Info

7 6 Family Chains

10.2 Pizza Chains

5 Chicken Chains

10.2 Pizza Chains

5 Chicken Chains

Source: Nation's Restaurant News.

Exhibit 2 indicates that the top four fastest growing categories within the fast-food industry control 65 percent of all fast-food sales. During the last six years, the market share held by these four categories has increased from 64.4 percent to 65.2 percent. All other categories, including the chicken category, have lost market share during this period. The most significant improvement in sales has occurred in the dinner house segment. Seven of the dinner house segment's 15 major restaurant chains registered double-digit sales growth in 1993: Outback Steakhouse (80 percent), Applebee's Neighborhood Grill & Bar (42 percent), Ruby Tuesday (25 percent), Red Robin Burger & Spirits Emporium (20 percent), the Olive Garden (18 percent), and Chili's Grill & Bar (15 percent).

Much of the improvement in sales among the dinner houses and family restaurant chains during the last decade is partially attributable to demographic trends in the United States. In particular, young people as a percentage of the population are declining. nose in the 18-24 year age group, for example, are of particular importance to fast-food restaurants because they consume about five meals away from home weekly, compared to under four meals for all consumers. While this age group nearly doubled during the 1960-1980 period, it will drop by about 20 percent by the year 2000. Those over the age of 65 tend to eat out less often, about two times per week, and this group is the most rapidly growing age group in the country. Older individuals tend to spend more time eating their meal, prefer sit-down restaurants, and are more likely to choose more upscale restaurants such as dinner houses. The higher price of the average meal in a dinner house is offset by the fewer times that older individuals eat out each week.

The initial high growth rates in fast-food franchising in the United States during the late 1950s and 1960s made the fast-food industry attractive to new entrants. The lack of established market share leaders and brand loyalties meant that there were relatively few companies that could defend against new market entrants. During this period, a number of fast-food chains were acquired by larger, diversified firms. Some of the most notable acquisitions were Pillsbury's acquisition of Burger King, General Foods' acquisition of Burger Chef (which was later sold to Hardee's Food Systems in 1982), Ralston-Purina's acquisition of Jack in the Box, United Brand's acquisition of Baskin-Robbins (which it later sold in 1973), and Great Western's acquisition of Shakey's Pizza.

The acquisition of a number of fast-food franchises by larger, more established marketing firms intensified competition during the 1970s. Not only were many fast-food chains owned by larger companies with resources enabling them to promote and invest heavily in their respective chains, but consumers increasingly demanded more value for their dollar. This further intensified competition and a second wave of acquisitions followed during this period. PepsiCo acquired Pizza Hut in 1977 and Taco Bell in 1978. KFC, which was sold by Heublein to R.J. Reynolds Industries in 1982, was also acquired by PepsiCo, in 1986. Other notable acquisitions during this period were Hardee's acquisition of Roy Rogers, Popeyes' acquisition of Church's, Tennessee Restaurant Company's acquisition of Friendly's Ice Cream, and Gibbons, Green von Amerongen's acquisition of Jack in the Box. Many of these acquisitions were made in order to strengthen the parent company's position within the fast-food industry (e.g. PepsiCo's decision to diversify into fast-food by acquiring Pizza Hut, Taco Bell, and Kentucky Fried Chicken). However, another factor that led to many of these acquisitions was the deteriorating financial position of smaller competitors, brought about by a lack of resources to compete with the market share leaders. A number of chains, therefore, became attractive takeover targets.

An interesting characteristic of the fast-food industry is that, in almost all cases, the leader in each food segment controls a large relative market share when compared to the market shares of its nearest competitors. Exhibit 3 shows the market share leaders in the top six fast-food categories for the industry's leading chains. Only the steak restaurant segment has no clear market share leader. McDonald's controls 35 percent of the sandwich

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