Fast food chains prosper as cash-strapped consumers shun retailers
US fast food chains Subway and McDonald’s announced plans to open hundreds of new stores creating more than 8,000 job
Mealtimes used to revolve around the kitchen table, but the fast-food boom is changing Britain and its high streets, as US food chains Subway,Starbucks and McDonald’s set out to conquer a recession-weary nation still hungry for instant gratification.
Last week, sandwich chain Subway trumpeted plans to open 600 new stores over the next three years, creating up to 6,000 jobs, while McDonald’s said it would create 2,500 jobs this year through new outlets and 24-hour burger flipping.
Starbucks, with 300 branches and 5,000 jobs said to be in the pipeline over the next five years, is also in the midst of a high street bun fight that is pitting US imports against flourishing domestic chains such as Greggsand Costa Coffee.
With more than 1,400 stores in the UK, Subway is already five times the size it was in 2004, but its founder and self-styled “sandwich king” Fred DeLuca, who was in London to speak at a franchisee conference last week, was bullish: “Everybody eats three times a day; it’s only a question of where they choose to eat. The longer-term trends are that people eat out more often.”
His upbeat attitude is at odds with the gloomy atmosphere among high-street retailers who face painful and costly restructuring to shed stores that are no longer economic as shoppers pull in their horns.
Analysts say firms like Subway and Greggs, which both offer £3 lunch deals, are weathering the storm because they appeal to hard-pressed consumers who are seeking out affordable treats, like burgers and crème brûlée macchiatos, rather than splashing out on new outfits and video games.
DeLuca said like-for-like sales at British Subway stores had jumped 10% over the last three months while the success of doughnut-maker Krispy Kreme in 2011 will see it push north into Scotland this year.
The coalition’s hopes that the private sector will create enough new jobs to soak up the thousands of workers laid off by the public sector has meant that the expansion plans of McDonald’s and co have met with ministerial gushing.
Nick Clegg toured the burger chain’s UK training centre last Wednesday and said the big jobs number – with half the new positions earmarked for the under 25s – was “fantastic news” not least because the unemployment rate, at 8.4%, is at its highest level since 1995, with young people hit hardest.
But like other developed nations, Britain has a well-documented weight problem. Analysts also question whether the economic pain will soon shift to coffee shops and fast-food outlets if the industry – which is shoehorning outlets into stations, hospitals and petrol stations and seeking franchise partners to reach smaller towns and cities – fulfils such high octane expansion plans.
It is not only the service that is fast in the food-on-the-go sector, as research by the Local Data Company (LDC) shows. In the past five years McDonald’s has been overtaken by Subway, only for Greggs, which has 1,500 stores, and in some parts of London two bakeries on the same street, to become the largest chain.
DeLuca says Subway is not at risk of over-expanding: “When we get to 2,000 stores, we’ll have about one store for every 30,000 people (in the UK). That’s actually quite low density for us. In the US we have one store for every 12,000 people.”
There are more than 47,000 takeaway food outlets in the UK, according to LDC, but less than a third are operated by the big brands and given the tough economic backdrop their success is expected to come at the expense of independent bakers and coffee shop owners.
LDC director Matthew Hopkinson questions the need for Greggs and Subway to build huge store networks at a time when others are desperate to shake off costly leases: “I find it difficult to understand how everyone is going to make money from massive expansion. It suggests that no one ever buys food and eats at home and we know from the success of the supermarkets that’s not true.”
Despite the economic downturn, office workers still march to work armed with lattes, while on the domestic front there has been a technological race to create the most seductively shaped (read expensive) coffee machine for kitchen worktops.
Jeffrey Young, managing director of research firm Allegra Strategies, which recently published a report examining the growth of branded coffee chains in the UK, said they had shown “incredible resilience” throughout the financial crisis. The report said sales at the big coffee chains rose 10% to £2.1bn last year with around 11m cups of coffee drunk in, or carried out, each week.
Coffee shops offer Britons a respite from the “feeling of austerity” in the current economy, explains Young: “Coffee shops continue to be important to consumers who visit as part of their desire to socialise and have a regular affordable treat.”
He cautioned, however, that those consumers were already showing signs of cutting back each time they pop in for a pick me up with roughly £3.18 spent per visit last year, compared with £3.50 in 2009.
With more than one in seven high street stores already lying empty, property experts do not expect the rapacious growth of food chains to fill that void. Indeed some food chains could find themselves marooned, as it is estimated that about 50% of the UK’s shop leases will expire over the next seven years, threatening to accelerate the pace of high street change.
“People want to do a bit of window shopping and have a frothy coffee and a sandwich,” adds Hopkinson. Take the window shopping out of the equation, and Britain’s appetite for fast food might be lost rapidly.