Fast-food chains are gaining muscle again

February 23, 2016
JONATHAN BERR
MONEYWATCH
February 17, 2016
http://www.cbsnews.com/news/fast-food-chains-mcdonalds-burger-king-wendys-gaining-muscle-again/

McDonald’s (MCD), Burger King and Wendy’s (WEN), which have struggled in recent years, are now dishing up some appetizing operating results.

Same-store sales, a key metric of sales at locations open a year or more, have been on an upswing for the big chains recently. For instance, that figure has risen 5.7 percent at McDonald’s over the past 13 months, by 3.9 percent at Burger King over the 2015’s last quarter and by 4.8 percent for Wendy’s in the same period.

According to Darren Tristano, president of restaurant consulting firm Technomic, consumers are spending more at the chains, thanks to lower gas prices and an improving job market. The companies are also selling their food more aggressively to budget-conscious diners, a key demographic for the industry.

“With so much advertising shifted toward value play, $4 for 4, $2 for 2, etc … low prices are driving consumers toward convenience, value and comfort food,” he said, adding that renovations at the chains have also paid off. “Locations are becoming more appealing to consumers, who have viewed these restaurants as old and outdated.”

Burger King parent Restaurant Brands International (QSR) benefited from remodeling the burger restaurants and the expansion of the Tim Horton’s donut shop chain, which it also now owns. During yesterday’s earnings conference call, the company said U.S. franchisee profitability rose by more than 30 percent over last year, which CEO Daniel Schwartz called a “tremendous accomplishment.” Franchisees, who are independent business operators, own many fast-food restaurants.

Restaurant Brands has high hopes for an American classic: Grilled hot dogs, which Burger King is rolling out at more than 7,000 U.S. locations later this month. It may be chain’s largest new product launch since the 1970s.

“I personally visited the test market to confirm that the Grilled Dogs could be an operationally simple but pretty impactful product,” Schwartz said during the conference call. “And we’re all excited about it.”

Restaurant Brands was created in 2014 after the $11 billion acquisition of Tim Horton’s by Burger King Worldwide, which is controlled by Brazil’s 3G Capital. The transaction, called an inversion, lowered the company’s tax bill because it relocated to Canada, and it remains controversial.

Restaurant Brands on Tuesday reported better-than-expected profit, excluding one-time items, of 35 cents per share on revenue of $1.06 billion. Same-store sales rose by 6.3 percent at Tim Horton’s.

Wall Street, though, remains skeptical. Shares of Restaurant Brands have slumped more than 18 percent over the past year, underperforming McDonald’s, which gained more than 23 percent during that same time amid investors’ enthusiasm of a potential turnaround at the Home of the Golden Arches.

Morningstar analyst R.J. Hottovy, however, argued in a recent note that investors were overlooking Restaurant Brands’ potential for growth.

“While McDonald’s turnaround may have generated the most quick-service-restaurant headlines the past several months … Restaurant Brands International continues to fly under the radar with effective menu strategies, new franchise partnerships across the globe and exceptional cost discipline,” he wrote.

Earlier this year, McDonald’s reported its strongest quarterly earnings in nearly four years as consumers responded to the chain’s decision to offer breakfast all day. Wendy’s results beat Wall Street’s analysts’ expectations, and the chain forecast better-than-expected sales at existing locations in 2016.

Other fast food chains are also doing well.

Yum Brands (YUM), the parent of Taco Bell and KFC, recently reported better-than-expected quarterly profit, though revenue growth was hurt by the sluggish performance at Pizza Hut.

Popeyes Louisiana Kitchen (PLKI) announced in January that it expected 2015 per-share earnings to be better than it had previously forecast. It plans to release results on Feb. 23.

If the industry keeps this momentum going, investors may soon start ordering more fast-food shares.


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


A New Meaning For ‘to go’ at Restaurants

September 7, 2015

2015-09-02_1535Peter Frost
(c) 2015 Crain Communications, Inc. All rights reserved.
http://www.chicagobusiness.com/article/20150822/ISSUE01/308229990/a-new-meaning-for-to-go-at-restaurants

Before Charlie McKenna opened Lillie’s Q in Bucktown in 2010, he knew his small-batch barbecue sauces would play a key role in his restaurant’s success.

He probably didn’t expect that, five years later, his line of regional-inspired sauces such as Carolina Gold, Ivory and Hot Smoky would be in 2,500 stores in six countries and rise to become the fastest-growing premium brand in the segment. His retail line, which has expanded to include kettle chips, rubs and bloody mary mixes, is on the shelves at Target, Whole Foods, Mariano’s, Crate & Barrel and more, and is growing nearly fourfold each year. Revenue from the products equals that of any of his four restaurants.

“At a certain point, we were selling so many bottles from our restaurant we decided to test the waters with small local stores, then local distributors, then national chains,” says Brian Golinvaux, who was brought in to run a new specialty food division called Lillie’s Q Sauces & Rubs. “I would compare it to what happened in the beer category years ago—craft brewers saw an opportunity that the big brands were not serving and took market share.”

While restaurant-affiliated retail products aren’t exactly new—Rick Bayless’ Frontera salsas have been around for 16 years—a growing number of chefs and restaurants around Chicago are rolling out pastas, breads, sausages and sauces of all types to sell. But where there’s opportunity to boost revenue and name recognition, there’s risk.

“It’s a tremendous opportunity for restaurants to familiarize more people with the quality of their products as well as the brand itself,” says Darren Tristano, executive vice president of Chicago-based market-research firm Technomic. “The danger is, if you don’t actively manage the quality of the product, you risk having a negative reflection toward the brand.”

Because restaurant-generated packaged foods fall into myriad categories, there’s limited data on how much of the market such brands represent, though Tristano says the trend is gaining momentum.

Although chefs have a built-in advantage here—after all, they’ve spent months, if not years, developing and perfecting recipes in their restaurants—producing them for a retail customer and in large volume is a different animal.

First they must have a tastier chip, a tangier sauce, a superior sausage to others in the market. Then they’ve got to find a commercial-scale producer to make, package and distribute it, which often involves months of trial and error. From there, they must get it on store shelves at a price consumers are willing to pay. And they must do all of it at the same quality as what comes out of a restaurant’s kitchen. Any misstep in the process could be fatal.

“If you look back through history, there have been lots and lots of chefs who have launched retail food products, and in many cases, it has wound up hurting their brands,” says Manny Valdes, chief executive and co-owner of Chicago-based Frontera Foods, which makes tortilla chips, salsas, seasonings and prepared frozen meals that are sold at more than 65 percent of grocery stores across the country, with sales rising by about 20 percent a year.

For instance, celebrity chef Wolfgang Puck’s frozen pizzas once were in virtually every high-end grocer. Now they have disappeared from the market.

Closer to home, Stephanie Izard of the wildly successful Girl & the Goat in Chicago launched a series of marinades and rubs with online retailer Abe’s Market in mid-2013. The products are no longer available at Abe’s, and an Izard spokeswoman says the chef is relaunching the line. BellyQ’s Bill Kim, who sold five signature bottled sauces at his Chicago restaurants and niche retailers, has stopped producing that line, with the hope of relaunching in coming months.

PLAYING IT SAFE

Still, chefs and restaurateurs keep trying to go retail.

Jared Van Camp of Element Collective started selling house-milled flour and dried pasta from Nellcote soon after opening the West Loop restaurant in 2012. From there, he has branched into a retail juice operation, Owen & Alchemy, which sells bottled cold-pressed juices at Eataly, Local Foods and its own store. Recently, he was in Louisiana working with a co-packer to develop and bottle a line of sauces used at his Chicago fried-chicken joint, Leghorn.

He plays it safer by keeping production low and selling his products in a small number of local retailers. “It doesn’t cost much, it’s free marketing and everything you sell contributes to the bottom line,” Van Camp says. “There’s no risk to that.”

Formento’s, an Italian restaurant in the West Loop, opened in January with built-in plans to sell its products in its adjoining takeout spot and store, Nonna’s, mostly as a marketing tool. But its marinara sauce is selling so fast that owner John Ross is talking with local grocers about carrying his products, too.

And then there’s the Publican, which through West Loop offshoot market-cafe Publican Quality Meats continues to expand its retail and wholesale offerings amid soaring demand. PQM sells branded ice cream, olive oil, honey and granola, the latter in collaboration with Chicago cafe Milk & Honey.

Its breads and sausages are sold at Treasure Island and Local Foods, as well as at restaurants around the city. The sausages, produced by Hometown Sausage in East Troy, Wis., can be found on the menu of Chicago-area Shake Shack restaurants, at two professional sports stadiums in Cleveland and at festivals like Lollapalooza. The restaurant estimates that north of 5 percent of its annual revenue comes from its retail and wholesale products, a figure that’s poised to grow.

“Originally we were just a small shop on the corner that took some of the pressure off the kitchen at the Publican,” says Bradley Smith, PQM’s retail coordinator. “But as you go along, you realize, ‘Oh wow, we can sell these sausages all over the place.’ It just keeps getting bigger and bigger.”

But they’re fighting the urge to get too big too fast. One slip and they risk winding up in the same place as Wolfgang Puck’s frozen pizza.


Piling It On

March 30, 2015

OhCal Foods rides acquisition to No. 1 in Subway franchising.

Fine, Howard 1500030901a_r100x80
http://labusinessjournal.com/accounts/login/?next=/news/2015/mar/09/piling-it/
2015 Los Angeles Business Journal. All rights reserved.

Once the earl of sandwich in Southern California, Hardeep Grewal is now the reigning king of Subway restaurant franchising nationwide.

Grewal’s OhCal Foods, which oversees Subway franchises in Los Angeles and Orange counties, has just acquired franchise development rights for all of Virginia; Washington, D.C.; and most of Maryland in a deal that makes him Subway’s biggest franchise developer. By far.

OhCal bought the territory from Feldman Group of McLean, Va., in a sale that closed late last month and nearly doubled the size of the company’s hoagie holdings overnight. The Woodland Hills company now oversees about 2,170 Subway locations, or 8 percent of all Subways in the United States.

Put another way, Grewal’s territory now includes one out of every 12 Subways nationwide. That’s more than double the next biggest franchise developer.

For years, OhCal had been battling Feldman for the distinction of being the largest franchise developer for Subway, which is the world’s largest franchise operation and is owned by Doctor’s Associates Inc. of Milford, Conn. But with Feldman’s 1,000 stores now part of OhCal’s kingdom, Grewal has taken the crown.

“This deal put us over the top,” Grewal said.

But the deal is about much more than bragging rights. OhCal’s revenue also figures to grow substantially. As a franchise development agent, OhCal matches franchise operators with sites and helps existing franchisees with marketing, quality control and lease negotiations. OhCal gets a cut of both franchisee ownership transactions and royalty payments that the franchisees make to brand parent Subway.

Grewal said the nearly 2,200 franchisees now under OhCal’s supervision bring in about $1.3 billion in annual sales. Franchisees pay 8 percent of their sales in royalties to Subway, which comes to $104 million a year from OhCal’s restaurants.

Most of those royalty payments go to Subway corporate, but OhCal gets a slice. Grewal would not say exactly how much his company receives, but said it can be up to one-third of total royalty payments.

That would translate to as much as $35 million a year for OhCal in royalty revenue alone, not to mention money it makes from franchise ownership transactions in its territory.

Unexpected path

Grewal, 59, became a Subway magnate almost by accident. Born in Punjab, India, he attended school in Montreal and moved to Los Angeles with his wife. Patwant, in 1986, when he got a job as controller at a subsidiary of Mitsubishi Corp.

He entered the world of Subway franchising not for himself, but for Patwant. who was looking for something to do.

In 1989, he bought her a Subway franchise. The money was good enough that Grewal eventually left his desk job. He opened some stores and took over other underperforming ones until he amassed a total of 24.

But Grewal saw that the more lucrative end of the sandwich business was in becoming one of Subway’s 200 or so franchise development agents. Development agents have a guaranteed revenue stream without many of the overhead costs that franchisees face.

In 2006, Grewal sold most of his Subway locations and purchased OhCal, which at the time oversaw 446 Subway franchise stores in Los Angeles County. He later purchased the development rights for Orange County and part of the province of Ontario, Canada. Today, OhCal oversees 663 Subway stores in Los Angeles County, 246 in Orange County and 260 in Ontario.

OhCal’s purchase of the franchise development rights from Feldman gives it oversight of an additional 760 Subway stores in Virginia, 82 in Washington and 111 in Maryland. The Maryland territory does not include the Baltimore metro area. Add in about 50 stores in that region that only open for the summer tourist season, and the total is just over 1,000.

Grewal said it was the prospect of getting the franchise development rights to the market around the suburbs of Washington that made this deal so attractive. The region has seen explosive growth in recent years, driven by the spread of federal government jobs and an expanding roster of defense and national security contractors.

“There have been so many new buildings going in at universities, hospitals and government-related facilities,” he said. “That means a lot of new locations coming up.”

From Subway corporate’s perspective, putting this lucrative East Coast market in the hands of a development agent with a proven track record was crucial. Subway has to approve any sales of development territory.

“There are many areas of the business that a development agent for the Subway brand must handle, and Hardeep and the OhCal team excel all around,” said Don Fertman, chief development officer with Subway’s corporate office. “Now with the move into another one of our showcase territories–the D.C., Virginia and Maryland area–we are looking forward to what they will accomplish there in making an already great market even better.”

In the family

Grewal has sent his son, Jesse, to manage the newly acquired territories. A nephew already runs the Canadian operations.

He said he intends to add about 30 stores a year, with many of those coming in the Washington area. As a development agent, OhCal scouts out potential sites for stores, then prepares to offer the sites to the nearest franchisee.

But it’s not only about adding stores. Grewal said his other goal is to improve same-store sales at existing franchises, a job made harder in the last couple of years as the sandwich chain’s highly successful “$5 Footlong” promotion has wound down.

“No question that sales growth has been slowing, both because of the overall economy and because that campaign has ended,” he said.

To counteract this, Grewal said he wants OhCal’s marketing efforts on behalf of its Subway franchisees to focus more on the tastes of millennials, who are now in their 20s.

But OhCal’s job won’t be easy. Because Subway has gotten so big–there are now 27,000 Subways nationwide–the rate of new franchise formation in the United States has naturally slowed, said Darren Tristano, executive vice president of Technomic Inc., a Chicago food industry research firm.

Not only that, but Tristano said Subway’s size makes it increasingly difficult to find high-quality locations for new franchise stores, making Grewal’s strategy of focusing on boosting same-store sales all the more important.

“That’s where a development agent like OhCal can be particularly useful, since they can bring to bear the marketing and branding resources that franchisee owners may not have,” Tristano said.

Another pitfall is that OhCal’s business model itself might not survive over the long term. Subway was a pioneer in using franchise development agents, a practice used by other franchised businesses through the years. But that model has lost favor in the franchise industry in general, with Subway one of the last remaining holdouts.

“The trend in franchising has been toward centralized control, both to maintain quality and to cut out the extra cost of development agents,” said Kevin Burke, managing director at Trinity Capital, a West L.A. investment bank that specializes in restaurant deals.

To his point, there have been occasional reports of Subway cutting back on the numbers of development agents in the United States and on the lengths of their contracts.

But Grewal isn’t very concerned. Not only is he now Subway’s largest franchise developer, he also has many years left on his contracts with the chain–about 13 years for his Southern California territory and about 27 years on the newly acquired areas.

“That’s plenty of time,” he said. “Enough so that my son can take over for me.”


A Big Production

December 12, 2014

Legacy chains employ large-scale marketing stunts to generate long-term buzz.tim-hortons_2

This summer, Canadian coffee chain Tim Hortons made quite the splash: The brand covered one of its Québec locations in blackout materials to promote its new dark roast coffee. Equipped with night-vision goggles, employees handed guests samples of the brew, and the action was all captured in two-minute videos, later posted on YouTube to the tune of 2.6 million–plus views.

Tim Hortons’ head marketer, Peter Nowlan, found the experience a big success for the chain. “The dark roast is Tim Hortons’ first new blend in the company’s 50-year history, and we wanted to put it to the ultimate test: allowing guests to try it in the dark, limiting their sense of sight, and enhancing their senses of taste and smell,” he says.

Large-scale marketing stunts like these are few and far between, but when a quick-service brand does employ them, consumers take note.

“Many brands, especially older legacy brands, have to work harder to stay relevant to a younger generation of less loyal customers constantly looking for what’s cool and what’s next,” says Darren Tristano, executive vice president at Technomic. Whatever the expense to companies may be, the resulting public-relations blitz usually pays dividends, he adds.

Advertisers today are focusing heavily on social media and buzz marketing, so anything a brand does locally on a grand scale will likely be shared and tweeted to people far and wide, Tristano says. “This reminds consumers about brands and their role within the restaurant industry,” he says.


Taco Bell Runs Naughty TV Ad For ‘Happier Hour’

March 27, 2014

taco-bell-campaign-188_2To drive awareness of its “Happier Hour,” which runs from 2 to 5 pm each day, Taco Bell is running new TV creative that’s slightly naughty, in a playful way.

The spot (in 30- and 15-second versions), from Deutsch LA, shows three different scenarios in which male/female pairs — office colleagues, college students and seniors — exchange suggestive looks and then appear to be heading out together for a tryst, as the song “Afternoon Delight” plays in the background.

But it turns out that they’re all actually headed to a Taco Bell, where they can get any “Loaded Griller” for $1, and any medium beverage for the same price, during those three afternoon hours.

The “Afternoon Delight” version is a Little Hurricane cover of the 1976 Starland Vocal Band song.

The keen-eyed viewer may notice a cameo by “America’s Next Top Model” winner Laura Ellen James, playing a college student who clearly makes the day of her much-shorter classmate when she lures him out of an in-progress lecture.

The spot started airing this week on networks and cable, and will continue running through the end of June, with additional media support through the end of August. Happier Hour is being promoted on Taco Bell’s social assets, including Facebook (10 million “likes”) and Twitter (1.1 million followers), as well as featured on YouTube.

Happier Hour is described in consumer promotions as a “limited time offer,” but it’s been running at participating locations since last year (an “always on” promotion), according to Deutsch. The current marketing push is the second campaign for Happier Hour; Taco Bell also ran a campaign last year.

The reasons behind a special afternoon event/offer aren’t hard to grasp. QSRs obviously benefit from driving more traffic during the quieter hours between and following regular meals. And offering snackable items at attractive prices has become a key strategy for driving such business.

According to a new “Snacking Occasion Consumer Trend Report” from foodservice research firm Technomic, 51% of Americans now report that they eat snacks at least twice a day — up from 48% two years ago. Nearly half (49%) report that they eat snacks between meals, and 45% replace one meal a day with a snack.

Among those who buy snacks at restaurants, 45% order from the value or dollar menu.

“There’s plenty of room for restaurants to expand their snack programs and grab share,” even as packaged food makers and retailers also push harder to grab those snacking dollars, noted Technomic EVP Darren Tristano.

And while candy is still the dominant snack (purchased at least occasionally by 71% of surveyed consumers), half of consumers say that “healthfulness” is very important to them when choosing a snack. As a result, many restaurants, like their CPG counterparts, are including healthier options within their snack offerings.


Reaching the Socially Conscious Consumer

March 18, 2014

In the United States, as in the United Kingdom, more and more consumers—especially younger ones—are weighing a company’s efforts in social responsibility when they determine which businesses to patronize. During a presentation at our recent Consumer Trends & Directions conference, Technomic set out to define social responsibility when it comes to the restaurant industry; show how perceptions of social responsibility influence consumers; and look at the impact of social responsibility on business.

Social Responsibility in Restaurants

Social responsibility in restaurants is a complex idea, but has three key aspects:

The environment: This includes recycling programs; packaging (such as disposables made of recycled materials); energy-saving and water-saving practices; and waste disposal and composting. One company doing well in this area is Starbucks. In a growing number of units, the coffee-café chain gives customers the chance to toss paper hot cups into a separate receptacle for recycling or composting.

Community-building: Engagement with the community can involve fundraising; food donation; support of community groups, from providing free meeting space for groups of seniors to sponsoring sports teams; and, particularly in fast-food settings, emphasizing local hiring and offering wages, benefits and advancement opportunities that are better than the industry average. Darden Restaurants, a multiconcept operator whose stable includes The Olive Garden and Red Lobster, among others, brags that its high-profile nonprofit Darden Foundation has awarded more than $71 million in grants to charities since 1995.

Sourcing: Sourcing is simply where the ingredients come from; among other things, socially responsible efforts encompass organic, natural and local items as well as animal welfare (such as free-range poultry and grass-fed beef) and avoidance of hormones and steroids in meat and milk. One chain that has made sourcing key to its brand identity is fast-casual concept Chipotle Mexican Grill, whose “Food With Integrity” promise involves “finding the very best ingredients raised with respect for the animals, the environment and the farmers.” Both suppliers and restaurants must respond to increasing consumer preoccupations with sourcing.

How Social Responsibility Influences Attitudes and Purchases

According to Technomic research, nearly six out of 10 consumers say that when they’re weighing what restaurant to visit, it’s important to them that the establishment be socially responsible.

socialy_responsible_550

Source: Technomic Consumer Brand Metrics 2013

Technomic’s Consumer Brand Metrics program, which tracks how consumers rate 123 leading restaurant chains on a host of experience and reputation attributes, shows that some chains score much higher on social responsibility issues than others. It’s important to consumers that they perceive a restaurant’s values as aligning with their own, so not everyone rates the same chains highest. Nevertheless, there are clear leaders.

When asked to rate chains on the attribute “is socially responsible,” consumers gave ice cream chain Ben & Jerry’s, quick-service chicken concept Chick-fil-A, and coffee giant Starbucks the highest scores. For the attribute “has values that are similar to my own,” Darden’s polished-casual Seasons 52 concept, Ben & Jerry’s, and family-dining chain Cracker Barrel Old Country Stores came out on top. Consumers rated burger QSR McDonald’s, Chick-fil-A, and Ben & Jerry’s highly on the attribute “supports local community activities.” And for “has an excellent reputation,” consumers ranked fast-casual Panera Bread, high-end steakhouse The Capital Grille, and quick-service In-N-Out Burger as the leading chains.

Social responsibility is more important to certain consumers, including ethnic minorities; younger consumers, including Millennials and Generation Z; and, most importantly, heavy restaurant users, who are visiting restaurants more frequently and having a greater impact on total sales. Younger consumers, especially, perceive social responsibility as part of the value equation in a restaurant experience; they see it as worth something because it makes them feel they are spending their money in a way that lets them feel good about themselves.

Base: 1,500 consumers aged 18+ Consumers responded on a 1–6 scale where 1 = not important at all and 6 = extremely important  Source: 2013 Value and Pricing Consumer Trend Report, Technomic

Base: 1,500 consumers aged 18+
Consumers responded on a 1–6 scale where 1 = not important at all and 6 = extremely important
Source: 2013 Value and Pricing Consumer Trend Report, Technomic

Looking at specific efforts, around six out of 10 diners say they’re more likely to visit a restaurant that makes charitable donations of leftover food. Almost as many say they would also be willing to pay more for menu items at restaurants that make food donations. Consumers don’t mind the idea of restaurants promoting their food charity programs. In unaided recall, they were most likely to remember Panera Bread, McDonald’s, Applebee’s, Chili’s, Starbucks and local independent restaurants as donating food.

Waste disposal is another key issue. More than six out of 10 consumers believe that composting of organic waste is so important that it should be mandated by legislation. Recycling programs for non-food waste are also important to many and can be a strong traffic driver; 47% said they’d be more likely to visit a fast-casual restaurant if it offered recycling, and 43% said the same about fast-food restaurants and coffee cafés. Most of those consumers also said they’d be willing to pay more at restaurants that offered such programs, particularly coffee cafés.

Social responsibility initiatives can deepen a brand’s alignment with its customers and thus build sales, as leading restaurant marketers have attested. In a recent letter to shareholders, Panera Bread wrote “[The Live Consciously, Eat Deliciously initiative] is intended to drive a deeper affiliation between Panera and our customers, and we believe such an effort has the potential to deliver a greater, long-term return on investment from advertising than more promotional messaging.” And Starbucks CEO Howard Schultz said, “I think that the rules of engagement for a public company are changing…I believe strongly that there’s a new movement to recognize that we have to serve the communities, that’s about keeping the balance between profitability and social consciousness.”

Case Study: Roti Mediterranean Grill

As part of the Socially Conscious Consumer session at Technomic’s Consumer Trends & Directions conference, Peter Nolan, chief brand officer of Roti Mediterranean Grill, an emerging fast-casual chain based in Chicago, spoke about how Roti makes social responsibility part of its brand positioning.

In the old days, Nolan said, healthy eating and socially responsible practices “didn’t work,” but now consumers—particularly younger generations—want to live in sync with their values. He argued that “real” trumps “wow.” Authenticity, transparency and trust are important, Nolan said. Initiatives must be true to the brand’s identity and the values of its executives and employees; socially responsible practices based on marketing research will come off as false. Roti—whose motto is “Food that loves you back”—chooses initiatives that are relevant to its healthy menu, such as in-restaurant cooking classes for low-income kids. Burger restaurant Meatheads, in contrast, supports high school football.

Nolan suggested that packaging is a great way to start. Roti replaced its disposable plates with compostable plates made from sugarcane fiber. Roti composts food waste and lets customers know it donates food to a food bank.

Today’s consumers associate fresh, organic, local and sustainable foods with quality. Nolan noted that smaller companies may believe their distributor wouldn’t supply these ingredients, but if a number of customers ask, the distributor may find a way to accommodate requests.

Finally, he suggested that companies make it a mission and get the word out. Patrons want to get personally involved in charitable activities. For example, if a restaurant is raising money for literacy, it can promote the initiative as giving customers a chance to teach people to read. Restaurants can promote their initiatives via integration with customer loyalty programs, email messages, social media, and even simple in-store signage.

Key Takeaways

Social responsibility can be multifaceted. Environmentally friendly sourcing, a community presence and other aspects may be important to different consumers when they are deciding which restaurant to visit. Consumers respond to and perceive value in social responsibility. A restaurant that’s seen as socially responsible has the opportunity to increase price thresholds as well as traffic.

Marketing opportunities are expanding. Restaurants should leverage the positive vocabulary of social responsibility, communicate their values and programs to their customers, and pursue long-term consumer engagement with social issues, rather than seeing them as mere promotional opportunities.