Food for Thought: Casual-dining Accounts For Half of Foodservice Sales in Canada

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Casual-dining restaurants (CDRs) offer the ideal middle-ground for diners looking for the best of both worlds — good food at a reasonable cost. The widespread appeal of casual restaurants translates into sales numbers accounting for more than half of all foodservice revenue in Canada.

“In Canada, CDRs represent about $26 billion in sales annually,” says Robert Carter, executive director for Foodservice Canada with Toronto-based NPD Group Inc. “The overall foodservice industry in Canada is about $50 billion a year.” But while the dollar value of casual restaurants has increased, Carter says the traffic has declined as people watch their expenditures more closely. “The per-capita consumption has decreased over the past three to four years. So, people [aren’t] going out as much they used to, but they’re paying more when they do.”

According to a report from Chicago-based Technomic, which sampled 20,651 Canadian consumers over 18 between Q2 2015 and Q1 2016, 43.4 per cent of millennials are going to CDRs on a regular basis — almost double the visits of generation Xers (22 per cent) and baby-boomers (21.8 per cent) combined.

As a result, Carter says restaurant operators are focusing marketing efforts on the millennial cohort. “Millennials don’t have brand loyalty. They’re jumping around to different restaurants all the time [and] they’re the social-media users being targeted by casual restaurants. The game has changed dramatically in the past 10 years”.

COOK IT AND THEY WILL COME
With customer preferences constantly evolving, CDR menus have had to evolve with them to meet the demands of a new generation of diners.

According to Carter, while sharing platters, ethnic and spicy foods are all the rage, there are some surprises when it comes to what isn’t hot. “Alcohol and desserts are declining — consumers are more worried about drinking and driving and (drinks and desserts) increase the bill dramatically.”

Jonathan Benjamin, vice-president of Development, USA & Canada for Texas-based Romacorp Inc., which operates the Tony Roma’s brand in more than 30 countries, including 26 in Canada, says healthier customer eating habits are also influencing his brand’s menu development. “Farm-to-table is becoming very popular,” he says. “Our focus is on quality — we are [putting] fewer items on the menu and doing those things very well, as opposed to trying to be everything to everyone. There is [a] trend to [a] more hands-on approach and people are willing to pay more for hand-crafted cocktails as opposed to those put together with mixes.”

Browns Socialhouse recognizes the importance of healthy and fresh food menu offerings. “We know people want food with integrity and ingredients from sources they can trust,” says Bruce Fox, COO of Browns Restaurant Group. “We hand-craft more menu items every cycle. On the supply side, our shrimp is grown and harvested through an environmentally sustainable method and…our poultry is processed within 100 kilometers of the farms, shipped to the restaurants 100 per cent fresh, never frozen. We built a $500,000 Innovation Centre last year to house our dedicated culinary development team. Overall, we are on a mission to just ‘do it better’ every day.”

DAVID VERSUS GOLIATH
While casual chains are thriving, independent mom-and-pop operations aren’t faring as well. “Independents are closing their doors aggressively,” Carter says. “In the past year we saw more independent operations close their doors more than ever before.”

According to Carter, there are two major factors working in favour of popular chains such as The Keg or Milestones — social media and brand awareness. “Consumers are more educated and sophisticated than ever,” he says. “CDRs have to manage social media, PR, brand awareness and for independents it’s a real struggle.”

Thanks to larger operating budgets, big chains have the manpower to handle social-media campaigns, allowing them to poach customers from smaller operators. “Big chains are literally stealing customers from independents [via these means],” Carter says.

However, not all casual restaurants are increasing their social-media footprint. In fact, Browns Socialhouse is reducing theirs. “We are [like in many things] contrarians,” Fox says. “We are actually reducing our social-media output and are relying strongly on our franchisees’ execution to create [positive word-of-mouth]. Our goal is to never spend a dollar on paid [consumer-targeted] media and to focus all effort on delivering the best guest experience in the business. We know this is easy to say and not easy to do and we know it’s ambitious. But, it’s our strategy.”

ROOM TO GROW
“We’re going to see acceleration soon in site selection,” says Benjamin, citing availability of retail space and leasing costs as ongoing challenges for the segment. “Areas where there were casual restaurants in the past may not make sense anymore. These include shopping malls, as demographics and the market have shifted.”

Use of space has also changed, he says. “Guest flow, kitchen ergonomics and other design changes will allow us to capture the same [number] of table turns and income with less space. We have places with 7,000 to 8,000 sq. ft. built seven or eight years ago, as opposed to our new models, which are shifting to 5,200 to 6,000 sq. ft. This is the new [CDR] sweet-spot [for operating space].”

Benjamin has also seen a decline in free-standing restaurants. “Gone are the days of one or two-acre places to accommodate space and parking — those are too expensive to continue these days.” He adds secondary and tertiary markets have more appeal to CDRs as the high cost of living in cities such as Toronto and Vancouver drives people to the suburbs. “It’s a huge trend swing,” Benjamin says. “For example, we just opened very successfully in Thunder Bay. We have a lot of locations in secondary and tertiary markets that are thriving.”

Tony Roma’s is not only expanding in Canada, but worldwide; “We’re working on a five-year growth plan right now,” says Benjamin. “Our growth of [late] has been more overseas. Asia, Europe, South America and the Middle East — they’re all growing markets. As for Canada, we have 25 locations and a great footprint in Western Canada, but we have a big gaping hole in B.C. and Ontario. Those are our two biggest growth markets [in Canada].”

Browns Socialhouse had a strong year in 2015 and appears to be navigating the shifting tides in the industry with ease. The popular concept has experienced consistent and massive growth throughout the past four years — from $33 million in 2012 to $105 million in 2015. It had a 45 per cent unit expansion, bringing its total Canadian location numbers to 60 by year’s end. This growth was concentrated mostly in Western Canada, with outlets opening this year in the Okanagan Valley, Vancouver Island, Greater Vancouver, Calgary, Edmonton, Regina and Winnipeg, but the brand also has plans to grow its Ontario presence.

“The brand resonates with consumers,” says Fox. “We provide a guest experience they enjoy and we offer an interesting menu with great value. Our game plan is [to] constantly push the envelope. We are not ‘cookie-cutter’ in our design and we intend to keep evolving our menu.”

Tony Roma’s game-plan to stay competitive hinges on going to back to what made them great in the first place, while simultaneously embracing industry change. “We were the innovator and inventor of baby-back ribs when we opened in 1972,” says Benjamin. “You can’t touch our ribs. A 66 per cent brand awareness [means that we have] fierce customer loyalty, which translates into generational change.”

PURSUING SUCCESS
Casual-dining operators are also facing competition from outside the segment as the emerging fast-casual restaurant category continues to gain momentum. “[It’s] putting pressure on casual restaurants because these [fast-casual operators] have found an area no one [has tapped yet],” says Carter. “This year, it represented three to five per cent of restaurant traffic and it’s growing at a huge rate. It also had greater than 10 per cent growth for customer traffic.”

Where do shifting landscape, emerging trends and an unpredictable future leave the Canadian CDR industry? “It’s really going to come down to customization,” Carter says. “CDRs can’t afford to have people saying they had a bad experience [on] social media. There will be much more focus on training staff, [ensuring] servers [are] knowledgeable and menu innovation. But, there’s no silver bullet. Discounts at happy hour are no longer cutting it. Loyalty programs [and B2B partnerships] are going to be huge. We’ll start to see more things like Cineplex movie theatres partnering [in B2B programs] with restaurants like Montana’s, so that they can feed off each other’s foot traffic and simultaneously grow their brands.”

Volume 49, Number 4

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