Management and Marketing Principles

INDUSTRIAL ANALYSIS

QUICK SERVICE RESTAURANT

 Table of Content

I. Executive Summary………………………………………………………………....…….3

II. Introduction……………………………………………………………….………...……..4

III. PESTEL Analysis………………………………………………………...…...………......5

IV. SWOT Analysis…………………………………………………………………………...7

V. Major Players of the QSR Industry in the Philippines…………………………...………..8

VI. Microenvironment………………………………………………………………..…...….11

VII. Success Factors…………………………………………………………………….…….14

VIII. Insights and Conclusion………………………………………………………………….16

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 I. Executive Summary

The Philippines quick service restaurants (QSR) market has been continuously
improvising in terms of product offerings, number of outlets, hospitality and other perks
regarding prices that attracts a higher number of customers. Understanding the fast-food
industry’s current state and the factors that influence it helps organizations to anticipate future
trends and gives them the advantage to take the required direction with confidence. It helps the
industry players get a sense of what is happening in their business field, including degree of
competition within the industry, influence of internal and external factors on the business line,
macroenvironment and microenvironment factors and other variables that affects the
organizations so that they can take steps to combat them and gain competitive advantage.

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 II. Introduction

The Philippines quick service restaurants (QSR) market size was valued at $4.6 billion in
2018, and is expected to reach $7.9 billion by 2026, registering a CAGR of 6.9% from 2019 to
2026. As of 2016, the Philippines Food Service industry was valued at $1.5 billion establishing
nearly 85,000 food outlets across the country. The influence of westernization among the target
customers, the rise in per-capita income, and surge in the number of millennial populations have
been some of the key influential factors that help drive the overall growth of the food service
industry in terms of value sales. Among the food service sectors, the quick service restaurants
have been witnessing higher rate of value sales growth due to surge in demand for different types
of fast food products.
Millennials are the prime customers for the quick service restaurants market since this set
of population prefers food products that can be consumed with convenience and ease. This has
led to a rise in number fast food outlets across the country that comprise of both domestic and
international brands. These outlets have been coming up with innovative food products that
specifically cater to the requirements and demand of millennials. As of 2018, the millennials
accounted for nearly one-third of the total Philippine population. Hence, the rise in number of
millennials eventually drives the overall growth of the quick service restaurants market in terms
of value sales.
Among the key players operating in the Philippines quick service restaurant market, the
domestic player Jollibee Foods Corporation leads through its wide portfolio of leading fast food
brands. Jollibee is followed by the U.S. fast food major McDonald’s. In 2017, the brand posted
highest sales growth with increased rate of new product launches and consistent marketing and
promotion activities on its core menu.

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III. PESTEL Analysis

Political Factors

Government has extensive regulatory frameworks for every aspect of the food industry
which makes it one of the most tightly-regulated industries. This includes but not limited to the
cleanliness of commercial kitchens, the proper storing and transporting of foods, and even the
requirements for employees in the restaurant business. Governments can also press the fast-food
chains to include healthier items on their menus. These are some important political factors that
affect the QSR. The attitude of governments towards businesses has a definite effect on their
performance.

Economic factors

The high recession rate influenced the fast-food industry to an extent and due to this,
restaurants need to adapt in order to stay in business. Most of the restaurants have included
cheaper options in their menus and improved customer service. Customer service is an important
area as the restaurants struggled during the recession to retain customers. The economic
condition directly affects the purchasing power of customers, with economic activity falling
globally, the spending on QSR could decrease.

Social Factors

The social perception of health has changed vastly. Health and lifestyle trends have a
great influence on the fast-food industry. Health awareness has affected the entire food industry.
It includes not just fast food, but snacks and beverages and all other foods. People now think
before they eat. Consumers’ changed attitude pressed the restaurants to include healthier options.
Another important change that is happening in the global society right now is driven by the
Coronavirus pandemic. People’s lifestyles have undergone a major change during the pandemic.
A lot of people started working from their homes during Covid-19 and more and more of fast-
food customers are ordering from homes or picking orders while driving through due to the
pandemic. Instead of dine in, restaurants are seeing people ordering online mainly or picking
their orders from the restaurant. Since Coronavirus could have a major and lasting impact on

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people’s lifestyles around the world, its impact on the QSR industry could also be severe and
restaurants need to respond with appropriate changes to their operating models.

Technological Factors

Technological factors are an important force driving the growth of the fast-food industry.
The industry utilizes the technology to provide a better customer service and convenience which
are also major factors affecting sales. Social media and online ordering have changed the style
of customer service. It has helped brands serve customers through innovative channels and in
innovative ways, for example, the use of digital displays and kiosks affected the speed of
ordering and at the same time, reduced the costs of labor. In the face of the latest crisis that has
left many industries including the fast food industry reeling, technology has grown all the more
important for businesses in order to sustain themselves during the crisis. While a large number of
restaurants adopted mainly online ordering models during the Coronavirus pandemic, digital
technology has played a key role in helping food businesses transition to a new model.

Environmental Factors

Sustainability was another important factor to impact the industry globally. Changing
government rules and regulations pressed the brands to adopt a greener approach. A green
approach has helped brands enjoy improved customer loyalty. Most fast-food restaurants are
now avoiding the use of plastics and promoting the use of biodegradable alternatives like paper
in order to protect the environment.It is important to identify what are the recycle policies, waste
management policies and other environment related in the prospective market and how QSR can
adhere to the requirements in that market.

Legal Factors

The food regulations and laws have affected the food quality and nutrition standards. All
of the food industries, including QSR must produce food products in a safe and healthy
environment. The marketing needs must comply with the legal regulations, companies operating
in the fast food industry must comply with the marketing and sales regulations imposed.

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IV. SWOT Analysis

Strengths: Weakness

● Convenient locations and 24-hour ● Offers similar food choices with

service
● Affordable and tasty fast food dishes
● Use franchising to rapidly expand its
business and market penetration
● Trusted food brands
● Familiar food menu options
● Standardize food quality
other restaurants
● Fast food restaurants have perceptions
of unhealthy menus
● Product offerings don’t change often.
● Poor customer service
● Long wait times during peak hours

Opportunities Threats

● Offer new products and continue to ● The ever increasing competition in the
innovate. fast-food industry.
● Customize menu for target customers
● People prefer eating at home instead of
● Partnership with food delivery services
eating outside for cost-cutting
● Healthier food menu options purposes

● Strict regulations due to pandemic.

● Successful competitor promotions and
specials.

● Consumer preferences are leaning

toward healthy food choices

V. Major Players of the QSR Industry in the Philippines

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 With today’s fast-paced lifestyle, fast food is the fastest way to satisfy hunger pangs. It’s
comfort/convenient food that’s good for the soul — and kind to the pocket, too. In the
Philippines, the top three major players in the QSR industry are Jollibee Food Corporation,
McDonald’s and KFC.

1. Jollibee

Jollibee Foods Corporation’s (“JFC” or the “Company”) core business is the

development, operation and franchising of its quick-service restaurant brands. It offers a wide
variety of affordable and delicious dishes and great tasting food prepared to satisfy customers of
all ages and from all walks of life. Food quality, service, price-value relationship, store location
and ambiance, and efficient operations continue to be critical elements of the Company’s success
in the quick-service restaurant industry.

As of 2020, Jollibee's current market value of $3.2 billion puts it in the 18th spot in the
ranking of the world's largest restaurant companies, according to FactSet.

Revenue: 185.4 billion PHP (2019)

Total assets: 187.3 billion PHP (2019)

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 In 2019, the net income of Jollibee Foods Corporation in the Philippines amounted to
approximately six billion Philippine pesos which is drastically lower in comparison with the year
2018. This is due to Jollibee's acquisition of loss-making Coffee Bean and Tea Leaf and
struggling Denver-based hamburger chain Smashburger.

JFC already acquired multiple local and international brands and are already penetrating
the global market.

2. McDonald’s

For over 50 years, McDonald's has been giving opportunities to individuals who share the
same values and vision of serving great tasting quality food fast through franchising. As the top
brand in Entrepreneur’s Franchise 500 in 2018, with more than 90% of its restaurants owned by
independent franchisees, McDonald’s continues to lead in franchising and empower local
entrepreneurs all over the world through their unique model.

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 In the Philippines, McDonald's opened its doors to franchising to Filipino entrepreneurs
in 1985, and has since expanded its network to over 300 franchised restaurants with more than
100 franchisees, most of whom have been part of the McDonald's Family for 5 to 15 years.

Fast food market share globally is dominated quite heavily by McDonalds´s. The leading
brand has 21.4% market share in the fast food industry in the year 2018. The McDonald's market
cap as of April 30, 2021 is $175.49B.

Revenue - 21.076 billion USD (2019)

Total assets - 52.627 billion USD (2020)

Revenue of McDonalds in the Philippines from 2009 to 2019 (in billion Philippine pesos)

3. KFC

KFC's roots trace back 90 years when Harland Sanders, who operated a service station in
Corbin, Kentucky started cooking for hungry travelers who stopped in for gas. And now, as of

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2020, there are 22,600 KFC outlets in 135 countries around the world, ninety-nine percent of the
units are franchised. The company opened its first store in the Philippines in 1966, and has since
expanded to 300 stores nationwide.

Kentucky Fried Chicken is one of the largest quick service chains in the world. In 2020,
the KFC brand was valued at just over 5.1 billion U.S. dollars, down from the previous year's
total of 5.51 billion U.S. dollars.

KFC is a subsidiary of Yum! Brands. In the geographic regions controlled by YUM!

Brands, KFC generated a revenue of approximately 2.27 billion U.S. dollars in 2020. This
reflects a decrease over the previous year's total of 2.49 billion U.S. dollars.

Revenue: 27.9 billion USD (2020)

Total assets: 5.85 billion U.S. dollars (2020)

VI. Microenvironment

Competitors

There are three main threats of substitution of quick serve restaurant products. These are
meals from:

• fast casual restaurants

• convenience stores/grocery stores

• eating at home.

The competing options are all as easy and convenient as going to a quick service
restaurant so the threat of these substitute products is very high. There is a lack of differentiation
in the QSR industry and these substitute products allow endless differentiation and can have
higher quality, so these threats are something to be addressed.

These ready to eat meals are popping up in local convenience stores and grocery stores
and are taking away from the QSR industry because the consumers already have other reasons

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for being in these other businesses, so it is becoming more convenient for them to just buy their
food there in the local convenience stores and grocery stores.

There are over a thousand fast-food restaurants in the quick service restaurant industry,
making the competitive rivalry a very strong force. With the industry slowing down its growth,
firms are starting to reach the maturity stage of the industry life cycle. Quick service restaurants
have high fixed costs, meaning they need to sell high volumes to recuperate. Because selling
high volumes is essential to staying a top competitor in the industry, quick service restaurants are
going above and beyond to fight for the cheapest, yet most popular, meal on the market.

Suppliers

Quick Service restaurants depend on their suppliers for almost every component of their
functioning operation. From the food products to something as simple as napkins, a supplier is
used.

The sizeable number of suppliers seriously limits the bargaining power of suppliers.
Usually, suppliers have very weak control over the Quick-Service industry, because there are so
many substitutes that can easily be obtained for the same price.

To combat the fact of buyers having a multitude of choices for suppliers, an individual
supplier is forced to offer incentives to buy from them to stand out from the rest of the crowd.
Incentives can range from:

• Lower Prices

• Faster delivery times

• Flexible credit terms

• Higher quality products

• Volume discounts

The bargaining power of a supplier can largely depend on their consumer base. Suppliers
with few customers will have to negotiate more towards their customer’s demands, whereas a

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supplier with a large customer base can stand to lose a buyer’s account without hurting
financially.

Suppliers with an established brand have more bargaining power than those who sell
generic products. This power increases greatly if the supplier has an established brand with a
great reputation, in which case, the buyer can use the supplier’s brand in their marketing plans to
attract more customers.

Government Regulators

QSR are affected by the government policies on the regulations of fast-food operation.
Currently the government is controlling the marketing of fast-food restaurants because of health
concerns such as cardiovascular and cholesterol issues and obesity among the young and
children in the country. Governments also control the license given for opening the fast-food
restaurant and other business regulations need to follow such as for a franchise business. Good
relationship with the government in giving mutual benefits such as employment and tax is a must
for the company to succeed in any industry. Jollibee, McDonalds, and KFC should also protect
its workers by ensuring all the hiring, compensation, training of all its employees in accordance
with any labor or government law.

Pressure Group

In the Quick Service Restaurant Industry, consumers have a surplus of suppliers to

choose to buy their products from. Because a consumer tends to make up a large portion of the
supplier’s revenue and they can replace suppliers without difficulty, the consumer generally has
a larger advantage. Consumer power can also escalate from increased supplier competition.
Competition between suppliers increases the consumer’s bargaining power because the quick
service restaurants are able to pick and choose, forcing the supplier to offer special deals and
incentives to stand out from other suppliers. Fortunately for consumers, a spike in supplier power
usually does not last long. If the demand for supplies is high enough, other suppliers will enter
the market to serve the target market. Corporations will also search more intensely to purchase,
or even develop, alternatives.

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Investors

Investors represent the second most important asset of a business entity. They should be
treated with uttermost respect to prevent them from defecting from the company. When this
occurs, the share value reduces and it daunts the company image. Jollibee, McDonald’s, and
KFC should inform them of any changes in management and they should maintain consistency in
communication in order to make the investors feel important.

General Public

In the Quick Service Restaurant Industry, buyers have a surplus of suppliers to choose to
buy their products from. Because a buyer tends to make up a large portion of the supplier’s
revenue and they can replace suppliers without difficulty, the buyer generally has a larger
advantage. Buyer power can also escalate from increased supplier competition. Competition
between suppliers increases the buyer’s bargaining power because the quick service restaurants
are able to pick and choose, forcing the supplier to offer special deals and incentives to stand out
from other suppliers. Fortunately for buyers, a spike in supplier power usually does not last long.
If the demand for supplies is high enough, other suppliers will enter the market to serve the target
market. Corporations will also search more intensely to purchase, or even develop, alternatives.

VII. Success Factors

Branding is Big Deal

Jollibee, McDonald's, and KFC are examples of extremely well-known and highly
successful fast-food brands. Their signs, logos and slogans are recognizable around the world.
Fans of fast food like predictability, and they want to know exactly what they are going to get
before they go through the doors. As an example, McDonald's main slogan used for McDonald's
Philippines is "love ko 'to", although it has been in primary use in recent years. The motion logo
of Golden Arches logo flying down from the top and then zooming out. The Golden Arches logo
then shines and the words "love ko 'to" zoom out, leaving a trail.

By providing consistent, easily recognizable and simple branding, a business reassures

customers that nothing has changed. Simple slogans that lodge themselves in the brain are

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repeated endlessly on television and radio commercials, ensuring that when customers see the
fast-food outlet, they are primed to respond because the brand is already "inside" of them.

Geographical Location

Fast food is about convenience, so to be successful a fast-food outlet should be located in

a high-traffic area. Fast food isn't typically considered a destination; customers won't travel into
the countryside for a bag of fries in the same way that they would for a special restaurant
experience. By locating outlets in shopping malls and on busy commercial strips, fast food
companies gain business and impulse purchases from customers who had no preplanned
patronage of the restaurant. High-traffic areas, though commanding proportionally high rents,
also ensure a steady stream of foot or car traffic (or both) passing by your restaurant. As to the
stores of Jollibee, McDonald’s, and KFC, they ensure that its stores and affiliates are
conveniently located.

Quick Service

Fast food that lives up to its name gains more business than fast food that is actually
slow. Many people grab fast food on the way to work or to another destination. The reason that
drive-through windows are popular is that people don't even want to take the time to get out of
the car. Multiple service windows and traffic lanes add assurance that one customer won't tie up
an entire drive-through operation.

The faster a restaurant can provide the ordered food, the happier the customer is. Setting
up efficient and standardized kitchens and focusing on foods that can be cooked quickly are two
of the ways that Jollibee, McDonald's, and KFC became so successful in this competitive
industry, according to Business Week. Restaurants that deliver food off-site should make the
delivery service speedy as well to prevent customer dissatisfaction with long waits.

Marketing

The overall marketing programs and efforts have contributed to the success of Jollibee,
McDonald’s, and KFC from the brand name, logo, the popular mascot, TV commercials and
print ads, to their very own TV show.

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VIII: Insights & Conclusion

The Philippines market provides huge opportunities for the quick service restaurant
industry to witness growth in terms of value sales. Over the past one-decade, Filipino customers
have gradually shifted their diet to fast food and convenience food, specifically in the urban
areas.

Apart from lucrative product offerings that the operators provide as per preference and
requirements of the customers, quick service restaurant operators also consider pricing as an
influential factor that helps drive the overall growth of the segment in terms of value sales.

Filipinos along with their preferable dishes, also consider the prices associated with it.
Hence, the majority of players in the Philippines quick service restaurant market initiate several
pricing strategies such as seasonal discounts, customer loyalty programs, and others. The rise in
the rate of internet penetration in the country, makes way for operators to initiate several key
online marketing programs as online platforms are among the easiest ways to create awareness
about its product offerings among the mainstream customers.

The leading major players are focusing on leveraging opportunities from the emerging
consumer trends, on expanding their service offerings, primarily to cater to the requirements.

Thus, the fast-food industry as a whole is a flourishing sector in the Philippines.

However, health concerns particularly during this pandemic may affect this particular sector. The
increased competition in the industry is also a matter of concern. As it is easier to establish a
fast-food restaurant, the completion has increased considerably, and companies now have to try
harder to retain their existing customers and get new ones, keeping good knowledge of the
micro-environmental factors that are guiding the course of flourishment of this industry. The
individual restaurants have to be well aware of any minor changes in these factors, to adapt to
them as soon as possible to keep in pace with the others.

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