The QSR segment has confronted battles on multiple fronts but still dominates our Top 100
Work-focused 20-somethings, busy families, active Boomers — virtually every segment of society occasionally finds itself in need of a fast meal. And, as increasingly frenetic lifestyles dictate this more than ever, the issue of economics becomes imperative.So it’s not surprising that, with a focus on convenience, quality and value, limited-service restaurants have led the foodservice industry with a sales increase of 45 per cent since 2000, according to the NPD Group Inc. During the recent economic downturn, the quick-service segment was the only one that continued to grow — albeit marginally — as traffic increased by 0.4 per cent in 2009. And, in 2010, this growth accelerated, according to the CRFA, with the QSR segment boosting sales by 5.9 per cent.
Slicing up the Market
A good portion of pizza sales depend on delivery, and, while pizza remains in seventh place on the NPD Group’s list of Top 10 Foods, pizza sales have dropped from 6.9 per cent to 6.3 per cent of all restaurant meals. It’s also fourth on the research firm’s list of steepest-declining food items. “We have to get better at what we do,” acknowledges Domenic Primucci, president of Toronto-based, Pizza Nova Take-Out Ltd. “There’s a lot of competition out there from fresh pizza makers like ourselves, from all kinds of restaurants and from grocery stores. Everyone’s making pizza these days.”
So, now this very established market is being forced to adapt to changing Canadian needs. “Pizza remains a large and robust segment of the QSR industry as one of the most popular foods in Canada. Families love pizza as it has always been a quick, convenient and affordable option for working parents and a popular choice for children,” says Alex Green, vice-president of Marketing for Panago Pizza Inc. “The category remains relevant, the question is whether or not all of the brands competing for customers remain relevant.”
The Abbottsford, B.C.-based Panago is on task. This summer will see the introduction of “Frugal Favourites” — five popular pizza recipes at affordable price points, including a “Veggie-Lite” with 40 per cent less fat than the regular veggie pizza. And, in response to the growing interest in ethnic fare and robust flavour profiles, it has launched two Indian-style pizzas: Butter Chicken and Veggie Korma. The innovative pizza parlour has also added chicken wings, including one with an Indian Tikka Masala flavour profile.
Beyond the drive for ethnic flavours, increased allergy concerns — such as wheat or gluten intolerance — has influenced many pizza chains to diversify menus. For example, Pizza Nova now offers a gluten-free crust, but it has also added Chicken Pollini, 100-percent chicken breast meat, batter fried and served with wing sauce and fall-off-the-bone back ribs in barbecue sauce.
A number of pizza chains also offer pie by the slice and, as a result, are making inroads in the snack market. According to the CRFA, while consumers curtailed spending on restaurant meals during the recession, they splurged on snacking, which now accounts for more than one-third of traffic at QSR restaurants.
Canadians are also watching their wallets and waistlines, so offering an alternative to high-sugar carbohydrate snacks and sweets is patently a smart move for a number of chains. McDonald’s Snack Wraps and Tim Hortons’ Wrap Snackers provide a smaller portion of protein rolled in a tortilla (beef or chicken at McDonald’s; chicken, egg salad or tuna at Tim Hortons). It’s a substantial snack without the guilt. And, it’s an affordable treat.
Such half portions have proved so successful for McDonald’s that last year they launched McMinis, half-portion chicken sandwiches. Indeed, mini seems to be the theme in the snack market. Harvey’s introduced half-sized L’il Originals (cheese or bacon versions as well), with half the fat. And Burger King offers cini-minis, miniature cinnamon buns — with half the guilt but all the flavour. Of course, Tim Hortons worked out this snack situation long ago; they’re called Timbits and their sales continue to rise. According to the most recent CRFA data, in 2010, snack options such as these and others, represent 41 per cent of traffic at the QSR level.
Fast-food used to be synonymous with lousy coffee. Then along came Tim Hortons, Second Cup and Starbucks, and suddenly the landscape was littered with options. In the past, customers had to choose between having traditional fast-food combined with coffee from a café or living with bad java. But when premium coffee spots began offering good food, too, customers started making one stop at a specialty coffee spot. This was particularly true at breakfast, and it was a wake-up call for the fast-food chains.
“We’ve been a trailblazer in the breakfast business for a long time, and we saw coffee as an opportunity to solidify our position as a one-stop destination in the morning,” says Louis Payette, national media relations manager at Toronto-based, McDonald’s Restaurants of Canada Ltd. “We introduced our premium roast coffee, and in a span of two years (2009 to ’10), we’ve doubled our total coffee units,and coffee unit growth perked up more than 45 per cent in 2010, compared to the previous year.” To make the point, the chain has offered free coffee to customers several times since the launch, the last coinciding with Tim Hortons’ massive Roll Up the Rim promotion.
The importance of good coffee isn’t lost on other fast-food chains either. Two have partnered with Seattle’s Best Coffee — ironically, a subsidiary of Starbucks. Subway and Burger King have introduced this premium coffee onto their menus. Taking a leaf from Ronald McDonald’s book, Subway offered free coffee with a meal to showcase its new brew. Bringing in premium coffee has also been a successful strategy for Burger King. “Quick-serve restaurants like ours need a barbell strategy,” says Cameron Loopstra, senior marketing manager at Burger King Restaurants of Canada, Inc. “You need a mix of premium and economy in your menu. Since adding premium coffee, we’ve seen a significant growth in breakfast regulars.”
There’s more to the breakfast daypart than coffee. “Yesterday morning, 65 per cent of Canadians had a cup of coffee; that’s a lot of people,” says Jean Vashisht, director of Marketing for Mississauga, Ont.-based, Second Cup Ltd. “What goes with that coffee? That’s where the opportunity lies.”
She’s right. Breakfast has come a long way since 1972 when McDonald’s launched the first Egg McMuffin. Today it’s a significant daypart for the quick-service sector; morning meals and snacks comprise 32 per cent of the daily traffic. Not surprisingly, apart from good coffee, QSR menus are adding more options designed to appeal to everyone from the indulgent to the health-minded.
That diversification in the breakfast menu has produced results for McDonald’s, which has expanded its offering to include everything from sausage, eggs and toast to the smallest item — buttermilk biscuits.
“Breakfast is our fastest-growing daypart,” says Payette. “We’ve seen double-digit growth in breakfast traffic over the last two years and enjoyed an increase of nearly 20 per cent in 2010 — our single-biggest surge in 12 years.”
For most QSRs, the breakfast sandwich undoubtedly remains a major seller. It might be encased in a bagel, an English muffin, a biscuit, a bun or wrapped in a pita or a tortilla; but eggs, along with cheese, bacon, sausage and a host of other choices, are avail- able virtually everywhere. One unique offering is Subway’s egg-white omelette on a light-wheat English muffin. Designed to appeal to the health conscious, it quickly became a top seller for the chain and won a Best Healthful Innovation award from Nation’s Restaurant News (U.S.A.) last year.
These days, healthy options are clearly important. In fact, oatmeal is the new Mc-Muffin. Available only in the U.S. at Mc-Donald’s, Canadians have a choice of heading to Second Cup, Tim Hortons or Starbucks instead. “Depending on the region of Canada, coffee and a muffin or croissant make up breakfast for our customers,” says Vashisht. “But we were surprised and very pleased with the positive response to oatmeal.”
But while healthy may be what some guests want, a big breakfast is still an important part of the QSR line-up. When Burger King recently introduced two hearty breakfast options: pancakes or the BK Breakfast Bowl (scrambled eggs, sausage, Southwestern-style roasted potatoes, grilled onions and peppers, topped with a three-cheese blend and a smoky cheese sauce), sales rose 22 per cent and traffic increased 13 per cent.
What About the Burgers?
While their popularity had dipped in the last CREST survey of Top 10 Foods, french fries still hold the number-1 spot (defined as the number of restaurant meals, which include fried spuds) while chicken ranked second and burgers were third. But the burger market share actually increased slightly (10.2 to 10.5 per cent year over year), and according to McDonald’s, its burgers outpace chicken sales 2 to 1.)
But these days the QSR burger market has moved beyond Big Macs and Whoppers. Though these still comprise the largest segment of burger sales, the growth of premium burger chains such as South St. Burger and The Works have forced the major players to add premium offerings to their line-up. Enter McDonald’s Angus Third Pounder, Harvey’s Great Canadian Mushroom Melt and Burger King’s Steakhouse XT. Made with premium beef, all offer more upscale top- pings such as mushrooms and swiss cheese and all are selling well.
Not surprising since, as Burger King’s Loopstra points out, “The Steakhouse XT offers premium taste but more value. We did exceptionally well, posting 10.7-per-cent positive comparable sales.” Indeed, up-scaling the menu has translated into six years of positive comparable sales.
Like everything these days, traditional QSR lunch and dinner menu selections are being challenged by chains offering premium sandwich items and the consumer’s quest for healthy food. Specialty coffee chains such as Second Cup are putting fillings such as bocconcini and tomatoes into Panini presses or wrapping chicken and fresh veggies in a pita. “There is an expectation that our sandwiches have more crafting and premium quality behind them,” says Second Cup’s Vashisht. “And we work with local suppliers in each market to source locally and seasonally.”
And Subway, which became synonymous with healthy eating since Jared Fogle reportedly shed 245 lbs. eating Subway’s sandwiches, is focusing on healthy offerings, too. Its Fresh Fit menu offers customers choices with a maximum six grams of fat and a Fit Kids portion of the menu. And, currently the company is testing both gluten-free and diabetic-friendly menu items, according to Les Winograd, public relations specialist and spokesperson for the chain. “We’ve always had salads and customers can choose to have any filling on a salad instead of in a bun,” he says. “But the key for us it the ability for the customer to be creative and be as healthy as they like.”
It’s undoubtedly a formula for success. Panago’s Green sums it up. “Our strategyremains focused on innovation and refreshing the customer experience with unique and differentiated products,” he says. “We believe this is the only sustainable strategy for ongoing success.”