THE LUNCH BUNCH
The challenges facing franchised eateries are well known: rental costs, increasing competition, changing consumer preferences, the introduction of delivery services. Here five franchisors chew over the issues…
What’s happening in fast food? Franchisors chew over the issues.
As Aussies continue to seek healthy options for their midday munchies there is no shortage of independent cafes and chains to offer menu options that feed their demands. For the lunchtime trade in particular, the sandwich has been a mainstay for years with Subway a runaway leader in terms of market share for this space. But salads and sushi have made their mark in the sector and helped shift the focus to a healthier menu.
IBISWorld analyst Bao Vuong wrote in the December 2017 report, ‘Fast Food and Takeaway Food Services’, that healthy eating has transformed the industry over the past five years.
“Australians have become increasingly health conscious due to public campaigns discouraging unhealthy lifestyles. This trend has affected the industry by driving consumers away from unhealthy options and towards healthy alternatives. This has led to an increase in the number of fast food options available to consumers.
“Healthier eating options have increasingly entered the industry, including salad and juice bars, and sushi stores. These new fast food options were initially viewed as passing fads. However, over time these new retailers have cemented their places in the fast food market. This has increased competition in an already saturated and competitive market.”
According to Vuong, increased health consciousness among consumers has been matched by other businesses in the food arena broadening their offer to cater for hungry customers – cafes and restaurants, convenience stores and supermarkets have all freshened up their meal options.
“Ongoing strong demand for quick and healthy food options is anticipated to continue bolstering the industry over the next five years,” Vuong writes in the August 2018 report, ‘Sandwich Shops in Australia’. “The industry’s external competition is projected to continue rising over the period, as other quick-service food establishments provide premium healthy options, such as gourmet sandwiches. Cafes, supermarket chains and convenience stores are also forecast to increasingly provide readymade healthy meals, which is likely to constrain industry growth.”
Overall, he says, revenue from the sandwich shop sector is expected to grow at an annualised 0.6 per cent over the five years through 2023–24, to $934.2 million. That’s a real slow down from the 4 per cent growth shown over the five years to 2018–19.
There are conflicting pulls on the industry from macro-economics, as real household income is expected to increase over the current year while a decrease in weekly working hours is likely to pose a threat to consumers eating out.
While franchised chains offer franchisees the advantage of brand recognition, buying power and functioning systems and processes, they may also trade for longer hours than an independent operator, which means higher penalty rates and wage costs. However, there is evidence that profit margins have been boosted with the consumer preference for healthier items.
One franchise brand has in four years achieved incredible growth. Soul Origin launched its first franchise in June 2014, just a year after opening its second corporate outlet. In mid September it celebrated its 100th store, an outlet at a suburban shopping centre, Royal Randwick, in Sydney’s eastern suburbs.
Chris Mavris is the CEO for the healthy eating food chain and he’s confident that Australians are looking for food they know and understand – the staples.
“From research we’ve done, consumers talk about lunchtime regret. Some of the food [in stores] looks really good but it doesn’t live up to expectation,” he says. And in a lunch hour, there’s really no time to go back and fix it with a different meal, he points out.
Soul Origin provides customers with everyday classics with a twist, fresh wholesome food with global flavours, says Mavris.
The menu range is currently undergoing a tweak with the focus on innovation, adding more modern items, a few new salads and a refresh of other salad dishes.
“Aussies are making better choices. The menus of all the big franchise brands are putting on salads, they are looking at healthier products, more nutritious dishes.
“The palate is amazing, and with the mixing bowl of cultures we have in Australia we can appreciate flavours.”
Mavris believes there’s another strong factor that distinguishes the brand from competitors in the lunchtime trade – the long low counters allow consumers to see the food they are ordering, rather than relying on a stylised menu board. And the deli-style counters also mean a customer’s first contact at an outlet is with a person, not a point of sale machine.
“Our business is two day parts.
Coffee firms up the morning and drives into lunch time. The ability to have two
It’s a fine balance for food in shopping centres. You have to sell more to the customers you have and get your existing customers to come to you more often.
strong day parts with a broad selection of items is important,” says Mavris, who agrees that occupancy costs are a challenge for every food retailer.
Managing landlords and shareholder expectations is another. “There’s a share of stomach and everyone is fighting for the same share,” he says. “The percentage of food outlets is significantly higher than it was 10 years ago and people haven’t had wage increases; the cost of living has gone up but disposable income has not.
“It’s a f ine balance for food in shopping centres. You have to sell more to the customers you have and get your existing customers to come to you more often.
“Australians are very entrepreneurial – f air go and have a crack are in our DNA. It’s in our DNA to want to run business.
“So what can we expect from this food sector? Will it change? Yes. Competition won’t drop. What that looks like we c an’t tell.”
Luke Baylis made headlines last year with his move to ditch food courts in favour of new locations to dish up healthy meals. In his battle with landlords over rents, the head of SumoSalad took drastic action, putting the business into voluntary administration in July this year.
Now Baylis is back in charge at the healthy fast food chain.
“We’ve had a f ull bill of health. The team have been incredibly supportive, they are very passionate. It’s been a tough time but it’s been incredibly positive and a f resh start for us,” Baylis tells Inside Franchise Business. “We’ve had legacy issues, this gives our business the ability to remove those legacy issues and create a really strong platform that doesn’t divert us from moving the business forward.”
Undertaking the 35-day Deed of Company Arrangement process was an intensive way to t weak and restructure the business, he says.
Significant improvements in profit and cashflow had been made ahead of the voluntary administration but free working cashflow was tied up dealing with legacy issues, he explains. The ability to disclaim any non-viable contracts, including leases, and to clear areas of business not generating sufficient return was invaluable.
“This gave us the ability to redeploy the profitability into future business. This is where we’ll see huge growth and rejuvenation.”
A vocal naysayer of the food court model, Baylis has been working on taking the business into other arenas. “As one business model gets disrupted, you have to shoot a few test shots out. One of the things that’s worked incredibly well is the wellness cafe. It’s providing people seeking healthier food opportunities with breakfast, lunch and dinner options in an upmarket manner. It’s very strong,” says Baylis.
Sumo has been trialling wellness cafes
to good effect – Baylis reports a 261 per cent growth on the food court model.
It offers higher transaction value, day parts, a strong customer experience and association of the brand.
“Such a huge improved turnover line makes this a very viable model, which we’ve refined over the last 24 months.”
The changes to a broader menu offering prompted a refinement of the branding: the word Salad will be dropped from future stores. Baylis reports the name Sumo scored very highly in customer awareness.
“It’s leveraging that, rather than the affiliation with salad. We are promoting healthy and fresh as two pillars in a more diverse offering. There’s huge growth opportunity within this, this is a very elevated offering.”
When it comes to site locations airports, hospitals and universities are in the mix, but so too are shopping centres.
“We’re not walking away from shopping centres, we’re walking away from food courts,” Baylis explains.
Current stores will be converted to the wellness cafe model over time as franchise agreements expire.
“We want to reposition stores in the new format, build up franchisee skill sets and keep the best operators.”
Baylis is full of praise for the “incredible bunch of franchisees” that have held true to the Sumo philosophy and kept the dream alive by focusing on their businesses and delivering good customer service.
“Despite what we see, when you’re doing a restructure there is always a degree of fear and uncertainty. Franchisees have been focused on how do we
Such a huge improved turnover line makes this a very viable model, which we’ve refined over the last 24 months.
make it better, how to make it an amazing brand.
“Our sales are 14 per cent up, which is unprecedented in the industry, all off the back of our franchisees focusing on customers.”
Baylis is taking another route to market based on the trust consumers have in the Sumo brand. The ready-meal market is the next new arena for the brand to dip into, with meals to be distributed through Sumo outlets and at grocery and convenience store level.
“We have customer permission and credibility in the meal space,” he says.
SUKI SUSHI BURRITO
Kim Toovey sees a challenging economic period ahead aligned with a national doom and gloom, and lack of financial growth. “People are seeing less money in their pockets and are being thrifty,” he says. As a result, some people are choosing the home-cooked lunch option, diminishing the takeaway market’s potential, says the Suki Sushi Burrito franchisor.
Meanwhile the health conscious consumer might be a signed-up supporter of the meal prep revolution, attracted by the ease of a controlled healthy meal ready to hand, and driven by fitness regimes.
“More and more people are eating healthily so for us it’s been about staying relevant. You have to listen to customers, have your ear to the ground but stay true to the brand.”
Suki Sushi Burrito, as the name suggests, puts the healthy appeal of sushi with the temptation of hearty burritos. It is also trialling acai bowls as an add-on.
“It’s about having amazing tasting food at a good price.” As a food retailer the challenge is to continue to achieve that and retain margins when everything is going up,
We’re not pigeonholing ourselves over lunch.
and this is crucial for a franchisor. Toovey believes the secret is a great relationship with suppliers so any pain points that arise from ingredient shortages or increased costs can be dealt with early.
“We have the attitude of remaining fair – we’re a growing brand, we want to have a fair and open relationship with franchisees. At the moment it’s all about getting the best price because we want them to buy a second or third location, and not just a money grab.”
While Toovey says everyone will find a way back to great tasting food, whether franchised or great independent, there’s no doubt that social media, instore fitout and design, product and presentation are all crucial in the mix.
But while other brands are focused on a lunchtime trade, Suki Sushi Burrito trades across two or three service periods. “We’re not pigeonholing ourselves over lunch,” he says. And key to the offer is the freedom of choice for customers to build their own flavours, with more than 30 salad and vegetable options.”
“The price point gives freedom of choice,” he says.
Not content with expansion across Australia, Toovey says overseas growth is under consideration – when the time is right and the brand is strong.
Sandwich Chefs is a little different. It’s a carvery in a sandwich deli. The chain is growing steadily, not least because the focus is achieving a return on investment (ROI) for the incoming franchisees, explains Gary Powell, national network development manager.
“We’ve just knocked back a high profile site in Melbourne because it doesn’t meet our selection criteria,” he says. “We calculate an ROI; we had confidence it would provide revenue but not ROI for the franchisee and that’s our primary focus.
“It’s about franchise viability. The site would be fantastic for our brand but that’s not the game we’re in; we’re in the game of long-term.”
Powell says outsourcing the majority of the leasing means the process is handled by experts who understand the market and the demands of the franchisor.
Sandwich Chefs has refreshed its look, and the New York deli style is putting the brand in a premium position, reports Ollie Mann, who heads up marketing for the chain.
“Sandwiches as a quick service restaurant option is a pretty forgotten segment. There’s an opportunity for us. We don’t have anyone operating in this carvery, specialty space.”
Yes, the customer profile is skewed 60/40 male tradies to female shoppers. But he believes there’s a universal appeal. Who can’t resist a slow roast that’s at the core of the offer? While the 14-hour slow cooked pork with amazing crackling might be a meat-lovers’ favourite, the chain isn’t catering purely for carnivores. The Mediterranean roast veggie roll is reportedly one of its most popular sandwiches. Also on the menu are gourmet salads, an expanding category, and freshly squeezed juices. There is something for everyone, but pitched as quality, Mann says.
The brand is promising plenty of innovation: look out for a signature range and a deconstructed sandwich – roast on a plate, without the carbohydrates.
The carvery food offering of meat, vegetables, gravy and salads distinguishes the brand from competitors.
Long term, the goal is to be a network of more than 250 stores, says Powell. Primarily a lunchtime offer, with some outlets serving breakfast, most of the stores in NSW do extend their trading into the early evening.
“Shopping centre supermarkets are open till 9 pm but the food court closes at 5 pm, so these outlets are food destinations in their own right. Quite a few stores are trading through to 8 pm.”
Right now the 61 outlets (75 by September 2019) are all food court locations but the future could look a little different, with freestanding restaurants and one-off food trucks pedalling the carvery eats at festivals. Expect to see kiosk and casual dining outlets too.
There is plenty of opportunity in sandwiches.
Subway claims to be the largest quick service restaurant (QSR) in Australia, with more than 1300 restaurants around the country. For a brand with such a strong market share (85 per cent in sandwiches), there’s always the temptation to keep doing what works and ignore opportunities to innovate. But the team at Subway has embraced change, this year rolling out a revitalised menu and restaurant design.
Kate Brody, Subway director of marketing, Australia and New Zealand, says, “Our new menu and restaurant decor is a part of our 360 degree brand refresh. We are introducing bolder flavours and new ingredients that respond to what Subway guests have told us they want from us – fresh, healthy, delicious and locally sourced food that is affordable and convenient.”
This is the brand’s “Fresh Forward” approach designed to transform every element of the customer’s instore experience.
“Our first Australian restaurant featuring the new decor opened its doors and drive-through in Toowoomba on Wednesday 13 June this year, and we plan to expand this new decor across all Australian and New Zealand restaurants.”
Brody reveals more than 100 restaurants across Australia and New Zealand are piloting a rejuvenated menu featuring 25 new ingredients, including new and improved breads, meats, cheeses, salads, sauces and seasoning options.
“We’re seeking as much feedback as possible to ensure that if we add or remove any ingredients, we know exactly how our loyal guests feel about it, and any future menu developments are guided by what our guests are telling us,” she says.
Subway is the fourth largest buyer of fresh veggies in Australia and is ramping up its focus on locally sourced ingredients.
Brody says Subway continues its commitment to menu improvements to cater for changing diets and tastes.
“A recent example is our new vegan options including smashed falafel, catering for the first time to those who follow a plant-based diet,” says Brody.
Suki Sushi Burrito
Top and middle photos: Sandwich Chefs