Several quick-service brands are ramping up
development in nontraditional venues. QSR looks
at the pros and cons.
Ever get the feeling you’re surrounded by quick-service restaurants? That’s probably because you are. They’re tucked into airport terminals, squeezed into bus stations, crammed onto college campuses, and rammed into retail stores.
In just the past year, at least eight quick-service brands have opened or announced plans to expand in nontraditional venues, with some identifying the strategy as a key component of future growth. From established brands to ambitious up-and-comers, fast feeders are finding opportunities outside the box.
Nontraditional venues are nothing new. The first Taco Bell Express, a scaled-down version of the restaurant meant for convenience stores, truck stops, airports, and other out-of-the-ordinary sites, opened in the early ’90s, and other big brands have been operating outside of stand-alone stores for some time. But today, setting up shop in nontraditional spots seems to be an especially attractive option.
While sales in limited-service restaurants are expected to remain stagnant next year, foodservice sales in supermarkets, colleges and universities, primary and secondary schools, senior-living centers, and military locations are projected to grow, according to a report from market research provider Technomic. Sales in convenience stores, hospitals, and long-term-care facilities are expected to hold steady, even as those in full-service restaurants and bars and taverns continue to decline.
One possible reason why sales in these sites have held up relatively well is because, unlike traditional restaurants, which must be destinations in themselves, the nontraditional varieties are located within a larger draw, such as an airport, theme park, or gas station.
“You can count on a captured audience always being there,” says Chris Cheek, vice president of franchise development at Bruegger’s, a nearly 300-unit bakery-café chain that has opened four airport locations since mid-2008.
That’s not to say nontraditional sites are recession-proof. Though sales in nonrestaurant locations as a whole declined at a slower pace this year than at traditional full-service restaurants, they fell nearly a full point faster than sales at restaurants overall (including full-serves, limited-serves, and bars and taverns), according to Technomic. Next year they are projected to fare better than restaurants overall, but only slightly. Moreover, foodservice sales at travel and leisure sites, such as recreation facilities, lodging, airplanes, and business and industry environments, saw some of the steepest declines across all segments and are expected to shrink again in 2010.
Even so, Cheek says nontraditional locations are still a good bet. Though lower passenger counts have meant fewer travelers recently, tighter security since September 11 and longer flight delays mean passengers spend more time in airports. Colleges and universities are still adding students, and as the baby boomers age, more people will likely spend time in healthcare facilities.
“You can be assured of a fairly predictable revenue stream that’s only going to grow,” Cheek says.
Because they’re typically located in high-traffic destinations, nontraditional quick serves in airports and universities can bring in more revenue than traditional units, with sales 50 to 100 percent higher than at standard street locations, says Bill Casey, vice president of the food and beverage concept portfolio at HMSHost, a concessionaire that operates foodservice outlets in airports and turnpike travel plazas. However, that doesn’t necessarily mean they’re more profitable, cautions Blair Nicol, a San Diego-based principal and franchise adviser with franchise consultancy FranNet.
Though nontraditional locations are scaled-down versions of their traditional counterparts—excluding amenities such as bathrooms and customer seating, which are typically provided by the venue—they aren’t always cheaper to develop and run. Some venues, especially airports and hospitals, require the use of union labor for buildout, which along with other factors can push costs to about $600 per square foot. Rents in nontraditional venues are often sky high, and even recruiting and labor costs can be higher if the site requires background checks and security clearance of employees or is an out-of-the-way location. Restaurants also can be responsible for group marketing and other fees.
It can also be hard to break into nontraditional locations. When a spot opens, venues will typically put out a request for proposals and take bids. There might be 20 or more applicants vying for a single open spot, and it can take up to two years to complete the process. Even if a company wins the contract, lease terms are often shorter than in traditional locations, starting the process all over again.
Still, some industry professionals say it’s worth the trouble because of the exposure nontraditional locations offer. One of those is George Naddaff, chairman and CEO of UFood Grill, an eight-unit, health-oriented concept based in Newton, Massachusetts. In early 2008, the chain opened its first nontraditional location in Terminal B of Boston Logan International Airport, one of the 20 busiest airports in the U.S. Naddaff, who also founded Boston Market, credits the location with netting the company at least one franchisee, who encountered the concept through her travels, in addition to countless customers.
“When you have 6–7 million people pass through the terminal and see the name, it becomes familiar and helps create the image of our company,” Naddaff says. “What we’re building here is a brand awareness that I couldn’t pay for.”
UFood Grill has three airport spots open with three more under construction. The concept has also moved into Roseville, California’s Westfield Galleria mall and Dallas’ Parkland Memorial Hospital, where it ousted a McDonald’s that had been there for 20 years. The company is trying for spots at more than 20 other airports, and Naddaff hopes to continue leveraging nontraditional venues to grow the brand.
Another chain that uses nontraditional units to its advantage is Subway. At time of press, the sandwich giant was rivaling McDonald’s as the world’s largest quick-service chain with more than 31,800 units, more than 7,000 of which are in nontraditional venues. Subway has shops on military bases, in retail stores, train stations, theme parks, sports venues, community centers, a church, the Pentagon, and countless other atypical locations across the world
“We cover from A to Z,” says Elizabeth Rolfe, director of new business development for Subway. “We’re in airports, and we’re in zoos.”
Rolfe attributes the company’s success in the nontraditional arena to its chameleon-like ability to fit nearly any environment. No matter the size, as long as a location can accommodate a sandwich counter and a refrigerator, it can likely serve the entire Subway menu, she says. But Subway is the exception rather than the rule. Other quick serves looking to make it in nontraditional locations might have to make some sacrifices.
“A lot of times you have to adapt to the business environment,” says FranNet’s Nicol. “You might have to have a smaller menu compared with the typical location. You might not be able to have your typical equipment package. Your employee shifts might be different. Everything from design to operations is just a little bit different.”
Earlier this year, Checkers, which added six nontraditional restaurants in the second quarter, got a taste of just how trying such environments can be. When a concessionaire with whom the company had partnered outbid the previous tenant in a toll-road travel plaza, Checkers was asked to convert the existing restaurant to one of its own in just 24 hours.
“That’s the type of challenge you just don’t get in traditional development,” says Michael Arrowsmith, senior vice president of development for the company.
Marketing is different, too. In a regular, stand-alone location, customers are likely to order once they enter your store. In many nontraditional venues, however, the competition isn’t down the block or across the street; it’s just a few steps away. Customers can cruise their options, so it’s essential to grab them on the spot, says Rich Leivenberg, executive vice president of Jody Maroni’s Sausage Kingdom, a Venice, California–based sandwich concept that built its brand on boardwalks and in airports, stadiums, and outlet malls.
Everything from design to operations is just a little bit different.”Instead of major media advertising campaigns, Jody Maroni’s focuses on on-site marketing, including couponing, guerrilla marketing, and displaying high-quality color photographs of its food. The company also does a lot of sampling.
“It’s our No. 1 form of marketing,” Leivenberg says. “We have a cutting board at every counter, and if anybody walks by, we yell at them to come over and try it.”
With the visibility nontraditional locations often bring, operations have to be on point. According to Nicol, these high-traffic locations serve as ambassadors for the entire brand, and traveling customers who have a bad experience could carry their grudge on to other markets. With other options within walking distance, speed is also paramount, as a long line could send hurried travelers or busy students to the competition, Leivenberg says.
To make nontraditional locations work, it’s essential to have a supportive franchisor, experts say. Nicol recommends companies establish a department dedicated to such venues if a company plans to go after them aggressively. In the end, though, nontraditional locations, just like traditional restaurants, depend mostly on one thing.
“I’ve seen some systems have tough times in nontraditional locations, and I’ve seen some do very, very well,” Nicol says. “A lot of it has to do with the franchisee that’s running the restaurant.”
By Jamie Hartford Contact her at Jamie@qsrmagazine.com
Ever get the feeling you’re surrounded by quick-service restaurants? That’s probably because you are. They’re tucked into airport terminals, squeezed into bus stations, crammed onto college campuses, and rammed into retail stores.
In just the past year, at least eight quick-service brands have opened or announced plans to expand in nontraditional venues, with some identifying the strategy as a key component of future growth. From established brands to ambitious up-and-comers, fast feeders are finding opportunities outside the box.
Nontraditional venues are nothing new. The first Taco Bell Express, a scaled-down version of the restaurant meant for convenience stores, truck stops, airports, and other out-of-the-ordinary sites, opened in the early ’90s, and other big brands have been operating outside of stand-alone stores for some time. But today, setting up shop in nontraditional spots seems to be an especially attractive option.
While sales in limited-service restaurants are expected to remain stagnant next year, foodservice sales in supermarkets, colleges and universities, primary and secondary schools, senior-living centers, and military locations are projected to grow, according to a report from market research provider Technomic. Sales in convenience stores, hospitals, and long-term-care facilities are expected to hold steady, even as those in full-service restaurants and bars and taverns continue to decline.
One possible reason why sales in these sites have held up relatively well is because, unlike traditional restaurants, which must be destinations in themselves, the nontraditional varieties are located within a larger draw, such as an airport, theme park, or gas station.
“You can count on a captured audience always being there,” says Chris Cheek, vice president of franchise development at Bruegger’s, a nearly 300-unit bakery-café chain that has opened four airport locations since mid-2008.
That’s not to say nontraditional sites are recession-proof. Though sales in nonrestaurant locations as a whole declined at a slower pace this year than at traditional full-service restaurants, they fell nearly a full point faster than sales at restaurants overall (including full-serves, limited-serves, and bars and taverns), according to Technomic. Next year they are projected to fare better than restaurants overall, but only slightly. Moreover, foodservice sales at travel and leisure sites, such as recreation facilities, lodging, airplanes, and business and industry environments, saw some of the steepest declines across all segments and are expected to shrink again in 2010.
Even so, Cheek says nontraditional locations are still a good bet. Though lower passenger counts have meant fewer travelers recently, tighter security since September 11 and longer flight delays mean passengers spend more time in airports. Colleges and universities are still adding students, and as the baby boomers age, more people will likely spend time in healthcare facilities.
“You can be assured of a fairly predictable revenue stream that’s only going to grow,” Cheek says.
Because they’re typically located in high-traffic destinations, nontraditional quick serves in airports and universities can bring in more revenue than traditional units, with sales 50 to 100 percent higher than at standard street locations, says Bill Casey, vice president of the food and beverage concept portfolio at HMSHost, a concessionaire that operates foodservice outlets in airports and turnpike travel plazas. However, that doesn’t necessarily mean they’re more profitable, cautions Blair Nicol, a San Diego-based principal and franchise adviser with franchise consultancy FranNet.
Though nontraditional locations are scaled-down versions of their traditional counterparts—excluding amenities such as bathrooms and customer seating, which are typically provided by the venue—they aren’t always cheaper to develop and run. Some venues, especially airports and hospitals, require the use of union labor for buildout, which along with other factors can push costs to about $600 per square foot. Rents in nontraditional venues are often sky high, and even recruiting and labor costs can be higher if the site requires background checks and security clearance of employees or is an out-of-the-way location. Restaurants also can be responsible for group marketing and other fees.
It can also be hard to break into nontraditional locations. When a spot opens, venues will typically put out a request for proposals and take bids. There might be 20 or more applicants vying for a single open spot, and it can take up to two years to complete the process. Even if a company wins the contract, lease terms are often shorter than in traditional locations, starting the process all over again.
Still, some industry professionals say it’s worth the trouble because of the exposure nontraditional locations offer. One of those is George Naddaff, chairman and CEO of UFood Grill, an eight-unit, health-oriented concept based in Newton, Massachusetts. In early 2008, the chain opened its first nontraditional location in Terminal B of Boston Logan International Airport, one of the 20 busiest airports in the U.S. Naddaff, who also founded Boston Market, credits the location with netting the company at least one franchisee, who encountered the concept through her travels, in addition to countless customers.
“When you have 6–7 million people pass through the terminal and see the name, it becomes familiar and helps create the image of our company,” Naddaff says. “What we’re building here is a brand awareness that I couldn’t pay for.”
UFood Grill has three airport spots open with three more under construction. The concept has also moved into Roseville, California’s Westfield Galleria mall and Dallas’ Parkland Memorial Hospital, where it ousted a McDonald’s that had been there for 20 years. The company is trying for spots at more than 20 other airports, and Naddaff hopes to continue leveraging nontraditional venues to grow the brand.
Another chain that uses nontraditional units to its advantage is Subway. At time of press, the sandwich giant was rivaling McDonald’s as the world’s largest quick-service chain with more than 31,800 units, more than 7,000 of which are in nontraditional venues. Subway has shops on military bases, in retail stores, train stations, theme parks, sports venues, community centers, a church, the Pentagon, and countless other atypical locations across the world
“We cover from A to Z,” says Elizabeth Rolfe, director of new business development for Subway. “We’re in airports, and we’re in zoos.”
Rolfe attributes the company’s success in the nontraditional arena to its chameleon-like ability to fit nearly any environment. No matter the size, as long as a location can accommodate a sandwich counter and a refrigerator, it can likely serve the entire Subway menu, she says. But Subway is the exception rather than the rule. Other quick serves looking to make it in nontraditional locations might have to make some sacrifices.
“A lot of times you have to adapt to the business environment,” says FranNet’s Nicol. “You might have to have a smaller menu compared with the typical location. You might not be able to have your typical equipment package. Your employee shifts might be different. Everything from design to operations is just a little bit different.”
Earlier this year, Checkers, which added six nontraditional restaurants in the second quarter, got a taste of just how trying such environments can be. When a concessionaire with whom the company had partnered outbid the previous tenant in a toll-road travel plaza, Checkers was asked to convert the existing restaurant to one of its own in just 24 hours.
“That’s the type of challenge you just don’t get in traditional development,” says Michael Arrowsmith, senior vice president of development for the company.
Marketing is different, too. In a regular, stand-alone location, customers are likely to order once they enter your store. In many nontraditional venues, however, the competition isn’t down the block or across the street; it’s just a few steps away. Customers can cruise their options, so it’s essential to grab them on the spot, says Rich Leivenberg, executive vice president of Jody Maroni’s Sausage Kingdom, a Venice, California–based sandwich concept that built its brand on boardwalks and in airports, stadiums, and outlet malls.
Everything from design to operations is just a little bit different.”Instead of major media advertising campaigns, Jody Maroni’s focuses on on-site marketing, including couponing, guerrilla marketing, and displaying high-quality color photographs of its food. The company also does a lot of sampling.
“It’s our No. 1 form of marketing,” Leivenberg says. “We have a cutting board at every counter, and if anybody walks by, we yell at them to come over and try it.”
With the visibility nontraditional locations often bring, operations have to be on point. According to Nicol, these high-traffic locations serve as ambassadors for the entire brand, and traveling customers who have a bad experience could carry their grudge on to other markets. With other options within walking distance, speed is also paramount, as a long line could send hurried travelers or busy students to the competition, Leivenberg says.
To make nontraditional locations work, it’s essential to have a supportive franchisor, experts say. Nicol recommends companies establish a department dedicated to such venues if a company plans to go after them aggressively. In the end, though, nontraditional locations, just like traditional restaurants, depend mostly on one thing.
“I’ve seen some systems have tough times in nontraditional locations, and I’ve seen some do very, very well,” Nicol says. “A lot of it has to do with the franchisee that’s running the restaurant.”
By Jamie Hartford Contact her at Jamie@qsrmagazine.com
