Oporto: Fast food franchises are here to stay

According to the Oporto franchise CEO, Jeff Fisher, fast food is just as robust and buoyant as ever.“ There has certainly been an emergence in healthy fast food alternatives and there will always be new players coming into this space. Some might do well and others might struggle. If anything, it makes us work harder to ensure we keep up the quality of our service and food,” he says.

A Google search on the definition of fast food states: inexpensive food (hamburgers or chicken or milkshakes) prepared and served quickly; and, a multi-billion dollar industry which is continuing to grow at a rapid pace in the early 21st century in many countries as fewer people cook at home.

The first definition portrays the one-time popular public image of fast food, that it is primarily ‘junk’ food. Yet, ironically, the second refers to a rapidly growing sector. Many would assume that the somewhat chequered reputation the fast food industry has earned over the years would be scaring both consumers and franchisees away. And now, with the potential assault of a bird flu (see over), one might be excused for thinking things couldn’t be gloomier. Yet according to some of Australia’s leading fast food franchises, nothing is further from the truth.

The fast food industry in general has taken a lot of criticism from nutritionists, ‘foodies’ and parents. Blamed for growing obesity rates, key players in the sector have been portrayed as servers of greasy, unhealthy food and responsible for addicting our kids to sugar. In response, the industry has banded together, pulling out all stops to turn its image around.

Although the quick service food sector is keenly focused on improving its reputation, there seems no likelihood of the sector experiencing any slowing of growth. In fact, the opposite is occurring. The fast food industry is still considered the most popular category in franchising, with franchisee enquiries streaming in and a plethora of new concepts entering the market. Subway, with 501 franchises and 846 restaurants in 82 countries, maintains that inquiries to buy into the Subway system are increasing, not decreasing. Indeed, in the financial year ending June 2005 it received 10,100 unsolicited inquiries.

“We have more interest in the brand then we can find locations for,” says Tracey Steinwand, Subway regional director for Australia and NZ.

Nando’s CEO, Norman Picker, says most players in the sector are flat out competing against one another in the ‘healthier’ food stakes.

“Australia is already such a competitive environment; it forces the industry to improve all the time,” he says.

The fast food industry is changing face and has been for the past five years. The single overriding aim appears to be to prove that it is becoming more health conscious. Additions to menus and alterations to ingredients are continually being researched with food technicians. Salads and sandwiches have been added to a number of quick service menus, and saturated fats have been slowly phased out along with a reduction in salt and sugar.

Oporto entered the market in 1995 with an already healthier approach, exemplified by the fact that its food is grilled not fried, and the food is fresh not frozen.

To further enhance its image Oporto, like many others, recently added salads to its menu. While adding a salad to a menu might by some cynics be regarded as a band-aid solution to conveying a healthier image, it is instead simply a reflection of a wider trend to offering customers more options. Clearly, everyone has different tastes and not everyone wants to eat a hamburger every day.

“There are two very distinct trains of thought – a growing awareness of what people consume and desire for a balanced diet,” says Oporto’s Fisher. “Above all, however, consumers still want to eat great tasting food.”

Unbeknown to many consumers, most fast food brands are working with food technologists to identify ways to keep their food flavoursome while simultaneously halving the fat and sugar content in their fillings and sauces.

Steinwand of Subway says consumers are looking for interesting flavours as well as quick service. Asian flavours like Teriyaki are quite popular, she reveals, and different flavoured breads are also very important.

“The low carb concept has passed its heyday. Today it’s about a medium carb diet rather than a no carb one,” she observes.

What is interesting is the bipartisan nature in which the industry talks about its competitors. Fisher sites the fast food mainstays, KFC and McDonald’s , as industry leaders which are pooling their resources into researching better tasting food and both, as a result, are going from strength to strength.

The ‘us and them’ mentality has been well and truly eradicated, and with it the old greasy food image. The industry is campaigning together with a single voice to help further change public perception away from the old image toward the new and improved.

Indeed, if you talk to most food service franchises today, even the term ‘fast food’ is deemed part of an old vernacular that has been superseded by words such as ‘quick service dining’, or QSR, ‘quality food served quickly’, ‘fast casual dining’, ‘healthier but fast’ and as Alan Tulloch, national franchise manager for Red Rooster has coined it, ‘real food fast.’

Nando’s Picker says it’s all about quality, with consumers distancing themselves from instant and pre-packaged foods. Instead, they want to see it prepared in front of them and they’re prepared to wait for it.

“We owe it to our franchisees to be innovative and a bit smarter. It’s adapt or die,” he says. “Look at McDonald’s trying to reinvent itself. It understands that the marketplace is more discerning and is aware of the negative connotations that have been associated with the sector. We concentrate more on delivery, freshness and how it

impacts the environment. The public wants to feel like they are getting value for money as well as quality.”

According to Tulloch, however, there does not currently seem to be any more marked industry trends on the horizon – just a widespread projection for continued growth. Red Rooster, he says, will be introducing one to two new lines of core-related products this year to add to its new skin-free chicken line for the more fat content conscious customer. The franchise also aims to open around 20 new stores in Australia, which will bring its tally close to 100 for the financial year to June 2006.

While the health boom may have rocked the fast food industry as a whole, chicken specialists are now up against a new plight – the avian flu. Fear of a widespread pandemic has been a major topic in the media. However, the perception of the potential risk is well overplayed according to a number of chicken specialists.

Although they accept that the avian flu is in itself a problem and a risk, they point out that what the public doesn’t realise is that the chicken industry is well regulated. Poultry of any description is not imported live or dead into the country. The major players, such as Bartter-Steggles, Inghams, Chickadee and Golden Cockerel have incredibly sound bio-security measures in place.

According to the Australian Chicken Meat Federation there is absolutely no way anyone can contract bird flu from eating cooked chicken.

And, it has to be said, consumers have not been asking about the virus before they purchase a Red Rooster chicken – or one from any other outlet for that matter. People are still eating chicken despite the hype. According to Tulloch, consumers have a fairly balanced view of the issue. Australians consume 400 million chooks a year, of which Red Rooster sells 50 million.

As such, it would seem that the chicken specialists will not be deserting the category any time soon. But if the scare became so great that people started to stop eating chicken altogether, Tulloch notes that it would not be a normal scenario where operators could alter their operation to take away the perception of risk. If such a scenario ever eventuates, operators have crisis management plans in place to help educate consumers on the facts of avian flu.

Picker declares that Nando’s would move its menu towards beef if people ever stopped buying chicken. He doesn’t think it’s going to affect the industry, but knows he can’t be complacent about it either.

“We’ve been in meetings with our chicken suppliers about preventative measures. If it affected the supply line we would switch to frozen chicken. We would do whatever is humanly possible to reassure customers that we were doing the right thing by them,” he says.

Although it was already on the horizon, in a way Nando’s has prepared for a worst-case scenario with the introduction of its Prego steak roll. There are also plans to expand the range of meat offerings, options for which are currently being developed with product consultants.

Subway’s purchasing team is already working on ways to minimise the impact of any heightening of the issue on the system as part of its ‘responsible supply chain solution’. If it reached the point where consumers were no longer going to eat chicken, it agrees with Norman Picker that it would not be worthwhile continuing to sell it. Instead, Subway would focus on their other flavour and meat combinations.

A more imminent challenge, in Tulloch’s view, is shopping centre leases. Red Rooster has no intention of entering leases quickly, which may impact its expansion plans down the track. 2006 is projected to be a big year for Red Rooster. Up to 50 corporate-run stores will be converted into franchisee operations, bringing the split from 70 percent company-owned to 50 percent franchisee-owned. However, the biggest challenge is where to find the right franchisees.

“The problem isn’t capital. There is a lack of quality franchisees in the marketplace. This is not industry specific, but a problem every sector shares,” Tulloch maintains.

In summary, it appears that fast food will continue to be a multi-billion

dollar industry despite ‘healthy’ competition. As people’s lives get busier they will forever look for food that is more convenient, healthier and according to the experts, tastier. Perhaps the newest category to take off in 2006 will be ‘fast service slow food dining’?

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The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.