American Restaurant Chains Are Targeting The UK For Growth. Here’s Why.

Food & Drink

Popeyes is hoping to translate the wild success of its chicken sandwich to the United Kingdom. The brand just opened its first restaurant in the market–in East London–with plans to open about a dozen more in the next year, and about 350 total.

Popeyes will be jockeying for attention 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 plotted aggressive growth strategies in the UK. These plans are in motion despite the country’s restaurant industry taking a huge hit from Covid-19 and stricter Covid restrictions in place.

According to Phillipp Laque, managing director for Revenue Management Solutions London, there are several reasons the UK market still presents an attractive runway for U.S. brands right now. For starters, investors in these public companies are simply hungry for more growth.

“Where can that growth come from? Yes, there is room to grow in an existing market space, but there is a better opportunity for some brands to deliver growth if they go abroad,” Laque said during a recent interview.

The timing is also right from a psychological perspective. Consumers are more likely to be receptive to new things now–including menu offerings from new brands–after spending nearly two years in crisis mode. McDonald’s is experiencing a tailwind in the UK from its McSpicy chicken sandwich, for example, which generated the market’s best chicken promotional results on record, according to the company’s recent Q3 earnings call.   

That certainly bodes well for Popeyes’ debut in the market.

“Consumers and brands have both been reset during the pandemic. Habits have been disrupted. We’re all looking at our lives from different angles and exploring new things. We’re receptive to new stuff. This is proven out by our surveys that report consumers are looking for a ‘hedonistic’ experience. For U.S. brands, that has reduced the barriers of entry into the market,” Laque said.

There’s also the fear-of-missing-out factor. If major brands like Domino’s and McDonald’s are experiencing success and prioritizing growth in the UK market, it signals an opportunity for others. In fact, half of the companies on the ranking of Europe’s biggest restaurant companies are operating in the QSR segment, which is dominated by U.S. brands. Forty-five percent of sales generated by the 95 largest brands in the EU are driven by just 12 U.S. companies.

“Operators have to consider how their brand will be perceived if their competitors are going international and they don’t have international growth plans. Investors may be looking at other brands because they’re opening up in new markets and new revenue channels and so forth,” Laque said. “The UK is a good market to start for brands that may want to expand throughout Europe.”

Notably, the UK’s industry has not only struggled through strict Covid restrictions, but also even bigger labor and supply chain challenges than the U.S., driven by Brexit. That said, the QSR market remains relatively insulated because it delivers on convenience. That “convenience” is defined a bit differently in the UK, however, which features more delivery and fewer drive-thrus.

Delivery was big in the market before the pandemic, yet it has still experienced a material uptick since. Recent insight from CGA’s Hospitality at Home Tracker stated the combined value of delivery and takeaway in February 2021 in the UK was 317% more 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 a high demand for delivery is one of the reasons Wingstop has found solid footing in the market, according to Laque. In fact, the brand just won the UK Restaurant of the Year Award in the Deliveroo Awards.

“One of the most important things a brand can do to succeed in this market is get the product right for the customer. Wingstop seems to be doing that. They have a product that flies off the shelf and seems to have been made for the pandemic and delivery,” he said. 

That said, the white space that exists in the UK doesn’t seem to be based on a culinary position like chicken wings, or even a segment like QSR, but rather a strong business model.

“The UK market is struggling on two fronts: Brexit and the pandemic. If you think the U.S. is struggling in terms of labor shortage, the UK is worse. About 10% of hospitality jobs not filled … it’s been a nightmare for industry,” Laque said. “As a result, costs are rising, so the business model needs to be extremely resilient. The white space belongs to those who adjust best to the current environment.”

Of course, deep pockets also help, which is why we’re seeing the proliferation of major U.S. brands in the UK market versus a comeback from a devastated independent restaurant sector. Well-capitalized chains are able to experiment with different formats, including drive-thrus in a market that has little space available for such a channel.

“We’ll see a few brands have a competitive advantage because they’re better able to innovate and reshape the box so drive-thrus fit on the land they have,” Laque said. “Now, with the pandemic, everybody is thinking about the drive-thru.”

Still, even if a brand is able to reimagine its space to accommodate a rare UK drive-thru, that doesn’t mean it will be an automatic win. Adjustments are critical for survival, even for the biggest brands.

“Having the financial means is a massive advantage because you can sustain longer money-loss periods, but overall international expansion is extremely hard and many North American brands have come here and failed because they don’t get it right,” Laque said. “You have to find the right partner that fits the culture and knows the market, you have to get the product right. You have to leverage your uniqueness. And you have to know that convenience is what American culture is built on. European culture is not, but us Europeans are getting more used to it.”

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