Driving Success in Today’s Climate: M&C Report

November 20, 2011

Driving Success

Top Growth Chains: Who They Are and Why They Succeed

Each year when we compile our Technomic Top 500 Chain Restaurant Report, we look for surprises and anomalies. The truth is, after watching the industry all year, we find very few. The reasons why a concept succeeds or doesn’t are always the same. All that changes is the environment in which it operates. In this small space, I will outline the consistent success drivers and frame them within today’s environment.

The basic elements I use to evaluate a concept’s viability or strength are:
• Menu—range of items, ability to customize, dayparts served, limited-time offers customization, broad menu range, day parts served, table top promotion
• Price—value for the money, bundling/combo meals, portion size
• Service format—counter ordering, table service, drive-thru, staff interaction
• Atmosphere—décor, ambiance, family friendly, contemporary feel
• Unique elements—use of technology, entertainment, self-service elements

Beyond these basics, it’s important to look at segment performance as well. Take the steakhouse segment. In 2010, the segment’s sales grew by 1.0%, bouncing back from a dismal 2009, when sales decreased by 10.1%. Unit-wise, the segment declined by 1.6% in 2010 over 2009, after 3.6% decrease the prior year. Within the overall group, however, some concepts are adding restaurants and increasing sales. LongHorn Steakhouse saw sales increase by 5.3%, to $921 million, and units increase by 5.0%, to 340; and Texas Roadhouse lifted units by 4.2%, to 345, and sales by 6.3% to $1.26 billion. The steakhouse category has witnessed declining demand, but these concepts are outpacing the segment and the industry as a whole.

In addition, comparing category leaders with the smaller regional upstarts is important to evaluate the shift in share when overall growth is limited. For example, we watched as limited-service Mexican grill chains, especially Chipotle, have raced to compete with Taco Bell. Papa Murphy’s Take ‘N’ Bake Pizza has been expanding as Pizza Hut and Domino’s have closed underperforming restaurants. The chicken segment, as well as its leaders such as KFC, Popeyes Louisiana Kitchen and Church’s Chicken, are witnessing sales and unit growth that is modest at best, and declining in some instances. Nonetheless, Chick-fil-A has been able to steal share, increasing sales by 11.4% and unit counts by 3.2%, on top of increases of 8.5% in sales and 4.6% in units the prior year. Wingstop, a chicken wing specialist, has grown its sales by 8.9% and unit count by 9.0%.

On the other hand, in the limited-service hamburger segment, giant McDonald’s not only drives the category by contributing almost half (49.5%) of the segment’s $65.4 billion in sales and 29.2% of the segment’s 48,025 units, the burger chain’s 4.4% increase in sales was greater than the 1.6% increase in the segment’s sales and its 0.3% increase in units was more than the segment’s 0.21% increase. In fact, if one were to remove McDonald’s from the segment, the segment’s sales would actually decline by 1.1% in 2010 over 2009, and its unit increase would be 0.16%. But as with the steakhouse segment, there are plenty of burger concepts (Five Guys Burgers and Fries, Smashburger, Fatburger) outpacing the segment’s growth, and another batch of them (Shake Shack, Mooyah Burgers & Fries, Freddy’s Frozen Custard & Steakburgers) gearing up to join the ranks of the Top 500 chains.

Combining the basic elements of a concept with its relative position within its segment, we get a pretty good sense of whether it will succeed. As I mentioned above, there are consistent methods that drive growth that are less dependent on operating environment. We can narrow down the effective means to success with an acronym: IDEA. Innovation, Differentiation, Evolution, Adaption.

Innovation depends on improving existing menu offerings and the quality of service. For example, menu developers that offer compelling limited-time offerings give customers a new reason to visit the restaurant. A current focus is on balancing “healthy” with “indulgent,” sometimes within the same product (such as “skinny” versions of classic cocktails or lowfat tart frozen yogurt smothered with fresh seasonal fruit), but more often side-by-side on the menu, such as the new Turkey Burgers at Carl’s Jr., which has long been unashamed of its decadent fare for “young hungry guys.”

Service is another way successful concepts improve their brands. Even quick-service concepts work on improving staff interaction, such as Chick-fil-A’s recent effort to train servers to tell customers “It’s my pleasure!” A number of quick-service chains have taken a page from fast-casual and instituted limited service in the dining room, running orders to guests, offering to refill beverages and busing tables. Within full-service, successful concepts encourage waitstaff to offer suggestions—based on customer input, not on margins.

Differentiation, distinguishing a brand’s core offerings from the competition, is key to any business but certainly within the competitive restaurant industry. It creates clarity with customers and defines for them when and how to use your product. Compare Buffalo Wild Wings and Yard House. At first glance, there are similarities: both are casual-dining restaurants with tasty food, sports on TV and a large adult-beverage business. Dig just a bit deeper, and see Buffalo Wild Wings’ family-friendly atmosphere, takeout option and value position. Yard House differentiates itself with an offering of several craft beers, classic rock music and a more upscale menu.

Evolution is about enhancing the experience, understanding the core customers and improving the offering to suit them. Jimmy John’s focuses on getting a good quality sandwich to the guest as quickly as possible: “subs so fast you’ll freak.” Its unit design, assembly method and small menu all serve that goal. Unsatisfied with those efforts, it began offering delivery in many markets with a small minimum order and the ability to save your details for a faster order next time, and a smart-phone app.

Adaptation is simply meeting today’s changing consumer demands. For example, consumers are less likely to eat according to a three-square-meals schedule. They nosh, skip meals, eat breakfast for dinner and vice versa. This has driven Wendy’s, McDonald’s and others to keep drive-thrus open all night and Subway to open for breakfast, when it sells just as many subs as breakfast sandwiches. The same consumer trend is the reason that chains from Burger King to Qdoba Mexican Grill to Morton’s the Steakhouse offer snacks, small plates and shareable dishes. Offering menus beyond traditional dayparts offers the added benefit of creating revenue at off-peak times.

Takeout is another area where successful concepts have adapted, from quick-serves making drive-thru systems faster (such as McDonald’s double lanes) to casual-dining restaurants dedicating more space for to-go and using runners so customers don’t even have to get out of their cars.

Forward-thinking chains are examining ways to enhance their emotional connection with the customer, an increasingly important strategy to build and maintain loyalty and frequency of visits. Consumers are increasingly concerned about how the companies they do business with are involved in their community, respectful of their employees and active in protecting the environment. Restaurant operators are responding by purchasing locally where they can, demanding sustainable ingredients, using greener products and practices, and getting more involved in the markets in which they operate.

We’ve found that, regardless of economic environment, operating segment or style, concepts that innovate, differentiate, evolve and adapt are those that are most likely to succeed and land at the top of our growth-chains ranking.

Darren Tristano is Executive Vice President of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.

Table: Top 5 Growth Chains in Each Segment (sales over $200 million)

Caption: Growth in today’s environment can be quantified more accurately by reviewing unit growth rather than sales growth. This table outlines the top five concepts with sales greater than $200 million in casual dining, fast casual and quick service. The table reveals that there is no sure thing, no category or segment that is successful. Some of the chains are large national players while others are comparatively quite small. What they have in common are the attention to innovation, differentiation, evolution and adaptation outlined on this page.

Sales ($000) Units
Company name 2010 2009 % change 2010 2009 % change
CASUAL-DINING RESTAURANTS
Yard House 216,000 * 183,000 18.0 29 25 16.0
Cheddar’s Casual Café 309,000 * 270,000 * 14.4 92 80 15.0
Buffalo Wild Wings Grill & Bar 1,703,032 1,496,200 13.8 732 652 12.3
The Capital Grille 253,000 228,000 11.0 44 40 10.0
BJ’s Restaurant & Brewhouse 513,860 429,700 19.6 102 93 9.7

FAST-CASUAL RESTAURANTS
Five Guys Burgers and Fries 625,000 * 453,500 * 37.8 737 547 34.7
Chipotle Mexican Grill 1,831,922 1,517,417 20.7 1,084 955 13.5
Noodles & Company 261,000 230,000 13.5 255 229 11.4
Einstein Bros. Bagels 400,357 * 378,444 * 5.8 583 532 9.6
Wingstop 334,000 306,606 8.9 472 433 9.0

QUICK-SERVICE RESTAURANTS
Jimmy John’s Gourmet Sandwich Shop 735,000 * 602,000 * 22.1 1,135 950 * 19.5
Firehouse Subs 235,000 206,000 14.1 401 371 8.1
Tim Hortons 443,227 414,882 6.8 602 563 6.9
Papa Murphy’s Take ‘N’ Bake Pizza 655,000 * 630,000 4.0 1,239 1,165 6.4
Dunkin’ Donuts 5,620,000 * 5,295,000 * 6.1 6,900 * 6,500 * 6.2
*Technomic estimate
Source: 2011 Technomic Top 500 Chain Restaurant Report; *Technomic estimate

This article came from a print version of M&C Report


What’s Happening with Casual?: M&C Report

November 19, 2011

What's Happening

What’s Happening with Casual?

The Future of Casual Dining: The Strong Survive

The once high-flying American casual-dining segment has been struggling, but savvy operators and newcomers are developing a new game plan.

The casual-dining restaurant segment had been an industry growth driver in the United States for several years, particularly through the ‘80s and ‘90s. But the segment has been struggling for the past four or five years. There are many factors contributing, and many concepts that are succeeding despite (indeed, because of) those factors. I will endeavor to outline what went wrong, what’s happening now and what to expect in the future.

Technomic defines casual dining as the segment comprising full-service restaurant concepts with a come-as-you-are atmosphere, primary but not exclusive focus on dinner, full bar and per-person average check between $12 and $50. The segment represents two-thirds of full-service restaurant sales in the United States, or $109 billion. Within the casual-dining segment, varied menu holds the greatest share (37%), followed by Asian (13%), Italian (11%), steak (10%), seafood (6%) and Mexican (5%).

The midscale segment (average check under about $12, breakfast orientation, limited alcohol) comprises 31% of sales, or $51 billion; and the fine-dining segment (average check greater than $50, dinner orientation, high-end food and alcohol) makes up 3% of sales, or about $6 billion.

While 66% of full-service sales is certainly a significant share, casual dining’s growth has stalled. In 1990, casual dining made up 47% of full service, in 2000 it was 58%, and by 2005 it reached 66%, where it has stabilized.

As the illustration below shows, casual dining has lost steam in the last three years. The segment’s healthy sales growth turned negative in 2008 and has yet to return to positive growth.

Some of its top players have seen a similar trend. Chili’s, for example, experienced a compound annual growth rate (CAGR) of 12.3% between 2000 and 2005, and 11.0% 2005 to 2007, but between 2007 and 2010 it saw 1.3% decline. Ruby Tuesday grew 10.8% from 2000 to 2005 and 6.2% between 2005 and 2007, but it declined 5.2% between 2007 and 2010. And Applebee’s CAGR was 10.0% in the 2000 to 2005 period and 3.0% in 2005 to 2007, but its CAGR was -1.3% in 2007 to 2010.

What Went Wrong

As with much of the restaurant industry, the economy has certainly had an impact. Disposable income growth has slowed and the unemployment rate is up, both of which affect food-away-from-home spending. And the segment’s heavy users—who tend to be between 18 and 34—have been hit particularly hard by the economy.

But the cracks in the segment began before the recession.

Casual dining’s quick growth outpaced the population, making saturation an issue. At the same time, the segment expanded faster than consumers’ disposable income—there were just fewer dollars. Making matters worse, many chains have taken aggressive price increases that are out of balance with consumer spending. For example, California Pizza Kitchen raised the price of its Margherita Pizza from $9.49 in 2005 to $12.99 in 2010, a 37% increase. Meanwhile, the Consumer Price Index on food away from home rose 17% over this period.

Another factor has been competition from other segments, particularly fast casual. These limited-service concepts fill a niche between fast food and full service, offering innovative food prepared to order, fresh (or perceived as fresh) ingredients and comfortable upscale décor. Examples include Chipotle, Panera Bread, Panda Express and Five Guys Burgers & Fries. In Technomic’s Consumer Brand Metrics study, fast casual outperformed casual dining on a number of factors, including craveable foods, unit appearance/ambiance and food taste/flavor. Their average checks (usually between $8.50 and $15.00) make them more affordable, and coupled with their appealing offerings and no need to tip, the price/value causes casual-dining chains angst.

Retail meal solutions also pose a competitive threat. Supermarket chains such as Trader Joe’s, Wegman’s, Whole Foods and HEB have created full prepared meals and components that rival those at casual-dining chains. Even convenience stores such as Wawa and Sheetz have gotten into the act.

What to Expect

While traditional casual-dining restaurants will continue to feel the squeeze from other segments, subsegments will prevail. Technomic has identified polished-casual restaurants as those at the higher end of the price and quality spectrum. Their gourmet menus with seasonal influences and advanced preparation techniques, coupled with a fine-dining experience and server expertise, make consumers willing to justify the higher prices. Examples include The Cheesecake Factory, Seasons 52, P.F. Chang’s and Maggiano’s Little Italy. Another successful subsegment, contemporary casual, includes concepts such as BJ’s Restaurant & Brewhouse, Yard House, Tilted Kilt and the upgraded Bennigan’s, which offer attentive service, focus on experience, innovative menu and cocktails and a contemporary atmosphere, but most of all are clearly differentiated brands.

Currently traditional casual-dining concepts comprise 83% of casual-dining sales, while polished casual makes up 11% and contemporary casual makes up 6%. But we expect traditional’s share to shrink as polished- and contemporary-casual concepts expand. Technomic expects contemporary casual to achieve 4.5% real 2010-2015 CAGR, polished to gain 2.5%, and traditional casual dining restaurants to grow 0.3%.

Those traditional casual dining restaurants won’t stand idly by as their customers are taken. To counter declining traffic, they will make their menus more specialized or continue to discount meals. To try to maintain check averages, they will create high-margin specialty beverages and add-ons. In an effort to avoid staleness, they will remodel units. Fighting against rising costs, they will offer smaller portions and more limited-time offers. Watching encroachment of fast-casual players, they will focus on takeout and test their own limited-service concepts. And because of over supply, they will close underperforming units sooner and develop smaller-footprint units.

The Casual-Dining Value Equation

However, these responses are short-term fixes. To stay relevant, casual-dining chains must evolve. And they must execute on several points, or a value equation of sorts: value = (food + hospitality + ambiance)/price.

Food should make up 40% of the equation and include a concept-appropriate blend of healthy options, novel preparation techniques, uniqueness, variety and, of course, taste. Seasons 52 excels with a health focus, offering a seasonal menu of local ingredients, supporting wellness and active lifestyles rather than sacrificing taste. Lazy Dog Café provides an example of uniqueness; its craveable menu items are sophisticated and inspired by global cuisines but have traditional casual-dining price points.

Price also should make up 40%. Discounts, meal deals and specials may succeed, but loyalty marketing and portion flexibility should dominate. A good loyalty marketing example is Lettuce Entertain You, which gives points, rewards and member-only offers. Such a program incents repeat business, attracts new customers and has the added benefit of providing the operator with guest intelligence. Olive Garden offers a lesson on portion flexibility. Its bottomless salad and breadsticks appeal to one customer, while its snacks and small bites offer a meal for a small appetite—at a low price—or an opportunity for sampling and sharing.

Hospitality, making up about 10% of the equation, must focus on accuracy, attentiveness and server knowledge, and to some extent speed of service and takeout. Excelling at attentive, friendly service is Tilted Kilt Pub & Eatery, whose mission is “spreading cheer and serving beer across the land.” It does this with the help of attractive servers in provocative outfits who aim to make every guest feel special. Bonefish Grill uses a different tactic; its servers discuss fishing practices and sustainable sourcing, making customers revere the food and appreciate its value.

Ambiance makes up the remaining 10%. A casual-dining restaurant should be comfortable, contemporary and entertaining, and, depending on the concept, family friendly and/or sophisticated. A good example is Cadillac Ranch, a large, adult-oriented concept with a Country Western theme. The dynamic environment includes live music, dancing and bull rides, so the concept gets a lot of special-occasion visits. Buffalo Wild Wings uses technology such as interactive video games, tabletop game systems and 3D sports viewing to create a family-friendly environment.

All these examples illustrate that casual dining is not on its way out. It is entering a new age, and many of the traditional players are already beginning to evolve to retain their relevance.

Darren Tristano is Executive Vice President of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.

This article came from a print version of M&C Report


Billion Dollar Boys Club: Breastaurants Bring Up Big Profits

November 18, 2011

McDonald's

Breastaurants Bring Up Big Profits
Franchises inspired by the Hooters model–such as Celtic-themed sports bar chain Tilted Kilt Pub & Eatery and faux mountain sports lodge chain Twin Peaks–have expanded rapidly over the last half decade, while corporate-owned chains like Brick House Tavern + Tap and Bone Daddy’s House of Smoke are picking up steam regionally. In fact, for the next couple of years, this segment (often referred to as “breastaurants”) is poised to be one of the fastest-growing restaurant categories.

Sales figures for this specific niche aren’t available, because they are lumped in with the broader casual dining segment–and numbers for the privately held companies aren’t publicly reported–but sales at Hooters alone have increased in the last couple of years and average $1 billion annually.

The concept has grown in spite of the recession by focusing equally on upscale comfort food, full bars with extended beer choices, a full menu of sports on TV, and waitresses in tight shirts and short shorts. But the most important aspect of these restaurants is the same element that powers most successful eateries: customer service.

Why is this segment so popular? “It starts with comfort,” says Darren Tristano, executive vice president of Technomic, a food-industry consulting firm in Chicago. “These concepts are growing by offering a different level of service and attentiveness.

They provide a service to men who may not have a person at home to take care of them in the same way. That’s important to a number of people, and it drives them back.”

It’s hard to say exactly why these public man caves took hold in the last few years. Some think a shift away from political correctness or toward a more sexualized culture made the concepts more acceptable. Others believe that as Hooters sales flattened and expansion stalled, like-minded entrepreneurs saw a niche that wasn’t being filled.

Ron Lynch, CEO of Tilted Kilt, stands by the concept.Ron Lynch, CEO of Tempe, Ariz.-based Tilted Kilt, thinks his concept has been well-received because customers were ready for something new.

“Friday’s, Chili’s–those kinds of concepts came to be very similar in menu and look because they were chasing the same dollars,” Lynch says. “When we sprang up, people were looking for something different.”

That’s what attracted Lynch to Tilted Kilt in the first place. In 2003, Harrah’s in Las Vegas asked restaurateur Mark DiMartino if he had a concept for a space in the Rio Casino. He came up with the Hooters-goes-to-Scotland concept that is still the restaurant’s theme. When Lynch–an area developer for Schlotsky’s Deli–saw the place in 2005, he was hooked, and approached DiMartino about buying the franchise rights. By 2006, there were three Tilted Kilt franchises in the system. The concept has doubled each year. Lynch estimates Tilted Kilt will have 80 units open by the end of 2011, with another 70 deals for new spots in the pipeline.

There’s a lot more going on at the Kilt than just men watching women, Lynch says, pointing out that one of the company’s key offerings is “sports-viewing excellence,” which translates to 50-inch plasma TVs throughout the restaurant, a full bar with a minimum of 24 beers on tap and a menu that ranges from inexpensive snacks to $19 steaks.

But he acknowledges that the cornerstone of the restaurant is the Tilted Kilt waitress. “We make no bones about it–that’s what brings people in,” he says. “We sell on sex appeal, but we are sexy classy, sexy smart or sexy cute. Not sexy stupid or sexy trashy.”

Randy DeWitt had the same idea back in 2004. After growing his Rockfish Seafood Grill franchise too quickly in the Dallas area, he was faced with having to shut down stores. But instead of writing the locations off, he drilled down into the data and realized that while casual dining was tapering off, Hooters and similar concepts were doing well.

That’s when he came up with Twin Peaks, a franchise based on a mountain lodge theme, where the girls wear plaid tops, suspenders and hiking boots.

“I knew guys like me would like a man cave where the waitresses are pretty and friendly, and we thought we could create a concept sufficiently differentiated from Hooters,” DeWitt says. “I thought Hooters had taken the low-brow route, and we’re taking the high road. We have higher-quality food, and the uniforms on our girls are more finished. Hooters is more blue collar. We do well where Hooters isn’t accepted.”

DeWitt’s experiment worked, and he soon began converting more of his seafood restaurants into mountain lodges. Now Twin Peaks has 14 locations, with two under construction and five more in development.

What makes the restaurant stand out, besides the waitresses, DeWitt says, is its commitment to quality. All mugs are frozen, and a special draught system ensures that every beer pours at 29 degrees. They have a full line of top-shelf whiskey, and their skilled bartenders know their booze. The food is all fresh–even fryer items like mozzarella sticks, which are hand-cut, breaded and cooked to order.

But as restaurant consultant Tristano indicates, the true differentiating factor of the modern “breastaurant” is service. Most customers aren’t satisfied with brusque service–they want a conscientious server and a meaningful connection.

“Everybody else is rushing toward technology with kiosks that you order off of and servers who slip food to you around the corner. We’re going the other way,” Lynch says. “One of our mantras during training is that we want to make a connection with our guests. We practice ‘touchology,’ which means touch the table often, and make guests feel at home. Sometimes waitresses are providing the best part of a guest’s day.”

Twin Peaks’ DeWitt agrees that fostering connections is the key to a restaurant’s success, especially when it breeds repeat customers. In fact, some waitresses become mini-entrepreneurs on their own, using Facebook or Twitter to let regulars know what shifts they’ll be working or what specials the restaurant is offering.

“When we see regulars walk in the door for lunch, the hostesses and waitstaff greet the guy by name,” DeWitt says. Regular customers often ask for certain employees to wait on them, he says, and waitresses are instructed in how to connect with guests.

“We have a certain language and we train that among our waitstaff,” DeWitt says. “If you ask for a beer, the waitress will ask ‘Do you want the man size or the girl size?'”

Tristano confirms that the servers drive the concepts. “The increased service is absolutely the core, not the food,” he says. “I suspect a lot of this segment’s success has to do with server training and hiring the right people.”

Though this segment of the market is definitely heating up, none of the concepts thinks they are in danger of saturation, especially since their numbers are fairly small and they’re not targeting the same geographical areas. Instead, they worry about competition from sports-oriented concepts like Buffalo Wild Wings. In fact, DeWitt says today’s market is similar to the one from which Hooters emerged in 1983.

“It seems like Hooters had the whole segment to itself back then, but if you do the research, they had a raft of competitors that popped up–often with really crass names like Mugs ‘N Jugs–before Hooters emerged as a clear national leader,” he says.

DeWitt is wagering that most of his competitors in the male-bastion market will try to grow too fast and flame out at the regional level.

“Every concept wants to grow and be nationwide, but you have to lay in the infrastructure for growth before going into build-out,” he says. “You have to bring in highly talented operators that can manage rapid growth. We’re not trying to grow faster than we’re capable.”

The concept is still evolving. Brick House Tavern + Tap–owned by Ignite Restaurant Group, the company behind Joe’s Crab Shack–touts itself as the ultimate man cave, with more than 70 beers, alcoves filled with theater-style seats outfitted with trays where customers can watch the game with friends, and special 100-ounce beer bongs with their own taps. So far, the concept has opened in seven states.

As innovative as they might be, can these concepts survive if they cater only to half the population (and the one that doesn’t always choose where to dine)?

“I think these concepts have to target women to be successful,” Tristano says. “One third of their customer base is female, and they have to make an effort to make women feel comfortable.”

Lynch thinks Tilted Kilt, at least, is succeeding with the female demographic. “I characterize ourselves as very PG-13,” he says. “When a guy empties his pockets on the dresser and his wife sees a Tilted Kilt receipt, it’s going to be fine. I was surprised when franchisees started asking for high chairs. We are no threat to women, and we train our servers to make a connection with women at the table first.”

Although the women may be on board, there’s no question that these concepts cater first and foremost to manly appetites.

“Why do regular customers come in three times or more a month?” DeWitt asks. “What more could a guy ask for: great food, sports, beer and a cute girl to look at. We don’t go real deep.”

This article was originally published in the June 2011 print edition of Entrepreneur with the headline: Billion-Dollar Boys’ Club.

View the full article on Entrepreneur


More Grub From Bigger Hub

November 17, 2011

Grub Hub

More Grub From Bigger Hub
The ad was for GrubHub, a Chicago-based company whose Web and mobile service connects consumers with restaurants that offer delivery. Lee, the owner of the Hot Woks Cool Sushi chain of Asian eateries, thought the ad was memorable for its cheekiness — and its accuracy.

Diners order food “mostly when you go home and you’re desperate — when you’re naked and desperate,” Lee said. “It’s a very effective ad and it’s very telling. A lot of orders come in at 8 p.m., when you’re like ‘Oh, my God, I haven’t eaten.'”

Hot Woks Cool Sushi is one of nearly 14,000 restaurants signed up on GrubHub, which launched in Chicago in 2006. Lee estimates that for the busier of her four locations, online orders processed through GrubHub account for about 15 percent of total deliveries.

“Hands down, they generate tons of sales for us,” Lee said.

Business has boomed for GrubHub, making it one of the standouts of its industry and the Chicago tech scene. Last week, the company announced it had raised $50 million in venture capital, bringing its total funding to $84.1 million. The latest round allowed GrubHub to acquire New York-based Dotmenu, the parent company of two restaurant ordering websites: Campusfood and Allmenus.

The deal, whose financial terms were not disclosed, added more than 30 cities and 300 college campuses to GrubHub’s roster of 19 major metropolitan areas. The company said it also now boasts the largest restaurant listing in the country with 250,000 menus.

The Dotmenu acquisition gives GrubHub broader geographical reach and a foothold among college students. This is a smart strategy because getting “more involved at the college level will create loyalty among students, who do dine at home more than Boomers” and other generations, said Darren Tristano, executive vice president of Chicago-based Technomic, a restaurant industry consultancy. “They’re a strong driver of future sales.”

Any restaurant can list its delivery menu on GrubHub for free. The company makes money by selling a premium service where it processes online ordering through its website and takes a commission on those orders. Restaurants signed up for this service are highlighted in search result listings on GrubHub. Diners can search across any number of criteria, including location, cuisine or a specific dish. About 40 percent of GrubHub’s 14,000 restaurants use the premium service.

While restaurants make the deliveries, GrubHub takes responsibility for customer service, meaning diners can call the company’s toll-free line or chat with someone online if they have problems with their order.

“We do take responsibility for every order that goes through the site, which is a completely absurd policy to have implemented because we are setting ourselves such an audaciously large goal for making the delivery experience better for everyone,” said Mike Evans, GrubHub’s co-founder and chief operating officer. “That consumes all of our attention all the time.”

Evans said the company shares best practices across its restaurant partners and focuses on making the site easy to use for diners. This strategy has paid off so far, with GrubHub bringing in $8.3 million in revenue in 2010, more than double revenue of $3.4 million in 2009. This year, the company expects to double revenue from 2010.

The company has expanded, doubling its head count to 200 employees over the last year, even as prospects for the restaurant delivery industry are mixed. According to the NPD Group, delivery volume fell 6 percent in 2008 on the year, followed by a 9 percent drop in 2009 and a 5 percent decline in 2010.

Bonnie Riggs, an NPD restaurant analyst, said delivery represents about 3 percent of U.S. restaurant visits, and that share has remained constant in recent years. The segment tends to be a weaker performer because consumers would rather carry out than pay delivery fees, and restaurants favor on-premises dining.

“They would rather have someone come in and dine in the restaurant,” Riggs said. “If you have delivery and you’re a full-service restaurant … your checks are smaller. You don’t get the alcoholic beverage orders, which are highly profitable items.”

But Evans said he believes delivery is one of the fastest-growing segments of the U.S. restaurant industry, and GrubHub has room to grow. The company expects to drive more than $200 million in food sales to restaurants this year, compared with more than $85 million in 2010.

GrubHub faces competition from Seamless, a New York-based company that started in 1999 to link restaurants with corporate employees working after hours. Seamless is now pursuing the consumer delivery segment and has stepped up advertising in GrubHub’s hometown.

View the full article on Chicago Tribune


The Time is Ripe for Restaurant Ventures

November 16, 2011

Time is Ripe

The Time is Ripe for Restaurant Ventures


How ’bout them apples?

November 15, 2011

McDonald's
How ’bout them apples?

Parents who can’t get their kids to eat anything except fast food may be a little happier when they scream for the Golden Arches.

McDonald’s is rolling out a new Happy Meal that automatically includes apple slices — without caramel sauce — and downsized French fries along with the choice of Chicken McNuggets, a hamburger or cheeseburger.

The new Happy Meal hits New England on Friday under the chain’s initiative to help families make more nutrition-minded choices.

The changes are a “small step,” according to professor Marion Nestle of New York University’s department of nutrition, food studies and public health.

“Now if they would just make milk or juice the default instead of soda,” she said. McDonald’s instead will offer fat-free chocolate milk or 1 percent milk as “promoted options” with Happy Meals.

The new default Happy Meal has reduced calories, fat and sodium. The smaller, 1.1-ounce fries have less than half the calories, fat and sodium of the current 2.5-ounce fries included with the meals. And the elimination of the caramel cuts out 70 calories, 0.5 fat grams and 35 milligrams of salt.

“By offering the apple slices and smaller fries, we’re providing more balanced options for children and parents to feed their children,” said Nicole DiNoia, McDonald’s Boston-area spokeswoman. “Sometimes parents have trouble saying ‘no’ when it comes to French fries, and it’s troublesome to get kids to eat fruits and vegetables.”

The question is, will kids bite? Apple “dippers” with caramel sauce have been an optional Happy Meal replacement for fries since 2004, but McDonald’s says they were ordered only 11 percent of the time.

A recent report by Chicago restaurant consultancy Technomic found 70 percent of moms order off kids’ menus because their kids “want it,” while only 13 percent said “healthy options” were the reason.

“You can bring a horse to water, but you can’t make them drink,” said Darren Tristano, Technomic executive vice president. “It’s an obligation of the parents to have the child eating something healthier as well as the child to eat it.”

View the full article on Boston Herald


Technomic creates insights group to keep up with fast casual growth

November 15, 2011

Technomic Creates Insights

Technomic creates insights group to keep up with fast casual growth

As a follow-up to its Foodservice Planning Program study of the fast casual segment, presented to suppliers in January 2012, Technomic is launching a new Fast Casual Insights Group to provide ongoing monitoring and growth forecasts.

The new group is in response to the segment’s growth, which continues to outpace growth of quick-service and full-service segments.

Though fast casual is relatively small — comprising 6 percent of the restaurant industry — its influence has been notable. With origins in once-innovative concepts such as Fuddruckers, Koo Koo Roo and the “home meal replacement” trend, as well as prime development seen in chains such as Chipotle Mexican Grill, Panera Bread and Five Guys Burgers and Fries, the fast casual sector has evolved and expanded.

“Watching the success of fast casual concepts, quick-service restaurants have adapted by improving menu items and adding fresh positioning. Leading QSRs like McDonald’s and Wendy’s are upgrading to fast casual-like decor and Chick-fil-A is testing table delivery,” said Technomic EVP Darren Tristano, who has been studying the fast casual segment since its identification in the early 1990s.

Tristano adds that full-service restaurants have also integrated elements of the fast casual segment, including Pizza Inn with its recent launch of the Pie Five Pizza Co. brand, and Denny’s with its Fresh Express concept.

“But innovative fast casual concepts continue to evolve, adding full-service elements like table service in the evening and quick-service convenience like drive-thrus and delivery, defying the typical ‘fast-casual’ definition,” Tristano said.

Key components of the Fast Casual Insights Group include:

•Qualitative and quantitative operator research to determine how they define “fast casual,” the critical strategic issues and competitive threats facing operators, and technology’s role in the segment;
•Analysis of Technomic’s Consumer Brand Metrics data, outlining the attributes that drive satisfaction at fast casual concepts and how individual brands rate on these attributes;
•Historic perspectives including sales and unit growth, segment share and analysis of why some concepts have earned ongoing success while others have struggled or ceased operation;
•A predictive view of the future, including growth forecasts through 2020, the concepts and niches that will see long-term success and why; and
•The Fast Casual 400 — the most thorough ranking of fast casual concepts.
Visit technomic.com for more information.

View the full article on Fast Casual


Study: QSR Hispanic advertising up in 2010

November 8, 2011

QSR Hispanic
Study: QSR Hispanic advertising up in 2010

The Association of Hispanic Advertising Agencies (AHAA) just released its 2010 Report on Hispanic Advertising Spending, which shows a 14 percent increase in budget allocation for these types of campaigns from 2009.

Across the top 500 advertisers, Hispanic ad spending for 2010 was $4.3 billion.

The AHAA analysis also found that the percent of ad-spend allocated to Hispanic markets is an important determinant of a company’s overall revenue growth rate. The AHAA study found with a confidence level of 99 percent that a best-in-class company (defined as a U.S. company with a Hispanic allocation of marketing dollars of more than 14.2 percent) allocating one-quarter of its ad spend to Hispanic media over five years would generate annual revenue growth of 6.7 percent.

Among the best-in-class group, companies with a strong correlation between allocation and revenue growth include: AFC Enterprises, parent company of Popeyes Louisiana Chicken, and Domino’s Pizza.

Non-restaurant brands included Allstate, AutoZone, Colgate-Palmolive, Collective Brands (Payless Shoesource), DirecTV, Echostar Communications, Heineken, JC Penney, Rent-A-Center, SAB Miller, State Farm and Vivendi.

Allocations on a post-recession rise

Hispanic media spend by the Top 500 advertisers stood $163 million below its peak in 2007, but still showed a strong recovery from the past couple of years. Unlike the general market that saw budgets slashed during the 2008 recession, the Hispanic advertising industry has remained constant at 5 to 6 percent of total advertising budgets from 2006 to 2010.

Showing a turnaround in 2010, the Top 500 reversed the previous 2-year trend returning over $500 million to Hispanic media, boosting ad spend by 14 percent over 2009 levels.

“Companies now understand that the Hispanic market is not going to simply assimilate and go away, which means that a targeted approach will deliver long-term benefits,” said Roberto Orci, AHAA president and CEO of Acento Advertising. “This research underscores that companies can’t just pop in-and-out of the Hispanic market as a fad and see benefits – real bottom-line benefits come from consistent integrated approaches. Companies must get on the train or risk being left behind and becoming irrelevant.”

QSR is a leader

The quick-service restaurant industry falls into the “Leaders” category of the AHAA’s list of Hispanic advertisers, divided as such:

•Best in Class, defined by their allocation of more than 14.2 percent of overall ad budgets to Hispanic media;
•Leaders, companies which allocate between 6.4 and 14.2 percent;
•Followers, which allocate between 3.6 and 6.4 percent;
•Laggards, defined by their Hispanic allocations of 1.0 to 3.6 percent; and
•Denial, defined by their allocation of less than one percent.
Among the Leaders category, QSR has showed a significant increase of 30 percent, or $70 million in incremental investment, for $301 million total spend in 2010.

This is the second highest increase in the Leaders category, behind the Telecom industry, which grew 51 percent.

The trend toward Spanish-speaking advertising appears to be accelerating. A 2009 analysis by the Latinum Network found that while the American economy floundered, the spending growth by U.S. Hispanics was twice the growth of general market spending. Additionally, one-third of the nation’s population 19 years old and younger is expected to be Latino by 2015.

Popeye’s and Domino’s are not alone in reaching out to this demographic. Pizza Patron has been aiming its major ad campaigns toward the Hispanic market since 2004.

Within the past year, the AHAA also recognized El Pollo Loco and McDonald’s as among the best marketers for the Hispanic demographic. Wendy’s and Burger King have launched Spanish-speaking campaigns, Baskin-Robbins created a new role to head up the company’s U.S. Hispanic marketing efforts, and Carl’s Jr. developed a format to integrate the chain’s products into primetime lineups of Univision and TeleFutura affiliates.

Also, Whataburger’s first new marketing campaign in nine years launched this week, featuring separate Spanish-language spots, created by San Antonio-based FPO Marketing.

“It is essential to actually build a bridge, provide specific messaging and penetrate this demographic in order to maintain continued success in the market,” said Darren Tristano, EVP at research firm Technomic. “Chains that research Spanish-speaking consumers and hire marketing staff with a deep understanding of the market will have a leg up on their competitors.”

The AHAA’s study analyzed all 35,000 U.S. advertisers and their allocation trends to Hispanic media from between 2006 and 2010.

View the full article at Pizza Marketplace


FOOD: Papa Murphy’s pizza chain rolls into Murrieta, with North County in sight

November 8, 2011

Papa Murphy's
FOOD: Papa Murphy’s pizza chain rolls into Murrieta, with North County in sight

Starbucks and Nike are iconic brands from the Pacific Northwest.

Now there’s another big name in the making that is muscling its way across America: Papa Murphy’s, the fifth-largest pizza chain in the United States. The chain of 1,300 pizza stores is about to step into Southwest Riverside County, and may return to North San Diego County in the next year or so, said a senior franchising executive with the Vancouver, Wash.-based Papa Murphy’s.

“We’ll add additional key markets over the next couple of years —- which could include San Diego County,” said Kevin King, chief development officer for Papa Murphy’s.

The chain once had a presence in San Diego County, but closed the restaurants after fumbling its menu for the health conscious under a different ownership group several years ago. New York-based Lee Equity Partners bought Papa Murphy’s in 2010 with the idea of boosting the brand’s expansion plans in the southwestern and southeastern U.S.

To date, the chain hasn’t had much of a presence south of San Francisco. But that’s about to change.

“We built about 100 stores a year for the last eight years. We’d like to increase that rate of growth to 150 to 200 in the next two or three years,” King said.

The very first Papa Murphy’s, which came about as the result of a 1995 merger of Papa Aldo’s Pizza in Hillsboro, Ore., and Murphy’s Pizza in Petaluma, is scheduled to open in Murrieta on Monday. There are no locations in Los Angeles County, and a handful in Orange County.

“The product does well in a down economy,” said Peter Wynia, the franchisor who has plans to open a total of eight Papa Murphy’s in a geographic footprint that includes Temecula, Lake Elsinore, Murrieta, Menifee, Perris and Hemet over the next two or three years.

Wynia fell into this Papa Murphy’s franchise territory by accident.

His last steady job was helping to develop new hotels out of his office in Spokane, Wash. He was familiar with Southwest Riverside and North County because of his work for a hotel development consultancy that led him to work here occasionally. Wynia, 38, traveled to the area several times to explore the possibility of building hotels in Temecula and Oceanside before the economic crash halted funding on new hotel construction in the late 2000s.

He left the hotel development job and moved his family to Phoenix, where he pursued a master’s degree in information technology from the University of Phoenix. But he tossed in the towel on pursuing an IT job because he couldn’t line up an internship. He all but dismissed the thought of getting a Papa Murphy’s franchise because of the tight hold of the 525 franchise owners in areas such as Washington, Oregon, Iowa and Utah.

While on a vacation to visit a brother who lives in San Marcos, Wynia’s wife, Lindsey, posed the million-dollar question: “Why isn’t there a Papa Murphy’s in this area?”

The couple had been accustomed to seeing one on seemingly every street corner in the Pacific Northwest, where they had lived most of their adult lives until the move to Phoenix.

“Other areas were locked up, but not here,” said Peter Wynia, who pulled his family’s stakes up from Phoenix and moved here in June. “I like this area. It’s very family-oriented.”

Darren Tristano, executive vice president of Technomic Inc., a Chicago-based restaurant industry consulting firm, said Papa Murphy’s is the leading “take ‘n’ bake” chain in the country, with estimated revenue in 2010 of $655 million, followed by Salem, Ore.-based Figaro’s Pizza with $20 million, Chicago-based HomeMade Pizza Co. with $15.4 million and Nick-N-Willy’s, a unit of Centennial, Colo.-based World Famous Pizza Co. Ltd., with $13 million.

“Papa Murphy’s without a doubt is the big player,” Tristano said. “Their competition tends to be warehouse clubs and supermarkets.”

Papa Murphy’s has an ordering concept similar to Subway sandwich stores, in which customers select the amount of cheese and ingredients to toss onto an uncooked pizza. Patrons then take these Cellophane-wrapped pizzas with them to bake in their kitchen ovens —- thus the nickname of “take ‘n’ bake pizza.”

The menu is simple. Pizzas range from $8 to $13 or so, with different sizes and thicknesses: original, stuffed and a “delite” thin-crust style for the health conscious. Dough for the pies is made fresh daily.

Zagat Restaurants Survey and Consumer Reports have given the chain’s pizza pies high grades in recent years. They’re ranked better than Domino’s, Little Caesars, Pizza Hut, Sbarro and the other papa —- Papa John’s.

View the full article on NC Times


Panera Bread: A Restaurant For The Recession

November 8, 2011

Panera Bread

Panera Bread: A Restaurant For The Recession

A new Technomic report found that bakery-café chains are stealing market share from quick-service and casual-dining brands at a feverish pace.

The Bakery Café Consumer Trend Report reported that in 2008, only 43 percent of consumers had visited a bakery café, such as Panera Bread (Nasdaq: PNRA). This year, that figure shot up to 71 percent. Among that 71 percent, 72 percent visit at least once a month.

About the Technomic Report

Operators and suppliers use these types of reports to understand consumption behavior, identify purchase and traffic drivers, explore catering usage and size up the competition, which allows them to take advantage of growth and better compete.

Bakery-café patronage is increasing as consumers take a pass on traditional full-service restaurants to save a few bucks. On the other hand, they spend a little more money and trade up from fast-food restaurants for higher quality and healthier options.

The report also hints at the growth in sales over the last three years. How much? The bakery-café segment has grown to $5 billion in annual sales and about 3,600 restaurant locations. Since 2008, total units have increased 4.2 percent and total bakery-café sales have risen 12 percent.

Panera Leading the Growth
According to Darren Tristano, Executive Vice President of Technomic, “Bakery-café chains continue gaining market share in a zero-growth environment. More consumers are visiting these restaurants and gaining familiarity, but nearly one in three consumers surveyed still say they have never been to a bakery-café concept.”

According to Tristano, problems with location and unfamiliarity are the most common reasons given by consumers who have not yet visited bakery-cafés. This means it’s easy to assume that as more stores open and awareness increases, growth and success in the segment should be sustained.

Technomic also reported that 69 percent of the polled bakery-café consumers said they visit Panera occasionally, if not more often. Further, 69 percent of those customers said they go to Panera at least once a month.

According to the Nation’s Restaurant News’ Top 200 census, Panera had U.S. system wide sales of $2.9 billion and 1,324 domestic locations last year. That number far exceeds its closest competitor, Tim Hortons, which only had $443 million in annual U.S. system wide sales last year.

Panera and The Bakery-Café Concept’s Bottom Line

So here is the outlook: The segment has positioned itself between the over $10-per-person eating experience that most Americans no longer think they can afford and the $5-to-$6-per-person eating experience that most of us are told to avoid for health and nutritional reasons.

The bakery-café experience also gives a different aesthetic atmosphere that’s not exactly fine dining, but isn’t a drive thru, either. According to the numbers, the more that people are exposed to the experience, the more they go back. Expect Panera to keep expanding in this uncertain economic landscape that’s going to be around for some time.