The Recession and the Fast food Market
by Dayne Anderson BSC, MBA, RFC
Over the last two and a half years, the recession has wreaked havoc on the day to day lives of everyone. The food industry is one of those one of those industries that have been affected by the recession. The fact of the matter is that people have to eat, but the quality of what people eat is determined by the price. In the times of a recession the earning ability is compromised as people lose their jobs or their income level is reduced as employer’s face the dilemma of laying off staff or cutting wages.
During these trying times people are unable to eat a balanced meal as the cost of things like vegetables, fruits and other healthy commodities are out of reach. We saw that when the price of oil spiked to over $100 that this resulted in the cost of transportation and other factors of production impacting the delivery of food to our supermarket shelves. In most cases when the cost of production increases, then the price is passed on to the customer.
The result of the average income earner being unable to afford a proper and healthy meal, results in these individuals being forced to turn to the low cost allure of fast foods. But is this really the reality? Or is it just an illusion created by those who oppose fast foods companies? If we examine the performance of some of four of these giant fast food companies over a five year period the picture becomes clearer.
McDonald’s
The McDonald’s Corporation is by far one of the largest fast food Companies in the world. Its stock price has moved from around $32.00 in 2005 to approximately $67.00[see chart below]
According to a report on March 8, 2010, McDonald’s global comparable sales increased by 4.8%. Its performance breakdown by segment was as follows:
- US sales were up 0.6%
- Europe was up 5.4%
- Asia/Pacific, Middle East and Africa were up by 10.5%
This follows up on its fourth quarter profits for 2009 of $1.2 billion dollars.
It is estimated that on average, each day 60 million people go to McDonald’s, which accounts for more than $2 million more than a year ago.
Burger King Holdings
Burger King has been chief competitor of McDonald’s in the burger market, has seen a less than favorable share price. Over a five year period its stock price moved from $18.00 to its present value of $20.69. Its second quarter profit 2010 climbed 13% year-over-year to $50.2 on the launch on its “Value Menu”.
Burger King has over 12,000 restaurants in 50 states and is in 73 countries.
Yum! Brands
The Yum! Brands which include Taco Bell, Pizza Hut and KFC fast food chains. It had a net income of $1.083 billion at the end of 2009. It is rated as the world’s largest restaurant company with over 36,000 locations worldwide.
Its famous KFC brand is the flagship of the company, with over 12 million customers served daily in 109 countries worldwide. It has over 5,200 restaurants in the US and more than 15,000 units worldwide.
Its share value has moved up steady over a five year period. Its value fell sharply near the end of 2008, but has risen to $38.15 year to date.
As is evidenced by looking at four of the top fast food companies in the world, the demand for fast food continues to exceed expectations. There seems to be a direct correlation to hard times and fast foods. People are drawn to the price of the meals offered by these companies.
It should be noted that these companies have put their ‘ears to the ground’ and are listening. They have all attempted to put healthier meal offerings on their menu. With the devastating recession and the changing lifestyle of people worldwide, the demand for their fast food outlets will continue to rise. It is cheaper to buy a meal from one of these companies than to cook or eat at a fancy restaurant. Every day they offer appealing deals to grab the pocket of its existing customers and luring new ones who just cannot afford to do otherwise.
In simple economic terms, the more the demand, the greater the supply will have to increase. Thus, with the recession biting, the demand exists for cheaper foods, which means that the fast food companies will prevail.
