Richer Fillings

For sandwich sellers, more is better as premium products rule

By Jonathan Maze
As published in: Franchise Times – June-July 2012

Like many sandwich chains, Wisconsin-based Cousins discounted its way through the recession—a year ago, its restaurants were selling sandwiches for $2.99. This year, the company stopped discounting, and started making its sandwiches better, adding 50 percent more steak to its Cheesesteak line.

The result: Same-store sales are up 5 percent this year, and customers are switching from the cheaper sandwiches to the bigger ones. “Instead of discounting, we increased the product in our sandwiches, made it more premium,” said Joe Ferguson, vice president of development for Cousins. “They’re trading off to more premium products.”

Cousins isn’t the only chain beefing things up right now. In the midst of a highly competitive sandwich market, concepts are improving their menus, redesigning their restaurants and developing new financing options in an effort to break through the crowded field.

Thanks to their portability and flexibility, sandwiches are perhaps the most popular menu item in the restaurant industry. According to market-research firm NPD Group, the number of sandwich-chain units—a number that includes burger concepts—has grown 26 percent since 2011, an annual growth rate of about 2.4 percent.

Yet that growth has slowed since the onset of the recession, to less than 1 percent in each of the past two years. Some prominent sandwich concepts have struggled more recently, such as Denver-based Quiznos and Scottsdale, Arizona-based Blimpie.

Meanwhile, concept leader Subway keeps finding places for new restaurants—it had 24,449 U.S. restaurants at the end of 2011. St. Louis-based Panera Bread, the leader of the bakery-café sub-sector, also keeps growing, with 1,541 restaurants. Chains such as Champaign, Illinois-based Jimmy John’s and Jacksonville, Florida-based Firehouse Subs have also been adding units at a nice clip.

As they try to play catch-up, smaller and mid-sized concepts such as Cousins, McAlister’s Deli, Schlotzsky’s and DeSoto, Kansas-based Mr. Goodcents Deli Fresh Subs are making improvements to get more customers in the door. Some are even experimenting with drive-thrus, which aren’t common outside of burger chains and Arby’s. Based on their sales results, the efforts appear to be working thus far.

Remake for Schlotzsky’s Deli

Reimages are a challenge in the restaurant industry, because in many cases operators are being asked to spend tens of thousands of dollars to remodel a restaurant that is financially weak after years of falling sales. Last year, Schlotzsky’s found a solution—using franchisees’ ad dollars.

Eager to update its stores, the Austin, Texas-based chain handled the full remodeling for more than 300 restaurants. The company went market to market, giving each restaurant a facelift, with new signs, menu boards and paint. The entire-market approach cut the per-store cost of a reimage to roughly $18,000 to $25,000 per unit. “When you paint 300 stores at one time, you get a much better deal on paint,” said Kelly Roddy, president.

When all the stores within a market completed the remodel, the company used ad fund dollars from that market to pay the vendor. The lack of marketing did bring down sales for a time, but Roddy said a post-remodel sales bump more than made up for the loss. “We felt that really helped us drive sales without advertising,” Roddy said. The company is back on the airwaves this year, and same-store sales are up 7 percent.

Schlotzsky’s is also working to add sales to restaurants in two other ways: through multi-branding and a drive-thru.

The concept is part of Focus Brands’ portfolio, the Atlanta-based franchise company owned by the private equity group Roark Capital. Fellow Focus-owned concepts Cinnabon and Carvel are being added to many of its locations. The company’s ultimate goal is to add at least a Cinnabon to each of its locations, while new units will have all three.

Multi-branding has been a hit-or-miss franchising plan, but Roddy said the addition of dessert concepts works in Schlotzsky’s case because Cinnabon and Carvel are snack concepts that don’t compete with Schlotzsky’s sandwiches. “From what I’ve seen in cobranding, in most cases you’re selling the same share of stomachs,” Roddy said. “You’re competing lunch against lunch. For us, it’s other dayparts. The same person who orders a Cinnabon may not come in to get a sandwich.”

The other improvement is a drive-thru. Schlotzsky’s developed a new prototype with all three brands, plus a drive-thru, and early tests have been strong. A company test saw a 45 percent sales increase, with the biggest share coming from young women. It is attracting more 18- to 32-year-olds, and women represent 52 percent of the customers at new stores, versus 42 percent in the old ones.

The 360-unit chain is opening 35 restaurants this year. Next year, it expects to open 60 units “on the low side,” Roddy said. “We’re going crazy. We’re growing. Things are changing. Things are rolling.”

Source: Franchise Times

3 profitable restaurant models

Schlotzsky’s Deli, Moe’s Southwest Grill and Sizzler discuss the payoffs of their recent remodeling projects

June 7, 2012 – Mark Brandau

Restaurant brands are getting more than just a fresh coat of paint with their latest efforts to refresh and remodel.

In addition to looking modern and relevant, now a necessity in a highly competitive restaurant landscape, chains are repositioning themselves, expanding into new dayparts and sales layers, and motivating their franchisees and staff through large investments for reimaging.

While major public companies like McDonald’s, Wendy’s and Bob Evans have identified remodeling as a major growth strategy, smaller brands also are targeting significant returns on reimaging investments and renewed growth. Schlotzsky’s Deli, Moe’s Southwest Grill and Sizzler spoke with Nation’s Restaurant News about how their recent remodels have begun to pay off.

Schlotzsky’s Deli: Tripling down on new positioning

In order to complete the reimaging of its more than 375 restaurants in 2011, Schlotzsky’s Deli invested $40 million in not only refreshing the chain’s décor but also in adding service elements to solidify its positioning as a fast-casual brand.

“Schlotzsky’s had gone through many years of being in between quick service and fast casual, so we repositioned from our marketing, service, and look and feel,” president Kelly Roddy said. “We changed it to ‘Lotz better,’ with new packaging and colors, new signage, and with food runners bringing food to the table. … We saw a significant improvement in customer counts and sales as soon as we finished the reimages.”

The Austin, Texas-based chain, which is a division of Atlanta-based Focus Brands, steadily grew average unit volumes after accelerating the rebrand process in 2011, going from average sales of about $660,000 in fiscal 2007 to about $780,000 by the end of 2011. Year-to-date, average unit volumes are tracking at about $800,000, Roddy said.

Some units even co-branded with other Focus properties, including Cinnabon and Carvel, to expand into dayparts beyond the typical lunch rush, he added. Units co-branded with a Cinnabon are on pace to pay back the remodel investment within nine months, while other Schlotzsky’s locations that simply updated the décor would reach their return in about 16 months.

“We now have a brand that’s more relevant and seated more strongly in the fast-casual position,” Roddy said. “We’re very much a lunch business, so our goal now is to reach beyond lunchtime. We can take some items we currently sell, such as our pizzas, which we’re starting to promote past 3:00 now, and introduce ourselves as a dinner player.”

The ability to fill the restaurant with customers at all points of the day — including for Cinnabon treats in the morning or at snack time and for Carvel ice cream at night — has increased productivity without adding much incremental labor, according to Roddy. He added that franchisees are bullish on the potential of Schlotzsky’s units tri-branded with Cinnabon and Carvel.

“It has re-energized the franchise base,” he said. “They’re starting to grow now, and people who haven’t built stores in a decade are out there expanding. We’re selling a lot of franchises, but we can be particular about who we let into the brand because it’s in such high demand.”

There currently are about 20 tri-branded locations, and Schlotzsky’s plans to open 35 more in 2012, Roddy said.

Source: Nation’s Restaurant News

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