Does Taco Bell’s Fast-Casual Entry Have a Chance?

April 24, 2014

Taco Bell is following the lead of its YUM! sister brand KFC, which entered the fast-casual market last year. KFC Eleven features hand-crafted food—flatbreads, rice bowls and KFC Boneless Original Recipe Chicken—in a more contemporary environment.

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Taco Bell’s new fast-casual concept, U.S. Taco Co. and Urban Taproom, provides the chain an opportunity to move into fast casual while maintaining its identity and value positioning with existing customers in the quick-service segment. Many brands today are trying to shift toward a more upscale menu, food and atmosphere positioning, but this strategy can confuse loyal customers and make it difficult to stay true to the brand identity. Taco Bell’s strategy makes sense and supports its goal to increase sales from $7 to $14 billion in the U.S. market.

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So what are the challenges this new brand faces?

Competition: In addition to a strong independent Mexican restaurant market, today’s Mexican grill segment features strong category leaders like Chipotle Mexican Grill, Qdoba Mexican Grill and Moe’s Southwest Grill. And there are more than 50 other fast-casual chains competing for share of stomach, many of which are growing aggressively.

Also within the landscape are successful taco shops that are growing from regional roots in California and Texas like Fuzzy’s Taco Shop, Torchy’s Tacos and Chronic Tacos. The 2013 limited-service Mexican category totaled $18 billion in sales with more than 18,000 restaurants. With so many competitors in the space, finding room for U.S. Taco Co. will be a challenge for Taco Bell’s young “intrepreneurial” team.

Price: With price points per-person pegged at $11.50‒$12, many economically challenged consumers may not be able to afford to eat at U.S. Taco Co. on a frequent basis. Average fast-casual price points are still south of $10. And with average prices of fast-casual burritos in the $6‒$7 range, consumers will continue to see pound-for-pound value at Mexican grill concepts. Recent Technomic research with consumers indicated that the optimal price at fast casual for lunch was $7.60, with a high price threshold of about $10. At dinner, consumers indicated that $9 was the optimal price, with $12.50 providing the upper threshold limit. As a result, consumers will likely see this U.S. Taco Co. as a place to go for dinner, as its lunch prices are too high for many consumers on weekday occasions.

Menu: Many American consumers have come to expect high levels of “authenticity” around both Mexican and Southwest dishes, sides and beverages. The menu at U.S. Taco Co. will feature the following tacos:

  • The One Percenter, featuring fresh lobster in garlic butter with red cabbage slaw and pico de gallo on crispy fry bread.
  • The “Brotherly Love,” a nod to the Philly Cheesesteak, with carne asada steak, grilled peppers and onions, roasted poblano queso and cotija cheese (rather than Cheez Whiz), and fresh cilantro in a flour tortilla.
  • The “Winner Winner,” which features Southern-style fried chicken breast with “SOB,” or “South of the Border” gravy, roasted corn pico de gallo with fresh jalapenos, and fresh cilantro in a flour tortilla.

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And on the side, guests can get “papas fritas,” which resemble steak fries, coated with habanero dust and served with housemade dipping sauces such as ghost chile ketchup or roasted poblano crema. Guests can also order their fries loaded with taco ingredients sans tortilla as a “secret menu” option.

Taking a page out of Red Robin’s play book, the menu will include shakes spiked with beer, and the brand will eventually offer tap, can and bottled craft beer.

So how will consumers react?

Patience and education will be important to getting consumers to consider an even more Americanized version of a traditional, authentic Mexican taco. Replacing the American burger with a taco served with fries and a shake will be a new behavior for many Americans. Although this new offering will likely have great appeal for Millennial consumers age 21‒36, Gen X and Boomers will likely continue to lean toward more familiar and traditional meals. As innovation and thinking outside the box (or bun in this case) is essential for filling white space, this new format may be a bit ahead of its time.


Beef’s to Ride On Fast Casual Train

April 23, 2014

AR-140419726Perhaps it’s a sign of how much Tampa loves Beef ‘O’ Brady’s that everyone just calls it “Beef’s.”“Hey, let’s go to Beef’s to watch the game.” Personally, I’ve stumbled over the full name a few times, but that’s another matter. I stumbled over the Au Bon Pain restaurant name for years. There’s just no way to pronounce it without sounding like a rrreal ‘mmmerican or a Francophile snob.

Be that as it may, Beef’s will soon give people another reason to check it out. The company is joining the growing ranks of restaurants launching “fast casual” restaurants, following right in line behind Panera, Chipotle and Five Guys. This one will be called “Beef’s Express,” and Beef’s CEO Chris Elliott says he doesn’t mind if people think of this as a Beef ‘O’ Brady’s version of Chipotle. One could do worse in the restaurant world. Have you seen the lines at Chipotle recently? It’s like a money printing press.

I sat down with Elliott this week to hear a rundown, and he very much cautioned that this is an experiment, and that they’re starting with a single prototype in Lakeland — a test bed to try out everything from the menu and portion sizes to the furniture and traffic flow. He also explained what happened to the St. Petersburg YWCA location of The Brass Tap, since he runs that brand too, but more on that below.

“It took a little while to get our heads around the idea, but once we got into it, we became very excited,” Elliott said. “In the beginning we weren’t sure we could convert the Beef ‘O’ Brady menu to a fast casual menu.”

All this brings up the question: Why the heck are all the restaurant companies trying to be Chipotle all of a sudden.

My time as a business reporter has taught me that one of the biggest dangers in explaining a corporate project is to reduce everything down to one factor. Life is far too chaotic and contradictory, and I won’t fall into that intellectual pothole today.

So, let me count the ways the fast casual concept is taking off like a frenzy in the market — or rather, let’s let Darren Tristano count the ways. He’s a frequent source of mine, and he travels the country checking out restaurants and giving advice to owners for the consulting firm Technomic Inc.

♦   Compared to a full-service restaurant like Olive Garden or Red Lobster or Ruby Tuesday, fast casual restaurants like Chipotle or Five Guys average a 50/50 ratio of dine-in versus take-out traffic,
so they require a smaller footprint;
hence, lower real estate costs. Plus, Elliott says full-service Beef’s restaurants do 40 percent lunch, 60 percent dinner, while a fast casual joint has the opposite
ratio. So, launching Beef’s Express helps even out the revenue per hour.

   ♦   A smaller footprint means a restaurant doesn’t require an expensive stand-alone building, which opens it up to new sites such as malls, airports, strip centers and even travel centers.

   ♦   The catering opportunities are very strong for “off-premises sales” at a fast casual place. The kitchen can still produce the food, but there’s no need for dining room space. PDQ, for instance, does a
thriving business catering events
around town, something I’ve seen pretty much zero fast-food chains do well. Typical fast-food items don’t handle the transportation well. French fries have about a
three-minute shelf life before they turn pasty and cold.

   ♦   Fast casual joints can charge higher prices, which means better annual sales, which means higher return on investment for a franchisee who can open a store “with less cost/capital than brands
like McDonalds or Applebee’s but with
greater upside vs. Subway,” Tristano said. The labor cost per employee may be higher at fast casual places, but there’s no need for a host, waiters, bussers or
other floor staff. Just cooks, a cashier and a cleanup person. I’m not saying
that’s good for America’s job prospects; just observing the thinking of restaurant execs.

   ♦   Typically, fast casual food is a peg or two above typical fast food, and even KFC is getting in on the fast casual action. It built a test site in Louisville, Ky., called “KFC Eleven” with more upscale items.

Put that all together and Tristano says the average fast casual “unit volume” can top $1.1 million per store, versus “fast food that is much lower.”

But let’s focus a bit closer on Beef’s.

Elliott says the Express sites will only take some design cues from a regular Beef’s, but there will be no TVs (sacre bleu!). This is not the place to park all afternoon to watch a football game; that’s for the regular Beef’s.

The Lakeland mock-up is a 2,000-square-foot prototype with 64 seats, the size of a small Chipotle. People walk up to a counter, order their food and pay at a cashier. A server brings out the food. But here, Beef’s is pushing the envelope. Unlike Chipotle or Five Guys, which basically have one food item (burritos or burgers), Beef’s will have more than a half dozen: Chicken wings, burgers, chicken tenders, fish and chips, Cuban sandwiches, Philly cheese steaks, sandwich wraps and flatbreads.

Beef’s wants the average check to hover around $10, drink included. “The trick will be to have a more diverse menu and still deliver on what people want from fast casual,” Elliott said. “Quality, speed and value.”

Elliott is targeting an opening within 12 months, maybe by the end of this year. The Beef’s fleet of restaurants are virtually all franchisee operated, so Elliott can’t just build a slew of sites like McDonald’s or others can. “It depends,” Elliott said. “If the test goes well, we might get a lot of interest.”

Meanwhile, here’s other retail, restaurant and trend news around town:

So, about that YWCA Brass Tap location in St. Petersburg that closed last week. Elliott said it was a valiant effort, particularly because it was part of an adaptive re-use of a notable location, but the site just wasn’t seeing enough traffic. But it’s not going away forever. Likely, Elliott said, the Brass Tap brand will be relocated to a spot around the restaurant hub — Central Avenue, maybe close to the stadium.

Last week, we wrote a huge story about the launch of the Lyft ride-sharing service in the Tampa region. There’s a fight afoot, obviously, because taxi and limo companies don’t necessarily welcome the competition from plucky and less-expensive upstarts. Now Lyft just gave the taxi guys another reason to grumble. After raising $250 million in new venture capital, Lyft is cutting prices by 20 percent. Rival/compatriot ride-sharing service Uber made a similar move recently. As the TechCrunch blog phrased it, the move “won’t affect the amount of money that drivers take home. Instead, the company is temporarily suspending its 20 percent commission while testing out the new rates.”

The Channel District will soon have a couple of more bar/restaurants to boast of. Maloney’s Local Irish Pub will open soon along Meridian Avenue in the Grand Central complex, taking the place of the former Rajin Sports Bar & Grill, with a likely opening of late May. There’s already a Maloney’s in Westchase if you want to see the look and feel. Soon after, a partner restaurant will open directly next door called The Hideaway, more of an upscale lounge. There’s one in Clearwater if you want to check that out. Both are owned by Todd Wingard and Brian Pfeiffer, who say it’s a “leap of faith” to go into that area, but with hundreds of new apartment units going up, the Riverwalk complete soon and Jeff Vinik’s projects nearby, they figure this is the sweet spot for young professionals.

Fear not, Apple devotees, your International Plaza store is only temporarily closed. The site is undergoing another renovation and should re-open May 23. Unfortunately, if you don’t like crowds, there may be some frustrating news. Despite cries from the populace to triple or quadruple the size of the store, the site will retain its current footprint.

Good news for Oxford Exchange fans. The oh-so-classic styled bookstore/tea shop/retail store/business club/restaurant now has a full liquor license, which means beer, wine and cocktails. Another change: The restaurant is normally only open for breakfast and lunch, (private events at night) but the owners have decided to experiment with dinner open to the public at large on Thursday and Sunday nights. Call early for reservations, because the menu looks hot: Macadamia Mahi Mahi ($24), Steak Frites ($32), Shrimp N’ Grits ($24) and Vegetable Lasagna ($18).

After a devastating fire, A Modern Line furniture has found a new home in Seminole Heights at 4632 N. Florida Ave., adjacent to several other funky art galleries and creative projects. “Granted, we will be a bit lighter on merchandise to start, but the place is looking great and we still have a pretty swell collection to choose from,” co-owner David Call said in an email to fans. “Many thanks to our awesome neighbors, family, friends, customers and our local businesses for helping make this happen as fast as it has. You all rock! Love you all!”


Luxury Dining at the Mall

April 22, 2014

bildeWhen the new Saks Fifth Avenue department store opens at the Mall at University Town Center, shoppers can expect more than just expanded departments and two floors of merchandise. The 80,000- square-foot Saks space — one of the key anchors for the $315 million mall in Sarasota County — also will boast its own restaurant, and be one of the first in the chain to do so.

When Saks opens, so will “Sophie’s,” a new restaurant concept by Fifth Dining LLC, a new restaurant effort within the Saks brand. The elegant, gourmet restaurant will complement the department store’s look and feel but will offer a completely separate lunch and dinner dining experience for Saks shoppers.

“We wanted to tie together the legacy of Saks with a concept that had a lot of appeal for the people who happen to shop here,” said Michael Kaufman, president of Fifth Dining. “The restaurant is designed to be a high-end experience through a unique look and feel and our freshly prepared food. It’s not stuffy, but resonates appropriately with the traditional Saks Fifth Avenue shopper.”

The 2,600-square-foot restaurant’s design is simple, with sleek tables and chairs and black-and-white finishes.

Its name pays homage to one of Saks Fifth Avenue’s legendary fashion designers, Sophie Gimbel, who designed women’s apparel for Saks for 40 years and married a Saks executive. Among her many simple and elegant designs was a red coat and dress she created for Lady Bird Johnson.

“We’re not creating a museum to honor Sophie, but a restaurant brand, if you will, keeping in mind what she stood for — like the simplicity in the way she designed — as we go along,” Kaufman said.

IT STARTED IN CHICAGO

Saks opened its first Sophie’s concept in Chicago earlier this year. Sarasota will be the second. More restaurants are planned in larger markets.

“These kind of restaurants primarily target women. It’s very much a place for ladies to lunch and meet their friends, then continue shopping,” said Jeff Green, a retail analyst with Phoenix-based Jeff Green Partners. “The demographic in Nordstrom cafes is traditionally older. I imagine the restaurant in Saks will do very well in Sarasota.”

Saks Fifth Avenue will close its existing 40,000-square-foot store at the Westfield Southgate Mall in October, when the mall being jointly developed by Taubman Centers and Benderson Development debuts.

Saks Fifth Avenue has further invested in the importance of the Southwest Florida market by closing its Tampa store at Westshore Mall.

When the 880,000-square-foot Mall at University Town Center opens in October, Sarasota will have the only Saks department store on the Gulf Coast north of Fort Myers.

Saks joins Macy’s and Dillard’s as anchors for the new mall, the only enclosed mall scheduled to open this year in the United States.

A slew of other national, high-end retailers have committed to opening stores there, including Apple, Anthropologie, lululemon, Tiffany’s & Co. and Brooks Brothers, to name a few.

Sophie’s will compete with other national restaurant chains — Brio Tuscan Grille, Capital Grill, Seasons 52, Cheesecake Factory and Zinburger — as dining options at the new mall.

“There are so many great restaurants in Sarasota. We hope Sophie’s will fit right in,” Kaufman said.

The restaurant will not stay open later than the department store does. Each Sophie’s will have a menu unique to its market. For example, Sarasota’s menu will have more fresh seafood than others, Kaufman said.

While the Sarasota Sophie’s menu has yet to be created, and the Chicago restaurant is open only for breakfast and lunch, its menu gives a taste of what Sarasota can expect. It includes a $12 cocktail menu with a rhubarb basil gimlet of distillery gin, basil, bitters and lime juice. Entrees include a North Atlantic salmon for $25 and an “Amish chicken breast” for $21.

A RETAILING TREND

Saks Fifth Avenue is the latest upscale retailer to venture into the dining sector in recent years.

Nordstrom’s department stores, including the one in Tampa’s International Plaza, have their own line of in-store cafes, which serve lighter fare, coffee and cocktails.

The concept has helped make Nordstrom more of a destination for shoppers, said Darren Tristano, executive vice president with Chicago-based Technomic, a food consulting firm.

“Combining a high-end restaurant with the Saks or Nordstrom clientele is a service to the customer that goes beyond just the typical shopping experience,” he said. “The idea of restaurants in department stores is coming back, and we’re seeing a lot of it internationally. It has great strength and is moving forward.”

Macy’s, too, has dabbled with restaurant concepts in larger markets — such as its Stella 34 Trattoria, an Italian restaurant tucked onto the sixth floor of the Macy’s in New York.

Brooks Brothers announced that it plans to open its first restaurant, “Makers and Merchants,” a steakhouse, around the corner from its flagship store in New York this year. The restaurant is taking over vacant space once used for a Brooks Brothers women’s line.

“Price is not the issue here, considering the type of store shoppers are in,” said Green, the Phoenix-based consultant. “We really only see these kind of restaurants inside upscale department stores, even though they used to be in more traditional stores.

“Full-service restaurants won’t ever be in traditional stores anymore.”


Expect New Dishes at Your Favorite Casual-Dining Spots

April 21, 2014

getimage.aspx“The food, it is kind of incidental to everything else,” said Myers, dining recently in the cafe at Universal CityWalk.

Hard Rock is seeking to change that attitude with a major menu makeover, one of many that casual-dining chains are doing to keep up in a competitive industry. Olive Garden, Smokey Bones and Tony Roma’s are among those trying to offer a better bill of fare to woo diners with increasingly sophisticated palates.

“People are more food savvy because of social networking,” Hard Rock’s executive chef Russell Booth said. “They’re expecting great food with flavor, with punch.”

A musical museum of sorts, Hard Rock is themed to the extreme. But the company said it wants to make what diners taste as much a reason to visit as what they see and hear. So it conducted a soup-to-nuts analysis that spanned 15 months and solicited opinions from more than 3,000 customers.

Thirty dishes and drinks are new. Almost as many other items have different ingredients and preparation methods.

Results range from a new chicken arugula salad to adult beverages with trendy additions such as bacon and salted caramel. Hard Rock replaced queso on its nachos with two layers of mixed cheeses and added toppings such as smoked beef brisket. Other changes are more subtle, such as new brioche burger buns to replace potato ones.

Still, Hard Rock hasn’t strayed too far from its roots: heaping portions of typical casual-dining chow.

Tony Roma’s took a more radical approach with a rebranding experiment in Orlando. It essentially gutted its old menu, keeping its signature ribs but switching out almost everything else for trendier fare such as pulled pork tacos and fish with couscous.

That’s risky, however, and unusual, experts say.

“It’s about balancing what is familiar — old favorites, signature items, with items that are new,” said Darren Tristano, executive vice president of restaurant-research firm Technomic.

Experts say casual-dining restaurants are reinventing menus to fight a trend of declining traffic and sales. But other types of restaurants are making changes, too. Atlanta-based Chick-fil-A recently introduced grilled-chicken dishes marinated in sea salt, lemon, garlic and herbs and cooked on a new kind of grill meant to create the flavor of a backyard barbecue.

Such changes aren’t always a recipe for success.

In late 2012, Red Lobster added more-affordable meals and many others that didn’t feature fish. Sales at the seafood chain owned by Orlando-based Darden Restaurants have declined sharply since, diving 8.7 percent in its most recent quarter.

At Olive Garden, also owned by Darden, one lesson learned from Red Lobster is that “you can’t forget that there’s something for everyone on this menu,” said Jay Spenchian, the Italian chain’s executive vice president of marketing. “You have to have those messages to different audiences going simultaneously.”

Olive Garden recently debuted more than 20 new tapas-style dishes meant to attract younger consumers. Grilled chicken with broth and vegetables appears on the lighter-fare section aimed at health-conscious diners. Several $9.99 pasta and sauce combinations are meant to appeal to customers on a budget.

To lure people with more adventurous tastes, Olive Garden added dishes with pesto and spicy diavolo sauces, which the chain had previously shied away from for fear of alienating core customers.

“We can’t be afraid when we put something on the menu [that] some people aren’t going to like it,” Spenchian said. “Before, we were a little enamored with trying to get everyone to like something a little bit.”

One of Olive Garden’s competitors, Tampa-based Carrabba’s Italian Grill, also recently added 15 new dishes for less than $15.

At Orlando-based Smokey Bones, Chief Executive Officer Chris Artinian said the goal of recent menu changes is to emphasize freshness. More sides and sauces are homemade. The restaurants are buying brisket with more fat and smoking it longer — 14 hours — for more tender meat and richer flavor. New items, meanwhile, include fried pickles, additional chicken-wing sauces and a margarita with Pop Rocks on the rim.

At the restaurants, some foods have disappeared — and not just to make room for new ones.

The overall number of items at Tony Roma’s dropped from 62 to 51 after the chain already dropped about 30 others a year and a half ago. Smokey Bones and Hard Rock both ended up with slightly fewer items than before.

Spenchian said Olive Garden’s menu is about the same size but a few things could be deleted in the near future to make operations less complex.

That, too, is a common theme in the industry now.

At Smokey Bones, Artinian said, part of the revamp was “ensuring our menu has enough variety but also small enough that we do everything great.”


Taco Bell Runs Naughty TV Ad For ‘Happier Hour’

March 27, 2014

taco-bell-campaign-188_2To drive awareness of its “Happier Hour,” which runs from 2 to 5 pm each day, Taco Bell is running new TV creative that’s slightly naughty, in a playful way.

The spot (in 30- and 15-second versions), from Deutsch LA, shows three different scenarios in which male/female pairs — office colleagues, college students and seniors — exchange suggestive looks and then appear to be heading out together for a tryst, as the song “Afternoon Delight” plays in the background.

But it turns out that they’re all actually headed to a Taco Bell, where they can get any “Loaded Griller” for $1, and any medium beverage for the same price, during those three afternoon hours.

The “Afternoon Delight” version is a Little Hurricane cover of the 1976 Starland Vocal Band song.

The keen-eyed viewer may notice a cameo by “America’s Next Top Model” winner Laura Ellen James, playing a college student who clearly makes the day of her much-shorter classmate when she lures him out of an in-progress lecture.

The spot started airing this week on networks and cable, and will continue running through the end of June, with additional media support through the end of August. Happier Hour is being promoted on Taco Bell’s social assets, including Facebook (10 million “likes”) and Twitter (1.1 million followers), as well as featured on YouTube.

Happier Hour is described in consumer promotions as a “limited time offer,” but it’s been running at participating locations since last year (an “always on” promotion), according to Deutsch. The current marketing push is the second campaign for Happier Hour; Taco Bell also ran a campaign last year.

The reasons behind a special afternoon event/offer aren’t hard to grasp. QSRs obviously benefit from driving more traffic during the quieter hours between and following regular meals. And offering snackable items at attractive prices has become a key strategy for driving such business.

According to a new “Snacking Occasion Consumer Trend Report” from foodservice research firm Technomic, 51% of Americans now report that they eat snacks at least twice a day — up from 48% two years ago. Nearly half (49%) report that they eat snacks between meals, and 45% replace one meal a day with a snack.

Among those who buy snacks at restaurants, 45% order from the value or dollar menu.

“There’s plenty of room for restaurants to expand their snack programs and grab share,” even as packaged food makers and retailers also push harder to grab those snacking dollars, noted Technomic EVP Darren Tristano.

And while candy is still the dominant snack (purchased at least occasionally by 71% of surveyed consumers), half of consumers say that “healthfulness” is very important to them when choosing a snack. As a result, many restaurants, like their CPG counterparts, are including healthier options within their snack offerings.


Burger King to Add Mobile-Phone Payment at U.S. Locations

March 26, 2014

AR-140329974.jpg&maxw=248&maxh=191&updated=Burger King Worldwide Inc. is introducing an application that will allow customers to pay for Whoppers with their smartphones as it races rivals to woo younger diners.

The program will be introduced next month and should be in all of Burger King’s more than 7,000 U.S. locations in “a few months,” Bryson Thornton, a spokesman for the company, said in an e-mailed statement. The option to order food and drinks ahead of time for later in-store pickup may be added, he said.

Fast-food chains including McDonald’s Corp. and Dunkin’ Brands Group Inc. are competing to quickly introduce the best loyalty programs and smartphone apps to try to attract millennials and teens. McDonald’s last year said it was testing coupon and mobile-payment apps at some of its U.S. locations. Dunkin’ Donuts rolled out a rewards programs to all of its domestic shops in January.

“I don’t think there is a clear leader,” Darren Tristano, executive vice president at Chicago-based Technomic Inc., said in a phone interview.

Burger King’s app, developed by Tillster Inc., will give customers coupons for deals, such as $1 any-size drinks and free fries, as well as nutrition facts. To pay with mobile phones, users can load value onto a virtual card within the app.

Mobile ordering and payment apps appeal to millennial diners — those 18 to 35 years old, Tristano said.

“What younger consumers are looking for is the ability to use their phones to do everything,” he said. “The cell phone has replaced the wallet.”

About 19 percent of American consumers had recently used a mobile device to make a restaurant pickup or delivery order, according to a 2012 study from Technomic. That will probably increase as younger generations age, the researcher said.

McDonald’s, the largest U.S. burger chain, said in December that it was testing a smartphone app, called McD, at 1,000 U.S. stores. The trial app, created by Palo Alto, California-based Mowingo Inc., sent customers deals and discounts to redeem with their phones at participating stores.


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.”


Quiznos Moves Toward Bankruptcy Filing

February 28, 2014

Sandwich chain Quiznos is preparing to file for bankruptcy-court protection within weeks as it contends with unhappy franchisees and a $570 million debt load, according to people with direct knowledge of the matter.

Quiznos has been negotiating with creditors for weeks on a restructuring plan that would streamline its trip through bankruptcy court, these people said, but a deal hasn’t yet been reached.

The chain’s move toward bankruptcy comes two years into a major turnaround effort that included an out-of-court debt restructuring and a management shake-up. While a Chapter 11 filing would give the company much-needed flexibility on leases and unattractive contracts, the company must repair its damaged relationship with franchise owners who say they’re being squeezed out of business by the high cost of operating a Quiznos outlet.

“If a brand wants to succeed, its franchisees have to succeed,” said Darren Tristano, executive vice president at restaurant consulting firm Technomic Inc.

Thousands of Quiznos locations have shut down in recent years as the company’s competitors have opened new locations at a rapid pace. Quiznos’s world-wide store count now stands at about 2,100, while its chief rival, Subway, has 41,000.

Founded in 1981, Quiznos was considered innovative at the time with its toasted subs. But its sales have suffered as Subway offered a $5 foot-long sandwich starting in 2008 and new competitors such as Potbelly Corp. PBPB -0.84% and Jimmy John’s Franchise LLC moved into the crowded sandwich market.

In its heyday in the mid-2000s, Quiznos stores, on average, rang up $425,000 in annual sales; since then, that figure has dropped to around $300,000 for the top-performing stores and to far less at the weakest stores, according to people familiar with the matter.

Quiznos franchisees say they’re struggling to stay in business. In addition to the fees the company charges them to use its name, store operators must also buy most of their supplies and ingredients from Quiznos’s distribution business.

Franchisees long have complained that the subsidiary charges more than what they would pay to purchase those goods elsewhere.

Mr. Tristano said the fees Quiznos collects from franchisees—7% in royalty fees and another 4% for advertising—is higher than the industry average of 6% in royalty fees and 2% for marketing.

Fabian Andino opened a Quiznos franchise in 2006 in Port St. Lucie, Fla. It wasn’t long before he realized that he was paying higher prices for items like tomatoes through Quiznos’s distribution business. To save money, he bought produce from local farms but said the company charged him weekly penalty fees for not placing minimum food orders.

A person close to the company said it didn’t assess such penalty fees, but that franchisees who wanted to receive rebates for food costs were required to place minimum orders.

When Quiznos decided to offer delivery service in 2008, he recalled, franchisees were told to pay $10,000 to the company in return for signs and decals for their delivery cars and in-store inserts.

“They marketed it as though it would be the magic wand that would save the operation, but I knew it was another ploy Quiznos was using to raise more funds for them,” Mr. Andino said. “I refused.”

Mr. Andino said the company withdrew the payment request and supplied him with the materials free of charge. He said he couldn’t make his Quiznos business work and closed his store in late 2009.

“Quiznos did not have the proper name recognition or great marketing,” said John Medici, a 71-year-old retired warehouse manager in Longwood, Fla., and onetime Quiznos customer. “You have to give people the impression that your food is better than the food down the street.”

Steven Raposo said he spent a total of $350,000 to open a Quiznos franchise in Norton, Mass., in 2005. He said he and his family soon realized they wouldn’t be able to bring in enough money to cover expenses and put the franchise up for sale. They sold the business less than a year later for about half the price.

Mr. Raposo said his annual sales would have been about $600,000, but he was still facing monthly losses of between $3,000 and $5,000.

“It sounds like we were doing a lot [of business] but there was actually no profit because of food costs and labor,” said Mr. Raposo, a practicing chiropractor.

To address franchisees’ concerns, Quiznos management cut food and supply prices last summer, a person close to the company said in December. The company has also tried to improve store operations in the U.S. by making sure restaurants were clean, adding new menu items and removing slow-selling ones.

But so far, Quiznos’s turnaround efforts haven’t met expectations and the company has missed key performance targets, according to people familiar with the matter. The company also has a high debt load for its size, in part the legacy of a 2006 leveraged buyout.

Quiznos missed a loan payment at the end of 2013 and has been operating under a forbearance agreement with its lenders, which delays a potential default, as it negotiates with creditors including Fortress Investment Group FIG +1.87% LLC, Oaktree Capital Management and Avenue Capital Group, which is also its majority owner.


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.


New Pizza Hut Units Feature Pizza by the Slice

January 24, 2014

picChain aims to boost its lunch daypart and compete against fast-casual upstarts with the new prototype.

An updated dining room emphasizes a sit-down experience.

Pizza Hut opened two units this week built around a pizza-by-the-slice experience aimed at potentially evolving the brand to make inroads during the lunch daypart and to fend off competition from upstart fast-casual pizza brands.

A company-owned unit in Pawtucket, R.I., and a franchised restaurant in York, Neb., feature modern design elements that have spread from fast-casual restaurants into other industry segments, such as digital menu boards and open seating plans, as well as a pizza-by-the-slice “bar.”

The larger unit in York has 80 seats and will also emphasize the dine-in experience with sautéed pastas and a made-to-order salad bar. The Pawtucket location seats 30 people and will function more as a delivery-carryout restaurant with the additional by-the-slice feature.

Carrie Walsh, the new chief marketing officer for Pizza Hut’s U.S. system, said in a statement that the new restaurants would meet and exceed the needs of consumers, as well as “enter a competitive environment” like pizza by the slice in the Northeast “with a very competitive product.”

It also would give Plano, Texas-based Pizza Hut new footing in the lunch daypart, where several young fast-casual pizza brands are looking to build their market share. Much of the fast-casual sector’s activity revolved around pizza last year, with chains like Pie Five and Your Pie ramping up growth plans and other brands like Pizzeria Locale and PizzaRev attracting the investment of larger restaurant companies like Chipotle Mexican Grill and Buffalo Wild Wings, respectively.

However, Pizza Hut developed its new-concept stores to meet customer demand, not the challenge of the new fast-casual segment, spokesman Doug Terfehr said in an interview.

Pizza Hut says offering individual slices aims to satisfy customer demand.

“We pay attention to our consumer trends, one of which is them seeking a quick on-the-go option, and one of our solutions for that is pizza by the slice,” he said. “We’re not reacting or responding to what the others are doing with speed. It’s about understanding our broader pizza fan. They’re looking for a convenient option, and this is an inviting environment to bring that to them.”

Regardless, “fast-casual pizza competition is coming, and it’s coming hard,” said Darren Tristano, executive vice president of Chicago-based market research firm Technomic Inc.

Pizza Hut is acting prudently to recognize how that segment is changing pizza fans’ expectations, especially at lunch, which has always been a daypart in which the legacy chains like Pizza Hut and Domino’s Pizza could build sales, he said.

“The convenience of being able to get a single-serve, value-oriented item is the play Pizza Hut is looking to get into and what fast-casual chains will continue to dominate,” Tristano said. “It’s a way to build more traffic at lunch with something that’s price-appropriate. It’s a smart decision.”

Fellow industry expert Dennis Lombardi, executive vice president of Columbus, Ohio-based WD Partners, also praised Pizza Hut’s decision to experiment with pizza by the slice.

“It’s one of the major methods of delivering pizza that they haven’t done before,” Lombardi said. “This is absolutely appropriate and important. Couple that with walk-in traffic — think how well the Hot-N-Ready has performed for Little Caesars.”

Properly forecasting the production needs for pizza by the slice, so that the products look fresh and appealing but do not go to waste, would be a major challenge for adding that experience, he added.

Where Pizza Hut also needs to be cautious, Technomic’s Tristano said, is staying true to its positioning as a delivery and carryout leader.

“When you’re No. 1, you have more to lose than to gain,” he said, “so when trying to reinvent yourself to remain competitive and relevant to new customers, it’s important as long as you don’t turn off people who appreciate you for what you are.”

Pizza Hut spokesman Terfehr agreed, saying, “Delivery and carryout are still our core business, what we do well and what people come to us for.”

He added that delivery and carryout orders have followed typical patterns, with by-the-slice orders creating incremental traffic during lunch and somewhat in the evening, in the first few days of operation for the York and Pawtucket stores.

But don’t expect the by-the-slice format to appear in all new Pizza Hut units soon, Terfehr said. He conceded that a few more locations would open over the near term — and Pizza Hut’s chief development officer, Al Litchenburg, noted in a statement that the brand was “bullish on our plans to quickly expand them” — but most of the chain’s new domestic units would continue to carry the “Del-Co Light” design, which has helped Pizza Hut regain its momentum for net unit growth.

Pizza Hut opened 115 net locations in the United States in 2013 and has more than 7,750 domestic locations.

The brand is a subsidiary of Louisville, Ky.-based Yum! Brands Inc., which also operates or franchises KFC and Taco Bell in more than 130 countries.


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