Fast Food Industry PESTEL Analysis

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  • Post last modified:August 1, 2020

Fast Food Industry PESTEL Analysis

The popularity of fast food does not cease increasing. Despite rising health consciousness in society,  the fast-food industry has shown healthy growth over the last several years. Behind it is the consumers’ love for fast food. Since 1970, the U.S. fast-food industry has grown rapidly. Its revenue has grown more than 30 times since then. What was at $6 billion in 1970, stands now at above $200 billion. According to Statista, the QSR industry in the US was worth more than $250 billion in 2018. A lot has happened in less than fifty years. Changing trends have affected the industry deeply. In the most recent decades, consumers have grown more and more health-conscious. People are trying to stay in good shape and avoid junk food. However, the fast-food industry responded well to these changing trends.

The restaurants adopted healthier menus. They included more and more low-calorie options. However, it is not just the health trends but other trends have also affected the industry.  Brands are focusing on attracting and retaining customers. They have made their menus and services customer friendly. Apart from it, they have adopted new channels and styles of marketing. Increased staff hospitality and better delivery options have again brought customers flocking to fast food joints. The fast-food brands like McDonald’s, KFC, Dominos, Subway, and Wendy’s have focused on building a stronger reputation, providing better service and healthier food.

Reputation has become important for two reasons. First, it is the competition between the brands. From McDonald’s to Subway, there are hundreds of global and local brands competing for market share. Second, it is the era of social sharing. Bad news spreads like wildfire and can immediately affect your image. Loss of reputation in any market means losing customers and market share. However, the brands remain more than ready to respond to such disruptive attacks. They keep well managed social media accounts to engage their fans and followers and to respond to concerns in real-time.

While the fast-food industry was performing well till 2019, in 2020 a fresh set of challenges have emerged before it due to the spread of coronavirus. The pandemic abruptly put a halt on everything and apart from closure of restaurants, it also disrupted supply chains. QSR restaurants will need to adapt to the changed scenario. Many of them are going to bear significant losses due to the pandemic. Apart from a change in their business model which will mainly focus on drive-thru and home delivery to cater to the needs of customers efficiently in the latest conditions. Digital technology will help these brands sustain demand and sales during and after the pandemic.

Fast Food industry External Analysis

Globally, the fast-food industry generates annual revenue of above $570 billion. It employs more than 4 million in the US alone. The growth rate of the industry is expected to remain around 2.5% in the coming years. There are so many trends that have influenced the fast-food chains. From sustainability to waste reduction and human treatment of the animals, this sector has been subject to so many changing laws. Quite a lot has changed since 1970. These changes were followed by innovation in terms of variety as well as customer service and marketing.

Its size and presence make it an important part of the industry.  Despite the changing trends, the fast-food industry has shown healthy growth based on some important factors.  The restaurants integrated technology to improve their level of service. However, these are just trends. There are political-economic, cultural, and other factors too that affect the fast-food industry. These factors are analyzed in detail below:

Fast food industry pestel

 Political

The political factors affecting the fast-food industry can vary from country to country. Compliance is of utmost importance. Globally, the fast-food brands have to comply with these requirements. There are regulations related to wages, hygiene, and food quality that need to be complied with. The minimum wage standards can differ from country to country. In countries where wage rates are higher, the costs of labor are also high. Apart from it, packaging regulations have also changed.  Governments can also press the fast-food chains to include healthier items on their menus. These are the most important political factors that affect the fast-food industry. The attitude of governments towards businesses has a definite effect on their performance.

 Economic

The recession influenced the fast food industry to some extent. However, since it passed, spending per consumer has increased. Most of the restaurants have included cheaper options in their menus and improved customer service. Customer service is an important area as brands struggled during the recession to retain customers. A number of changes including increased health consciousness affected fast-food sales. Delicious food was insufficient to attract customers. So, brands supplemented it with increased convenience and low costs to encourage customers.

Overall, economic factors are a very important influence on the fast-food industry. The industry demonstrated excellent ability to adapt in the face of the changing trends. To better adjust to the recession and low economic activity, brands included low priced items. They increase the variety of products on the menu. However, the size of individual spending on fast food has always depended on the economic conditions in specific markets. In the U.S. alone, more than 200,000 restaurants feed more than 50 million people daily. With economic activity surging globally, the spending on fast food could increase further in the future.

 Social

Health and lifestyle trends also influence the fast-food industry. Health awareness has affected the entire food industry. It includes not just fast food, but snacks and beverages and all other foods. People now think before they eat. Consumers’ changed attitude pressed the restaurant brands to include low-calorie options. The social perception of health has changed vastly. Media has played its own important role in creating this perception. The fast-food industry has faced heavy criticism for targeting young children.

Moreover, the attack on junk food led to people adopting low-calorie foods. Such changing social trends impact the sales of the entire industry. The industry was held liable for increasing childhood obesity. As a result, it had to adopt measures like showing nutritional content on the label and reducing calories in the items. Cultural factors also play an important role since some cultures do not encourage the consumption of fast food. Still, most cultures have adopted it with changes to suit the local preference.

Another important change that is happening in the global society right now is driven by the Coronavirus pandemic. Globally, people’s lifestyles have undergone a major change during the pandemic. A lot of people started working from their homes during Covid-19 and more and more of fast-food customers are ordering from homes or picking orders while driving through due to the pandemic. Instead of dine in, restaurants are seeing people ordering online mainly or picking their orders from the restaurant. Since, Coronavirus could have a major and lasting impact on people’s ;lifestyles around the world, its impact on the industry could also be severe and businesses need to respond with appropriate changes to their operating models.

Technological

Technological factors are an important force driving the growth of the fast-food industry. The fast-food sector does not depend only on the attractiveness of its menu and food quality. Customer service and convenience are also major factors affecting sales. Technological factors have already changed the way brands served and engaged their customers. They also affect the marketing and advertising of the brands.  Social media and online ordering have changed the style of customer service.

Social media channels became the most important venue for engaging customers. The use of digital displays and kiosks affected ordering and the costs of labor. Technology overall has proved to be something indispensable. It has helped brands serve customers through innovative channels and in innovative ways. Fast food brands have become innovative in other areas too. They engage their customers on social media and collect feedback through several channels. Competition in the industry is heavy. This is also a reason that technology has become important for fast food brands.

In the face of the latest crisis that has left many industries including the fast food industry reeling, technology has grown all the more important for businesses in order to sustain themselves during the crisis and ready themselves for the post-crisis scenario. While a large number of restaurants adopted mainly drive-thru models during the Coronavirus pandemic, digital technology has played a key role in helping food businesses transition to a new model. Even once the pandemic has been brought under control, people will be ordering from homes in larger numbers and digital technology will be the main driver of demand and sales for the QSR brands. So, the overall importance of digital technology for the fast-food industry has suddenly grown manifold.

 Environmental

Sustainability was another important factor to impact the industry globally. Changing government rules and regulations pressed the brands to adopt a greener approach. Food-related regulations grew stricter. Whether the U.S., UK, or Europe, the quality standards have become stiffer everywhere. The U.S. Food and Drug Administration also tightened its rules. Targeting children and waste management were some areas where brands were forced to change their approach. A green approach has helped brands enjoy improved customer loyalty. McDonald’s innovated its approach to recycling and waste management. Sustainability too became an important requirement for the entire industry. Some of the brands have even focused on having sustainable and compliant supply chains.

Legal:

The legal aspect of the fast-food business has seen important changes happening during recent decades. The pressure due to changing legal requirements has risen. Food quality and nutritive value are the major areas affected by the law. Apart from it, packaging and waste management are also critically impacted.  Overall, the law imposed new demands on the fast-food industry. The entire sector changed its approach to marketing and sales. For fast-food brands, it is important that they comply with legal changes. Particularly,  they should market responsibly to children under 13. Despite being conscious of their health, consumers love the flavor. They cannot help their craving for taste. So, there are a few things about fast food that are never going to change. Fast food will continue to tinkle our taste buds. Moreover, food is a basic need. This understandable human weakness will continue to aid the growth of the industry. However, competition is now higher than ever. So, brands have to focus more on engaging customers. Some other things too cannot be ignored any longer. Hygiene, sustainability, and compliance are on the top of the list. Technology will continue to influence fast-food chains deeply. Customers like being served with discounts. No doubt, brands have to focus on how they market themselves.

Why conduct a PESTEL?

Businesses do not just depend on the quality of their products to achieve sales. In their external environment, there are many factors that influence growth and profitability. A PESTEL analysis helps evaluate the importance and strength of these factors. It helps businesses decide which of these factors are favorable and which are not.  PESTEL stands for Political, Economic, Socio-cultural, Technological, Ecological, and legal. All these factors acquire special importance for businesses operating in a global environment.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.