Yankee retreat
It's a perennial occurrence in the UK fast food industry. A large US chain loudly announces its arrival in the UK, declaring plans for 50, 100, maybe even 200 outlets around the country. Everyone politely holds their breath - and then very little happens.
When it comes to gusto, Americans leave other nationalities in the shade. Brimming with enthusiasm, they see the world as one big export market. And certainly successes such as McDonald's and Coca-Cola give good reason for such confidence. But for every winner of that magnitude, there exists a host of others for whom crossing the pond has ended in frustration.
The UK has seen plenty of US fast food operators burn their fingers trying to infiltrate the British market. The hurdles here are numerous, but there are certain common threads that link the failed attempts. Foremost is the newcomers' attempts to apply US principles to the UK market.
Talking the same language
When a successful US fast food chain looks to move on from the relatively mature US market, its first stop is Canada. Then comes the UK. Simplistic though it may seem, the attraction of a common language is often a large factor in deciding where to go next.
But commonality of language does not imply commonality of eating-out habits. The UK's lower density of fast food restaurants might to an American look like a market opportunity waiting to be grasped. But the figures belie the fact that the British simply do not eat out as often as Americans - or eat the same quantity.
Another major difference is the mode of fast food consumption. In the USA, the emphasis is on drive-through outlets, whereas in the UK it is on pedestrian access. That difference changes the economics of operation, such as the amount of seating required. Where drive-through restaurants have been established in the UK, the British haven't embraced the American habit of eating while driving - instead they want car-parking space to sit and eat their meal, which requires more expensive UK land and pushes up costs.
A significant factor in the success or failure of American chains in the UK has been their choice of partner or master franchisee. The most successful entrants have tended to be those that have linked up with a large corporate partner, which offers the financial and marketing muscle to promote and expand the new brand.
Pizza Hut's attempts to move into the UK in the 1970s did not really take off until the company joined up with Whitbread in the 1980s. Another successful Whitbread partnership has been with TGI Friday's - which now has a better brand profile here than it does in the USA.
All too often, companies choose partners with financial backing but not the know-how. "Very often they are afraid of losing control, so they choose a partner they can dominate," says fast food consultant Stuart Price.
Here today…
Arby's is a prime example of a big US name that suffered the consequences of a poor choice of partner. This roast-beef sandwich giant, which operates 2,700 outlets in the USA, announced its arrival in the UK in 1992 with plans to open an outlet a month - its sights set on about 100 UK stores initially.
Its master franchisee for the UK was a new company formed by a Saudi businessman and a Chicago restaurateur, with no more experience of the UK fast food market than the parent company.
In the event only two units opened, in London and Glasgow, and two years later Arby's International bought back the master franchise and the Glasgow outlet. The first outlet, in London's Haymarket, a site where fast food operators including Burger King had failed before it, closed at the end of 1994.
At the time, Arby's claimed that it would not give up on the UK - indeed, it said, its expansion plans had become even more aggressive, with 300 British outlets anticipated - but the company seems to have withdrawn quietly back to the USA.
"Arby's arrived with a US idea of the British fast food market, and chose a partner with no experience of the market either," says Price. "It would have been an ideal candidate to link up with a plant bakery, which could have produced bread for it."
A US brand that looks set to receive a boost from a new partnership in the UK is the PepsiCo-owned Mexican fast food brand Taco Bell. It has become part of Compass New Famous Foods' portfolio as a result of Compass's acquisition of US caterer Canteen Corporation, a Taco Bell franchisee. There are about 4,500 Taco Bell outlets in the USA, but there had been only two in the UK before the Compass link-up. Compass has plans to expand the brand through its university and college sites.
Taco Bell is typical of a brand whose entry to the UK was mistimed. When it opened its first store in 1986, there was little concept of Mexican food in the UK. However, with more Brits holidaying in Florida, and the success of the El Paso range of supermarket foods, the 1990s could prove kinder to the brand.
Although it has typically been the large corporate partnerships that have provided successful entries to the UK for American brands, a lesser- known franchisee can be a wise choice, provided financial clout is matched by experience.
One company to have taken this route is Schlotszky's, the 450-strong American sandwich chain, which signed up Zephyr Marketing last year as its master franchisee in the UK.
Zephyr may not be a household name, but the company has earned its stripes in the fast food business. It runs 12 Domino's pizza outlets within the M25, a number of which have seen 30%-40% increases in sales since the company took them over. Zephyr is close to finalising its first site, and has plans to open 31 stores by January 1998, and a further 31 by 2001.
As important as choosing the right partner is picking an appropriate location. The trend among newcomers has been to gravitate towards prime spots in central London, on the assumption that start-up will be helped by large numbers of American tourists who are familiar with the brand, and by the cosmopolitan nature of the place. But experience has shown that London is not necessarily the ideal starting point.
"Central London rents are very high, particularly for a company still building its name," says Price. "In the early days of a new brand, people spend a lot of time peering in to see the menu without actually buying anything, and there is little repeat custom from tourists."
Popeye's Famous Fried Chicken, the second-largest fried chicken chain in the USA, was a classic London rent victim. Its first site in Leicester Square was rumoured to have been costing it £250,000 a year - it closed after just three months.
The evidence points to the benefits of finding a foothold outside London. "McDonald's didn't start out in central London, its first store was in Woolwich," points out Price. "No US fast food company has come here and been successful since the beginning of the 1980s by following a strategy of starting in central London."
Setting up in prime central London locations also means that a newcomer is forced to compete with established chains on price in a fiercely competitive market which regularly sees price wars. It certainly takes confidence to tackle an established player with critical mass, customer loyalty and a high advertising spend, in a tight margin market.
Forward thinking
And there is little sign that UK operators can expect margins to increase significantly in coming years. Whereas in the US, fast food outlets have been eating into the market share of the supermarkets, the trend in the UK has been the opposite, particularly with pizzas and pasta.
While many US groups have seen the UK as a comfortable first step, in practice other markets have tended to prove more successful. When Wendy's withdrew from the UK in 1986 having failed to win an indifferent British public over to its "old fashioned hamburgers", it concentrated its efforts on sunnier climes. It now has 23 outlets in Europe (the largest concentration of which are in Greece, with eight outlets) and 20 in the Middle East.
But Wendy's has not given up on the UK. It returned in 1992 for a second try, this time taking larger sites in prime locations on Oxford Street and Shaftesbury Avenue, in central London. Recently it has signed agreements to open eight London stores by August (News, 15 June). Further openings are expected to follow soon afterwards in Birmingham, Manchester and Yorkshire. The stores will initially be company-owned, although further expansion will be achieved through a mixture of franchises and joint ventures.
Certainly Wendy's is not alone in finding other foreign markets easier to crack than the UK. Although the US may feel it has more cultural affinity with Britain than with the Pacific Rim countries or the Middle East, when it comes to fast food the opposite seems to be the case.
"In many ways there's a greater affinity between the US and Japan than there is between the US and Britain in the fast food market," says Price. "Whereas in the UK, American companies need to modify their offering, when they go to Japan they barely have to adapt at all."
