April 10, 2018
St. Louis based Doughnut shop, Strange Donuts recently launched a franchise program to expand its locations across the US and Mexico. Strange Donuts is increasing the local footprint by adding two new stores in the next few months. Although the donut segment is highly competitive with global brands Dunkin’ Donuts and Krispy Kreme continuing to expand their operations, the emergence of upscale, cult shops has found a niche within indulgent consumer demand.
The upscale donut trend took shape years ago with the success of cupcake shops like Crumbs and Sprinkles which grew in New York City and Los Angeles. The trend evolved to mashups like the Cronut in Brooklyn, cookie shops and has now evolved toward local, independent donut shops to deliver sweet craveability. The consumer white space was built on the demand for an affordable indulgence which every consumer could pay for and treat themselves to on both good and bad days. So what makes an affordable indulgence? Generally consumers are looking for locally-made items that incorporate local ingredients that are more common and suit consumer taste preferences. The items are usually baked on location and made fresh daily. Donuts in particular should be visually appealing, include more adventurous ingredients and generally are packed full of sugary sweetness. Prices can vary on low end of $1 to prices around $5.
According to CHD Expert, there are more than 13,000 donut shops in the US including 9,140 Dunkin’ Donuts, 316 Krispy Kreme and 470 Daylight Donuts. Since almost every bakery, supermarket and gas station offers some form of branded or unbranded donut offering, the donut is one of the most available and competitive products in the foodservice industry.
Competing with big brands can be difficult for small shop owners and growing the number of stores for a brand means economies of scale, better purchasing power, greater investment in human resources and improved opportunity to lease key site locations. Often restaurant operators need to reach a critical mass with between 20-25 locations in larger markets and 10-15 in small markets before the customer base recognizes a brand and will frequent their restaurants. In addition, local chains which have 10 or more restaurants have the ability to leverage billboards, radio advertising and direct mail promotions to further build awareness of their restaurant and promote trial. Smaller brands are often more nimble, and enjoy the speed to market for new innovative products that can be big winners and draw crowds. National chain restaurants are slow to roll out new products taking 12-18 months to test ideas, perfect recipes, build their supply chain and develop and execute a marketing campaign. Smaller shops can experiment in their kitchen and test products immediately with customers to see if they will be within the “customer zone of creativity”. This zone is the range of items that a customer will give an operator permission to sell. For example, a customer will not give a fast food restaurant permission to sell eggs benedict because of the culinary skills, equipment and quality ingredients necessary to accomplish the menu item. When it comes to donuts, the sky is the limit on innovation and creativity.
Like Voodoo doughnut in Portland, Oregon, Firecakes in Chicago or Dough in New York regional shops are taking the country by storm. Small groups that look to expand outside of their home town will face challenges competing with other favorite donut houses but ultimately, have an opportunity to steal share for big chains that have focused on high-margin beverages, breakfast and sandwich items and low cost, high value offerings. The variety, creativity and hip factor surrounding these strange new donut shops will continue to drive indulgence, cravings and snacking occasions.Link to Original Forbes Article
April 3, 2018
Today’s foodservice consumer continues to use fast food as a way of life, leveraging the benefits of convenience and affordability. Younger GenZ and Millennial consumers can often be described as “value-seekers”, with an eye toward coupons, deals and groupons. In order to maintain their lifestyle and high frequency in dining away from home, value allows these consumers to spend less so they can dine out more. The emergence of the dollar menu and with inflation, the new value menu allows consumers to feel good about the price point of their purchase and customize their order through greater options and simple pricing.
Brands like Wendy’s Old Fashion Burgers have had dollar menu value since the beginning of the trend but it has evolved to McDonalds and others in the fast food segment. Most dollar and value menus have been historically aimed at the lunch and dinner daypart but with the emergence of all-day breakfast trends, value is coming to the breakfast daypart and it allows` brands like Dunkin’ to offer more “egg-cellent choices”.
Years ago, eggs received a bad reputation for having high levels of cholesterol. Science helped us understand that the cholesterol consumed in food was different from the cholesterol in our blood. When you consume more cholesterol, your body produces less. The egg became a healthy source of protein. In a competitive family-style segment, there is a rise in “egg-focused”, breakfast-lunch only restaurants like Yolk, the Egg and I and Egg Harbor driving breakfast occasions and increasing the propensity of consumer eating breakfast away from home. Breakfast is considered to be the most underpenetrated day part with many American consumers skipping this meal or eating cereal or instant oatmeal. The growth in breakfast has fueled many fast food chains sales based on convenience, better quality coffee and attractive low price points.
Dunkin’ already stands for value through their donut orientation but continues to sell more beverages than food. This shift will allow Dunkin to build higher check averages when consumers add food to their beverage order. The strategy should align nicely with McDonalds offering and help them compete with rival beverage-focused Starbucks and breakfast newcomer Taco Bell which recently introduced a Naked Egg Taco.
Dunkin’ serves a wide variety of consumer demographic from low-income to high-income groups. Their coffee and beverages will continue to drive patronage but the new egg menu should give their customers more options and a good feeling of value for their money.Forbes Blog Post
March 14, 2018
In what has been Taco Bell’s most successful new product launch in their history, Nacho Fries appear to have hit home with American consumers. Driving appeal through both indulgence and value, this $1 craveable side makes it easy for consumers to add on to any meal and build strong trial. Quality potatoes continue to be a staple in the diet of many consumers. Good supply and availability creates a low risk and attractive margin for operators. Adding a spicy seasoning and a dipping sauce makes this a strong target for kids and a product that can easily be consumed in the car, hot out of the bag.
French fries are the most popular side item at competitive fast food burger chains; McDonalds, Burger King and Wendy’s, Offering French fries increases the competitive market for meals occasions that include fries. This increases frequency for value-seeking consumers and expands the snacking daypart opportunities by satisfying hunger in between meals. For younger children, French fries can establish a bridge for a Mexican-inspired fast food chain to offer a menu item that has familiarity with kids, encouraging them to try new flavors and foods. For teen and tweens, the spicy flavor continues to increase in appeal and provides the kick that a more sophisticated, adventurous palate craves.
In addition to bolstering the dollar menu, Nacho fries are also an ingredient that allows customers to add a 49 cent “hack” to their entrees which creates a mashup of flavor and texture by incorporating the fries into the meal. Mashups have become very popular for desserts like Cronuts, which are a combination of a croissant and a donut. This trend is evolving into other meal parts and allowing culinary teams to be more creative.
So what does this mean for Taco Bell? Most importantly, this level of risk in innovation can have a high reward not only in sales but in the perception by the consumer that the restaurant brand is innovative. This increases willingness for trial and the inherent risk in purchasing new items as a strong track record will allow consumers to try with confidence. Innovative items drive social media posts with pictures across Facebook, Instagram, Snapchat and other platforms. The buzz marketing, press coverage and consumer curiosity can be a difference maker in a highly competitive restaurant market where big brands fight for share of stomach and share of wallet.
March 9, 2018
Forbest Blog Post: Will Burger Flipping Robots Replace Humans, Or Are They Just A Side Show?
Recently, burger chain CaliBurger incorporated “Flippy”, the burger-flipping robot at one of their restaurant locations. Essentially, the plan was to utilize the machine to complement workers by increasing speed of service, not replace them. It didn’t take long for Flippy to take its break while the company evaluates how humans will interact with the robotic machine which neither talks nor takes a break. Company culture and productivity often depend on the ability for staff to communicate and interact socially. In the right environment, social interaction leads to better morale and inspires humans to work faster and smarter. The interaction also has a strong positive impact on the customer experience where friendly, attentive service improves a restaurant patron’s satisfaction level and improves loyalty and their intent to return.
Flippy’s appeal is not just based on how well the robot flips burgers. Apparently, news of the robots activity spread rather quickly and drove a number of consumers to the location to see it themselves. Now this addition becomes a marketing tool and attraction for guests to not only dine at the restaurant but to satisfy their curiosity and witness the marvel. Flippy is a new celebrity.
Restaurants continue to operate with a very low margin on average around 5%. Increasing speed of service, efficiency and reducing labor costs are strong reasons for building robotics into an industry that has lagged with technology integration. If the investment also drives customers through the door, the payoff can be very big for operators who can afford to invest in robots. Ultimately, humans will need to learn to work with robots and likely build new expectations on restaurant hospitality as it evolves.
Today, Flippy may appear to be a sideshow gimmick but likely, this is the start of a big trend for restaurants and will shape the future of hospitality.
October 23, 2017
Subway’s sales struggles continues much like the rest of the over-bloated restaurant industry. Consumers are faced with so many options for meals away from home and restaurant operators are seeing their profit margins squeezed so tightly that many operators are losing money, closing their doors or putting their units up for sale. Today’s battle is over share of stomach and driving more diners to order from the restaurant whether it’s for dine-in, takeaway or delivery. So before sandwich giant Subway considers developing new brands or making acquisitions, they should review the current industry landscape and consider these 5 issues that affect their business:
1. Industry Saturation – although the recent recession forced many operators out of business, the downturn has also created an opportunity for chain restaurants to expand and increase their restaurant base. Franchising continues to create opportunity for new owners and entrepreneurs adding restaurants with the intention of becoming multi-unit operators. Inexperience has led many to close their doors or sell off their operations at dimes on the dollar. Operators run an average of 5 percent profit margins and for all those that succeed in double digits, many are breaking even or losing money. Within the quick-service and fast casual sandwich segment, chains have continued to expand regionally and nationally. Fast casual chains Jimmy Johns, Jersey Mike’s and Firehouse Subs have continued to open locations across the US, providing high-quality freaky fast subs and fresh made-to-order, portable meals. Demand continues to grow for these subs but each location struggles to build momentum when stores open nearby with $500,000-$800,000 in annual sales. More restaurants water down demand for existing stores.
2. Consumer Price Value Equation – Subway created a terrific success with $5 footlongs or what many consider 11-inchers. In fast food, the $5 price point is golden and it’s difficult to compete when so many four and five dollar value meals continue to satisfy value-seeking consumers. Little Caesar’s $5 hot-n-ready pizza and Steak n’ Shake’s $4 value meals create significant price value for lower income and younger consumers. With Subway’s higher price points, the brand has increased the gap from fast food. Quality hasn’t improved enough to gain ground on the higher priced, higher quality offerings from fast casual brands so consumers continue trade up to fast casual for quality and trade down to fast food for price. Subway remains on the fence in no-man’s land.
3. Technology Expectations – Technology continues to appeal to consumers, especially GenZ and Millennials. Brands that have been aggressively investing in technology like Dominos have continued to see strong same store sales growth. The trick is to make it simple for older consumers and easy for younger consumers who expect smart phone apps. Ordering applications are incentive to use a brand but rewards for frequency and loyalty are what drives customers to keep your app relevant and build their frequency. Getting free food is another strong form of value and helps develop deeper behavior towards ordering habits. Just like the reduced need for cash has made the wallet obsolete, punch card systems aren’t cool and are often lost or forgotten. Integrated loyalty programs are more contemporary today. Free Wifi can also create a lingering opportunity for customers and create that third place for customers to escape from home or work.
4. Staying Fresh – Fashion changes with each passing season and year-to-year. Many brands wait 7-10 years to update their interiors and it can take 3-4 years for a big system like Subway to update to a new décor across their entire system. It can be costly and a store may close to update their interior. Some of the most important features today are added for comfort and efficiency. Televisions provide distraction for single diners, USB and electrical outlets provide customers with added value to charge their devices and seating configurations can improve the experience for different occasions. Restaurants are often used for communal study groups with large tables, comfortable seating for social occasions and booths for business meetings. Although many Subway restaurants are designed for takeout, improving the appeal for a broader array of occasions can drive greater traffic to a location. The entire location doesn’t have to be remodeled if continuous evolution and updating can take place and customers can see the change.
5. Broad Menu Offering – Today’s sandwich chains have broadened the menu to include soup, salad and side items. Often, side options create craveability and can increase check average. The typical Subway order includes a sack of chips and a drink. At most deli’s, soup, salads and dessert provide strong opportunity to impulsively upgrade your meal into a more profitably order. Signature sides especially designed to accompany new, innovative sandwich lines, seasonal desserts that drive comfort and perhaps a whole or sliced pickle can give customers more options at Subway to keep their customers from going elsewhere. Finally, adding new beverage options to the mix can be another way to build their customer counts. Beverage only and snack occasions are great off-peak traffic drivers and can keep stores busy all-day.
Subway should consider a barbell strategy for their menu offering. Offer smaller sandwiches for high value ($3-$4), larger sandwiches for middle of the road ($4-$5) and build into a higher quality premium sandwich line ($6-$8) that competes with fast casual brands. Investing in their dining room to make it more occasion friendly and improving their technology to simplify the experience will give customers greater reason to use Subway more frequently. Innovation will be a strong driver but you have to understand what the customer wants and give it to them. Overall, Subway has a successful brand, broad customer base and fills a big gap in the industry. Before leadership overlooks what made the brand a global leader and changes course, they should consider smaller, meaningful adjustments to what the customer wants.