McDonald’s woos cash-strapped customers

March 30, 2012

McDonald's woos cash-strapped customers

McDonald’s woos cash-strapped customers

by Sally Herships
Marketplace for Thursday, March 8, 2012

Kai Ryssdal: From the drive-thru window at McDonald’s comes this glimpse into the personal finances of recession and what it means for businesses. The burger chain reported February sales this morning. They were up, but not as much as the experts had been guessing. Blame a still-weak economy and people still looking for bargains.

So the omnipresent fast food king is gonna try to focus our attention on its low prices to get more of us in the door. The dollar menu’s not enough, it seems. Next month, the Extra Value Menu arrives.

Sally Herships explains.

Sally Herships: For restaurant lovers, the following news is about as welcome as stale, soggy cold French fries.

Darren Tristano: With higher gas prices and lower disposable income, it’s becoming increasingly difficult for Americans to dine out.

Darren Tristano is a food industry consultant with Technomic. Sad news for diners, but Tristano says it does solve a minor menu mystery. Normally we expect menus to be organized by type of dish, like appetizers, entrees and desserts. But not McDonald’s new Extra Value Menu. It will include everything from coffee to McNuggets.

Tristano: So they’re trying to focus the menu based more along the lines of price versus types of products.

And remember McDonald’s already has a dollar menu and value meals. Tristano says the restaurant is adding another value based option because consumers are changing. We used to be embarrassed to use coupons in front of our friends. But he says the recession did away with that.

RJ Hottovy: Customers’ fixation on the word “value” right now is important.

RJ Hottovy is senior restaurant analyst at Morningstar. He says as upscale newcomers like Panera and Chipotle are opening their doors, the fast food industry is declining. If McDonald’s wants new customers, it’ll have to steal them away from its competitors, which are also discounting. So, Hottovy says, it’s critical that the fast food king lets hungry customers know it’s offering low-priced options like McNuggets.

Hottovy: These are also are also pretty high-margin products, things that help drive the bottom line.

The new menu is available beginning March 26th.

Read full transcript at American Public Media: Marketplace Money


Snacking is Gaining Further Traction, Becoming a Consumer Lifestyle

March 29, 2012

Snacking is Gaining Further Traction, Becoming a Consumer Lifestyle

Snacking is Gaining Further Traction, Becoming a Consumer Lifestyle

CHICAGO, March 12, 2012 – PRNewswire – Consumers are snacking significantly more now than they were just two years ago. Almost half (48 percent) of consumers polled say they’re now snacking at least twice a day, compared to 25 percent in 2010. Restaurants are capitalizing on the growing snacking occasion by offering quick, portable, smaller-portioned, low-priced food and drink in a myriad of ways to continue gaining share of snack purchases. Restaurants now claim 22 percent of consumers’ snacking occasions, up from 17 percent in 2010.

“Recent consumer research indicates that snacking is becoming a larger part of consumers’ daily lives,” says Technomic Executive Vice President Darren Tristano. “Pressure from the nutritional disclosure legislation has prompted the foodservice industry to reduce calorie counts in meals. As a result, Americans are now more inclined to “graze” throughout the day, seeking snacks that provide fuel between traditional meal parts.”

To help operators and others aligned with the foodservice industry more effectively identify opportunities for growth and gain a competitive advantage, Technomic has developed the Snacking Occasion Consumer Trend Report.

Interesting findings include:

— Major chains are using late-night hours to promote value-oriented snack
items and bar plates to cater to younger customers who visit more often
for late-night snacks.
— More than a third (37 percent) of consumers have broadened their
definition of snacks to include more types of foods, beverages, and
restaurant fare.
— The mini sandwich, slider or wrap has evolved from a simple snack item
to a downsized gourmet version of signature full-sized offerings.
— Impulse purchases of snacks are up from two years ago. Sixty-two percent
reported that most of the snacks they purchased for away-from-home
consumption were impulse purchases.
— More than 33 percent of consumers expect to eat more healthful snacks in
the coming year, indicating greater importance for operators to offer
and promote better-for-you snacks.

Technomic’s Snacking Occasion Consumer Trend Report examines snack preferences, attitudes and purchasing behavior of more than 1,500 consumers. The Menu Insights section utilizes Technomic’s MenuMonitor online database and analyzes recent snacking developments to reveal menu trends for snacks at the Top 500 and emerging limited- and full-service restaurants. Additionally, data from Technomic’s 2010 Snacking Occasion Consumer Trend Reportis discussed throughout to provide comparison benchmarks for many menu and consumer trends.

View the full article at Hospitality Industry


Warm stove, cold stock at Potbelly

March 28, 2012

Warm stove, cold stock at Potbelly

Warm stove, cold stock at Potbelly

By Kate MacArthur
Potbelly Sandwich Works LLC is prepping to go public, but the throwback chain known for its namesake stove and toasted sandwiches could turn out to be the next Cosi instead of the next Chipotle if it doesn’t get its act together first.

The 35-year-old company founded in Chicago’s Lincoln Park and acquired by Chairman Bryant Keil in 1996 has achieved some proof points of its IPO readiness, including more than $200 million in annual revenue and a management team led by CEO Aylwin Lewis, a veteran retail operator. Yet it falls short on other fundamental benchmarks that would attract public investors and sustain expansion over time, industry watchers say.

Potbelly lags, too, when stacked up against other submarine sandwich sellers. Subway Restaurants, a unit of Doctor’s Associates Inc., now tops McDonald’s Corp. with the most locations in the world and is adding 165 outlets globally every month, on average. Champaign-based Jimmy John’s Franchise LLC is up to 1,329 sites in more than 40 states. Potbelly, meantime, has shrunk to 210 units from a peak of 223 in 2009, according to food industry tracker Technomic Inc.

Darren Tristano, an executive vice president at Chicago-based Technomic, draws comparisons between Cosi Inc. and Chipotle Mexican Grill Inc. When Deerfield-based Cosi went public in 2002, it was seen as a potential rival to Panera Bread Co. and Au Bon Pain Corp. in the higher-priced sandwich and salad segment. Since then, it has had only one profitable quarter and Nasdaq has twice threatened to delist its stock, which closed at $1.02 on March 9.

Denver-based Chipotle, at the other extreme, had set record sales and earnings year after year; its stock has rocketed eighteenfold since it went public six years ago.

Mr. Tristano sees more Cosi in Potbelly than Chipotle. “If you’re in the lead in a Nascar race, you don’t apply the brakes,” he says. “If growth isn’t happening, you have to question why.”
Messrs. Keil and Lewis, a former CEO of Sears Holdings Corp., decline to comment.

STELLAR PREMIERE
Potbelly, which began to franchise two years ago, made a boffo debut in June in New York, where it has five restaurants. The chain operates in 13 states and Washington, though more than a third of its locations are in Illinois. It recently has expanded its menu with a couple of chicken sandwiches and salads. Somewhat tardily, it also added a skinny sandwich version for calorie counters and a big version for the budget-minded. To get more from its real estate, the chain is offering breakfast at some sites. Live musicians still croon to noontime crowds.

Based on Technomic estimates, the average Potbelly generates $1.2 million in annual revenue. While that falls far short of the $2 million-plus-per-unit average at St. Louis-based Panera Bread and Chipotle, it’s twice the figure of Subway and Jimmy John’s.

But Potbelly’s startup costs are much higher than its sub sandwich rivals because its restaurants typically are larger and better furnished—they boast heavy wooden furniture and faux-antique décor versus Formica booths and fake brick wallpaper. Franchisee investments run as much as $767,700, excluding rent or mortgage payments, according to the Potbelly website. Milford, Conn.-based Subway says it charges franchisees $78,600 and up, plus royalties.

Potbelly also costs more to run. Because all its sandwiches are custom-made and toasted, each restaurant requires 16 to 20 workers during peak hours. Jimmy John’s gets by with as few as four or six, analysts say.

“They haven’t attracted franchisee investment and they haven’t put their own capital into new stores,” Mr. Tristano says. “They may be missing the boat.”

The bottom line is that Potbelly’s bottom line might be too thin for investors if the company goes ahead with an IPO by the end of next year, as it now plans, according to insiders.

View the full article on Crain’s chicagobusiness.com


Technomic Presents at Restaurant Leadership Conference

March 27, 2012

Hundreds of influential industry operators and foodservice suppliers were in attendance during Technomic’s session on “Winners and Spinners,” presented by industry icon and Technomic President, Ron Paul and Executive Vice President Darren Tristano at the annual Restaurant Leadership Conference in Scottsdale, Arizona.

This year’s event theme “Winning in a Changed World” looks toward a future where the industry faces greater uncertainty, including less loyal consumers who’ve been hit hard by the recent recession and current economic climate.  In spite of the challenges, Technomic still identifies leading chains that have performed successfully and demonstrated unit and sales growth during recent years. 

These success stories include mature chains like McDonalds, Longhorn Steakhouse and Chick-fil-A as well as up-and-comers like Chipotle, Firehouse Subs and Cantina Laredo.  As Ron Paul pointed out, “unit growth during this climate has been a good indicator of stronger unit economics.” 

Recent Technomic Top 500 results include insights on consumer shifts toward fast casual restaurants. The fastest growing chains in 2011 were led by Five Guys Burgers and Fries (in the limited-service category) and Yard House (among full-service restaurants). The Technomic session looked at why winners win and why spinners spin with Tristano pointing out several reasons for chain growth stall-out:

  • Concept fatigue is taking its toll on consumers who are turning to more contemporary restaurants
  • New competitors in each segment are putting greater pressure on more established brands
  • Chains with narrowly focused customer demographics can suffer from customer base issues
  • Several larger chains are focusing on international expansion with less effort spent domestically
  • Weak or deteriorating economic models are generating weaker results
  • Under-capitalized brands or those with weak cash flow can’t invest more aggressively at the unit level

The session gave operators a roadmap for evaluating their concept and several ideas on future strategic focus.

All Restaurant Leadership Conference attendees and Technomic Digital Resource Library subscribers will receive slides from the presentation.


Wings: A Fan Favorite Beyond March Madness

March 27, 2012

Trendy Restaurants Should Thrive As Economy Improves

Wings: A Fan Favorite Beyond March Madness

Even if your favorite college basketball team falls out of contention, the March tourneys still provide an excellent excuse to gather around a platter of your favorite chicken wings. But the excuses don’t end with March. Wings have remained a year-round favorite, exhibiting substantial innovation and room for growth according to recent research from restaurant consultants Technomic.

“Wings and sports have long been a winning combination-and more than 10 percent of all wing-based limited-time offers are game-day promotions,” says Technomic Executive Vice President Darren Tristano. “However, wings’ overall appeal comes from their ability to suit consumers’ desire for customization, including traditional and global flavor options from sweet to super hot, and for portion flexibility, serving as snacks, starters, entrees and sides. And they are fun finger foods that are easy to share, so they lend a social aspect.”

In its new Category Close-Up: Wings report, Technomic delves into its MenuMonitor online menu-tracking resource and finds that 36 percent of the Top 500 restaurant chains offer wings, and that number has grown year after year.

Of particular note is the extent to which restaurants have innovated in the wing category:

Wing flavors and sauces found on menus range from Buffalo and barbecue to the tequila-lime-barbecue at Quaker Steak & Lube and the Raspberry Ice-a sweet and tangy blend of raspberry and horseradish-at Hurricane Grill &Wings. Buffalo/hot sauces are the most commonly menued wing sauces. Among these types, the less-spicy mild and medium sauces have declined as Buffalo and “extra-hot” varieties have grown. Wing concepts offer an average of 18 different sauces. Hurricane Grill lists more than 30, as does Wild Wing Cafe. Variety is also found at chains not focused on wings-Beef ‘O’ Brady’s and Cheeseburger in Paradise, for example, each offer 12 options. Sweet-style barbecue sauces are more popular than spicy-style barbecue sauces, though preferences vary heavily by region. Consumer preference for sweet sauces indicates opportunity for flavors such as sweet and sour, honey-chipotle and maple-brown sugar. Fully 28 percent of wing-focused limited-time offers promote new wing flavors, offering operators a compelling method to drive sales while testing new wing varieties. Boneless wings are on the rise. And, interestingly, as restaurants have added them, the incidence of traditional wings has not decreased. Operators have found boneless wings appeal to a new consumer-one who does not enjoy the finger-licking aspect of traditional wings.

Chicken wings are among the most popular menu items, but also one of the most difficult to classify and analyze. Technomic’s Category Close-Up: Wings provides restaurants and industry suppliers with a thorough review of wing menu trends, pricing, sizing, sauces, accompaniments and limited-time offers, in addition to consumer perceptions of the leading wing chains and other related consumer research.

View the full article on Fox Sports


All DQ stores to offer Orange Julius

March 26, 2012

All DQ stores to offer Orange Julius

All DQ stores to offer Orange Julius

International Dairy Queen Inc. will begin rolling out the Orange Julius brand to all of its stores this summer to tap into the growing smoothie category.

Orange Julius products now are offered at more than 800 Dairy Queen restaurants in the United States and Canada, the majority of which are small Dairy Queen/Orange Julius Treat Center mall locations. That leaves more than 4,000 stores that don’t yet have those items, including many of the larger, more food-focused Brazier and DQ Grill & Chill sites.

Dairy Queen announced the decision to its franchisees in January, and all stores will be expected to participate. Stores that add Orange Julius as part of the upcoming rollout will carry a more limited selection of “Julius Originals” and “Fruit Smoothies” products than what is typically offered at standalone Orange Julius stores or the co-branded Treat Center locations.

“Our goal is to get Orange Julius into any location that can support it,” said Troy Bader, Dairy Queen’s chief operating officer for the U.S. market. “Orange Julius gives us an opportunity to grow in the beverage category and to drive frequency, especially in the p.m. snack category.”

While some customers may buy a smoothie instead of a Blizzard or malt, Dairy Queen’s research indicates that roughly 75 percent of Orange Julius sales are incremental sales from people who otherwise wouldn’t have purchased anything.

That could be especially true with health-conscious women who otherwise might not order anything when they take their kids to Dairy Queen, said Darren Tristano, executive vice president at Chicago-based restaurant consulting firm Technomic Inc.

“You know ice cream is bad for you, but smoothies are perceived as a more healthful indulgence,” he said, noting that it also could generate more sales in the morning.

A medium Orange Julius Original has 290 calories and no fat, and a 3-Berry Blast smoothie has 510 calories and one gram of fat. By comparison, a medium chocolate malt has 800 calories and 27 grams of fat.

Modest investment
While Dairy Queen and its franchisees battled in the past over the conversion of Brazier stores to DQ Grill & Chill, the Dairy Queen Operators’ Association (DQOA) says its members are on board with the Orange Julius rollout.

“I think the majority of stores are going to embrace this,” DQOA Executive Director Josh Schmieg said. “They’re looking for products to compete with chains that are offering smoothies.”
Dairy Queen declined to disclose what additional equipment franchisees will need to install for the Orange Julius offerings, but Bader said the “investment is really quite reasonable for a rollout of this nature.”

Tristano estimated that the costs likely will be between $5,000 and $10,000 per store for equipment and signage.

There’s also some concern that older, smaller stores may lack counter space for equipment and back-of-house storage for ingredients. Dairy Queen hasn’t yet determined whether some stores may receive exceptions to opt out of the rollout.
“It might require some creativity,” Bader said of the space constraints. “But for the right opportunity, people always find a way to be creative.”

Schmieg said franchisees also want the option to independently source Orange Julius ingredients, as they’re allowed to for Dairy Queen products. He said the company has agreed to allow that, but it will be difficult to find alternative suppliers before the rollout begins this summer.

Lost nostalgia?
Dairy Queen bought the Orange Julius chain in 1987 and began adding it to its small Treat Center locations the following year. The company started to expand the offerings to food locations in 2005, though most stores still don’t have them.
Dairy Queen decided to expand those efforts this year, pointing to the rapid growth of the smoothie category over the past few years. London-based market-research firm Mintel Group estimates that the segment generates $3 billion in annual sales, thanks largely to the growth of Jamba Juice and, more recently, the introduction of a line of fruit smoothies at McDonald’s Corp. in 2010.

“The Orange Julius brand has been around for more than 85 years. It’s even older than Dairy Queen, so the brand has a lot of value,” Bader said. “So, when we decided to focus on the smoothie category, it was obvious that Orange Julius was definitely the way to go.”

Tristano said he was a big fan of Orange Julius when he was growing up in the 1970s, but he believes the brand has faded since then. Therefore, it may take some time for it to start gaining traction again.

“I’m not sure there’s a lot of nostalgia or loyalty at this point, because it has diminished so much,” he said.

However, that gives Dairy Queen an opportunity to refresh the brand as it integrates it into the core Dairy Queen concept, Tristano said. He expects the company to rely on in-store promotion of Orange Julius products to existing customers at first, then gradually broaden its marketing efforts around the brand over time.

View the full article on Minneapolis/St. Paul Business Journal


Trendy Restaurants Should Thrive As Economy Improves

March 26, 2012

Trendy Restaurants Should Thrive As Economy Improves

Trendy Restaurants Should Thrive As Economy Improves

By MARILYN MUCH, INVESTOR’S BUSINESS DAILY

Trendy restaurants that survived or thrived during belt-tightening years should cash in as consumers are willing and able to eat out more often.

Quality food at attractive prices has been a winning menu for Chipotle Mexican Grill (CMG), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA). They all should benefit as job and economic growth gradually improve. Rising gas prices are a head wind, though.

Commodity costs for corn and wheat are down from last year’s highs, but remain high for meat such as pork and chicken wings.

Chipotle’s sales and profits have climbed at double-digit rates the past 12 quarters, despite rising commodity prices for meat ingredients such as pork and chicken wings.

“The prospect for better consumer spending feeds into better sales … combined with the outlook for lower commodity costs both for later this year and into next year, will position the group for even better earnings trends,” said Morgan Keegan analyst Robert Derrington.

Shares of all three chains are trading at or near all-time highs.

Fast-casual chains should continue to be the fastest-growing sector in sales and expansion.

Sales are likely to rise 5% to 8% this year excluding menu price hikes, forecasts Darren Tristano, executive vice president at industry consultant Technomic.

They offer nearly the same quality as casual restaurants, but for only a couple dollars more per person than fast food, says Miller Tabak analyst Stephen Anderson.

Take fast-casual burrito chain Chipotle. Sales and profits have climbed at double-digit rates the past 12 quarters. Q4 same-store sales jumped 11.1% — highest in the industry, says Anderson.

Profit growth should accelerate to 31% in Q1 vs. 23% in Q4, according to Thomson Reuters analysts.

“Things definitely seem to be looking up,” said spokesman Chris Arnold.

Costs To ‘Level Off’
Chipotle narrowly missed profit forecasts for the past two quarters due to rising food costs, but Arnold expects those pressures to “level off” sometime this year.

The company says it has no plans for a systemwide menu price increase, though it will raise prices in the Pacific region.

Chipotle opened its first Asian-theme eatery, ShopHouse Southeast Asian Kitchen, in Washington, D.C., last September. Arnold says it has been “well-received.”

Bakery-cafe Panera has enjoyed double-digit earnings and sales growth for the last eight quarters. Analysts see profit growth accelerating to 23% in Q1 vs. 17% in Q4.

Improved quality of items such as soup, sandwiches and salads has helped fuel long-term growth, Derrington says. So have catering sales and its MyPanera loyalty program, which had 9.5 million members as of Q4.

After struggling for years, casual-sit chains overall finally began to see same-store sales turning positive about this time last year, says Tristano. He expects the uptick to continue this year.

View the full article on Investors.com powered by INVESTOR’S BUSINESS DAILY


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