While McDonald’s and Struck operate under only one brand name, Yum Brands consists of multiple fast food restaurant brands such as KEF, Taco Bell, Pizza Hut, and Wintergreen. In order to compare how these industry leaders compare to one another, performance metrics be used. Due to the nature of the fast food industry, the metrics that are most used to measure are Food Cost, Labor Cost, Weekly Sales, Average Order per Customer and Employee Turnover. To further analyze this market we must understand how some of these key metrics works.
Food (Variable) Cost is calculated as % of total expense. For larger ranching chains such as Subway and McDonald’s the food cost is usually lower due to their large buying power. L Labor (Fixed) Cost is also calculated as a percent of total expense. Much like Food Cost, it is usually one of the most expensive costs that restaurants incur. Sales (Revenue) is another important metric because this allows you to see which companies are collecting the most money through their only service, which is sales. This will be found in the income statement of a company’s financial statements.
Demand: In the quick service restaurant business, the products being offered are food ND drink at the lowest cost possible to satisfy company revenue as well as the consumer’s willingness to pay. Demand for the industry product is has been referred to as anti-cyclical. This is largely due to the fact that when the economy experiences growth, the food industry in developed countries does not significantly grow. On the other hand, when the economy goes down, food companies are not greatly affected because consumers still have to eat and they dispose other expenses before giving up eating.
Undoubtedly, consumers adjust purchasing behavior during economical stress. They replace more expensive products with cheaper products. Thus, the industry is non-cyclical. The buyers of the industry products are consumers, more so middle and lower class consumers who have less disposable income to spend. They buy these products because it allows them to save more money for other necessities. Because of the nature of the industry, the inputs are produced through agricultural industries, which means that the inputs purchased by these companies to produce outputs for sale are subject to cyclical fluctuation.
That is to say, if there is a shortage of tomatoes due to some unknown factor, then these Fast Food Industry Leaders By Collins evolves around restaurants, many of the agricultural commodities used will be subject to this fluctuation. Expansion outside of the country is very important for these types of company. This is because consumers of the product are not restricted to any one country. All of these companies serve customers outside of the United States, although there is little data that gives specific numbers.
These companies are all very large players in the industry. As seasoned, large corporations they make sure to pay dividends to their stockholders. Although each of these companies is an industry giant, in terms of the individual companies’ revenue and earnings, these companies differ in how much net income they accumulate annually. Source: Mornings Financial Statements – Graph 1 On the graph shown above, we see that since 2008, McDonald’s has generated the most net income, increasing from roughly 17% to 19% while the other companies barely top 10%. What does this mean?
This means that McDonald’s is bringing in the most total profits, and by a significantly higher percentage. Variable Cost Efficiency: The goal of any business is to have a larger gross profit margin. The graph below wows the three industry giants compared side by side in terms of their gross profit margin as a percent of the company’s revenue. This can be used to measure variable cost efficiency. Source: Mornings Financial Statements – Graph 2 The higher percentage, represented on this graph by Struck, shows that this business is keeping more of each dollar of sales.
This means there will be more money left over to use for other expenses. The lower percentage, shown by Yum Brands, suggests that the business produces a very low revenue to pay for expenses. This low gross profit margin usually suggests that either the business is unable to intro production and inventory costs or that prices are set too low. 3 Using this information we can conclude that the variable cost efficiency is better for a company with a higher gross profit ratio, like Struck, than for a company like Yum Brands who produce revenue at a lower level.
Fixed Cost Efficiency: Fixed cost efficiency is measured differently however. The next graph will depict Struck has the largest operating expense of any of the companies. What does this mean for the companies? Source: Mornings Financial Statements – Graph 3 What this means is that Struck has more fixed costs to take care of than the other woo companies. This affects how appealing the business looks to investors because they will be seeing less profits. On the opposite end of the spectrum is McDonald’s. McDonald’s holds the lowest operating expense percentage.
This suggests that McDonald’s is the most attractive to investors. They pay less fixed costs on average. Source: Mornings Financial Statements – Graph 4 Here we can see how much income McDonald’s makes from operations alone as a percent of revenue. The data shows McDonald’s profiting significantly more from its operations than its competitors. Growth: Being an industry giant is no simple task. Companies have to be concerned with growth at all times. More specifically growth in revenue and profits. The following graph will show changes in revenue and profits expressed as percentages.
Source: Mornings Financial Statements – Graph 5 After the financial crisis of 2008, we see that there is a negative percent change in revenue. We see that Struck has been increasing its revenue very quickly, and by more than McDonald’s and Yum Brands. In other words, Struck is generating the most revenue, and its yearly growth stays consistently larger than that of the other companies in general. But this is only one aspect of growth. Revenue consists of all revenue, including the cost of goods sold. If we want to observe how a company has grown in terms of profits, we need to look at a new graph.
Source: Mornings Financial Statements – Graph 6 This graph shows percent change in profits. As we can see, Struck shows the most movement. In combination with the graph 5, we can see that Struck is growing at a faster pace than the other two companies. This does not mean that Struck is make its way up the ladder. One consequence of growth is the amount of capital it takes. This is where debt comes into the picture. Looking at the liabilities on the balance sheet for each company, we can see which company is collecting the most debt.
This is important to know because it affects investor decisions and because more debt makes it harder for companies to borrow money should they need to. The following graph shows this amongst all three companies. Source: Mornings Financial Statements – Graph 7 Yum Brands has the most debt, which one might hypothesis it should, because it operates numerous chains of restaurants. The costs of these chains differs greatly, but running numerous different brands may affect how much money you will have to Penn on advertising, marketing, and so on. McDonald’s and Struck show similar fugues in the debt department.
This suggests that should these companies need to borrow money to expand, Struck would be most likely to receive additional funds, and Yum Brands the least likely. Stock Performance: Stock performance is another important aspect of investor decision-making. How a company holds up in the stock market says a lot to investors about the profitability of the company. All of these companies are priced differently on the market, but the returns that they yield are really what investors are after. The stock price for McDonald’s was last $100. 29, while Struck price was $79. 05, and Yum Brands was at $66.
The higher price does not say much about the stock, it is the small details like the earnings per share and the PEG ratio that investors will want to look at carefully before choosing to invest in a company. The next graph will compare the stock performance of these companies side by side so we can see how an investor would make his decision on which company to put his money into. Source: Mornings Financial Statements – Graph 8 This graph shows that the earnings per share is highest for McDonald’s. This figure tells investors how much they will make per share purchased.
McDonald’s is double that of its competition. PIE refers to the price-earnings ratio which compares the current share price to its earnings per share. Struck looks the most profitable in this department, with a PIE ratio of almost 40%. Next comes the PEG ratio which is the price/earnings to growth ratio. This figure helps investors see the stocks value at a more high resolution than the PIE ratio. While a high PIE ratio may make a stock look like a good buy, factoring in the company’s growth rate to get the stock’s PEG undervalued given its earnings performance. Company Rankings: Using the sales metric allows us to rank companies in order of the money generated from sales. On the following graph, we see that over the past five years Mcdonald’s has maintained its position as the Industry Leader in Sales. One could forecast from this data that Mcdonald’s will continue to lead the industry in sales for years to come. As stated before, Struck seems to be the fastest grower, it is a threat to stores like itself, but not to a McDonald’s or Yum Brands, at least not unless they begin reducing substitutes to its competitors best selling products.
Source: Mornings Financial Statements – Graph 9 The Last graph shows a breakdown of how much of the market share each of the three companies have. Again the data suggests that McDonald’s is the industry leader. What this tells us is that Mcdonald’s controls over half of the market compared to the next two giants in the industry. Considering that Yum Brands owns not one but four chains of fast food restaurants, it is amazing that Mcdonald’s, a single chain manages to keep itself at the top of the market. Yum Brands does seem o control a good deal of the market, around 30%.
The company is more a consolidation of fast food chains. Owning more than one brand certainly helps them control a fair portion of the market share. Struck, which is the new-comer of the group, has managed an impressive growth and now controls a little under 20% of the market share. This is impressive as well considering how recently the company grew to such a size that it can now be considered an industry leader. When it comes down to ranking the positions of these industry giants, the data points to McDonald’s as the pop leader in the industry, followed by Yum Brands, then followed by Struck.