Food Away From Home AG BM 102

Introduction ½ of food expenditures 1/3 of food Growing business

Categories Restaurant (74.3%) Dining hall (6.3%) Hospital Prison Carry-out or delivered food Military Economics somewhat different by category

Selling to Food Service Sector Commodity products Exceptions: Coke, Pepsi, liquor, etc. Food distributors Fraternity Purchasing Association

Restaurants Differentiated product – usually distinct differences –Price –Service –Location –Taste –Ambiance Lots of entry & exit

Prices Low for entrees High for appetizers, desserts & drinks Specials – often expensive Value meals – interesting how much different the value meal increment is on different sandwiches at McDonalds & Burger King

Franchises Half of restaurants in Twin Cities are chains McDonald’s, Burger King KFC, Taco Bell Pizza Hut, Papa John’s, Dominos Red Lobster, Olive Garden Subway Expensive vs. economy establishments Big orders – low margins Franchise fees Good will

Source: Advertising Age

McDonald’s 20 million people per day in US (1 in 14 people) 12,000 restaurants in U.S. $2 billion per year in advertising worldwide 12.7 % of fast food market in 2010 Average store grossed $2.6 million in 2011 Subway has more outlets New products mostly flop – Chicken McNugget last success A franchise costs $500,000-$800,000+ Not growing in US

Costs Labor costs high Peak business – fancy restaurant may turn tables once or twice Breakfast at McDonald’s – try to use facilities more College Ave McDonald’s – all night!

Target Customers Canyon Pizza Brother’s Pizza (downtown) Papa John’s Faccia Luna Pizza – South Atherton Location, ads, hours, prices, décor, parking, specials, menu

Barriers to Entry Low Everyone thinks they are an expert Low capital requirements Location, location, location Know your market Cash flow issues Managing people Advertising

Dining Halls, etc. Captive audience, esp. prisons, & hospitals Budget for month – feed everyone with it End of the semester food Try to fill people up with cheap stuff

Concluding Remarks Not like grocery business Food distributors have key role Restaurant vs. institutional Franchises – like chain grocery stores in purchasing Lots of money Few barriers to entry