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, Newk’s Eatery CEO Frank Paci. And keep the conversation going at this year’s QSR Evolution Conference. Registration is now open.
Other interviews:
Sunny Street president Mike Stasko
Let’s talk about the state of the consumer and if tariffs are on your mind.
The answer is yes. So, for tariffs, I can tell you specifically on this subject, we had two products that were on our Window 2 that had avocados on them, and we dropped them off and put two different items on. Because we don’t know whether tariffs are going to be high on avocadoes or not. And then the other piece was we were looking at a salad with eggs on it. We dropped that. That’s not a tariff. That’s just commodities in general.
The third thing, which I don’t think people have really thought about that much, and I hadn’t, is these aluminum and steel tariffs—are they going to impact cost of materials and building restaurants? If you were thinking about, hey, I’m going to go build a store, is that going to suddenly be a higher lift? That’s the one I’m not sure we’ve seen what the potential impact might be.
Tariffs are one of those things where it doesn’t take a huge number. One out of 100, two out of 100, and you’re running negative 2 percent comps. The big thing, for me, is you see consumer confidence at low levels (the lowest since COVID). And so, you’re asking, what can you do? Certainly, I think there’s a trade-down effect. Newk’s is fast casual. It’s slightly more premium. So we get impacted a bit. But if you look at the public companies that are out there, they’re all reporting negative quarters.
Your definition of value, right now:
In our segment, I’ve always thought about it as value for the money. When you look at scores, there’s a clear definition of value for the money, which to me is, what did I get for what I paid for. It’s interesting. I’ve been looking at our product mix and we sell sandwiches with a side of chips, right? Then we also do a half sandwich with a cup of soup, or we do a full sandwich with a cup of soup or salad or mac and cheese. What we’re seeing is mix shifting. They’re actually going more expensive, but the guest perception is the value is better. If you bought a sandwich individually, let’s say it was $10 and the cup of soup was $5, you’d spend $15. If you buy them in our pairing, they’re $13.79. So the guest is saying, hey, I’m getting a better deal, even if I spend more, I’m getting a better deal.
One of the things we’re testing right now is a Pick 3. We’ve always done a half pair, where we do half sandwich and a cup of soup, or a half salad and a cup of soup. Mix and match. And we’ve always offered that large pairing I talked about. So we said, what would happen if we coupled that large pairing and say, mix and match—pick between a large side, half salad, half sandwich, cup of soup, mac and cheese? Pick any three of those at a $13.79 price point. What’s interesting is since we’ve done that, what we’re seeing is 29 percent of people who order that are actually getting two different half sandwiches, which is really kind of wild.
Look at that on the plate and the guy has a roast beef sandwich and a Newk’s Q and a mac and cheese. But they’re spending $13.79, which is good for the brand. We’ll probably roll that out in the summer and we might actually do it at a discount for lunch. At the same time, we’ve got a half sandwich, a side, and a drink for [under $10]. We’re saying, if you don’t want to spend a lot, here’s a deal for you. If you want value for the money, spend this and you’ll get more.
At the end of the day, what really matters is how much is the person spending. Because if you ask somebody, what’s the price of this sandwich, I’m not sure I could tell you most of them. But I can tell you that you spent $13. How much did you spend when you were there? I think that’s the way to think about it.
Tech trends, separate myth from reality.
Obviously online ordering is going to continue to grow. It’s interesting because, for our business, pre-COVID, we were about 60 percent dine-in. Day 1 of COVID, dine-in went to zero, right? So people didn’t have a choice but to use the technology. What happened was once the dining rooms opened again, the dining room business grew, but the to-go business didn’t decline at all. Those kind of equalized and what we started to see last year was the dine-in business and delivery business grow again.
Ultimately, this is where you talk about quality, value, convenience—people are going to figure out the most convenient way to order. Then you get on the other side of that with value. Where can you get a good deal? I do think online ordering and delivery is going to stay.
I’m not sure how AI figures in. Everybody is talking about AI. The things I’ve seen is can you use it to do better customized marketing. One example that I saw, and this is back when I was working at Corner Bakery, which was owned by Roark. Buffalo Wild Wings [also owned by Roark in the Inspire Brands family] was talking about how they could customize email marketing where they know that you’re a Baltimore Ravens fan and you like beer and not mixed drinks. So they could send you an email: the Ravens are playing on Thursday night. You’d get an email and learn about a beer special that night. I thought that was really cool as opposed to some of the stuff I hear about AI.
Kiosks are another one. We are doing them. We’ve got them in half the stores. I think it’s one of those things you don’t want to be left behind. But whether it’s a long-term solution, I don’t know yet.
There was a study we did that said in fast casual if you waited more than five minutes in line, or five minutes for your food, you had those 10 minutes. You can either do it here or do it there, but if you waited longer than that than it was tough to get above an 80 percent satisfaction, no matter how good the food was. There was a time expectation. I think that says a lot.
