Since the recession of 2008, the quick service restaurant (QSR) industry has been embattled with reducing revenues as a result of high unemployment, low wages and changing customer demands. However, their scale and brand power has allowed them to make significant business model changes to maintain and grow their market share. Innovation in this sector is the foundation of understanding the key changes that are necessary for long term sustainability.
Yum Brands, Starbucks and McDonald’s are a few of the top innovators that have used market research to make significant changes in their business models and product lines and have emerged as trendsetters. The innovative companies are changing the way consumers interact with their food with other companies quickly following suit in order to remain competitive.
Fast food franchise group with brands such as Taco Bell, KFC, and Pizza Hut
Quick service coffeehouse with quick service food options
Fast food restaurant group with a significant franchise base
1. Yum Brands
“I view our 37,000 restaurants—in 100 countries—as laboratories where we can experiment, learn, and share best practices on a global scale,” says CEO David Novak.
Yum Brands is one of the largest fast food restaurant parent companies that operate in five segments as Yum China, Yum India, KFC division, Pizza Hut division and Taco Bell division. Operating more than 42,000 stores in 130 countries as of 2015, it is ranked no. 239 on the Fortune 500 list according to QSR Magazine.
With a business model that includes an aggressive international expansion plan, Yum has opened more than 2,000 restaurants outside of the United States for the past two years according to their annual report.
In 2015, the China division, Yum China, was separated into an independent publically traded company. This became China’s largest independent restaurant company according to Yum Brands’ annual report. The Chinese market represents 3 times as many consumers as the American market. Therefore, separating the Yum China division that focuses solely on the Chinese consumer is innovative and crucial to the long-term sustainability of the brands.
Innovations in their product line have also reaped rewards. KFC launched a Kentucky Grilled Chicken product line directly appealing to the growing health conscience consumers of both Generation X and Millennials. This is an impressive feat that has modernized the traditional view of the KFC brand.
With approximately 505,000 employees, Yum’s strategy has resulted in more than $11billion in sales every year since 2012. Future growth will come from the additional 2,400 global restaurant openings in 2016.
Future challenges facing Yum include food safety, food shortages as well as commodity and labor cost management for international businesses. Additionally, there are inherent risks associated with the new launch of Chinese operation. These risks include economic conditions, consumer preference, US-China political relations, as well as local taxation and regulation.
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“We want to give everyone – regardless of the time they have at their disposal or the cooking skills they possess – an opportunity to discover the pleasure of cooking healthy, tasty meals from scratch”– Jamie Oliver.
Founded in 1972, Seattle-headquarted Starbucks Corporation is the fourth largest coffee retail chain in terms of sales volume and number of stores. With more than 8million customers served daily in 70 countries, Starbucks is innovative in their commodity sourcing practices, supply chain management, product strategies and overall store experience.
Starbucks overall business model includes a sustainable supply chain commitment. According to Sustainalytics, one of the many innovative strategies includes issuing a sustainability bond that allows the company to enhance its sustainability programs throughout the coffee supply chain. They typically invest in coffee farmers and their communities and also include implementing standards of quality as well as social and environmental responsibility.
Starbucks has also launched a new individual serve instant coffee line, Via. With no other retail competitors for this product, it was an innovative strategy places Starbucks in a new coffee market directly competing with companies such as Folger’s as opposed to merely other coffeehouses.
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3. McDonald’s Corporation
“There is some passion around how can we help serve the best burger possible, but still with a speed of McDonald’s and a value of McDonald’s,” Mr. Easterbrook said June 1
Founded in 1940, McDonald’s as more than 36,000 locations worldwide in 119 countries. Almost 7,000 locations are corporate owner with remainder being franchised.
The franchise-based business model has allowed McDonald’s to be flexible, innovative and stand the test of time with over 70 years in business. Their innovations have appealed to changing demographics as well as different culture conditions. For example, McDonald’s has made significant menu changes as a result of rising health consciousness. New soup and salad menus appeal for calorie conscious and vegetarian consumers. Additionally, they have added beer to menus in Germany and McRice to menus in Indonesia to appeal to varying cultural preferences. McCafe was another innovation that allowed McDonald’s to compete directly with Starbucks in the breakfast sector.
These innovations have translated in corporate returns and profitability with more than $77billion in annual sales.
Although McDonald’s sees great returns, these returns have been declining over time. New CEO Easterbrook believes that McDonald’s is, in fact, not responding to change fast enough. Challenges for this company include stagnant growth in the United States and European markets as a result of market saturation and rapidly changing consumer trends. Growth for this company is expected in international sectors with China and the Asian Pacific forecasting the greatest opportunities.
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