Fast food's chain reaction: Soon there will be instant eating outlets almost everywhere we turn. Richard Thomson charts the course of an imported industry that has yet to reach its potential
Sunday 01 May 1994
This is the end of a week- long course in restaurant management, McDonald's style. If they pass, these kids will step on to the first rung of the promotion ladder, becoming second assistant managers in their local McDonald's. They will have learnt the McDonald's way of serving hamburgers and, just as important, they will have absorbed some of the curious team spirit that makes the world's largest fast-food chain tick.
This is McDonald's Hamburger University, based in the North London suburb of East Finchley, where company trains its UK managers before sending them out into the world to multiply. And multiply they do, at the astonishing rate of about 50 new restaurants a year. As Michael Quinlan, the chairman and chief executive of McDonald's worldwide, told the Institute of Directors last week: 'Since the first restaurant in 1974, we've added 525 more in the UK - and we plan to double that number in the next 10 years]'
By then, the number of people McDonald's feeds every day will probably have doubled from one million to around two million.
There will be McDonald's outlets not only on Britain's high streets but in hospitals, airports and railway stations; at golf tournaments and race- courses. But they will be jostling shoulder to shoulder with other leading fast-food brands such as Burger King, the second largest hamburger chain owned by Grand Metropolitan, Pizza Hut, the largest pizza chain, and KFC, formerly Kentucky Fried Chicken - all of which are growing at much the same breakneck pace.
The fast-food industry is, in short, in a period of hectic growth that is likely bring a so- called 'fodder stop' to the doorstep of almost every Briton within the next decade.
Despite this rate of expansion, however, there seems little danger of the market becoming saturated in the foreseeable future. The figures give the outline of the story. After rapid growth in the 1980s, Britain's spending on eating out reached pounds 20bn last year, making it the largest and fastest-growing sector of the leisure industry. Increasing wealth and disposable income, together with a general trend towards convenience foods, were largely the cause.
Within the total spend on eating out, the fast-food sector is probably growing the most rapidly. In 1985, spending on fast food was pounds 1.8bn; in 1989, it was pounds 2.9bn. According to estimates by the Economist Intelligence Unit, it will have risen to around pounds 3.75bn by next year. Sales of hamburgers, the favourite fast food, will be worth about pounds 1bn by then, followed by pizzas and then chicken.
The industry also appears to have demographics on its side. The baby-boom generation is now producing its own children, providing a whole new customer group for the fast- food chains, which have deliberately pitched their image to appeal to families.
By international standards, moreover, the British still spend relatively little on eating out, which should leave room for expansion. Each of us, on average, spends pounds 200 a year in restaurants, while Americans spend pounds 318 and the Swiss pounds 867. The British are close to the top of the European fast-food spenders, averaging pounds 49 a head each year, but this is still far behind the American total of pounds 195 a year.
And it is to the United States that most of the big chains look for their market expectations - not surprisingly, since most of the them originated there. According to Burger King, there is one hamburger joint for every 5,000 citizens in the US; in the UK, the ratio is a mere one to 100,000. While no one believes the UK market will prove identical to the US market, these ratios suggest there is still a long way to go before the fast-food chains achieve market saturation.
At an international level, the story is the same. McDonald's claims to feed about half a per cent of the world's population every day. 'If the industry can raise that half per cent to 1 per cent we will have no problem with saturation for the next 20 years,' said Nigel Travis, Burger King's vice-president of international development.
But while the numbers of fast-food outlets multiply to meet a seemingly insatiable new demand, they are also stealing much existing business from more traditional outlets - such as corner fish-and-chip shops. Everything about the economics and marketing of hamburgers and pizzas militates in favour of concentration into a few names that dominate and finally crush their rivals. The diversity of choice is steadily shrinking.
The root of the problem for independent operators is that the profit margin on fast food is very slim. On sales in the UK of pounds 578m, for example, McDonald's made a tiny after-tax profit of pounds 8.5m in 1992.
In such a competitive business, therefore, the ability to buy cheaply from suppliers becomes crucial - which is where the big chains with their vast buying power gain essential economies of scale. McDonald's bought pounds 32m of beef, pounds 22m of chicken products, 32,000 tonnes of potatoes, 275 million buns and 4.5 million gallons of milk in 1992. Burger King, with about 300 outlets in the UK, is the only hamburger chain still able to compete with McDonald's in buying power, although neither company is prepared to reveal what it pays for its raw materials.
The same is true for fitting out new restaurants. Both chains have found that over the last five years the cost of building a new outlet has dropped from around pounds 1m to about pounds 400,000. 'Critical mass is a major driver in this business,' Mr Travis said.
The larger the number of branches, the more cost-effective the advertising. All of the big chains have found that strong branding is essential and cultivate their images assiduously. In the early 1990s, McDonald's was the biggest advertiser on British television, with a total promotional budget of pounds 35m a year. The other chains are also a mainstay of TV advertising.
Will the public not become bored with fast food as the choice offered to them inevitably shrinks to a few big brands? The answer, apparently, is no. 'I do not think the formularisation and homogeneity caused by the growing concentration in the fast-food industry is an issue with customers,' says Fiona Stewart, a director of the Henley Centre, the market forecasting agency. Although people appear to like diversity in more formal restaurants, when it comes to fast food they demand complete predictability.
Hence the importance of strong branding. The chains all operate rigorous quality control to ensure that each outlet provides an identical service. Despite the horrendous logistics involved in enforcing common standards across its thousands of restaurants around the world, McDonald's has probably been the most successful fast-food chain at ensuring that customers get exactly the same formula wherever they go.
Training is crucial in achieving this. The entire fast- food industry depends on the energy of teenagers - 63 per cent of the 31,000 McDonald's staff in the UK are under 20 years old - who have to be coached into producing the company's formula perfectly. They are regulated by a detailed code of practice and behaviour. Paid around pounds 3.40 an hour - close to the minimum wage being considered by the Labour Party - they maintain the standards of their employers with remarkable consistency.
The rewards for such strong branding are substantial. Two years ago, when McDonald's was even further ahead of Burger King in the strength of its branding, the typical sales volume of its outlets was pounds 1.15m compared with pounds 500,000 at Burger King. Last October, Burger King exercised the power of its own brand when it franchised its name to Compass, the catering group. Compass changed the name of its little-recognised Casey Jones hamburger restaurants to Burger King and saw sales jump by 30 per cent almost immediately. The same thing happened when they franchised the Pizza Hut name and applied it to their own pizza outlets.
But the competition between the brands, and the battle to win bigger market share is now moving on to new turf. Since McDonald's opened its first UK restaurant in Woolwich in 1974, the traditional site for such operations has been the high street. Now that is changing.
'We're pretty well on every high street we want to be on,' said David Wignall, training officer for McDonald's. 'Now we've got to be a bit cleverer to attract new customers.' Being a bit cleverer means finding cheaper, more imaginative ways of reaching the public. 'Instead of people coming to us, we have to go to the public. Shoppers are moving away from the high street.'
Accordingly, 80 per cent of McDonald's units built last year were drive-thru - customers arrive, eat and leave in their cars.
McDonald's has also set up shop in airports and ferries, including Heathrow, Gatwick and the Stena-Sealink ferry, Fantasia, that runs between Dover and Calais. If its link-up with caterers Gardner Merchant goes ahead, it will soon be seen in hospitals, universities and on sporting occasions.
Many of its new units will be franchised - a move the chain has largely avoided in the UK until now. Burger King and KFC, on the other hand, have franchised heavily as a way of expanding faster than they could have otherwise.
Franchising has also put Burger King ahead in the move to find new kinds of sites away from the high street. Its agreement with Compass has taken it to the races at Aintree and Cheltenham and into airports and railway stations. It has set up in numerous motorway service stations and has units in the B&Q stores. 'Anywhere you can cook a hamburger and fries you can have a Burger King,' Mr Travis said.
As well as finding new customers and fostering brand awareness, the aim of this method of marketing is to cut costs. Out-of-town units are cheaper than the expensive high-street sites, where rents can be extremely high and good sites have become increasingly rare. When rents soared in the 1980s, for example, Wendy, the US hamburger chain, decided to pull out of the UK altogether on the grounds that the best sites were simply too expensive.
Mr Travis of Burger King points out that the company's large high-street restaurants were built to accommodate the lunchtime and supper rush. But since the space was fully utilised for only about one hour a day, the expense of having such large restaurants is not entirely justified. Smaller, cheaper sites in airports and railway stations are far more economical.
In the relentless quest for higher volumes, fast-food chains also try hard to keep up with their customers' constant demands for novelty. There have been signs for some time of a hamburger 'fatigue' in the US. And this has led the main hamburger chains to experiment with a range of other foods such as fish, chicken and salads. Boredom with hamburgers may have helped to stimulate the expansion of the home- delivery pizza business, led by Perfect Pizza, which is now one of the fastest-growing areas of the fast-food industry.
Nevertheless, the relentless triumphal forward march of fast food, and the ubiquitous hamburger in particular, appear to be an inevitable development of the 1990s. Small, local operators will be steamrollered as the big supermarkets have steamrollered so many corner shops. Unlike the supermarkets, however, there is no sign that the fast-food sector is nearing saturation.
By the end of the decade there will be few areas of the UK not peppered with what the industry likes to call quick-service restaurants. Whether or not you approve of this it is, as any fast-food manager will tell you, what the customer wants.
Lincoln MP Karl McCartney 'denied all knowledge' of the Twitter activity
Detective novelist who wrote Death comes to Pemberley passed away peacefully at her home, aged 94
Sites using the popular Gigya comment platform were attacked by the Syrian Electronic Army (SEA)
- 1 Sean Abbott: Messages of support flood in for bowler following death of batsman Phil Hughes
- 2 Ridley Scott on Exodus, Gods and Kings casting: 'I'm not going to get it financed if my lead actor is Mohammad so-and-so from such-and-such'
- 3 Girl, 7, gets Tesco to remove 'stupid' sign suggesting superheroes are 'for boys'
- 4 This letter from a reader explains why women can’t play football
- 5 'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
Black Friday 2014: Opening times for Asda, John Lewis, GAME, PC World and Argos
Miss Honduras Maria Jose Alvarado's stylist Luis Alfredo Garcia is found stabbed to death
Sean Abbott: Messages of support flood in for bowler following death of batsman Phil Hughes
Dr Lam Hoe Yeoh: Voyeur doctor jailed for eight years after using network of hidden cameras to film patients, colleagues and friends on the toilet
'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
Ukip says babies born to immigrants in the UK should be classed as migrants – which would include Nigel Farage’s own children
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Exclusive: UK approved £7m Israeli arms sales in six months before Gaza conflict
iJobs Money & Business
£30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...
£Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...
£6000 - £60000 per annum + Bonus and Benefits: Ampersand Consulting LLP: UI De...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...