The Impending Market Collapse of Quick Service Restaurants

Baby Boomers like me have some distant memories of the national roll-out of McDonald’s and other fast food restaurants back in the early 1960s.

Brands came out with simple menus, walk-up windows to order, inexpensive prices and consistent quality food.

McDonald’s and Burger King delivered fast food hamburgers. Kentucky Fried Chicken delivered fried chicken. Dairy Queen provided ice cream cones.

Even when another group of restaurants like Pizza Hut that had offered space to sit and eat the food onsite, the brands stayed focused on a defined food offering and by damn, quick and efficient service delivery.

There was little doubt what the restaurants provided and there was assurance that what they did provide was a great value and something the sit-down restaurants could not match.

Hold that image in your head set.

Quick Service Restaurants today are in trouble and the marketplace is about to see some radical changes.

Over the past week, the Wall Street Journal has highlighted everything from store closings to totally automated order counters to new specialty sub-brands to promotional bargain pricing to frequency cash deals.

Below are the agents driving some radical change we will soon see…

Costs

Who knew that inflation would hit the real estate and grocery store marketplace like a tidal wave.

The media posts weekly restaurant store closings. Many mom & pop, locally-owned restaurants are showcased as waving the white flag of supply inflation and leasing costs.

But the corporate national and regional chains are challenged by the same issues.

Staffing costs have risen too. Minimum age levels from coast-to-coast have climbed higher.

Some brands have attempted to use political ties like Panera in California to stay exempt from mandated hourly rate increases only to realize that their staff leaves quickly to get higher pay.

Not only is the $0.25 burgers gone, but there are now full-service restaurants offering cheaper meal options than the fast food alternatives like Applebees is doing with their $200 meal cards that provide access to $1,200 worth of future meals.

The accounting basics I was required to take for my MBA were rich enough to tell me Applebees is just delaying their financial realities.

Labor Shortage

As I cite in many of the EXPERIENCE Blogposts, there is 20 million less age 16–30 year olds in the U.S. population than existed just 6 years ago….and 30 million less than 10 years ago.

Boomers birthed a bunch of Millennials and those Millennials are birthing a bunch of Alphas, but right now we are faced with GenXers who failed to birth a bunch of GenZers.

Some of the fast food corporate teams have attempted to address the staff issue through technology with everything from online ordering to pre-order Apps to fully digital order counters to even talk of AI driven robotic staff.

Warm bodies that will work for the lower pay levels unfortunately enter with limited high-tech skills often needed and then once trained, often find another employer who will pay them more.

Do More… Way More… WAIT… Who Are We Any More?

Not sure if it was the burger chains offering chicken or the chicken chains offering pizza or the pizza restaurants offering tacos or the taco restaurants offering burgers.

Quick news update … the 3/27/2024 WSJ is posting an article that McDonald’s is going to start selling Dunkin Donuts fare. Move over Egg McMuffins!

While gender identity is often highlighted in media stories, their is much richer news content in the fast food restaurants and their identity crisis.

The dynamics that have taken place journeys way beyond two gender identities and even further than LGTBTQ.

In the Marketing 101 course I teach, I often use the fast food restaurants as a great example of what not to do when defining a brand identity.

In some ways, the loss of definition in brand offering is the most lethal action that fast food committed.

And just might drive how the category re-invents itself.

Product / Brand Loyalty

When the first brands launched there was limited diversity in food offerings.

For the most part, if you ordered fast food, the food options were defined mainstays of the American diet… burgers, fried chicken, pizza and fish.

Since then, the American diet diversified as our population diversified and global influencers have entered into our daily lives as easy as an App download on the Smart Phones.

As customer taste got varied, customer frequency at many fast food restaurants declined.

Simply stated, just how many burgers would a person want to eat in one week.

Baby Boomers brought diversity to American culture in many ways and food style and cuisine was one of them.

Unfortunately, fast food brand management elected to to expand their food selection versus expand their customer base.

Locality

While Millennials sinking their roots in new neighborhoods they now call home are driving the current “shop local movement,” other generational groups are jumping onboard too.

For many folks, “local” means “fresher, more organic and more personally crafted”. Something that many national chains fail at providing.

Some brands like Chipotle attempt to jump on the local and organic bandwagon, but its hard for a good share of the market to believe their claims.

Chipotle is no longer expanding coast-to-coast and new store openings are extremely rare.

The ingredients the Hispanics owning the alternative choice Southwestern restaurant down the road are perceived way more local because they see the owners making purchases at the local farmers market.

In a survey that I completed for the fastest growing Georgia County and one of the top 25 fastest growing counties in the U.S., the #1 priority for retail development cited by more than 60% of the sample are “local restaurants and cafes and not the national chains.”

Home-anchored Values of Market Change

I hate to say it, but drive throughs and self-order are not too differentiated from the Zoom and Face Time formats that a significant share of the American workforce engages in from their home office pads.

Couple that with the lack of human touch for many, dashing over to a fast food restaurant offers limited dialogue engagement, socialization and high touch touch-points.

Place that up next against the value of family-time sitting around the family dining table in the new home cocoon that the Millennials personally authored and I know where my bet will be placed.

Initially, the kitchen table was viewed by some market strategists of fast food’s biggest competitors.

Today, the kitchen table — kitchen island with seating has return to its roost and rules.

When the Boomers birthed the Millennials, the fast food restaurants added the child playgrounds. And back then, taking a lunch-break from the Homefront and having a place for the kids to play was attractive.

Today, the vast majority of mom’s are driven by their career and not deriving the ford station wagon with the kids packed in the car seats to play games at the neighborhood McDonald’s.

There are some historic groups that have petitioned to have fast food playgrounds classified as historic icons of the late 20th Century culture.

Overall Take-Away

No question that we will see a wave of price discounts, membership promotions and further diversification of food offerings. Shoot, I would place a $50 bill that we will see a pizza restaurant rolling out an Asian pizza complete with sushi and soy dipping sauce for the egg roll fries.

However, don’t be too surprised that investors rattle corporate fast food icons demanding financial gains and same-store sales gains not too different than the same investors told the dot.coms to turn a profit!

Some think that politics is a rough environment to survive.

Quick service restaurants might be even challenge the most highly trained survivalists… and trust me its not those found on Madison Avenue!

A Positive Concluding Thought … Opportunity Might Be Knocking

Food trucks might have been a glimpse into the future that many failed to notice.

They had limited overhead costs, a simple product fare, flexibility in location, personally interactive and in the vast majority of cases, locally-owned.

Yes, there may be operational challenges of just where to park and set-up service, but food trucks offered a differentiated, personalized, environmentally-integrated experience.

There is a new local coffee house that has opened up that simply sells coffee. No cappuccinos, lattes or herbal teas. Just simple ground coffee. You can get product by walking in or through the drive-thru.

Product delivery is quick with very, very few long lines at the order counter as well as the drive-thru.

Its all roasted on-site and served in simple paper cups.

To be honest, what this new local coffee house offers in 2024 is not too different from what McDonald’s did when it first started.

Just as Millennial parents crave real books and planting a backyard garden for their Alpha Gen kids, hands-on simplicity might be an area of entrepreneurship opportunity.

If you might want to chat more about this market dynamic, text me at 404.245.9378 or Email me at mkooyman@experiencediscovery.com … If you text me, send me your name and contact information too!