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Rachel Browne and Esther Han

With its timber-panelled walls, oversized communal table, retro coffee machines and motto "eat good food drink great coffee" emblazoned above an array of organic soft drinks and quinoa salads, The Corner seems  more indie cafe than fast food giant. Among the clientele - a mix of staff from Royal Prince Alfred Hospital and hip young Camperdown locals - only the very observant would notice the discreet McCafe tag tucked at the bottom of its logo. 

The Corner by McCafe is a radical departure from formula for McDonald's, a fast food giant at a crossroad.

Traditional fast food chains are under threat from new chains like Grill'd.
Traditional fast food chains are under threat from new chains like Grill'd. Photo: Adam McLean

First launched in Australia in 1971, the chain grew from one small outlet in Yagoona in Sydney's south-west to become the country's leading fast-food franchise with more than 900 restaurants serving a reliably generic mix of burgers and fries in brightly lit surrounds. 

But somewhere along the way our tastes changed. Though the appetite for convenient, reasonably priced meals was strong, consumers started to look for more sophisticated menu items in aesthetically appealing surrounds. The introduction of the McCafe brand two decades ago met the demand for decent coffee. And now the advent of The Corner addresses the very issue which is eating away at  the company's market share - the growth of so-called fast casual chains such as Grill'd, Nando's and Mad Mex.

Fast casual restaurants are the quickest-growing segment of Australia's food market. They have expanded by 30 per cent in the past five years, compared with 5 per cent for traditional fast-food outlets, according to analysis by Euromonitor. The trend is being driven by younger consumers - research from Roy Morgan showing three-quarters of Nando's diners are Generation Y, compared with half for KFC. In the US, market research shows McDonald's is proving less popular with Millennials than its fast casual cousins. 

Grill'd at World Square.
Grill'd at World Square. Photo: Edwina Pickles

Marketing expert and Gruen Transfer panellist Dee Madigan of Madigan Communications described the fast-food giants as legacy brands struggling to future proof their product.

"The young hipsters hate those places on principle - they're just not cool," she said. "The fast-food companies are responding  by trying to re-brand themselves to appeal to younger consumers but will it work? I wouldn't hang my hat on it." 

Grill'd founder Simon Crowe believes it's increasingly hard for the traditional fast-food outlets to remain relevant in a world where consumers demand "providore-quality fresh, healthy meals".

Grill'd's new low-carb offering.
Grill'd's new low-carb offering. Photo: Edwina Pickles

"When your business model relies on mass production, how can you have an artisan approach?" he asks. 

The Corner, with its single-origin coffee and meals delivered to the table on timber platters, borrows heavily in style from the independently owned cafes which proliferate in Sydney's fashionable inner suburbs.

A McDonald's spokeswoman describes the cafe as "a learning lab where we are testing completely new and different food and beverages never before seen in our restaurants" and part of an evolution of the brand.

Tellingly, the symbol synonymous the world over with the McDonald's brand - those famous golden arches - is nowhere in sight.

McDonald's is not the only fast food giant responding to the winds of change. KFC is planning to launch a "high-end" concept store in Parramatta called KFC Urban to "meet customers' evolving expectations", and Red Rooster is upgrading restaurant interiors. Home delivery is being piloted at a small number of McDonald's, Subway and Red Rooster outlets around suburban Sydney, muscling in on a market long dominated by pizzerias and the Asian food sector.

KFC has applied for a liquor licence for its Urban outlet on Parramatta's buzzing restaurant-lined Church Street and will offer a menu "custom-designed" for the over-25s crowd. In a clear sign of demarcation from its traditional stores, KFC Urban will not serve family and children's meals. The fast food giant said it was not pursuing liquor licences for any of its existing stores.

"It's a new concept that we are trialling in line with the increasing popularity of niche, city-style dining," a KFC spokeswoman said. "It encompasses a fresh urban look and feel."

Documents lodged with Parramatta Council reveal KFC Urban diners will be sampling fried chicken and swilling beers in edgy surrounds, with timber-lined windows and exposed ceiling beams set out in the plan. It is a far cry from its staple look: red and white, brightly lit, and clean-lined.

Brian Walker, founder of the Retail Doctor, said KFC was trying to not only capture a more "urbane" crowd but also maximise its "dwell and socialisation time" in the store.

Such a move was a sign that KFC, like most traditionally dominant fast food players, had passed the "maturity" stage of its life cycle and entered into the "reinvention and re-energisation" phase to remain on trend and relevant.

Mr Walker said KFC Urban and The Corner by McCafe reflect a number of emerging food trends: the love of cafe culture, a departure from mass-market food, a commitment to healthier eating and ethically sourced ingredients, and the rapid uptake of technology.

Red Rooster's national marketing manager, Anna Jones said all the major players were watching the rise of the "fast casual" dining sector with interest but did not view it as a direct threat.

"I think what those guys are doing is great because it's elevated the entire category," she said. "It's shown that food can be convenient, wholesome and available in appealing surroundings."

In August, Red Rooster announced it had overhauled its menu to make it healthier "real food", ditching artificial colours, flavours and added MSG.

Around the same time, McDonald's introduced a customisable burger menu dubbed "Create Your Taste" at its Castle Hill outpost. Customers can build bespoke burgers using 19 ingredients at a digital kiosk; they can also be served at their tables.

"Create Your Taste is a permanent offering and customer feedback has been fantastic," said a McDonald's spokesman, who added that the service had grown to include its Waitara outlet on the upper North Shore.

It turns out that customers have quite sophisticated tastes, preferring brioche buns, chipotle mayonnaise and colby jack cheese. 

Last week, McDonald's US headquarters posted a four-minute YouTube video of its chief marketing officer Deborah Wahl announcing a "brand new vision" grounded on healthier food, transparency and customer engagement.

"We're listening more and assuming less, asking questions and getting answers," she said. "'Lovin' sits at the heart of our tag line, and it sits at the heart of our business."

McDonald's Australia chief marketing officer Mark Lollback has made similar noises suggesting the old certainties were no longer being taken for granted.

"Interestingly, even our loyal customers who come to us very, very regularly said to us they don't feel valued," he admitted last year, and promised the company would beef up its efforts to connect with diners.

Rohan Miller, a business academic at Sydney University, said the public relations manoeuvre showed the seemingly indestructible McDonald's was "getting a little concerned" about its position in the increasingly crowded market, which includes not just the fast casuals but the plethora of food trucks cruising city streets offering everything from New York deli-style delights to yum cha.

"The bigger entities are realising that people don't want to just eat on plastic seats off plastic tables, they want to spend more time over their meals and have a glass of wine," he said.

Health experts have raised concerns about the expansion of home delivery, and the Obesity Policy Coalition's senior policy advisor, Jane Martin, says this is driven purely by a commercial imperative to maintain sales in the face of an ongoing push for healthier lifestyles.

"They're under pressure," Ms Martin said. "Their market is not growing as fast as it has previously. There have been numerous successful campaigns to raise awareness about the risks of poor nutrition and that is reflected in their sales."

She is also deeply sceptical about moves towards hand-cut chips and bespoke burgers, saying consumers should be wary.

"They are trying to attract the type of consumer who might not typically go to a fast-food restaurant," she said.

"They are trying to draw in people who are more concerned about their health, who may not be aware that it's still very much mass-produced food. I would still urge people to look at the nutritional information. Just because its bespoke doesn't mean that it's healthy. Just because the lighting in the restaurant is a bit softer and the chairs are more comfortable doesn't mean the food is better for you."