Military Retailer September/October 2011

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2 C A T EDeCA G O RHEADQUARTERS Y SPOTLIGHT SPECIAL IN-DEPTH LOOK AT HOT PRODUCT CATEGORIES. Branded Concepts Hit the Spot Even in a recession, name-brand restaurants continue to draw patrons and generate good sales. By Pamela Mills-Senn People may tell you that the recession has driven them to home cooking and brownbagging it, and for some, this could be the case. But if sales figures generated by the various branded fast-food and restaurant concepts are any indication, a fair number of these folks are fibbing. The fact is that military-wide, sales activity is up, in spite of the recession, troop withdrawals and natural disasters. For example, NEXCOM s food program, consisting of concession and direct-run operations, generated $243 million in sales in 2010, an over six percent increase from the previous year, says Dennis Wilkerson, director of the Food Service Program. So far, 2011 sales are up by two percent, even with the challenges posed by the Japan earthquake and its aftermath. Wilkerson attributes the good showing last year s sales were an all-time high for the program to NEXCOM s ability to add new and exciting concepts, along with our concession partners continuous improvements in day-to-day execution. Last year was also exciting for them, albeit not without its difficulties, says Tom Branning, vice president of AAFES Restaurant, Theater and Hospitality Division. Combined sales for direct and concession operations surpassed the $860 million mark for the second consecutive year, says Branning. While overall sales were down slightly compared to FY2009, sales were in line with industry trends and forecasts. Direct restaurant sales realized a two percent increase, which helped offset an 11 percent decrease in concession sales resulting from the ongoing drawdown in Iraq. Even so, says Branning, with earnings of $75 million, last year was the third-most profitable year ever for exchange restaurants. As of June, direct sales were up this year by close to three percent. The goal is to reach $861 million in direct-operated and concession food sales, says Branning. However, the concession food closures in Iraq and delayed or 63

3 CATEGORYSPOTLIGHT We are increasing our expansion of branded concepts beyond the food court and freestanding venues with more development in nontraditional locations. Tom Branning, vice president, restaurant, theater & hospitality division, AAFES cancelled openings in Afghanistan make achieving this objective a tad challenging, as do rising commodity prices, more competitive pricing and escalating operating expenses. However, Branning does expect their direct-operated restaurants to finish up this year, by around four percent. Sales rose in the Marine Corps last year, says Ric Pomeroy, branch head, Food & Hospitality, MWR and Business Operations Division. As a whole, indirect branded foods generated over $91 million in sales, he says. This was up from just over $86 million in FY2009. The increase can be attributed to more branded installations opening in FY2010, mostly via conversions from non-branded operations. So far, their branded indirect sales are continuing their upswing by nearly $3 million compared to last year (this is through four months of FY2011), says Pomeroy, adding that they re on track to approach $100 million in branded indirect sales. Now let s take a closer look at each branch s restaurant/hospitality program. AAFES It s been a busy year for this exchange service, says Branning. So far they have opened 32 direct-operated restaurants, with another 28 planned by year end. As of this writing, AAFES has more than 55 branded franchise agreements, amounting to more than 2,300 operations worldwide. Add the 214 food courts four more than they had last year and it s easy to see that AAFES is determined to give its Soldiers, Airmen and their families plenty of taste-of-home options. What is sparking this food frenzy? New or expanded food courts, as well The NEX San Diego, CA food court is home to a number of customer favorites including an I-Hop Express, a Five Guys Burgers and Fries, and a Panda Express. as new buildings requiring foodservice, continue to provide opportunities for additional branded concepts, Branning explains. New food courts are driven by the re-stationing of troops to installations such as Ft. Bliss, where we opened two new mini mall food courts. AAFES has expanded its portfolio of name-brand concepts through development agreements with Denny s and Froots, says Branning. Froots is known for its healthy options (a focus on healthy fare is a huge industry trend, as is the desire for value) such as made-to-order salads and wraps; Denny s offers an express, inline, cook-to-order alternative. Several branded concepts are performing strongly for AAFES. Burger King is still popular with patrons, but concepts like Arby s, Subway, Charley s Grilled Subs, Manchu Wok, Starbucks, and Einstein Bros Bagels are showing tremendous growth, says Branning, adding that this is also the case for the sandwich market in general. Along with contractually mandated standard brand décor, equipment packages and operational changes, AAFES is currently starting the process of phasing in digital menu boards. [These] help to market menus more effectively and allow us to implement nutritional labeling standards once final standards are determined, explains Branning. [And] in a proactive move, we re in the final stages of removing toys from our Signature Brands Kids Meals in an effort to make them healthier for the primary consumer, kids. Branning says they re constantly exploring additional brands with the intent of bringing more options to patrons. Concepts under development include Wing Zone and Del Taco, says 64

4 Ana Middleton, senior vice president of the AAFES Sales Directorate. Other recent additions to the AAFES portfolio include three Arby s restaurants at Ft. Carson, CO, Ft. Stewart, GA and Ft. Bliss, TX. It s important to respond to the voice of the customer, says Branning. We are increasing our expansion of branded concepts beyond the food court and freestanding venues with more development in nontraditional locations. According to Middleton, these include locations such as hospitals, education and training centers, and community centers. With more than 50 brands available, the Exchange continues to provide military families highly recognized and respected brands that deliver consistent quality, service, and a taste of home, wherever they may be stationed in the world, she says. MCX Continuing to give Marines a variety of options to choose from is the trend driver right now. We Both the A&W and Taco Bell concepts keep customers coming back to the food court at Naval Station Norfolk, VA. are in development with several national brands for placement on our installations for openings in FY2012 and FY2013, says Pomeroy, adding that Panda Express and Johnny Rockets both experienced much success with their recently opened stores at MCB Camp Pendleton, CA. Pomeroy says their most popular concepts mirror those found off base High-Ranking Opportunity WITH A SUCCESSFUL FRANCHISE TAKE FLIGHT Manchu WOK is an established and successful Chinese food WITH brand with A SUCCESSFUL more than 30 years FRANCHISE experience and over 150 restaurants. In fact, over 20 of these restaurants are at military The sky s base your locations limit when across teaming the U.S., up with Japan, Manchu Korea, WOK and North Puerto America s Rico. We ve largest perfected franchisor a of simple Chinese operating fast food. system With 29 that years delivers tested, proven and profitable results. of experience under our belt and having served over 300 million meals worldwide, Our award-winning we have perfected 450 sq.ft a simple concept operating yields high system sales that delivers tested, yet requires proven only and profitable a low start-up results. cost. This is a great opportunity for Base Commanders looking to improve the financial Our award performance winning 450 Sq. of their Ft. concept on-base yields food high courts sales - yet requires only or for a low anyone start-up else cost. interested It s the perfect in a rewarding solution for franchise airports seeking an opportunity excellent and at a rewarding military franchise location. opportunity. For more information, contact Mariellen Bob Cook Clark at at ext. 112 ext.108 or visit or us visit at us at 65

5 CATEGORYSPOTLIGHT Subway Never Sleeps Now in its 46th year of business, the first Subway opened in 1965, the franchise operation is about to break the 35,000 site mark (worldwide), says Chuck denicolo, global account manager for military locations. The military has its fair share of Subways; as of this writing there are 284 of them on various bases, with 186 of these in the U.S. and territories and 98 of them located outside of the U.S. They have about 100 locations with NEXCOM; 150 with AAFES, and there is also a Subway in almost every major Marine Corps base, says denicolo. Downrange areas aren t slighted either, although the troop drawdowns have changed their numbers, says denicolo. At one point we had a couple dozen in Iraq, but we re closing some as troops withdraw, he says. Currently, seven sites remain open in this area, with two still operating in Afghanistan. This year has been punctuated with a lot of activity on military bases, particularly on those where troops are returning, such as in Texas, where Subways have opened on Ft. Sam Houston and Lackland AFB, and in Colorado, where they re adding locations. They re in the Lifestyle Center at Ft. Bliss and they ve also opened a second site on Ft. Stewart, says denicolo, mentioning that one of these stores is a drive through possibly the first in the military. They re not neglecting troops stationed overseas; several Subways have recently opened in OCONUS areas, including Kleber Barracks- Kaiserslautern, Germany; Marine Corps Air Station Futenma-Okinawa, Japan; U.S. Army Garrison Ansbach, Katterbach Kaserne-Ansbach, Germany; and U.S. Army Rose Barracks-Vilseck, Germany. The company is making some additions and changes to its menu as well. Most recently they fortified their bread with calcium and vitamin D. According to Les Winograd, public relations specialists at Franchise World Headquarters, LLC, a six-inch sandwich bread is the equivalent of drinking and eight-ounce glass of milk. Mindful of the fact sodium is drawing a lot of attention from consumers these days, they ve focused on lowering their counts. They ve reduced the sodium content in their low-fat Fresh & Fit line of sandwiches by 28 percent on the average. This was a huge undertaking, says Winograd, adding that the sodium content on their other sandwich offerings has also been reduced, by about 16 percent on average. Sodium is an important ingredient not only in taste but also in food safety because it acts as a preservative, Winograd explains. This took several years of research and development. Subway is also introducing Oven Crisp Chicken, albeit for a limited time only. This low-fat chicken has the look, feel and taste of fried chicken but it baked instead. A permanent addition to the menu is the Yogurt Parfaits. These are also low-fat and can be made with fruit and granola. All the healthy attributes of this chain make it very attractive to the military, says denicolo. One of the things we continue to do as a company is to offer convenient, healthy menu items at a good value. This, he adds, has enabled them to do well in spite of the recession. and include brands like McDonalds, Burger King, Subway, Domino s Pizza, Wendy s and Starbucks, which can be found at multiple installations throughout the Corps. Our installations continue to operate our military clubs and smaller snack bars directly, he explains. However, restaurants on base generally resonate best with Marines if branded with a name they recognize and trust. Currently, their portfolio consists of 70 nationally branded restaurants, along with an additional 21 regional brands or AAFES branded concepts. By this September, they will have 11 food courts operating on their installations, up by one over the years past (number 11 is the food court and new exchange at 29 Palms, CA). The food courts feature national brands, along with regional and local brands, says Pomeroy. These are a hit with patrons. We have found that Marines prefer the variety that food courts offer, he says. Most food courts also feature a healthier menu option in addition to traditional fastfood selections. Pomeroy says that when considering a concept for inclusion their strategy is to determine what will best serve their Marines, and what will be most relevant to them and their families. The opportunity exists to continue to expand nationally recognized brands to our USMC installations, via conversion of direct run, non-branded operations or new builds, he says. The one change in philosophy is that we endeavor to write contracts with new brands directly from Headquarters and not locally at each installation. This, he explains, gives them more bargaining and purchasing power, enabling them to obtain better terms. [This] also clears the way for each USMC installation to ride off the HQ contract when placing this brand on their installation, Pomeroy adds. NEXCOM NEXCOM as well is going out of its way to make Sailors and their families feel as if they never left home, at least where it concerns their restaurant options. Currently, NEXCOM operates a total of 466 food service operations 83 direct run and 383 contracted says Wilkerson. A total of 32 national 66

6 brands are found in NEXCOM s portfolio, including 96 Subways, 31 McDonalds, 25 Rice Kings, 10 Pizza Huts, nine Starbucks, seven Baskin and Robbins, two Five Guy Burgers, two Panda Express restaurants, a Chili s, a Quizno s, and a Tim Hortons. They also added a Firehouse Subs and an IHOP Express to their line-up this year. The Sailors have responded extremely favorably to these concepts, says Wilkerson, referring to the most recent acquisitions. In fact, the Firehouse Subs, which opened in the newly remodeled Naval Station Norfolk, VA food court, is one of the top revenue generators in the Firehouse Subs system. But the above is not the full extent of their offerings there s plenty more. NEXCOM contracts food service in various DoD buildings throughout Washington DC, including the Pentagon, Defense Intelligence Agency, National Defense University, Naval Research Lab, Office of Naval Intelligence, and NSA Carderock, Wilkerson says. NEXCOM also partners with CNIC (Navy MWR), providing 11 contracted name-brand restaurants in MWR facilities. They also have 26 food courts worldwide, three of which Naval Station Norfolk, VA, NB San Diego, CA, and Bethesda Main Street food court in the NNMC Bethesda, MD Hospital underwent major remodels at the end of The remodeling effort required the complete razing of the previous spaces in order to modernize the courts, improve their appearance and appeal, and revamp their offerings, says Wilkerson, describing the customer response to these upgrades as tremendously positive. The usual suspects are among the most popular with their patrons. These include brands like Subway and McDonalds, which will always be popular because of their speedy service and value-priced menus, says Wilkerson. But other concepts, such as Firehouse Subs, Five Guys Burgers and Fries, Quiznos, Panda Express, and Chili s, have also developed a good following. We have found that the Sailor s palate is as complex as it is in the private sector, says Wilkerson. Therefore, we seek to provide a variety of the most popular concepts in the industry today. There will always be opportunities for expansion of our brand portfolio when we have available real estate for growth, he adds. MR Hortons Gains Ground Tim Hortons restaurants, known for their delicious coffee, baked goods, sandwiches, wraps, soups, breakfast items and other offerings, is looking to strengthen its presence in the U.S., says Mike Meilleur, senior vice president for U.S. operations. Their strategy involves attacking the daypart category and leveraging our menu to grow morning, lunch and in between, says Meilleur. We are becoming more convenient and in more points-of-purchase in our U.S. markets by rolling out innovations like Paninis and All-Fruit Smoothies, as well as renovations in new and existing restaurants, he explains. As of this writing, there are 3,811 restaurants in operation, with 622 of these in the U.S. and the remainder in Canada. Hortons has five restaurants on four military bases; Naval Air Station Norfolk, VA, Naval Air Station Oceana, VA, Fort Knox, KY, and Aberdeen Proving Grounds, MD (two locations here). They also have restaurants on seven military bases in Canada and have operated a spot in Kandahar, Afghanistan for four years. Plans are in the works to open a location at Dover AFB, DE this fall. They have been rolling out their newest item, the aforementioned hot Panini sandwiches, across their markets, starting in Dayton, Ohio and in Maine, says Meilleur. These made-to-order sandwiches are available on white or whole wheat bread in a variety of flavors. Their pricing, at $3.29 and $4.29, is about three to four dollars under the Paninis sold at other popular lunchtime spots, he says. For years, even before it was required, Hortons voluntarily listed the sodium content of their products, along with other nutritional information, says Meilleur. Now, the chain is working to lower sodium content. For example, they ve reduced the sodium in their soups by over 19 percent, says Meilleur. And, inspired by the burgeoning concern over calories, Hortons created numerous healthy breakfast and lunch choices that come in under 500 calories. They ve also started introducing hot and cold espresso beverages. Specialty coffee now represents almost half of all coffee sales in the United States, says Meilleur, explaining what prompted their move into this category. We launched the new lattes, cappuccinos and iced lattes in Buffalo and Erie earlier this month and will eventually roll them out across all of our restaurants in North America. Meilleur says the chain has been successful in the military because of the variety, value and convenience they offer. Tim Hortons believes that quality meets value, and we work hard to deliver great products and service to our guests daily. 67