Quiznos sees Asia move as key to its future

December 16, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Carl’s Jr. Revolutionizes Fast Food with New All-Natural Burger

December 15, 2014

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New All-Natural Burger features the first all-natural, no added hormones, no antibiotics, no steroids, grass-fed, free-range beef patty from a major fast food company

Today, Carl’s Jr.(R) announced the All-Natural Burger, featuring an all-natural, grass-fed, free-range beef patty that has no added hormones, antibiotics or steroids. With the introduction of the All-Natural Burger, Carl’s Jr. is the first major fast-food chain to offer an all-natural beef patty on the menu. The All-Natural Burger will be available in participating Carl’s Jr. locations beginning Wednesday, Dec. 17 and features the charbroiled, all-natural beef patty topped with a slice of natural cheddar cheese, vine-ripened tomatoes, red onion, lettuce, bread-and-butter pickles, ketchup, mustard and mayonnaise, all served on the brand’s signature Fresh Baked Buns.

The Carl’s Jr. All-Natural Burger features an all-natural, grass-fed, free-range beef patty that has no added hormones, antibiotics or steroids. With the introduction of the All-Natural Burger, Carl’s Jr. is the first major fast-food chain to offer an all-natural beef patty on the menu.

“We’ve seen a growing demand for ‘cleaner,’ more natural food, particularly among Millennials, and we’re proud to be the first major fast food chain to offer an all-natural beef patty burger on our menu,” said Brad Haley, chief marketing officer of Carl’s Jr. “Millennials include our target of ‘Young Hungry Guys’ and they are much more concerned about what goes into their bodies than previous generations. The new All-Natural Burger was developed specifically with them in mind. It features grass-fed, free-range beef that’s raised with no antibiotics, no steroids and no added hormones. The charbroiled All-Natural Burger also has a slice of natural cheddar cheese, vine-ripened tomatoes, lettuce, red onion, bread-and-butter pickles, the classic trio of condiments – ketchup, mustard and mayo – and it’s all served on one of our Fresh Baked Buns that we bake fresh inside our restaurants every day. Whether you’re into more natural foods or not, it’s simply a damn good burger.”

“Greater awareness for health and wellness is driving the growth in healthful menu items, yet our research indicates that the majority of consumers still opt for more indulgent food,” said Darren Tristano, EVP of Technomic Inc. “The push and pull between healthfulness and indulgence makes an All-Natural Burger on-trend. All-natural products also have a ‘health halo’ impact and often help consumers feel confident that they are getting a product better for them and from a source they can feel good about.”

The new All-Natural Burger is available as a single all-natural beef burger for $4.69, as a double burger for $6.99, and may be ordered in a combo meal with fries and a drink. Guests may also substitute the all-natural patty on any burger on the menu for an additional charge. Prices may vary by location. For a limited time, visit carlsjr.com/coupons to download a coupon for $1 off any All-Natural Burger combo meal, valid at participating locations.

The new burger will be supported by an advertising campaign created by Los Angeles- and Amsterdam-based creative agency, 72andSunny. The first of two TV spots will begin airing on Dec. 29 with an additional commercial to debut Feb. 2015 during the super big football game many will be watching.


A Big Production

December 12, 2014

Legacy chains employ large-scale marketing stunts to generate long-term buzz.tim-hortons_2

This summer, Canadian coffee chain Tim Hortons made quite the splash: The brand covered one of its Québec locations in blackout materials to promote its new dark roast coffee. Equipped with night-vision goggles, employees handed guests samples of the brew, and the action was all captured in two-minute videos, later posted on YouTube to the tune of 2.6 million–plus views.

Tim Hortons’ head marketer, Peter Nowlan, found the experience a big success for the chain. “The dark roast is Tim Hortons’ first new blend in the company’s 50-year history, and we wanted to put it to the ultimate test: allowing guests to try it in the dark, limiting their sense of sight, and enhancing their senses of taste and smell,” he says.

Large-scale marketing stunts like these are few and far between, but when a quick-service brand does employ them, consumers take note.

“Many brands, especially older legacy brands, have to work harder to stay relevant to a younger generation of less loyal customers constantly looking for what’s cool and what’s next,” says Darren Tristano, executive vice president at Technomic. Whatever the expense to companies may be, the resulting public-relations blitz usually pays dividends, he adds.

Advertisers today are focusing heavily on social media and buzz marketing, so anything a brand does locally on a grand scale will likely be shared and tweeted to people far and wide, Tristano says. “This reminds consumers about brands and their role within the restaurant industry,” he says.


Habit Looks to Trade on ‘Better-Burger’ Standing in IPO

December 11, 2014

© 2014 Orange County Business Journal. Provided by ProQuest Information and Learning. All Rights Reserved.

RESTAURANTS: Recent growth, timing of offering look favorable

The Habit Restaurants Inc. in Irvine appears to have a number of factors working in its favor for an initial public offering that’s expected sometime this week, including some that reflect its strong run of recent years and others that indicate the chain is well-positioned for the future.

Among them:

* Habit has staked out a spot in the meaty middle of the “better burger” category with an effective mix of competitive standing on price and quality.

* The burger chain has quadrupled in size in seven years and now has 99 locations in four states.

* Habit plans more growth in 2015, notably on the East Coast and other new regional markets.

* It’s the first better-burger chain to go to market, and the move comes just a few months after the IPO by Costa Mesa-based fast-food chicken chain El Polio Loco Holdings Inc., whose shares have more than doubled since their July debut.

Habit’s offering of 5 million shares at $ 14 to $16 a share would put about 20% of the company on the market and raise about $66 million for the parent of the Habit Burger Grill chain after costs, according to its Securities and Exchange Commission filings.

Habit Restaurants Inc. would trade on Nasdaq under the ticker symbol “HABT.” Its market capitalization at $15 a share would be about $380 million.

When El Polio Loco’s similarly priced offering-$15 a share-hit July 25, its stock quickly traded above $20, and it now trades at about $35 for a market cap of some $1.3 billion.

Habit has been busy with expansion plans in the run-up to its public offering. It signed master franchise deals for 15 units in Las Vegas and 25 in Seattle in May. The first restaurant in a planned East Coast expansion came in August in Fair Lawn, N.J.

Growth

Habit was founded in 1969 in Santa Barbara.

Greenwich, Conn.-based private equity firm KarpReilly LLC led a group in 2007 that bought a majority stake. It will own 37% of the company after the offering, with voting control of 55%, the SEC filings said.

Habit had $162 million in sales for the 12 months ended Sept. 30, according to the documents. It ranked No. 16 this year on the Business Journal’s list of OC-based restaurant chains.

Net income has grown from $2.4 million in 2011 to $5.7 million in 2013.

It has had 43 consecutive quarters of samestore sales growth, and average unit volumes have grown from $ 1.2 million in 2009 to $ 1.7 million for the trailing 52 weeks as of Sept. 30, the filing said.

“They have strong leadership and strong growth,” said Darren Tristano, executive vice president at Chicago-based restaurant consultant Technomic Inc.

Tristano said Habit benefits from being the first prominent hamburger chain to go public this year. New York-based Shake Shack, which has about 50 units, is also considering an IPO, according to reports.

“If you believe in this segment, this is the first available investment,” Tristano said.

He attributed several restaurant IPOs this year to private equity investments that led to “operators trimming the fat” and then tapping the public markets to slash debt.

El Pollo Loco raised $113 million to pay down part of $289 million in debt when it went public.

That and a prior refinancing cut its debt service from $36 million a year to $10 million. It said resulting cash flow would fund growth.

Habit said it would use $41 million of its offering proceeds to close out debt, with $25 million for working capital, according to the filing.

Company representatives declined to comment for this article.

‘Better Burger’

Tristano placed Habit firmly in the “better burger” category: chains with a higher-quality hamburger than a $2 McDonald’s or Burger King selection, but at a lower price-$3 to $5 compared with $8 to $10-than restaurants such as The Counter.

Habit’s roots are in fast food, and “they’ve evolved toward fast casual, so they’re in-between,” he said.

He said El Pollo Loco has staked out similar territory-somewhere between Chipotle and Taco Bell.

“Quality and price means a better deal for lower- and middle-income customers,” Tristano said.

He said Habit-again, like El Pollo Loco- is strong in California, but sounded a note of caution.

“They’ll have strong regional competition in other markets,” he said.

One example: Prairie du Sac, Wise.-based Culver’s, which is similar in style to Habit and has 450 company-owned and franchise locations in 20 mainly Midwest states.

Tristano said Habit has shown it can do well against established competitors, including Irvine-based In-N-Out Burgers, a standardbearer in the better-burger category.

“They have to introduce themselves to a new audience, but they can be competitive,” Tristano said. “And they did well in the Consumer Reports [national] test early this year.”

Habit Burger Grill: 99 units and counting, initial public offering slated for this week

The Habit Restaurants Inc. in Irvine appears to have a number of factors working in its favor for an initial public offering that’s expected sometime this week, including some that reflect its strong run of recent years and others that indicate the chain is well-positioned for the future. Among them:

* Habit has staked out a spot in the meaty middle of the “better burger” category with an effective mix of competitive standing on price and quality.

* The burger chain has quadrupled in size in seven years and now has 99 locations in four states.

* Habit plans more growth in 2015, notably on the East Coast and other new regional markets.

* It’s the first better-burger chain to go to market, and the move comes just a few months after the IPO by Costa Mesa-based fast-food chicken chain El Polio Loco Holdings Inc., whose shares have more than doubled since their July debut.


Building a Bigger Burger Biz

December 9, 2014

Paul Wahlberg starts expansion across US

© 2014 New York Times Company. Provided by ProQuest Information and Learning. All Rights Reserved.

Paul Wahlberg has dreamed of owning a restaurant almost since he started out washing dishes on Canal Street in the early 1980s, but the chef couldn’t have imagined something this big. Wahlburgers, the restaurant company he owns with his celebrity brothers Mark and Donnie, will on Thursday unveil plans to open 27 more locations.

The major expansion comes just three years after the first Wahlburgers restaurant opened in Hingham and follows deals for three in Las Vegas and five in the Philadelphia area. A Toronto restaurant — the second Wahlburgers — drew huge crowds to a grand opening last month.

The new franchise agreements include 20 locations in Florida and seven in New York City. But Massachusetts isn’t being left out of the growth spurt — the Wahlbergs are getting ready to open their second and third Boston-area Wahlburgers restaurants, in Lynnfield and the Fenway. Eventually, the brothers say, there could be up to 300 across the country.

Unlike other restaurant chains, this one’s growing pains are playing out in front of a TV camera. A&E’s reality show, “Wahlburgers,” has featured the business in 18 episodes so far. The show brings people to the burger joints. But it also elevates the stage on which Paul Wahlberg works, putting more pressure on him to send customers away satisfied.

“We’re just fortunate that people are interested in it,” Paul, 50, says of the franchising efforts. “The family name has some celebrity status to it. But we still have to live up to that.”

The route to becoming a national chain can be traced to a meeting Mark Wahlberg had with Rick Vanzura, a former cochief operating officer at Panera Bread, soon after the Hingham shop opened. Vanzura was brought on board in 2012, first as a consultant and then as the company’s chief executive, with the charge to chart an expansion plan. Vanzura works at an office across the street from the redeveloped Hingham Shipyard — the home of the first Wahlburgers and Alma Nove, a restaurant the brothers opened in 2010. Aside from Vanzura and Paul Wahlberg, the corporate staff now consists of just one other person. Vanzura anticipates a few more hires in 2015 and a more meaningful increase in 2016 as restaurants open.

The A&E show generated interest among potential franchisees. But most of the inquiries don’t make it far: Vanzura says he only considers operators with considerable restaurant experience and a net worth of at least $5 million.

The Toronto operators — including hotelier Henry Wu and investor Michael Wekerle — had a relationship with the Wahlbergs as investors in Hingham. Wu says he’s also investing in the Fenway and Lynnfield locations. He says he was attracted to the concept’s unusual mix of sit-down service on one side of the room, with alcohol, and fast-casual service on the other. His team plans to open several more in Canada, likely starting in Ontario. Wu says the 120-seat restaurant in downtown Toronto already has exceeded expectations: The tables turn at least three times every dinner period and up to six times on busy nights.

In Florida, franchisee Manny Garcia was introduced to the Wahlbergs through Orlando venture capital firm Blackwood Holdings. Garcia, a former Burger King franchisee who sold his 67 BK shops in the 1990s, established Davgar Holdings to oversee his family’s three restaurants in the Orlando area.

Davgar’s restaurants will include the Wahlburgers locations in Florida.

Garcia says that by the time he got involved, he had already seen the TV series. He saw a kindred spirit in Paul — someone with a passion for the restaurant business. The first Florida Wahlburgers will likely be on his home turf in the Orlando area, and he says he will scout for locations in Miami and Tampa, with Blackwood providing a major equity investment.

Wahlburgers faces plenty of competition as the chain grows. The “better burger” segment of the casual dining market is already crowded, with the likes of Five Guys, Smashburger, and Shake Shack, says Darren Tristano, of the restaurant consultancy Technomic in Chicago. Many rivals offer burgers for less than the $7 or more that Wahlburgers charges, although most don’t have sit-down service or alcohol. “So many players have gotten into the space,” Tristano says. “It’s hitting a saturation point.”

Like many restaurants, the Wahlburgers shops don’t always open on their original timetables. The brothers hoped they could open the location on Brookline Avenue in the Fenway — which, like the Hingham spot, will be in a Samuels & Associates development — in time for opening day at Fenway Park next year. Now, they’re aiming for the summer.

Paul admits to some nervousness as he works under the unyielding heat of a national spotlight. But he’s hardly planning on getting out of the kitchen. “There are going to be hiccups,” he says. “There are going to be bumps in the road. But we have to keep plugging along and doing the best that we can.”


Second Cup Tries Upmarket Vibe

December 8, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Asian Concepts Poised for High Unit rowth this Year

November 25, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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