^fast food risk 2016

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February 2016

www.ibisworld.com | 1-800-330-3772 | [email protected]

IBISWorld Industry Risk Rating Report Fast Food Restaurants in the US

February 2016

Risk Overview ............................................................................................................................... 2

Industry Definition & Activities ................................................................................................................... 2 Industry Risk Score.................................................................................................................................... 2 Risk Rating Analysis .................................................................................................................................. 2

Structural Risk .............................................................................................................................. 5 Barriers to Entry ......................................................................................................................................... 5 Basis of Competition .................................................................................................................................. 6 Domestic and International Markets .......................................................................................................... 6 Industry Assistance.................................................................................................................................... 7 Life Cycle ................................................................................................................................................... 7 Industry Volatility........................................................................................................................................ 8

Growth Risk ................................................................................................................................... 9 Growth Analysis ......................................................................................................................................... 9

Sensitivity Risk ........................................................................................................................... 10 Consumer spending ................................................................................................................................. 10 Healthy eating index ................................................................................................................................ 12 Consumer Confidence Index ................................................................................................................... 15 Agricultural price index ............................................................................................................................ 17

IBISWorld Industry Risk Scoring Methodology ........................................................................ 21 What is Industry Risk ............................................................................................................................... 21 Methodology ............................................................................................................................................ 21 Risk Levels .............................................................................................................................................. 21

Fast Food Restaurants in the US

WWW.IBISWORLD.COM Fast Food Restaurants in the US February 2016 2

Risk Overview

Industry Definition & Activities

This industry comprises restaurants where patrons pay for quick-service food products before eating. Purchases may be consumed on-site, taken out or delivered. Gross revenue is derived from both franchised and company-owned stores. Franchise fees (up-front costs associated with opening a franchise) are accounted for in industry revenue. This industry excludes coffee and snack shops. Most industry establishments also sell beverages, such as water, juice and sodas, but usually not alcohol. The primary activities of this industry are:

Operating drive-thru and take-out facilities

Operating fast food services

Operating quick-service restaurants

Industry Risk Score

Forecast Period: December 31, 2016 To calculate the overall risk score, IBISWorld assesses the risks pertaining to industry structure (structural risk), expected future performance (growth risk) and economic forces (sensitivity risk). Risk scores are based on a scale of 1 to 9, where 1 represents the lowest risk and 9 the highest. The three types of risk are scored separately, then weighted and combined to derive the overall risk score.

Risk component Weight Score

Structural risk 25% 5.16

Growth risk 25% 4.97

Sensitivity risk 50% 5.05

Overall risk 5.05

Risk Rating Analysis

Risk Score Trend Analysis Overall risk in the Fast Food Restaurants industry is forecast to be MEDIUM over 2016. The primary negative factor affecting this industry is high competition, while the primary positive factor is low revenue volatility. Overall risk will be slightly higher than the previous year, a result of an unfavorable movement in healthy eating index. However, its impact will be partially offset by a projected fall in growth risk. Risk Score Context In 2016, the average risk score for all US industries is expected to be in the MEDIUM-LOW band. Furthermore, the risk score for the Accommodation and Food Services sector, which includes this industry, is also at a MEDIUM-LOW level. Therefore, the level of risk in the Fast Food Restaurants industry will be higher than that of the US economy and the Accommodation and Food Services sector. Structural Risk Analysis


Structural risk will be MEDIUM over the outlook period. The biggest source of difficulty within the industry is the high level of competition. Businesses competing fiercely for market share are forced to incur expenses to differentiate their offerings, keep prices low to entice demand or both. The result is a greater likelihood of declining revenue and lower profits. However, existing firms will benefit from increasing barriers to entry, which protect against higher competition in the long run by reducing the ability of new players to enter the marketplace. Another positive for operators is the low revenue volatility. This suggests steady demand, easing the burden of cash flow management even during broader economic downturns. Growth Risk Analysis Growth risk is expected to be MEDIUM over the outlook period. IBISWorld forecasts that annual industry revenue will grow 1.7% to $229.0 billion. In comparison, revenue expanded 2.2% per year between 2013 and 2015. Sensitivity Risk Analysis Sensitivity risk is forecast to be MEDIUM over the outlook period, up from LOW in 2015. The two factors with the most significant impacts on the industry are consumer spending and healthy eating index. When there is a rise in consumer spending, risk will fall; whereas a rise in healthy eating index will cause industry risk to increase. Consumer spending: Industry growth is sensitive to changes in consumer spending. For example, during the recession, the spike in unemployment led to declines in consumption levels, including the consumption of fast food. However, when personal consumption expenditure is high, consumers are more likely to spend money on eating out at industry restaurants. This factor's contribution to risk is expected to decrease in the coming year. Healthy eating index: The healthy eating index is expected to increase slowly in 2015, as consumers become increasingly aware of issues related to weight and obesity, fatty-food intake and food safety issues. This factor particularly affects the often meaty and greasy fast food industry. This factor's contribution to risk is expected to increase in the coming year. Agricultural price index: The agricultural price index represents nominal prices received by farmers for all US agricultural products (both livestock and crops) and is also a strong indicator of the prices fast food restaurants can expect to pay for the ingredients that go into preparing meals. When the price of meal ingredients increases, it typically results in lower profit margins because operators generally cannot pass on the entire cost to consumers. The agricultural price index is expected to decline during 2015. This factor's contribution to risk is expected to remain the same in the coming year. Consumer Confidence Index: Changes in consumer sentiment have a significant effect on household expenditure on discretionary items, including fast food. When customers are optimistic about the economy, they spend more on these items. Consumer sentiment is expected to increase in 2015. This factor's contribution to risk is expected to decrease in the coming year.


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Industry Risk Division Risk: Accommodation and Food Services in the US Economy Risk: Entire US Economy

72221a - Fast Food Restaurants in the US


Structural Risk

An industry's structural score measures the impact of the fundamental characteristics common to all industries. These seven components are scored separately, then weighted and combined to derive the structural risk score.

Structure component Level Trend Weight Score

Barriers to Entry Low Increasing 13% 8.00

Competition High 20% 9.00

Exports Low Steady 7% 1.00

Imports Low Steady 7% 2.00

Assistance None Steady 13% 7.00

Life Cycle Stage Mature 20% 5.00

Revenue Volatility Low 20% 1.00

Structural Risk 5.16

Barriers to Entry

Barriers to entry in this industry are low Barriers to entry in this industry are increasing

Given the franchise component of the Fast Food Restaurants industry, the barriers are typically low, given that an operator can lease premises, equipment, furniture and fittings from the franchisor, which cuts down the initial capital costs. Also, franchisors provide training, food and beverages, and some financial and accounting functions for a proportional share of revenue from their franchisees. These provisions lower operational costs and can also minimize some risks, especially for inexperienced hospitality industry persons entering the industry. Still, individual franchisees carry much of the day-to-day operational and management risks associated with their own business. Industry concentration is low to moderate, with the top four players expected to garner about 36.2% of the available market share in 2015. This low concentration is an indication of the array of food concepts and styles available in this industry, with no individual major player being dominant. Therefore, it is not extremely difficult for an operator to enter the industry with a new or existing food concept. Industry regulation and licensing are significant, from health and food service regulations to licensing for liquor sales and general occupational health and safety issues (particularly in relation to safety in kitchen operations). Regardless, these issues do not create any insurmountable barriers to either entering or operating in this industry.


Basis of Competition

Competition in this industry is high Competition in this industry is increasing

The Fast Food Restaurants industry exhibits a high level of competition. Restaurateurs are required to compete against each other and against other industries in the broader food service sector such as full service restaurants (encompassing casual dining and fine dining), coffee shops, bars and hotels. Internal competition Fast food restaurants compete with each other on the basis of price and quality. As a result of the high level of competition within the industry, profit margins are low for most industry operators, necessitating stringent cost and quality controls to maintain efficiency and minimize wastage. Operators also face strong competition based on quality. Premium ingredients and well-presented meals are highly regarded and can make the difference to consumers, who often judge a fast food restaurant by how it compares with others. Restaurants also compete on the basis of location, style, ambience, hospitality and service. More than ever, restaurants are selling and marketing a meal experience to potential customers. As a result, it is important that the operator understands the positioning of the restaurant in the marketplace and the clientele they are attracting or wanting to attract. Significantly, the restaurant must consistently deliver on customers' product expectations. External competition External competition arises from the broader food service sector. This includes fast-food restaurants and independent restaurants that offer dining and take-out services, as well as other retailers that serve food, such as convenience stores and supermarkets. When economic conditions are gloomy, consumers are more likely to trade-down to cheaper food options, putting pressure on fast food restaurants to lower prices.

Domestic and International Markets

Exports Exports in this industry are low Exports in this industry are steady Imports Imports in this industry are low Imports in this industry are steady

As a retail industry, the Fast Food Restaurants industry is not technically engaged in importing or exporting products, so international trade is not relevant to the industry. However, a number of industry players have overseas operations and earn a significant portion of their revenue overseas. Many large operators have established franchised operations internationally. Given the mature stage of this industry's life cycle in the domestic market, with changes in customer profiles and tastes, many major operators are seeking to increase their growth in revenue and earnings through further global expansion. In recent years, the large fast food chains, including Yum! Brands and McDonald's have earned an increasing amount of their revenue outside of the United States.


Industry Assistance

There is no assistance available for this industry There are no specific tariffs for this industry

Although the Fast Food Restaurants industry receives no formal assistance in the form of government aid or monetary compensation, there are industry associations that help the industry as a whole. For example, the National Restaurant Association provides industry news, research, sponsoring events, networking opportunities, and representation, among other things. There are also organizations that provide the same services on a more local level. Franchisees receive assistance from the franchise owner in the form of marketing, supply-chain management and purchasing. However, this comes at a cost in the form of an annual royalty and/or marketing fee.

Life Cycle

The life cycle stage is mature Life Cycle Reasons

The rate of new store openings has slowed

Operators are concentrating on international openings

There is heavy price-based competition The Fast Food Restaurants industry is firmly entrenched in the mature stage of its life cycle. Over the 10 years to 2020, industry value added, which measures an industry's contribution to US GDP, is forecast to grow at an average rate of 1.9% per year, compared with estimated annualized GDP growth of 2.2% over the same period. Thus, the industry has exhibited slow and steady long-term growth, at a slightly slower pace than the economy as a whole. For this reason, many chain operators are seeking higher growth in overseas markets. The number of establishments is expected to grow at a nominal average rate of 1.7% per year over the ten years to 2020. Significant shifts in consumer preferences have also had an impact on the industry over the past five years. Demand for healthy foods, for example, has increased because consumers have become more health conscious in recent years. In an attempt to maintain consumer interest in the fast-food market, operators like McDonald's have introduced a range of healthy option to their menus. Furthermore, fast casual restaurants that do not offer table service, but provide a higher quality of food and ambiance compared with traditional fast food restaurants, have been experiencing particularly strong growth over the past five years. Relatively new players like Chipotle and Five Guys that offer customizable, gourmet meals have stolen market share away from traditional fast food operators such as McDonald's and Burger King. The rate of technological change within the industry is moderate, but the rapid increase in internet penetration and smartphone usage over the past five years has presented fast food restaurant operators with the opportunity to engage with customers on a number of new levels. Many small fast food operators have utilized online advertising, informative and interactive company websites and social media such as Twitter and Facebook to increase their brand recognition and revenue. Furthermore, technology is also being used to boost profit margins, improve service levels and to help minimize labor costs, reducing food waste, improving business processes and improving meal experiences. For example, new systems and technology are designed to ensure quality service and reduce customer waiting time such as electronic ordering systems linking the front counter with the kitchen as orders are taken.


Industry Volatility

The level of volatility is low

The Fast Food Restaurants industry has a low-to-moderate level of revenue volatility. Over the five-year period, the industry has grown slowly, but consistently, much like the broader economy, lowering the industry's volatility. The industry depends on consumer tastes and preferences, as well as levels of disposable income and consumer confidence. Restaurant spending is highly discretionary and easily substituted for lower cost options such as home cooked meals. As a result, changes in factors affecting incomes, such as taxes and unemployment levels, can directly affect industry revenue. However, some consumers will downgrade from full-service restaurants to lower-cost fast food during times of economic austerity, which helps to mitigate any dramatic decline in revenue for the Fast Food industry. Furthermore, there is a very high household penetration rate for quick-service meals as Americans spend a large percentage of their total food budget on restaurant meals. The diversity of foods served by the industry helps keep any volatility under control. The industry consists of a range of food products, from Asian restaurants, to traditional American restaurants and other ethnic cuisines, meaning that if tastes defer from one type of food towards another, the industry still captures the revenue. While demand for traditional fast food options high in fat, salt and calories is falling, there are a growing number of convenient, affordable and healthy fast food options available to consumers. Industry revenue volatility is anticipated to level out over the next five years as the industry continues along a long-term low growth trajectory. An expected improvement in the domestic economy will lead to healthy consumer spending, benefiting fast food operators.


Growth Risk

The growth risk score evaluates forecasted industry revenue growth against past performance as well as expected growth for all other industries. A high industry growth rate is associated with lower risk for operators in that industry.

Growth component Revenue Weight Score

2013-2015 Annualized growth 2.2% 25% 4.90

2015-2016 Forecast Growth 1.7% 75% 4.99

Growth risk 4.97

Growth Analysis

Over the past five years, the Fast Food Restaurants industry has struggled with consumer preferences moving away from unhealthy foods and a saturated food-service landscape that has kept prices low. In comparison with other operators in the hospitality sector, fast-food restaurants performed relatively well over the early half of the last five-year period due to their low price points and the extra convenience they offer. However, heavy competition from other segments in the food-services sector has forced fast food operators to emphasize low prices in a continuing battle to attract consumers. As a result, industry revenue is expected to grow at an average annual rate of 2.5% to $225.1 billion over the five years to 2015. In 2015, growth is expected to be modest, with an estimated increase of just 2.1%, as the broader economy continues to work toward a full recovery. Over the past five years, consumer-eating habits have changed as people have become increasingly health conscious and have demanded alternatives to traditional greasy fast food options. While major fast food retailers have responded by expanding the number of healthy menu items, the general trend toward health awareness has decreased demand for traditional fast food restaurants. In response, major chains like McDonald's have expanded their menus to include healthier options such as salads, fruit and smoothies. Furthermore, due to slow domestic growth, many major chains have invested in their international operations as part of a long-term strategy to focus on emerging economies. Fast food restaurants view China in particular as a market that has strong potential for growth and long-term profitability. The industry is expected to be marginally better off over the next five years as the domestic economy improves and consumers continue to seek convenient meal options. While no severe revenue declines are expected, fast food restaurants will continue to operate in a slow-growth environment as many segments of the industry have reached a saturation point. Successful operators will need to adapt to changing consumer preferences as the traditional concept of fast food evolves to include a wider variety of options. As plenty of opportunities remain for new fast food concepts and products, the industry's long era of growth is far from over. As a result of these trends, industry revenue is expected to grow at an annualized rate of 2.0% over the five years to 2020 to $248.7 billion.


Sensitivity Risk

IBISWorld has identified and weighted the most significant external factors affecting industry performance. These factors are scored separately, then weighted and combined to derive the sensitivity risk score.

Sensitivity component Weight Score

Consumer spending 35% 2.96

Healthy eating index 25% 8.09

Consumer Confidence Index 20% 2.65

Agricultural price index 20% 7.29

Sensitivity risk 5.05

Consumer spending

Estimated Value in 2015: $11.23 trillion 2010-2015 Compound Growth: 2.27% Forecasted Value for 2020: $13.05 trillion 2015-2020 Compound Growth: 3.06% Consumer spending (more formally aggregate consumption) measures the total amount spent by Americans on services and new goods and net purchases of used goods, both domestically and abroad. The data for this report is sourced from the Bureau of Economic Analysis and presented in chained 2009 dollars. Current Performance The financial meltdown and subsequent recession caused a nearly 30-year streak of consecutive growth in aggregate consumption to break; since 1980, the combination of job growth, lower savings and easier access to credit allowed American consumers to spend a greater amount than they had the previous year, even during times of economic hardship such as the bursting of the dot com bubble. However, the rapid deterioration of housing and financial markets led to a simultaneous tightening of credit and soaring unemployment, crippling incomes and preventing consumers from maintaining their spending habits. As a result, aggregate consumption slid by 0.3% in 2008 and fell further in 2009, by 1.6% to $9.85 trillion. Not all spending categories were impacted in the same way amidst the contraction. Expenditures on goods, particularly durable ones, declined more rapidly than spending on services or nondurable goods. As employment fell, the hardest hit categories were motor vehicles and parts, gasoline and transportation services. This is not surprising given that a significant portion of travel is to or from work. Additionally, durable goods are usable over longer periods of time, and thus upgrading or replacing older products such as furniture can be put on hold during times of economic hardship. Meanwhile, expenditures on services generally held their ground or recorded meek growth. However, there were declines even among service providers, with food and accommodation categories slipping in both 2008 and 2009.


Consumer spending grew in 2010 and 2011, regaining the ground it lost during 2008 and 2009. The growth was partially driven by pent up demand for durables, which were scaled back during the downturn, being unleashed, leading to particularly robust growth within this category. Continued growth in 2015 (estimated at 3.2%) has been aided by the falling unemployment rate, which will improve per capita disposable income, and a sharp decline in gasoline prices. Outlook Barring the recent recession, aggregate consumption growth has fluctuated within a narrow band, displaying slow and steady growth over the last two decades. With wage growth anticipated to pick up alongside recent employment gains, IBISWorld expects that the long term historical growth rate will reassert itself. More specifically, the creation of additional jobs will translate into a greater number of dollars in consumer wallets, enabling them to ramp up purchases. The ability to spend is expected to be further strengthened by easier access to credit, particularly for those who rejoin the work force, though lending standards will remain tighter than their prerecession levels. Finally, higher employment and improved consumer confidence are expected to boost consumer spending power. Data Volatility According to IBISWorld calculations, aggregate consumption displays a low level of volatility. This is largely because spending habits are deeply ingrained and fluctuations, particularly cutbacks, are marginal rather than drastic. Changes in aggregate consumption typically reflect changes in income or access to credit, rather than actual changes in underlying habits. Consequently, unemployment and lending activities play an important role in influencing the direction of aggregate consumption.

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Consumer spending


Year $ billion % Change

1981 4,050.8000

1982 4,108.4000 1.42

1983 4,342.6000 5.7

1984 4,571.6000 5.27

1985 4,811.9000 5.26

1986 5,014.0000 4.2

1987 5,183.6000 3.38

1988 5,400.5000 4.18

1989 5,558.1000 2.92

1990 5,672.6000 2.06

1991 5,685.6000 0.23

1992 5,896.5000 3.71

1993 6,101.4000 3.47

1994 6,338.0000 3.88

1995 6,527.6000 2.99

1996 6,755.6000 3.49

1997 7,009.9000 3.76

1998 7,384.7000 5.35

1999 7,775.9000 5.3

2000 8,170.7000 5.08

2001 8,382.6000 2.59

Year $ billion % Change

2002 8,598.8000 2.58

2003 8,867.6000 3.13

2004 9,208.2000 3.84

2005 9,531.8000 3.51

2006 9,821.7000 3.04

2007 10,041.6000 2.24

2008 10,007.2000 -0.34

2009 9,847.0000 -1.6

2010 10,036.3000 1.92

2011 10,263.5000 2.26

2012 10,413.2000 1.46

2013 10,590.4000 1.7

2014 10,875.7000 2.69

2015 11,225.8975 3.22

2016 11,562.6745 3

2017 12,099.3775 4.64

2018 12,432.3836 2.75

2019 12,729.5222 2.39

2020 13,051.2432 2.53

2021 13,397.4449 2.65

Healthy eating index

Estimated value in 2015: 68.9% 2010-2015 Growth: -.10 percentage points Estimated value in 2020: 69.5% 2015-2020 Growth: 0.6 percentage points IBISWorld calculates a healthy eating index as the percentage of a recommended diet that an average American consumes. The percentage represents the degree that the average American adheres to the consumption guidelines set out by the US Department of Agriculture that are regularly updated every five years. The last recommended diet was released in 2010. Current Performance The healthiness of Americans diets has increased slowly but steadily since the 1980s. Nevertheless, the healthy eating index has experienced its share of declines, most prominently toward the early 2000s. This decline was a result of dramatic increases in dairy and fat consumption compared with fruit and vegetable


consumption. At the time, fruit and vegetable consumption fell steadily due to rising prices. A growing trend toward plant-based biofuels as high crude oil prices prevailed in the United States boosted food prices over the past five years as grain prices shot up dramatically, pulling up prices of other foods with them. Consequently, the added demand drove up most vegetable prices. The same price increases, however, helped drive down corn syrup consumption, a major component of total sugar and sweetener consumption. The decrease in corn syrup consumption has been aided somewhat by the increasing exposure of its negative effects, namely elevated rates of obesity and diabetes, which has helped Americans choose healthier diets. In addition, low-carb, high-protein diets became increasingly popular, decreasing grain consumption and increasing meat consumption. Both food categories were overconsumed previously, however, causing a mixed effect on the overall healthiness of the diet. While consumers disposable incomes have increased over the five-year period, adverse conditions leading to price volatility across many food segments caused a drop in overall consumption of measured food products. For example, adverse weather conditions resulted in price volatility for many vegetables and fruits produced in Florida and across the Midwest, causing consumers to decrease their already-low consumption of fruits and vegetables. Furthermore, volatility in the price of red meat encouraged many consumers to trade back down to processed meats over the period, further contributing to unhealthy diet practices. A larger decrease in the consumption of fruits and vegetables over the five years to 2015 has contributed to a slight decline in the healthy eating index. However, because Americans overconsume all food products except fruits and vegetables, this overall reduction lowered the total average calories consumed by the average American, which had a net effect on the healthiness of diets, mitigating these declines somewhat. As the economy began recovering in 2010, increasing health awareness, partially prompted by public efforts, including Michelle Obamas Lets Move campaign, has led diets to improve overall. Americans have reduced red meat consumption, which is high in saturated fats, and increased consumption of foods with beneficial fatty acids like Omega-3 and Omega-6. Outlook In the coming years, the healthiness of Americans diets will continue to increase, with the consumption patterns of all measured food categories expected to improve. Health food stores have become more popular than ever in recent years, and increasing income will push more consumers to eat healthier foods that may come with a higher price tag. However, the boom in grain and oilseed crop prices in the past five years is expected to come to an end. Higher yields resulting from record harvests and genetically modified crops will continue to push down prices for these crops, particularly corn. These crops are largely used as feed for livestock and poultry; as a result, the price drops will decrease the prices of meat products downstream at grocery stores. Increasing disposable income, coupled with lower meat prices, is expected to push up red meat consumption slightly in the next five years, tempering growth in the healthy eating index overall. However, a changing landscape in which consumers demand healthier products will continue to encourage major food producers and the larger foodservice sector to eliminate artificial sweeteners and other unhealthy ingredients from their product lines, contributing to healthier diets overall. Furthermore, increasing consumption of white meats, such as poultry and turkey, is expected to persist over the next five years, as red meat consumption experiences relatively flat growth. As a result, the healthy eating index is expected to increase over the five years to 2020.


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Healthy eating index


Year % % Change

1980 63.5

1981 63.5 0

1982 66.1 4.09

1983 64.8 -1.97

1984 64.2 -0.93

1985 65.6 2.18

1986 65.4 -0.3

1987 65.4 0

1988 66.5 1.68

1989 66.5 0

1990 66.3 -0.3

1991 66.8 0.75

1992 67.4 0.9

1993 66.9 -0.74

1994 67.4 0.75

1995 66.7 -1.04

1996 67.1 0.6

1997 68.0 1.34

1998 67.3 -1.03

1999 67.6 0.45

2000 67.0 -0.89

Year % % Change

2001 66.8 -0.3

2002 66.5 -0.45

2003 67.6 1.65

2004 67.7 0.15

2005 66.6 -1.62

2006 67.7 1.65

2007 67.1 -0.89

2008 67.0 -0.15

2009 67.7 1.04

2010 69.0 1.92

2011 68.4 -0.87

2012 68.5 0.15

2013 68.6 0.15

2014 68.7 0.15

2015 68.9 0.29

2016 69.0 0.15

2017 69.2 0.29

2018 69.3 0.14

2019 69.4 0.14

2020 69.5 0.14

2021 69.5 0

Consumer Confidence Index

Estimated Value in 2015: 97.6 Index value 2010-2015 Compound Growth: 12.4% Forecast Value for 2020: 111.4 Index value 2015-2020 Compound Growth: 2.7% The Consumer Confidence Index is calculated by The Conference Board using a monthly survey. The survey includes questions related to household finances, business conditions, employment, income and economic outlook. The values presented in this report are annual figures, derived from equally weighted monthly averages. Current Performance The Consumer Confidence Index (CCI) was in the doldrums ever since the dot com bubble burst; however, the CCI fell further starting in late 2007 before plunging precipitously in 2008. The sharp drop was triggered by the collapse of two stalwarts of the financial sector, Bear Stearns and Lehman Brothers, which


revealed an unexpected weakness in the US economy and a bubble in the housing market. Consumer confidence deteriorated as Americans had their retirement accounts and savings crushed by plunging asset values. Expectations for the future remained bleak through early 2009, with soaring unemployment dampening optimism across the nation. But in the second half of 2009, a stabilizing housing market and stock prices regaining some of the ground lost during the collapse led consumer confidence to turn the corner. This trend of improving consumer confidence persisted through 2010 as the economy regained traction and companies reported renewed profitability, resulting in a 20.0% higher average in the CCI compared with 2009. Moreover, the strength in consumer confidence in recent years has been encouraging. However, in the larger historical context, the estimated 2015 average remains below precessionary rates and well below confidence levels prior to the dot com bust. This relatively low level is partially due to continued economic turmoil in Europe and downward revisions in growth expectations for China. Outlook Over the five years to 2020, IBISWorld expects consumer confidence to recover in stride with the economy and employment. Returning to work and regaining a steady income will make individuals considerably more positive about future prospects and, thus, amiable to large purchases. Unfortunately, the depth and magnitude of the downturn will mean that this recovery will take place slowly. While IBISWorld expects this to be the general trend over the outlook period, the high level of volatility inherent in this index makes it likely that individual months and years will vary substantially from projections.

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Consumer Confidence Index


Year Index Abs. Change

1981 77.3833

1982 59.0333 -18.35

1983 85.6667 26.64

1984 102.3167 16.65

1985 100.0250 -2.3

1986 94.6500 -5.37

1987 102.6083 7.96

1988 115.1833 12.57

1989 116.8000 1.62

1990 91.5250 -25.28

1991 68.4500 -23.07

1992 61.6167 -6.83

1993 65.9167 4.3

1994 90.5667 24.65

1995 100.0333 9.46

1996 104.5833 4.55

1997 125.1417 20.56

1998 131.6917 6.55

1999 135.3167 3.63

2000 138.9583 3.64

2001 106.5667 -32.39


2002 96.6167 -9.95

2003 79.5583 -17.06

2004 95.9667 16.41

2005 100.2667 4.3

2006 105.8917 5.62

2007 103.3583 -2.53

2008 57.8500 -45.51

2009 45.4417 -12.41

2010 54.4833 9.04

2011 58.0917 3.61

2012 67.0500 8.96

2013 73.6417 6.59

2014 87.0833 13.44

2015 97.6300 10.55

2016 98.9399 1.31

2017 104.8826 5.94

2018 108.7494 3.87

2019 108.6830 -0.07

2020 111.4186 2.74

2021 112.3931 0.97

Agricultural price index

Estimated Value in 2015: 116.3 Index value 2010-2015 Compound Growth: 6.3% Forecasted Value for 2020: 104.9 Index value 2015-2020 Compound Growth: -2.0% The agricultural price index represents nominal prices received by farmers for all US agricultural products (both livestock and crops) with a base year of 2011. Data is sourced from the US Department of Agriculture (USDA) and forecasts are based on their figures combined with IBISWorld analysis. Current Performance Since the agricultural price index represents the prices of all agricultural products, it closely mirrors the performance of the US economy as a whole. The movement of the price of one product often cancels out any idiosyncratic movement of the price of another product. Corn, wheat and soybeans operate as substitutes on the animal feed market, which is the endpoint for a majority of each crop, and any overall


feed price increase is counteracted in the index by a drop in the meat price as livestock farmers are forced to slaughter unsupportable animals. As a result, the index only moves when prices of all goods move due to outside drivers. The main outside driver of agricultural prices is the price of oil. Both corn and soybeans have progressively been used more in fuel substitutes in the past five years, corn in ethanol and soybeans in biodiesel. High oil prices boost demand for alternative fuel, which increases the price of corn and soybeans. Furthermore, transportation is a major cost for all agricultural products. As a result, when oil prices rise, the prices of agricultural products increase to recoup the higher transportation costs. The other key driver of agricultural prices is the strength of the US dollar. The United States is a major exporter for most agricultural products, and foreign demand expands when the dollar is weak versus other currencies. The inflation of the price of oil from 2006 to 2008 greatly expanded the production of corn-based ethanol and soybean-based biodiesel. Indeed, according to the USDA, food, seed and industrial uses account for one-third of domestic corn use. As demand and prices increased for corn and soybeans, demand for wheat as an animal feed substitute increased, raising its price as well. The supply of meat grew significantly due to accelerated slaughtering rates, but the resulting price drop for cattle and hogs was tempered by larger transportation costs. This all contributed to the sharp rise in the index from 72.9 in 2006 to 86.8 in 2008. The global financial crisis in 2008 caused oil prices, the value of foreign currencies versus the dollar and overall demand to drop significantly. These factors led to an agriculture price dip of 13.6% in 2009, before a rebound of 14.1% in 2010 once oil prices and demand recovered. High oil prices over 2011, plus adverse weather conditions in farming areas around the world, significantly drove up the price of all major agricultural products, leading to a 16.8% increase over the year. In 2012, high oil prices, rising consumption of agricultural products and a drought in the Midwest and Plains Regions of the United States caused the agricultural price index to rise 2.7%. Since then, agricultural production has normalized as adverse weather conditions subsided. Additionally, in late 2013, the Environmental Protection Agency did not set an increased Renewable Fuel Standard for 2014, breaking the precedent that ethanol and other biofuel production would increase each year. The flat demand from biofuel producers has alleviated upward pressure on corn and soybean prices. Increasing meat prices in 2014 due to low cattle herd numbers and a drought in the West pushing up vegetable prices led the agricultural production index to rise further in 2014. As production of both crops and livestock products increase in 2015, supply constraints will ease, leading prices to fall over the year. Additionally, a large decline in the price of oil and the strengthening US dollar is also expected to drag down the index. Nonetheless, over the five years to 2015, the agricultural price index is expected to increase at an annualized rate of 6.3% to 116.3. Outlook After the rapid price growth of most agricultural products over the past five years, the agricultural price index is expected to decline in the next five years. Upward pressure on crop prices driven by booming biofuel production will be relieved as biofuel production is expected to remain flat in the next five years. Furthermore, meat prices that have spiked due to low cattle herd numbers will fall as livestock production increases and cattle farmers replenish their herds. The agricultural price index is forecast to fall 2.0% per year on average to 104.9 in the five years to 2020. Price volatility could result from fluctuating oil prices. Oil prices contribute to the price of agricultural goods because they form a part of transportation costs and biofuels compete with petroleum products as an energy source, which further ties the price of biofuels and biofuel crops to oil prices.


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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Agricultural price index


1990 68.2761

1991 64.5351 -3.74

1992 63.3431 -1.2

1993 65.3248 1.98

1994 62.3827 -2.94

1995 60.8807 -1.5

1996 65.8823 5

1997 64.9071 -0.97

1998 63.5014 -1.41

1999 62.1321 -1.37

2000 63.0724 0.94

2001 68.7620 5.69

2002 59.4126 -9.35

2003 67.5248 8.11

2004 78.8996 11.38

2005 77.1970 -1.7


2006 72.8830 -4.32

2007 85.1827 12.3

2008 86.8190 1.64

2009 75.0541 -11.77

2010 85.6008 10.55

2011 99.9923 14.39

2012 102.7229 2.73

2013 108.0915 5.37

2014 125.5945 17.5

2015 116.3105 -9.28

2016 112.2839 -4.03

2017 111.0659 -1.21

2018 109.2170 -1.85

2019 106.5663 -2.65

2020 104.8946 -1.68

2021 104.1363 -0.75


IBISWorld Industry Risk Scoring Methodology

What is Industry Risk

IBISWorld Industry Risk evaluates the inherent risks associated with hundreds of different industries in the United States. Industry Risk is assumed to be "the difficulty or otherwise of the operating environment". This approach is new in that it analyses non-financial information surrounding each industry. The Industry Risk score is forward looking, and the score looks at expected Industry Risk over the next 12-18 months. The methodology is based on industry classifications and is designed to identify and quantify risks inherent in specific industries both now and into the 12 month forecast. Industry-based information would, for example, enable the examination of a loan book (portfolio) with regards to risk, which would enable a more sophisticated assessment of risk spread and pricing to risk. Alternatively, individual exposures can be better evaluated using an assessment of structure and key drivers of change in the industry of the exposure.

Methodology

To calculate the overall risk score, IBISWorld assesses the risks pertaining to industry structure (structural risk), expected performance (growth risk) and economic forces (sensitivity risk). Risk scores are on a scale of 1 to 9, where 1 represents the lowest risk and 9 the highest. The three types of risk are scored separately, then weighted and combined to derive the overall risk score. Structure Score: An industry's structural score measures the impact of the fundamental characteristics common to all industries. These seven components are scored separately, then weighted and combined to derive the structural risk score. This component contributes 25% of the overall score. Growth Score: The growth risk score evaluates forecasted industry revenue growth against past performance as well as expected growth for all other industries. A high industry growth rate is associated with lower risk for operators in that industry. This component contributes 25% of the overall score. Sensitivity Score: IBISWorld has identified and weighted the most significant external factors affecting industry performance. These factors are scored separately, then weighted and combined to derive the sensitivity risk score. Examples include input costs, number of housing starts, commodity prices, etc. This component contributes 50% of the overall score.

Risk Levels

Risk Score Level of Risk

1 - 3 Very Low

>3 - 4.1 Low

>4.1 - 4.7 Medium - Low

>4.7 - 5.3 Medium

>5.3 - 5.9 Medium - High

>5.9 - 7 High

>7 - 9 Very High

Fast Food Restaurants in the US


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Documents

industry risk score

growth risk

risk overview

structural risk

sensitivity risk

risk rating analysis

industry assistance

industry volatility