At this year’s National Restaurant Association Show, some of the industry’s leading executives stopped by FSR and QSR magazine’s booth to chat about the landscape—what they’re seeing, hearing, and what might be next. We asked everybody the same three questions: One on tariffs and consumer sentiment; their thoughts on value; and lastly, to separate myth from reality with restaurant technology. In the days and weeks to come, we’ll share their answers.
Next up is our first (and only) dual interview, with Freddy’s Director of Menu Strategy & Innovation Rick Petralia and VP of Purchasing Coeli Arthur. And keep the conversations going at this year’s QSR Evolution Conference. Registration is now open.
Other interviews:
Cheba Hut’s SVP of operations Brian Witte
Sunny Street president Mike Stasko
State of the consumer, tariffs, give us your thoughts on all these macro challenges going on?
Coeli: I think, with the consumer, our guests always come to Freddy’s because they know the quality is so good. So, we focus on making sure that we’ve always got great quality products. We’re very fortunate that we have awesome partners in our supplier base. We continue to drive new LTOs and introduce items on the menu at a great quality and then work to make it a great experience. The consumer, we just want them coming back every time to Freddy’s.
When it comes to the purchasing side, we’re focused on making sure there’s limited interruptions for operators. The means making sure we have a steady supply chain. Quality products. Just really trying to maintain costs as much as possible. I’m sure everybody knows food costs have gone up so much in the last five years. We’re doing everything we can to partner with suppliers and maintain the best costs we can and still have great products. We’re looking at opportunities here and there where we can make small changes that can save money. We’re doing that as well because most of our products, like beef right now, are having a tough time from a commodity standpoint. Supply is really tight. So doing things there to try to minimize the impact for the franchisees.
From a tariff standpoint, our food is mostly domestic on the supply side. So not much of an impact. But packaging, there is some materials from overseas we import. We’re managing that as much as possible. And asking, are there ways we can make small tweaks?
MORE: QSR’s Transformational Brand of 2024: The Future of ‘The Freddy’s Way’
It’s just understanding what the true cost really is of tariffs and, of course, ensuring we have a steady supply. If we have to figure out a new way to get a product here, we’ll work with our supplier to do the best thing we can.
It’s a very fluid environment and what’s hard to pinpoint is an exact percentage for a certain item or, overall, what the products are going to be impacted by. It’s variable.
In general, foodservice sales have trended down in the last couple of quarters. We want to make sure our guests have a great reason to come back to Freddy’s. And our quality is awesome. Our food is great. We want our operators to focus on our guests and not have to worry about things like, do I have my products coming in on the truck? Where is my food cost going to land? We want them to focus on what’s right for the guest.
Rick, as an add, has this affected your LTO strategy at all?
Rick: In terms of the tariffs and what not, no. Now, I wouldn’t recommend an imported from Italy bun. That wouldn’t happen. Consumer confidence right now is very low. Even though inflation, from my understanding, is leveling off and these tariffs are a looming a shadow that may not happen, people are still being tight with their budgets. Looking around the industry, you see a lot of value platforms, $5 meals. And for our guest, for a Freddy’s user, that can be pretty enticing. So we find ourselves sticking to our core. We’re not going to chase the bottom. At this time, we’re not looking for a low-price-point meal. Instead, we’re providing value with differentiation, like our Barbecue Brisket Steakburger.
Sure, go have that $5 meal if you have $5. But if you want something you can’t get anywhere else, come to us. No one else is doing that Brisket burger. Get the quality you love at Freddy’s. Our value—we’re sticking to our three pillars: quality, cleanliness, and hospitality.
So the next question is actually on value …
Rick: I kind of started, didn’t I? To be transparent, do we have contingency plans, say if things go way down and we start seeing sales drop? Yes. Sales are staying strong for us and we’re still opening stores. But of course, it would be silly to not plan the what if. So, we are working on some of those ideas. Solid plans that I think might redefine value at Freddy’s. Right now, however, we’re sticking to the quality, hospitality, and cleanliness.
Coeli: Everything points to that strategy working for us. As Rick said, we’re still growing like crazy. There’s 50 (or so) restaurants that will open this year. We have big goals ahead. We’re just trying to make sure that everything we’re working on works for the future and the present and we’re not putting franchisees in a situation where the menu changes or alters so much that they’ve got to figure out a new process and bring in new equipment, or things like that.
We’re continuing to use innovation for our equipment as well, which is really cool to see. That’s trying to help us from a labor standpoint, spending fewer hours doing things and more time with the guest. More customer-facing opportunities.
Rick: I’ll add one more thing. The last thing we’d want to do is devalue our product. Whatever uncertainty there is, it’s going to be temporary. I don’t want to devalue our product to where we’re now selling a burger for $5, $4, and we reprogram our guests’ minds to think that’s what our burgers are worth. They’re not—they’re worth a lot more than that. We want to keep our brand strong and keep our perceived value high.
On to tech trends, myths, realities, and in between.
Coeli: I think fully automated restaurants, robotic restaurants—that just seems so hypothetical at this point. But we are seeing elements of that being brought in. We have a robotic arm fryer that we just put in our test kitchen in Wichita in our innovation center. So again, bringing some of those automation elements in to help with the labor; that’s really what we’re trying to do, is find ways for there to be a nice return on investment. Robotics cost money as well. But if you can save on labor, it’s a win. And it’s repurposing the labor. It’s not getting rid of employees in stores. It’s giving them time to work on other things.
That’s some of the automation and innovation we’re seeing coming to life. Freddy’s does a lot with that. Embracing the different software and IT things that help our restaurants. There are all sorts of cool things that keep getting layered in and tested over time. But to be 100 percent automated, I don’t think that’s ever going to happen.
Rick: For the foreseeable future, same answer (as above). Fifty years from now, I think a restaurant will look completely different than it does now and there will be full automation. But it won’t be in any of our careers. The automation I see is less human-ish and more mechanical. Kiosks, for example, we don’t want to replace people; we want to give people more time to do what we want them to be doing. Talking to our guests.
For example, we determined, at least for now, the lobby kiosks, we’re not doing that because we want our guests to talk to people. And we want to interact with our guests. If they’re ordering from a screen, we’d rather them be on their phone than in a lobby where they could talk to a person.
Now, AI is something I do believe is more reality. I haven’t experienced great AI ordering yet. But I believe it’s coming.
