Foodservice growth, like that of other service industries, is directly tied to consumer behavior. During the past few decades, consumers have increasingly turned to foodservice as an alternative to cooking at home. This has led to increased demand for foodservice outlets and products. Now that the recession’s recovery seems to be taking hold, people are slowly regaining confidence and returning to some of their old purchasing habits.
Consumers are drawn to foodservice for numerous reasons. Restaurants—particularly quick-service restaurants—are frequently viewed as more convenient than preparing meals at home. Given their stressful and busy lives, consumers look to indulge themselves with affordable pleasure whenever possible, and eating out is seen as a reward. Foodservice provides venues that offer new and unique food items and enable items to be customized to order. And, at the same time, it is perceived to be a good value, with many establishments offering quality nourishment at reasonable prices.
Demographics Drive Change
Several shifts in U.S. demographics affect demand for foodservice. The most significant of these are an aging population; the increasing diversity of the population; and the increase in dual- and single-income households.
According to the 2010 U.S. Census, the average age of Americans has increased from 32.9 years in 1990 to 37.2 in 2010. With the highest discretionary income of any age group, middle-aged Americans are a key market, and their ranks are growing. This shift is increasing pressure on foodservice operators to offer adult-friendly venues; bolder flavors for aging taste buds; healthy and special diet options; and portion-size variety.
The population also is becoming more ethnically diverse. The number of Hispanics in the U.S. increased 43% between 2000-2010 to 50.5 million. Asians are also a rapidly growing minority, while the African-American population has remained relatively static. This increasing diversity is driving demand for “authentic” ethnic foods and a wider variety of cuisines—and greater acceptance and adaptation of ethnic preparation styles and ingredients.
Traditional households with a nuclear family of married parents with children are becoming somewhat rare. Between 2000-2010, non-family households grew at a rate of 16%. These shifts result in greater demand for convenience, including takeout and convenient meal solutions.
Time pressures on all consumers are mounting, driven by such developments as longer commutes, increased hours on the job and extracurricular activities for children. As a result, Americans look to foodservice to provide more takeout options, car-friendly foods, entertainment venues (such as sports bars or movie theater restaurants), and speed and accuracy of service.
Restaurant Segments on the Rise
Within restaurants specifically, there are several categories that are outpacing industry growth.
Asian: Technomic sees opportunity in Asian limited-service chains. Panda Express (a quick-service chain) is the leader of the segment, and it’s been improving consistently. Many smaller chains also are succeeding, and they don’t seem to be taking share from other Asian chains (though possibly from Asian independents). It’s worth noting that most of these concepts are not strictly Chinese. On the full-service side, despite recent struggles at leaders P.F. Chang’s and Benihana, the segment has grown. Mongolian stir-fry chains Genghis Grill and HuHot show consumers appreciate the entertainment value and the ability to customize. Also worth watching are high-end sushi concepts.
Bakery Café: Panera Bread is the largest player and a steady grower. Regional brands, like Paradise Bakery & Café (which Panera owns) and Le Pain Quotidien, as well as smaller concepts focused on food quality, local sourcing or being the neighborhood gathering place, also are holding their own.
Beverage: Starbucks is the driving force of this segment. But, plenty of other coffee chains are seeing success, from larger players like Caribou to smaller upstarts like BIGGBY. A balance of quality, convenience (including speed of service) and in-store experience seems to be driving growth. Beyond coffee, Jamba Juice is the leader and has cultivated quite a following among young people.
Hamburger: McDonald’s dominates the segment, so it will perform as McDonald’s does. However, fast-growing players, such as Smashburger, Fatburger and Five Guys, also are contributing. There is plenty of opportunity for fast-casual burger brands.
Italian: Olive Garden’s consistent performance drives this segment. But, impressive growth has been coming from emerging and up-and-coming chains, like Anthony’s Coal Fired Pizza, whose pizzas are cooked in about four minutes in view of customers.
Mexican: Taco Bell is the largest chain, but No. 2, Chipotle Mexican Grill, is a key growth driver. Competitors, such as Qdoba and Moe’s Southwest Grill, continue to do well, as do emerging chains with unique selling points—such as irreverence (like Freebirds); authenticity (like Café Rio); and fish tacos (like Chronic Tacos).
Pizza: Pizza Hut, Domino’s and Papa John’s together make up about a third of the segment’s sales. Technomic has been watching emerging chains that have a point of differentiation, such as take-and-bake, wood- or coal-fired preparations, or a focus on healthy or local ingredients.
Sandwich: Subway dominates this segment. Among the national chains, results should continue to be mixed. (For example, in 2010, Jimmy John’s and Jason’s Deli had nice system-wide sales increases; Arby’s and Quiznos did not.) Breakfast menus will help build 2011 sales in the segment, as will growing chains, like Firehouse Subs and Jersey Mike’s.
Steak: This segment is coming off some miserable years, such as 2009, when sales sagged more than 10%. Leaders such as Outback, Texas Roadhouse and LongHorn Steakhouse are holding their own and increasing business slowly, and emerging chains like Perry’s Steakhouse & Grille and The Chop House continue to open units.
Why Growing Companies Keep Growing
Each year, when Technomic researchers rank the leading restaurant companies, they look for surprises and anomalies. The truth is, after watching the industry all year, they find very few. The reasons why a concept succeeds or doesn’t are always the same. All that changes is the environment in which it operates.
There are consistent methods that drive growth that are less dependent on operating environment. Technomic can narrow down the effective means to success with an acronym: IDEA. Innovation, Differentiation, Evolution, Adaption.
Innovation depends on improving existing menu offerings and the quality of service. For example, menu developers that offer compelling limited-time offerings give customers a new reason to visit the restaurant. A current focus is on balancing “healthy” with “indulgent,” sometimes within the same product (such as “skinny” versions of classic cocktails or low-fat, tart frozen yogurt smothered with fresh seasonal fruit), but are more often side-by-side on the menu.
Differentiation, distinguishing a brand’s core offerings from the competition, creates clarity with customers and defines for them when and how to use a product. Compare Buffalo Wild Wings and Yard House. At first glance, there are similarities: Both are casual-dining restaurants with tasty food, sports on TV and a large adult-beverage business. Dig just a bit deeper and see Buffalo Wild Wings’ family-friendly atmosphere, takeout option and value position. Yard House differentiates itself with an offering of several craft beers, classic rock music and a more upscale menu.
Evolution is about enhancing the experience, understanding the core customers and improving the offering to suit them. Jimmy John’s focuses on getting a good-quality sandwich to the guest as quickly as possible: “subs so fast you’ll freak.” Its unit design, assembly method and small menu all serve that goal. Unsatisfied with those efforts, it began offering delivery in many markets with a small minimum order, the ability to save details for a faster order next time—and a smart-phone app.
Adaptation is simply meeting today’s changing consumer demands. For example, consumers are less likely to eat according to a three-square-meals schedule. They nosh, skip meals, eat breakfast for dinner and vice versa. This has driven Wendy’s, McDonald’s and others to keep drive-thrus open all night and Subway to open for breakfast, when it sells just as many subs as breakfast sandwiches. The same consumer trend is the reason chains from Burger King to Qdoba Mexican Grill to Morton’s the Steakhouse offer snacks, small plates and shareable dishes. Offering menus beyond traditional dayparts brings the added benefit of creating revenue at off-peak times.
Technomic has found that, regardless of economic environment, operating segment or style, concepts that innovate, differentiate, evolve and adapt are those that are most likely to see on-going success.