Identify the driving forces within the U.S. food service industry and fast-food segment of the industry.

Question

What will be an ideal response?

Answer 1

Student responses to this question should enable the instructor to demonstrate that the domestic food service
industry has, indeed, begun to mature.
• Changes in the long-term growth rate of the industry*
1. The overall industry is maturing (the industry has grown at a compounded annual rate of only 3.9 percent
over the last five years).*
2. The fast-food segment of the industry is still growing rapidly, but is probably in the late growth stage of the
product life cycle (approaching maturity). The fast-food segment has grown at a compounded growth rate
of 5.6 percent over the last five years.*
3. Within the fast-food segment of the industry, only four of the eight segments have sustained growth of over
5.0 percent over the last five years.****
4. The chicken segment appears to have matured (it is growing at a rate of 3.7 percent per year). (See
Exhibit 4.)****
5. Competitors within the fast-food industry have begun attacking competitors in other food segments (e.g.,
many of the sandwich chains have introduced chicken sandwiches and/or fried chicken to their menus and
McDonald’s has experimented with fajitas and pizza, thereby attacking the pizza and Mexican restaurant
chains).****
• Consumers are experienced, repeat buyers****
Most consumers who patronize fast-food restaurants are familiar with their favorite chains’ products and
services. Therefore, competitors are increasingly turning to promotions, price reductions, and other
techniques to attract repeat customers. Ninety-nine cent items (such as Wendy’s 99 cent value menu), value
meals (such as McDonald’s $2.99 “value meals”), and special promotions (such as KFC’s limited offering
of Hot Wings and Popcorn Chicken) have attempted to attract customers who otherwise might patronize
competitor restaurants.
• Greater emphasis on cost and service*
In addition to the special promotions and discounts discussed, fast-food chains have used a variety of other
techniques to attract customers. For example, most chains have added drive-thrus to their existing
restaurants; KFC is now accepting coupons offered by their competitors; and, McDonald’s recently ran a
special promotion whereby they sealed each of their dinner bags with a label stating that they had
doublechecked the order for accuracy.
• Reduction in new store construction*
1. Most U.S. fast-food chains have moderated construction of new stores and shifted to improved product
introductions and service within existing restaurants. Therefore, there has been a shift in many fast-food
chains from growth through new store construction to strategies designed to improve profit margins.
2. Much of the new store growth of existing fast-food chains is coming from acquisitions of competitors
rather than construction of new, free-standing restaurants. As new sites have become increasingly scarce,
the cost of new sites has increased rapidly. An alternative to new site construction is the acquisition of an
existing chain in order to convert the acquired chains into the company’s own stores. This was a major
motivation in Al Copeland Industries’ (owner of Popeye’s Fried Chicken) acquisition of Church’s Fried
Chicken in 1989. Copeland converted several hundred Church’s units into Popeye’s units and closed
unprofitable Church’s units to pay for the acquisition.****
• Increased international expansion*
• Reduced margins from consumer pressure to reduce prices*