QSRs Rethinking Value Meals as Costs Rise
Fast-food chains, such as McDonald's and KFC, appear to be cutting discounts and pushing more expensive meals post-pandemic.

QSRs are cutting back on $5-and-under "value” menu items in favor of $10-$30 meal combinations in order to lift sales and offset rising food costs, reported Reuters (June 22). Full Story

Why are Fast-Food Prices Spiking?

Rising costs for labor and ingredients are pushing menu prices higher at chains across the country. Recently, Chipotle said it was boosting wages for its workers and raising menu prices by nearly 4% to cover those raises.

The Consumer Price Index gained 0.6% in May on a seasonally adjusted basis after rising 0.8% in April, the U.S. Bureau of Labor Statistics reported last month. The food away from home index rose 0.6%, following a 0.3% increase in April.

Pricier Meals Lift Sales

"Value meals,” or those typically priced at $5 or less, have long been staples at fast-food establishments which use them to drive traffic. However, these deals have become less and less common in the last 18 months, according to Datassential.

For example, KFC stopped marketing $5 Fill Ups and now promotes family meal deals that cost as much as $30. At McDonald's, the "$1 $2 $3 Dollar” campaign has been pared down to 8 items instead of the 12 it included when it launched in 2018. Recently, the company has been heavily promoting its $10 "BTS Meal” as part of its strategy to reach younger customers.

The tactics appear to be working so far, lifting comparable sales at limited-service restaurants by 11.5% this May compared to the same month in 2019, according to Black Box Intelligence. Profit margins are also up at several chains. Food Institute Focus

Historic Heatwave in Pacific Northwest Causes Concern Over Crops
You thought 2020 was bad? This year has featured extreme drought conditions. Then, cicadas and grasshoppers. Now, the Pacific Northwest is getting walloped by a nearly unprecedented heatwave.

Portland, Seattle, and swaths of western Canada crushed all-time heat records for the second straight day on June 28, reported The Washington Post (June 28). Full Story

Portland and Seattle hit all-time highs of 116 and 108 degrees, while a town in Canada surged to a national record of 118 degrees.

What is Causing the Heatwave?

The strength of the "heat dome,” or sprawling zone of high pressure centered near the U.S.-Canada border, responsible for these temperatures is breaking records that might be expected once every several thousand years on average.

However, climate change has, according to some reports, made events such as this more possible. "The past is no longer a reliable guide for the future. These events are becoming more frequent and intense, a trend projected to continue,” tweeted the Oregon Climate Office.

Officials worry the intensity and duration of this heat wave will lead to dramatic increases in heat-related illness and fatalities in a region where many lack air-conditioning.

Effect on Agriculture and Foodservice

It's currently peak harvest season in the Pacific Northwest, but it's too hot to be in the fields and groves, reported NPR (June 28). Full Story

Nearly 20 million people were recently put under an excessive heat warning, covering nearly all of Washington and Oregon, plus five other states. The recommendation was to stay out of the sun, but that's hard for farmworkers.

The heat is also negatively affecting crops. Across the region, wheat crops were already suffering from drought prior to the heatwave, reported OPB (June 29). Full Story

Additionally, Pacific Northwest cherry growers are concerned for their crop amid the scorching hot weather during the harvest. Some growers are preparing for predawn harvests while others start at sunrise, but the 100-plus degree temperatures could damage crops despite these efforts, reported Fresh Fruit Portal (June 28). Full Story

Meanwhile, Oregon restaurants and food carts must choose to remain open amid the heat wave or close. For a region that doesn't typically rely on air conditioning like the rest of the U.S., carts and restaurants may simply have to close through the heat wave, reported The Oregonian (June 25). Full Story

When wheat is stressed, it stops making grain, so the heat wave will most likely reduce the number of kernels of wheat products and shrivel many of the wheat berries making them lighter weight, according to USDA wheat expert Craig Morris.

"I think three-quarters is probably pretty realistic from what I'm hearing,” Morris told OPB. "But again, until the combines roll and the trucks get filled up and go across the scales, and go to the elevator ... we aren't going to know for certain.” Food Institute Focus

How Food Businesses are Fighting Inflation
The Federal Reserve raised its median forecast for inflation this year, projecting consumer prices will rise 3.4% in the fourth quarter compared to a year prior.

Since the pandemic began, grocery bills have gone up 8%-9% and, relative to 2019, the average consumer can expect to pay 10% or more for food this year. This could mean paying an extra $6,000.

CFOs of food companies are using various strategies to curb the impact of inflation on their businesses, as noted by The Wall Street Journal (July 9). Full Story

Forecasting and Planning

Some companies are using an inflation forecast to get a better understanding of how costs might develop in the months ahead. This allows them to prepare and take actions if needed to offset increases.

J.M. Smucker Co., for example, expects higher inflation rates for this year and the beginning of next, according to finance chief Tucker Marshall. The company is increasing consumer prices across the product portfolio while also looking for productivity savings.

Raising Prices

Other companies, such as General Mills, have also announced price increases for some or all of their products in recent months. However, executives must make sure the changes are in line with what competitors are doing to avoid losing customers.

Additionally, companies must determine whether the new price covers expected cost increases in the coming quarters.

Streamlining

CFOs are also making operations more efficient by cutting or reallocating certain spending, often in combination with other steps.

"The traditional way of combating inflation is by controlling expenses,” said Hardik Sheth, a partner at Boston Consulting Group and leader of the consulting firm's CFO excellence practice/

Making a Sales Push

Food businesses are increasing efforts to boost revenue to shield their bottom lines.

For example, restaurant chain Red Robin Gourmet Burgers will likely consider new sales initiatives, cost-cutting measures, and more price increases if inflation persists, according to CFO Lynn Schweinfurth. Efforts would include loyalty programs and expanding partnerships with other businesses.

Strategic Purchases

Some companies are trying to limit their inflation exposure by making strategic purchases of goods or raw materials when the price is low.

McCormick is one example of a company that looks to buy when the price is right. The strategy helps it secure supply and moderate product cost cycles, according to CFO Mike Smith.

Dollar Tree's Strategies

Dollar Tree is still selling everything for $1, despite lurking inflation. How? The majority of its products are store brands, which gives it flexibility in an inflationary environment, reported The Wall Street Journal (July 11). Full Story

Just 37% of products are from national brands. When large consumer-goods companies raise prices, the chain can replace those items with a new assortment, according to CEO Michael Witynski.

In 2020, the retailer also implemented new cost-saving measures such as shipping $1 gift bags, a big seller, in boxes of 72, up from 24, to save on shipping costs. Food Institute Focus

Chick-Fil-A Ranked Top Fast-Food Restaurant Again; Subway and McDonald's Stumble
Chick-fil-A was rated America's top fast-food restaurant for a seventh straight year, according to the latest American Customer Satisfaction Index (ACSI), which provides customer satisfaction benchmarks for major companies in the foodservice sector. At the same time, Subway had the biggest drop among limited-service restaurants, and McDonald's ranked last.

Chick-fil-A and QSR segment performance

Privately-owned Chick-fil-A, ranked by Franchise Times Magazine as the ninth-largest franchise company in the U.S., reported record free-standing franchised restaurant sales last year as it added drive-thru lanes, dispatched outdoor order-takers with tablets, and expanded both curbside pickup and third-party delivery amid the pandemic. Sticking to its dedication to customer service and specialized menu, revenue was $4.3 billion in 2020 compared to $3.8 billion in 2019, an increase of 13%. The Atlanta-based company reported comprehensive earnings of $715.9 million in 2020 versus $647.2 million in 2019, an increase of 10.6%, reported Restaurant Finance Monitor (April 11). Full Story

In general, the quick service restaurant segment fared quite well during the pandemic. For the 12 months ending in March, fast-food chains dominated the restaurant market – taking in 70.2% of dollars spent eating out and 82.9% of all restaurant traffic, according to data from The NPD Group.

Drive-thrus, new crispy chicken sandwiches and "family meal” deals helped draw customers that other restaurants lost. During the year ending in March, Americans spent nearly $281.6 billion on fast food – which gained the 7.1% of market share by dollars that full-service restaurants shed, NPD data show, reported Reuters (April 30). Full Story

Yet, as the ACSI suggests, not all QSRs are making it out of the pandemic with their reputations intact.

Subway

The company has struggled to find its footing for years, even before founder Fred DeLuca's death in 2015. The success of its $5 footlong deal during the 2008 financial crisis fueled massive expansion, helping the chain become the largest in the U.S. by number of units. But rivals lured consumers away, while the company's large footprint led to sales cannibalization among its remaining customers. And as sales slid, ugly fights with franchisees played out in courts and splashed across headlines, reported CNBC (July 6). Full Story

Most recently, the chain has been contending with claims that the tuna served at its restaurants isn't actually tuna.

Subway is now hoping that upgrading its ingredients and mobile app will help draw customers back. Starting July 13, the company's U.S. restaurants will offer nearly a dozen new or improved ingredients, as well as 10 revamped or original sandwiches.

McDonald's

McDonald's is also facing reputational challenges.

The fast-food chain has been under fire for allegations of sexual harassment of workers in its restaurants, which have become a growing and more high-profile issue as groups like the ACLU provide legal support to plaintiffs.

The company is also facing a number of lawsuits from Black franchisees who have accused the chain of racial discrimination. McDonald's has disputed the allegations, calling the suits without merit, and has sought to have them dismissed, reported Fortune (April 14). Full Story

Until recently, McDonald's had also been feuding with franchisees over certain technology fees but cut a deal with operators reducing a one-time charge by more than 60%, or about $42 million.

Back on the customer satisfaction front, McDonald's is looking to boost the customer experience, launching its first-ever loyalty program nationwide this week. In addition to several rewards options, workers will greet loyalty members by name as they move through the drive-thru lane, and customers will also get a personalized email after they pick up their orders that includes upcoming deals tailored to them. Food Institute Focus

Store News:

• Red Robin Gourmet Burgers and Brews plans to add Donatos pizza to approximately 120 additional restaurants by the end of 2021, resulting in more than 200 locations. Full Story
• Luby's Cafeteria will be sold to entrepreneur Calvin Gin in a deal valued at $28.7 million, reported Restaurant Business (June 21). Full Story
• Salad chain Sweetgreen made its plans to file an IPO official, submitting a draft registration statement with federal regulators. It marks the third such filing for a restaurant company in the last two months, following IPO announcements from Krispy Kreme and Dutch Bros Coffee, reported Restaurant Business (June 21). Full Story
• QDOBA is launching a new line of salsa sauces, and toppings. Full Story
• Chipotle Mexican Grill is tapping into TikTok. The company is among the first piloting TikTok's new Resumes feature as the restaurant industry grapples with a major labor shortage, reported Forbes (July 9). Full Story
• Additionally, Chipotle is introducing Rewards Exchange, the biggest update to the Chipotle Rewards program since its debut in 2019. Members can now choose to exchange points for more than 15 different options, including free guac, drinks, and Chipotle Goods. Full Story
• Meanwhile, McDonald's introduced its first-ever loyalty program nationwide on July 8 as fast-food chains look to rewards programs to maintain the digital customers they gained during the pandemic. McDonald's also indicated it wants to use the loyalty program to add a personal touch to the customer experience, reported CNBC (June 22). Full Story
• McDonald's is also attempting to attract workers with expanded benefits. Franchise owners are adding benefits like emergency childcare and paid time off, and McDonald's corporate parent says it is backing those efforts with a multi-million-dollar investment, reported The Wall Street Journal (July 12). Full Story
• Dickey's Barbecue Pit is offering its seasonings and rubs at select Savemart stores. Full Story
• Taco Bell is testing the Naked Chalupa with crispy plant-based shell at a location in Irvine, California. Full Story
• Noodles and Company is testing three salads--the Asian apple citrus, Mexican street corn, and quinoa chop--in Colorado, Maryland, Virginia, Florida, and California. Full Story
• Little Caesars is launching Planteroni Pizza, becoming the largest national chain to offer plant-based peperoni in the U.S. Full Story
• Meanwhile, Little Ceasars is seeking franchisees amid plans to open 25 new locations in the Charlotte, North Carolina, market by 2024. Full Story
• LFR Chicken agreed to buy Lee's Famous Recipe Chicken from Famous Recipe Group. Lee's has over 130 locations across the U.S. and Canada and LFR plans to grow the brand's footprint. Full Story
• Papa Murphy's is remaking its image. The take-and-bake pizza chain introduced its first new logo in more than a decade and its first store redesign since 2014 on the heels of a 2020 run during which its U.S. system sales rose 6.5%, reported Restaurant Business (June 23). Full Story 
• Dunkin' Donuts has pulled the Beyond Sausage breakfast sandwich off its U.S. menu and no longer has it listed among the food items posted on the company's website. Dunkin' says it will continue to work with Beyond Meat to explore other plant-based options, reported Seeking Alpha (June 23). Full Story
• BBQ Holdings is acquiring Village Inn and Bakers Square from VIBSQ. Village Inn is a 135-location family restaurant concept, and Bakers Square is a pie and comfort food concept with 13 locations. Full Story
• Starbucks may be allowing too many customers to place orders via its mobile app, according to current and former staff who say the system is bogging down stores, reported Insider (June 26). Full Story
• FAT Brands has reached an agreement to acquire Global Franchise Group for $442.5 million in cash and stock. Global Franchise Group franchises and operates a portfolio of five quick-service restaurant concepts: Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker. Full Story
• Franchise operator Ampex Brands acquired Au Bon Pain from Panera Bread. Ampex said the acquisition will save the Au Bon Pain brand, which Panera was phasing out through closures and conversions to its namesake brand, reported The Wall Street Journal (June 30). Full Story
• Papa John's will open 250 restaurants in the German market over the next seven years. Full Story
• Meanwhile, Papa John's loyalty program has accounted for half of the company's sales so far in 2021. Full Story
• Marco's Pizza will open 20 locations in the Denver market by the end of 2024. Full Story
• Krystal unveiled a prototype in Atlanta designed to cater to on-the-go customers. Full Story
• Fiesta Restaurant Group plans to sell Taco Cabana to YTC Enterprises for $85 million, minus certain costs. Full Story
• Beyond Meat launched Beyond Chicken tenders for foodservice. Full Story
• Popeyes is stockpiling poultry as it prepares to launch a new nugget product at a time of industrywide chicken shortages. The business, owned by Restaurant Brands International, has been building its frozen-chicken inventory for more than six months, Popeyes Americas President Sami Siddiqui said in an interview. The company wants to be confident it has sufficient supplies when the nuggets roll out nationwide July 27, reported Bloomberg (July 13). Full Story 
• Panda Express is adding Beyond Meat Orange Chicken to its menu at select locations starting July 26, reported TechCrunch (July 13). Full Story

Executives on the Move:

• Dunkin' appointed Rafael Acevedo chief marketing officer. Full Story
• Ruby Tuesday named George Evans COO and Kathy Buckley as CFO. Full Story
• Bloomin' Brands promoted Mark Graff to SVP of business development and financial planning. Full Story
• The Kraft Heinz Co. hired Kathy Krenger as chief communications officer to replace the retiring Michael Mullen. Full Story
• Krystal Restaurants named Alice Crowder chief marketing officer and Kaitlin Stoehr as director of marketing.
• Anheuser-Busch InBev named Brendan Whitworth zone president of North America and CEO of Anheuser-Busch, reported CSP (June 30). Full Story
• Red Lobster has appointed Kelli Valade as chief executive officer. Full Story
• US Foods Holding named John Tonnison EVP, chief information and digital officer. Full Story
• Greg Trojan will retire as CEO of the BJ's Restaurants casual-dining chain on Sept. 1, with the title passing to current president and CFO, Greg Levin, reported Restaurant Business (July 6). Full Story
• Chris Finazzo, president of Burger King Americas, has left the company after nearly seven years. He'll be replaced on an interim basis by chief Marketing Officer Ellie Dotyport, reported Restaurant Business (July 6). Full Story 
• Dickey's Barbecue Pit promoted Jim Perkins to EVP of international sales and support. Full Story
• Small Sliders has tapped Joe Lewis as the brand's first chief executive officer. Full Story

Industry Insider: Global Shipping Problems to Persist into 2022

While the world looked to the second half of 2021 as the "Great Reopening,” it seems like the "Great Backlog” is a more appropriate name for the current shipping paradigm. From sweatpants to semiconductors, supply constraints are causing shortages and adding inflationary pressures.

No Relief in Sight Until 2022

The global shipping situation is likely to remain complicated into at least early 2022, according to Camerican International senior director of global supply chain Michael Murphy, who was featured on a recent edition of The Food Institute Podcast.

Murphy said it was clear that ships were full and likely would remain so through the peak season near the winter holidays. However, the current situation has caused the company to rethink every part of the supply chain to find ways to alleviate constraints.

A recent report from The Institute of International Finance found much the same, arguing that supply constraints pushing up the price of goods would likely extend well into 2021.

"What is unique about this episode is the global spread of supply disruptions...inflation has never had to contend with a similarly global scale to disruptions,” the report said.

Impact on the Food Industry

Camerican president Josh Gellert, who also joined the aforementioned podcast, noted the food industry is contending with higher-margin consumer products for share of imports. As Americans were limited in what experiences they could pay for during the pandemic, many decided to spend their money on goods, including expensive electronics shipped from overseas.

"For us, a couple-thousand-dollar increase, or even more, in ocean freight is really punitive on the food side, where someone with better margins in clothing, electronics, things like that, they can manage those higher costs a little bit better,” he said.

Meanwhile, crop export shipments are being delayed due to backlogs at U.S. ports. Paramount Export Co. said agricultural exporters are "living in a world of uncertainty,” and fresh fruits and vegetables are at risk of decay if port slowdowns don't improve, reported AgAlert (June 23). Full Story

Those looking for relief via airfreight will likely be disappointed, according to Solange Colonna, director of operations and logistics for The Fresh Connection.

"There's only so much we can ship by air,” she told AgAlert. "It's very expensive and you don't get to ship much volume at a time.”

Contending with Clogged Ports, Restocking Supplies

Murphy said shipping issues are a global crisis, and that earlier backlogs at California ports are spreading to the rest of the West Coast. East Coast ports are also contending with a capacity crunch.

"Where do you unload this product when a port is 100% full?” he asked.

Gellert said that most reserves had already been depleted due to the COVID-19 pandemic  and restocking them would be important for operations in the future. A Wall Street Journal report indicated the same, citing Census Bureau figures that showed retail inventories as a share of sales in April hit the lowest level since record-keeping began in 1992. Food Institute Focus

The restaurant industry posted its 16th consecutive week of positive sales in the week ending July 4, according to Black Box Intelligence. Additionally, same-store sales growth for each of the three weeks ahead of July 4 were higher than any week during the eight-week period preceding them.

The total number of adults working or looking for work was flat in June, with quick-service restaurant jobs down 20% compared to pre-pandemic norms and sit-down restaurant jobs 41% lower. This was contrasted by growth in the grocery sector (+82%) and the hospitality sector (+279%). Full Story

Meanwhile, U.S. restaurant industry recovery will depend on the strength of key dayparts. Each daypart — morning meal, lunch, dinner, and P.M. Snack — will recover differently depending on the new rhythms of home, school, and work-life, according to NPD Group.

"Across dayparts, the motivations for visiting restaurants are evolving, necessitating a refocus on how restaurant operators target consumers,” says David Portalatin, NPD food industry advisor and author of Eating Patterns in America. "Quality, value, and innovation will always be relevant to the consumer, but we also need to recognize that in many ways the world has fundamentally changed.” Full Story

The Importance of Hand-Sanitizer Integrity

The unprecedented demand for hand sanitizer caused by COVID-19 has resulted in the market being flooded with unsafe products. Recently the former CDC chief of staff wrote an Opinion Editorial in the Atlantic Journal Constitution about the importance of FDA guidance related to alcohol-based hand sanitizers, stressing that "it is critical only FDA and CDC-approved hand sanitizers are used as a matter of public health.” Make sure you are educated about the risks posed by bulk hand sanitizers and the practice of refilling dispensers or bottles.