American restaurant chains are targeting the UK for growth. Here’s why.
Popeyes hopes to translate the wild success of his chicken sandwich into the UK. The brand has just opened its first restaurant in the market, in east London, with plans to open a dozen more next year, and around 350 in total.
Popeyes will grab attention along with a few other American brands you may have heard of. Wendy’s returned to the UK in May after a 20-year hiatus in the country, with ambitious plans to build up to 400 restaurants.
McDonald’s, Wingstop and Taco Bell have also recently devised aggressive growth strategies in the UK. These plans are underway despite the country’s restaurant industry taking a huge hit from Covid-19 and more stringent Covid restrictions in place.
According to Phillipp Laque, Managing Director of Revenue Management Solutions London, there are several reasons why the UK market still presents an attractive avenue for US brands today. For starters, investors in these public companies are simply hungry for growth.
“Where can this growth come from? Yes, there is room to expand into an existing market space, but there is a better opportunity for some brands to generate growth if they go overseas, ”Laque said in a recent report. interview.
The timing is also good from a psychological point of view. Consumers are now more likely to be receptive to new things, including menu offerings from new brands, after spending nearly two years in crisis mode. McDonald’s is experiencing a tailwind in the UK because of its McSpicy chicken sandwich, for example, which generated the best promotional chicken results ever in the market, according to the company’s recent third quarter earnings call.
This certainly bodes well for Popeyes’ debut in the market.
“Consumers and brands have both been reset during the pandemic. Habits have been turned upside down. We all look at our lives from different angles and explore new things. We are receptive to new things. This is proven by our surveys which indicate that consumers are looking for a ‘hedonistic’ experience. For American brands, this has reduced barriers to entry into the market, ”said Laque.
There is also the fear factor of failing. If big brands like Domino’s and McDonald’s are successful and prioritize growth in the UK market, it signals an opportunity for others. In fact, half of the companies in the ranking of the largest European catering companies operate in the QSR segment, dominated by American brands. Forty-five percent of sales generated by the top 95 EU brands are made by just 12 US companies.
“Operators need to think about how their brand will be perceived if their competitors go international and if they don’t have international growth plans. Investors may turn to other brands because they are opening up new markets and new revenue channels, etc. Laque said. “The UK is a good place to start for brands looking to expand across Europe.”
Notably, the UK industry has not only had to deal with strict Covid restrictions, but also even greater workforce and supply chain challenges than the US, driven by the Brexit. That said, the QSR market remains relatively isolated because it is convenient. This “convenience” is, however, defined a little differently in the UK, which offers more delivery and less drive-thru.
Delivery was important in the market before the pandemic, but has seen a significant rise again since. A recent overview from CGA’s Hospitality at Home Tracker indicated that the combined value of delivery and take out in February 2021 in the UK was 317% higher than in the same month in 2020. The volume of orders stood at 19.6 million, well over double the total of 9.1 million in February 2020.
Such high delivery demand is one of the reasons Wingstop has found a solid footing in the market, according to Laque. In fact, the brand just won the British Restaurant of the Year award at the Deliveroo Awards.
“One of the most important things a brand can do to be successful in this market is to get the right product for the customer. Wingstop seems to do that. They have a product that is flying off the shelves and looks like it was designed for pandemic and delivery, ”he said.
That said, the white space that exists in the UK does not appear to be based on a culinary stance like chicken wings, or even a segment like QSR, but rather on a strong business model.
“The UK market is struggling on two fronts: Brexit and the pandemic. If you think the US is struggling with a labor shortage, the UK is worse. About 10% of hospitality jobs go unfilled… it’s a nightmare for the industry, ”said Laque. “As a result, costs go up, so the business model has to be extremely resilient. White space belongs to those who adapt best to the current environment.
Of course, deep pockets also help which is why we are seeing the proliferation of big American brands in the UK market versus the return of a devastated independent restaurant industry. Well-capitalized channels can experiment with different formats, including drive-thru in a market that has little space available for such a channel.
“We will see that a few brands have a competitive advantage because they are better able to innovate and reshape the box so that drive-thru fits their terrain,” said Laque. “Now, with the pandemic, everyone is thinking about the drive-thru. ”
Yet even if a brand is able to reinvent its space to host a rare drive-thru in the UK, that doesn’t mean it will be an automatic victory. Adjustments are essential to survival, even for the biggest brands.
“Having the financial means is a huge advantage because you can endure longer periods of wasting money, but global international expansion is extremely difficult and many North American brands have come here and failed because they don’t. not making the right choices, ”said Laque. “You have to find the right partner who fits the culture and knows the market, you have to get the right product. You have to take advantage of your uniqueness. And you should know that convenience is the foundation of American culture. European culture is not, but we Europeans are getting used to it more and more.