Breakfast is the most important meal According to Scott Stewart, foodservice account manager for The NPD Group Inc., up until a few years ago, the QSR segment was doing fairly well. “What’s happened lately, is that the market has really flattened out, but within that there has been some dynamic movement within dayparts,” Stewart says. Lunch had a bad year in 2014, as did the dinner daypart declining by a few points. What’s keeping overall sales flat for QSRs, he says, is a win with the rise of breakfast sales. A number of chains have invested heavily into their breakfast programs. McDonald’s literally gave coffee away for days to bring in traffic and chains like Taco Bell, Wendy’s and Tim Hortons continue to unveil variations of portable breakfast sandwiches and better coffee. Recently, A&W introduced what could be a first for QSRs in Canada: an organic fair trade coffee. “We went to Van Houtte and told them what we would like to offer and they developed this coffee especially for us,” says Susan Senecal, chief marketing officer for A&W. The coffee is a 100 per cent Arabica, organic, fair trade blend the company calls rich and full bodied in taste. “Coffee became a priority for us when our customers kept telling us how much they loved our new eggs, but wanted a better cup of coffee,” says Senecal. “Through extensive taste and quality testing, it became clear that organic coffee was a winner among our customers, so we partnered with Van Houtte to provide it.” In 2014, the company began sourcing eggs from hens fed a vegetarian diet without animal by-products and chicken raised without the use of antibiotics. A&W also sources beef raised without the use of hormones or steroids. According to Senecal, replacing major ingredients such as the new organic coffee at the company’s 832 restaurants across Canada is no easy task, but the move to transparent ingredient listings has paid off with an increase of 10 per cent in sales. “It comes with a great feeling of satisfaction in knowing we’re giving our customers what they want,” she says. Meanwhile, Canadian QSR giant Tim Hortons has introduced several new breakfast sandwiches, a dark roast and announced in early March, the company is testing a single-origin coffee in select Canadian markets. All of this signals an important move within the QSR segment to steal breakfast share and increase the bottom line. According to Stewart, 80 per cent of breakfast sales come from only two chains, leaving the remaining 20 per cent for everyone else to fight over. “Breakfast is the most habitual daypart,” Stewart says. “It’s very difficult to get into the market, but once you get them, they’re yours.”
rise of fast casual Over the past five years, there’s been a ton of talk around the rise of fast casual. The QSR hybrid has seen much success in the U.S., and has seeped into the Canadian mainstream with chains such as Quesada, Panera Bread, Freshii and the Burger’s Priest. With its premium ingredients, in-house sauces and higher checks, fast casual seeks to steal share from traditional QSRs with the idea customers are willing to pay more for a better quality product. According to NPD’s Stewart, the rise of fast casual is really only a micro-problem for QSR operators. While fast casual has grown by 18 per cent in location footprint alone, it still only represents one per cent of the overall market, he says. “Is that going to be a major threat? No,” Stewart says. “However, if you are a franchisee and a fast casual operation opens next door, there’s legitimate concern.” Stewart says the rise of fast casual south of the border started 15 years ago, and now represents 5 per cent of the U.S. market. “One caveat for Canada is that it won’t take as long as it did in the U.S.,” he says. The trend, however, can be seen with some major QSR groups upping food quality or adding fast casual concepts to their portfolios. MTY Food Group Inc. — the company behind more than
BY THE NUMBERS CANADA
In that time, CHAINS have GAINED about 3,000 while INDEPENDENTS have LOST about 3,000.
has had about
72,000
restaurants
ENTIRE INDUSTRY
QSRs have been flat at around 36,000 TOTAL UNITS over that
SINCE 2008
SIMILAR SHIFT TO CHAINS .
ACROSS THE
every year
same time period, with a
TRAFFIC for QSRs INCREASED by only 1 PER CENT in 2014.
DOLLARS INCREASED by 4 PER CENT due to HIGHER CHECKS.
the TOP CATEGORIES for QSRs are: SOFT DRINK
POTATOES
21%
COFFEE
40%
19%
SANDWICHES
20%
BURGERS
13%
According to NPD MARKET PROJECTIONS QSR traffic is EXPECTED TO GROW by 1 PER CENT per year until 2020. 20 chains including Manchu Wok, Mr. Sub, Country Style and Mr. Souvlaki — announced in early March the launch of TOSTO Quickfire Pizza Pasta. “As the rapidly growing segment of fast-casual dining continues to gain acceptance in Canada, MTY believes that now is the time to raise the bar one more level,” Michael Lublin, brand vice-president says in a release. “By creating a fast-premium dining concept, Canadian consumers can experience a high quality, premium fine dining product in a quick service environment and at a reasonable price.” The first TOSTO location opened in the heart of Toronto’s business district at 800 Bay St. and features made-from-scratch noodles and Romano pizza dough made fresh daily in house. According to the company, it has noticed a major demographic shift throughout Canada and a greater knowledge of the culinary industry, which translates into a more savvy consumer who demands “a high quality product at an attractive price point.”
Bringing in millennials Getting the attention of millennials and maintaining their loyalty can be a real challenge for operators. “Subway is always looking for innovative ways to connect with existing consumers, as well as potential customers, especially millennials,” says Kathleen Bell, director of national marketing for Subway Canada. In 2014, Subway partnered with the music streaming company Spotify. “The technology on Spotify offered a great chance to reconnect with the target consumers to foster inter-
est and engagement,” Bell says. “[The relationship gave us] a unique opportunity to get in front of potential customers and millennials while tapping into one of their core interests: their love for music.” Subway Canada has also teamed up with the sports network theScore to launch a smartphone application and with Disney, all with a keen eye on engaging customers, Bell says. At Carl’s Jr. — which has several locations in B.C. and Alberta and is just breaking into the Ontario market with a location in Waterloo, Ont., and two locations in Toronto — the company is focused on males from the age of 18 to 34, “or anyone who wants to be in that demographic,” says Kent Graber, managing partner of 6 Points Food Services Ltd., a franchisee of Carl’s Jr. With its sexed-up ad campaigns that have featured celebrity models such as Paris Hilton, Charlotte McKinney and Kate Upton, the company unapologetically looks to drive traffic from male millennials to its eateries. Once they are in the door, Graber says, it’s important to offer a quality product. “What’s happened in a lot of the business is that there’s been a transition from the old-style fast food restaurants to the newer restaurants with better burgers, more things like hand-crafted milkshakes, better buns and higher quality meats,” he says. Despite the common perception the foodservice industry is in the middle of a radical shift, Graber offers some perspective. “I’ve been in the business for 43 years and it’s always changing and evolving. Think of the first drive-thru restaurants; who would have thought those would work?” he says. “If you’re not prepared to change, get out of the business.”
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