CONTENTS

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February 2016

IBISWorld Industry Risk Rating Report

Fast Food Restaurants in the

US

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

www.ibisworld.com | 1-800-330-3772 | info@ibisworld.com

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Fast Food Restaurants in the US

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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

Structural risk
Growth risk
Sensitivity risk
Overall risk

Weight

Score

25%
25%
50%

5.16
4.97
5.05
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

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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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72221a - Fast Food Restaurants in the US

9

Risk Rating

1
2007

Industry Risk

2008

2009

2010

2011

2012

Division Risk: Accommodation and Food Services in the US

2013

2014

2015

2016

Economy Risk: Entire US Economy

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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

Barriers to Entry
Competition
Exports
Imports
Assistance
Life Cycle Stage
Revenue Volatility
Structural Risk

Level

Trend

Weight

Score

Low
High
Low
Low
None
Mature
Low

Increasing

13%
20%
7%
7%
13%
20%
20%

8.00
9.00
1.00
2.00
7.00
5.00
1.00
5.16

Steady
Steady
Steady

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.

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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.

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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.

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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.

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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

2013-2015 Annualized growth

2015-2016 Forecast Growth
Growth risk

Revenue

Weight

Score

2.2%
1.7%

25%
75%

4.90
4.99
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.

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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

Consumer spending
Healthy eating index
Consumer Confidence Index
Agricultural price index
Sensitivity risk

Weight

Score

35%
25%
20%
20%

2.96
8.09
2.65
7.29
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.

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February 2016

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.

Consumer spending
6

% Change

-2
1981

1986

1991

1996

2001

2006

2011

2016

2021

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Fast Food Restaurants in the US

Year

$ billion

1981

4,050.8000

1982

4,108.4000

1983

% Change

February 2016

Year

$ billion

% Change

2002

8,598.8000

2.58

1.42

2003

8,867.6000

3.13

4,342.6000

5.7

2004

9,208.2000

3.84

1984

4,571.6000

5.27

2005

9,531.8000

3.51

1985

4,811.9000

5.26

2006

9,821.7000

3.04

1986

5,014.0000

4.2

2007

10,041.6000

2.24

1987

5,183.6000

3.38

2008

10,007.2000

-0.34

1988

5,400.5000

4.18

2009

9,847.0000

-1.6

1989

5,558.1000

2.92

2010

10,036.3000

1.92

1990

5,672.6000

2.06

2011

10,263.5000

2.26

1991

5,685.6000

0.23

2012

10,413.2000

1.46

1992

5,896.5000

3.71

2013

10,590.4000

1.7

1993

6,101.4000

3.47

2014

10,875.7000

2.69

1994

6,338.0000

3.88

2015

11,225.8975

3.22

1995

6,527.6000

2.99

2016

11,562.6745

1996

6,755.6000

3.49

2017

12,099.3775

4.64

1997

7,009.9000

3.76

2018

12,432.3836

2.75

1998

7,384.7000

5.35

2019

12,729.5222

2.39

1999

7,775.9000

5.3

2020

13,051.2432

2.53

2000

8,170.7000

5.08

2021

13,397.4449

2.65

2001

8,382.6000

2.59

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

12

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13

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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February 2016

Healthy eating index

80

60

40

20

0
1980

1985

1990

1995

2000

2005

2010

2015

2020

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Year

1980

63.5

1981

63.5

1982

% Change

February 2016

Year

% Change

2001

66.8

-0.3

2002

66.5

-0.45

66.1

4.09

2003

67.6

1.65

1983

64.8

-1.97

2004

67.7

0.15

1984

64.2

-0.93

2005

66.6

-1.62

1985

65.6

2.18

2006

67.7

1.65

1986

65.4

-0.3

2007

67.1

-0.89

1987

65.4

2008

67.0

-0.15

1988

66.5

1.68

2009

67.7

1.04

1989

66.5

2010

69.0

1.92

1990

66.3

-0.3

2011

68.4

-0.87

1991

66.8

0.75

2012

68.5

0.15

1992

67.4

0.9

2013

68.6

0.15

1993

66.9

-0.74

2014

68.7

0.15

1994

67.4

0.75

2015

68.9

0.29

1995

66.7

-1.04

2016

69.0

0.15

1996

67.1

0.6

2017

69.2

0.29

1997

68.0

1.34

2018

69.3

0.14

1998

67.3

-1.03

2019

69.4

0.14

1999

67.6

0.45

2020

69.5

0.14

2000

67.0

-0.89

2021

69.5

15

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

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February 2016

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.

Consumer Confidence Index

60

40

% Change

20

-20

-40

-60
1981

1986

1991

1996

2001

2006

2011

2016

2021

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Year

Index

1981

77.3833

1982

59.0333

1983

Abs. Change

February 2016

Year

Index

Abs. Change

2002

96.6167

-9.95

-18.35

2003

79.5583

-17.06

85.6667

26.64

2004

95.9667

16.41

1984

102.3167

16.65

2005

100.2667

4.3

1985

100.0250

-2.3

2006

105.8917

5.62

1986

94.6500

-5.37

2007

103.3583

-2.53

1987

102.6083

7.96

2008

57.8500

-45.51

1988

115.1833

12.57

2009

45.4417

-12.41

1989

116.8000

1.62

2010

54.4833

9.04

1990

91.5250

-25.28

2011

58.0917

3.61

1991

68.4500

-23.07

2012

67.0500

8.96

1992

61.6167

-6.83

2013

73.6417

6.59

1993

65.9167

4.3

2014

87.0833

13.44

1994

90.5667

24.65

2015

97.6300

10.55

1995

100.0333

9.46

2016

98.9399

1.31

1996

104.5833

4.55

2017

104.8826

5.94

1997

125.1417

20.56

2018

108.7494

3.87

1998

131.6917

6.55

2019

108.6830

-0.07

1999

135.3167

3.63

2020

111.4186

2.74

2000

138.9583

3.64

2021

112.3931

0.97

2001

106.5667

-32.39

17

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

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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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Agricultural price index

140

120

100

Index

80

60

40

20

0
1990 1992 1994

Year

Index

1990

68.2761

1991

64.5351

1992

1996 1998 2000

Abs. Change

2002 2004 2006 2008

2010 2012 2014

2016 2018 2020

Year

Index

Abs. Change

2006

72.8830

-4.32

-3.74

2007

85.1827

12.3

63.3431

-1.2

2008

86.8190

1.64

1993

65.3248

1.98

2009

75.0541

-11.77

1994

62.3827

-2.94

2010

85.6008

10.55

1995

60.8807

-1.5

2011

99.9923

14.39

1996

65.8823

2012

102.7229

2.73

1997

64.9071

-0.97

2013

108.0915

5.37

1998

63.5014

-1.41

2014

125.5945

17.5

1999

62.1321

-1.37

2015

116.3105

-9.28

2000

63.0724

0.94

2016

112.2839

-4.03

2001

68.7620

5.69

2017

111.0659

-1.21

2002

59.4126

-9.35

2018

109.2170

-1.85

2003

67.5248

8.11

2019

106.5663

-2.65

2004

78.8996

11.38

2020

104.8946

-1.68

2005

77.1970

-1.7

2021

104.1363

-0.75

19

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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 1218 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

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22

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