Industry News | November 17, 2011

Top 3 Trends from Biggest Q3 Calls

Quick-serve companies wrapped up their quarter earnings calls and investor meetings earlier this month, paving the way for the final fiscal term of 2011 (or, in Starbucks’ case, the beginning of fiscal 2012).

Here are a few things to learn about the industry from the results.

1. Premium menu items are the name of the game. Though customers have clamored for value-driven items throughout the recession, quick-serve companies are turning to higher-quality fare to appeal to frugal-fatigued consumers.

Jim Skinner, CEO of McDonald’s, said in the company’s investor meeting on November 10 that the chain’s premium beverages, such as its Frappe and Smoothie products, “have delivered on every level” this year and have become a $1 billion business in the U.S.

McDonald’s said in the meeting that it will continue to offer new premium beverage options. Meanwhile, it previewed a new burger option that it is considering for future roll out. The English Pub Burger is similar to McDonald’s Angus line, and was tested in select markets earlier this year.

Wendy’s is also introducing a new premium burger option. Fresh off its success with the new Dave’s Hot ‘N Juicy burger, the company announced in its earnings call that it was releasing a new option called the W burger.

The new hamburger is smaller than Dave’s Hot ‘N Juicy and features two 2.25-ounce patties, along with two slices of cheese, pickles, onions, tomato, lettuce, and a “signature sauce.”

“What’s unique to us is that, although we’ve had premium sandwiches that we’ve put a variety of different sauces on, those have been all LTOs,” says Denny Lynch, senior vice president of communications for Wendy’s. “For example, if we had a cheddar cheese sauce that we put onto a hamburger, it’s usually a premium sandwich and it’s usually for a limited time. This is being introduced as a core menu item, so it’ll be an everyday item.”

Lynch says the W burger gives Wendy’s an option that is still value-minded but is higher in quality than the value-menu items.

“Now with this lineup, you now can appeal to consumers on all levels, not only on a value level [or] a premium level, but also a mid-tier price,” he says.

2. International growth is trending up. In its third-quarter earnings call, Burger King officials announced that in the past 12 months, 90 percent of its restaurant growth had come from outside the U.S.

Burger King isn’t alone in its international success. In Starbucks’ fourth-quarter earnings call on November 3, the company announced that it had earned $717.9 million in international net revenues in Q4, a 16 percent increase over the same quarter a year ago. Meanwhile, U.S. net revenues—though still an enormous $2 billion—increased only 3 percent between the fourth quarters of 2010 and 2011.

While the difference wasn’t as staggering at Popeyes’ Louisiana Kitchen, the company enjoyed healthier international growth than domestic growth between its 2010 Q3 and 2011 Q3. The company announced that international same-store sales were up 1.8 percent, while domestic sales were up 1.7 percent.

Domestic sales slowed down dramatically compared with international sales; a year ago, domestic sales were up 5.3 percent, while international sales were up 4.3 percent.

“Most people are surprised at how many countries Popeyes is present in today—27 countries,” said Cheryl Bachelder, CEO of Popeyes’ parent AFC Enterprises, in an e-mail to QSR. “We have a strong presence in places like Korea, Canada, Turkey, Honduras, and Jordan to name a few. So international is an important part of who we are today and will be a growing part of our future. We’ve only just begun.”

3. Commodity prices are a cause for concern. On par with sentiments across the foodservice industry, quick-serve companies announced that commodity costs were continuing to be an issue.

“We’ve seen food-cost inflation in the mid- to high-single digits, and will continue to see that into the fourth quarter, obviously varying by commodity product,” said Daniel Schwartz, chief financial officer at Burger King, during the company's earnings call.

Similarly, McDonald’s forecast commodity costs to increase between 4.5 and 5.5 percent in the U.S. Popeyes, meanwhile, saw food costs increase 9 percent in Q3 over the same period last year, and expects food costs to be 8 percent on a full year basis.

Bachelder said in her e-mail that commodity costs and supply chain still remain one of Popeyes’ core brand strengths.

“We have delivered strong supply chain savings to our operators over the last two years, and that has helped our system navigate the recent commodity increases,” she said. “We have also provided strong tools for tracking and managing process inside the four walls of our restaurants. The result: our restaurant operating profit margins are above industry averages, even with the commodity pressures of 2011.”

By Sam Oches

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.

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