Yum - Fast Food Case Study

Published: 2021-06-29 07:04:43
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1. How well have they performed financially during the 1985-1990 and 2000-2004 periods? Show your financial analyses (ROA, ROE, and etc.). A table can be useful here.

In order to make this a relevant financial comparison, I have decided to compare the banner year in the case, 1991, with 2004 for the majority of my calculations. On a basic level, we can see that YUM has grown from 20,987 system units in 1991 to over 33,000 today, more than doubling its presence on the planet (only slightly thanks to the addition of Long Johns Silvers and A&W). During this time, worldwide profits have jumped from $575 million in 1991 to $4.36 billion in 2004; demonstrating an average per unit annual profit move from $27,398 to $132,121.
While these numbers are impressive, financial ratio analysis makes it more difficult to ascertain the true strength of YUM. The return on assets seems to have declined by a fraction, from 13.5% to 12.2%. However, this can probably be explained by a maturation process that requires more assets to reach increasingly distant locations. Also, the current quarterly revenue growth percentage for YUM (4.3%) lags far behind that of its main competitor, McDonald's (9.2%), and the industry as a whole (15.3%).
Nevertheless, YUM must be doing something right recently, since it's share price has risen steadily from 25.12 on 1/2/03 to 51.29 on 5/31/05, amid strong analyst outperform recommendations.
2. What kind of business is a fast food restaurant? Show your industry analysis.

Between the times that George H.W. Bush began his tenure as Vice-President in 1980 and ended his term as President in 1992, fast food restaurants underwent a complete revolution. Before 1980, the industry was comprised of a few regional chains whose primary concerns were dining area service and large kitchen space. This all changed in the 1980s, when new locations were built to emphasize speed, simplicity, convenience, value, and variety. Such a radical transformation begs an industry analysis.
In hindsight, the decade-long shift to the Fast Food Nation we live in today had nothing to do with the inherent strength of the quick service restaurants (QSR) industry. Rather, it had everything to do with the industry's ability to meet consumers' needs. Using Porter's Five Forces model as a guide, the industry is highly unattractive in four of the five force areas, with supplier power being the only real area of strength for QSR companies. On this level, QSRs purchase only the most basic of food items (lettuce, chicken, et cetera), and have a number of suppliers to choose from when making these decisions. Furthermore, as the case demonstrates, QSRs have added supplier resources, in the form of the co-ops and integrated distributors that have been formed over the years, which make the process even easier and more cost-effective.
Degree of rivalry, threat of entry, and threat of substitutes are all highly related (and highly dangerous) when speaking of the fast food industry. Beginning with the competition that already exists, it is fairly obvious when you drive anywhere in (and beyond) that the QSR market is saturated. And since the Yum Restaurants, Burger King's, McDonald's, and Wendy's of the world are all somewhat equally strong, it makes the competition that much more intense. Everyone mimics everyone else to some degree, menu items are copied, and margins are reduced.

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