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