Foodservice focus August 2015 – health, indulgence and international

Smashburger offering healthier options for kids in US

Smashburger offering healthier options for kids in US


Consumer interest in health has attracted private-equity investment in some up-and-coming operators, while other chains are revamping menus or even considering more substantial changes. Elsewhere, US fast-food chicken operator Popeyes Louisiana Kitchen demonstrated it is benefiting from demand for indulgence and comfort food and there were more examples of international expansion.

Investment in growing segment of US foodservice

On 4 August, there was a third announcement in week of investment in an up-and-coming segment of the US foodservice sector. Snap Kitchen, a retailer selling freshly prepared, healthy takeaway meals, completed a $22m fundraising from existing investors private-equity firm Catterton and co-founder Bradley Radoff.

The operator, set up in 2010 and now with almost 30 outlets in Dallas, Houston and Chicago, also named former Weight Watchers International CEO David Kirchhoff as its new chief executive. “I think we have only begun to scratch the surface in how we can enrich and enhance our customers’ lives by providing delicious and convenient healthier dining options,” Radoff said.

Snap Kitchen’s announcement came hot on the heels of news of two other private-equity investments in similar businesses. Marlin Equity Partners has invested in My Fit Foods, which has 50 stores in seven US states. Fitlife Foods, a smaller business with seven outlets in Florida, has attracted investment from private-equity firm KarpReilly.

All three operators sell prepared foods to take away. All three seek to champion their health credentials. They are, of course, fledgling businesses and in the early stages of the potential development but all three speak to some of the consumer trends that are shaping foodservice in the US – including demand for healthier, better-quality foods for a more transparent supply chain – and combining that with the long-standing demand for convenience.

Pret a Manger mulls outlets for vegetarians

In July, the CEO of the UK sandwich and salads chain revealed the company was looking at ways to offer more vegetarian food.

“I regularly look at Pret’s sales mix to see which food categories are growing and which are shrinking. Recently, there has been a distinct shift towards vegetarian. The top selling SuperBowl in our latest salad launch was Beets, Squash & Feta, beating chicken, salmon and crayfish alternatives. This would have been unheard of five years ago,” CEO Clive Schlee wrote on his blog. “How can Pret help people to enjoy more vegetarian food without being preachy, or worse still, alienating our customers? After all, our best-selling sandwich at the moment is the Chicken Caesar & Bacon baguette and some of the fastest growing chains in the world like Five Guys and Chipotle are distinctly animal protein-oriented.”

Schlee said Pret was considering the idea of opening vegetarian-only outlets. Some within the company, he wrote, were in favour of the “more cautious” idea of have a dedicated fridge for vegetarian food.

On 10 August, Schlee updated his blog and said Pret had asked shoppers to vote on whether it was “fine as it is”, it should have a “veggie fridge in every shop” or “open a veggie Pret”.

Ten thousand people voted. Only 4% thought Pret’s offer was fine as it is. An eye-opening 44% said the chain should open a store for veggies, with 52% plumping for each outlet have a veggie fridge. “Thank you for taking part in the poll and check back again soon for an update on what we’ll do next,” Schlee said on his blog.

The number of UK consumers becoming vegetarian – or reducing their meat consumption – is on the rise but it remains a small cohort. Is the market there for vegetarian-only stores. It probably depends on the location. “I think probably the right play for them is to continue to build focus on their product portfolio within the store but creating an entirely separate location that just caters to vegetarians? If it’s just one or two units it might be successful depending on its location or where it is but as a broader initiative for the organisation, I don’t think the consumer is there yet in terms of just looking for non-meat or vegetarian-style options,” Henkes says.

Smashburger gives kids’ menu healthy makeover

Staying in the US and on the subject of health, fast-casual burger chain Smashburger unveiled its new “better-for-you” menu items targeted at children.

Smashburger has added a kids favourite – chicken strips – to its Kids Meal Menu but emphasised they are made “with no artificial flavours or fillers”. Its kids menu now includes Musselman’s Unsweetened Squeezables apple sauce as a side option, with the chain pointing to the “no added sugar or sodium” in the product. And the operator is offering beverage options that include WhiteWave Foods’ Horizon Milk.

David Henkes, vice president at foodservice analysts Technomic, says: “We’ve done a lot of research with parents and the importance of healthful options and having a little bit more better-for-you focus for kids is extremely important for parents.”

With more and more foodservice operators looking at health and wellness, the opportunities for food manufacturers are obvious. And Henkes says the trend could offer a chance for some suppliers to find another shop window for branded products.

“Brands in restaurants are tricky because typically a restaurant is selling its own brand. Typically they are not going to the brand the type of beef they are buying for the burger. You’re going into there to buy a Smashburger, not someone else’s burger,” Henkes says. “But where those brand associations can bolster and supplement the brand perception of the chain restaurant, a lot of times they make sense.

“We’ve done a lot of research with parents and the importance of healthful options and having a little bit more better-for-you focus for kids is extremely important for parents.”

“With things like Horizon Organic milk, it builds upon that perception that it’s a better-for-you product. It’s not just chocolate milk, or white milk, it’s organic milk. And by the way you can get a pretty nice little premium for selling organic versus regular as well. In certain places, there is an opportunity for brands – especially if they’ve got a strong consumer demand and they enhance the message and image of what the restaurant is trying to do – but it’s not going to be in all categories. There are no hard and fast rules about when brands do get or do not get shown.”

One pitfall of heightened consumer interest in health

US restaurant chain Chipotle Mexican Grill is seen as one of the operators to have been at the forefront of meeting – and driving – consumers’ heightened interest in health, in quality and in transparency. “Chipotle has changed the way consumers eat here in the States – and I think’s it trending globally,” Henkes says.

Chipotle has enjoyed rapid growth and, Technomic says, looked to differentiate itself with a “food with integrity focus”. The operator claims, for example, to be the US’s “first national restaurant chain to cook with only non-GMO ingredients”.

However, at the end of the month, a class action lawsuit was filed in California against Chipotle. The lawsuit alleges Chipotle’s claims that its menu does not contain GMOs “is actually deceptive and misleading to consumers” because many of Chipotle’s menu items actually do contain GMOs”. The suit claims Chipotle serves meat products that come from animals which feed on GMOs, including soy and corn; that its sour cream and cheese ingredients come from dairy farms that feed animals with GMOs; and that Chipotle sells soft drinks that are made with corn-syrup.

Chipotle hit back, calling the suit “meritless” and “filled with inaccuracies”. A spokesperson told Advertising Age: “For instance, we have always been clear that our soft drinks contained GMO ingredients, and that the animals from which our meat comes consume GMO feed. But, that does not mean that our meat is GMO, any more than people would be genetically modified if they ate GMO foods.”

GMO is such a hot issue in the US that, despite Chipotle’s comments, the publicity could serve to put some consumers off the chain.

Indulgence remains another key driver

Health and wellness is not the only avenue for growth in the US foodservice sector. “Comfort food and indulgence certainly continue to be reasons or drivers for consumers to go to a restaurant,” Henkes says.

US fast-food chicken operator Popeyes Louisiana Kitchen is one operator riding that wave. In August, Popeyes issued its second-quarter results, which included a 7.5% increase in same-store sales and a 19% jump in net income. Tellingly, the chain lifted its forecasts for annual same-store sales and earnings.

At the end of the quarter, Popeyes run or franchised 2,443 restaurants, up from 2,262 at the end of the same period last year. Some 534 of the outlets were outside the US, compared with 461 a year earlier. It expects to its net opening rate to be between 115 and 150 in 2015, for a system growth rate of approximately 5%. “We believe there is a long runway for continued growth of Popeyes, both in the US and around the globe,” CEO Cheryl Bachelder said.

“They’ve been doing very well. This is one of those comfort foods,” Henkes says. “The New Orleans, Louisiana cajun style, a little spicier, a little bit more different flavour profile than the southern fried chicken that KFC espouses.”

However, at the end of August, Popeyes demonstrated it has a keen eye on price. It announced the return of its $5 Bonafide Big Box, which the operator said offered consumers a variety of options at an important price for the industry. “The $5 price point has been the darling of the quick service restaurant industry with brands lining up to offer their version of value,” said Popeyes’ US chief marketing officer Hector Munoz.

International expansion continues

McDonald’s announced plans to expand further in Russia, including plans to open its first outlets in Siberia. Another US chain, Johnny Rockets, announced the openings of restaurants in countries including Mexico and Saudi Arabia, three new outlets in Sao Paulo and its ambitions to enter Hong Kong, Vietnam and Thailand.

Both chains are centred on burgers but, Johnny Rockets, as well as being smaller (it operates 340 franchise locations in 26 countries) and younger (it was founded in 1986), is a retro burger concept, exporting a nostalgic vision of the US.

What McDonald’s and Johnny Rockets have in common is their lacklustre performance at home, which is likely to be a central reason for the quest for more international expansion. McDonald’s sales in the US have been in decline for nearly three years. Russia is one market in which it is looking at expansion, although it is a challenging one. And not just for the country’s economy; last year, McDonald’s was subject to a food safety investigation that led to the temporary closure of 200 outlets, an episode some saw as a consequence of the tension between Moscow and the US.

Johnny Rockets has not suffered such problems overseas but, according to Henkes, the operator saw its US sales fall by more than 5% last year.

“Internationally, Johnny Rockets grew 39.6%. There’s always going to be a niche for it [in the US] and I think consumers like going to places like this. Sometimes there’re more of an appetite for Americana overseas than there is in the States.”

Henkes believes international markets will remain important to the growth plans of some of the major chains in the US. “The US market has become very competitive and while there are still growth opportunities here, all of these big chains, big brands have to be looking at expanding outside the US borders.

Read the story at just-food

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