Fast food just gets more and more popular every year. Despite the rising concerns about health in the society, this particular industry goes higher and higher in growth every year. The fuel that drives this growth is the insatiable love that consumers around the world have for fast food. Since the 1970’s, the fast food industry in the United States has grown at an exponential rate.
That’s why it’s important for you to be aware of the factors that can affect the growth of this industry. Especially if you are looking for entrepreneurship within it.
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The revenue alone has grown by a multiple of 30.
Environmental Factors Affecting the Fast Food Industry
In 1970, the fast food industry was worth only $6 billion. Today, according to statista.com, it is worth $198.9 billion and is set to grow to over $223 billion by 2020. In less than 50 years, this industry has evolved a great deal.
The trends and environmental factors affecting the fast food industry have been growing and changing the industry. In the most recent years, there has been a rise in health consciousness among consumers and this has led to people trying to avoid fast food, which is also derogatorily known as junk food. The fast food industry has responded well, however, and it seems to surmount these challenges.
Healthier Menus and Customer Service
Restaurants around the world have adopted menus which are healthier, including low calorie options. There are other trends that have also affected the industry. Brands are more focused on retaining the customers they attract. In a bid to achieve this they have made everything more customer friendly, from their customer service to their menus. They have also adopted new marketing strategies and channels.
Increasing hospitality from the staff and more delivery options for the consumers have brought them to the fast food industry in droves. The most popular fast food chains in the world have focused their energies on improving their service and their healthy offerings as well as their overall reputations.
Reputation, in particular, has become exceedingly important in this industry for two major reasons. The first reason is that there is a lot of stiff competition between fast food brands. Whether you’re looking at Subway or McDonald’s, there are literally hundreds of brands that operate on a global scale and they are all fighting tooth and nail for the same global market.
The other issue is an effect of the age of the internet. With social media and review sites having grown to the prominence they now have, bad news about a brand can spread like wildfire and can cause untold damage to a brand in a remarkably short amount of time. In this industry, losing your hard earned reputation means losing your hard-earned customers.
Brands have worked on it, however, and they are constantly at the ready to protect their reputations whenever such attacks come about. They have profiles on every major social media platform and all of these accounts are well managed by professionals who understand the subtle art of damage control. They also engage with the customers, followers, and fans of the brand and respond to all their concerns in very short periods.
Economic Factors That Affect the Fast Food Industry
There are many economic factors that have a bearing on this industry and how fast food and the economy relate.
One of the redeeming qualities of fast food is that it is insanely cheap. It isn’t classy or especially healthy or even something anyone would be proud of eating on a daily basis, but it is cheap. When you have money you go to your favorite restaurant and have a three-course dinner. When things are not looking up financially you go to McDonald’s and order a Big Mac. The fast-food industry, therefore, tends to thrive when the economy as a whole is on a downturn because that’s when most people turn to cheaper food options.
This doesn’t mean that they are completely immune to recessions that occur in the long term. A short-term mild recession will benefit the fast food industry because people will still be able to afford eating out; they just won’t be able to afford the more fancy restaurants. However, if a recession draws out too long, then people will prefer to buy their own ingredients and eat at home. In such a situation even the fast food industry would suffer.
When this happens, the largest fast-food chains would cut their prices and advertise more aggressively to their consumers in order to attract them. The smaller fast food chains wouldn’t be able to do this can might end up closing down altogether. This is at the heart of all restaurant economics.
Sometimes, when a recession hits, fast food chains will merge to protect and increase their profits as well as to gain a bigger share of the consumer market. In 2008, Wendy’s and Arby’s merged in the wake of the recession as unemployment rates in the United States were skyrocketing and fewer and fewer people were eating out.
The merger was advantageous for each chain because it expanded their market share and turned them into the third largest of the fast food companies in the United States.
A merger can also be helpful to a fast food chain when it needs to expand its consumer base, revenue, and hours of operation. A restaurant that serves breakfast only may merge with another one that doesn’t.
When the economy begins to turn back up, some consumers won’t be so keen on meals with the lowest prices anymore. When price is no longer a concern, fast food restaurants typically need to expand their offerings. In 2011, McDonald’s beat their 2009 sales by $1.5 billion, simply because they added new items to their menu, like smoothies.
One of the things that come with a healthy economy is that consumers start to care more about what they eat and they demand healthier food. McDonald’s and other fast food chains are responding to this by adding vegetables and fruits to their menus.
The Cost of Labor
Many fast food workers are paid hourly rates that are either at the minimum wage level or slightly above it. There are activist groups all over the country that are fighting to have the minimum wage raised because they don’t think that it is currently enough for employees to cover living costs, even when they work the full 40 hours a week. If they are successful and there is a sharp rise in minimum wage, fast food profits could go down, thereby affecting other things, such as their menu prices.
The Price of Fuel
When the price of fuel goes up, the suppliers who bring produce to fast food chains will charge them more in order to cover the cost of transportation. This will adversely affect the prices customers pay for menu items.
The Prices of Commodities
Fast food restaurants need to buy the ingredients with which they prepare their food. When the prices rise, the restaurants typically absorb the costs since the rises are often only temporary. Their profits can, therefore, be negatively impacted for a short period of time. However, if the increase proves to last over the long term, the cost is passed to the consumers, who end up paying more for menu items.
Some fast food restaurants will insist on maintaining low prices to attract customers, even when commodity prices are high. However, this might not work very well if the fast food chain operates on a franchise model. In 2009, a few Burger King franchise owners filed a lawsuit against the company because they were required to sell the double cheeseburger at $1 even though the cost of making the burger was $1.10. Ultimately, Burger King won the case.
Nicky is a business writer with nearly two decades of hands-on and publishing experience. She’s been published in several business publications, including The Employment Times, Web Hosting Sun and WOW! Women on Writing. She also studied business in college.
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