QUARTERLY CHAIN RESTAURANT UPDATE

Transcription

1 QUARTERLY CHAIN RESTAURANT UPDATE BELLWETHER FOOD GROUP, Inc. DATE: September 14, 2011 TO: FROM: Manufacturing Friends and Colleagues Bellwether Food Group RE: Chain Restaurant Same Store Sales (SSS) 2nd Quarter, Calendar Year 2011 Three groups of chain restaurant brands are performing well in this ever changing and uncertain environment. They are: those that innovate mostly with new product news, whether those specific innovations actually drive sales or not (McDonald's, Panera, Starbucks, Sonic); those that continue to work to be relevant to their loyal or lapsed users (Longhorn, Chipotle) and those doing unique value offerings (Steak N Shake). What these operators are doing well is delivering against what their consumers desire, be it an overall experience that meets or exceeds their expectations; some new product news or value offerings. As most of you already know, the restaurant consumers expectation threshold has increased significantly. In the chain restaurant branding work we have done over the past 6 months, we hear one theme consistently from the consumers If I am going to spend money on a restaurant visit, it has to be really special or really matter" The Two Most Common Errors We see some manufacturing clients making sales strategy errors on two fronts. The first is overinvesting in some opportunities that are either not well qualified or have the RFP component. The second is not understanding the real decision making process, nor understanding where each initiative ranks in importance to the chain they're not all the same. Let's break these down. RFP Madness Many clients have had the negative experience of investing in product development only to have the customer then take the formula and send out RFPs. There is no reason you must always take the lead on product development if in fact the RFP or bid is open to a wide group of possible suppliers, we are recommending our clients make a

2 2 minimum investment in the development side, in some cases (let someone else do the heavy lifting). To be clear, it is a judgment call but not all opportunities are created equal. We recommend that you manage the development process, realize each opportunity is different. Some will fit you better than others. If they don't feel like an excellent fit at first, let someone else do the hard work with transactional customers. Certainly, transactional customers are fine and part of everyone's customer mix just don't over invest in a customer who is always transactional. Accessibility Three elements comprise accessibility: 1) do we know the decision makers, 2) do we really understand their decision making process and 3) do we have access to those people. The discussions about the restaurant brand, their strategies, and success thresholds happen primarily in marketing and with senior management. You need to understand their thinking before making a major investment within an initiative. When the sales teams of manufacturers who only have relationships with menu development and procurement come back with insights, they usually only matter to purchasing, and menu development. They are missing out on the insights from senior management that drive the business, and the decision making process. Regardless of your ability to build the business case, if it is not one of their top priorities (senior management not purchasing and R&D), then it has a much lower chance of success than one that is on that list. Accessibility to the marketing function within the chain segment is something many manufacturers struggle with. There are two parts of this the first is understanding and realizing that purchasing and R&D do not drive strategy. Inside many chain restaurant organizations, these functions get involved in an initiative or project between 50% 75% of the way through the process, well after strategy and overall direction are set. Admittedly, this is difficult we get that. What is important is to base your decisions around how much to invest on what you do know! One of our clients came up with this, but we have shamelessly stolen it ask the question Do you really know? Or do you THINK you know? This is a much smarter way to work through the opportunities, versus guessing. In the scenario where you have great access, then you can be much more comfortable investing in wellqualified opportunities. If you realize you don't have the needed or desired access to the decision making and power structure, that's fine. Just don't over invest in R&D and other things hoping you have it right.

3 3 We would be very happy to have individual conversations with anyone interested in learning more about our process for gaining access to the decision makers. This quarter we include Dunkin Donuts, now publicly traded, and no longer include California Pizza Kitchen since it was acquired entirely by Golden Gate Capital (who also own On The Border and Macaroni Grill). The 2nd Quarter 2011 SSS reports Brand Limited/Quick Service Burger King 5.3% Carl's Jr. +2.1% Same Store Sales Versus Prior Year Traffic Change Pricing Chipotle +10% Traffic driven increases Domino's +4.8% Lapping +8.8%! Dunkin Donuts +3.8% El Pollo Loco 1.7% 1.4% 0.3% Hardee's (CKE) +9.6% Jack in the Box +3.2% Qdoba +5% McDonald's +4.5% Panera +3.9% Two year trend +13% Papa John's +0.4% Popeye s +0.5% Sonic +3.9% Lapping a 6% from one year ago Starbucks +8% +6% +2% Loyalty program and continued menu development key factors Wendy's +2.3% +0.9% +1.4% Yum! Brands (US) 4% KFC 5% Pizza Hut 2% Taco Bell 5% Applebee's +3.1% BJ s +6.9% Bob Evans 1.8% 1.8% +1.3% 4.8% at Mimi's Cafe Buffalo Wild Wings +5.9% Company stores +5.9%, franchise stores +2.7% Carrabba s +4.9% Cheesecake Factory +2.3%

4 4 Brand Same Store Sales Versus Prior Year Traffic Change Pricing Chili's +2.1% +2.1% +1.1% Cracker Barrel 1.4% 4.2% +2.8% Denny's +2.0% +1.4% Famous Dave's 1.2% IHOP 2.9% Logan's Roadhouse +0.1% 3.3% +3.5% Longhorn +6% McCormick & Schmick's 2.7% Morton's +8.2% Olive Garden Flat Outback +1.7% PF Chang's 2.5% +1 2% Red Lobster +3.8% Red Robin +3.1% Ruby Tuesday's 0.1% Franchise stores +1.8% Ruth's Chris +5.8% Steak N Shake +4.9% +4.8% Texas Roadhouse +4.4% Favorable traffic gains, yet consumers managing the check around modest price increases Implications for Foodservice Manufacturers The chain world continues to separate into winners and losers. From the table above, it is clear who is winning and who is not. Continue to evaluate opportunities that come up at those chains with declining SSS and traffic very carefully. Chances are that they are as big today as they will ever be. On the other hand, look for those that are making an effort to turn the business around Market and Steak and Shake are two brands that have re thought their brand and their value proposition for their consumer, and made the change. Both brands are up substantially, and showing growth momentum in this environment. With the increasing prevalence of RFP behavior from the chains, now is probably a good time to think about the value of maintaining some business with troubled chains. It may make more sense from a financial and resource perspective to strategically decline to defend low margin, declining businesses. This allows resources to be redeployed against growing and more solid customers. Granted, it takes a bold person to resign business in this environment, but it can be the best decision for an organization in the long term.

5 5 Continue to focus on the targeting process for your customers there may be a transactional piece of business that it makes sense to go after, if the incumbent is not defending it. Continue to develop deeper relationships throughout your customer organizations. There is more risk than ever of only having one or two contacts in a chain organization and having them be eliminated in the next round of layoffs or reorganizations. Also keep in mind that almost every decision in a chain today is a C level decision. The pressures continue to be extreme especially in a chain with declining sales, so basically everything goes to the CEO or brand president level. If you can build relationships at those levels, and get ahead of the decision making process then two things begin to happen first, you are seen as a valuable resource to the chain organization, and secondly, it becomes less likely that your business will be put out for RFP and if it is put out for RFP, you will probably have a heads up about that action. If you only have relationships at the R&D and purchasing levels, you are at risk in today s environment. Please feel free to contact us with any comments or thoughts, especially if you think we missed something, or you disagree with our conclusions! Regards, Mac Brand,, mbrand@bellwetherfoodgroup.com, Rob Hardy,, rhardy@bellwetherfoodgroup.com, Jon Jameson,, jjameson@belllwetherfoodgroup.com,