Fast Foods Golden Age – Coming soon to a place near you.

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While the foodservice industry continues to grow – albeit slowly relative to recent years, the players in the fast food sector have been posting recent results which suggest that this segment is no longer the poster child for the industry. Those who are writing off the fast food giants do so at their peril.

It is unlikely that the plus $130 billion dollar fast food sector will see high single digit sales growth as in its heyday but a strong argument can be made that profitability may substantially increase in coming years thus ensuring a new golden age for the sector.

Many of the reported ills of the fast food sector have been self-inflicted, especially in relation to McDonald’s and Burger King. Correction of these problems – easy to identify, not easy to solve and implement – have become priorities for the respective CEOs.

Some of the reasons why a new golden age for fast food may be around the corner include:

1)      Focused strategies from the big players

a.       McDonald’s is concentrating on getting it right, which has not been their primary objective for a long time (and that is being polite!). It is inconceivable that key metrics such as restaurant margin and foot traffic will not improve given the reenergized vision and demands from Chairman and CEO Jim Cantalupo.

b.      Yum Brands Inc. multi-brand strategy is likely to bring more new customers (for them) to a highly efficient kitchen and operating process.

c.       Wendy’s will continue to operate efficiently and build higher margins from Baja Fresh once economies of scale kick in.

d.      Burger King has a CEO who understands price battles are not the answer and believes strongly in the customer experience.

2)      Fast casual will be a target for the fast food giants. The most impressive new products introduced by the fast food players in recent years – salads, are fast casual concepts and most definitely so in relation to quality. Other menu items may follow as the fast food giants endeavor to improve food quality.

3)      Leadership. All four chains have quality leadership who know what they want to do.

4)      Restaurant operating efficiency will continue to improve

a.       Many of the players are looking at reducing menu count to simplify operations. McDonald’s in one test have reduced total potential key strokes by 100.

b.      The annual QSR Drive-Thru survey shows a consistent improvement in service times. Wendy’s, the best performer in 2002 with   average service time of 127 seconds showed an improvement of seven seconds over the previous year. Many of the better operating units in each of the chains are now regularly coming in with service times under 100 seconds.

c.       Yum Brands concept of integrated kitchens to support their multi-brand units, combined with the crew flexibility multi-branding offers is a sure fire way to improve restaurant operating margins.

5)      Traffic will increase. This may be contrarian thinking, but there are good reasons why this can happen if the industry continues to work on image and new products. Compliments to Wendy’s who were the first to appreciate the salad phenomenon. By any standards, salads have proven to be “The Holy Grail” for the industry. It is truly unusual for any new product in any industry to have the combination of being on trend, volume generating, image enhancing AND margin enhancing. Line extension possibilities for salads are endless, which not only will ensure the concept does not get stale, but also provides the industry with the opportunity to advertise “new” products on an ongoing basis. Nutritionists may debate just how healthy these salads are, but in advertising terms there are few products better than salads to help convey health, freshness and modernity. The industry will continue to come under pressure from health lobbyists, but it now does have a product concept to fight the image battle.

For the fast food industry to continue to build profitability, it must avoid the level of price discounting we have recently seen. No one benefited, although it could be argued that the relative strengths in the industry did change a little with Burger King being hurt hardest by the price war, given its current financial state.

In general though, it is quite likely that operating margins and thus profitability for all the big players will see substantial upside in coming years.

 Conor Cunneen is President GROW Foodservice Profit. He is an acclaimed and award winning motivation speaker, strategy speaker, leadership speaker and marketing speaker. He is the 2003 Chicago Toastmasters Humorous Speaker of the Year.

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