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Food Franchise Industry Report 2014: Big Industry Trends

In this section, we look at several trends effecting different areas of the food franchise industry.


Playing to the Senses

A big trend within the bakery franchise industry is scent marketing. According to the Scent Marketing Institute, companies use scent and sensory marketing to create a strong lasting emotional connection with customers, which can lead to increased sales as well as improved customer satisfaction and perception. The institute also says the method can bring long-term benefits, such as a boost in brand advocacy and loyalty.

Food Franchise Industry Report 2014Cinnabon is one franchise that has already reaped the benefits of scent marketing. The bakery chain intentionally seeks high-traffic indoor franchise placement for greater impact. Bill Gellert, president of Gellfam Management Corp., is a restaurant franchisee that owns several Cinnabon restaurants in the New York area. He says one of Cinnabon's favorite mall locations is on the ground floor near a stairwell, allowing for the aroma of their baked goods to rise upward as well as around the ground floor location.

Scent marketing is also part of Cinnabon’s operating procedure. The company’s cinnamon rolls are baked at least every 30 minutes to keep aromas fresh. Additionally, when the company’s signature sticky buns aren’t baking, some franchise operators will heat sheets of brown sugar and cinnamon to keep the aroma circulating. These procedures are the result of testing, which consisted of placing ovens in the back of a test location to establish how customers would react. In an interview with the Wall Street Journal, Cinnabon president Kat Cole says the test location saw “significantly” lower sales.

One bakery franchise planning to change its approach to scent marketing is Panera Bread. In May 2014, the company divulged plans to shift most of its baking staff from night shifts to day shifts so smells of fresh bread will be present when customers are around. The changes come following a test in New Haven, Connecticut. Panera Bread installed a “show oven” that didn't have a hood. The setup not only allowed customers to smell what was baking, but also allowed them to view what was in the oven.

Food Franchise Industry Report 2014However effective the idea may be, franchises can’t simply jump into scent marketing. Franchisees must head the regulations of local legal agencies and their landlords, though the draw of scent marketing is strong. It’s so strong that Cinnabon executives admit they recommend that franchisees purchase the “weakest hood possible” for their ovens that comply with regulations when outfitting their locations. In addition to equipment regulations, some lease agreements have aroma restrictions—particularly in malls. These restrictions can limit food businesses to certain areas of the shopping center.


Coffee Franchise Industry Goes Gourmet to Fit the Modern Lifestyle

Coffee beans naturally have a range of flavors depending on how and where they are grown as well as roasting and brewing processes. Even so, many consumers have added additional flavors to their coffee throughout the years including creamers, flavors and sweeteners of both natural and artificial origin. In fact, about 60% of consumers add some sort of sweetener to their coffee, while 68% use some sort of creamer, according to the National Coffee Association (NCA).

New and different flavors appear to be how coffee franchises and independent coffeehouses are targeting new customers. Each day, over 30 million Americans drink some form of specialty coffee that deviates from typical drip brewed versions.

Specialty coffees include the following:

  • Café mocha
  • Cappuccino
  • Espresso
  • Iced or smoothie coffee drinks
  • Gourmet coffee, from various origins or with additional flavors
  • Latte
  • Macchiato

The response of younger consumers to gourmet offerings will continue to be of great interest to coffee franchises in the face of direct competition. Sports drinks and energy shots, which address the same need for a caffeine pick-me-up, are fast becoming a formidable alternative to coffee.

In an early 2014 survey, the NCA found that 20% of those sampled between the ages of 18 and 39 consumed either a sports drink or energy shot in the previous 24 hour stretch. Similarly, gourmet coffee also trended well with the younger drinkers. 34% of those surveyed said they drink gourmet coffee.

Franchise representatives recently expressed findings that consumers are actively seeking higher quality food. This shift in behavior goes beyond personal decisions for the sake of health and moves into the realm of social interaction. It’s a reflection of the environment we now live in.

“Millennials are a tech savvy generation that values social connections, convenience and opportunities to indulge in luxuries,” says Sisy Vicente, general manager, Chase Card Services. In today’s age of social media, sharing has become a part of the modern lifestyle. Many seek out ways to share something with the world through channels such as Twitter, Facebook, Instagram, etc. Even small, everyday matters such as which coffee you drank and where can become topics of discussion.

This means every customer has the power to act as a brand ambassador or critic. Coffee franchises certainly prefer that customers share their experiences as ambassadors, not as critics. How do coffee franchises incorporate their brands with positive social conversations among customers?

In many cases this process starts with branding. For many coffee franchises, the perception of quality and affordable luxury originates with their general philosophy and brand portrayal.

Food Franchise Industry Report 2014“Coffee is kind of romantic. It’s an art form when you roast coffee the right way,” says Justin Livingston of Maui Wowi. “A lot of coffee people have stopped doing that because it’s all about computers and programs—and you simply can’t do [that]. It would be like a chef trying to pre-program the cooking of a meal. It doesn’t work that way. It’s by sight, smell, and experience. It’s still about the art of coffee.”

Thus drinking a thoughtfully made coffee in an appealing atmosphere invites tech savvy customers to share their experience at least once in awhile, contributing to branding opportunities in even the most unlikely places.


Beef…err…Chicken. It’s what’s for dinner.

The slogan “Beef. It’s what’s for dinner.” was launched in May 1992 by the National Livestock and Meat Board in an effort to promote the benefits of beef in a healthy diet. For decades, beef has been the protein of choice in fast food franchising but times are changing. Demand for cow meat has been overtaken by demand for the meat of its smaller farm counterpart, the chicken.

Chicken consumption has been steady throughout the years, but over the last five years it has surged. In fact, chicken consumption overtook beef consumption in 2013. Major factors include higher prices and shortages as a result of a drought in beef-producing locales. The changing, or evolving, taste of the public as a collective also has had an impact.

Food Franchise Industry Report 2014

The change is reflected in sales numbers for fast food franchises. According to Technomic, sales at limited service chicken chains increased by 4% in 2013, while sales at burger chains only increased 1.5%. As for the impact on individual franchises, Chick-fil-A became the #1 fast food outlet in the United States with per store sales of $3.1 million versus $2.1 million for McDonald’s.

But the rise hasn’t helped all chicken franchises. KFC, a franchise expected to benefit from the chicken wave, actually went red in 2013 recording a 6.7% sales loss. Making waves to regain sales, the chain is introducing items like the KFC Go Cup, a Double Down sandwich, even a chicken corsage.

A turnover in leadership will also likely impact the brand. Greg Creed will become CEO of Yum Brands next January, succeeding David Novak. Creed is the current CEO of Taco Bell, which is experiencing a comeback of sorts. There’s little doubt that Yum principals hope the move will raise the level of all Yum Brands’ franchise concepts, particularly the embattled KFC. All is not lost for KFC. Despite lagging sales numbers, KFC is still the second-largest chicken franchise with Chick-fil-A falling in the number one spot according to 2013 U.S. sales; Popeyes and Zaxby’s round out the top four.

As is the case in capitalism, when one business finds success others try to mimic. Burger King and Domino’s are among the franchises that have new menu items in the works that will cater to the increased consumer taste for chicken. McDonald’s has already attempted to expand its offerings, but fell short of expectations with its Mighty Wings launch in early 2014. The shortcoming was partly induced by skewed data from the test markets used (Atlanta and Chicago—areas with a higher preference for wings than average).

Food Franchise Industry Report 2014

What are some areas fast food franchises can focus on to build or sustain growth? One area is convincing more consumers that chicken is a good option for breakfast beyond the typical egg-based menu item. Another area is creating healthier chicken-based options. Many fast food menus favor battered and fried chicken, which can be higher in fat than burgers. “[Replacing char-grilled sandwiches with three grilled chicken items] is the largest investment we’ve made in a product launch,” says Chick-fil-A CMO Steve Robinson. “We’ve been working for years to get this grilled product right, even inventing our own grill. It’s all part of our commitment to be the better-for-you fast food.”


Cashing In by Plugging In

Technology is weaving its way into the day-to-day operations of full service restaurants like never before. Good thing too. Customers expect full service restaurants, franchised and non-franchised alike, to provide options via technology that not only make their visit efficient but also give them information to make decisions before they walk in the door.

In an article for Restaurant Hospitality, Kristen Gramigna of payment processer BluePay described five ways technology influences customer expectations in regards to restaurants:

  1. Customers expect seamless ordering
  2. Customers will judge a restaurant based on its website
  3. Customers want to help reduce wait times
  4. Customers want to find usable information on the restaurant’s site
  5. Customers are looking for a deal

The first place most customers visit for information about a restaurant isn’t the restaurant itself, but the restaurant’s website. Of the respondents to a recent National Restaurant Association (NRA) survey, 63% of customers visit a restaurant’s website to gauge a restaurant’s “persona”, view a restaurant’s menus and nutritional information, order food, and make reservations online.

Food Franchise Industry Report 2014

And the website needs to be optimized for mobile devices. Research firm Chadwick Martin Bailey, in conjunction with online marketer Constant Contact, found that restaurants are the most searched industry locations on a smartphone or mobile device. In fact, 75% of survey respondents said they base their dining decision on whether a web search provided the information they were looking for.

Social networking sites are also helping restaurants cater to increased consumer technology consumption. One of the most established sites helping customers make restaurant decisions is Yelp. Yelp is a business review website that allows users to rate service providers and give recommendations to other Yelp users. While Yelp is used for all kinds of businesses from financial services to nightclubs, it has revolutionized the restaurant industry by making every diner a food critic.

Facebook is also jumping into the mix. As a Facebook spokesperson said in May 2014, “Facebook wants to help people decide their next meal.” The social media site is allowing restaurants to upload menus and other information directly to their pages via SinglePlatform. The move allows restaurants to position themselves in front of potential customers more easily, and allows Facebook to gain a greater share of the local advertising market.

Overall, approximately 20% of customers say restaurant technology options in full service establishments are an important factor in their full service restaurant decision—and it will only become more important to franchises as younger generations age and gain more spending power. Recent NRA surveys found 11% of those aged 65 and older say they consider a restaurant’s technology options when selecting where to dine. This figure more than doubles to 24% when looking at ages 18 to 34.


Customization Leading to a Designer Delicacy in Pizza Franchise Industry

Over the years, pizza toppings favored by Americans have stayed consistent and fairly basic. Cheese is historically the most popular topping choice year after year. For reference, here are the top 10 pizza toppings, excluding plain cheese, according to food delivery provider Foodler (as of late 2013):

  1. PepperoniFood Franchise Industry Report 2014
  2. Mushrooms
  3. Onions
  4. Sausage
  5. Bacon
  6. Extra cheese
  7. Black olives
  8. Green peppers
  9. Pineapple
  10. Spinach

Collective consumer preferences are always evolving, and it appears consumers are starting to go designer with their pizza toppings. Recently, Pizza Hut chief marketing officer Carrie Walsh noted research findings that indicated consumers increasingly seek higher quality, gourmet-caliber food, as well as food with unconventional flavor combinations.

To that end, Pizza Hut is introducing palette-pleasing flavors such as garlic-parmesan pizzas, a chicken-bacon-tomato variety, and three barbecue pizzas. The pizza franchise also started offering a hand-tossed “lighter, airier” crust blended with five Italian cheeses and brushed with garlic butter.

Domino’s has led the pack when it comes to offering unique combinations. Back in 2011, the franchise chain launched a new line: Artisan pizzas. The line was created to “show believers we can be gourmet, this pizza needs no gimmicks—just consumers to simply try it,” said chief marketing officer Russell Weiner at the time. Today, the Artisan line offers four choices: chicken & bacon carbonara, spinach & feta, Tuscan salami & roasted veggie, and Italian sausage & pepper trio.

Fast food franchising isn’t the only place chicken is making a big impact. For instance, Domino’s “American Legends” line gives those looking for unconventional chicken combinations several options including buffalo chicken, BBQ chicken and chicken bacon ranch.

The push for such unique toppings is a stark contrast to the origins of pizza. Brought to the United States by immigrants in the early 1900s, pizza originated as a peasant food but evolved into an every person meal. There is much debate about the exact origins of the dish. It is believed that pizza started out of a simple meal idea developed by Italian peasants. After using what few ingredients they could acquire to put together a meal, the dough was cooked and the final product featured toppings such as olive oil and available herbs.

Eventually, pizza made its way to the public via street vendors and shops. People were able to customize the toppings on their pizza, particularly in the shops, and it was one pizza shop specifically, Pizzeria Brandi, that led to the spread of pizza and made it a meal fit for everyone—even royals.

In 1889, Queen Margherita visited the aforementioned Naples shop. Created especially for her was a pizza based upon the Italian flag. The pizza, named after the queen—the Pizza Margherita (now often called a Neapolitan-style pizza), set the standard for modern-day pizzas. The customized, local ingredient style quickly spread throughout Italy, and gave each region license to design their own pizza toppings for their region.

It’s that spirit of customization that still rings true today as pizza franchises continue to appease the taste of customers by offering various options to suit them. 

Food Franchise Industry Report 2014

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