What Consumers Value When Dining Out Presented by:
Today s Objectives INDUSTRY AND ECONOMIC OVERVIEW CONSUMER DEMANDS BEHIND THE TRENDS FAST CASUAL GROWTH AND ITS EFFECTS WHERE TECHNOLOGY FITS IN CONCLUSION 2
Industry and Economic Overview
Employment Slowly Improving, but Income Flat 20% 15% 10% 5% Unemployment & Underemployment U.S. (seasonally adjusted) 0% Jun '07 Jun '08 Jun '09 Jun '10 Jun '11 Jun '12 Jun '13 Jun '14 Underemployment July '14 12.6% Unemployment July '14 6.5% 8% 4% 0% -4% DPI U.S. Real (% change vs. prior year) -8% Apr '07 Apr '08 Apr '09 Apr '10 Apr '11 Apr '12 Apr '13 Apr '14 Jun '14 2.3% Source: Bureau of Labor Statistics 4
2013 Restaurant Industry 2013 Restaurant Industry Sales Growth vs. previous Year 41% Total $449B 10% 49% Industry Top 500 All Other* 4.0% 5.2% 3.2% 3.5% 4.9% 3.5% 4.6% 5.6% 2.8% Top 100 $219B Chains #101 500 $46B All Other* $184B 2011 2012 2013 *Independents and small chains with <$40.8MM in sales Source: Technomic Top 500 Reports 5
Most Pressing Operator Issues Concern Tier 1 Rising food costs 75% Downward profit pressure 69% Employee retention 64% Tier 2 Slow sales 61% Slow economy 60% Employee recruitment 60% Top 2 box score (concerned and extremely concerned) on 1 to 5 scale: 1 = not concerned at all, 5 = extremely concerned 6
More Consumers Feeling Financially Secure Comfortable/Well-off 20% 32% 32% 36% Getting By 50% 49% 52% 49% Struggling 30% 18% 16% 16% 2011 2012 2013 2014 n=1,000. Geographically and demographically representative Source: April 2011, 2012, 2013 & August 2014 Technomic Consumer Surveys 7
Snapshot of Today s Diner MOST CONSUMERS USE FOODSERVICE AT LEAST ONCE A WEEK 18% 14% 22% 45% More than once a week Once a week Two to three times a month Once a month or less often TWO-THIRDS of consumers aged 25 34 are HEAVY USERS, visiting more than once a week. 8
What Ultimately Drives Their Choices RESTAURANTS MUST DO FIVE THINGS WELL TO BE IN CONSUMERS DECISION SET. PRIMARY NEEDSTATES Affordable prices Food is fresh and high in quality A meal and overall experience worth the price paid Service is fast or prompt Orders are accurate Source: Technomic Survey October 2013 9
Consumer Demands Influencing Trends 10
Top Trends Reach Across Segments, Menus Value Quality, freshness and choice in the equation Flavor Bold ingredients and ethnic twists Health Shift toward health halo good-for-you attributes Sustainability Sourcing practices playing a larger role 11
Key Trend: Value Inc. 12
Food & Beverage 37% Cost 28% Ambiance 18% Service 17% FOOD & BEVERAGE are more important than price in creating value Source: Technomic Survey April 2014 13
Quality Taste Freshness 14
Consumers Equate Premium with Quality High-quality cut of meat High-quality type of meat 78% 75% High-quality vegetable toppings A large quantity of toppings Artisan/specialty cheeses Artisan/specialty breads 52% 47% 46% 45% Source: Technomic Consumer Trend Report: Burgers, 2013 15
What Portions Create Good Overall Value? Mini/Small 27% Large 44% Staggered 45% Source: The 2013 Value and Pricing Consumer Trend Report, Technomic 16
Variety & Customization 51% Customization is highly important in creating good value. 17
Deal-Seeking Has Become Ingrained 54% of consumers say they are using deals more than they were two years ago 18
Half-Off Deals Have Greatest Impact Buy one item, get one free specials 40% 41% 81% Half-off specials 31% 49% 80% Specials at a set price 29% 45% 80% Coupons 33% 38% 73% 71% Value or dollar menus 36% 35% 71% All-you-can-eat specials 32% 34% 66% Buy one, take one home specials 27% 39% 66% Adds very strong value Adds strong value 19
Who s Winning? Fresh, made to order Less processed 20
Fresh Healthy Unique 21
Key Trend: Flavor 22
More Interest in All Types of Flavors % INCREASE FROM 2009 TO 2013 Smoky 6% Fruity 4% Salty 6% Bitter 3% Tangy 5% Herbal 2% Sour 5% Spicy 2% Sweet 4% Savory -5% Source: The 2013 Flavor Consumer Trend Report, Technomic 23
Spicy: Three Different Takes OVER THE TOP: Jack in the Box Jack s Blazin Chicken Sandwich with ghost-pepper ranch sauce ETHNIC: Olive Garden Spicy Calabrian Wings with garlic and chile peppers and gorgonzola dipping sauce. Photo Sources: Facebook and Ancorinc.com WITH FRUIT: P.F. Chang s China Bistro Spicy Paloma with Tanteo Jalapeño tequila, jalapeño slices and white-grapefruit juice 24
Age Interest in Ethnic Flavors Rising Across Ages 18 24 25 34 47% 49% I AM MORE INTERESTED IN ETHNIC FLAVORS THAN I WAS A YEAR AGO. Top two box = agree and agree completely 35 44 34% 45 54 35% 55+ 21% Source: The 2013 Flavor Consumer Trend Report, Technomic 25
Ethnic Influences: Three Different Takes ASIAN: Au Bon Pain Thai Coconut Shrimp Soup LATIN: Bahama Breeze Island Grille Adobo Chicken Street Tacos MEDITERRANEAN: Freshii Falafel Bowl 26
Ingredient Combos Drive Appealing Flavors HOW APPEALING ARE THE FOLLOWING FLAVOR COMBINATIONS? Top two box = appealing and extremely appealing Tomato basil Honey garlic Chipotle lime Honey ginger Rosemary orange Avocado dill Mango curry Strawberry basil Lemon horseradish Orange chile Mango habañero Wasabi ginger 48% 53% 42% 48% 30% 38% 28% 40% 25% 32% 23% 27% 21% 27% 21% 26% 20% 17% 20% 25% 19% 27% 19% 23% 2009 2013 Source: The 2013 Flavor Consumer Trend Report, Technomic 27
Bold Flavor Combos: Three Different Takes FRUIT-MAPLE-NUT: First Watch Superfood Kale Salad, featuring kale and mixed greens, maple roasted carrots, grilled chicken breast, dried cranberries, slivered almonds and shredded Parmesan cheese, tossed in a maple lemon vinaigrette SPICY-SWEET: Zed451 Ginger Bourbon Lemonade SALTY-SOUR: Morton s The Steakhouse Seared Ahi Tuna served with seaweed salad, pickled cucumber and horseradish soy sauce. Photo Sources: Facebook and Ancorinc.com 28
Key Trend: Health 29
Healthy Choices Are Important to Consumers 65% Say restaurants can offer healthy food in a way that tastes good 64% Agree that it is important to eat healthy and pay attention to nutrition Source: Healthy Eating Consumer Trend Report, Technomic Inc., 2012 30
What Does Healthy Mean Today? Additive NUTRITIONAL/ FUNCTIONAL QUALITY Traditional Health Halo LOW IN NATURAL Avoidant 31
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Generations Views Differ on Health, Wellness Millennials Low calorie Unprocessed Natural Gen X Organic Authentic Homemade Boomers Low fat/trans-fat/ saturated-fat Low salt/ low cholesterol Low carb Premium Homemade How often do you choose a restaurant based on the healthfulness of its menu? Responses of often and very often MILLENNIALS GEN X BOOMERS 21% 18% 31% Source: The Generational Consumer Trend Report, Technomic Inc., 2012 33
About Gluten-Free GLUTEN-FREE MENU INCIDENCE 2013 2012 2,092 1,549 2009 150 2010 176 2011 520 Source: Technomic MenuMonitor, 2009-2013 34
Gluten-Free: Three Different Takes CUSTOMIZED: Outback Steakhouse Herb-Roasted Prime Rib, available gluten-free (without au jus) REPOSITIONED: Wildfire Roasted Beet and Goat Cheese Salad with field greens, marcona almonds and balsamic vinaigrette NO SACRIFICE: Pick Up Stix Thai Coconut Curry Chicken. with fresh green beans, red peppers, carrots, onions and broccoli in creamy coconut curry Photo Sources: Facebook and Ancorinc.com 35
Key Trend: Sustainability 36
Consumer Sustainability Lexicon No antibiotics or hormones Humane Environmentally friendly Green Fresh Local Responsible Clean Working conditions Global warming concern Ethical Organic Simple Right thing to do Healthy Authentic Human rights 37
Local Sourcing Definitions QUALITATIVE 65% 48% 42% 28% Delivered directly by farmer, supplier, producer From a family-owned operation From small farmer, supplier, producer An organic product Base: 1,500 consumers Source: Technomic Sustainability Study 2014 38
Socially Responsible Sourcing is Important Serves meat and poultry raised without hormones or steroids 58% Serves free-range poultry and/or grass-fed beef 45% Serves natural and organic menu items 41% Source: Technomic Consumer Brand Metrics 2013 39
Sustainable: Three Different Takes LOCAL: Longhorn Steakhouse Crispy Chicken and Grilled Watermelon Wedge Salad, with produce sourced from nearby farms CERTIFIED: Roti Mediterranean Grill Salmon raised with the Global Trust Certified Quality Salmon Eco-Standard Label HUMANE: Chipotle Mexican Grill Pork raised naturally (without antibiotics on a vegetarian diet) braised with thyme, bay, juniper berries and cracked black pepper 40
Fast Casual Growth and Its Effects 41
Defining the Fast Casual Operator THE 10 FS OF FCR Full View Preparation Food Quality Fine Ingredients Flexible Offerings Friendly Employees Fast Casual Appeals Fitter, Wholesome Food Fresh Fast Service Fair Price First-Rate Décor 42
Fast Casual Is a Subset of Limited Service 2013 Total LSR: $231B* FCR $35 15% QSR Fast food <$9.00 check Fast service system Strong takeout orientation FCR QSR $196B 85% Better quality offerings $9-13 check Fair price Even split: takeout /on-premise 43
FCRs FCRs Increasing Staking Ground Share in of Limited Limited Service Service FCR SHARE OF LSR Fast Casual Sales 2002 6% $8B 2007 9% $18B 2013 15% $35B 44
Fast Casual Price Points Hit a Sweet Spot Meal Components FCR CDR* QSR Boneless Buffalo Wings Fries Soft Drink ½ lb. Bacon Cheeseburger Fries Soft Drink $10.47 $15.83 $8.67 $9.87 $15.73 $6.69 Chicken Quesadilla Soft Drink $7.68 $13.20 $4.98 *Includes 15% tip 45
FCRs Attract Higher Income Groups Household Income Group ($000s) Visit Frequency Index Unemployment Rate* <$25 65 19.3% $25 34.9 88 9.9 $35 49.9 94 7.6 $50 74.9 106 5.3 $75 99.9 141 3.8 $100+ 147 3.0 Key FCR Customer INSIGHT Higher income groups less impacted by recession 46
and Younger Consumers Age Group Visit Frequency Index 18 24 182 25 34 129 35 44 88 45 54 82 55+ 53 Key FCR Customer INSIGHT Younger consumers have fewer cooking skills, but still want quality foods Tend to come from more affluent households 47
Fast Casual Performance Next 80 FCRs Within The Top 100 Chains $8.1B 2013 Fast Casual Industry All Other FCRs* $6.8B 20% 23% Total = $35B 57% Top 20 FCRs $19.6B 2013 FCR Sales Growth Top 100 FCRs 10.9% Chains Ranked 101 450 15.4% All FCRs 11.4% INSIGHT The smaller fast casual chains outpace the top 100 brands 48
FCRs Continue to Evolve Pioneers 1980 s 2 nd Generation 1990 s Today s Leaders 2000 s NEXT GENERATION EVOLUTION 2010 s 49
Next Generation of FCRs Emerging FOCUS REMAINS ON FOOD QUALITY, AMBIANCE, VALUE FAST-FIRED PIZZA Ultra-high temperature ovens allow customized, upscale pizzas to be cooked in three to five minutes. HEALTHY AND RESPONSIBLE Seeking to offer upscale food that is good for the body and the environment. SOPHISTICATED FRIED CHICKEN This premium fried chicken is served with honey butter to create the ultimate comfort food restaurant experience. 50
Where Technology Fits Into Hospitality 51
A Game Changer? 52
Tech Tools of the Moment
What Do Consumers Want? Technology Barely Registers ATTRIBUTES CONSUMERS LIST AS REASONS FOR CHOOSING A RESTAURANT LSRs FSRs 87% 87% 85% 82% 72% 65% 21% 18% SERVICE VALUE CONVENIENCE TECHNOLOGY OPTIONS 54
A lot of times, people don t know what they want until you show it to them. 55
When Consumers Try It, They Like It of consumers who 83% visited a restaurant with tabletop tablets used the tablet What did you like about using the tablet? 75% CONVENIENCE 73% SPEED 46% ACCURACY 56
Overall, Interest Highest in Deals PERCENTAGE OF ALL CONSUMERS WHO RATE RESTAURANT TECHNOLOGY AS IMPORTANT OR VERY IMPORTANT 34% 48% 36% To place an order 33% To receive coupons or special deals 31% To participate in loyalty programs To make reservations To access Wi-Fi on my own device 57
Busy Balancers, Foodservice Hobbyists View Tech Positively TECHNOLOGY MAKES THE RESTAURANT EXPERIENCE A BETTER VALUE 22% 28% 45% MORE ENJOYABLE FASTER 27% 23% 31% 27% 24% 60% MORE CONVENIENT 43% 43% 53% Foodservice Hobbyists Busy Balancers Overall Average
TO RECEIVE COUPONS OR SPECIAL DEALS TO PARTICIPATE IN LOYALTY PROGRAMS TO PLACE AN ORDER TO PAY FOR MEALS TO MAKE RESERVATIONS TO ACCESS WI-FI ON MY OWN DEVICE 77% 76% 74% 73% 73% 83% Busy Balancers Want it ALL Online 59
50% of diners say they might not use tech because I PREFER MORE PERSONAL INTERACTION WITH SERVERS/STAFF 60
Conclusion 61
Conclusion Consumers are feeling more confident Food and beverage are key to perceptions of value Fast Casual continues to lead segment growth, innovation Technology centers on access, not just tools New trends constantly emerging 62
Questions? JACKIE DULEN RODRIGUEZ Senior Manager jrodriguez@technomic.com 63