Fast food disruption heats up

KFC in Korea just released this calorific breadless burger - the Zinger Double Down King. The fast food chain's bunless burger consists of cheese, bacon, a beef patty, and sauces between two giant pieces of fried chicken. To confirm all your worst nightmares this burger is 3138 kj (750cal)!

 I asked the CEO of a fast-food company about the point when consumers will spend more on eating out or takeaways than on home cooking. "We're already there in inner-city locations in capital cities, particularly for young professionals," he replied. "The question is how quickly this trend spreads to outer suburbs."

It's an intriguing thought. What happens when millions of Australians spend more each week on dining out or takeaways than on groceries? Or when will it be the norm for many families to order food online for their nightly meal, at least a few times each week?

Entire industries could be reconfigured as consumers bypass the weekly or even daily grocery shop to eat out or order food in, and as technology disrupts the traditional business model of thousands of food outlets and shakes up food distribution and delivery services.

A customer selects a product from a chilled dairy cabinet. Photo: Krisztian Bocsi

This trend is entrenched in the US. Sales at restaurants and bars overtook spending at grocery stores in April 2015 for the first time, according to US Commerce Department data. The data includes non-food grocery purchases, but the trend is clear: Americans are spending up on eating out and cooking less at home.

Australians spent almost twice as much on groceries each week ($139) compared to eating out at cafes and restaurants, or buying takeaways, according to 2013 Commonwealth Bank research.

What your view:

Burger King's fast-food sauna in Helsinki will feature its trade-mark colours. Photo: Facebook

-          How often do you dine out or eat takeaway each week?

-          Is it getting cheaper to eat out compared to cooking at home?

-          How will technology change food-consumption patterns?

Josh Sparks who is the founder of the Thrive restaurant chain, which has secured funding to support its expansion plans in Australia and beyond. Their food promise is all about fast healthy food without the evils or salt, sugar and bad fats. Photo: Anna Kucera

Food industry disruption could happen much faster than many realise. The proliferation of online food-ordering services and advances in fast-food preparation and delivery technology is making it easier, cheaper and quicker to order and receive cooked food.

Demographic and social changes are also driving the trend towards eating out or ordering food more frequently. Urbanisation and city congestion will add to time pressures and encourage people to order food via their smartphone rather than cook it.

The cost gap between eating out or ordering in, over buying groceries, will narrow, at least for those who cook in small quantities. As people place greater value on their time, the prospect of spending an hour to source, prepare and cook food, and clean up, has less appeal.

Not all consumer segments will embrace this trend. Nobody expects young families, the elderly or other budget-conscious consumers to live on takeaway, although some sadly will. But I'm guessing younger generations will shun cooking food each night at a much faster rate and that the spending gap between eating out and buying groceries will be tiny by 2020.

This trend has huge implications for a range of stakeholders. Here are a few opportunities and threats to consider.

1. Reinventing the night-time economy

Local councils will have to work harder to help their retail precincts at night. Melbourne shows the benefits of stimulating city night-time economies through transportation, safety initiatives and reasonable trading hours. More capital cities, particularly Sydney, should follow its lead. They need to encourage people to eat out, not order online.

2. Disrupting traditional fast-food business models

The Venture has previously commented on antiquated business models in the takeaway sector. Virtual fast-food brands, shared cooking facilities, and less costly restaurant space allocated to in-store dining is needed as meals are increasingly ordered online. Australia has too many fast-food outlets, too many kitchens sitting idle for too long and not enough food production and delivery scale in the takeaway restaurant space.

3. Food-ordering geniuses

The food-ordering site, Menulog, and Domino's are showing how technology can reinvent food ordering, distribution and tracking. The next step is predicting daily food choices and offering customised meal and drink suggestions, much like online music retailers suggest playlists for users.

4. Food streaming

As online food-ordering platforms aggregate more suppliers, there is potential for different pricing models: a flat weekly fee, for example, for an agreed number of meals from a range of suppliers at a discounted price. A bit like music-streaming pricing models, although with more limits, to build consumer loyalty and lock in customers.

5. Real-time systems to clear excess supply

Several restaurants offer first-time discounts for new customers who order meals online via food-ordering platforms. And discount sites offer cheap restaurant meals and the like. The potential is using technology to promote real-time offers for takeaways to boost demand when kitchens are quiet. Or letting consumers bid for meals, rather than charge flat prices, in slow periods.

6. McSupermarkets

Supermarkets are well aware of consumers buying smaller grocery orders more frequently, rather than a big weekly shop. They are responding with smaller store formats and greater floor space allocated to pre-prepared meals, particularly in inner-city locations. It won't be enough.

Supermarket operators should think harder about how they can disrupt the fast-food industry rather than be hurt by it. Their location, parking and ability to distribute cooked food – their own or sourced from third-party providers – are valuable strategic competitive advantages.

The supermarkets' data on customers, sourced through their loyalty reward programs, gives them another advantage in predicting what millions of consumers eat each night, and whether and when they are likelier to prepare food, order it online or eat out.

Instead of tinkering at the edges with cooked food instore, supermarkets will have to re-examine their instore mix between fresh and packaged ingredients, pre-prepared food and takeaway. If they don't evolve fasters, supermarkets will be left behind as more consumers move to the finished food product.

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