The company plans to roll out a custard product that will compete with Culver’s Frozen Custard, which leapfrogged three spots to number 37 on this year’s Top 50. Although Culver’s pace has cooled considerably from its sizzling 2004 numbers, analysts credit the company’s continued double-digit sales performance to rigorous franchisee selection, training, and support and to a diversified menu that makes few concessions to the nutrition nannies. Frozen custard desserts represent about a third of Culver’s sales, and the ButterBurger, a fresh ground-beef patty served on a buttered and toasted bun, is a popular item, the cornerstone of its menu.
Competing with Culver’s, Baskin-Robbins, and others in the segment, Dunkin’ Donuts and DQ kept a solid footing in this year’s shuffle. Their durability shows the overall strength in the snack market, especially the coffee segment, which had an 18 percent gain in traffic (defined as share of industry visits) over the previous year, according to the NRA.
The U.S. Bureau of Labor Statistics (bls) reports that the snack and nonalcoholic-beverage-bar sector led job growth in the restaurant industry for the fourth consecutive year. This foodservice category, which includes coffee, doughnut, and ice-cream shops, added jobs at a rate of 8.5 percent in 2005, according to the BLS. The category is so attractive that the big enchiladas have aggressively horned in on the market. Hardee’s and Chick-fil-A, for example, began offering hand-scooped shakes.
Jamba Juice was the only player benched this year, falling two spots to land at number 52. But don’t let its ranking fool you. Systemwide sales are up about 9 percent, and the number of units continues to grow apace. With a recent push to open kiosks in grocery outlets, the Juice will undoubtedly be basking in the ballpark lights again next year.
Of course, were it not for Starbucks, bureaucrats at the BLS wouldn’t have needed to coin a clunky term like “nonalcoholic-beverage-bar sector” to begin with. This dynamo continues to set the gold standard for superior ingredients prepared to customer specifications. Under the leadership of Jim Donald, who succeeded Orin Smith after his retirement in April 2005, the company posted double-digit growth and robust same-store sales. It also opened more units in a single year than ever before.
In response to threats from competitors such as McDonald’s and Burger King, which began offering premium coffee in 2005, Starbucks and rival Dunkin’ Donuts are expanding their menus to include hot breakfast sandwiches. Nevertheless, beverages are still the principal and fastest-growing revenue item at Starbucks, generating 77 percent of sales at company-owned units in 2005. The chain has also responded to customer requests for greater convenience. For the first time last year, more than half of all units had drive-thru lanes.
According to the NRA, next to the gourmet coffee and tea category, the bakery-sandwich segment enjoyed the healthiest level of traffic growth during 2005. Customers have flocked to the segment, showing operators that a little instant gratification goes a long way. Take Panera Bread, which has climbed steadily, if not so stealthily, up the Top 50 one spot each year for the last three years. The St. Louis–based fast-casual operator sprinted ahead this year to gain three places, commanding the number 18 position. Average unit volume has nearly reached the $2 million mark, a feat that has top brass at other chains wondering what CEO Ron Shaich learned in B-school that they didn’t.
It’s simple, really. Panera has created a veritable sandwich spa—an oasis where, say, a corporate-type can lose herself in a copy of Animal Farm as she kicks back by the fire with a Cinnamon Crunch bagel and a double latte. Whether the customer orders a savory ham and white cheddar scone or a crock of French onion soup, the experience makes him feel warm and fuzzy about parting with his discretionary income. Although nay-sayers predict that the company’s sales will slacken in 2006, other analysts point out that Panera’s market is far from saturated.
Like a diva with a well-paid entourage, the bakery-sandwich segment generates enough bling-bling to go around. Blimpie, for instance, reappeared on this year’s Top 50 despite volatile franchisee relations and allegations of financial irregularities that forced CEO Jeffrey Endervent to stand down in November. The simple strategy of offering customers premium products at a correspondingly inflated price point seems to be paying off even for this formerly coach-class chain. The company opened many of its new locations inside Wal-Mart stores in 2005 and fearlessly added panini and ciabatta sandwiches to its revamped menu.
Jack in the Box also introduced a ciabatta sandwich, and Wendy’s test marketed Frescata sandwiches served on it own line of upmarket breads. Jason’s Deli, which debuted at number 50 on this year’s list, offers po’ boys, muffalettas, and other New Orleans–style fare as part of its trans-fat-free menu. With an AUV of $2.3 million, Jason’s is one streetcar that will find no shortage of riders.
Aspirational affluence, as the self-indulgence trend has been dubbed, has been used to great advantage at Chipotle, which moved up five spots on this year’s list. The chain’s tag line captures the idea perfectly: “The gourmet restaurant where you eat with your hands.” If you can’t afford chiles relleños at Rosa Mexicano or Frontera Grill, why not splurge on a barbacoa burrito at Chipotle? The chain registered systemwide sales gains of more than 33 percent at the end of 2005. Parent company McDonald’s sold off a minority stake in Chipotle during a January 2006 IPO that triggered a media frenzy the likes of which were not seen again until Burger King went public this summer.
Clearly, though, Chipotle’s cache rests on more than just its success in bringing an upscale restaurant experience to the K-Mart crowd. The chain has gained a following by letting customers decide what they want and then giving it to them, no questions asked.