GS Logo
The Green Sheet, Inc

Please Log in

A Thing

Send an Email to:

Opportunity for Growth in the QSR Market
By Gregory Holmes

The Quick Service Restaurant (QSR) market represents one of the last remaining vertical market organic growth opportunities for the electronic payment industry. With more than 110,000 locations and an estimated $129 billion in annual sales, the market is immense.

The QSR market can be broken down into a number of different food segments: Pizza/Pasta, Hamburger, Chicken, Sandwich, Mexican and Other (including other types of food). The breakdown by segment, based on a study conducted by First Annapolis on behalf of First Data, is demonstrated in a chart on Page 36.

The QSR industry has been slow to adopt electronic payments for several reasons. Perceived high costs of electronic transactions remains near the top of the list along with speed-of-service concerns, technology barriers and the highly franchised nature of the business.

More than 83% of QSR locations are owned and operated by franchisees, each with their own ability to make decisions about the forms of payment they will accept. While parent companies can recommend programs to their franchises, the ultimate decision often resides at the store level.

As these concerns are overcome, more and more QSR merchants are taking the leap into acceptance of electronic payments. Because of the diverse nature of this market, a variety of products and services are needed to meet the individual needs of the operators.

Today's competitive environment for QSR operators is intense. New entrants in the marketplace are threatening the market share of the traditional players, and the more upscale fast-casual restaurants are cutting into the QSR share of consumer wallets.

Operators are fighting to maintain market share by doing everything possible to satisfy the demands of their customers, including offering new and innovative menu items, discounting price and providing a wider range of payment options.

Among the new payment options are gift and spending cards, credit, and PIN-based debit where the merchant chooses to charge the consumer a convenience fee for the transaction. In addition, a variety of terminal deployment options are necessary, including leasing, rental, purchase and free terminal-placement options.

Gift and spending cards offer tremendous opportunity for the QSR market, creating customer loyalty and a point of differentiation for early adopters.

In addition to their traditional use as gift cards, these cards are being used as a way for parents to avoid handing their children cash that can be used indiscriminately.

Many QSR chains and franchisees are in the process of evaluating or planning for the launch of gift and spending card programs

To enhance customers' speed of service, several credit card associations, including Visa and MasterCard, provide programs tailored to the QSR market. These programs include transaction speed enhancements, such as not requiring an online authorization, customer signature or customer receipt. These programs are working well; Visa has reported a 60% increase in acceptance at QSR locations in 2002 vs. 2001.

From the QSR merchants' perspective, PIN-based debit offers many advantages. The security and protection offered by the customer-entered PIN means much lower chargeback rates and the reduction of fraud.

Additionally, PIN-based debit transactions allow the merchant to offer cash back to customers, providing a value-added service to the customer that can increase customer loyalty.

When it comes to the customers' preference regarding payment methods at QSR locations, there is compelling data suggesting that PIN-based debit is preferred over credit by most consumers. A 2002 consumer survey commissioned by First Data Merchant Services found that, if given the choice to pay with either credit or PIN-based debit at a QSR location, a whopping 61% of those surveyed said they would prefer to pay with PIN-based debit.

Additionally, target age groups for the QSR customer match up well with the demographics that use POS debit transactions most frequently.

The stage is set for tremendous growth for electronic payment acceptance in the QSR market. Gift and spending cards, credit and PIN-based debit are all sure to play a significant part in that growth because of their appeal to both the QSR merchants and their customers.

Gregory Holmes is Senior Vice President of emerging market development for First Data Corporation. Gregory specializes in electronic payments in the business-to-business (B2B), Internet and quick service restaurant marketplaces as well as recurring payment industries such as telecommunications, cable, insurance and transportation. He is responsible for the development of card-not-present and other emerging markets for First Data, the leader in merchant transaction processing with 3 million merchant locations.

To learn more about FDC services and the opportunities in the QSR market, contact Kevin Reed at 213-486-0513 (e-mail: ) or Ian Drysdale at 954-851-7205 (e-mail: ).

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Back Next Index © 2003, The Green Sheet, Inc.