Pinkberry Flirts With Self-Serve in Two Southern California Shops

May 27, 2015

By Nancy Luna/Staff Writer

For several months, Pinkberry has been quietly testing self-serve machines in at least two Southern California locations.
http://www.ocregister.com/articles/self-662718-serve-pinkberry.html?page=1

Pinkberry, credited for launching the modern-day frozen yogurt craze, is testing self-serve machines in two Southern California locations.

The do-it-yourself experiment has been ongoing for months at shops in Brea and Burbank. A Pinkberry official played down the test, which comes a few years after Chief Executive Ron Graves said he would never play the self-serve card.

“Leapfrogging the competition requires you to know and be true to your brand as well as deeply understand your competition,” Pinkberry spokeswoman Laura Jakobsen told the Register this week. “This is research – you can only learn so much by observing.”

At the Pinkberry on Imperial Highway in Brea, the store offers 10 flavors at 49 cents an ounce. The front counter has a bar, where customers can choose from an assortment of fruit and candy toppings.

By comparison, a nearby Yogurtland in Brea had a menu of 16 different flavors at 41 cents an ounce.

In Burbank, the self-serve option has been around a year, while Brea converted in December. Jakobsen said Pinkberry has no plans to convert more shops.

“We opened the self-serve stores to gain insights from both a consumer and operational perspective,” Jakobsen said. “We are not considering converting more locations.”

Darren Tristano, a restaurant consultant for market research firm Technomic, said five years ago that premium frozen yogurt chains like Pinkberry “would have great competition from self-serve fro-yo brands” in a post-recession economy.

“There is no surprise that Pinkberry would test and consider replacing or adding self serve to their concept,” Tristano said. “The affordable price points of weigh-and-pay as well as the labor savings is a strong driver for change within the market.”

Though brands such as Golden Spoon Frozen Yogurt have been around for more than 30 years, Pinkberry is considered a pioneer in the category.

When Pinkberry debuted 10 years ago, it elevated the frozen yogurt category with its slick presentation and tart-heavy fruit flavors. Pinkberry now has 250 shops in 21 countries.

Copycat brands have since saturated the market, including Yogurtland, Tutti Frutti and Cherry on Top. To differentiate themselves, many adopted the self-serve model. Their popularity soared among consumers who enjoy controlling how their food is prepared.

“The trend in consumer control demonstrated by build-your-own formats is the next generation of customization,” Tristano said.

Irvine-based Yogurtland launched its first self-serve store in Fullerton in 2006. It now has about 300 stores in the U.S., Australia, Guam, Thailand, Venezuela and Dubai.

When asked in 2012 about the popularity of self-serve froyo, Pinkberry’s Graves told Inc. magazine that he refused to “go self-serve.”

“Why? Because that would be letting the competition define us,” he said.

History shows it could also be brand suicide.

In 2012, Rancho Santa Margarita-based Golden Spoon tested self-serve in a handful of Southern California stores. At the time, the chain said it would eventually convert at least 40 locations to the trendier do-it-yourself shops.

But after its loyal customers balked at the messiness of self-serve, the chain halted those plans.

“Sanitation was a key issue,” Chief executive Roger Clawson told the Register in 2013. “Our core customer demands full service.”


McDonald’s Moves Toward Antibiotic-Free Chicken: Too Little, Too Late?

March 10, 2015

Nancy Gagliardi
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http://www.forbes.com/sites/nancygagliardi/2015/03/04/mcdonalds-latest-move-toward-antibiotic-free-too-little-too-late/

Taking a cue from rival Chick-fil-A, McDonald’s announced Wednesday morning that it intends to stop buying chickens that have been treated with antibiotics that are also taken by humans, seeking to address consumers’ concerns about resistant “super-bugs” resulting from overuse of the drugs. According to the Centers for Disease Control and Prevention, every year super-bugs cause some 2 million illnesses and 23,000 deaths in the U.S., resulting in an estimated $20 billion in direct health care costs. McDonald’s also announced that its U.S. locations would sell milk products only from cows that are free of artificial growth hormones (specifically rbST), but added that it would continue to allow suppliers to “responsibly use” certain antibiotics (called ionophores) which are not used in humans.

The world’s largest fast food chain will spend the next two years working to phase in its news standards with its suppliers, including Tyson Foods which, according to reports, said it would comply with the company’s requests, adding that its chicken production had reduced it use of antibiotics by 84% since 2011. A company spokesperson also commented that it would phase out using antibiotics as early as in the hatchery phase of production (when chicks are injected while still in their shells).

While he may only (officially) be four days into his new role, CEO Steve Easterbrook (who recently said he viewed himself as the company’s “internal activist,” perhaps hoping to ward off the latest wave of activist investors targeting companies that haven’t performed as well as expected) gets to mark this antibiotic-free move under his watch.

But is this really a signal that it won’t be business as usual for the beleaguered fast food giant or is it too little too late?

“I don’t think it is. It’s what needs to happen to McDonald’s right now,” says Darren Tristano, a restaurant industry analyst at Technomic. “In our industry you can catch up very quickly, but if you don’t, doing nothing isn’t an answer or a solution. This clearly is a sign that McDonald’s is willing to improve.”

While the antibiotic ban is making big news here, McDonald’s is already sourcing drug-free chicken overseas. “There are a number of countries where it doesn’t have antibiotics or hormones in its chicken,” says Tristano, including the U.K., where Easterbrook comes from. “But this is a step for them to come back to the leadership position they used to have in this industry.”

While this most likely is the first of many steps by McDonald’s to reverse its recent slide (in interviews, Easterbrook has said it needs to become nimble to accommodate market needs), a comeback will take time. Says Tristano:

First, you have to qualify coming back. I think for McDonald’s that’s getting back to a level of growth that’s nominally keeping up with inflation. I’d expect to see it back to 2.5% to 3%, which puts it into a position where it isn’t losing share, and anything above that would put it in a position where it’s taking share. Look, it was the leader during the recession, driving a lot of the industry growth. While I wouldn’t expect that to reoccur, I think getting back to zero and building, and no longer losing share is important, and we may be looking at 2016 for that to happen. But if it can get back to even, that certainly helps the company grow again.


Starting From Scratch With Better Coffee

February 25, 2015

Joan Verdon

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Copyright 2015 Herald News (Woodland Park, NJ). Distributed by NewsBank, inc.

The food-services company Mascott has fed its growth by introducing other people’s restaurant and food franchise ideas to North Jersey. Now it wants to build a beverage and food concept from the ground up.

Hillside-based Mascott, which brought the first Smashburger and Noodles & Co. restaurants to Bergen and Passaic counties, is launching a coffee-shop business called Ground Connection that it hopes will become a home-grown New Jersey hit. The company opened the first Ground Connection last week at The Shops at Riverside in Hackensack and plans to open three more locations in Livingston and Jersey City in the spring and summer.

Just as Smashburger sizzled as the “better burger” trend exploded, Mascott Chief Executive Officer Scott Gillman is betting the “better coffee” movement will create demand for Ground Connection. The shops serve small-batch roasts, use specially sourced milk and flavorings, and buy its sandwich breads, salads and other foods from local suppliers.

Gillman said he is trying to bring the coffee connoisseur experience found at some of the hot big-city artisanal coffee chains such as Blue Bottle Coffee, Stumptown Coffee Roasters and Intelligentsia Coffee to the suburbs, with prices and an atmosphere friendlier to suburban shoppers.

“There’s a huge movement into specialty coffee,” Gillman said. “It’s a better quality coffee. Often it’s handpicked. It’s relationship coffee,” he said, with the roasters developing a relationship with small farms.

Rather than trying to become a franchisee for an existing artisanal coffee brand, just as he did with burgers and Smashburger, this time Gillman decided to create his own response to a trend.

“I wanted to do what I thought would sell the best, and also what would sell the best in the suburbs,” he said. Brands like Blue Bottle, while it has millennials lining up and willing to wait for single-brewed cups, probably would be too expensive and too slow-paced to succeed with suburban mall shoppers. The Ground Connection’s prices are comparable to Starbucks’, at $1.75 for an 8-ounce cup and $2.75 for a 16-ounce, but are 50 cents to 75 cents lower than other specialty coffee brands.

Gillman and Mascott are entering the coffee field at a time when the competition is heating up, according to research firm IBISWorld, which noted in a report in December that the two biggest coffee chains, Starbucks and Dunkin’ Donuts, plan to open hundreds of stores over the next five years.

While the artisanal “better” coffee chains are growing their sales by more than 20 percent a year, big players such as Starbucks are hoping to cut into those sales by introducing their own better brands. Starbucks recently rolled out the Starbucks Reserve brand in some 500 of its more than 20,000 stores worldwide, and is selling the small-batch roasts through the mail to subscribers.

Gillman has a proven track record in the food-service industry and a reputation as one of the smartest franchise operators in New Jersey. His company owns an upscale restaurant in Jersey City, Markers, and has operated dozens of franchise restaurants over the past two decades, ranging from Popeye’s Chicken and Biscuits, Cinnabon, and Seattle’s Best Coffee, to more recently Smashburger and Noodles & Co.

Mascott opened the first Smashburger in New Jersey in 2010 in Glen Ridge and built the franchise into 14 locations, before selling them back to the Smashburger Corp., which wanted the high-performing stores in its corporate portfolio.

With the Ground Connection, “I wanted to do something that took everything I learned over 25 years,” and put his own stamp on a concept, Gillman said. He hired Casey Killo, a 21-year-old who already had a half-dozen years of barista experience, to train his baristas. Steve Parker, the corporate chef for Mascott, developed a breakfast and lunch menu that included muffins and pastries baked in a separate kitchen elsewhere in the mall, as well as soups, flatbread pizzas, sandwiches served heated, and salads.

The restaurant serves coffee from Toby’s Estate, a Brooklyn small-batch roaster. The lattes and cappuccinos use milk delivered fresh from Battenkill Valley Creamery in upstate New York, because it is richer than commercially available milk. Central Bakery in Hackensack supplies the sandwich breads, Gillman said. He estimated his start-up costs to open the Riverside location at $500,000.

Curtis Nassau, of Ripco Real Estate in Lyndhurst, which brokered the Riverside lease for Mascott, said Ripco “sees terrific growth potential” for the Ground Connection. Coffee, he said, “is a well-established, yet still expanding category in New Jersey retail.”

The Ground Connection was drawing a healthy lunch crowd on Thursday, and Gillman said the first week’s sales exceeded his expectations.

But success at Riverside could increase his risk from Starbucks, said Darren Tristano, executive vice president of food-industry research firm Technomics. “It isn’t just build them where Starbucks isn’t,” Tristano said. “Once you’ve built it, that kind of gives Starbucks a reason to build one there,” he said. “You’ve proven that the demand is there, and all they would do is come in and take your business away.”

But, Tristano said, there are customers looking for coffee shops that have more of an independent feel than Starbucks. “Although Starbucks fans are very loyal, there’s some really good opportunity to even go beyond that,” he said.

Grounds for expansion; * $30.2 billion – annual U.S. coffee and snack-shop revenue, 2014; * $1.8 billion – profit, 2014; * 2.7 percent – annual growth rate, 2009-14; * 3.8 percent – projected annual growth rate, 2014-19; * 42.4 percent – market share of dominant player Starbucks; * 25.5 percent – market share of second-largest competitor, Dunkin’ Donuts; Source: IBISWorld Coffee & Snack Shops in the U.S., December 2014

 


McDonald’s: When the Chips are Down

January 13, 2015

20150110_WBP002_1(c) The Economist Newspaper Limited, London 2015. All rights reserved

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.


Tim Hortons’ Must-Win Battle

January 12, 2015

iStock_000020253130XXXLarge

By Sherri Daye Scott

COPYRIGHT © 2015 JOURNALISTIC INC. ALL RIGHTS RESERVED.

http://www.qsrmagazine.com/competition/tim-hortons-must-win-battle

Now that it’s merged with Burger King, the question is more important than ever: Can the Canadian favorite finally find true success south of the border?

Tim Hortons has devoted fans in the U.S. One need only to read the Twitter and Facebook feed on the brand’s U.S. website to see the passion. “Can you please open a Tim Hortons in Cincinnati???” writes Kevin Ryne Laile. “I just had the best/fastest/nicest @TimHortonsUS service!! The new one at 5 mile & Newburgh is awesome,” tweets @lemonyellowsun.

Yet the dedication of a few has not translated into the type of market domination the brand has seen in Canada, where Tim Hortons accounts for 42 percent of all quick-service transactions and 75 percent of quick-service caffeinated beverage sales.

Thirty years after opening its first store in the U.S., Tim Hortons’ share of fast-food bakery sales is less than 2 percent, according to Euromonitor. Size plays a role; competitors McDonald’s, Starbucks, and Dunkin’ Donuts operate 10 times the number of stores. But other factors are at play, such as low brand awareness and consumer loyalty to established American brands. Krispy Kreme, for example, operates fewer than 300 stores, compared with Tim Hortons’ 860-plus U.S. units, and enjoys more market share.

“Tim Hortons saw 3 percent sales growth in 2013, which is not bad,” says Elizabeth Friend, senior consumer foodservice analyst at Euromonitor. “But Dunkin’ saw 6 percent growth, while Krispy Kreme saw 7 percent.”

Still, Tim Hortons is determined to become a major player in the U.S. Its most recent annual report called the U.S. a “must-win” market and outlined a top-line, five-year growth strategy that focused on extending dayparts, increasing check averages, expanding the rollout of its bakery-café model, and seeding new markets. And that was before the brand was purchased by Burger King, which moved its headquarters to Canada, christened the new company Restaurant Brands International, and promised to invest in Tim Hortons to set it up for U.S.—and worldwide—success.

“When I look at the U.S. market, I see the world’s largest economic market,” Tim Hortons then-CEO Marc Caira told the Wall Street Journal in May 2014. “I see the world’s largest foodservice market. I see a food market that continues to grow. I see a population that continues to grow. I see a country [that’s similar]. … When you look at all these things and you have a brand like Tim Hortons, why would you not go into that market? To me, it’s not a question of not being there, but what are you going to do that’s different for you to succeed?”

Past performance
The U.S.’s first Tim Hortons opened near the Canadian border in Tonawanda, New York, in 1984. Wendy’s International Inc. purchased Tim Hortons parent company TDL Group Ltd. for $425 million in 1995. The goal was to leverage Tim Hortons’ coffee and baked goods to drive guests into cobranded Wendy’s/Tim Hortons units on both sides of the border during the breakfast daypart.

There were early signs that the partnership might falter. Tim Hortons cofounder Ron Joyce sold his stock in Wendy’s International in 2002 after losing confidence in senior management decisions, such as switching from locally baked goods to frozen par-baked product shipped from a central warehouse. And U.S. stores continually missed sales goals despite significant marketing investment.

“American consumers were confused. They didn’t understand how the two brands worked together, so the partnership just didn’t work,” says Darren Tristano, a restaurant industry consultant for Technomic.

Still, Canadian Tim Hortons stores performed well, accounting for one-quarter to one-third of parent company Wendy’s earnings in 2004. On the strength of those stores, investors began pressuring Wendy’s to spin off Tim Hortons to increase shareholder value. In 2005, Wendy’s announced plans to roll out its own breakfast menu by 2007. The next year, it listed Tim Hortons on the New York Stock Exchange and earned more than $670 million on the first day of trading. And in August 2006, Wendy’s told The Street is would sell its $4.17 billion worth of Tim Hortons stock.

Tim Hortons corporate ownership moved back to Canada in 2009, while U.S. operations remained in Dublin, Ohio. Cobranded units with Wendy’s remain in operation, though the two brands are no longer tied at the corporate level.

Since that time, the Tim Hortons standalone growth strategy in the U.S. has come under scrutiny from stockholders and industry-watchers alike. Thirty-six stores in the Northeast closed in 2010. U.S. same-store sales dipped 0.5 percent in the first quarter of 2013, inciting pressure from hedge fund investors Scout Capital Management LLC and Highfields Capital to curb U.S. expansion efforts in favor of buying back shares.

Now with the merger with Burger King, it remains to be seen how the “Must-Win” plan outlined by Caira, who is now vice chairman of Restaurant Brands International, will be adjusted, if at all.

The current state
With systemwide sales of $589.5 million in 2013 and more than 850 units operating, Tim Hortons ranks 41st among U.S. quick-service brands, according to the 2014 QSR 50. The chain operates in 10 U.S. states—Michigan, Maine, Connecticut, Ohio, West Virginia, Kentucky, Pennsylvania, Rhode Island, Massachusetts, and New York—with the largest concentration of stores in the Midwest and Northeast.

Last year saw the chain extend its breakfast menu until 5 p.m., expand its cold specialty beverage line to include Frozen Green Tea and Frozen Hot Chocolate, and test on-the-go offerings such as Spinach and Egg and Chorizo hand-held pies and a Meatball Panini, all in an attempt to reach a broader American audience and drive up average unit volumes in existing stores.

“Tim Hortons has a much bigger presence in the U.S. than people know,” Friend says. “They are definitely a player.”

A player in a field of tough competitors all vying for a share of U.S. breakfast, lunch, and beverage dollars. Along with Tim Hortons, Euromonitor places 24 other brands in the U.S. bakery fast-food category, including fast-casual concepts such as Panera Bread, Au Bon Pain, and Corner Bakery. Factor in convenience-store chains like 7-Eleven, Wawa, and Sheetz, and you have a market saturated with choice.

However, working in Tim Hortons’ favor as it seeks to stand out is a menu that straddles the line between fast food and fast casual. “They’re a notch above McDonald’s and just below Panera when it comes to food,” Tristano says. “The average check is less than $9, but the offering is closer to bakery-café than coffee [quick serves].”

“They are unique,” Friend says, “in that what they offer is closer to full-meal options than others in their category. Food—especially dinner, snack, and specialty beverage—has been a focus in the U.S., and it shows.”

Still, there is the issue of getting the uninitiated to step into a Tim Hortons stateside.

Tim Hortons is Canada’s No. 5 consumer brand, according to Interbrand, and sells eight out of every 10 cups of coffee poured there. According to YouGov’s August 2014 Brand Index, only 30 percent of Americans are aware of Tim Hortons, while 90 percent or more know Dunkin’ Donuts and Starbucks.

A variety of factors drive those numbers. Both Starbucks and Dunkin’ are established national brands with significant brand-building media spends each year. Plus there is the retail component. Starbucks, for example, sold more than $1 billion in packaged coffee and tea at grocery stores in 2013, bringing its brand to millions of consumers who might not otherwise interact with it.

But at the heart of the matter is the simple fact that Americans do not connect with the brand’s story and links to Canadian nostalgia the way their neighbors to the north do. They view Tim Hortons as simply another bakery-café option—and an unfamiliar one, at that.

“Tim Hortons is essentially starting from scratch in the U.S.,” Friend says. “There is not enough awareness for there to be public perception about the brand, good or bad.”

The positive news for Tim Hortons, though, is that once a guest is introduced to the brand, they rank it comparatively to Dunkin’ and Starbucks on quality and significantly higher than Starbucks on value, according to YouGov’s research.

To reach its goal of 300 new stores by 2018, Tim Hortons is aggressively courting would-be franchisees. Area development and master franchisee deals have already been signed in new markets such as St. Louis; Youngstown, Ohio; Fort Wayne, Indiana; and Fargo, North Dakota. Franchise start-up costs are similar to Dunkin’ Donuts: net worth of $500,000 plus liquid assets in the $250,000–$300,000 range.

“I understand the attraction to the U.S. market,” says Peter Saleh, New York–based analyst at Telsey Advisory Group. “There’s a lot of money to be made if you do it right. But there’s also the risk of losing money for many years as Tim Hortons builds brand recognition. I don’t know that they are going to find a lot of franchisees outside core markets willing to do that.”

At the center of U.S. expansion efforts is the Tim Hortons Café & Bake Shop concept that launched in 2010. The chain describes the prototype on its website as featuring “contemporary exteriors, warm, inviting interiors, advanced equipment and new digital menu technologies.” In an August 2014 report, Morningstar analyst R.J. Hottovy noted the format’s positive impact on same-stores sales and building and equipment costs in the U.S. market.

Looking forward
The question on everyone’s mind, of course, is how the Burger King buyout will impact Tim Hortons’ U.S. plans.

Opinions vary. Some say the merger should help Tim Hortons align itself with savvy master franchisees here in the States and move into battleground states like Texas and Illinois. There is also the potential to expose millions of Burger King customers to the Tim Hortons brand by switching from Seattle’s Best coffee in favor of Tim Hortons products.

Others believe the deal will have little effect on U.S. growth efforts, but might be a positive for overseas expansion. Burger King operates 18,000 stores in 100-plus countries. Pre-sale deals are already in place to open 120 Tim Hortons stores across Qatar, Kuwait, the UAE, Oman, and Bahrain by next year, plus an additional 100 Tim Hortons stores in Saudi Arabia by 2018.

“I’m not totally sold that the U.S. should be a focus for Tim Hortons,” Friend says. “There are plenty of other international markets where there’s opportunity for organic growth versus fighting for market share.”

If the chain is to remain focused on U.S. growth, targeting Millennials with a message of quality is a smart move, Tristano says.

“The Millennial consumer is always looking for something new,” he says. “Tim Hortons could be that for them. Kids see Dunkin’ Donuts as older, their parents’ place. And they don’t have enough money to eat at Panera, but are very focused on quality. If they try Tim Hortons and experience the quality, they’ll pay more.”

Tristano’s advice is telling: the food, not the brand, is the key to find success in the U.S.


GrubMarket Aims to Bring Farmers Markets Straight to Your Door

January 7, 2015

chi-grubmarket-mike-xu-bsi-20150102-001By Amina Elahi

Copyright © 2015, Chicago Tribune

There’s not much growing around Chicago these days. That means farmers markets are on hold and even the most persistent locavores are forced to shop at conventional grocery stores.

A young San Francisco company called GrubMarket hopes it can keep consumers connected to local food suppliers with an ecommerce platform that lets farmers and small food businesses sell their goods, even in mid-winter. The company expanded operations to Chicago in December in its first push beyond the west coast.

“I am a big fan of local food and supporting local farms,” said founder and CEO Mike Xu.

GrubMarket is a member of of the San Francisco accelerator Y Combinator’s current class. Xu said the company has raised $2 million from the program and other investors since launching in February. The platform includes 280 vendors who sell to the Chicago and San Francisco markets, Xu said. The majority of those are in the Bay Area.

Chicago is GrubMarket’s first expansion market because of Xu’s connection to the Midwest — he went to the University of Wisconsin at Madison — and due to the number of farms and farmers markets here.

The vendors GrubMarket works with may not be big enough or even willing to sell their goods through retail channels. Xu said his company can help those who want an easier way to sell directly to customers. He’s set on creating software to automate the inventory process, for example.

“We need to manage the logistics and communication with vendors, local small farms,” Xu said. “They need a lot of coordination with us and the buyers.”

Xu said GrubMarket has sold $400,000 worth of food, including fresh produce, cheeses, nuts, condiments, meats and more. GrubMarket contracts with drivers to offer free delivery of goods, though vendors have the option of charging customers for direct shipping. The site indicates when products will be available for delivery, so customers know if an item won’t be available until the following week, for example.

Sharon Seleb, the company’s general manager for Chicago and the Midwest, said Chicago customers can buy goods from vendors in Illinois, Indiana, Wisconsin and Michigan. She said she works with vendors and helps them market their goods with free photography. Since GrubMarket takes a negotiated percentage of vendors’ gross revenue, Seleb said it’s in the company’s interest to promote their goods.

Customers also have the option of ordering Grub Boxes, pre-selected cases of goods with themes such as fruits or meats to be delivered at regular intervals. The prices depend on size and contents. GrubMarket’s California Fruit Bounty box costs $45 for a regular box and $65 for the large version.

“Our customer is more educated, and they would understand the purpose of getting a certified organic apple versus the apple for 50 cents,” Seleb said. “In terms of price point, our prices will be more on par with a Whole Foods or a farmers market. They’re not cheap.”

The service thereby is unlikely to replace the grocery habits of most Chicagoans, said Darren Tristano, executive vice president at Chicago-based food and foodservice consulting firm Technomic. He expects Millennials or more affluent consumers — those who likely frequent farmers markets — to take interest in GrubMarket.

Tristano said the local food movement is driven by shoppers’ desire to make purchases they see as supportive of their communities or eco-friendly because products don’t need to be shipped as far. All of this has contributed to a change in these consumers’ values.

“Traditionally it’s been around price and quantity, but the new consumer equation seems to be around where does it come from, how does it connect to my lifestyle, can I connect to this brand?” Tristano said. “Those things are all driving value to a Millennial consumer and to those who can quite frankly afford it.”

Tristano also pointed to restaurants’ role in the success of farmers markets. In many places, he said, chefs seek out fresh goods from local markets. He suggested that some may turn to GrubMarket for similar reasons.


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.


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