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
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
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
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
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
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.
Taco Del Mar has launched a 320-calorie burrito
Subway has 9 subs with 6 grams of fat or less
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
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.
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 .
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
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.
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
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
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.