Every cloud has its silver lining. Facing the challenges of the toughest economy in nearly half a century, the foodservice industry is finding new and creative ways to attract and retain business and connect with customers. Independent operators, chains and multi-unit restaurateurs, from high-end concepts to quick service, are navigating the choppy waters. They are repositioning and reinventing concepts to drive business and capture market share. Operators struggling to hold the line on same-store sales and best their competitors are experimenting with new menu items, delivery services, price/bundling schemes and flexible, more efficient unit designs, including smaller footprints.
Restaurant companies’ bottom-line focus has shifted sharply, from an emphasis on opening new units to a return to the basics fueling same-store sales growth: providing value with freshness, quality, warm hospitality, professional service and better cost controls; exploring new market opportunities, such as catering and home entertaining; and rethinking and retooling menus to better fulfill consumer demands.
Consumers Weigh the Value Equation
As the economy continues to impact the way consumers think about discretionary spending, Chicago-based food industry consulting and research firm Technomic Inc., sees the value equation increasingly affecting purchases. It tracks a considerable drop in the past two years in the number of heavy consumers of appetizers, salads, soups and other starters; consumers complain that selections on the starter menu lack variety. As for entrées, consumers are bypassing beef for less expensive proteins. However, when they do order beef, they are demanding seasoned, better-quality, aged cuts, to justify the higher cost.
Menu trends reflect a need to cater to consumers who demand strong differentiation as an essential component of value. As consumers judge food quality, quantity and price to make their own value judgments, operators are also focusing new attention on the size of menu items along with their components. Today’s “Goldilocks’” serving sizes are big, little and just right: menus are featuring more small-plate, prix-fixe and bar fare, as well as more family-style entrées that can feed two or more.
Taking it Outside
Seeking new business channels in tough times, restaurant operators see takeout and catering as particularly promising opportunities to build same-store sales. As consumers increasingly appreciate the comforts of home--not only for the dollar savings, but to “cocoon”--home entertaining using prepared foods from foodservice outlets has become an easy, convenient habit. Depending on the concept, large-order catering offers restaurants many promising opportunities for both business and social occasions. And, as the lines between foodservice and retail grocers continue to blur, grocery stores and other retail venues have also moved into the takeout and catering arenas in a big way. Technomic research shows that over the next year, 40% of consumers expect to entertain at home more often, making for a $33.3 billion foodservice market opportunity.
Healthy Food: It is Getting Complicated
Even premium items are being rethought, in response to consumers’ new spending patterns. In particular, operators are reacting to demands for healthy foods at lower prices, as consumers economize in their overall food expenditures and spend less on healthy foods. A recent Technomic survey finds that, while consumers are more concerned about their eating habits today than they were a year ago and generally regard lower-priced restaurant options as less healthy, 70% report healthier foods are increasingly difficult for them to afford.
Quick-service operators are in a good position to respond to the increased demand for inexpensive, healthier fare at lower price points.
* Einstein Noah Restaurant Group offers a new line of 400-calorie breakfast sandwiches, including an egg-white sandwich with turkey sausage on a “good grains” bagel.
* Panera Bread’s healthy Power Breakfast sandwich is built on whole wheat with 5g of fiber.
At the same time consumers are re-evaluating their expenditures on better-for-you foods, nutrition disclosure mandates are also changing their thinking and behavior. Technomic found that mandated calorie disclosure for New York restaurants with 15 or more units is affecting what items consumers order and which restaurants they visit. Fully 86% of New York restaurant-goers were surprised by the calorie count information now listed on menus or menu boards, with 90% of them claiming the calorie count was higher than they had expected. As a consequence, 82% say calorie disclosure is affecting what they order, and 60% say it is affecting their choice of where to dine. Consumers find the calorie information on menus to be helpful and are in favor of all levels of government playing a more active role in regulating restaurant menus.
Finding New Ways to Converse with Customers
Concurrently, with other radical changes in the restaurant industry, online social networking is bringing a whole new meaning to marketing. Online ordering is in place at more than 25% of Top 100 chains. Facebook, Twitter and other social networking media are proving a way for chains such as Domino’s Pizza, Pizza Hut, Dunkin’ Donuts, Wendy’s, KFC, McDonald’s, Arby’s and others to connect with customers in new ways. Some recent milestones:
* Chick-fil-A became the first restaurant chain on Facebook to achieve one million fans.
* Taco John’s is using online coupons on Facebook, Twitter and YouTube.
* Maggiano’s drew 2,000 Twitter followers on the first day of using “tweets” offering the chance to win $100 gift certificates.
Smaller regional chains and multi-unit operators are going in the same direction, with many also exploring iPhone “apps” and other ways to engage with the customer, attract new business and promote themselves.
Retailers Redefine the Foodservice Playing Field
Competition for consumers’ “share of stomach” has changed dramatically, as food retailers have come to understand how to go head-to-head with foodservice to recapture some of their lost share of consumers’ total food dollars. In recent Technomic research, nine out of 10 consumers reported they have purchased retail meal solutions (RMS), and almost seven out of 10 said they had done so within the past month.
There is no doubt that price is a strong lure. 66% of customers who have increased their purchases of RMS cite affordability, says Technomic.
RMS sales have been rising at a 7%-plus compound annual rate in recent years. As restaurant sales decline and competition for the food dollar becomes more intense, traditional supermarkets, convenience stores and mass merchandisers all have seized the opportunity to offer freshness and convenience in ready-to-eat and ready-to-heat foods. They are pushing farther into foodservice turf with exhibition cooking and “made for you” preparation, in-store cafés and sit-down restaurants, pizza stations, sushi counters and wine bars. Their strongest advantage over restaurants, however, is their ability to offer daily menu rotation and more variety than most traditional restaurants in their competitive area can manage.
RMS initiatives are advancing rapidly in different tiers of the retail food industry. At the Whole Foods in Manhattan’s Time Warner Center, customers start their day with hot egg and cheese sandwiches, pancakes, granola and yogurt parfaits, and other innovative breakfast fare. Lunchtime serves up another opportunity to take share of market from restaurants in the neighborhood. The ease of stopping by to pick up something for dinner has heightened evening takeout competition with restaurants. Well below this elite level of RMS, traditional grocery retailers, such as St. Louis-based Schnuck’s and West Des Moines, Iowa’s Hy-Vees, are expanding prepared food offerings and incorporating pizza ovens, woks and salad bars into stores. At Indianapolis-based Marsh Supermarkets, a Mediterranean foods program was added last year with an olive bar; self-serve cold chicken wing bars were also installed. Such advances in retail meal solutions present a major threat to restaurants and a major opportunity to foodservice manufacturers.
New Thinking Boosts the Bottom Line
Despite today’s landscape of lackluster sales, the new focus on creating value is beginning to pay off with a number of publicly held restaurant companies reporting better 2009 results. In the first quarter, Buffalo Wild Wings saw company-unit, same-store sales rise 6.4%. Second-quarter results showed a smaller increase of 2.8%, but president Sally Smith expects the chain to be on pace to meet its goal of 15% unit sales and 25% revenue growth this year. “We’re a good value and work hard on operations, training our team members to know their guests,” she says.
Restaurants Inc. reported net income climbed more than 20% to $123 million for the fourth quarter ended May 31, despite domestic same-store sales down 0.6% at Olive Garden and Red Lobster, and steeper declines at LongHorn Steakhouse, The Capital Grille and Bahama Breeze. Clarence Otis, Darden’s chairman and CEO, says two key drivers are changing the makeup and motivations of the customer base: the high percentage of busy women in the workforce and the growth in the 50+ age group. Darden is responding to these shifts in multiple ways. For instance, its Season 52 concept, which appeals strongly to mature diners, plans to open several new units next year and is seeking additional sites. To draw and retain managers who can understand and cater to today’s consumers, Darden focuses on sustaining a best-in-class corporate culture--“a company that’s a special place to work and be a part of,” as Otis puts it.
“Value is the answer to driving traffic,” Ruby Tuesday founder, chairman and CEO Sandy Beall told attendees at the Oppenheimer Consumer, Gaming & Leisure Conference this summer. Like many struggling chains, Ruby Tuesday cut back on opening units, placing a two-year moratorium on expansion. A focus on price and execution is slowly paying off. The chain improved its burgers with fresh ground beef, developed new craveable entrées and introduced “mini” food items that now comprise 14% of the menu mix. At the same time, it remodeled the entire system in less than a year with a fresh, contemporary look, reduced costs by $40-50 million annualized and closed 43 units. Despite “a terrible year,” in which the chain lost 5-8% of guests at the lower end, it expanded dayparts and shifted marketing efforts to a more local emphasis.
Guest satisfaction scores rose, sales declines lessened, and the customer mix shifted with an increase in higher income, frequent-dining customers. “Fourth quarter sales were down 3.2%,” says Beall, “and that feels good, compared to -6.8% in the third quarter.” pf
For more information about Technomic industry data, contact Patrick Noone at Technomic at 312-506-3852.