Bigger is Better in the Fight for Market Share

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As weak traffic continues to plague the Canadian foodservice industry, stealing market share remains the prime objective of restaurants across all segments. “In Canada, restaurant sales are not trending as strongly as people would like, so it’s become a market share play,” says Geoff Wilson, principal at Toronto’s fsStrategy. “The successful franchises are the ones helping franchisees steal more customers.” The keys to that, he says, are evident in what some franchisees are already doing: offering more frequent limited-time menus and upgrades to the quality of the dining spaces “so a QSR now has a casual-dining feel, which improves a customer’s overall enjoyment of the space.”

According to Robert Carter, executive director, Foodservice at Toronto-based NPD Group, the big players in Canada are continuing to lead the charge in these types of initiatives. “McDonald’s is starting to look at how its offerings are changing — attracting new customers and expanding its menu. That seems to have worked really well for them over the last year and we’re hearing that franchisees are happy and are buying into the change in direction as well as the continued investment in the McCafé strategy and kiosks.” A&W is continuing its aggressive expansion into Ontario, setting up a provincial field office and bringing in management from the west coast. “From what we see, consumers are still liking the direction A&W is moving, so the traffic still seems positive,” says Carter.

In 2015, Wendy’s sold off approximately 380 corporately owned restaurants to franchisees, followed by 260 more in 2016, to increase cash flow and reinvest back into the brand. “Wendy’s is repositioning itself with its new upscale brand and restaurant decor and it’s getting a bit of traction,” says Carter.

Starbucks continues to grow at a double-digit rate by expanding beyond its coffee offerings and investing in continued beverage innovations, as well as food programs, a strategy Carter says is resonating with consumers and driving the brand’s growth. “Each one of these companies has mapped out where it’s going in order to drive greater customer satisfaction and loyalty,” adds Wilson.

KEYS TO SUCCESS
“If you look across the landscape, there are companies that are doing a great job of certain things within their portfolios to maintain/build market share,” says Wilson. A shining example can be found at Vaughan, Ont.-based Cara Operations Ltd., which has been steadily growing its market share through acquisitions. “Cara is growing by buying additional brands and continuing to cut back-of-house costs while investing in marketing to drive sales — that’s a pretty healthy organization right now,” says Carter. Harvey’s, in particular, he says has done a great job of repositioning itself and adopting some fast-casual strategies, such as expanding toppings and introducing new products. Dairy Queen has also been expanding its offerings, experiencing good growth through its menu innovation.

Innovation is key in all aspects of the industry, says Wilson, as operators strive to advance the overall experience. “A number of chains have done a lot of work to improve the service process so that the customer has a better experience. For example, more use of technology to manage transactions and drive customers back into restaurants to develop loyalty.”

According to Aaron Jourden of Chicago-based Technomic, chains are making adoption of new technologies a greater part of their business — both consumer-facing and back of the house. “As new technologies proliferate, franchisors need to know which are a smart investment and a sound, scalable fit for their specific concepts and growth plans.” Other standout brands in 2016 included The Keg, which Carter says continues to outperform, thanks to exceptional customer loyalty. From a regional standpoint, St. Hubert enjoyed strong brand loyalty throughout 2016. “Quebecers love that brand,” says Carter. “It’s done a lot more positioning with the fast-casual strategy and its off-premise, take-away growth is helping drive traffic. It’s also done a rebranding and upgrading of its dining rooms. They are having a good year and will likely have a good 2017 as well”

Premium small-box casuals such as Browns Socialhouse, Moxy’s and Joeys also had a good year with steady traffic and Carter predicts that trend will continue into next year. But, he cautions, the segment’s success will take away from some of the more traditional casual-dining locations, such as Boston Pizza, which has been relatively flat in terms of traffic. Montana’s, East Side Mario’s and other FSRs are not experiencing the same growth as the premium-casual players overall, but “that whole segment is off the highs it experienced in 2008; it is the weakest-performing segment of the market overall,” says Carter.

THE REAL-ESTATE GAME
“The big continue to get bigger and their marketing muscle is so strong that it’s hard for smaller players to break in,” says Carter of Canada’s franchise landscape. “So when you look at some of the smaller regional players that are trying to grow, they are up against such behemoths as Cara, McDonald’s and Tim Hortons and it’s so hard to get your brand out in front of the public from a start-up franchise point of view.”

With real-estate restrictions making Canada such a challenging market — combined with other influences such as digital, social media and constantly changing consumer preferences — it’s a competitive, challenging market to evolve and grow your brand in. “It’s a real-estate game now,” he continues. “[Growth is] all about securing the best real estate so [the big players such as] Cara and MTY have a distinct advantage because they have so many banners. They can come right in and scoop up prime locations.”

He says operators have to be strategic, do everything right from an operations standpoint and be on top of their game in order to succeed. “It’s unrealistic [for operators]to think they can open large [numbers] of units in a short period of time in this market and to do it with a brand that’s not that well known in an environment where real estate is challenged; to think they’re going to immediately steal that amount of market share from the big guys in a market that’s flat is completely unrealistic.”

“Good real estate is hard to find in Canada” agrees Wilson. “Particularly in the urban areas and, as a result, you have to be careful that you have an offer that’s going to differentiate you from the competition or create a new opportunity that’s going to be attractive to consumers. Otherwise, it’s going to be a ‘me-too’ situation and that doesn’t work in this environment.”

Volume 49, Number 11

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