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CHICAGO -- Despite the continuing lack of consumer confidence and high unemployment levels, the days of promotions and pricing ploys in the foodservice industry are over.
Restaurant and foodservice businesses are still struggling to recover from the economic downturn that gripped the country more than three years ago -- and is just starting to loosen its grip -- but that doesn't mean they have to sit back and ride it out, according to global consulting firm AlixPartners.
"I think that was more of the theme in 2008 and 2009. There really was nothing you could do when your same-store sales were down 15 to 20 percent. It was basically try to hold the line, try to cut costs and stay open," Eric Dzwonczyk, AlixPartners' managing director, told CSNews Online. "Coming into 2011 [and] in 2012, there is much more of a focus on the top line and companies are doing a lot of different things in order to get consumers back into the store with the broad stroke of innovation as the main driver."
Specifically, daypart is becoming critical, he said. More quick-service restaurants (QSRs) and casual dining players are moving away from their traditional lunch and dinner focus and going after breakfast. At the same time, predominately breakfast businesses are going after lunch and dinner, or moving into late night.
"Anything you can do to get customers into your store 24 hours a day is potentially a good thing," Dzwonczyk added.
Specialty drinks will also play a key role in the foodservice industry's recovery. McDonald's may get the most press when it comes to this offering, according to Dzwonczyk, but others are doing it as well.
"McCafe and other specialty drinks get customers in during the day when they otherwise wouldn't be there. That has become very attractive to the mid-afternoon sect," he explained. "Putting things in there like Wi-Fi and television -- all these are done to get consumers into the store at times when they typically wouldn't be there."
At the same time, foodservice industry players are trying to do away with price cuts and promotions as a means to beef up foot traffic.
"What companies are trying to avoid is using price and promotion to maintain share or potentially get new consumers," Dzwonczyk said. "There was a lot of that in 2008 and 2009. Companies went down that path and it was a slippery slope. Companies went under $9.99, and in fast casual, Subway went under $5 [and] then Quiznos went under $4. All of a sudden, you've reach that expectation in consumers' minds and it is very hard to trade them up off that and recess them to a higher price point. Anything that involves not doing promotions is fair game in terms of getting people into the store."
AlixPartners' recently released "North American Restaurant and Foodservice Review" found that things are slowing getting better.
"As a whole, 2011 was a decent year," Dzwonczyk said. "We are still holding that trend of a barbell thesis. At the low end, convenience and QSRs are still holding up pretty well. At the high end, polished casual [high-end casual dining] and fine dining are still doing well, and in the middle, you have casual dining chains still struggling a bit."
The middle ground players are facing stiff competition and losing share, he noted.
As the foodservice industry works its way back, consumers remain focused on food and value, with health and wellness also ranking high, especially among younger diners and families, its latest study found.
"Certain trends are very pervasive. Obviously price and value remain key, but convenience is also on the rise and that's one of the things that we really think, moving into 2012, is going to be a major driver," Dzwonczyk explained. "You are going to see a lot more on-the-go options and a lot more drive-thru; more offerings aimed at letting customers take meals on the go."
Convenience stores have been stepping up their game, and along with QSRs, have been stealing market share.
"What convenience does well -- and it is a region-by-region, chain-by-chain story -- is they've really invested in the quality of their food and having fully prepared meals," Dzwonczyk said. "When we did our consumer study, 46 percent of the people we talked to go into convenience stores to buy a meal. It's really incredible if you think about it. What was that consumer doing three years ago?
"We feel very strongly that convenience is well positioned if they can continue to execute, increase the quality of their food offering, have healthy and nutritional options and provide a more well-balanced offering," he continued.
Adam Werner, also a managing director at AlixPartners, agreed with his colleague's outlook on convenience stores.
"One of the main reasons convenience stores are going after this segment is because it is extremely profitable," Werner said. "Going after fresh foodservice is, in most convenience stores, the highest gross margin sector and that's compared to some of the traditionals like cigarettes, beer and other grocery items."
Helping the change are suppliers themselves, Werner added. "Foodservice suppliers have also altered their offerings. There is an efficient supply chain, coupled with the need and profitability tied to these convenience stores, that really make it attractive."