Last month, we took a group of operators on a study tour of emerging concepts in Chicago. It was also a chance to catch-up on the key trends shaping the world’s most developed out-of-home foodservice market.

The UK may have made vaulting strides in terms of the development of sophisticated brands offering customers ever wider choice. But a trip to the US is a reminder of what a powerhouse the country’s foodservice industry is, having had a 30 year start on the UK in terms of the development of systemised out-of-home.

Figures from Technomic shows that big brands can carry on growing in the domestic market – McDonald’s had added $15bn of sales in the US market in the past decade to grow total sales to the $35m mark. There are now no fewer than 15 companies with sales greater than our largest company, Whitbread. And there are six more whose sales are around the same level.

Furthermore, sophisticated US limited service brands also have an unmatched global position as export successes. The top 200 US brands operate more than 80,000 restaurants outside of the US, with, again, McDonald’s leading the way with 19,412 sites. The US market has become intensely competitive and many major companies have become increasingly reliant on overseas markets for growth. Yum! Brands now earns more profit in the massive Chinese market than anywhere else thanks to the expansion of the Kentucky Fried Chicken brand. And at some point this year, Domino’s Pizza will have more sites overseas than it does in the United States.

The growth of US brands overseas is testament to the power of franchising as a capital-lite instrument for expansion. Five of the six biggest franchisors by sales in the US are in the foodservice category – and they account for an astonishing 40% of the top 200 in sales terms. Systemised foodservice systems lend themselves beautifully to franchising. Bigger normally means slower rates of expansion. But it doesn’t apply at the top of the franchising tree. The largest franchise systems have, in fact, been increasing their lead over the others. The top ten franchise systems grew sales by 13.4% last year and McDonald’s added 15.8% to its sales line – compared to an average of 8.9% across the whole of the top 200 companies.

The other noticeable things about the franchise model is its flexibility. As margins compress, some companies have moved swiftly to franchise more company-owned sites. But there’s scope the other way as well. Panera Bread, Five Guys and Buffalo Wild Wings, all performing exceptionally well through the recession, have been buying back sites from franchisees because their profit margins have been growing.

More broadly, there’s no doubt that the US restaurant scene benefits from the 40 years of cumulative experience generated by the creation of so many large foodservice companies. Good, original ideas need systems for successful implementation. Our trip to Chicago took in many original and emerging concepts. It’s no surprise that many of these are founded by executives of the larger companies deciding it is time to start their own foodservice concepts. The same process is in train in the UK. TLC Inns’ Jo Drain, Innventure’s Chris Gerard, Redcomb Pubs’ Dan Shotton all gained experience within Mitchells & Butlers, or its earlier guises, before striking out on their own.

Similarly, the chief executive of YO! Sushi, Robin Rowland, gathered experience at S&N Retail and The Restaurant Group, among others, before joining YO! Sushi. Here is one of the companies that provides the brightest prospect of the development of a UK-based world-beating food-service concept, one that might eventually bear comparison with the US brands that have succeeded in a multitude of different markets. Rowland is bullish about the prospects for YO! Sushi, based on early success across a handful of international markets. The creation of such exportable brands will be proof that the UK has developed world-beating foodservice expertise. The UK is certainly never likely to match the US in terms of global success, but it stands the chance of occupying the same position the UK holds in the music industry, a creditable second place, providing actual balance of trade benefits through franchised revenue streams flowing into the UK.

One of our attendees on the Chicago trip was sector investor Luke Johnson, who has built and sold brands such as PizzaExpress, Strada and Giraffe. He told me of his regret that he wasn’t operating in the US so that PizzaExpress might have grown to four or five times its current size. Well, perhaps, a challenge with his next set of sector investments will be to take them international, turning them into world-beaters. How about it, Luke?

Each year I visit nearly a thousand restaurants in the United States. While operators are certainly keeping a vigilant eye on price points, many customers have made it clear other dining experience elements also play an important role in their overall value definition. The result: innovative operators are jumping on this changing mindset as a great opportunity to showcase their differentiating food and service attributes. In fact, my research and travels have uncovered over fifty unique value strategies operators are using to take the restaurant dining experience beyond mere price. Here’s a taste of some of the unique strategies anyone visiting the United States can expect to experience.

Creating food that speaks to the soul – Folks in the US are in love with comfort food. Cutting edge concepts are seeking out these traditional dishes and re-interpreting them to fit their own menu positioning. Do you like waffles, eggs, ham, and pesto? How about when the waffle is folded like a taco and a fried egg, shaved ham, and pesto sauce is lovingly placed inside? Bruxie’s, in Orange, California, has become a local cult favorite by offering this sandwich, known affectionately as Green Eggs and Ham. Comfort food value can be created in either a traditional or contemporary manner. This dish captures a little bit of both.

Fast casual meets ethnic intrigue – Media outlets such as the Food Network have made consumers much more comfortable with the idea of trying ethnic cuisines. Fast Casual concepts continue to emerge across the United States offering high quality, unique flavour profiles featuring ethnic cuisines such as Latin American, Mediterranean, and Asian. Given the approachable price points offered by Fast Casual concepts, as well as their positioning as ethnic cuisine experts, expect consumers’ demands for international cuisine to continue to be met by this innovative segment.

Accommodating busy – In a 2012 Technomic US Generational Trend report, only 39% of millennials, 27% of gen xers, and 28% of boomers agreed with the statement “I believe I’ll have more time to cook in the future”. Translation: Most folks are busy. Pie Five, a fast casual restaurant in Fort Worth, Texas, offers guests the opportunity to create and enjoy a customised, fresh, high quality personal size pizza in approximately three minutes via a high-tech conveyor belt convection oven. This model creates major value for on-the-go individuals in non-traditional locations such as downtown office buildings and airports.

Offer flexible “blurring daypart” solutions – There is often a fine line from the consumer’s perspective between a traditional meal and a snack, and this distinction grows fainter each day. Concepts are creating smaller sized menu options at lower price points that can be consumed singularly as a snack or in combination as an entire meal. For many consumers, the decision of which way they will go doesn’t occur until the order is placed. This puts a premium on a restaurant’s ability to offer such menu flexibility.

Quality of life becomes a tastier proposition – Historically, menu items incorporating “better for you” ingredients and cooking techniques were often viewed as flavour deficient. Today, restaurants are breaking through these taste barrier perceptions. Native Foods Café, founded in Palm Springs, California, offers a 100% plant-based menu that pleases the palates of vegans and non-vegans alike. All food is made fresh daily and often includes seasonal and local offerings.

Indulgence options – “Dietary balance” is the motto for many. This means not every meal has to be healthy. As a result, fried isn’t necessarily a bad menu descriptor. In fact, it’s finding unique interpretations across multiple menu categories. At Sambuca 360, a restaurant nightclub in Plano, Texas, one of the most popular and delicious items on the menu is the chicken fried ribeye. This certified Angus beef ribeye is battered and fried, creating an amazing entrée that’s golden brown on the outside and moist and tender on the inside.

Genuine hospitality – No one wants to be just another source of dollar bills. Even if it’s only for thirty seconds, customers like it when they feel staff members are genuinely glad to see them. I was recently in Philadelphia, Pennsylvania for a speaking engagement. On the way back to the airport I stopped to gas up my rental car at WaWa, which is a convenience store chain known for its stellar foodservice operations and welcoming atmosphere. I decided to grab a sandwich for the flight. Stressed, hurried, and hungry, what I found inside was a staff member that briefly engaged me in casual conversation while making my Italian sandwich. I felt appreciated, and that’s a powerful value equation perspective.

So what is the moral of the current US Foodservice story? Successful concepts are incorporating strategies beyond price. Restaurants truly seeing things from their customers’ perspectives are creating unique, appealing value propositions that set the stage for long-term success. 

Over recent years, the pub industry has faced a variety of challenges from the smoking ban, late licensing, cheap alcohol pricing by the supermarkets, increasing utility costs and a general shift in consumers’ drinking and dining out habits. It is reported that around 26 pubs are closing every week. The consultation on statutory regulation of the relationship between pub companies and tenants places further pressure on the pub sector – although time will tell how all of this will play out.

Whatever the influence, being political or market-led, more and more pubs continue to close their doors and are placed on the open market. Many of these pubs are being sold for alternative uses although there is also pressure to retain the existing use encouraged by the community right to buy Localism Bill. From a property perspective, and working for a firm with four regional offices in London, the south west, Midlands and Leeds, there appears to be noticeable differences between the north and south. The north and Midlands have been hit hard as they no longer rely upon traditional industries and communities that once existed. Many local pubs relied upon these industries for their trade and the majority were predominantly wet-led. Corresponding property values in the north and midlands are relatively low and development opportunities are more scarce.

The pub sector is not favoured by the lending institutions and the loan to value (LTV) ratios will be influenced by the quality of the purchaser and their access to cash. A 40% cash deposit is usually considered a minimum. It makes access to the market place difficult for new operational entrants. It remains a buyer’s market and access to cash leaves purchasers very well-placed to compete for sites.

The south is a different story. Generally, there are pockets of high and low value areas with London commanding the headlines. Competition for good pubs is strong with established regional and national operators vying with several well-funded new entrants.

The residential market in London is fuelling capital growth. As an example, we recently completed on the sale of four flats above The White Horse, Hampstead at £1.62m where the pub company retained the pub, the tenant and the high barrelage volume. In simple economic terms, demand is outstripping supply, with plenty of foreign and UK investors in the market with cash to spend.

Change of use from pubs to residential can be contentious and London Mayor Boris Johnson recently agreed to list London pubs as community assets, placing the onus of protecting pubs on local authorities. There have been a number of notable recent cases where applications for conversion from pubs to residential dwellings or units have been refused by the Royal Borough of Kensington and Chelsea - The Queens Head, The Cross Keys and Phene Arms are all examples. It does appear that, despite these planning refusals, capital values appear to remain broadly unaffected, as demonstrated by The Phene Arms.

We recently placed The Jam Tree, Kensington Olympia on the market and it is generating considerable interest around the asking price. This has potential for residential development of the upper parts whilst retaining the licensed operation on the ground floor and basement. I consider this is likely to be a recurring theme in London, which will hopefully mean the provision of more residential units alongside the retention of community pubs. Another interesting case is The George, Odiham, which could lend itself to development subject to permissions. Interest so far has come from operators and developers and it will be interesting to see which way it goes.

Pubs that are still at the heart of the communities, whether in the north or the south, should remain in their original usage. There are many success stories of existing and emerging operators that invest wisely in the sector. With the right approach and track record there is backing available via private equity and venture capitalists. This is all refreshing to see.