Dow Jones Newswires: Technology Revamp on Order At Olive Garden, Red Lobster Chains

-Darden plans new technology platform for Olive Garden, Red Lobster, LongHorn

-Will offer e-gift cards, text-ahead seating, potentially a loyalty program

-Implementation will be multiyear process beginning in fiscal 2013

By Annie Gasparro

Of DOW JONES NEWSWIRES

New York-(Dow Jones)- Olive Garden and Red Lobster are getting a technology makeover, as parent company Darden Restaurants Inc. (DRI) fights to stay relevant with younger guests and its own employees. Read more

Bloomberg – Subway Is Giving Away Free Sandwiches. Will Franchisees Pick Up the Tab?

By Patrick Clark
Photograph by Amy Sussman/AP Photo for Subway

Franchise units are sometimes sold to would-be entrepreneurs as businesses-in-a-box. The entrepreneur plunks down some cash and gets the equipment and branding she needs, not to mention detailed instructions on how to run the business. Those instructions can be a lifeline for the business owner—or a leash that allows the franchiser to yank an entrepreneur’s prospects in any direction.  Read more

The Columbus Dispatch – Wendy’s net income rises in second quarter

Posted Aug 5, 2015 at 12:01 AM
Updated Aug 6, 2015 at 5:15 AM

Wendy’s is taking a look at the bottom of its menu to drive
higher returns. The Dublin-based burger chain beat analyst
estimates of second-quarter revenue, and net income rose
year-over-year. However, its same-store sales, which rose 2.2
percent, lag those of competitors.

Wendy’s is taking a look at the bottom of its menu to drive higher returns.
The Dublin-based burger chain beat analyst estimates of second-quarter revenue, and
net income rose year-over-year. However, its same-store sales, which rose 2.2 percent,
lag those of competitors.

The company believes it lost opportunities to juice its sales in the quarter because of
weakness in its value menu, CEO Emil Brolick said. He told analysts during a
conference call on Wednesday that the chain’s “Right Price, Right Size” value offerings
are not good enough.

Analysts asked about the changes and how they would add to the bottom line. Michael
Gallo of CL King & Associates wanted to know how Brolick plans to make Wendy’s
value menu relevant again.

“We are clearly seeing a shift” away from individual low-priced items to meals, Brolick
said. ” The consumer today is looking for more relevant bundling.”

Presto. Wendy’s is now testing value bundles in the $4 to $6 range, and Brolick said he
hopes to see better results from the value menu by the end of the year.

John Gordon, principal of Pacific Management Consulting Group and a food-service
consultant and analyst, thinks tweaking the value menu is more window dressing than
profit driver.

Wendy’s reported better profit margins for its restaurants and increased its annual
outlook for restaurant margins as well.

The fatter margins are thanks to easing beef and pork prices but also strong limited time
offerings, which carry premium prices.

“You know why the margins are better, right?” Gordon said. “The higher-priced items.”
Gordon thinks Wendy’s needs a better story for how it will improve its same-store
sales figures. Burger King reported a 7 percent jump in U.S. same-store sales in the
second quarter.

Wendy’s booked $489.5 million in revenue in the quarter, down from $506 million a year earlier. That’s largely because the company owned 141 fewer restaurants this year. Net income rose to $40.2 million from $29 million, thanks to the proceeds from the sale of Wendy’s bakery in Zanesville.

The company also is progressing toward the sale of 560 stores, which should net $400 million to $475 million, said Todd Penegor, Wendy’s chief financial officer.

Wall Street shrugged at the company’s results. Wendy’s stock fell 18 cents, or 1.75 percent, to close at $10.11 on Wednesday.

jmalone@dispatch.com

The San Diego Union Tribune – McDonald’s goes custom

McDonald’s ‘Build Your Burger’ trial comes to San Diego

Katherine P. Harvey

Katherine P. Harvey

Customers at two San Diego-area McDonald’s restaurants can now use a tablet to build their own customized burgers with a menu of 20 new mix-and-match fixings, and receive more personal attention from employees.

The burger chain began testing the Build Your Burger concept at two Orange County stores last year in an effort to win over more young people, and last month expanded the trial to San Diego’s Midway and Santee stores.

The concept features the same burger patties found on a Quarter Pounder sandwich, but freshly grilled for each custom order. The patty is served on a buttered and toasted roll of your choice (artisan or brioche), and dressed with your choice of cheeses, guacamole, grilled mushrooms, pickled jalapenos, garlic aioli and other toppings. One of these a la carte sandwiches rings up at $5.49 plus tax. Bacon, the only “extra” that costs extra, adds 80 cents to the total.

At the recently renovated store on Midway Drive, an employee in a black-and-white uniform stands at the front of the restaurant and greets customers, educating them about the Build Your Burger option, then guides them through the ordering process. There’s one hitch: Guests who want to order anything off the standard McDonald’s menu have to step over to the counter.

When each made-to-order burger is ready, instead of sliding a plastic tray across the counter, a McDonald’s employee delivers it to the guest’s table in a metal basket. When the customer is finished eating, an employee comes by to bus the table and ask how everything was.

For nearly 60 years McDonald’s Corp. has had a reputation for producing affordable, consistent food for the masses, but the Build Your Burger experience costs, feels and tastes more like fast-casual than fast-food. That’s kind of the point, said industry analyst John Gordon, owner of Pacific Management Consulting Group.

Many of the most desirable consumer groups today demand more personalization and a higher-end flavor when it comes to what they eat.

“The problem for chains like McDonald’s is that with this generation, the Millennials in particular, the standard of expectations has risen,” Gordon said. “The standards that were OK for our parents, aren’t necessarily OK for us.”

The percentage of 19- to 21-year-olds in the U.S. who visited McDonald’s monthly has fallen by 12.9 percentage points since the beginning of 2011, according to a Wall Street Journal analysis of data from Technomic, while the percentage of customers age 22 to 37 visiting monthly during that period has been flat.

That’s one of several reasons why overall sales have been either flat or falling for most of the year at the burger giant’s U.S. stores, as young people who grew up on Happy Meals develop fussier palates and a deeper interest in having it their way with everything from fashion to food.

It’s also why we’re seeing some fast-food restaurants begin to roll out more upscale menu items and services, and in the case of Taco Bell’s U.S. Taco Co., even upscale versions of themselves.

Customization has been a big driver in the restaurant industry for the last 10 years, said Gordon.

“Honestly, McDonald’s is behind on this,” he said.

Now the world’s largest hamburger chain has to win back a crowd that already prefers Five Guys Burgers and Fries, The Habit Burger Grill and Smashburger.

“This is very much a step up and gets them away from the mass-produced food,” Gordon said, adding that he believes the concept will appeal to everyone.

Dan Coudreaut, Executive Chef and Director of Culinary Innovation says the Build Your Burger concept was born out of a desire for McDonald’s to deliver the best burger, and to compete with a growing number of fast-casual restaurants offering fresher tastes and better customer service.

“This is a holistic view of how we build the best burger possible for McDonald’s,” Coudreaut said. “We gathered from our guests that it has to be great ingredients treated really well, and there has to be some customization component.”

While the new buns, toppings and sauces play a big role in the Build Your Burger program, the extra service is important too, Coudreaut said.

“We’re taking a broader scope than just the burger, so it’s all about how we’re cooking it, how guests are ordering it and how we’re serving it.”

The project is being piloted at McDonald’s stores on Cuyamaca Street in Santee and Midway Drive in San Diego, and Coudreaut said it will continue indefinitely. Midway franchise owner Paul Schmid declined to share how much it cost to launch the program, but said he believes it could easily become the McDonald’s of the future.

“I don’t want to think of this as a test,” Schmid said. “You’ll have to drag it out of here.”

John Williams, 65, of South Mission Beach, called the Build Your Burger system smooth and intuitive on a visit to the Midway store Thursday. It also allowed him to try new combinations.

“I don’t normally get caramelized onions or smoked bacon,” Williams said. “That’s a good thing.”

Tom Biddlecome, 51, of Point Loma, said the presentation mimicked the advertised picture, a rare occasion.

“I wasn’t expecting all of this, to be honest,” Biddlecome said. “I’ll be back for more.”

The San Diego Union Tribune – Rubio’s grilling up fresh look and brand

By Katherine P. Harvey (/staff/katherine­poythress/) 3:35 p.m. Sept. 24, 2014

Updated 11:06 a.m. Sept. 29, 2014

San Diego ­based fish taco chain Rubio’s (http://www.rubios.com/) is freshening up its brand, its menu and its stores to better embody its coastal roots, the company announced this week.

The fast­ casual restaurant chain, which began selling fish tacos at its first store on Mission Bay in 1983, is dropping “Fresh Mexican Grill” from its logo and replacing it with “Coastal Grill.”

It’s also redesigning 60 of its Southern California stores with more modern elements reminiscent of the beach.
Senior Vice President of Marketing Karin Silk said the changes are an effort to distinguish Rubio’s from other fast­casual Mexican restaurants like Chipotle (http://www.chipotle.com/en­US/default.aspx?type=default) and Jack in the Box’s Qdoba (http://www.qdoba.com/). Rubio’s is setting itself apart, she said, by putting a greater emphasis on seafood.

The company has added several grilled seafood items to the menu over the last two years, including a salmon taco, mahi burrito, shrimp taco, and an array of grilled seafoods that can be added onto the restaurant’s salads and bowls. The grilled items tend to be a little pricier than their beer ­battered counterparts, Silk said, but the farmed tilapia dishes have a more approachable price point.

“As we evolved our menu, we began to feel that the name ‘Fresh Mexican Grill’ didn’t really fit anymore,” Silk said. “We began to really separate ourselves from the other competitors out there.”

The new menu demanded a new, modernized look for Rubio’s, which has never overhauled the design for its full chain before, she said.

The company’s Carmel Mountain Ranch restaurant test marketed the new look, which includes natural wood, cobalt, green, indigo and sand colors throughout, and blue tiles showcasing the chain’s salsa bar.

The redesign is also expected to hint at the company’s involvement in seafood sustainability and beach cleanups
(http://www.utsandiego.com/news/2014/may/07/rubios­to­hold­third­annual­coastfest/), with wall panels depicting the restaurant’s history and artwork detailing the brand’s recipes and ingredients.

Restaurant analyst John Gordon, owner of Pacific Management Consulting Group in San Diego, said the rebrand and redesign are both good things for Rubio’s, which doesn’t have many direct competitors.

“The physical refresh is very important,” Gordon said. “Anything that has a customer­facing area just needs a new look periodically.

You’ve just got to do it because people are attracted to that and don’t want to just see the same old, same old all the time.”
Placing greater emphasis on grilled foods is smart, he added, because more consumers are opting for them as a healthieralternative to fried items.

Still, the chain needs to consider more customizable menu options, Gordon said, if it’s going to continue to compete with other fast casual concepts.

Rubio’s Senior Vice President of Real Estate Greg Semos said the response to the changes at the test store was “overwhelmingly positive,” and sales improved noticeably.

Rubio’s operates almost 200 stores in California, Arizona, Colorado, Nevada and Utah. The company this year topped the list of Mexican chains in Consumer Reports’ latest survey, and came in second behind Chipotle on the publication’s burrito ranking.

Note: This story has been updated to clarify the fact that Ralph Rubio did not invent the fish taco, but began selling it in 1983.

© Copyright 2015 The San Diego Union­Tribune, LLC. An MLIM LLC Company. All rights reserved.

The Sacramento Bee – The Nosh Pit: French fry war comes to Greater Sacramento

By Chris Macias – cmacias@sacbee.com

Two fast-food giants are engaged in a war of french fries, and Sacramento has been selected as one of its battlegrounds.

McDonald’s is preparing to launch Shakin’ Flavor Fries, a line of seasoned fries in three flavors, with Sacramento as one of two test markets in the country. The fries went on sale locally May 9, and will likely remain in the region through the summer.

St. Louis is the only other city to get early dibs on tasting these fries, which could become a permanent item next to the Big Mac and McFlurry on McDonald’s menus once the test marketing is complete.

According to John Gordon, a restaurant economist who has served as an expert in legal cases related to fast-food franchises, McDonald’s is firing back against Burger King, which launched low-calorie “Satisfries” in September.

“This is one of few situations where McDonald’s is following behind Burger King,” said Gordon, founder of the San Diego-based Pacific Management Consulting Group. “This is an attempt to come up with a value-added product that’s highly flavorful and can be sold at a premium.”

Shakin’ Flavor Fries and their do-it-yourself seasoning method have been a fixture of McDonald’s in Asia since 2005. The product works like this: An order of fries is served in the usual red cardboard package, but the customer also gets a popcorn-like bag and choice of three seasonings (spicy buffalo, garlic parmesan or zesty ranch). Dump fries in the bag, add the amount of seasoning to your likening and shake.

Think of Shakin’ Flavor Fries as the equivalent of pouring Doritos or Cheetos powder over your deep-fried spuds. A packet of the “spicy buffalo” seasoning contains 720 milligrams of sodium. If the entire packet is used, the total sodium content of a medium french fries would hit a whopping 990 milligrams. Still, it’s up to the customers to dial in the amount of seasoning they care for.

Clay Merrill, a spokesperson for Northern California McDonald’s restaurants, said local franchise operators lobbied their parent corporation to bring Shakin’ Flavor Fries to the Greater Sacramento area. Some franchisee operators get to taste products in-progress at a yearly McDonald’s Worldwide Convention, or take notes on different McDonald’s items when traveling outside the United States.

“Sacramento won (as a test market) by the franchisees who went and fought for it,” said Merrill. “Usually (the company) lays out the menu and says, ‘This is what we do. Here’s how you do it.’ This was unique because it became more of a bottom-up situation.”

Sacramento itself serves as tantalizing test market because of its manageable size and diverse population. The city’s not like Los Angeles, where high advertising rates would inflate the budget during test marketing, and which is crammed with too many eateries that are competing for consumer attention.

Sacramento was tapped as a test market for McDonald’s in 2012 for a new line of Quarter Pounder burgers.

“Sacramento is almost perfect as a test market,” said Gordon. “It’s big, but not too big. There’s a good mix of urban and suburban stores. And the franchisees are on board.”

Shakin’ Flavor Fries can be found throughout the Greater Sacramento media region – known in the marketing biz as Designated Market Area (DMA) – which includes Stockton and Modesto. Don’t be surprised to find someone taking your survey while you’re snacking on these fries inside McDonald’s. The McDonald’s corporation will keep close tabs on sales, customer satisfaction and taking other field tests during the test run.

According to Gordon, launching a new fast-food product line takes plenty of time and money.

The first step usually starts with consumer testing and taste panels at corporate facilities, along with input from various parties representing finance, product development and advertising.

Then, the test markets are sought out to refine the product and gauge its overall consumer reception.

Gordon estimates that test marketing Shakin’ Flavor Fries could cost McDonald’s upward of $1 million.

Shakin’ Flavor Fries are still a fairly easy product to test market. Franchisees won’t need any extra equipment for this product, just some paper bags and seasoning packets.

But in the country’s highly saturated fast-food industry, worth an estimated $170 billion annually, even a simple french fry line comes with a strategy to usurp the competitor.

“As the country becomes more diverse, people are moving away from the plain Jane flavor profiles,” said Gordon.

“What everyone’s struggling to do is come up with a magic new product that attracts more customers, or gives something new to talk about on TV.”

Restaurant Finance – Could Darden Be A Buyout Candidate?

BY JONATHAN MAZE

Published: 

Could the battle between Darden Restaurants and its activist shareholders end up with the big casual dining operator owned by a consortium of private equity groups?

We have no information that this will happen. But it’s definitely feasible.

Darden is a big company. Its market cap is about $6.4 billion. A buyout would cost the acquirer a premium on that. At 20 percent, that would make Darden worth $7.7 billion. At 33 percent, that would be about $8.5 billion. The total value would be even higher, given that Darden has about $2.7 billion in total debt.

Either number would make Darden, by far, the costliest restaurant buyout in history, easily besting the $4.2 billion acquisition of Burger King by 3G Capital. Even if Darden succeeds in getting rid of Red Lobster before selling, it would still be the biggest restaurant acquisition.

The restaurant consultant John Gordon, in fact, believes that Darden could be pushing hard its Red Lobster divestiture largely to make itself prettier to a potential private equity buyer. By selling or spinning off Red Lobster, Darden could get rid of a good portion of its debt while improving margins and shrinking the company size to make it an easier pill for a buyer to swallow. And the buyer wouldn’t have to worry about fixing Red Lobster.

To see why Darden could be a buyout candidate, just look at the recommendations from the activist shareholders pushing major changes at the Orlando-based company. Many of the issues that Starboard Value and Barington Capital are pushing are the same types of issues that lure private equity buyers.

For one thing, there is the real estate. Right now, a huge portion of Darden’s value is locked up in real estate–which Starboard estimates to be worth about $4 billion, meaning nearly two-thirds of Darden’s market cap is real estate based. Even without Red Lobster, the company has substantial real estate holdings that would likely be monetized once a new buyer comes in.

Another issue is the number of brands that Darden operates, eight overall. One brand, Yard House, could be spun off in an IPO–remember, that chain had been considered a candidate for the public markets before Darden scooped it up for a high multiple.

Ultimately, the rest of that brands could be broken apart in some form, too. One of the issues Darden has in separating its flagship, Olive Garden, from the rest of the company is a belief that its high-growth Specialty Restaurant Group couldn’t survive on its own without a lot of debt. Even then, however, a private equity buyer could wait until that group was more able to stand on its own.

Darden has other financial levers that would make it attractive to a buyer. Its high SG&A spending, for one thing. In addition, though Darden has started franchising its flagship brands internationally, that remains an untapped market that could well lure a buyer into paying a higher price for the company. One of the reasons 3G Capital bought Burger King was its belief that the chain could grow substantially in foreign markets.

As I said, all of this is pure speculation on my part. But there are plenty of private equity groups with the wherewithal to make a run at a company like Darden. Bain Capital, which had been involved with three of the largest restaurant buyouts in history including Domino’s, Dunkin’ Brands and the previous Burger King buyout, just raised $7.3 billion for a buyout fund. That’s nearly enough to buy Darden.

The New York Post – Dunkin’ Donuts heats up war against Starbucks

July 25, 2014 | 4:01am

Dunkin’ Donuts CEO Nigel Travis is trying to rally his troops to mount a fresh attack after coffee rival Starbucks gained ground in the latest quarter with a low-priced assault.

Shares of Canton, Mass.-based Dunkin Brands fell to a 52-week low on Thursday after the doughnut and coffee chain blamed bad weather for disappointing US same-store sales growth of 1.8 percent in the second quarter.

Later on Thursday, Seattle-based rival Starbucks — seemingly unaffected by the unseasonably cold and rainy start to spring — beat the Street’s estimates with a 7 percent gain in US same-store sales, thanks to discounted coffee prices that took direct aim at Dunkin.

While Travis tried to put a positive spin on the results and talked about the chain’s march westward into new territories, he struck a different tone in a rare all-hands-on-deck conference call with more than 200 franchisees concentrated in the Northeast.

As part of his plan of attack, he urged store owners to push pricier options, such as steak sandwiches, to get people to spend more per visit.

“We need to drive the top line,” he told the franchisees during the call.

He also pushed dark roast coffee, which he says compares favorably with Starbucks.

“Everyone needs to get behind dark roast coffee,” Travis said. “It is critical to our war with Starbucks.”

The CEO is pushing the franchisees to boost the dollars per ticket after a rewards program he championed largely failed to perk up business.

While the DD Perks rewards program now has 1.3 million members, traffic in its stores has risen only slightly, while the average ticket price fell for the first time.

“I would say the rewards program has not been a success,” Pacific Management Consulting Group founder John Gordon told The Post.

A Dunkin’ spokeswoman defended the perks programing, saying it “will be a significant driver of growth in the future.”

Unlike Starbucks’ chain of company-owned stores, Dunkin’ relies on franchise owners to carry out its coffee war. This prompted one Queens franchisee to ask Travis during the call, “How are we going to turn this around?”

“We are obviously a franchisee system,” Travis said in response. “Starbucks can turn on a dime,” adding that its larger rival can sell certain products for little profit to move volume, while Dunkin’ cannot force its franchisees to eat a loss.

One problem for Travis is that Northeast franchisees control the $300 million-plus ad budget, and prefer not to highlight dark roast coffee in Dunkin’ ads since it is not as popular in their region. Dark roast has more appeal in the West, where Dunkin’ is trying to expand.

During the call, Travis also spoke about rolling out a new “Blender” drink program, such as the Island Oasis Blender that will be tested soon in the South.

Dunkin’ shares tumbled 4.2 percent, to $42.01, on Thursday while Starbucks rose $1.66 to close at $80.45.

The New York Post – Fortress poised to get biggest stake in bankrupt Quiznos

March 14, 2014 | 3:09pm

It’s hard to profit from selling toasted submarine sandwiches when they’re weighed down with so much debt.

The 33-year-old Quiznos sandwich chain filed for Chapter 11 reorganization on Friday, a move that will result in Wes Edens’ Fortress Investment Group owning the largest stake in the 2,100-unit chain, The Post has learned.

By filing, the Denver-based company — credited with kicking off the toasted submarine craze — is able to cut its debt by $400 million, or by two-thirds.

Big lenders, including Fortress, Howard Marks’ Oaktree Capital and Michael Dell’s MSD Capital, are hammering out a debt-restructuring deal for when they take control of the company, sources said.

Under the tentative plan, senior lenders will get 70 percent of Quiznos while junior debt holders will get the rest, according to a source with direct knowledge of the situation.

Edens will become the third large private equity or hedge fund titan to try to grow the troubled chain.

CCMP Capital, JPMorgan’s former private equity firm, invested in 2006; Marc Lasry’s Avenue Capital, in 2012. Both failed.

“This is a case of really bad due diligence,” restaurant consultant John Gordon told The Post. “The buyers had overconfidence with the franchise model. They had just an implicit belief that a franchise model is flawless.”

With the average Quiznos franchisee losing money, the new owners are considering reducing the price of goods they sell their franchisees to help them regain their financial footing, sources said.

Fortress, which holds senior and subordinated debt, stands to get 30 percent to 40 percent ownership in the chain. It also owns a minority equity position in Quiznos, but that will be wiped out in the restructuring.

Oaktree is angling for a roughly 30 percent stake as part of the debt-to-equity swap.

MSD and Caspian Capital Advisors are discussing smaller stakes, sources said.

Avenue, Quiznos’ controlling shareholder, will see its equity wiped out in bankruptcy. The hedge fund, which also holds junior debt, would see its more than 70 percent stake shrink to less than 10 percent under the proposed deal, sources said.

Lasry’s Avenue gained control of Quiznos through an earlier out-of-court debt restructuring in 2012, investing $150 million of equity.

The still-evolving plan would need to be approved by the bankruptcy judge. Creditors aim to exit bankruptcy within 100 days.

The Post first reported Feb. 24 that senior lenders were within weeks of pushing the chain into bankruptcy.

In addition to having its debt cut to $225 million, Quiznos would not have to pay interest on that money for 18 months, although interest will accumulate, a source said.

All but seven Quiznos locations are franchises, and they are not involved in, or affected by, the filing.