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NUR QAMARIYAH KHAN BT AKHTAR KHAN, BB12110434

1. DISCUSS THE FAST FOOD INDUSTRY AND ITS FRANCHISING


OPPURTUNITY.
Introduction
Fast food is the term given to food that can be prepared and served very
quickly. While any meal with low preparation time can be considered to be
fast food, typically the term refers to food sold in a restaurant or store
with low quality preparation and served to the customer in a packaged
form for take-out/take-away. Outlets may be stands or kiosks, which may
provide no shelter or seating, or fast food restaurants (also known as
quick service restaurants). Franchise operations which are part of
restaurant chains have standardized foodstuffs shipped to each restaurant
from central locations. The capital requirements involved in opening up a
fast food restaurant are relatively low. Restaurants with much higher sit-in
ratios, where customers tend to sit and have their orders brought to them
in a seemingly more upscale atmosphere may be known in some areas as
fast casual restaurants.
The growth of the fast food industry has been increasingly growth rapidly
like a mushroom. And the fast food restaurant has become become a
routine meal for certain people. In U.S more dollars are spent on fast food
rather than newspaper, magazine, books, movie, and video those can
enormous growth to impact on economy, politic, social, cultural aspect of
American life (DeMaria, 2003). The phenomenon success of the fast food
industry is not surprised anymore. This primarily attributes to the dual
achievement of uniformity and mass production. Providing identical
products at multiple locations has created familiar and confidence
regarding quality among customers. For example, Mc Donalds and KFC
produce same item such as burgers, they compete each other even
though there have their own way promoting advertisement and recipe.
Fast food restaurant using assembly line production to individual workers
to ensured but also enabled the mass production (DeMaria, 2003).
In addition, from economic and cultural impact, the growth of the fast food
industry has had significant affect the health. Thus the fast food industry
have major influenced on obesity, foodborne illness, high blood pressure
and others illness that related to. In world right now the major influence
that effect obesity is consumption of the calories is taken a lot and
reduction of physical activities. Therefore, the fast food industry has likely
contributed to the increased caloric intake in the worldwide. However,
such healthy options have not received wide acceptance in the
marketplace. The preference for high-fat, high-calorie food has been
attributed to tastes that are cultivated in childhood and preserved in
adulthood (DeMaria, 2003).
How big is fast food industry?

Everyone know the answer which is fast food dominant the fast food
industry. But fast food is any food that can be prepared and served within
a short span of time. The concept encompasses all those restaurants and
store which sell or serve preheated or precooked food items to its
customers. The popularity can also be attributed to the fact that capital
investment necessary to build a fast food outlet (a non-franchisee outlet)
is relatively low.
At the global level, fast food industry has witnessed a tremendous growth
over the last few decades. In 1970, the Americans spent a total of $6
billion on fast food. In 2000, the spending increased to $110 billion. If the
estimated figures for the last 10 years are added, things become even
more interesting. According to the statistics, the industry experienced an
overall growth of 4.8 percent in 2006 alone. In the same year, the Indian
fast food industry recorded an amazing growth of 41 percent, with some
of the major International players entering the Indian market.
Other than McDonald's, the major players in the industry as of today are
Burger
King, Yum! Brand, Wendy's, KFC, Subway, etc. Each of these fast
food chains have numerous stores in different parts of the world.
Interestingly, a large number of these outlets trace their roots to the
United States. In fact, the fast food industry employs 2 million workers in
the United States alone, and thus, is considered an important pillar of the
US economy.
Over the last couple of years though, the industry has had to bear the
brunt of rising prices of food and energy. The fact that this industry has
always provided services at reasonable prices, is one of the driving factors
when it comes to its popularity. Price rise though, has forced these outlets
to hike the price of their products. At the same time, this industry has also
come under the scanner for some harmful effects of fast food. Add to it
the fact that the number of dining restaurants has also been growing over
the last decade or so, and you realize that its woes have just increased.
Fast food industry competition
According to the article in The Express Tribune written by Shahram Haq,
competition in fast food industry helps middle class contribute to growth.
In the beginning, the concept was only welcomed by the higher-income
segments as prices made the food unaffordable for middle or lower
income classes. Introduction of multinational food franchises, initiated in
the 1990s, was in the midst of non-existent local fast food restaurants.
Today, the trend is spreading fast and the industry experts believe this to
be just the beginning for the flourishing industry.
However, the industry has evolved since then as the restaurants now offer
promotions at various hours of the day and on different products to open
doors for the middle-class and low-income class. Presently along with the
high-end deals, franchises are focusing on medium- and low-end deals
which target the middle- and lower- income classes as they constitute a
much larger portion of the population of 180 million. Marketing is the

other key for franchises to grow their respective businesses. Previously


amid insignificant competition, the restaurants did not really latch on to
the importance of marketing, but it is completely inverse in the present
scenario as competition has grown and major international brands.
McDonalds make fast food and it works like a robot. No feeling, it is only
about functionality and money. Max employees on the other hand, they
work more as humans, with ups and downs but with more feeling in the
food, M1b said.
Trends in fast food industry
Nowadays people have grown up with various ethnic styles, but everyone
looking for a new things and it became trends. An expert says that many
trends expected to affect in fast food industry that can give impact to
quick service restaurant which is ingredient transparency (Wolf, 2014).
Customers are more interested in what theyre eating and where it
comes from, says Annika Stensson, the NRAs senior manager of
research communications. They want to know its being grown
responsibly.
Customers definition of value is fresh ingredients, quality food, and
good-tasting food at reasonable prices. But fresh ingredients is No. 1,
Riggs says. Customers want to see that the ingredients and the food are
not just holding somewhere.
8 Fast-Food Trends for 14, (Wolf, 2014)
From the article its shows that the more consumers like to eat the more
they want to know what they eat. For health cautious customer they will
ask what the ingredient that inside the food. They take seriously about the
food. But the food lover will can guess easily what the ingredient inside
the food because they aware of the sense, taste the food. Hence there is
trends where fast food restaurant shows the cooking style open way so
that customers can see how and make the food.
Nowadays, consumer prefers unique flavours of food such as ethnic
sauces and cuisine to be serve. It became expanding rapidly in worldwide
especially in US and European market consumer like to try in authentic
dishes rather than adapted or manufactured versions. It is commonly
accepted that certain foods may provide health benefits beyond basic
nutrition and its rapidly growth concept that describes foods or designed
to help prevent or retard certain disease.
Predicting online purchasing power is another trend. With the convenience
application that shows in the fast food industry that can make consumer
easier and rising confidence consumer and the growing number of
smartphone user that can make online sales for the fast food restaurant
sales could be higher. With much way to promote the product in social
media that can attract the customer to stay loyal with the brand and
product

Franchising
Meaney (2004, p.11) defines franchising as a legal business
arrangement, governed and created by a contract, under which the
franchisor (owner/supplier) sells to a franchisee (retailer/buyer) the right
to sell certain goods and/or services of the supplier under specific, agreedupon conditions.
Franchising has been growing rapidly since 1950s. Many companies from
different industries, such as fast-food restaurants, hotel chains, car
rentals, have been actively using franchising to expand their operations
elsewhere. The franchisor, owner of the business idea, shares his knowhow with a franchisee. The latter can use the ready-made business model
in exchange for a fee. Such an approach is called business-format
franchising and the term franchising is generally used to refer to this
particular type. Consequently, franchisors began to expand their
operations across the borders by means of foreign partners. By doing so
franchisors managed to have their branches overseas without actually
investing venture capital. The franchisees in-turn were able to adopt a
ready-made business model to their local markets.
Nowadays franchising is a common way of doing business. Despite the
fact that many franchisees operate only one outlet, it is important to point
out that most franchised chains involve multi-unit ownership. This
organizational arrangement allows the franchisee to operate more than
one outlet in a particular franchise system.
Still the literature lacks the information about multi-unit franchising from
the franchisee perspective. It would be useful to know the motivational
factors that make prospective franchisees choose this type of ownership.
In addition, it is in the authors interest to find out what the challenges
and opportunities of managing multiple outlets under an area
development agreement are.
This survey focuses on the fast-food industry. This industry has always
been associated with franchising. Although in the market has become
saturated with fast-food restaurants, this type of business still has great
opportunities in other countries and keeps growing at a steady rate.

Franchising Opportunity in Fast Food Industry


Most franchising chains operate under both company-owned outlets and
franchised outlets. In the former, a manager is paid a salary while the
chain is the residual claimant of the profits. In the latter, the franchisee
keeps the profits after paying the applicable fees to the chain. Thus,
franchising has been long recognized as providing franchisees high
powered incentives which are essential in large organizations, particularly
when production is decentralized. Yet this high-powered incentive scheme
comes with a price, which can degrade a chains brand and reputation.
The standard free riding argument in franchised chains focuses on the
different incentives of small franchisees and the chain with respect to the
chain brand name and the importance of patrons future visits.
Three basic features of the fast food franchising industry make it most
suitable to test free riding and chain reputation theories. First, the
importance of a standard experience across chain outlets has been a basic
ingredient of franchising success and growth over the last fifty years.
Thus, it is natural to focus on chains efforts to achieve uniformity across
outlets, and on ways to maintain the chain reputation. In addition, the
mixed structure of chains, operating both through independently-owned
franchised outlets and through corporate-owned outlets, offers a unique
opportunity to test whether and how a chain achieves its goal, by
comparing the two types of outlets.
Franchisee vs. Company-owned outlets
It is a common to see the franchisor to be an entrepreneur just because
there doing entrepreneurial activity such franchisee. Franchisee fast food
industry are more efficient than company-owned outlets (Shelton, 1967).
This is because that franchisee apprehensive with resources, costs, and
ingredient that been using. Other agree with the statement that
franchising is growth faster than company owned in term of financial and
human resources (Oxenfeldt and Kelly, 1968).
In general, company ownership gives more operating credibility to the
organization, whereas franchisees are more creative than franchisee
(Dant, 1992). The study of franchising in France by Cliquet (2011) found a
tendency among companies to group franchisees together in order to
smooth the progress of innovation and new product development. They
also found that franchisees experienced demotivation and anxiety if the
number of company-owned stores were too high.
However, that franchise systems tend to rely more on company-ownership
instead of franchising when maturity is reached (Oxenfeldt and Kelly,
1968). This occurs for three main reasons: franchisor tries to increase its
profit by taking control over the most profitable units, franchisor acquires
local knowledge of site when acquiring outlets and franchisor increases
the managerial skills of the company.

In these cases, where there exist a large number of company-owned


outlets, franchisees are generally more confident about the companys
decisions. They believe that they will not implement something that will
be unprofitable, since the losses will be significant for the company.
Company headquarters are also mostly responsible for evaluating the idea
and deciding whether to implement it or not.
An additional finding by Lewin-Solomons (1999) was that most of the
product testing takes place in franchisees, especially within Burger King
and Subway where the proportion of franchisees is high. The companies
then also depend on the constructive feedback of franchisees in order to
solve any problem.
Furquim De Azevedo (2010) argued that the formal power of the
franchisor will increase if the number of company-owned outlets
increases. Moreover, with the increase of company-owned outlets the real
power of a franchisor also increases. Because with the help of the
information gathered from its own units, the franchisor collects valuable
knowledge about franchisees environment

References
http://www.buzzle.com/articles/fast-food-industry.html
December 2014

Retrieved

on

06

http://tribune.com.pk/story/576600/fast-food-industry-competition-helpsmiddle-class-contribute-to-growth/ Retrieved on 06 December 2014


http://www.qsrmagazine.com/reports/8-fast-food-trends-14
Wolf, January 2014, retrieved on 06 December 2014

by

Barney

Shelton, J.P. (1967). Allocative efficiency vs. x-efficiency: comment. The


American Economic Review, 57: 12528.
Oxenfeldt, A.R. and Kelly, A.O. (196869). Will successful franchise
systems eventually become wholly owned chains? Journal of Retailing, 44,
6983.
Cliquet, G. (2011). Plural forms in store networks: a model for store
network evolution. The International Review of Retail, Distribution and
Consumer Research, vol 10(4), 369-387
Lewin-Solomons, S.B. (1999). Innovation and Authority in Franchise
Systems: An Empirical exploration of the plural form. University of
Cambridge and Iowa State University.
Aghion, P., and Tirole, J. 1997. Formal and real authority in organizations.
Journal of Political Economy 105(1), 1-29
Furquim De Azevedo, P. (2010). Allocation of authority in franchise chains.
International Studies of Management & Organization, vol. 39(4), 31-42

Meaney, J. A. 2004. How to buy a franchise. Sphinx Publishing, an Imprint


of Sourcebooks, Inc.