QSR Value Promotions go Beyond Price in 2014

January 27, 2014

picRestaurant chains such as Burger King, Pizza Hut and Taco Bell add to their value strategies in the new year.

 Burger King’s January offer

Value is often top of mind in early January among restaurant customers who have resolved to save or better manage their money in the new year, but restaurant brands looking to capitalize on this show that enticing value strategies are about more than just low prices.

While some chains have moved up their well-known value promotions opportunistically into January — notably Subway, which is running its $5 foot-long campaign as “Janu-ANY” — others have introduced new value plays that de-emphasize prices in favor of new-product news or brand highlights like anniversaries.

“Today’s consumer mind-set around value really has shifted, or drifted, further away from price point,” said Darren Tristano, executive vice president of Technomic Inc., a Chicago-based market research firm. “Prices have been set [in consumers’ minds] by Subway’s $5 foot-long or some very meaningful milestones like $5 and $8 at Little Caesars for the Hot-N-Ready.”

As such, operators ought to consider looking beyond price points to signify value, Tristano said, whether it is the service experience, customization, culinary credibility, ingredient variety, or special preparations like slow-cooked barbecue or rotisserie chicken.

“There are so many ways you can maximize value, but it always comes down to differentiation,” he said. “What can you do differently from competitors or from consumers trying to cook this stuff at home?”

In the quick-service segment, where much of the marketing emphasis consistently has been on value for the past several years, the largest chains are approaching their messaging through the lens of new-product news.

Miami-based Burger King rebranded its value menu as King Deals, a tiered value menu starting with items for $1, including current limited-time offers the Rodeo Burger and the Rodeo Crispy Chicken Sandwich. The menu has 20 items at those lower price points at Burger King’s domestic locations, which comprise about 7,400 restaurants in the United States and Canada.

Wendy’s has added two sandwiches to their Right Price Right Size value menu

Also, from Jan. 6-29, Burger King will offer a free small coffee to any customer who purchases a breakfast sandwich.

Wendy’s, the Dublin, Ohio-based chain of about 6,500 units, also added spicy sandwiches to its Right Price Right Size value menu, which it debuted last year just after New Year’s Day. The Spicy Chipotle Crispy Chicken and Spicy Chipotle Jr. Cheeseburger sandwiches are priced at a suggested 99 cents.

Irvine, Calif.-based Taco Bell, also a Yum! Brands Inc. subsidiary, rolled out two value promotions before the new year, including the Grilled Stuft Nacho and the BCS Taco 12-Pack, both of which debuted Dec. 19.

The nearly 6,000-unit brand called out the $1.29 price point for the Grilled Stuft Nacho in the commercial that began running in December, but convenience and portability have been the main emphasis in the ad and its complementary social-media campaign. Taco Bell is managing a social campaign under the “#DoingStuff” hash tag, where people take photos or videos of themselves doing anything while eating a Grilled Stuft Nacho.

The BCS Taco 12-Pack carries a $12.99 price point and lets consumers choose 12 tacos from among the brand’s crunchy-taco flavors.

The price war continues for major pizza chains, but both Pizza Hut and Papa John’s Pizza have added a different angle to their start-of-year marketing campaigns. Both are tying a limited-time, low-price offer to a brand anniversary, allowing them to easily end the promotion without setting an expectation for a repeat performance every year.

“Cheaper isn’t always better,” Tristano said, “and for restaurant operators, it’s not a viable long-term and sustainable strategy.”

Plano, Texas-based Pizza Hut, a division of Louisville, Ky.-based Yum! Brands Inc., is offering 50 percent off medium and large pizzas ordered online at menu price for its Hut Lovers loyalty club members. New members of Hut Lovers may sign up and immediately redeem the offer, which will run through Jan. 10.

The impetus for the promotion is the anniversary of the first Pizza Hut order taken over the Internet, in Santa Cruz, Calif., in 1994. The chain of 14,000 restaurants worldwide has resurrected its original online-ordering hub from that year, PizzaNet, which the brand said produced the first thing ever purchased from the Internet.

“We want to celebrate the fact that before consumers could buy books, clothes, music or vacation packages via the Internet, they could place an online order for a Pizza Hut pizza,” Carrie Walsh, chief marketing officer for Pizza Hut’s U.S. division, said in a statement.

Pizza Hut’s commercial promotes the deal by harkening back to 1994 with one of the most popular songs of that year, “The Sign” by Ace of Base.

Louisville-based Papa John’s is taking customers back a decade further with its deal to celebrate its 30th anniversary. Through Jan. 26, consumers can add a large one-topping pizza for 30 cents, with the purchase of a large pizza at regular menu price. Papa John’s has 4,300 restaurants worldwide.

Fast-casual chains and value

Technomic’s Tristano noted that fast-casual concepts by and large do not run aggressive promotions in January or throughout the rest of the year, but those chains nonetheless could bolster their value perceptions through product news like other limited-service brands have done.

“You could conclude that brands like Jimmy John’s or Firehouse Subs don’t compete with Subway — their quality is a step above and their prices are $3 above — but the reality is consumers use both,” he said. “Consumers go higher in price one day, then look for low prices the next day to balance it out.”

Reconsidering ways to provide more value could be the way fast-casual brands make better inroads at the dinner daypart or with certain demographic groups, like women or Hispanics, Tristano added.

Women tend to look for smaller portions, which fast-casual brands could offer, even at a slightly higher price point, he said, while Hispanic customers tend to focus on family occasions when dining out. Both look for bolder, spicier flavors, he said.

“You have opportunities for more social occasions by offering a family-oriented package … or options for sampling and sharing,” Tristano said. “You don’t see as many parties of three or more in fast casual, and that might be the way for [those restaurants] to continue their momentum.”


New Pizza Hut Units Feature Pizza by the Slice

January 24, 2014

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

An updated dining room emphasizes a sit-down experience.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


On the Horizon: Five Trends for U.K. Restaurants

January 24, 2014

The trends driving restaurant growth and innovation are driven by consumer demands for transparency, quality, flavour, and flexibility.

The U.K. foodservice scene continues evolving in unique and interesting ways. Looking forward to next year, Technomic’s analysts and consultants have identified five key trends that expected to play major roles at British restaurants.

Catering to the Millennial customer

As the influence and collective spending power of the U.K.’s Millennial generation grows, expect to see restaurant operators amplify efforts to target these consumers via foods and brands that appeal more directly to a Millennial demographic.

For instance, consumers aged 18–34 display the strongest interest in ethnic flavours. And a greater proportion of younger than older consumers indicate that it is important to them that cafés offer a variety of side options and seasonal menu items, according to Technomic’s U.K. Café Consumer Trend Report. Further, 31% of consumers aged 18–34 strongly agree that they would order limited-time offerings (LTOs) at cafés, compared to just 22% of all consumers polled.

Also watch for new mobile apps and digital tools that integrate seamlessly into Millennials’ lifestyle. Offering free WiFi in-store and letting customers place orders online are great starting points for connecting with these on-the-go, always-connected guests. Leading operators are also going beyond these steps.

Last spring, Wagamama partnered with Blippar, an image-recognition mobile application, to introduce augmented-reality place mats. Guests who downloaded the free Blippar app could hold their mobile device over (aka “blip”) the special place mats to access promotional information about the Wagamama Lounge, a pop-up concept featured at London-area summer music festivals.

Domino’s last September rolled out the free Pizza Hero app in the U.K., giving customers the chance to play professional pizza maker, rolling out pizza dough virtually, adding tomato sauce and then sprinkling on cheese and assorted toppings. A direct link takes users to the ordering page on Domino’s website.

And Apple’s Passbook lets iPhone users group their coupons, loyalty/rewards cards and more in one quasi mobile wallet—giving them quick access to their most-used or most-important passes. Last fall, casual-dining chain Harvester Salad & Grill became one of the first U.K. restaurant concepts to offer Passbook integration, and gave diners who used the app at Harvester £5 off when they spent £30.

The evolution of pubs

Classic British pubs will push even harder in 2014 to transform and grab market share from conventional restaurants by focusing more attention on creating upscale, premium food and drink (particularly speciality coffee and American craft beer); launching repositioned outlets in nontraditional sites; introducing web-enabled ordering systems that emphasise convenience and speed of service for guests; and promoting low-price-oriented menus and new loyalty programmes designed to spur customer traffic and strengthen the value perception.

Die-hard traditionalists might scoff at the idea of having a coffee and working on a mobile device at the pub, but a customer-centric evolution can help pubs maintain their relevance with a new generation of consumers.

Throughout 2013, we’ve seen examples of how pubs and pubcos are tackling the task of serving consumers who have higher expectations for food/drink, amenities and service at pubs. We expect the focus on this imperative to be that much keener in the year ahead.

For example, Orchid Group—whose approximately 250 pubs are now up for sale—realised that those establishments best positioned for success in Ireland and some U.S. cities after smoking bans took effect there were those that emphasised attractive food offerings. Orchid re-evaluated its menus and added pizza and Thai food, among other items, driving increases in food’s share of the sales mix. The company also took efforts to appeal to women.

Similarly, Marston’s PLC announced at the beginning of the year that it would install free Wi-Fi at about 550 pubs under its managed pub estate, Marston’s Inns & Taverns. The Prince George pub in Brighton, East Sussex, offers an all-vegetarian menu and a vegetarian-friendly wine list. And in August, Wetherspoon announced a new initiative pairing craft brewers from the U.S. with U.K. brewers, as part of an effort to seize upon U.K. consumers’ heightened interest in craft beer. The U.S. brewers produce their beers in the U.K. for sale at Wetherspoon pubs.

Honest chicken

Thanks in part to the recent crop of “better chicken” concepts opening in London, emerging chicken-focused concepts will flourish in 2014, a trend closely tied to growing consumer interest in sourcing, preparation and menu transparency. Pret a Manger, for instance, touts that its chicken is starch-free, phosphate-free and sourced from a higher-welfare supplier in Suffolk. Expect to see chicken increasingly described as “free-range,” “locally sourced” and “hand-battered.” We’ll also see more American influences in the form of barbecue chicken and buttermilk fried chicken, as well as simpler cooking techniques that let the quality of the chicken speak for itself.

KFC in the U.K. touts that its chicken on the bone comes from only British and Irish chickens, and that chicken goes from the refrigerator to a breading of flour and the chain’s 11 signature herbs and spices and then to the fryer within two minutes. Little Chef touts that its Crispy Chicken Platter features 100% chicken breast fillet.

Other takes on fried chicken include Scream’s Southern-Fried-Style Chicken fillets served with barbecue seasoned chips, Jubo’s Chicken Roll with Korean fried chicken fillet, kimchi slaw and gojuchang mayo, and Clutch’s Love Me Tenders, fried chicken tenders in a peanut and chilli crust.

These dishes also illustrate U.K. consumers’ growing appetite for spicy heat, also evidenced incurries that pack a little more punch than chicken tikka masala; the rising popularity of Mexican cuisine; and the cult-like following of London-based Nando’s, the fast-casual concept specialising in flame-grilled piri-piri chicken. Neutral-flavoured, food-cost-friendly chicken offers an ideal protein platform for showcasing the vibrant flavours and colours of chillis from around the globe.

Migration of street food

Fueled by younger consumers’ demand for authentic and unique offerings, chefs are looking to global street foods for menu inspiration for their brick-and-mortar restaurants. Trendy street-inspired dishes starring on menus include Venezuelan arepas, Chinese jian bing and bao, Taiwanese hirata buns and Italian arancini.

KFC U.K. got in the game last year, introducing a limited-time Streetwise Sweet Chili Wrap featuring a chicken mini-fillet, sweet chili sauce, lettuce and cheese wrapped in a tortilla. And London-based fast-casual chain Leon introduced a Thai Green Chicken Curry box, featuring slow-cooked shredded chicken thigh, roasted aubergine and bamboo shoots served on brown rice.

Looking ahead, ethnic beverages like Mexican aguas frescas and horchata will carve out a wider niche on the menu. Also watch for dynamic flavour mashups from different cuisines and the continued growth of food trucks serving ethnic and fusion street foods.

Telling the sourcing story

Transparency is now top-of-mind for operators who want to keep customers confident in their brand. Use of eco-friendly food packaging, such as recycled or reusable cups or stemware, is increasing along with a growing commitment to ethical food sourcing. Next year will bring a surge in brand campaigns communicating quality and traceability. Watch for package logos denoting animal welfare standards, in-restaurant signs documenting supplier sourcing, and marketing initiatives focusing on the use of British and Irish products.

A good example is the Olive Branch Pub in Clipsham. Its website highlights a story about head chef Sean Hope’s recent lobster fishing trip, to source the freshest lobster for dishes such as grilled lobster Thermidor and a fresh lobster claw and tail meat with lobster tortellini. The site also provides a list of the pub’s suppliers and producers—not just the names of the farms but also the actual farmers with whom the Olive Branch works.

For its part, McDonald’s U.K. invited three young British farmers to get a behind-the-scenes look at operations inside McDonald’s stores as the part of its Progressive Young Farmer Training Programme. The mentoring-focused programme, according to McDonald’s, “aims to help young people looking to work within agriculture kick-start careers in the industry by providing them with the blend of farming and business acumen needed to succeed in today’s modern farming sector.”

The programme has the added benefit of providing a fresh, interesting supply-chain story that McDonald’s—which also announced in April that it was switching to serving 100% Freedom Food pork raised on farms that meet strict animal-welfare standards—can share with consumers.

Similarly, fast-casual burrito specialist Chipotle, whose Food With Integrity philosophy/sourcing model has won acclaim in the U.S., notes on its U.K. website that it uses Freedom Food chicken, Farm Assured beef and free-range pork.

Key Takeaway

The trends driving restaurant growth and innovation are all driven by consumer demands for transparency, high-quality and -flavour, and flexibility. Restaurant operators should examine and pay attention to these trends but follow the lead of their own customers and those they are trying to attract.


Can fast-casual continue its rapid growth?

January 22, 2014

page067thave 100Fast-casual eateries are riding a boom of consumer demand for better food at cheaper prices. It’s a formula that now accounts for nearly 10 percent of sales across the restaurant industry.

But can the segment continue its industry-leading growth?

Analysts and those within the restaurant industry say yes.

The NPD Group projects fast-casual concepts will continue double-digit growth through the next decade.

“They’ll grow more than 1 percent a year over the next 10 years, when the industry is forecast to grow less than half a percent a year,” said Bonnie Riggs, a restaurant analyst with the Port Washington, N.Y.-based research firm. “It will be a battle for market share. This group of concepts will be a group that will be winning that battle.”

Small and rural markets will fuel the segment’s growth and dominance of the $420 billion national restaurant industry.

During the past six years, fast-casual’s growth has occurred in higher-density markets such as cities and suburbs, said Darren Tristano, executive vice president of Chicago-based food industry research firm Technomic Inc. He said many of these chains and concepts will start looking at smaller areas.

“Primarily, you don’t need a lot of sales to justify a restaurant (in these markets),” he said, citing Jimmy John’s Gourmet Sandwiches and Chipotle Mexican Grill among the brands eyeing those markets. “We’ve seen in the smaller markets the demand is there, and they’re generating sales because unit volumes are so high.”

The economics of fast-casual make it a perfect fit for smaller markets because of lower overhead costs.

“A small footprint and reduced cost on food and beverage still provides ample opportunities to be profitable,” Tristano said.

Even in sprawled-out markets such as Phoenix, fast-casual will continue to dominate, said Dan Beem, president of Scottsdale-based Cold Stone Creamery, a unit of Kahala Corp.

“There’s definitely room for growth in the Phoenix market,” he said. “The economy’s picking up, and our food scene has really evolved the past eight years.”

That being said, those with quality product will win out.

“The minute you start to diminish on food quality, you’re going to lose your consumers very, very, very quickly,” said Steve Chucri, president and CEO of the Arizona Restaurant Association.


‘Most-Influential Burger of all Time’ Bestowed on White Castle’s Slider

January 21, 2014

slider-fame-art-gaaqe1kk-1restaurants-hq-2-jpgThe White Castle hamburger, which has been noted in everything from film to song, has reached an even-higher level of recognition.

Time, the magazine known for its annual listing of the world’s most-influential people, says the “most-influential burger of all time” is the one made by White Castle also known as a Slider.

“The now-iconic square patty — which debuted in 1921 at the first White Castle in Wichita, Kan. — was the first burger to spawn a fast-food empire: By 1930, White Castle had 10 U.S. locations,” the magazine said at the top of its online list of the 17 most-influential burgers ever.

“Its success paved the way for the great American burger obsession,” the magazine said.

Magazine staffers chose the Slider as their most-important hamburger after interviewing “burger historians and experts,” according to the Time website.

Completing the top five most-influential burgers were the McDonald’s hamburger at No. 2; the In-N-Out burger, No. 3; the 21 burger, No. 4; and the Burger King Whopper, No. 5.

“If I were going to look at this, there are three that come to mind,” said Darren Tristano, executive vice president of Technomic, the Chicago food and restaurant research firm. “The Slider, the Whopper, the Big Mac. To me, those would be the top three.”

The name “Slider” has been a term of endearment for fans since the 1950s, said Jamie Richardson, the White Castle vice president who is chief spokesman for the family-owned company. He’s also a family member.

Although the Columbus-based fast-food company used the name “slyder” in its 1990s advertising, it didn’t adopt the “Original Slider” trademark until 2011, Richardson said.

The choice of the Slider as the most-influential hamburger doesn’t surprise Tim Powell, principal of the business-management firm Think Research and Consulting in Dublin.

“White Castle is one of the most-iconic brands because of its bite-size hamburgers,” Powell said in an email.

Also yesterday, White Castle celebrated its 1 millionth “like” on social-medial site Facebook with free food, gifts and giveaways for fans.

“This is our 80th year in Columbus,” having moved here from Wichita in 1934, Richardson said. “ Columbus has many distinctions. Now, it’s also the home of the most-influential burger. We’re truly humbled by the honor.”


Restaurant And Hospitality IT News For VARs — January 6, 2014

January 14, 2014

pictureMobile apps with integrated loyalty and rewards is boosting digital gift card spending — and restaurants are planning to invest in smartphone app and other mobile technology. Also in the news, the RPI reached a five-month high in November 2013, at 101.2.

Help Clients Boost Engagement With Stored Value Cards

In his article for QSR Web, Jon Squire says that the launch of mobile apps with integrated loyalty and rewards has encouraged more spending on digital/mobile gift cards. For clients looking to invest in mobile platforms this year, it would be beneficial to discuss how gift cards fit in. Companies like Starbucks have seen success from stored value cards, which can be mGifted, can earn your client new customers, and can encourage repeat app usage. An app that integrates loyalty and rewards and promotes stored value cards could be an important strategy for your clients for 2014.

6 Priorities For Mobile Commerce

According to the National Restaurant Association, more than half of full- and limited-service restaurants planned to invest in smartphone apps and other mobile technology in 2013. However, there are six priorities that must be accomplished to ensure a successful future of mobile commerce in the U.S. These six priorities include: standards development, transparency, cost efficiency, legacy rule limitations, payment security improvements, and mobile commerce advancement.

RPI Reaches 5-Month High

The National Restaurant Association announced that the Restaurant Performance Index (RPI) hit a five-month high in November. The RPI rose 0.3 percent from October, reaching 101.2 in November. This is the highest its been since June. Operators attribute this increase to improving same-store sales and increasing customer traffic. A majority of restaurant operators (54 percent) also reported making a capital expenditure within the last three months.

Burger Joints Investing In Online Ordering

According to QSR Magazine, burger joints have been focusing on ways to incorporate online ordering into business. Even chains as large as McDonald’s have tested ordering capabilities via app to help ensure quicker customer service. These new services however, are daunting to businesses because of the staff training it involves and the overall effort to develop the service. Darren Tristano from Technomic says businesses looking into online ordering should invest in an app that is easily downloadable, free, and can securely store payment information. Making the app about more than just ordering will only help to boost convenience for customers.

Restaurant And Hospitality IT Talking Points

A Japanese company has begun to use QR codes to inform customers about where certain apples are from and how they’re produced, Japan Daily Press reports. These QR codes can provide consumers with information on how and where the apples were grown, along with a message from the farmer.


Premium Toppings, Pairings Boost Pizza Sales

January 13, 2014

picCustomizable options and combo opportunities are creating exciting new options across the foodservice category.

Pizza remains among one of the most demanded foodservice options anywhere in the country. But it’s also one of the most competitive menu options. Customers are demanding high quality toppings and more exciting varieties in their pizza pies, as well as value-driven add-ons, such as beverages and side dishes that can complete a meal. Moving into 2014, convenience stores can expect increased competition from fast casual restaurants selling customizable pizzas and pizzerias attracting customers with craft beer options.

Chicago-based research firm Mintel International found in a recent study that the pizza restaurant market in the U.S. grew throughout the recession and is continuing to gain momentum. Pizza restaurant sales grew 10% from 2007 to 2011, and a growth of 16.7% is predicted from 2012 to 2017, reaching a projected $44 billion in 2017.

C-stores have ample opportunity to cash in on pizza’s popularity and take advantage of pizza trends coming out of other channels, from bundling beer and pizza to featuring more gourmet toppings and themed pizza options.

Italian Meats Pizza
Wade Mannino, president of Patoka Fast Stops in Patoka, Ill., and Stop and Go Marts in Marine, Ill., has been partnering with Hunt Brothers Pizza since 1996. He is seeing the latest trends in pizza first hand. “Customers are looking for specialty pizzas and add-ons—like bread sticks, chicken wings or calzones—anything they can add on to the pizza order,” he said.

Mannino’s stores witnessed customer excitement from the introduction of Hunt Brothers’ new Italian Meats Pizza (pictured above), which brought a bump in pizza sales with its debut during a test market launch earlier this year. “Anything new here sells,” Mannino said, noting that his stores offer all of the limited time only (LTO) pizzas, such as the Buffalo Chicken pizza, that Hunt Brothers offers to keep customer interest high year round.

The Italian Meats pizza uses Hunt Brothers’ original rising fresh crust, topped with a signature sauce, layered with slices of Italian-style ham, salami, pepperoni and 100% mozzarella cheese.

According to a recent Mintel report (see sidebar), pepperoni and sausage are the two most popular toppings. The Hunt Brothers’ varieties were tested in the Dallas and St. Louis markets (which includes Illinois) from Aug. 18 to Oct. 14, and rolls out nationwide this month. When introducing meat topping pizzas, c-stores often struggle with a low quality perception, but by elevating the quality of the meat and product, c-stores can not only increase price, but can break through that perception and increase sales, said Darren Tristano, executive vice president, for the Chicago-based research firm Technomic Inc.

“Customers like the Italian Meats pizza because it’s new and it’s more of a premium product,” Mannino said.

Just as important, the pizzas are delivered with all the toppings already in place, making it easy for employees to prepare. “All you have to do is add the seasonings and spices they use, and if the customer wants double cheese then you’d add the double cheese to that,” Mannino said.

LTO Excitement
Gier Oil Co., with 37 Eagle Stop Convenience Stores in Missouri, also partners with Hunt Brothers Pizza at a number of its locations.

Bethany Poe, operations supervisor for eight Eagle Stop stores, six of which offer the Hunt Brothers program, said her customers are also looking for variation, and are attracted by limited time offers. “Customers miss the LTOS when they are taken off the menu, but then they’re excited when they bring them back a few months later,” she said.

Poe’s stores also tested the Italian Meats pizza during the pilot period. “Some of our stores are in rural areas, and it’s especially beneficial to try to do something different in these locations to change up the offering for the customers,” she said. “With the Hunt Brothers offering, we have the option of selecting the pizzas we want to offer, but we normally go with what Hunt Brothers recommends to stay competitive with the other stores,” she noted.

Technomic found that when it comes to flavors, themed pizzas continue to trend, especially at the c-store level. “The Buffalo chicken pizza is popular because it has the protein—chicken—but also the Buffalo sauce that’s going to give it some spiciness, which customers love,” Tristano noted.

Hawaiian pizza—with ham and pineapple— is another example of a popular themed pizza. Themed pizzas are gaining traction because customers don’t have to decide what topping to add.  “This is something that can be picked up by c-stores and leveraged as an opportunity to sell more pizza,” Tristano said.

When selecting a variety of themed pizzas it’s important to note that an increasing subset of the Millennial generation identifies as vegan, vegetarian or flexitarian (vegetarian most of the time but sometimes eats meat), making it wise to offer a non-meat pizza option alongside a meat-eaters option to capture customers in this demographic, Tristano noted.

Trending Now
Tristano pointed to two overarching trends set to impact pizza in 2014: the pizza pub concept of pairing pizza and alcohol together, and customizable pizza pies, made exactly how the customer desires.

Better fast casual pizza concepts are a key trend now emerging—not only on a regional basis—but soon to hit the national landscape as they gain momentum and capital for growth.

“In California, Blaze Pizza and Pieology are examples of concepts doing something similar to what Chipotle does. You pick a pizza they have or customize it as you interact with the person preparing the pizza,” Tristano said. “What these brands are doing is taking advantage of customization and speed, while leveraging quality and premium ingredients and flavors, which are all on target with what consumers are looking for from the pizza segment.”

Better With Beer
Craft beer is trending with both men and women—and especially with Millennial consumers. Pizzerias are tapping into this demand, showcasing an array of craft, domestic and premium beers alongside their pizza offerings.

“To some extent you have this already in a c-store, most of which sell beer,” Tristano said. “A lot of times a pizzeria isn’t going to have the same beer selection as you can find at a c-store, making this an opportunity for c-store retailers.” 

Technomic consumer research shows customers continue to demand premium high quality toppings and convenience, and proximity and convenient location weigh as key factors in customer intent to purchase.

“That’s something c-stores have an incredible advantage with, not just because of the number of locations, but the ease of going in and out, parking and the ability to pick up other items, such as pop, candy snacks and desserts,” Tristano said.

Convenience stores that currently serve pizza can boost sales by making it easy for customers to select the types of items usually purchased with pizza. That could be chicken wings, but more likely it’s desserts, snacks and beverages—including beer—that can be offered as a bundle deal or simply merchandised nearby.

Trendiest Toppings
Chicago-based research firm Mintel International, recently polled consumers to discover the hottest pizza toppings. Pepperoni took the lead (65%), followed by sausage (54%) and mushroom (51%). Other winners included extra cheese (45%), onion (39%), green pepper (37%), olive (34%), bacon (31%), ham (29%) and pineapple (21%).
Men are much more likely than women to order bacon-topped pies (38% of men versus 24% of women), sausage (60% to 48%), pepperoni (71% to 60%), and ham pizzas (34% to 25%).
Age also impacts topping preferences. Those 18-24 prefer bacon-topped pizza (40% versus 31% on average), extra cheese (54% to 45%), ham (36% to 29%), and pineapple (26% to 21%).


Cold Fusion

January 9, 2014

2014-01-09_1101In an exercise that captured the attention of category managers attending CSP’s Cold Vault Summit, consultant and former retailer Casey McKenzie of Lexington, Ky.-based Impact 21 Group asked the retailers to consider where they would place products in a fictional convenience store.

While the specific results didn’t matter—“There is no right or wrong answer,” McKenzie said— the real message was in the variety of answers.

While one group placed beer in the back-corner cold-vault doors across from a beef-jerky endcap, another put dairy in the same corner doors with bread and other grocery basics nearby. “We imagined our store was in the Northeast, where c-stores really evolved out of the dairy business,” explained the team’s leader, Nancy Knott, category manager of alcohol for La Palma, Calif.-based BP ampm. In that region, she reasoned, consumers are still drawn by bread, milk and eggs.

“That’s it!” McKenzie said. “This exercise is not just about product placement and adjacencies; it’s about what your marketing objectives are. Much of it is driven by who your customers are and what you want to be. But it can’t all be pie-in-the-sky stuff; there has to be some science behind it.”

For three days, 35 retailers from across the country put on their proverbial lab coats to consider the science and the data driving beverage sales today. Their scientific method started with a big picture: the economy and,
perhaps more important, how consumers view it.

“I think the economy is in a lot better shape than [most] people do,” said analyst Nik Modi, who follows beverage and tobacco stocks for RBC Capital Markets. Modi said the housing market is improving, U.S. gross-domestic product is growing again and the job picture is showing some progress.

Despite that, 10 of 12 major beverage categories are slowing and the majority of food categories are declining, according to Modi.

This is a matter of psychology and how consumers think about their purchases. “The internal consumer is being squeezed,” forcing them to be more disciplined in their spending, meaning less discretionary spending
on things such as beverages and fast food, he said. “Consumers are making choices.”

Also, as spending on cars and housing have increased this year, retail sales have declined.

Calorie Concerns
Meanwhile, the continuing trend toward healthier eating also has taken a toll in more ways than one.

First, there’s the move away from products—full-calorie sodas and juices—viewed as adding to the obesity epidemic in the United States.

But the real surprise is that even diet drinks, particularly low-calorie carbonated soft drinks, are hurting, indicating the next phase in the continuing move away from the CSD category.

“It comes down to health and wellness,” Modi said. Consumers are hearing a lot of negative news about low-calorie sweeteners, particularly aspartame, that’s turning them away from the category.

“Just as consumer interest in aspartame peaked (in the first quarter of 2013), diet CSD trends began to worsen, while regular CSD trends remained,” he said. “There are a lot of companies out there chasing the lowcalorie trend. I’m not sure it’s as important today as it used to be.”

For c-stores, those more indulgent beverages are still an area of growth. “Seventy percent of what I sell in my stores have nothing to do with health and wellness,” said retailer Lundy Edwards of Forward Corp., Standish, Mich.

Still, Modi and others pointed out, the trend suggests these full-calorie categories are falling out of favor with the public.

Ivan Alvarado, director of category management for Plano, Texas-based Dr Pepper Snapple Group, acknowledged that in just the past year, the average CSD set has shrunk from 14 shelves to nine in c-stores, most of it claimed by energy drinks and bottled water. “Some of this is related to health and wellness, and some of it is self-infl icted,” he said, citing beverage makers’ hesitance to innovate, and that “CSDs have not been able to communicate with millennials. New tactics are needed to reach these consumers.”

Added Clinton McKinney, group director category advisory for Atlantabased Coca-Cola North America, “If you want to be known as one of the retailers who embraces innovation, you’ve got to go all the way and let the
consumer know that’s your play with signage and other messaging.”

“It’s all about interrupting that autopilot behavior that consumers have in the store,” Alvarado said.

One challenge for retailers is the latest generation—those 21 to 35—coming of age. These millennials are less trusting of big business, making a warning message about the industry’s oldest artifi cial sweetener resonate all the more.

“They have a very low level of trust for institution,” Modi said. Instead, millennial consumers rely on their friends for recommendations, whether it’s a co-worker they see every day or a distant but respected acquaintance they  communicate with only through Facebook.

“It’s when recommendations start coming in on social media that sales really begin to improve,” Modi said.

To that end, Alvarado encouraged retailers to call out soda makers to turn things around. “Challenge us,” he said. “Every time we walk in your stores, ask us: What are you doing to sell more in my store?”

Energy’s Boost
One of the most active beverage categories on social media is energy drinks. With sponsorships of extreme-sport athletes and unique events, such as Red Bull’s Flugtag competition and Monster’s sponsorship of skating, surfi ng and snow events, the suppliers are keeping their brands in front of their key demographics’ eyes.

“Think about all the things that Red Bull does that make someone think, ‘Oh, I’ve got to post that [on Facebook],’ ” Modi said.

Still, energy-drink sales trends are slowing. The young category overall is growing by about 5% today, compared to the double-digit (up to 20%) growth of past years. The category is maturing, and consumers have taken notice of the headlines surrounding energy drinks and the pending lawsuits that claim the drinks are dangerous. Still, Modi doesn’t think that has had much of an effect on sales.

Energy-drink sales grew 8.6% in c-stores for the 52-week period ending Aug. 10, 2013, according to Nielsen data presented by James Ford, head of category and shopper insights for Red Bull North America, Santa Monica, Calif.

“The convenience channel is driving energy-drink growth,” he said. “And energy drinks will continue to be the biggest growth contributor to the beverage category through 2017 and beyond.”

C-store retailers attending the Cold Vault Summit generally agreed that energy drinks are still a bright spot in the cooler, bringing a high-margin ring to the checkout as the major energydrink makers—Monster, Rockstar and Red Bull—maintain a busy newproduct introduction pace to keep the category fresh.

The Wonders of Water
Bottled water is also gaining space in the cold vault as the subcategory continues its march toward becoming the No. 1 beverage in the United States.

The growth comes as usage occasions expand and variety increases, said Chelsea Allen, senior manager, category and shopper solutions, for Nestle Waters North America, Stamford, Conn.

“Bottled water outsells sodas in 13 U.S. markets today,” she said. “It will be the No. 1 beverage in the country in 2016.”

The opportunity for retailers is to grab as much share as possible of the category while it’s still growing.

“Smartwater is the fastest-growing brand, and private-label [water] is growing on distribution gains,” Allen said. “But … we know that brands bring people into your stores. In fact, 44% of all bottled-water households will only buy branded bottled water.”

To improve water sales, Allen encouraged retailers to offer single-serve packaging for the three main water segments: premium, popular and value waters. She also urged retailers to stock 12- and 24-packs of water. “Nearly 6 million shoppers shop in convenience stores and buy case pack water,” she said. “But only 1% of households buy case water in c-stores. It’s a real opportunity.”

Favoring Flavor
Millennials are helping change another aspect of the beverage landscape: They’re more willing to experiment with new flavors. They join the growing Hispanic demographic in a desire to sample bolder flavors. When you add millennials’ $1.7 trillion in spending power to Hispanics’ $1.2 trillion, the result is a “structural change” to the country’s palate.

“It’s the blending of America,” Modi said. “The white consumer is taking culinary cues from Hispanic, Asian and African-American consumers.”

This led Modi to suggest beverage manufacturers should focus less on low-calorie products and more on new flavors that appeal to this new desire for stronger flavors.

“We’re at a point in the United States where companies are taking ingredients out of their products” to make them seem more natural, Modi said. “Instead, there’s not enough flavor.”

The most obvious and successful evidence of this trend is in the beer and wine categories. One reason: By 2018, 80 million millennials will be of legal drinking age, and 20% of millennials are also Hispanic, according to Darren Tristano, executive vice president of Chicago-based Technomic Inc.

For wine, the move has been toward mixing varietals to create new flavors and indulging the millennial consumers’ sweet tooth.

“The millennial doesn’t want to drink what their parents drink,” said George Ubing, national director of the convenience channel for E. & J. Gallo Winery, Modesto, Calif. For Gallo, the goal of turning wine into a more refreshing beverage has prompted innovation. Leading the way are Barefoot’s lighter, more thirst-quenching line extensions Refresh, Moscato and Bubbly; and a Liberty Creek wine packaged in a Tetra Pak to target on-the-go lifestyles.

Beer’s story has been told many times: The growth is in “better beers”—imports, crafts, higher-end brews from major brewers—as consumers seek more flavor and diversity, even at greater expense.

“There’s a definite shift away from domestic beers,” said Tristano. “Today, it’s craft beers, cider and imports that are growing. When they become too popular, that’s when millennials say, ‘Wait a minute. I want to try something different.’ ”

That, to Modi, is an opportunity. Their willingness to experiment and try new flavors gives retailers permission to “reduce the SKU capacity, but supply newness,” he said. That is, don’t feel the need to stock every variation on a subcategory; instead, stock the most popular and the newest to maintain the fastest-selling brands while providing customers the ability to experiment.

This theory is backed by research that shows a balanced beer portfolio is the most successful way to grow overall beer sales, as outlined by Dean Zurliene, St. Louis-based Anheuser-Busch’s senior director of category management.

“There’s a lot of shifting in the beer mix today,” Zurliene said. “When retailers manage it from a balanced approach—emphasizing both premium beers and crafts—they win 93% of the time.” One reason is the beer buyer’s likelihood to buy both craft and premium beers or spend money on both segments.

“More often than not, someone who drinks craft beer also drinks premium beer, also drinks value beer, and also drinks import beer,” he said. “The craftbeer shopper only spends 32% of their beer money on craft beer.”

This data falls in line with research on the millennial consumer, too. “Millennials are not the most brand-loyal consumers,” said Adrienne Nadeau, senior researcher for Technomic. “They crave variety.”

And providing that variety can be a long-term win for retailers, Tristano agreed. “It’s not loyalty to millennials; it’s frequency,” he said. “If you build the frequency, the habit with this generation, you can grow with them.”