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Market snapshot: Fast food and take-away

31 May 2005
Market snapshot: Fast food and take-away

The UK is largest fast-food and take-away market in Europe, double the size of Germany and three times the size of the French market.

The burger sector - the main one from the catering and hospitality perspective - was worth £1.86b in 2004, grew by 1.6% that year, and represents 22.2% of the total fast-food/take-away market.

Main players

Just as McDonald's dominates the restaurant sector as a whole, so it is the biggest player in the fast-food sector, with some 1,235 outlets, according to the BHA's Trends and Statistics 2004 report. Burger King is next on 700 outlets, closely followed by KFC with 692.

Sandwiches, however, remain the largest overall sector of the market, dominated by the big high-street retailers and supermarket chains, but also containing players such as Pret a Manger, Subway and Benjys.

Major players in the pizza sector include Pizza Hut and Domino's.

Growth prospects

While the market has been growing (see above), it has not been an easy few years.

Concerns about healthy eating and obesity have hit the sector hard, both in the USA and the UK.

McDonald's, for instance, reported a 3.5% drop in sales in 2003, while in autumn 2004 its UK arm posted pre-tax profits static at £118m.

Chains have diversified, into train stations, service stations and universities, for instance, and there have been link-ups with contract caterers, most notably Burger King's tie-in with Compass.

Burger King has also been looking at developing a smaller restaurant format to take on the likes of Starbucks and Subway, a move that could increase its portfolio to 1,000 units.

But the very success and dominance of the big fast-food players has created its own problem - that of market saturation, argues Stefan Breg of consultancy Tribe.

"We have reached a point where, in the eyes of the consumer at least, there are enough of them. There is also an issue of anti-brand attitudes," he argues.

In terms of food, the trend towards more healthy options means that burgers themselves now account for fewer than half of sales in the burger sector, says Key Note, with the other remaining sales made up of other offerings, such as chicken products and even salads.

Chicken restaurants have also been taking more sales from burger chains in recent years, while the pizza market has by and large been reliant for growth on home delivery.

Changes to the planning classifications, particularly the splitting of the old A3 Classes Order into three new categories, have made life tougher, adds David Coffer of property agent Davis Coffer Lyons, with rents increasing for take-away units.

Key trends

The switch to more healthy menus has meant the market has been in a transitional phase, one which it is now starting to come out of, argues Breg.

The nutritional debate over fast-food has by and large reached a crossroads, agrees Coffer. "People are either prepared to eat saturated fats or they are not," he says.

There has been increased competition from smaller, more agile, rivals - notably from the coffee and sandwich bar sectors.

Alongside this, the industry has had to contend with changing eating patterns, more "grab-and-go" offerings and greater use of retail take-home food.

In terms of property, the biggest battle is now for dominance in the suburbs, adds Coffer.

Another factor continuing to affect the market has been the regulation burden, he suggests, particularly on planning, access and social issues.

In terms of employment, the skills shortages that bedevil the whole of the restaurant market have been just as much a problem for the fast-food sector, with its reputation as a low-wage, high-staff-turnover industry.

The opening up of the European Union to new members has provided operators with a new pool of relatively cheap labour but, in turn, has created issues of training, language, culture and, potentially, discrimination.

McDonald's, for instance, attracted media brickbats at the end of 2004 when it was reported to the Commission for Racial Equality after a Manchester branch ordered staff to speak English at all times - even when they were on their breaks.

Future prospects

A lot of work has gone in to convincing customers that the sector's change of focus to healthier eating is credible and sincere, believes Breg.

The challenge now is to continue to change customer perceptions, particularly among older consumers who have grown up with the Big Mac and who, as the population demographic changes, are becoming a much more important element of the market.

At the same time, fast-food restaurants will not want to put off their core markets of families and younger people.

Despite the tough outlook, there is a glimmer of hope that, with the healthier eating issue being tackled head on, the market now appears to be entering a more stable phase, says Breg.

"They get good payroll efficiency because there is no table service; their food costs are good, although their capital costs remain high. But the biggest challenge remains brand perception," he argues.

The saturation of the market also means there is little likelihood of any big newcomers coming in, from the USA or elsewhere, Breg believes.

But there could be competition in the future from ethnically based chains, such as noodle bar chain Wagamama, Yo Sushi! or the Bombay Bicycle Club, which now have a proven track record.

But the biggest challenge in the next 10 years will be the ability to find sites, argues Coffer. "There is money in the market, and lots of money has been coming in, but expansion is very difficult," he adds.

Fast food/take-away and home-delivery market by sector:

- 2003 - 2004 -
- ValueShare of totalValueShare of total
Sandwiches£2,922m36.3%£3,056m36.5%
Burgers£1,809m22.5%£1,860m22.5%
Fish & chips£924m11.5%£939m11.2%
Pizza£843m10.5%£890m10.6%
Chicken£507m6.3%£525m6.3%
Other£1,05313.1%£1,10613.2%

UK burger market by value:

- 20002001200220032004
Value £1,678m£1,712m£1,757m£1,809m£1,860m
Year-on-year change - - 2%2.6%3%2.8%
Share of total fast-food market23.1%22.9%22.5%22.4%22.2%

Source: Keynote Fast Food and Home Delivery Outlets, 2005

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