The U.S. food service industry: market structure, trends, and operations

Point Summary 1

Construct food service reports on market size, trends, market segmentation, consumer attitude, and purchasing habits in order to see the impact foodservice has on the economy and possible opportunities in the foodservice industry.

The restaurant industry is roughly $900 Billion. In addition, households in America spend roughly 50% of their food dollars on restaurants. During a normal business cycle, upwards of nearly 20 million people are employed in the food service and restaurant industries. In addition, there are over 1 million food service establishments in the United States. The food service industry is typically divided into two categories commercial and non-commercial food service. A commercial food service establishment is that whose main purpose is creating and selling food and beverage A non-commercial foodservice establishment is embedded in an organization where food and beverage is not the primary business focus, such as in healthcare, education, the military, and transportation. Of these two categories the commercial segment is the most dominant. The segment included various types of service providers which include quick service, food trucks/street food, quick casual, family, casual, themed, casual upscale and upscale/fine dining. Each is unique and requires unique capabilities as it relates to serving them properly through warehousing and logistics.

Typically, purchasing habits are seasonal and therefore must be adjusted months in advance. Weather plays a major role in restaurant operations and as such, many restaurants see increase traffic and revenues during the summer months. Fine dining restaurants typically see increase revenues and food traffic during special occasions, holidays and weekends

Emerging trends within the industry are heavily related to technology and automation. Here many providers in the industry are using technology to better predict consumer demand and restaurant needs. They are also using automation to help streamline operations while also lower overall costs and improve margins. Finally, firms are using technology to help drive efficiencies related to costs and operations overall. The industry is also very diverse with many minorities working within the industry with various social economic statuses.

Point 2 Summary 2

Discuss types of foodservice operations and their characteristics

Food service operations can vary dramatically as it relates to the ability to service the customer, their business models, and their overall capital structure. For example, certain food services operations are franchised such as McDonalds or Burger King. Here, investors and franchisees often take on the operation risk of the business. They often pay for the building, the materials, the rent, the land and supplies. In exchange they can leverage the highly recognizable brand of the franchisor. The franchisor has an asset light model that is not heavily predicated on fixed capital investment. This allows the company to ultimately earn royalties without necessarily having to make large outsized investment. As a result, the franchisor can focus entirely on the marketing, branding and expansion of the overall franchise. This has allowed many operations such as McDonalds, Burger King, Subway, Wing Stop and other chains to quickly grow their food services operations both domestically and internationally.

Other operations without the substantial financial capital as international chains have a very different business model. These operations are predicated a small store footprint that address a particularly market or niche. A common example here is the typical Chinese Food Restaurant. Here, the operations are typically not franchised. Instead, they are run by a family or a sole proprietor. All costs are thus borne by the owner including marketing, materials, supplies, and labor. As a result, margins for this business are much lower than the franchise model.

As result, services to these two segments varies dramatically. Food services to chains are often much more streamlined and easier to forecast and predict on an annual basis. Likewise, larger chains tend to order in bulk with standardized products and services. Smaller establishments such as schools, individual restaurants, or

Describe the impact foodservice has on the economy

The food service industry has a distinct impact on the economy. For one it facilitates the exchange of food and dining products around the world. It also lowers the overall costs of food services through the use of economies of scale. These lower costs ultimately allow more consumers to be serviced.

Compare delivery and service styles and standards for food and beverage service

Delivery and service styles change depending on the target market. Food and beverage services for QSRs for example are predicated on speed, efficiency and value. Here, many of the product offerings are low cost in nature. The food is not of premium quality, but the service is quick with little variability. For example, McDonalds have very little variability in the taste of its food irrespective of the restaurant’s location. On the opposite end of the spectrum, luxury establishments are much more variable, but the overall quality of the food and beverage offering is much higher. Here, consumers are expected to wait much longer as their food is being prepared. Service quality is also much higher as waiters are much more attentive to consumer needs. In exchange for this higher food and beverage quality, consumers are expected to pay premium prices.

Demonstrate service styles to various types of restaurants

Service styles vary depending on the type of restaurant a consumer enters. QSRs offer minimal service that is designed to be quick and efficient. Luxury providers are much more attentive to customer needs and therefore have longer wait times and higher quality food. Quick casual restaurants have a combination of the two with higher customer service and speed of delivery.

Examine the effect a menu and quality assurance can have on service style

A menu and quality assurance can have a direct impact on the service offering of the firm. For one, a menu with fewer options of easy to make products typically has lower issues with quality assurance. However, a menu with large amounts of variety and difficult to make options, will have much larger issues with quality assurance. As a result, the service styles will vary with each offering. The establishment with a large menu offering will typically require customers to wait longer as meals are being prepared. The restaurant offering fewer options, can therefore generate much more efficiencies with the product offering and therefore offer much more quickly.

Point 4 Summary 4

Analyze Market reports and consumer purchasing in the hospitality industry

The food service industry is very dominant within the hospitality sector. There are overall 53,000 lodging establishments currently in the United States. Consumers in the hospitality sector tend to spend heavily on food purchases and are less price sensitive. Typically, consumers on vacation stay at lodging establishments are looking to spend money on differentiated food service offerings. They are also much more likely to pay higher prices for a better overall ambiance and experience.

Apply Customer Buying as it follows industry trends and growth

Customer buying trends are roughly in line with overall economic GDP growth. The overall industry growth roughly 2% to 4% per year. Consumers currently, due to COVDI-19 pandemic have very high savings rates. This has created a lot of pent up demand for restaurant products goods and services. As such, industry trends point to a large increase in restaurant and overall hospitality spending in late 2021 and into 2022.

Identify consumer purchasing specific to your market

Within my market, consumer purchasing is still somewhere muted due to COVID-19 restrictions. Consumers are still hesitant to attend large gathering which as a result has slowed revenue growth in the restaurant sector.

Point 5 Summary 5

Describe the feasibility of a concept in a specific market

The feasibility of a concept in a specific market is predicated on various factors within the market. These factors include population size, discretionary income, weather, number of food service establishments in the market, consumer habits, competition and more. The feasibility should be based on a conservative assumption related to market share and costs to enter the market. The feasibility analysis must also recognize the source of funds, through either equity or debt capital that can be deployed into the market. This variable will determine how much investment will be required to make inroads within the specific market. For example, Miami has roughly 500,000 people within the city. The average income of residents in the city is roughly $70,000 which is well above the nation average. The cost of living is very high and consumers tend to spend heavily on dining services. There are large number of restaurants in all 8 industry segments discussed above. As a result, the city of Miami would warrant further investigation as to the feasibility of starting a food service distribution operation.

Identify the financial operations of a restaurant

The financial operations of a restaurant primary consist of fixed and variable costs. The variable costs include elements that change based on business activity. Variable costs in a restaurant include labor, maintenance, food supplies, food, and utilities. Fixed costs are costs that are incurred irrespective of business activity. These costs include aspects such as rent or mortgage payments, salaries, license fees, insurance premiums and so forth. Depending on the restaurant their will be a higher or lower mix of fixed and variable costs. Restaurants use their labor to provide food products to paying customers. The revenue is typically used to cover costs with the remainder being profit left to the owners.

Interpret operational reports to ensure successful operations of your restaurant

Successful operations should first have little to no debt or leverage. The operations of the business should be easily able to service the debt under any economic conditions. In addition, successful operations should have strong accounting and cost controls to lower the chance of escalating cost in the business. For QSRs successful operations must also evaluate the speed and efficiency of operations to a certain standard. For example, McDonalds looks to service the customer in under 4 minutes. Through strict controls successful operations adhere to their standards.

Point 6 Summary 6

Explain the organizational model for s successful restaurant

As noted above the organization model for successful restaurants are primarily flat with little bureaucracy within the organization. This is critical as the needs of consumers can change rather dramatically in the restaurant business. In addition, as noted by COVID-19, unexpected events can occur that undermine the entire industry. In these circumstances business must be nimble enough to course correct their activities to mitigate the impact of external factors on their organizational model. Likewise, successful restaurants empower their owner/operators to make quick decisions regarding business operations.

Demonstrate control systems in restaurant and food services operations

Cost controls are essential to business operations as margins are often very thin. This is particularly true for the QSR segment with the average ticket price being $8.00. As result, businesses must have tight cost controls in order to better compete. For many businesses within the QSR segment, many compete based entirely on price and value. Therefore, costs must be contained to properly mitigate any rises in price. From a food service and distribution perspective, costs must also be maintained as this industry is heavily fixed cost oriented. Due to the nature of these fixed costs, control systems must be in place to properly monitor costs. For example, distribution expenses such as gas, truck maintenance, travel times, tolls, and so forth in order to properly price the product offering overall.

Examine effective communication tools and effective expectations for managers

Effective communication tools will be based on efficiencies and concise communication. As the food service industry is an amalgamation of various components which include logistics, warehousing, and distribution, properly communication tools based on technology are needed. These tools such as Asana, Slack, Microsoft Team, and Ring central all help various department to communicate with each other in a timely and efficient manner. Technology also allows providers within the industry to take action much more efficient through collaboration.

Manager expectations should be transparent and based on clearly defined outcomes. These expectations should also be measurable as to avoid biases during the evaluation process of management.

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