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The last few years have been tough on global foodservice, with operators facing a range of challenges from fierce competition in the US and Japan to continuing economic instability in Western Europe. Even as some paths to growth have become difficult to navigate, however, other long-term opportunities have moved into centre stage. Below, Euromonitor International takes a look at seven keys to future foodservice growth, from key markets to new menu items.
A relatively stable economy and rising purchasing power among lower-level economic groups has led to a steady flow of new demand in Brazil, making the market one of the fastest-growing in the world. Brazil’s foodservice industry has also benefited from increased investment from private equity firms and national operators, especially by those looking to increase penetration before the 2016 Olympics. Leading global specialist coffee shop brand Starbucks, for example, recently announced an aggressive expansion strategy for Latin America, including plans for several hundred Brazilian outlets and 300 additional units across Mexico and Argentina. Along with many of its competitors, the brand is hoping to capitalize as upwardly mobile consumers begin to indulge in low-priced luxuries like premium coffee.
Fast food is changing, and not just in the category’s dominant US market. Amidst fierce competition, fast food brands have been forced to differentiate themselves with broader menus, better food and higher-end outlet designs. In developed markets this has led to the popularity of the fast casual segment, but in emerging markets (most of which show a strong preference for full-service dining) it has helped fast food gain traction as a modern, lower-cost alternative to more traditional foodservice formats. The branding opportunities inherent in the fast food business model have also allowed these chains to appeal to developing market consumers’ taste for exciting new dining experiences. South Africa-based chicken fast food brand Nando’s, for example, has relied on strong branding, exciting flavours and a unique dining experience to set it apart from other chicken fast food chains, a fact that helped it achieve 19% value growth in 2011. Similarly, UK bakery products fast food brands EAT and Pret a Manger have both found success with a positioning of convenient, high-quality food, a modern atmosphere and quick service. A focus on fresh, high-end ingredients, especially, has helped the brands compete with more traditional fast food concepts, and this kind of above-and-beyond competitive positioning will continue to integral to the success of any new fast food concept.
Global fast food strategy has become contingent on the operators’ ability to simultaneously target two key demographics: those looking for a better, premium experience and those who still see price as a barrier to their entry into the foodservice market. As a result, a multi-tiered pricing strategy has proved equally effective in both developed and emerging markets. Many consumers in developed markets, for example, have emerged from the downturn with a taste for healthier, higher-quality fast food, while others remain price-sensitive due to the recession’s lingering effects. The most successful brands have been able to appeal to both groups with premium items (larger portions, premium toppings) and smaller, high-margin items like desserts, beverages and snack-wraps, which give lower-income consumers the opportunity to indulge at a low price-point.
Emerging markets like China and India feature two similar tiers: a growing group of young, urban professionals looking for high-end experiences in clean, modern environments, and upwardly mobile consumers who, through urbanisation and rising disposable incomes, are gaining access to chained foodservice for the first time. The former can be reached with premium items much like those that have been successful in developed markets; in India, for example, McDonald’s’ Spicy Delights menu features larger servings of paneer or chicken to appeal to those looking for a full meal. The latter can be tempted by smaller, entry-level items which can be sold for low prices while remaining profitable. Yum! Brands’ KFC has successfully targeted this group in India with a very inexpensive “Streetwise” menu with items priced at less than Rs50 (less than US$1) meant to appeal to students.
In a related trend, specialty beverages have become key growth drivers in fast food by driving traffic steadily throughout the day and appealing to both high-income consumers (as an add-on to meal items) and low-income consumers (as a standalone treat). Milkshakes, smoothies, espresso-based coffee beverages and other frozen drinks give consumers a reason to visit foodservice outlets even when they’re not looking for a full meal, and the high margins inherent in beverage items have helped operators increase profitability even where overall value growth has slowed.
McDonald’s helped spur the popularity of specialty beverages with its McCafe line and the more recent launch of Real Fruit Smoothies in 2010, but nearly all of the brand’s global competitors have since followed suit. These new drink menus, such as KFC’s signature line of Krushers blended frozen drinks, also help to set individual brands apart from the competition, providing consumers with a unique item that can’t be purchased at other similar foodservice outlets.
Semi-captive locations like travel and retail centres offer major expansion opportunities in developed and emerging markets alike. In developed markets these locations keep costs low by requiring smaller footprints and less extensive build-outs. In addition, they offer chains a broader range of potential locations, especially for those that are nearing penetration in standalone venues. In emerging markets these locations hold a different set of benefits, offering clean, secure, high-traffic environments that can serve consumers from a large surrounding area.
2011 also saw an increase in the popularity of foodservice in grocery stores and other retail categories, including convenience stores, gas stations and mass-market retailers. For retail operators, foodservice provides a valuable opportunity to add revenue, a fact that has led to an increase in both in-store, branded foodservice outlets as well as proprietary participation in foodservice by the retailers themselves. This kind of retail-foodservice cross-pollination is expected to continue to gain steam throughout the forecast period as both retail and foodservice operators continue seeking ways to squeeze new business out of an existing consumer base.
Often overshadowed by China and India, many smaller markets in Southeast Asia nonetheless offer significant growth opportunities and should not be ignored. Indonesia, Vietnam, Thailand, Malaysia and Singapore together generated almost US$100 billion in foodservice value in 2011. They also feature many of the same characteristics that make China and India so conducive to future growth, including well-developed dining-out cultures, high per-capita spending on foodservice and large populations dominated by young people. Moving forward, these five markets together will contribute nearly US$18 billion in new value, more than many other higher-profile markets, including India and Mexico.