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Fast Food Forecasting 2013 BUSINESS FORECASTING MARIAM KILADZE MK SNACKS | Nino Ramishvili str. 33
Fast Food Forecasting
2013
BUSINESS FORECASTING MARIAM KILADZE
MK SNACKS | Nino Ramishvili str. 33
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Contents
MK Fast Food Snack Overview ............................................................................. 2
Fast Food Industry in 2013 at a Glance ................................................................ 3
The Industry ......................................................................................................... 3
What’s Been Going Wrong? ................................................................................. 3
Where do we Go from Here? ............................................................................... 4
Overall Output of MK snacks ............................................................................... 4
Top Production According to Value ..................................................................... 5
Descriptive Statistics ............................................................................................ 5
Table 1: Summary statistics. ................................................................................ 5
Longitudinal Regression Analysis ......................................................................... 6
Lots of Variety! Some of the Types of Fast Food Franchise Opportunities
Available: ............................................................................................................. 8
Market overview in Black Sea countries .............................................................. 8
Consumption of snacks ........................................................................................ 9
Conclusion .......................................................................................................... 11
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MK Fast Food Snack Overview The company produces various fast food products including kids, youth, adult snack. As it wants to expand Its
production we have to forecast whether Black Sea region will be profitable for our business or not. We have to choose the most optimal country out of Georgia, Turkey, Azerbaijan
We have to use various forecasting techniques in order to analyze the market and check whether we should make foreign direct investment.
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Fast Food Industry in 2013 at a Glance It is no secret: Americans love fast food. And its not just us! The Golden Arches have spread across the globe, and emerging markets are one of the fastest growing areas in the industry. But the fast food industry is not without its challenges, especially in the United States. From rising food costs, economic recession and changing perceptions about health, many fast food franchises have been feeling some heat.
But rather than flee from this challenge, the fast food industry has been adopting new practices and offering new products. Modern society is on the go, and there is plenty of demand for a quick bite at all times of the day. Fast food franchising opportunities exist in the “traditional” spaces like burgers and pizza, but are also sprouting up in healthy and unique ways as well.
The Industry The fast food industry, also known as Quick Service Restaurants (QSR), has been serving up tasty morsels for as long as people have lived in cities. The modern system of fast food franchising is believed to have started in the mid 1930’s when Howard Johnson franchised his second location to a friend as a means to expand operations during the Great Depression. And oh how it has grown! As cars became commonplace, the drive-thru concept brought explosive growth to the idea of food-on-the go. “Fast Food” was added to the Merrion-Webster dictionary in 1951 and U.S. fast food companies are now franchised in over 100 countries. In the U.S. alone there are over 200,000 restaurant locations! Revenue has grown from $6 billion in 1970 to $160 billion last year, an 8.6% annualized rate.
Fast food franchises focus on high volume, low cost and high speed product. Frequently food is preheated or precooked and served to-go, though many locations also offer seating for on-site consumption. For stands, kiosks or sit-down locations, food is standardized and shipped from central locations. Consumers enjoy being able to get a familiar meal in each location, and menus and marketing are the same in every location.
What’s Been Going Wrong? There have been challenges for the fast food industry in recent years that have been pressuring profit margins. The industry as a whole has proven robust enough to withstand these challenges, though some players have done better than others.
Over the last decade there has been increased focus on the quality of food served in fast food restaurants. Typically highly processed and industrial in preparation, much of the food is high in fat and has been shown to increase body mass index (BMI) and cause weight gain. Popular books such as Fast Food Nation and documentaries like Super Size Me have increased public awareness of the negative health consequences of fast food. Fast food companies have responded by adopting healthier choices and have had some measure of success, but the shadow of bad press still hangs over the industry.
Rising commodity prices have also significantly crunched many fast food franchises. With food and beverage inputs making up approximately 33% of costs, higher prices for livestock, corn, wheat and more have seriously shrunk margins over the past decade. In such a fiercely competitive space it is impossible to force a price increase on customers, so profit margins are often south of 10%. The recent economic recession did lower commodity prices, but the recession brought on its own complications, and now prices for commodity inputs are on the rise again.
Fast food had been thought to be largely recession proof, and indeed the industry did not suffer nearly as much as other discretionary spending sectors. In fact, there was some increase in consumer visits as people choose cheaper fast food options over fast casual or traditional restaurant choices. But overall, the recession hurt spending, and consumers overall purchased less with each trip. Fast food franchises fared reasonably well but still felt some pain.
Market saturation is also a relevant issue in the fast food industry today, at least in the U.S. There is a McDonald franchise is in almost every town, and it usually sits in a row with several competitors. With so many competitors which offer similar products there are fewer customers per location. Increasingly fast food restaurants are also losing market share to fast casual, a relative newcomer in the restaurant space.
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Where do we Go from Here? Busy citizens still need quick meal options, and fast food restaurants are fighting these challenges with gusto. Now offering healthy choices to battle the stigma of unhealthy food, some quick service restaurants now focus on fresh or organic products. From franchises focused solely on salads or healthy wraps to the lower calorie options offered at traditional burger franchises such as Wendy’s or McDonald’s, consumers are able to make better choices…if they want! Fast food franchises are also focusing on expanding into new product lines, such as the coffee initiative in the McCafe. Intended to offer competition to Startbucks, McDonalds is luring customers back into their stores, hoping they will purchase food as well. Many franchises have been exploring other meal times such as breakfast and the mid-afternoon snack for growth opportunities and to increase real estate utilization.
The industry is most effectively battling saturation within the United States by creating a much more diverse range of offerings. Sure, there is a McDonalds in every town, but there are very few crepe franchises…yet! From new cultural cuisines to fresh takes on a traditional story, there are many moretypes of quick service restaurants than ever before.
Overall Output of MK snacks Customer Percentage consumed Kids 30% Adult 25% Youth 45%
MK Snacks concentrates its operations on kids and youth generation. Kid’s consumption 30% of total output. It involves offering the service of entertaining children as well as making parents feel free while having snack. This kind of service is not offered yet in any other Fast Food Restaurant. As for adult consumption the environment is highly demanded by adults, wi-fi, and pleasant music. These are highly demanded products. This year everyone is trying to get rid of entering other fast food restaurants, because of the demages which is caused by them. Parent do care of their children’s health, that’s why the dinned which is offered by us to your children is free of any damages to your children’s health/
Sales
Kids Youth Adult
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The company decided to make a foreign direct investment in Black Sea region. We have to assess the market condition and
estimate the future demand for fast food restaurant. For this we have to use various forecasting techniques that may give us
some useful information about the future of this market.
Top Production According to Value Below chart indicates the top consumption of fast food snacks in Georgia, Azerbaijan and Turkey.
Descriptive Statistics The basic summary statistics are shown in Table 1. The average weekly frequency of fast food consumption by the 5th and 8th
graders was roughly 2.5 times in the past week. Among the household characteristics, about half (50.2%) of the sample was
female. Additionally, about 66.5% were White, 9.2% were African American, 15.2% were Hispanic, 2.2% defined themselves
as multiple races, and 6.9% were of another race. On average, more than one-half of the children (63.6%) had mothers who
completed some college or more; about 23.7% of children had mothers whose highest level of education completed was high
school. Approximately, 10.6% of children lived in families with parental income below $20,000, and 38.4% lived in families with
income above $75,000. Nearly 67.3% of the households were from urban residential areas, while 13.4% were from suburban
areas and 19.3% were from rural areas. Among the economic contextual factors, the average fast food price was $2.66 while
the average price of food at home was $1.19 (based on the 1982–1984 deflated price indices). On average, the median
household income at the zip code level was $47,560. Finally, there were approximately 3.6 fast food restaurants per 10,000
capita per zip code.
Table 1: Summary statistics.
Mean (SD)
Outcome variable
Number of times fast food consumed in past 7 days 2.468 (3.955)
Price measures
Price of fast food ($1982–84) 2.662 (0.168)
Price of food at home ($1982–84) 1.185 (0.136)
Contextual factors
Median household income in $10,000 ($2000) 4.756 (1.838)
Fast food restaurants per 10,000 per capita 3.598 (3.000)
Individual, household and local area characteristics
Female 0.502 (0.500)
Male 0.498 (0.500)
White 0.665 (0.472)
African American 0.092 (0.290)
Hispanic 0.152 (0.359)
Other 0.069 (0.253)
More than one race 0.022 (0.147)
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Mother completed less than high school 0.127 (0.332)
Mother completed at least high school 0.237 (0.426)
Mother completed at least some college 0.335 (0.472)
Mother completed bachelor’s degree or more 0.301 (0.459)
Parental income 0–20 K 0.106 (0.307)
Parental income 20 K–35 K 0.152 (0.359)
Parental income 35–50 K 0.159 (0.366)
Parental income 50–75 K 0.199 (0.399)
Parental income 75–100 K 0.168 (0.374)
Parental income 100 K+ 0.216 (0.412)
8th grade round (year = 2007) 0.513 (0.500)
Household residence urban 0.673 (0.469)
Household residence suburban 0.134 (0.341)
Household residence rural 0.193 (0.394)
Days per week eat breakfast with parents 3.497 (2.399)
Days per week eat dinner with parents 5.287 (1.752)
Hours of television child watches weekly 21.94 (15.18)
Notes: 𝑁 = 1 1 , 7 0 0. S D = s t a n d a r d d e v i a t i o n .
Longitudinal Regression Analysis Table 2 presents the regression estimates of childhood fast food consumption using an individual-level random effects model.
Higher fast food prices were statistically associated with lower childhood fast food consumption. A one-standard deviation
increase in the price of fast food (a $0.17 increase) was associated with a reduction in fast food consumption of approximately
0.09 times per week based on the coefficient estimate that a one-dollar increase in the price was associated with an
approximate decline of 0.53 in the weekly frequency of fast food consumption. Measured as a price elasticity (the percentage
change in consumption associated with a one-percent change in price), the estimates corresponded to a price elasticity of
−0.57, suggesting that a 10% increase in price of fast food was associated with a reduction in weekly consumption by 5.7%, as
shown in Table 3. The results from sensitivity analyses presented in Table 3 show that the relationship between fast food prices
and consumption was generally robust to the exclusion of the various other contextual factors. The association of the price of
fast food increased slightly by about 20% (elasticity of −0.69 versus −0.57) when all other contextual factors were excluded
from the model. The results for the remaining contextual factors were consistent with expectations. Higher median household income was
associated with lower fast food consumption: a $10,000 rise in median household income lowered fast food consumption by
0.13 times per week. Greater availability of fast food outlets measured as outlets per capita was associated with higher
frequency of fast food consumption. Higher prices of food at home were associated with higher frequency of fast food
consumption although the estimate was not statistically significant.
Table 2: Longitudinal regression estimates for individual level random effects model of the determinants of fast food
consumption.
Consumption of Fast Food (SE)
Price measures
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Price of fast food −0.527** (0.241)
Price of food at home 0.175 (0.401)
Contextual factors
Median household income −0.131*** (0.021)
Fast food restaurants 0.025** (0.013)
Individual, household and local area characteristics
Female −0.267*** (0.079)
African American 1.932*** (0.022)
Other 0.231 (0.141)
Hispanic 0.627*** (0.139)
More than one race 0.331 (0.242)
Mother completed high school −0.221 (0.176)
Mother completed some college −0.350** (0.170)
Mother completed bachelors or more −0.625*** (0.175)
Parental income 20–35 K −0.635*** (0.207)
Parental income 35–50 K −0.784*** (0.194)
Parental income 50–75 K −0.825*** (0.195)
Parental income 75–100 K −0.913*** (0.192)
Parental income 100 K+ −0.776*** (0.192)
8th grade round (y e a r = 2 0 0 7) −0.787** (0.362)
Household residence is suburban 0.165 (0.123)
Household residence is rural −0.085 (0.120)
Days per week eat breakfast with parents −0.053*** (0.016)
Days per week eat dinner with parents −0.054** (0.023)
Hours of television child watches weekly 0.014*** (0.004)
Note: regressions include a full set of age dummy variables and average distance between closest ACCRA city and ECLS-K
zip code. Standard errors (SE) are reported in parentheses and are robust and clustered at the home zip code level.
**significance at 5%; ***significance at 1%. 𝑁 = 1 1 , 7 0 0.
Table 3: Longitudinal regression estimates for individual-level random effects model of the determinants of fast food
consumption and price elasticity of consumption, by alternate model specifications.
Fast food price coefficient estimates
Fast food price elasticity
Model 1: full specification as shown in Table 3 −0.527** (0.241) −0.565** (0.258)
Model 2: model 1 without median household income −0.563** (0.240) −0.603** (.257)
Model 3: model 1 without fast food restaurant density −0.548** (.243) −0.586** (0.260)
Model 4: model 1 without median household income and fast food restaurant density
−0.589** (0.242) −0.630** (0.259)
Model 5: model 4 without price of food at home −0.644*** (0.198) −0.689*** (0.211)
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Notes: the regression models include all variables shown in Table 2 and those described in the notes of Table 2. Standard
errors are reported in parentheses and are robust and clustered at the home zip code level. **significance at 5%;
***significance at 1%. 𝑁 = 1 1 , 7 0 0.
Lots of Variety! Some of the Types of Fast Food Franchise Opportunities Available:
Burgers 24-Hour Breakfast Fish & Chips Pizza
Italian Sandwich/Subs Chinese Japanese
Mexican Deli’s Crepes BBQ
Steaks Salads Buffalo Wings Hot Dogs
Fried Chicken Wraps Grilled Cheese Gyros
Healthy Pitas Fresh Food Sausage Bagels
Indian Noodles Natural/Organic Grilled
Market overview in Black Sea countries Production
Turkey Georgia Azerbaijan
Burgers 102.77 29.21 40.63
Italian 1317.44 661.93 642.3
Mexican 10.89 5.33 6.53
Steaks 1869.3 939.5 353.2
Fried Chicken 4656.6 2124.4 993.8
Healthy Pitas 14.6 7.9 1
Indian 572.4 270 155.1
24-Hour Breakfast 627.7 273.8 166.5
Sandwich/Subs 308.3 69.4 39
Deli’s 64.2 19.4 18.8
Salads 21.4 10.1 0.2
Wraps 47 11.4 5
Fresh Food 43.5 7.5 1.9
Noodles 39.94 16.38 7.24
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Consumption of snacks Consumption of snacks (2002-2012) Year Turkey Azerbaija
n Georgia
2002 1028 2539 524 2003 932 2631 505 2004 1059 2859 608 2005 1314 2811 760 2006 1158 1857 619 2007 1535 3017 879 2008 1689 3421 864 2009 1663 3806 873 2010 1435 2796 678 2011 1412 3225 771 2012 2124 4656 993
Year Turkey
2002 1028
2003 932 Forecast
2004 1059 1435
2005 1314 2013 1435
2006 1158 2014 1418.9
2007 1535 2015 1912.47
2008 1689
2009 1663
2010 1435
2011 1412
2012 2124
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Year Azerbaijan
2002 2539
2003 2631 Forecast
2004 2859 2796
2005 2811 2013 2796
2006 1857 2014 3096.3
2007 3017 2015 4188.09
2008 3421
2009 3806
2010 2796
2011 3225
2012 4656
Year Georgia
2002 524
2003 505 Forecast
2004 608 678
2005 760 2013 678
2006 619 2014 743.1
2007 879 2015 918.03
2008 864
2009 873
2010 678
2011 771
2012 993
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Conclusion The pattern is positive. The consumption in Azerbaijan as well as in other two Black Sea countries is increasing. But we see that
Azerbaijan is leader in consumption of fast food snacks.
