THE RESTAURANT INDUSTRY –  POST PANDEMIC MENU AND SERVICE INNOVATIONS – WHAT’S MISSING?

The restaurant industry is in a state of flux, far more than usual, as the light at the end of the pandemic tunnel begins to appear. Menus have been adjusted, simplified in many cases, to better serve drive-thru and other off-premise dining options. Employees have been retrained, to deal with new cleanliness procedures and also to better service the new mix of in-store vs. off-premise dining.

NEW PRODUCTS – aside from chicken sandwiches

Popeye’s is testing chicken nuggets.

Bj’s Restaurants is testing slow-roasted meats for off-premise consumption.

Wingstop is testing bone-in chicken thighs.

Smashburger is testing all day breakfast.

Chipotle is testing quesadillas and smoked brisket.

Breakfast is renewed focus, as post-pandemic early morning travel picks up, at McDonald’s (25% of sales), Burger King (15%), Jack in the Box (23%), Wendy’s (8%), Taco Bell (6-7%), Sonic (12%).

ADJUSTED SERVICE

Chipotle, in the wake of highly successful Chipotlane, is testing a carside pickup option.

Olive Garden is testing an “I’m here” app for announcing curbside arrival.

McAlister’s Deli is testing tableside ordering.

Burger King is testing Royal Perks, a new loyalty program.

McDonald’s planning a new loyalty program.

Starbucks’ Stars for Everyone rewards program does not require preloaded Starbucks Card.

THE VIRTUAL APPROACH – who has a defensible edge ?

Denny’s is testing a new delivery-only virtual brand, the Burger Den, featuring hand crafted grilled sandwiches.

Bloomin’ Brands is testing Tender Shack,  a virtual version of its Aussie Grill.

Applebee’s has a new virtual concept, Neighborhood Wings.

Brinker’s new virtual It’s Just Wings, is expected to do $150M annually.

BUNDLED MEALS – makes sense

Taco Bell has the At Home Taco Bar.

McDonald’s has Shareables.

Bonefish has Bundled Meals.

Texas Roadhouse has Family Packs.

Darden has Family Packs and Fine Dining Bundles.

AND THEN THERE IS THE CHICKEN SANDWICH

McDonald’s is launching a Crispy Chicken Sandwich.

KFC is rolling out a new Crispy Chicken Sandwich.

Burger King is testing a new hand breaded Crispy Chicken Sandwich.

Wendy’s rolled out their Classic Chicken Sandwich in October 2020.

Jack in the Box rolled out their Cluck Sandwich in mid-December 2020.

Zaxby’s is planning a new chicken sandwich in early 2021.

Chick-Fil-A  announced in 9/20 test of a Honey Pepper Pimento Chicken. Sandwich.

Shake Shack continues to innovate with chicken.

Editorial Note: Is it any wonder that Popeye’s SSS have finally flattened out. Had a heck of a run !

Breakfast is renewed focus, at McDonald’s (25% of sales), Burger King (15%), Jack in the Box (23%), Wendy’s (8%), Taco Bell (6-7%), Sonic (12%), as post-pandemic early morning travel picks up.

WITH ALL OF THE ABOVE, WHAT DO YOU HEAR NOTHING ABOUT ???

                      MEATLESS PROTEINS – they are still out there, somewhere

Our last article on this subject was written in January, 2020. Below is a reprint of our Conclusion as of that date, as well as the Conclusion to the earlier article we wrote in June of 2019.

JANUARY 7, 2020:

The excitement today, again all over the news, is that Impossible Foods is introducing “meatless” pork and chicken, and working on bacon.

Developments over the last seven months include:

• Introduction of meatless burger and chicken products at a great many restaurant chains. Heavy marketing focus has typically been the case, most prominently at Burger King. While a sales increase, in test, at Burger King in St. Louis was indicated as high as 18%, it seems as if the sales increase is no more than 2-3 basis points at Burger King after the systemwide rollout. In a much smaller example, Del Taco sales have seemed to grow by 3-4% with a marketing focus on meatless products. There have been many other introductions, including breakfast sausage at Dunkin’ but specific sales results have not been provided, and that is likely indicative of less than spectacular results.
• There has been a serious amount of negative publicity, including a Sixty Minutes piece talking about the fact that meatless products are far from a healthful option. As we described in our article, consumers of the new products are replacing cholesterol, as well as a some calories and fat content, with five times as much sodium.
• An anti-anti-meat (that means pro-meat) lobbying effort has emerged which, among other things, is advertising the healthful aspects of balanced nutrition, including meat products.

UPDATING OUR JUNE, 2019 CONCLUSION:

Meatless products will have the greatest impact in the burger business, because that’s what the consuming public, especially at lunch, orders the most frequently, and beef has more cholesterol and fat, depending on the cut, than pork, chicken, or fish. Still, no chain will have an edge, because an entry will be everywhere. The producers, Beyond Meat, Impossible Burgers, and the rest, will sell quite a bit of product but at lower margins than they now predict because they, too, will be competing for market share.

We think the quantity of product converted from “natural” to “processed” will be far less with the pork, chicken or fish versions. The presumed health benefits of switching will not be as pronounced as with beef . Maybe we are not sufficiently enlightened, but we don’t believe that environmental concerns relative to production of beef, pork, chicken, or fish, are broad enough to be material to this equation.

We are particularly struck by the talk of a “meatless” sausage product. The lyrics from the broadway show “Hamilton” come to mind  (and you  must see the show, if you haven’t) :

I could sing it for you…..but it goes:

“No one really knows how the game is played, the art of the trade, how the sausage gets made. We just assume that it happens, but no one else is in the room where it happens.”

I didn’t want to know how the “natural” sausage gets made, and I want to know even less about the “processed” version.

We continue to think that, over perhaps a couple of years, the excitement will abate. Those restaurants and food markets that have sufficient customers that care will have some meatless offerings. No particular company will have a serious edge, however, so sales will not be materially higher than they would have otherwise been, nor will profit margins. The producers of the meatless products will also be in a competitive situation, competing for market share, and with profit margins lower than they, or their investors, would have hoped. The equity in Beyond Meats (publicly held), Impossible Foods (privately held) and others will reflect much more conservative valuations than is currently the case.

OUR CONCLUSION BACK IN JUNE, 2019, was:

The unanswered question is: how large is the demand, at restaurants, for a product that costs more, has the same calorie count and fat content, has a lot more sodium (which creates high blood pressure), but has no cholesterol and contains useful elements such as Thiamin (which helps with nerve, muscle and heart function), B12 (helps with fatigue) and Zinc (for prostate health)?

We do not expect the introduction of meatless products to restaurant menus to improve sales in any meaningful way. The new meatless products taste fine, by all reports, but we haven’t heard anyone say that they taste “better”, and help to justify a higher price. The long term health benefits as described just above are too subtle for most restaurant customers to care much about. Just look at the size, and the nutritional values, of the portions at Cheesecake Factory, Cracker Barrel, and almost everyone else. This, too, in terms of stock market excitement and restaurant industry focus, shall pass.

Roger Lipton