Shaking Things Up: Acquisitions, Technology and Menu Innovation were the Key Change Drivers in 2017

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Last year was a transformative one for the Canadian foodservice industry as operators struggled to address shifting demographics, as well as consumer demand for increased choice, quality and outside-the-box concepts. Despite these challenges, this year’s Top 100 Report shows a 1.9 -per-cent increase in gross sales for the top 100 companies ($32.7 billion in 2017 compared to $32.1 billion in 2016).

Robert Carter, executive director, Foodservice, with Toronto-based NPD Group says several trends shook the industry in 2017, including the continuing digital revolution, which saw more companies rolling out mobile-ordering apps and partnering with third-party delivery services; the rapid pace of consolidation; and menus evolving to offer healthier options in order to capture more discerning guests willing to spend in restaurants — but only if they believe the quality is there.

This year’s Top 100 Report shows large companies such as Cara Operations Ltd. and MTY Group experienced strong growth in 2017, driven by aggressive acquisition strategies. Cara’s sales grew $737.8 million to $2,779.5 billion, thanks to the acquisition of such brands as St-Hubert in September 2016 and Original Joe’s in November 2016. Last year was also a busy time for MTY Group. In June, the company assumed controlling interest in Houston Avenue Bar & Grill and Industria Pizzeria + Bar and completed the acquisition of The Works Gourmet Burger Bistro. In May, it acquired Steak Frites St-Paul and Giorgio Ristorante.

Carter says such consolidation will continue into 2018, as it offers a way to grow revenues and market share in a market where restaurant spending continues to remain relatively flat. Consolidation can also offset the steep costs associated with starting a new brand. “Companies are taking a close look at [the cost of] introducing a new brand compared to finding and acquiring [brands with] a proven business model, a solid operating structure and a good consumer base,” Carter continues.

David Hopkins, president of The Fifteen Group, a Toronto-based restaurant-consulting group, expects companies such as Cara and MTY to continue to grow through that strategy. “If you’re a restaurant group and you want to continue to grow, you basically have two options,” Hopkins says. “You can develop new brands or buy existing ones — and good and established brands have the advantage of strong brand awareness with consumers. It’s easier, from a restaurant group’s perspective, than starting a brand from ground zero and trying to create an established brand’s consumer awareness and success from scratch.”
Doug Fisher, president of FHG International in Toronto agrees acquisitions by major restaurant groups will continue, but he takes a more realistic view of this trend. While it does help in the growth of restaurant groups, he says the downside is acquisitions tend to stifle the creativity mid-sized restaurant chains in Canada offer.

“It takes away a lot of interesting independents from the restaurant industry,” Fisher says. “It takes away from the much-needed creativity those mid-sized and smaller [restaurants] can bring. I fear we may start to get a lot of food that will taste the same.”

Innovate or Die
Menu updates were a key trend in 2017, with operators offering new food options, healthier choices or emphasizing local foods and ingredients. McDonald’s Restaurants of Canada Ltd., which recorded $5 billion in sales in Canada — good enough for second spot on the Top 100 Report — continues to update its offerings, from its popular McCafé coffees to the all-day breakfast offerings throughout its Canadian operations.

Subway Canada, which captured the number-four position on the Top 100 with $1.7 billion in sales, updated its menu in 2017, introducing several new panini offerings and adding gluten-free bread. Pita Pit, which posted $289 million in sales in 2017, added chunky-avocado spread to its menu and Freshii, which delivered $178.4 million last year, began offering its Good Roots Bowl and Bountii Bites, building on the company’s focus on nutritious and flavourful meal options.

“The consumer landscape is evolving and changing and quick-service restaurants are changing to meet that new reality,” Hopkins says. “McDonald’s is a good example. The McDonald’s I knew 25 years ago is very different from the McDonald’s of today. It knows it needs to adapt to meet the changing needs of today’s consumers. The brands that are going to remain successful will be the ones that can change. And that will be a continuous thing, as consumers and their tastes will not be the same five years from now as they are today.”

Carter says updating menus with healthier choices will be seen across the restaurant industry — from QSR to higher-end dining establishments. “We need to remember consumers are now much more discerning and demanding when it comes to their food options and the kinds of foods they are consuming. They want to know where it comes from and who the restaurant is dealing with,” he continues. “People want to hear that you’re using locally grown ingredients.”

Many of today’s quick-service operations have taken notice of their customer’s desire for more eco-friendly fare and socially responsible practices. A&W Canada, which posted $1,239.4 billion in sales in 2017 — garnering fifth position in the Top 100, has placed greater focus on reducing the amount of packaging used in its food. For example, the company recently introduced a coffee-cup sleeve that uses 20-per-cent less material. In July 2017, it also began serving its signature root beer made with natural ingredients, including cane sugar and all-natural flavours such as sarsaparilla root, licorice, birch bark and anise.

Menu updates can also help offset some of the financial pressures that come from recent increases in the minimum wage. Matt Batey, corporate executive chef with Calgary-based Teatro Restaurant Group, a new addition to the Top 100 Report — which recorded $13.5 million in sales across its seven restaurants in 2017 — says by offering a high-quality menu to consumers, a restaurant can carefully and justifiably increase prices.

“Menus are like living, breathing entries,” Batey says. “Quality and consistency have always been cornerstones of successful restaurants and ours are no different. We’ve never attempted to be the least expensive and we’re proud to offer the level of quality we do. The minimum-wage increase has caused our already small margins to be reduced further and, at a certain point, there will be implications for pricing. We’ve made some small adjustments already, while monitoring the delicate balance of revenue needs versus staying competitive.”

Another newcomer to this year’s Top 100 Report, Toronto-based Gusto 54 Group Restaurant posted $28.9 million in sales in 2017. President Juanita Dickson says the key to her company’s successful growth is creating a memorable experience that drives consumers to come back. She adds diners today do not want a cookie-cutter approach to their dining experience.

“What has allowed us be successful and to continue is knowing our purpose is not just about making good food, but also in creating a great experience, which is a combination of delicious food, great hospitality and a fantastic atmosphere through artful design,” Dickson says. “That has allowed us to build a community of restaurants built for longevity.”
Devin Morrison, operations director with Teatro Restaurant Group agrees consumers want “an approachable style of dining that’s taking place in fashionable spaces. We’re seeing an upsurge of restaurant design as a focal point and that design aspect is just as important as the food we put on the plate.”

This design element is not lost on many of the large restaurant chains either. Many are starting to update store elements, or roll out complete redesigns in an effort to be more appealing to customers. Last year, Subway introduced its Fresh-Forward design, which features a bright colour palette. “We’ve created a modern design that gives our guests choices — from how they order, to how they pick up their food, to how they enjoy their meal,” says Trevor Haynes, vice-president of Operations at Subway. “The reactions from our guests, our franchisees and the sandwich artists has been incredibly positive.”

Also in 2017, Boston Pizza, with more than $1 billion in gross sales (sixth place in the Top 100 Report), introdued a new urban design concept to Canadian cities. The Boston Pizza location at Toronto’s Front and John Streets is a dual-concept family dining and sports bar featuring new design elements, a digital menu, 80˝ flat-screen TVs and a customized sound and lighting system that will give the space a unique atmosphere for different Toronto sports teams on different occasions.

Starbuck’s Canada also embraced this trend in 2017 with the opening of a second Starbucks express-store format in Montreal’s Central Station. While Starbucks, with estimated sales of $1,733.4 billion last year, is known for its sit-down cafés, the express-store format seamlessly integrates technology and efficiency into the customer experience, reducing wait times and building on the chain’s pioneering use of technology to allow customers to place orders remotely for pick-up.

In 2017, the company also opened a second Starbucks Reserve Bar location in Vancouver featuring updated decor and a coffee menu that includes the company’s rare, small-lot Starbucks Reserve coffees along with state-of-the-art brewing techniques.

Knowing the importance of convenience and a better beverage experience, Tim Hortons, which once again claimed top spot on the Top 100 Report with more than $8 billion in sales, introduced a new dark-roast coffee made from 100-per-cent Arabica beans and also launched a new order-and-pay app with pick-up-method selection — including take out, dine in and drive-thru; scan-to-pay functions; a personalized menu based on past
purchases; and targeted offers.

Technological Shift
The rapid adoption of technology — including delivery services such as as SkiptheDishes and UberEats and the roll-out of online-ordering apps — was witnessed across all segments in 2017, from neighbourhood restaurants to larger chains. For example, McDonald’s Canada partnered with UberEats to offer delivery service, while brands such as Swiss Chalet and Tim Hortons developed their own branded ordering apps.

But some experts warn an overly strident focus on staying ahead of the technological curve can take the focus away from what’s important to a restaurant’s long-term growth.

“Some restaurants get bogged down in trying to be on the technological cutting edge and it distracts their focus from what’s important,” Hopkins says. “That’s producing great food and a great experience. ”

Hopkins isn’t optimistic about the future of third-party delivery services. He says while they’ve helped some restaurants, many others have experienced problems, since once the food leaves with the delivery person, the restaurant has no control on how the food arrives. If it arrives late, cold or even damaged during the delivery, the restaurant takes a hit on its reputation.

Still, he says it will be impossible to put that genie back in the bottle. “We want things faster and easier with everything we do,” Hopkins says. “I’m as guilty in this as anyone. We tell people not to do it because the delivery person for that delivery service is not representing your brand. If something goes wrong, it becomes a reflection on you. But it is a trend that is hard to fight anymore.”

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