This paper presents a proposed strategy (and a rationale for that strategy) for the establishment of a new fast food restaurant. The general strategy is to model the restaurant’s operational and marketing structure after those of the industry leader (McDonald’s), while at the same time introducing innovative food and service concepts which will obviate any necessity to directly compete with this virtually unassailable giant.
Industry Background: Rationale for Strategy Fast food restaurants in the U.S. represent a multi-billion dollar industry; the “hamburger” share alone of that industry is estimated at $25 billion per year.1 For all its size, however, it is an industry largely dominated by a few major players: McDonald’s, PepsiCo (owning Pizza Hut, Kentucky Fried Chicken and Taco Bell), Pillsbury (owning Burger King), Wendy’s, Hardee’s, Marriott, Domino’s Pizza, and Denny’s are the main forces behind the fast food kingdom. In 1987, U.S. sales alone (in its 7,727 units) were in excess of $9.5 billion dollars, with net income in excess of $400 million.2 In recent years, McDonald’s has successfully fended off challenges from competitors such as Burger King, Wendy’s and Pizza Hut, and not only maintained but actually increased its overall market share. The current dominance of McDonald’s in the fast food industry serves not only as a tribute to the company’s marketing and operational strategies, but also stands as a signal of the contraction of the traditional fast food market. McDonald’s has survived and grown as others in the more traditional sectors of the industry have floundered and failed. During the boom years of the 1950s and 1960s, a number of demographic factors helped to spur rapid growth in the industry. The increasing mobility of the population – the tendency toward “suburban sprawl,” the legions of Baby Boom adolescents for whom the fast food restaurant became a favorite hangout, and the increasing number of working women who no longer had time to cook at home – all helped to give the industry the boost it needed for fast growth. Moving into the 1990s and beyond, however, new entrants into the fast food industry could not depend on these same helpful forces. Unlike the years when there was plenty of room to grow, fast food operators were faced with a scarcity of choice land. Suburbs became urbanized. The fast food purveyor wanted to target a high-traffic area, but found it very difficult to obtain a lease or building permit. Major competitors in the industry such as Kentucky Friend Chicken and McDonald’s have responded to these problems by concentrating on expanding into international markets.3 The aging Baby Boomer is also a force the fast food industry must reckon with. Analysts have predicted that Baby Boomers are leaving the fast food market and looking for more sophisticated and healthier fare.4 Many competitors have wisely responded to this problem by diversifying into or catering to specific ethnic groups.5 Not only are fast food restaurants losing some of their traditional customers and appeal due to these changing demographics, they are also losing their labor pool. In 1987, there were approximately 36 million Americans between the ages of 16 and 25; by 1995, that number shrank to 30.5 million.6 Labor-intensive business felt this shortage dramatically (especially true of the fast food industry that traditionally obtains over half of its employees from this key age group).7
Both in response to changing economics and the labor shortage, a growing number of fast food operators are relying increasingly on sophisticated technology and automated systems to reduce operational expenses. Computerized point-of-sale (POS) systems manage cash, count inventory, provide readily available data on customer preferences, keep the payroll, and provide restaurant owners with a wide variety of information ranging from length of customer waiting time to
