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…

Inside Franchise Business - - Contents - By Sarah Stowe

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.

SOUL ORI­GIN

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.”

SUMOSALAD

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

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

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

Sumo Salad

Soul Ori­gin

Soul Ori­gin

Sumo Salad

Suki Sushi Bur­rito

Top and mid­dle pho­tos: Sand­wich Chefs

Sub­way

Sub­way

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