Blog #3: Consumer Trends in the Restaurant Industry

            One of the most major consumer trends in the restaurant industry is the break out type of restaurant called “fast casual”. These are restaurants that offer customers fresh food that is high quality with slightly higher prices than quick service restaurants (like McDonalds) but with the same behind the counter convenience. With quality of food and health concerns being challenges for the industry, especially among quick service restaurants, fast casual restaurants are the just want the consumers seem to want. According to an industry report by First Research the fast casual industry is projected have 8% growth through 2016. This is compared to the 3-4% growth projected for the quick service industry ("Fast food and," 2012). As further proof of the success of this new trend is the growth of the two major leaders of this new trend-Panera Bread and Chipotle Mexican Grill. Panera Bread has not reported a decline in profit since the beginning of 2008. (Rubin, 2012) This speaks volumes considering this is when the recession of US began.

Quick service restaurants are beginning to catch on to the trend. Taco Bell recently opened up a new “Cantina Bell” line. This line offers customers burrito and salad bowls very similar to that of Chipotle. In addition they implemented fresh avocadoes and cilandro dressing from Chief Lorena Garcia. As a result, Taco Bell’s same store profit increased by 13%, which was increased the Yum Brand as a whole same store profit by 6%. (Jorgon , 2012)

Another trend that has just begun is the snacking trend. “Not only are Americans snacking between meals more than ever before, but — in a boon to fast feeders — their definition of "snack" has broadened to include a range of treats, including sandwiches, burgers, chicken strips and drinks according to researchers” –Lisa Jennings of National Restaurants News. According to a report on the Technomic Snacking Occasion Report, 48% of consumers snack at least twice a day, this number has increased 25% from 2010 (Technomic, 2012). Restaurants have seen this and are getting on board. McDonald’s led the way with their “Snack Wrap” line. They also implemented the snack sized “Fruit-and Yogurt parfait” and the “Apple Dippers”.  Sonic began a “Snack Trio” option on the menu with onion rings, mozzarella sticks, and tatter tots. This could be the next big thing for the restaurant industry. (Jennings, 2010)

Sources:

First Research (2012). Fast food and quick service restaurant.  Retrived from http://mergent.firstresearch-learn.com/industry.aspx?chapter=0&pid=433

Jennings, L. (2012, July 12). Small bites, big opportunities. National's Restaurant News, pp. 1; 16-20.

 

Jargon , J. (2012, October 11). Fast food aspires to move up to the food chain. Wall St, p. B11.

 

Rubin, B. (2012, October 23). Panera bread 3rd quarter net up 27% on stronger same store sales. Wall Street Journal. Retrieved from  http://online.wsj.com/article/BT-CO-20121023-714934.html?mod=WSJ_qtnews_wsjlatest

 

Technomic. (2012). The snacking occasion consumer trend report. Retrieved from http://www.technomic.com/_files/products/2012_Snacking_CTR_brochure.pdf

Blog #3: Product Differentiation

When thinking about the restaurant industry, one must understand that there is a wide variety of products offered.  Different companies provide different products to different markets.  Whether they use demographic, psychographic, or geographic segmentation to divide these markets, they try to make their product more appealing than those of similar restaurants. Some of the main types of differentiation used are the type of food (origin, style, and quality), the cost of the food, and the experience while dining (quick service, fast casual, or full service).  Another thing that many restaurants keep in mind is the health factor of their menus.

            Restaurants differentiate themselves first through their dining experience.  A quick service establishment, such as McDonald’s, will typically offer unhealthier, lower quality food than other restaurants, and, according to Mealey (2012), they attract customers for their speed, convenience, and cheap prices.  Fast casual restaurants like Panera and Chipotle tend to be more upscale than a quick service restaurant (Mealey, 2012), but not as high quality as a full service restaurant.  The fast casual restaurants offer quicker service than the full service restaurants as well.  Full service restaurants, such as Olive Garden or Red Lobster, will usually offer waiting services and will be more family oriented.  Their food also tends to be a better quality than either of the other restaurant types. 

            Another type of differentiation would be the type of food that is provided at each restaurant.  Some companies offer burgers, wings, and fries, while others have a broader approach, choosing Italian or Chinese food for their restaurants.  This helps create options in an industry where everyone essentially provides the same thing: a place for people to get food.  Some restaurants are known for having better quality foods, and others are known for providing a lot of food per meal.

            Many restaurants differentiate themselves through their pricing.  Companies choose to either offer lower quality food at a lower price, better quality food at higher prices, or anything in between.  This allows companies to target certain demographic segments to maximize profit.

            As I mentioned earlier, many restaurants are offering more healthy and organic foods in order to satisfy the wants and needs of today’s consumers.  The companies who do this are set for growth in the future.

Cited Sources:

Mealey, L. (2012). About.com. Retrieved from http://restaurants.about.com/od/restaurantconcepts/tp/Different-Types-Of-Restaurant-Concepts.htm

Blog #3: Pricing Strategies of Restaurants

             Although prices throughout the restaurant industry vary greatly from one place to the next, the basic principles that help set those prices are all, in some way or another, utilized in those different restaurants.  One of the most important parts in designing a successful restaurant is designing the menu, but setting the appropriate price for those items is what will drive success (Gordesky & McCarron 2012).    Before that price is set, however, a restaurant must analyze the surrounding demographics, understand who the target market is, and know what competitors are charging and offering (Gordesky & McCarron 2012).  Making sure that a restaurant is targeting the right market will also ultimately help it better price its goods.  For example, if a community has a higher population of children than adults, a restaurant may want to have a higher price for chicken fingers and French fries rather than fancy salads and wines.  By noting what competitors are selling, a restaurant can better organize their menu/competitively price their products.

            Once all of the background information is taken into account, there are many options for a restaurant to take when pricing the items.  Value pricing allows for the costumer to acquire more bang-for-their-buck because a products benefits increase while the price remains the same (Hammond).  This would certainly draw more customers in.  Another method is penetration pricing, in which the price of a good will be set far lower than normal… usually for a short period of time as seen with the introduction of new products (Hammond).  I feel that this must be timed wisely, and used for only a short period of time so companies do not lose money.  Another major way fast casual and quick service restaurants price their products is by bundle pricing.  This is a marketing tactic in which two or more products are sold together, in which the costumer seems to be saving money (Hammond).  This can also be classified as the “good, better, best” strategy (Von Matterhorn).  Though all of these pricing strategies are different, it is clear that they can be used for a variety of restaurants to help drive revenue upward.

 

Cited Sources:

 

Gorodesky, Ron & McCarron, Ed (2012). Restaurant Marketing: Strategic Positioning of a Restaurant—Pricing. Retrieved from http://www.restaurantreport.com/features/ft_stratpos1.html

 

Hammond, Melanie. The Pricing Strategy for Fast-Food Restaurants. Retrieved from http://smallbusiness.chron.com/pricing-strategy-fastfood-restaurants-23939.html

 

Von Matterhorn, Lorenzo. Restaurant Food Pricing Strategies. Retrieved from http://smallbusiness.chron.com/restaurant-food-pricing-strategies-14229.html

Blog #3: Competitive Landscape of the Restaurant Industry

        The competitive landscape of the restaurant industry is broken into different segments which are based on the type of dining the restaurant involved in as well as price. Fine dining is the most expensive of the landscapes, and the meals are valued at $35 dollars and up. Restaurants that are categorized in this landscape include Ruth Chris Steak House and The Capital Grille (TM Capital. page 5, 2010). The next landscape is the upscale-casual restaurants. In order to be part of this landscape, the value of the dining will be around $18 to $35. This part of the industry includes restaurants such as Cheesecake Factory, Outback Steak House, and Darden Restaurants (TM Capital, page 5, 2010). Casual dining is another landscape involved in this industry. In order to be part of this landscape, the value of the meal is priced between $12 to $18 and restaurants classified as casual dining include Panera Bread and Red Robin (TM Capital, page 5, 2010). Another landscape for the restaurant industry is family dining. This landscape is usually priced from $8 to $12. Some of the prominent restaurants involved in with this landscape are Denny’s and Cracker Barrel (TM Capital, page 5, 2010). The final landscape is the quick service restaurants. There is no specific pricing for the value of the meal, but this is usually cheap fast food. This will include restaurants such as McDonalds and Domino’s Pizza.

My company, Starbucks, fits into the landscape of quick service restaurants. Their main competitors include Dunkin Donuts and McDonalds. Because Starbucks is primarily involved with premium coffee they do not have to compete with other fast casual restaurants such as Chipotle. McDonalds, however, has become the biggest threat to Starbucks’s sales. Starbucks has to compete with McDonalds’ McCafe which is a low cost alternative. (Cardenal October 23 2012). Starbucks still controls 60% of the value share in specialist coffee shops showing that they still dominate this area of the quick service restaurant landscape.

Cited Sources:

TM Capital (February 2011). Restaurant Industry Spotlight/ Retrieved from http://www.tmcapital.com/assets/11_2.pdf

Andres Cardenal (October 23, 2012). This Powerful Brand Looks Temptingly Cheap. Retrieved from http://beta.fool.com/acardenal/2012/10/23/powerful-brand-looks-temptingly-cheap/15086/

Amy Schein (Not Available). Starbucks Corporation. Retrieved from http://subscriber.hoovers.com/H/company360/competitiveLandscape.html?companyId=15745000000000

Passport (September 2012). Starbucks Corp In Consumer Foodservice (USA). Retrieved from http://www.portal.euromonitor.com/Portal/Handlers/accessPDF.ashx?c=23%5CPDF%5C&f=F-214140-22060423.pdf&code=Se0Bvf8sXUG8z3C%2bmmTdEgHSZas%3d

Blog #3: Market Segmentation

           In order to attract a variety of consumers and increase revenue restaurants need to focus on market segmentation. The restaurant industry is segmented by geographic, price, demographic and psychographic (Thomas, 2011).

Many restaurants such as chains use geographic segmentation to concentrate their focus on specific regions or areas. Consumer preferences differ regionally, which is why geography is important when aiming to market a product or restaurant. For example, a restaurant could decide to market their product in one area of the country, but not another. People from the South may prefer fried chicken, whereas people from the North may prefer a different food (Thomas, 2011).

Price segmentation is a very common among restaurants. Since income can vary widely based on households, customers are looking for different products. Some restaurants offer cheap products, while other restaurants will offer expensive products. The price displays the difference between a fast food experience and a fine dining experience. Usually lower income families will be attracted to fast food restaurants that offer good food at low prices and wealthier families will be attracted to expensive restaurants that offer very high quality food (Thomas, 2011).

Restaurants use demographic segmentation to determine what customers want based on their age, gender, education level, and income. These factors help restaurants determine the spending and eating habits of customers. For example, families with larger incomes will typically eat out more than those with smaller incomes (Frisch, May 2006-2012).

Psychographic segmentation is used to determine what customers want based on their values, opinions, culture, behavior, and lifestyle. For example, if a large amount of customers live a kosher lifestyle in the surrounding area, then a restaurant will want to make sure that it can provide kosher foods, which may set it apart from other competing restaurants (Frisch, May 2006-2012).

 Restaurants use target marketing strategies to gain a competitive advantage with Geographic, price, demographic, and psychographic segmentation. This is a tool that restaurants use to help reach out to specific customers. I believe that this is a very important aspect of marketing because restaurants should completely focus on trying to provide for the customer based on his/her interests and needs. These marketing strategies help a restaurant eliminate competition, bring in revenue, and satisfy the customer.
 

Cited Sources:

Thomas, J. W. (2011). Market segmentation. Retrieved from http://www.decisionanalyst.com/publ_art/MarketSegmentation.dai

Frisch, E. (May 2006-2012). Demographics for restaurants. Retrieved from http://www.foodservicewarehouse.com/restaurant-equipment-supply-marketing-articles/restaurant-marketing/demographics-for-restaurants/c28060.aspx

Blog #2: Current Events in the Restaurant Industry

The companies in the restaurant industry are trying to find different ways to increase sales after the slump in revenue that comes with lower incomes and a higher unemployment rate.  In an effort to increase sales, many restaurants are teaming with new musicians to help attract certain markets to their stores.  Some restaurants will have musicians create original works that advertise for the store.  The Darden Restaurant chain, Longhorn Steakhouse, has been teaming up with country music artists such as Kenny Chesney since 2005 (Jargon & Smith, 2012).  The chain has created promotions that attract new customers by allowing them to enter for a meeting with the musicians.  The musicians also perform at new-store openings to make more customers come to the event.  This type of relationship helps both companies.  By combining their markets, both the restaurant and the musician have the potential to increase their customer base.  I believe that this will affect the industry by causing more restaurants to try these types of promotions.

Recently, the Starbucks chain tried to increase their sales by creating buzz for their seasonal drink, the Spiced Pumpkin Latte.  This, according to Fleisher (2012), can backfire when there isn’t supply to match the demand.  The latte debuted this year on September 4^th, and customers were frustrated by Starbucks’ inability to keep up with the market demand for the fall drink.  Many customers have had to leave the store unsatisfied after waiting for almost a year for the pumpkin latte.  The shortage has caused some stores to turn to an instant version of the drink, but this substitute is quickly running out as well.  I think this will impact the industry by making restaurants do more research about their target consumers.  Hopefully in the future restaurants will be more prepared to supply enough of their goods to meet the market demand.

Cited Sources:

Fleisher, L. (2012, October 5). Halloween horror story: the case of the missing pumpkin lattes. The Wall Street Journal, pp. A1, A10.

Jargon, J., & Smith, E. (2012, September 25). Restaurant chains, singers team up to sharpen brands. The Wall Street Journal, pp. B6.

Blog #2: Influences of Supply and Demand in the Restaurant Industry

            The supply and demand of the restaurant industry significant effects the price of the food offered. The basic law of demand states that when the price of a product is increased, the demand will decrease. As well, IBISWorld explains, consumer sentiment has a major influence on how consumers prefer to use their expenditures of discretionary items, including dining. For instance, during the recession, there was an increase in the demand for lower-priced value meals. This makes sense because one of the main factors that can cause an increase in demand for cheaper food is income. If many consumers begin to lose their source of income, or have it lowered, then luxury spending such as restaurant dining will decrease and, as stated before, an increase in cheap dining.

            Another form of demand that has recently increased in the industry is the demand for healthier foods. For many restaurants, this is a huge threat since they will have to begin to offer healthier options if they want to keep their consumers. This can affect restaurants such as McDonalds. Franchises and dining establishments such as McDonalds are known for their unhealthy and fatty foods. Due to this new demand for healthy foods, McDonalds and begun to adjust their menus to suit the wants of the consumer. Many restaurants must adapt to this type of demand because it is caused by the taste of the consumer. The taste of the consumer is very important because it is based on the changes in the taste that make restaurants change their food options.

            Supply has also played a key role in restaurant dining. With an increase in the amount of suppliers, competition also increases. This is important because now restaurants do not only have to worry about the demands of their consumers, but also compete with other restaurants, including price wars. As well, the supply in terms of expectations can affect the restaurant industry. First Research has forecasted that there will be growth in the industry between 2012 and 2016. This means that many suppliers, being the restaurants, will want to save their financial resources so that they can use them when they have the opportunities.

            Supply and Demand is very important in this industry as it dictates the marketing strategy of each restaurant. No restaurant should be making their food unhealthier as it goes against the demand of the consumers. At the same time, no restaurant should make the price of their food substantially greater than those they are contending with since their competitors will gain the advantage in attracting consumers. It is financial suicide to go against the supply and demand for any restaurant in the industry.

Cited Sources:

Nima Samadi (September 2012). Restaurants will add healthy items to capitalize on renewed demand. Retrieved from http://clients1.ibisworld.com.proxyau.wrlc.org/reports/us/industry/default.aspx?entid=1678

First Research (August 20, 20122). Restaurants. Retrieved from http://mergent.firstresearch-learn.com/industry_full.aspx?pid=27

Blog #2: Ethical Challenges in the Restaurant Industry

Ethical challenges that restaurant industry players have experienced are providing customers with unsanitary and unhealthy foods, overpricing cheap foods, and exposing customer’s personal information.

Obesity has become common amongst young people as fast food restaurants tend to sell products that are high in fat and sugar, paying no attention to health concerns. Only recently have customers become more concerned as health is declining due to poor diets. In effort to make as much revenue as possible, these restaurants are advertising unhealthy foods that attract their primary customers; young adults and children. These large franchises push kids to think that these products are what they are supposed to eat. As a result, more kids tend to become obese and form common health problems due to poor diets. Besides unhealthy foods, customer's should be aware of unsanitary foods as well. When thinking back to 2006, you will remember the E. coli outbreak that was connected to Taco Bell. Many customers were greatly affected as they became very sick. It is the restaurant's responsibility to provide people with food that is ensured to be safe and sanitary to eat. In response to this outbreak, I am certain that Taco Bell must have lost many customers [Voiland & Haupt 2012].

Large franchises in the fast food industry are also selling overpriced products. Single products are usually advertised showing huge discounts and savings, but usually people who go to fast food restaurants such as McDonalds or Burger King buy more than  a single order or french fries or a hamburger; they tend to buy the whole value meal. It’s not the single entity that can be expensive, its the meal as a whole that usually adds up in cost. People tend to spend more than they had originally planned, which in turn is how these fast food restaurants make revenue [Choi 2012].

Lastly, in the restaurant industry a current ethical problem is exposing the customer’s personal information. When they buy various products, they have the choice of paying with cash or credit. When they use their credit cards, some restaurants will give away or sell this information to other companies for use of selling other products or services. Other companies use this information to target these people with ads in which may appeal to them. If customers buy large amounts of food at a fast food restaurant, then they may be frequently seeing weight loss ads. At times, Information is not kept confidential [Sidel & Johnson 2012].
I believe that these ethical problems are slowly decreasing as regulations are becoming much stricter on businesses. Of course, there will always be disputes based on how the restaurant industry is wrongly advertising, overpricing very cheap, low quality foods and exposing our information. But, I believe that this industry has made increasingly positive progress in the past few years and will continue to improve in the future as standards increase and regulations are put into effect.

Cited Sources:

Sidel, R., & Johnson, R. (2012, March 30). Breach hits card processor global payments . . Retrieved from http://online.wsj.com/article/SB10001424052702303816504577313411294908868.html

Voiland, A., & Haupt, A. (2012, March 30).Usnews.com. Retrieved from http://health.usnews.com/health-news/articles/2012/03/30/things-the-food-industry-doesnt-want-you-to-know

Choi, Candace (2012, September 13) McDonalds, and other Fast Food Chains, Value Meal Voodoo... Retrieved from http://today.msnbc.msn.com/id/49022561/ns/today-money/t/mcdonalds-other-fast-food-chains-value-menu-voodoo/#.UHH9C45HkTM

Blog #2: The Economics of the Restaurant Industry

     The economic success of one’s restaurant takes more than just a love for food.  Building a restaurant that will not crumble within months of its grand opening requires the management of many different things at once, such as how much you are buying, the basics, and paying for the salaries and general expenses. One important aspect of the economics of a restaurant industry is battling same store sales, like Chipotle vs. Taco Bell.  However, when going head to head with such fierce competition, product differentiation and marketing are two very key components.  For example, Chipotle prides itself on its use of organic vegetables and distaste for animals treated with hormones.  They feel that costumers taste the difference, and therefore see little threat in Taco Bell, as stated in Chung and Jargon's article.

     The costs of the restaurant business are numerous.  They go far beyond the wages that are payed to their employees.  Gas and electricity are very important aspects, because much energy (aside from the effort exerted by employees) is used when running a restaurant business.  Unfortunately, the price of this is only rising.  The price of food is also a big cost, especially depending on where they purchase it from.  Buying in bulk can lead to less costs but poorer quality, while buying from local farms can be more expensive, but better received by the public because of taste and ethics.

     Part of running a restaurant business is being able to juggle the costs as well as the revenue.  The businesses that make revenue, however, is highly dependent off of the disposable income from tourists and citizens.  Nowadays, because minimum wage is so high and energy prices are soaring, many chain restaurants have cut back on giving away free things, like ketchup packets.  How frustrating it is when you look in the bag after you go to the drivethrough, only to find that you have no ketchup with your fries!  Another way business, chain restaurants, and QSRs alike are trying to stay afloat is to begin serving smaller portions of food while charging the same price.

     America as a whole is certainly waiting for some sort of economic indicator that the economy is soon coming out of the recession, but perhaps those in the restaurant industry are waiting even more patiently.  They certainly are feeling the economic impacts.

Cited Sources:

Chung, Juliet & Jargon, Julie. (2012, October 03) Einhorn’s Latest Target: Chipotle. Retrieved October 03, 2012 from The Wall Street Journal.

Lee, Kyuho & Ha, Inhyuck “Steve.”  (2012, March 19) Exploring the Impacts of Key Economic Inusticators and Economic Recessions in the Restaurant Industry Journal of Hopsitality Marketing and Management. Retrieved October, 03 2012

from http://www.tandfonline.com.proxyau.wrlc.org/doi/abs/10.1080/19368623.2011.611752.

Said, Carolyn. (2012, August 22) Economics of running a restaurant / Tireless Chefs double duty as bean counters. San Francisco Gate. Retrieved October 03, 2012 from http://www.sfgate.com/bayarea/article/Economics-of-running-a-restaurant-Tireless2731527.php

Blog #2: Corporate Social Responsibility in the Restaurant Industry

                As corporate social responsibility becomes a bigger issue across the US, the restaurant industry’s biggest corporations have taken the lead on standing out as far as that is concerned. Starting off, McDonald’s, the world’s largest food franchise, is widely known for its long running efforts with the Ronald McDonald House Charities. This charity has risen over $170 million that goes toward an effort to help families with sick children have good living accommodations at little or no cost. In addition, to help with customer’s health concerns, the franchise implemented more fruit in the menu. This includes the option for children to have fruit with their Happy Meal and the Fruit N’ Maple Oatmeal that is now served on the breakfast menus of US and Latin American stores.

            Other companies also make moves toward more CSR movements. Starbucks initiates many community service projects and incorporate them into the work environment of the employees, the partners and even the customers. According to their “Global Responsibly and Sustainability Report”, the company has participated in over 191,000 hours of community service. One of the biggest initiatives that they have are the various youth outreach programs that they have, such as Youth Action Grants that have done things from helping high school and middle school kids in Baltimore to their own community center  for children in Malaysia.

            However, I was most impressed with Coca-Cola’s RAIN efforts in Africa. They started a six-year long program that had to goal of providing clean water to 2 million African people by 2015. Already, $30 million have gone into this project. They seem to have a goal of water sustainability around the world that I actually found extremely inspiring.

           Actually most of the large corporations such as the ones that I listed had their full report and CSR initiatives on their web pages so consumers can see the things that they are doing. Small restaurants like Chipotle and Olive Garden do not have these things so easily accessible, however hopefully they will follow the lead of the larger businesses that are in the industry.

Cited Sources:

McDonald's 2011 global sustainability scorecard. (2011). Retrieved from http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Sustainability/Sustainability Library/2011-Sustainability-Scorecard.pdf

Ronald mcdonald house. (n.d.). Retrieved from http://rmhc.org/what-we-do/ronald-mcdonald-house

Reasons to believe 2010/2011. (2011, December 29). Retrieved from http://www.thecoca-colacompany.com/sustainabilityreport/performance-highlights.html

Year in review:fiscal 2010. (2011, March 7). Retrieved from http://assets.starbucks.com/assets/2660085bf62e4246a91a8024f500cb37.pdf