With rapid growth, a handful of innovative market leaders and mounting demand for better fast food, the UK is emerging as a potential magnet for future fast-casual growth.
At US$1.3 billion in value in 2011, the UK’s fast-casual dining category is one of the largest in the world. The category also recorded double-digit growth each year throughout the review period, culminating in a 13% increase in 2011. This annual growth ranks it among the highest worldwide, making the market both one of the largest and one with the greatest momentum. Where the UK falls behind other countries, however, is in the size of its fast-casual niche relative to total fast food value, just 6% in 2011. In comparison, in other large Western Europe markets like Germany, the niche contributed as much as 13%. As a result, the UK is poised to become a new centre for future fast-casual growth, offering growth opportunities to market leaders and developing players alike.
Current leaders will be tough to beat
Fast-casual dining in the UK is currently dominated by three major chains that claimed a combined 76% of market share in 2011: local market-leader Pret a Manger, South African transplant Nando’s, and newer challenger EAT. The remaining market share is fragmented, with eight other players claiming 5% or less, and a number of smaller chains and independent players attributing the remaining 11%.
Pret a Manger is the clear leader in the category with 32% of value, but the chain has failed to gain significant share over the review period. The bakery products fast food player serves sandwiches, soups, salads and desserts with a heavy emphasis on takeaway business, while hinging its positioning on fresh, premium ingredients and modern outlet décor. The concept is particularly well-suited to the UK market, as local consumers have shown increasing interest in health, sustainability and sourcing methods for years.
Over the review period, Pret a Manger has faced mounting competition from EAT, which boasts a similar menu and positioning and is the only fast-casual chain to have gained significant share since 2006. This suggests the growth in fast-casual may be a result of general interest in the category rather than consumer loyalty to any particular brand. Nevertheless, both still saw strong growth throughout the review period, with Pret a Manger recording a CAGR of 12% and EAT posting a CAGR of 27%.
Second-ranked chain Nando’s also shares the definitive qualities of fast-casual concepts (high-quality ingredients, sourcing locally-farmed chickens that are “delivered fresh and never frozen”) but it is also highly differentiated from other options. The South Africa-based grilled chicken fast food player combines a spicy, Portuguese/African chicken recipe with a unique outlet strategy, offering consumers the kind of innovative dining experience so necessary for fast-casual success. Outlets feature upscale décor and comfortable dining-in seating, but the chain also relies heavily on healthy, affordable takeaway options. Furthermore, Nando’s adopts an irreverent, often-controversial tone in its marketing, incorporating a lifestyle draw for consumers looking to expand beyond traditional dining culture. A recent ad, for example, depicted Zimbabwe president Robert Mugabe reminiscing about happier times with departed dictator “pals” such as Muammar Gaddafi and Idi Amin. The chain’s aggressive flavours and unique atmosphere has helped it grow value sales at a CAGR of 16% throughout the review period.
This success begs the question: If the demand is there, and successful operators are already competing within the space, why hasn’t the UK fast-casual market seen the same boom in relevance as that in the US? The answer lies, in part, in the makeup of the market’s total fast food competitive landscape.
A narrower niche will make growth more difficult, though not impossible
Fast-casual dining flourished in the US due to a unique combination of factors, including a low quality standard in terms of traditional fast food offerings, the economic downturn and a handful of players with exciting new brand positioning that began to grow at precisely the right time. New fast-casual players like Chipotle and Panera Bread were able to fill the large gap between traditional fast food and full-service restaurants, offering a blend of high-quality food, a comfortable dining experience and single-digit pricing that felt completely different from what was currently available in the market. This led to rapid growth in the new category and, ultimately, a change in the way US consumers define their expectations of fast food.
In the UK, on the other hand, traditional fast food players have long since adopted a more premium positioning while still operating at low price-points. Market-leader McDonald’s began reimaging its brand in Western European over ten years ago, after realizing the concept needed to be tailored to the unique needs of each European market rather than simply being transplanted overseas. As a result, McDonald’s in the UK already features more premium food offerings as well as modern decor, more comfortable seating and other higher-end features that the brand didn’t bring to US outlets on any sort of grand scale until 2011. With higher innate expectations in all of fast food, fast-casual in the UK simply isn’t differentiated to the stark degree it is in the US, and thus growth has been more methodical and less conducive to radical changes in the foodservice landscape.
Fast-casual dining in the UK also faces competition from a certain type of casual dining players that have gained momentum in the market in recent years. These chains are full-service restaurants, but they also incorporate many of the actors that make fast-casual so popular, including single-digit pricing (especially for lunch items), high-end outlet décor and stylish, modern brand positioning. Japanese noodle-bowl concept Wagamama, for example, pairs exotic flavours with service upgrades like orders that are taken through electronic hand-held devices and take-out service that can be ordered through consumers’ mobile phones. The rise of these players has diverted some of the attention away from fast-casual dining, as consumers looking for high-quality food at low prices in an innovative atmosphere also have options beyond the niche category.
Still, with mounting interest in the category from UK consumers, rapidly increasing value sales and a still relatively small share of total fast food value going to fast-casual players, the category appears primed for more growth in the future. Further bolstering this idea, major US fast-casual leaders that have so far focused growth efforts entirely on North America are now looking to the UK as their first foray into overseas markets. Number two leader Chipotle Mexican Grill, for example, opened its first overseas location in London in 2010, added another in 2011 and announced plans to reach four UK outlets by the end of 2012. Third-ranked player Buffalo Wild Wings also announced in May, 2011 that it would be looking at the UK as a third international market after launching an aggressive move into Canada.
Both of these chains will have the benefit of not facing a competitor with similar positioning in the local fast-casual market, but they’ll encounter unique challenges as well. The Latin American fast food segment in the UK is very underdeveloped, contributing less than 1% of total fast food value in 2010. This could mean Chipotle will be able to grow unopposed, but it also speaks to a general lack of consumer base as compared to the US’s enthusiasm for the cuisine. Rather than catering to a wide base of consumers looking for healthier Latin American fast food, Chipotle in the UK will have to develop the nation’s taste for the cuisine from scratch, relying on its healthier positioning to tap into the growing demand for fast-casual concepts of all types.
Buffalo Wild Wings will face a similar challenge in that the very crux of its US positioning—American football fandom—is non-existent in the UK. Furthermore, while the UK is home to a very robust sports-fan culture, fans typically already gather at one of the country’s 47,000 bars/pubs and thus aren’t necessarily looking for a new chained player to fill any sort of hole in the market. Finally, Buffalo Wild Wings taps into US sports culture by basing its menu around chicken wings, a pairing that is less likely to resonate immediately with UK consumers. Moving away from the brand’s sports positioning, Buffalo Wild Wings will also face competition from the casual dining players discussed above, as the chain skews closer to a full-service model than most of its fast food competitors. As a result, Buffalo Wild Wings will also have to create a new local brand image to differentiate itself from bars/pubs competitors, and thus the concept could have a difficult time gaining traction.
Fierce competition ahead
With these new players entering the market and the category itself showing such promising growth, fast-casual in the UK is a category to watch moving forward. Still, newcomers and small chains looking to grow won’t face an easy task: They’ll have to take share from leading players and sufficiently differentiate themselves from existing fast food chains in order to achieve relevance. In the US, many fast-casuals have turned to even more premium positioning to maintain that differentiation, including adding celebrity Chef-driven menus, even more high-end outlet décor or lifestyle-based positioning like sustainability, health or, in the case of Buffalo Wild Wings, sports fandom. Due to the narrow niche currently filled by fast-casual, this kind of heightened divergence from typical fast food offerings may facilitate growth in the UK as well. Either way, the opportunities are there, but operators will have to work hard to stand out, and even harder to claim a significant share of the growing market.