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November 27, 2011

Not-Quite-So-Fast Food Nation: Why Every Fast Food Chain Can Learn from France

FastFoodFranceWhile McDonald's continues to reign supreme, France is fast becoming a focus for a variety of quick-service chains, with both YUM! Brands and Domino's Pizza reporting strong results from their French operations over the last year.

For all of these chains, the key to success has not necessarily been found in rigid adherence to the traditional fast food model of speed, convenience, and consistency. In a market where eating out remains a social activity, one often centred around specific times of the day, fast food chains in Francehave carved out a presence by offering an affordable alternative to cafes, bistros, and restaurants—relatively cheap and fast, to be sure, but combined with a high-quality outlet experience and strong, varied product lineup, strongly tailored to French preferences, both of which drives longer visits and higher average checks. Their success offers real insights into the possibilities for fast food globally, which as a format has a flexibility no other category can match, allowing chains to compete effectively not just with other quick service players, but often with the entire universe of foodservice options in a given market.

A rising star, with global chains taking notice

While the overall outlook for consumer demand in Western Europe remains grim, fast food and other quick-service chains continue to find a favourable growth market in France—total fast food sales surpassed US$12 billion in 2010, up 5% from 2009, and have grown at an average rate of 9% annually between 2005 and 2010. This has not gone unnoticed by the largest chains—in a recent earnings call, YUM! Brandsidentified France as one of its key international growth markets, alongside perennial growth stalwarts like India and Russia. What's more, company officials noted that YUM!'s 117 restaurants in France posted the highest average unit volumes of any market. Domino's Pizza has likewise noted strong future potential in France, given both high rates of pizza consumption (second only to the US, according to Domino's officials) and still-limited chained penetration. France is now a US$400 million market for KFC, a fourfold increase over 2005, while Domino's Pizza has seen sales triple over the same period, reaching US$170 million in 2010.

In both cases, outlet and product quality has been key—KFC outlets offer both a striking “billboard” for KFC exterior branding, as well as an inviting, contemporary design on the inside, while Domino's Pizza has been very aggressive in tailoring its products to French tastes, including the roll-out of a flaky puff-pastry style crust earlier this year. This focus on outlet quality and menu localization are not new to the French market—indeed, they borrow heavily from the strategy used by McDonald's, still far and away France's largest chained player with an astonishing 60% of total chained fast food sales in 2010, according to Euromonitor International.

The McDonald's Model

As of 2011, it should come as a surprise to absolutely no one with even a passing interest in the global foodservice industry that McDonald's is extremely popular in France—though one might think otherwise given the volume of articles regularly published which seek to alert the world to McDonald's “shocking” success there. Indeed, France has been one of McDonald's most profitable markets for many years, with outlets there regularly posting among the highest average unit volumes and average checks in the McDonald's system. In 2010, the company's French outlets averaged US$4.7 million per store in sales, according to Euromonitor International estimates, while average check size approached US$15.

What is somewhat surprising is that competitors have taken so long to adopt McDonald's template for France in earnest, given close to a decade of consistent success. Indeed, to understand why other chains are now finding success among French consumers, it is necessary to understand the approach pioneered by McDonald's in the early 2000s. Rather than selling pure Americana to French consumers, McDonald's has gone further than any other foreign chain in reinventing itself as a French restaurant.

This is not to say that the Big Mac has been jettisoned in favour of traditional French dishes (though McDonald's has proven quite flexible in terms of menus, recently adding baguettes baked in-store)—instead, the company has completely adapted its service and outlet model to the way French consumers actually eat out. In no other market have McDonald's store interiors been updated as comprehensively and daringly as they have in France, reflecting the fact that close to three-quarters of sales are dine-in, often in groups of two or more. Eating remains a highly social activity in France, centred on the traditional lunch and dinner dayparts, with morning sales accounting for less than 5% of McDonald's turnover there, despite a recent breakfast push. As noted previously, average checks are quite high—French consumers eat out less on average than American or British consumers, and there is a distinct willingness to pay for quality. McDonald's has prospered by positioning itself as an affordable, pleasant alternative to cafes and bistros, a place to sit and linger with friends—very much a credible eat-in destination, rather than a quick takeout option. All told, a radically different proposition to the experience offered in many markets, yet one ideally suited to French tastes.

Consider localising the menu—but always, always localise the format

And therein lies the central insight—fast food chains in France compete for a share of consumer spending that goes far beyond consumers seeking a quick, grab and go option. To use a term often used by McDonald's in public filings, fast food is merely one facet of the “informal eating out” landscape which includes cafes, bistros, and other categories serving informal, often eat-in occasions.

On a broader level, the evolution of fast food in France is one more example of the extraordinary flexibility inherent to fast food as a format. While fast food chains can (and should) compete for on-the-go, low-priced, impulse-driven snack occasions, particularly in markets like the US where they constitute a significant (and growing) portion of demand, there is also enormous opportunity in competing for a slice of the casual and family dining categories, particularly in markets where branded competition is limited. Indeed, there is no reason not to do both, as evidenced by markets like China and Brazil, where fast food chains have used a variety of formats to target both low-priced snack occasions during the workday as well as family-and-children-driven group dining occasions on the weekends, when average spend tends to be higher, and outlet quality becomes a key driver in consumer decision-making.

While discussions of localization as it pertains to foodservice chains often focuses on menu adaptation, format localization is, if anything, even more vital—French consumers buy their fair share of Big Macs and KFC chicken buckets, yet the way they purchase and consume these products often differs quite dramatically from consumer behaviour in the US, or Brazil, or China. Understanding how consumers eat is, if anything, more important than understanding what they eat, given that, more often than not, what is truly being purchased is a desired experience, rather than a particular range of products. France is an especially salient example of this, in part because what has proven successful for fast food chains there is in many ways diametrically opposed to what has worked in markets like the US or Canada, but the lesson can be applied to any market.


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