An econometric analysis of the demand for fast food across metropolitan areas with an emphasis on the role of availability

Mark David Jekanowski, Purdue University

Abstract

U.S. consumer expenditures on meals outside the home have been increasing for several decades. Between 1960 and 1994, the proportion of total food expenditures spent on food away from home increased from just over 26 percent to nearly 50 percent. Over much of this period, fast food has been the most rapidly growing segment of the food away from home industry. Between 1970 and 1992, inflation adjusted fast food sales grew at a compound annual rate of about 5.8 percent, more than double the rate of growth of the next largest segment of the industry, table service restaurants. Currently, fast food accounts for nearly 50 percent of all expenditures on meals prepared outside the home. Despite its growing prominence in the American diet, few academic studies have focused on the forces behind the growth of the fast food industry. Most conclusions regarding this industry are drawn from research that focuses on the broader category of all food away from home. In most of these studies, changes in consumption over time are attributed to changing demographics, tastes and preferences, and opportunity costs of time. This study focuses exclusive attention on fast food, and on the factors most responsible for the growth in consumption between 1982 and 1992. Consumer demand for convenience makes physical proximity and ease of access critically important. This simple fact has escaped recognition in previous work. This study incorporates convenience through a measure of the availability of fast food within particular markets. Greater availability deceases the transportation costs incurred by consumers to purchase meals from fast food outlets. Along with availability, per capita consumption is estimated as a function of transportation costs, prices of fast food and its substitutes, income, and various demographic characteristics. The data represent 85 U.S. metropolitan areas during the years 1982, 1987, and 1992. Regression estimates reveal that over the entire period of analysis, increases in the availability of fast food led directly to increased consumption. In fact, the variables controlling for availability and transportation costs tended to be among the most influential. The results indicate that market saturation in this industry has not occurred, despite the predictions of many industry insiders. The implication is that strategies that increase consumer accessibility to fast food directly increase per capita consumption, and contribute heavily to industry growth. This illustrates the high value that consumers of fast food place on convenience. While there is some evidence that consumption patterns differ across demographic groups, changes in the demographic profile over time were found to have had practically no direct effect on the growth in consumption of fast food. Prices and income are important, and a slight decrease in the real price of fast food between 1987 and 1992 contributed partially to consumption increases. There is evidence to support a hypothesis that tastes changed during the period of analysis, and likely contributed to consumption growth especially between 1982 and 1987.

Degree

Ph.D.

Advisors

Binkley, Purdue University.

Subject Area

Agricultural economics|Economics|Marketing

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