Article
Prepare now for economic recovery
Experts predict the turnaround will take some time, but QSRs need to do their homework to be ready.
October 4, 2009
Economists have declared the recession over, but a full recovery is still some time away. Industry experts expect the quick-service industry to take nine to 18 months to recover, depending largely on how quickly unemployment levels improve.
QSRs have done better than other restaurant segments during the recession, but brands across the board experienced at least some traffic decline, said Bonnie Riggs, restaurant industry analyst with market research firm The NPD Group. According to NPD's most recent data, QSR traffic declined about 2 percent in the second quarter. Industry-wide, traffic was down 3.9 percent, the most significant drop since 1980.
"It really has taken its toll on consumers in a way that no other recession has that we have studied," Riggs said.
Recovery will be slow and spending may not return to prior levels, she said. But there are still steps brands can take now to prepare for when traffic resumes to prior levels or close to it.
In the short term, consumers are likely to continue to expect value offerings, Riggs said. But value doesn't mean cheap or even the lowest price.
"We need to be making sure that we deliver on the price-value equation in terms of meeting consumer expectations," she said — even on lower- priced offerings. "If I order a 99-cent burger and it's bad, it's not worth 99 cents," Riggs said.
Brands also need to closely track key economic indicators, especially consumer confidence and unemployment. As consumer confidence returns, QSR will be the first segment to see traffic improve, Riggs said.
Once that happens, brands can start cutting back on the deep discounting and free offers that have become common over the last year.
"They can't stop them abruptly, but they can wean them off them by introducing new products, new promotions and different types of marketing initiatives," Riggs said.
Menu development
During the recession, consumers often chose indulgent foods to help them deal with stress. But as the economy improves, consumers likely will be looking for more healthful items, said Kara Nielsen, trendologist with restaurant consultants Center for Culinary Development. So now is the time to develop items to meet those trends.
"Consumers are looking toward more fresh foods," she said. For QSRs, fresh doesn't necessarily mean raw fruits and vegetables but "foods that feel fresher and less processed."
For example, Taco Bell has done well with its Fresco line, which features a soft tortilla and fresh pico de gallo instead of a heavy sauce. And McDonald's introduced fresh toppings such as sliced onions and leaf lettuce when it debuted its Angus Third Pounder line.
Operators also should look to fast casual brands for inspiration and consider adding a grilled vegetable side dish, sandwiches with fresh ingredients or even vegetable dippers, she said.
Consumers will continue their interest in new menu items and flavor profiles, but brands should tie them to current trends, such as nostalgic foods. Innovations could include adding a contemporary twist or fresh ingredients to those comfort foods.
Staffing needs
Operators also will need to predict future traffic levels and prepare to hire more staff. Many QSRs cut their staffing levels as sales dropped during the recession.
According to workforce analytics provider People Report's most recent data, staffing levels are beginning to trend upwards after bottoming out in Q1. The company's latest Workforce Index shows modest job growth was expected in Q3 after job losses were minimal in Q2.
Kara Barker, director of retail and hospitality industry marketing for workforce management solutions provider Kronos Inc., said the company's QSR clients are preparing now to return to hiring mode.
"Organizations are acknowledging that as recovery is on the horizon, they're going to need to start to prepare themselves for the increase in demand that will inevitably come when spending returns to where it once was," she said.
But brands are still dealing with tighter profit margins, so they need to be smart about new hires, Barker said. Turnover has been somewhat reduced during the recession, and operators can keep those levels from returning to prior levels by focusing on employee satisfaction.
The key for QSRs is to remain focused on keeping costs down, something automated hiring and scheduling solutions can help with.
"We recommend to our clients that as recovery is on the horizon, they still have to be conservative and still have to very focused on eliminating waste," Barker said.
Branding and marketing
Sue Reninger, managing partner for RMD Advertising, said that during the recession, a wide gap formed between nimble companies focused on their brands and those in which consumers lost confidence. Consumers expressed that confidence by choosing which restaurants to visit and which to avoid.
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QSRs that lost traffic, then, have a lot of introspection to do. Reninger recommends the chains get back to basics, including finding what differentiates the brand from the pack and focusing on that niche.
If you're not first in a category, you have to be better," Reninger said. "There are still a lot of 'me too' restaurants that are really nothing remarkable, really nothing different. A lot of those quick-serves, especially, are just surviving."
Brands that are still on top kept their customers because they focused on the customer experience, from the initial point of contact to delivering a consistent product. Those companies also continued to invest in the brand. Many of those chains have good local store marketing efforts, and they invest in the community with various cause campaigns, she said.
McDonald's, for example, launched two new product lines during the recession — McCafé espresso-based coffees and premium Angus Third Pounder burgers. The company credits both new introductions with contributing to the chain's positive same-store sales. Comps did decline in recent months but remained positive, while other brands like Arby's continued a negative trend.
For brands that have fallen behind there is still time to right the ship.
"The good news is if a restaurant has been one of those that has cut back severely and hasn't really done a whole lot to market themselves over the last year or so, you can start now," Reninger said. "You might not be at the head of the pack with those brands that never cut their branding efforts, but you sure can get a lion's share of the wallets when they open up again."
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