Fast Food - Australia

Fast Food - Australia

HEADLINES

Fast food sales grew by 6% in current value terms to reach A$11,586 million in 2009

Outlet numbers in fast food expanded by 1% to total 15,928 in 2009

The economic downturn continued to drive growth in fast food

Chained other fast food posted the highest growth in fast food at 16% in current value terms to reach A$1,025 million in 2009

Various franchisees lead in fast food, with a value share of over 28% in 2009

Sales of fast food are expected to post a constant value CAGR of nearly 3% over the forecast period to arrive at A$13,187 million in 2014

TRENDS

With the economic conditions worsening in 2009, Australians were faced with increasing financial pressures resulting from unemployment, investment losses as well as uncertainties about the economic recovery. Consequently, consumers continued to look towards fast food as a form of trading down in their dining out activities. Fast food saw more transactions during the dinner daypart, as consumers traded down from more premium foodservice outlets, such as casual dining FSRs. This resulted in fast food maintaining growth of almost 6% in current value terms during the review year.

Premiumisation in menu offerings was also prevalent in fast food during the review year. McDonald's and Hungry Jack’s, the leading chains in burger fast food, introduced new burgers with Angus beef patties in the latter half of 2009. The launch of the premium burgers was very successful with McDonald's Australia Ltd reporting up to a 20% increase in sales.

The increasing interest in premium fast food is also evident in the robust growth seen in fast casual dining which recorded a 22% increase in current value sales. Although consumers were more conscious with their food expenditure, many were still keen to maintain a semblance of their prior lifestyles which included dining out. Fast food with its developments in premiumisation of menu items as well as the expanding presence of fast casual foodservice providers provided the bridging solution for personal indulgence while still maintaining some level of thriftiness.

Chained other fast food attained strong growth during the review year mainly driven by the foodservice brand, Sumo Salad which offers design-your-own salads that are freshly made on-site. The success of Sumo Salad can be attributed to the growing consumer interest in healthy eating as well as the unique concept which allows for consumers to customise their salads.

During the review year, sandwich specialists grew by two percentage points in outlet share within bakery products fast food to reach nearly 55% in 2009. Sandwich specialists in Australia continued to be dominated by Subway which accounts for 70% of such outlets. Sweet bakery goods specialists also experienced slight increase as a response to consumers seeking out such food items as a form of trading down in terms of personal indulgence.

Chained fast food operators continued to grow at the expense of independent counterparts, with the chained players recording total growth of 8% in current value sales in 2009. The extensive marketing support for chained brands makes it increasingly difficult for independent players to co-exist in a highly competitive foodservice environment. Furthermore, chained fast food has been able to expand rapidly in location coverage through the franchising model and consequently become more convenient for consumers.

The premiumisation trend during the review year benefited burger fast food which is also the most popular with total current value sales of A$3,387 million in 2009. Chicken fast food is also highly popular with Australian consumers as it is able to meet the needs for those who are looking for personal indulgence in the form of fried chicken or seeking healthy alternatives in grilled or seared products.

In 2009, drink expenditure continued to grow slightly in value share as a result of successful new product launches including KFC Krushers by Yum! Restaurants Australia Pty Ltd. Value share in take-away also saw slight positive movement as consumers continued to seek out fast food as a convenient meal solution as they became increasingly time-pressed.

COMPETITIVE LANDSCAPE

Various franchisees continued to lead fast food with a current value share of over 28% in 2009. This is a result of chained fast food companies, including McDonald's Australia Ltd and Competitive Foods Australia Ltd, using the franchise model to grow their outlet presence.

Led by Nando's Australia Pty Ltd, the fast casual dining concept has been enjoying robust growth since 1999. With a strong appeal among younger consumer demographics who enjoy the relaxed ambience and more premium fare compared to other fast food fascias, fast casual dining is also presenting itself as a viable alternative to trading down from casual dining FSR for working professionals as well as families.

The rising prevalence of obesity and overweight in Australia has been met with intense scrutiny from government and health agencies into consumer foodservice products and packaged food. Leading chained fast food operators addressed growing public interest in healthy eating by signing up to an industry initiative which pledges responsible advertising and marketing to children aged 12 and under. Seven companies, including McDonald's Australia Ltd, Yum! Restaurants Australia Pty Ltd and Australian Fast Foods Pty Ltd for Red Rooster and Chicken Treat also commited to nutritional labelling on packaging as well as the companies’ websites.

The most significant product developments in fast food are the premium Angus burgers by chained burger fast food operators, McDonald's and Hungry Jack’s. McDonald's Australia Ltd launched the McAngus burgers in August 2009 using Certified Angus Australian Beef and backed with a reported marketing spend of A$10 million. Competitive Foods Australia Ltd followed with Hungry Jack’s Angry Angus burger towards the end of the review year.

The review year also saw another notable menu development with Krushers in KFC’s drink offering. The frozen dairy-based drink targeted at Generation Y consumers was first launched by Yum! Restaurants Australia Pty Ltd in Australia before being extended by the parent company to other KFC restaurants internationally. The chain also implemented Krush Bars, a dedicated foodservice section to serve Krushers in several of its restaurants

Chained fast food operators have been aware of the need to innovate as well as diversify their menu offerings in the face of intense competition for transactions and value spend. Wendy's Supa Sundaes Pty Ltd, a chained ice cream fast food brand, moved from its core offering of ice cream products and drinks with their introduction of a breakfast menu in 2009. The Wendy’s Brekky Menu included smoothies with muesli toppings, frozen yoghurt and hot food such as waffles or raisin toast.

During the review year, one of the leading chains of booksellers and stationers in Australia, Dymocks Pty Ltd acquired a majority stake in Healthy Habits Australia Pty Ltd. The move was intended to diversify Dymocks’ business offerings and as the new owner of the chained bakery products fast food operator, Healthy Habits, is targeted for outlet expansion in the country.

PROSPECTS

A CAGR of 3% in constant value terms is expected to be recorded for fast food sales over the forecast period due to consumers continuing to seek out cheaper meal options as a result of the continuing uncertainty of economic conditions further exacerbated by rising interest rates impacting home mortgage repayments. The Reserve Bank of Australia adjusted interest rates upwards by 0.75% during the last quarter of 2009 in order to curb inflationary pressures. The Bank indicated that it will continue using interest rates to circumvent inflation, despite the risk of dampening economic recovery.

Fast food is likely to continue to develop premium products following the successful launches of Angus beef burgers by McDonald’s and Hungry Jack’s. While premium menu items are expected to be one of the drivers of value growth for chained fast food operators, the fascia will also continue to focus on promoting value meal sets which offer multiple items at a lower price than if they were bought singly.

Chained bakery products fast food is expected to record the strongest CAGR performance at approaching 7% in constant value terms over the forecast period. The growth in bakery products fast food will be driven by the continued popularity of sandwiches as healthy meal options as well as consumers looking for affordable indulgences in sweet bakery items during tight financial conditions.

The success of KFC’s new drink product, Krushers, could be imitated by other foodservice players in expanding the drinks offering as they look to diversify their menu range. Yum! Restaurants Australia Pty Ltd is also expected to extend the Krush Bar to more KFC outlets in Australia and is piloting standalone Krush Bars. This will impact operators in ice cream fast food as well as cafés/bars of which drinks form the substantial proportion of value sales.

Robust growth is expected to continue in fast casual dining with a constant value CAGR of 12% over 2009-2014. Performance in fast casual dining will be underpinned by a strong forecast in outlet growth as well as becoming ever more attractive to value-conscious consumers from casual dining FSR in the midst of rising interest rates negatively impacting household disposable income.

After an increase of approximately 2% in average spend per transaction during the review year, pricing is forecast to remain relatively stable in constant value terms over the forecast period as a result of the aggressive competition and heavy promotional activities expected in fast food.

With growing attention being placed by government and health agencies on preventative health measures that include tackling obesity, fast food operators face the dilemma of positioning their products as personal indulgences for sweet and savoury fare as opposed to riding the trend of increasing interest in healthy eating. While niche players such as Sumo Salad had found success by solely focusing on healthy menu offerings, established fast food chains will need to be proactive in diversifying their ranges so as to build on their social reputation as well as facilitate value growth among health-conscious consumers.