Drive-Thrus Could Give Full-Service Chains New Opportunities for Growth

The drive-thru lane is no longer exclusive to fast-food chains.

Applebee's recently revealed it would be "aggressively" leaning into drive-thrus as it gets back to new unit growth, reported Forbes (March 3). Full Story

The chain will soon open its third location that includes a drive-thru pickup window and there could be about 15 models by the end of this year.

The segment is certainly growing across the restaurant industry. The NPD Group found that drive-thru accounted for 42% of all traffic in November 2021, compared to 26% in February 2020.

With that, The Food Institute took a closer look at how adding drive-thrus could impact full-service chains.

Are Drive-Thrus Effective for Boosting Sales?

In a changing industry, drive-thrus give full-service chains a new opportunity to attract customers.

"Nowadays you need to feed people what they want, how they want it, where they want it, and when they want it," Dan Rowe, founder and CEO of Fransmart, told The Food Institute. "Drive-thru used to be only for QSR with food waiting under the heat lamps but nowadays, and especially because of COVID, it's become pervasive."

John L. Church, managing director and co-head of food & beverage at HSBC Bank, said that fast and family casual restaurants disrupted by the pandemic can leverage drive-thrus to better manage future disruptions, labor constraints and spending associated with dining room maintenance.

Joe Pawlak, managing principal at Technomic, agrees that drive-thrus can be an effective strategy for full-service chains to boost sales. However, he believes that it needs to take on a different model than that of fast-food.

"Given that speed of service is key in drive-thrus, ordering at time of arrival is not something that would work for casual dining as meal prep takes longer in casual dining," Pawlak explained to The Food Institute. "Rather, drive-thrus could work very well for pre-orders, for when orders are made available at designated times for a consumer just to drive up and pick it up."

Demand From Consumers

With consumers always looking for convenient options, there is a demand for drive-thrus.

"Most QSR, for instance, do more through drive-thru than dine in so you know the preference," said Rowe. "Customers feel safe and in control in a drive-thru, especially through COVID. Everyone is on the go and customers want convenience...without a drive-thru, these customers wouldn't normally think about an Applebee's.

Rowe even believes that drive-thrus have the potential to make Applebee's interesting and relevant again and could add 20% or more to sales.

"Consumers are looking for convenience any way they can get it," added Pawlak. "If this means that a consumer doesn't need to get out of their cars to get their pickup orders from full-service restaurants, I think they'd be all for it."

Blurring the Lines Between QSRs, Fast Casuals, and Full-Service

With the advent of delivery and the adoption of drive-thrus, the lines seem to be blurring between segments in the restaurant industry, with Rowe highlighting ghost kitchens as an example.

"Remember the whole thesis for ghost kitchens was the narrative that fast casual and full service weren't equipped for off premise. Since COVID, most fast-casual and full services have become quite good at off premise, drive-thru is just the next natural extension," he said. Food Institute Focus

Will Restaurants Become the Focus at Malls?

For much of the 1980s and ‘90s, American malls were where seminal moments occurred in the lives of adolescents. They bought puppies at the basement pet store. They rented tuxedos for proms. And they socialized in mall food courts while dining on personal pan pizzas, egg rolls, or frozen yogurt.

Then, changing consumer habits began pushing malls to the wayside. A 2020 report by Coresight Research estimated that 25% of America's roughly 1,000 malls would close by 2025.

Today, however, American malls may be mounting a comeback, with restaurants playing a critical part in the resurgence.

"Big-city malls are seeing exponential traffic growth," Cedric Teboul, a South Florida-based strategic real estate advisor, told The Food Institute.

"We expect to see continued investments by brands and owners to upgrade existing restaurants" in and around malls, said Jaime Bettencourt, an executive at marketing company Mood Media, "just as property owners of malls are investing in their own refresh. [And], restaurant brands and owners who have seen growth – in some instances record growth – will certainly continue with new brick and mortar in and around populated shopping areas."

Holding (Food) Court)

An August 2020 CNBC report noted that, prior to the pandemic, mall developers had been courting establishments like Dave & Buster's and The Cheesecake Factory, to lessen their dependence on shrinking retailers (though these businesses eventually struggled, too, during the era of social distancing.) Full Story

This year, though, ghost kitchen company Kitchen United is coming to more malls after securing a deal with the Simon Property Group. Kitchen United will appear at food courts at two additional malls this year, in Los Angeles and Long Island, and the move could help reinvent the American mall, making the retail centers food delivery hubs, of sorts, as reported by Restaurant Business (Feb. 3). Full Story

Meanwhile, Focus Brands plans to add more concepts to its restaurant portfolio following a record-breaking year for shopping mall heavyweights like Auntie Anne's and Cinnabon. Company CEO Jim Holthouser recently told Forbes that, in 2021, it wasn't uncommon for Focus' mall-based brands to see 30% daily comps growth year-over-year. Full Story

Commercial Building Boom?

A recent report suggested America's red-hot housing market is about to kick start the great commercial building boom, as more structures like shopping centers are built.

Structures investment relative to GDP has rarely been lower over the past three decades and, as a result, eventually this pent-up need for more commercial buildings is going to reach a tipping point, leading to a boom in construction, reported Business Insider (Feb. 3). Full Story

Envisioning Malls of the Future

"Shopping malls drive and reinforce an innate characteristic of human beings – a desire to be around other people," Bettencourt said. "As a result, the malls of the future will continue to incorporate a shop, eat, play, and entertainment experience."

Proven, brand restaurants that can provide entertainment and experiential dining could thrive in and around malls moving forward, Teboul said.

"Unfortunately, there will be no room for individual, or small, mom-and-pop stores," the real estate advisor said. "Malls are becoming more difficult to work with, as they require a lot more documentation, funds, and proof of income before even opening a store. There's no room for mistakes, and malls like to work with big operations that have proven to be successful." Food Institute Focus

Nutrition vs. Weight Loss: Consumers Shifting Away from Diet Culture

U.S. consumer attitudes about health and wellness are shifting.

People have stopped focusing on diets and "can't haves" and are instead paying attention to whole-body health and lifestyle changes they feel will be long-lasting, according to findings from the The NPD Group. Full Story

"Food and eating trends can be cyclical in nature, as seen with reiterations of low-carb trends from years past," Cara Harbstreet of Street Smart Nutrition, told The Food Institute. "But this shift is different in several notable ways, primarily in that many chronic dieters are starting to opt out of dieting altogether."

So, what's causing this shift?

Nutrition vs. Weight Loss

"Consumers' definition of ‘healthy' is almost constantly changing," Marie Molde, a registered dietician at Datassential, told The Food Institute. Today, eating healthy is about more than just weight loss.

"I think consumers are shifting from diets because they've learned that quick-fix approaches to health and wellness rarely or never work, and health and wellness is impacted by more than just what we eat," said Molde.

Molde added that health should be addressed in a holistic way, "not just what we eat today but what we eat over several days, months and years matters, and even if we're eating perfectly, if we're not sleeping or managing stress, there will still be a missing link."

As a dietitian practicing with a weight-inclusive lens, Harbstreet has also noticed this shift.

"I've seen a significant increase in the number of clients who seek support in healing their relationship with food after previously trying every diet under the sun," she said.

She added that, as people realize their repeated attempts at weight loss haven't yielded better health, they naturally start to look for alternatives.

"Dieting for the goal of health has become synonymous with dieting for weight loss, and our culture at large has conflated [weight and health] for many years," Harbstreet continued. "However, we know there are numerous evidence-based practices and behavior change frameworks that can support better health without a disproportionate focus on the scale."

WW Downgrade

Of note, KeyBanc Capital Markets recently downgraded WW (formerly Weight Watchers), noting that the company has been faced with this shifting perception of dieting and body image among younger consumers in particular, reported MarketWatch (Jan. 20). Full Story

"The anti-diet movement is gaining steam and there has been a shift in diet culture among Gen Z and millennials, with a greater focus on body inclusivity," KeyBanc analysts wrote in a report looking ahead to internet retail in 2022. Food Institute Focus

Store News:

• McDonald's will temporarily close all restaurants in Russia and pause operations in its Russian market. Starbucks, Coca-Cola and PepsiCo followed shortly after, bowing to growing criticism over silence on the conflict even as other multinational companies severed ties with the nation, reported Yahoo! Finance (March 8). Full Story
• Burger chain White Castle plans to put Miso Robotics' Flippy machines in 100 more restaurants, after more than a year of testing the robots yielded better operations and staff productivity. It appears to be the largest adoption of such technology yet by a U.S. restaurant chain, reported Restaurant Business (Feb. 15). Full Story
• Burger King will take the Whopper off its discount menu as parent company Restaurant Brands International prepares to increase prices to offset higher costs, reported Reuters (Feb. 15). Full Story
• Jamba and Blendid have expanded a pilot launch of autonomous, robotic smoothie kiosks to colleges and universities, adding locations at Georgia College and Kennesaw State University. Jamba and Blendid plan to explore more opportunities to open kiosks in non-traditional venues, including gyms, hospitals, airports, and more. Full Story
• Fast-casual restaurant chain Dig is testing the four-day workweek with its hourly kitchen staff, giving them the option to work full-time hours compressed into four days, reported Fast Company (Feb. 17). Full Story
• IHOP launched a new digitally-enabled loyalty program called "International Bank of Pancakes," which offers guests the opportunity to earn digital tokens, called PanCoins, that can be used to buy more food, reported Forbes (March 9). Full Story
• McDonald's expects to source 85 to 90% of its U.S. pork from pigs not housed in gestation crates during pregnancy by the end of this year, following pressure from activist investor Carl Icahn, reported ABC News (Feb. 20). Full Story
• Krispy Kreme is planning delivery-only shops in the U.S and Mexico. The doughnut chain is planning to expand its utilization of "dark shops" for delivery orders this year, after testing the concept in the U.K., reported PYMNTS.com (Feb. 22). Full Story
• Yum Brands properties KFC and Pizza Hut are taking technology in a new direction — making restaurants run more efficiently by automating tasks that humans aren't needed for — as they try to catch up to McDonald's innovations, reported The Street (Feb. 25). Full Story
• Wendy's said it has acquired 93 franchise-operated restaurants in Florida for $128 million. The purchase gave the burger chain 408 of the system's nearly 7,000 global restaurants. Wendy's, which in past years had typically sold restaurants it acquired back to other franchisees, instead plans to keep these restaurants as part of a "system optimization initiative" in which it keeps 5% of its total restaurant count, reported Restaurant Business (March 1). Full Story
• Meanwhile, Wendy's believes it can increase breakfast sales another 10% to 20% this year, which would add as much as $182,000 in sales per store on an annualized basis, reported Restaurant Business (March 1). Full Story
• After several years of paring down its system to prioritize well-performing restaurants and better compete in a saturated casual dining segment, Applebee's is positioned for net new unit growth again as soon as next year, reported Forbes (March 3). Full Story

Executives on the Move:

• Golden Corral CEO Lance Trenary has been named chair of the National Restaurant Association Board of Directors. Full Story
• Firehouse Subs has named Mike Hancock its new COO, reported QSR Magazine (Feb. 23). Full Story
• East Coast Wings + Grill promoted Whitney Mann to Executive Vice President of Operations. Full Story
• Domino's Pizza announced the promotions of Joe Jordan to the role of President, U.S. & Global Services and Art D'Elia to the role of Executive Vice President – International, effective May 1, 2022. Full Story

Restaurant Sales Improve Following January Slump

After ten consecutive months of traffic gains, the U.S. restaurant industry's recovery slowed in January, according to The NPD Group.

However, things are looking up.

Omicron-Induced Slow Down in January

The surge of the COVID-19 Omicron variant had an impact on restaurant traffic in January.

The NPD Group found that physical and online visits to U.S. restaurants were down 2% in January compared to an 8% decline in January 2021, with total restaurant traffic – online and physical – down 10% from the pre-pandemic level in January 2020.

Though dine-in traffic increased by 40% in January, the jump compares to a 61% decline in January 2021. On-premises visits this January were down 46% from the pre-pandemic level in January 2020, while off-premises orders were down 10% in the month compared to a 22% increase in January 2021.

"No one ever said the road to recovery would be smooth and steady. Right now, we're experiencing a dip in the road due to the omicron variant and stimulus money expiring," said David Portalatin, NPD food industry advisor, in a press release.

Interestingly, online and physical visits to quick service restaurants, which represent the bulk of industry traffic and historically have led the industry out of challenging times, also declined by 3% in the month compared to a year ago. On the other hand, full-service restaurant traffic actually increased by 2% in January, over a 22% decline from 2021.

Recovery in February

Restaurant sales growth jumped significantly during the week ending February 20, posting the industry's second-best sales growth rate in over two years, according to Black Box Intelligence.

Sales during the first three weeks of the month showed an improvement over January's sales growth and return the industry into positive growth territory. However, a significant slowdown from the average growth experienced between June and November of 2021 persists.

"Looking ahead, we should expect volatility. February restaurant numbers will be compared to a rough February last year because of extreme weather," said Portalatin. "My advice is don't get too discouraged by January or too elated if February seems great. Just stay the course because we're on a steady path of gradual improvement." Food Institute Focus

Selected Restaurant Results:

• Shake Shack forecast first-quarter revenue below Wall Street estimates, saying the omicron variant has kept diners away from its restaurants and led to some temporary closures. The company also said it would increase prices by 3% to 3.5% in March, reported Reuters. Full Story
• Subway's unit volumes hit an eight-year high in 2021. For the top 75% of the sandwich chain's locations, same-store sales were up 7.5% over 2019 levels, reported Restaurant Business (Feb. 22). Full Story
• Wingstop is on a roll despite rising chicken wing prices. By keeping its menu simple and focusing on off-premises sales, the restaurant chain grew its number of locations by 12.5% last year, reported Forbes (Feb. 24). Full Story
• Wendy's reported fourth quarter total revenue of $473.2 million and projected 2022 global systemwide sales growth of 6% to 8%. Full Story
• Domino's Pizza posted fourth-quarter earnings and revenue that fell short of analysts' expectations and announced that CEO Ritch Allison plans to retire. Net sales dropped 1% to $1.34 billion, missing expectations of $1.38 billion, reported CNBC (March 1). Full Story

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Source: Datassential, Dessert's Sweet Spot April 2019