, which will ultimately restrict the industry’s revenue and profit growth. As a result, industry revenue growth is expected to be subdued, increasing at an annualized rate of just 1.2% to $271.8 billion over the five years to 2023.

Fast food restaurants will benefit as the economy continues to improve over the next five years. The national unemployment rate is expected to remain steady; however, consumer confidence is expected to sour somewhat due to the global economic outlook, particularly regarding economic turmoil in Europe coupled with economic forecasts and trade tensions pertaining to China. These trends are expected to hinder demand somewhat for industry operators; nevertheless, consumer spending is estimated to increase at an annualized rate of 2.0% over the five years to 2023. Steady gains in consumer spending are expected to mitigate any potential severe

decreases in spending at industry establishments, as more money in consumers’ wallets is expected to encourage greater spending, particularly for time-poor consumers returning to work. Additionally, fast food restaurants are expected to continue to expand their menu options away from highly processed foods that are high in fat to cater to changing consumer preferences. This product innovation will play a large part in the industry’s growth moving forward.

Nevertheless, despite the industry’s continued growth, intense competition will likely persist throughout the next five years. Fierce price-based competition from fast food and fast casual restaurants will place increased emphasis on product development. Furthermore, should food prices remain low, consumers may forego the long-term trend toward eating out more often to save money by eating at home. According to data collected by the US Department of Agriculture, consumers spent more on groceries than at restaurants in 2017. This has contributed to an overall slowdown in restaurant sales, according to the National Restaurant Association. As a result, industry operators will need to continually innovate their menus and service offerings to stay relevant.

New ways to expand The competition will likely intensify over the next five years, especially within the domestic market. This factor will involve significant price-based competition and a growing emphasis on the regular introduction of new products. Most fast food chains will introduce new healthy food alternatives and expand their current product lines. Major operators will seek to expand revenue and profit by offering healthier alternatives to red meat products, such as chicken burgers, pasta and fresh salads. They will also likely

continue to diversify into new areas, such as cafes and full-service restaurants that may do business under different names at new locations. Many domestic operators will also continue to expand internationally, which will likely be the largest source of revenue and profit

Industry profitability is expected to remain relatively stagnant




New ways to expand continued

growth for major players over the next five years. Asia and the Middle East are regions where domestic fast food brands have not saturated the market yet and some operators are thriving. However, strong international revenue growth and expansion will likely limit domestic expansion and domestic revenue growth opportunities, which are covered in this industry.

Lastly, industry operators are expected to further invest in innovations and technology to improve service as well as update aesthetics within their facilities that may not appeal to consumers. For example, McDonald’s recently announced major technology initiatives, including the rollout of self-serve kiosks in all of its US locations, as well as delivery service and the development of a mobile ordering system that consumers will be able to take advantage of through the company’s mobile app. Most significantly, the company announced the introduction of table service in all of its US locations, although it has yet to provide a timeline for implementation. While seemingly antithetical to the concept of quick service, the company

believes that more point-of-sale (POS) options, coupled with increased customer service, is expected to lower lead times and improve overall customer satisfaction. Similarly, fast-casual concept Bareburger has used POS services developed for mobile devices that enable them to take orders from consumers already sitting down.

Over the next five years, industry profitability is expected to remain relatively stagnant, largely due to ongoing competition in the low-growth, saturated domestic market. Average industry profit is expected to remain relatively steady over the five years to 2023, at 6.0% of revenue, representing a minute change from 6.1 % in 2018. Operators that experience stagnant domestic profit will likely increase their focus on international expansion to grow company-wide profit margins. Companies will also try to emulate McDonald’s by expanding their beverage options to include more coffee-based drinks and smoothies. These low-cost and high-profit menu items offer a quick way for companies to perk up their revenue and fatten their bottom lines.

Industry landscape Although the domestic economy is projected to grow at a healthy pace over the next five years, operators will continue to experience intense competition, which will limit the number of new establishments that open. Companies that offer unique, customizable and healthy food products will likely experience the strongest growth in new establishments. Moreover, the number of establishments will increase as companies such as Burger King pursue a franchise-only strategy, since chains are less restricted by the large capital investment that is required to open a new restaurant. Over the next five years, the number of industry locations is forecast to increase at an

annualized rate of 1.2% to total 308,395 establishments in 2023.

Over the next five years, employment is projected to grow at an annualized rate of 1.4% to 4.7 million workers by 2023. This number will be partly inflated by the increasing use of part-time employees to meet peak customer service periods. However, IBISWorld projects that the average industry wage will increase only marginally, rising at an annualized rate of 1.5% during the five-year period.

Operators will continue to experience intense competition



Industry PerformanceThe rate of new store openings has slowed

Operators are concentrating on international openings

There is heavy price-based competition

Life Cycle Stage




Industry Life Cycle The Fast Food Restaurants industry is firmly entrenched in the mature stage of its life cycle. Over the 10 years to 2023, industry value added, which measures an industry’s contribution to US GDP, is forecast to grow at an annualized rate of 3.2%, compared with GDP growth of an annualized 2.2% during the same period. Thus, the industry has exhibited slow and steady long-term growth, at a slightly faster pace than the economy as a whole, but exhibits other qualities of a mature industry such as saturation and acceptance. Due to this steady growth, industry operators are likely to expand their footprint and increase the number of their domestic operations. The number of establishments is expected to grow at an annualized rate of 1.6% over the 10 years to 2023.

Significant shifts in consumer preferences have also had an effect on the industry over the past five years. Demand for healthy foods, for example, has increased because consumers have become more health conscious in recent years. In an attempt to maintain consumer interest in the fast-food market, operators like McDonald’s have introduced a range of healthy options to their menus. Furthermore, fast-casual restaurants that do not offer table service, but provide a higher quality of food and

ambiance compared with traditional fast food restaurants, have been experiencing particularly strong growth over the past five years. Relatively new players like Chipotle and Melt Shop that offer customizable, gourmet meals have stolen market share away from traditional fast-food operators such as McDonald’s and Burger King.

The rate of technological change within the industry is moderate, but the rapid increase in internet penetration and smartphone usage over the past five years has presented fast-food restaurant operators with the opportunity to engage with customers on several new levels. Many small fast food operators have used online advertising, informative and interactive company websites and social media such as Twitter and Facebook to increase their brand recognition and revenue. Furthermore, technology is also being used to boost profit margins, improve service levels and to help minimize labor costs, reducing food waste, improving business processes and improving meal experiences. For example, new systems and technology are designed to ensure quality service and reduce customer waiting time such as electronic ordering systems linking the front counter with the kitchen as orders are taken.

This industry is Mature



Products and Services

The Fast Food Restaurants industry is segmented based on the main type of food served. The diverse nature of the industry means many restaurants do not fit neatly into one category. For example, many predominantly burger focused chains also serve chicken or Mexican-based dishes. Fusion cuisine, which combines elements of different culinary traditions, have become increasingly

popular. This is increasingly the case as fast food operators chase increasingly fragmented consumer segments. Also, breakfast has become an increasingly lucrative segment of the Fast Food Restaurants industry as operators deal with stagnant sales in the lunch and dinner time slots. Given these considerations, IBISWorld has segmented fast food restaurants based on their core offering.

Products & MarketsSupply Chain | Products and Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

9901 Consumers in the US Households are the key driver of demand for this industry’s products.

KEY SELLING INDUSTRIES

42442 Frozen Food Wholesaling in the US This industry supplies frozen foods to industry operators.

42443 Dairy Wholesaling in the US This industry supplies dairy products to industry operators.

42444 Egg & Poultry Wholesaling in the US This industry supplies poultry products to industry operators.

42446 Fish & Seafood Wholesaling in the US This industry supplies seafood to industry operators.

42447 Beef & Pork Wholesaling in the US This industry supplies meat products to industry operators.

42448 Fruit & Vegetable Wholesaling in the US This industry supplies fruit and vegetables to industry operators.

Supply Chain

Products and services segmentation (2018)

Total $255.6bn

34.3%Burgers

7.5%Mexican

26.0%Other

1.6%Asian

11.3%Sandwiches

10.5%Chicken

8.8%Pizza and pasta




Products & Markets

Products and Servicescontinued

BurgersBurgers are almost synonymous with fast food and top 50 fast food chains are dominated by restaurants specializing in burgers. Burgers are heavily immersed into American culture and have therefore been a major driver of the industry’s growth over the past half-century. Over the past few decades, American restaurants have increased their hold of the entire food-service market due to the growth of chains such as McDonald’s, Wendy’s and Burger King. However, over the past five years, many traditional burger chains have struggled with flat or declining sales as consumers move away from generic brands toward niche or gourmet offerings. The ‘better burger’ trend, which includes operators such as Five Guys and In-N-Out Burger and places an emphasis on food quality and customizable burgers, has been the best performing part of this segment over the past five years. Operators that primarily sell burgers are estimated to be 34.3% of industry revenue in 2018.

SandwichesAccording to research done by Alpha Galileo, an estimated 50.0% of Americans consume some variation of a sandwich every day. As a simple, tasty and generally healthy food option, Sandwich centered locations have remained as a large portion of industry revenue, an estimated 11.3% in 2018. Subway still dominates this segment despite its declining revenue figures. Growing alternative chains such as Jimmy John’s have helped this segment substantially, enabling it to remain a focal point for the industry. Another reason for the dominance of this segment is its relatively low input costs and cooking knowledge and expertise, making them easy entry points for new industry operators. Deli meats, rolls and other toppings are comparatively less expensive and commonplace, limited

overhead food costs. The ease of assembling a sandwich also helps to reduce money on labor, as operators in this segment do not need to hire specialized workers for grills, stoves or flat-tops.

ChickenChicken has long been a popular fast food menu item and the majority of non-chicken chains now dedicate growing menu space to chicken items due to the meat’s perceived health benefits. Chicken wraps and chicken salads have been used by major burger chains as a way to combat consumer unrest about unhealthy fast food. The biggest chains in the chicken segment are Chick-fil-A, KFC and Popeyes Louisiana Kitchen. Chick-fil-A has recently surpassed KFC as the number one fast food restaurant chain in this segment with just a fraction of the restaurants, partly due to its greater focus on breakfast and differentiated menu that includes a greater array of milkshakes, ice cream and wraps. Over the past five years, this segment’s share of revenue has increased to an estimated 10.5% of industry revenue in 2018.

Ethnic foodEthnic foods typically consist of Asian and Mexican focused establishments. Restaurants that focus in segment make up 9.1% of industry revenue in 2018. Society’s adoption and acceptance of ethnic foods, in general, has increased over the past half-century as tastes have developed and people become more adventurous in trying other cuisines. Higher rates of global travel and increased exposure to new cultures have also driven growth in the popularity of ethnic cuisine.

Asian food is a diverse category that can be broken down into many regional styles based on the peoples and cultures of those regions. The main broad types include: East Asian (including Chinese,



Products & Markets


Japanese and Korean restaurants); Southeast Asian (including Vietnamese, Thai and Malaysian restaurants); and South Asian (including Indian, Sri Lankan and Bangladeshi restaurants). Other variations such as Middle Eastern and Central Asian cuisines have been included in the ‘Other’ category for the purposes of this report. There are estimated to be over 40,000 Chinese restaurants in the United States, with the majority of these fast food restaurants that pay for quick-service food products before eating. However, unlike other food types, there are relatively few Asian chain restaurants. Panda Express is the largest Asian fast food chain in the United States, with just over 1,500 units. The business model of Asian fast food restaurants, which often rely on family labor to fulfill cooking and serving duties, does not suit the franchise model that other fast food restaurants rely on. Also, most of the public equates Chinese food with economical pricing, which makes it difficult for chains to raise prices

Staples of Mexican cuisine include corn, beans and chili peppers. Mexican restaurants are known for their intense and varied flavors and variety of spices. Mexican cuisine has had a large influence on the Southwest of the United States. In states such as Texas, where variations such as Tex-Mex have been adopted, Mexican style restaurants can account for well over 20.0% of all establishments. Growing immigration has contributed to a rise in Mexican food consumption over the past five years, driven in part by a rise in the Hispanic population, which now accounts for over 18.0% of the total population in the United States. The traditional Mexican food heavyweight has been Taco Bell. However, over the past five years Chipotle, which offers quick service while providing customizable and higher-quality food, has been the best performing fast food restaurant in terms of sales. Chipotle has been the envy of the

industry as it has been able to grow quickly despite stagnant sales throughout the rest of the industry.

Pizza and pastaPizza restaurants typically serve a menu of house and custom pizzas alongside pasta, salad and other Italian-influenced cuisines. Due to the wide influence of Italian immigrants in American culture over the past century, many regional forms of pizza have developed. Thanks to its products’ general popularity and affordability, this segment has become increasingly defined as a carryout or delivery food for offices, birthday parties, or other large gatherings of people. Pizza franchises such as Dominos, Pizza Hut and Papa John’s now largely focus on carryout or delivery services and have been able to access higher profit margins through this business model. Over the past five years, this segment’s share of revenue has remained stable at an estimated 8.8% of industry revenue in 2018.

OtherEstablishments outside of the aforementioned product segments comprise a range of different food options, performing with vary degrees of success over the past five years. Restaurants in this product segment include fast-casual concepts, traditional quick service restaurants, as well as establishments serving but one item that may have local or regional popularity but does not translate well to a national audience. Seafood concepts, for example, are prominent in coastal regions where fresh seafood is amply available, and where seafood factors largely into consumers’ daily diets. Fast-casual concepts such as those serving highly specific offerings, such as salad, are also included in the other category and have performed well during the five-year period due to the



Products & Markets

Demand Determinants

The industry is sensitive to factors that affect the growth in household disposable income, which gives consumers the ability to spend money on out-of-home dining. Household disposable income is sensitive to changes in labor market growth (i.e. the unemployment rate) and movements in tax and interest rates. High gas prices also negatively affects disposable incomes.

Demographic trendsThe changing age structure of the population is influencing change within the industry. Baby boomers are a major group that influences industry revenue growth. Not only do they comprise a significant percentage of the population, they also generally have the highest amount of disposable income to spend on restaurant meals. Bureau of Labor Statistics household expenditure data indicates that households with incomes of more than $50,000 account for about 72.3% of the total personal expenditure on food eaten outside of the home. Of this group, households in the with incomes over $100,000 provide about 42.8% of the total away-from-home food expenditure. The most important factor driving the highest household income group to spend in restaurants is the pressure of work and lack of time.

Health consciousnessRising health consciousness has a direct effect on industry operators as American consumers become increasingly concerned about fat content, fried foods and salt content, especially when dining out. As a result, rising concerns over the nutritional value of restaurant meals are likely to influence demand for certain foods on menus, thus encouraging industry players to alter their product mix. It is also expected to affect overall performance for industry players by rewarding operators that expand their menu choices to include a range of healthy meal options among other more indulgent food items.

ConvenienceConvenience and value for one’s money and time are other important demand determinants. Recent social trends such as busier lifestyles, heavier workloads and longer working hours, have helped boost demand for restaurant services and convenience food as time-poor consumers look to cut down cooking time and make better use of their spare time. Moreover, restaurants have become more of a place for family get-togethers, special occasions, and social meetings for cash-rich and time-poor consumers.


domestic increase in health consciousness. Lastly, quick-service concepts that do not fall under any

specific category, such as those that offer a range of sandwiches and other items, are also included in this segment.



Products & Markets

Major Markets

The major markets for the Fast Food Restaurants industry can be segmented based on several factors, including income, age, geographic location and family structure. Consumption patterns of fast food differ from full-service restaurants where income is a more important determinant of demand. Consumers of fast food are typically budget-conscious and experience the convenience of fast food compared with sit-down restaurants. According to trends in data provided by the Bureau of Labor Statistics’ Consumer Expenditure Survey, people’s visits to fast food restaurants increase with their incomes up to a certain point. Households earning between $100,000 and $149,999 are estimated to represent 18.8% of industry revenue, and households earning over $150,000 represent 24.0% of revenue. These individuals spend more eating away from home compared with those in lower income brackets, which increases their overall spending at fast food restaurants. However, as household income reaches that point, between $100,000 to $150,000, visits to fast food restaurants decline and are replaced by full-service and sit-down dining at higher prices. For this reason, the biggest consumers of fast food in the United

States are lower-middle and middle-middle income households.

Households with an annual income of less than $30,000 in 2018, can find it challenging to afford to eat out often at fast food restaurants where prices may be unattainable. Therefore, many of these households rely on programs such as the Food and Nutritional Service’s Supplemental Nutrition Assistance Program (commonly referred to as SNAP), which does not permit food stamps to be used for restaurant purchases. However, all households with an annual income of under $50,000 represent a significant 27.8% of industry revenue. The largest market segment is households with an annual income between $50,000 and $99,999. Households in this income bracket make up 29.4% of industry revenue. Consumers in this income bracket have a higher annual income but remain price conscious as still have a fixed level of disposable income. Due to this, fast-food operators are relatively inexpensive options when individuals decide to eat away from home.

The industry’s major markets distribution has not changed dramatically over time as spending patterns within income brackets are relatively

Major market segmentation (2018)

Total $255.6bn

29.4%$50,000 to $99,999

27.8%Less than $50,000

18.8%$100,000 to $149,999

14.5%$200,000 or more

9.5%$150,000 to $199,999




Products & Markets

International Trade As a service industry, the Fast Food Restaurants industry is not technically engaged in importing or exporting products, so international trade is not relevant to the industry. However, some industry players have overseas operations and earn a significant portion of their revenue overseas. Many large operators have established franchised operations internationally. Given the mature stage of

this industry’s life cycle in the domestic market, with changes in customer profiles and tastes, many major operators are seeking to increase their growth in revenue and earnings through further global expansion. In recent years, the large fast-food chains, including Yum! Brands and McDonald’s have earned an increasing amount of their revenue outside of the United States.

Major Marketscontinued

established. As fast-food operators have increasingly sought to provide healthier and more nutritious items while remaining at a reasonable price point, they become more popular with middle-class households over the past five years. However, the corresponding

decline in spending by the lowest income households meant that the distribution between income demographics remained relatively steady over the past five years. This is expected to continue over the five years to 2023.



Products & Markets

Business Locations 2018

MO1.8

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT0.2

MA2.2

RI0.4

NJ2.9

DE0.3

NH0.4

CT1.1

MD2.1

DC0.4

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.9

CA12.6

NV1.0

OR1.2

WA2.0

MT0.3

NE0.6

MN1.5

IA0.8

OH3.9

VA2.7

FL5.4

KS0.9

CO1.7

UT1.0

ID0.5

TX8.5

OK1.2

NC3.2

AK0.2

WY0.2

TN2.1

KY1.3

GA3.4

IL4.3

ME0.4

ND0.2

WI1.5 MI

2.9PA3.9

WV0.5

SD0.2

NM0.6

AR0.9

MS0.9

AL1.6

SC1.5

LA1.4

HI0.5

IN2.0

NY7.1 5

6

78

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes



Products & Markets

Business Locations The industry’s business locations are largely distributed according to population. Since the industry provides quick meals to consumers, successful operators need to be located in close and convenient proximity to their customer base. As a result, the Southeast is home to the highest concentration of franchised establishments and population at 24.9% and 25.7% respectively. The West follows as the second highest concentrations representing 17.6% of establishments. This region’s concentration is dominated and driven by California. Due to the state’s size and population concentration, California represents 12.6% of industry establishments. The Mid-Atlantic is also dominated by a single state. New York’s large population concentration lends it to being the third largest state by establishments at 7.1%, while the total Mid-Atlantic currently has 16.6% of industry establishments. The smallest proportion of establishments is in the Rocky Mountains at 3.6%.

Various academic studies have acknowledged that fast food restaurants are more prevalent in low-middle and middle-income neighborhoods and

become less prevalent in the highest-income neighborhoods. This distribution is reflected in the industry’s major markets, where these demographics are the industry’s largest consumers. High-income areas tend to have a greater concentration of full-service restaurants as opposed to fast food establishments.

%

30

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10

20

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Wes

t

Gre

at L

akes

Mid

-Atla

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New

Eng

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Plai

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Rock

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Sout

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Establishments

Population

Distribution of establishments vs. population




Key Success Factors Business expertise of operatorsBusiness expertise is required as this industry has high turnover but low margins; thus, losses are easily made.

Having a clear market positionClear market positioning gives operators a competitive advantage over competitors.

Ability to franchise operationsFranchising both in the United States and overseas is now a significant component of this industry and can provide necessary support to owners.

Product is sold at high profile outletsHaving high-profile locations for stores, with easy access, parking and drive-through services increases convenience for customers.

Access to multiskilled and flexible workforceIndustry operators need access to a good supply of skilled, casual workers to meet peak service demand periods.

Effective cost controlsCost controls are important in this low-margin industry, particularly related to minimizing food waste.

Market Share Concentration

The top four players in the Fast Food Restaurants industry are expected to account for 6.9% of available market share, giving this industry a low level of concentration. Given the diversity of food styles and operations, nearly 41.6% of establishments are small-business operators that have nine or fewer employees. An additional 58.0% of establishments have between 10 and 99 employees, with 94.2% of establishments having fewer than 50 employees.

Over time, the industry’s concentration has decreased, primarily as industry operators transition to franchising as their method for growth. Franchises are not included as part of corporate revenue and therefore, as companies switching to franchise focused, their revenue declines to the fees and royalties they collect from franchisees in lieu of revenue from physical restaurant operations. Over the past five years, there has been an increasing trend for the major chain operators selling their company-operated stores to focus on franchising. The lower capital requirements and less risk associated with selling franchises have

helped chains such as Burger King and Subway grow despite relatively flat restaurant sales. Due to this trend, concentration among operators when looking at system-wide sales is much higher and has actually increased over the five-year period. While this is not an accurate depiction of market share for the industry as a whole, it exemplifies the number of franchises that are being opened under the umbrella of large and established brands.

Additionally, many of the older stalwarts are losing ground to up-and-coming concepts, such as smaller chains like Chick-fil-A and fast-casual concepts such as Shake Shack. These new companies are gaining ground which has caused sales to falter for larger competitors. Consumers are increasingly looking to try new food concepts, especially those with healthier options or quality ingredients. Industry concentration is expected to continue decreasing over the five years to 2023 as smaller industry operators expand, taking market share from the current major players.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:



Competitive Landscape

Cost Structure Benchmarks

The Fast Food Restaurants industry’s flat growth over the past five years has meant that many operators have struggled with relatively low-profit margins. The industry has high product turnaround, but its low-profit margins make it vulnerable to any adverse changes in demand, including recessionary declines. Changes in household preferences, in disposable incomes and other health and food safety concerns also influence demand.

ProfitIndustry profit is calculated as operators’ earnings before interest and taxes. Profit varies among players depending on the size of the operator, with larger operators benefiting from economies of scale. For large players such as McDonald’s, profit margins at company-operated restaurants can be as high as 12.3% due to the large economies of scale the

organization has access to. However, the profit margin of a small enterprise that operates only one restaurant will be much lower. IBISWorld estimates that in 2018, the average fast food restaurant will obtain a profit margin of 6.1% of revenue, representing a slight increase from 2013 when profit was estimated to account for 5.0% of revenue. This increase is largely from the growth of the US economy and per capita disposable income over the five-year period. As disposable income grows individuals are likely to spend more eating out. Nevertheless, an operator’s major costs are food and beverages purchased for sale and wages paid, and if these are not managed skillfully, an operator’s profit margin will take a hit.

PurchasesFood and beverages are usually purchased from wholesalers, particularly

Sector vs. Industry Costs

n Profitn Wagesn Purchasesn Depreciationn Marketingn Rent & Utilitiesn Other

Average Costs of all Industries in sector (2018)

Industry Costs (2018)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100


9.9 6.1

13.0

12.22.62.9

36.9

26.3

18.8

11.12.04.6

28.4

23.7




Cost Structure Benchmarkscontinued

from operators that can guarantee prompt delivery and quality. Fluctuations in the cost of food and beverages significantly influence industry revenue and profit. In the short term, many of these cost increases cannot be passed on to the consumer or client. Therefore, menus, portion sizes and other inputs into food service must be continually monitored. A major source of inefficiency is wastage due to fluctuations in demand, which may lead to an oversupply of meals or excess ingredients that cannot be used and subsequently spoil. IBISWorld forecasts that in 2018, purchases will account for an estimated 36.9% of an average operator’s revenue. This is down only slightly from 2013 despite higher global demand for food forcing prices of some inputs higher, during the early half of the five-year period. Prices have since stabilized amid consistent drops in the agricultural price index.

WagesOperators in the industry have high wage costs due to the labor-intensive nature of food preparation, cooking, serving and cleaning up. Over the past five years, labor costs have risen slightly as a percentage of total revenue due to wage disputes and higher minimum age benchmarks negating other productivity gains by the industry’s largest employers. These costs include wages and benefits, such as health, workers’ compensation and unemployment insurance. Growing labor intensity, however, typically brings down menu prices and industry profitability. Industry wage costs account for an estimated 26.3% of an average operator’s revenue in 2018.

Rent and utilitiesRent costs can be significant for an operator in this industry due to the need to be situated in a high-traffic location to attract passing foot traffic. Many

businesses that operate under franchise agreements pay rent directly to the franchiser that also owns the building. Over the past five years, average industry rent as a percentage of revenue has increased as it has become increasingly common for enterprises to rent, rather than own, the property they operate out of. Utility costs are also considerable due to the energy-intensive nature of cooking, storing, cooling and cleaning. These costs are estimated to be 12.2% of industry revenue in 2018.

Other costsOperators in the industry are subject to a range of other costs including professional fees, administrative costs and marketing or advertising. Due to the high number of franchised businesses operating in the industry, franchise royalties and other fees can account for a significant proportion of industry revenue. Franchise agreements typically last for about 20 years and require potential franchisees to pay upfront franchise fees, which are typically about $50,000. These agreements provide upward to $1.0 million in liquid capital, on top of investment funding to be approved. Franchisees also generally pay an annual royalty fee, which is typically pegged to a fixed percentage of total sales, averaging roughly 10.0% to 12.0%. Franchise royalties are expected to comprise a larger share of revenue moving forward. To mitigate risk from shifting consumer trends and to reduce the every-day administrative and operative responsibilities of managing an industrial establishment, many larger players have been moving toward a nearly 100.0% franchise-only model. For example, over the long-term, McDonald’s currently franchises about 90.0% of its stores worldwide. An additional marketing fee is sometimes paid to the franchiser as well.




Basis of Competition The Fast Food Restaurants industry exhibits a high level of competition. Restaurateurs are required to compete against each other and against other industries in the broader food service sector such as full-service restaurants (encompassing casual dining and fine dining), coffee shops, bars and hotels.

Internal competitionFast food restaurants compete with each other on the basis of price and quality. As a result of the high level of competition within the industry, prices are driven down to remain competitive. This causes profit margins to be low for most industry operators, necessitating stringent cost and quality controls to maintain efficiency and minimize wastage. Operators also experience strong competition based on quality and consumer trends. As consumers become increasingly health conscious, industry operators that fail to accommodate those preference will experience high competition. Premium ingredients and well-presented meals are highly regarded and can make the difference to consumers, who often judge a fast food restaurant by how it compares with others.

Restaurants also compete on the basis of location, style, ambiance, hospitality and service. More than ever, restaurants are selling and marketing a meal experience to potential customers. As a result, it is important that the operator understands the positioning of the restaurant in the marketplace and the clientele they are attracting or wanting to attract. Many restaurants are undergoing upgrades to their locations to make them trendy and more attractive to their customers. Significantly, the restaurant must consistently deliver on customers’ product expectations. Location of fast-food restaurants can also prove to be strategic for competition. Many operators tend to be located on the same street or

general area of city or town due to that area’s close proximity to a large population, shipping area or major highway. As people are running errands or are on a long road trip, the operators with the most convenient locations will prove to be successful.

External competitionExternal competition arises from the broader food service sector. This includes chain restaurants and independent restaurants that offer dining and take-out services, as well as other retailers that serve food, such as convenience stores and supermarkets. These competitors offer similar food products, luxury food products, and a different dining experience for consumers. When economic conditions are gloomy, consumers are more likely to trade-down from dine-in restaurants to less costly food options. However, in good economic conditions, as the US has seen over the past five years, consumers may increasingly choose to spend more on a dine-in experience when eating away from home.

Additionally, there is external competition in consumers propensity to cook their own meals and eat at home. With the rising popularity of weekly meal preparation and boxed meal delivery services, fewer consumers may eat away from home, limiting the amount spent at industry operators. Over the five years to 2018, boxed meal delivery services, such as Blue Apron and Hello Fresh, have become increasingly popular. These services provide the ability to cook a delicious meal from home, while not needing to worry about getting all the correct ingredients or measuring. Furthermore, the growing popularity of grocery delivery services from AmazonFresh and Fresh Direct and other providers has increased as well, have made it more convenient for people to cook at home.

Level & Trend Competition in this industry is High and the trend is Increasing




Industry Globalization

The Fast Food Restaurants industry’s overall level of globalization is low. The majority of enterprises are small businesses that are locally owned and serve a domestic customer base. However, there is a significant global component to the industry, namely the large chains that have considerable overseas operations, such as McDonald’s, Yum! Brands, Subway, Domino’s and Burger King. The trend toward international expansion has increased over the past five years due to the slower growth rate of the domestic industry compared with high-growth emerging economies. Many brands are opening up

more restaurants every year in China, a growing and substantial market for American fast-food chains. Both McDonald’s and Yum! Brands earn about 60.0% of its sales overseas, while about 40.0% of Burger King’s sales are derived from international markets and Subway earns about 30.0% of its sales outside of the United States.

There are also many internationally owned chains that operate in the United States, adding to the level of industry globalization. Over the past five years, chains such as YO! Sushi, Wagamama, Pret A Manger (all based in the United Kingdom), Nando’s (based in South

Barriers to Entry Given the franchise component of the Fast Food Restaurants industry, the barriers are typically low, given that an operator can lease premises, equipment, furniture and fittings from the franchisor, which cuts down the initial capital costs. Also, franchisors provide training, food and beverages, and some financial and accounting functions for a proportional share of revenue from their franchisees. These provisions lower operational costs and can also minimize some risks, especially for inexperienced hospitality industry persons entering the industry. Still, individual franchisees carry much of the day-to-day operational and management risks associated with their own business.

Industry concentration is low to moderate, with the top four players expected to garner less than 10.0% of the available market share over the year. This low concentration is an indication of the array of food concepts and styles available in this industry, with no individual major player being dominant. Additionally, it highlights the fragmentation that is created by the major players increasingly franchising to expand their brand and concepts.

Therefore, it is not extremely difficult for an operator to enter the industry with a new or existing food concept.

Industry regulation and licensing are significant, from health and food service regulations to licensing for liquor sales and general occupational health and safety issues, particularly in relation to safety in kitchen operations. Regardless, these issues do not create any insurmountable barriers to either entering or operating in this industry, as complying with these regulations are not excessively costly. Furthermore, these regulations are often very clear and generally easy to reach as all restaurants and food service operators must comply with them.

Barriers to Entry checklist

Competition HighConcentration LowLife Cycle Stage MatureCapital Intensity LowTechnology Change MediumRegulation and Policy MediumIndustry Assistance None


Level & Trend Barriers to Entry in this industry are Low and Increasing

Level & Trend Globalization in this industry is Low and the trend is Steady




Industry Globalizationcontinued

Africa), Pie Face (based in Australia), Giraffas (based in Brazil) and Freshii (based in Canada) have all expanded their presence in the US industry. This has occurred as the US consumer has become increasingly enthusiastic about ethnic cuisine. International chains typically target affluent or middle-class customers in urban markets such as New York, Chicago, Washington, DC and Los Angeles. Many international chains offer slightly different bents on traditional American concepts. For

example, Pollo Campero, a Guatemalan chain with over 50 locations in the United States, offers a more Latin American-focused chicken menu, rather than trying to compete in the crowded Southern Fried Chicken space.

The industry will be subject to increasing globalization over the coming years. IBISWorld anticipates that US operators will continue to enter the international market, particularly in the regions of Asia and South America.



Other Company Performance

McDonald’s Corporation (McDonald’s), the world’s biggest fast-food operator, opened its first store in 1948 in San Bernardino, CA, and signed its first franchise agreement in April 1954. By 1957, McDonald’s had 14 stores and opened its first international store in Canada just 10 years later. The company entered a high-growth phase during the 1970s, opening about 500 new stores each year. During the 1980s, however, growth slowed as competition from other quick-service operators increased. Competition intensified to an even greater extent in the 1990s. At that time, McDonald’s diversified within the quick-service industry by purchasing other operators and increasing its international investments. McDonald’s currently employs more than 420,000 workers and earned $22.8 billion globally in 2017.

McDonald’s business model is primarily focused on the franchising of restaurants. Of the company’s 37,000 restaurants in more than 100 countries, more than 90.0 % were operated by franchisees, the remainder being company-operated stores. By the end of 2018, the company plans to have 95.0% of its restaurants operated by franchisees as part of a larger restructuring that the company states will give restaurants more opportunities to experiment and better integrate themselves within their core market. According to reporting from Bloomberg, however, this has resulted in the consolidation of franchises, in which larger operators are expected to control a larger share of the company’s franchised

locations to speed up the process of renovations and implementation of new sales strategies. Franchises contribute to the company’s revenue through the payment of rent and royalties, usually based upon a percentage of sales. Franchises also pay an initial fee to the McDonald’s to establish a restaurant. Over the past five years, McDonald’s has undertaken a significant effort to modernize the format of its stores, many of which have not received a makeover in more than two decades. At the end of 2013, the company reported that 45.0% of its restaurant interiors and exteriors reflect its contemporary restaurant design. Additionally, the company announced that it is moving its headquarters and major operations from Oak Brook, IL to Chicago.

To combat the company’s sluggish growth during the early half of the five-year period, McDonald’s has made aggressive changes to the company’s menu, structure and overall strategy to remedy these service issues. One of the most notable changes McDonald’s made to their menu in 2018 is removing the cheeseburger from the Happy Meal options. This decision was said to be in an effort to reduce calories and offer more balanced meals to children, making their kid’s menu attractive to a wider range of parents. These changes have bolstered overall sales for the company during the latter half of the five-year period. For example, as an estimated 70.0% of sales are made to individuals ordering within their vehicle, the company has introduced a new method

Other Companies While the industry is highly concentrated among several industry operators based on store count and system-wide sales, many fast food restaurant chains are becoming increasingly operated through franchise agreements. These

restaurants are not included in industry revenue and therefore, there are no major players based on reported company earnings. For this reason, IBISWorld uses reported revenue to estimate market share.

Major CompaniesThere are no Major Players in this industry | Other Companies

McDonald’s Corporation Market Share: 3.5%



Major Companies

Other Company Performancecontinued

of taking orders to minimize incorrect tickets from the drive-thru. Over the next year, the company also plans to introduce mobile ordering solutions and delivery, in which consumers will be able to order via a smartphone or other mobile device, according to Bloomberg. Additionally, the company’s refranchising strategy has placed significant emphasis on localized management and community-based emphasis on demand to better serve customers. Furthermore, many establishments have had major renovations and implemented new lead-time reducing technology to improve the consumer experience. Recently, the company announced that it will be offering table service in its restaurants for the first time throughout the United States. To complement this major change, McDonald’s also announced the introduction of self-serve kiosks, as well as offer a range of point of sale options for consumers who seek convenience and customization options. These changes have been positively received in overseas markets, where the majority of these service changes were initially implemented.

McDonald’s menu has traditionally consisted of a range of burgers, fries, desserts and beverages. Over the past decade, however, the company has introduced a range of healthier options, such as salads, to cater to changing consumer preferences. More recently, in response to lower sales, McDonald’s has moved to test new menu offerings in an attempt to phase out its “Dollar Menu & More,” which offered items ranging from $1.00 to $5.00. The company recently debuted its “McPick 2” offering, in which consumers can pick two items off a preset menu for $2.00. These value menu items are designed to be sold as “loss-leaders,”

enticing customers into the store with the hope that they will pay for higher-margin products while there. The chain is also making a bigger push into the breakfast segment, where it is a market leader, by emphasizing the high quality of its McCafe coffee and offering all-day breakfast. The breakfast segment has become a battleground in the Fast Food Restaurants industry over the past five years, as it is the only time segment that is currently growing. In response, the company has introduced all-day breakfast offerings and expanded its all-day breakfast menu. Lastly, while the company has introduced high-end menu options such as those included in the Signature Crafted sandwich line, the company has also engaged in aggressive price-cutting measures on items such as sodas, as the company’s major rivals furthered the company’s dependency on loss leaders by pressuring prices downward.

Over the five years to 2018, McDonald’s US company reported revenue is expected to decrease at an annualized rate of 6.5% to $8.9 billion. This decline is primarily driven by the brand’s shift to franchised based restaurants in favor of company-owned operations. As McDonald’s does not receive revenue directly from its franchised stores, the company’s performance in the fast food industry can also be measured by system-wide sales, which include revenue earned by company-owned stores and franchised stores. US system-wide sales are expected to grow an annualized 1.8% over the five years to 2018 to $34.7 billion. However, company reported revenue from its owned restaurant operations is what is used to estimate company market share.



Major Companies


Yum! Brands Inc. (Yum) is a fast food conglomerate based in Louisville, KY. Until 1997, the restaurant chains within Yum! Brands were owned by PepsiCo, which publicly listed its restaurant operations to improve its cash flow. PepsiCo purchased Pizza Hut in 1977, Taco Bell in 1978 and KFC in 1986 and used these operations as outlets for its drinks. Until December 2011, Yum also operated the seafood restaurant chain Long John Silver’s and A&W Restaurants, which were sold off to major franchisees and strategic investors. In 2017, Yum employed about 523,000 workers and earned $5.9 billion in revenue. The company has more than

45,000 company-owned, franchised and licensed restaurants in more than 130 countries making it the biggest fast food restaurant companies in the world in terms of outlets.

Similar to its competitors, Yum focuses on a franchise model, with about 96.7% of the company’s stores operating under franchise or license agreements. The company intends to continue with the franchise model and increase the number of stores operating under franchise or license agreements in 2018. The franchise model contributes to Yum’s revenue through annual royalties and franchise fees. Yum’s strategy involves the opening of collocated, multibranded


Recognized as a pioneer for fast casual dining, Chipotle Mexican Grill (Chipotle) first opened its doors in 1993 with the premise of serving food quickly but retaining high product quality. From the beginning, the company has emphasized high-quality raw ingredients and providing a distinct and comfortable store design. Operating over 2,300 domestic and 37 foreign restaurants in 2017, the company anticipates opening over 130 new restaurants throughout 2018. Over the past 25 years, Chipotle has grown exponentially in popularity and size, slowly taking over a larger share of industry revenue. Chipotle’s business model is operated completely through company-operated locations. As Chipotle does not franchise, all of the revenue it generates from its restaurants are included in their industry relevant revenue.

Over the past decade, the company has experienced major growth but has also been subject to some harsh criticism and health issues. In 2015, several Chipotle customers contracted E. coli after dining at company restaurants. This outbreak

severely damaged the company’s brand at that time, leading to a 13.3% decline in revenue in 2016 as consumers stopped eating at Chipotle restaurants. The E. coli outbreak spread across 11 different states, leading to the closure of all of its stores for a day in 2016. However, while the outbreak was generally expansive, the company prides itself on using local and natural ingredients and was able to contain the impact from restaurants in areas that were not a part of that region’s supply chain. While the brand has been able to rebuild its image in the past five years, the company has experienced other health issues in recent years, such as food poisoning in the summer of 2018. This food poisoning was contained to one area of Chicago but did not bode well for the company’s damaged reputation.

Over the five years to 2018, total US revenue is anticipated to increase an annualized 8.4% to $4.8 billion. This increase comes despite the sharp decline the company experienced in 2016 after the E. coli outbreak. Chipotle has added over 800 locations over the past five years which has aided the brand’s substantial growth.

Chipotle Mexican Grill Inc. Market Share: 1.9%

Yum! Brands Inc. Market Share: 1.2% Industry Brand Names KFC Taco Bell Pizza Hut



Major Companies

Restaurant Brands International Inc. (RBI) is a restaurant brand conglomerate that operates over 24,000 restaurants in more than 100 different countries. RBI operates three brands, Tim Hortons, Burger King, and Popeyes. Although all three brands are labeled as quick-service restaurants, Tim Hortons primarily sells coffee and breakfast items and therefore falls into the Coffee and Snack Shops industry (IBISWorld report 72221b). RBI’s Burger King and Popeyes brands, however, are both fast food restaurant brands. RBI was founded in 2014 as the indirect holding company for Tim Hortons. Since its incorporation, the company has purchased Burger King and Popeyes in 2015 and 2017, respectively.

Burger King Corp. is a Miami-based hamburger chain founded in 1953. Burger King’s operative framework was inspired by the McDonald’s business model and the two fast-food chains quickly became fierce competitors. Burger King primarily franchises restaurants, with about 90.0% of its 15,003 stores operating under franchise agreements. About 44.0% of the company’s restaurants are based in the United States. In 2017, Burger King earned $1.2 billion in reported revenue globally and employed about 2,420 staff in its company restaurants, support centers and field operations. Additionally, the brand reported $20.1 billion in global system-wide sales.

restaurants in high-traffic areas. It is not uncommon to find a KFC, Pizza Hut or Taco Bell located next to each other or even within the same building. During the past decade, Yum has moved aggressively to open new restaurants in China, particularly KFC restaurants, which has resulted in strong international revenue growth. In 2013, Yum completed the acquisition of China-based hot-pot company Little Sheep.

In October 2015, the company announced plans to separate its China-based business into a separate, independent entity, which was completed in 2017. Beleaguered by several missteps in the industry’s largest market, including a string of food safety mishaps, as well as still-increasing competition, the company will turn its China-based business into a licensee of the company, possessing the rights to the company’s concepts within China by paying Yum a portion of sales to retain rights to the company’s concepts. This move is expected to provide stability for the company’s saturated markets while enabling the new business to compete more efficiently and grow its market share in a still-growing market.

Over the five years to 2018, Yum’s US revenue is expected to decline at an annualized rate of 2.5% to $3.0 billion. This represents a strategic decision by Yum to increase the franchising of its stores, thereby decreasing the revenue earned from retailing food and beverages as a result. The company has made a significant effort over the past two years to refranchise its company-operated stores to free up capital and cut operating costs.

As the majority of Yum’s stores are franchised, this revenue figure does not fully represent the extent of the annual food and beverage sales made through the company’s branded restaurants. IBISWorld estimates the company’s US system-wide sales will decline at an annualized rate of 0.4% to $18.7 billion over the five years to 2018. Yum has experienced increasing difficulty with increasing sales, as consumers have shifted their preferences toward fast-casual food that offers higher quality at a similar price point. In response, the company has begun experimenting with new menu offerings.

Restaurant Brands International Inc. Market Share: 0.4% Industry Brand Names Burger King Popeyes

Other Company Performance continued




Major Companies

The Wendy’s Co. (Wendy’s) is a Dublin, OH-based burger chain that is a major competitor of McDonald’s and Burger King in the burger segment of the Fast Food Restaurants industry. Wendy’s has more than 6,500 restaurants in its global network, about 90.0% of which are based in the United States. The company also generates about 90.0% of its revenue domestically. Similar to its competitors, the majority (86.3%) of Wendy’s stores operate under franchise agreements, with the rest being company-operated stores. Wendy’s is also a franchisor of the T.J. Cinnamons and Pasta Connection chains and owns an 18.5% stake in the Arby’s fast food roast beef sandwich chain. In 2017, Wendy’s earned $622.8 million in revenue globally and $10.3 billion in system-wide sales globally. Additionally, Wendy’s employed about 12,100 workers, of which 11,000 work on an hourly basis.

Wendy’s menus consist of a range of traditional burger chain items such as hamburgers, chicken sandwiches, fries, beverages and desserts. The company also serves several salads but has not developed a comprehensive range of healthy options such as competitors like McDonald’s. The company derives revenue primarily from sales at company-operated restaurants and franchise royalties. The chain has recently undertaken an initiative to sell many of its company-owned restaurants to franchises. Since the announcement of this initiative, an aggregate 168 stores have been sold in 2016 and 2017.

IBISWorld estimates Wendy’s total domestic revenue will decline at an annualized rate of 18.5% to $701.6 million, while corporate system-wide sales (consisting of revenue earned by franchised and company-operated stores)

Popeyes is the company’s fried chicken fast food restaurant brand. Popeyes was originally founded in 1972 as Popeyes Louisiana Kitchen, specializing in New Orleans inspired spices. As of 2017, there were over 2,800 Popeyes restaurants, with over 98.0% operating under franchise agreements. Furthermore, RBI reported that the Popeyes brand generated $202.3 million in global revenue and $3.5 million in global system-wide sales.

Moving forward, the company’s business strategy aims to expand internationally while defending its favorable position in Canada and aggressively competing in the saturated US market. The company plans on doing this through significant menu overhauls, introducing premium products and extending its brand reach in urban areas through nontraditional formats. Additionally, the company’s business strategy aims to expand internationally,

while defending its favorable position in Canada and aggressively competing in the saturated US market. The company plans on doing this through significant menu overhauls, introducing premium products and extending its brand reach in urban areas through nontraditional formats.

RBI operates primarily through franchise agreements which significantly lowers the company’s market share as sales generated from franchise operations are not included in industry revenue. In 2018 IBISWorld estimates RBI’s US industry-specific sales will increase an annualized 2.9% to $907.5 million. This large increase is primarily from the brand’s acquisitions during the five-year period. Similarly. The company’s US system-wide sales, which include revenue from corporate restaurants and sales from franchised locations are anticipated to increase an annualized 3.9% to $13.1 billion over the five years to 2018.

The Wendy’s Company Market Share: 0.3%





Major Companies

Domino’s Pizza Inc. (Domino’s) has its roots in Ypsilanti, MI, where the first store was opened in 1960. Since then, the company has grown to nearly 10,000 company-owned and franchised locations worldwide. Domino’s operates in all 50 states domestically and has locations in more than 70 countries; furthermore, it is the second-largest pizza company in the world after Pizza Hut based on the number of units and retail sales. Domino’s sells more than 1.5 million pizzas globally each day. Their menu varies by region but is primarily focused on Italian-American entrees and side dishes. The company’s menu has undergone a period of rapid change over the past five years.

Domino’s sales are primarily generated through its pizza delivery business and delivering its food in a timely manner. As a result, the company focuses on securing its position within the Fast Food Restaurants industry through providing convenient store locations and an efficient supply chain. This move also enhances the company’s carryout business. The company’s business model includes a store design with relatively low capital

requirements when compared with other restaurant concepts. Domino’s current strategy also includes expanding its global presence to take advantage of emerging markets outside of the United States.

Domino’s is estimated to earn $521.2 million in corporate revenue, representing an increase of an annualized 9.1% during the five-year period. Similarly, Dominos is estimated to generate $3.2 billion in US system-wide sales (which include sales from company franchises) in 2018. Domino’s store count has registered moderate growth; however, its sales per store have increased at an impressive rate, due to the increased popularity and higher price points of its redesigned menu. The company’s artisan pizzas that have higher-quality ingredients and garner higher profit margins have been particularly popular. The company accounts for 28.8% of the total market share for pizza deliveries in the United States. Domino’s sophisticated online order and delivery system has also helped the company’s bottom line as it now derives more than 50.0% of its sales from digital orders.

will grow at an annualized rate of 6.9% to $11.5 billion over the five years to 2018. The decline in revenue is primarily driven by the company’s shift toward franchising in lieu of company-operated restaurants. Sales, however, increased during the latter half of the five-year period, which was primarily driven by consumers spending more per transaction due to higher prices on certain menu items. However, the company has had to contend with slow growth in system-wide sales and a reduction in the number of customers visiting its stores during the

early half of the five-year period. Ultimately, strategic price increases on the menu and a change in sales mix toward more premium products have helped negate a decline in system-wide sales. Overall, Wendy’s store count in the United States shrank over the past five years, as declining sales have forced some franchises out of business. Nevertheless, a recent foray into the value-conscious market, with its “4 for $4.00” menu, to more effectively compete with the likes of Burger King and McDonald’s, which both have similar menu offerings.

Domino’s Pizza Inc. Market Share: 0.2%





Major Companies

Subway is a privately-owned fast food chain that primarily sells sub sandwiches. The chain is owned by the holding company Doctor’s Associates Inc. All stores are franchised and the company only employs a small head office staff. Nonetheless, it has more than 250,000 people working in its franchised stores globally. In the United States alone, Subway serves nearly 2,800 sandwiches every minute. Subway establishments sell custom sub sandwiches, salads and other food items. The company markets its products as healthy alternatives to typical fast food. Founded in 1965 and headquartered in Milford, CT, Subway began franchising Subway shops in 1974 after opening 16 individual shops on its own. Currently, Subway has more than 44,000 restaurants operating in 102 different countries.

Over the past decade, Subway significantly boosted its marketing campaigns and has been at the forefront of advertising toward a healthier demographic. Its current slogan, “Eat Fresh,” was implemented in 2002. The company chose this slogan to highlight its use of freshly baked bread and fresh produce in sandwiches made directly in front of customers, tailored to their exact specifications. Subway attempted to capitalize on this characteristic to separate it from most fast food establishments. In 2016, the company increased the prices of its foot-long sandwiches by a dollar and had substantial backlash from consumers. This price increase came after the company ran a successful campaign of $5.00 footlongs that were the main staple of its menu for many years. At beginning of 2018, the company brought back the $5.00 footlong campaign as an effort to recapture a larger share of industry revenue. This revival of the brand’s basic did not work, however, and Subway did away with the $5.00 footlong as a corporate promotion in September 2018,

letting individual franchises decide whether they will offer the promotion.

However, though the company has suggested that it plans to continue rolling out new locations worldwide, particularly in Russia and the United Arab Emirates, sales in the United States stagnated in 2014, dropping an estimated 6.3% over the year. Contending with increasing competition from and lackluster demand for its menu offerings and overall presentation compared with its fast-casual competitors, the company has slowed its expansion somewhat in the United States, while increasing its focus on international markets to spur further growth. As marketing and competition for the health-conscious consumer intensifies along with the simultaneous rise in fast-casual dining, Subway’s reputation as a source of fresh food has become stale in the eyes of many consumers. To more effectively compete against these up-and-coming chains, Subway’s presentation and approach to consumers is expected to undergo serious changes over the next five years. The company is updating store layouts to be sleeker, modern and adding touchscreen point-of-sale systems. Additionally, in an attempt to win back increasingly health-conscious consumers and rearticulate the company’s commitment to fresh, quality ingredients, the company announced that it will remove all artificial colors, flavors and preservatives from its menu offerings by the end of 2018. They also have begun validating their fresh ingredients by having operators state which local farms source their produce.

Subway is a private company that does not publicly disclose its financial results. However, based on available information IBISWorld estimates that Subway will generate $397.3 million in revenue, representing an annualized increase of 0.2% during the five-year period. Conversely, IBISWorld estimates that Subway’s US system-wide revenue will

Subway Market Share: 0.2%




Major Companies

Chick-fil-A is a fast food restaurant chain that is best known for its boneless chicken breast sandwich. The company was founded in 1946 and headquartered in College Park, GA. The majority of its locations are in the southern region of the United States. Chick-fil-A has about 1,600 locations in 39 states. Focusing on major cities, the company is making a strong effort to increase its number of locations in the Midwest, New England and Southern California. Adding to its

collection of restaurants in Manhattan, the company announced its decision to open a new multi-story location in the Financial District, complete with a rooftop patio. The company is privately held and does not disclose financial results; however, system-wide sales are expected to equal $10.3 billion in 2018 and US industry-specific revenue is expected to reach $343.3 million, representing an increase of an annualized 8.3% during the five-year period.

decrease to $8.5 billion in 2018, down from $12.7 billion in 2013, representing a decline of an annualized 7.8% during the five-year period. The company has traditionally grown through its flexible franchise model and surpassed McDonald’s as the number one fast food restaurant in the United States in terms of store numbers. However, amid a string of scandals and diminished interest in the company’s offerings when

compared with newer, more nimble concepts, such as Jersey Mike’s Subs, the company has experienced a decline in sales during the latter half of the five-year period. While the company originally benefited from and pioneered marketing to appeal to the societal shift toward healthy eating and increased media coverage of obesity, diabetes and heart disease, this positive influence has waned in recent years.

Chick-fil-A Market Share: 0.1%





Capital Intensity The Fast Food Restaurants industry is subject to a low level of capital intensity. For every $1.00 the average restaurant in the industry spends on wages in 2018, it will spend an estimated $0.11 on the use and replacement of capital. As there have not been any substantial changes in capital investment for this industry, capital intensity is contiguous with estimates from 2013.

The industry is highly dependent on direct labor input across all areas of operation. Industry operators require personnel as cashiers, for delivery and food preparation, cleaning and operational management. Due to the service nature of the industry, many of these labor-intensive functions cannot be substituted by technology or machinery.

To meet customers’ expectations and provide a quality and hospitable dining experience, a well-trained staff is required.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Capital Intensity

0.5

0.0

0.1

0.2

0.3

0.4


Dotted line shows a high level of capital intensity

Capital units per labor unit

Fast Food Restaurants

Accommodation and Food Services

Economy

Level The level of capital intensity is Low



Operating Conditions

Technology and Systems

Fast food operators regularly leverage technology to reduce labor and food costs to increase sales. They also use it to improve business processes, support growth, maintain current operations and improve meal experiences.

Quality of serviceThe majority of technological adoption by the industry aims to address new systems and processes that are designed to promote quality service and reduce customer wait time. Wireless electronic ordering systems that link front-of-the-house orders to kitchen meal preparation are an example of such innovation. One such example is touch-screen ordering systems for customers. Instead of placing an order with a physical person, customers can place their order and customize it at touch screens that send the order directly to the kitchen. Although this may help to reduce labor costs, it does not eliminate them, as this system still requires customers to check out at a physical register. The increasing sophistication of the internet and mobile technology have also driven industry players to reach wholesalers and suppliers online. This has led to increased efficiencies in coordinating supplies and other pre-prepared food items.

Larger chains also use data networks to send and receive business data to and from restaurants to monitor and analyze all aspect of the business. Through data analytics, operational efficiencies can be identified and improved on throughout a company’s network of stores.

Point-of-sale systemsMost operators now have point-of-sale systems in stores to speed up service, which leads to more purchases on average and cuts down on labor costs. Retailers are increasingly accepting credit card payments through devices such as Square, which connects directly to the store’s tablet device and facilitates ease of transaction. Customers can sign with their finger on a touchscreen rather than with a pen and have the receipt emailed to them. Some restaurants have adopted mobile technology, enabling the ordering of food items via mobile applications and online.

Labor schedulingIt is increasingly common for chains to manage labor costs with just-in-time scheduling which is based on sophisticated algorithms built on data including last year’s sales trends, economic indicators and changes in

Capital Intensitycontinued

Some rise in labor productivity can occur from investment in technology. Over the past decade, many operators have implemented electronic ordering systems that are linked to the kitchen, helping chefs more efficiently process and prepare orders. This is especially true of chain operations, which can benefit from economies of scale. It is also increasingly common for chains to manage labor costs with just-in-time scheduling which is based on sophisticated algorithms built on data including the previous year’s sales trends, economic indicators and changes

in weather. These computer programs predict in advance when demand will be high or low and enable managers to adjust staffing levels. These initiatives have helped some operators improve profit margins and grow revenue. However, the main beneficiaries of technological advancements are large chains. Smaller industry operators find implementing these technologies overly expensive and receive limited benefits from increased capital investment, and therefore prefer to concentrate on training their staff to improve their service.

Level The level of technology change is Medium




Revenue Volatility The Fast Food Restaurants industry has a low-to-moderate level of revenue volatility. Over the five-year period, the industry has grown slowly, but consistently, much like the broader economy, lowering the industry’s volatility. The industry depends on consumer tastes and preferences, as well as levels of disposable income and consumer confidence. Restaurant spending is highly discretionary and easily substituted for lower cost options such as home-cooked meals. As a result, changes in factors affecting incomes, such as taxes and unemployment levels, can directly affect industry revenue. However, some consumers will downgrade from full-service restaurants to lower-cost fast food during times of economic austerity, which helps to mitigate any dramatic decline in revenue for the Fast Food industry. Furthermore, there is a very high household penetration rate for quick-

service meals as Americans spend a large percentage of their total food budget on restaurant meals.

The diversity of foods served by the industry helps keep any volatility under control. The industry consists of a range of food products, from Asian restaurants to traditional American restaurants and other ethnic cuisines, meaning that if tastes defer from one type of food toward another, the industry still captures the revenue. While demand for traditional fast food options high in fat, salt and calories is falling, there are a growing number of convenient, affordable and healthy fast food options available to consumers.

Industry revenue volatility is anticipated to level out over the next five years as the industry continues along a long-term low growth trajectory. An expected improvement in the domestic economy will lead to healthy consumer spending, benefiting fast food operators.

Technology and Systemscontinued

weather. These computer programs predict in advance when demand will be high or low and lets managers adjust staffing levels.

Social mediaTechnology has also aided fast food restaurants with marketing. Social media

such as Facebook, Twitter and Instagram enables savvy operators to connect directly with customers and tailor their brand’s message to target fragmented consumer segments. Many industry operators have made popular news headlines with their quick wit and humor deployed on social media.

Level The level of volatility is Low




Regulation and Policy The Fast Food Restaurants industry is subject to a medium level of regulation that is increasing. There are regulations covering a range of areas, from food safety and health standards, to labor conditions and franchising requirements. Most regulation is enacted and enforced at the state level, but many federal laws also apply.

Food safety and standardsThe industry is subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. The main agency responsible for providing guidance and regulation is the US Food and Drug Administration’s (FDA). The FDA’s Model Food Code, which is a best-practice guide to food handling and presentation, applies to this industry and is updated each year. The FDA Nutritional Value applies as well. Since 1996, the FDA regulations have set standards for nutritional values of individual foods and meals. If claims like “low fat” or “heart healthy” are on a menu, an owner must be able to demonstrate to officials that there is a reasonable basis for the claim. For instance, the meal may be based on a recipe from a health association or a recognized dietary group.

In 2015, the FDA announced it will require the food industry to gradually phase out trans fats from food in an attempt to prevent illness and deaths. Trans fats are commonly used in processed foods to improve the taste or shelf life of foods and are believed to cause some health issues, including heart disease. While trans fats have been eliminated from many foods over the past decade due to stricter labeling requirements, many fast foods still contain small amounts. The plan provided a three-year compliance period to industry operators. IBISWorld

expects the industry to quickly adapt to the new requirements and to use the new feature in marketing campaigns to promote the health benefits.

The Affordable Care Act requires restaurant companies to disclose calorie information on their menus. The Food and Drug Administration has proposed rules to implement this provision that would require restaurants to post the number of calories for most items on menus or menu boards and to make available more detailed nutrition information upon request. Complete nutritional information, however, is not required to be on menus. This is set to be fully implemented on May 7th, 2018.

Labor relationsThe industry employs a high number of young and low-skilled workers at hourly rates and, therefore, is subject to minimum wage and employee benefits regulations. Workers in the United States are entitled to be paid no less than the statutory minimum wage, which was $7.25 per hour as of 2018. Each state also formulates and regulates its own minimum wage, with some states implementing rates higher than the federal rate.

The implementation of the Affordable Care Act over the next five years will have a minor impact on the industry. Employers with 50 or more employees that work 30 hours a week will be required to provide healthcare coverage or pay a fine. However, the large majority of operators in the industry employ less than 50 staff. Most major operators are currently reviewing the potential impacts of the new law on their businesses.

Smoking bansSmoking laws are generally enforced at the state level as the US Congress has not attempted to enact any nationwide federal smoking ban. Smoking is banned

Level & Trend The level of Regulation is Medium and the trend is Increasing




Industry Assistance Although the Fast Food Restaurants industry receives no formal assistance in the form of government aid or monetary compensation, there are industry associations that help the industry as a whole. For example, the National Restaurant Association provides industry news, research, sponsoring events, networking opportunities, and representation, among other things.

There are also organizations that provide the same services on a more local level.

Additionally, operators that participate in the industry through franchise agreements receive assistance from the franchise owner in the form of marketing, supply-chain management and purchasing. However, this comes at a cost in the form of an annual royalty and/or marketing fee.

Regulation and Policycontinued

in restaurants, bars and non-hospitality workplaces in many states and some local jurisdictions ban smoking in outdoor areas. Each jurisdiction has developed legislation separately; however, most laws are relatively consistent. There are some differences pertaining to the circumstances in which ventilated smoking rooms are permitted and the distance smoking is banned outside a building. California was the first state to enact a statewide ban on smoking, with most other states imposing a ban in the mid to late 2000s.

Franchising lawsA large proportion of industry establishments are operated under franchise agreements. There are both federal and state laws governing franchising, which vary from state to state. Franchising is regulated at the

federal level by the US Federal Trade Commission and applied in any region within the United States. At the state level, various state agencies regulate franchises and laws vary between states. A state’s franchise laws usually only apply if the sale of a franchise is made in the state and the business is located in the state. Laws generally fall under three categories: disclosure laws, registration laws and related laws.

Under the FTC Franchise Rule, there are three elements of a franchise: the franchise has a trademark under which the franchisee is given the right to distribute goods and services; the franchisor has significant control of or provides significance to the franchisee’s method of operation. Additionally, the franchisee is required to pay the franchisor at least $500 within the first six months of opening for business.

Level & Trend The level of Industry Assistance is None and the trend is Steady



Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Consumer spending

($b)2009 187,239.6 63,442.0 258,263 183,130 3,479,421 -- -- 48,650.1 N/A 9,847.02010 192,721.8 65,498.1 261,405 185,583 3,421,139 -- -- 49,502.2 N/A 10,036.32011 198,983.3 65,460.1 264,834 188,346 3,494,997 -- -- 50,337.3 N/A 10,263.52012 206,320.3 68,951.7 261,491 180,563 3,625,060 -- -- 51,827.1 N/A 10,413.22013 211,661.3 70,578.3 263,380 182,646 3,807,083 -- -- 54,068.8 N/A 10,565.42014 217,953.9 74,001.1 265,226 183,191 3,930,463 -- -- 55,910.9 N/A 10,868.42015 230,916.4 80,676.9 269,816 185,650 4,079,581 -- -- 60,356.2 N/A 11,264.32016 243,952.7 86,844.4 280,976 192,726 4,270,456 -- -- 64,156.8 N/A 11,572.12017 250,505.3 88,572.4 286,046 196,014 4,337,844 -- -- 65,908.4 N/A 11,888.92018 255,626.2 90,424.3 290,453 198,892 4,422,181 -- -- 67,337.7 N/A 12,192.92019 258,551.0 91,649.7 293,873 201,168 4,480,350 -- -- 68,277.5 N/A 12,468.12020 262,310.0 93,156.6 297,382 203,486 4,548,276 -- -- 69,403.4 N/A 12,717.52021 263,414.7 93,798.5 299,993 205,270 4,587,257 -- -- 69,966.9 N/A 12,952.82022 267,002.4 95,238.6 303,900 207,876 4,658,847 -- -- 71,126.3 N/A 13,147.12023 271,791.6 97,009.4 308,395 210,844 4,747,783 -- -- 72,595.3 N/A 13,440.7Sector Rank 2/12 2/12 1/12 1/12 1/12 N/A N/A 1/12 N/A N/AEconomy Rank 33/696 27/696 27/696 35/696 3/696 N/A N/A 17/696 N/A N/A

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2009 33.88 N/A N/A 53.81 25.98 13.47 13,982.24 0.422010 33.99 N/A N/A 56.33 25.69 13.09 14,469.51 0.422011 32.90 N/A N/A 56.93 25.30 13.20 14,402.67 0.412012 33.42 N/A N/A 56.92 25.12 13.86 14,296.89 0.432013 33.34 N/A N/A 55.60 25.54 14.45 14,202.16 0.432014 33.95 N/A N/A 55.45 25.65 14.82 14,225.02 0.442015 34.94 N/A N/A 56.60 26.14 15.12 14,794.71 0.462016 35.60 N/A N/A 57.13 26.30 15.20 15,023.41 0.492017 35.36 N/A N/A 57.75 26.31 15.16 15,193.82 0.492018 35.37 N/A N/A 57.81 26.34 15.23 15,227.26 0.492019 35.45 N/A N/A 57.71 26.41 15.25 15,239.32 0.482020 35.51 N/A N/A 57.67 26.46 15.29 15,259.28 0.482021 35.61 N/A N/A 57.42 26.56 15.29 15,252.45 0.472022 35.67 N/A N/A 57.31 26.64 15.33 15,266.93 0.472023 35.69 N/A N/A 57.25 26.71 15.40 15,290.36 0.47Sector Rank 10/12 N/A N/A 9/12 6/12 5/12 11/12 2/12Economy Rank 283/696 N/A N/A 654/696 213/696 281/696 660/696 27/696

Figures are in inflation-adjusted 2018 dollars. Rank refers to 2018 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Consumer spending

(%)2010 2.9 3.2 1.2 1.3 -1.7 N/A N/A 1.8 N/A 1.92011 3.2 -0.1 1.3 1.5 2.2 N/A N/A 1.7 N/A 2.32012 3.7 5.3 -1.3 -4.1 3.7 N/A N/A 3.0 N/A 1.52013 2.6 2.4 0.7 1.2 5.0 N/A N/A 4.3 N/A 1.52014 3.0 4.8 0.7 0.3 3.2 N/A N/A 3.4 N/A 2.92015 5.9 9.0 1.7 1.3 3.8 N/A N/A 8.0 N/A 3.62016 5.6 7.6 4.1 3.8 4.7 N/A N/A 6.3 N/A 2.72017 2.7 2.0 1.8 1.7 1.6 N/A N/A 2.7 N/A 2.72018 2.0 2.1 1.5 1.5 1.9 N/A N/A 2.2 N/A 2.62019 1.1 1.4 1.2 1.1 1.3 N/A N/A 1.4 N/A 2.32020 1.5 1.6 1.2 1.2 1.5 N/A N/A 1.6 N/A 2.02021 0.4 0.7 0.9 0.9 0.9 N/A N/A 0.8 N/A 1.92022 1.4 1.5 1.3 1.3 1.6 N/A N/A 1.7 N/A 1.52023 1.8 1.9 1.5 1.4 1.9 N/A N/A 2.1 N/A 2.2Sector Rank 7/12 9/12 9/12 9/12 8/12 N/A N/A 8/12 N/A N/AEconomy Rank 358/696 349/696 271/696 264/696 302/696 N/A N/A 311/696 N/A N/A

Annual Change

Key Ratios

Industry Data




Apr 2016 - Mar 2017 by company revenue

Apr 2013 - Apr 2014 - Apr 2015 - Apr 2016 - Small Medium Large

Mar 2014 Mar 2015 Mar 2016 Mar 2017 (<$10m) ($10-50m) (>$50m)

Liquidity Ratios

Current Ratio 0.8 0.8 0.8 0.8 0.9 0.8 0.6Quick Ratio 0.5 0.6 0.6 0.6 0.6 0.6 0.4Sales / Receivables (Trade Receivables Turnover) n/c n/c n/c n/c n/c n/c 255.5

Days’ Receivables 0.4 0.4 n/a 0.4 0.4 0.4 1.4Cost of Sales / Inventory (Inventory Turnover) 44.0 43.3 43.2 43.6 45.0 42.6 39.3

Days’ Inventory 8.3 8.4 8.4 8.4 8.1 8.6 9.3Cost of Sales / Payables (Payables Turnover) 28.1 27.2 28.6 26.6 36.5 19.1 13.8

Days’ Payables 13.0 13.4 12.8 13.7 10.0 19.1 26.4Sales / Working Capital -75.5 -86.0 -98.5 -88.3 -158.2 -61.2 -27.1

Coverage Ratios

Earnings Before Interest & Taxes (EBIT) / Interest 4.9 5.0 6.0 6.2 6.3 7.2 4.4

Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 2.5 2.7 2.9 2.7 2.2 2.7 3.1

Leverage Ratios

Fixed Assets / Net Worth 4.7 4.2 4.2 4.8 3.6 6.8 -6.5Debt / Net Worth 7.9 6.6 6.7 8.0 6.3 9.2 -9.6Tangible Net Worth -1.6 -0.3 1.8 -0.2 -0.4 4.4 -9.1

Operating Ratios

Profit before Taxes / Net Worth, % 45.9 47.5 57.2 57.9 62.9 53.2 34.2Profit before Taxes / Total Assets, % 11.5 11.7 14.1 14.0 16.7 12.5 8.0Sales / Net Fixed Assets 8.0 8.4 8.3 7.9 9.7 6.6 4.4Sales / Total Assets (Asset Turnover) 3.3 3.4 3.3 3.1 3.6 2.7 2.0

Cash Flow & Debt Service Ratios (% of sales)

Cash from Trading 66.1 66.2 67.2 68.6 67.7 70.4 70.2Cash after Operations 7.8 7.9 8.5 9.0 8.6 9.7 9.1Net Cash after Operations 8.0 8.0 8.8 9.2 8.8 9.8 9.2Cash after Debt Amortization 2.1 2.1 2.5 2.4 2.2 2.9 3.2Debt Service P&I Coverage 2.6 2.8 3.1 3.0 3.1 2.8 2.8Interest Coverage (Operating Cash) 8.6 8.9 10.7 10.1 9.1 14.1 8.2

Assets, %

Cash & Equivalents 17.7 18.9 19.2 19.6 21.3 17.8 10.5Trade Receivables (net) 1.6 1.5 1.6 1.4 1.2 1.6 2.6Inventory 5.0 5.2 4.8 4.5 5.0 3.1 3.2All Other Current Assets 2.2 2.2 2.1 2.3 2.5 2.0 1.6Total Current Assets 26.5 27.8 27.7 27.9 30.2 24.5 17.8Fixed Assets (net) 47.7 46.7 46.0 45.9 44.8 47.3 51.5Intangibles (net) 15.7 15.4 16.5 17.0 14.8 21.3 24.2All Other Non-Current Assets 10.1 10.2 9.9 9.2 10.3 6.9 6.5Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0Total Assets ($m) 48,475.7 55,786.9 63,571.0 58,403.2 4,291.6 11,765.5 42,346.1

Liabilities, %

Notes Payable-Short Term 3.9 4.4 4.7 4.3 5.5 1.7 1.6Current Maturities L/T/D 5.4 4.9 5.1 5.4 4.9 7.1 5.3Trade Payables 8.5 9.3 8.0 7.6 7.7 7.3 7.3Income Taxes Payable 0.1 0.1 0.2 0.1 0.2 0.1 n/aAll Other Current Liabilities 19.3 19.9 18.5 19.6 22.4 13.3 12.3Total Current Liabilities 37.2 38.6 36.5 37.1 40.6 29.5 26.5Long Term Debt 36.6 34.2 34.2 36.9 34.5 39.7 48.1Deferred Taxes 0.1 0.2 0.1 0.1 n/a 0.1 0.9All Other Non-Current Liabilities 12.0 12.0 10.9 9.2 10.4 5.0 9.4Net Worth 14.1 15.1 18.3 16.8 14.4 25.7 15.1Total Liabilities & Net Worth ($m) 48,475.7 55,786.9 63,571.0 58,403.2 4,291.6 11,765.5 42,346.1

Maximum Number of Statements Used 6,073 5,949 6,247 5,566 3,928 1,114 524

Industry Financial Ratios

Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects.Note: For a full description of the ratios refer to the Key Statistics chapter online.



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

Industry Jargon

IBISWorld Glossary

BABY BOOMERS Consumers born between 1946 and 1964 who account for a major proportion of the population.

NET REVENUE Revenue from company-owned stores and franchise fees, but not franchised stores’ total sales.

POINT-OF-SALE (POS) The location where a transaction occurs at a retail establishment or store.

SAME-STORE SALES A retail measure used to assess the true performance of retail outlets by taking out the effect of new store openings and only looking at sales growth of existing stores.

SYSTEM-WIDE SALES Sales from both company-owned or managed and franchised or licensed outlets. System-wide sales excludes royalties and franchising revenue fees.


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