Shake Shack IPO Filing Comes Amid a Hunger for Premium Burgers

January 14, 2015

Passersby walk in front of the Shake Shack restaurant in the Manhattan borough of New YorkCopyright 2015 Thomson Reuters. All Rights Reserved.
By Anjali Athavaley

NEW YORK, Jan 2 (Reuters) – Shake Shack Inc’s filing this week for an initial public offering underscores a question for investors and foodies alike: How hungry are U.S. consumers for another burger chain?

A key part of Shake Shack’s growth strategy involves expanding its locations beyond its New York base, and investors and analysts are bullish on its prospects.

They say there is room for more “fast casual” restaurants that offer higher quality burgers, a variety of toppings and in some cases, beer and wine. Shake Shack’s burgers are described in its preliminary prospectus as all-natural and hormone- and antibiotic-free.

To be sure, there are skeptics who say the excitement over Shake Shack is overblown.

“Consumers love it and it will be well greeted in the market – and then probably fizzle out,” said Doug Kass, president of Seabreeze Partners Management in Palm Beach, Florida, and a noted short-seller.

“That a company of such a small size can get a valuation is symptomatic of the silliness … that develops in a period of zero interest rates,” he said.

A Shake Shack spokeswoman declined to comment.

Still, several factors appear to be working in Shake Shack’s favor. First, 2014 was a solid year for restaurant IPOs, particularly of the fast casual variety.

Burger chain Habit Restaurants Inc’s shares have risen 3 percent since its $30 Nasdaq debut on Nov. 20, based on Friday’s prices, and Zoe’s Kitchen was up 12 percent from its April market debut at $28.72 on Friday. Shares of El Pollo Loco, another fast casual company, were up 5.5 percent Friday from their $19 market debut in July.

Second, premium burger chains are outperforming the burger category as a whole, thanks to demand from younger, more affluent consumers. Sales at such chains including Five Guys and Smashburger rose 9 percent in 2013, according to restaurant consultancy Technomic Inc, while overall sales at all burger chains including fast food restaurants such as McDonald’s Corp were down 1 percent.

“The better burger space has been a pretty disruptive force for McDonald’s and other players,” said Darren Tristano, executive vice president at Technomic.


Shake Shack has developed a fervent following since it was founded by restaurateur Danny Meyer in 2001, but the challenge will be to replicate the success it has found in New York in the rest of the United States and overseas. The company has 31 company-operated and five licensed locations in 10 states and Washington, D.C., and 27 locations abroad.

The chain believes it has the potential to increase the number of domestic company-operated Shacks to at least 450 and analysts say that finding new locations with affluent consumers is critical.

Consumers such as Leticia Garza, 33, a middle school teacher in Austin, Texas, help illustrate the brand’s potential in other parts of the country, but also the challenges. Garza says she is excited to hear that Shake Shack planned to expand to Austin.

Still, she notes that she has many similar options. “There’s definitely going to be some competition because we have recently gotten an In-N-Out, and a couple of local versions that are similar to In-N-Out: P. Terry’s and Mighty Fine.” She adds: “We have Smashburger, too.”

Indeed, the market may be just a few years away from being saturated with too many fancy burger places, some analysts say. Furthermore, premium burger chains are not the only ones offering more personalized options: McDonald’s is rolling out a new “Create Your Taste” program this year that will give customers a choice of sandwich toppings.

In December, the world’s biggest fast food chain, which has not had a monthly gain in sales at its established U.S. restaurants since October 2013, said it also planned to cut the number of items on its U.S. menus. It also plans to use fewer ingredients in food, in an effort to reach consumers who want simpler, more natural choices.

McDonald’s is cheaper than Shack Shack and competes for a less affluent consumer. Still, industry watchers say such efforts could put pressure on premium burgers.

“We’re always looking for the latest version,” said Harry Balzer, an analyst at NPD Group, a market research company. But, he said, “there’s a limit to the burgers we’re going to eat.” (Additional reporting by Sinead Carew; Editing by Eric Effron and Tomasz Janowski)

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.


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.

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.

C-stores Shape Up Their Health & Wellness Offerings

May 14, 2013

NATIONAL REPORT — It’s no secret that convenience stores have received a bad junk food wrap. Even First Lady Michelle Obama criticized the channel for not having anything healthy to offer. But that generalization is slowly changing as the health and wellness push moves further into the mainstream — impacting consumers all the way to the convenience retail sector.

“More consumers than ever before tell us that eating healthy and paying attention to nutrition is important,” said Darren Tristano, vice president of research at consulting firm Technomic Inc., which unveiled a new “Healthy Eating Consumer Trend Report” in January. This report showed that consumers’ perception of healthy food is changing as they become more health-conscious. The study also found that consumers strongly associate with contemporary definitions of health, but balance better-for-you food choices with occasional indulgences.

Tristano explained that more consumers are gravitating toward “health halo” claims, such as local, natural, organic, whole wheat and free range. For that reason, he advises retailers to “leverage the growing interest in the health halo by developing the kinds of menu offerings that can underscore health without detracting from taste perception.”

Recent research from Mintel also demonstrates the shift toward healthier eating. According to the market researcher, just over two-thirds of Americans are opting for healthier fare.

“Consumers are more aware than ever of their own nutritional deficits and what poor eating habits can do in terms of their long-term health,” said John Frank, Mintel’s category manager for CPG food and drink reports. “As a result, today’s consumers are seeking out healthy food with greater urgency. However, skeptical or confused consumers aren’t likely to pay a premium for healthier food.”

Smart convenience store retailers are monitoring these and other consumer health trends, with some taking a more proactive role and experimenting in-store where it makes sense. Among those making headlines recently:

  • 7-Eleven Inc. introduced a line of fresh foods and downsized some of its fare by creating portion-sized items. The goal is to have 20 percent of sales come from fresh foods in its U.S. and Canada stores, up from about 10 percent currently, according to a December New York Times report.

“We’re aspiring to be more of a food and beverage company, and that aligns with what the consumer now wants, which is more tasty, healthy, fresh food choices,” stated 7-Eleven President and CEO Joe DePinto. The c-store giant has reportedly put together a team of culinary and food science experts to study industry trends and develop new products.

  • More than a dozen convenience stores joined in a Kansas county’s efforts to reduce the community’s salt intake. Hy-Vee Convenience Store, Gas & Shop Convenience Store, Larry’s Shortstop and 10 local Kwik Shops in Shawnee County, Kan., agreed to display a standalone rack of healthy, low-sodium items (chosen and customized by a dietician) in a prominent spot in their stores. This health initiative was spearheaded by the commissioners in Shawnee County, which provided the racks, promotional signage, technical assistance and advertising.
  • C-store retailers in Brattleboro, Vt., joined the Healthy Retailers program, sponsored by the Brattleboro Area Prevention Coalition in collaboration with the Vermont Department of Health. In addition to discouraging tobacco and alcohol use among youth, the program resulted in vegetables, new fruit varieties, and ground beef and pork products from local farms being available for purchase at select convenience stores in the area.

Sonja Hubbard, former NACS chairwoman and CEO of Texarkana, Texas-based E-Z Mart Stores Inc., is one convenience industry leader who has been vocal about her belief that the opportunity exists to make c-stores a more nutritious place for consumers to shop.

In 2010, Hubbard told Convenience Store News she was initially offended by the First Lady’s remarks about the lack of healthy food in c-stores, but then felt empowered to make some changes at her own chain. Now, two years later, she shared with CSNews that she thinks “c-stores are improving on the way we are promoting existing health and nutrition options, plus we are continually adding more items and trying to grow sales in the category.”

Minute Market in Oregon is another c-store operator adding and testing better-for-you items like string cheese, low-sodium sunflower seeds, fresh fruit and “healthier” drinks for kids. “As the industry changes, we are getting more options to choose from and bring in as our main distributor picks up these healthier products,” said Phyllis Simpler, Minute Market’s operations manager. “Over the last year, especially, a lot more products have been made available to us.”

Harkening to the “Health Halo

January 16, 2013

Bionic BeveragesNatural sweeteners. No high-fructose corn syrup. Hormone-free. “Health-halo” attributes of beverages matter to consumers and can influence their purchasing decisions.

In its just-released “Beverage Consumer Trend Report,” Technomic asked consumers about select health-halo terms attached to beverages. Consumers are most apt to buy a beverage featuring the descriptor “fresh-brewed” at restaurants. Some 71% of consumers say they’d be more likely to purchase a beverage carrying this label at restaurants—a far greater percentage than for any other descriptor measured. Just 34% of them look for this attribute at grocery stores.

Another descriptor, “100% fruit juice,” holds more sway at grocery stores. Nearly three in four consumers (72%) say they’d be more inclined to buy a beverage labeled as “100% fruit juice” from a grocery store; a lower—but still significant percentage (52%)—would do the same at restaurants.

Consumers attach different degrees of importance to health-halo descriptors, depending on whether they’re in a foodservice or retail setting. For example, more than two fifths of consumers say “hormone-free,” “antibiotic-free” and “organic” labels could sway their purchasing decisions at grocery stores; roughly a quarter say that could happen at restaurants. It’s worth pointing out that restaurant percentages, although lower, are still significant.

Descriptors that speak to a product’s natural properties, namely “naturally sweetened” and “all-natural,” influence roughly half of restaurant-goers’ drink purchases. A few examples of how restaurants are incorporating popular descriptors into their menus:

• Orange juice—100% pure, fresh orange juice (Au Bon Pain).

• Fruit-flavored teas and lemonades—all-natural fruit purées with freshly brewed iced teas in strawberry or mango flavors (Beef ‘O’ Brady’s).

• Herbal teas—a selection of hot, organic herbal teas (First Watch).

Despite these restaurant examples, retail examples are often more numerous. For instance, Technomic found just 27 mentions of “corn syrup” on leading restaurant menus. In comparison, countless beverage brands, including Boylan’s Sodas, Jones Pure Cane Soda, Nantucket Nectars and Sierra Mist Natural, promote their disuse of high-fructose corn syrup (HFCS).

Technomic has consistently found that consumers tend to eat more healthfully at home and generally see restaurant visits as a time to indulge, which helps explain the lower health-attribute ratings at restaurants. Some health-minded drink manufacturers are attempting to overcome this by making a single product line available in both channels.

Organic bottled-tea company Honest Tea recently made its fresh-brewed, iced tea system available to foodservice retailers. The initiative presents a viable way for a retail processor to break into the foodservice market. It also ensures that both production methods and ingredients that form the cornerstone of its beverage business are conveyed to new customers.

Health-halo claims influence a sizeable percentage of beverage consumers, but to different degrees, depending on where they’re buying their drinks. As more beverages touting ingredients (or lack of ingredients) make their way into restaurants, consumers may be even more influenced by such claims.

Darren Tristano is executive vice president 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 or to order the “2011 Burger Foodservice Consumer Trend Report,” visit

Fresh Food Fixation Becomes a Business Green Bean Restaurant Founder, a WU Student, is Finalist for National Entrepreneur Award

December 18, 2012

Copyright 2012, St. Louis Post-Dispatch. All Rights Reserved.

On a recent weekday afternoon, Sarah Haselkorn sat table-side at a restaurant in the Central West End, wearing shorts, a T-shirt and running shoes, with her hair pulled back in a ponytail and a backpack at her side.

She looked a lot like a typical college student — which she is. Sort of.

Haselkorn is, in fact, a senior at Washington University. But, between classes, exams and the demands of a her systems engineering major, she has also managed to co-launch and run Green Bean, a quick-service restaurant that serves fresh salads and wraps.

In the process, she’s tapped into a growing national trend — and an exploding market for fast, healthy food.

Haselkorn and her concept have, in fairly short order, caught the eye of a prestigious national entrepreneur organization, and a week from Monday she’ll give a presentation to its members on the floor of the New York Stock Exchange. She has another non-restaurant concept in development, and probably a lot more floating around in her head.

Oh, and she’s a triathlete. And she’s only 20.

Haselkorn moved to St. Louis from her hometown of Washington when she was 17, and soon determined the city’s food landscape was missing something.

“I noticed quickly there weren’t very many healthy restaurants in St. Louis where you could get something fast,” she remembers.

Healthy and fast are important attributes for a busy student who happens to run the odd triathlon. So rather than complain about the lack of quick-service, healthy restaurants, she opened one herself.

Haselkorn got in touch with a friend from her hometown, Nick Guzman, who had recently graduated from Amherst College, and the two started developing a business plan via email.

After a couple months trading ideas and doing research — Haselkorn spent hours watching customers come and go inside other area restaurants — the two had a formal pitch.

Based loosely on salad-centric restaurants they’d been to in New York and Washington, Green Bean would be fast and healthy.

It also would go a step beyond that: Green Bean, the concept went, would use recycled materials in all its packaging, reuse building materials, compost and recycle everything, and order food daily, tailoring it to the ebbs and flows of daily traffic to minimize waste.

“We wanted to have real, whole food and transparent nutrition,” Haselkorn says. “But we also wanted to focus on sustainability. We wanted to be better, different. We wanted it to be Green Bean.”

The two were confident in their concept, Haselkorn says, but were less so about their menu. So they approached James-Beard-award-winning chef, Peter Pastan — who is the father of one of Guzman’s friends — and asked him to develop a menu.

“I was 18 when I went to him,” Haselkorn remembers. “He said: Are you sure you want to do this?”

A few months later, they had found a space in the 200 block of North Euclid Avenue, and a few months after that they were tearing the place apart. Acting as their own general contractors, Haselkorn and Guzman oversaw the renovation and did much of the work themselves, using materials recovered during demolition.

Today Green Bean employs eight people, with Haselkorn and Guzman doing much of the work themselves, from maintenance to ordering.

When asked whether there’s anything she’s not involved in, Haselkorn says: “No. Not really. Well, maybe. We have a tax accountant.”

The restaurant does a steady business, mostly from health-conscious customers in the neighborhood and medical students from Wash U. It has been in business for about a year, and Haselkorn is already thinking about expansion possibilities.

“I think there’s room in the market in St. Louis, but the other option is to franchise,” she says. “We want to make sure it’s perfect first. You don’t want to replicate any imperfections.”

Analysts see more potential, too.

A “fast casual” restaurant — the category that Green Bean finds itself in — serves food that’s a notch or two higher in quality than typical fast food, but is not a full-service restaurant. Food usually is ordered at a counter, with a server sometimes delivering it to a table.

The category has boomed in the past decade as people seek out healthier, convenient food.

“Fast casual continues to outperform the rest of the industry,” said industry analyst Darren Tristano of Chicago-based Technomic. “ The drivers are from customers moving up from fast food, and diners moving down from full-service.”

Technomic estimates that the fast-casual category represented about $27 billion of the $370 billion restaurant market in 2011.

“It’s still very small,” Tristano said. “But there’s growth at double digits for the past 10 years, and it’s growing. We’re going to see more ethnic food concepts, and more healthy concepts.”

On Nov. 12, Haselkorn will present the Green Bean concept to a group of judges with the Entrepreneurs’ Organization’s Global Student Entrepreneur Awards. She’s one of 30 finalists from 42 countries.

Haselkorn — to her surprise — was selected to compete in a regional competition earlier this year, taking first place and earning the spot in New York.

That she won comes as no real surprise to her Wash U professor, Clifford Holekamp. He teaches a highly popular class for entrepreneurs called The Hatchery, which has launched dozens of successful businesses.

“Part of the award is based not just on the business, but on the entrepreneur,” Holekamp explained. “She’s a very talented young lady. She’s balancing an engineering curriculum, minoring in entrepreneurship and running a successful business, and that is just extraordinary.”

J.B. Forbes – Sarah Haselkorn, 20, puts together a potato chip display stand recently at her restaurant Green Bean in the Central West End. The Washington University student opened the restaurant one year ago.

Analysts React to Starbucks-La Boulange Deal

June 29, 2012

Restaurant industry experts have mixed thoughts on whether the pending acquisition is the right move for Starbucks

June 6, 2012 | By Lisa Jennings

Industry experts have mixed opinions on Starbucks’ decision to purchase La Boulange.

Wall Street analysts and industry observers on Tuesday had a mixed reaction to Starbucks’ $100 million acquisition of the La Boulange bakery brand, with some praising the potential for revenue growth and others concerned that the coffeehouse giant is losing its focus on coffee.

Starbucks on Monday announced an agreement to acquire Bay Bread LLC and its 19-unit La Boulange bakery café chain based in San Francisco. The move will allow Starbucks to boost food offerings in its coffeehouse stores, as well as grow the La Boulange chain and, eventually, offer branded products in grocery and other retail channels.

One immediate goal of the move is to build food attachment in Starbucks stores with the addition of what company officials described as higher-quality croissants, French pastries, breads and muffins offered by La Boulange. Only one-third of Starbucks transactions currently include food.

Darren Tristano, executive vice president of market research firm Technomic Inc., said the La Boulange brand “fits very nicely with Starbucks’ positioning as a gourmet coffee provider” and the French bakery products are likely to appeal to the coffeehouse chain’s audience.

Tristano said La Boulange’s menu is similar to that of upscale sandwich chain Le Pain Quotidien.

“It’s organic, it’s select meats, and it’s local,” he explained. “It’s very on trend for what consumers are looking for.”

Starbucks could also use the move to incorporate more dishes beyond morning pastries since La Boulange offers items such as sandwiches and quiches. “So there will be more for breakfast, but it will also flow through the day,” Tristano said.

Jeffrey Bernstein, an analyst with Barclays in New York, however, issued a report Tuesday expressing “overarching concerns of distraction from the core coffee platform and/or damage to the existing customer experience.”

Still, over the long term, Bernstein conceded that Starbucks’ pursuit of a bakery platform was a “logical next step” that could increase food sales and drive incremental traffic and daypart growth for the coffeehouse chain.

Starbucks officials declined to offer details on La Boulange’s performance, but founder Pascal Rigo stated previously that revenue has grown at least 10 percent per year since it opened, with 2011 revenue between $60 million and $90 million, according to analyst Andy Barish at Jefferies & Co. Inc.

Barish estimated La Boulange locations average unit volumes around $3 million to $4 million, with remaining sales coming from wholesale distribution to hotels, restaurants and grocery stores.

Prior to the announcement, Rigo had also been planning growth, according to Barish. Another 25 locations were planned by the end of 2012, which would grow La Boulange throughout Southern California.

Starbucks said a 2-cent dilution to earnings is expected this year, with moderate dilution in 2013 as La Boulange food offerings are rolled out beyond the Bay area Starbucks locations.

Barish noted that Starbucks did not give specifics on anticipated pricing for La Boulange menu items in coffeehouse locations. However, he noted that La Boulange prices in the Bay area are relatively high and said he “would expect some premium to the current food program given Starbucks avowed commitment to preserving La Boulange’s freshness and quality.”

Perhaps most beneficial over the long term is the potential for consumer packaged goods, or CPG, growth for the La Boulange brand, said Barish.

“Given the company’s success with VIA and K-Cups, we think this aspect of the acquisition is especially interesting and could be highly incremental in the long term given the potential margin profile,” he wrote.

Bernstein of Barclays, however, was more cautious in response to the CPG potential for La Boulange.

“As for expansion of the existing retail platform and pursuit of the CPG opportunity, we hope Starbucks will learn to crawl before walk, with true visibility limited,” he wrote.

Others were decidedly middle-of-the-road.

David Tarantino of Baird Equity Research, for example, said, “We see strategic value related to potential to upgrade food offerings in Starbucks stores, but we think the possible benefits of this acquisition are roughly balanced with the short-term risks related to acquisition costs and increased operating complexity.”

Most said it remains to be seen whether Starbucks will take food market share from archrival McDonald’s, or bakery-café specialists like Panera Bread or Au Bon Pain.

“It’s not an immediate threat,” said Dave Jenkins, a partner in consulting firm CustomersDNA. “It will be a long road to show whether [Starbucks food offerings] will develop a following.”

Jenkins, however, said Starbucks’ move was necessary to continue growth.

“For them to grow, they either had to get people to spend more at breakfast or to move into other dayparts,” he said.

While Starbucks has long been established as a consumer favorite for coffee, food has not been the coffeehouse chain’s forte, Jenkins noted. As with all quick-service breakfast players, pricing and portability will play a key role.

“How will this be really different from the bakery products they’re selling now?” Jenkins said. “It’s almost like they’re buying a test lab.”

Big Food Companies Rush to Rejig Recipes

June 26, 2012

Consumers increasingly demand meals that are not only healthier, but more ‘natural’

by Chris Sorensen on Wednesday, May 9, 2012 4:

With their soft, mashed potato insides and crispy exteriors stamped in the shape of a happy face, McCain Foods’ frozen Smiles are marketed as a fun-to-eat children’s snack. They’re not supposed to explode. And yet, that’s what happened inside the Canadian food giant’s laboratory in Florenceville-Bristol, N.B., as researchers attempted to “reformulate” the Smile’s long list of unpronounceable ingredients, part of a company-wide strategy to make its packaged foods more natural and wholesome.

Tony Locke, McCain’s director of product development, says the trouble began while trying to ditch mono- and di-glycerides, emulsifiers that help retain moisture in some packaged foods. Emboldened by previous success with frozen pizza pockets, Locke’s team added a mixture of yeast, wheat gluten and flaxseed to the Smiles. “It was working very well in the lab,” says Locke, referring to what was the 40th attempt to rejig the recipe. “But then when we went to scale it up, we actually had these little Smiles going down the line in the plant and coming out of the fryer and exploding. They would literally come out of the oil and burst.”

And that, in the form of a combustible little potato snack, is the huge and complex challenge faced by food companies as consumers increasingly demand meals that are not only healthier, but more “natural” and therefore, it’s reasoned, better for you. With the public spooked by everything from processed foods (too much salt, too many additives) to hormone-raised beef, food producers are suddenly bending over backwards to portray themselves as purveyors of local, fresh ingredients, and their suppliers as earthy, family-run outfits, as opposed to giant factory farms. The phrases “all-natural,” “naturally raised” and “cage-free” are everywhere.

The latest big name to jump into the fray is Burger King. The fast-food giant recently promised to serve only “cage-free” pork and eggs at all of its 7,200 U.S. restaurants by 2017, marking the first time a big fast-food chain has made such a definitive pledge. McDonald’s, meanwhile, has said it will work with its pork suppliers to phase out restrictive gestation crates used to house sows while they raise their piglets. And Tim Hortons is facing calls to go completely cage-free from the Humane Society of the United States, which holds a small number of shares and is proposing a shareholder vote at the company’s annual meeting next week. The ethical treatment of animals is one argument driving the changes, but so too is the assertion that happier livestock translates into healthier food.

As for packaged foods, McCain is just one of several companies that’s now focused on simple, easy-to-understand ingredients. Others include General Mills, with its Pillsbury Simply line of cookies, and Häagen-Dazs’s Five ice cream (with just five ingredients).

But while the sudden shift in focus may seem like a welcome change, critics say it is as much about marketing as it is science. And it has left food producers faced with the prospect of spending billions to overhaul their operations, even though the new and improved approaches may, in reality, do little to improve the nutritional value of the food we eat. Everyone likes the idea of food that’s “natural” and ethical, but, it must be asked, are they willing to pay the price?

For many big food companies, the pressure to change their ways intensified earlier this year. In February, Chipotle Mexican Grill (once owned by McDonald’s) aired an animated ad during the Grammy Awards that became an Internet phenomenon, with some six million YouTube views. The spot depicted the evolution of factory farming over the years, starting with a farmer and his wife standing in a field with a pig and ending with hundreds of pigs being deposited by machines onto conveyor belts, where they were stuffed with pills, stamped into cubes and loaded into the back of trucks.

Then, in March, a long-simmering debate about “pink slime” (beef scraps ground into a slurry, treated with ammonia and used as hamburger filler) went from being a favourite whipping boy of celebrity chef Jamie Oliver to a mainstream public issue. By the end of the month, everyone from McDonald’s to Safeway said they would no longer buy beef made with the stuff, while one of the product’s major producers, Beef Products Inc., had to shut down several of its factories, and another ground beef processor, AFA Foods, filed for bankruptcy due to lack of demand.

It’s against this backdrop that Burger King, under pressure from the humane society and shifting consumer sentiment, made its decision to promise to use only cage-free eggs and pork in the U.S. within five years (there are no immediate plans to do the same in Canada). Other companies that have offered similar promises include McDonald’s, Wendy’s, Subway, Costco and food giant Unilever, which makes Hellman’s mayonnaise. “We’re going to continue to consume beef, pork, chicken, fish, but we want to feel better about the practices,” says Darren Tristano, the executive vice-president of Technomic, a food industry consulting firm in Chicago.

The idea that getting rid of cages is more “natural” comes as news to many producers. Florian Possberg, 61, has been raising hogs in Humboldt, Sask., near Saskatoon, since 1975. Possberg started out raising sows in communal pens and then eventually switched to the more restrictive gestation crates in the 1980s. Research at the time suggested it was better for the animals and consumers, decreasing the risk of disease and injury. “Sows are pretty aggressive when they live in groups,” says Possberg, a director of the Canadian Pork Council. He adds that roughly half of the 5,400 sows on his farms are housed in gestation crates, while the rest are in groups, estimating that it would cost more than $1 million to switch over the rest of the operation.

It’s a similar story with egg farmers, who, several decades ago, moved to caged systems because it was viewed as cleaner and helped prevent the birds from attacking and eating each other. But animal welfare groups claim the use of small “battery” cages that each house several laying hens are too cramped, preventing the birds from engaging in natural behaviours such as scratching, nesting or flapping their wings. With pressure mounting south of the border, the United Egg Producers reached a deal last year with the U.S. humane society to promote the use of so-called “enriched” cages, which are bigger and offer extras like perches and nesting areas. The two groups are also calling for Congress to pass laws requiring new standards in a bid to avoid a costly patchwork of state regulations, and also to ensure individual operators who make the switch aren’t put at a “competitive disadvantage.” Translation: if everyone has to absorb the same costs, they can more easily be passed on to consumers via higher prices.

In Canada, both pork and egg producers are looking to the National Farm Animal Care Council for guidance. The seven-year-old group devises codes of practice for the industry with input from producers, scientists, government and animal welfare groups. It’s in the process of updating several of its codes, including those for hogs and poultry, although results aren’t expected for a few years. “It takes a long time,” says Jackie Wepruk, the council’s general manager, of the typically Canadian consensus-oriented approach. “But if you look south of the border, you’ll see the divisive way animal welfare is being tackled there. Most decisions are being made in a knee-jerk, reactionary sort of way.”

But Peter Clarke, chairman of the Egg Farmers of Canada, says the industry may have to move more quickly depending on what happens in the U.S. “The major food purchasers won’t accept significantly different practices on one side of the border or the other,” he says, adding the cost of such an industry-wide switch would be significant.

Whether it’s instant noodles or the oft-mocked Twinkie, most products that come in a bag or a box have historically been marketed based on their convenience, not provenance, and come loaded with artificial colours, flavours and other additives—all designed to maintain taste while boosting shelf life.

At McCain, the decision to reformulate its entire lineup of products (more than 80 since 2010) to include only “real” or natural ingredients represented the biggest-ever undertaking for the company’s research and development team, according to Locke. The move was based on extensive customer research that suggested consumers were growing wary of additives that were synthetic-sounding. Nor was the challenge strictly limited to McCain’s own operations. “We might buy a seasoning mix from a primary supplier, but of course they’re getting all of the components to assemble the mix from another group of suppliers,” Locke says. “So it was a complicated effort.”

All of the tinkering has translated into big business for another sector of the food industry: flavour companies. Though many consumers don’t realize it, many ingredients now viewed as undesirable—salt, sugar and other additives—do a lot of heavy lifting when it comes to taste. Once they’re taken out, new flavours must be added to maintain a product’s appeal. And not just any flavouring solution will do. Bob Eilerman, the head of science and technology at Switzerland’s Givaudan, one of the biggest flavour and fragrance companies in the world, estimates that more than 50 per cent of Givaudan’s customers now want “natural” flavourings, as opposed to artificial ones, even though there’s not much difference (other than cost). “Natural has good connotations behind it,” says Eilerman. “But at the end of the day, it’s all about chemicals. Whether it’s a strawberry flavour that came from crushed strawberries or from one of our laboratories, the chemical composition that we’re trying to create is very similar.”

It raises the question of whether the current fixation on natural and ethical is ultimately worth the price. McCain seems to think so. Calla Farn, a company spokesperson, says sales of some reformulated McCain products have enjoyed gains of up to 10 per cent. As for the cost, Farn admits that the new-and-improved products are more expensive to make, but says the company “worked hard to identify savings in other areas to ensure our products remained cost-neutral.”

Not all companies may be so lucky. In the case of cage-free eggs, Tristano estimates that the cost will go up by 25 cents to 40 cents per dozen, which threatens to squeeze the margins on a simple breakfast sandwich. That’s because fast-food operators typically have a much tougher time passing on rising commodity prices than do grocery stores because of intense competition. “It’s about three cents an egg on a product that sells for $2 or $3, so it doesn’t seem like a lot,” he says. “But when you can only increase prices by about two per cent and you’re getting hit by a per cent and a half just to have cage-free, that’s a big deal.”

Ultimately, a bigger risk to the industry may come from the public’s new heightened expectations from food companies. As they change the way food is made, there is every likelihood consumers will turn their attention to some other unappetizing aspect of the mass-production process. “Once you move forward, there’s no turning back,” warns Tristano. “And let’s be honest: if we really cared that much, we’d all be vegetarians.”

Burger King scrambles for cage-free eggs

May 24, 2012

‘Humane’ is new trend

By Tim Devaney, The Washington Times, Sunday, April 29, 2012

 The nation’s fast-food giants are aggressively touting more humane ways of producing their menu offerings, but whether the kinder, gentler methods of serving up chicken nuggets and cheeseburgers can pay off at the cash register remains an open question.

Looking to trump moves by rivals McDonald’s Corp. and Wendy’s International Inc., industry No. 3 Burger King Corp. last week announced that it would take a more eco-friendly approach. By 2017, the company said, all the eggs and pork served to its customers will come from suppliers that don’t confine animals to cages or crates. It’s the first major fast-food burger chain to make a 100 percent “cage-free” commitment.

Jonathan Fitzpatrick, chief brand and operations officer at Burger King, called the move “the responsible thing to do” and one that “will allow us to leverage our purchasing power to ensure the appropriate and proper treatment of animals by our vendors and suppliers.”

Some say these moves, while well-intentioned, could backfire, leading to more animal deaths and environmental harm while taking bigger bites out of customers’ wallets.

“There are trade-offs with any decision,” said Charlie Arnot, CEO of the Center for Food Integrity. “So we’re encouraging them to consider these trade-offs before they simply respond to pressure from animal-interest groups.”

Although the more humane methods can generate positive headlines and enhance a brand’s reputation, the impact on the bottom line is less certain.

“I don’t think this will pay off from a financial standpoint,” Technomic restaurant analyst Darren Tristano said. “What typically happens is, you end up paying more. But you don’t do it because you expect to profit from it. You do it because it is good business sense. It shows good corporate social responsibility.”

Burger King announced its move just weeks after revealing that it would soon return to the New York Stock Exchange to trade its shares publicly. The last time the company’s shares were available for public sale was in 2010, when investment firm 3G Capital took it private for $3.3 billion. The company has announced an extensive revamping of its menu and a remodeling of its more than 12,000 outlets worldwide amid news that it had fallen to third place behind Wendy’s in the fast-food hierarchy.

Mr. Arnot said Burger King’s move could lead to higher prices on the menu, increase the restaurants’ environmental footprints and even harm the animals that the brand is trying to protect.

“If cage-free is the right direction for you, that’s fine, but think about the implications to the environment, to hen health and well-being, to worker health and safety, and to food affordability before you make that decision,” he said.

When the hens roam free, he said, they tend to cluster. This can lead to suffocation.

“You’re also likely to see an increase in hen mortality,” he said. “One of the reasons that the cage systems have been developed is to protect hens from pecking each other.”

Some critics say the government definitions of “free-range” and “cage-free” practices have been so diluted that the changes in animal welfare are minimal.

Listening to the customer

Fast-food restaurant officials said they are acting on feedback from patrons.

“We’re all listening to what our customers are telling us,” Wendy’s spokesman Denny Lynch said. “Consumers are more interested in their ingredients. They’re more interested in the sourcing and where the food is coming from, and they’re more interested in the humane treatment of the animals.”

But don’t expect these chains to go vegetarian anytime soon.

Wendy’s customers “do understand that these animals are raised for food,” Mr. Lynch said. “They’re not pets. We’re not going to be buying pillows for every animal.”

Burger King’s plan for cage-free eggs means the chickens that produce its breakfast-sandwich eggs will not be enclosed in tiny cages. Instead, they will be free to roam around the supplier’s barn.

Burger King was the first major restaurant chain to begin buying cage-free products in 2007. About 9 percent of its eggs and 20 percent of its pork are raised cage-free. The company said last week that it will shift completely to cage-free production over the next five years.

McDonald’s and Wendy’s have asked pork suppliers to develop plans to eliminate gestation crates, the small cages in which pregnant pigs are kept, but they have not set a timetable.

Dispatching chickens

Wendy’s has turned its focus to less-traumatic ways of killing chickens, Mr. Lynch said. The restaurant doesn’t compete as much in the breakfast market, so it uses fewer eggs than either McDonald’s or Burger King.

In an effort to improve animal welfare for the chickens it uses for sandwich meat, Wendy’s has been moving away from electric stunning of chickens before they are brought to the chopping block.

“We are active in identifying more humane methods of doing that,” Mr. Lynch said.

He said electric stunning has been an industry standard “for a long, long time” and that there is nothing unethical about it, but he added that his restaurant chain is simply trying to find better methods.

Wendy’s has considered “low atmospheric pressure systems,” or LAPS, to suffocate rather than stun chickens. Wendy’s has one top supplier that uses this “less invasive” method, Mr. Lynch said.

Explaining the process, he said, “When you get in an airplane and fly to high altitudes, you have to put on an air mask. So this process is what is used to treat the chickens, except they don’t get an air mask.”

Restaurants aren’t the only ones transitioning to cage-free food.

Retailers Wal-Mart Stores Inc. and Costco Wholesale Corp. have made the move with 100 percent of their private-label eggs. Unilever NV, which makes Hellmann’s mayonnaise using 350 million eggs a year, is in the process of doing so. Others in the food industry, such as Sonic Corp., Subway, Ruby Tuesday Inc. and Kraft Foods Inc., are taking similar steps.

McDonald’s has been a staunch user of cage-free food in Europe.

“I think they’re trying to get ahead of the curve and McDonald’s here,” said Mr. Tristano, the restaurant analyst. “If you’re Burger King, and you know McDonald’s is doing it in other countries, it’s a smart move.”

© Copyright 2012 The Washington Times, LLC. Click here for reprint permission.

Why Going Green Can Mean Big Money for Fast-Food Chains

April 23, 2012

By Sonia van Gilder Cooke Monday, Apr. 09, 2012

In late 2008, a fast-food burger restaurant in Sweden received an odd complaint letter. It was from a mother of two, asking the chain to get rid of the boxes that its kids’ meals were packaged in. Her children only wanted the fries and toys, she said, and she was annoyed at having to throw the boxes straight into the recycling bin. It was an unusual request with an unusual outcome. Max Burgers — Sweden’s No. 1 burger chain — decided to do away with the kids’-meal boxes in all of its 75 restaurants, explaining to customers that it was reducing waste. No one complained. In fact, sales of kids’ meals rose. The company had turned sustainability into a selling point.

Max didn’t just get rid of its kids’-meal boxes, though. Since 2006, the chain has reassessed its entire enterprise, searching for ways to reduce its environmental footprint. It has installed energy-efficient grass roofs on 12 new restaurants and cut energy consumption by 20% company-wide. The chain buys only wind power and offsets all its carbon emissions by planting trees in Uganda. And in 2008, Max started putting CO2 labels on its menus, quantifying exactly how much carbon dioxide, from field to fryer, is emitted in making each dish. “One of the problems being a burger business is, of course, the beef,” says Max’s chief sustainability officer, Par Larshans, noting that the meat industry is responsible for about 18% of global greenhouse-gas emissions. By showing that its Grand de Luxe Cheese ‘n’ Bacon beef burger produced five times more carbon dioxide than its vegetarian burger and six times more than its fish sandwich, Max hoped to nudge customers toward a more sustainable choice.

It worked. Customers started eating more nonbeef burgers, causing sales of the low-carbon alternatives to jump by 16%. Meanwhile, Max began eating up the competition. From 2005 to ’11, the chain opened 45 new restaurants and more than doubled its market share in Sweden. In 2008 — the year it put its carbon labels on menus — Max became Sweden’s most popular burger chain, according to a survey of 250 brands carried out by the market-research firm ISI Wissing, trouncing McDonald’s despite the fact the American chain has three times as many restaurants in the country. With a 16% operating profit, Max has also become the most profitable burger franchise in Sweden. And after opening its first franchise in Norway last year, it’s eyeing expansion across Europe.

So how did the company do it? For one thing, the green initiatives seemed to boost customer loyalty, which increased by 27% from 2007 to ’09, according to a survey by the global media network Mindshare. But the real key was drawing in new customers. Vegetarians who might never have set foot in a fast-food restaurant now drop into Max for its veggie Greenburgare, bean salad and a Lyxshake Jordgubb (strawberry milk shake).

Max Burgers isn’t alone — fast-food chains elsewhere have also started burnishing their green credentials in recent years, with positive sales results. In the U.S., the Mexican-food chain Chipotle — which sources many of its ingredients locally and buys nearly half its beans from organic farms — has tripled its revenues since 2006 to $2 billion and now has more than 1,200 stores. Naked Pizza, which launched in 2009 in New Orleans and serves pies topped with hormone- and antibiotic-free meats, has plans to expand to 500 stores worldwide from its current 24. And in 2010, a vegetarian chain called Otarian launched in New York City and London with menus showing the amount of carbon dioxide emitted while making each food item (1.37 kg for a mushroom-quinoa burger) as well as the amount emitted by the typical fast-food equivalent (2.96 kg for a beef burger). Customers can store up the difference on a “Carbon Karma” card and redeem it for a free menu item of their choice.

Major companies have also experimented with measuring carbon emissions. Walkers (Britain’s biggest potato-chip manufacturer) and Coca-Cola have both begun monitoring the carbon footprint of their U.K. products with the help of the Carbon Trust, a British nonprofit group. For the companies, it not only improves their corporate image but can also save money. Walkers, for example, noticed it could cut costs by asking its farmers to water their potatoes less. “When you’re making [potato chips], you’re trying to get rid of most of the water,” explains John Kazer, a carbon-footprint-certification manager at the Carbon Trust. Drier potatoes take less energy to transport and bake to a crisp.

While carbon labeling and other environmental initiatives have caught on in some corners of the fast-food industry, however, they’re still not a huge selling point in the U.S. “Ultimately, with Chipotle, it’s a 1¼-lb. burrito,” says Darren Tristano, executive vice president of Technomic, a consultancy that monitors food-industry trends. “I think they’re going to win on portion and value more so than the environmental integrity.” In fact, the numbers show that diners interested in sustainable food are in the minority — only 27% of U.S. consumers feel it’s important that their restaurants be environmentally conscious, according to a 2010 Technomic survey.

This may change slowly, however, as the eco-minded Millennials — a third of whom report they want restaurants to be socially responsible and environmentally conscious — move through the workforce and begin earning higher salaries. “Every year, we are seeing more shift of the Millennial generation toward these concepts and spending their dollars there,” Tristano says. “Over time, it’s inevitable.”

For Max, pushing through new policies in recent years was a way of getting ahead of the curve. “When we introduced our carbon label in 2008, we were afraid that someone else would come in ahead of us,” Larshans says. Four year later, however, Max still hasn’t been joined by many others. “I don’t understand why more places aren’t doing this,” he says. “For us it’s a very good part of the business.”