Over the past several years, McDonald’s Corp.’s sales growth has outpaced many of its major quick-service peers in the United States. While company executives credit a balanced approach of marketing core products, its Dollar Menu and premium items like Angus Third Pounders, they also regularly have cited the McCafé beverage line as a major sales driver.
Since its nationwide rollout in May 2009, McCafé has helped McDonald’s grow its coffee sales from 2 percent of U.S. sales to more than 6 percent, while combining with the Breakfast Dollar Menu to strengthen a morning daypart in which the chain is considered a pioneer and leader.
TIMELINE: Take a quick look at how McCafe has changed over time
But as McDonald’s has expanded McCafé from espresso-based drinks to include premium frozen beverages like Frappés and Real Fruit Smoothies, the platform continues to support growing increases in same-store sales. The following is a look at the evolution of McCafé, from its first lattes and cappuccinos to its Mango Pineapple Real Fruit Smoothie, launched in June.
First up: McCafé debuts andMcCafé Frappés
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McCafé
May 2009
McCafé debuted systemwide May 5, 2009. The program had been in test since November of 2007, officials said. The platform began with hot or iced mochas and lattes, as well as a cappuccino offering. The new drinks followed McDonald’s first major coffee upgrade, switching its drip coffee to a premium roast blend in 2006.
At the time, McDonald’s internal goals for McCafé were to increase annual average unit volumes by about $125,000, and officials reported to investors that the chain was solidly on its way to hitting that mark, even before blended drinks like Frappés and Real Fruit Smoothies were ready for rollout.
The chain began the first of many aggressive marketing campaigns for McCafé in July 2009, doing a “Mocha Mondays” promotion that offered a free 7-ounce iced mocha or 8-ounce hot mocha as a sample.
While initial sales lifts in the United States were smaller than those of the past few months for McDonald’s, the restaurant industry in mid-2009 — particularly the quick-service segment — already was beginning to feel the impact of growing national unemployment. McDonald’s domestic same-store sales rose 1.8 percent in June of 2009. Comparable-sales in July of that year rose 2.6 percent, even accounting for the popularity of McCafé and the introduction of the Angus Third Pounders.
“If you look at the espresso base, clearly we’ve more than doubled since the first part of just 2009,” Don Thompson, McDonald’s chief operating officer, said during the first-quarter 2010 earnings call. “All of the coffee strategies have been intended to really bring in more customers. We talked earlier about the incremental nature of it and about 40-odd percent of the customers being incremental.
“That still holds true even as we move into frappés, which is still a coffee-based, espresso-based drink,” he said. “So, all of our measures and metrics in terms of coffee have moved in a positive direction substantially.”
Earlier this year, chief executive Jim Skinner said popularity of the hot espresso drinks during the winter months drove a 17-percent increase in first-quarter McCafé sales compared with 2010.
McCafé Frappés
First half of 2010
McCafé Frappés, the chain’s blended-drink answer to Starbucks Coffee’s Frappuccino, began rolling out over the first half of 2010, and by April of that year they were in place at about 90 percent of the U.S. system. The beverages were available in mocha and caramel varieties.
McDonald’s officials said during the first few months of Frappés’ launch — which coincided with testing Real Fruit Smoothies — that interspersing advertisements for the high-margin drinks with marketing campaigns for core menu items and value offers like the Dollar Menu benefitted McDonald’s margins.
Another added benefit of Frappés was the relatively high incidence of sales during the morning daypart. Executives said 30 percent of Frappé sales occurred at breakfast, which was a slight increase from the 25 percent that had happened during tests of the product.
Next: Original Real Fruit Smoothies and Caramel Mocha
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Original Real Fruit Smoothies
July 2010
In July 2010, McDonald’s rolled out to its U.S. system the Real Fruit Smoothie, available in Strawberry Banana or Wild Berry. The drinks powered same-store sales increases in the United States of 5.7 percent that July and 4.6 percent the following August, executives said.
The marketing campaign also proved to be quite popular, helping McDonald’s gain market share for the product that exceeded initial goals. According to its official entry for the Effie Awards, an advertising competition, McDonald’s executed a $40 million campaign that took it from zero percent market share for smoothies in the United States to 20.1 percent, four times its official goal of 5 percent.
Awareness was so widespread for the new products that McDonald’s had to cancel a national sampling event.
“The company is blowing away the high-end projections we had for smoothie sales,” Thompson said in the official entry.
Caramel Mocha
November 2010
McDonald’s next addition to McCafé was the Caramel Mocha, a blend of caramel, mocha and espresso, topped with whipped cream and a caramel drizzle. The big marketing push for this drink, during November and December of 2010, was a “McCafé Caramel Mocha Scavenger Hunt” for three giant McCafé cups hidden in eight cities, offering a year’s worth of free McCafé beverages. Participating markets included Atlanta; Chicago; Cincinnati; Dallas; Los Angeles; New Haven, Conn.; Salt Lake City; Tampa Bay, Fla.; and Washington.
Next: New milk shakes and Frozen Strawberry Lemonade
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New milk shakes
First half of 2011
In the first half of 2011, McDonald’s relaunched its milk shakes to include new clear McCafé packaging similar to the Frappés. The shakes also got the upscale treatment with whipped cream and a cherry. Officials reiterated that promoting McCafé drinks, including the new milk shakes, was more accretive to margins and the average check.
“The McCafé average check is higher than our other average checks in the restaurant,” Thompson said during the first-quarter earnings call of 2011. “And when you look at McCafé, it’s always a trade up when that drink is purchased. So we feel real good about the ongoing progress that we have and opportunity in McCafé.”
Frozen strawberry lemonade
May 2011
McDonald’s continued its focus on fruit with the Frozen Strawberry Lemonade, which infused a frozen lemonade with a strawberry puree. National advertising for the beverage began in May, the same month in which McDonald’s took a 1.4-percent price increase on top of a 1-percent menu price hike in March 2011.
Same-store sales in May 2011 in the United States grew 2.4 percent.
Next: Mango Pineapple Real Fruit Smoothie
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Mango Pineapple Real Fruit Smoothie
June 2011
The Mango Pineapple Real Fruit Smoothie debuted June 27, 2011, and McDonald’s put another giant marketing push behind the drink, not only with national television ads but also with sampling events, a Smoothie Fusion Bus Tour traveling to different events catering to Hispanic and African-American customers, and several coupon offers.
McDonald’s executed $1 tear-off coupons on its drink packaging to promote the new smoothie flavor and supplemented that with a digital buy-one-get-one offer and national Sunday inserts. It also reprised its popular “spin art” online game used to promote the previous year’s smoothie launch, this time with complementary apps for the iPhone and iPad.
The Mango Pineapple Real Fruit Smoothie contributed to McDonald’s 4.4-percent increase in July 2011 same-store sales, officials said, which faced a tough comparison in the 5.7-percent comp of July 2010. Securities analyst John Glass of Morgan Stanley noted that price increases accounted for about 2.4 percent of that result.
Total McCafé sales rose 29 percent in the second quarter compared with the same quarter of 2010, Thompson said during a conference call with investors.
“From a percent-of-sales perspective, we still view ourselves as an underdog in frozen beverages,” Thompson said. “Being the underdog is a great thing because we have even more opportunity to take share, and we can do it at the speed of McDonald’s.”
Oak Brook, Ill.-based McDonald’s operates or franchises more than 33,000 restaurants worldwide, including more than 14,000 locations in the United States.
Contact Mark Brandau at mark.brandau@penton.com
Follow him on Twitter: @Mark_from_NRN
Remodeling restaurants has been the go-to sales driver for much of the restaurant industry during the past few years, either by refreshing a brand in danger of going stale or by innovating design and menu to reignite growth. For Fazoli’s, which has refurbished 99 company-owned stores and 15 franchised units in the past 18 months, it’s both.
The nearly 250-unit quick-service Italian chain is in the midst of a brand repositioning plan that began with menu upgrades in 2009, which alone stopped years of sales and traffic declines. Beginning in January of 2010, the brand started updating unit décor and rolling out its “Enhanced Service Program,” or ESP, with fast-casual touches like food runners and real plates.
In 2012, once most of the system is remodeled, the next phase will include a franchise push and locations in nontraditional venues to help reignite growth.
“This takes our brand from competing on speed and price with the fast-food players to being a true premium QSR and getting closer to the fast-casual level,” chief executive Carl Howard said. “With ESP and a new menu you could replicate at home but wouldn’t want to, we’ve got good food comparable to casual players, but with an average check and convenience that are much more attractive.”
For many large, mature chains, there is no room for hundreds of extra U.S. units. So remodeling stores to add sales layers or to encourage more frequent and lengthier guest visits has become the way to grow. McDonald’s, for instance, already has upgraded 1,800 of its more than 14,000 domestic restaurants, with another 9,000 units cited as candidates for remodeling or rebuilding in the long term.
Darden Restaurants Inc. also announced it would remodel hundreds of its Red Lobster and Olive Garden locations over the next several years. In addition, Wendy’s has identified remodeling and the testing of a new prototype as a major brand investment this year now that it has sold a majority interest of former sister chain Arby’s. The upgrades, along with several menu innovation moves, are meant to lay the groundwork for more domestic unit growth.
Fazoli’s décor and service tweaks have prepared the system for growth in 2012 and beyond and also will allow the chain to introduce an overhauled menu by early November. The new “mega menu” will feature a low-calorie section, chopped salads, a build-your-own pasta option, fresh baked sandwiches and a 500-calorie line of flatbread pizzas.
Not only is Fazoli’s getting its franchisee community to remodel stores, some franchisees are realizing high-double-digit same-store sales returns on their upgrades, compared with a 5-percent increase company stores typically have achieved, Howard said.
“We went first and got really good results,” Howard said, “but then a franchisee in the Chattanooga, Tenn., area dipped his toe in the water with one store, and his sales went up 20 percent and they’re still up.
“Another franchisee nearby remodeled her three stores and she was up 30 percent year-over-year, and the Louisville market’s been up between 6 percent and 10 percent,” he said.
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Fazoli’s debuts first nontraditional outlet
The overhauled menu, which, like the ESP remodel, debuted in the Dayton, Ohio, market and began testing in St. Louis in late June, has not produced a significant mix shift, Howard said, but it’s increasing repeat traffic and lifting sales across the board steadily.
“It’s coming along fantastic,” he said. “Dayton [same-store sales are running] up 5 percent to 6 percent, over the 7-percent gain from the year before. Average check and profit are up, as are consumers’ intent to return and intent to recommend. We’re checking this important box as a piece of our brand evolution and repositioning.”
Growth targets for 2012 would be a handful of company stores to fill out a few existing markets, six nontraditional units and locations from 12 new franchisees, Howard said.
The incremental repositioning strategy — menu tweaks in 2009, testing ESP in 2010, remodels and the new menu this year, unit growth in 2012 — was the way to go for Fazoli’s, Howard said.
“It’s all about how we go from $1 million in [average unit] sales to $1.1 million, then $1.3 million,” he said. “When I started here in 2008, everybody was burned. The franchisees and the parent company [Sun Capital Partners] weren’t into spending a bunch of money. We could have done a lot of this earlier, but [we] needed a lot of proof … I like the company that continually makes the business case for things.”
Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN
Yum! Brands Inc., the quick-service franchisor with some of the strongest international footholds of any restaurant company, said its growth abroad has only just begun.
The Louisville, Ky.-based company touted its international businesses in China and other emerging markets on Thursday, while categorizing its U.S market as “disappointing,” especially in its latest second quarter. Results for the June-ended quarter included increased sales and profit abroad, and declining sales and profit domestically.
Yum executives said in a conference call Thursday that foreign-market strength is likely to be more important for the remainder of the year, as results in the United States, especially with key brand Taco Bell, likely won’t turn around significantly until at the earliest the fourth quarter.
“Our second-quarter results demonstrate that our business model is evolving faster than planned,” Yum’s chief financial officer Rick Carucci said. “Not long ago, we thought 75 percent of our operating income would come from China and YRI [Yum Restaurants International] by 2015, and we’re nearly there already.”
Significant headwinds in the United States, stemming mostly from the fallout of a consumer lawsuit against Taco Bell’s marketing practices, sped most of that shift. But the company’s growth prospects, given the potential for continued expansion in China and the emerging economies contained within YRI, like Thailand, Russia and India, are stellar, and may maintain that momentum.
“Our exposure to emerging markets is expected to rise dramatically,” Carucci said. “We’re on the ground floor of growth and making huge gains in growing our businesses.”
United States: ‘All hands on deck’
Both Carucci and Yum Brands chief executive David Novak said a 28-percent decline in second-quarter operating profit in the United States was a major drag on Yum’s net earnings, and that “all hands are on deck” to turn around the results, particularly at Taco Bell.
The 6,000-unit quick-service Mexican chain is Yum’s main driver of profitability in the United States, Novak said, and the company is still bullish on Taco Bell’s growth potential once the brand recovers from the negative attention from the lawsuit.
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“We took a big hit with that bogus lawsuit,” Novak said. “In this environment, our heavy user stuck with us, but we lost frequency with our light users. Frankly, the negative sales that resulted from the lawsuit lasted longer than any one of us thought they would.”
High unemployment among Taco Bell’s core demographic of young males, coupled with high gas prices, don’t help matters any either, Novak said, “but we don’t like storytelling here, because stories equal excuses.”
“As far as we’re concerned, the meat issue [from the lawsuit] is over,” he said, “and the economy is just something we have to deal with, and now we have to do a better job building this brand.”
The “significant, breakthrough” product innovation for Taco Bell’s menu will come in 2012, Novak said, but he declined to say what it was. The priority for the rest of 2011 will be stabilizing Taco Bell’s performance to allow for resumed growth next year. He expected same-store sales to improve next quarter from the second quarter’s 5-percent decline, but he anticipates results to still be negative.
Novak added that Pizza Hut “is in pretty good shape,” having maintained for the most part positive sales momentum from 2010’s value-focused sales turnaround. KFC “continues to be a challenge,” also reporting a 5-percent decline in second-quarter same-store sales, Novak said, but Yum is optimistic that the relaunch of Kentucky Grilled Chicken and continued refranchising efforts can gain traction.
China: Breakfast, delivery and 24-hour ops
Yum executives noted that sales drivers cited most often in China — breakfast, delivery and 24-hour operations — are starting to exert leverage on transactions. More than 1,300 of the company’s 3,400 KFC locations in China have 24-hour service, Novak said. Breakfast now accounts for 13 percent of traffic, up from 10 percent in 2010.
“We’re in the very early days, but we’re building a solid foundation for leveraging our assets, creating opportunities for increased sales and even higher average unit volumes,” Novak said.
A 6-renminbi breakfast option and a 6-renminbi snack item, which equate roughly to $1, as well as a value-lunch offering of about 15 renminbi, or around $2, are bolstering KFC’s value proposition as well as its relevance across multiple dayparts, officials said.
“One thing we believe is very strategic for us is to make our brands very affordable on an ongoing, everyday basis,” Novak said. “Depending on which survey you look at, the consuming class in China is going to grow by 200 million to 500 million people, so everyday affordability and access are the name of the game. The China team has done that by focusing on the dayparts.”
Consumer response to the value initiatives has driven such strong incremental traffic that Yum currently has no plans to take near-term price increases beyond the 3-percent hike it enacted early this year, Carucci said. Novak added that the value items, which now account for 10 percent of sales mix in China, had more instances of customers trading down rather than the incremental traffic at breakfast. But the 21-percent increase in traffic for Yum China outpaced the 18-percent same-store sales gain, meaning sales gains are not coming too much at the expense of average check, he said.
“We’re trying to make our brand as compelling, relevant and ubiquitous as we can make it,” Novak said. “You leverage your assets throughout the day and make your products affordable on an everyday basis. We’re doing this in China, and we’re doing this with great margins.”
New unit development key in emerging markets
Carucci and Novak were pleased with the 2-percent gain in same-store sales for YRI, and expressed excitement for opportunities in emerging markets and more developed economies like France and the United Kingdom. New-unit development drove much of YRI’s growth in systemwide sales and operating profit, as YRI opened 142 locations in the second quarter, including 72 units in emerging markets.
Thailand, which accounts for just 2 percent of YRI’s sales, had system sales growth of 21 percent. In India and Russia, which currently produce only 1 percent of YRI’s sales each, system sales rose 44 percent and 19 percent, respectively.
Novak said he was particularly excited by sales results from France and the United Kingdom. System sales rose 33 percent in France in the second quarter, due primarily to improvements in the more than 110 KFC stores, where simplified menus and disciplined cost management drove results, Novak said. Franchisees are set to open 18 more locations of KFC in France this year.
Growth was a more muted 1 percent in the United Kingdom in the quarter, due to a 6-percent increase in system sales for KFC and a 7-percent decline for Pizza Hut. YRI has put new sales drivers in place at Pizza Hut in the United Kingdom, including new personal pizzas and varieties of salads.
“The early results for Pizza Hut in the U.K. are encouraging,” Carucci said. “It’s the right move from a brand perspective. These three salads really modernize the brand, so we’re cautiously optimistic.”
Louisville, Ky.-based Yum operates or franchises 35,753 restaurants worldwide, primarily under the KFC, Pizza Hut and Taco Bell brands.
Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN
Caribou Coffee is exploring the lunch daypart and adding more food options after new menu items drove strong sales in the first quarter, the company told securities analysts after reporting first-quarter earnings.
Chief executive Mike Tattersfield said a new line of breakfast sandwiches, which debuted in January and are now in 80 percent of stores, were the largest driver of a 4.3-percent increase in same-store sales for the quarter.
“Our breakfast sandwich platform is living up to our high expectations and is a critical component of expanding our guests’ perceptions of Caribou Coffee,” he said during the call with analysts Thursday. “We now have more food offerings worthy of being matched with our consistently high-quality beverages, and expect that breakfast sandwiches will continue to be accretive to our quarterly performance throughout 2011.”
During a previous conference call, Caribou had reported that food items like oatmeal, breakfast sandwiches and baked goods were achieving an 18-percent attachment rate, and Tattersfield updated analysts in the first-quarter call that the incidence of food purchases had trended upward to 24 percent of visits.
“Our goal was to get to 30 percent,” he said, “so we’re getting some good traction along that way, and it’s a continual drive for us. If we focus on the right initiatives, not just in a breakfast or lunch daypart but also in snacks and other opportunities that the guest is looking for, then I ultimately believe we build to that 30 percent, but over longer than the 2011 time frame.”
For the April 3-ended quarter, Caribou’s net income grew to $1.6 million, or 8 cents per share, from $500,000, or 3 cents a share, a year earlier. Total revenue rose 7.8 percent to $72.3 million, reflecting the 4.3-percent gain in same-store sales, a 30-percent increase in commercial sales to $11.7 million, and a 22-percent increase in franchise revenue. Caribou’s $3 million in revenue from 135 franchise locations took into account increased sales and royalties and 12 additional units compared with the first quarter of last year.
Highlights from the call:
Launching into lunch
Caribou is building on investments in ovens for breakfast sandwiches by testing warm lunch sandwiches in approximately 30 stores in Minnesota and Chicago. The platform is set around a “grown-up grilled cheese” theme, and is receiving enthusiastic feedback from customers and employees, Tattersfield said.
Caribou also launched in the first quarter its Northern Lites beverage line, which has 40 percent fewer calories than the chain’s regular mocha and iced-mocha drinks. Both the low-calorie drinks and the lunch sandwiches are meant to be the precursor to further expansion into dayparts beyond morning coffee, the company said.
Tattersfield added that new products are on deck for summer and fall of this year. In 2012, bakery items will be a focus, specifically on indulgent items that play well in evening snack periods, he said.
He said lunch sandwiches may not add incremental sales to the level of breakfast sandwiches, which benefit from Caribou’s normal traffic of habitual coffee customers. However, the lunch sandwiches are meant to be the first product in a long-term daypart expansion plan for the afternoon, he added.
“We do see that the breakfast sandwiches, in the majority of our daypart when people are used to using Caribou in that way, will have a bigger component of driving more sandwich volume than the lunch,” he said. “But over time the lunch platform will start with the sandwich, but you’ll see us continue to look at bakery improvements … which will be a big part of 2012.
Forward buying pays off
Caribou’s coffee costs are locked in through 2011 at a 25-percent premium over 2010’s prices. Chief financial officer Tim Hennessy said a menu price increase taken at the end of last year of slightly more than 1 percent on the coffeehouse side was in line with competitors and was conducted on a market-by-market basis, chief financial officer Tim Hennessy said.
Caribou said it increased prices 8 percent to 10 percent in its consumer packaged-goods business. Further CPG price increases have yet to be determined, Hennessy said.
“We’re not price leaders in CPG; we follow,” he said. “If our peers move, we’ll play that out much like this first quarter.”
Caribou typically takes a small amount of price toward the end of most years, Hennessy said, and the chain would have further maneuverability later in the year if necessary.
“The one benefit that we’ve been able to see is the pricing activities we’ve been able to take we’ve seen stick,” Tattersfield said. “A lot is about introducing product innovation, which consumers will continue to look at and will bring a lot of value for them. So it’s a combination. I can’t predict where the price of coffee is going to be; it’s bouncing around even today. But we plan on being very proactive as to how we manage that.”
Open to accelerated store growth
Caribou remains on track to open 10 coffeehouses this year, Tattersfield said, with locations in Minnesota and Chicago set to debut first. “Across our entire organization, we’re excited for this growth lever to kick in,” he said.
Rents have been fairly flat this year, even at “A” locations Caribou has been pursuing, he said.
“What gives us a lot more confidence is … building a pipeline for 2012 and really locking that in up front,” Tattersfield said. “We’ve said we’d like to do 20 to 25 stores next year to ultimately get us by 2013 to 8 percent to 10 percent growth on a yearly basis. We’ve been able to already lock in roughly 20 percent to 30 percent of our pipeline for 2012.”
Caribou also reconfirmed its 2011 fiscal guidance of sales growth between 7 percent and 9 percent, assuming same-store sales growth of 3 percent to 5 percent. The company also set an earnings per share target of 35 cents to 37 cents for the year.
Minneapolis-based Caribou Coffee operates 409 coffeehouses and franchises another 135 locations in 20 states, the District of Columbia and nine international markets.
Contact Mark Brandau at mark.brandau@penton.com.
As gasoline prices continue to rise, Pizza Hut’s largest franchisee said its delivery-oriented restaurants expect to see more consumers picking up their orders.
That shift from delivery to carryout could help NPC International Inc., which operates 1,135 stores Pizza Huts, save on the reimbursements for delivery drivers, which are adjusted monthly as gas prices rise, the Overland Park, Kan.-based company said Friday.
“Our history tells us that traditionally when gas prices get high, our consumers want to slide into carryout mode,” Troy D. Cook, NPC’s executive vice president and chief financial officer, said during a conference call to discuss first quarter results.
“There’s a natural kind of hedge in our business against higher gas prices,” he said, “because the consumer says, ‘I don’t want to pay the tip to the driver, because I’m feeling squeezed on disposable income due to the higher gas prices, and I don’t want to play a delivery charge. So I’ll drive into that carryout access mode.”
Amid the heightened economic uncertainty in last year’s first quarter, for example, Cook said NPC’s carryout sales increased 39 percent.
“You expect to see the carryout access mode grow at a greater rate per se than our delivery access mode if fuel continues to be an issue,” he added.
Cook and Jim Schwartz, NPC’s president and chief executive, spoke with analysts Friday after the company reported essentially flat profit of $9.5 million for the first quarter ended March 29. Sales in the quarter slipped 5.1 percent, to $239.6 million from $252.6 million last year.
Same-store sales decreased 4.7 percent, compared with an increase of 10.2 percent in last year’s quarter, when same-store sales were boosted by the $10 Any Pizza promotion, Schwartz said. Severe winter weather also affected same-store sales in this year’s first quarter by about 1 percent, Cook said.
Pizza Hut promotions during the quarter like the Big Dipper pizza and the $10 Any Pan Pizza helped, Schwartz said, but “they were not successful in lapping the prior year’s strong sales growth in the face of aggressive competition tactics, extreme weather conditions and economic consumer headwinds.”
NPC executives addressed other issues affecting the company’s business, including:
Rising commodity costs: NPC executives described rising food costs as “manageable,” saying they expected increases of 3 percent to 4 percent for the rest of the year. “When you look at our commodity basket, though, we are not anticipating that cheese will be the major driver of our commodity pressure this year,” Cook said. “Most of that pressure for us, for our basket, is coming for dough and meat, dough probably being the greatest inflationary item we’re facing.”
Margins for the rest of year: NPC executives said they expect margins to improve throughout the rest of the year, compared with last year, which featured several value-heavy promotions. “Last year was about building the top line, re-engaging the consumer. We went heavy on value,” Schwartz said. “We’re still dedicated to value, you clearly have to be in this space at this point in time, but I think we are finding a better equilibrium point with the consumer where we can improve our margins and do it in a much profitable way than we did in 2010.”
Stuffed-crust promotion ‘right on target’: Pizza Hut’s Ultimate Stuffed Crust pizza, a limited time pie starting at $12.99 with three toppings, was introduced five weeks ago. “It’s right on target from an expectation standpoint in terms of mix, traffic and consumer reaction to it,” Schwartz said.
NPC International operates Pizza Hut locations in 28 states.
Contact Ron Ruggless at ronald.ruggless@penton.com.
Buffalo Wild Wings officials said the casual-dining chain would open up the playbook to minimize the traffic damage done by a prolonged National Football League lockout if the work stoppage drags on into the fall.
“We are planning contingencies if the season is reduced or cancelled,” chief executive Sally Smith told securities analysts during the chain’s first-quarter earnings call on Tuesday. “Like the economy in recent years, the disruption to the regular NFL season has the potential to present a temporary challenge to our business and many others. Assuming continued strong same-store sales and low wing costs, we believe we can achieve our annual net earnings goal of more than 18 percent even if there’s an abbreviated NFL season.”
Minneapolis-based Buffalo Wild Wings’ first-quarter earnings of $14.9 million, or 81 cents per share, represented a 40-percent increase from $10.6 million, or 58 cents per share, in the same quarter a year earlier. For the March 27-ended quarter, revenue increased 19.6 percent to $182.2 million.
Same-store sales rose 3.9 percent at corporate restaurants and 1.6 percent at franchised locations.
Wing prices stay favorable
Smith and chief financial officer Mary Twinem said the March Madness college basketball tournament drove people to Buffalo Wild Wings restaurants during the first quarter. However, securities analysts were repeatedly asked what the chain would do to sustain sales and earnings if the other big traffic driver, professional football, had a shortened season.
“We’ve done the same things many of the financial analysts have done,” Twinem said, “and we’ve looked at different sales levels and wing price levels, and I think we can get a fair amount of different combinations that make us able to cover for one [lost regular-season] week or two or three weeks.
“We’re focused on making that happen,” she said. “The more months we have of high sales and low wing prices, the more months we can cover on a shortened NFL season.”
Wing prices fell to an average of $1.22 per pound in the first quarter, 69 cents lower than $1.91 a year earlier. Traditional wings accounted for 20 percent of sales in the quarter, while boneless wings were 19 percent of sales, the company reported.
“The traditional-wing market continues to be favorable, and the price of chicken wings for the first two months of the second quarter is averaging about $1.02 per pound, which is lower than any quarterly price since 2003,” Twinem said.
Last year’s second-quarter price averaged $1.51, she said. Twinem added that the brand’s boneless-wing contract is extended through 2012 and that the remainder of Buffalo Wild Wings’ basket of goods is contracted throughout the year at a 3-percent increase from a year earlier.
Sustaining strong comps
The other half of the chain’s equation for mitigating the possible NFL lockout depends on sustaining the same-store sales increases of the first quarter, Smith said. Through the first four weeks of April, same-store sales increased 5.3 percent at corporate units and 1.6 percent at franchised stores, she added.
Buffalo Wild Wings will look to maintain that momentum through training investments, about $17 million in capital expenditures this year for remodeling and information technology upgrades, and promoting a menu extension that includes 12 new items.
The new menu puts a bigger emphasis on sharable items.
“We’ve had other menus with significant changes,” Smith said, “but we wanted to broaden and deepen our sauce lineup. … Our guest research found that when our guests come in they like to order a whole variety of things, and that focus on sharables was important to them.”
The chain intends for the new sharable items to produce incremental sales rather than alter the menu mix from core Buffalo wings.
“We’ve seen pretty consistent levels of traditional and bone in wings as a percentage of sales for quite some time,” Smith said, “so as new restaurants have opened I think new guests are trying those additional items. But that’s the goal with any menu is to continue to expand your offerings and attract new guests.”
The company also is working with its franchise consultants and current franchisees to deliver best practices from the corporate restaurants to the franchised units, when needed, Smith said.
“Our franchisees have some opportunities: They’re typically more bottom-line-focused than sales-focused,” Smith said. “They have not been as aggressive as we have on remodels and some of the audio-visual upgrades or relocating. We highlighted some of our sales building initiatives we’ve undertaken in the first and second quarters, and our franchisees are standing with us.”
Buffalo Wild Wings is planning 13 remodels in the second quarter, accounting for most of the 22 planned unit upgrades this year. The cost to refurbish a store varies from $300,000 to $450,000, Twinem said, adding that remodels carried out in 2010 produced a same-store sales lift that averaged between 3 percent and 4 percent.
Buffalo Wild Wings operates or franchises 753 locations in 45 states.
Contact Mark Brandau at mark.brandau@penton.com.
