Stealing Share: Today’s Top 100 Operators Are Looking to Steal Market Share


The winds of change continue to blow strongly in the foodservice industry, altering the landscape and pushing operators to get more creative in how they appeal to today’s increasingly demanding and fickle clientele. After several slow years, the industry is grappling with the reality that competition is tougher than ever. And with the millennial cohort, aged 18 to 34, now assuming an increasingly important position, their likes and dislikes will help further shape and influence the foodservice landscape in ways never before imagined.

According to statistics from Restaurants Canada, commercial foodservice sales increased by two per cent in 2015, for total sales of $60 billion, while total foodservice sales grew 4.1 per cent to $74.9 billion. Commercial sales are projected to increase by 3.5 per cent in 2016 to $62.1 billion, while total industry sales are expected to hit $77.5 billion, up by 3.5 per cent. This year’s Top 100 companies posted 2015 sales of $30 billion, up 5.6 per cent from last year’s $28.4 billion.

Like many businesses across the economy, the foodservice industry is facing a slew of challenges — falling traffic counts, rising ingredient costs and the impact of changing technology and demographics. Over the past five years, sales in all industry segments have either remained flat or declined. Total traffic volume remains constant at 6.6 billion annual customers, with the QSR segment growing slightly by two per cent; within the FSR segment, customer traffic declined by two per cent while among retail, HMR and convenience traffic declined by two per cent and one per cent respectively.

Not surprisingly, in order to combat declining traffic counts, operators are now being forced to steal share from each other through consolidation, menu innovation and technological adaptation — trends that dominated this year’s Top 100 Report.

The company making the most headlines in 2015 was Cara Operations Ltd., which acquired New York Fries, The Landing and a 40-per-cent stake in Toronto celebrity chef Mark McEwan’s food empire. According to Bill Gregson, CEO, Cara, The New York Fries acquisition gave it “a strong track record of growth, profitability and product development.” Earlier this spring, the company also acquired Montreal-based St. Hubert in a move expected to give the company a stronger foothold in the Quebec market.

Moving forward, the company’s strategy is to dispense of under-performing stores, convert to more successful brands and focus on improving its core business. This year, for example, Swiss Chalet, the venerable brand the company has owned since the 1950s, opened a total of 16 new stores, while adding new items such as Butter Chicken and Asian-inspired chicken stir fries to its menu. Cara is also looking to add 30 new East Side Mario’s units by converting the lower performing Kelsey’s locations.

Don’t expect the acquisition activity to slow any time soon. Earlier this year, speaking at the Canadian Restaurant Investment Summit in Toronto, Paul Rivett, president of Fairfax Financial Holdings, owners of Cara and The Keg, told a room of foodservice operators the company is looking to actively pursue additional acquisitions.

Of course, the acquisitions spree started in earnest in August 2014, when Restaurant Brands International acquired iconic Canadian brand, Tim Hortons, and set up shop in Oakville, Ont. amid a flurry of controversy around relocating its head office for tax reasons. In its first full year of operation as a new business, the company set out to reduce its costs — downsizing its head-office staff by approximately 1,000. It also began to create price efficiencies by amalgamating its Burger King and Tim Hortons’ purchasing functions and focused its sights on international expansion. In the past year, a total of 155 new Tim Hortons popped up and the company also closed 27 U.S. underperforming stores in Portland, Ore. and Syracuse, N.Y.

Another juggernaut making headlines this past year was Montreal-based MTY, which now controls 41 different flags ranging from Extreme Brands to Country Style Donuts. Last year the behemoth gobbled up Big Smoke Burger, a young brand in the über-competitive burger market. Unfortunately, MTY does not break out individual sales by brand, though it did reach total volume sales of more than $1 billion for the first time in its history. To provide a realistic scope of the breadth of its holdings, F&H has provided estimates for each of its brands.

It wasn’t just the big guys joining forces in 2015. Late last year, two mid-sized chains from the Next 25 came together when Toronto-based Druxy’s acquired Guelph-based Williams Coffee Pub, bringing these two Ontario entities together to tap into various synergies (see story on page 35).

But is consolidation the cure for the industry’s ills? Not according to Doug Fisher. The Toronto-based foodservice consultant says, “The acquirers all have something in common — they are big and very well run and operated and all have benefitted from their acquisitions in terms of economies of scale; and in some cases are benefiting from local management. However, the restaurants under the brands are becoming more uniform.” And, adds Fisher, “Consolidation is only good for shareholders and senior management teams.”

In an effort to steal share from competitors, many of the Top 100 brands are extending product lines and introducing new menu offerings. Leading the way is McDonald’s, which had a busy 2015, launching a modernized guest experience featuring self-order kiosks and the Create-Your-Taste burger menu — all while giving customers the ability to choose from 30 different options, including 12 toppings, two buns, a lettuce wrap and nine sauces. The company is hoping to rewrite the rules of guest service with customizable menu options, new technology and a best-in-class guest experience.

The QSR chain also added the Mighty Angus, the first premium burger the company has added to its menu since 2012. According to Anne Parks, director of Menu Development, “The very first item on the menu in 1967 was a hamburger and at its heart, McDonald’s has always been a hamburger company,” boasting that the QSR company “serves more guests than all other national burger chains combined.”

As consumers’ hunger for sustainable products grows, McDonald’s is hoping to satiate it with news it has funded a beef sustainability pilot program, which will help establish an independent verification process for sustainable beef. That means the company is on track to purchase a large portion of its beef supply from sustainable sources. It’s also committed to fully transition to sourcing 100-per-cent-Canadian cage-free eggs (free run) for its restaurants over the next decade. “Our decision to source 100-per-cent Canadian cage-free eggs reinforces the focus we’re placing on our food and menu to meet guests’ changing expectations, allowing them to feel better about the food they enjoy at our restaurants,” says John Betts, president and CEO. The company will also work closely with the industry to source only chicken raised without antibiotics that are important to human medicine by the end of 2018.

A&W Restaurants, which, three years ago became the first chain to introduce beef and chicken without antibiotics, spent the better part of 2015 reinventing itself, aggressively adding 23 units across the country and becoming the first company to introduce a new franchise program aimed solely at millennials.

In recent years, competition in the burger segment has intensified as consumers’ love affair with better burgers continues to push new boundaries, spurred by the growth of smaller niche operators such as Hero’s, South Street Burgers and the U.S.-based Five Guys. Since selling New York Fries to Cara, former owner Jay Gould is now focusing his efforts exclusively on South St. Burger. Last year, in an effort to grow his dinner business and appeal to a changing demographic, the company launched a craft-beer program. “For the last seven to eight months, same-store sales have been on a roll,” boasts Gould. “Competition has slowed, or disappeared, and I think we are being recognized by consumers as one of the best.”

Despite market challenges and slumping traffic, daypart usage continues to shift. According to The Canadian Chain Restaurant Review, produced by NPD and Geoff Wilson & Associates, “Breakfast/brunch is performing strongly and is expected to continue to grow,” with double-digit growth, driven by both the casual-dining and QSR segments, becoming the norm in this segment. Among the best-growing menu items are breakfast sandwiches, hash browns, bacon and sausage.

After years of growing the breakfast market in Quebec, Ontario and Alberta, the team at Chez Cora focused on product development last year, adding 20 new breakfast items and introducing an early-bird program featuring 15 new items as well as seasonally inspired dishes. After focusing on westward expansion in recent years, the company is now setting its sights on the U.S. market, with a new unit slated to open in Boston later this year and more to follow. Sunset Grill opened nine locations to bring its unit total to 127, while Eggsmart, the other Montreal-based breakfast chain, added three new units to its mix last year and introduced a new menu.

One of the key lessons Tim Hortons, McDonald’s and Starbucks have been forced to learn in recent years is in order to grow market share, you can’t rely on just one strong product offering, pushing chains to become all things to all people. And, the trend is continuing. Last year, Starbucks went through a menu revamp, adding kale and quinoa options at lunch, offering more panini choices and debuting new low-cal items. It also introduced all-day breakfast sandwiches. On the beverage side, the coffee chain gave customers a carbonation option for its Teavana teas and fruit juices and introduced Starbucks Reserve Coffee. Similarly, Tim Hortons continues to introduce new lunch items and, late last year, McDonald’s introduced its first standalone McCafé concept at Toronto’s Union Station. Alongside French croissants, a mini chocolatine and cream cheese danishes made with real fruit, the McCafé also features Egg Mcmuffins throughout the day and an assortment of freshly prepared artisan sandwiches and salads.

Through all the activity, there’s an underlying interest developing in technology. Not surprisingly, apps, online services and in-store kiosks are the latest tools being used to appeal to today’s tech-savvy millennials. According to Robert Carter, executive director of Toronto based NPD, “Technology-based digital door traffic has tripled in the last four years — a disruptive revolution allowing savvy operators to steal share from their competitors.” In fact, the “Digital Door” now accounts for $1.2 billion in annual sales, growing at a rate of 20 per cent, says Carter.

Last year, the Pizza Pizza team enhanced its customer ordering apps; Second Cup introduced a new rewards program to drive customer loyalty and frequency; and Starbucks led the way by introducing its popular mobile-ordering app, which allows customers to order before they even arrive at the store. According to a story in the Toronto Star, mobile payments now account for 20 per cent of Starbucks’ business. The company also debuted personalized drive-thrus equipped with a two-way video screen that allows customers and baristas to see each other during the ordering process.

While new concepts continue to be launched (according to stats from NPD, the industry managed to grow by 3,863 units in 2015, representing 4.2 per cent growth) take a look at the Top 100 as a barometer and it’s evident growth is measured these days. With fast food now entering its senior years (A&W celebrates its 60th anniversary this year, while McDonald’s turns 50 in 2017), market saturation is a distinct possibility.

Still, several of the top chains continued to proliferate in 2015. Tim Hortons took top expansion honours, adding 155 new units to its stable, followed by Subway with 99 units. Fuelled by the growing ethnic foods movement, Thai Express opened 27 units while Pita Pit added a total of 15 new stores to its portfolio. Boston Pizza, which has grown steadily in recent years, slowed somewhat, adding a dozen new units across the country while Starbucks was forced to close about 133 cafes when Target Canada announced its Canadian exodus, although the company says it plans to open 100 new units annually over the next few years.

Many Canadian brands continued their fascination with the international market. Smokes Poutinerie opened five new units in the U.S. last year, with 20 more in development. It also debuted its new Wienerie, a concept focused on the lowly hot dog with more than 16 different options available.

For others, renovations and innovations became the order of the day. St. Louis Ribs undertook a chain-wide renovation program; Crabby Joe’s Tap & Grill introduced a revitalized brand image, decor and menu with plans to roll it out across Ontario; and Vancouver’s perennial hamburger favourite, White Spot, introduced a new west-coast prototype in Prince George, B.C. Dairy Queen and Wendy’s both followed suit, jumping on the renovation bandwagon.

Casual chain Brown’s Socialhouse, the fastest-growing company on this year’s Report (see story on page 27), with growth of 51 per cent, also introduced an innovation centre in Vancouver for culinary development and added new units in Ontario and Alberta. And, after a few years of adding units in eastern Canada, Joey’s expanded into California, opening splashy new digs in the competitive Los Angeles market and a unit in Canada’s capital — bringing its total unit count to 25. Not to be undone, Cactus Club made its Ontario debut last fall, opening a flagship location in Toronto, a new unit in Calgary with plans for another Toronto unit scheduled to open at Toronto’s Sherway Gardens mall later this year.

So what’s on the horizon? Over the next five years, growth is projected at less than one per cent annually, which means operators will continue to steal share through diversification. Already this year, Starbucks threw down the gauntlet when it introduced alcohol in three of its Canadian cafés. “We’re constantly looking for ways for customers to say: “Isn’t that cool that Starbucks did something new?” said Rossann Williams, president of Starbucks Canada in a recent story in the Toronto Star. Whether other QSR chains will follow suit remains to be seen but, with strong headwinds expected to continue and the millennial demographic set to exert more influence, one thing remains certain — more change is coming.

Volume 49, Number 4

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Rosanna Caira is the editor and publisher of Kostuch Media’s Foodservice and Hospitality, and Hotelier magazines. In her capacity as editor of Canada’s two leading hospitality publications, Rosanna directs the editorial and graphic content of both publications, and is responsible for the editorial vision of the magazines, its five websites as well as the varied tertiary products including e-newsletters, supplements and special projects. In addition to her editorial duties, Rosanna also serves as publisher of the company, directing the strategic development of the Sales and Marketing, Production and Circulation departments. Rosanna is the face of the magazines, representing the publications at industry functions and speaking engagements. She serves on various committees and Boards, including the Board of Directors of the Canadian Hospitality Foundation. She is a recipient of the Ontario Hostelry’s Gold Award in the media category. In 2006, Rosanna was voted one of the 32 most successful women of Italian heritage in Canada. Rosanna is a graduate of Toronto’s York University, where she obtained a BA degree in English literature.

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