Sector Insight... Fast food battles to retain its slice of Singapore

Two global rivals - McDonald’s and KFC, both of which debuted in the late 70s - dominate the city-state. McDonald’s leads with 113 restaurants. Yum! Brands’ KFC is second with 75, while Pizza Hut and Long John Silver’s - KFC’s corporate siblings - have 46 and 31 outlets respectively .

Together, in the first half of this year, McDonald’s and Yum! Brands spent S$15.4 million (US$10.4 million) on advertising, making up 89.3 per cent of all adspend for fast food in Singapore, according to Nielsen. Yum! Brands’ outlay totalled S$9 million: S$5 million for KFC, S$3.2 million for Pizza Hut and S$804,000 for Long John Silver’s.

McDonald’s, however, topped list with S$6.4 million, of which S$2.1 million was spent on a single tactical campaign for its McDeliv-ery service. “In recent years,McDonald’s in Singapore has practically evolved into a 24/7 lifestyle brand,” contends Shirley Foenander, vice-president of marketing and communications for McDonald’s Restaurants, Singapore. “We are investing in McDelivery 24/7, 24-hour Drive-Thrus, McCafé and ‘Breakfast from 4am’ to drive new organic growth.”

Unending and perhaps exhausting innovation is a must because increasing sales at existing stores is more practical than adding locations in Singapore’s saturated food landscape.

Singapore’s 4.8 million citizens spend a whopping 60 per cent of their food budget on cooked food, according to Government statistics. When hungry, they can choose from 24,928 eateries - the vast majority being licensed hawkers. That comes to one outlet per 192 people, a claustrophobic density for franchisers.

Burger chains are feeling the pressure. McDonald’s is believed to have closed six shops last year, while Burger King and MOS Burger held steady with 43 and 22 outlets, respectively. KFC, which in Singapore is the franchise chicken sector, opened a single shop.

Burgers and chicken accounted for slightly more than half of the S$638 million in fast food sales last year, according to Euromonitor International. The bakery sector and fish sector came to about 20 per cent.

“Fish fast food sales were almost S$36 million in 2007, which is just 10 per cent of the total for burgers and chicken,”says Yvonne Kok, research manager at Euromonitor International. “But fish had the best performance, growing 20 per cent in sales.”

Long John Silver’s is positioned as the sole fish fast food chain in Singapore. Its closest rival is Fish & Co. Long John Silver’s cheapness makes it affordable for students. Its advertising targets the young.

The other bright spot was a growing bakery sector. Subway now has 57 locations, and shares the sector with O’Brien’s Sandwich outlets.

Fast food’s expansion has slowed during the buoyant post-Sars years, as Singapore’s economy has expanded and consumers’ incomes have grown. Consumers have switched to the pricier fare of casual, full-service restaurants such as Swensen’s, Tony Roma’s and Pastamania.

This is clear in the sales statistics. In 2003, there were 66 million fast food transactions, growing 6.7 per cent; last year there were 77 million, with two per cent growth. Yet transactions at casual full-service restaurants showed the reverse trend from 2003 (24.7 million, 3.3 per cent) to last year (28.4 million; six per cent).

The final challenge is healthy eating, and here opinion is mixed. While some argue that price will remain fast food’s key draw, a Eu- romonitor report claims: “customers are not only going to demand more variety, they will also become increasingly particular with regard to ingredients used.”

The challenge for the fast food franchises is how to respond to these diverse consumer trends to stand out in a crowded market.