Fast Food | Digital, consumer trends complicate the category
Brands retool operations, expand delivery
All-day breakfast still drives traffic. But not everyone looking for fast food wants to visit a restaurant. The digital revolution and changing consumer expectations have complicated the fast food category with more delivery aggregators and dining options. Along with location, price, and menu, flexibility is vital.
Consumers wanting a fast but tasteful and healthy meal have multiple options. They can pick up a ready-made meal from a supermarket, prepare a meal from ingredients delivered to their home, or, if they visit a fast food outlet, they increasingly can drive through, stand in line, or order from a kiosk. So much for the simple mealtime binary choice—eat-at-home or-eat-out.
Today, the choice is between low-time-investment and high-time-investment. In that calculus, fast food is fast, but it is not necessarily fastest. To compete in the new race, brands invested in operational and packaging improvements to have delivered food arrive not only quickly, but hot and eatable.
To flex for increased demand or short delivery times, some brands also turned to “dark kitchens,” third-party operators that cook for multiple brands. Additionally, brands responded to the consumer desire for healthier food options. And, particularly in the US, they added options to satisfy diverse and changing tastes.
Two brands that made significant investment in digital operations rose most in value. Domino’s Pizza increased 29 percent and, in a tremendous recovery from its food safety problems, Chipotle increased 40 percent. The BrandZ™ Fast Food Top 10 rose 5 percent overall, following a 13 percent rise a year ago.
Digitizing the experience
Adjusting to the market changes, McDonald’s, the most valuable brand in the BrandZ™ Fast Food Top 10, launched improvements it called “Experience of the Future.” At many McDonald’s locations, customers now have the option of ordering at the counter, at a kiosk, or on an app, and picking the order up at a window or having it delivered to their table.
McDonald’s operates over 37,000 locations worldwide, including 14,000 in the US, where it planned the upgrade around 1,000 per month to the “Experience of the Future.” Kiosk ordering has already gained traction in some European markets, such as France, Italy, and Spain. The upgrade program is furthest along in China, where McDonald’s has around 2,700 restaurants.
The most definitive evidence that McDonald’s is focused on the future is its acquisition of an artificial intelligence start-up. AI potentially gives McDonald’s an advantage in a world of diminishing footfall. When revenue and profit growth increasingly depend on selling more to each customer, it is vital to anticipate the meal each customer wants to order, how the customer wants to order it, and how the customer wants the order delivered.
Taking delivery a step further, Domino’s Pizza, an industry leader in digitization, collaborated with Ford to test delivery using autonomous cars. Domino’s also announced that it would participate in a program enabling pizza ordering from connected cars. Having turned around the brand on the strength of digital and AI, Domino’s Pizza introduced a promotional use of AI, rewarding people with loyalty points when they submitted smartphone photos that the Domino’s app recognized as pizza.
Making a comeback
In a variation of the click and collect model used by supermarkets, Chipotle enabled people to order ahead online or on mobile and have their meal waiting at a designated drive-thru called the Chipolane. To resolve the traffic jam that can happen when food preparers need to serve both walk-in and online orders, Chipotle added separate food preparation to fulfill online orders.
The digital initiatives were part of a larger Chipotle turn-around story as the company slowly recovered from food safety issues that had marred its reputation for offering healthy, locally-sourced ingredients. Digital sales rose over 40 percent and accounted for 10.9 percent of sales in 2018. To attract digital-first young people and encourage return visits, Chipotle introduced a new loyalty program in partnership with Venmo, the mobile payment service.
Under a new management team, Chipotle successfully attempted to reclaim its fresh-and-healthy credibility. A campaign called “For Real” emphasized fresh ingredients with the tagline, “The only ingredient that’s hard to pronounce at Chipotle is “Chipotle.’” In a campaign called “Behind the Foil,” employees narrated a transparent look at food processing.
These developments have helped Chipotle achieve a high score in being seen by consumers as desirable, adventurous, rebellious and, ultimately, different. Difference is a component of a BrandZ™ measurement of brand equity. It influences a brand’s ability to command a premium price. Chipotle scores 131 in Difference compared with an average score of 100.
Growth in China
Digitization in restaurants and retail is most advanced in China. That presents an advantage for KFC, Pizza Hut, and Taco Bell, which have a major presence in China under the leadership of Yum! China, a spinoff from Yum! Brands. These brands together operate around 8,400 restaurants in 1,200 Chinese cities, and transactions usually happen with mobile apps and without cash.
Using artificial intelligence, the brands intend to personalize menu options and increase revenue. Menus typically include a combination of Western and Chinese options. To share best practices across its brands, Yum! China opened an innovation center in Shanghai. The center should also help the Yum! brands keep their edge in China’s increasingly competitive market. The first Western restaurant to expand rapidly in China, KFC entered the market in 1987.
Burger King recently opened its China location No. 1,000, in Shanghai, with plans for another 1,000 restaurants in China within three years. Its sister chain, Tim Hortons, also owned by Restaurant Brands International, opened a restaurant in Shanghai, too, the first of 1,500 locations the coffee shop chain plans to open in China over the next decade.
Starbucks, operates around 3,300 stores in China, having opened its first Chinese store 20 years ago. Recently, however, it has encountered strong competition from the Chinese brand Luckin’ Coffee, which focuses on delivery and convenience more than on customer experience, a core Starbucks strength. Starbucks has expanded delivery through a partnership with Alibaba.
Brand Building Best Practices
- Adopt a hospitality mentality
Know the customer and what he or she wants. Not everyone is after speed. Not everyone is after convenience. Given the tools, people will signal how they want to be treated. Customers do not visit fast food restaurants expecting a fine dining experience. But personal attention and respect is always welcomed. The basics of the hospitality business are the same for all customers at all price points.
- Think outside the box
The simple box-like fast food restaurants of the 1950s are a quaint reminder of what seemed modern and convenient to mid-century, post war consumers. When the first McDonald’s opened almost 65 years ago, its consistency of food and experience seemed miraculous. Customers today are less impressionable. They want it their way. And not just the topping on their burger. They want everything their way: what they order, how they order it, and where it is delivered. And if the food is supposed to be hot, it better be. Take inspiration from the past. Take orders from the customer.
- Find inspiration worldwide
Examples of industry best practices probably will not be found in the competition across the street—unless the street is in Shanghai or another major Chinese city where there is a convergence of consumers looking for the newest thing and digital technology and data able to supply it. The menu items, speed of preparation and delivery, and cashless checkout, even with facial recognition, may not be applicable to all markets, but China is a laboratory where fast food is being reinvented.