Fast Food Industry Leaders

2155 Words9 Pages
Cory Collins
10/25/13
ECON 450

The quick service restaurant (QSR) industry, also known as the fast food industry, consists of a large variety of restaurant types, including but not limited to ice cream parlors, fast food restaurants, pizza parlors, coffee shops. With all of these different types of eateries, the QSR industry makes up a massive section of small businesses in America. This means that the market size is large, and that there are not restrictive barriers to entry. Some of the giants in the fast food industry are McDonald’s (MCD), Starbucks (SBUX), and Yum Brands (YUM). While McDonald’s and Starbucks operate under only one brand name, Yum Brands consists of multiple fast food restaurant brands such as KFC, Taco Bell,
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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 shows 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: Morningstar Financial Statements – Graph 2

The higher percentage, represented on this graph by Starbucks, 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 control 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 Starbucks, 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 Operating expenses and as a percentage of revenue per company. As we will see, Starbucks has the largest operating expense of any of the companies. What does this mean for the companies?

Source: Morningstar

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