July 2009 Archives

When considering America's biggest health crisis, obesity, I don't believe the blame can be placed on any one person, entity or industry. Rather I believe it's our society's collective change of lifestyle that has brought about this issue.

We used to eat meals as a family, we used to work (literally) in the fields for our food, kids used to play outside for fun--not watch TV or play video games. The term "home-cooked" meal didn't even exist because every single meal you ate was cooked at home.

But people slowly moved away from the farm and into the neighborhood, or should we say the neighborhoods moved into the farms? Everyone had a car if not two, and a desk job became the best thing for your family. Our schedules quickly became filled with commuting, chauffeuring, and the convenience of drive-thru dinners.

But all of this is irrelevant--what matters at this point is how we as a society move forward now that the fat cat is out of the bag. The American palate is getting back to basics and craving more Better for You foods. And the food and restaurant industries, as well as the federal government, recognize this and are taking appropriate actions to address the issue (i.e. nutritional labeling on restaurant menus, reduction in trans fats, sodium reduction initiatives).

So, as with anything in life, I view this public health issue as a lesson to be learned. Ignorance is bliss, but it's time for consumers to stop passing the buck. At the end of the day, we are each responsible for what goes into our mouth.

Happily I don't watch these reality shows, but unfortunately, plenty of people do. That's why they continue to air. The same thing is true about our food industry. Consumers have the ultimate power to decide what gets served. However, they are, in fact, too often blind to what they put in their bodies or worse, what they let their children put into their bodies.

I am afraid the QSR mantra has been misguided in our industry for the last couple of decades. It speaks to convenience, affordability and taste. Good quality food products have taken a back seat.

Can it change? I think the last 18 months have shown us that any previous learned behavior can be changed with the right motivation. The economic crisis has changed spending behaviors dramatically in this country. The health crisis should change eating behavior, but I encourage both sides to get on board to move it along faster.

With that said, the American consumer cannot be changed cold turkey. The smart companies will introduce healthier choices that don't compromise taste or appeal while drawing down those options that lack natural, beneficial ingredients. The table is set for our industry to serve up a new standard.

I used to reference that line or some version of it from time to time in college, early in my professional career or roadtrip weekends when I found myself behaving in a way that would do anything but make my parents proud.  I speak it once more in response to Blair's open forum about the current state of the American diet and those folks within the QSR-related industries (related because it goes way beyond the street front brands with the golden arches and the crowns) who serve billions.  I suggested in a previous blog entry that people should, people must go see Food, Inc.  It paints a vivid picture of the state of the American food machine that drives our economy today.  It should be your first step in re-educating yourself.  

Americans are fat. And recently we've developed a love for watching our society's heaviest hitters battle weight loss and food addictions on television--specifically reality television.

Think about it: There's "The Biggest Loser," "Dance Your Ass Off," and now (one that hits sadly close to home) "One Big Happy Family," which follows an obese family from my own hometown.

A rundown of prime time offerings and the recent stat that one in seven preschoolers is obese--ironically that's framed as good news since the number is finally leveling out--brought me back to the age-old debate of who is at fault.

As a member of the industry that's most often called the cause of all this, I thought I'd take to the blog this week and ask the blunt question: Is the quick-serve industry at fault for America's continued obesity?

I invite you to be frank and passionate in your answers. And, most importantly, to think hard about our role in the way America eats.

When I first read the word "Tastecasting", I had to stop and give it some thought. Sounds like taste testing or webcasting or broadcasting...or all of the above? Interestingly, while looking into it, I came across a very intriguing web site: Tastecasting.com.

Social media, networking, blogging, and all other nuances of 21^st century technology are enough to make one question whether or not Over the Hill still constitutes the ripe old age of fifty. Rather, it seems to me most people over 30 are feeling Over the Hill when it comes to being technologically savvy, not to mention struggling to make meaningful connections with 42% of people (i.e. consumers) online already engaging in social media platforms.

Enter, Tastecasting. Here's how it works: the web site hires a team of connected bloggers, tweeters, and youtuber's who come to your restaurant, sample your food, drinks, and whatever else you want to promote - all for Free. In exchange, these Techies gone Foodies will create an online buzz about your restaurant by sharing words, video, and photographs from their experience with the thousands of people they communicate with across the social media platforms they use daily.

So...you provide the food, they provide the buzz. Not to mention you can use their media for your own purposes too. It's sort of like having a professional Marketing Team sitting in your dining room.  Word of mouth travels fast, word of good food travels by text, tweets, and video even faster. All restaurateurs have to do is request a Tastecasting from their restaurant. You pick the date, time and number of team members you are willing to provide for and they do the rest.

It's my thought that this sort of event could be beneficial for all involved. Sure, one could reason that tastecasting isn't guaranteed to deliver anything really, but then again, what's there to lose? Any publicity is good publicity, right? By the way, this web site was started to promote small businesses, not hurt them. Critical comments are kept strictly to the constructive criticism category with emphasis being primarily on positive aspects of the experience.

Wow, what time, money and headache could you save by hiring a professional social media marketing team that works for free food? Can't wait to see how this one takes off...

Men's Health magazine just released a List of Best and Worst Kids' Meals 2009 available in restaurants today. My jaw dropped as I read the report highlighting items that my kids ate regularly when they were still ordering from the Kids' Menu. Looking at this from the viewpoint of a parent, I was shocked and I felt somewhat misled by some of my favorite restaurants. Some of these numbers are so staggering it's a wonder how any company could offer these foods to children and still sleep at night!

Thinking back, I wonder if I knew then, what I know now, would I really change my mind about what I allowed my kid's to eat while dining out, or would I reluctantly give in to whatever choice made them happy so my wife and I could try to enjoy a pleasant dinner? Would I have to trade my quasi-sanity for nutrition...yikes...that is a tough choice. But that's the good news--the content of this report doesn't leave you feeling hopeless, but rather I feel hopeful as a parent. Healthy alternatives are available, and at least for every negative listed in the report, there is a positive menu choice item as well. I am sure restaurant execs are thanking their lucky stars for this...

While I was somewhat taken back at first, I think this report sheds some light on the fact that while something may not seem so bad, we really have to look a little deeper into what we are about to put into our mouths and into the mouths of our children to really know. Maybe we need to ask a few more questions regarding nutritionals before we assume a Baskin-Robbins Small Snickers Shake isn't probably that much worse than the candy bar itself. Think again, it has nearly 4 times the amount of fat and sugar as one regular Snickers candy bar.

Making healthier menu choices for our young children now will save us all time, money and heartache down the road. I think there's a reason they call it lifelong health problems--these problems begin when we are children, they don't just happen when we hit age 40 & over. Maybe if we all pay just a little more attention, we can wipe that term out all together.

Tastecasting. Sure. Why not. If it doesn't have its own brand, it's not likely to live another day, right? Well, tastecasting is here for a bit because it has far too much momentum and infrastructure -- 42 percent of people online, up from 27 percent last year are now engaged in a social network. Facebook has 78 percent penetration of all people online.

Last week, I spoke to a group of franchisees about the power of social media. I showed them the results of a Twitter/Facebook campaign we developed in less than 24 hours that cost under $1,000 to execute for a two-store test. The results were anything but impressive ... a lesson that "tweet it and they will come" isn't necessarily the case. Then I told them that we could execute that same campaign across 70 stores for under $1,000 so take the results for two stores and time it by 35. Now the numbers look impressive.

Remember the day when paid actors, often actors who were trained, schooled and members of an actual union, acted in movies, television shows, etc. These days, you can be a model (ok, bad example), a fashion designer, a chef, an addict, a plumber, a Mr. Fix It and even a desperate housewife and carry the role of actor or actress. So why can't moms, dads, angry consumers, penny pinchers, food and wine snobs fill the role of critic, reviewer, journalist and marketer?

Wanted: Tastecasters preferably with little to no experience. Cast away.

I learned a new term recently that I knew right away I had to share. Tastecasting. It's a 21st Century version of "word of mouth."

When customers tweet from your store or post photos of their meals on Facebook (with comments, for better or worse), that's tastecasting. Heck, my blog about Nando's a few weeks ago falls into this category.

If it gets the word out about your product and is done virally by consumers, it's tastecasting. And these days operators and franchises seem to be watching their tastecasted reputation pretty closely. From Yelp.com to Chowhound.com, what consumers say about your product online is holding more weight than ever.

I'd like to kick off this week's discussion by diving into the realm of online reviews and social networking. What do bad reviews mean for a company? Is it worth encouraging people to post comments online? What can a company learn from the online dialogue about its brand? And is this the end of real word-of-mouth marketing?

A blog seemed like the perfect place to have this discussion. Face-to-face would have just been so old fashioned.

 

 

It's Friday. Admit it. You need a good laugh ... even a quick chuckle will do.

No worries, Taco Bell is coming to your rescue.

In a new attempt to grab the attention of young, hungry (cash-strapped) boys everywhere, the company developed a new online music video. Titled "All About the Roosevelts," the music video is a spoof of hip-hop's obsession with bling, Cristal, and flashy music productions.

Marketing experts are already slamming it. Ad Age's Charlie Moran called it "shudder-inducing" and the musical references "moldy." Others say its debut is about 11 years too late, but I'm going to go out on a limb and give it my stamp of approval.

Yes, the video is cheesy and the parody has been done by celebs and home video aficionados for the last decade, but here's the kicker: The song is a bona fide ear worm.

I first watched the video about three hours ago and I'm still humming, "It's all about the Roosevelts, baby" to myself at my desk.

In an age when funny, pop-culture status updates, away messages, and tweets are all the rage, Taco Bell is right on time with this one liner. I'm confident at least a handful of Taco Bell die-hards have already released the chorus into the online zeitgeist and the rest of us will soon be along for the ride.

This is a win for Taco Bell. As for the rest of us, watch at your own risk ...
 

The National Restaurant Association is joining restaurant chains, public health advocates, and the House in the crusade to reconstruct our current health care system. Their biggest endorsement, not surprisingly, is to support the Menu Education and Labeling (MEAL) Act and the Labeling Education and Nutrition (LEAN) Act. The biggest legislative decision we've seen in recent years was when LEAN was signed into law in 1990, requiring food manufacturers to disclose the fat (saturated and unsaturated), cholesterol, sodium, sugar, fiber, protein and carbohydrate content in their products. Though other provisions were included in this act, and a few others have become law in the years since, labeling of prepared foods is the first major legislative proposition we've seen in some time.

"The individual and societal costs of poor nutrition and diet-related chronic disease compel us to take concrete steps to fashion a society in which the healthy choice is the easy choice, and in which prevention always comes before treatment", stated Senator Tom Harkin of Iowa. Under the new legislation, restaurants with more than 20 locations will be required to list calories clearly on their menus and menu boards. They must also to be able to provide the consumer with additional information including fat, saturated fat, sodium, fiber, sugar, protein, and carbohydrates, upon the consumers request. With obesity having become an epidemic in America, the proposed federal legislation hopes to provide consumers in every part of the country a consistent format with the information necessary to make healthy decisions. A national standard should empower & enlighten consumers, making it easier for them to make healthy decisions for themselves and their families.

Tomorrow night I'm going to a screening of the new movie "Food, Inc." hosted by the fast-casual brand Chipotle.

If you haven't heard about the movie by now, it's a documentary directed by Robert Kenner that takes a hard and critical look at the American food supply. Impacts on the environment, the economy, and our health are all covered. Now, this isn't the first time a movie like this has entered the marketplace. In 2007, the film "King Corn" examined the excessive use of corn in American food, specifically the use of high fructose corn syrup.

What caught my attention about "Food, Inc.," however, is its partnership with Chipotle. Sure, Chipotle is a shining example within the industry for its active use of organic ingredients and locally sourced food, but it still offers meals that are close to 1,000 calories. (My go-to order is a chicken burrito with lettuce, sour cream, cheese, salsa, and chips, which clocks in at 1,315 calories.)

Is it smart for brands to align themselves with such controversial events? While it certainly positions the chain as progressive, it also opens it up to potential critcism. Already we've gotten responses from readers reacting to the following statement in the brand's press release promoting the film screenings:

"Through its commitment to Food with Integrity, Chipotle serves more naturally raised meat (from animals that are raised in a humane way, never given antibiotics or added hormones, and fed a pure vegetarian diet) than any restaurant in the world."

Chipotle is putting itself on the chopping block by aligning with the movie. But big rewards only come from big risks. And in the end whether negative or positive press comes from the partnership, Chipotle still wins.

So, burrito and a movie, anyone? 

With all the talk of sodium and heart disease, I have a hard time even picking up a salt shaker anymore without grabbing my chest, gasping for air and seeing my life flash before my eyes! It's no wonder Americans have grown increasingly fond of salt. According to American Salt Institute, "Salt intake has increased by 50% over a period of 15 years beginning in the late 1980's." If that's not impressive, I don't know what is!

 

So what does this mean for food service? Well, considering that 77% of salt consumption is found in processed foods, I'd say it's going to become a real problem. As the public becomes increasingly aware of this issue and the severity of its consequences if ignored (i.e. heart disease, stroke, kidney disease, high blood pressure, obesity, ad infinitum), the entire food industry is going to be in a heap of trouble. My company is actively working with food companies trying to get ahead of the curve by reformulating high sodium products before we see mandatory FDA policies making it necessary to do so.

 

QSRs are in a unique position to learn a lesson from these food companies in that as the consumer tide turns against salt intake, the race will be on for consumers to find restaurants that offer low sodium menu items. If you consider that one-third of all Americans already suffer from health issues related to high blood pressure, then it stands to reason that there is going to be a tremendous market for these low sodium options. If QSRs meet this challenge head on, they will not only win points with consumers for their care and concern, but also for their transparency and trust.

 

Working in the food industry, it would be almost impossible to miss the increasing importance and popularity of "sustainable", "organic", "fresh", "local", "fair trade", & "natural" food products. It is no longer unusual to see major food brands, generic brands included, coming out with new lines of organic and natural products.  Beyond this, big corporations are changing their practices, becoming more environmentally friendly, ethically conscious, and overall, more socially responsible- furthering even more, the consciousness and awareness of consumers.

 

For example, as mentioned in an earlier blog, SunChips brand started with a "whole grain" chip. Now, in addition to creating a healthier brand, they are driving environmentally friendly distribution vehicles (aka hybrids) and are getting ready to roll out fully compostable packaging. SunChips has also donated $1 million to help build a solar-powered SunChips Business Incubator in Greensburg KS, a town devastated by a tornado in 2007. Their efforts are helping to rebuild the entire town which has focused most of its economic efforts to be environmentally friendly. It is actions like these that are not going unnoticed by consumers.

 

According to Lynn Dornblaster of the Mintel International Group, "About 40% more consumers say they are more concerned about the environment than they were just a year ago." In part, we can thank large companies, whose behavior, combined with large marketing budgets allows them to "get the word out" about the importance of making socially responsible decisions. When we hear that companies like Fat Tire beer are manufacturing beer by harnessing wind power, it can inspire us as consumers.

 

Ben & Jerry's product mission emphasizes a "continued commitment to incorporating wholesome, natural ingredients and promoting business practices that respect the Earth and the Environment." The company also promotes the value of employee development and making positive contributions to local, national, and international communities. Additionally, the company advocates for equal opportunities, waste minimization, and promotes peace worldwide.

These global efforts are making their way down to Main Street as well. Grocery stores like Price Chopper and Whole Foods offer a discount when you bring in your own reusable bags. This way the company cuts back on the cost of bags, the consumer gets a cost deduction for their groceries and makes a positive contribution to the environment...in the end, it's a win win.

 

It's my hope that with major mainstream companies becoming increasingly more socially and environmentally responsible, we are all apt to become more conscientious and globally aware consumers.

 

Unless you've been living under a rock, you know the foodservice industry is dripping green these days. Restaurant chains across the country are trying their best to be environmentally friendly--from Ted's Montana Grill to Pizza Fusion.

But with all the changes that come along with an industry trying to Al Gore itself, consumers have been left a little confused. Actually, make that a lot confused.

In a recent Shelton Group survey of 1,006 U.S. consumers, almost two-thirds said they were looking for greener products. Yes, that's great. But here's the kicker: When asked how they distinguished green brands, 22 percent (the No. 1 answer), reported they weren't sure.

Even more interesting is that above any other claim, consumers named "100 percent natural" as the most desirable. Now, I know what you're thinking (or should be thinking if you're green-savvy). What about organic? Only 13 percent named "100 percent organic" as the best label to have on a product. That's compared to the 31 percent that named "100 percent natural."

So what is a quick-serve brand to do? Organic and natural are different. How are you choosing between the two?

For an interview with the Shelton Group's CEO, click here.

With nutrition and health the number one theme in the food & beverage industry this year, it's no surprise that healthy beverages are becoming increasingly popular. Consumption of regular carbonated soft drinks like colas are down while specialty and flavored iced teas consumption are up, way up! According to The Tea Council, of the USA, one half of all Americans drink tea everyday. Organic coffees, specialty drinks, energy drinks and smoothies are also seeing a hefty increase in sales. Monster drinks are quickly becoming mainstream faves. In fact, the last time I traveled, the "low carb" energy drink was getting a plug from the flight attendants of a particular airline.

 

On the Bar side, micro-distilled artisan liquors, organic wines, microbrews, and specialty beers are on the rise. We are also seeing the "mixology" (chef meets bartender)  trend continue to grow. Be on the look out for savory cocktails with culinary twists of Sage, Rosemary, Lavendar, Chile, Cherry or Orange blossoms and Ginger (to name a few).

 

Additionally, the beverage boom is causing some upheaval in the snack world too. These days, it's not so much that consumers are skipping breakfast, it's that they're replacing it with a fresh fruit smoothie. And they're drinking their dinner too. Spanish-smoked paprika margarita or Sake, cucumber, peppercorn vodka martini--what'll it be for you?

Cash-hungry franchisees create opportunities for net-lease investors.

A common misconception pervades the retail net-lease industry today -- the idea that most of the properties on the market are distressed. After all, why else would a seller put his property on the market when real estate values are low and cap rates are high?

The net-lease investment may be on the market because the seller is a franchisee who intends to use the sale proceeds to fund ongoing operations or as a source of capital to grow the franchise. These net-lease investments, which are freestanding, single-tenant properties with long-term leases, are available at attractive cap rates ranging from 7% to 11%.

From Subway to Aaron Rents, many well-known retailers and restaurants are owned and operated by entrepreneurs rather than large corporations. Entrepreneurs who own and operate franchise stores or restaurants are known as franchisees, and franchisees self-fund their own operations.

Until recently, franchise net-lease investments were trading at prices and cap rates similar to those owned and operated by corporations. Investor demand for net-lease properties, particularly retail assets, was strong. The risk premium typically associated with franchise properties was almost nonexistent.

Many franchisees sold off their real estate during the height of the market, realizing aggressive cap rates and pricing. But that pricing is unlikely to be repeated anytime soon.

Real Capital Analytics reports that in 2007 the U.S. average cap rate for corporate-owned retail net-lease assets was 6.5%. By the end of 2008, the cap rate had risen to 6.8% and then to 7.3%. in the first quarter of 2009. The typical franchisee can expect to add 50 to 100 basis points to the national average compared to corporate-owned properties.

Many retailers have chosen franchises as their growth vehicle and are moving away from corporate-owned stores and embracing the franchise model because it allows them to expand without large capital outlays.

7-Eleven Inc., based in Dallas, for example, has an aggressive plan to convert the vast majority of its company-operated stores in the U.S. to franchised operations by 2012. Roughly 75% of the chain's 5,600 U.S. stores are franchised.

Some retailers are growing because of the recession and have chosen franchises to expand. Aaron's Inc., which leases furniture and appliances, is benefiting from consumers' limited buying power. The Atlanta-based chain has more than 1,500 locations nationwide, including 500 franchised stores, and expects to continue to open 150 to 200 franchises annually.

LEVERAGING REAL ESTATE STRENGTH
Like every other sector, national retailers, as well as franchisees, have seen their lines of credit cut as banks struggle with liquidity. However, many franchisees have sought alternative sources of expansion capital to take advantage of today's favorable retail real estate market for tenants and buyers.

In fact, weak demand for retail space, coupled with decreased land and construction costs, is allowing franchisees to improve existing locations or establish a presence in markets that previously were too costly. As franchisees expand and upgrade their existing portfolios, net-lease buyers will be able to invest in high-quality properties with strong tenants.

Retailers that need capital from their real estate to stay afloat are riskier than those with strong balance sheets. That means these investments trade at higher cap rates than properties leased to strong franchisees, and investors focus less on the franchisee's credit and more on market rents, sales performance and the underlying value of the real estate.

LENDERS SET HIGH STANDARDS
Many net-lease investors are bypassing mortgages altogether and paying cash for their acquisitions. Since most franchise net-lease properties are priced below $2.5 million, they're an ideal investment for high-net-worth individuals and all-cash buyers using the 1031 tax-deferred exchange vehicle.

Net-lease investors who require debt to purchase an asset need to be aware that lenders are cautious when it comes to properties that are leased to franchisees. Net-lease investors who plan to use debt to acquire franchise net-lease properties should be prepared to contribute between 50% and 60% equity in order to close a property sale.

Beyond the franchisee's experience and financial standing, investors and lenders should evaluate the franchise. Some have momentum where the brand is growing, while others are clearly declining. All of these elements determine the value of the net-lease investment.