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How a tight market boosts innovation in the fast-food industry

In the coming year, fast-food industry analysts speculate that innovation and growth is more likely to come from smaller, nimbler brands than larger ones.

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Gleb Garanich/Reuters/File
People rest in a U.S. fast food restaurant chain McDonald's in Kiev, Ukraine (March 15, 2016).

Growth and innovation are both more likely to come from smaller chains rather than the largest in the year ahead, Peter Backman, managing director of British researcher Horizons, said this week at his company’s Annual Briefing in London. His observations are applicable globally.

He told attendees that the UK foodservice market was likely to fall short of last year’s growth rate: 1.8% compared with 2015’s 2% growth. “There is now some uncertainty in the economy, particularly with the question mark over the UK’s relationship with the EU,” Backman said. “Some of the big restaurant and pub groups have reported slightly shaky figures for the first quarter with unimpressive like-for-like sales. I suspect this means we will see little growth throughout the rest of the year. At best sales are likely to grow slightly across the sector.”

Larger chains—primarily full-service concepts—are seeing declining same-store sales. Total sales have been buttressed by new-store openings in the past but that strategy is being blunted by skyrocketing rents and a paucity of top sites. As a result, says Backman, the importance of innovative offers and ideas has never been more important. And the innovators are much more likely to be smaller rather than larger brands.

“Smaller companies can be more nimble, more adaptable and more able to maintain control,” said Backman. “It is with the fledgling businesses that we are currently seeing the most growth in the UK in terms of new store openings and many are bringing something new and innovative to the market, which means the larger players must too.” Internet ordering and improved delivery as well as payment via apps were among the examples of recent changes in the market cited.

Alisdair Murdock, CEO of upscale UK burger chain Gourmet Burger Kitchen, told attendees that it employs someone whose role is to spot emerging food trends. The chain’s latest burger is the “Caerphilly Dragon,” which tops a 6-oz. beef patty with Welsh Caerphilly cheese, Dragon Bait sauce, Cajun relish, bacon, leeks, truffle cheese and jalapeňo slices on a brioche bun.

Horizons publishes a twice-yearly roundup of growth concepts with five to 25 units that bear watching. The last “Ones to Watch” list included casual-dining burger concept Meat Liquor as well as casual steakhouse concept Cau (the fastest grower on the list), Caribbean concept Turtle Bay, Indian QSR Wrapchic and others. The Ones to Watch concepts are producing the new ideas that over time trickle up to the slower-moving brands, Backman said.

This article first appeared at Burger Business.

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