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Road Warrior

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When he entered UK motorway service catering eleven years ago, Rod McKie, CEO of number two player Welcome Break, brought a combative, brand-based approach and fresh thinking from three different foodservice segments (US-themed pub-restaurants, sandwich shops and speciality coffee bars). Bruce Whitehall asks him about his brand-focused strategies, and the benefits they have gained, both operationally and commercially.

Welcome Break (WB) has, like its main competitors on UK motorways, made a strong feature of franchised brands for its foodservice, retail and accommodation facilities. What’s the attraction of this policy?

McKie: When I first got involvedthat of our staff. The first ’s on a UK motorway opened at a WB site in 1995 but, for historical reasons associated with our onetime owners Granada, became more prevalent. Most of our MSAs have them as well as KFC units and both are very popular, especially with families and younger people. In the past decade, we have tended where possible towards exclusive branding, both our own concepts (notably Eat-In and Coffee Primo) and more recently with and convenience stores, both of which are being rolled out across our entire estate with up to three stores at some MSAs. The US pizza brand Papa John’s is also now appearing; it is best known for home delivery in some parts of the UK but for most of our visitors it is an emerging brand. We now have four units and are about to roll out ten more.

Do brands actively help to pull in more business?

McKie: It’s very difficult to measure exactly how many people will, because of the brands we offer, come to our MSA instead of a competitor’s further along the road (assuming one happens to be available within an easily reachable distance). First and foremost, we are necessity-driven. People stop because they need to, typically because they want to go to the toilet or need fuel. That is fundamentally why we are here.

So do brands make a difference? Yes, because if people decide to spend when they are here, they look to the comfort of a familiar brand. Fundamentally, it’s about consumer behaviour.

What’s been the story with speciality coffee?

McKie: The offer of espresso, cappuccino, latte and other coffee specialities using quality fresh-ground beans was a bit of a late starter on the UK motorway. WB was one of the first to recognise this need when we created our own brand Coffee Primo. I had come into the company after being managing director of the high street chain Coffee Republic and we built Coffee Primo to a point where we were rated Europe’s 25th largest coffee brand.

We made a strong feature of lounge-style seating as well as a full coffee menu and food offer. We were very proud of it but three years ago made the decision to go wholly into big brands. That’s when we converted our Coffee Primo units into Starbucks.

Comparing an in-house brand with a franchise, how readily can you recoup the extra franchise fees and royalties?

McKie: When we switched to Starbucks, we gained 20-40% more revenue. That came from the international power of the brand and the safety that consumers felt in it. Our finding is that virtually everyone is into a quality coffee offer nowadays and that extends from mainstream consumers from every part of the country to people like truck drivers who in the old days were used to sitting in their own separate ‘caff’. But that consumer appeal is only part of the story. With big international brands, you also get tremendous NPD (new product development), constant innovation, value-added offers and merchandising.

There’s a lot of collateral in there. And a classic thing with Starbucks is that it is not just a brand for winter, when it’s cold. We’ve seen the arrival of Frappuccino, Strawberries and Cream and everything else. You get a big package and a much, much better offer to the public. That is fundamentally why we have gone for this brand and the brand programme.

Customer Service

To what extent does branding impact on customer service?

McKie: The big international brands have enabled us to attract some very talented people. Great names like Waitrose and Starbucks are very attractive to the younger person today. That has undoubtedly helped improve the quality of service perceived by the general public, which was a major shortcoming at UK MSAs historically. Staff are brand-specific in terms of their training and accountability but we encourage them to multitrain. Once they have been trained and certified, they are allowed to work in different units and I see that as one of our key strengths. When I joined WB, staff were paid relatively low wages and a lot of attention went on huge fleets of coaches to bus staff every day to our sites, which tend to be relatively remote from centres of population. So people tended to work according to when the bus dropped them off. We then made a fundamental change to pay people what they were worth and get them to work when we wanted them to work ie when there are customers about.

What do you see as the most important daypart at MSAs?

McKie: People today forego a lot of main meals. They snack, graze and consume a lot more coffee, and there is greater consumption of dishes like panini and croissants. But there is still a big appetite for the ‘full English’ cooked breakfast and it’s not something that motorway drivers will readily give up. That’s a big point of difference between the UK and the rest of Europe.

Our own Eat-In units, which operate as a modern version of the traditional self-service motorway restaurant, are predominantly about breakfast and lunch dayparts. Fish and chips is a firm favourite with people wanting a fuller meal at lunchtime. Through the day, in-bread products are our biggest selling category.

With MSAs offering foodservice mainly on an open-plan, food court pattern, how do you determine operating hours for individual units?

McKie: We have to maximise the box – and it is a very big box. We are effectively fighting for shares of the customer’s pound so we have to manage our dayparts accordingly in a way that works for us and works for the customer. We try to give them what they want but without over-catering for the available demand. The tactics with our fast-food acts tend to be midmorning to late morning opening, late night closing. Our own Eat- In brand tends to be early morning/ 24 hours while Starbucks units tend to be early morning through to late evening closing.

What about table service?

McKie: All sorts of full service concepts have been tried at MSAs, including themed diners such as Garfunkel’s and Ed’s Diner. For various reasons, we no longer have any, mainly because we operate a predominantly high turnover, fast-paced business where customers’ dwell time is 20 minutes or less. They want to be in charge of their destiny when they can get in and we don’t believe that table service is appropriate to that.

Niche concepts featuring very specific culinary offers in a branded format are now much in evidence at big UK shopping centres like the two new Westfield malls in London and to some extent at big airports and rail stations. Could a similar approach create more differentiation at MSAs?

McKie: Fundamentally, any offer has to achieve volume and be capable of fast service. If it doesn’t, we don’t use it. You see tactical use of externally sited catering on some UK motorway sites, such as mobile wagons or ‘pop-up’ areas. One example is pie and pasty outlets operated by one or two people. They can help to spread the load during busy periods but our general approach is to give everyone what they want inside. We will do popups if we think they are appropriate to the opportunity but I don’t really think we would put a restaurant outside.

At very busy times during the summer, especially on big holiday routes, we have mobile units such as for Starbucks in the car park. And small branded selfserve units able to trade in small spaces within retail units can be very useful. We have had phenomenal results with doughnut stations – 4 ft x 4 ft shelf display cabinets replenished with doughnuts through the day – taking GBP4,500 in a week.

Retail areas at some sites also feature a self-service coffee menu from Costa Express kiosks. We are the only MSA provider which can sell the UK’s two leading brands of coffee. We also have a couple of the original Coffee Nation kiosks, a concept we were involved in starting in the mid-2005. All these systems have a niche for time-pressed MSA users.

What other service formats have received attention recently?

McKie: We have just opened Starbucks drive-throughs at two sites by converting existing buildings: a DT-only unit and a combined DT-cafe. We believe that on certain motorways there is a pent-up demand from time-pressed people who, instead of a 10-20 minute experience, will accept a 3-4 minute experience to get their coffee and their food and get off again. The drive-through lane needs extra space but we think they will fill an important need and sales so far are very encouraging.

Throughput time is always an issue at MSAs, which was a factor in our involvement in the development of Radiant prepay-by-card ordering terminals at our KFC units. Instead of ordering at the counter, the customer can go to a terminal, select from the menu and input their debit/credit to pay for their choices, which they then get from a designated pick-up. These now account for 25% of KFC turnover. They help reduce queuing and also avoid delays on the main counter. KFC is now pioneering its own version as part of its new Fusion service delivery system.

In terms of food menus, what ingredient sourcing policies are you tending towards?

McKie: Organic and gluten-free ingredients, soya milk, calorie information: we constantly strive to work in with what people want. That is another major reason why we go for brands because these guys are doing that work for you. Freshly-made on site is also an important message to motorists and a lot of people don’t realise how far we now take that. For example, biggest seller at our Eat-In units is fish and chips. We don’t just buy the fish in but factor cod from fisheries. It’s then hand-battered and cooked fresh in our kitchens. We likewise aim for award-winning quality when we buy big selling items like pies and sausages. People are not prepared to tolerate cheap fodder any more. You can sell a cheap pie for a high price but you will never get another sale.

Corporate Issues

How and where does a business like WB look for future growth?

McKie: Any expansion available to us is largely through making existing sites more attractive and more efficient. Motor way Service Areas (MSAs) are a very mature market. We rent space on a new site which opened in September this year on the London orbital motorway, but that took 14 years to bring to fruition and there are very few other MSAs scheduled to be built. There might be some scope for rationalisation of operators, such as the present four main players going down to three or perhaps two. Currently, Moto is number one in size, we’re number two and then there is Roadchef and Extra. There are a further 15 or so in the ownership of the Department for Transport and let on 50-year leases to private operating companies.

What’s the likelihood of big international players entering the UK market?

McKie: When WB was sold to a syndicate of two Dutch banks and one Australian bank four years ago, Autogrill actively looked at us but nothing developed. It has never got further than that in all the eleven years that I have been with WB.

Is debt the main disincentive? Your 2010 accounts showed WB carrying GBP371 m of debt, costing over GBP20 m in annual servicing costs.

McKie: We are a business which throws off a huge amount of cash so, like our competitors, we are very likely as a business to be leveraged with a degree of debt. That has certainly been the model from the very beginning. The reason the business is attractive to investors is because of its cash-generative nature and the fact that it is a steady growth area and has been for many years. The business dynamics are very much based on UK traffic growth which has traditionally been around 1-2% per annum, apart from the last few years when traffic has been flat or in nominal decline. It is a business which is heavily regulated and trades 24/7 and therefore there are barriers to entry for new investors. WB’s steady growth within this environment means that the business is fairly resilient to past, present and future downturns. Indeed, in the last few years, we have achieved 11% top line growth and 13% bottom line growth.

What about expansion via non-motorway sites?

McKie: In 2010 we opened a relatively compact non-motorway site in a location formerly operated by Little Chef near Oxford and we have a few sites on A roads. But these are all high traffic locations.

Is the ailing Little Chef roadside chain seen to offer any opportunities?

McKie: Since the 1960s, Little Chef has been an iconic brand on the UK roadside but it’s in a slightly different business to us. It’s a lovely brand which most people in the UK have grown up with and most of us recognise, but its figures speak for themselves. In the past year, the chain has dropped from 400 sites down to 90. The bulk of its profit is made from about 20 sites, which are predominantly in regions where there is no motorway development and probably never will be. People’s relationship with A-roads, and their reasons for going to a roadside cafe, are not the same nowadays. At the same time, I think that the brand failed to move with the times, for example not understanding quickly enough the consumer’s demand for better coffee. It is difficult to understand where they go from here.

What’s been the effect on motorway foodservice of the introduction of convenience stores under strong retail food brands, notably M & S Simply Food at Moto and Waitrose at WB?

McKie: Fundamentally, foodservice is still the engine room of our business, representing a third of our annual non-fuel sales. Within that, coffee now amounts to GBP40 m and keeps on growing in an amazing way. But retail has steadily increased as a cash cow and the impact of Waitrose has been massive since we opened the first one on an MSA in 2009. We now have 17 and there are four more coming on stream next year. Their shops are what people want. As well as offering a good choice of to-go and grazing lines in sandwiches, snacks and drinks, the convenience store model developed on the motorway has been a big draw for people wanting ready meals on their way home from work. Their gift items have also added significant extra business at MSAs. They are also a significant influence for change, for example gaining tremendous take-up of sushi and bento boxes. These may not yet be mass market items but with people becoming more and more mobile it is absolutely critical that we provide such choices. My job is to make sure we are ahead of the curve.

How easy is it to get financing to make significant changes in what you offer at WB?

McKie: We have a very supportive board and, if we put up a strong business case, we get support. But there are limits. It’s not easy to knock down an existing MSA and start again. They cost an awful lot of money to build and run, and there are legally enforced rules on things like maximum retail square footage and destination marketing.

What’s your approach to pricing?

McKie: Because we have to operate 24/7 and support all the infrastructure, prices in our foodservice and retail units tend to be higher than on the high street and that is something we are often criticised for. We cannot actively encourage people to come to MSAs except as part of a motorway journey and historically we have not been allowed to promote our brands to motorists as they travel past. That, however, has been changing. MSA operators have found they could exploit a loophole of putting composite ‘corporate’ names on road signage eg KFC or Waitrose. The government has since relaxed things, hopefully in our’s and the consumer’s favour, and we now have the opportunity to display up to six brands on header boards should we wish to.

Does WB have any interests outside of the UK?

McKie: When we started our re-birth ten years ago we spent a lot of time looking at the German MSA market, especially Tank & Rast, and were big admirers of what they did. We also took a close look at operators like Moevenpick in central Europe and niche players like Rosenberger in Austria, who do a fantastic job and amazing quality food. But they are a different entity to us. For example, they have a bigger opportunity for sit-down meals and are licensed to sell wine and beer. The UK system of ownership and operation differs massively from that prevalent in Continental Europe where caterers like Autogrill and Tank & Rast basically rent the box and the government takes care of the roadways and the car parks and everything else. We have to both own and maintain the box 24/7, including free toilets and parking. When we were bought by our current syndicate of banks we did consider opportunities in France and also Holland but when the recession hit we made the strategic move to stick with the UK market. That has probably been wise. Entry into the Republic of Ireland was considered at one stage and WB was on a shortlist of three drawn up by the Irish government. But the proposals were unrealistic in terms of traffic volumes. But we do look at opportunities wherever we go. We have spent an awful lot of time travelling around in Europe and also the USA, purely and simply to get ideas of how other people do it. And that’s not just on motorways. We also keep an eye on developments in airports, train stations and shopping centres.

Marketing

Beyond your brand partnerships, are there new options in terms of widening awareness of WB?

McKie: We are just embarking on a journey in digital strategy with a new website which has a strong foundation of Facebook and Twitter. There are huge customer segments which we don’t talk to enough, like coach drivers and lorry drivers. If we could talk to every football fan and engage with them, it opens up wonderful opportunities for us. We estimate the annual footfall through all our sites at 80 m but there could well be a further 30-40 m we could be engaging with but are not; for example, people booking hotel rooms through our website and third parties, and people looking at our website for current offers and facility information. ••

How did you come to be in foodservice?

McKie: After spending my grant in my first year at college, I found myself working in all sorts of restaurants, from McDonald’s to Sweeney Todd Pizzas. I really got to love it and it’s since been fantastic for me and a lot of the guys who worked for me over the years. But I feel there is still not enough recognition of the industry and the great careers it can provide. There is a lingering perception that ‘if you can’t get a job anywhere else, go into hospitality’. The apprenticeships which people can get at one of our sites can enable them to be working and leading in one of the best retail units in the world. We can teach them about restaurant operation, retail, hotel skills, forecourt management, all under one roof. Not many places can do that. We have single units which turn over GBP55 m per year. The person running it will be making more profit than most UK companies.

What do you think has been the biggest contribution you have made to WB?

McKie: Firstly, increasing quality of product and delivery. Before I had the call to come and work at WB, I had been involved in running businesses with very strong food and customer cultures and focus (notably TGI Friday’s, Pret A Manger and Coffee Republic). The challenge with WB was to introduce the same values into a multi-focused business – fast-food, self-service, retail, accommodation, petrol stations – operating on a huge scale. Secondly, achieving ‘best in breed’ operational standards on the motorway. It’s all very well having good brands but you also have to know how to operate them. We work very, very hard with our brand partners to make sure we do that and in turn that has given us a lot of growth and allowed us to expand both top and bottom lines.

What people in the industry have you found particularly inspirational?

McKie: I am a huge fan of Julian Metcalfe of Pret A Manger: an eccentric but hugely passionate individual. I had an amazing time with Julian and co-founder Sinclair Beacham and was able to take the business from 14 to 96 branches. They gave me 1% of the business as a thankyou. I am also a huge fan of Wagamama and have recently been impressed by the Danish chain Sticks ‘n’ Sushi.

Tnony Hughes was an inspiration when I was at TGI Friday’s; I was kitchen manager at the first branch in Birmingham before becoming general manager and subsequently operations manager. Bobby Hashemi, the founder of Coffee Republic, was also a great guy to work with and I did a couple of great years with another madcap entrepreneur, Michael Cannon of The Magic Pub Co. He was an amazing individual who worked at great speed. Another great entrepreneur was Michael Guthrie who brought me into Welcome Break and grew chains such as Pizzaland and Bella Pasta as well as the Pavilion Group on the motorways. I greatly admired what did to lift McDonald’s when he was chief executive of the UK business and European president. The same for the Starbucks turnround. There was a time when the general public seemed to be turning against the brand but just look at what the company has done recently by listening to what people say. Some brands really learn to be responsive and benefit from that.

UK: Top MSA Operators

The three main MSA operators in the UK (with numbers of sites in brackets) are Moto (42), Welcome Break (26) and Roadchef (20). All operate branded foodservice and retail units under franchise (with some brands such as McDonald’s, WH Smith, Costa and Burger King appearing at a mixture of different operators’sites). Extra, the number four player with eight sites, lets out its facilities (in some cases to other operators) rather than franchising them. All other MSA operators have three sites or less. Welcome Break started in the 1970s, originally as Trusthouse Forte and Ross. It was purchased by Bahrain private equity group Investcorp for GBP476 m in 1997 and sold to current owners Appia Investments for an undisclosed sum in March 2008. Its MSAs are mainly located directly on motorways (‘in line’ sites). There are a few on motorway junctions (with access from normal roads) and on high traffic trunk roads. There is also a WB serving the UK side of the Euro tunnel. All sites are subject to the same regulatory controls (eg no alcohol sales, no destination marketing, 24/7 opening).