The restaurant industry has entered another year filled with both opportunities and challenges, from a growing consumer demand for dining out to increased commodity costs threatening bottom lines.
The quick-service sector specifically is expected to benefit from its consumer-friendly price points, but also be challenged by an ever-shifting menu landscape and systems filled with mature restaurants needing updates.
Top trends for quick-service restaurants in 2012:
Commodity inflation, menu price increases
This year is expected to hold little promise of relief in commodity inflation, with investment bank Barclay’s Capital projecting year-over-year food cost inflation of between 3 percent and 5 percent for restaurants in 2012. Chains such as Jack in the Box, Carl’s Jr. and Hardee’s have said that continued inflation will result in potential menu price increases in 2012.
Jack in the Box has increased menu prices about 2.7 percent since May 2011, and company officials said that further price increases may be on the way in 2012. The chain did note it planned to keep menu price increases behind both competitors and grocery store inflation, as any price movements affect the consumer and potential traffic.
CKE Restaurant Inc., parent to the Carl’s Jr. and Hardee’s brands, said more aggressive pricing strategies are likely for both of its chains in 2012.
“At the moment, I don’t see any relief coming down the pike on food costs,” Andrew Puzder, chief executive of CKE, said. “We’ll continue to adjust our prices and our product mix.”
Chains will focus on quality ingredients
In 2011, marketing in the quick-service segment shifted from focusing on value to highlighting fresh, quality ingredients. Industry experts say the trend will continue in 2012.
Nancy Kruse, a contributor to Nation’s Restaurant News and president of The Kruse Company, said that more chains will emphasize real, fresh and local ingredients as much as possible in 2012, citing McDonald’s, Wendy’s and Domino’s as primary examples.
Bonnie Riggs, restaurant analyst for The NPD Group, also said that better-for-you foods will be prevalent this year. Subway’s Fresh Fit offerings and Carl’s Jr.’s new line of turkey burgers are just two of the many examples of quick-service chains looking to attract consumers looking for more healthful menu options.
New prototype designs
Chain’s such as Wendy’s and Fazoli’s are experimenting with new restaurant prototypes to refresh their image and bring new life to their brands.
Wendy’s is currently testing four different prototypes in 2012, which take an “ultra modern” approach, including digital signs and menu boards, a Coca-Cola Freestyle beverage fountain, varied seating, and a “Wi-Fi bar.”
Fazoli’s new design, which includes updated décor and fast-casual touches like food runners and real plates, is in place at all 125 company-owned restaurants and has been credited with driving the brand’s last 18 months of positive same-store sales growth. The chain also has plans for a systemwide roll out of a new customer service initiative in 2012, which will enhance the customer experience, officials say.
QSR brands as good stock picks
Larry Miller, analyst at RBC Capital Markets and author of the monthly NRN-MillerPulse survey and report, said that Yum! Brands will be a good stock pick in 2012 because emerging markets such as China, India and Africa show promise.
Miller also noted that Starbucks Corp. could benefit from favorable coffee costs later in the year, as well as the full contribution of K-cup sales. Jack in the Box Inc. also stands to benefit from its refranchising efforts, Miller said, and Qdoba is ready for growth.