Variable Coefficients Marginal Effects
Population －0.0025***
The final part will conclude and give some extensions and suggestions that can improve this research.
VII. Conclusions and Extensions
By using Taiwanese local fast-food outlets data, this paper has shown how some demographic factors affect the decision of fast-food outlets’ location and the distance between McDonald’s to MOS outlets, and also the other factors that affect the franchising decision of McDonald’s outlets. Interestingly, not all results are consistent with the past theoretical and empirical works.
In my first part of this research, demographic factors, my regression results have shown that both population density and transportation have great positive influence on the specific
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district’s fast-food outlet numbers. It means that in a district which is densely populated or contains an important transport station, fast-food firms are more likely to set up an outlet.
For a restaurant business, more crowded areas means more consumers, and it is reasonable that fast-food firms tend to set up their outlets at districts with high demand.
Also, the age factor is consistent with the past empirical works, showing that fast-food firms like to set up outlets at districts with more young people. The reason might be highly correlated with the popularity of fast-food among teenagers and children.
The education factor is negatively related to the dependent variable, and it is also consistent with past thesis, which means that firms like to set up an outlet at a district with more low-educated people. According to past literature, the reason is that low-educated people prefer quick and cheap food services to expensive restaurants.
However, the sex factor shows a quite different result from the past literature. A negative effect on the sex factor means that, unlike other foreign countries, Taiwan’s fast-food firms like to set up restaurants in districts with more women. It is possible that Taiwanese females prefer consuming fast-food more than males. Another possible explanation is that, the size of fast-food meal in Taiwan is much smaller than western countries; men usually eat more and are not be satisfied by fast-food meal in Taiwan.
In the second part of the distance-to-the-nearest-competitor model, this paper has shown that large markets would separate McDonald’s and MOS geographically, which is consistent with past literature. In a geographically large market, both firms would locate far away from each others to make themselves a local monopolist. For MOS, since it is the second fast-food firm in Taiwan, avoiding competition with McDonald’s let MOS dominate the minor market.
The market concentration proxy, HHI, shows a significantly positive sign in this model if appropriate distance is controlled, which means MOS would keep away from
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McDonald’s if the market is highly concentrated and competitive.
The most interesting result is the age factor, Pct_Child showing a significantly positive sign. It means that MOS tend to move away from McDonald’s in a district with high proportion of children. The reason is that most children like McDonald’s more, for McDonald’s provide toys with specific meals and playground in their outlets. Therefore, facing a lower degree of substitution, MOS would tend to keep away from McDonald’s in a district with more children.
In the final part, franchising of Taiwan McDonald’s outlets, this paper classifies services into observable and unobservable ones. Totally four services dummy, 24Hrs, WIFI, Drivethru, and Playground are included. Also, Population variable is used as a
proxy for demographic factor. Pct_Men and Attractions are control variables.
The probit regression results have shown that the Population variable is negatively correlated with the outlet’s ownership dummy. It means that if the district is more populated, McDonald’s prefer setting up a company-owned outlet rather than franchising it.
In fact, according to my primary data, urban areas, such as Taipei city, there are only company-owned outlets. Because of the high demand and profitability in urban areas, McDonald’s tend to manage these outlets by itself, and not sharing the profits with franchisees. On the contrary, sparsely populated areas usually means high monitoring costs for running a company-owned outlet. McDonald’s franchise these outlets and take advantage of the local knowledge of franchisees.
As for the outlet’s service factors, the observable service factors are not significant. The only significant and reasonable variable is Drivethru dummy, which shows a positive sign.
Since drive-through is considered an unobservable service because the drive-through staffs’
effort is hard to supervise for McDonald’s headquarter, outlets that provide this kind of unobservable service are more likely to be franchised.
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In fact, some managers told us about some important information considered by the headquarter before the company determine to set up a new outlet, including estimated annual revenue and expense, location of neighboring competitors, and transportation conditions, etc. Since some of the data are hard to acquire, this paper tries to explain the research problems using restricted data as much as possible. However, the regression results can still make contributions for economic analyses of fast-food industry location strategies.
Finally, since my data is a cross-sectional data, this paper assumes that the demographic and service variables are unchangeable in the short-term. However, by using this method, this paper ignores the fixed effect of different firm’s properties, which might cause biased results. Panel data can deal with these kinds of problems easily and efficiently. Therefore, for further research of this topic, it is suggested that panel data be used to control the fixed effect, which requires time to record the data.
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Questionnaire of McDonald’s Outlet Franchising Information Background Information
Outlet’s Name：______________________
Interview Time：
_________________________________________________________________________
Successful Interview：□First-time □Second-time □Over Third-time Introductory Remarks
Hello! This is the Department of Economics of National ChengChi University. Would you mind if we ask you some questions for academic purposes? Could you put me through the manager if he is available now? Thank you.
(If the manager is not available) When is the manager on duty?
_________________________________________________________________________
1. Is your outlet franchised or owned by company?
(Franchised→2. Company-owned→8.)
□Franchised □Company-owned
2. Do you own other McDonald’s franchised outlets? (Yes→3. No→5.)
□Yes, ＿＿＿outlets. □No 3. Can you tell us the names of other outlets?
_________________________________________________________________________
4. Do you decide on different strategies for each of your franchised outlet?
_________________________________________________________________________
5. What kind of job have you had before you joined the McDonald’s?
□Public Employees □Finance □Business □Construction □Electronics □Services
□Information □Manufacturing □Communications □Transportations
□Agriculture and Animal Husbandry □Freelance □Homekeeper
□Human Health and Social Work Services
□Student □Retired □Unemployed □Others________
6. Can you briefly describe your motivation of joining McDonald’s?
_________________________________________________________________________
7. How did you acquire the outlets you owned now?
□Self-owned □Rent □Distributed by company
8. Are there any features of your outlets different from other franchisees?
_________________________________________________________________________
---End of the franchised section---
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9. How many outlets have you managed totally?
(Over two outlets→10.)
＿＿＿outlets.
10. Can you tell us the names of other outlets?
_________________________________________________________________________
11. How did the headquarter arrange your transfering between different outlets?
_________________________________________________________________________
12. Compared to the franchisees, are there any restrictions for company-owned outlets management?
_________________________________________________________________________
--- End of the company-owned section---
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