McDonald’s: When the Chips are Down

January 13, 2015

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After a long run of success, the world’s largest fast-food chain is floundering–and activist investors are circling

IN A brand-new McDonald’s outlet near its headquarters in Oak Brook, Illinois, customers do not have to queue at the counter. They can go to a touch screen and build their own burger by choosing a bun, toppings and sauces from a list of more than 20 “premium” ingredients, including grilled mushrooms, guacamole and caramelised onions. Then they sit down, waiting an average of seven minutes until a server brings their burgers to their table.

The company is planning to roll out its “Create Your Taste” burgers in up to 2,000 restaurants–it is not saying where–by late 2015, and possibly in more places if they do well. McDonald’s is also trying to engage with customers on social media and is working on a smartphone app, as well as testing mobile-payment systems such as Apple Pay, Softcard and Google Wallet.

All this is part of the “Experience of the Future”, a plan to revive the flagging popularity of McDonald’s, especially among younger consumers. “We are taking decisive action to change fundamentally the way we approach our business,” says Heidi Barker, a spokeswoman.

After a successful run which lifted the firm’s share price from $12 in 2003 to more than $100 at the end of 2011, McDonald’s had a tricky 2013 and a much harder time last year. When it announces its annual results on January 23rd, some analysts fear it will reveal a drop in global “like-for-like” sales (ie, after stripping out the effect of opening new outlets) for the whole of 2014–the first such fall since 2002.

In the past year Don Thompson, the firm’s relatively new boss, has had to fight fires around the world, some of them beyond his control. Sales in China fell sharply after a local meat supplier was found guilty of using expired and contaminated chicken and beef. Some Russian outlets were temporarily closed by food inspectors, apparently in retaliation for Western sanctions against Russia over its military intervention in Ukraine. And a strike at some American ports left Japanese McDonald’s outlets short of American-grown potatoes, forcing them to ration their portions of fries. (More recently several Japanese customers have reported finding bits of plastic, and even a tooth, in their food.)

However, the biggest problem has been in America–by far McDonald’s largest market, where it has 14,200 of its 35,000 mostly franchised restaurants. In November its American like-for-like sales were down 4.6% on a year earlier. It had weathered the 2008-09 recession and its aftermath by attracting cash-strapped consumers looking for a cheap bite. But more recently it has been squeezed by competition from Burger King, revitalised under the management of a private-equity firm, from other fast-food joints such as Subway and Starbucks, and from the growing popularity of slightly more upmarket “fast casual” outlets (see “Fast-casual restaurants: Better burgers, choicer chicken”).

In response, McDonald’s has expanded its menu with all manner of wraps, salads and so on. Its American menu now has almost 200 items. This strains kitchen staff and annoys franchisees, who often have to buy new equipment. It may also deter customers. “McDonald’s stands for value, consistency and convenience,” says Darren Tristano at Technomic, a restaurant-industry consultant, and it needs to stay true to this. Most diners want a Big Mac or a Quarter Pounder at a good price, served quickly. And, as company executives now acknowledge, its strategy of reeling in diners with a “Dollar Menu” then trying to tempt them with pricier dishes is not working.

McDonald’s says it has got the message and is experimenting in some parts of America with a simpler menu: one type of Quarter Pounder with cheese rather than four; one Snack Wrap rather than three; and so on. However, this seems to run contrary to the build-your-burger strategy it is trying elsewhere, which expands the number of choices. That in turn is McDonald’s response to the popularity of “better burger” chains, such as Shake Shack, which has just filed for a stockmarket flotation.

Some analysts think that McDonald’s should stop trying to replicate all its rivals’ offerings and go back to basics, offering a limited range of dishes at low prices, served freshly and quickly. Sara Senatore of Sanford C. Bernstein, a research outfit, notes that Burger King, having struggled against its big rival for years, has begun to do better with a simpler and cheaper version of the McDonald’s menu. For the third quarter of 2014 Burger King reported a like-for-like sales increase of 3.6% in America and Canada compared with a decrease by 3.3% of comparable sales at McDonald’s. That said, sales at an average McDonald’s in America are still roughly double those of an average Burger King. So the case for going back to basics remains unproven.

So far, McDonald’s looks as if it is undergoing a milder version of its last crisis, in 2002-03. Then, an over-rapid expansion had damaged its reputation for good service, its menu had become bloated and customers were drifting to rivals claiming to offer healthier food. Now, once again, “McDonald’s has a huge image problem in America,” says John Gordon, a restaurant expert at the Pacific Management Consulting Group. This is in part because of its use of frozen “factory food” packed with preservatives. In 2013 a story about a 14-year-old McDonald’s burger that had not rotted received huge coverage. Even Mike Andres, the new boss of the company’s American operations, recently asked bemused investors: “Why do we need to have preservatives in our food?” and then answered himself: “We probably don’t.”

McDonald’s doesn’t seem to be cool any more, especially among youngsters. Parents say their teenage children have been put off after seeing “Super Size Me”, a documentary about surviving only on McDonald’s food; and “Food, Inc”, another about the corporatisation of the food industry; and by reading “Fast Food Nation: The Dark Side of the All-American Meal”. It is hard to imagine the new McDonald’s initiatives getting the reaction Shake Shack got when it opened its first outlet in downtown Chicago in November: for the first two weeks it had long queues of people waiting outside in the freezing cold.

A lot of the negative PR that McDonald’s gets is the flipside of being the world’s biggest and most famous fast-food chain. This has made it the whipping-boy of food activists, labour activists, animal-rights campaigners and those who simply dislike all things American. In America it has been the focus of a campaign for fast-food workers and others to get a minimum salary of $15 an hour and the right to unionise. Last month the National Labour Relations Board, a federal agency, released details of 13 complaints against McDonald’s and many of its franchisees for violating employees’ rights to campaign for better pay and working conditions. The alleged violations relate to threats, surveillance, discrimination, reduced hours and even sackings of workers who supported the protests. McDonald’s contests these charges, while arguing that it is not responsible for its franchisees’ labour practices.

Not all the criticism McDonald’s gets may be merited–or at least it should be shared more fairly with its peers. However, the company’s troubles have begun to attract the attention of activist shareholders, who may prove somewhat harder to brush aside than labour or food activists. In November Jana Partners, an activist fund, took a stake in the firm. Then in December its shares jumped, on rumours that one of the most prominent and determined activists, Bill Ackman, intended to buy a stake and press for a shake-up.

McDonald’s says it welcomes all investors and is focused on maximising value for its shareholders. Even so, Mr Thompson’s new strategy needs to deliver results quickly. Mr Ackman’s Pershing Square Capital has done well out of its 11% stake in Burger King, because the chain’s main shareholder, 3G Capital, has pushed through a drastic cost-cutting programme and a merger with Tim Hortons, a Canadian restaurant group. “If McDonald’s were run like Burger King, the stock would go up a lot,” Mr Ackman mused recently. It looks like Mr Thompson may soon have to fight on another front.


Pizza Hut Risks Becoming ‘Pizza What?’ with Bold Rebranding Effort

December 31, 2014

© 2014 Central Penn Business Journal. Provided by ProQuest Information and Learning. All Rights Reserved.

Go big, or go home.

It’s a catchy phrase. It glorifies the daring move, making a splash, going all in for the win. It even concedes that it might not work. And it’s a risky strategy for an established brand like Pizza Hut.

Here’s a quick summary: Pizza Hut same-store sales have declined for two years. Its parent company, Yum Brands, has seen growth for its Taco Bell and KFC units, but Pizza Hut hasn’t kept up. Archenemy Domino’s seems to be eating Pizza Hut’s lunch with decent sales increases, even though it does not have a sit-down casual dining option.

So, Pizza Hut has launched a rebranding effort that consists of a new logo (more on that later), a completely revamped menu, with a much wider range of toppings and crust flavoring options, and a tongue-in-cheek ad campaign called the “Flavor of Now,” in which its new pizza combos are tested by Old World Italians and flatly rejected as “not pizza.”

Pizza Hut seems to be counting on millennials to bite on the classic reverse psychology presented in the spots as a joke.

“This is the biggest change we’ve ever made,” Carrie Walsh, chief marketing officer of Pizza Hut, said in an interview with USA Today. “We’re redefining the category.”

But, in changing so much about the brand in one fell swoop, is it trying to do too much? After all, this isn’t just adding stuffed crust as an option. This also takes away a great deal of what makes the brand familiar to its core audience.

Darren Tristano, executive vice president at Technomic, the restaurant industry research firm, responded in the same USA Today story in this way: “Pizza Hut may be doing too much too quickly. It would appear that the brand that has lost touch with the consumer is trying to change too much overnight.”

All told, Pizza Hut will add 11 new pizza recipes, 10 new crust flavors, six new sauces, five new toppings, four new flavor-pack drizzles, that new logo, new uniforms, a new pizza box and a partridge in a pear tree.

That Pizza Hut is going big, there is no doubt. But there are risks, starting with its core customers. This isn’t New Coke, but will its loyal customer base be thrown by so much change?

While I’m not sure Old World Italians would think that Pizza Hut’s previous offerings were any more worthy of their blessing, it is a product that’s been more or less established for decades. So, there is some risk that the new menu, which replaces some items, will alienate a percentage of its customers and drive them to try other options.

Let’s say that number is 5 percent of sales. That’s a big chunk to overcome with sales from new customers just to break even on this venture.

The second risk is that, with so much change, will it be possible to tell what’s working and what’s not? The chain has more than doubled its available ingredients at all of its 6,300 locations. Will it be possible to tell which combinations are working well when there will be so many possibilities? Maybe not.

But maybe it won’t matter. If the pizza-makers at the country’s leading pizza chain can manage all the extra ingredients and make what will be essentially custom pizzas for anyone who wants one, Pizza Hut could be on to something. Personalized menu items are working for Chipotle and Panera, so why not take a shot at riding the wave? It can always moonwalk its menu back to where it came from if it doesn’t move the needle. It’s got Pizza Hut Classics in its back pocket just in case, right?

Now, about the new logo. It’s great to signal a rebranding effort with an updated logo. People take notice. It makes them curious. And this one uses a mark that resembles a pizza, or, more accurately, the sauce of a pizza, which puts the product front and center.

The part that gets me is that the roofline “hut” image from the old logo has been dropped in the middle of the sauce. Now it looks like a hat, not a roof. Unless it’s supposed to be one of the new toppings, it just looks like pieces of the logo have been redistributed.

Pizza Hat, anyone? Or Pizza What? In a few months, we’ll know whether this little pizza rebrand went to market or if it went all the way home.

But there are risks, starting with its core customers.


Quiznos sees Asia move as key to its future

December 16, 2014

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Quiznos is undertaking a major expansion in Asia as it emerges from bankruptcy, with plans to open 1,500 stores in China and several hundred more in other countries.

Kenneth Cutshaw, president of the company’s international division, says the overseas move is important to help restore the company’s financial health.

The Denver-based sub chain filed for bankruptcy protection in March, citing a need to reduce its debt load by more than $400 million and to aid franchisees who have fought with the company over their profitability.

It exited Chapter 11 protection in July after court approval of a prepackaged plan in which three senior lenders acquired 70 percent of the company’s shares in exchange for debt.

These new efforts in Asia represent the first substantial growth plans the company has announced since then. In addition to the Chinese partnership, Quiznos signed deals with master franchisees to open 100 stores each in Malaysia, Taiwan and Indonesia, including a 24/7, 10,000-square-foot location in Indonesia that will be the chain’s biggest in the world.

In betting big on growing Asian markets — it also has franchisees who have opened stores in South Korea, Singapore and the Philippines — Quiznos is following in the footsteps of larger chains such as McDonald’s and KFC that have found success in that region.

But Quiznos enters these new arenas after spending 10 years reducing its number of American stores from more than 5,000 to about 1,100, making Cutshaw keenly aware of how important this growth is.

“Yes, it is a key component to restoring our company’s financial health,” Cutshaw said. “We’re not alone. There are other brands that have had tremendous success outside the country and are still rebuilding their operations in the U.S.”

Quiznos entered the international market in 1999 in Latin America and now has more than 100 locations in that region. For its international expansions, it seeks out master franchisees who know the markets and who have experience operating chain restaurants. About 35 percent of its total stores are outside of the United States.

Asia would host the largest concentration of its overseas stores if the growth is completed as projected. Key to that is the 1,500 Chinese locations planned over the next 11 years in a partnership with AUM Hospitality and Parkson Holdings Berhad. Parkson operates about 60 top-tier stores of other brands throughout China now, Cutshaw said.

Quiznos will enter the market with what Cutshaw believes is a built-in advantage.

“American brands are given the strong benefit of the doubt when they enter an international market,” he said. “It’s perceived as a superior-quality product.”

Brands that have experienced Asian success have changed their culture and menu somewhat, adapting to the use of Asian meats and vegetables and an inclination toward spiciness, said Darren Tristano, executive vice president of Technomic Inc., a Chicago food-industry consultant. But there are big opportunities present.

“Looking abroad for growth … is definitely a way for brands to grow, especially for Quiznos as it comes out of bankruptcy,” Tristano said.


Immigrants to Get Wage Boost from Job Mobility Under Obama Plan

December 10, 2014

Copyright 2014 Daily HeraldiVfER3CaVAIA

President Barack Obama’s decision to lift the economic ceiling on almost half the nation’s 11.4 million undocumented immigrants will give those workers a chance at higher pay and better jobs.

That means it will also raise costs for businesses that rely on off-the-books labor.

Dishwashers will become waiters, and day laborers will move to full-time work on farms, forcing employers to pay higher wages for new workers. A 1986 immigration law covering 2 million people pushed up pay by 15 percent in the first six years for those workers.

Those are some of the effects of the president’s plan to protect about 5 million people from deportation.

“We’re going to see these people do better in the job market,” said Sherrie Kossoudji, an associate professor at the University of Michigan in Ann Arbor. “They’re going to be more mobile.”

On the higher end of the economic scale, workers with specialized technical expertise will have more freedom to change employers. And their spouses — often highly skilled themselves — will be allowed to work, too.

The consequences for the broader economy will be slight. The order has the potential to boost U.S. output by between 0.4 percent and 0.9 percent over the next 10 years, according to a report from the White House Council of Economic Advisers.

In contrast, the sweeping, bipartisan immigration legislation passed by the U.S. Senate last year would raise the gross domestic product by 3.3 percent by 2023, according to the Congressional Budget Office. That bill failed to advance in the Republican-controlled House.

Wage Pressures

Obama’s plan, which he outlined this week, will defer for three years the deportation of those who came to the country as children, as well as the parents of children who are citizens or legal permanent residents.

As a result of the order, the agricultural industry, which relies heavily on immigrant labor, could face rising wage pressures. Once workers are documented, they won’t stay in seasonal work for long, said Baldemar Velasquez, president and founder of the Farm Labor Organizing Committee of the AFL-CIO.

“How are you going to replace the people you’re losing?” Velasquez said. “Farmers will still be looking for workers to harvest their short-term crops.”

Restaurant Workers

An estimated 18 percent of undocumented workers — about 1.5 million — are employed in low-paying restaurant and hospitality jobs, according to the Migration Policy Institute, a Washington-based research group. Another 1.3 million work in construction and 723,000 in retail.

For restaurants, Obama’s action will make it easier for those employing undocumented workers to follow the law, said Darren Tristano, an analyst at Technomic Inc., a research firm in Chicago.

“It will help the operators who are not compliant, who are running the risk of being closed or fined,” Tristano said. “It should take some of the complexity and pressure out of a business that is hugely labor oriented.”

One of the smaller groups aided by Obama’s directive may see the biggest gains: Some 40,000 foreign students who earn graduate degrees to get jobs in technology industries will be allowed to work in the U.S. for up to 29 months.

These students, who have degrees in science, technology, engineering and math, would have a significant effect on productivity and innovation, said Giovanni Peri, an economist at the University of California at Davis.

“It involves few people, but very crucial people,” said Peri, whose research shows that undocumented labor complements, rather than competes with, U.S. workers. “Those workers will go beyond the effect of matching the right person to the right job and increasing efficiency. They’ll create innovation.”

Good Start

For employers, the steps are a good start toward addressing the shortage of skilled workers, said Emily Lam, vice president of federal issues for the Silicon Valley Leadership Group, a San Jose, California, trade association. Still, the effect is limited because it’s only a temporary fix, she said.

Another large impact might result from a provision that expands opportunities for skilled immigrants and their spouses. Workers with specialized technical expertise would have more freedom to change employers. Their spouses would also be allowed to work.

Settled Debate

While Obama’s order has sparked a clash with Republicans over its legality, the economic debate over easing immigration laws is largely settled: Decades of research shows the economy benefits from greater worker mobility.

The 1986 amnesty law signed by President Ronald Reagan raised wages and boosted the economy. Almost 2 million undocumented immigrants living in the U.S. were given legal status, as were about a million seasonal workers.

By 1992, real hourly wages for those workers had risen an average of 15.1 percent as they moved out of low-status, low- paying jobs, according to a Department of Labor survey. Wages continued to rise, according to a 2012 study by the Economic Policy Institute in Washington, even as the nation entered a recession that lasted from July 1990 to March 1991.

Obama’s plan is even less controversial from an economic viewpoint because it mostly applies to people already working in the U.S. For them, the move brings opportunity.

“It’s quite a small effect in the aggregate,” Peri said. “There’s no harm done to the American worker and a big gain for the immigrants who can take these opportunities. That’s the big picture.”

Cumbersome Process

Peri was one of those immigrants, moving to the U.S. from Italy to study in 1993. He earned a doctorate degree and landed an H-1B visa, which are set aside for highly skilled people. The system made it almost impossible for him to get his green card granting permission to live and work in the U.S.

“It was so long and cumbersome I had to marry an American,” he said with a laugh. Now he’s a citizen raising three children. “I’ve invested in the U.S.”

For undocumented workers, moving up the economic ladder can be difficult, if not impossible. The economy creates and destroys millions of jobs a month, and that churn is one key to raising wages. Companies hired more than 5 million employees in September, according to Labor Department data, and almost 2.8 million people voluntarily quit their jobs, the most since April 2008.

The threat of deportation typically discourages workers from switching jobs, even within an off-the-books economy. Many don’t consider more visible jobs with their current employers to reduce the risk of detection, cutting off the easiest route to better wages, Kossoudji said.

With the danger of deportation at least temporarily lifted, “it releases them from having to be in the back of the restaurant,” she said.


Second Cup Tries Upmarket Vibe

December 8, 2014

©2014 The Globe and Mail Inc. All Rights Reserved.secondcup03rb5

Underdog coffee shop chain is trying to remain relevant as competition heats up

When Alix Box joined Starbucks Canada almost 20 years ago, it was the underdog taking on titan Second Cup in the fledgling coffee wars.

Today, as the new boss of Second Cup Coffee Co., Ms. Box is again the underdog, this time battling giant Starbucks – and an array of other fast-growing rivals.

Just over nine months into the job as chief executive officer, Ms. Box is rolling out a three-year transformation effort starting with a sleek redesigned Second Cup in downtown Toronto. On Wednesday, Ms. Box held court at the new “store of the future,” which opens on Friday. Located in the city’s hipster King Street West entertainment district, the café is an airy, white-hued space with marble counters, a “slow bar” and a high-tech Steampunk coffee brewing machine.

But as a reminder of the increasingly brutal café landscape, the new store faces a Tim Hortons restaurant across the street and a Starbucks about a block away. There’s also an outlet of the nascent, but increasingly popular, Aroma coffee shop several steps away and other independent cafés nearby.

Given the intense competition, Ms. Box travelled the country to get feedback from Second Cup franchise owners at their almost 350 cafés – a far cry from Starbucks’ 1,445. She got an earful.

“They felt Second Cup had fallen behind and was outdated,” she said as she sipped a Finca La Cumbre light roast Costa Rican brew at the slow bar, priced at $4.75. “This is not tweaking,” Ms. Box added, referring to Project Crema, the internal name for Second Cup’s reimagination. “We’re not doing a little bit here and a little bit there. This is a revolution … It’s never too late.”

It may not be too late but time isn’t on Second Cup’s side. Having essentially created the affordable luxury café culture in Canada, Second Cup has lost steam as Starbucks, market leader Tim Hortons and global titan McDonald’s Corp. have raced to perk up their coffee business here.

Now, under new leadership, the chain is betting it can get the jolt it needs with a chic café design, fresh offerings and breaks for its franchisors.

“Is it too late? Probably,” said Joe Jackman, CEO of consultancy Jackman Reinvents, which specializes in turnarounds such as the ones at U.S. fashion retailer Old Navy and drugstore chain Duane Reade. “They’re yesterday’s brand … But I don’t count them or anybody out. It’s doable. It’s just a long-odds situation.”

Added Darren Tristano, executive vice-president at researcher Technomic in Chicago: “Given the size of Starbucks compared to Second Cup, it’s a more uphill challenge.”

The challenge is daunting. In its latest quarter, Second Cup posted a $26.2-million loss, including provisions for café closings and a hefty $25.7-million writedown of impaired assets – the value of its trademarks – while its adjusted profit tumbled 64 per cent. Meanwhile, its same-store sales dropped 2.9 per cent, its 10th quarterly decline in that important measure of sales at outlets open a year or more.

Starbucks doesn’t break out its Canadian results, but in the third quarter, same-store sales at its Americas division rose 5 per cent and “Canada is a contributor to that growth,” Rossann Williams, Starbucks Canada president, said in an e-mail. It has also been adding more food and digital payment alternatives.

At McDonald’s Canada’s 1,430 restaurants, including McCafe, coffee sales have nearly tripled since 2008, more than doubling its coffee market share here, said president John Betts. Tim Hortons for its part will soon be acquired by Burger King, counting on the heft of the fast-food chain to help it expand even further.

Even as its rivals stake out their territory, Second Cup has an opportunity to move more upscale to make gains, Mr. Jackman said.

Other retailers, such as Hudson’s Bay Co., have found that reinventing themselves by shifting more upmarket can be more rewarding rather staying in the sinking middle ground, he said.

Ms. Box’s store of the future reflects her focus on a premium experience and offerings. Coffee at the slow bar, which she compares to the feel of a wine bar, costs up to $4.95, which can be more than twice the price of its regular brew. At the bar, the coffees include an Ehiopia YirgZ, with a “peach-like sweetness and grapefruit acidity” and Finca La Soledad, a light roast from Guatemala.

She’s chosen a new, local bakery to source a more edited offerings of muffins, scones and croissants, with a breakfast menu that includes egg white and kale sandwiches and granola and oatmeal. Franchise owners had told her that the food needed to be better and fresher.

The store’s remodelling cost close to $1-million, although rolling it out will probably cost half that much as the company learns from the process, she said.

An $8-million share offering will help fund the renovations in the 10 corporate stores, while Ms. Box is giving breaks to franchisors that could encourage them to invest in re-doing their stores.

Second Cup’s recent $2.3-million of annual savings from cuts to head office – dubbed coffee capital – went toward shaving franchisors’ royalties to 7.5 per cent of sales from 9 per cent, and their marketing spending to 2 per cent from 3 per cent if they achieve high operational scores, she said. That amounts to about $15,000 worth of annual savings for a café owner, and almost all of them so far have qualified for the breaks, she said.

At the new store. she changed the logo to a more modern-looking font and added art work by local artists to the cups. Her team has put hooks underneath the eat-in counters to hang purses and coats. And she introduced a new staff dress code of a charcoal grey apron over a white shirt and dark denim pants to replace the all-black with red piping uniform.

Its “image was very fast-foodlike,” Ms. Box said. “It looked like everybody else. We think we can be a bit different.”


Asian Concepts Poised for High Unit rowth this Year

November 25, 2014

New data from Technomic forecasts a 2.3-percent unit growth rate over 2013 among the 500 largest US restaurant chains.

According to a news release, this will be slightly higher than the 2.1-percent growth rate from 2012-13 and much higher than the 0.5 percent rate in 2009.

The unit growth is rising in both the full and limited-service segments. Technomic EVP Darren Tristano said fast casual concepts will continue to show high levels of unit growth, as well limited and full-service Asian concepts. Among full-service restaurant menu segments, Asian will increase units by 5.1 percent, followed by seafood (3.9 percent) and steak (3.4 percent).

Asian/noodle also leads the limited-service menu segments, increasing unit counts by 8 percent, while bakery cafes and coffee cafes will grow units by 5.2 and 4.2 percent, respectively.

Many full-service brands have positioned themselves to expand this past year. The largest growth has been at Buffalo Wild Wings, which will have added 65 units, Mellow Mushroom (32 units) and LongHorn Steakhouse (24 units), according to Technomic.

In limited service, Subway will add 908 units by year-end, followed by Starbucks (443), Jimmy Johns (350) and Dunkin Donuts (291).

Fast casual to continue double-digit sales bump
Additionally, limited-service restaurants are expected to gain a sales bump of 3.5 percent. Fast casual chains should experience a 10.8-percent increase in sales, while quick-service chains increase 2.3 percent.

Full-service restaurants will experience a 2.5 percent sales increase in 2014, similar to the 2.4 percent increase in 2013.

Fine dining is expected to continue its post-Recession rebound, with a 5.8-percent sales increase. Casual and midscale restaurant growth will be nominal, at 2.8 and 0.5 percent, respectively.

Q3 traffic gains at Mexican concepts
Additionally, research from The NPD Group analyzed Q3 consumer traffic at US restaurants, and shows an increase in the fast casual segment, as well as at coffee/donut/bagel concepts and Mexican concepts.

Fast casual restaurants posted an 8 percent gain in traffic across all dayparts compared to same quarter year ago. Visits to Mexican quick service and coffee/donut/bagel concepts grew by 5 percent, according to NPD’s foodservice market research.

Conversely, hamburger quick-service traffic, which represents the largest share of quick service visits at 23 percent, declined by 3 percent compared to same quarter year ago. Visits to both sandwich concepts and Asian quick-serve restaurants were down 1 percent.

Although total industry traffic was flat in the quarter, consumer spending rose 3 percent in the July/August/September quarter due to average eater check gains. Check and dollar gains are in line with food away-from-home inflation. Dealing/discounts are still supporting traffic with visits on a deal up 4 percent compared to a decline in non-deal visits.

“Although total traffic is flat, the visit growth in the fast casual, coffee/donut/bagel, and Mexican QSR shows that consumers still have an interest in going out to restaurants,” NPD analyst Bonnie Riggs said in a news release. “Those restaurant concepts that are meeting the needs of today’s foodservice consumers will win their visits.”


Buffalo Wild Wings Soars Under Sally Smith

November 24, 2014

By Nancy Gondo, Investor’s Business DailyUntitled-1

When Sally Smith worked as a waitress during college, she had no idea that she would one day run a big, national restaurant chain.

“It was really hard work — balancing, having four or five tables, so time management, remembering things — that hospitality component,” she told IBD. “It was not for a long period of my life, but having that, I have a lot of empathy for what happens at every restaurant.”

That experience has been one of the factors helping her lead Buffalo Wild Wings from a 35-restaurant chain 20 years ago to a 1,050-location behemoth in America, Canada and Mexico, with annual revenue of nearly $1.5 billion.

The stock has rocketed alongside that growth — by a stratospheric 1,300% since its IPO in 2003.

“Sally has maintained a consistent performance and track record in an industry where executive leadership turnover has been very high,” said Darren Tristano, an executive vice president at food-industry tracker Technomic. “Retaining key leadership team members and with consistent strategic planning and execution, she has built a solid foundation for success and continued expansion and sales growth opportunities.”

How has she kept the Minneapolis-based chain on a growth track?

Smith, 56, looks way down the road. She figures out what the sports-bar company needs to do in order to keep expanding over the next three to five years vs., say, three to six months.

 

Hello Columbus

Buffalo Wild Wings opened 32 years ago in Columbus, Ohio, and has been public for 11 years.

The restaurants are part sports bar, part casual eatery, with TV screens showing sporting events from around the globe.

And it still considers itself a growth play.

“We’re not a dividend payer, we’re not doing stock buybacks right now, but rather, we’re investing in our growth,” Smith said. “When we were smaller, it certainly was a lot easier because it’s a lot easier to double when you have $10 million in sales vs. a billion in sales.”

Amid that challenge, Buffalo Wild Wings is a force in the restaurant industry. After Smith joined in 1994 as chief financial officer, she closed underperforming units, changed the chain’s name from BW3 and updated the logo.

She took over as CEO in 1996. Under her reign, Buffalo Wild Wings has expanded to all 50 states and across both borders, broadened its menu and added technology for ordering and entertainment.

She also brought structure to what had been a rather rudderless company.

“We were so small that it really had no infrastructure. In a way, it was like starting a business,” Smith said. “We didn’t have a marketing department, we didn’t have a talent management department.”

Smith also helped set up an advisory council for franchisees. Her prior experience at Dahlberg, maker and franchiser of Miracle-Ear hearing aids, helped her define what kinds of franchisees Buffalo Wild Wings wanted to attract.

Growing up in Grand Forks, N.D., she didn’t know what career path to take. But she always heard her father, who worked in banking, talking shop at home. So business became quite familiar to her.

In her first job as a 16-year-old, Smith filed checks for a bank and performed bookkeeping duties, rising to become a teller.

She enjoyed economics classes in high school and the University of North Dakota. Seeing her prowess with numbers, a professor suggested a career in accounting.

Smith went for it, joining the accounting-consulting firm KPMG.

That move turned into an 11-year post with Dahlberg, where she served as chief financial officer. After the firm was acquired, she stayed on for a year, then heard from Buffalo Wild Wings, which was still called BW3. She was all in.

It turned out to be the right decision — for Smith and the wings-and-beer chain.

After setting up infrastructure and steering the company onto a growth path, Smith took B-Dubs (a moniker it sports on its website) public in 2003, raising more than $50 million in the initial public offering. As shares continue to advance — up 10% this year — the company has scored compounded annual revenue growth of 27% and net income growth of more than 34% the past decade.

With a 98 Composite Rating, Buffalo Wild Wings is a leader in IBD’s Retail-Restaurants group. Its five-year earnings growth rate and sales growth rate are 23% and 25%, respectively.

 

Cheers

“Her leadership has shaped the brand by remaining true to who they are and where they came from,” Tristano said. “By expanding the menu to be more relevant (burgers), and by keeping pace with technology and entertainment platforms, BW3 has continued to shine in an industry that has been struggling with low growth and weak performance since the recession.”

Aside from her nine-month stint as a waitress 15 years prior to joining the company, Smith didn’t have direct restaurant industry experience. But she has excelled by drawing on her financial background, speaking with other industry executives and studying what has worked for them.

Smith has what she calls a collaborative management style. When she meets with team members, she tells them that there’s enough work for everybody. Teamwork, not territorial behavior, helps advance the company.

“I think the more people that can be exposed to other areas, not just their own, they each would have a much better understanding of what everybody is trying to achieve,” she said. “So I’m big on collaboration and working together to solve a problem, whether it’s in your specific area (or not).”

 

One For All

When Smith goes on the road, she visits restaurants and interacts with management and employees to find out everything from what’s working to details about hiring and distribution to what would make the job easier or more fulfilling.

“I’ve always been a curious person,” she said. “I do a lot of reading, and I have since I was very young. So being able to ask questions helps me learn, and I think sometimes you ask questions to help the other person learn.”

Clearly, exploring fresh possibilities matters to Smith. While advising college students interested in a career at the executive level, Smith encouraged them: “Don’t be afraid to take a lateral move to learn another aspect of the business, or a lateral job. It isn’t all about up, up, up. And don’t be afraid to take a job that’s undefined. Most of mine have been.”

Take her start at Dahlberg. Her position was new, and it was a small company. Then there’s Buffalo Wild Wings, which was a fledgling, local firm when she joined.

On the personal front, Smith dives into newspapers’ business and technology sections, belongs to a book club, bikes, golfs and enjoys cooking with her two kids.

What’s next for Buffalo Wild Wings? Smith still sees big opportunities in America in terms of unit growth and individual restaurant growth. She also sees international expansion, with plans to reach the Middle East and the Philippines.

Technomic’s Tristano would agree. “BWW likely has greater opportunity to expand outside the U.S., in North America and other major international food-service markets across the globe,” he said. “There continues to be strong opportunities for expansion in the U.S. in smaller suburban and rural markets where wings and sports are in high demand.”

Meanwhile, said Smith, “I love going into the restaurants and hearing that someone’s been with us for five years or seven years, or they’ve been on 10 new-store-opening teams, or that they love working at Buffalo Wild Wings.”


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