Business ; Management

Why is the fast food industry so profitable? Discuss the question and relate it with sales growth. You are also required to highlight the advantages and disadvantages of fast food. You are allowed to use any fast food company as an example in your essay. 1.3 Objectives The objectives of this report are to make an industrial analysis of the fast food industry and find the evidences that related to profit of fast food industry.

Fast food is food that could be prepared or cooked in advance and kept warm or reheated to serve customers quickly. Typically the term about fast food refers to food sold in a Restaurant or fast food outlets, like kiosks or stands which may or may not provide any chairs and shelter for customers (Costin, 2007). There are also drive-through outlets known as sit-ins and upscale kiosks (Borade, 2000-2010). The franchise operations have generated part of restaurant chains that offer standardized meals shipped to each branch restaurant from central locations.

Why is fast food industry so profitable? Fast food industry has some reason to become massively profitable, there are: fast food can be prepared easily and can be served to the low–cost delicacies meals demand of the people, fast food has created giant multinational corporations growth on international appeal promoted by niche chains. In addition, besides the advertisement from the company, fast food restaurant grows by ‘word-of-mouth’ advertsing, also fast food industry created the franchise operations system, which are part of restaurant chains that could allow the industries to maintain overall of products control, and give a guaranteed rate of return, while at the same time allowing another owners in many different locations to create a low-wage work force best suited to different conditions and locations.

Institute’s analysis, from 1986-1989 the common food industry sales expanded at 4.1% while fast food industry sales rose at a 7.9% rate. In 1992, all growth in the commercial eating-out industry was in the fast food industry’s sector. The real sales throughout all eating and drinking place segments rose about 1.0% from 1991. However in the fast food industry sector, growth was at a 7.4% rate, representing the strongest growth since 1988(thefreelibrary.com, 2010).

According to Wikinvest (2009) analysis In 2009, one of fast food company had revenues increase at an annual rate of 4.9%, while profits increased by 14.0% and storewide sales grew by 9.0%. Revenues for the first three quarters of 2009 were $11.4 billion, down 10.1% from the first nine months of 2008. At the same time, operating income increased 1.5%
For five years from 2004 to 2009, franchised Restaurants number always increased. During this duration, franchised restaurants increased from 73.2% in 2004 until 80.7% in 2009, while company-owned restaurants decreased from 26.8% to 19.3%. Thus it can be said that fast food industry keeps growing over time while common restaurants keep decreasing.

Since there are many fast food restaurant scattered around, it is easy to get it. It also comes in a small package easy for travelling. In addition, fast food is cheap and affordable for everyone, including those who are small earners. However there are many disadvantages of fast food industry. One of them is that people become lazy and become dependant on the convinience of fast food. In addition, fast food restaurants have high calories, sodium, and fat content. Almost all fast food contain high calory which is not good for health. This unhealthy food is accompanied by soft drinks and juices that contain lots of sugar. These combination add even more fat to one’s body and might even lead to obesity (Herlihy, 1999-2010).

McDonald’s Corporation franchises and operates fast food restaurants in the food service industry. This world’s largest foodservice retailing chain serves a varied, yet limited, value-priced menu in more than 118 countries worldwide. All restaurants are operated either by the Company or by franchise with more than 390,000 employees (reuters.com, n.d.). Financial statement is to inform about McDonald’s total revenue and sales growth from 2005 to 2009. In case there is an insufficiency of data from the case, data has also been incorporated from McDonald’s 2004 annual reports.

Revenue and total revenue for McDonald’s Operations from 2005 to 2009 have been abstracted and represented in Table 2.5. The further information data about McDonald’s stocks growth compare with another company are presented in Figure 2.5 to facilitate readers understanding of the underlying facts.