You got the munchies? We are open
Only five percent of American consumers eat three square meals a day, but they aren’t starving—they’re snacking. Restaurants worried that their high-margin meals are vulnerable to this trend should think about how to capture some of the snack market, or how to lure busy consumers back to sit-down meals.
USA Today reports how chain restaurants are adapting to all-day eating habits: McDonalds is making its new limited-time item the “Chicken McBite” rather than a sandwich, Dunkin Donuts has begun to sell its lunch sandwiches in the morning, many Applebees franchises are extending their hours to midnight, IHOP sells a to-go pancake that fits in a car cupholder, and Denny’s marries breakfast and dessert in its bacon maple sundae.
As these chains demonstrate, restaurants can grab share from conventional snack manufacturers by marketing like them. One way to do this is to embrace aggressive branding—Taco Bell, for example, now sells tacos on a Doritos shell. Another is to follow IHOP in selling take-away food like a convenience store does—the question is how to adjust your type of food to snack portions and commute-friendly packaging.
A restaurant’s correct evolution to the snacking trend requires testing changes one by one, and eliminating the risk of losses before rolling out new products nationwide. Click here to read more on how testing can help introduce new items.
Another Day, Another Two Dollars
Since Wendy’s launched its ninety-nine cent menu in 1989, consumer demand has led to value menus in many fast-food chains, and in this economic climate dollar menus are especially popular.
Rising food costs, however, have shrunk the already small margins on dollar deals. At the same time, cash-strapped customers are less likely to buy the full-ticket items on the menu.
Enter the TWO-dollar menu. What one consumer psychologist calls a “magical price point” has appeared on the menus of KFC, Taco Bell, and, most recently, Subway, USA Today reported. Taco Bell’s take on the two-dollar deal included chips and a drink, and Subway’s two-dollar sandwich is also marketed as a full meal, making the items on McDonald’s dollar menu look like snacks by contrast.
The two-dollar menu might be catching on quickly, but its effect will vary. Restaurant chains have to find out how to make it lead to steady profit. All restaurants should have robust answers to the following questions before getting in the $2 game:
- What items can retain a viable profit margin at $2?
- How will your current value offers (like Subway’s $5 foot-long) fare under the pressure of a better deal?
- How can the $2 deal be leveraged to sell pricier add-ons?
- Could the $2 deal be paired with aggressive marketing of seasonal specials?
- How will different franchises respond to a nationwide $2 deal?
Controlled testing is the smartest way to introduce this buzzing price point.
The Human Ingredient: Reducing Turnover and Managing Labor Costs
Despite McDonald’s well-chronicled hiring of 62,000 new employees on its April 19th “National Hiring Day,” surveys of restaurant human resources departments and recruiters, summarized in the People Report Workforce index, continue to indicate increased pressure on restaurant employment in Q4. After rounds of drastic cuts during the recession – resulting in more hours, heavier workloads, and reductions in performance-based incentives – restaurants are once again recognizing the need to invest in labor.
Operators increasingly concerned about recruitment, retention and management of their workforce must deploy a combination of strategies to address a few key questions:
1. What initiatives are effective at reducing turnover?
High turnover should not be accepted as simply “the nature of the business.” In many cases, excessive turnover rates can be as expensive as escalating labor costs. As restaurants implement new employee incentive programs to increase retention and reduce tardiness and absenteeism, they must go beyond looking at only changes in labor costs and carefully analyze the bottom line impact across days of the week, dayparts and individual stores before making the decision to go nationwide.
2. How should staffing levels and shift schedules be determined?
A variety of approaches, ranging from staffing forecasting software to special posting boards where employees post requests for extra hours to limiting hiring to only flexible shift employees, can, in principle, improve staffing efficiency. However, understanding the full attributable effect of those strategies on retention, operations, labor costs, and overall profits requires a deep understanding of how those variables interact in a dynamic setting. A comprehensive strategy which addresses all those questions provides opportunities for tailoring the initiative on a store-by-store basis for maximum impact.
Human resource executives and operators face difficult decisions when trying to balance increasing labor costs with retention and employee satisfaction. Strategically testing in a group of stores prior to full implementation is the most effective way to choose an optimal labor strategy which addresses all of the critical needs of the company.
A touch-screen “Fries with that?”
With iPad2 sales soaring and the Kindle Fire poised to be a bestseller this holiday season, it’s clear that mainstream consumers have become comfortable with mobile touch-screen shopping. For restaurant chains toying with the idea of adopting tech-forward ordering interfaces, now might be the time to strike.
Menus on spill-proof, drop-proof tablet computers are spreading from independent restaurants to chains like Umami Burger, and major fast-food companies have begun to invest aggressively in self-ordering consoles, touch-screens, and mobile ordering. After experimenting with self-serve kiosks for years, McDonald’s has launched an arsenal of them in 7,000 of its European locations. Subway, betting on the convenience payment by mobile devices, has pledged to accept payment by the Google Wallet app.
Purveyors of new restaurant technology—like Rajat Suri of E La Carte—claim their devices can increase revenue, reduce dining time, and improve customer experience. But will rolling out new ordering devices help your company? Can the “cool factor” of new tech draw more sales than the classic benefits of personal interaction?
Since devices are developing so quickly, the wrong bet will leave restaurants with an expensive system that’s already become obsolete. Making the right decision requires confidence about the technology and willingness to test customers’ response to it. The time-tested teenager-in-a-visor model of fast-food ordering has sold a lot of French fries, and might be more lucrative than you think. The best way to figure out which ordering model will work for your business is to test it in a subset of your chain before rolling it out.
Thirsty for More?: How Restaurants Can Combat Declining Drink Sales
As commodity costs rise and restaurant margins are squeezed further, many restaurants were hoping that consumers would continue to be thirsty for high-margin drinks. Unfortunately, in 2011, consumers purchased 846 million fewer carbonated soft drinks; in the past five years, overall drink orders are down by 5%. Restaurants are trying a variety of techniques quench their patrons’ thirst: introducing new drinks, adding table signage, promotions, encouraging servers to cross-sell, etc. As restaurants try to boost ailing drink orders, they should analyze three key questions:
(1) How do we successfully introduce new drinks?
While the overall drink trend is headed downwards, new items such as smoothies, iced tea, and premium coffee are reporting increases in sales. As restaurants introduce new items, they need to carefully analyze how the addition of a new drink changes both total check margin and operational effectiveness. The introduction of items such as smoothies may lead to increases in preparation time and corresponding decreases in guest satisfaction and added labor cost. These operational problems in new drinks are particularly acute in QSRs where people are waiting in line for their orders. Restaurants need to carefully understand the all the dimensions of introducing a new drink before rolling it out to their network.
(2) Which drinks should be removed?
Some drinks may show low sales and may even get lower satisfaction ratings, but removing them may lead to loss of the entire check. Successfully rationalizing the drink menu requires understanding the patterns of how guests combine drinks with other menu items. In addition to carefully analyzing which drinks are most likely to be chosen as add-ons, restaurants need to accurately quantify the total impact of removing or replacing existing drinks, including mix shifts into other drink items and changes in drinks per check. Learn more about how to build a successful drink menu by clicking here.
(3) How should drinks be promoted? Many restaurants traditionally run several drink promotions, especially on alcoholic drinks. However, restaurants often struggle to understand the impact of these promotions. A number of questions need to be answered before successfully launching a drink promotion: What is the impact on profits? Does it bring in incremental guests, or are we losing margin on existing customers? When (days/time) should we offer promotions? At which locations do promotions offset margin losses? Read more about how restaurants can successfully answer these questions before introducing a promotion.
As guests fill up on tap water in a weak economy, getting them to buy drinks will not be easy. The best way to make the right decisions about these critical questions is to test drink changes in a small group of restaurants before rolling them out broadly. Click here to read more. Cheers!
Will An Apple a Day Grow Sales?
Recently, the Wall Street Journal and the Associated Press ran articles in which I was quoted regarding McDonald’s announcement that apple slices will replace some of the fries in its Happy Meal. McDonald’s move is both innovative and smart.
Here are five thoughts on why this move makes sense:
- McDonald’s can own the healthy-options space in QSR: McDonald’s has already taken many steps to create healthier QSR options (salads, yogurt, McCafe, etc.), and they have proven they can do it while growing their brand and their sales. Putting apples in more Happy Meals represents another step on that path. Competitors are left copying, or trying to create their own space with intentionally-indulgent backlash items, or in some cases perhaps both? With the pressure on QSRs increasing from Fast Casual options that are perceived as healthier, McDonald’s stands to benefit if they are seen as the QSR healthy-option leader.
- Changing defaults changes behavior: by changing the “default” composition of a Happy Meal, McDonald’s will certainly sell more apple slices, for the same reason “opt-in” and “opt-out” marketing programs have very different penetration rates. Most people will choose what they believe is expected. McDonald’s will then be able to tout that change in behavior.
- But the option is still Mom’s: McDonald’s isn’t actually changing what you can get in a Happy Meal. So there’s no reason to complain – you can still get the fries and soda if you want them. Or, Mom can say “that’s just the way the Happy Meal comes now, sweetheart.”
- PR is great but the bigger prize is sales growth: Some have implied that McDonald’s was “forced” into this move by impending regulation. Or, at least, that it is more of a PR stunt than a profit-oriented decision. The reality, though, is that this program could improve sales, if some parents are willing to make incremental visits (or give in to the kids’ pressure one more time) because they feel better about the health of the meal.
- A committed testing approach ensures success: Listen to McDonald’s USA President Jan Fields: “We did one test without fries, and that did not go well at all. We also looked at reducing the number of chicken nuggets to three from four, and that didn’t go well either. Parents bring their kids there as a treat, and fries are important.”
So they have clearly tested various options and learned where the balance should be. The same Test & Learn approach can be applied as they roll the program out to learn even more, since they are planning a phased rollout through next spring.
Of course, we at APT don’t know whether this move will succeed or fail in the end. Ultimately, consumers will decide. But McDonald’s is a brand known for smiles, and seeing a QSR leader apply a Test & Learn approach to this type of program brings a smile to my face.
A Salty Debate on Sodium Reduction
UPDATE: Campbell Soup’s new CEO plans to increase the salt content in its core soup products.
Researchers at the University of Exeter released findings this week questioning claims that lower sodium diets can reduce the risk of death from heart disease.
While still early, these findings challenge the opinions of public health advocates who have lobbied municipalities, most notably New York, to reduce salt content across a range of food products, citing that eighty percent of salt in American’s diets comes from packaged or restaurant consumables.
While industry reaction to sodium reduction proposals have been mixed at best, companies ranging from Pepsi to Taco Bell announced initiatives to identify new seasonings to reduce salt content in their products.
When Pundits Get It Right
Amidst all the industry forecasts that change like weather forecasts, sometimes the restaurant industry talking heads really get it right. They certainly did on Soul Daddy, the reality-TV launched concept that recently closed 2 of its 3 launch locations. The knock pre-launch was that new restaurant operations are hard, and so launching 3 restaurants in 3 separate cities was a pathway to disaster. Two months later, the New York and Los Angeles locations are gone.
“Retail is detail”, as they say. This shows the value of first tinkering and truly testing to get all the details of operations right pre-expansion and to keep them working on an ongoing basis as restaurants scale.
The Questionable Economics of a “Good” Groupon
This article in the New York Times, plus my interview in Fast Company, got me thinking again about Groupon economics. To be clear, I’m talking here about the Daily Deal type offers, not more sophisticated customer-targeted, location-based, fill-up-empty-seats-right-now types of offers.
Here’s the crux, a restaurateur describing a successful Groupon in which a consumer receives a voucher for $14 worth of food by paying Groupon $7 ($3.50 of which Groupon pays the restaurant) :
“You don’t make money on the deal,” Mr. Massari acknowledged, “but in the end we are even.”
That’s because “people spend more than on the coupon amount,” he said. “They’ve been ordering about double the $14 from us. And people usually bring other customers, who are paying full price.”
Beyond that, among those who are redeeming coupons, “80 percent have come back without a coupon,” he said.
Let’s think through each piece of that, imagining for the moment we sold 1000 Groupons: continue reading…
Getting Pricing Right Doesn’t Fit Into Soundbites
Operators understand very acutely the effectiveness of price changes – after all, nothing else in the business can impact the bottom-line so directly.
Despite this appreciation for the importance of pricing, the sophistication by which most companies manage prices is woefully inadequate.
Industry pricing “leaders” comment on the problem frequently, revealing “we should remind our guests value isn’t just a function of price,” and “if it’s a $3 price point one day and then it’s all of a sudden $4, that’s not palatable to a consumer. But if it goes up to $3.29, that’s a little bit easier to take.”
If this is the best that the industry has to offer on this subject, then we’re all in a lot of trouble. continue reading…
