A Swiftly Tilting Palate
Oct 1, 2007 12:00 PM, By Lauren Shepherd
Health factors in
The trend toward quicker meals has coincided with the nation's obsession with eating better. As obesity statistics rise, consumers have become more and more conscious of what they eat — and they expect restaurant companies to do the same.
In 2007, it was the quick casual sector that really seemed to be listening. Newer concepts focused on healthy foods like Chopped, a small chain of salad-centered restaurants in Tucson, Ariz., have grown quickly. More established concepts that have boasted healthier or more natural ingredients, like Chipotle, have seen sales skyrocket. Restaurants sales at Chipotle, for example, grew 34 percent in the second quarter. The company has opened 60 restaurants in the first half of this year. In comparison, by the end of the first six months of 2006, the company had only opened 29 new restaurants. It plans to open up to 120 before the end of 2007.
Irvine, Calif.-based El Pollo Loco, a chain that boasts its flame-grilled food is freshly prepared and healthy, is an up-and-coming concept. It is located mainly on the West Coast, but it's making a bid to expand across the country. The company has opened 18 restaurants so far this year and is scheduled to open a total of 30 new restaurants before year's end.
Besides healthy eating, quick-service chains that cater to a specific niche have done well in the past year and experienced significant growth. Pei Wei, an Asian quick casual concept from Scottsdale, Ariz.-based P.F. Chang's China Bistro Inc., is one example. Robert W. Baird & Co. analyst David Tarantino noted that the chain increased its units by 39 percent in 2006 and is targeting a 35 percent increase in 2007.
Revenue at Pei Wei grew nearly 39 percent in the firm's second quarter and the company is expecting sales to rise 37 percent for its fiscal year.
Despite the revenue growth, Pei Wei disappointed some investors by not meeting its internal revenue projections in the second quarter. The chain's same-store sales grew 1.0 percent in the quarter and the company expected growth of 1.7 percent. Although the chain lowered its expectations for same-store sales growth to 0.8 percent for the full year from 1.4 percent, it made no change to its expansion plans.
Other's mistakes
Many quick casual concepts expanding today are looking to avoid mistakes made by other chains, says Darren Tristano, executive vice president Technomic. For example, the plight of doughnut chain Krispy Kreme Doughnuts Inc. provides a cautionary tale
Krispy Kreme — based in Winston-Salem, N.C. and once a Southern staple — tried to go national in the late 1990s. The company conducted an IPO in 2000 to raise cash and then rapidly opened units across the country. But it stumbled badly. It opened locations with much bigger footprints than it needed. Moreover, customer tastes changed quickly. At the time it went public, Krispy Kreme's popularity was cresting. But then the low-carb fad exploded. And sales of Krispy Kreme doughnuts — notoriously decadent and dripping in calories — plummeted. Moreover, just as it was opening stores, the chain was expanding its presence in supermarkets, offering boxes for sale at dozens of grocers. That too cut into sales as customers passed on its stores hot and fresh doughnuts for pre-packaged ones.
The company's management ran into more problems when the SEC came calling in 2004 after allegations surfaced that the chain was “channel stuffing,” or sending some stores twice their regular shipments at the end of a quarter to make its numbers.
As a result, Krispy Kreme ended up shuttering many of its locations. Now it is searching for smaller sites to reduce its costs.
