Why Fast Food?

Lee Peasley

Why Fast Food?

A theory on the success and rapid expansion of the quick service restaurant industry

Topic:

This paper aims to answer why and how quick service restaurant franchises has become such a significant part of the national economy. I expect that two of the main reasons for the success are, the major firm’s prior success in the local market, an increase in opportunity cost of time.

Prior Sucess:

The increased volume in the national market created fierce competition. Only the strongest local firms are able to succeed in the national market, while the weaker firms are run out of business. The outcome is an industry compiled of firms with strong business models and high customer appeal. McDonald’s, the dominant firm in the industry, is a perfect model of this process, and much of the paper will focus specially on their success. The company’s early popularity with consumers at the local level, strong entrepreneurial leadership, ever evolving business model with emphasis on efficiency, and savvy franchising techniques are all factors in its success.

Opportunity Cost Increase:

The defining characteristic of the firms in the quick service industry is also a factor of its success. These firms offer hot meals with little wait time. Therefore, not only do they offer cheaper prices on the menu but also eating at a fast food restaurant has relatively lower opportunity costs than other food industries. Opportunity cost is a way to give a concrete cost to time and it is specific to each individual customer. While it is defined as the cost of spending time on a non-specific next best alternative, for an employed consumer it can be viewed as the cost of not working for a salary for the specific amount of time. The higher a customer’s income, the higher the opportunity cost of their time. The rise of the quick service industry since 1950 is directly correlated with a rise in per capita income in the United States. Furthermore, the increase of women in the workplace over this time period increased the percentage of customers who must pay the opportunity cost of a salary when eating.

Conclusion:

This paper finds that the fast food industry was built on a solid foundation. My conclusion added more factors to my initial hypothesis. The solid foundation had to be combined with various savvy franchising techniques to quickly become significant in the macro economy of both the United States and abroad. Higher opportunity costs resulting from an increase in women’s labor participation rate and huge gains in GDP per capita accelerated this growth.

It is important to note that I avoided quantitative data when describing market share in the industry because its make up is loosely defined. There are certain significant firms that are only sometimes included, which makes many statistics contradictory. However, McDonald’s dominance remains constant no matter what firms are placed into the market. For the scale of the paper I felt McDonald’s utter dominance deemed it alone sufficient. Further research could look into analysis of another firm in the industry in order to further the claims.

2 thoughts on “Why Fast Food?

  1. This brings up the debate similar to what followed the movie, “Supersize Me” about whether consumers should be given complete freedom off of where and what they eat. Should there be more disclosure of nutritional information, more taxes on unhealthy foods to curb behavior (ie. soft drink tax in Cali and NY), or should extremely unhealthy food be banned altogether? I personally am of the belief that there should be more disclosure, because as someone who is moderately aware of nutrition, it seems companies like McDonald’s are fairly deceptive about how healthy their food actually is. It does seem a tax on extremely unhealthy food would be an overall benefit to the economy, given the decrease in healthcare expenses related to obesity. However, that is assuming people actually curb their eating habits and don’t just find unhealthy foods from other places than McDonald’s.

  2. Pingback: Fat Tax: A Good Idea or Not? | Caution: Economics Students at Work

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