Convenience Store Food Service Consultant- Dean Dirks: News, Articles, Events

March 18, 2009

Opportunities for a Challenging Economy

Here is an outline of the “Opportunities for a Challenging Economy” speech I gave today at the Convenience Store News Food Service Roundtable.

  1. OPPORTUNITIES FOR A CHALLENGING ECONOMY
  2. ECONOMIC CRYSTAL BALL
    Recession- 18 months
    Loss of jobs may make the recession longer.
    6-10% inflation by 2011
    $4 a gallon gasoline in the next year, which will further reduce disposable income.
    Savings rate is up 6%, which helps the banks but not spending.
  3. MARKET TRENDS
    Trading down
    Fine dining trading down to Red Robin and TGIF
    Red Robin- TGIF down to Subway and Qdoba.
    Qdoba, Subway down to McDonalds’ and BK
    Starbuck’s trade-down to McDonald’s espresso
    “Go without” – Starbucks, Jomba Juice, etc
    1/3 consumers-eating  out less than a year ago
    Meal replacement
    Fringe day parts-breakfast-snack-late night
  4. C-STORE QUALLENGES
    Lower customer counts
    Increased price of cigarettes driving sales else ware
    $4 a gallon gasoline- more pay at the pump
    C-stores are the “face” of big oil. PR problem to overcome when gas rises.
    “Go without” mentality on impulse purchases
    Rising labor costs-Washington State $8.55,
     Oregon$8.40, Vermont $8.06, 5 states @$8.00
    Increasing energy costs
  5. QSR – CHALLENGES
    Cannibalization with new units
    Discounting strategy, intense competition.
    Subway $5 sub
    McDonald’s dollar menu
    Burger King – dollar menu
    Wendy’s – 99 cents price point
    Quizno’s -$5 sub
    Taco Bell -79 cents, 89 cents and 99 cents.
    Sonic’s Dollar Menu
  6. QSR – BIG FEAR
    ELASTIC PRICING
    QSRs backed into a corner with discount menus
    Consumers expect to pay $1 for a value burger.
    A $5 Subway sub is now an expectation.
    QSRs assumed add ons, which has not happened
    Subway is countering with $1 add ons- discounting $1.59 soda to $1
    Franchisees are battling the mother corporations to raise prices because of low margins
    Law suits to lower royalties to offset value menu
  7. BREAKFAST
    25 % consumers eat breakfast away from home
    QSR Sector is aggressively getting involved:
    McDonald’s chix-biscuit breakfast sandwich
    McDonald’s McSkillet Burritos,
    Burger King’s Cheesy Bacon BK Wrapper
    Hardee’s –Ham/ Three Cheese Burrito.
    Jack n box
    Breakfast  isn’t as price point determined as it is perceived value driven
  8. NON PEAK SNACKS – UP 196% IN QSR
    McDonald’s Snack Wraps
    Chicken McNuggets
    KFC popcorn chicken
    KFC crispy chicken strip
    Wendy’s Go Wraps,
    KEYS- PORTABILITY, SMALLER PORTIONS, EATABILITY IN A CAR.
    PRICE POINT  1.49-$1.99
  9. HEALTHY – POSTING CALORIES HAS LEGS
    Technomic found that 86 percent of consumers were surprised by calorie counts listed on menus.
    82% – calorie disclosure is changing their order
    60% percent is affecting where they visit.
  10. BENEFIT
    Taco Del Mar has launched a 320-calorie burrito
    Subway has 9 subs with 6 grams of fat or less
    LOSE
    Hardees country breakfast burrito – 780 calories
    Jack in the box breakfast taco- 720 calories
  11. QSR OUT OF THE BOX
    Menu engineering- smaller portions, different containers, lower price points
    B K- testing premium items, ribs & thicker burgers
    Burger King is testing a self serve condiment concept similar to a salad bar
    Hardees’s, Thickburgers
    Domino’s is delivering  oven baked sandwiches
    Pizza Hut is delivering baked pasta dishes
    Quizno’s recently started to offer home delivery
    Subway has drive thrus back in R&D
  12. UNEMPLOYMENT CREATES OPPORTUNIES
    INCREASING THE AVERAGE CHECK
    Show associate money w/bonus & contests
    Set goals that are attainable and measurable
    Post results. Competitive, peer pressure
    Make check average a criteria for a raise.
    Terminate employees that don’t show average check growth.
  13. MARKETING
    Loyalty cards rather than discounting.
    Emphasize the draw of your brand, not the deal.
    Subway is an example of this by selling discount rather than healthy. No longer a niche QSR but a discounter .
    Avoid discounting
    Focus on VALUE rather than discounted pricing
    Merchandise and market VALUE
    Fringe marketing (add on sales)
    Breakfast, snack, and late night
    ALWAYS HAVE AN EXIT STRATEGY ON PROMOTIONS
  14. OPERATIONS
    Food costs-
    Ideal cost of sales based on recipes at cost
    Sales mix will generate an ideal food cost.
    New ideal food cost each week based on sales mix
    Food cost budgets-  variance to cost of sales.
    Labor-
    Remote electronic labor tracking based on sales per/labor hour or units per hour to control labor.
    Phone/blackberry alerts for OT
  15. COST SAVING
    Re visit flow to decrease labor
    Decreasing energy costs
    Smaller kitchens and smaller dining area spaces
    Denny’s reduced their footprint 25%
    Equipment -Flat griddles with heat recovery
    Burgerville is trying to design a building that would operate on wind-energy credits  and solar power.
    HUGE MARKETING TOOL
  16. OPPORTUNITIES
    C-store food service can benefit in the trade down chain.
    Products focused on value rather than compete with discount pricing.
    “Fringe markets” Breakfast, Snacks, Late Night
    Home meal replacement-grow in this economy
    Trade down coffee growth.
    Create low calorie items and market them.
    Portable ,eatable,snack items
    Market “GREEN”
  17. CONCLUSION
    Leverage unemployment to get better employees and increased check averages
    Experiment with QSR market products, they spend millions in R&D and test marketing.
    The trade down creates a huge opportunity. Subway is up 7% and McDonald’s  best 4th quarter in 12 months.
    While food service has a huge upside potential many of the QSR companies “pros” are struggling to drop money to the bottom line.
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