SKINNY BURGER
Business Plan
This business plan outlines the Skinny Burger concept, operating assumptions, target market, and initiation strategy.
James Andrews
James@Andrews.com
Contents
Executive Summary .................................................................................................................................... 3
Fast Casual Restaurants ........................................................................................................................ 4
Financial Highlights................................................................................................................................. 4
Mission.......................................................................................................................................................... 5
Keys to Success .......................................................................................................................................... 5
The Company .............................................................................................................................................. 7
Ownership & Establishment .................................................................................................................. 7
Operations ............................................................................................................................................... 7
Staffing Plan ............................................................................................................................................ 8
Start-Up Requirements ............................................................................................................................ 10
Start-up Assets ...................................................................................................................................... 10
Start-up Expenses................................................................................................................................. 10
The Skinny Burger Offering..................................................................................................................... 11
Marketing ................................................................................................................................................... 12
Menu ....................................................................................................................................................... 13
Market Analysis ......................................................................................................................................... 14
Austin Market ........................................................................................................................................ 14
Austin Demographic Segmentation.................................................................................................... 16
Competition ........................................................................................................................................... 16
Quick Service Restaurant Data ........................................................................................................... 18
Texas Restaurant Industry Projections ............................................................................................. 18
QSR Macro Level Market Analysis ...................................................................................................... 19
Key External Drivers ......................................................................................................................... 20
Current Industry Performance ........................................................................................................ 21
Fast Casual & the Health Conscious Consumer ........................................................................... 21
Consolidation & Profit....................................................................................................................... 22
Industry Outlook ............................................................................................................................... 23
New Ways to Expand ....................................................................................................................... 23
Establishment & Employment ......................................................................................................... 24
Industry Performance ...................................................................................................................... 24
Industry Lifecycle.............................................................................................................................. 25
Products & Markets .......................................................................................................................... 26
DEMAND DETERMINANTS ............................................................................................................... 27
BUSINESS LOCATIONS .................................................................................................................... 29
Competitive Landscape .................................................................................................................... 30
SWOT Analysis .......................................................................................................................................... 34
Strengths................................................................................................................................................ 34
Weaknesses ........................................................................................................................................... 34
Opportunities ......................................................................................................................................... 35
Threats ................................................................................................................................................... 35
Exit Strategy .............................................................................................................................................. 35
Financial Plan ............................................................................................................................................ 35
Assumptions .......................................................................................................................................... 36
Start-Up Funding .................................................................................................................................. 37
Sales Summary ..................................................................................................................................... 37
Income Statement (Monthly, Year 1) ................................................................................................ 38
Income Statement (Annual)................................................................................................................ 39
Cash Flow............................................................................................................................................... 40
Balance Sheet ........................................................................................................................................ 41
Break-Even Analysis ............................................................................................................................. 42
Sensitivities ............................................................................................................................................ 43
Executive Summary
It’s Quick
It’s Convenient
It’s Inexpensive
It Tastes Good
These are a few reasons why people enjoy quick service restaurant choices. It seems that we all eat fast
food. At least one quarter of American adults consumes fast food every day, and one out of every eight
adults has worked at one at some time during his or her lives. Food away from home is a large and growing
component of U.S. food expenditure. The quick service industry’s long term growth trajectory is projected
to continue for the foreseeable future, with markets such as Austin, Texas leading the way.
Quick Service Restaurant Magazine lists Austin as “the next frontier”,
and #5 market nationwide in its growth projections.1
Skinny Burger endeavors to bring to the Austin market a quick service restaurant brand focused on service,
quality and taste of food, and a healthier alternative to traditional fast food at a value price. In this regard,
the company will focus on the following areas:





Quality, healthier ingredients and cooking methods
Overall value of food, brand image, and visibility
Service differentiation
Competitive pricing
Taste
With a vibrant and growing economy, a legacy of cuisine and innovation in dining and food service, and a
demographic supportive of dynamic quick service growth, Austin presents a supreme opportunity for the
launch of the Skinny Burger Brand.
The fast food industry has experienced significant challenges in delivering healthier alternatives to its
traditional menus. Given consumer tolerance for higher price points in purchasing quality products and
recent trends toward healthier alternatives, Skinny Burger identifies this as a currently unfulfilled niche
with significant exploitable opportunity. There are a select few firms (such as Energy Kitchen2) that have
positioned themselves in this market, demonstrating viability. The overall concept is still new and there
is room for market penetration and growth.
Excellent food consistently served markets itself
Our firm belief is that excellent food consistently served markets itself. We anticipate an exponential
effect resulting from outstanding personalized service and healthier menu choices. The amount of
1
2
The Growth 40; Quick Service Restaurant Magazine
An Overview of Different Restaurant Types; FoodServiceWarehouse.com
3
average food served in restaurants in the US is staggering. For this reason, a well-designed and executed
menu based on a food quality and value approach will succeed.
Fast Casual Restaurants
Fast-casual dining is a relatively new term for a restaurant that falls between full-service and quick-service.
Also called quick-casual and limited-service, fast-casual restaurants are typically distinguished by service
type and food quality. Fast-casual restaurants are often perceived to offer better quality food and a more
upscale dining area than quick-service restaurants, but with less expensive menu items than full-service
restaurants.
Fast food chains have been jumping on the healthy food bandwagon with varying success for some time
now. Enhancing their menus with foods featuring lower fat, lower cholesterol, and lower sodium, the idea
is to bolster sales and invite a new demographic into their restaurants. Fast food meals have come a long
way from hamburgers. The new wrap concept is also considered fast food and is the newest concept in
the fast food business.
The surprisingly upscale demographics of fast food restaurants may also help explain the success of fast
food chains like Chipotle, Starbucks, Panera Bread, Cosi, Noodles & Company, and Five Guys over the past
few years. These restaurants offer much of the convenience of fast food, with slightly higher prices and
significantly better food than their competitors.
Fast-casual establishments try to settle within the $7 to $10 range, and usually specialize a few menu
items or combination menu items, such as an overstuffed burrito for $7 or a sandwich, side and drink for
under $10. Guests will often walk up to a service counter where they will choose menu items from a
menu board and place their orders with a cashier. The guests may also choose their food first, perhaps
walking along an assembly line for their sandwich or burrito, and then pay when they receive the food.
Like quick-service, speed and convenience are important aspects of fast-casual restaurant concepts,
although fast-casual restaurants arguably demonstrate better quality food and service than fast-casual
restaurants.
It is important to note that Skinny Burger will not be positioned solely in the Fast Casual niche. The
company will be a Quick Service restaurant that benefits from speed of service but also capitalizes on the
atmosphere, quality of food, and price points inherent to the in demand and growing Fast Casual niche.
Financial Highlights
The chart below represents Skinny Burger’s financial highlights. As expected in a growing enterprise,
Profit is reinvested and the company’s assets grow.
Objectives
 1 profitable location after 12 months (proven concept, in a position to open more stores in year 2-3)
 Years 3-5 continued corporate expansion dependent upon cash flow

By year 3, have a widely established presence as a recognized fast casual restaurant and gain market
share in Austin, Texas. Realization of local awareness and concept visibility, company reputation, and
a loyal niche market customer base to support continued operations and expansion
Mission
Skinny Burger endeavors to bring to the Austin market a quick service restaurant brand focused on
service, quality and taste of food, and a healthier alternative to traditional fast food at a value price
Skinny Burger, Years 1-5
Excellent food consistently served markets itself
Keys to Success
The following aspects that will have great influence upon success/failure

Effectively developing a brand image synonymous with a healthier fast food alternative: To
capitalize on the fast food industry’s inability to deliver healthier menu choices to a modern market
that demands such products, it is imperative that Skinny Burger successfully position itself in this
manner

Business expertise of ownership & management: Business expertise is required as this industry has
high turnover but low margins; thus, losses are easily made

Having a clear market position: Clear market positioning gives ownership & management a
competitive advantage over alternatives

Access to multi-skilled and flexible workforce: Industry operators need access to a good supply of
skilled, casual workers to meet peak service demand periods

Marketing: An intensely local focus is the key to successful marketing in the restaurant industry,
and going deep and understanding consumers at the trade area level is absolutely necessary

Potential to franchise future operations: Franchising both in the United States and overseas is
now a significant component of this industry and can provide necessary support to owners

Location & Visibility: A main value driver of quick service restaurants is convenience. Having highprofile, high visibility locations for stores, with easy access, parking and drive-through services,
increases convenience for customers. To be successful, Skinny Burger establishments will seek
high traffic, high visibility locations. Generally, quick-service restaurants aren’t considered a
destination, rather a quick pit stop. As such, the initial Skinny Burger location is especially critical
to receive ‘convenience’ traffic as the brand’s reputation and following grows in the Austin area

Service differentiation: There is an overall combination of speed, order
accuracy, customer service/personal interaction, and service pace that
leaves a customer with a positive feeling about their experience. Skinny
Burger will focus on the following key areas to ensure quality yet quick
transactions occur
- Customer Service/ Retention
- Speed: Speed of service will have an impact upon the company’s
success. As a fast casual establishment, service times are longer
- Reliability, professionalism, accuracy

Efficiency: Because fast food and quick service restaurants run on thin
profit margins and make money by sales volume, functioning efficiently
is critical. This means minimizing food waste, effectively managing labor
and salaries, and benefiting from economies of scale when purchasing
supplies. Every dollar that is unnecessarily spent on operations is a
dollar subtracted from profits. Because of high employee turnover in the
industry, training regimens for new employees need to be standardized,
rapid and effective

Overall value of food and brand image:
- Competitive pricing – Price is a key driver in consumer value judgments.
Because Skinny Burger will serve higher quality food and a healthier alternative to traditional fast
food, offer a clean and relaxed dining experience, and leverage a brand image synonymous with
quality and taste, the company will be able to succeed at price points higher than large scale quick
-

service establishments. Still, Skinny Burger’s objective is to establish an overall image of value, so
the company will structure menu pricing accordingly
Taste – Skinny Burger’s healthier and delicious menu will offer unique selections made with the
highest quality ingredients, delivering great taste. Delivering food of unparalleled taste and
quality in the quick service sector will ensure visibility, and the healthier menu justifies customers’
frequent return visits
Visibility: Branding, recognition of signs, name, logo, and products. Through consistent, easily
recognizable, and simple branding, customers will be reassured that they will receive the taste and
overall value synonymous with the Skinny Burger name
The Company
Ownership & Establishment
Upon establishment, Skinny Burger LLC will be owned by James Andrews. A 25% stake will be offered
for $250,000 to investors yet to be identified.
James Andrews has significant depth of experience in early-stage investing and operations, corporate
finance and law, and corporate strategy and development for companies from early-stage to mature,
public entities. James was a founding member of Awesomedesign.com and founded, built, grew and sold
Prudence Residential Mortgage from 2001-2006. James has a B.A. in Economics from San Diego State
Univeristy and a J.D. from Georgetown Law School.
Operations
Skinny Burger’s niche will clearly be defined as healthier quick service, benefiting from attributes of both
fast food and fast casual. Our menu will consist of burgers made from fresh lean beef, tasty wraps, crisp
salads, air baked chicken and fries, smoothies, complimented by Excellent and friendly customer service
to support the ambience of fun, energetic, and healthy lifestyle.
Skinny Burger will offer breakfast choices beginning at 5:30am and dinner choices until 10:30pm. All
Skinny Burger locations will possess a drive through window. Many fast casual establishments do not
offer drive through service, and this feature could prove financially beneficial and a differentiative point
for revenue generation. With the realization that often more than 50% of an operation’s revenues are
earned through drive through service, Skinny Burger will explore new ways to receive additional efficiency
and volume through drive through operation. This includes dedicated parking spaces adjacent to the drive
through to minimize periods of constraint.
Two in store registers will serve dine-in customers, who will enjoy their meal in a clean and relaxing dining
room.
Skinny Burger will offer not just a great grass fed beef burger, we will offer a quick lower calorie meal,
prepared fresh and packed with flavor in every savory bite.
Staffing Plan
Each Skinny Burger restaurant will employ the following positions: Manager, Shift Supervisor, Morning
Prep, Cashier/Front Line, Flex, Cook/Prep/Back Line. The duties associated with each position are
detailed in the below table.
Employee
Responsibility
Manager
Manages overall store operation, staffing, scheduling, inventory levels,
finances & reports, etc.
Shift Supervisor
Oversees staff during shift operation. Responsible for efficient operation,
financial reports, reconciliation, scheduling, and filling in positions as needed.
Cashier / Front Line
Accepts orders, presents food, and provides top tier customer service.
Responsible for accuracy of orders, financial transaction, cleanliness of
customer order areas, dining areas, drive through.
Cook/Prep/Back Line
Conducts all activities associated with food preparation. Ensures adequate
inventory staged prior to shift, preps food, maintains cleanliness of food
preparation areas.
Flex
Trained in multiple positions, fills any needed position dependent upon
operation.
Morning Prep
Conducts morning preparation of product based on anticipated daily volume,
etc. If needed, fills in during peak lunch hour.
The following schedule details hours worked by employee type.
9
Start-Up Requirements
Start-up Assets
Start-up Expenses
10
The Skinny Burger Offering
Fast food meals have come a long way from hamburgers. Fast food chains have been jumping on the
healthy food bandwagon with varying success for some time now. Enhancing their menus with foods
featuring lower fat, lower cholesterol, and lower sodium, the idea is to bolster sales and invite a new
demographic into their restaurants. Many chains have introduced new healthier food alternatives to
expand their current product lines. Skinny Burger will seek market share through an expanded menu and
by offering healthier menu alternatives, such as lean burgers, chicken, wraps, and fresh salads.
The most visible change in fast food restaurants has been the addition of salads, such as Wendy's Garden
Sensations line. Wendy's also carries a line of baked potato menu items with various toppings.
McDonald's, which added salads featuring Newman’s Own dressings, markets a Fruit and Yogurt Parfait
that contains strawberries, blueberries, yogurt, and granola. In all these cases, sales have been strong.
These establishment still fall in the fast food category, and surprisingly many of these choices are still high
in calories and fats.
Other menu alternatives include non-genetically engineered meats and cheeses, ground turkey or
chicken, and fresh lean beef in burgers. Whole grain breads and omega-3-fortified eggs will also be a part
of the Skinny Burger menu. The ingredients will be pricier, but the quality will support a higher price
point. Additionally, many surveys indicate that when people decide to eat at a fast food restaurant, a
healthier menu is more of a determinant than the prices.
Opportunities exist for operators able to design low-fat and low-calorie options. An article in Nutrition
Business Journal reported total sales of healthy foods at approximately 25% percent of total food sales,
roughly double the numbers from a decade earlier.
However, simply labeling something as healthy is not a sure path to strong sales,
as McDonald’s discovered with the McLean burger.
This is why developing a brand synonymous with healthier quick cuisine is imperative. Branding,
recognition of signs, name, logo, and products is of vital importance. Through consistent, easily
recognizable, and simple branding, customers will be reassured that they will receive the taste and overall
value synonymous with the Skinny Burger name. Skinny Burger’s niche will clearly be defined as healthier
fast-casual.
More than half of U.S. consumers say that they like the trend toward healthier fast food. This represents
opportunity for Skinny Burger.
The surprisingly upscale demographics of fast food restaurants may also help explain the success of fast
food chains like Chipotle, Starbucks, Panera Bread, Cosi, Noodles & Company, and Five Guys over the past
few years. These restaurants offer much of the convenience of fast food, with slightly higher prices and
significantly better food than their competitors3. Given the increasing health consciousness of the
consumer, the Skinny Burger menu will position the company to benefit from the increasing demand for
healthier quick service food in an upwardly moving industry in one of the top industry locales in America.
3
Fast Food: Middle Class Indulges… Huffington Post
11
Marketing
The Skinny Burger philosophy is simple:
Excellent food consistently served markets itself
This is evidenced by the explosive growth of Five Guys, a burger-and-fries chain that became a national
name solely by quality of food and word of mouth. Mary McLeese, Five Guys brand manager states “We
advise our franchisees not to advertise. If you concentrate on the customers and concentrate on the food,
it will grow naturally.”
Skinny Burger will ensure quality food at value prices, and will establish itself in a healthier niche while
focusing on the fundamentals; customer focus and commitment to quality.
Additionally, Skinny Burger will explore various methods of marketing, to include print, internet, coupons,
samples, and “going green”. The first marketing method pursued will be through the use of social media.
The recent social media revolution has rendered this marketing source a premier venue to raise awareness
and drive traffic at minimal to moderate costs.
When site development is nearing its conclusion, a Skinny Burger Facebook fan page will be created to
begin branding efforts, outlining the concept, ideas, etc. and providing additional information. To ensure
widespread visibility, an .html coded landing page will be developed, requiring the user to click ‘Like’ prior
to viewing site content. This makes the user’s activity available to all network friends, and ensures Skinny
Burger content updates and news appears in this user’s activity stream.
Concurrently with the Facebook page development, a video commercial effort will commence.
Advertisements will be placed on Facebook, Craigslist.com and other local print media sources presenting
individuals with the opportunity to enter a contest to appear in a commercial. In order to enter, the
contestant will be required to click ‘Like’ on the Skinny Burger Facebook Fan Page, and will then be
directed to a contest entry link on the Fan Page. Additional contests, coupons, giveaways, etc. will be
delivered through the use of social media to increase consumer awareness.
The company anticipates coupon marketing campaigns, fliers on windshields, doorhangers, paper inserts,
etc to drive traffic in the early months of operation. Front-Line employees will be trained on suggestive
selling to increase ticket size. Suggestive sales targets / competitions / bonus structures will be explored
as a way to develop healthy internal competition.
Skinny Burger will also offer samples and coupons at public events. One of the most efficient and cheap
ways to get a customer interested in a product is to hand them a sample. Food generates warm feelings
toward a brand, and it gets customers hungry for more.
Additionally, the company will explore the possibility of using recyclable carry-out containers and recycled
paper products in an effort to support a responsible brand image and obtain the business of
environmentally aware consumers. The trend in fast food, as in most other retail and restaurant
operations, is to “go green.” If this concept proves feasible, the company will post “green” information
online as part of branding and on the company’s social media platforms. Signage will be created in the
restaurant that demonstrates eco-friendliness.
Menu
Our menu will consist of burgers made from fresh lean beef, tasty wraps, crisp salads, air baked chicken
and fries, smoothies, etc.
Breakfast
$3.99
Breakfast Burrito
Egg whites, low-fat cheddar cheese, tomatoes, chili flakes, salsa, avocado, whole wheat tortilla
$3.99
Egg Sandwich
Egg white paddy, low-fat cheddar cheese, whole wheat toast; option for turkey bacon (+.79)
$3.99
Breakfast Tacos
Egg whites, low-fat cheddar cheese, tomatoes, lettuce, avocado
Lunch/Dinner
$5.49
Lean Beef Burger
$5.99
Buffalo Burger
$5.49
Turkey Burger
$5.79
Veggie Burger
$5.29
Chicken Sandwich
$6.29
Turkey and Avocado Wrap
$6.49
$6.99
$7.49
Crispy Chicken Wrap
House Salad
Crispy Chicken Salad
1/3 lb. 90% lean beef burger, whole wheat bun*, lettuce, tomato, onion, ketchup, light olive oil
mayo; option for low-fat cheese (+.49)
Lean buffalo burger, whole wheat bun, lettuce, tomato, onion, ketchup, light olive mayo; option for
low-fat cheese (+.49)
100% white meat lean turkey burger, whole wheat bun, lettuce, tomato, light creamy pepper ranch
sauce; option for low-fat cheese (+.49)
Veggie burger, whole wheat bun, lettuce, tomato, light creamy pepper ranch; option for low-fat
cheese (+.49)
Chicken breast, whole wheat bun, lettuce, tomato, honey mustard
Lean turkey meat, avocado, lettuce, tomato, onion, light creamy pepper ranch, whole wheat
wrap**
Airbaked chicken strips, lettuce, tomato, onion, light creamy pepper ranch, whole wheat wrap
Fresh mixed greens, carrots, tomatoes ,red onions, red wine vinaigrette
Fresh mixed greens, airbaked chicken strips, tomatoes, red wine vinaigrette
$2.49
Airbaked French Fries
Large
$1.99
Airbaked French Fries
Regular
$2.49
Airbaked Sweet Potato Fries
Large
$1.99
Airbaked Sweet Potato Fries
Regular
Kids Menu
$3.99
$3.99
Kids Chicken Strips
Kids Grilled Hot Dog
$3.99
Kids Lean Burger
Airbaked chicken strips
Lean beef hot dog, whole wheat bun, ketchup, mustard, relish
¼ lb 90% lean beef burger, whole wheat bun, lettuce, tomato, onion, ketchup, light olive oil mayo,
option for cheese (+.49)
Beverages
$3.49
$3.49
$3.49
Shake, Chocolate/Vanilla
Strawberry Banana Smoothie
Fruit Smoothie
Low-fat ice cream, low-fat chocolate syrup, low-fat milk
Fresh strawberries, banana, non-fat milk
Apples, blueberries, mango sorbet, non-fat milk
$1.99
$1.79
$1.49
Fountain Drinks & Iced tea, Large
Fountain Drinks & Iced tea, Regular
Bottled Water, Large
Apples, blueberries, mango sorbet, non-fat milk
$0.99
Bottled Water, Regular
$1.99
Juice
$2.49
$1.99
$1.79
Juice, Premium
Coffee, Large
Coffee, Regular
Make Anything a Combo!
$2.49
Make anything a combo! Add Regular Airbaked Fries & Regular Fountain Drink
*regular white bun or multi-grain also available **regular flour wrap also available*
Market Analysis
It’s Quick
It’s Convenient
It’s Inexpensive
It Tastes Good
These are a few reasons why people enjoy quick service restaurant choices. It seems that we all eat fast
food. At least one quarter of American adults consumes fast food every day, and one out of every eight
adults has worked at one at some time during his or her lives. Food away from home is a large and
growing component of U.S. food expenditure. The quick service industry’s long term growth trajectory
is projected to continue for the foreseeable future, with markets such as Austin, Texas leading the way.
Austin Market
Austin, TX; a leading local market for frequent
fast food patronage4.
According to leading market research firm Scarborough
Research, the average adult visits a quick service restaurant
such as McDonald’s or Subway 5.2 times in a given month.
Birmingham AL, Louisville KY, and Austin TX represent the
three leading markets for frequent fast food patronage,
followed by Memphis, TN and Raleigh, NC.
“An intensely local focus is the key to successful marketing in
the restaurant industry, and going deep and understanding
consumers at the trade area level is absolutely necessary,”
said Karla Horton, manager, advertiser marketing services,
Scarborough Research.
“Through an understanding of
lifestyles, media patterns and shopping habits of consumers
on this local market level, owners and operators can create
better, locally-focused campaigns to drive store traffic.”
4
Top Local Markets for Fast Food Patronage; Scarborough Research
Quick Service Restaurant Magazine lists Austin as “the next frontier”, and #5
market nationwide in its growth projections. 5
In population growth over the last decade, Austin trails only Las Vegas and
Raleigh, North Carolina. The Austin area added more than 466,000 residents
from 2000 to 2010, a 37 percent increase, to propel its overall population tally
to 1.7 million. Employment, meanwhile, jumped nearly 14 percent6.
Austin also claims the fourth-best average transaction size according to
American Express Business Insights’ data. Its healthy consumer economy is
driven by a number of factors, including a strong Gen Y presence and corporate
growth. Home to the 51,000-student University of Texas, Austin has a lively
landscape that includes a robust entrepreneurial and start-up culture bolstered
by an increasing corporate base.
“The Austin region has a strong ecosystem to support the growth of a range of
industry sectors, including quick-service brands,” says David Porter, senior vice
president of economic development for the Austin Chamber of Commerce. “Our
success in attracting jobs to the region supports the growth of industry sectors
that serve a growing employee base.”
With a long history of proactive development rather than awaiting calls from
prospective franchisees, and many new and popular chains trace their roots to
Texas. Austin’s a dynamic, rapidly growing local economy and restaurant market
presents a favorable operating environment for the Skinny Burger brand.
5
6
Quick Service Restaurant Magazine; The Growth 40
Quick Service Restaurant Magazine; The Growth 40
Austin Demographic Segmentation
As of the census of 2010, there were 790,390 people,
324,892 households, and 168,582 families residing in
the city. The population density was 2,590.92 people
per square mile. 26% of households had children
under the age of 18 living with them. The average
household size was 2.37 and the average family size
was 3.16. The city’s population was represented by
the following age groups: 26% under the age of 20,
22.2% from 20-29, 30.7% from 30-49, and 21.6%
aged 50 and over7.
The median income for a household in the city was
$57,762, and the median income for a family was
$64,293. The per capita income for the city was
$27,915. About 10.5% of families and 14.3% of the
population were below the poverty line, including
19.6% of those under age 18 and 9.4% of those age 65 or over. The median house price was $186,200 in
2010, and it has continued its upward trend since 20048.
Competition
The following restaurants represent Skinny Burger’s market competition. They are a mix of local, regional,
and national establishments. The common theme of all of these restaurants is superior quality at an
affordable price.
P. Terry’s
P. Terrys is a fresh all natural burger establishment set on changing the way things are cooked, delivering
top notch customer service, and treating employees well. The company delivers quality food at
reasonable prices, and has developed quite a following in the Austin area9.
Mighty Fine
Mighty Fine Burgers, Fries, & Shakes began in Austin in 2007. With award winning quality, the company
is focused on becoming world famous, one guest at a time. Mighty Fine’s philosophy is to enhance service
and food quality through simple, focused, and delicious menu choices10.
Hopdoddy
Hopdoddy was created to express the perfect union of burgers and beer: Handcrafted Beer (Hop) +
(Doddy), the nickname given to the native cow in Aberdeen, Scotland. Hopdoddy endeavors to deliver the
7
AustinTexas.gov
US Census Bureau
9 PTerrys.com
10 MightyFineburgers.com
8
freshest available, all-natural ingredients. Hormone/antibiotic free black angus beef is ground daily to
make fresh burgers along with homemade buns and hand cut fries11.
Smashburger
Smashburger is a fast casual restaurant that aims to be every city’s favorite place for burgers. This
establishment offers great tasting cooked to order burgers, tender chicken, signature sides, and handspun
shakes12.
Hat Creek Burger
Hat Creek Burger is a local chain keeps it simple with a straightforward menu focusing on quality and
bringing people together. Burgers come in three varieties — Premium Gold Angus, turkey and vegetarian
grain patty — all on a freshly-baked bun13.
Whataburger
This burger chain originated in Texas and now offers a full menu including atheHoney BBQ Chicken Strip
Sandwich, the A.1. Thick and Hearty Burger, Patty Melt, and the Peppercorn Ranch Whatachick'n14.
Zoës Kitchen
Mediterranean-inspired Zoë’s Kitchen offers a fresh and healthy approach to fast-casual dining that leaves
the stereotypical gyro and dolma menu item by the wayside, instead offering a flavorful selection of
grilled-to-order kabobs, sandwiches and pitas along with sizable salads and sides brimming with fresh
fruits and veggies15.
Torchy’s Tacos
Torchy’s Tacos originated in Austin as a small food trailer at Bouldin and South First Street. The bold flavors
from the ever-evolving list of tacos from Torchy’s have transitioned this former food truck into a total of
20 brick-and-mortar locations across the state16.
Chipotle
Chipotle Mexican Grill is one of the first large scale fast casual dining establishments, specializing in
burritos and tacos. The restaurant is known for its large burritos, assembly-line production, and use of
natural ingredients. The company has released a mission statement called Food with Integrity, which
highlights its efforts in using organic ingredients, and serves more naturally raised meat than any other
restaurant chain17.
Noodles & Company
Quality food, casual atmosphere, and affordable pricing. This nationwide chain tends to nestle itself into
mid-sized university towns. With an average price of $7 a dish, Noodles & Co also appeals to suburban
families looking for a quick lunch or last-minute dinner18.
11
HopDoddy.com
Smashburger.com
13
HatCreekBurgers.com
14
Whataburger.com
15
ZoesKitchen.com
12
16
TorchysTacos.com
Chipotle.com
18 Noodles.com
17
Quick Service Restaurant Data
A University of California study of the demographics of fast food shows that
the people who eat at fast food restaurants most often aren't poor people, but
those in the lower-middle class. Fast food consumption doesn't begin to
decline until household income hits $60,000. Researchers even found high
rates of fast food intake in households making as much as $80,000 or $90,000
a year19.
The study cited a few possible explanations for the popularity of fast food in
the middle class. Researchers noted that middle class people are often pressed
for time, and so appreciate the convenience of things like drive-through
windows. See table (left) for additional frequency details.
The researchers found that people visited fast-food restaurants more often as their household income
increased up to a point. Fast-food visits rose along with annual income up to $60,000. Beyond that level,
quick service purchases were gradually replaced by full-service dining patterns. Based on the data, the
researchers described the typical fast-food consumer as a lower to middle income head of household,
who is budget-conscious and likes the convenience and low price of fast food, compared with other
restaurants.
Another study by the National Health and Nutrition Examination Survey (NHANES) found that from 2007
to 2010, adults consumed on average 11.3 percent of their total daily calories from fast food. Younger
adults, ages 20 to 39, are the biggest fast-food consumers, according to the new NHANES findings. Within
that demographic, non-Hispanic whites and Hispanics got about 14.5 percent and non-Hispanic blacks 21
percent — more than one-fifth — of their daily caloric intake from fast food20.
Each of these statistics lines up nicely with the overall demographic segmentation of the Austin market.
Given the population growth, economic growth, and strong demographic match to quick service dining,
Austin represents a unique opportunity for the launch of a quick service restaurant brand.
Texas Restaurant Industry Projections
As if the Austin data independently weren’t supportive enough, the National Restaurant Association
forecasts the Texas restaurant industry to lead the country in sales growth this year. According to the
2013 Restaurant Industry Forecast, sales at Texas restaurants will hit $40.8 billion, a 5 percent increase
over 2012, and will employ 1,074,200 people. The Texas Restaurant Association (TRA) has made similar
projections, forecasting the Texas restaurant industry to lead the country in sales growth in 2013
according to the National Restaurant Association’s 2013 Restaurant Industry Forecast. Employment gains
will continue into the next decade, with an expected increase to 1,245,000 employees, or nearly 16
percent. Texas’ 5% restaurant sales increase occurs while an overall consumer spending increase of 3% is
projected, and an industry projection of just +1.9% (2.1% in 2014). This extends the industry’s growth
trend, sustaining growth for the fourth year in a row.
19
20
Huffington Post; Fast Food
LiveScience.com; Fast Food Consumption
QSR Macro Level Market Analysis21
The North American Industry Classification System (NAICS) is used by
business and government to classify business establishments
according to type of economic activity in North America. Our primary
market is NAICS 72221a, Fast Food Eating Places.
The US Census Bureau conducts bi-centennial economic census, and
reports data through the NAICS system. This survey is a statistical
program that obtains information about virtually every US business
and publishes America's most used and useful business
statistics. Through the data obtained, we are able to select profiles of
sectors at various geographic levels. The most recent data set provides
us with key statistical information on businesses operating across the
United States, to include such data sets as concentration, employees,
receipts, revenue, etc.
This industry is composed of restaurants where patrons pay before eating. Purchases may be consumed
on-site, taken out or delivered. Gross sales come from franchises and company-owned stores. This
industry specifically excludes coffee and snack shops. The industry comprises establishments primarily
engaged in (1) providing food services where patrons generally order or select items and pay before eating
or (2) selling a specialty snack or nonalcoholic beverage for consumption on or near the premises. Food
and drink may be consumed on the premises, taken out, or delivered to the customer's location. Some
establishments (except snack and nonalcoholic beverage bars) in this industry may provide these food
services in combination with selling alcoholic beverages.
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Market Summary22
During the past five years, the Fast Food Restaurants industry experienced a slowdown of historical
growth due to changing consumer tastes and a struggling economy. Over the five years to 2013, industry
revenue has grown at a sluggish average annual rate of 1.0% to $191.0 billion. After revenue declined
0.6% in 2009 to $181.1 billion, however, it began its recovery, climbing at an annualized rate of 1.6% from
year-end 2009 through 2012. In 2013, revenue is expected to grow an additional 0.5%.
As disposable income decreased due to the recession, consumers cut back on luxuries like eating out.
Compounding the resulting decline in demand, consumers also became increasingly health conscious
during the period. While major fast-food retailers have responded by expanding the number of healthy
options on their menus, the general trend toward health awareness has hurt demand for the typically
greasy food provided by the these restaurants. In response to weaker market conditions, the number of
establishments has stayed relatively flat over the five years to 2013, growing at a projected average annual
rate of 1.3% to 232,611. Accordingly, industry employment has also stagnated, and is expected to decline
at an average rate of 0.1% per year to total 3.7 million employees.
Meanwhile, the long-term trend of major fast-food brands investing in specialty chains and ethnic food
chains, such as Mexican food, has remained strong. Many of these operations have grown over the past
few years and outperformed the industry as a whole. In addition, major operators, like McDonald’s, have
expanded their menus to offer nontraditional, high-margin menu items, such as coffee drinks, which have
aided their turnarounds. Many major chains are also investing in international growth as part of their longterm strategy.
Key External Drivers23
Consumer Spending: Industry growth is sensitive to changes in
consumer spending. During the recession, for example, the
spike in unemployment led to declines in consumption levels,
including of fast food. When personal consumption expenditure
is high, however, consumers are more likely to spend money on
eating out at industry restaurants. Consumer spending is
expected to increase slowly in 2013, providing a potential
opportunity for the industry
Healthy eating index: The healthy eating index is expected to
decrease slowly in 2013 as consumers’ diets continue to get
progressively poorer. Still, consumers are also becoming
increasingly aware of issues related to weight and obesity, fattyfood intake and food safety issues. This factor particularly affects the often meaty and greasy fast food
industry. Despite any long-term aggregate declines in healthy eating, consumers are now more aware of
the health issues associated with fatty foods and are increasingly going out of their way to avoid them.
This is a potential threat for the industry.
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Consumer sentiment index: Changes in consumer sentiment have a significant effect on household
expenditure on discretionary items, including fast-food. When customers are optimistic about the
economy, they spend more on these items. Consumer sentiment is expected to increase in 2013.
Agricultural price index: The agricultural price index represents nominal prices received by farmers for
all US agricultural products (both livestock and crops) and is also a strong indicator of the prices fast food
restaurants can expect to pay for their purchases and ingredients that go into preparing meals. When the
price of meal ingredients increases, it typically results in lower profit margins since operators generally
cannot pass on the entire cost to consumers. The agricultural price index is expected to increase during
2013.
Current Industry Performance
The Fast Food Restaurants industry has been battered by a weakened economy, a rapid rise in
unemployment and society’s increasing awareness of the health risks associated with a diet high in fat,
salt and sugar. Despite these obstacles, the industry’s attempts to respond to changes in consumer
preferences have supported a recovery during the past couple years. Over the five years to 2013, revenue
is expected to grow at an average rate of 1.0% per year. Industry revenue declined 0.6% in 2009, but
bounced back at an annualized rate of 1.6% from year-end 2009 to 2012. In 2013, revenue is expected to
grow an additional 0.5% to total $191.0 billion.
As the economy fell deeper into a recession and unemployment numbers rose, consumers became more
selective about how they spent disposable income. In 2009, consumer spending declined 1.9%, and
luxuries like eating out were among the first expenditures to go. Some consumers cut fast food from their
budgets entirely and opted to save money by eating at home.
Consumers who did not cut fast food out of their budgets during the recession bought lower-price items
that they would not have chosen prior to the recession. This trend forced fast-food chains to compete
with each other by promoting their particular restaurants as the place for consumers to get the greatest
value for their money. As a result, competition has intensified, with fast-food chains focusing on taking
market share from each other rather trying to win a larger share of a growing market as they had done in
the past. This trend reversed from year-end 2009 to 2012, though, when consumer spending rebounded
at an annualized rate of 2.1%. In 2013, it is forecast to grow an additional 1.9%.
Fast Casual & the Health Conscious Consumer24
Consumer Trends Drive New Strategies: Consumers have
become increasingly health conscious and major fast-food
retailers are responding by expanding the number of healthy
options on their menus. For many fast-food chains, this factor
has become a cornerstone of their marketing strategy and has
enabled them to target a new segment of the market, renewing
interest in their products. Subway was one of the first restaurants to capitalize on consumers’ health and
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weight concerns, and the company successfully marketed the health benefits of its sandwiches. After
sales plummeted in response to health concerns about its food, McDonald’s introduced a healthy choices
menu, which has primarily driven its rebounding revenue.
Many operators have also expanded their menu options to ensure that they can retain as large a portion
of their customers’ fast-food dollars as possible. Operators have increased their chicken items, Italianand Mexican-style foods, salads and coffee drinks to provide more menu choices. For example,
McDonald’s has recently increased its sales by adding frappes, which are blended coffee drinks, to its
McCafe beverage line. Some major operators have also developed combined or multibranded outlets in
which they share locations with other brands or food styles. Yum Brands does this often, with multiple
fast-food brands like Kentucky Fried Chicken, Taco Bell and Pizza Hut under the same roof.
Consolidation & Profit25
Over the five years to 2013, industry employment is expected to fall at an average annual rate of 0.1% to
3.7 million employees. It is estimated that that 15 to 16 people are employed per industry establishment,
earning an average of $12,870 each in 2013. The reduction is directly related to the recent decline in
revenue and major operators consolidating some underperforming locations. During the past decade,
many operators invested in and acquired ethnic food and other specialty chains, though many were
divested of after 2005 and through the present to focus on growing their core businesses. Examples of
this trend include Wendy’s selling its profitable Tim Hortons chain and Baja Fresh Mexican Grill stores.
Merger and acquisition activity has also been a defining characteristic of the industry over the past five
years. In 2008, Wendy’s and Arby’s agreed to merge (Arby’s was then sold off in 2011), and in 2010,
private equity firm 3G Capital acquired Burger King. Growth in consolidation indicates that major players
are recognizing the benefits of economies of scale and attempting to gain a competitive advantage
through acquisitions.
Gaining these efficiencies has become increasingly important to maintain profitability in this industry.
Over the period, industry profit margins have been falling or, at best, remained flat because of lower sales
volume, customers opting for lower-price items and high competition in the domestic market. Profit is
expected to equal 3.3% in 2013.
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Industry Outlook26
Over the next five years, it is forecasted that the industry will
continue its long-term growth trend, beginning with a 2.1%
revenue gain in 2014. Fast food restaurants will benefit as the
economy slowly improves, unemployment rates slowly come down
and consumers spend more on luxuries like eating out. Over the
next five years, consumer spending is expected to increase at an
average annual rate of 3.0%. Additionally, demand for fast food will
increase as restaurants continue to expand healthy menu options
and some of the concerns over the health risks associated with fast
food dissolve. Furthermore, more aggressive international growth
will reinvigorate major fast-food chains’ overall revenue, though it
will happen at the expense of domestic revenue and expansion. As
a result of these initiatives, industry revenue is expected to increase at an average annual rate of 1.9% to
$210.2 billion in the next five years.
New Ways to Expand27
Competition will likely intensify over the next five years, especially within the domestic market. This factor
will involve significant price-based competition and a growing emphasis on the regular introduction of
new products. Most fast-food chains will introduce new healthy food alternatives and expand their
current product lines. Major operators will seek to expand revenue and profit by offering alternatives to
red meat products (which are considered to be more healthy), such as chicken burgers, pasta and fresh
salads. They will also likely continue to diversify into new areas, such as cafes and full-service restaurants.
These operations may do business under different names at new locations.
Many domestic operators will also continue to expand internationally, and this move will likely be the
largest source of revenue and profit growth for major players over the next five years. Asia and the Middle
East are regions where domestic fast-food brands have not saturated the market yet and where operators
are thriving. That said, strong international revenue growth and expansion will likely limit domestic
expansion and domestic revenue growth opportunities, which are covered in this industry.
Over the next five years, profitability will only marginally improve because of ongoing competition in the
low-growth, saturated domestic market. By 2018, average industry profit is expected to sit at 3.6%.
Operators that experience stagnant profit domestically will likely increase focus on international
expansion to grow company-wide profit margins. Companies will also try to emulate McDonald’s by
expanding their beverage options to include more coffee-based drinks and smoothies. These low-cost and
high-profit menu items offer a quick way for companies to perk up their revenue and fatten their bottom
line.
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Establishment & Employment28
Though the domestic economy is projected to slowly improve, operators will still compete ferociously for
their fair share of revenue. Consolidation among operators has been underway for some time and is
expected to continue, though new growth opportunities will likely offset those losses. Over the next five
years, the number of companies is forecast to increase at an average rate of 1.2% per year to 158,436 in
2018. The number of industry establishments is also projected to grow at an annualized rate of 1.2% to
247,191 over the same period.
Over the same period, employment is projected to grow at an average annual rate of 0.7% to 3.8 million
people by 2018. This number will be partly inflated by the increasing use of casual employees to meet
peak customer service periods. It is projected that the average industry wage will increase from $12,870
per worker in 2013 to $13,501 in 2018, with total industry wages growing 1.6% per year on average.
Despite the long-term trend of declining wages due to automation of food preparation, wages and
employment are forecast to increase over the next five years as the industry recovers from depressed
wages and unemployment during the recession.
Industry Performance29
Industry is in Mature Stage
The rate of new store openings has slowed
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Operators are concentrating on international openings
There is heavy price-based competition
Industry Lifecycle30
Despite the recent downturn in revenue, the Fast Food Restaurants industry is firmly entrenched in the
mature stage of its life cycle. The latest revenue decline can be directly attributed to the economic
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recession. Over the 10 years to 2018, industry value added, which measures an industry’s contribution to
US GDP, is forecast to grow at an average rate of 1.6% per year, compared with estimated GDP annualized
growth of 2.1% over the same period. Thus, the industry has exhibited slow and steady long-term growth,
in line with the economy as a whole.
The industry has also undergone significant shifts in the market and changes in consumer preferences.
Demand for healthy foods, for example, has increased because people have become more health
conscious in recent years. Price-based competition is also heightening as operators strive to capture an
increasing market share in a slow-growth domestic market. Also, major franchised operators are receiving
most of their sales growth from expansion of their overseas operations.
Products & Markets31
Supply Chain
Key Buying Industries
9901 Consumers in the US Households are the key driver of demand for this industry’s products.
KEY SELLING INDUSTRIES
42442 Frozen Food Wholesaling in the US This industry supplies frozen foods to industry operators.
42443 Dairy Wholesaling in the US This industry supplies dairy products to industry operators.
42444 Egg & Poultry Wholesaling in the US This industry supplies poultry products to industry operators.
42446 Fish & Seafood Wholesaling in the US This industry supplies seafood to industry operators.
42447 Beef & Pork Wholesaling in the US This industry supplies meat products to industry operators.
42448 Fruit & Vegetable Wholesaling in the US This industry supplies fruit and vegetables to industry
operators.
PRODUCTS & SERVICES32
Limited-service restaurants
Limited-service restaurants are the largest segment and include carryout restaurants, delicatessens, fastfood establishments, pizza delivery shops, pizza parlors and sandwich shops. Over the past five years, the
relative size of the service segment has shrunk slightly. In 2008, this segment accounted for 97.0% of
industry establishments and 95.8% of revenue; in 2013, it is expected to account for 96.7% of
establishments and 95.4% of revenue. Among limited-service restaurants, 45.1% of revenue comes from
on-premises dining (42.9% of industry revenue), 36.0% of limited-service revenue comes from drive-thru
purchases (34.4% of industry revenue) and 18.9% of limited-service revenue comes from take-out
purchases (18.1% of industry revenue). This service segment’s proportion of industry revenue and
establishments has declined due to changing consumer tastes and an increasingly time-poor population.
Consumers increasingly lack time to eat at fast-food restaurants; instead, they are opting for quicker snack
and beverage outlets, such as coffee shops. Additionally, the health concerns associated with fast food
have driven many consumers to different restaurants.
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Cafeterias and buffets
The smallest service segment in this industry is composed of cafeterias and buffets. This product segment
has been relatively stable over the past five years. In 2008, it comprised 3.0% of establishments and 4.2%
of revenue; presently, it is expected to account for 3.3% of establishments and 4.6% of revenue.
Additional breakdowns
Franchised and multi-establishment operators account for about 10.0% of establishments, but they make
up 65.0% of total revenue. The main foods offered by major franchised operators include pizza,
sandwiches (including hamburgers) and chicken. Major franchised operators are beginning to offer
chicken burgers and other white meat products in addition to traditional hamburgers. Many franchises
have also diversified into providing other healthy foods, like salads, and extending into cafes. Others have
acquired or opened chains under different brands to offer pizza and other Italian-style foods, Mexican
food and other food (such as Jack in the Box’s acquisition of Qboda Mexican Grill). The industry has shifted
from major operators offering a single food style to offering diversity and health foods under their own
or a variety of brands. This trend reflects changes in consumer attitudes, needs and desires over the past
five years.
DEMAND DETERMINANTS33
The Fast Food Restaurants industry is sensitive to household disposable income, since this is the primary
way that consumers finance restaurant and dining expenditure. Household disposable income growth is
largely determined by changes in labor market growth (i.e. unemployment), tax and interest rates, and
high and increasing gas prices. It is also sensitive to changes in consumer sentiment.
The changing age structure of the population is also spurring a change in the industry. The baby boomers
(those born between 1946 and 1964) are a major group driving revenue growth, since this demographic
has the population size and high average disposable income to spend on fast food and restaurant meals.
Broken down by age, people aged 18 to 25 years spend 46.4% of their food budget dining out; people
aged 25 to 35 years spend 44.8%; people aged 35 to 50 years spend 42.3%; people aged 50 to 65 years
spend 42.8%; and people aged 65 or older spend 37.0%. US Census household expenditure data indicates
that households with incomes of more than $50,000 account for about 77.0% of the total personal
expenditure on food eaten away from the home. Of this group, households that earn more than $75,000
a year provide about 64.0% of the total away-from-home food expenditure.
Convenience, value for money and time are other important demand determinants. More recently,
consumers have become far more health-conscious, which is influencing certain quick-service operators
to make changes in their menus. In particular, there are concerns about fat content, fried foods and salt
content. There have also been concerns about the quality of meat products (related to mad cow disease).
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Major Markets
Income
Every age group and income level
eats fast food. The extent to which
different demographics dine out,
however, varies when these
segments
are
broken down.
Households that make less than
$50,000 per year spend 36.6% of their
food budget on dining out.
Households that make between
$50,000 and $75,000 per year spend
42.4% of their food budget on dining
out, while households that pull in
more than $75,000 per year spend 45.7% of their food budget on dining out. For households that make
less than $50,000 per year, an average of $1,626 per year is spent on dining out, while those making
between $50,000 and $75,000 dollars a year spend an average of $2,711 a year dining out. Households
that make more than $75,000 per year spend an average of $4,490 per year dining out.
Age
Broken down by age, people aged 18 to 25 spend 46.4% of their food budget dining out, which is an
average of $2,351 per year. This age group contributes the greatest share to industry revenue. People 25
to 35 years old are a close second in overall contribution to industry revenue, spending 44.8% of their
budget (or an average of $2,668 per year) dining out. Those from 35 to 50 years old spend 42.3% of their
food budget dining out, which amounts to an average of $3,165 per year. People 50 to 65 years old spend
42.8% of their budget dining out (an annual average of $2,991), while those 65 or older spend 37.0% of
their food budget dining out (an average of $1,926 per year). Market segmentation in this industry has
been static during the past five years.
When consumers of any age group or income level increase their dining out and spending rates, it benefits
restaurants and eating establishments of all types. Research indicates that about 56.7% of all dining
revenue in 2013 will be spent at limited service restaurants (including fast food and coffee and snack
shops), while full-service restaurants will make up the additional 43.3% of revenue.
BUSINESS LOCATIONS
The industry’s business locations are distributed according to population. Since the industry provides
quick meals to consumers, successful operators need to be located near their customer base. As a result,
the Southeast has the highest concentration of franchised establishments and a higher proportion of
employment and revenue. There are also large proportions of establishments in the Mid-Atlantic and
West regions, and the smallest proportion in the Rocky Mountains region. California, the state with the
largest portion of establishments, is also the state with the largest population. The industry typically has
a higher concentration in areas where households have an annual income of at least $50,000 per year.
Therefore, this level of geographic concentration is not expected to change in the near future.
Competitive Landscape34
Market Share Concentration
It is estimated that in 2013, the top four players account for about
42.0% of available market share, giving this industry a medium level of
concentration. Given the diversity of food styles and operations, nearly
48.0% of establishments are small-business operators that have nine or
fewer employees. An additional 55.0% of establishments have between
10 and 99 employees.
Over time, the industry’s concentration has increased. Recently, Wendy’s and Arby’s merged (although
they subsequently sold the Arby’s brand), and a private equity firm acquired Burger King. The recent
increase in acquisitions indicates that companies are making a concerted effort to increase profitability
by claiming larger portions of market share. Between 2008 and 2013, the numbers of establishments and
enterprises have grown slowly or remained stagnant, causing a marginal increase in industry
concentration. Industry concentration is expected to continue to increase over the five years to 2018.
Cost Structure Benchmarks35
The Fast Food Restaurants industry has struggled recently with declining revenue because demand for the
industry’s services has fallen due to the global recession. The industry has high product turnaround, but
its low profit margins make it vulnerable to any adverse changes in demand (including recessionary
declines). Changes in household preferences, in disposable incomes and other health and food safety
concerns also influence demand.
Profit
Industry profit is calculated as operators’ earnings before interest and taxes. Profit will vary among players
depending on the size of the firm, with larger operators benefiting from economies of scale. Estimates
project in 2013, the average firm will obtain profit margins between 2.0% and 5.0%. Typically, the major
costs for the industry involve food and beverage purchased for sale and wages paid. Significant labor input
is required in all aspects of the business, including cooking, order taking, serving, and clean up.
Purchases
Food and beverages are usually purchased from wholesalers, particularly from operators that can
guarantee prompt delivery and quality. Fluctuations in the cost of food and beverages significantly
influence industry revenue and profit. In the short term, many of these cost increases cannot be passed
on to the consumer or client. Therefore, menus, portion sizes and other inputs into food service have to
be continually monitored. A major source of inefficiency is wastage due to fluctuations in demand,
oversupply of meals or excess ingredients that cannot be used and subsequently spoil. It is forecasted that
in 2013, purchases will account for 31.0% of an average firm’s revenue.
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Wages
Wages are high due to the labor-intensive nature of food preparation, cooking, serving and cleaning up.
Over the past five years, labor costs have increased. These costs include wages and benefits, such as
health, workers’ compensation and unemployment insurance. Growing labor intensity brings down menu
prices and industry profitability; given the weak economic conditions and unemployment, cost increases
cannot simply be passed down to consumers in the form of higher prices. Industry wage costs will account
for 24.6% of an average firm’s revenue in 2013.
Basis of Competition36
Price is a significant source of competition among operators in this
industry. However, quick-service establishments also compete on
the bases of location, food quality, consistency, style and
presentation. Firms also need to regularly introduce new products
to appeal to a greater audience, especially the health-conscious
and older population. Furthermore, they compete on variety and
quality of service, which includes availability of drive-thru, staff
training and attitudes.
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Franchised (and multi-establishment)
operators and other players also
compete with each other. While
franchised operators only account for
about 10.0% of establishments, they
account for 65.0% of industry
revenue. Fast food establishments
that are located in the same
geographic area or in food courts at
malls and airports must also compete
with each other. Food courts and
other dining hubs have become
increasingly popular over the past few
years. The health and nutritional
value of menu items has also become
increasingly important to customers.
External competition arises from
other food service areas, including
full-service restaurants that offer
take-out services.
Barriers to Entry37
The barriers to entry are low since an operator can lower initial capital costs, outlays and borrowings
by leasing premises and equipment. The top four players are expected to have a low market share of
about 40.0% in 2013, indicating the fragmented nature of this industry. There is also no major player
that dominates the industry. Entry can also occur through signing a franchise agreement, which includes
outfitting and equipment, as well as training and computer systems.
There is significant competition among the major
franchised companies to obtain suitable sites,
which has increased the costs of prime locations.
However, some major franchised operators are
now co-locating within a single building or within
shopping centers or malls to lower costs.
The industry’s capital intensity is determined by
the ratio of capital to labor costs. To calculate the
ratio, wages, and depreciation and costs are used
as proxies. The ratio is estimated to be 1:0.15. This
implies that for every dollar spent on wages, about
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$0.15 is spent on the use and replacement of buildings and equipment. This industry has a low to medium
level of capital intensity.
The industry has a higher labor intensity, given the need for
personal, face-to-face service and labor input in all areas from
acceptance of deliveries, order-taking, serving and cleaning, as well
as in the management of each store.
Revenue Volatility38
Revenue volatility is low due to
the very high household
penetration rate for quick-service meals. Over the five years to 2013,
revenue volatility is expected to equal an average of 1.8%, including
industry revenue growth as high as 2.9% and declines as low as 0.6%.
The industry also offers a range of food types, quality, menu prices and
locations to suit guests’ changing tastes and needs. The general increase in health consciousness, with
increasing demand for less fat, sugar and salt in foods, is also leading to a return to healthy eating. This
works to the advantage of the certain product segments within this industry and to the detriment of
others.
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Regulation & Policy39
Industry analysis indicates that this industry is subject to a medium and
increasing level of regulation. These include franchise promotions and
sales regulations by the federal and state governments, minimum-wage
regulations (particularly since this industry is a low-skilled one with many
persons being paid at hourly rates), employee benefits and conditions,
workers’ insurance and payment of health insurance coverage. Also,
smoking bans in restaurants are being legislated across the states.
The US Food and Drug Administration’s (FDA) Model Food Code, which is a “best practice” guide to food
handling and presentation, applies to this industry and is updated each year. The FDA Nutritional Value
applies as well. Since 1996, the FDA regulations have set standards for nutritional values of individual
foods and meals. If claims such as “low fat” or “heart healthy” are made on a menu, the owner must be
able to demonstrate to officials, when requested, that there is a reasonable basis for the claim. For
instance, the meal may be based on a recipe from a health association or a recognized dietary group.
However, complete nutritional information does not need to be supplied on menus.
SWOT Analysis
Strengths



The Healthier Alternative: Many believe fast-casual restaurants provide more healthful food than
what quick-service restaurants have to offer. Skinny Burger will expand upon this image and
develop a brand identity synonymous with a healthy quick meal in an inviting atmosphere. With
50% of fast food clientele being as aware of healthy menu options as price, Skinny Burger’s brand
identity will position the company for success
Product Launch in the Austin market: With a vibrant and growing economy, a legacy of cuisine
and innovation in dining and food service, and a demographic supportive of dynamic quick service
growth, Austin presents a supreme opportunity for the launch of the Skinny Burger Brand
Advantages: The fast-casual concept as a whole has a lot of strong advantages over other
restaurant types. For example, the idea of fast-casual has a lot of wiggle room. It can be a totally
organic eatery, or showcase a certain regional fare, or even stick to the classics, all while attracting
customers with affordable menu prices. Fast-casual restaurants are extremely versatile. Since
many obtain liquor licenses, they attract a large portion of the adult clientele, but still cater to
families and students
Weaknesses


39
Food Costs: After increasing steadily in the last three years, wholesale food costs will continue
on an upward trajectory through 2013, putting significant pressure on restaurants’ bottom lines
as about one-third of sales in a restaurant goes to food and beverage purchases
Labor Cost: One-third of a typical restaurant’s sales go toward labor costs. Through 2014, 1.6%
annual increases are projected in industry labor costs. Significant increases in labor stand to
IBISWorld Industry Report 7221a
threaten profit margins. As such, the Skinny Burger team will closely monitor labor and staffing
plans until optimal structure is operationally tested and maintained
Opportunities
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Consumer preference move toward healthier alternatives to traditional fast food: Consumers
are becoming increasingly health conscious. While major fast-food retailers have responded by
expanding the number of healthy options on their menus, the general trend toward health
awareness has hurt demand for the typically greasy food provided by the these restaurants. The
Skinny Burger brand will present the healthier alternative at a time when the market is asking for
such products. Skinny Burger will develop a brand identity in a market poised for long term
growth.
Austin Market Viability: The Austin market represents one of America’s premier opportunities
to launch a fast-casual / Quick Service brand. Having seen several start-up restaurants experience
high levels of success, this market represents a significant opportunity in terms of revenue,
security, and growth.
Threats
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Agricultural Price Index: The agricultural price index represents nominal prices received by
farmers for all US agricultural products (both livestock and crops) and is also a strong indicator of
the prices fast food restaurants can expect to pay for their purchases and ingredients that go into
preparing meals. When the price of meal ingredients increases, it typically results in lower profit
margins since operators generally cannot pass on the entire cost to consumers. The agricultural
price index is expected to increase during 2013.
Healthcare Reform: The financial considerations associated with healthcare reform stand to
reduce profit margins. Skinny Burger will continue to monitor the implications of this threat as
implementation of this program moves forward.
Exit Strategy
The fast food industry is a mature industry with significant merger and acquisition activity, and that
activity is picking up. In a recent international food service industry survey, 46% of respondents identified
M&A as a method of growth as compared to 36% just a year ago40. After the company shows a track
record of successful execution, it will represent an attractive acquisition target for more well-established
operators seeking to capitalize on the healthy eating trend under a different brand name. For example,
McDonalds was once a significant investor in Chipotle.
Financial Plan
40
JustFood.com
Given the viability of the Skinny Burger concept and the Austin Market, it is anticipated that the company
will grow at a rate that would allow the self-funding of two additional sites prior to the end of Year 5.
Growth will be financed through reinvestment of company profit.
The statements and information below serve to outline Skinny Burger’s anticipated performance and
growth.
Assumptions
A number of assumptions are key in the below financials. These assumptions are based on industry
trends, economic analyses, market projections, as well as horizontal and vertical financial analyses.
Specific assumptions include:
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38% Cost of Goods Sold
9.5% Payroll Tax
1.6% Annual Labor Growth
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Wages:
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Annual Bonuses: DM $10,000; Manager $7,000; Assistant Manager $2,500.
Credit Card Fees: 2.5%
Depreciation of Long Term Assets: 10 Years
Depreciation of Short Term Assets: 5 Years
Reinvestment of $420K in Month 31 to stand up store 2
Reinvestment of $687K in Month 57 to stand up store 3. Additional withheld working capital is
indexed with the open of site 3.
Start-Up Funding
Sales Summary
Income Statement (Monthly, Year 1)
38
Income Statement (Annual)
39
Cash Flow Statement
40
Balance Sheet
Break-Even Analysis
This chart represents Skinny Burger’s
annual break-even revenue.
Sensitivities
This chart outlines the relationship between profit & sales.
The profit column indicates net revenue at given annual revenue levels.
We can see that the annual break-even point is between $1.15M &
$1.2M in annual sales.
References:
The Growth 40; Quick Service Restaurant
Magazine
An Overview of Different Restaurant
Types; FoodServiceWarehouse.com
http://www.qsrmagazine.com/growth/growth-40-0?page=3
Top Local Markets for Fast Food
Patronage; Scarborough Research
http://www.foodservicewarehouse.com/restaurant-equipment-supply-marketingarticles/restaurant-management-and-operations/an-overview-of-different-restauranttypes/c27994.aspx
Huffington Post - http://www.huffingtonpost.com/2011/11/08/fast-food-middle-classpoor_n_1081904.html
http://scarborough.com/press_releases/Scarborough-Fast-Food-Restaurant-Top-LocalMarkets.pdf
The Growth 40; Quick Service Restaurant
http://www.qsrmagazine.com/growth/growth-40-0?page=3
Magazine
Live Science.com
http://www.livescience.com/27351-fast-food-consumption-drops.html
Fast Food: Middle Class Indulges
Justfood.com
IBISWorld Industry Report 7221a
(http://www.just-food.com/management-briefing/ma-appetite-grows-but-will-dealsbe-done_id122657.aspx)
IBISWorld Industry Report 7221a; Fast Food Restaurants in the US