Agri-Food Trade Service

Fast Food Industry: Keeping up with the Changing Lifestyle¹

July 2011

Senen U. Reyes
Senior Management Specialist
Center for Food and Agri Business
University of Asia and the Pacific

Fast food or quick service restaurants have come a long way since 1921 when White Castle, the first fast food hamburger chain, sold burgers at five cents apiece and ended its first day with a US$3.75 profit.

Arguably, A&W was the first fast food restaurant having sold the first frosty mug of A&W root beer for one nickel in 1919. In the Philippines, Tropical Hut Hamburger is reputedly the first hamburger chain dating back to 1965.

After almost 90 years from the sale of the first hamburger and root beer, the global fast food market has grown to over US$201 billion in total revenues in 2009, with growth of 3.1 percent, according to Datamonitor. On the local front, total family expenditure for food consumed outside the home reached PhP196 billion, accounting for six percent of the total family expenditure, based on the 2009 Family Income and Expenditure Survey (FIES) (Table 1). Eating-out spending has accounted for a growing share of the expenditure pie over the past two decades from less than four percent in 1991. The amount has more than doubled since the start of the millennium in 2000 from PhP90 billion to PhP196 billion in nine years. As a share of food spending, it expanded from 11.5 percent to 14.2 percent.

Source: National Statistics Office (NSO) - FIES 2000, 2003, 2006, 2009

Fast food chains belonging to BusinessWorld's Top 1000 corporations registered average growth of ten percent in gross revenues over the past several years. Gross revenues in 2009 reached almost PhP70 billion, led by Jollibee Foods Corporation (Figure 1).

Figure 1. Gross Revenues of Fast Food Chains in the Top 1000 Corporations, 2005-2009 (PhP million)

Source: BusinessWorld Top 1000 Corporations in the Philippines, various issues

Ten years ago, there was an estimated 50,000 restaurants in the country. The number of restaurants, bars, canteens, and other eating and drinking places has since grown to almost 92,000, based on the 2005 Annual Survey of Philippine Business and Industry. Fast food chains have been a large part of this growth not only in terms of the number of stores but also in the continuous development of variety and product offerings.

Expansions and Acquisitions

Jollibee remains to be the leading fast food chain in the country, growing from over 400 stores in 2001 to over 600 stores in 2010 (Table 2). It continues to expand overseas with 71 international stores in six countries, excluding its Yonghe King and Hongzhuangyuan stores in China, which number around 200. Jollibee's early acquisitions at the turn of the millennium included pizza chain Greenwich, Chinese fast food chain Chowking, and baked goods company Delifrance. To capture other industry segments, it later acquired bakeshop Red Ribbon and recently, chicken barbecue chain Mang Inasal. These other brands have grown over the years and have also opened stores in other countries, particularly, for Chowking and Red Ribbon.

Source: Food and Agri Business Monitor, UA&P, October 2001; Company websites; News articles

One testament to the windows of opportunity and growth in the industry is the rise of Mang Inasal, the country's fastest growing barbecue fast food chain, which after only eight years, is already 390 stores strong as of July 2011. Despite the presence of industry giants and having been established first in the Visayas, Mang Inasal has shown that there is enough room for new players given the right product at the right price. As in the past, Jollibee sensed an opportunity and acquired a controlling share of Mang Inasal. On the other hand, Jollibee sold its Delifrance business unit and stopped operations of its carinderia-inspired food chain Manong Pepe stores, which will eventually be converted to its other brands.

Owing to the popularity of coffee shops and the Filipino's growing penchant for drinking coffee, Jollibee also entered the coffee shop business through a Korean-based restaurant brand, Caffe Ti-amo. It was launched in 2010 and has already three branches offering gelato and coffee in a casual dining format. McDonald's McCafe came a decade ahead in the coffee business as a strategy to gain market share and offer a less expensive but quality coffee experience.

Most of the other major players in the industry have also expanded led by Pizza Hut, McDonald's, and Shakey's. Some Jollibee and McDonald's stores in Metro Manila are undergoing renovation to improve store appearance/image and better serve its customers. Chicken company KFC slowed down partially due to the effects of the Asian financial crisis to the Ramcar Group but it has since recovered. In 2008, Ramcar acquired Tokyo Tokyo, the country's leading Japanese fast food chain. Ramcar also owns the master franchise of Mister Donut in the country which has over a thousand shops nationwide.

Products, Variety, and Value-addition

The major traditional types of fast food chains are still the hamburger chains, chicken houses, pizza/pasta parlors and Chinese food chains. However, other fast food chains are catching up like the donut chains, coffee shops, barbecue houses, bakeshops and Filipino food chains.

While the food offerings in fast food stores are essentially within the type for which the chain was established, the available products are already a mix of food items wherein the banner product may not be the most popular. Jollibee's Chickenjoy, for instance, may be as popular if not more popular than its Yumburger. It also has Filipino dishes like beef tapa (smoked beef), longganisa (local pork sausage), and crispy bangus (milkfish). Chowking, a Chinese fast food, has also Filipino food like boneless bangus, kangkong (water spinach), longganisa, beef tapa and halo-halo. McDonald's, a burger chain, also has longganisa in its menu. Roasted chicken chain Kenny Rogers, for its part, offers other food items for the health conscious like roast chicken, healthy plate, high protein meal, high fiber meal, low calorie meal, grilled chicken/sausage/fish meals, and vegetable salads. KFC, Pizza Hut, Shakey's, and Wendy's also have vegetable salads in their menu. Wendy's was first to offer a salad bar and the first fast food to enter into a memorandum of agreement with the Department of Health in support of its Healthy Lifestyle Campaign.

There is also continuous new product development like KFC's Double Down (all-meat, no-bun sandwich), Wendy's shrimp sandwich and baconator, Chowking's Chinese-style fried chicken, and Jollibee's crunchy chicken burger, sweet and sour meatballs and chicken nugget crunchers. Part of product development is seasonal offerings especially during Lent, when people try to fast and abstain from meat. Some products that come out at this time are tuna pie and fish twister.

Other than the product mix and variety, fast food chains also offer affordable alternatives for the budget-conscious. The price of the budget items can range from a low of P25.00 for a Burger McDo or apple pie, P39.00 for Jollibee's beef with mushrooms and rice to a high of P89.00 for KFC's Wow Sulit Meal of 1-piece chicken, rice, and regular drink (Table 3).

Source: Company websites; internet search

Over the years, fast food chains have also added a new value to their relationship with loyal customers with the use of patronage cards. Some of these cards include Shakey's Pizzanatic Supercard, Pizza Hut's Palm card, Angel Pizza's Privilege card, and McDonald's Midnight card. For the pizza chains, the card allows the customer to buy one box of pizza and take one box for free. On the other hand, the Midnight card allows customers to get free items on orders from 12:01 am to 3:59 am. The promotions are valid only within a prescribed period.

A Still Growing Industry

A number of factors and strategies, both external and internal to the fast food industry, are contributing to its continuing growth.

BPOs

The growth of the business process outsourcing (BPO) industry has enhanced the eating out habits in the country as BPO companies have a 24/7 work schedule. Major fast food chains have adapted to this changing lifestyle with a 24/7 restaurant business hours in strategic locations close to the BPOs. McDonald's and Wendy's were one of the pioneers in the 24/7 delivery service. Given the company websites, there is also the facility of ordering on line and following fast foods in Facebook and Twitter.

LocationsThe expansion of malls and supermarkets around the country is another plus factor for the fast food industry. The on-going and planned Ayala, Puregold, Robinsons, Shopwise and SM establishments will be providing the space and foot traffic for the fast food chains' expansion.

Pricing

Value pricing or value meals will continue to be a strategy for fast food chains, as surveys still indicate low prices as a reason for choosing a fast food restaurant. Another price proposition is the unlimited rice promotion of some stores like Mang Inasal, Tokyo Tokyo, and recently, Tropical Hut.

Movie tie-ins

Another strategy to stimulate frequent store visits is the fast food tie-in promotion of hit movies with the offering of limited edition gadgets, collectibles, and food items like Captain America in Jollibee and Dunkin' Donuts and Transformers in KFC. McDonald's is also offering Coca Cola can glass collectibles.

Branding

Fast foods also use a sort of "multiple-branding" to draw more customers by offering a large number of items whereby several fast food chains are located side by side. This is the case of Jollibee beside Chowking, Greenwich, and Red Ribbon. Chains like the Ramcar group have also started co-branding where a Mister Donut kiosk is in a KFC store.

Bank tie-ups

As a means to increase patronage of credit cards, companies like the Bank of the Philippine Islands, Banco De Oro, and Metrobank have tied-up with some fast food stores where customers can redeem promotional freebies based on amount charged to their credit card. The fast food stores include Jollibee, Chowking, Mang Inasal, Bacolod Inasal, Goldilocks, Greenwich, and Pizza Hut. This win-win scheme is expected to enhance repeat usage for credit card companies as well as increased fast food store visits.

Value propositions

To complete the customer's dining experience and enhance the perception of value, some fast food stores provide newspapers and free Wi-Fi internet connection. Many chains are also remodeling their facilities; expanding their selection of desserts, beverages, snacks and breakfast items; adding grilled items; reducing fat and sodium; and catering to customers with diabetes or gluten intolerance. Some chains, particularly in developed countries, are also catering to a broader range of customers with halal-only or kosher food in their menu. Major companies have also set up foundations which implement their corporate social responsibility initiatives.

Prospects

There is a lot of optimism and positive outlook as expressed by major players. Jollibee Foods Corporation has revised its target upwards in 2011, and plans to open 160 stores in the country across all its brands. The company is looking at a 12-15 percent growth for the year with expected brisk sales and lower raw materials cost, and provided there will be no major spikes in inflation and petroleum prices. Mang Inasal for its part is targeting to hit 500 stores by 2012. McDonald's is planning to build 20-30 stores every year in the next five years.

The trend of eating out spending and fast food expansion as a vehicle to growth will continue as long as there is fierce competition in the workplace. The drive towards competitiveness with longer working hours and no time for home cooking coupled with the people's continuing desire for new fast food concepts will allow innovative and progressive food chains to prosper. A downside to this is the changing eating habits, which some researches suggest has led to an unhealthy lifestyle. However, fast foods have been made aware of this situation and are starting to offer healthier options.

References:

Family Income and Expenditure Survey, 2000, 2003, 2006, and 2009. National Statistics Office.
business.inquirer.net/money/breakingnews/view/20100908-291184/Jollibee-selling-Delifrance

findarticles.com/p/articles/
www.awrestaurants.com/
www.census.gov.ph/data/sectordata/
www.chowking.com/
www.goldilocks.com.ph/
www.greenwich.com.ph/
www.hamburgers.ph/
www.jollibee.com.ph/
www.kennys.com.ph/
www.kfc.com.ph/
www.manginasal.com/
www.marketresearch.com/product/
www.mcdonalds.com.ph/
www.misterdonut.ph/

[1]Publié dans le numéro de juillet 2011 du Food and Agri Business Monitor, revue mensuelle du Center for Food and Agri Business, Université de l'Asie et du Pacifique, Pasig, Philippines.