The Restaurant and Fast Food Race: Who's Winning?

Abstract

Over the past decade people have begun to eat out more, and their revealed preferences on where to eat have altered the structure of the food service sector. In 1977, there were 118,896 restaurant and lunchroom establishments in the U.S., and only 92,357 fast food establishments.' By 1986, restaurants and lunchrooms grew to 126,514, but fast food establishments increased to 126,125. Today, there are undoubtedly more fast food establishments than restaurants. For the person eating out, restaurants and fast food establishments generally provide clear alternatives. Fast food is cheaper, takes less waiting time, and has a more restricted menu than restaurants. Accordingly, fast food is likely to be attractive to (1) lower income persons, (2) people in a hurry, and (3) people with simple and consistent food preferences. With the large increase in the labor force participation of women over the past two decades, there has been less time to prepare (brown bag) lunches to take to work, and more stress in preparing meals every night at home; accordingly, we would expect the demand for eating out to have increased. How that higher demand has gotten allocated to regular versus fast food restaurants is hard to determine a priori. It is an empirical question. In this paper we analyze recent trends in the restaurant and lunchroom and fast food sector. We specify and empirically test (utility-maximizing) supply and demand models, respectively, for both sectors using a pooled 1977 and 1982 cross-section of state data. The empirical results allow us to explain the overall success of this industry, as well as the differential behavior of restaurants and fast food businesses.