QSR: Evolution or Revolution?


Burgers and fries weren’t really new when Ray Croc catapulted McDonald’s into franchise history in 1953. In Canada, White Spot had been around since 1928, but it was the proliferation of those ubiquitous arches that enabled the QSR segment to make its fast, fat-filled way into the dining habits of the earliest baby boomers, changing the way dinner was viewed forever. It was cheap, quick, and everyone loved those fries.

QSR changed little in the 50 or so years that followed, but the millennium brought about a revolution in what has traditionally been a segment that focused on speed and price. Aging boomers, who first took those QSR giants to their collective hearts and appetites, changed their priorities. Speed and price were replaced by the desire for quality and interesting flavour profiles, and they were even willing to add a little to the tab to get what they wanted.

Nonetheless, to a large extent, fat still reigns in this segment, says Doug Fisher, president of FHG International Inc., a Toronto-based foodservice franchising consultancy. “They may be talking the talk, but they don’t always walk the walk. New York Fries sales went up 20 per cent when it introduced poutine last year and look at the success of Smoke’s [Poutinerie in Toronto] — all they do is poutine,” he points out. Nonetheless, he adds: “There’s no doubt that in the last 10 years, QSR is offering healthier options to appeal to boomers. They want to bring back the clientele they’ve been losing since the millennium.”

They’re succeeding, according to NPD Group CREST data, which shows QSR traffic grew at a rate of three per cent in the 12-month period ending August 2012, and QSR traffic has grown by eight per cent since August 2008. But Joel Gregoire, industry analyst, Foodservice with NPD Group Canada, agrees with Fisher. “Health and wellness needs to be part of the dialogue, and while it’s an important consideration to a portion of the population, factors such as taste and indulgence rank higher in the consumer’s consideration- set at QSR,” he says.

Taster’s choice

The key seems to be choice. One of the earliest to recognize health concerns was Oakville, Ont.-based Teriyaki Experience, which has 131 locations worldwide, 108 of which are in Canada with many located on university campuses and in hospitals. In 1993, in a move to reduce fat, the chain began cooking with water rather than oil. Today, it offers water or Asian cooking sauce (4.1 g fat compared to 9.3 g fat per serving). “It’s important to give the customer options,” says Nick Veloce, president and COO. “We’re established as a healthy Asian alternative, but some customers want that indulgence, so we offer it.”

In fact, while the calendar flipped through the 2000s, choice became the issue. The winds of change saw chains such as McDonald’s and Burger King expand their offerings — fat-laden fries and burgers were supplemented with healthy salads. More importantly, new, nutrition-focused concepts began to appear.

It was “a premonition” about this evolution to healthier fast food that led Lawrence Eade, CFO and partner in WB Franchising Ltd., to launch Wok Box in 2004. The chain is one of a growing number that is completely changing the approach to QSR. Fresh, natural ingredients are cooked to order with proprietary sauces, most of which are made with reduced sodium content. Indeed, Wok Box is purported to be the only Asian chain in Canada to feature the Heart & Stroke Foundation’s Health-Check options. On the other hand, for those seeking indulgence, the chain also offers high-fat items such as Indian Butter Chicken ($6.99 small, $10.99 large) and deep-fried spring rolls ($1.50 each).

Some operators are banking on the healthy movement becoming a permanent change, which will continue to gain ground. For Toronto-based Freshii, which launched in Toronto in 2005 with a menu of salads, burritos, wraps, rice bowls and soups made with high-quality, fresh ingredients, the name says it all. “People want a fast meal, but they’re looking for a better culinary experience,” says Matthew Corrin, Freshii’s founder, who grew tired of unhealthy fast lunches while working in New York City. “I call it health-casual, and I think it’s going to dominate the market in the next 10 years. People are thinking about fat and carbs, and they want quality ingredients. It’s the white space in the market where there’s room for someone to become a global leader.” Corrin wants Freshii to be that leader. By spring 2013 the chain is expected to have 100 stores in seven countries, with another 60 in development in the next year and 300 more under contract.

But cooking to order and using fresh ingredients mean those early fast-food criteria — price and speed — become a challenge. Typically, concepts offering a healthy alternative cost a little more. For example, McDonald’s Premium Southwest Salad with Grilled Chicken is on the menu for just under $7, while Freshii’s runs closer to $9. Corrin admits sourcing fresh, local produce affordably is a challenge. But Veloce, of Teriyaki Experience, who has surveyed customers, speaks for this new breed of fast-casual. He explains: “Our food is not fast food and our competitor isn’t the fast-food Chinese restaurant in the mall. Our customer is a completely different breed looking for a healthy choice.”

Wok Box’s Eade agrees. “People, especially families looking for healthy alternatives, are willing to pay a little more for a premium product,” he says, while acknowledging speed remains a concern. “We’re working on getting the time nailed to between five and seven minutes.” They must be doing something right. In eight years, Wok Box has grown to 53 locations in Canada and five in the U.S., and the chain launched a second concept four years ago, The Chopped Leaf. Like its parent concept, the focus at The Chopped Leaf is on healthy, freshly prepared food — salads, soups and sandwiches — and it’s already made inroads with seven outlets in B.C. and one in Edmonton.

Flavour pockets

The second part of the new equation is flavour. With the advent and growth of spicy Thai and Indian cuisines, Canadian palates have become accustomed to zesty dishes brimming with spices and even chilies. Curries, Thai-inspired sauces, and the piquancy of Cajun, Mexican and Southwestern cuisines are spicing up menus around the country. Teriyaki Experience has added a zesty Thai-inspired sauce to its line-up. And, at Wok Box, the menu offers Indian-, Thai- and Malaysian-style curries.

While these don’t appeal to every palate, the issue once more is choice, something the giants have discovered. McDonald’s Chipotle Chili Snack Wrap and A&W’s Spicy Chubby Chicken burger (with chipotle) illustrate the point forcibly. Even Tim Hortons offers the option of chipotle sauce for its Mini and Panini sandwiches.

Expanding dayparts

Health concerns are patently driving sales in other segments and, in the process, expanding another daypart for QSRs. While breakfast isn’t new to this segment — McDonald’s introduced the Egg McMuffin in 1975 — the notion of making it a healthy start is a newer idea. Today, Canadians still love their breakfast sandwich. Case in point, the recent introduction of Teriyaki-flavoured eggs on an English muffin ($2.99) has proven successful in Teriyaki Experience’s university markets. The success follows the trend, according to NPD research. “Morning meals have grown by 16 per cent from 2008 through 2012 as more major QSR operators focus on the occasion though a diversified menu offering such as breakfast sandwiches,” says Gregoire.

But breakfast has moved beyond bagels and breakfast burritos. Oatmeal found a huge new market as chains such as McDonald’s, Burger King, Second Cup and Tim Hortons added it to the menu. These offerings joined smoothies and yogurt parfaits as healthy alternatives.

Quick to capitalize on this market, Freshii added both oatmeal and yogurt, each with fresh toppings. And a partnership with Crema Coffee as well as the addition of a new line of Freshii’s own bottled fresh juices, with produce in every bottle ($7-$8 each), has enabled the chain to consolidate its new breakfast offering.

But smoothies have taken on a life of their own, beyond breakfast, becoming the new snack food. “The afternoon snack occasion has been another area of growth for the QSR segment with traffic growing by 18 per cent since 2008. Specialty coffee and smoothies are two items that are hot snacks,” says NPD’s Gregoire. “Smoothies have grown by more than 150 per cent since 2008 and appeal to a broader base as they are a viable option for kids; moms can feel good about them as they contain fruit.”

Time is money

With the breakfast market gaining ground, QSR bosses are feeling the pressure to remain open beyond traditional mealtimes to take advantage of the late-night crowd as well. According to the NPD Group, the growth of traffic between midnight and 6 a.m. over the past five years is on par with total QSR, at approximately eight per cent. “This is not a health-conscious crowd,” says FHG’s Fisher. “They’re the clubbers, looking for grease to fill up after drinking.” Not surprisingly, Smoke’s remains open until 4 a.m. on weekends to take advantage of this bonanza.

A number of giants such as Tim Hortons and McDonald’s also remain open late; in some cases, they operate 24 hours. Fisher has crunched the numbers and believes the case for extended openings is hard to make. “I’m not convinced franchisees are seeing a profit on the midnight shift,” he says.

From the inside out

Finally, it’s not just menus being upscaled. McDonald’s McCafé may still be in the traditional red-and-yellow environment, but the chain is one of many being revamped to appeal to more sophisticated, older diners. And, major players are adding extras, such as free Wi-Fi, so customers remain on the premises through a couple of dayparts and hopefully grab another bite.

Teriyaki Experience has even ditched the plastic and paper for real china and cutlery in the evening at a couple of locations in a trial that began in January. They have also added wine and beer in the hope that customers will see them as an inexpensive and appealing dinner alternative.

Fast food is turning a corner. It’s not quite as fast, not quite as fatty and not quite as frugal, but there’s little doubt QSRs can rapidly and successfully adapt to changing customer demands.

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