paper is not recyclable and requires tremen-
dous chemical and industrial processes to cre-
ate it, it is biodegradable if composted and
requires less space than foam packaging when
discarded. McDonald’s explained some of the
factors leading to its switch, citing its lack of
success at recapturing the packaging that
leaves its restaurants and the lack of an in-
frastructure in the plastics-recycling industry.
However, the company’s 1990 annual report
explains the real impetus for McDonald’s
change: “Although scientific studies indicate
that foam packaging is sound, customers just
don’t feel good about it.” Several other fast-
food companies have also initiated environ-
mental policies that involve recyclable poly-
styrene and biodegradable paper and plastic.
McDonald’s plan, however, was the most
sweeping in the industry. The company
replaced its large white take-out bags with
brown recyclable ones, converted to smaller
napkins, installed stainless steel condiment
dispensers to eliminate the need for packets,
composted eggshells and coffee grounds, and
tested starch-based spoons, knives, and forks
as substitutes for current plastic versions. The
company further challenged its vendors to
recycle and required periodic progress reports
that evidence the suppliers’ use of recycled
material in containers.
Suppliers
Food and beverage suppliers to the fast-food
industry exert power on the participants by
raising prices or reducing the quality of their
products and/or services. One way a restau-
rant may deal with its suppliers is through
backward integration. McDonald’s enter-
tained such a move and entered the business
of raising cattle. Naturally, the environmen-
talists who condemn the use of plastics also
condemn the raising of cattle—their grazing
habits cause erosion and their waste pollutes
the ground and air.
Rivalry among Competitors
As a member of the fast-food industry,
Rubio’s competes with numerous types of
restaurants, ranging from individual in-
dependent operations to franchises and
chains. Rivalry among competitors results
from a number of factors, including fixed
costs. Fixed costs in the restaurant industry,
which include labor costs, utility bills, and
the interest expense on buildings, land, and
equipment, are quite high. Restaurants have
developed a variety of alternatives to com-
pete by reducing their fixed costs.Contract Services.PepsiCo Inc.’s Taco Bell
has adopted one way to reduce high fixed
costs. Since the mid-1980s, Taco Bell shifted
as much of the food preparation to outside
providers as possible. By contracting with
these outside suppliers, Taco Bell reduced not
only labor costs but kitchen space as well.
This reduction in fixed costs has allowed Taco
Bell to slash its menu prices, thereby attract-
ing 60 percent more customers and reaching
sales of $2.6 billion, a 63 percent increase.Robotics. The desire of fast-food restau-
rants to reduce their labor costs has resulted
in several more imaginative alternatives. Taco
Bell investigated whether robotics in the
kitchen would increase savings by reducing
space and labor requirements. Within two
years, they expected to adopt automatic taco
makers and soft-drink dispensers. Carl Jr.’s
restaurant is utilizing an automated ordering
system, dubbed “Touch 2000,” which allows
customers to enter their own selections on a
touch-sensitive countertop menu. The menu
is connected to an IBM computer that checks
the order and prompts the customer for more
specific information if it is not satisfied.
When satisfied, the computer relays the order
automatically to the kitchen and the cashier.
Burger King evaluated the system as well.
Although robotics reduce labor costs,
increase productivity, and virtually eliminate
boring jobs, not all fast-food restaurants are
converting to their use. The economy made
human labor more available, reduced restau-
rant profits, and forced cutbacks in spending
on research and development.Reduced-Sized Restaurants.Restaurants
were also developing downsized units in an446 ENTREPRENEURSHIP CASE