McDonald’s New CEO Focuses on Chicken Amid Shaky Economy

October 30, 2012

By Leslie Patton – Jul 2, 2012

McDonald’s Corp. (MCD)’s new chief executive officer is playing chicken with the menu.

As Don Thompson, 49, steps into the CEO role at the world’s largest restaurant chain, customers may see more new chicken items instead of beef. Thompson is pulling from McDonald’s 160- item recipe book, which includes bone-in chicken wings and cashew teriyaki salads with chicken, to sell new food and attract cash-conscious consumers amid a shaky global economy. It’s a “tremendous opportunity,” Thompson said during a consumer conference on May 30.

“Some great examples include our large wrap in Europe and snack items like Chicken McBites,” he said. “Our customers have given us permission to stretch our brand, so we are entering new categories with new products.”

McDonald’s is looking to draw budget-minded Americans with chicken items, which can be priced lower than other proteins, according to Bryan Elliott, an analyst at Raymond James & Associates in St. Petersburg, Florida. “The consumer is expressing some recent signs of distress” and chicken costs are “cheap relative to beef right now by a lot,” he said.

McDonald’s, along with other fast-food operators, is facing government austerity programs in Europe, declining consumer confidence in the U.S. and slowing economic growth in Asia. Sales at McDonald’s stores open at least 13 months rose 3.3 percent worldwide in May, trailing analysts’ estimates for growth of 5.2 percent.

McDonald’s fell 0.5 percent to $88.08 at the close in New York. The company’s shares have slumped 12 percent this year, compared with a 3 percent gain for the Bloomberg U.S. Quick- Service Restaurant Index. (BNUSQSVR)

Healthier Perception

Chicken also is “perceived to be healthier,” Elliott said. “That could certainly be a factor in their thinking.”

A Big Mac has 550 calories, while a six-piece order of Chicken McNuggets has 280 calories.

Last week, the Oak Brook, Illinois-based company began selling 410-calorie Spicy Chicken McBites in the U.S. At the same time, Americans are expected to eat more poultry. Chicken consumption in the U.S. will increase 1.7 percent to 82 pounds (37 kilograms) a person in 2013, while beef consumption may decline 2.2 percent next year to 54.5 pounds, according to data from the U.S. Department of Agriculture.

Thompson, who introduced Americans to McCafe specialty coffees and smoothies, started at McDonald’s 22 years ago as an electrical engineer. He’s managed regions including Denver, San Diego and the Midwest, and was president of McDonald’s USA from 2006 to 2010, before being named chief operating officer. After Jim Skinner, the previous CEO, Thompson was the company’s highest paid executive last year — making $4.07 million, including an $829,000 salary.

Strategic Plans

“I’ve kind of led a lot of strategic planning and initiatives,” Thompson said during a telephone interview earlier this year. He brought McCafe drinks from Australia to the U.S. in 2009 and is now introducing them in Canada. As COO, he also led remodeling efforts, added double-lane drive-throughs to stores and extended restaurant hours — about 40 percent of U.S. locations are open 24 hours a day.

The chain has introduced snack wraps, 290-calorie oatmeal and McCafe fruit smoothies during the past five years to appeal to more health-conscious consumers and draw afternoon traffic. McDonald’s is also promoting chocolate-dipped ice cream cones and s’mores pies for a limited time in the U.S. and may test new dessert items this year, Phillip Juhan, an analyst at BMO Capital Markets in Atlanta, said in an interview.

“Dessert is going to be an area of opportunity for them and one that they’re going to push” at U.S. stores, he said.

Recipe Book

McDonald’s recipe book “can be a core strength, but it can also be a detriment if you get to be too broad with your menu,” Darren Tristano, executive vice president at Chicago-based researcher Technomic Inc., said in an interview. They have to make sure that new food can be made quickly at thousands of locations, he said.

There is no change from McDonald’s strategy — the company’s so-called Plan to Win, Thompson said in the interview.

“A transition in leadership is not a change in strategy at McDonald’s,” Thompson said.

McDonald’s has more than 33,500 stores worldwide, of which about 80 percent are franchised.


Drew Brees brings Illinois-Based Sandwich Chain to N.O.

October 29, 2012


NEW ORLEANS — Why raise even an eyebrow about a fast-food sandwich chain expanding in New Orleans, one of the world’s great culinary capitals?

The reason wears a No. 9 jersey and loves the chain’s No. 9 sandwich.

The local franchise of Jimmy John’s Gourmet Sandwiches is expanding its reach in the New Orleans area. The guy behind the move is Drew Brees.

The Saints star quarterback, a co-owner in the local franchise, opened his first Jimmy John’s in Metairie last September. A second is set to open July 31 in Elmwood. The third, planned for the Maple Street commercial corridor near the universities Uptown, recently flew through the New Orleans City Council like one of Brees’ pinpoint passes, receiving unanimous approval for a conditional-use permit. It should open in October.

Brees also is scouting locations on the north shore and West Bank.

Though Uptown neighborhoods are famously adverse to chain operations, only a handful of residents raised objections at the City Council meeting. With Starbucks already in the neighborhood, the sandwich shop won’t be the first national brand on the street.

Jimmy John’s, based in Champaign, Ill., is the fourth biggest sandwich chain in the country, according to restaurant consulting firm Technomic.

The sandwich-maker falls in the same fast-food spectrum as Subway and Quiznos, and, as such, won’t really be much of a threat to New Orleans’ indigenous bread-based staple, the po-boy.

Like similar chains, Jimmy John’s features quickly prepared, inexpensive subs, either in the store or through home delivery. Branding its service “freakishly fast,” (perhaps a tag line Brees might pick up for his passes) the sandwiches, only offered cold, are assembled with meats and cheeses sliced daily on site and cradled in white, 8-inch hoagie-style rolls with a crisp exterior and chewy interior, or on thick-sliced seven-grain bread. There’s also the “unwich” — fillings wrapped in lettuce.

Founded in 1983, the chain has targeted much of its growth to college towns. That’s where Brees first developed an appetite for the No. 9 “Italian Night Club” with salami, capicola, ham and provolone, which he would get delivered while he was up late studying at Purdue University.

A buddy of Brees’, a football walk-on at Purdue, worked at the chain and eventually joined the company’s corporate office. A few years ago, Brees dialed him up.

“I was back on the Purdue campus doing some charity work and stopped in a Jimmy John’s,” Brees said. “I was eating a No. 9, and I called him and said, ‘I want to bring Jimmy John’s to New Orleans.’ He said, ‘If you’re serious, let’s talk.'”

Soon Brees was in Illinois, meeting with the company’s founder, Jimmy John Liautaud.

Liautaud keeps close watch over the brand’s image. Each store looks identical to the others.

Brees often pops in, generating traffic jams by tweeting to his 1.2 million followers that he’s grabbing a sandwich. He made a brief appearance at the franchise’s “customer appreciation day” earlier this year to try to break a company record for most sandwiches delivered in a four-hour span.

But the Metairie location, with its white walls, pithy slogans and black-and-red tile, has not one reference to its famous local owner or his team.

That could be a wise strategy, for a professional athlete as well as a restaurant corporation. “This isn’t his brand,” said Darren Tristano, executive vice president of Illinois-based Technomic. “When a sports star’s image is involved in a restaurant, the success (often) lasts as long as his career. What if he got traded? How is Brett Favre’s restaurant doing in Green Bay? There are pros and cons to announcing that you’re part of it.”

Brees is following an unofficial NFL tradition. With outsized appetites, pro-athletes are famous for investing in the food business, some very successfully and some spectacularly less so.

In New Orleans, there has been Ditka’s, Shula’s, and most recently, Manning’s. Those sit-down restaurants are mini-memorials to the players. Buying a franchise is a different business strategy, but also fairly common among those who make fortunes playing ball.

Magic Johnson bought into Fatburger. Retired Canadian Football League player Noah Cantor is a co-owner in the Vancouver-based Vera’s Burger Shack chain. Former Kansas City Chiefs defensive end Neil Smith, a New Orleans native, opened a Copeland’s franchise in Kansas City.

“Professional athletes know what a restaurant is, what a bowling alley is, what a car wash is. They may not know what a municipal bond is,” said Ed Butowsky, a managing partner for Texas-based Chapwood Investments who counsels professional athletes about financial issues and appears in the ESPN documentary “Broke,” examining why so many millionaire ballplayers end up bankrupt. “They like to invest in things they’re familiar with.

“Drew Brees seems like a smart guy. Where he and others like him can screw up is if they puts too much of their net worth into things like this.”

Among the national sandwich shops, Jimmy John’s, with 1,329 stores, is nipping at the heels of Quiznos, the No. 3 biggest chain in the sandwich sector. But it’s still a long way from Subway, the quick-sandwich colossus that has 24,722 stores and 47 percent market share based on sales, according to Technomic.

“Jimmy John’s is the fastest growing sandwich concept in the country,” Tristano said. “The fact that they do delivery is a major differentiator for them from Subway or anyone else. They’re also cold sandwiches; they don’t require toasting, so it’s a quicker process, and they travel better.”

Brees said the sandwich itself, not the idea of owning a restaurant, got him interested in Jimmy John’s. He’s also involved with other new business ventures, including the launch of a lifestyle apparel company inspired by New Orleans.

“It’s apparel but it could be a lot of things as well,” he said. “It’s not just T-shirts. We’re very excited about the initial launch.”

As for the restaurant business, “this is just the beginning,” Brees said. “I feel like there are so many opportunities down the road, but right now we’re very focused on building Jimmy John’s.”

What’s for Lunch? Taco Bell’s New Cantina Bell Menu

October 25, 2012

Business First by Andrew Robinson

I purchased a chicken cantina bowl and a steak cantina burrito. Both were priced below $5, and the location I visited was running a buy-one-get-one-free promotion for the cantina items.

Both the bowl and burrito were comparable in size to what one could purchase at Qdoba Mexican Grill or Chipotle Mexican Grill.

The cilantro rice was flavorful, and I found the steak to be delicious. The chicken in the bowl lacked a little in flavor, but it came with a citrus and herb marinade that mixed well with the corn, chicken, guacamole and lettuce in the bowl.

For $2 more, I added chips and salsa and a medium beverage to my meal.

I don’t see Qdoba’s lunch lines getting shorter and Taco Bell’s getting longer with the menu additions, but I agree with food analyst Darren Tristano, who, in an interview with American Public Media’s “Marketplace” program, said he expects Taco Bell’s customers “to move up a rung, spend a little bit more, increase their check average and benefit the chain overall.”

Nancy Luna, a food reporter for The Orange County Register, even gave Taco Bell’s cantina burrito the nod over Chipotle’s.

I wouldn’t go as far as Luna in saying that Taco Bell’s burritos are better than Chipotle’s, but what I had at Taco Bell on Thursday certainly was an upgrade from Taco Bell’s familiar tacos, burritos and other items.

The Cantina Bell menu has been in the works since October 2010, and Taco Bell, a subsidiary of Louisville-based Yum Brands Inc. (NYSE: YUM), has worked with chef Lorena Garcia to develop the menu, which also features guacamole and a number of salsas.

It will be interesting to see how the menu does in the Louisville market. Qdoba already has a strong hold on the market, with 13 locations, according to the company’s Web site, and Chipotle is expected to open a location downtown.

Mixing More Dough In The Java Business Starbucks Hopes to Spur Sales With New Acquisition

October 24, 2012

GARY M. STERN, (c) 2012 Investor’s Business Daily

Most people flock to Starbucks (SBUX) to buy coffee, Frappuccinos and lattes. But Starbucks is sending out a siren call for customers to add sandwiches and pastries to their java orders. In fact, it spent $100 million to acquire La Boulange, a San Francisco-based bakery with 19 outlets, in June. Integration is slated to begin by early 2013.

How does the hefty acquisition fit into Starbucks’ long-term strategy? The skinny is that to grow revenue, companies must go beyond their core products. Known for coffee, Starbucks has to expand its repertoire in order to boost income. As a result of the merger, La Boulange’s products will be sold at Starbucks outlets and supermarkets nationally.

Starbucks’ springing for La Boulange achieves two primary goals, says Darren Tristano, a Chicago-based executive vice president at Technomic, a food industry research and consulting firm. The first is boosting sales of its baked goods, which only account for about 20% of total sales. The second focuses on the fact that selling La Boulange’s products in supermarkets adds to its line of consumer packaged goods like coffee.

‘We Are Bakers Too’

At the time of the acquisition, Starbucks CEO Howard Schultz said, “This is an investment in our core business. After more than 40 years, we will be able to say that we are bakers too.”

David Tarantino, a Milwaukee-based senior research analyst with Robert W. Baird, says Starbucks views this purchase as a “strategic asset to grow their food sales dramatically.” Currently, about one-third of its customers buy food, and if La Boulange can boost that number to 40% or more, Starbucks will see a return on its investment.

Tarantino says the fact that Pascal Rigo, the founder and CEO of La Boulange, is staying on and joining Starbucks as a senior executive is critical to the acquisition.

“His involvement will help make sure that Starbucks maintains the quality, recipes and execution of its food items as it rolls out nationally,” he said.

Moreover, it allows Starbucks to become more of a fast-casual cafe rather than a quick-service coffee shop. That will let it compete vs. Panera Bread (PNRA), one of the most rapidly expanding chains in the restaurant industry.

Since Starbucks lures hordes of coffee drinkers, its target clientele will have an opportunity to increase spending. Consumers will be able to buy freshly made croissants, muffins and sandwiches to accompany their beverages at breakfast and lunch, Tristano says. Starbucks will have to develop kitchens in several regional locales to transport the pastries to its outlets and ensure freshness.

In the past, Starbucks has offered panini sandwiches that needed microwave heating. This led to mixed results in sales. “It slowed down service and took baristas away from their specialty,” Tristano said.

But why spend $100 million to acquire 19 bakeries, a premium price, instead of developing their own? “Buying the bakeries accelerates growth,” Tristano said. Panera is expanding quickly and Dunkin’ Donuts (DNKN) offers specialty coffees, so the La Boulange purchase primes Starbucks to vie in a more upscale way against two rivals.

Rather than spend millions in R&D, La Boulange offers immediate help. “They now have a supply chain that can provide its 10,875 U.S.-based stores and create retail products for supermarkets,” Tristano said.

Tarantino says that customers currently spend $1.5 billion on food at Starbucks annually. He says this justified the $100 million price of the acquisition because Starbucks “sees the potential return they might get from having La Boulange products in its cafe.”

Expanding La Boulange beyond the U.S. is a strong possibility. Tarantino said that “Starbucks is a global brand. It’s clearly possible you could see La Boulange outlets outside the U.S. in Asia and Latin America.”

Of course, any major M&A has risks. Tarantino says this purchase could “start to stretch the management bandwidth too far and could lead to management losing focus on its core.”

Global Expansion

Starbucks has said that it wants to retain La Boulange’s identity and not rebrand it as Starbucks. That strategy enables it to franchise the bakery and expand it nationwide, Tristano says. Growth won’t happen overnight and could take several years to achieve, but Starbucks could ramp up revenue by opening many new La Boulange bakeries.

Starbucks faces challenges maintaining its brand. Tristano says it acquired Evolution Juice for $30 million in November 2011 to expand its juice offerings and tackle industry leader Jamba Juice (JMBA), and despite adding the bakeries, it’s still “a coffeehouse at heart.” It must continue to focus and specialize on the coffee while adding to its repertoire of products.

But Tarantino sees La Boulange spiking Starbucks’ revenue when combined with Starbucks’ ubiquity.

“Starbucks has significant growth potential of its retail brand,” he said. “Coffee is a convenience, and if you have to walk six blocks to find it, it can be too far.”

Zaxby’s named 5th largest ‘fast casual’ chain in U.S.

October 24, 2012

WATKINSVILLE, Ga. – Oconee County-based Zaxby’s has been recognized as the number five “fast casual” restaurant chain in the nation in the new Fast Casual Top 150 Chain Restaurant Report, which lists the performance of 400 brands nationally.

“Fast-casual operators continue to outshine every other segment within the U.S. restaurant industry,” said Darren Tristano, Executive Vice President of Technomic, the organization who created the report. “Fast-casual restaurants fill the gap between quick service and casual dining. People want fast, fresh, quality meals at a fair price point. This segment seems to hit that sweet spot right now.”

In addition to being among the top chains in the U.S., Zaxby’s is the market segment leader among chicken restaurants, with reported 2011 sales of $840 million, distinguishing it alongside other segment leaders like Panera Bread and Chipotle Mexican Grill.

“Our growth is an outcome of our company’s continued promise to provide our guests with the best experience at our restaurants,” said Zaxby’s CEO and cofounder Zach McLeroy. “Our team members’ and licensees’ commitment to Zaxby’s results in this success and brings our unique menu offerings to more people every day.”

The chain has more than 540 locations in 12 states. The first Zaxby’s restaurant opened in Statesboro in 1990.

Little Caesars revives famed ‘Pizza! Pizza!’ ads; After 15-year national absence, No. 4 pizza chain reinstates tag, character to restore fun in category

October 23, 2012

MAUREEN MORRISON; (c) 2012 Crain Communications, Inc. All rights reserved.

Get ready for a lot more “Pizza! Pizza!”

Little Caesars is launching its first national campaign in 15 years, once again putting its iconic “Pizza! Pizza!” tagline and Little Caesar character front and center.

Ed Gleich, senior VP-global marketing, who joined Little Caesars in October, said the chain is using national media to “amplify” the “Pizza! Pizza!” tagline. “We’re in every state, and it was time to tie media together,” he said, adding that it was a matter of “being efficient and getting more for our investment.” Local buys had been used when there was no national campaign.

The campaign, launching this week and created by BFG 9000, will include TV, radio and digital, as well as local print. Horizon Media handles media services. “It seems like everyone got really serious about pizza all of a sudden, talking about artisanal pizzas and apologizing for the way their pizza was made,” said Gerry Graf, founder and chief creative officer at BFG 9000. “But if you take a step back and look at pizza, it’s fun.”

In one TV spot, two teenagers approach their grandfather and say, “Hey, Grandpa, we got this large pizza for five bucks,” to which the man responds, “Well, paint me blue and call me Babe.”

“Pizza! Pizza!” was introduced in 1979 to promote the chain’s “two great pizzas, one low price” offer, and was popularized about 10 years later by Cliff Freeman & Partners, the chain’s agency until 1998.

“Pizza! Pizza!” is no longer being used to promote a two-pizza offer, but most Americans know the tagline, “so you wouldn’t just throw that out and present Little Caesars in a new way,” said Mr. Graf.

The main promotion nowadays is its $5 large pepperoni Hot-N-Ready pizza, as well as its $8 large three-meat pizza.

Mr. Gleich said the Little Caesar character and tagline have “extremely strong positive brand perceptions. … [It] may have started out [as a] pizza promotion, but it’s evolved to stand for Little Caesars.”

The chain had the benefit of a low price point throughout the recession, and so was less affected by hard times than rival chains, said Darren Tristano, exec VP at Technomic. “They’ve been able to grow the brand with a price point [that was] an affordable option for most Americans. … They really stand for value more than any other brand.” A recent Sandelman & Associates survey rated Little Caesars the best value for the money.

Its growth came after a tumultuous ‘90s and early 2000s. In 1996 Little Caesars had an estimated 4,800 locations in the U.S., according to Technomic. Its highest estimated U.S. sales were nearly $2 billion in 1992. But as chains like now-No. 3 chain Papa John’s went public and began expanding, competition in the pizza space became fierce. As Pizza Hut, Domino’s, Papa John’s and No. 4 Little Caesars duked it out, discounting became prevalent.

The chain, privately owned by Ilitch Holdings, was also at odds with franchisees, who filed a lawsuit in 1999 claiming that mandatory contributions to national ad campaigns didn’t benefit them and that they were forced to use a company-owned supplier whose quality had decreased. A settlement was reached in 2001.

By 2002, Little Caesars had an estimated 1,343 units; the next year it eked out $650 million in U.S. sales. Measured-media spending followed suit. In 1997, the chain spent $36.8 million in the U.S., according to Kantar Media. By 2001, the chain had slashed that to less than $3 million.

But it has built back up to 3,500 units in 2011, as estimated by Technomic, with nearly $1.5 billion in systemwide U.S. sales, and media spending increased to $22.4 million. Little Caesars was the third-fastest-growing chain in the U.S. in the three years ended fall 2011, adding 826 units in that time, according to NPD Group.

Starbucks to add wine, beer, small plates menu at Woodfield cafe as Starbucks Evenings plan expands beyond Pacific Northwest

October 22, 2012

 By Emily Bryson York, Chicago Tribune

Starbucks’ customers in Schaumburg will have a new coffee alternative beginning Friday that some might find surprising: wine.

The Streets of Woodfield cafe will be the first Starbucks location outside the Pacific Northwest to host a new concept the chain has dubbed Starbucks Evenings. Beginning at 4 p.m., customers may order wine priced at $7 to $15 a glass and up to $50 per bottle,and choose food from a small plates menu, including warm rosemary cashews, bacon-wrapped dates, flatbreads or chocolate fondue. Beer will also be available.

“This concept is trying to deliver the same atmosphere and the same service that everybody’s grown to love and expect from Starbucks,” said Rachel Antalek, director of new concept development at Starbucks Coffee Co. “We’re constantly innovating and trying new things, and this is something our customers have asked us for that in a lot of ways hearkens back to European coffeehouse heritage.”

The concept is just the latest in a string of new ventures for Starbucks, which is the third-largest restaurant chain in the U.S., with nearly $9.8 billion in sales at its nearly 11,000 restaurants as estimated by Technomic. But some experts wonder if the company is straying from its core coffee-and-espresso mission, a problem that plagued the chain four years ago.

Antalek said customers will order at the counter as usual, but the cafes will offer limited table service to ask patrons if they’d like anything else after they’ve gotten comfortable. The cafe eventually will feature live music and poetry readings. The idea is to create the opportunity for a “no-stress book club” or for busy moms to unwind after dropping the kids at soccer practice.

“As soon as customers see it, they see all kinds of ways to use it,” Antalek said.

The seven Starbucks cafes offering wine and beer in the Pacific Northwest have seen double-digit same-store sales increases after 4 p.m., the company said.

Antalek said the chain won’t do much advertising for the evening offerings, aside from social media outreach. Stores will post signs to make customers aware of the service, and baristas will encourage morning customers to visit again in the evening.

Starbucks is planning to offer wine and an evening menu at as many as six more Chicago-area locations by year end, including openings in Burr Ridge and in the city at Sheffield and Diversey avenues by early August. Two more Chicago locations are in the permitting process.

The Schaumburg cafe is the first to introduce the small plates menu, but the new food items will be offered at the seven locations already selling wine and beer. Items include warm cashews for $3.45 and a shareable chocolate fondue for $6.95.

Starbucks began experimenting with alcohol on the menu at a Seattle location in October 2010.

“Wine has a tendency to appeal more to women … and heavy users of specialty coffee,” Bonnie Riggs, restaurant industry analyst at NPD Group, said, noting that the concept bodes better for Starbucks than such chains as Burger King and White Castle, which have been experimenting with wine and beer.

Riggs said she thinks the Starbucks Evenings plan could be successful in “large markets and, maybe, airports.”

Later this year, Starbucks will extend the wine and evening menus to Atlanta and Southern California, where the chain is eyeing locations in Los Angeles and Orange counties.

Some experts believe Starbucks might be moving too far afield from its core.

“I think it’s going to create a lot of confusion for their customers,” said Darren Tristano, executive vice president of Technomic. “They may be headed from being a great place to go for coffee and baked goods in the morning or afternoon to trying to do way too much.”

Starbucks Evenings is the latest expansion into new business for the quick-service chain, which removed the word “coffee” from its corporate logo early last year to underscore its ambitions beyond coffee. Within the last six months, Starbucks has opened test stores for Tazo Tea, Seattle’s Best Coffee and Evolution Fresh juice. In May, Starbucks announced the acquisition of La Boulange bakery, promising to bring the products to its stores and expand the bakery chain.

Starbucks spokeswoman Alisa Martinez said the coffee giant has an emerging-brands team that handles the auxiliary retail concepts, adding that each brand is relevant to the company’s core customer.

Starbucks has returned to industry darling status after navigating a turnaround nearly three years ago. Founder Howard Schultz returned to the CEO position in 2008, as the chain’s store traffic and stock price began to slip. At the time Schultz said the company had lost its focus and a bit of its “soul” after years of rapid growth.

The company closed underperforming stores and trimmed ancillary businesses, like in-store music, homing in on coffee and espresso drinks and working to boost the quality of its food. Starbucks has posted same-store sales gains since the fourth quarter of 2009.

Other observers said that mixing alcohol and a quick-service atmosphere could be a recipe for conflict, with young employees overseeing a situation that could become charged if patrons are overserved.

But Antalek said alcohol in restaurants hasn’t been a problem so far, adding that the company has a comprehensive alcohol training program in place.

“We don’t find we have customers coming in to overindulge,” she said. “They’re not using the space that way.”

Income Influences Patronage and Attitudes

October 18, 2012

High-income consumers not only use foodservice more often than lower-income consumers do, they also have a different set of demands.

Consumers’ household income—particularly as it relates to their disposable income—strongly impacts many areas of their life, including where they live, where and how they shop, their daily priorities and intrinsic motivations—essentially their overall lifestyle.

Wealth also influences how and why consumers use foodservice. High-income consumers are about twice as likely as lower-income consumers to use foodservice at least once a week, making them an important demographic for the industry. However, it would be remiss to not examine patronage and purchasing decisions among middle- and lower-income groups to determine how to build incremental sales with these consumers as well.

Technomic’s recent Influence of Income Consumer Trend Report polled consumers of all stripes, then broke them down into Working, Lower-Middle, Upper-Middle and Affluent income groups.

  • Working—Generally consumers who earn an annual household income of $34,999 or less. Those earning up to $44,999 were also included in this group if their household size was larger than two individuals. Those in high-cost areas such as major cities were also included in this group if they earned up to $54,999 and had an even larger household size of three or more individuals.
  • Lower Middle—Consumers who report an annual household income of roughly $45,000 to $74,999. Consumers with even lower income ranges, such as those earning $35,000–$44,999, were included in this group if they lived in a low cost-of-living area or if their households included just themselves or one other individual.
  • Upper Middle—Generally consumers who earn $85,000–$104,999 annually. Those in smaller households, or in lower cost of living areas such as rural, suburban or small city areas, were included in this group as long as they reported an income of at least $65,000–$84,999.
  • Affluent—Generally consumers who report an annual household income of roughly $125,000 or more. Consumers who live by themselves and earn $105,000–$124,999 were also included in this group, while households in this income bracket but with a larger household size or in higher cost of living areas fell into the Upper-Middle income group.

Foodservice Patronage

Affluence is tied to greater foodservice usage; nearly twice as many Affluent consumers as those in the Working group use foodservice more than once a week. Wealthier consumers also source a greater portion of their meals away from home than lower-income consumers, with the greatest gap at lunch. On average, more than two-fifths of Affluent consumers’ lunches, compared to just a third of Working consumers’ lunches, are purchased at restaurants.

Base: 2,000 consumers aged 18+
Source: The Influence of Income Consumer Trend Report

The fact that away from home lunch purchases vary so widely based on consumers’ level of affluence speaks to the importance consumers place on convenient foodservice options at lunch, and a preference to source lunch from restaurants regularly if they can afford to do so. Many lower-income consumers likely can’t afford to purchase food away from home for lunch as often as their higher-income counterparts, choosing to eat at home or bring meals from home more often. Operators may be able to increase incremental traffic and sales at lunch by varying their menus to offer options for consumers on a tight budget. This could be through options that provide greater value, such as combos, or items that are offered at absolute low price points, such as value meals. However, when doing so, operators will want to be sure that these items do not cause core customers to trade down from their usual, higher-priced offerings.

Takeout and delivery usage skews to lower-income consumers, while a significantly greater proportion of meals purchased by Affluent consumers are for dine-in. Consumers with a higher disposable income are also more likely to use technology such as a cell phones or smartphones to place their takeout and delivery orders.

Different Priorities

Low prices are the highest priority for Working and Lower-Middle income groups when choosing a limited-service restaurant for dine-in occasions, while Affluent consumers place greater importance on a convenient location. Low prices are also more important to lower-income groups than higher-income groups at full-service locations, as the chart illustrates.

Affluent consumers place a higher priority on convenience of location than any other income group, for both limited- and full-service restaurant occasions. This data suggests that lower-income consumers sometimes need to go out of their way for the low-cost items they seek, while higher-income consumers are willing and able to pay higher prices to visit a convenient location.

Base: 952 consumers aged 18+ who dine in at these locations
Source: The Influence of Income Consumer Trend Report

Consumers with different levels of affluence cope with time constraints in different ways; lower-income consumers are more willing to trade health for convenience, while higher-income consumers are more likely to multi-task during meals and eat on the go.

Slightly more Affluent than Working consumers say an appealing taste and the use of fresh ingredients are important for limited-service dine-in occasions, suggesting that, to some degree, lower-income consumers associate these qualities with higher prices. Lower-income consumers may assume to some extent that taste and freshness cost more, and as a result likely rate it lower because of their priority on low prices. Meanwhile, for full-service dine-in occasions, Affluent consumers emphasize taste and freshness, while lower-income consumers are more likely than higher-income consumers to place a high level of importance on menu variety.

Higher-income consumers are more likely to seek restaurant recommendations from friends and family; a third of Affluent consumers, compared to a fifth of Working consumers, say they often ask for such recommendations. Higher-income consumers are also significantly more likely than lower-income consumers to utilize computers and smartphones to research restaurant menus online. And twice as many Affluent than Working consumers say they often consult online review sites and blogs when choosing a restaurant.

Priorities do not always differ by income group. Two out of three consumers overall agree that order accuracy and food that tastes just as good as for dine-in are highly important for takeout and delivery occasions; the fact that there are few significant skews by income indicates that these are must-haves for takeout occasions regardless of consumers’ level of affluence.

A Change in Attitude

Just half of Affluent consumers, versus three-fifths of Working consumers, view eating out at full-service restaurants as a special treat. This indicates a significant difference between Affluent and Working consumers’ perceptions and motivations for dining at full-service restaurants. Working consumers have tighter budgets and do not visit full-service restaurants as frequently as Affluent consumers, which is likely why lower-income consumers view these occasions as special events.

Additionally, more than a quarter of Affluent consumers, compared to just a tenth of Working and Lower-Middle consumers, say they eat out at restaurants more frequently than they prepare food at home, confirming that Affluent consumers have a high reliance on and preference for restaurant meals.

Base: 898 (a special treat) and 934 (whenever I want to) consumers aged 18+; responses were randomly rotated
Respondents indicated their opinion on a scale of 1–6 where 6 = agree completely and 1 = disagree completely
Source: The Influence of Income Consumer Trend Report

Wealthy consumers also appear to use restaurants to a greater extent than lower-income consumers as a place to socialize. Seven out of 10 Upper-Middle income-group consumers, and just three-fifths of Working and Lower-Middle consumers, say restaurants are a great place to get together with friends.

Although few consumers actively follow restaurants through social media, those who do are most likely to be from Upper-Middle and Affluent households. Facebook, the leading social media site consumers use to connect with restaurants, appeals to consumers from all levels of wealth. However, Twitter and Groupon, in particular, are used regularly by Affluent consumers.

Two-fifths of Affluent consumers, compared to a quarter of Working consumers, say they prefer restaurants with new or innovative menus, suggesting that unique offerings may help attract higher-income consumers. Several ethnic cuisines, including Japanese, Spanish, Greek and Thai, are especially appealing to Affluent consumers.

Base: 914 (willing to try new foods) and 933 (new or innovative flavors) consumers aged 18+; responses were randomly rotated
Respondents indicated their opinion on a scale of 1–6 where 6 = agree completely and 1 = disagree completely
Source: The Influence of Income Consumer Trend Report

Key Takeaways

Consumers’ level of affluence strongly impacts when and how they use restaurants, and it would be easy to focus on these frequent diners. But while they are very important to the foodservice industry because of their high patronage, they account for just a small proportion of consumers. Therefore, it is important for operators to consider their lower-income customers as well.

Understanding the preferences of consumers at different income levels is key to developing strategies that meet the various needs of consumers, regardless of income.

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

Tis the Season to be “Thai”?

October 10, 2012

With the holiday season about to kick off, pumpkin, peppermint, gingerbread and eggnog are the obvious expectations.  So Panera recently launched their Roasted Turkey and Cranberry Panini.  Sounds like a good combination to get us ready for Thanksgiving and the holidays.

But what about the customers looking for new flavor profiles?  On the menu is a Thai Chopped SaladAll-natural, antibiotic-free chicken, romaine, Thai cashews, fire-roasted edamame, red peppers, carrots, fresh cilantro & wonton strips all tossed in low-fat Thai Chili Vinaigrette and drizzled with peanut sauce.

For customers who want a more portable option, you can find it in the new Thai Flatbread Sandwich.  Leveraging the flavors, sauces and ingredients of the Thai Chopped Salad, Panera has created the new flatbread to be more portable.  This option is a nice extension to the salad and provides a broader ethnic product.  But do consumers want Thai options today?

Although consumers generally see Japanese and Chinese as mainstream ethnic Asian flavors, Indian and Thai are considered by consumers as being in the upper threshold of Ethnic.  Over 90 percent of consumers polled in Technomic’s recent Ethnic Food & Beverage Consumer Trend Report indicated Thai to be Ethnic.  More importantly, 62 percent of those felt it was a mainstream ethnic cuisine with an additional 29 percent categorizing the cuisine to be emerging.  Demand for this cuisine and flavor appear very high on the consumers appeal and creating an ethnic flavor combination on a more familiar sandwich, salad or dish can drive sales and customer creaveability!

And has the industry responded to greater appeal and desire on the part of consumers?  Yes, menu incidence of the term “Thai” has increased consistently each year within Technomic’s MenuMonitor online program tracking over 1,000 menus in the US with a focus on chain, independent and innovative regional growth concepts.  Incidence has increased nearly 38 percent since 2009.

Like many others, Panera Bread seems to be part this trend and has found an effective way to integrate the term and the flavor into their menu providing customers with greater options while staying true to their brand.