Bagger Dave’s slide: After multiple closings, missteps, burger chain goes into holding pattern

February 18, 2016
GARY ANGLEBRANDT
February 13, 2016 8:00 a.m.
Crain’s Detroit Business
http://www.crainsdetroit.com/article/20160213/NEWS/302149989/bagger-daves-aims-to-beef-up-outlook-after-closings-missteps

If the past year is any indication, the future of Bagger Dave’s Burger Tavern is anything but in the bag.

The Southfield-based restaurant chain suffered the indignity of two rounds of restaurant closings in 2015. The first came in August, when parent company Diversified Restaurant Holdings Inc. shuttered three locations, all in Indiana, gnawing $1.8 million in writedowns off the corporate books.

Then in December, eight more locations closed, at a loss of about $10.7 million for writedowns and other costs. One of them was its downtown Detroit location. The others were in Indiana.

The Detroit restaurant had been open for two years. One of the Indiana restaurants didn’t last 10 months; two more barely made it to the one-year mark. The oldest of the Indiana restaurants, the one in Indianapolis, was just 3 years old.

Anyone looking for more upbeat signs than these should avoid cracking open Diversified’s quarterly reports of the past year.

The reports start rosily enough. The first, released in March, predicted between 47 and 51 stores by the end of 2017. (There were 24 at the end of 2014.) These numbers steadily fell in subsequent reports. By the time November’s third-quarter report came around, the company had stopped making any predictions at all.

“We will not commit to any further development of Bagger Dave’s,” the company said in the report, released seven weeks before the December closings.

That doesn’t mean the company had given up on Bagger Dave’s. It opened five last year, including one in Centerville, Ohio, as recently as November, its first in that state. Another is set to open near Cincinnati in late March. But that and the 18 Bagger Dave’s (16 in Michigan, one in Ohio and one in Indiana) that survived the closings — and employ 670 people — will be the last for the foreseeable future.

This is a marked about-face for a company normally hell-bent on growth. It opened six Bagger Dave’s in 2014 and seven in 2013. And that pales to its Buffalo Wild Wings franchise operations, the largest in the country. Last year alone, Diversified added 20 more restaurants, 18 of which came from the $54 million purchase of Buffalo Wild Wings restaurants in the St. Louis area. That brought the number of Buffalo Wild Wings locations under its umbrella to 62.

From the end of 2011 to the end of last year, Diversified increased the total number of its restaurants across the two brands from 28 to 80. This year, though, it plans to add just three — the Bagger Dave’s near Cincinnati and two more Buffalo Wild Wings locations.

Familiar taste

Bagger Dave’s has struggled before. Sales took a hit after Diversified embarked on an aggressive growth plan in 2012, opening or buying 16 stores across its two brands. It listed on Nasdaq the following year.

The pace distracted management from everyday operations, and it was the Bagger Dave’s side of the business that took the hit in sales.

To mend things, Diversified beefed up Bagger Dave’s marketing, launched a corporate training program, brought in an employee-assessment firm and began hiring professionals from national chains such as Red Robin. It brought in consultants from the Disney Institute to go over employee retention and recruitment and rolled out new menus — the first one in early 2014 and another last year. The final rollout wrapped up last September.

It included adding more burgers and removing sandwiches that weren’t selling well, switching from a two-patty burger to an 8-ounce one and adding a grilled chicken breast sandwich. Fries are included in the price of a burger instead of added on. The menu’s marketing pitch changed to tell customers about certain points of company pride, such as how it uses prime rib and sirloin in its burgers and carefully sources its food.

“I’m much, much more connected to Bagger Dave’s now,” CEO Michael Ansley said last April in a Crain’s interview.

Things appeared to pay off. In a conference call for last year’s second-quarter results, Ansley said sales at Bagger Dave’s stores open at least two years had increased 2.5 percent compared with the same quarter a year earlier and 4 percent year to date.

Ansley talked about encouraging positive signs showing in things like Facebook “likes” and “net promoter scores,” which measure customer satisfaction. Investments in technology — tabletop ordering tablets, a mobile app, a gift card program, a “RockBot” jukebox app — promised to further brighten the picture.

Nevertheless, Ansley had to acknowledge struggles. “Despite the positives, we fully appreciate the missteps we have made in the past with respect to the brand,” he said.

One initiative has proved costly. Management was determined to maintain a base staffing level at Bagger Dave’s restaurants, even if sales were low. This policy was done to bolster service and coax repeat visits out of customers.

But this, along with minimum wage increases, pushed up the company’s year-on-year compensation costs by more than 25 percent in the second quarter of last year. This came on the heels of a $2 million spike in compensation costs that brought its tally for 2014 to $9.2 million.

Minimum staffing practices like this are rarely used in the restaurant industry, said Darren Tristano, president of Technomic Inc., a Chicago-based restaurant industry research company.

“There’s nothing financially efficient about it,” he said. “You end up with staff standing around.”

In a conference call on Nov. 5, Ansley and CFO David Burke expressed frustration with the slow pace of results. Burke described Bagger Dave’s as a “Dr. Jekyll/Mr. Hyde concept” because of the changes it had undergone.

There were signs of improvement coming out of investments in the menu and training, but “you don’t see an immediate impact in sales from that,” he said.

The financial picture

Diversified’s breakneck growth comes with a heavy capital burden.

Estimated capital expenditures last year were about $30 million. It spent $36 million the year before.

The buildout of a Bagger Dave’s costs $1.1 million to $1.4 million, according to company financial statements. A new Buffalo Wild Wings costs $1.7 million to $2.1 million. Updates to older restaurants cost between $50,000 and $1.3 million.

A listing on Nasdaq in 2013 raised $31.9 million. But much of the company’s expansion has been financed by debt. Total debt rose from $61.8 million at the close of 2014 to $123.9 million at the end of September, pushed up because of the acquisition of the St. Louis stores.

The company’s share price opened at $2.57 the day the closure of the eight stores was announced. The stock was trading just above $1.50 last week.

A pair of lawsuits last year further strained finances. The two cases, brought by the same attorney, alleged employees who work for tips were made to do the work of non-tipped employees who earn a higher hourly rate. The settlement and related expenses cost the company $1.9 million.

For the first three quarters of last year, Diversified booked a net loss of $6.6 million, compared with an $85,000 profit for the same period in 2014. The company lost $1.3 million overall in 2014. The company does not believe it made a full-year profit in 2015. (Annual results are expected to be released in March.)

Preliminary financial estimates for 2015 show revenue growing 34 percent to $172.5 million from $128.4 million in 2014, in line with the company’s guidance.

Same-store sales increased 2.8 percent at Buffalo Wild Wings and 1.3 percent at Bagger Dave’s from 2014 to 2015, but they decreased 7.8 percent year-over-year in the fourth quarter at Bagger Dave’s and increased just 0.8 percent at Buffalo Wild Wings.

The Buffalo squeeze

Bagger Dave’s menu refresh included adding more burgers and removing sandwiches that weren’t selling well.

The 18 Bagger Dave’s stores that remain don’t appear to be on much better ground.

The eight stores shuttered in December generated $5.5 million in revenue, or $687,500 per restaurant, through the first three quarters of last year and had a pre-tax (EBITDA) loss of $600,000. But the other 18 locations brought in $14.1 million, or $783,333 per restaurant, and had a pretax profit of $700,000. That comes to less than $52,000 per restaurant on an annualized basis, a growth rate of 5 percent.

The revenue per restaurant on an annualized basis comes to $1 million, well below the target revenue per store of $1.7 million, the goal stated in a presentation to investors in January.

A profit margin of 5 percent is low, especially for company-owned stores, Tristano said. Franchisee-owned stores typically hit at least 10 percent because of the fees to the franchisor they must pay.

“They’ve got to be doing better than 5 percent to pay down their debt,” Tristano said.

The obvious question that arises is, were the closures enough?

All Bagger Dave’s restaurants are company-owned. (Plans to franchise the brand several years ago were scrapped.) With a massive Buffalo Wild Wings operation cranking away, the Bagger Dave’s “baby brand,” as Ansley has called it, has had a hard time getting the attention it needs.

Diversified has a contractual obligation with Buffalo Wild Wings Inc. to open 42 restaurants by 2021 and has 15 more to go. The company says it’s ahead of schedule.

Ansley also points out that failing to make that obligation bears only a weak cost: Diversified only has to pay Buffalo Wild Wings $50,000 for each store it does not open — far less than the millions it costs to open one. “With our relationship with Buffalo Wild Wings, I doubt they’d charge us the $50,000,” Ansley said.

In any case, the moves Bagger Dave’s has made demonstrate the pressure on Diversified to stay focused on the much stronger Buffalo Wild Wings side of the business.

“In the year ahead, we plan to focus our resources primarily on growing our BWW portfolio, which represents the overwhelming majority of both our revenue and adjusted EBITDA,” the company said in its third-quarter report.

The move toward Buffalo Wild Wings is smart because it’s a more proven brand than Bagger Dave’s, which is “a good brand but not that broadly differentiated,” Tristano said.

“The reality in our industry is that there’s no shortage of optimism. We hear about these ambitious goals, but very rarely do we see brands meet those goals.”

The response

Last year’s closings, which included one Buffalo Wild Wings restaurant in Florida besides the Bagger Dave’s spots, were the first for the company. But they were a long time coming.

“Bagger Dave’s has given us some fits,” Ansley said in an interview. “We knew we had issues with it two years ago. We made a lot of changes — I can’t even count the changes.”

These changes came too quickly and were confusing for guests and employees. “We were too aggressive. That was the problem, and we learned it the hard way,” Ansley said.

Casual dining chains face intense competition throughout the country, not just from each other but also from fast-casual restaurants like Chipotle Mexican Grill and Five Guys Burgers and Fries. The parent of the Max & Erma’s chain closed eight metro Detroit locations in January.

To counter this trend, Diversified needs to do a better job of marketing Bagger Dave’s by doing things such as telling people of premium ingredients that are mostly sourced in Michigan, Ansley said.

He also is heartened to see interest in properties of the shuttered locations. This includes the one in downtown Detroit, which has garnered “a lot of offers,” he said.

The company is holding the line on the minimum staffing levels that have driven up compensation costs. “There will be a little deleveraging from” the minimum staffing levels that drove up compensation costs but “nothing substantial,” Ansley said.

No more Bagger Dave’s locations will be closed, Ansley said. If the prototype stores do well for the rest of the year, “then we will start expanding again,” he said.

The 18 remaining Bagger Dave’s restaurants are profitable, said Ansley, who is especially encouraged by the performance of “prototype” stores. These stores have the new menus and have been redesigned to be smaller and “hipper.” They are in Grand Blanc, Birch Run, Grand Rapids, Chesterfield Township and Centerville, Ohio.

The three analysts who cover Diversified’s stock are encouraged. They express concern at the company’s debt but agree that the Bagger Dave’s changes are on the right track.

“We think much of the ‘noise’ of the past few quarters is behind the company and management can focus on restaurant operations,” wrote Mark Smith, analyst at Minneapolis-based Felt & Co.


The chips are down for Chipotle, but not for long

February 11, 2016

by Todd Wasserman
Campaign
http://www.campaignlive.com/article/chips-down-chipotle-not-long/1383083

In 2013, Chipotle released a haunting animated video featuring a scarecrow that observes the horrors of automated farming. Set to Fiona Apple’s rendition of “Pure Imagination,” the ad went on to win CAA Marketing a Grand Prix at Cannes the following year.

Before the Cannes judges weighed in, though, Funny or Die did with a damning parody changing the tune to “Pure Manipulation” and offering a cynical analysis of Chipotle’s marketing. “We can say what we want. In our world of pure imagination,” went the lyrics. “Just pretend we’re your friends. It’s what we want you to believe.”

Funny or Die’s blistering critique did little to hurt Chipotle’s appeal. Instead, several incidents of food-borne illnesses over the past few months have exposed the chasm between the chain’s brand promise and the realities of running a large-scale restaurant operation. It’s safe to say, at least, that Chipotle won’t be trumpeting its “food with integrity” mantra for a while or criticizing rivals for their factory farming practices.

Because of its healthy financials and sheer size — the company’s market cap is around $14 billion — few expect Chipotle to go the way of Chi-Chi’s, another Mexican chain that closed its doors in 2004 after it unknowingly perpetuated a hepatitis A outbreak that killed four people.

That prognosis for Chipotle, however, assumes that the worst of the crisis is over. Going forward, Chipotle will source more of its food from major suppliers, mooting a prime differentiator from other fast-food chains. The company is also planning to launch a new branding and PR campaign to woo back its Millennial base. Already, a burrito giveaway designed to appease customers after the chain closed its doors briefly Monday for companywide safety meeting has overshadowed concerns about food-borne illnesses, at least on social media. (Reps from Chipotle and agency GSD&M could not be reached for comment.)  Experts predict that Chipotle will likely end up in the clear.

The damage so far
Almost 500 people have gotten sick from Chipotle food since last June, 20 of whom were ill enough to be hospitalized. One such customer, Chris Collins of Portland, Ore., experienced bloody stools and excruciating pain after ingesting E. coli 026 from one of Chipotle’s chicken bowls. At one point, his doctors feared kidney failure. Though that never came to pass, Collins was still weak and “emotionally shaky” in December, according to a cover story in Bloomberg Businessweek.

Such stories have hurt Chipotle’s bottom line and brand image. In early February, the chain said sales at established restaurants fell by a third in January. That news followed a 15% drop in the fourth quarter of 2015. At this writing, the company’s stock price was down about 42% from its 52-week high.

On the brand side, Chipotle’s image has gone from positive to negative. YouGov’s BrandIndex, which surveys 5,000 consumers online every day, rates brands on a buzz score that ranges from -100 to +100, with zero being a neutral position. For most of 2015, Chipotle’s buzz score was around +10, but in January, that sunk to -29 and was at -27 at this writing.

“Chipotle has been playing catch up on this crisis from the start,” says Ted Marzilli, CEO of BrandIndex. “The brand was slow to respond to the initial incident. [It has] just not been able to get out ahead of this crisis, and fairly or unfairly, is paying the price in both public perception and decreased sales.”

The six-month rule
Despite the challenges though, few people see this as a fatal blow to the chain. In a research note to clients, Wells Fargo analyst Jeff Farmer cited previous incidents of food-borne illnesses at other national chains to demonstrate same-store sale declines can be cut in half six months after the incidents occur (assuming that there are no more incidents). Farmer added that same-store sales of such affected companies can also rise 12-15 months after the incident.

In an interview with Campaign, Darren Tristano, president of Technomic, food industry consultancy, cited the same rule. “Our research indicates that in six months, most consumers forget about these food-poisoning issues that come up,” he said.

The Blue Bell Effect
In Chipotle’s case, that’s a pretty safe bet. Jonathan Bernstein, a crisis PR expert, says that Chipotle has built up so much good will with its branding efforts that it can withstand this major PR setback. He compared Chipotle to Blue Bell, the ice cream brand that is so beloved by its fans that many were able to overlook a recent outbreak of listeria linked to the brand.

“Customers’ loyalty to a brand can make a huge difference in overcoming even food illness-related crises and people really stuck with Blue Bell a long time after many would have done the same — given a choice of other ice creams,” he said. “With Chipotle, they created such good will before these problems that although that’s been eroded, it’s not terminal at this point.”

Rebeca Arbona, executive director at Interbrand, unconsciously echoing Funny or Die’s critique, noted that brand loyalty is based on a relationship that mimics real friendship. “You have many impressions and interactions,” she said. “That works in your brain like knowing a person. If you know a person really well and you like them, you’re going to forgive them a lot.” Arbona said that she was surprised, for instance, that Toyota not only weathered its 2009-2010 slew of recalls — issues that were linked to the deaths of some consumers — but has nearly doubled its brand value since then.

That said, Tristano said that it’s likely that some customers will never return to Chipotle. Most will though. “Younger customers will return,” he said. “They tend to be more trusting and more brand loyal. If we look at this, it is clearly a setback for a brand that has had nothing but success in the industry.” The fact that this happened to a brand whose credo is “food with integrity” is ironic, Tristano said, but won’t prompt the masses to label it hypocritical.

Fixing the brand
As Marzilli noted, Chipotle didn’t deal with the crisis effectively at first. Though the company closed 43 restaurants in the Northwest after the E. coli outbreak that affected Chris Collins became public, some 234 customers and employees contracted norovirus at a Simi Valley, Calif., location in August. That same month, some 64 people in Minnesota fell ill from salmonella-tainted tomatoes.

It wasn’t until Dec. 10 that Chipotle CEO and founder Steve Ells appeared on the “Today” show to apologize to customers who had gotten sick from eating at the chain. On the operations side, Chipotle hiredMansour Samadpour, head of IEH Laboratories & Consulting Group in Seattle, to overhaul the company’s food safety efforts. Among the changes: More food will be prepared at commissaries, rather than on site, undercutting Chipotle’s “food with integrity” mantra since often the food won’t be local and fresh. Food will also be given high-resolution DNA-based tests, a measure that will weed out smaller suppliers who can’t afford that expense. On the PR side, Arbona said closing all the stores for a few hours was a good move. “It was a symbolic act,” she said. “They were hitting reset.”

Allen Adamson, a branding consultant, said that Chipotle will have to ditch its previous brand communication, which struck a lighthearted tone and presented a somewhat holier-than-thou image related to food quality. “You want to see the CEO on screen talking about what they’re doing, not an actor saying ‘Trust us,’ ” Adamson said.

Bernstein said Chipotle should focus on transparency, training its personnel in the new food safety protocol and setting realistic expectations “that they’ll do their best to prevent illness, but particularly with norovirus, it’s not always possible.”

What might be fatal, aside from more outbreaks, is any communication that smacks of arrogance. As we’ve seen in recent years, consumers will overlook safety issues, even ones that result in deaths, as long as the company doesn’t talk down to them. As a counter example, Arthur Andersen, the financial consultant, was drummed out of existence after it got caught up in the Enron scandal in 2002. While that was a huge blow, execs at the company exacerbated the damage by behaving arrogantly during a Justice Department grilling. “They got tried in the court of public opinion,” Bernstein said.

Chipotle is unlikely to make the same mistake. “Ultimately it comes down to humility,” Bernstein said. “If they can express sufficient humility, people will forgive them.”

Read more at http://www.campaignlive.com/article/chips-down-chipotle-not-long/1383083#AVGB4yq6reisiIhh.99


McDonald’s reaps the benefit of all day breakfasts and table service

February 9, 2016

McDonald's signature rangeEven though we’re only into its second month, 2016 been rather a good year for Steve Easterbrook, McDonald’s chief executive. His football team, Watford, is enjoying its best season in years and much the same can be said for the US fast-food giant.

The company surprised analysts with its latest quarterly results last week, with sales up 5.7pc in the US – nearly twice as much as had been predicted. Global sales are up by 5pc.

It has taken a Briton – albeit one steeped in McDonald’s corporate culture – to revive the most American of institutions, which was in danger of being left behind by rather nimbler competitors in the fast food industry.

From introducing all-day breakfasts throughout the US to testing waiter service at some of its outlets, including in the UK, Easterbrook has overhauled how the company operates at a bewildering pace.

The chain was in something of a mess when Easterbrook took over as chief executive in March 2015. Last August, for the first time in more than 45 years, McDonald’s announced that it was closing more outlets than it was opening.

European sales had dropped by 1.4pc, between 2008-14. In the US, the decline was 3.3pc and in Asia, the Middle East and Africa, once considered a growth region, a rather frightening 9.9pc.

It was not just the dire figures which suggested that McDonald’s was in need of a cultural shift. The company was facing competition from not only its traditional rivals, such as Burger King and Wendy’s, but also from hipper new competitors entering the market, such as Honest, Byron, Five Guys and Shake Shack.

It was pretty clear that the golden arches had lost their sparkle. Within weeks of taking over the reins, Easterbrook appeared on CBS’s This Morning television progamme in the US to signal that the 60-year-old company was in for a radical overhaul.

“We really want to assert McDonald’s as a modern burger company. To do that you have to make meaningful changes in the business,” he said. “The pace of change outside McDonald’s has been a little quicker than the pace of change within. You act your way to success, you can’t talk your way to success.”

For once, this was not empty corporate-speak. All-day breakfasts were tested in San Diego in April, and within months were available at all the company’s 16,000 US restaurants. This has brought back customers who might have gone elsewhere and even tempted in newcomers.

Other changes have seen the introduction of a “McPick menu” where US customers can have two items for only $2, despite the wafer-thin profit margin the deal provides.

The range of burgers has also been increased to include Pico Guacamole and Buffalo Bacon, and diners are now being allowed to customise their burgers. McDonald’s has also launched its first loyalty programme for people who register their details, offering, for example, a free cup of coffee for every five bought at one of its restaurants.

Easterbrook has also done something to improve McDonald’s corporate image, announcing a 10pc pay rise for the 90,000 people who work in outlets directly owned by the company in the US. This has taken their hourly minimum wage to $9.90 an hour – increasing to more than $10 this year – considerably higher than the legal minimum of $7.95.

The one caveat, however, was that the pay rise was limited to those staff who work for the 10pc of restaurants which are owned by the company rather than franchisees. Even the white packaging is being ditched after more than a decade. Instead, food now comes in brown paper bags which, in theory, are seen as more environmentally friendly.

According to a company spokesman, the change is “consistent with our vision to be a modern and progressive burger company” –a phrase now something of a corporate mantra.

“One of the things Easterbrook has done is create a sense of urgency in the the McDonald’s business culture,” said Mark Kalinowski, a restaurant analyst at Nomura in New York. “When the company started trialling the all-day breakfast in San Diego county in April, it only took until October before it went nationwide.

“He doesn’t want to waste time, he operates on speed to market and saw it was clearly something customers wanted.

“For McDonald’s, that is rather quick. Although it can be innovative, the company is traditionally slow- moving. I think it’s a reflection on its sheer size.” Even though Easterbrook has spent much of his career with McDonald’s, having joined in 1993, he also spent time with the rather more upmarket Wagamama and Pizza Express chains. He returned to McDonald’s in 2013 as chief brand officer, having held previous roles including its head of Europe.

“Most of the presidents and chief executives at McDonald’s we have seen have been promoted from within. Having somebody with an outside perspective is exactly what the company needed” said Darren Tristano, president of Technomic, a Chicago-based company specialising in the food industry.

Tristano believes that Easterbrook’s strategy has been shrewd. “He has aggressively marketed the all-day breakfast, which has put McDonald’s back at the top of the mind of consumers.

“The price point appeals to lower and middle-income consumers who are looking for something which is less expensive than the dinner menu. This has helped McDonald’s get back some of the market share which it had been losing to rivals.”

McDonald’s has also been helped by the rehabilitation of the egg in the mind of the consumer, Tristano added.

“If you go back a few years, eggs were seen as high-cholesterol. Now they are seen as high-protein and eggs are a key part of breakfast.

“The sales growth on a year over year basis is over a few years of weak sales performance, so the numbers are good but we should expect to see sustainable growth and especially year over year, fourth quarter 2016 would signal McDonald’s is officially back.

“McDonald’s appears to be listening to their customers and staying more true to their brand under Easterbrook.”

The consensus appears to that Easterbrook has enabled McDonald’s to regain its mojo. “He has brought a sense of strategic clarity, said John Quelch, professor of marketing at Harvard Business School.

“There is a tendency when a company gets into trouble to sling products at the wall and see what sticks. All that does is adds complexity. If you reach a point when you can’t explain to an employee or a franchisee what the point of a product is, then how can you expect them to explain that to a customer?

“The bench strength of McDonald’s is enormously good. It is no surprise that they were able to find somebody like him to step up,” added Quelch.


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

March 26, 2014

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

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

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

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

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

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

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

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

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


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.


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.