The healthy eater, the foodie, the working mother and the tech-savvy consumer are all helping to change the shape of the fast food offer of the future as revealed in the latest report on the market.
And the growing consumer awareness of the value of healthier eating looks set to continue.
That’s according to the IbisWorld report Fast Food Services in Australia June 2014, which we reference here in this market overview.
KEY FINDINGS
Healthy eating has driven change in the fast food sector and food offerings have been boosted with premium menu items that contain lower sugar, salt and fat levels than traditional fast food choices. Add to this an ageing population which is focused on better nutrition, and an increase in disposable incomes in the 2009-14 period, and revenue is on the rise: a decline in the share of revenue among traditional fast food operators has been matched by increased revenue in the healthier fast food categories.
Younger consumers are retaining the taste for the pizza, burger, pies and fries menu, while older customers are seeking food with a perceived higher nutritional profile; the median age of the population is about 37.7 this year, rising to 38.2 by 2018.
Competition is fierce in the sector, which now has new players: supermarkets and convenience stores offering a growing selection of ready-meals. IbisWorld believes the greatest threat to fast-food outlets will come from the supermarkets over the next five years; filling the need for healthier, gourmet meals for time-poor customers.
More women are returning to the workforce and this has driven demand for convenience meals.
And within the next five years the expansion of the food van model is expected to encroach on the consumer-base of existing retail outlets.
The paucity of suitable locations in metro areas will help drive the food van option, which provides flexibility of venue, time and menu and lower rental costs. “Food vans have been a staple in other cities around the world, spreading to Melbourne and Sydney in the past few years,” the report states.
Social media is predicted to be a major driver of customers to these mobile operators. Tech-savvy younger consumers are the core demographic for the fast food sector, and the development of online and app-based ordering systems by franchise brands such as Domino’s and Pizza Hut, has made it easier and more convenient to order.
“This trend will be mainly focused on made-to-order meals, such as pizza, where ordering ahead or delivery options provide a tangible increase in convenience,” the report suggests.
There is an impact too from websites that act as online ordering portals – Menulog is a classic example cited in the report.
For the fast food retailers themselves, the installation of technically advanced point of sale systems has resulted in efficiency gains.
The economic landscape
Consumers are more cautious with their spending than pre-GFC, and fluctuations in both economic growth and disposable income have had an impact on Australians’ purse strings. In response to moderate spending the fast food industry has focused on alternative strategies to drive business, including introducing and promoting new product lines. And the trend for healthier eating has helped boost existing businesses and open up the market to new operators.
Fast food is a mature industry, and there is modest growth expected in numbers of outlets opened in the 10 years to 2019.
The report indicates there is a tough operating landscape due to the difficulties of site selection – population density, suitable locations and rental costs all challenges for fast food networks.
Profit margins have been sacrificed for market share, according to the report which cites McDonald’s Loose Change Menu, aimed at attracting customers with small, cheap snacks, as typical of this strategy.
In contrast the growing emphasis on premium products with premium pricing has helped boost margins.
“Industry operators have been relatively profitable over the past five years, with profit increasing modestly as a share of revenue. Industry profit is expected to continue its growth over the next five years,” the report reads.
A shift towards gourmet items on a menu has been brought about by the growing ‘foodie’ culture and a focus on good quality products.
GETTING HEALTHIER
Healthy eating alternatives include salad, sandwiches, sushi and juice and these have broadened the customers’ options.
“Initially, industry heavyweights viewed these new fast food options as passing fads. However, over time, these new retailers have cemented their places in the fast-food market,” the report reads.
WHICH FOODS?
1. Burgers
While the burger has a strong share of industry revenue there has been a five year decline, and this is expected to continue. McDonald’s and Hungry Jacks dominate the market but the addition of premium products with grilled chicken burgers and chains such as Grill’d is widening the offer.
2. Chicken
Chicken now accounts for almost one fifth of the sector’s revenue. KFC is the main player here, but Red Rooster, Chicken Treat, Nandos and Oporto have made their mark. Growth has been slow for the specialists as other operators have added chicken to their menus.
3. Pizzas
This is the third-largest category in the fast food sector. It has proved to be a popular segment for new operators and these fresh faces in the sector have helped boost customer demand. This is a highly competitive segment with brands such as Pizza Hut, Domino’s and Eagle Boys.
4. Sandwiches, salads and juice bars
Consumer demand has been met with expansion of the product range in this high growth sector. Subway has forged a dominant role in the market, but other healthy option brands have carved a strong niche too: Boost Juice, Sumo Salad and Healthy Habits.
5. Ethnic fast food
Chinese, Indian, Japanese, Thai and Vietnamese cuisines are represented in this category which now accounts for 10 percent of revenue. The drivers for this segment, which includes other non-Western menus, are a greater awareness of foreign foods and increased globalisation. It also benefits from the healthier eating focus.
6. Desserts and confectionery
In this growing sector are ice-cream, yogurts, fruit and pastries, and the popularity of healthier options is helping boost revenue increases.
7. Pies, sausage rolls, pasties, fish and chips
Once again the consumer demand for food choices that fit with balanced lifestyles and healthier living are affecting the sales of traditional fast food. There has been a decline and “modest decreases” are expected to continue, according to the report.
Images: PizzaCapers/HealthyHabits/IbisWorld