10 Nuggets For $1.49? Here’s Why Fast Food Is Ridiculously Cheap Right Now

April 1, 2016

Venessa Wong
Buzzfeed News
Feb 29, 2016
http://www.buzzfeed.com/venessawong/why-fast-food-is-ridiculously-cheap-right-now#.gnYqPoN15

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The country’s largest fast food chains have been showering customers with deals after years of losing out to newer, higher-end chains. And now, in a battle for customers who remain loyal to old-school fast food, the big chains are engaged in a brutal price war.
Fast food companies have always targeted lower-income consumers. What’s different now is that these customers are expected to benefit from lower gas prices, falling unemployment, and rising minimum wages, according to research by investment bank Cowen and Company. And as low-income consumers find more money in their wallets, commodity prices are no longer shooting upward as they did in recent years.
As “forecasts for key restaurant commodities including beef, chicken, pork, dairy and wheat are in-line to below long term averages,” restaurants are particularly eager now to take advantage of the lower costs to boost traffic to stores, said Cowen’s report.
McDonald’s announced that starting Feb. 29, customers could pick two of four “iconic menu items” — a Big Mac, a 10-piece order of Chicken McNuggets, Filet-O-Fish or a Quarter Pounder with Cheese — for $5. This deal replaces the even lower-priced McPick 2 deal launched in January, in which customers could get two items — McChicken, McDouble, mozzarella sticks, or small french fries — for $2.
Meanwhile, Wendy’s has been offering a four for $4 deal. Value monger Burger King has an even cheaper five for $4 promotion, as well as an ongoing two for $5 sandwich deal, and 10 chicken nuggets for $1.49. Even Pizza Hut has a $5 “flavor menu.”
“All the major chains have jumped on the dollar pricing in an effort to maintain share against competitors,” said Darren Tristano, president at restaurant consultancy Technomic.


We want a ‘natural’ Big Mac. Why fast-food giants are finding it tough to deliver

November 4, 2015

2015-11-04_1641Peter Frost
Copyright © 2015 Crain Communication, Inc.
http://www.chicagobusiness.com/article/20151024/ISSUE01/310249994/we-want-a-natural-big-mac-why-fast-food-giants-are-finding-it-tough-to-deliver

Chain restaurants that want to jump on the all-natural beef, chicken or pork bandwagon better expect to wait in line.

While higher-end restaurants in Chicago and other big cities have long turned to niche natural-meat suppliers, McDonald’s, Subway, Chick-fil-A and smaller companies are competing for a limited supply of “clean-label” meats. In many cases, they’re being forced to get supplies from the other side of the globe or wait years for suppliers to catch up to the types of proteins consumers want today.

“The infrastructure just doesn’t exist today,” says Marion Gross, senior vice president of supply chain management at McDonald’s, the nation’s largest fast-food chain. “And no one can turn on a dime, especially when you do the type of volume we do.”

On a quest to improve the quality of its food and lure back customers who left long ago for competitors perceived to have higher food quality, Oak Brook-based McDonald’s is overhauling a portion of its supply chain. It plans to begin using hogs raised outside of gestation crates, eggs from cage-free chickens and chicken not containing antibiotics used to treat humans. On Oct. 19, the company said it also will begin serving sustainable beef in some areas next year.

But the systemwide changes won’t begin to take effect in the United States until 2017, and they won’t be finished until 2025, because of McDonald’s huge size.

U.S. meat suppliers, knowing they’re missing an opportunity, are investing millions of dollars to change farming practices and acquire “natural” brands to fill growing demand. But change takes time.

The primary factor driving deals “is the pursuit of growth and moving into markets where the growth is,” says Heather Jones, a BB&T analyst based in Richmond, Va. “It’s completely being driven by the consumer, and these companies realize it is way cheaper to buy than it is to build this on your own.”

Big meat producers like Austin, Minn.-based Hormel Foods, which in May agreed to buy Applegate Farms for $775 million, and Salisbury, Md.-based Perdue Farms, which bought Natural Food Holdings and its Niman Ranch brand in September for an undisclosed price, are augmenting their portfolios with branded organic and natural products primarily to compete better at retail, where consumers make decisions based on the label.

The takeovers also should help big meat processors learn from the upstarts and apply the lessons throughout their mass-market-sized operations. Randy Day, president of Perdue Foods, the food division of Perdue Farms, says the acquisition of Chipotle’s pork supplier, Niman Ranch, will help his company continue “a slow, thoughtful” expansion into antibiotic-free pork without compromising what made Niman successful in the first place.

Hardees and sister burger chain Carl’s Jr. had to look outside the U.S. to Australia to find enough steroid-free, antibiotic-free, grass-fed beef to supply its 3,000 U.S. restaurants for an unexpected hit. Its “all-natural” quarter-pound burger performed so well in limited tests that the chains are keeping it on menus indefinitely. The sandwich, which retails for $1.50 more than a conventionally sourced burger, has been the company’s best-selling new beef product over the past two years, says Brad Haley, chief marketing officer for Carl’s Jr. and Hardees, subsidiaries of CKE Restaurants of Carpinteria, Calif.
“Earlier generations were more concerned about counting calories, and this generation is more concerned about counting chemicals,” Haley says. “And this is not a surprise to our suppliers. They’re getting asked by everybody for this, but we just couldn’t get enough in the U.S. to meet our volume demands.”

DEMAND GROWS

Roti Mediterranean Grill, a Chicago-based fast-casual chain with 21 restaurants, likewise tapped Australian and South American cattle for dishes that will showcase the grass-fed, pasture-raised beef its customers have come to expect, CEO Carl Segal says.

“People absolutely want it,” he says. “There’s such a tight supply in the U.S. right now. Until the big producers realize there’s more and more demand for (natural meat) we’re still going to (have) tight supply, which is going to keep pricing very high. It’s frustrating.”

Market share for organic or natural chicken, beef and pork remains small. Aside from antibiotic-free chicken, which is 6.5 percent of the total chicken market by pounds, no other natural or organic meat holds more than 3.6 percent of its category, according to data from Chicago-based market research firm IRI/FreshLook.

But while analysts say it’s unlikely the majority of consumers will pay hefty premiums for grass-fed beef or chickens raised without antibiotics—supermarket prices of such products sometimes are nearly double those of factory-farmed meat—sales are outpacing conventional products by as much as a factor of six, the IRI data show. And they might have increased even faster if more supplies were available, analysts say.

“It’s going to take time for the farming and (agriculture) community to produce as much organic and antibiotic-free product as demand dictates,” says Darren Tristano, executive vice president of Technomic, a Chicago-based market research firm.

And demand is growing. Subway wants to convert to chicken raised without antibiotics next year and eliminate antibiotics from all meat within 10 years. Chick-fil-A plans to sell only chicken that is entirely free of antibiotics within four years. Earlier this year, Wal-Mart Stores asked its meat and egg suppliers to curb their use of antibiotics and provide animals with more humane living conditions. Perhaps wisely, it didn’t set a deadline.


Dunkin’ Donuts Slams New York Regulators Over Wage Increase

July 28, 2015

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Juliana LabiancaFreeman Klopott
http://www.bloomberg.com/news/articles/2015-07-23/dunkin-donuts-lashes-out-at-new-york-regulators-over-wage-hike

Dunkin’ Brands Group Inc., the owner of Dunkin’ Donuts, upbraided New York regulators over a plan to boost fast-food wages to $15 an hour, a move the company said could lead to price increases.

A wage board formed by Governor Andrew Cuomo arrived at the decision without involvement from the restaurant industry, Dunkin’ Chief Executive Officer Nigel Travis said on a conference call Thursday.

“We’re deeply disappointed that the governor chose to skirt the legislative process by appointing a wage board, which did not even include a representative from our industry,” he said. “Our franchisees, and in fact other company’s franchisees, were denied the chance to fairly express their concerns.”

The board recommended on Wednesday that the minimum wage for fast-food workers be raised to $15 by 2018 in New York City and three years later in the rest of the state. Cuomo has indicated that his labor commissioner, who has final say, will follow the board’s advice, though adjustments may be possible. The increase, which will be phased in annually, applies to fast-food chains with 30 or more locations.

Dunkin’ is contemplating ways to adjust to the pay increase, Travis said. One option is boosting prices, he said.

Unfair Attention?

Travis complained that the fast-food industry was singled out by regulators, a concern echoed by McDonald’s Corp. Chief Financial Officer Kevin Ozan during a conference call Thursday. McDonald’s wants minimum-wage increases to “deal with all industries similarly,” he said. Ozan didn’t discuss New York City’s wage hike specifically.

Picking on fast food alone will put those businesses at a competitive disadvantage, said Randy Mastro, an attorney hired by a group of New York franchisees. The proposal, he said, targets business owners who are “already struggling to survive on low margins and cannot afford this 66 percent increase in labor costs for their entry-level workers.”

Restaurant companies have come under increasing pressure to boost pay over the past year. Large chains have a corporate social responsibility to pay a fair wage, said Darren Tristano, executive vice president at research firm Technomic Inc.

“If you’re a chain, it may feel like you’re being targeted, that it’s making it harder to be successful,” he said. “But it’s the right thing to do.”

In response to Dunkin’ complaints, Cuomo spokeswoman Dani Lever referred to comments the governor made at a rally in New York City. At the event, he said higher wages are needed for workers to live a decent life.

“You cannot live and support a family on $18,000 a year in the state of New York,” Cuomo said. “That’s why we have to raise the minimum wage.”


Super Bowl Wings Will Be Fat But Pricey as Chicken Count Shrinks

January 28, 2015

Lydia Mulvany
Bloomberg

Copyright © 2015 Vancouver Sun

http://washpost.bloomberg.com/Story?docId=1376-NILQBC6VDKHV01-2E7MM3M04PF2SQP6R5M335CK8E

On Super Bowl Sunday, expect two things when your order of chicken wings arrives: They’ll be fat, and they’ll be pricey.

First the fat part. American farmers are giving their chickens extra feed, taking advantage of plunging corn and soybean costs to help lift poultry production – as measured by weight – to a record.

But each chicken, of course, still only has two wings, regardless of its size. And the number of actual chickens slaughtered last year fell, causing a drop of about 50 million wings, government data show. That smaller supply is what’s triggering the pricey part of the equation. The cost of wholesale wings sold by processors in Georgia, which sets the benchmark for the nation, has surged 8.2 per cent this month to $1.715 US a pound, the biggest jump to start a year since 2012.

Americans will consume 1.25 billion wings when game day arrives Feb. 1. That estimate, provided by the National Chicken Council, is unchanged from last year’s Super Bowl.

“Wings are just all over menus,” Darren Tristano, executive vice-president at Chicagobased research firm Technomic Inc., said in a recent interview. Demand for wings remains “very high with consumers because they’re customizable,” he said. “There’s a health halo around it, because it’s chicken. There are a lot of flavour profiles, and it’s a fun finger food.”

Buffalo Wild Wings Inc., a Minneapolis-based restaurant chain with more than 1,000 stores, raised menu prices by an average of three per cent in November, CEO Jim Schmidt said this month. The company normally would have raised prices in February, but made the increases earlier partly because of higher wing costs, he said.

Chicken output will rise 2.7 per cent from 2014’s record to an all-time high of 39.21 billion pounds this year, the U.S. Department of Agriculture estimates. Still, fewer birds slaughtered means that wholesale wing prices are up more than 30 per cent from a year earlier.

Americans paid 9.2 per cent more for meat last year, the biggest jump of any food group, USDA data show. The gains were led by increases for beef and veal amid shrinking cattle herds, and that advance helped support prices for other proteins as consumers sought cheaper alternatives to record costs for steaks.

“It’s a good thing the Super Bowl pastime is chicken wings and not hamburgers,” said Andy Wiederhorn, CEO of Beverly Hills, Calif.-based Buffalo’s Cafe, where a pound of wings costs about five to 10 per cent more than this time last year at its 50 locations in the U.S. and Canada. “The prices have been generally reasonable, unlike beef prices, which have skyrocketed to record highs.”

The Super Bowl, which will pit the Seattle Seahawks against the New England Patriots this year, marks the No. 1 wing-eating day in the U.S. Demand peaks in the first quarter of the year, with consumption also high south of the border for the National Collegiate Athletic Association basketball tournament games. An increase in restaurants serving wings is also supporting prices. The number of U.S. chicken-wing franchises grew seven per cent to more than 2,000 restaurants in the five years through 2013, according to Arlington, Va.-based franchise researcher Frandata. Demand for the meat is also rising as pizza chains including Pizza Hut and Little Caesar’s serve wings, Technomic’s Tristano said.

 


How Does the Cupcake CRUMB-le

July 9, 2014

pictureWas anyone surprised by the recent demise of the Crumbs Bake Shop? For those who read the Wall Street Journal article about the gourmet-cupcake crash in April 2013, or those that had invested in the publicly traded company, it should not have been unexpected.

Last April, it was clear that the “cupcake fad” was crumbling right at the time Crumbs Bake Shop was expanding locations and working hard to be the category leader in the high-growth cupcake snack segment.

So what went wrong?

With Crumbs following in the footsteps of high-flying brands like Mrs. Fields, TCBY, Cold Stone Creamery and Krispy Kreme, consumers have proven that they are very fickle about where they shop for indulgence. As more independent and regional chains of cupcakeries grew nationally, the strong demand and growth provided short-term evidence that the trend was hot and would continue. But supermarkets jumped in with significantly lower price points, and consumers began baking cupcakes at home for even less. Kids’ lemonade stands across America began offering cupcakes for 50 cents, and the obsession with this traditional classic fell flat.

Brands that rely on a narrowly focused product will have greater risk. Although In-N-Out Burger has fewer than 10 items including burgers, fries, soda and shakes, it continues to do well by expanding slowly and cautiously and staying in tune with its customer. Overall, a bakery positioning with a broader offering and strong beverage platform could have strengthened the Crumbs business model with a bigger play at lunch to complement their breakfast and snacking occasions.

How have other brands fared with more narrowly focused offerings?

Mrs. Fields brought fresh baked cookies to America and by 1993 had nearly 600 stores open in malls around the country. At a time when malls were very popular, many consumers couldn’t get enough of those chocolate chip cookies. Today, there are less than 230 locations open and some have paired up with frozen yogurt brand TCBY to provide more variety in the co-branded location.

TCBY was the original leader in fro-yo until gourmet ice cream stole the show, forcing many stores to close. TCBY peaked in 1997 with more than 2,800 locations in the U.S. Americans’ willingness to pay more for what they considered “better ice cream” was evident as many brands emerged in the premium ice cream category including Ben & Jerry’s, Cold Stone Creamery, Marble Slab and Maggie Moo’s.

Krispy Kreme’s exceptionally craveable glazed donuts became President Clinton’s favorite and soon worked their way into regular consumption across the country. Peaking in 2004 with nearly 400 units, the donut company had sales in the U.S. of over $1 billion. Then came Atkins and low-carb diet trend. Krispy Kreme’s narrow focus on donuts paired with aggressive expansion put it at risk and caused it to shutter nearly half its restaurants by 2010. Today, Krispy Kreme has continued to expand globally and has started to open new stores in the U.S., posting a year-end 2013 total unit count of 249.

Cold Stone Creamery captured the hearts and wallets of many American consumers by introducing gourmet ice cream, customized on a cold slab with mix-ins. Although the chain continues to provide frozen desserts to many Americans, it does so with far fewer locations since its peak in 2007 at around 1,400 locations. Cold Stone Creamery ended 2013 with 990 stores in the U.S.

So what are the early warning signs for when a brand or category may be at risk?

Early warning signs appear as the category becomes more competitive. Category leaders begin to slow unit expansion, and same-store sales level out. As many brand leaders push expansion nationally, they begin to see greater competition from regional chains and independents that are in tune with the local consumer base. As more regional chains expand nationally and begin to battle for share in larger markets, new locations result in cannibalization and often consumers trying new brands just to see if they are different.

Strong blocking and tackling efforts are necessary to maintain differentiation and loyalty. Customers can be easily lost if franchise and company stores don’t deliver high levels of service and quality standards.

When does a segment become mature?

Many up-and-coming categories show high growth in unit expansion that drives sales volume growth. When longer-term sales growth shifts from high growth (above 5 percent) to lower growth (below 5 percent) you can usually see that the consumer interest is plateauing or that supply has caught up with demand.

In some cases, older legacy brands may be on the decline, offsetting growth from more contemporary concepts. Or menu-category products have been introduced into other segments, such as flatbread pizza in casual dining competing with limited-service pizza or more seafood options in the steakhouse segment competing with seafood-focused restaurants. In any event, declining growth rates generally show the state of the category and where it is headed.

Which segment is hot today but at risk in the short-term?

Juice concepts appear to be all the rage today. With health and wellness getting more play from affluent and Millennial consumers, it’s clear the cold-pressed juice concepts will be pushing hard to expand. Even though these concepts have price points over $10 in major markets like Los Angeles and New York, it’s clear that Hollywood starlet impact on our country with juice cleanses is evident. Juice specialists will likely expand quickly as the fad continues but the trend will settle into concepts that represent reasonable prices for the mainstream consumer.

Expect major brands like Starbucks’ Evolution Juice and Juice It Up to have a leg up on the competition, but ultimately, the “craze” will settle down and many restaurants will likely see declines in sales that make it difficult to continue their operations.

For cutting edge trend research and results, always keep Technomic in mind!


Making Sense of Value and Pricing Expectations

March 25, 2014

The prevalence of value-based promotions spiked in recent years as U.S. restaurant operators aimed to drive incremental traffic and sales among consumers affected by the recession. The use of these deals is becoming ingrained in consumer behaviour, even as the economy slowly improves. During the economic recession, consumers were more likely to cut back spending altogether, deals or no deals. Now that the economy is on the mend, consumers are accustomed to these deals being available and likely expect that they will be in the future.

While price continues to be a major component of the value proposition, it is by no means the only factor. Value is multidimensional, including the quality of food and beverage, and the quality of service and convenience. These different facets of value allow flexibility in formulating value propositions and pricing strategies.

This article explores U.S. consumers’ value equation; the appeal of restaurant deals and promotions; consumer price thresholds and how low prices drive traffic. U.K. operators will find many of these themes suitable for their own customers, whether they are deal-seekers or not.

The Value Equation

The restaurant value equation is comprised of a host of factors. It’s not straightforward—and it’s evolving. Primary drivers of value are price, quality, service and atmosphere. Secondary drivers vary but may include the meal or occasion as well as the diner’s mood and needstates. Consumers asked to describe what constitutes good value in a restaurant mention food quality, appropriate portion sizes, fair prices, service and cleanliness.

Food and beverage trump price in creating good value. Highlighting specific qualities of food and beverages—such as quality, convenience or healthfulness—can help marketers create a message of good value. Even at limited-service restaurants, the quality and taste of the food are most important: 86% of consumers say food and beverage are key to the LSR value equation, vs. 74% who name price. At full-service restaurants, of course, service and ambiance are also central: 87% name food and beverage as a component of value, 60% mention price, 28% ambiance, and 24% the service and amenities.

Customisation can enhance the value proposition. Half of diners—and a larger proportion of those under 35—say customisation is important in creating a good value proposition. They want to know that the meal will match their personal preferences and that they will get (and pay for) only the ingredients they like. Restaurants can incorporate customisation by offering menu items in multiple portion sizes (thus making them appropriate for both meals and snacks); allowing ingredient substitutions; and varying the heat level of foods from mild to super-spicy. Even a simple bottle of hot sauce left on the table allows patrons to customize their dish to their liking.

Deal-seeking in restaurants has become ingrained behaviour for consumers. Dealing was essential during the recession, but since then operators have been hoping to scale back on deals as the economy improves. However, consumers expect to continue employing deals; more than half say they’re using more deals now than two years ago. Interestingly, deal-seeking is not tied to income constraints; eight out of 10 diners at almost all income levels say they order from dollar menus at fast-food restaurants at least once a month, and among those with annual incomes over $150,000, seven out of 10 do the same. In addition, four out of 10 consumers use “daily deal” websites, and two out of 10 use them more than once a month. (These sites encourage restaurant patronage, but not loyalty; 55% of subscribers to daily-deal sites say they turn to these deals so they can try new restaurants more often.)

Traditional buy-one-get-one and half-off specials resonate strongly with consumers. More restaurant traffic is being driven by specials rather than the quality of the food, atmosphere or experience, with consumers asking: “What can I get for the price?” Deals that provide immediate half-off savings represent the most attractive value: eight out of 10 consumers say buy-one-get-one deals and half-off promotions add strong value, compared to seven out of 10 who name set-price specials, coupons or value menus. Buy-one-get-one specials, coupons and half-off deals are effective in driving traffic, with almost two-thirds of consumers saying they’d be likely or extremely likely to visit restaurants that offered these.

Base: Approximately 800 consumers aged 18+; base varies as promotions were randomly rotated Sum of percentages may not equal cumulative percentage due to rounding Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Base: Approximately 800 consumers aged 18+; base varies as promotions were randomly rotated
Sum of percentages may not equal cumulative percentage due to rounding
Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Pricing Expectations

Consumer price thresholds increase as the day progresses.Operators should make sure that their price thresholds are in line with what consumers are willing to pay (keeping in mind that consumers may report lower thresholds than they would actually accept). Research for Technomic’s Value and Pricing Consumer Trend Report found a “sweet spot” between what consumers consider optimal and what they’ll pay without complaint for each meal in each restaurant segment.

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3-2014_exhibit_4

Base: 1,800 consumers aged 18+ Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Snacks provide a unique pricing opportunity because women are willing to pay more for snacks than men are. For example, while the average consumer would pay $5 for a snack, women aged 25‒34 would pay $6.50. A number of chains, from coffee-café Starbucks to quick-service burger chain SONIC, have experimented with “happy hours,” during which they sell snacks at a special price. And while some fast-casual bakery cafés are seen by consumers as offering only unhealthy pastries for snack time, Au Bon Pain has built afternoon traffic with female-pleasing small plates like hummus with cucumber and Thai peanut chicken with snow peas.

“Fresh” and “premium” descriptors can increase consumer price thresholds.Nearly half of consumers say they would be likely to purchase—and to pay more for—food or beverage that is fresh; 37% say the same about premium options. Operators may be able to justify higher price points on food and beverage billed as fresh, homemade, premium, authentic, local, natural, organic, seasonal or sustainable. They should carefully consider both what such terms could mean when applied to their offerings and how to adjust their price threshold.

Value and Low Prices Help Justify Restaurant Visits

The good news for restaurant operators is that good value makes consumers feel better about eating out: 57% say they can eat out more often if meals are low in cost, and 52% say low prices help them justify the money they spend eating out.

Base: 1,500 consumers aged 18+ Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Base: 1,500 consumers aged 18+
Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Key Takeaways

The value equation involves multiple inputs, but price and quality both play strong roles in all segments. Deal-seeking in restaurants has become ingrained behaviour, and consumers don’t expect to change. Operators must find ways to adjust prices, deals and portions so they can still make money. Price and value promotions can effectively drive traffic. But be careful what you’re driving traffic to; you probably don’t need more business on Friday night. Freshness, quality and customisation can help justify higher prices.

There is pent-up demand for restaurant meals. Consumers who are looking for low prices are doing so to eat out more often. Older consumers seek value and “worth,” while younger diners have a more straightforward desire for deals; operators should consider strategies that don’t alienate any part of their customer base.

Darren Tristano is Senior Managing Director of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.