P i s t a c h i o

For Foodservice & Hospitality Magazine, February, 2008

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In the grab and go business, diversification is the best way stay ahead

Market trends driving today’s quick-service sector swing from the traditional burger-and-fries stronghold to healthy options and premium quality ingredients. Just doing one thing well doesn’t cut it anymore — the best QSRs try to be all things to all people.

“Not having healthy options potentially nullifies the opportunity to satisfy an entire family group,” says foodservice consultant Geoff Wilson of Toronto-based fsStrategy, “especially when one person in that group insists on something healthy.” He calls this “the veto factor,” and few QSRs will chance by it.

One of the biggest trends seemed to come out of nowhere — the humble snack. It got serious attention last year as a new daypart, and it‘s paid off handsomely at McDonald’s.

After combing a recent Data Monitor study, North America’s number 1 QSR chain took its findings to heart. With consumers spending more time commuting, they have a growing need for light and portable meals. Those meals are more likely to be eaten on the go, with many choices based on the quality of ingredients. In fact, over a two-month period the average Canadian visits a QSR for an afternoon snack at least three times more than they did 10 years ago. Canadians are also eating 39 per cent more chicken than they did 20 years ago. With all this in mind, McDonald’s launched its Chicken Snack Wrap last April. Priced under $2, it’s been a huge success.

“It shows the snacking segment has gained considerable momentum,” says Louie Mele, President of McDonald’s Restaurants of Canada. Down south, the numbers bear it out — midday snacking reportedly accounts for $1.5 billion of the annual $40-billion in American QSR sales.

With so much competition, Wilson believes big chains must heed the desires of increasingly demanding consumers, if they want to stay on top. “With snacks, the overriding trend is that consumers want what they want, when they want it, on their own terms, outside the conventional three square meals a day,” he says. KFC has its own $1.69 chicken snacker, and chains like Wendy’s and Tim Hortons have had success selling yogurt and fruit cups. [I didn’t go further here, because they’re all technically snacks, they’re not really the same. Still, I understand that from the point of view of a consumer’s choice, they have to be compared.]

Another segment of the QSR sector that’s as competitive as ever is breakfast. A recent study by the NPD Group shows that home toast consumption was down to just 13 per cent from 26 per cent two decades earlier. [Did this come from your NPD source or did I miss it in my research?] Breakfast accounts for 25 per cent of total QSR earnings, with the hand-held sandwich the best seller.

Ever since it introduced the Egg McMuffin more than 30 years ago, McDonald’s is still leading the way. But in order to maintain market share, it’s offering customers more choice, with new items such as McGriddles, bagels and its new breakfast burrito [Hit was my understanding that these items have been on the menu for some time, which is why I focused on the number of items on offer, as opposed to naming them specifically.] Today, customers have 12 different ways to enjoy breakfast in its stores.

Not surprisingly, the competition isn’t going down without a fight. Burger King has seven breakfast options, plus a popular omelette the company recently relaunched for a limited-time, cleverly dubbed the Hamlette. A&W’s hand-holder is the Bacon ‘n’ Egger, and Wendy’s, Burger King and Taco Bell have all joined the fray.

The coffee-shop sector has also stepped up to the breakfast plate. Tim Hortons’ breakfast sandwiches on biscuits or bagels have performed well, while at the other end of the spectrum, Starbucks rolled out an upscale breakfast sandwich in Vancouver last year, with cholesterol-free eggs, turkey bacon, low-fat cheese, and the crowning glory — eggs Florentine, featuring baby spinach, egg, havarti and herb spread.

Starbucks fancy breakfasts reveal another emerging trend in QSRs, the demand for premium quality ingredients. And it’s no longer exclusive to the top-end of the market. “Chains have been considering premium opportunities all along,” says Wilson. “Premium quality motivations are simple. Chains want to create trial opportunities to appeal to more sophisticated diners, as well as to leverage a higher average check.”

Wendy’s new Frescata deli sandwich fits the bill. Available for the first time last spring in four varieties, the sandwiches are served on gourmet ciabatta buns.

Nevertheless, the meat and potatoes of the QSR sector is, well, still meat and potatoes. As a counterpoint to the healthy Frescata, Wendy’s also introduced the Baconator last year to appeal to consumers who aren’t taking nutrition into account when they eat out. The double burger has six strips of bacon and two slices of cheese.

Given that consumer are eating so much more chicken — presumably for health reasons — KFC introduced another new offering, the Chicken Bowl, late last year. From the bottom up, it piles on mashed potatoes, gravy, corn and popcorn chicken, with a topping mix of cheddar, mozzarella and jack cheeses. Forget about counting calories.

Wilson’s chalks up this kind of popular indulgence to consumers tending to eat healthier at home, but choosing differently when they are out. “[Consumers think] it’s okay to sin when you’re going out,” he says. And many are willing to pay for it.

John Lettieri suggests your guilty pleasures it could be heroic. The president of Hero Certified Burgers offers up 100 per cent Angus beef, free of hormones, pesticides and preservatives at his Toronto-area boîtes. By the end of 2008, he’s expects to have 26 total units — the first debuted in 2003.

“We do a great burger,” boasts Lettieri of Hero’s upscale assault on the traditional QSR. Hero also sells The Big Frank, a 100 per cent pure beef hot dog, with no filler, no msg, no gluten, no additives and no preservatives. The Soul Burger is 100 per cent certified vegan, and the grilled chicken breast is tenderized with soya. Burgers come in four-, six- and eight-ounce portions, with Toronto’s Ace Bakery providing the buns.

“There’s a growing awareness of real, natural, pure food,” says Lettieri.”

At Mississauga, Ont.-based Extreme Pita, beef accounts for 20 per cent of its burger-free menu. But the company’s considerable growth illustrates a growing mandate at QSRs — healthier options can still include red meat.

“We’re nicely positioned to take advantage of that force in the market,” says Extreme President Alex Rechichi, who. With his brother and partner, Mark, Rechichi Extreme Pita has opened 177 Canadian locations across in the last 10 years with his brother and partner, Mark. The brothers duo has also set down roots in the U.S., opening 26 locations, mostly in California, Arizona and Texas.

In fact, Canadian franchises are starting to expand into the U.S. and international markets. Made in Japan Teriyaki Experience was well positioned as a healthy quick-service alternative since opening in 1986, but the Oakville, Ont. company’s focus is now on growth international expansion [everyone’s focused on growth and expansion is growth, but what I think expasion describes their pursuit more accurately]. It has master franchise agreements in place to develop the brand in South Africa, with 21 locations opening over five years, and in Central America, South America and the Caribbean. It also recently launched its first American location in Atlanta, and further U.S. expansion is planned for California, New York, Florida and Iowa. In July, an Egyptian entrepreneur even opened two locations in Cairo. In total, Teriyaki has signed commitments to open over 300 new locations worldwide in the next five years.

Content to stay in North America, Extreme recently launched a new brand, Mucho Burrito. Specializing in quick-service gourmet Mexican food, it boasts an on-site roasting oven where pork and beef are slow-cooked for the restaurant’s signature hand-rolled burritos. Four locations are up and running in Ontario and Rechichi says signed agreements are in place to open 19 more restaurants across Canada.

Saturated for decades with U.S. brands, the success of Canadian QSRs could spark even more patriotic zeal, particularly with a strong loonie. In fact, there’s never been a better time to hatch a home-grown plot for world domination.

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