Outside the Spoon

March 12, 2014

outside-spoonFrozen-yogurt concept looks beyond sweet treats for menu expansion.

The buzz behind frozen yogurt may be waning, but Red Mango Frozen Yogurt & Smoothies is one brand that won’t be limited by its category. The Dallas-based chain began testing a café concept at several Houston and Long Island, New York, area franchises.

The concept, called Red Mango Café, features an expanded menu of healthy flatbreads, salads, and wraps, says Jim Notarnicola, the company’s vice president of marketing and franchising.

Expanded menus are increasingly popular at specialized concepts like frozen-yogurt franchises, says Bonnie Riggs, a restaurant industry analyst for The NPD Group. “They’ve already got the real estate, they’re already open for business, and they have the customers, so now they can offer them something more,” she says.

Launched in the fall, Red Mango Café features six flatbread items that offer diners a savory experience with less than 350 calories. The salads are topped with natural dressings, and for cold winter months, the café serves a line of hearty soups. Some locations also offer specialty juice products.

Because Red Mango has always positioned its frozen yogurt as a healthy alternative rather than a sugary treat, the expanded menu has been well received, Notarnicola says. “Our customers are telling us it made sense to them that we would be adding these kinds of products, and it gives them another reason to come back in a different daypart,” he says.

While Red Mango doesn’t share sales numbers, Notarnicola says, results confirm the concept is moving in the right direction.

More menu choices can help units grow market share, says Darren Tristano, executive vice president at Technomic. “The frozen-yogurt business has become very competitive. There are not only a number of chains but also a lot of independent entrants, so as a result, it’s getting more difficult to be successful,” he says. “Broadening the menu seems to be a way these brands can grow their revenue.”


Finding the Sweet Spot’ for Fast Casual Pricing

February 11, 2014

Screen shot 2014-02-01 at 5.36.37 PMFast casual continues to generate strong appeal with American consumers. That success has been based on the competitive positioning of the segment compared to traditional quick service and casual dining. Patrons continue to trade up from quick service to the made-to-order, fresh quality and contemporary experience, and trade down from the less convenient, higher-priced casual dining segment, especially at lunchtime.

But what are the price thresholds for consumers at Fast Casual?

A recent survey for Technomic’s Value & Pricing Consumer Trend Report asked consumers to define the price at which a product is too cheap so as to impact quality (low price); the price at which the item is a bargain (optimal price); the price at which a product is starting to become expensive, but they would still purchase it (indifference price); and the price at which a product is so expensive they would no longer purchase it (high price).

Consumers indicated that at breakfast, the sweet spot between optimal and indifference was $6.01 to $6.50. At lunch, the sweet spot increased to a price point between $7.00 and $7.60, with dinner results from $8.54 to $9.09. Also, some consumers indicated their thresholds for high price were as high as $8.51 for breakfast, $10.07 at lunch and $12.46 for a meal at dinner.

This chart provides a strong tool for fast casual operators to review their pricing and see how each of their meal bundles or a la carte items fit within the price points consumers indicated for meals at each daypart.

With regards to traditional quick service, the optimal price point for breakfast was $1.50 lower, lunch $2.00 below, and consumers indicated at dinner they would pay $2.50 less than fast casual. Interestingly, fast casual optimal prices increased by 50 cents throughout the day with each daypart.

So what does this all mean to operators?

Consumers continue to be sensitive to pricing and spending at meals away from home. As a result, operators should follow a “barbell” strategy by offering a broad pricing mix for high, medium and low prices. Some opportunities for strategies are as follows:

  • Vary portion size and price. Offer opportunities for customers to upgrade to larger portions or reduce spend with smaller plates or samplers. A “one-size-fits-all” approach may not suit differences in demographics between men and women or health vs. indulgent diners. A range of prices from high to low allow diners to spend what they want and get what they are looking for.
  • Promote value through offering full meals. Recent Technomic consumer research indicated that, in general, 80% of consumers purchase value meals at fast food restaurants at least once every two to four weeks. As consumers grow accustomed to purchasing “meals,” fast casual operators should offer meals that simplify the ordering process, increase check average and provide higher value.
  • Provide fresh and premium products. Nearly 48% of consumers polled indicated they would likely purchase and pay more for a food or beverage that is fresh. In addition, 37% say the same for premium food and beverage options. Taking credit for the fresh ingredients and preparation of food and beverages is important in justifying your prices. Menu descriptions, fresh images and interaction with customers build the story and give patrons a connection with a better-for-you offering.
  • Enhance your value positioning with customization. As the consumer’s need for greater control increases, giving them more options for having it their way enhances the value they receive. Providing patrons with the ability to allow ingredient substitutions, vary spiciness, and add more toppings are opportunities to delight the customer, build loyalty and get them back through the door.

Overall, operators who are able to provide broad options and keep it simple will win over customers with the right price and the right value.


QSR Value Promotions go Beyond Price in 2014

January 27, 2014

picRestaurant chains such as Burger King, Pizza Hut and Taco Bell add to their value strategies in the new year.

 Burger King’s January offer

Value is often top of mind in early January among restaurant customers who have resolved to save or better manage their money in the new year, but restaurant brands looking to capitalize on this show that enticing value strategies are about more than just low prices.

While some chains have moved up their well-known value promotions opportunistically into January — notably Subway, which is running its $5 foot-long campaign as “Janu-ANY” — others have introduced new value plays that de-emphasize prices in favor of new-product news or brand highlights like anniversaries.

“Today’s consumer mind-set around value really has shifted, or drifted, further away from price point,” said Darren Tristano, executive vice president of Technomic Inc., a Chicago-based market research firm. “Prices have been set [in consumers’ minds] by Subway’s $5 foot-long or some very meaningful milestones like $5 and $8 at Little Caesars for the Hot-N-Ready.”

As such, operators ought to consider looking beyond price points to signify value, Tristano said, whether it is the service experience, customization, culinary credibility, ingredient variety, or special preparations like slow-cooked barbecue or rotisserie chicken.

“There are so many ways you can maximize value, but it always comes down to differentiation,” he said. “What can you do differently from competitors or from consumers trying to cook this stuff at home?”

In the quick-service segment, where much of the marketing emphasis consistently has been on value for the past several years, the largest chains are approaching their messaging through the lens of new-product news.

Miami-based Burger King rebranded its value menu as King Deals, a tiered value menu starting with items for $1, including current limited-time offers the Rodeo Burger and the Rodeo Crispy Chicken Sandwich. The menu has 20 items at those lower price points at Burger King’s domestic locations, which comprise about 7,400 restaurants in the United States and Canada.

Wendy’s has added two sandwiches to their Right Price Right Size value menu

Also, from Jan. 6-29, Burger King will offer a free small coffee to any customer who purchases a breakfast sandwich.

Wendy’s, the Dublin, Ohio-based chain of about 6,500 units, also added spicy sandwiches to its Right Price Right Size value menu, which it debuted last year just after New Year’s Day. The Spicy Chipotle Crispy Chicken and Spicy Chipotle Jr. Cheeseburger sandwiches are priced at a suggested 99 cents.

Irvine, Calif.-based Taco Bell, also a Yum! Brands Inc. subsidiary, rolled out two value promotions before the new year, including the Grilled Stuft Nacho and the BCS Taco 12-Pack, both of which debuted Dec. 19.

The nearly 6,000-unit brand called out the $1.29 price point for the Grilled Stuft Nacho in the commercial that began running in December, but convenience and portability have been the main emphasis in the ad and its complementary social-media campaign. Taco Bell is managing a social campaign under the “#DoingStuff” hash tag, where people take photos or videos of themselves doing anything while eating a Grilled Stuft Nacho.

The BCS Taco 12-Pack carries a $12.99 price point and lets consumers choose 12 tacos from among the brand’s crunchy-taco flavors.

The price war continues for major pizza chains, but both Pizza Hut and Papa John’s Pizza have added a different angle to their start-of-year marketing campaigns. Both are tying a limited-time, low-price offer to a brand anniversary, allowing them to easily end the promotion without setting an expectation for a repeat performance every year.

“Cheaper isn’t always better,” Tristano said, “and for restaurant operators, it’s not a viable long-term and sustainable strategy.”

Plano, Texas-based Pizza Hut, a division of Louisville, Ky.-based Yum! Brands Inc., is offering 50 percent off medium and large pizzas ordered online at menu price for its Hut Lovers loyalty club members. New members of Hut Lovers may sign up and immediately redeem the offer, which will run through Jan. 10.

The impetus for the promotion is the anniversary of the first Pizza Hut order taken over the Internet, in Santa Cruz, Calif., in 1994. The chain of 14,000 restaurants worldwide has resurrected its original online-ordering hub from that year, PizzaNet, which the brand said produced the first thing ever purchased from the Internet.

“We want to celebrate the fact that before consumers could buy books, clothes, music or vacation packages via the Internet, they could place an online order for a Pizza Hut pizza,” Carrie Walsh, chief marketing officer for Pizza Hut’s U.S. division, said in a statement.

Pizza Hut’s commercial promotes the deal by harkening back to 1994 with one of the most popular songs of that year, “The Sign” by Ace of Base.

Louisville-based Papa John’s is taking customers back a decade further with its deal to celebrate its 30th anniversary. Through Jan. 26, consumers can add a large one-topping pizza for 30 cents, with the purchase of a large pizza at regular menu price. Papa John’s has 4,300 restaurants worldwide.

Fast-casual chains and value

Technomic’s Tristano noted that fast-casual concepts by and large do not run aggressive promotions in January or throughout the rest of the year, but those chains nonetheless could bolster their value perceptions through product news like other limited-service brands have done.

“You could conclude that brands like Jimmy John’s or Firehouse Subs don’t compete with Subway — their quality is a step above and their prices are $3 above — but the reality is consumers use both,” he said. “Consumers go higher in price one day, then look for low prices the next day to balance it out.”

Reconsidering ways to provide more value could be the way fast-casual brands make better inroads at the dinner daypart or with certain demographic groups, like women or Hispanics, Tristano added.

Women tend to look for smaller portions, which fast-casual brands could offer, even at a slightly higher price point, he said, while Hispanic customers tend to focus on family occasions when dining out. Both look for bolder, spicier flavors, he said.

“You have opportunities for more social occasions by offering a family-oriented package … or options for sampling and sharing,” Tristano said. “You don’t see as many parties of three or more in fast casual, and that might be the way for [those restaurants] to continue their momentum.”


On the Horizon: Five Trends for U.K. Restaurants

January 24, 2014

The trends driving restaurant growth and innovation are driven by consumer demands for transparency, quality, flavour, and flexibility.

The U.K. foodservice scene continues evolving in unique and interesting ways. Looking forward to next year, Technomic’s analysts and consultants have identified five key trends that expected to play major roles at British restaurants.

Catering to the Millennial customer

As the influence and collective spending power of the U.K.’s Millennial generation grows, expect to see restaurant operators amplify efforts to target these consumers via foods and brands that appeal more directly to a Millennial demographic.

For instance, consumers aged 18–34 display the strongest interest in ethnic flavours. And a greater proportion of younger than older consumers indicate that it is important to them that cafés offer a variety of side options and seasonal menu items, according to Technomic’s U.K. Café Consumer Trend Report. Further, 31% of consumers aged 18–34 strongly agree that they would order limited-time offerings (LTOs) at cafés, compared to just 22% of all consumers polled.

Also watch for new mobile apps and digital tools that integrate seamlessly into Millennials’ lifestyle. Offering free WiFi in-store and letting customers place orders online are great starting points for connecting with these on-the-go, always-connected guests. Leading operators are also going beyond these steps.

Last spring, Wagamama partnered with Blippar, an image-recognition mobile application, to introduce augmented-reality place mats. Guests who downloaded the free Blippar app could hold their mobile device over (aka “blip”) the special place mats to access promotional information about the Wagamama Lounge, a pop-up concept featured at London-area summer music festivals.

Domino’s last September rolled out the free Pizza Hero app in the U.K., giving customers the chance to play professional pizza maker, rolling out pizza dough virtually, adding tomato sauce and then sprinkling on cheese and assorted toppings. A direct link takes users to the ordering page on Domino’s website.

And Apple’s Passbook lets iPhone users group their coupons, loyalty/rewards cards and more in one quasi mobile wallet—giving them quick access to their most-used or most-important passes. Last fall, casual-dining chain Harvester Salad & Grill became one of the first U.K. restaurant concepts to offer Passbook integration, and gave diners who used the app at Harvester £5 off when they spent £30.

The evolution of pubs

Classic British pubs will push even harder in 2014 to transform and grab market share from conventional restaurants by focusing more attention on creating upscale, premium food and drink (particularly speciality coffee and American craft beer); launching repositioned outlets in nontraditional sites; introducing web-enabled ordering systems that emphasise convenience and speed of service for guests; and promoting low-price-oriented menus and new loyalty programmes designed to spur customer traffic and strengthen the value perception.

Die-hard traditionalists might scoff at the idea of having a coffee and working on a mobile device at the pub, but a customer-centric evolution can help pubs maintain their relevance with a new generation of consumers.

Throughout 2013, we’ve seen examples of how pubs and pubcos are tackling the task of serving consumers who have higher expectations for food/drink, amenities and service at pubs. We expect the focus on this imperative to be that much keener in the year ahead.

For example, Orchid Group—whose approximately 250 pubs are now up for sale—realised that those establishments best positioned for success in Ireland and some U.S. cities after smoking bans took effect there were those that emphasised attractive food offerings. Orchid re-evaluated its menus and added pizza and Thai food, among other items, driving increases in food’s share of the sales mix. The company also took efforts to appeal to women.

Similarly, Marston’s PLC announced at the beginning of the year that it would install free Wi-Fi at about 550 pubs under its managed pub estate, Marston’s Inns & Taverns. The Prince George pub in Brighton, East Sussex, offers an all-vegetarian menu and a vegetarian-friendly wine list. And in August, Wetherspoon announced a new initiative pairing craft brewers from the U.S. with U.K. brewers, as part of an effort to seize upon U.K. consumers’ heightened interest in craft beer. The U.S. brewers produce their beers in the U.K. for sale at Wetherspoon pubs.

Honest chicken

Thanks in part to the recent crop of “better chicken” concepts opening in London, emerging chicken-focused concepts will flourish in 2014, a trend closely tied to growing consumer interest in sourcing, preparation and menu transparency. Pret a Manger, for instance, touts that its chicken is starch-free, phosphate-free and sourced from a higher-welfare supplier in Suffolk. Expect to see chicken increasingly described as “free-range,” “locally sourced” and “hand-battered.” We’ll also see more American influences in the form of barbecue chicken and buttermilk fried chicken, as well as simpler cooking techniques that let the quality of the chicken speak for itself.

KFC in the U.K. touts that its chicken on the bone comes from only British and Irish chickens, and that chicken goes from the refrigerator to a breading of flour and the chain’s 11 signature herbs and spices and then to the fryer within two minutes. Little Chef touts that its Crispy Chicken Platter features 100% chicken breast fillet.

Other takes on fried chicken include Scream’s Southern-Fried-Style Chicken fillets served with barbecue seasoned chips, Jubo’s Chicken Roll with Korean fried chicken fillet, kimchi slaw and gojuchang mayo, and Clutch’s Love Me Tenders, fried chicken tenders in a peanut and chilli crust.

These dishes also illustrate U.K. consumers’ growing appetite for spicy heat, also evidenced incurries that pack a little more punch than chicken tikka masala; the rising popularity of Mexican cuisine; and the cult-like following of London-based Nando’s, the fast-casual concept specialising in flame-grilled piri-piri chicken. Neutral-flavoured, food-cost-friendly chicken offers an ideal protein platform for showcasing the vibrant flavours and colours of chillis from around the globe.

Migration of street food

Fueled by younger consumers’ demand for authentic and unique offerings, chefs are looking to global street foods for menu inspiration for their brick-and-mortar restaurants. Trendy street-inspired dishes starring on menus include Venezuelan arepas, Chinese jian bing and bao, Taiwanese hirata buns and Italian arancini.

KFC U.K. got in the game last year, introducing a limited-time Streetwise Sweet Chili Wrap featuring a chicken mini-fillet, sweet chili sauce, lettuce and cheese wrapped in a tortilla. And London-based fast-casual chain Leon introduced a Thai Green Chicken Curry box, featuring slow-cooked shredded chicken thigh, roasted aubergine and bamboo shoots served on brown rice.

Looking ahead, ethnic beverages like Mexican aguas frescas and horchata will carve out a wider niche on the menu. Also watch for dynamic flavour mashups from different cuisines and the continued growth of food trucks serving ethnic and fusion street foods.

Telling the sourcing story

Transparency is now top-of-mind for operators who want to keep customers confident in their brand. Use of eco-friendly food packaging, such as recycled or reusable cups or stemware, is increasing along with a growing commitment to ethical food sourcing. Next year will bring a surge in brand campaigns communicating quality and traceability. Watch for package logos denoting animal welfare standards, in-restaurant signs documenting supplier sourcing, and marketing initiatives focusing on the use of British and Irish products.

A good example is the Olive Branch Pub in Clipsham. Its website highlights a story about head chef Sean Hope’s recent lobster fishing trip, to source the freshest lobster for dishes such as grilled lobster Thermidor and a fresh lobster claw and tail meat with lobster tortellini. The site also provides a list of the pub’s suppliers and producers—not just the names of the farms but also the actual farmers with whom the Olive Branch works.

For its part, McDonald’s U.K. invited three young British farmers to get a behind-the-scenes look at operations inside McDonald’s stores as the part of its Progressive Young Farmer Training Programme. The mentoring-focused programme, according to McDonald’s, “aims to help young people looking to work within agriculture kick-start careers in the industry by providing them with the blend of farming and business acumen needed to succeed in today’s modern farming sector.”

The programme has the added benefit of providing a fresh, interesting supply-chain story that McDonald’s—which also announced in April that it was switching to serving 100% Freedom Food pork raised on farms that meet strict animal-welfare standards—can share with consumers.

Similarly, fast-casual burrito specialist Chipotle, whose Food With Integrity philosophy/sourcing model has won acclaim in the U.S., notes on its U.K. website that it uses Freedom Food chicken, Farm Assured beef and free-range pork.

Key Takeaway

The trends driving restaurant growth and innovation are all driven by consumer demands for transparency, high-quality and -flavour, and flexibility. Restaurant operators should examine and pay attention to these trends but follow the lead of their own customers and those they are trying to attract.


Can fast-casual continue its rapid growth?

January 22, 2014

page067thave 100Fast-casual eateries are riding a boom of consumer demand for better food at cheaper prices. It’s a formula that now accounts for nearly 10 percent of sales across the restaurant industry.

But can the segment continue its industry-leading growth?

Analysts and those within the restaurant industry say yes.

The NPD Group projects fast-casual concepts will continue double-digit growth through the next decade.

“They’ll grow more than 1 percent a year over the next 10 years, when the industry is forecast to grow less than half a percent a year,” said Bonnie Riggs, a restaurant analyst with the Port Washington, N.Y.-based research firm. “It will be a battle for market share. This group of concepts will be a group that will be winning that battle.”

Small and rural markets will fuel the segment’s growth and dominance of the $420 billion national restaurant industry.

During the past six years, fast-casual’s growth has occurred in higher-density markets such as cities and suburbs, said Darren Tristano, executive vice president of Chicago-based food industry research firm Technomic Inc. He said many of these chains and concepts will start looking at smaller areas.

“Primarily, you don’t need a lot of sales to justify a restaurant (in these markets),” he said, citing Jimmy John’s Gourmet Sandwiches and Chipotle Mexican Grill among the brands eyeing those markets. “We’ve seen in the smaller markets the demand is there, and they’re generating sales because unit volumes are so high.”

The economics of fast-casual make it a perfect fit for smaller markets because of lower overhead costs.

“A small footprint and reduced cost on food and beverage still provides ample opportunities to be profitable,” Tristano said.

Even in sprawled-out markets such as Phoenix, fast-casual will continue to dominate, said Dan Beem, president of Scottsdale-based Cold Stone Creamery, a unit of Kahala Corp.

“There’s definitely room for growth in the Phoenix market,” he said. “The economy’s picking up, and our food scene has really evolved the past eight years.”

That being said, those with quality product will win out.

“The minute you start to diminish on food quality, you’re going to lose your consumers very, very, very quickly,” said Steve Chucri, president and CEO of the Arizona Restaurant Association.


Premium Toppings, Pairings Boost Pizza Sales

January 13, 2014

picCustomizable options and combo opportunities are creating exciting new options across the foodservice category.

Pizza remains among one of the most demanded foodservice options anywhere in the country. But it’s also one of the most competitive menu options. Customers are demanding high quality toppings and more exciting varieties in their pizza pies, as well as value-driven add-ons, such as beverages and side dishes that can complete a meal. Moving into 2014, convenience stores can expect increased competition from fast casual restaurants selling customizable pizzas and pizzerias attracting customers with craft beer options.

Chicago-based research firm Mintel International found in a recent study that the pizza restaurant market in the U.S. grew throughout the recession and is continuing to gain momentum. Pizza restaurant sales grew 10% from 2007 to 2011, and a growth of 16.7% is predicted from 2012 to 2017, reaching a projected $44 billion in 2017.

C-stores have ample opportunity to cash in on pizza’s popularity and take advantage of pizza trends coming out of other channels, from bundling beer and pizza to featuring more gourmet toppings and themed pizza options.

Italian Meats Pizza
Wade Mannino, president of Patoka Fast Stops in Patoka, Ill., and Stop and Go Marts in Marine, Ill., has been partnering with Hunt Brothers Pizza since 1996. He is seeing the latest trends in pizza first hand. “Customers are looking for specialty pizzas and add-ons—like bread sticks, chicken wings or calzones—anything they can add on to the pizza order,” he said.

Mannino’s stores witnessed customer excitement from the introduction of Hunt Brothers’ new Italian Meats Pizza (pictured above), which brought a bump in pizza sales with its debut during a test market launch earlier this year. “Anything new here sells,” Mannino said, noting that his stores offer all of the limited time only (LTO) pizzas, such as the Buffalo Chicken pizza, that Hunt Brothers offers to keep customer interest high year round.

The Italian Meats pizza uses Hunt Brothers’ original rising fresh crust, topped with a signature sauce, layered with slices of Italian-style ham, salami, pepperoni and 100% mozzarella cheese.

According to a recent Mintel report (see sidebar), pepperoni and sausage are the two most popular toppings. The Hunt Brothers’ varieties were tested in the Dallas and St. Louis markets (which includes Illinois) from Aug. 18 to Oct. 14, and rolls out nationwide this month. When introducing meat topping pizzas, c-stores often struggle with a low quality perception, but by elevating the quality of the meat and product, c-stores can not only increase price, but can break through that perception and increase sales, said Darren Tristano, executive vice president, for the Chicago-based research firm Technomic Inc.

“Customers like the Italian Meats pizza because it’s new and it’s more of a premium product,” Mannino said.

Just as important, the pizzas are delivered with all the toppings already in place, making it easy for employees to prepare. “All you have to do is add the seasonings and spices they use, and if the customer wants double cheese then you’d add the double cheese to that,” Mannino said.

LTO Excitement
Gier Oil Co., with 37 Eagle Stop Convenience Stores in Missouri, also partners with Hunt Brothers Pizza at a number of its locations.

Bethany Poe, operations supervisor for eight Eagle Stop stores, six of which offer the Hunt Brothers program, said her customers are also looking for variation, and are attracted by limited time offers. “Customers miss the LTOS when they are taken off the menu, but then they’re excited when they bring them back a few months later,” she said.

Poe’s stores also tested the Italian Meats pizza during the pilot period. “Some of our stores are in rural areas, and it’s especially beneficial to try to do something different in these locations to change up the offering for the customers,” she said. “With the Hunt Brothers offering, we have the option of selecting the pizzas we want to offer, but we normally go with what Hunt Brothers recommends to stay competitive with the other stores,” she noted.

Technomic found that when it comes to flavors, themed pizzas continue to trend, especially at the c-store level. “The Buffalo chicken pizza is popular because it has the protein—chicken—but also the Buffalo sauce that’s going to give it some spiciness, which customers love,” Tristano noted.

Hawaiian pizza—with ham and pineapple— is another example of a popular themed pizza. Themed pizzas are gaining traction because customers don’t have to decide what topping to add.  “This is something that can be picked up by c-stores and leveraged as an opportunity to sell more pizza,” Tristano said.

When selecting a variety of themed pizzas it’s important to note that an increasing subset of the Millennial generation identifies as vegan, vegetarian or flexitarian (vegetarian most of the time but sometimes eats meat), making it wise to offer a non-meat pizza option alongside a meat-eaters option to capture customers in this demographic, Tristano noted.

Trending Now
Tristano pointed to two overarching trends set to impact pizza in 2014: the pizza pub concept of pairing pizza and alcohol together, and customizable pizza pies, made exactly how the customer desires.

Better fast casual pizza concepts are a key trend now emerging—not only on a regional basis—but soon to hit the national landscape as they gain momentum and capital for growth.

“In California, Blaze Pizza and Pieology are examples of concepts doing something similar to what Chipotle does. You pick a pizza they have or customize it as you interact with the person preparing the pizza,” Tristano said. “What these brands are doing is taking advantage of customization and speed, while leveraging quality and premium ingredients and flavors, which are all on target with what consumers are looking for from the pizza segment.”

Better With Beer
Craft beer is trending with both men and women—and especially with Millennial consumers. Pizzerias are tapping into this demand, showcasing an array of craft, domestic and premium beers alongside their pizza offerings.

“To some extent you have this already in a c-store, most of which sell beer,” Tristano said. “A lot of times a pizzeria isn’t going to have the same beer selection as you can find at a c-store, making this an opportunity for c-store retailers.” 

Technomic consumer research shows customers continue to demand premium high quality toppings and convenience, and proximity and convenient location weigh as key factors in customer intent to purchase.

“That’s something c-stores have an incredible advantage with, not just because of the number of locations, but the ease of going in and out, parking and the ability to pick up other items, such as pop, candy snacks and desserts,” Tristano said.

Convenience stores that currently serve pizza can boost sales by making it easy for customers to select the types of items usually purchased with pizza. That could be chicken wings, but more likely it’s desserts, snacks and beverages—including beer—that can be offered as a bundle deal or simply merchandised nearby.

Trendiest Toppings
Chicago-based research firm Mintel International, recently polled consumers to discover the hottest pizza toppings. Pepperoni took the lead (65%), followed by sausage (54%) and mushroom (51%). Other winners included extra cheese (45%), onion (39%), green pepper (37%), olive (34%), bacon (31%), ham (29%) and pineapple (21%).
Men are much more likely than women to order bacon-topped pies (38% of men versus 24% of women), sausage (60% to 48%), pepperoni (71% to 60%), and ham pizzas (34% to 25%).
Age also impacts topping preferences. Those 18-24 prefer bacon-topped pizza (40% versus 31% on average), extra cheese (54% to 45%), ham (36% to 29%), and pineapple (26% to 21%).


Cold Fusion

January 9, 2014

2014-01-09_1101In an exercise that captured the attention of category managers attending CSP’s Cold Vault Summit, consultant and former retailer Casey McKenzie of Lexington, Ky.-based Impact 21 Group asked the retailers to consider where they would place products in a fictional convenience store.

While the specific results didn’t matter—“There is no right or wrong answer,” McKenzie said— the real message was in the variety of answers.

While one group placed beer in the back-corner cold-vault doors across from a beef-jerky endcap, another put dairy in the same corner doors with bread and other grocery basics nearby. “We imagined our store was in the Northeast, where c-stores really evolved out of the dairy business,” explained the team’s leader, Nancy Knott, category manager of alcohol for La Palma, Calif.-based BP ampm. In that region, she reasoned, consumers are still drawn by bread, milk and eggs.

“That’s it!” McKenzie said. “This exercise is not just about product placement and adjacencies; it’s about what your marketing objectives are. Much of it is driven by who your customers are and what you want to be. But it can’t all be pie-in-the-sky stuff; there has to be some science behind it.”

For three days, 35 retailers from across the country put on their proverbial lab coats to consider the science and the data driving beverage sales today. Their scientific method started with a big picture: the economy and,
perhaps more important, how consumers view it.

“I think the economy is in a lot better shape than [most] people do,” said analyst Nik Modi, who follows beverage and tobacco stocks for RBC Capital Markets. Modi said the housing market is improving, U.S. gross-domestic product is growing again and the job picture is showing some progress.

Despite that, 10 of 12 major beverage categories are slowing and the majority of food categories are declining, according to Modi.

This is a matter of psychology and how consumers think about their purchases. “The internal consumer is being squeezed,” forcing them to be more disciplined in their spending, meaning less discretionary spending
on things such as beverages and fast food, he said. “Consumers are making choices.”

Also, as spending on cars and housing have increased this year, retail sales have declined.

Calorie Concerns
Meanwhile, the continuing trend toward healthier eating also has taken a toll in more ways than one.

First, there’s the move away from products—full-calorie sodas and juices—viewed as adding to the obesity epidemic in the United States.

But the real surprise is that even diet drinks, particularly low-calorie carbonated soft drinks, are hurting, indicating the next phase in the continuing move away from the CSD category.

“It comes down to health and wellness,” Modi said. Consumers are hearing a lot of negative news about low-calorie sweeteners, particularly aspartame, that’s turning them away from the category.

“Just as consumer interest in aspartame peaked (in the first quarter of 2013), diet CSD trends began to worsen, while regular CSD trends remained,” he said. “There are a lot of companies out there chasing the lowcalorie trend. I’m not sure it’s as important today as it used to be.”

For c-stores, those more indulgent beverages are still an area of growth. “Seventy percent of what I sell in my stores have nothing to do with health and wellness,” said retailer Lundy Edwards of Forward Corp., Standish, Mich.

Still, Modi and others pointed out, the trend suggests these full-calorie categories are falling out of favor with the public.

Ivan Alvarado, director of category management for Plano, Texas-based Dr Pepper Snapple Group, acknowledged that in just the past year, the average CSD set has shrunk from 14 shelves to nine in c-stores, most of it claimed by energy drinks and bottled water. “Some of this is related to health and wellness, and some of it is self-infl icted,” he said, citing beverage makers’ hesitance to innovate, and that “CSDs have not been able to communicate with millennials. New tactics are needed to reach these consumers.”

Added Clinton McKinney, group director category advisory for Atlantabased Coca-Cola North America, “If you want to be known as one of the retailers who embraces innovation, you’ve got to go all the way and let the
consumer know that’s your play with signage and other messaging.”

“It’s all about interrupting that autopilot behavior that consumers have in the store,” Alvarado said.

One challenge for retailers is the latest generation—those 21 to 35—coming of age. These millennials are less trusting of big business, making a warning message about the industry’s oldest artifi cial sweetener resonate all the more.

“They have a very low level of trust for institution,” Modi said. Instead, millennial consumers rely on their friends for recommendations, whether it’s a co-worker they see every day or a distant but respected acquaintance they  communicate with only through Facebook.

“It’s when recommendations start coming in on social media that sales really begin to improve,” Modi said.

To that end, Alvarado encouraged retailers to call out soda makers to turn things around. “Challenge us,” he said. “Every time we walk in your stores, ask us: What are you doing to sell more in my store?”

Energy’s Boost
One of the most active beverage categories on social media is energy drinks. With sponsorships of extreme-sport athletes and unique events, such as Red Bull’s Flugtag competition and Monster’s sponsorship of skating, surfi ng and snow events, the suppliers are keeping their brands in front of their key demographics’ eyes.

“Think about all the things that Red Bull does that make someone think, ‘Oh, I’ve got to post that [on Facebook],’ ” Modi said.

Still, energy-drink sales trends are slowing. The young category overall is growing by about 5% today, compared to the double-digit (up to 20%) growth of past years. The category is maturing, and consumers have taken notice of the headlines surrounding energy drinks and the pending lawsuits that claim the drinks are dangerous. Still, Modi doesn’t think that has had much of an effect on sales.

Energy-drink sales grew 8.6% in c-stores for the 52-week period ending Aug. 10, 2013, according to Nielsen data presented by James Ford, head of category and shopper insights for Red Bull North America, Santa Monica, Calif.

“The convenience channel is driving energy-drink growth,” he said. “And energy drinks will continue to be the biggest growth contributor to the beverage category through 2017 and beyond.”

C-store retailers attending the Cold Vault Summit generally agreed that energy drinks are still a bright spot in the cooler, bringing a high-margin ring to the checkout as the major energydrink makers—Monster, Rockstar and Red Bull—maintain a busy newproduct introduction pace to keep the category fresh.

The Wonders of Water
Bottled water is also gaining space in the cold vault as the subcategory continues its march toward becoming the No. 1 beverage in the United States.

The growth comes as usage occasions expand and variety increases, said Chelsea Allen, senior manager, category and shopper solutions, for Nestle Waters North America, Stamford, Conn.

“Bottled water outsells sodas in 13 U.S. markets today,” she said. “It will be the No. 1 beverage in the country in 2016.”

The opportunity for retailers is to grab as much share as possible of the category while it’s still growing.

“Smartwater is the fastest-growing brand, and private-label [water] is growing on distribution gains,” Allen said. “But … we know that brands bring people into your stores. In fact, 44% of all bottled-water households will only buy branded bottled water.”

To improve water sales, Allen encouraged retailers to offer single-serve packaging for the three main water segments: premium, popular and value waters. She also urged retailers to stock 12- and 24-packs of water. “Nearly 6 million shoppers shop in convenience stores and buy case pack water,” she said. “But only 1% of households buy case water in c-stores. It’s a real opportunity.”

Favoring Flavor
Millennials are helping change another aspect of the beverage landscape: They’re more willing to experiment with new flavors. They join the growing Hispanic demographic in a desire to sample bolder flavors. When you add millennials’ $1.7 trillion in spending power to Hispanics’ $1.2 trillion, the result is a “structural change” to the country’s palate.

“It’s the blending of America,” Modi said. “The white consumer is taking culinary cues from Hispanic, Asian and African-American consumers.”

This led Modi to suggest beverage manufacturers should focus less on low-calorie products and more on new flavors that appeal to this new desire for stronger flavors.

“We’re at a point in the United States where companies are taking ingredients out of their products” to make them seem more natural, Modi said. “Instead, there’s not enough flavor.”

The most obvious and successful evidence of this trend is in the beer and wine categories. One reason: By 2018, 80 million millennials will be of legal drinking age, and 20% of millennials are also Hispanic, according to Darren Tristano, executive vice president of Chicago-based Technomic Inc.

For wine, the move has been toward mixing varietals to create new flavors and indulging the millennial consumers’ sweet tooth.

“The millennial doesn’t want to drink what their parents drink,” said George Ubing, national director of the convenience channel for E. & J. Gallo Winery, Modesto, Calif. For Gallo, the goal of turning wine into a more refreshing beverage has prompted innovation. Leading the way are Barefoot’s lighter, more thirst-quenching line extensions Refresh, Moscato and Bubbly; and a Liberty Creek wine packaged in a Tetra Pak to target on-the-go lifestyles.

Beer’s story has been told many times: The growth is in “better beers”—imports, crafts, higher-end brews from major brewers—as consumers seek more flavor and diversity, even at greater expense.

“There’s a definite shift away from domestic beers,” said Tristano. “Today, it’s craft beers, cider and imports that are growing. When they become too popular, that’s when millennials say, ‘Wait a minute. I want to try something different.’ ”

That, to Modi, is an opportunity. Their willingness to experiment and try new flavors gives retailers permission to “reduce the SKU capacity, but supply newness,” he said. That is, don’t feel the need to stock every variation on a subcategory; instead, stock the most popular and the newest to maintain the fastest-selling brands while providing customers the ability to experiment.

This theory is backed by research that shows a balanced beer portfolio is the most successful way to grow overall beer sales, as outlined by Dean Zurliene, St. Louis-based Anheuser-Busch’s senior director of category management.

“There’s a lot of shifting in the beer mix today,” Zurliene said. “When retailers manage it from a balanced approach—emphasizing both premium beers and crafts—they win 93% of the time.” One reason is the beer buyer’s likelihood to buy both craft and premium beers or spend money on both segments.

“More often than not, someone who drinks craft beer also drinks premium beer, also drinks value beer, and also drinks import beer,” he said. “The craftbeer shopper only spends 32% of their beer money on craft beer.”

This data falls in line with research on the millennial consumer, too. “Millennials are not the most brand-loyal consumers,” said Adrienne Nadeau, senior researcher for Technomic. “They crave variety.”

And providing that variety can be a long-term win for retailers, Tristano agreed. “It’s not loyalty to millennials; it’s frequency,” he said. “If you build the frequency, the habit with this generation, you can grow with them.”


Custom-Made Burgers Reach McDonald’s

December 4, 2013

McDonald’s, a company that pioneered uniform, assembly-line hamburgers, is now experimenting with a somewhat antithetical concept: Custom-made burgers. The chain is currently testing them in Laguna Niguel, Calif., where diners make selections on an iPad; the burgers cost more than Big Macs, are grilled-to-order, and come with a choice of more than 20 toppings and sauces. The beef patty isn’t cooked until you order, so the sandwich requires extra time to prepare. It’s a head-scratching departure from the burger-factory model that has allowed the chain to serve food quickly, inexpensively, and profitably. “It goes against what they stand for: speed, convenience, price, and value,” says Darren Tristano, an executive vice president at food industry consultancy Technomic.

On the other hand, McDonald’s isn’t exactly killing it lately. Same-store sales have slowed in the U.S. (They were up only 0.7 percent last quarter and slowed to 0.2 percent in October.) That’s not all: The chain has been plagued by complaints of slow service and inaccurate order responses. In response, McDonald’s has tried to pare its sprawling menu and will redesign its drive-thrus next year to shorten waiting times.

A widespread introduction of custom-made burgers wouldn’t help these issues. What it might do, though, is help the chain stay relevant as consumers—twentysomethings in particular—express interest in customization, Tristano says.

McDonald’s spokeswoman Lisa McComb said in an e-mail that it’s too early to comment on the custom-made burgers, although the test will offer valuable consumer insights. “With these tests, we will have an opportunity to hear directly from our customers in real-time on what they expect from McDonald’s in terms of the overall restaurant experience and their ability to further customize their menu choices,” she said. Even if McDonald’s doesn’t go down the Chipotle road, letting customers say what they want on their burgers—”Hey, everyone really likes burgers with guacamole!”—could shape menus in the future.

While the option to customize could help McDonald’s look less like a mechanized food factory, Tristano says most customers would probably continue ordering from the regular menu. “It’s more of a promotion, and marketing, and trying to change its brand image,” he says. Even as McDonald’s expands its premium offerings, its bigger promise to customers is still speed and price.


Two Become One

December 3, 2013

two-become-onelaSeveral quick-service concepts have cobranded with other companies in hopes of leveraging the other brand’s assets, like marketing and menu. But Fatburger is doing something a little different in cobranded locations with its full-service sister brand Buffalo’s Café: It’s adapting much of the latter’s concept, including, in one case, its table-service format.

The 150-unit Fatburger opened three cobranded units with Buffalo’s Café, including one with table service, a full bar, and a patio, and two with a quick-service Buffalo’s Express format.

Andy Wiederhorn, CEO of Beverly Hills, California–based Fog Cutter Capital Group, which owns Fatburger and Buffalo’s Café, says the two brands are a natural fit, especially because they are under the same parent company.

“We have one back-of-the-house kitchen and one cash register system, with two different menuboards and two signs,” Wiederhorn says.

While the full-service unit with Buffalo’s Café offers a casual-dining menu including burgers, steaks, and seafood, the Fatburger with Buffalo’s Express has a limited menu of chicken wings, chicken tenders, and 13 different sauces to go along with the burger brand’s offerings.

Merging the two brands helped spike sales, Wiederhorn says, noting that business at the Buffalo’s Café and Fatburger cobranded units is up 30 percent. “Fatburger had chicken wings on the menu but didn’t have branded wings,” he says. “We’re chicken experts on the Buffalo’s side, so it’s added credibility. Look at how successful KFC and Pizza Hut have been.”

Like with those two Yum! Brands, Wiederhorn says, Buffalo’s Café’s and Fatburger’s menu options go well together.

“You can’t add sushi to a hamburger place. It becomes a great way to differentiate yourself from a competitor,” he says, adding that the quick-service burger landscape is so competitive that Fatburger needed something to set itself apart.

Keeping everything simple and clear in the cobranded units also boosts credibility, he says. The Buffalo’s Express menu, for example, doesn’t deviate from chicken wings, chicken tenders, and boneless wings.

While cobranding skeptics say that merging two concepts can dilute each individual brand’s credibility, Wiederhorn says, adapting two brands like Buffalo’s Café and Fatburger to each other helps draw new customers and can help spike revenue at each brand.

Al Ries, co-author of The 22 Immutable Laws of Branding, says cobranding can be an effective strategy to launch a sister brand.

“To the consumer who likes and admires the Fatburger chain, cobranding will help Buffalo’s Café,” he says. Since many consumers are reluctant to dine at the new eatery on the block, Ries says, “a cobranding arrangement is probably more helpful for a new chain just getting started than it is for established chains.”

Darren Tristano, executive vice president at Chicago-based market research firm Technomic, says pairing Fatburger with a chicken wings concept is a recipe for success.

“Since the wings are complementary and not competitive from a meal perspective, this represents a strong opportunity to increase check average and provide consumers craving wings an opportunity to find them while others are looking for a good burger,” he says.

Moreover, Tristano says, Buffalo’s Express could capitalize on the success of other wing quick serves, like Wingstop and Wing Zone. “The model to open smaller units, either company-owned or franchised, provides a greater opportunity to keep costs low while focusing on a high demand product,” he says.

He adds that some consumers might want to design a meal using the menus of both chains. “They’ll add wings to a burger order,” Tristano says.

Ries says the menu at both cobranding participants must overlap and not clash to make the arrangement successful. When McDonald’s owned Chipotle, he says, a potential cobranding deal would have flopped since McDonald’s reputation for indulgent burgers might hurt Chipotle’s emphasis on locally sourced, healthy dining.

Cobranding has additional traps, Ries says. For example, if a consumer rejects the food at one brand, it might tarnish the perception of the other. Tristano adds that cobranded units can be tricky to operate smoothly.

“Adding new logistics to the ordering and service models can create slowdowns in process and get in the way of customer satisfaction for those who only want a burger,” he says.

Fatburger has bounced back from declaring bankruptcy in 2009. It’s nearly quadrupled its number of outlets since bankruptcy and has done well overseas, particularly in China, Taiwan, and Singapore. Wiederhorn say more growth is on the horizon. He expects 50 new Fatburger, Buffalo’s Café, and Buffalo’s Express units to open in 2014. About a dozen will be located in Europe, and the rest in the U.S.


How a Fast-Food Chain Plans to Bulk up on Quinoa, Smoothies

November 19, 2013

AR-310199982.jpg&maxw=368&q=100&cb=20131119093150If Matt Matros has his way, Protein Bar’s quinoa bar-ritos and protein smoothies might just become the next burger and milkshake.

Spurred by a $22 million investment by private-equity firm Catterton Partners, Mr. Matros’ four-year-old healthy fast-casual restaurant chain is poised to go national and aims to hit 40 locations by the end of 2015. At least one analyst says Protein Bar eventually could have between 300 and 1,000 stores across the country.

Since opening his first restaurant across the street from Willis Tower in 2009, Mr. Matros, 34, has grown the chain to 12 locations throughout the Chicago area and Washington. The 400-person company projects nearly $20 million in sales this year.

By the first quarter of next year, Protein Bar will open two more Loop outlets, another in Streeterville and one in Lincoln Park. Protein Bars will also debut in Evanston and Schaumburg, as well as in Denver and Boulder, Colo.

The chain will hire about 15 corporate operations staff and about 25 to 40 employees per new store, according to Mr. Matros, founder and CEO.

“We were the starting pitcher (in the healthy fast-casual game), but it’s still only the second or third inning,” he says. “It’s a long game, and we’re not the only player who’s going to be successful, but we like to think we’re well-positioned.”

The need to expand quickly is paramount, agrees Darren Tristano, an executive vice president at food consultant Technomic Inc. in Chicago. “You cannot hide a successful concept like Protein Bar very long,” he says. “You’re going to see other burrito-inspired brands start to pull in its aspects.”

Two older competitors also have built their presences in Chicago and elsewhere. Freshii, a New York-based chain launched in 2005, boasts 13 area locations, while Palm Springs, Calif.-born Native Foods Cafe, a vegan fast-casual concept that has been around for two decades, has opened three Chicago outlets in recent years.

The urgency is heightened by the fact that growth in the overall market for fast-casual dining—which offers a higher-end selection and atmosphere than typical fast food—while still robust, is slowing down.

Chipotle Mexican Grill Inc., which helped create the category, opened its doors in 1993. Two decades later, fast-casual restaurants will generate about $35 billion in sales this year, according to Technomic estimates, up from $31 billion in 2012.

‘THE NEW STARBUCKS’

Protein Bar, Mr. Tristano says, differentiates itself by creating healthy food that tastes good. The chain charges premium prices—about $10 for a salad, for example—with ingredients such as antibiotic-free chicken and a salad mix that includes kale and spinach.

“They pull in an affluent corporate customer, as well as the millennials who feel that they’re entitled to it,” he says. “Protein Bar is the new Starbucks—it’s all about status.”

Those loyal customers, who often line up out the door of Protein Bar’s Loop locations between noon and 1 p.m., is one reason that Greenwich, Conn.-based Catterton invested. The firm previously has taken stakes in restaurants including Noodles & Co., which went public in June, and P.F. Chang’s, as well as health-focused brands such as Core Power Yoga and O.N.E. coconut water.

“Many folks have tried to do ‘better for you,’ but no one has combined that with the taste and crave-ability that Matt and his team have achieved,” Catterton partner Jon Owsley writes in an email. “We think that is a winning combination that will be tough to beat.”

As the company expands into Chicago’s neighborhoods, Protein Bar will have to move beyond its primary lunch business and prove that it can lure customers for dinner—long the Achilles’ heel of fast-casual chains.

Mr. Matros says Protein Bar’s stream of new menu items is up to the challenge.

“Our job is to stay in front of the consumer by continuing to introduce them to nutritionally relevant items,” he says. “We want to exist in the sweet spot between . . . foods you’ve never heard of” and ingredients that are ubiquitous.


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