Competition | May 2010 | By Daniel Smith

The Renovation Rush

Operators plan on committing more of their resources to redesigns and renovations in 2010 as they try to stay relevant for consumers.

Renovations among quick-service franchises are a popular way to freshen a brand’
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Four years ago, the winds of change moved Scott Gittrich, an experience that the Toppers Pizza CEO is appreciative for these days as his Wisconsin-based pizza chain pushes into a new decade with promise and purpose.

While working with an advertising agency, Gittrich and his Toppers leadership team noted their success with teens and twentysomethings, a revelation that sparked a multiyear plan to renovate existing restaurants and build new outlets with a more casual, youthful edge.

“Our existing stores were built like fast food places, but that wasn’t how our customers perceived us,” Gittrich says. “If we were going to realize our potential, then we needed to embrace our late-night, burn-the-candle-at-both-ends image, and that meant we needed to change our prototype store.”

A year later, Gittrich and his design firm settled on a snazzy, modern, and cost-effective store design that converted Toppers’ stores from quick service to fast casual. Today’s Toppers feature loft-like ceilings, exposed brick, earth tone­–colored walls, and lounge seating, a far cry from the checkered tile floor and laminate tables of yesteryear.

“We think the physical space reflects the way customers perceive the quality of our food,” Gittrich says. “And we didn’t want to look like fast food pizza.”

The company spent the last two years converting half of its 25 stores, with remaining locations on target for redesign by the end of 2013, a timeline acknowledging the reality of lease negotiations rather than any hesitance or lack of excitement on Gittrich’s part.

“We feel we’ve got a store design now that represents our brand and showcases our food in an exciting way,” Gittrich says. “We couldn’t be happier we made the decision to renovate. Sales are increasing at our converted stores and customers are responding favorably to the changes.”

Though costly in both time and money, renovations like Toppers’ are likely to blanket the 2010 restaurant industry landscape. Looking to capitalize on brighter economic prospects and resurrect slumping recession sales, operators are expected to turn to renovation as an avenue to spark consumer interest, refresh the brand and its individual locations, and position the company for long-term success.

Year of the Renovation

For Americans, dining out is principally about the food. Also important, however, is the experience.

While there remains an endearing quality to the hole-in-the-wall hamburger joint, the steady rise of fast casuals over the last decade proves the point that ambiance, design, and décor factor into the consumer mindset. Diners want a clean and fresh atmosphere that feels alive and fun, not worn and old. And ultimately, operators know it.

According to the National Restaurant Association’s 2010 Industry Forecast, 43 percent of quick-service operators plan to commit more resources for remodeling and renovation in 2010 than they did in 2009.

Jim Lencioni, president of Aria Group Architects in Oak Park, Illinois, says the 43 percent figure, a hefty chunk of operators, has much to do with a heightened confidence in the economy, as well as a renovation’s ability to inspire customers.

“There’s a lot of pent-up demand for renovations that didn’t happen during 2009 because operators were cautious and careful with their cash,” Lencioni says. “In 2010, operators appear to be far more comfortable implementing these changes.”

While 2008 slapped operators with sagging sales and high commodity costs, and 2009 targeted efficiencies and recovery, optimism in 2010 for the economy’s turnaround and a healthier restaurant system—quick-service sales are expected to jump 3 percent in 2010, according to the NRA forecast—has many operators pursuing plans they had previously postponed.

“While we’re doing full remodels at Toppers, I suspect others will be catching up on what they put off over the last two years of hunkering down,” Gittrich says, adding that 2010 offers opportunity to grow the brand, secure better locations, and invest in stores, precisely Toppers’ agenda as the year unfolds.

In the minds of many industry insiders, the 2010 renovation rush arises from an increased focus by operators to enhance their existing spots, thereby recovering from the downfall of recent years and avoiding the financing crunch to open a new location.

“The trend is certainly pushing toward preserving locations and staying fresh,” says Jacqueline Collins, a project manager for Baltimore-based Hospitality Services Inc., which has produced design work for national clients such as Qdoba Mexican Grill and Raising Cane’s.

A Sense of Place

Quick-serve changes are moving beyond menu items and pricing and into the physical environment, as many operators are recognizing the need to appeal to a younger crowd and families as well as capture some of fast casual’s surging momentum. Look no further than McDonald’s, where some revitalized outlets possess an ambiance more akin to a Starbucks or Panera rather than the Golden Arches’ typical child-friendly playland.

In 2003, McDonald’s outlined its Plan to Win, an effort focused on driving growth. The plan included remodeling McDonald’s 14,000 U.S. restaurants, many of which looked the same in the 21st century as they did during the Reagan administration. In many instances, area demographics shifted, commuter traffic evolved, and McDonald’s grappled with new expectations.

“Place was certainly a piece of our plan, as we looked at getting better, not just bigger,” says Danya Proud, senior manager of media relations for McDonald’s USA. “We wanted to make our restaurants more appealing destinations for customers and redefine their experience with a more inviting, contemporary, and relevant space.”

To create the more contemporary setting, McDonald’s traded its fixed fiberglass seating for movable chairs and tables, while hued pendant lighting defined distinct zones within the restaurant. Contemporary music and free WiFi, an initiative complimented by McDonald’s revamped beverage list, elevated the McDonald’s experience beyond burgers and fries. To date, half of McDonald’s 14,000 U.S. restaurants have undergone the change.

“This has been about changing with the times, evolving with the customers we serve, and delivering a relevant experience with a degree of element and surprise,” Proud says.

Whether it’s a corporate giant like McDonald’s, an upstart chain like Toppers, or an independent sandwich shop, a renovation reminds guests that they are not only appreciated, but that the brand is happy to invest in their positive experience and serve as a lively community presence. Furthermore, a renovation offers patrons the air of success and provides any restaurant a fresh life and brand buzz.

“But it all begins with the plan of creating a better experience,” Collins says. “That’s the beginning, middle, and end.”

Shifting Tides, Shifting Design

Many operators are looking to increase their customer base and generate traffic in ways that existing facilities might have struggled to accomplish. From adding designated take-out spaces, targeting a daypart, or infusing the space with entertainment and technology, operators are identifying goals and examining design’s role in the process.

“People are back to the old adage of increasing revenue streams, looking to survive if not thrive in this climate, and design plays a part in that discussion,” Lencioni says.

Lencioni says his firm’s recent work with casual-dining chain California Pizza Kitchen is a prime example of a business seeking to expand its customer base. While the established pizzeria boasted a profitable lunch business, customers had largely failed to embrace the restaurant as an evening destination.

Lencioni’s Aria Group Architects worked with California Pizza Kitchen to craft a more dramatic, warm design conducive to evening dining. The renovated restaurants include intimate lighting, warm wall colors, and a distinctive bar space, which adds a décor element as well as awareness about the restaurant’s beverage options, largely an evening pursuit.

“Everything in the design revolved around creating a space that would prompt and support evening dining,” Lencioni says, adding that California Pizza Kitchen’s increased sales figures suggest enthusiastic, responsive guests.

California Pizza Kitchen serves tribute to the rising trend of “boutique” dining, which quick serves are also using to move toward a more elegant, intimate, and warm vibe that injects more sophisticated design standards, materials, and atmosphere into spaces that have long been sterile. Leather-covered booths or pub-height tables replace fiberglass seating, wood tabletops supplant laminate surfaces, and modern pendant or track lighting overrules hospital-like rectangular fixtures, simple and economical changes that can have a dramatic effect on any restaurant’s ambiance.

Other popular design changes include: replacing carpet with hard surface flooring, particularly hardwood; painting walls; redesigning menuboards; and trading tired furniture for cozier pieces that induce comfort and social interaction. In addition, operators seeking operational efficiencies on top of a more modern look are incorporating Energy Star equipment into the design.

But Gittrich cautions operators against thinking that every renovation dollar will translate into an additional dollar at the register. Renovations, he says, must be placed in a big-picture context.

“The renovation’s place is in securing the long-term health of the brand, not necessarily in producing immediate sales to cover the renovation’s cost,” he says. “The ROI will come, but I think it’s wise to look at any renovation as a move for the future as much as the present.”