June 2015

FOODSERVICE HAPPENINGS: MIDYEAR TRENDS

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HORIZON SCAN: TREND OR ABERRATION?

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Consumer Food Trends

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FOODSERVICE HAPPENINGS

Midyear Trends: What We See for the Rest of 2015 By Jill Failla, Editor, Consumer Research June is upon us and many restaurants are feeling the buoyant effects of the warm weather—al fresco dining season is here! This issue will highlight several key midyear foodservice trends we’re seeing, including a look at how some of our end-of-year forecasts from last December have evolved and what we expect to see in the near future. While fast-casual concepts continue to thrive, full-service restaurants are also boosting traffic by promoting patio season and happy hour bar and snack specials. Seasonal ingredients abound, particularly fruity salads and chicken salads, appealing to consumers’ desire for full-flavored healthful fare. Many of our midyear trends relate to the fast-casual segment’s success, top-of-mind health concerns and shifting consumer demographics.

Build-your-own fast casuals are building a fan base The build-your-own service format, commonly known as “Chipotle-style” service, is currently leading the restaurant industry for concept development and advancement. In 2014, restaurants with a create-your-own format increased sales by 22% from 2013. That's twice as much as the sales increase for fast-casual brands overall and almost six times as much as the sales increase for the restaurant industry as a whole. Here’s why: • Variety—Despite limited menus, these concepts offer thousands of possible ingredient combinations, including proteins, toppings and sauces. • Control—Customers can control which ingredients and how much of these ingredients go into their meal, thereby satisfying their special diet or health needs. • Transparency—Since preparation is visible, patrons know that their dish is created fresh to order. The colorful ingredient displays denote quality, and there are no surprises when guests receive the final product. Some particular growth categories to look for in the build-your-own fast-casual segment include: • Pizza—This category had the largest annual sales gain in 2014, at 22%. Fast-casual pizza sales are driven by a 27% storecount growth, as more units grow market share at lunch and dinner. Expect several more years of rapid growth for fastcasual pizza, including new players entering the market. (The photo above shows the assembly line at build-your-own pizza chain Blaze Pizza, which leads the category for growth.)

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• Specialty—The specialty cluster, which comprises categories like salad, Mediterranean and barbecue, posted an approximate 20% increase in sales and a 13% gain in units. Also look for more fast-casual build-your-own seafood concepts, such as emerging chain My Ceviche.

Midscale chains invest in fast casual As the fast-casual segment continues to outpace the rest of the industry, charting year-over-year sales growth of 13.1% in 2014, midscale chains are investing money in trialing and expanding their own fast-casual brands. Cracker Barrel plans to establish a fast-casual spinoff concept in dense urban areas; it hopes to launch the prototype by the end of 2016. Denny’s is expanding The Den, one of its fast-casual concept variants, on or near college campuses and military bases. Denny’s also operates 10 limited-service units on college campuses branded as Denny’s All Nighter or Denny’s Fresh Express; these are expected to be converted to The Den over the next 12 months.

The Den fast-casual concept by Denny’s

Up with people, continued In our December year-end trends issue, we identified “up with people” as a key trend to watch for this year. We noted that consumers increasingly care about how corporations are treating their employees, with 83% of consumers supporting a minimum-wage increase. We predicted increased salaries and more benefits and opportunities for foodservice workers. In many ways, this trend is still evolving. Several cities have now passed regulations to increase the minimum wage to $15 an hour, including Seattle, San Francisco and Los Angeles, with New York City positioned to be next. This spring, McDonald’s Corp. committed to raising wages for full- and part-time employees of company-owned restaurants to at least $1 per hour more than the locally mandated minimum wage. In addition, McDonald’s full- and part-time workers at company-owned restaurants with at least a year of service will now accrue personal paid time off, which will be paid out as cash if it goes unused. In response to these new wage pressures, many operators are managing rising labor costs by launching foodservice models that don’t require any or a lot of staffing, from automated convenience stores to tabletop tablet technology.

Automated c-stores such as this are popping up college campuses

Consumer Food Trends

Chili’s Grill & Bar is promoting its tabletop tablets on social media

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Widening income gap

‘Health’ equals ‘additive-free’

Despite slow labor gains in the foodservice industry, income inequality is a serious issue with which the restaurant industry will contend for the rest of this year and far beyond.

Technomic’s 2014 Healthy Eating Consumer Trend Report revealed that two in five consumers are increasingly concerned about food additives. One of the biggest trends we’re seeing at midyear is the proliferation of “additive-free” claims on menus. The most recent player to make a move to ban additives was Pizza Hut, which announced in May that it will remove artificial flavors and colors from pizzas sold at its U.S. restaurants.

Income shares growing at the top, falling everywhere else Share of household income, 1967 and 2011 1967

2011

51.1% 43.6%

4.0% 3.2%

10.8%8.4%

24.2% 23.0%

17.3% 14.3%

Bottom Second Middle Fourth Top 20 20 Percent 20 Percent 20 Percent 20 Percent Percent

22.3% 17.2%

Top 5 Percent

Source: Census Bureau

As the richest households increasingly secure most of the nation’s income gains, the middle class continues to shrink, and traditional casual-dining consumers fall by the wayside. Compared to the full-service segment’s overall 3.6% yearover-year sales gain in 2014, the fine-dining segment fared well, with a 6.9% total gain. Fine-dining chains are noticeably excelling in alcohol beverage sales, offering high-end wine and cocktail programs.

Antibiotic-free proteins in particular are top of mind for consumers right now, with roughly three-fourths saying they would be more likely to purchase a food or beverage item described as antibiotic-free. Operators are responding: • Houlihan’s and Ted’s Montana Grill recently began using antibiotic-free chicken. • Subway and Noodles & Company are both testing antibiotic-free chicken on menus. • Chick-fil-A and McDonald’s announced plans to phase out human antibiotics in their chicken within the next few years. • Carl’s Jr. is one of the first major QSRs to launch an All-Natural Burger (shown below), featuring a grassfed, free-range beef patty free of hormones, steroids and antibiotics.

Facilities serving higher-income clientele will continue to thrive, while the fast-casual segment will gain share of consumers trading down from traditional casual-dining chains.

Source: Pew Research Center Minimum 2013 household income needed to qualify for middle-income and upper-income categories, by family size

Emerging from the momentum behind free-range, antibiotic-free, hormone-free, steroid-free and grassfed proteins are higher expectations for humane animal husbandry. Expect more controlled-atmosphere killing for poultry and more pressure on factory farming practices in general, with increased commitments to phase out crates and cages.

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Food mashups disrupt menu innovation

Looming on the horizon

The Cronut arguably launched the food mashup revival in 2013, and the fad hasn’t yet hit its peak. Leading chains as well as independent operators have moved well beyond dessert; they are now drawing crowds with food mashups in several different comfort-food categories. These odd marriages are even inspiring some independent concept development. Recent examples include:

Here are a couple more trends we expect to see emerge as the year continues:

• Taco Bell launched a Quesarito on its permanent menu. The item features a cheese-blend quesadilla rolled into a burrito with a choice of protein, Latin rice, reduced-fat sour cream and nacho cheese.

• Olive Garden introduced Breadstick Bun Sandwiches in June. In conjunction with the rollout, the chain launched a seven-week food-truck tour of the country, offering its new sandwiches in Italian Meatball and Chicken Parmigiana varieties.

• Mini concepts. The response to the build-your-own trend will be mini concepts that specialize in as few as one unique, chef-inspired menu item. These limited-service restaurants will do one thing so well that customers won’t need to customize it. Raising Cane’s Chicken Fingers, for example, menus only four items: chicken fingers, fries, Texas toast and coleslaw. But the lack of variety hasn’t negatively affected its sales performances; 2014 year-over-year sales are up about 20%. • Micro-distilleries. These liquor distilleries (like CH Distillery & Cocktail Bar in Chicago, whose products are shown here) are serving up craft cocktails and sometimes bar snacks on-premise. They are leading a trend toward transparency within the spirit industry, offering consumers more insight into where their spirits come from and who made them.

• Chicago’s new Taco in a Bag concept offers a variety of comfort-food-inspired items, from tacos to pizza, all served in a bag. A riff on the walking taco, its signature item is cheeseburger nachos in a bag.

As the fast-casual segment soars—especially build-yourown concepts—more chains will integrate customizable formats or launch spinoffs

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HORIZON SCAN

Trend or Aberration? By Anne Mills and Deanna Jordan U.S. annual intake Pounds

❶ More chicken, please. According to the June issue of Fortune magazine, American diets have drastically changed over the past few decades. Using data from the U.S. Department of Agriculture, the article showcases several exhibits on how food and beverage consumption has changed since 1970. In short, Americans are consuming more chicken instead of beef, more bananas instead of apples and more lowfat milk instead of whole milk. All in all, it seems that Americans are eating more healthfully now than in the 1970s, but there is still room for improvement.

❷ Dining out dollars surpass spending on groceries. In March of this year, sales at bars and restaurants surpassed sales at grocery stores, according to a recent report by the U.S. Commerce Department. It’s the first time this has occurred since the government started tracking sales at these locations. (It should be noted that the Commerce Department does not categorize Wal-Mart Stores Inc., Target Corp. and Costco Wholesale Corp. as grocery stores even though they have significant sales of groceries.) Technomic’s 2014 Generational Consumer Trend Report provides some insight into why foodservice sales are now outpacing grocery sales. Data shows that reliance on foodservice grows with each new generation; Millennials are considerably heavier users of foodservice than are Baby Boomers.

79.8 58.9 54.8

46.5

42.9 25.3 11.7

Beef

Pork

Chicken

1970

15.8

Fish

2010

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Source: Fortune magazine, USDA

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❸ The socially responsible student. According to Technomic’s 2015 College & University Consumer Trend Report, college students differ from the overall population in a variety of ways. One important and highly relevant difference is their greater—and increasing—prioritization of social and environmental responsibility. Almost half of students (46%, up from 37% in 2013)—compared with just 28% of consumers generally—say that it is important that the restaurants they visit be socially and environmentally responsible. The restaurant initiatives most highly valued by collegians relate to fair treatment of workers, waste reduction and giving back to the local community.

Pepsi’s Stubborn Soda dispenser Source: Grubstreet

❹ Craft sodas go wild. After releasing DEWShine, Pepsi is diving deeper into the craft soda trend. The manufacturer is developing a line of craft soda called “Stubborn Soda,” made with all-natural cane sugar and fruity and herbal flavors like black cherry with tarragon, lemon berry açaí, agave vanilla cream and orange hibiscus. The sodas are dispensed via a machine that mimics the tap beer system.

Growth in U.S. beer market 2013-2014 46.0%

50%

❺ IPA: key to craft beer growth. Americans’ appetite for craft beer shows no signs of stopping any time soon. But, diving deeper into sales numbers shows that craft IPAs (hoppy India pale ales) are growing faster than craft beers in general, with sales of craft IPAs besting that of craft beers overall by a two-to-one ratio. According to the Brewers Association, craft IPA sales grew 45%-50% in 2014, compared to just 17.6% for craft beer overall.

25%

17.6% 0.5%

0% All beer Craft beer Craft IPA

❺ Source: Brewers Association

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❻ Texting on your…tray? The foodservice industry has found another way to cater to the hyper-connected lifestyles of Generation Z and Millennials, their most frequent patrons. Indeed, customers of Kentucky Fried Chicken restaurants in Germany can now simultaneously enjoy their chicken and text their loved (or mildly liked) ones without the worry of an oily phone. KFC’s Tray Typer allows customers to connect their mobile device via Bluetooth and type away as they eat. The device can be wiped clean, recharged and reused—perhaps at home (considering that the test was successful but users had a habit of keeping the electronic trays).

❻ Photo source: Vimeo

❼ If we can’t ban it, at least we can label it. The New York City Board of Health’s ban on excessively sugary beverages was deemed illegal last year. City health departments’ new tactics seem to be more oriented toward labeling rather than regulating. New York has required calorie counts since 2008, but a new proposal would require menu items with more than 2,300 mg of sodium—the recommended daily amount—to be labeled with a salt-shaker icon to make unhealthy choices more obvious and healthier choices easier (high sodium intake has been associated with elevated blood pressure, heart disease and stroke). And on the other coast, San Francisco supervisors unanimously approved an ordinance that requires a health warning for ads on sugar-sweetened beverages containing at least 25 calories from sweeteners per 12 ounces (milk and 100% natural fruit and vegetable juice drinks are excluded). If the mayor signs the measure, San Francisco would be the first city to require such warnings. A proposed California statewide warning requirement fizzled this year.

Photo source: American Heart Association

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❽ Pizza box projector. Pizza is synonymous with movie nights, and Pizza Hut Hong Kong is delivering boxes to customers’ doors that make the most of that association. The advertising stunt utilizes a perforated, pop-out hole in the side of the box and a unique pizza protector that doubles as the lens, magnifying a mobile phone’s video display onto any wall. Perhaps the best part of the “Blockbuster Box” is the included movie download code. Let’s just hope that you don’t need to actually hear the movie (unless you have a Bluetooth speaker) and that your phone won’t mind the grease.

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❾ Differentiating with delivery. Consumers have essentially any information they want at their fingertips, and the proliferation of delivery services seems to be making sure we also have any food or beverage we want on call. Dunkin’ Donuts, KFC, McDonald’s, Starbucks and Taco Bell have all recently announced their dive into delivery as their customers demand increasing levels of convenience integrated with technology. Some brands have even offered social media as a way to place delivery orders. Dominos is set to roll out a “tweet a pizza” campaign, which will allow regular customers to order by tweeting only the pizza emoji to @Dominos. However, UberEats might have the most impressive innovation, promising to bring users lunch in 10 minutes with offerings that change daily—placing the fast-rising ride service Uber in strong competition with the companies offering diningand-delivery apps.

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❿ Tiny livestock. Sustainable food sources are a hot topic, but insects are a new frontier. The Food and Agriculture Organization of the United Nations and other organizations have touted insects as a cost-effective protein source that results in a smaller carbon footprint per gram of protein than conventional livestock production. Some consumers seem to be overcoming the “ick” factor associated with eating bugs: cricket flour has been used to create protein bars (such as those produced by Exo). Now cricket milkshakes have come to the fast-casual restaurant industry. An April Fool’s Day prank by Wayback Burger was met with genuine interest and resulted in the production of two milkshakes containing cricket flour. The chocolate and peanutbutter shakes each contain two tablespoons of flavored cricket flour, or the equivalent of 96 crickets; the pure cricket flavor contains a full 140 crickets. Customers can expect to see a wider release of the protein-heavy Cricket Milkshake around Wayback’s Free Shake Day on June 21.

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⓫ Counting the virtual calories. There is no shortage of apps designed to help smartphone users monitor their diet regimen—and many of us are all too aware of the plethora of food photographs shared on social media. Google is looking to combine the two. Its new app, unveiled in late May at a Boston technology conference, is said to use algorithms to analyze photos of foods uploaded to Instagram and estimate the items’ calorie count.

Consumer Food Trends™ is prepared six times a year by Technomic, Inc. to assist food industry professionals in gaining early insights from scattered and seemingly unrelated events that impact consumer perspectives on food, menu and taste trends. Annual subscriptions are available at technomic.com. We welcome your comments. Rita Negrete, Senior Editor Anne Mills, Manager, Consumer Insights Deanna Jordan, Senior Research Analyst, Consumer Insights Jill Failla, Editor, Consumer Research Claudia Martinez, Senior Production Coordinator

Consumer Food Trends

Technomic Inc. believes that its sources of information are reliable but does not assume any responsibilityTMfor the accuracy or comprehensiveness of the information published. No part of this publication may be reprinted, redistributed or put into an electronic information retrieval system without prior written permission of Technomic.

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