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Fast food

Sector Spotlight: Fast Food Restaurants

Feast on this fast food outlook and learn why hamburgers, fries, and good service never go out of style.

Fast food is a reliable business opportunity that has a proven history of success. If you have the capital to get into the industry, and a willingness to placate rather strict franchising standards, you may be a good franchisee candidate. But, before you can get behind the fryer, you have to understand the complexities of the industry. Fast food has a rich history, a volatile present, and a promising future.

History

Food stands like White Castle and cafeteria-style concepts at the beginning of the 19th-century mark the true beginning of fast food franchising. But the industry we know today, and the working model that has endured for almost a century, all started with McDonald’s.

Richard and Maurice McDonald, who got their start selling drive-thru barbeque, decided to streamline

their menu to feature only the most profitable items. Hamburgers, fries, milkshakes, and Coca-Cola — the four food groups of a 1940s diet. Serving only the essentials, the McDonald brothers abandoned the made-to-order model, and for the first time cooked food preemptively — knowing that their product would eventually be ordered.

Relying on their patented “Speedee Service System” production model (based on the production line system developed by Ford Motors), the brothers were able to make hamburgers at an unprecedented pace to accommodate unprecedented customer foot traffic.

Curious why the hamburger stand ordered 12 milkshake machines — about 12x more than a usual restaurant — milkshake machine salesman Ray Kroc paid the brothers a visit in person. Kroc went on to purchase franchising rights from the brothers and standardized their production model. Fifty years later, McDonald’s is the largest restaurant chain in the world, serving 69 million customers a day worldwide.

Current landscape

The fast food model pioneered by the McDonald brothers, popularized by Kroc, and now adopted by countless competitors emphasizes convenience, affordability, and standardization. As an entrepreneur, these three qualities mean consistency. Customers love consistency.

According to a 2018 franchise report, food accounts for nearly half of all revenue earned by franchises across all sectors. Fast food, in particular, makes up a quarter of all franchises in the country, which makes it the most popular franchise option by a significant margin. Fast food — known in the industry as quick service restaurants (QSRs), are appealing to entrepreneurs for their brand recognition, established customer base, and comparatively low operating costs.

Fast food

The greatest challenge for those looking to enter the industry will be startup costs. The overwhelming value of a fast food franchise comes at a fairly steep financial premium. McDonald’s, for example, requires nearly $1 million in liquid cash to get started. On the more affordable end of the spectrum, you could open a Subway for around $60,000, but keep in mind these cheaper options tend to come with a much pricier annual royalty fee. When looking at fast food franchises, consider this: would you rather pay a lot upfront and benefit from low ongoing costs or vice versa? This will inevitably be the trade-off.

Future

Stay abreast of industry trends by reading trade publications such as QSR Magazine.

While your operational freedom will depend on which franchise you own, it’s best to get familiar with the industry direction so you can anticipate consumer patterns.

Looking ahead, there are several industry innovations that will almost certainly have an impact on fast food franchises. Some top trends include:

  • Healthy alternatives: Hamburgers will never go out of style, but healthy alternatives help engage a new demographic of health-conscious customers. Plant-based options, in particular, have experienced surprising growth. Brands such as Burger King and Wendy’s are ahead of the curve by integrating vegetarian- and vegan-friendly menu options, and you can expect this to become the industry norm.
  • AI : Back in 2011, Gartner estimated that by 2020 80 percent of customer interactions would take place with AI. While we might not be at that level yet, AI and machine learning still offer unprecedented data insights to help improve service quality and speed. Whether integrated into the front or back of the house, AI and machine learning augment employee productivity and help offset labor shortages. Even simple, automated kiosks should be considered the new normal. Chains like McDonald’s have integrated self-service kiosks in an effort to reduce labor costs.
  • Food delivery : Apps such as DoorDash and Postmates are disrupting the way customers experience fast food. Fast food is experiencing record low foot traffic, so delivery is a great way to supplement income. Whether you choose to use in-house delivery or 3rd party apps will be up to you and your franchising agreement. 

Now is the perfect time to take the plunge into the fast food industry. Of course, you may want to extend your search and discover other businesses that are for sale in your area to see what the ideal investment is.



Bruce Hakutizwi

About the author

USA and International BusinessesForSale.com Manager for BusinessesForSale.com, a global online marketplace for buying and selling small medium size businesses. The website has over 60,000 business listings and attracts over 1.5 million buyers to the site every month.

@BizForSaleUS

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