1. The Hamburger Industry

The hamburger industry over the years has reacted to a changing environment, which is vital for future success. Along with adaptation, the factor of management vision must be present. A proactive rather than a reactive management style is essential for the 21st century. The hamburger industry will be under attack by other sectors of the fast-food industry, such as pizza, ethnic food and family mid-price establishments.

In considering the successes and failures in the hamburger industry, many mistakes have been made, and the organizations that remain viable are only those that were able to make constant adjustments with such variables as innovation, target-market segmentation and image, physical environmental resources and human resources. These organizations are McDonald’s, Burger King, Wendy’s, Hardee’s and White Castle.

Thereby, the valid points influencing the hamburger industry ― franchising, market conduct and the history and marketing strategies of the main parties ― must be considered.

1.1 Franchising

Although franchising in the fast-food industry has attracted considerable attention since the 1960s, the concept actually began in 1851 when the Singer Company established franchised sewing machine outlets. Franchising was also introduced by General Motors in 1893 and by Rexall in 1902. As franchising has evolved, even major producers and suppliers have entered this exciting industry.

There have been a number of favorable consequences of franchising for the economic environment. Franchising greatly increased the opportunities for individuals to become independent business people. Franchise businesses in the past have had lower failure rates than other types of business. Economic concentration decreases by providing a viable alternative to completely integrated vertical chains. Minority-group members are provided with opportunities to own their own businesses. Consumers are able to buy standardized products and services.

The unfavorable consequences of franchising include the fact that it can constitute an anticompetitive system of distribution. To illustrate, it is very difficult for an independent individual to compete with such fast-food chain as McDonald’s. Franchise agreements are one-sided in favor of protecting the prerogatives of franchisers, and some franchisers may employ questionable techniques in selling franchises.

A larger and growing percentage of retail sales volume is conducted through franchise systems in the fast-food industry. Organizations such as McDonald’s, Wendy’s own some retail units, but they usually franchise the majority of their units to help obtain wider market coverage. Franchisees are expected to conform to standardized contractual rules and regulations and to pay compensation for the privilege of using the franchise name. The franchiser provides some or all of the following services:

location analysis;

store development,

including lease negotiations;

store design;

aid in equipment purchasing;

management training;

promotion assistance;

centralized purchasing;

financial assistance in the establishment of the business;

an exclusive territory;

the goodwill and identification of a known corporate name.

In return, the parent organization or franchiser receives from the franchisee an initial franchise fee, an operating fee based on gross sales, rental or lease fees for facilities and equipment and management fees for rendered services and assistance.

Three decision trends loom large for the 21st century. First of all, the menus for many fast-food establishments have been broadened. The fundamental concept of profit through volume is still appropriate, and there are attempts to be first in new menu additions. Second, although many consumers desire healthy food, the fast-food customer may say one thing and do another. Salad bars have been introduced by many fast-food organizations. One trend as we move toward the future will be to experiment with the introduction of healthier food. Second, more educated consumers will demonstrate concern over their children’s eating habits and food preparation, and a low-fat healthy diet will become more appealing. Third, fast food will become more available. Business organizations operating restaurants for employees will desire fast-food organizations to assume a greater part of the task of feeding employees. Fast-food chains are located in airport, bus and railway terminals and in large department stores and supermarkets. School districts have solicited requests from fast-food organizations to service their needs. The institutional and corporate markets may demand ever greater menu diversification.

A franchise system allocates resources and coordinates product and marketing activities to make a greater market impact and to obtain operational economies of scale, which are more difficult for the independent business person to achieve. The capital and entrepreneurial spirit of the franchisee is combined with the strength of an established, more experienced franchiser organization. An important advantage in becoming a franchisee is the program of research and development that is designed to improve the product or the service.

Failure in the fast-food industry has occurred as the result of ineffective relationships with franchisees. Mistakes were made in selection of locations, diminishing the impact of physical resources. As competitive threats intensify from pizza, ethnic food and family mid-price establishments, the hamburger industry will become more cost conscious. Already, McDonald’s, once known for its successful franchise relationships, is experiencing disagreement in its organization. Indeed, there are ominous dark clouds on the horizon for the hamburger industry.