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Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
Hunger Games: Strategies for Growing in the Hourglass Economy
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Hunger Games: Strategies for Growing in the Hourglass Economy

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The economic landscape in the United States continues to shift the balance of purchasing power from the middle to high and low income earners, resulting in an “hourglass economy.” Foodservice …

The economic landscape in the United States continues to shift the balance of purchasing power from the middle to high and low income earners, resulting in an “hourglass economy.” Foodservice operators need to stand and take notice, as this phenomenon (which isn’t going to change anytime soon) has real implications for how to drive growth in an otherwise stagnant economy. Tune in to hear insights on how you can deploy strategies to unlock opportunities at the top and bottom of the hourglass, and avoid getting caught in the middle.

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  • 1. Hourglass Economy Discussion Hunger Games Strategies for Growing Jon Weber, L.E.K. Consulting in the Hourglass Economy Jon Weber Vice President© 2013 L.E.K. Consulting LLC. All rights reserved. 1
  • 2. Purchasing power shifting to the top and bottom iscreating an hourglass economy, which will persistChange in percent of households in income brackets (2007-2011)PPT change Key drivers of the hourglass1.5 1.2 economy1.0 • Globalization 0.60.5 • Middle-class job opportunities declining0.0 • Technological change requiring-0.5 specialized, high paying skills-1.0-1.5 Successfully adapting -1.7-2.0 to this long-term <$30,000 $30,000-$69,000 ≥$70,000 phenomenon can help deliver growth Note: *Real median U.S. household income is in 2009 dollars Source: U.S. Census, Bureau of Labor Statistics, L.E.K. research and analysis © 2013 L.E.K. Consulting LLC. All rights reserved. 2
  • 3. Effects of the hourglass can be seen all around us … “Deal” Channels Daily deal site revenue has grown 304% from ‟07-‟12, Factory Outlet Growth reaching ~$1.7B in the U.S. Premium / discount grocery revenue growth U.S.-based outlet stores In 2012**, Whole Foods and Dollar General generated sales of $24.3B in experienced comp store sales growth of 8.7% 2012*, up from $16.5B in 2007 and 5.3%, respectively, while Safeway experienced growth of 1.3% Significant evidence of consumers spending more Premium Price Increases Promotion Proliferation for premium and Price of Starbucks‟ premium “Clover” 84% of shoppers indicate they value coffee raised by 23% from $1.75 to “usually” or “only” buy $2.15 in 2012 clothing on sale Department Store Squeeze Luxury Retailer Comp Store Increases Lululemon and Neiman Marcus reported Apparel sales in department stores fell 1.5% comp store sales growth of 18% and from 2006-2011 5.4%, respectively, from 2011 to 2012^Note: * Calculated September 2012 and forecast through rest of year; ** Sales as of the end of FY2012 for Whole Foods and as of 3Q:2012for Dollar General and Safeway; ^ As of Q3:2012Source: IBISWorld, Responsys, BIGinsight, Nielsen, Euromonitor International, Value Retail News, Boston Business Journal, Dallas News,© 2013 L.E.K. Consulting LLC. All rights reserved. 3 Company websites and annual reports
  • 4. … and the food industry is no exceptionAggregate food at-home spend by Aggregate food away-from-home spendhousehold income (2007-2011) CAGR by household income (2007-2011) CAGR 3.0% Top 20% 0.3% 2.2% Middle Class -1.4% 4.1% Bottom 40% 1.9% Source: U.S. Bureau of Labor Statistics © 2013 L.E.K. Consulting LLC. All rights reserved. 4
  • 5. As a consequence, restaurants at the top and bottomare outperforming those in the middle Comp store sales growth by restaurant type (2010-Q1:2012) Percent 6 6 6 6 5 4 4 4 3 3 3 3 2 1 1 1 0 -2 -1 -2 -4 2010 2011 Q1:2012Chains across the spectrum can benefit QSR Fast Casual Family Casual Finefrom strategies Low-end High-end that embrace the hourglass Source: GE Capital Franchise Finance, QSR Magazine, Nation‟s Restaurant News, L.E.K. analysis © 2013 L.E.K. Consulting LLC. All rights reserved. 5
  • 6. A number of strategies can help you drive growth in this environment • 1 Add items that appeal to the top & bottom of the hourglass 2 Be the best at what you do - Get more “signature items” •Productappeal • 3 Co-brand to elevate products to star status 4 Everyone is snacking; “grab-and-go” get this business •Environment • 5 Adapt to the evolving consumerGeography 6 Grow internationally – wealth is growing faster outside the • U.S. than in it © 2013 L.E.K. Consulting LLC. All rights reserved. 6
  • 7. 1 Items that appeal to consumers’ value and premium needs are critical to winning in the hourglass economy McDonald’s Panera Bread McChicken Angus Deluxe Smoked Turkey Breast Roasted Turkey Artichoke Price Points $1.00 $3.99 $5.99 $8.59 Enable consumers to trade-up /down and add- on / take-off Menu Breadth Source: Company websites, Grub Grade © 2013 L.E.K. Consulting LLC. All rights reserved. 7
  • 8. 1 Doing this will help drive traffic, and avoid the “veto vote” (of which there are many)Last dining experience at restaurant Last dining experience at Frequency of eating lunch orincluded children under 10 restaurant was with a group* dinner at a restaurant**% of respondents % of respondents % of respondents 100 100 100100 100 100 80 80 80 60 60 60 47 47 40 40 40 20 20 20 20 11 0 0 0 18-34 35-54 55+ Low income High income Alone (<$25K annually) (>$75K annually) With children With peers Note: *Includes peers / friends / family >10 years old Source: L.E.K. Restaurant Consumer Survey © 2013 L.E.K. Consulting LLC. All rights reserved. 8
  • 9. 1 Among affluent consumers specifically, innovation with new and different flavors are important traffic drivers Continuous innovation is critical All affluent These consumers • New and different flavors that are on-trend items often • Menu items that signal quality 43% of affluent garner a consumers prefer • Ongoing “renewal” that drives interest / traffic premium price restaurants that offer innovative flavors and Examples ingredients vs. 27% of working Fresh avocado Korean BBQ Tacos „Shroom Burger class consumers Source: Technomics © 2013 L.E.K. Consulting LLC. All rights reserved. 9
  • 10. 2 Signature items (those that are truly different and craved by consumers) are a key driver of traffic Importance of a Signature Menu Item in Driving Traffic % of respondents that cited signature item as a top three reason for visiting a restaurant 35 32 31 31 30 27 26 26 25 25 20 15 10 5 0 Source: L.E.K. Restaurant Consumer Survey © 2013 L.E.K. Consulting LLC. All rights reserved. 10
  • 11. 2 Signature items are needed across the menu Appetizers Entrees Desserts    Do you really have enough signature Salads Sandwiches Beverages items on your    menu? Consumers are very discerning, with 63% of low income and 49% of affluent diners viewing eating out as a special treat, which makes signature items more important than ever Source: L.E.K. analysis, Technomics 11 © 2013 L.E.K. Consulting LLC. All rights reserved.
  • 12. 3 Use others’ brand power to create star products that stand out to each end of the hourglass Co-Branding Taco Bell & Doritos Dunkin Donuts & Oreo Applebee’s & Weight McDonald’s & Newman’s Watchers Own Coffee On average, these items are priced at a ~35% premium Source: Company websites, Nation‟s Restaurant News, Loudon County KFC, The Impulsive Buy, L.E.K. analysis © 2013 L.E.K. Consulting LLC. All rights reserved. 12
  • 13. 4 U.S. consumers are snacking a lot …U.S. daily snacking frequency, 2009 vs. 2012 Of the time spent eating, the percent which is spentPercentage of consumers eating and performing other tasks Percentage ~2 snacks per day ~3 snacks per day 100 100 3% 0% 2% 100 6% 7+ 90 24% 5-6 80 80 3-4 Time eating only 70 43% 1-2 60 None 60 50 40 69% 40 Time eating 30 49% and performing 20 20 other tasks 10 0 3% 0% 0 2009 2012 Source: Symphony U.S. Consumer Snacking Survey © 2013 L.E.K. Consulting LLC. All rights reserved. 13
  • 14. 4 … across demographics and throughout the day Estimated Caloric Intake from Snacking* U.S. snacking habits by time of day, 2009 vs. 2012 Percentage of consumers Percentage 40 39% 100 34% 35 30 2009 80 26% 2012 25 22% 60 21% 21% 20 16% 40 15 11% 26 24 23 10 7% 20 4% 5 0 0 <$25,000 $25,000- ≥$75,000 Early Morning Afternoon Evening Late Morning Evening $74,999 Ways to attract snacking consumers: offer compelling snack items; extended hours; portable packaging; fast in-and-out service Note: * Calories from snacking includes food consumed outside of traditional meal times of breakfast, lunch and dinner as indicated by respondents Source: Bureau of Labor Statistics, U.S. Department of Agriculture, Just-Food.com, All One, L.E.K. Analysis © 2013 L.E.K. Consulting LLC. All rights reserved. 14
  • 15. 5 Taste, convenience, and value are most important to consumers, regardless of income … Top three reasons cited for visiting a restaurant % of respondents High income ($75K+) 50 46 Low income (<$25K) 45 41 40 40 38 35 35 30 27 25 20 15 10 5 0 Great Conveniently Low prices / tasting food located good value Source: L.E.K. Restaurant Consumer Survey © 2013 L.E.K. Consulting LLC. All rights reserved. 15
  • 16. 5 …but high income consumers have a longer tail of other factors affecting their preferencesImportance of criteria when selecting High income: other factorsa restaurant* Low income 41 • Signature item they loveTaste,quality, • Healthy optionsand price High income 34 • Clean and comfortable environment Low income 59 • Menu is large enough for a group All other factors High income 66 Continuously innovate…It is imperative to stay current in all that you do – taste 0 10 20 30 40 50 60 70 trends, menu innovation, customer experience and values, etc. % of respondents Note: *Respondents asked to pick top three important factors out of a total 21 factors when choosing a restaurant Source: L.E.K. Restaurant Consumer Survey © 2013 L.E.K. Consulting LLC. All rights reserved. 16
  • 17. 6 Increasing wealth around the world is creating significant opportunities for international growth Size of worldwide middle class and above* EXTRA! EXTRA! population (2009-30F) Millions CAGR% Yum! Brands is the world’s largest restaurant 4,884 (2009-30F) company, with nearly 38,000 restaurants in over 5,000 120 countries Central & S. America 31.5 4,500 McDonald’s currently operates over 33,000 4,000 restaurants in more than 119 countries 3,500 3,249 Applebee’s is the largest casual dining chain in 3,000 Asia Pacific 148.0 the world, with almost 2,000 restaurants in 15 countries 2,500 2,000 1,845 In 2012, Starbucks announced plans to open ~500 Sub-Saharan Africa 82.9 new stores in Asia in the next fiscal year, among 1,500 other international store openings Middle East & N. Africa 49.3 1,000 Europe 1.2 In April of 2012, Johnny Rockets opened their 500 second restaurant in South America North America (2.4) 0 Europe & North America‟s combined In 2011, Smashburger announced its first 2009 20F 30F international expansion, with locations to open in share falls from 54% to 20% of the total middle class and above population Kuwait, Bahrain and Saudi Arabia Note: Latest presentation of data given in 2011; * Defined by Brookings Institution as households with daily expenditures between US$10- US$100 / person in purchasing power parity terms; North America includes U.S. and Canada only; Europe includes the EU5, Russia, Scandinavian countries as well as Eastern European countries; Asia Pacific includes China, India, other Asian countries as well as Oceania Source: Brookings Institution, Company websites, The Seattle Times, World Bank © 2013 L.E.K. Consulting LLC. All rights reserved. 17
  • 18. So … • Embrace the hourglass … it is real and will persist • Challenge yourself – are you really doing enough? • Continually innovate • Don‟t get caught in the middle© 2013 L.E.K. Consulting LLC. All rights reserved. 18

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