According to a Recent Study/Survey … End of July 2016 Edition, Part One
14 Min Read By MRM Staff
As part of our mission to be the go-to resource for on-the-go restaurant industry professionals, Modern Restaurant Management magazine (MRM) offers highlights of recent research. This end of July edition features news on franchises, brands, industry challenges, culinary travel, credit card fraud, food recalls and delivery vs. drive thru and more. Stay tuned for Part Two later this week.
How Well is a Brand Doing?
In addition to featuring the 40 food and beverage brands with the most satisfied franchisees including Church’s Chicken, Denny’s, TGI Fridays, Jason’s Deli, Zaxby’s, Culver’s, and Checkers & Rally’s, Franchise Business Review’s 2016 Top Food Franchises report assesses the investment opportunity the food and beverage franchise sectors offer, addresses factors that impact success, covers the latest industry trends, discusses what potential franchisees should look for in a franchise, and features advice from franchisors and franchisees.
The importance of understanding how well a franchise brand is doing in key areas including those above is highlighted by the top five brands featured in the report scoring higher than all other brands that were surveyed in a variety of areas including 34 percent higher in Training and Support and 29 percent higher in leadership.
When it comes to return on investment, the average pre-tax income per food sector based on data collected from 3,396 franchisees who opted to share this information with Franchise Business Review is as follows: Quick Service Restaurant (QSR): $87,000; Fast Casual: $102,000; and Full Service: $151,000. Multi-unit franchisees’ financials tend to greatly surpass that of single unit operators. The average pre-tax income for a franchisee with one unit is $63,000 and $238,000 for those who own 5+ units. It’s important to note that there are franchisees who far exceed the average income that others in their system generate, while others do not achieve it.
Franchise Business Review’s report, which unless otherwise indicated features data collected from 5,800 franchisees representing 89 brands, found the following regarding how food and beverage franchisees feel about their businesses:
- 87 percent say they enjoy operating their business
- 74 percent say they would “do it all over again” knowing what they know today
- 77 percent would recommend their franchise brand to others
- 77 percent say they are satisfied with their franchise
- 75 percent say they believe their franchisor acts with a high level of integrity
- 79 percent say they respect their franchisor
In March 2015, sales at restaurants and bars surpassed those at grocery stories for the first time since the Commerce Department started collecting data in 1992. The likelihood of this trend continuing is highlighted by the 261,923 food-related franchises (QSR, full service restaurants, and retail food) that account for an estimated $336 billion of economic output in the United States according to the International Franchise Association.
Negative Growth for Restaurants
The bad news continued for the restaurant industry during the second quarter of 2016. Same-store sales growth during the quarter was -0.7 percent, which followed last quarter’s -0.2 percent year-over-year growth rate, becoming the second consecutive quarter in which the industry has failed to produce positive sales growth. The last time the industry experienced two consecutive quarters of negative same-store sales growth was over two years ago. This adds up to a disappointing -0.4 percent year to date for 2016. This insight comes from data reported by TDn2K’s™ Black Box Intelligence™ through The Restaurant Industry Snapshot™, based on weekly sales from nearly 25,000 restaurant units, 130+ brands, representing $64 billion dollars in annual revenue.
June’s same-store sales growth was -1.1 percent, compared with flat sales growth during May. Since the beginning of the year, positive sales growth for restaurants was only reported in February. Furthermore, June’s sales growth was the worst since January 2014, which was heavily affected by weather.
To add insult to injury the June and second quarter results benefited by a shift in the July 4th holiday, from June and second quarter last year to July and the third quarter in 2016. In the past two years, the 4th of July holiday week negatively affected restaurant sales about seven percent compared with the average sales for the four weeks preceding the holiday.
The slowdown in the industry’s sales was widespread from a geographic perspective during June, with 148 (76 percent) of the 195 DMAs tracked by Black Box Intelligence posting negative same-store sales growth during the month. As a comparison, only 55 percent of markets experienced negative growth during May.
“The economy is coming out of its six-month slumber as job growth rebounded in June”, commented Joel Naroff, TDn2K economist and President of Naroff Economic Advisors. “Second quarter economic growth is expected to be solid because households went out and spent strongly. Wage gains continue to accelerate, and that is providing households with more income to spend. But, the increases are still only moderate and consumer confidence, while rising, is doing so sluggishly. That points to slowly rising consumption – not a jump in demand going forward. The question remains: will restaurant traffic rise or will the added income be spent on other goods? Right now, consumers are distributing their incomes across all categories and so we are not seeing any one retail or restaurant sales category rise sharply. I expect that pattern to continue.”
Data shows consumers favoring quick service from both same-store sales as well as total sales perspective.
“When it comes to the restaurant industry segments, our data shows consumers favoring quick service from both same-store sales as well as total sales perspective,” said Victor Fernandez, Executive Director of Insights and Knowledge at TDn2K. “Quick service was the only industry segment that had a significant improvement in same-store sales during the second quarter and the only segment that gained total sales market share during the first quarter. For many chain restaurant consumers, price and value appear to increasingly be key drivers of their dining decisions. This segment typically has the lowest average guest checks, but recently has also been very aggressive with promotions and driving the value perception of their offerings. The consumers seem to be responding positively: it was the only segment with positive same-store traffic growth during the second quarter.”
“At the other end of the guest check scale” continued Fernandez, “Fine dining was the second best performing segment during the quarter on both same-store sales and traffic basis.
Same-store traffic growth was -3.0 percent during the second quarter, becoming the fifth consecutive quarter of negative traffic growth and the worst performing quarter in over five years. Same-store traffic growth for June was -3.5 percent, a drop of 1.3 percent from the May results.
In addition to the slowdown in sales and traffic, the industry is also facing considerable challenges when it comes to finding enough qualified employees and managers to keep their restaurants fully staffed. An important component of this challenge is the sustained trend of rising turnover levels. Rolling 12-month turnover for hourly restaurant employees increased again during May according to TDn2K’s People Report™ currently tracking 1.8 million restaurant employees. The industry has not experienced a month of decreasing hourly turnover since September of 2013.
Restaurant manager turnover is also on the rise and again increased during May after getting some relief from a stagnant turnover rate last month. Management turnover rates are at the highest levels recorded for the industry in over ten years and currently represent a major concern for restaurant operators.
Furthermore, the challenges they face vary widely depending on the region of the country in which they operate. An example of this is in People Report’s counter service restaurant segment (quick service and fast casual). For first quarter of 2016, the difference in hourly employee turnover rates between the region with the lowest median turnover (California) and the one with the highest rate (Southwest) is 64 percent for counter service restaurant brands and 49 percent for table service brands.
Another significant trial for the industry has been legislation changes that affect employee compensation. Added to the usual concerns of labor costs increasing due to potential minimum wage increases, the industry now faces the additional concern of managing the change in the Fair Labor Standards Act (FLSA) overtime regulations. In response to this new test for the industry, People Report conducted a survey among its restaurant community to assess the impact of these changes.
- 95 percent of restaurant brands have employees that will be affected by the regulation change.
- 64 percent of quick service companies reported that at least half of all their general managers are under the new threshold.
- 33 percent of fast casual brands will see over half of their general managers affected.
- 77 percent of table service restaurant brands said they have no general managers under the threshold.
- 23 percent of the table service restaurant brands stated that the affected percentage is less than half of their general manager population.
“Uncertainty is the enemy of growth in consumer spending,” said Wallace B. Doolin, Chairman and Founder of TDn2K. “While the macroeconomic environment might be showing signs of improvement for restaurant spending during the second half of the year, in the near term the restaurant consumer is not responding. We have a confluence of events with an overbuilt mature industry, a share of stomach battle for all food expenditures and 24/7 news that creates uncertainty. We know the old saying that a rising tide lifts all boats. We don’t seem to have a rising tide. However, the decreasing tide does not swamp all boats either.”
Our best practice performers continue to focus on what they can control, which is doing a better job than their competitors in hiring the best talent, efficiently staffing, innovating in technology and delivering a compelling value that is more than price.”
Trying New Things
There is a clear demand for multicultural influence in the lives of American adults, according to the results of The Harris Poll® of 2,034 U.S. adults aged 18+ surveyed online between June 7 and 9, 2016. a More than three quarters of Americans (78 percent agree they love trying new things outside of their own culture. This desire for novelty and variety is even higher among Millennials, of which 84 percent love the exposure to different cultures. People seeking this multicultural experience can find it in many places, including what they eat, watch, and buy.
What People Eat
One place where people look to fulfill their desire for multicultural influence is in what they eat. About one quarter of all U.S. adults (26 percent) say it is at least very important that the foods they buy and consume contain multicultural flavors. Millennials place more importance on buying and consuming multicultural flavors than any other generation, with 32 percent saying it is at least very important. Among those ages 35-44 and 45-54, 27 percent each find it important, while only 20percent of those age 55-64 and 21percent of adults ages 65 and over feel the same.
However, multicultural flavor is still not as important as other factors when purchasing and consuming food. Locally sourced ingredients are at least very important for 36 percent of American adults, followed by organic or natural ingredients (32 percent). Buying foods with multicultural flavor is seen as equally important as purchasing from a company with a strong social purpose (26 percent).
What People Watch
Entertainment is a big part of American culture, with television and movies playing a large role in how people entertain themselves, but how do people decide what to watch and where does multicultural influence fit in? Nearly two-thirds of adults (64 percent) say format (e.g. comedy, drama, etc.) is important to them, followed by the cast (53 percent). When it comes to cast, adults are seeking a multicultural experience. More than half (56 percent) prefer to watch movies and television with multicultural characters. This is even more prevalent among Millennials, with nearly 7 in 10 (68 percent) preferring to watch a multicultural cast of characters. More Millennials also value stories from a new or different cultural context (21 percent), compared to the average U.S. adult (16 percent).
What People Buy
Adults are also seeking multicultural influence in the brands they buy. When it comes to shelling out extra money, about one third of adults (32percent) say they would pay more for a brand that understands multicultural needs. Among Millennials, however, the proportion jumps to nearly half (47percent) who are willing to open their wallets a bit further. As for where adults are going to shop, about half (49percent) agree they would shop more at a retailer that offers a wider selection of multicultural products. These multicultural products are even more tempting for Millennials, with 65percent agreeing they would shop more where there is a wide selection of multicultural products.
Food and Beverage: Now a Critical Travel Motivator
Food and beverage are an increasingly significant motivator for travel, as 75 percent of leisure travelers have been motivated to visit a destination because of a culinary activity, according to the 2016 Food Travel Monitor Report from the World Food Travel Association (WFTA). Expanding on its prior studies this is the first publicly available, as well as largest, food and beverage tourism study ever conducted.
- Food and beverage are essential to the visitor experience. As many as 86 percent of respondents claimed having a positive food and drink experience on a trip would make them more likely to return to that destination.
- Thirteen different PsychoCulinary profiles explain why preferences and motivations differ among individual travelers. The most common profile is the eclectic traveler, who seeks a variety of experiences. And you might not expect it, but he “gourmet” profile is in the minority!
- Women are also more likely to choose locally-owned and operated restaurants and bars, as 61 percent of women identify as localist travelers.
- For the first time ever, the overwhelming majority of American travelers (93 percent) engage in a food or beverage experience other than dining. In other words, almost all American travelers have an interest in unique food and beverage experiences.
- Regardless of income, culinary travelers prioritize spending on food and beverage, directing about 50 percent more of their budget towards food and beverage related activities than non-culinary travelers.
- How does age relate to food and beverage tourism? Generation Xers and Millennials are much more concerned with food when they travel than those from older generations. The increasing importance of food and beverage to younger travelers indicates a positive future for the food and beverage tourism industry.
- Despite the decline in traditional print media, 92 percent of respondents claimed they were motivated to travel to a destination or culinary attraction as a result of print media (magazines and travel sections of newspapers).
- Culinary Travelers (34 percent) are more motivated to visit a destination because of a posting about food or drink on social media than non-culinary Travelers (23 percent). And on at least half of their trips, 64 percent of leisure travelers chose to share their food and beverage experiences on social media.
- Culinary Travelers are more engaged than non-Culinary Travelers, meaning that they are more likely to participate in other non-food related activities when they travel. Culinary Travelers are more likely to be found sightseeing (91 percent), shopping (87 percent), and visiting a historical or cultural attraction (85 percent) while traveling.
Restaurant Week Stats
According to data pulled directly from software, analyzing CAKE customers that participated in Restaurant Week, restaurants saw a 23 percent increase in total revenue earned during Restaurant Week as opposed to the week after. Among a comparable group of restaurants, those who did not participate in Restaurant Week saw an average difference of just four percent in total revenue compared to the week following Restaurant Week in their area.
- Revenue from credit card payments was 25 percent higher during Restaurant Week, while revenue from cash payments only saw a 13 percent increase. There was a 21 percent increase in overall credit card transactions, while only a five-percent increase in cash transactions.
- The total number of transactions went up by 18 percent, compared to just a seven-percent difference in restaurants that did not participate.
- Servers gained too – on average, the total amount of tips received was 22 percent higher during Restaurant Week for participating restaurants, compared to four percent lower for non-participating restaurants.
- The average ticket price during Restaurant Week was $43.35, falling to $39.74 the week after.
Based in Silicon Valley, CAKE is a Sysco company formed through the combination and synergy of three technology start-ups that solved for various challenges in the restaurant industry.
Credit Card Fraud
Thirty percent of consumers globally have experienced card fraud in the past five years, according to new global benchmark data from ACI Worldwide and Aite Group. The global fraud study of more than 6,000 consumers across 20 countries revealed that, compared to ACI’s 2014 benchmark study, card fraud rates—unauthorized activity on three types of payment cards (debit, credit and prepaid)—is on the rise worldwide. 14 out of the 17 countries surveyed both years reported an increase in card fraud between 2014 and 2016. Risky behaviors, such as leaving a smartphone unlocked when not in use, have a direct correlation to fraud—and the overall risk for fraud is rising due to the global increase in smartphone and tablet usage.
- In 2016, Mexico, Brazil and U.S. top list of countries experiencing most card fraud
- In 2016, Mexico leads the way at 56 percent, followed by Brazil at 49 percent and the U.S. at 47 percent. In 2014, the U.A.E, China, India and the U.S. topped the list
- The U.S. is the only country to remain on the top three list both years, due in part to being a laggard in the roll-out of EMV chip cards, with skimming and data breaches continuing to be security challenges
- 54 percent of consumers globally exhibit at least one risky behavior—such as keeping a PIN with the card—which puts them at higher risk of financial fraud, compared to 50 percent in 2014
- Consumers in Brazil exhibit the riskiest behaviors among countries in the Americas: 27 percent of consumers leave their smartphones unlocked when not in use, compared with 29 percent in Spain and 36 percent in Thailand
European countries experience less card fraud than countries in the Americas, due to earlier adoption of EMV and other security advancements
“Card fraud rates are on the rise in the majority of countries included in the survey,” said Ben Knieff, senior research analyst, Aite Group. “The data shows that consumer education and customer service remain a challenge for financial institutions globally, as risky behavior has a direct correlation to experiencing fraud.”
With 2,260 confirmed data breaches in 2015 alone, security remains top-of-mind within the financial services industry and among consumers. Despite the adoption of fraud analytics solutions by financial institutions and merchants—along with EMV in most countries, including in the U.S.—card fraud rates are on the rise in many parts of the world.
“This study confirms that card fraud remains an issue of deep concern for consumers around the globe,” said Andreas Suma, vice president and global lead, fraud and data, ACI Worldwide. “It’s no surprise that there is a direct correlation between fraud and lower consumer trust and card loyalty, including a primary contributor toward ‘back of wallet’ behavior. And as this data illustrates, it’s more critical than ever for financial institutions to implement and actively maintain effective fraud prevention solutions that address fraud, security and customer experience needs.”
Consumer trust is improving, but loyalty continues to lag.
- Forty percent of consumers who received replacement cards as a result of a data breach or fraudulent activity use their replacement card less than they used their original card, resulting in lost interchange and interest revenue from decreased usage
- This ‘back of wallet’ behavior is especially prevalent in Asia-Pacific countries: 69 percent of consumers in Indonesia opt to use cash or an alternative payment method over credit or debit card following the card fraud incident
- Fourteen percent of consumers globally lack confidence that their financial institution can protect them against fraud, an improvement from nearly 20 percent in 2014
- One out of every five consumers changed financial institutions due to dissatisfaction after experiencing fraud
- Seventeen percent of debit and credit card holders cite having experienced fraud multiple times during the past five years, compared to 13 percent in 2014
Food Recall Causes
Microbiological problems and undeclared allergens caused the major food recalls in 2015, continuing a pattern that has now persisted for well over two years, according to the latest food recall report by SAGE Food Safety Consultants.
Although food recalls remained steady or declined slightly from 2014, problems with undeclared allergens and Listeria contamination continued to plague food production. In the U.S., recalls by the federal Food and Drug Administration (FDA) declined slightly from the previous year, although meat recalls by the U.S. Department of Agriculture increased. Canadian and European food recalls decreased modestly from 2014 levels.
“The 2015 recall data, compiled and analyzed by SAGE from reports of government agencies in America, Canada, and the European Union, show a persistently troubling problem: microbiological contamination, and the widespread presence of undeclared allergens where they shouldn’t be, reflect a food supply that is generally safe but also chronically vulnerable,” said SAGE President Gale Prince.
Listeria monocytogenes and Salmonella contaminations declined slightly in 2015 from the previous year. However, allergen contaminations increased across the food industry in 2015. A large-scale spice recall that began in 2014 continued in 2015 due to the presence of peanut protein in a commonly used industrial spice mix. Additionally, many recalls were prompted by inaccurate ingredient labels, in which an allergen wasn’t listed on the product label.
Allergen-related issues also were present in recalls in Canada and Europe. Products with undeclared milk led to numerous recalls, as did chemical contaminations of seafood, grain and produce in European markets.
Prince said the new Food Safety Modernization Act (FSMA), which takes full effect in 2016, may help address these problems by requiring more proactive food safety measures to prevent recalls. “Food companies must have a total food safety plan in place, along with a recall procedure, and they must aggressively monitor their supply sources, production, packaging and shipping procedures to limit the chances of contamination,” Prince said. “If they don’t, they could face serious regulatory action.”
Prince noted that the recall data in the report can provide valuable information for companies looking for ways to reduce contamination vulnerabilities in food production. “Listeria, for example, is very difficult to find in a plant setting,” Prince said. “The recall data should provide added impetus for manufacturers to double their efforts to locate places where Listeria might be present, and remove the threat.”
Delivery vs. Drive Thru
Foodservice delivery is the ultimate in dining convenience and is winning visits at the expense of restaurant drive thru, reports The NPD Group. Over the past four years, delivery has grown by 69 million visits (orders), while drive thru traffic fell by 128 million visits from May 2012 through May 2016, according to a recently released NPD report on foodservice delivery.
The growth in foodservice delivery is even greater when pizza delivery is taken out of the equation. Pizza delivery still makes up over 60 percent of foodservice delivery visits, but traffic has declined by double-digits over the last four years. Consumers instead are ordering delivery from a variety of restaurants including quick service Asian and burger, full service, and fast casual, finds the NPD Group report, Delivery: A Growth Opportunity on the Horizon.
Foodservice delivery options are especially important to Gen Z and Millennials. Currently, these two groups represent 51 percent of the U.S. population, a large target group who will drive the growth in delivery far into the future. These consumers want to eat their favorite foods when they want it, regardless of where they are, as well as order and pay for it with the click of a button.
Meal Kit Progress
There is a lot of buzz around meal kit delivery services, like Blue Apron and HelloFresh, but the buzz may be greater than those who currently use the kits, finds The NPD Group. Trial of meal kits is still relatively low with three percent of the U.S. adult population (18 and older) trying a meal kit delivery service within the last year. There is, however, opportunities for growth, according to a new NPD Group study.
Saving time is the top reason given for using meal kits, which provide all of the ingredients necessary to prepare a meal. Consumers also cite the fact that it makes dinner easier to prepare and that they provide variety in their meals, finds NPD Group’s study, Thinking Inside the Box: A Fresh Look at Meal Kit Delivery Services. The freshness of ingredients and experience is particularly appealing to young adults using the kits. Those using meal kits are generally satisfied and two out of three kit users are extremely or very satisfied, but price may be a barrier for continued use and adoption by others.
Meal kits are typically used to replace an in-home dinner, but the cost of a kit is comparable to restaurant meal rather than an in-home dinner. The average cost per in-home dinner meal is $4 and the average cost per person for a meal kit delivered to the home is $10, reports the NPD Group study, which reveals the motivations that drive trial of these services, identifies what users find most and least appealing, and the opportunities for the food and beverage industry.