Tuesday, May 7, 2013 | Edited by Daniel Moores
||Will Longer QSR Hours Boost Sales?
Fast-food chains are hanging a lot of hopes on night owls and early birds.
With a lean economy squeezing their sales, thousands of restaurants are extending their hours to try to get more people through the door. But franchisees are learning that it can take a lot of work to get the most out of off-hours snackers.
The basic problem: Restaurants need to shoulder more expenses to keep the lights on longer -- but the crowds usually aren't that big at odd hours, and customers don't end up spending very much. In fact, franchisees and industry experts say, some markets may not have enough all-night types to make the concept work at all.
Longer hours appeal mostly to "younger folks out and about, and they have cut back so much on restaurants," says Bonnie Riggs, restaurant-industry analyst at research firm NPD Group. "Maybe if you're in some big metropolitan or tourist areas it's worthwhile."
24-Hour Patty People
The concept of extended hours has made big inroads at some franchises. About 45% of McDonald's Corp.'s 14,100 U.S. locations are now serving customers around the clock, up from about 30% in 2005. Dunkin' Donuts has doubled its number of 24-hour restaurants over the past decade to nearly a third of its more than 7,000 U.S. outlets.
It isn't just night owls they're going after. Fast-food chains are also trying to appeal to early diners. For instance, Taco Bell, a subsidiary of Yum Brands Inc., implemented a breakfast menu for the first time last year, and today 825 stores across 14 states open their doors between 7 a.m. and 9 a.m., instead of the usual 10 a.m.
For many franchisees, extending hours is an alluring idea, since it lets them bring in more revenue without boosting fixed costs like rent. It can also simplify other parts of the workday: Outlets that stay open around the clock, for instance, can eliminate procedures for opening and closing the restaurant.
But some owners and franchise experts worry that the practice simply doesn't bring big payoffs. Even though fixed costs don't rise, owners say, there are added expenses such as higher utility bills and extra pay for hourly employees working the graveyard shift. Simply finding people to work those hours can be a struggle.
"It is always difficult to get people (to work) overnight. It's just contrary to the body," says John A. Gordon, a restaurant consultant in San Diego. "When you get them, you work hard to keep them."
Meanwhile, the boost in sales can be meager. Research shows that consumers still prefer to eat at fast-food joints during traditional hours. Noon to 1 p.m. is the busiest time of day for quick-service restaurants, accounting for about 15% of customer visits last year, according to NPD Group. In contrast, the hours between 9 p.m. and midnight represented just 6% of visits, and the hours from 1 a.m. to 4 a.m. less than 1%.
Waiting Up Late
A group of franchisees aired those kinds of concerns in a 2008 lawsuit against Burger King Holdings Inc. -- which, unlike most chains, mandates extended hours instead of giving restaurant owners a choice.
In 2008, the chain required franchisees to open at 6 a.m., an hour earlier than was previously required, every day but Sunday. And the chain said stores should stay open until 2 a.m., three hours later than was previously required, on Thursdays, Fridays and Saturdays.
Three franchisees sued Burger King in the 11th judicial circuit court in Miami-Dade County, Fla., to protest the move. They argued that the mandate violated their franchise agreement, and they lost money by staying open longer. They also said that the mandate exposed managers and employees to "unreasonable and unacceptable risk of crime, injury, and even death," according to court papers.
On some evenings, the franchisees sold as little as $5 worth of items between the hours of midnight and 2 a.m., according to attorney Robert Zarco of Miami, who represented the plaintiffs in the case.
"The longer the hours the franchisee is open, the more money the franchiser will make in royalties and advertising fees, regardless of whether the franchisee is losing money," he says.
Burger King argued in court papers that it could mandate extended hours of operation. The case was settled in February of last year. Now all franchisees must stay open until midnight every night. Burger King says, "The hours of operation at Burger King restaurants enable us to more effectively compete with our peers. (The company) believes its policy provides franchisees with greater flexibility, allowing them to open earlier than 6 a.m. and remain open after midnight based on the needs of their individual markets."
Making It Work
For all the risks, some franchisees argue that extended hours can work -- provided owners do their homework before implementing them. "You can't take the lifestyle of a certain demographic and universally apply it to everyone," says Peter Riggs, vice president of brand promotion for Pita Pit USA Inc., based in Coeur d'Alene, Idaho.
Many of the chain's franchisees established their businesses in the early 2000s in college towns, where hungry students could order veggie pitas, gyros and smoothies until 3 a.m. But when the brand started expanding into other markets in 2005, some franchisees discovered that consumers in those areas didn't have as much of a yen for late-night eats. As a result, they scaled back their hours to better reflect local dining habits.
To find out if expanding hours makes sense in a given market, Mr. Riggs recommends patrolling the neighborhood during the period you're thinking of opening to see how busy it is and what the competition is like. He also suggests asking existing customers about their interest in coming in during hours when your restaurant is normally closed.
Leticia Bernal-Bosey did this about a year ago, before expanding the hours of a Pita Pit she owns in Albuquerque, N.M. She canvassed local bars near her restaurant and discovered they often stayed busy until closing. What's more, none of them served food. "There's a lot of night life in the area," says Ms. Bernal-Bosey, 30 years old, adding that her outlet's overall sales have increased 10% since she tacked on the extra hours.
Franchisees also advise having patience when it comes to building traction with late-night sales. Joe Hertzman, owner of 13 Checkers/Rally's Drive-In Restaurants Inc. outlets throughout Indiana and Kentucky, used to close his restaurants at midnight. Then in 2008 he expanded the hours at one of them to 2 a.m. on Fridays and Saturdays and 1 a.m. the rest of the week.
Sales between Sunday and Thursday started out bleak, with night owls spending an average of just $35 during that final hour after midnight. In comparison, "an average reasonably strong" lunch hour brings in $600 or more, he says.
Over the next few months, more customers began stopping by on those days for late-night burgers and fries, prompting Mr. Hertzman to test their appetites for even later hours. Now, with some of his Rally's units open on weeknights as late as 4 a.m., he's averaging $50 in sales for the final hour, while on weekends, when some units close at 6 a.m., the last hour brings in an average of $100. "You have to stick with it," says the 56-year-old franchisee. "It took us six months to a year to really learn the anomalies of each store."
(Source: The Wall Street Journal, 04/29/13)
||Big Beer Facing 'Brutal' Spring Sales Slump
Blame it on the rain. Or higher payroll tax rates. Or gas prices. Or the continued shift to craft beer and liquor. Whatever the cause, it has been a spring to forget for big beer brands, which after showing signs of life last year are slumping through a brutal 2013 so far.
The latest bad news came from Anheuser-Busch InBev, the world's largest brewer, which last week reported a 4.1% drop in sales to U.S. retailers for the first quarter ending in March. Sales for MillerCoors brands, meanwhile, dropped 3.3% in the quarter, parent company SABMiller recently reported, while Heineken USA sales were down by low-single digits. The only big beer marketer reporting gains was Corona-seller Crown Imports, but the importer's sales were only up slightly, Beer Marketer's Insights recently reported.
Results through mid-April were not much better. The beer business was down 2.8% for the four weeks through April 13, Beer Marketer's Insights reported, citing Nielsen. Miller Lite was down by 8.8% in the period, while Bud Light sank by 6%. Budweiser plummeted by 7.7%. Even Coors Light -- which has been growing consistently in recent years -- declined by 1.8%.
"It's brutal out there for everyone," Beer Business Daily said in a note to subscribers last week.
Well, not exactly everyone. Craft beer sales continue to rise, while liquor brands seemed to have weathered the bad weather well enough. (Spirits industry volume growth trends "remain positive albeit down from highs in 2012," Bernstein Research said in a report in early April.)
Why? "Light lagers (like Bud Light and Miller Lite) are more susceptible to unseasonably cold weather than either craft beer or spirits, which are typically imbibed more indoors," Harry Schuhmacher, Beer Business Daily's editor, said in an email.
And the weather was bad. The critical beer market of Chicago had its wettest April on record. Across the country, temperatures were down by almost 20 degrees in many areas during the first quarter, A-B InBev CEO Carlos Brito said last week on an earnings call. He also blamed increased payroll taxes, delays in tax refunds and higher gasoline prices, "all which puts significant pressure on consumer disposable income." Relief has already arrived at the pump, where the national average prices for gas have been declining since peaking in late February, according to AAA.
A-B InBev's global beer volumes declined by 4.1%, with Brazil suffering a particularly rough quarter for which the brewer blamed poor weather, food inflation and the earlier timing of Carnival. China was a bright spot, with volumes up by 15.5%. Earnings before interest, taxes, amortization and depreciation, excluding some items, fell to $3.43 billion, missing the $3.57 billion median estimate of 10 analysts, Bloomberg reported.
Despite the disappointing results, the brewer pledged to stick to its "premiumization" strategy in key markets, which involves closing price gaps between economy and mainstream beers and launching new brands and line extensions that are higher-priced.
As long as the industry's woes are felt by all big brewers -- which at this point looks to be the case -- it could ease pressure on chief marketing officers and ad agencies. Nonetheless, marketers will be pressed to capture some momentum in the summer, which is considered the most important selling season of the year.
A-B InBev appears to be banking on getting a boost from flavorful line extensions like Bud Light Lime "Straw-Ber-Rita," a margarita-flavored malt beverage that follows last year's "Lime-A-Rita." The two line extensions achieved a 1.3% market share in the first two weeks of April, the brewer said, citing IRI data. A-B InBev plans to expand production of the two drinks in the second quarter from one to three breweries. In coming weeks, the brewer plans to launch Stella Artois' Cidre in the U.S., which it describes as a "crisp, distinctive European cider" made from apples. Also hitting the market soon is a bow-tie shaped Budweiser can that will be sold alongside regular Bud cans. MillerCoors is making its own packaging play, counting on a new Miller Lite bottle to turn things around for the long-suffering brand.
Part of A-B InBev's innovation strategy relies on higher-alcohol line extensions, including new Budweiser Black Crown. The brew follows last year's successful launch of Bud Light Platinum, which this year is being backed with ads starring Justin Timberlake by Translation, which is the Bud Light agency-of-record. (Anomalyhandles most Budweiser advertising.)
But after rocketing out of the gate, Platinum has declined. Sales of the beer -- which is positioned for nighttime drinking occasions -- fell by 36% in the four weeks ending April 13, as it lost 0.7% share, Beer Marketer's reported citing Nielsen data. According to A-B InBev, Platinum has "held a stable market share of around 0.8% since the middle of 2012." The beer peaked at 1.9% share in the wake of its launch, which was backed by Super Bowl advertising.
(Source: Advertising Age, 04/30/13)
||A Field That Once Looked Bleak Attracts Young Careerists
The allure of the travel industry as a career, recently seen as dated as a Pan Am stewardess pillbox, is surging as more people take jobs in a sector bolstered by renewed spending.
Hotels, restaurants and other travel-related businesses are adding more positions, attracting people like Matthew Bryant, a hospitality studies student at the Tisch Center for Hospitality, Tourism and Sports Management at New York University.
"The hospitality industry is beginning to recover, and I decided to switch careers because I saw a professional future in it," said Mr. Bryant, 26, who worked for five years as a federal government consultant in Washington after college. "I wanted to combine the skills I had learned as a consultant in a customer service industry, and this seemed a great fit."
While job recovery nationally has been lagging, the travel industry has been faring much better. About 8 percent, or 7,000, of the total of 88,000 jobs added by employers in March were in the travel industry, according to the U.S. Travel Association, a trade group.
The growth is being spurred, in part, by a modest rise in business travel spending. As the economy improves, such spending is predicted to climb 5.1 percent this year, to $268.5 billion, according to the Global Business Travel Association, a trade group. Its forecast, released in April, is up substantially from the 1.8 percent rise in industry spending in 2012, and higher than the group's previous prediction for growth of 4.6 percent.
"Companies feel the need to compete, and the global economy is driving companies to invest in business travel," said Michael W. McCormick, the association's executive director.
Shored up by strong corporate profits, companies are sending more employees to conventions, meetings and industry events -- gatherings that were more strictly circumscribed when the economy sank.
"Events are being planned farther in advance," said Eric Eden, vice president for marketing at Cvent, a meeting and event management technology company. "And there are more national meetings instead of small, regional ones, and higher numbers of people attending each event."
As a result, hotels are seeing more bookings for meetings, and rates are increasing, he said. Spending on group events, Mr. Eden added, is expected to increase 6 percent this year, to almost $116 billion, compared with an earlier prediction of 5.2 percent growth in 2013.
And hotel occupancy rates are moving up steadily, said Jan Freitag, senior vice president for global development at Smith Travel Research, which tracks the hotel industry.
"Occupancy rates, which are a bellwether for business travel, rose over the last three years to 64.3 percent," he said.
Overall, about 7.7 million people worked in the travel sector, according to figures for the last three months of 2012 provided by the Bureau of Economic Analysis, part of the Commerce Department. Although spending declined in air and other transportation, outlays rose for traveler accommodations and for food services and drinking places, by 9.4 percent and 8.6 percent, respectively, according to the federal figures released in March.
The data covers a range of jobs, from the minimum-wage, no-benefit slots to well-paid hotel analyst positions, but some 53 percent of travel industry workers are paid $25,000 to $69,000, according to a U.S. Travel Association analysis of the federal jobs data done in conjunction with Oxford Economics, an economics forecasting firm.
According to the analysis of Bureau of Labor Statistics data, the travel industry is one of the top 10 largest employers of middle-class wage earners, with a maximum average salary of $81,900. Two of every five workers who start their careers in the travel industry go on to earn more than $100,000 a year, according to the association analysis.
Those prospects persuaded Mr. Bryant to enroll in hospitality studies. After graduating with a political science degree in 2008 from American University, Mr. Bryant landed a job at a management consulting firm. But after five years, he said, "I wanted a change and be involved in a customer service industry."
He enrolled last fall in the Tisch program, part of the 75 percent increase in undergraduate and graduate students there since 2010. When he graduates in spring 2014, he hopes that the experience he has gained from internships in real estate investment and other areas will land him a management-level job.
The university does not provide separate figures for hospitality, tourism and sports management enrollment or specifics on employment, but it says that more than 90 percent of its 2012 graduates are working in industry operations, development, branding or finance.
Although few graduates lack jobs, Bjorn Hanson of the Tisch Center noted that the travel sector recovery could be somewhat lower than forecast.
"If the 1.1 percent decrease in the number of business trips forecast by the association is realized, I think a 5 percent spending increase is on the high side," he said, referring to the Global Business Travel Association’s 2013 forecast. "On that basis I estimate spending would increase maybe 3 percent."
Business trips, in fact, are expected to dip 1.1 percent, to 431.7 million trips, according to the Global Business Travel Association's 2013 forecast, although the cost per trip is rising, and that generates higher travel industry spending figures.
The overall industry outlook encouraged Nicholas Hosseini, 21, a junior from Jacksonville, Fla., to switch recently from a major in economics at Cornell to its school of hotel administration.
According to Cornell, 94 percent of the hotel administration school's 2012 graduates have full-time jobs (1 percent went to graduate school), up from 88 percent in 2011.
"It's rare around here to find someone who does not have a job," said Mr. Hosseini. "This summer I will be working at a hotel investors group in San Francisco, a job I found through our alumni network, and that's practical experience I plan to use to go into the hotel field.
"The hardest part," he said, "was convincing my parents that hospitality did not mean I would be working at a front desk."
(Source: The New York Times, 04/30/13)
Daily Sales Tip: Talking Too Much
Many salespeople get hired because the have the infamous "gift of gab." There is a pretty good chance that you've worked with someone who loved nothing better than the sound of their voice. These reps are great at telling stories, but they struggle to connect and create deeper dialogue with prospects and customers.
Many customers are being asked to do more with less today. Spending time with an overly friendly (see all chatty) sales rep isn't a priority, it's a liability.
Being able to clearly and succinctly articulate a compelling story is vital to your success. Your goal is to be brief, be bright and then be gone.
Before you make your next call, ask yourself: Why, given all of the competitive alternatives available, should this prospect want to do business with me right now?
Source: Sales speaker/consultant Tim Wackel