What Economics Effects Do the Fast Food Industry like McDonalds and Burger King Have on the Economy - Case Study Example

What economics effects do the fast food industry like McDonald’s and Burger King have on the economy? The paper describes about the economiceffects of fast food industry on the economy, taking examples of McDonald’s and Burger King as major players of the industry context. The study revealed various economic effects caused by this industry sector, advocating that fast food industry has been continuously growing in the recent phenomenon. The findings obtained further revealed that the fast food industry has been successful in positively influencing the economy, creating various job opportunities that has further helped in increasing the purchasing power of the people in the economy to a certain extent. Likewise, the industry has helped in gaining adequate economic stability further helping in economic proliferation at large. INTRODUCTION The fast food industry has grown astonishingly in the past few years. Projections of its overall performance also reveal that the growth will continue in the industry within the near future. Evidences of such growth can be easily identified in the US fast food industry, wherein the market size of this industry was accounted at 6 billion dollars in the year 1970, which has grown to 170 billion US dollars in the present era. In this regard, economic effects can be observed to play a significant role within the fast food industry, as there is a direct relationship of the economic factors in a nation with the food industry. Likewise, the eating pattern in the US, as witnessed, had a major shift due to the economic clout enabled by the fast food industry. In addition, due to the influencing economic factors there has been a huge shift in the way of production in the US fast food industry1. Certainly, having its impact on the industry structure as long with the market size, the fast food companies can be easily observed to have an effect on the overall economic performance of the nation. As larger market size implies better job opportunities, better consumer buying chances and better sales revenue for companies like McDonald’s and Burger King, it can be related with economic growth prospects to a substantial extent. The discussion henceforth emphasises the assessment of this notion from a broader perspective, to identify the economic factors affecting the economy. MARKET STRUCTURE OF THE FAST FOOD INDUSTRY When evaluating the effects caused by the fast food industry on the economy, it will be vital to gain understanding about the market structure of the industry that would in turn help to identify and assess the various factors associated with the companies operating within this industrial context. Currently, in the fast food industry, the products sold by the brands are different from one another, which is much similar to an imperfectly competitive environment. There are various factors falling under the market structure of the fast food industry, which can be categorised as the number of manufacturers, similarity of foods, simplicity of entry and control on prices. These factors have a direct relationship with the industrial performance, wherein the factors directly influence the economy2. Number of manufacturers. The current market situation reveals that the fast food industry is highly fragmented. Moreover, most of the brands functioning under the fast food industry have a spilt share in market, due to which, no single brand hold the majority of market share. However, it has been viewed that McDonald’s hold almost 20% of the entire global market while the remaining share of the market is split among various other brands. As the industry is highly fragmented, the resources of production can be assumed as used effectively to increase output and reduce the cost incurred for production, which in turn has been contributing towards a rise in the overall economic productivity3. Substitution effects. Most of the products offered by brands of fast food industry have a certain degree of similarities, which change according to the alterations observed in the customers’ tastes and preferences. Overall, there is a substantial difference in the items listed in the menu offered by these brands to the customers along with differentiation in the promotional aspects. The menus offered by these brands involve a mix of food products that resemble different cultures. As the fast food industry also operates as a supporting industry of the tourism sector, inclusion of various cultures in its products imply an augmented global reputation of the economy and thus, rewards a degree of comparative advantage to the nation within the international paradigm4. Simplicity of entry. Entry and exit barriers in the fast food industry are quite weak requiring minimum capital. It is considered that entering the market of fast food industry is quite easy for both small and large entrepreneurs. Certainly, facilitating entrepreneurial advances within the economy, fast food industry also promotes money supply and overall productivity of the nation, which can also be argued as a major economic effect caused by the industry sector. However, as most of the new brands use the entry strategy of franchising to enter the new market of potential customers, companies like McDonald’s and Burger King are often observed to compete to gain a better brand value within the industry context. This further encourages technology advances and innovation within the industry, triggering economic advancements within the sector5. Control on prices. In the fast food industry, companies like McDonald’s and Burger King enjoy only a limited control over prices of the products being offered to the customers. However, it is considered that non-price competition is relatively productive as compared to price competition. This further helps in contributing towards the economic growth of the US as non-price competition is largely being undertaken in the nation6. ECONOMIC POSITIONING OF THE FAST FOOD INDUSTRY In the present day era, the demand of products offered by fast food industry has grown to a significant extent with changes observable in the lifestyle choices of the targeted customers. Accordingly, it has been viewed that the industry has played a huge role in driving an economic growth of the nation in which it is operating. In relation to the economic positioning of the fast food industry, it can be asserted that the industry has a strong hold in various nations due to which, it has been successful in attracting huge number of customers and driving a change in their lifestyle habits. This in turn has helped in boosting the economy of a nation along with its development within the global arena7. Taking the examples of two retail giants in the American fast food industry, i.e. McDonald’s and Burger King, this particular fact can be justified. For instance, with reference to the brand positioning strengths of McDonald’s, it can be observed as being accepted universally around the world in various nations, owing to its inclusion of different cultural factors within the menu positioning the industry as a vital driver of unity within more than two cultures8. These factors provide an understanding that the economic positioning of McDonald’s is quite good as it has been successful in attracting huge number of customers through its products and offerings, thereby creating a strong economic position for itself and other companies operating in the same industry. Likewise, Burger King also has a good economic position as it has promoted itself as a specialised marketer of various sandwiches that is renowned in the worldwide market segment and the fast food chain used by Burger King is considered as the third largest in the entire world. This in turn provides evidence that fast food industry has a strong economic position in the global front and it has contributed in alleviating the economy of various nations taking the benefits of the current globalising era9. CONTRIBUTION OF FAST FOOD INDUSTRY FOR ECONOMIC GROWTH The fast food industry plays a considerable role to the economic growth of a nation as the revenue obtained by the fast food companies can be directly linked with enhancing the economic conditions of a nation from a generalised perspective. Governmental taxes paid by fast food companies such as McDonald’s and Burger King are also recognised as a form of revenue for nations, which results in their overall economic development. The fast food industry has been responsible for providing jobs to numerous people in various nations, which in turn has served the economic requirements of the nations where it is operating. In this regard, it has been viewed that McDonald’s, in the year 1968 had created almost 90% of new jobs for the people in the US. Undoubtedly, contribution at such a magnitude was a huge support provided by the industry to the US economy. Since then, the number of restaurant chains operating in the economy has increased substantially. Through this expansion, it has been witnessed that the industry has contributed in creating huge employment opportunities globally and in the national paradigm as well, which in turn had its contribution in assuring enhanced economic stability10. It would be worth mentioning that the fast food industry, through the creation of employment opportunities in the US and other nations has contributed in alleviating the Per Capita Income (PCI) of people to a certain extent. Likewise, the food industry has contributed in increasing the National Income (NI) of the economy as well, which in turn has resulted in boosting the economic growth prospects within the global arena. Taking the example of McDonald’s, it has been observed to recruit almost 1 million people annually, which is considered to be greater than that of other public and private companies operating in the US. This figure provides a clear idea regarding the contribution made by the food industry for the economic development of US, which can also be witnessed in other nations like China and Australia among others11. Again, the US food industry, as witnessed, is the largest purchaser of beef, pork, potatoes and chicken. Correspondingly, with the growth in the fast food industry of the US, an increase in the demand of these products has also been observed. Due to the rise in consumption of fast food products, it has been observed that there has been a huge flow of FDI within the US, as the market potential for fast food has been continuously been increasing in the economy, due to which the foreign investors have been much attracted to its market potentiality12. This in turn has resulted to the economic growth of the US, as there has been a huge inflow of foreign investment, wherein investors opt for joint ventures and strategic alliances with the fast food companies successful in the nation. Moreover, companies such as McDonald’s and Burger King have been continuously franchising its business in other nations that has positively affected the economic situation of the franchising countries along with the US. Again, as it is considered that franchising is an important aspect in boosting the economic growth of the both the home and host country, it can be asserted that operating on the basis of this business model, the fast food industry has played a major role for instigating the economic growth within the nation13. INFLUENCE OF FAST FOOD INDUSTRY ON ECONOMIC STABILITY As can be observed from the critical perspective based on the above discussion, fast food industry has highly contributed for stabilising economic conditions. In this regard, a direct linkage has been observed with regards to the GDP fluctuations of the economy. For instance, in the US, fast food industry participants like McDonald’s and Burger King had an upward rise as the raw materials purchased by the food industry in US has been continuously expanding due to the rise in demand of these products. Accordingly, the annual consumption of these food products in the US has significantly increased owing to which the market value of food products produced by the industries has also raised. In addition, the food industry in the US has contributed in changing the lifestyle choices of the people to a certain extent, wherein the standard of living in the US has progressed substantially. This in turn has triggered economic stability in the US wherein the growth of output for food products is constant allowing a low inflation rate14. In addition, based on the above study it can be revealed that fast food industries have created employment opportunities for the people in the US, which has further resulted in increasing their purchasing power to a substantial extent. Therefore, fast food industries have instigated a balanced economic situation in the US, as there has been a rise in the supply of money in the nation, stimulating the overall consumption of the people, which thereby has reduced the inflation rate as the purchasing power of people has increased. These factors have helped in stabilising the economy of the US. In addition, fast food industries in the US have been successful in attracting huge foreign investments, which also has helped in contributing towards the economic stability of the nation. From an in-depth understanding, it can be observed that there are various fast food companies functioning in the US having a positive impacted on the economy altogether. These impacts can be easily identified in terms of creating more job opportunities and contributing to the national income of the nation along with promoting the industrial stance of the economy within the world market15. For instance, it was viewed that McDonald’s itself, in the year 2011, created around 62,000 job opportunities for the people of the US. During this period, the US was suffering through a phase of unemployment wherein the rate of unemployment raised to 9.1%. Thus, creation of job opportunities for the US citizens resulted in increasing their per capita income thus contributing to the economic stability to a certain extent. Likewise, McDonald’s franchises more than 80% of its business to other nations and the revenue obtained by McDonald’s from the franchisees contributes towards the economic growth and development of the US. McDonald’s, through its franchising business model, helps in injecting foreign currency to the US economy. Additionally, the performance of McDonald’s in the nation has been relatively strong due to which, the market share of the company has been continuously rising. Increase in the market share has also been achieved by the company through growth in its sales wherein in the year 2012 there was a 6.8% growth of McDonald’s product sales in the US. Thus, it can be affirmed that growth in sales of these fast food market giants also contributes towards the economic proliferation of the US. It would be worth mentioning in this context that McDonald’s can effectively perform its business functions even during the period of recession owing to the partially recession free characteristics of the fast food industry. This provides an understanding that the company would contribute towards boosting the US economy even though the nation suffers from recession. Correspondingly, the fast food chain operated by McDonald’s has turned out to be quite productive as it has been able to attract a pool of new customers along with retaining its existing ones efficiently. Therefore, the chain used McDonald’s has resulted in boosting its sales in the US, which in turn has contributed towards the overall stability of the industry, further helping the economic stability to a certain extent16. Similarly, Burger King, as another giant in the American fast food industry, has also played a significant role in the economic proliferation of the US. Burger King is the sixth largest fast food company operating worldwide and is ranked second in the hamburger chain after McDonald’s. It has been revealed that the fourth quarter income of Burger King in the year 2013 rose to 37% as it made a huge effort in lowering its cost of production and enhancing its overall sales. This income was mainly earned by the company through the refranchising process in which the company introduced new items in its menus. This particular aspect helped the company in increasing its sales in the year 2013 that contributed to the overall economic growth of the US triggering innovation within the industry and building better cultural alliances within the market and therefore, contributing to the socio-economic stability of the economy. It would be worth mentioning that the tax levied by the US government on Burger King, along with other giant fast food chains operating in the US, on the basis of its overall profit, has positively affected the national income of the economy. This in turn contributed towards the economic growth of the nation as the per capita income of the people in the US increased along with the increase in the national income to a certain proportion. Greater profit margin also allowed the company to invest more on community welfare initiatives, promoting growth of the labour market in terms of social well-being and education, rewarding better economic stability of the country in the near future17. Overall, it can be asserted that both McDonald’s and Burger King played a huge role towards the economic development of the US through creating job opportunities and achieving huge profits. CONCLUSION From the study, it can be evidently revealed that the US has been a hub for fast food industries in the recent era. As can be evidently witnessed, the fast food industry has grown continuously in the US. It is further estimated to grow in the coming future. In relation to the market structure, it has been observed that the fast food industry functions on the basis of a diverse market structure, which is further affected by the characteristics of an imperfect competitive environment, persisting within the industry. It would be worth mentioning that market structure helps in determining the consistent performance of the industry and further determines its contribution to the overall economic development of the country providing benefits of competitive sustenance to the industrial structure. In this regard, it can be ascertained that fast food industry has a strong economic position within the global arena, as it has been successful in creating its brand image in the US along with other nations as one of the major and most prospective economic pillars. The main factors responsible for its strong economic positioning can be identified in terms of the brands of fast food industry and its variability in the product offering, which is accepted universally building a uniform socio-economic environment. In fact, it can be understood that due to its impactful economic positioning, the industry has been able to alleviate economic conditions to a substantial extent. 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