Seattle’s Best Rolls

November 30, 2012

Copyright 2012, The Seattle Times Company. All Rights Reserved. Distributed by NewsBank Inc.2019676824

No, there won’t be bikinis.

In Seattle’s Best Coffee’s latest divergence from corporate parent Starbucks, every new location will be a 523-square-foot drive-thru-only cafe.

Unlike at so many Northwest drive-thrus, though, the baristas won’t be in bikinis.

The first drive-thru, slightly larger than 523 square feet, debuts Wednesday just off the sidewalk in front of SoDo Gateway Shopping Center at 2990 Fourth Ave. S.

The chain expects to open thousands of little red stores from which baristas will dispense brewed coffee, sweet flavored lattes, handheld pies and breakfast sandwiches that resemble Egg McMuffins.

If all goes according to plan, the tiny cafes will be situated mostly in empty suburban spaces, such as corners of Best Buy parking lots — affordable real estate that can be leased from a handful of corporate chains rather than lots of different landlords.

The stores will be owned by franchisees who can afford multiple locations, with launch costs at the low end of Seattle’s Best’s current startup range of $265,000 for a kiosk to $442,000 for a full cafe.

Seattle’s Best is aiming for busy customers who do not have time to noodle whether they want one shot of espresso or two. They barely have time to swing by a cafe, and often pick up their brew while getting gas or breakfast at a fast-food drive-thru, said Jim McDermet, who runs the chain for Starbucks.

“A lot of people out there don’t have cafe lifestyles,” he said. “There are people working two jobs or going to school at night, and coffee helps get them through the day, but they’ve had to choose coffee that’s not really good.”

If that sounds like a veiled shot at McDonald’s, consider that the burger giant has greatly expanded its coffee offerings in recent years and is making a big play for Starbucks’ market.

McDermet said there was some question whether Seattle’s Best should even have its own retail presence. Most of its stores disappeared during the past few years, along with the Borders Books locations that housed them; it has only about 100 cafes left.

Seattle’s Best’s revenue, which the company doesn’t disclose, is divided between grocery-store sales of packaged coffee and brewed-coffee sales at other retailers.

“We wouldn’t bother (with cafes) if we were going to re-create what Starbucks does,” McDermet said.

Seattle’s Best was founded in the late ’60s, shortly before Starbucks started, but it mostly languished after Starbucks bought it in 2003. Then a companywide shake-up sparked by the recession revived Seattle’s Best, which in recent years has gone where Starbucks would not.

The drive-thru strategy clearly is not a Starbucks play. In fact, like much of what Seattle’s Best has done in recent years, it violates multiple tenets dear to the parent ship.

•Seattle’s Best Coffee is served in tens of thousands of Subway, Burger King and Chevron convenience-store locations. Starbucks CEO Howard Schultz, by contrast, has often said Starbucks is not a fast-food company, and his chain rejected an advance from McDonald’s years ago when the fast-food chain was getting into fancy coffee.

•In recent years, Seattle’s Best began numbering its grocery offerings one through five to make its choices easy to understand for customers upgrading from Folgers. Starbucks’ coffees have names like Caffe Verona and Organic Yukon Blend.

•Seattle’s Best is big into coffee vending machines; Starbucks uses them in other countries, but not the United States.

•Seattle’s Best uses the franchise system and plans to continue with the concept. Starbucks never franchises; it sometimes licenses to grocery stores, airport vendors and others.

•In contrast to Seattle’s Best’s new strategy, Starbucks has few drive-thru-only locations.

Still, Darren Tristano, executive vice president of the Chicago food-industry research firm Technomic, said he was surprised at first by Seattle’s Best’s drive-thru-only strategy.

“Now that I see the brand and what they’re trying to accomplish, it makes sense,” he said.

Tristano lives near the Seattle’s Best test store where for the past eight months the chain has operated a cafe with seating and a drive-thru, and has tested various menu items.

“The seats aren’t bolted to the floor, but overall it’s not done in a way to invite people in,” he said. The new drive-thrus will not have any seating.

Tristano described the new concept, which includes a $2.79 combo of oatmeal and any size coffee, as “a little north of Dunkin’ (Donuts) and south of Starbucks.”

In price, it resembles McDonald’s, where oatmeal is $2 and coffee is $1.

The new Seattle’s Best menu includes food for people who need to grab a meal as well as coffee. It has handheld fruit and savory pies (stuffed, for example, with spicy macaroni and cheese), sandwiches made with pretzel bread, and English muffin and biscuit egg sandwiches.

The brewed coffee comes in original, dark, decaf and iced.

Seattle’s Best intentionally does not call out the specific roast numbers it will use for original and dark, because they might vary across markets — possibly lighter on the East Coast and darker in the Northwest.

The drive-thrus will begin rolling out next year, but the company would not disclose where it intends to open first. It also does not say how quickly it will reach thousands of locations, but officials said the plan is to move quickly.

Seattle’s Best also hopes to launch an urban concept that might be walk-up versions of the drive-thrus.

Even if Seattle’s Best’s little cafes eventually outnumber Starbucks’ 11,000 stores in the U.S., its revenues will be smaller, Tristano said.

“It’s like Subway and McDonald’s,” he said. Although McDonald’s has only 14,000 U.S. locations compared with Subway’s 25,000, its annual sales per location are about $2.5 million compared with Subway’s $400,000.

Just as Subway is not likely to catch McDonald’s, he said, “it would take a very, very long time” for Seattle’s Best drive-thrus to best Starbucks.

Change made atop U.S. unit amid sales slide, hungry rivals

November 29, 2012

Copyright 2012, Chicago Tribune. All Rights Reserved.

McDonald’s Corp. sent a strong signal to Wall Street and the company that a recent slide in U.S. sales isn’t being taken lightly, announcing Thursday that it is replacing the head of its U.S. business with another longtime company veteran who is charged with overseeing a massive remodeling of its restaurants worldwide.

Jan Fields, 57, who has been with the company more than 35 years, will be succeeded by Jeff Stratton, also 57, currently global chief restaurant officer. The change is effective Dec. 1, McDonald’s said.

“This was a business decision,” said McDonald’s spokeswoman Heidi Barker Sa Shekhem. She added that Fields and new CEO Don Thompson had “some long discussions about the state of the business and the decision was made that it was time to make a change in the leadership of the U.S. business.”

Last week, McDonald’s reported that U.S. same-store sales declined 2.2 percent during October because of increasing competition as well as sluggish demand in the U.S. The drop in year-over-year sales was the first in nine years, although sales have been decelerating throughout 2012.

Sa Shekhem emphasized that the decision was not made based on one month of sales, but looking at the total business with an eye on the future.

As McDonald’s has struggled, hamburger competitors such as Wendy’s and Burger King have shown signs of resurgence with the addition of new products. The world’s largest restaurant chain is also seeing competition at breakfast from Starbucks, Dunkin’ Donuts and Subway, with chains like Panera and Chipotle posing threats later in the day.

The same-store sales decline and the departure of Fields are two of the most visible developments since the ascension of Thompson, who took over as CEO in July.

“I’m a little disappointed in this move because it feels a little bit like Wall Street analysts driving this,” said one McDonald’s franchisee who asked not to be named.

While the chain has reported smaller increases and the first sales decrease, the franchisee said, “We came off nine consecutive years, and I’ve experienced it all, and Jan was a big part of that.”

R.J. Hottovy, an analyst with Morningstar, said “it’s tough to read” into the reasons behind Fields’ departure, but the shake-up won’t affect his short-term view.

“I still think the company is going to have a difficult next several months,” he said, adding that “2013 is going to be a better year.” He pointed to expected abatement in food costs and a “stronger pipeline” for new products.

McDonald’s has announced several tests for 2013, including wrap sandwiches, egg whites on breakfast sandwiches and grilled chicken in Happy Meals.

Hottovy added that he also expects sales to increase when the U.S. remodels more of its restaurants, a massive program well under way.

Darren Tristano, executive vice president of Technomic, said the chain has been seeing increased competition and that consumers are still watching small purchases very closely. But for McDonald’s, after nine years of increasing sales, they could be hitting a ceiling, he said.

“At some point you look at $2.5 million (in sales per average U.S. McDonald’s), and they’re doing pretty well,” he said. “Unless you do a double-decker drive-thru and a second kitchen, there’s a level of efficiency they’ve hit that you have to look and say ‘How big can a restaurant get?'”

Despite increased competition, McDonald’s thoroughly dominates the burger market, with a 49.5 percent share of the $65.4 billion segment, as measured by Technomic in 2011. Burger King and Wendy’s had 13.3 percent and 12.8 percent shares, respectively, at the time.

Fields became president of the U.S. business in 2010, succeeding Thompson. She previously was chief operating officer of McDonald’s USA, stepping into that role in 2006. Fields is a 35-year veteran of McDonald’s who began her career with the company behind the restaurant counter.

Her legacy as U.S. president includes a number of health-and-wellness initiatives, including fruit or vegetables in every Happy Meal, pushing to cut sodium levels in the food, and posting calorie counts on menu boards.

As global chief restaurant officer, Stratton has been charged with keeping McDonald’s decade-long, multibillion-dollar global renovation and rebuilding project on track. Restaurants undergoing simultaneous interior and exterior remodels are expected to see a 6 to 7 percent increase in same-store sales upon reopening, no matter where they are located.

Shares in the company closed Thursday at $84.05, down less than 1 percent.

Next Step for Firehouse: Go International

November 28, 2012

© 2012 American City Business Journals, Inc. All rights reserved.

JACKSONVILLE — Within two to three years, Firehouse Subs Inc. expects to be in all lower 48 states and possibly overseas.

The Jacksonville-based submarine sandwich restaurant chain now has development agreements in all but 45 of its 210 markets nationwide, and those that remain are for smaller communities.

Don Fox, the CEO of Firehouse Subs’ franchising arm Firehouse of America LLC, expects to sell the remaining development markets in the next one to two years and is now seriously exploring the company’s options for Canada and beyond.

By the end of 2012, Firehouse will have 580 restaurants nationwide and in the U.S. territory of Puerto Rico. The company will grow by a record-breaking 100 units this year. By 2020, Fox expects Firehouse Subs to be a chain of 2,000 restaurants in both the U.S. and other countries.

Ron Paul, the president of the food industry research and consulting company Technomic Inc., said that getting to 500 restaurants for any chain is a milestone not many restaurants are able to obtain. Of Technomic’s top 500 largest fast-casual chains, only 52 have more than 500 restaurants.

“You’re in pretty rare territory if you can grow your restaurants beyond 500 units,” Paul said.

Fox said international growth is the next step for Firehouse as it continues to rapidly grow its national presence thanks, in part, to its franchising business model that keeps corporate costs down.

Franchising at Firehouse is done through area developers, who act as regional corporate executives. They operate at least one store that is used as the training store for the surrounding area. They also help find franchisees, provide support and services to the franchisees and manage compliance.

Area developers typically have their own staff, which cuts down on the need for as many new employees at the company’s Jacksonville headquarters. In return, area representatives earn one-third of the royalties collected from all the stores in their area, which averages out to about $14,000 per restaurant, per year.

Since former Jacksonville Jaguar Don Davey retired from the NFL in 2000, he has acquired 12 Firehouse franchises in the Orlando area with business partner Scott Anthony.

“I fell in love with the brand,” Davey said. “They always say do what you love, and I love Firehouse Subs.”

Davey, along with Anthony and Eric Erwin, recently bought one of the last remaining areas in the nation in Davey’s home state of Wisconsin, where 42 restaurants will eventually be built, eight to 10 of which Davey and his partners will own.

Despite the company’s business structure that keeps it lean at the headquarters, Fox said he expects to hire about four to six employees there per year as the company continues to grow. Those new positions will include business managers, marketing professionals and franchise administration staff.

But, Fox noted, the company will continue to grow in the same methodical fashion that it has done since it was founded by firemen and brothers Robin and Chris Sorensen in 1994.

“We have so much growth opportunity here, we have to make sure we don’t take our eye off the ball,” Fox said. “We want to make sure we make wise decisions; it’s very easy to make a very expensive mistake.”

Darren Tristano, an executive vice president at Technomic, said the company’s expansion goals are very feasible with the company leaders’ continued hard work.

A growing trend among consumers who have a taste for better sandwiches will also help, Tristano said.

Like the ongoing trend of better burgers, better sandwiches are those characterized by food experts as costing slightly more than fast food-grade sandwiches, but offering higher quality and fresher ingredients.

Firehouse, which markets its large quantities of high-end meats and cheeses, fits into that category, Tristano said.

“There’s always going to be consumers who want a better sandwich for a little bit more money,” Tristano said.

Massive Trend Watch: Franchise Direct Food Franchise Industry Report 2012

November 27, 2012

ATLANTA, GA–(Marketwire – Nov 15, 2012) – Franchise Direct ( has delivered the Food Franchise Industry Report of 2012, bringing accessible industry analysis of 60 franchise concepts into one central location. This annual trend spotting report provides extensive sample franchise analysis in thriving food franchise sectors, which comprise one third of franchise establishments and are part of a great leading industry creating nearly $1.7 billion in the United States daily.

Compelling shifts in full service and fast food industries are shaping franchises across the board in 2012 due to a remarkable emphasis on healthier eating concepts. Ongoing health legislation and growing consumer awareness prompt adjustments throughout the food service world. The report highlights major food franchise players creating healthier eating concepts, including pizza and ice cream industries. Dating back to the 1940s, pizza and ice cream eateries maintain strong roots in American culture, with customization of product offerings and the redesign of atmosphere for patrons holding fast as two firm industry trends. Both have been consistently upholding relevancy by adapting model and menu concepts to meet changing demands.

Strong technology trends highly influence food franchising, with simplicity and customization perks uniting mobile technology and franchise business. Technology and everyday life are more interwoven than ever before and food franchises have ramped up mobile applications in 2012 with a continued focus on video and purchasing apps to sync customer orders with mobile lifestyle trends. Technomic executive vice president and restaurant analyst Darren Tristano shares this point on generational shifts: “Flexibility and customization is very important to Millennials (those born between the early 1980s and late 1990s).”

Ever expansive food-based franchise concepts are also the focus of this report delivering in-depth research content focused on emergent and time-honored industries experiencing an upsurge, including food-gifting franchises with 2012 sales expected to reach over $11 billion. With at least 70 franchise brands offering smoothies on their menu and over 80% of Americans as coffee consumers, the smoothie industry and coffee establishments continue to pull their weight as mainstay features for American consumers. Also experiencing an even greater demand are vending machine franchises, due to even greater accessibility features for a busy and active populace.

About Franchise Direct: Franchise Direct is an online portal for the franchise community that operates a suite of ten multilingual sites in the world’s major economies.

How Record Corn Prices are Impacting Food-Related ETFs

November 20, 2012

PowerShares Dynamic Food and Beverage Portfolio (PBJ) gives investors low-risk exposure to restaurant stocks and even has a small dividend yield. As the retail restaurant group has picked up momentum, investors can play on this demand.

“High unemployment and relatively high gas prices have had a negative impact on disposable income,” Darren Tristano, executive VP at Technomic said. Fast-casual “has been successful in taking share from the other segments.”

The so-called fast casual category of eateries has seen an 8% rise in retail sales in 2012. Eateries such as Chipotle, and Panera Bread have led the industry’s rebound over the past few years. Lower and middle income consumers are attracted to an affordable, higher quality eating experience, compared with that of fast food, reports Anna Louis Jackson for Bloomberg BusinessWeek.

The retail restaurant group is up 13% so far in 2012, compared to the S&P 500, which has gained 7.5%, reports Marilyn Much for Investor’s Business Daily. However, menu prices have risen around 2%-3% in response to rising commodity prices. More big price moves in grains will likely have an effect upon food prices, with drought conditions looming.

PBJ ETF is up 6.4% year-to-date and boasts a 1% dividend yield. If the food and beverage industry can keep pace, PBJ will remain appealing due to the defensive nature of the fund.

Meanwhile, corn and wheat prices are up 31% since June 1, while coffee has risen 17%. In turn, pork and beef prices will rise as grain supply is tight. Chicken prices are expected to rise next.

Nevertheless, Q2 earnings have been decent from fast-causal eateries. Chipotle has an estimated 40% jump in 2Q profit, and has been on the rise for 13 quarters, with double-digit sales. Dunkin Donuts is another winner, with a 5% jump in second quarter profit.

The slow-to-recover U.S. economy and commodity price hikes are two obstacles that the restaurant sector are up against.

Commodity ETFs such as PowerShares DB Agriculture Fund (DBA) will likely gain as mother nature runs its course. DBA has gained about 8% over the past three months.

Other commodity funds on a run:

  • Teucrium Corn Fund (CORN) up 32% this quarter
  • iPath Dow Jones UBS Grains Sub-Index Totoal Return SM ETN (JJG) up 32% for the past three months

Offering the Skinny on Calories New McDonald’s Campaign Lists Lighter Options

November 19, 2012

McDonald’s is tweaking the look of its menu and drive-thru ordering boards, highlighting items that weigh in at less than 400 calories.

The campaign, known as “Favorites Under 400 Calories,” starts Tuesday and will run in conjunction with the Olympics. The menu and advertising push marks the second time the Oak Brook-based fast-food giant has focused a campaign on calorie counts, following last year’s promotion of breakfast items under 300 calories.

“We’ve been looking at new ways we can provide easy-to-find and easy-to-understand, simple nutrition information,” said Neil Golden, McDonald’s USA chief marketing officer.

Boards will be organized by calorie counts, segmenting items in calorie blocks. That means, for example, that under the heading 400 calories or less, consumers will see such items as medium fries, Filet-O-Fish sandwich and an Oreo McFlurry. For 300 calories or less, consumers can order a Southwest Salad or Strawberry Banana Real Fruit Smoothie.

“We want customers to understand that they have food that they love, but food that they can feel good about enjoying regularly,” Golden said.

McDonald’s wouldn’t say when those menu counts will become permanent.

Those efforts and others in the industry come as regulators finalize rules that will soon require restaurants with 20 or more locations to disclose calorie counts on menus and drive-thrus, regulations that were part of the 2010 health care overhaul. The Food and Drug Administration is expected to issue the final requirements by the end of this year.

Most major fast-food restaurants already are promoting lighter alternatives, said Bonnie Riggs, restaurant industry analyst at NPD Group, a Port Washington, N.Y.-based research firm.

Corner Bakery highlights “Corner Combos under 600,” while Potbelly’s showcases lighter Skinny sandwiches. Chains such as Au Bon Pain and Subway have calorie and nutritional information displayed.

“There’s a push by those chains that have a healthier menu or lower calories on their menu to put those items out proactively,” said Darren Tristano, executive vice president of Technomic, a Chicago-based research firm.

That means figuring out ways to have menu offerings for everyone, from hamburgers for those who want to indulge to fresh green salads for those who don’t.

“A lot of people still think of McDonald’s as fast food, and they are doing their part to provide the right items … to create balance and variety,” Tristano said. The underlying strategy is to get very health-oriented consumers to recognize McDonald’s as a good-for-you restaurant and to go with frequency, he added.

Still, most consumers have no idea how many calories are in their food choices when they dine in restaurants, nor do all want that, experts say. When consumers eat out, they want to indulge and leave concerns about which foods are low fat, low calorie and low sodium at home, Riggs said.

A study last year by NPD Group found that 9 percent of consumers look for healthy, light options when eating out at restaurants, and that number has remained flat, Riggs said.

“When (consumers) go out to eat, they give themselves more leeway,” she said.

And in tough economic times, price concerns outweigh health concerns when it comes to eating out, Riggs said.

Eggs? Grilled Cheese? Food Chains Say ‘Niche’ Pays

November 16, 2012

When engineer Ron Green moved to Louisiana from San Diego in the early 1990s to work on the superconducting super collider, the thing he missed most was brunch. “I spent 16 years in California, and on weekend mornings I’d travel up and down Highway 1, looking for little restaurants. I kept mental notes about what I liked and disliked about each of them,” he says. “When I moved to Hammond, La., and tried to go out on weekends, all I could find were IHOPs, Denny’s and Waffle Houses.”

When the government scrapped the super-collider project, Green took it as sign to try something new. He bought an old summer home one block off Lake Pontchartrain in the small town of Mandeville, and in 1996 opened The Broken Egg Café, the type of friendly, slightly upmarket brunch spot he’d been yearning for. It seemed other people in the area had been looking for something similar–customers happily accepted two-hour wait times at the cafe on Saturday and Sunday mornings during its first year in business.

Sixteen years later, Green’s original restaurant still draws weekend crowds, as do the 20 units of his franchise, dubbed Another Broken Egg Café. While Green’s menu has 150 items, including burgers and sandwiches, more than half the offerings have one thing in common: Their main ingredient is the humble egg.

A decade ago, when buffet chains, fast-food outlets and family-dining franchises were expanding their menus, attempting to cater to almost every taste, a singular focus on an item such as the egg would have seemed like a stamp of doom. But now, with the success of narrowly themed concepts like the 260-plus-unit Noodles & Company and the 126-unit Raising Cane’s Chicken Fingers (which offers only its namesake product, plus fries, toast and coleslaw), restaurants that do one thing–and do it well–are gaining traction.

The secret is in picking an item with enough broad appeal and versatility to anchor a menu. PB Loco, a gourmet peanut-butter sandwich chain that started franchising in 2005, got great reviews for its unique flavor combinations. The problem was, the concept didn’t appeal to breakfast and dinner crowds; even for lunch, the grade-school staple felt more like an occasional novelty than a regular meal. The company started closing stores in early 2008. A small flurry of cereal-only restaurants opened and flamed out in the mid-2000s, going down for the same reasons.

Darren Tristano, executive vice president of Technomic, a restaurant research and consulting firm in Chicago, says narrowly focused restaurants need to choose their offerings wisely. “What’s at the center of the plate? Is it substantial enough for people to think of as a meal?” he asks. “Noodles & Company broadened its menu to add sandwiches; they have salads, soups, proteins and a good beverage choice. And people are comfortable having pasta at the center of the plate.”

Shell Game
Green is not the only one who believes eggs have enough heft to take center stage at mealtime. Besides Another Broken Egg, other egg-focused eateries in the “better breakfast” category include First Watch, Mimi’s Café and Le Peep. They’ve all benefited from a breakfast craze that has made morning meals the fastest-growing segment of the U.S. restaurant industry for the last five years, according to market research firm The NPD Group.

The Single Life

A few more franchises with only one thing on their minds …

Original SoupMan. The soup stop made famous by Seinfeld has 16 locations that serve between five and 12 varieties daily, from lobster bisque to Mexicali bean. (And yes, if you must, sandwiches are available, too.)

Crisp. This New York and Philadelphia concept knows its falafel, serving the crispy chickpea patties in pita in more than a dozen variations, like goat cheese and red peppers or jalapeño and guacamole.

New York Fries. You won’t actually find these fries in New York. The popular 160-unit Canadian chain offers frites with cheese, beef, chicken or chili on top.

“In this economy, people still want to eat out whenever possible, but they’re moving out of fine dining and into breakfast,” explains Jan Barnett, director of marketing for The Egg and I, a national 55-unit franchise based in Centennial, Colo. “At breakfast, you can control the check–there are no appetizers and no alcohol. And breakfast appeals to all categories. Older customers like to come in during the week, and younger consumers like to go out and enjoy a full-service breakfast on the weekend.”

Going out to breakfast also has the potential to become a daily or weekly ritual. “You see a strong frequency of repeat or regular customers,” Barnett says. “Once someone decides to eat breakfast out, it becomes part of a routine. Then it becomes critical to reduce turnover and keep associates and create familiarity.”

The Egg and I works hard to keep employee turnover to a minimum; at least one franchisee claims to have not put up the “help wanted” sign for seven years. Most of the egg concepts run on a single breakfast/lunch shift, usually from opening until 3 or 3:30 p.m., so they appeal to employees who want afternoons off to watch children, or to older servers who are hesitant to deal with late-night shifts and alcohol service. The schedule also satisfies franchisees and managers who don’t want to staff several shifts or have to supervise from early morning to late at night.

But the other element that sets these concepts apart is the egg itself–inexpensive, nutritious and the Swiss Army knife of the culinary world. “It’s so versatile, you can cook it any way you want,” says Another Broken Egg’s Green (who prefers poached). “You can put it in a salad, use it as a binding agent for sweet stuff. It pairs well with seafood. It has essential amino acids, about 70 calories and all kinds of vitamins–everything you need to round out a healthy diet.”

The other reason the breakfast theme is taking off is that the competition is not against other restaurants, but rather the cereal aisle. “The home is our No. 1 competitor,” Barnett says. “People typically eat at home for that morning daypart, and the more competitors that are marketing and getting people to dine outside for breakfast, the better. It raises all boats.”

Pete Nowak of Columbus, Ohio, is another egg-ophile. He’s hoping for round-the-clock demand for his concept, Eggfast, which will begin expanding throughout Ohio this year, offering a 24-hour quick-serve version of breakfast, including delivery. “Late-night delivery is saturated with pizza and wings, so we’re definitely popular at night,” he says. “But we’re just as popular at 9 a.m. as at 3 a.m. And a surprising number of people come here for dinner, too.”

Hot Concept
The other darlings of the franchise world are restaurants specializing in grilled cheese sandwiches; those eateries began popping up across the country in the last half decade. But while the better breakfast concepts have proved themselves, it remains to be seen whether consumers will be satisfied with grilled cheese at the center of their plates.

Among the players in this space are Grilled Cheese & Co., with four locations in Maryland; Chedd’s, with three units in South Dakota, Texas and Wisconsin; and San Francisco-based chain The Melt, founded by Flip camera creator Jonathan Kaplan. All are focused on elevating the comfort-food staple to gourmet levels, using international cheeses, artisanal breads and add-ons such as wild mushrooms or black beans.

But Technomic’s Tristano wonders if it’s enough. “We’ve done some research on grilled cheese, and our position is that it’s probably too narrow,” he says. “It’s a great product, but maybe not enough to sustain an entire concept itself. Even with soup, salad and a protein, it might not be substantial enough for dinner.”

His other caveat is that even if the public does go crazy for grilled cheese, it is a product easily co-opted by established restaurants such as Panera Bread or even McDonald’s.

Michael Inwald strongly disagrees. His company, Cheeseboy, which has eight locations in five Northeastern states, is set to begin franchising in earnest later this year. Instead of gourmet offerings, Inwald focuses on a solid sandwich with familiar additions like bacon, turkey, ham, pepperoni or veggies. “We don’t offer brie and apricot vinaigrette, but it’s not Wonder bread and American cheese either. We offer premium mainstream options, like cheddar, provolone, basil and tomatoes,” he says. “We’re trying not to be pretentious. We’re open to everyone.”

While admitting that lunch is Cheeseboy’s biggest meal, Inwald cites the popularity of breakfast grilled cheese with bacon and eggs. “We do a great business throughout the day,” he says. “We are a great snack product, and if you want that, a regular grilled cheese is perfect. But if you want a full meal, just add turkey, spinach and tomato; a cup of soup; potato chips; and a drink. We are really a round-the-clock concept.”

But what if the buzz around breakfast fades, or grilled cheese just doesn’t satisfy for dinner? Many of these franchises say they aren’t keen to expand their menus; instead, they have faith that their core concepts have enough flexibility to change with evolving tastes. “Instead of diluting our brand by offering everything, we want to concentrate on the one thing we do well, and do it better than everyone else,” says Eggfast’s Nowak, who points out that the potential for innovation is huge.

“There is such a wide variety of breakfast-related items we offer,” Nowak says, citing migas (a traditional Mexican scramble); flatbread with pico de gallo salsa; and hash-brown casserole. “There are lots of daypart items that are not so far outside the breakfast theme that we can experiment with. But we aren’t interested in burgers, wings and pizza.”

While Green’s Another Broken Egg does offer sandwiches and burgers, he’s not interested in making them the centerpiece of his menu. “The majority of people coming in for lunch still order egg items,” he says. “We’re always trying to come up with new recipes. Our tag line is ‘Inspiring Eggs to Excellence.’ And we’re always looking for ways to do that.”

Copyright © 2012 Entrepreneur Media, Inc. All rights reserved.

November 14, 2012

NATHAN SKID; (c) 2012 Crain Communications, Inc. All rights reserved.

The rebounding economy has whetted the public’s appetite for steak.

At least that’s the operating theory of several local restaurateurs.

Co-owner Jacob Dikhow closed 7 Bar and Grill, a 7,000-square-foot restaurant at 6545 Orchard Lake Road in West Bloomfield Township, on April 1 to convert it into a 250-seat steakhouse called Prime 29 of West Bloomfield.

“We researched the area, and after looking at restaurants, we noticed a lot of commonality — they were all basically the same thing,” he said. “A lot of places you go to, you see a format of true prime-aged beef, but you see it at a higher price point.”

Dikhow said steak prices at Prime 29, due to open Sunday, will range from $30 to $40.

Prime 29’s name is a nod to the aging process of prime steak. The optimal length of time to age a steak is 29 days. Steak is dry-aged in a controlled environment to get peak flavor.

Joe Vicari, CEO of Warren-based Andiamo Restaurant Group, is converting three Andiamo restaurants — in Bloomfield Township, Dearborn and Warren — into Joe Vicari’s Andiamo Italian Steakhouse Restaurants.

Vicari said changing customer tastes prompted the transformation. The conversion from Italian cuisine to Tuscan steakhouse could bring in 20 percent more volume, he said. “The market changes, and we have to change with it,” Vicari said. “Either you sit and don’t do anything and go out of business, or you continue to do research and development and adapt.”

Vicari said the menu at the new restaurants will be half prime steaks and chops and half classic Italian dishes.

“Detroit is a working-class town, a meat-and-potatoes type of town, and we feel that we are giving our customers the best of both with a half-Italian, half-a-steakhouse menu,” he said.

Andiamo Restaurant Group owns six Andiamo restaurants, three Joe Vicari’s Andiamo Italian Steakhouse Restaurants, four Rojo Mexican Bistro Restaurants, Joe Muer Seafood and Mesquite Creek.

In June, Beachwood, Ohio-based Hyde Park Restaurant Systems opened a Hyde Park Prime Steakhouse at 201 S. Old Woodward Ave. in the former Forte location in downtown Birmingham.

And longtime local restaurateur Matt Prentice is slated to open Detroit Prime at 32769 Northwestern Highway in Farmington Hills. It will serve USDA Prime value cuts such as skirt steak, short ribs, hanger steak and brisket. Menu prices have not been released.

Market data show the appetite for beef is rising. Darren Tristano, executive vice president of the Chicago-based food research firm Technomic Inc., said sales at steakhouses rose 3.5 percent between 2010 and 2011, generating $14 billion in sales nationwide.

“I think there is a comeback because, in general … the high-income groups have come to better employment numbers,” he said. “Operators are finding opportunity to sell into upper-low to high-income groups, and steak seems to be a great opportunity to do that.”

Tristano said many new steakhouses are in a relatively new restaurant segment called polished casual, which fits between fast casual and fine dining, giving customers a memorable experience at a lower cost.

Individual checks for steakhouses in the polished-casual segment averages $30 to $50, Tristano said.

“Steak is a familiar product, and to some extent, it falls into what many consumers call an upscale or special-occasion experience,” he said. “When you look at Ruth’s Chris Steak House or Morton’s The Steakhouse, 70 percent of their sales wind up on an expense report.”

Dining Out In A Hot, Dry Season Restaurants are Doing Well, but Bracing, as Drought Drives up Grain and Food Prices

November 13, 2012

MARILYN MUCH, INVESTOR’S BUSINESS DAILY, (c) 2012 Investor’s Business Daily  

It was the second Sunday in July and lunch traffic at the Chipotle Mexican Grill (CMG) on Manhattan’s Upper East Side was as hot as a tamale.

Despite the heat, spicy burrito bowls, salads and tacos were going fast. A few blocks northwest, Panera Bread (PNRA) was also packed, with patrons filling nearly every seat in the two-story bakery-cafe.

Panera, Chipotle and other fast-casual eateries have led the restaurant industry’s rebound over the past few years. The trend should continue through this year, says Darren Tristano, executive vice president at industry consultant Technomic.

A slow economy has pushed lower- and middle-income consumers toward more affordable, but better quality dining experiences, he says. Fast-casual eateries offer fresh, high-quality food; pricier than fast-food chains, but cheaper than traditional casual dining restaurants.

“High unemployment and relatively high gas prices have had a negative impact on disposable income,” he adds. Fast-casual “has been successful in taking share from the other segments.”

Tristano forecasts fast-casual, which is a category within the quick service restaurant (QSR) segment, will see a hefty 8% rise in retail sales this year, excluding inflation. That compares with an estimated 4.3% gain to $402.88 billion for all restaurants and bars.

But as frugal consumers try to squeeze more bang from their bucks, restaurants are also upping menu prices. Why? Because higher food costs are threatening to narrow margins.

“Unfortunately, we’re seeing commodity prices continue to be a challenge,” said Jefferies & Co. analyst Andy Barish. “Recently we’ve had another big move in grains.”

Corn is up 38% since June 1 and is very close to last year’s record high. Wheat is up an equal amount and coffee gained 17%.

Pork prices also remain high, Barish says. And beef is approaching record highs as ranchers cull herds due to drought, squeezing the supply.

Analysts initially expected some relief in the second half of this year vs. the high costs a year ago.

Hot, dry weather in the Midwest is fanning fears of a shortfall in grains, “which really are building blocks that filter through the protein commodities,” he said. “Higher corn and soy prices mean relatively high chicken prices.”

Restaurants have been compensating with menu price hikes.

“Menu price increases are generally running 2% to 3%, which is a little more than the industry has taken in the past few years, to try to offset some of the commodity inflation,” said Barish.

But price hikes or no, there’s a lot of pent-up demand for dining out, says Tristano.

That demand is helping to drive nice gains at many of the nation’s top eateries. Investors have noticed.

The Retail-Restaurants group ranked No. 26 on Friday among IBD’s 197 industry groups. The group is up more than 13% so far this year, vs. the S&P 500’s 7.5% gain.

“There is still significant demand for restaurant stocks,” said Stephens Inc. analyst Will Slabaugh. “They’ve held up very well.”

But the industry saw investor expectations ease, he says, after Darden Restaurants (DRI) reported disappointing Q4 same-store sales on June 22. Overall sales at the casual-dining giant fell below views as same-restaurant sales declined at both its Red Lobster and Olive Garden chains.

Now, investors are on standby as other chains prepare to report second-quarter results. Among Slabaugh’s top Q2 performance picks are sports bar and grill Buffalo Wild Wings (BWLD) and coffee kingpin Starbucks (SBUX).


Overall, we should see a mixed set of results in Q2, Barish says, although, with the environment “choppy,” it’s hard to generalize.

Buffalo Wild is in the casual, not the fast-casual category. Still, it’s managed double-digit sales and profit growth in 13 of the past 15 quarters. Thomson Reuters analysts expect a 17% EPS gain in Q2.

Slabaugh estimates Q2 same-store sales rose 5.8% vs. a year earlier, even vs. tough year-ago comparisons.

Buffalo Wild’s “customer proposition” is a lot different than its causal-dining peers, says Slabaugh. Customers come in on special occasion to watch games on its many TVs while they’re eating wings and having drinks with friends.

Panera has had double-digit earnings and sales growth for the last nine quarters. Analysts estimate a 21% increase in Q2 profits. Barish figures the quarter’s same-store sales were up 5% vs. a year ago.

Dunkin’ Brands Group (DNKN), which went public last July 27, owns Dunkin’ Donuts and the Baskin-Robbins ice cream chain.

Roughly 75% of annual revenue comes from Dunkin’ Donuts, which has more than 10,000 stores worldwide, 70% of which are in the U.S. Nearly two-thirds of its U.S. franchisee sales come from coffee.

Dunkin’ Brands is a nearly entirely franchised business model, which essentially eliminates store operating expenses, resulting in higher margins than many of its peers, says Slabaugh.

Barish says the company’s key Dunkin’ Donuts U.S. business likely had at least a 5% pop in Q2 same-store sales over last year.

Chipotle has owned 13 straight quarters of double digit-sales and earnings growth. Analysts estimate a 40% jump in Q2 profits, vs. a 35% rise in Q1.

Among the main drivers of its business is its food culture, says spokesman Chris Arnold.

“That has us looking for the best ingredients we can find from more sustainable sources and preparing everything using classic cooking methods,” he said.

Another driver is Chipotle’s “people culture,” he adds. The company identifies top performers and develops them into leaders. As a result, nearly all its store managers come from within the ranks of its line staff, he says.

“That helps the service and ensures high standards,” he said. “So customers receive excellent service and a great experience consistently.”


In spite of the positives, the overall restaurant industry’s results have been about as mixed as a tossed salad. It’s very hard to read the environment, says Tristano.

“On an overall basis, it’s improving, but it’s improving slowly,” he said.

Tristano’s retail sales forecast for total restaurants and bars of 4.3% this year is higher than the 3% to 3.5% increase of 2011. Technomic sees a 4.7% increase in such sales in 2013.

QSR sales should grow 4.5% this year, while sales at full-service chains, are estimated to rise 4%.

“Quick service overall (which includes fast-casual) has been holding up better than casual dining,” Slabaugh said. “It’s a more approachable price point and dining occasion than casual dining.”

Barish says QSR chains are benefiting from changes such as improved product quality and restaurant remodels.

He says we may still be seeing more consumers trading out of casual dining into QSR.

Starbucks has upped its game with an agreement to acquire San Francisco-based Bay Bread and its La Boulange bakery brand, as well as to hire renowned French baker Pascal Rigo.

Slabaugh says the proposed buy makes a lot of sense.

“What the consumer has been asking for from Starbucks is better food quality and a broader food offering,” he said.

Even the more traditional, casual dining segment, although it trails quick service, has begun to show some improvement, says Tristano.

“That’s primarily because they’ve declined over the past five years and are starting to rebound and come up from the bottom,” he said. “We’re starting to see slow growth out of the casual dining brands.”


In June, consumer confidence in the economy and personal finances worsened to the lowest levels since January, leading to lower spending intentions, according to the Discover U.S. Spending Monitor. The survey showed nearly 47% of consumers expect to spend less on purchases, including dining out.

The U.S. unemployment rate has ticked back up to 8.2%, and the stock market is volatile, adds Slabaugh. He says these factors have contributed to a lot of uncertainty among U.S. consumers, putting pressure on sales.

Still, the fundamentals of the U.S. consumer are continuing to get better. Slabaugh cites trends such as falling gasoline prices.

“As the headlines become more positive from a macro perspective, I think restaurants will be great place to be in terms of investing,” he said. “I see this in the back half of 2012 into 2013.”

4. Outlook

Barish is “cautiously optimistic” about industry prospects.

“I would like to see a little better economic environment,” he said.

His buy recommendations include Dunkin’ brands, Starbucks and Panera.

“As the slow recovery continues, you have to pick and choose spots and be in the right places,” he said. “The large chains that we monitor in the public markets are better positioned to gain share in this slow recovery from small players or private companies.”

Frozen Yogurt Sales Heat Up

November 12, 2012

Copyright 2012. Hearst Communications, Inc. All Rights Reserved. Distributed by NewsBank Inc.  

 It’s a flurry of frozen yogurt.

 The tart yet tasty dessert has trickled down from New York City and Boston and businesses are moving into the Capital Region.

 “It’s creamy, it’s fruity, it’s flavorful and — being healthy — it’s a home run,” said Bill Rabbitt, director of operations for TCBY in the Capital Region.

 Frozen yogurt spreads to Troy with the Friday opening of Dante’s Frozen Yogurt at 274 River St.

 “It’s exploding everywhere right now,” said David Fusco, owner of Dante’s, which also has a store in Boston. He said he chose the Collar City because of the three colleges nearby and the support of local government for new businesses.

 Nationally, the frozen yogurt market was estimated to be worth $723 million in 2011 by IBISWorld, a California-based market research publisher.

 Growth is expected to slow as the market becomes saturated, although it’s expected to hit $813 million by 2016.

 Frozen yogurt stores mainly offer self-serve options in which customers pick a container and fill it with as much or as little frozen yogurt as they like, with several flavors and combinations to choose from. They then pick from dozens of toppings ranging from M&Ms to fresh raspberries and granola.

 The dessert is weighed and priced by the ounce.

 Including Dante’s, at least six stores are opening around the area this summer.

 Salt Lake City-based TCBY opened a store in Guilderland in November 2011 and opened another in Latham earlier this year, with plans for two more in Niskayuna and East Greenbush in August and September.

 Plum Dandy has been in Saratoga Springs since June 2010 and owner Philip Levitas said he plans to open a second store in the region this fall. Crossgates Mall has two frozen yogurt stores. Yo D. Sert opened in May, and Yeh! Frozen Yogurt and Cafe, a Montreal-based chain, opened in June.

 Lemondrop Frozen Yogurt set up shop on Wolf Road in Colonie in late June and 16 Handles in Clifton Park opened its doors in March 2011.

 Why is it so popular?

 Frozen yogurt “caters to the health-conscious trend that we’re seeing among consumers,” said Nikoleta Panteva, a senior analyst at IBISWorld. The product generally has low-calorie, low-sugar and non-dairy options and includes probiotics, which can help with digestion and boost the immune system.

 “It has yogurt in it and not ice cream, so there’s a feeling that it’s better for you,” said Darren Tristano, executive vice president of Technomic, a Chicago-based consulting and research firm. He said the biggest demographic for the market is women from 16 to 34 years old.

 Tristano said frozen yogurt also does well because customers can do everything themselves — dishing it out and piling on their favorite toppings.

 “You pay for what you want to eat, not what you got,” he said.

 John Hadcock owns the Clifton Park 16 Handles with his wife and said they have been doing well. “It’s been very busy,” he said. “When we first opened we had lines to the door every night.”

 He said though the suburban town has “been good” to the store, which is part of a New York City-based franchise, “it’s not New York City. You can’t have one on every corner.”

 Hadcock said it may be a challenge to continue operating with so much competition popping up.

 “Hopefully we’ve done enough to stay,” he said.