Garr Ard Market Study July 222010
Garr Ard Market Study July 222010
Garr Ard Market Study July 222010
FOR
Mr. David Land President Lancaster / Garrard County Industrial Development Authority Post Office Box 491 Lancaster, Kentucky 40444
Mr. Nathan Mick Economic Development Director Garrard County 308 West Maple Avenue, Suite 1 Lancaster, Kentucky 40444
PREPARED BY A & G Consulting Company P.O. Box 24307 Lexington, Kentucky 40524
Mr. David Land President Lancaster / Garrard County Industrial Development Authority Post Office Box 491 Lancaster, Kentucky 40444
Dear Mr. Land: As you requested, a market study of the above referenced location has been performed. Based on the data contained in this report and upon all pertinent data available to us as of July 22, 2010, it is our conclusion that the following proposed super markets (grocery stores), proposed restaurants and proposed limited service hotel appear to be marginally feasible from a market standpoint. E.W. James & Sons, IGA, or Save-A-Lot, a Supervalu Inc division were identified as a potential super market (grocery store); Renos Roadhouse, Beef O Bradys, Copper River Grill, Culvers, Huddle House, Pizza Hut, Snappy Tomato Pizza, or Gondolier Pizza were identified as potential restaurants; 40 room Limited Service Hotel to be located at one of the proposed sites
The potential restaurants and potential super markets (grocery stores) and their respective site selections were based on population, density of population, average and median household income levels, traffic counts, availability of suitable existing leasable commercial space, package and restaurant alcohol sales permitted, site location proximity to other national retailers, restaurants, and businesses and direct communication with franchisors, territory franchisees or companies.
Mr. Land July 22, 2010 Page Two Our recommendations for potential restaurants and potential super markets (grocery stores) were modestly influenced by the City of Lancaster decision to permit alcohol sales in August 2008 within the city limits and the continued population growth in Garrard County. According the US Census, Garrard County was the 12th fastest growing county in Kentucky and experienced population growth from 2000 to 2009 as the county population increased 15.5 percent or 2,293 people over the time period to 17,085 people The super markets (grocery stores) and restaurants identified as potential candidates for the market are all subject to the approval of ownership group and/or franchisor/licensor of the respective entity. The decision to approve the proposed super market (grocery store) or restaurant maybe subject to and not limited to the following decision factors from the ownership group and/or franchisor/licensor: site selection, competition, franchisor/licensor territory rights, existing franchisee/licensee development rights, background and financial strength of proposed franchisee/licensee. Based on the above stated data, interviews and our knowledge of the various hotel franchises and memberships, we have also concluded that your first franchise preference of Best Western is a good one and should fit nicely in the Lancaster market at either of sites you selected near downtown Lancaster on US Highway 27 in Lancaster, Kentucky. The development of the 40 room Best Western will be subject to approval by the membership board of Best Western International. The proposed Hotel has the potential to exceed the projected occupancy indicated in this analysis. The completed renovation of the Grand Theater and its ability to attract events on a monthly and weekly basis once open will impact the proposed hotel. To maximize occupancy and achieve the projected results herein, it will be essential to implement precise sales and marketing strategies prior to opening this hotel. Achieving projected success requires precise market positioning, aggressive direct sales and targeted marketing programs, strong internal controls, consistent operations and human resource management. The results in this study and analysis strongly rely on the hotel being franchised as a Best Western or comparable National Brand; and successfully acquiring adequate directional signage on US 27 / KY Highway 52. Within the limitations specified herein and hereafter, this report has been made in accordance with our knowledge and understanding of the industry standards of professional ethics. The fee for this investigation and report is in no manner contingent upon the outcome of the market study herein. We certify and disclose that we have no present or contemplated interest in this project.
TA B L E O F C O N T E N T S
Objective and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Facts About Garrard County, Kentucky . . . . . . . . . . . .... Transportation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medical Facilities. . . . . . . . . . . . . . . . . . Tourist Sites and Attractions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilities and Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Demographics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lodging and Food Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed Hotel Location "Site" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Five-Year Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grocery ... Restaurants Disclosure Qualifications. Appendix A, B, C, D, E 1 3 4 5 6 8 11 13 16 17 18 20 25 26 31 38 49 54 61 62 66
Preparation of a prospective financial analysis to the level of cash flow from operations before income taxes, depreciation, and debt service for the first five (5) full years of operations; Identification of potential super markets (grocery stores) and restaurants for the Lancaster marketplace; and, Preparation of a written report summarizing our findings and conclusions.
T R A N S P O RTAT I O N
TRANSPORTATION
The highway systems in the region include: US 27, KY Highway 52 and KY Highway 39
M E D I C A L FA C I L I T I E S
Ephraim McDowell Lancaster Pattie A. Clay Garrard County Healthcare Center Christian Care Center of Lancaster Lancaster Primary Care North Garrard Family Medical Center Bryantsville Family Practice Garrard County Mental Health Garrard Clinic Lancaster Family Health Center Paint Link Family Clinic
189 Farra Drive Lancaster, KY (859) 792-2129 436 Richmond Street Lancaster, KY (859) 792-1400 308 West Maple Avenue Lancaster, KY (859) 792-6844 187 Farra Drive Lancaster, KY (859) 792-1776 7786 Lexington Road Lancaster, KY (859) 548-8000 9112 Lexington Road Lancaster, KY (859) 548-9062 322 Crab Orchard Street Lancaster, KY (859) 792-2181 405 Danville Street Lancaster, KY (859) 792-2124 206 Lexington Street Lancaster, KY (859) 792-3042 11652 Richmond Road Paint Lick, KY (859) 925-2444
GOVERNOR WILLIAM OWSLEY HOUSE THE GRAND THEATER GARRARD COUNTY BLACK HISTORY GARRARD COUNTY HISTORICAL SOCIETY PENINSULA GOLF RESORT MEADOWLAKE EQUESTRIAN CENTER CAMP NELSON RV PARK CANOE CREEK RANCH TOM DORMAN NATURE PRESERVE KENTUCKY RIVER HERRINGTON LAKE MARINA
E D U C AT I O N
PUBLIC EDUCATION:
Camp Dick Robinson Elementary Janet Overstreet, Principal 7541 Lexington Road Lancaster, KY 40444 Phone: (859) 792-6136 Fax: (859) 792-8908 Grades: Pre-K through 5
Lancaster Elementary Tracie Bottoms, Principal Lexington Road Lancaster, KY 40444 Phone: (859) 792-3047 Fax: (859) 792-4855 Grades: Pre-K through 5
Paint Link Elementary Larry Sparks, Principal 6798 Richmond Road Paint Link, KY 40461 Phone: (859) 792-2122 Fax: (859) 792-4873 Grades: Pre-K through 5
Garrard Middle School Scotty Merida, Principal 324 West Maple Avenue Lancaster, KY 40444 Phone: (859) 792-2108 Fax: (859) 792-9618 Grades: 6 through 8
Garrard County Area Technology Center 306 West Maple Avenue Lancaster, KY 40444 Phone: (859) 792-2144
Garrard County High School Kevin Stull, Principal 304 West Maple Avenue Lancaster, KY 40444 Phone: (859) 792-2146 Fax: (859) 792-4352 Grades: 9 through 12 PLEASE NOTE: A NEW GARRARD COUNTY HIGH SCHOOL IS PLANNED TO OPEN FOR THE FALL OF 2010 CLASSES.
HIGHER EDUCATION:
Community Colleges: Bluegrass Community & Technical College (Danville, KY) Bluegrass Community & Technical College (Lexington, KY) Somerset Community & Technical College (Somerset, KY) Bluegrass Community & Technical College Lancaster Higher Education Center (Lancaster, KY)
Colleges: Eastern Kentucky University, Lancaster Higher Education Center (Lancaster, KY) Asbury University (Wilmore, KY) Berea College (Berea, KY) Centre College (Danville, KY) Eastern Kentucky University (Danville, KY) Eastern Kentucky University (Richmond, KY) University of Kentucky (Lexington, KY) Transylvania University (Lexington, KY)
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COMMUNITY PROFILE
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TA X E S
State & Local Taxes
A state sales tax is levied at the rate of 6% on the purchase or lease price of taxable goods and on utility services. Local sales taxes are not levied in Kentucky.
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UTILITIES AND C O M M U N I C AT I O N S
Utilities Providing Service in Garrard County
ELECTRIC EON US KU - 800-500-4904 East Kentucky Power Cooperative - 859-744-4812 Blue Grass Energy Cooperative Corp - 859-885-4191 Inter-County Energy Cooperative - 859-236-4561 Jackson Energy Cooperative - 606-287-7161
SEWER & SANITATION Lancaster Water and Sewer Utility - 859-792-2170 WATER Garrard County Water Association Inc - 859-792-4501 Lancaster Water and Sewer Utility - 859-792-2170 TELEPHONE Windstream 866-445-5882 CABLE Time Warner Cable 888-277-4478
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ENVIRONMENT
Between moderately cold winters and warm summers, Garrard County experiences a wide temperature fluctuation. Temperatures are generally highest in July and lowest in January.
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DEMOGRAPHICS
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Feldman Lumber Co. Inc. Lumber Processing Employees 29 Garrard Wood Products LLC Cabinet Doors & Custom Cabinets Employees 12 National Nurses Career Connection Medical Reference Guides Employees 1 Rock Top Log Furniture Inc. Hand Crafted Cedar Log Furniture Employees 45 Integrity Metal Metal Fabricators Employees 9 Docubit Business Records & Document Storage Employees 4
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BUSINESS ACTIVITY: April 7, 2010: Mine Shields, a manufacturing company for safe haven mine safety chambers for underground coal mines announced its decision to begin operations in Lancaster, Kentucky. The company will create at least 35 full time jobs within its first six months at a mininmum wage of $16 per hour. The company plans to invest more than $3 million in the community as a result of the project. Mine Shield will lease the 60,000 sqaure foot building formerly occupied by the Chrisitain Appalachian Project from the Lancaster / Garrard County Industrial Authority. June 17, 2010: Allison Abravies, manufacturer of engineered abrasive cutting wheels, annouced the planned expansion of its plant in Lancaster, The company estimates the expansion will cost $2.6 million and is expected to add 10 jobs that pay an average hourly wage of $12.50. The expansion will take the company into producing 63 inch and 72 inch cutting wheels in 2011 with plans to manufacture 87 inch wheels in the future. Marksbury Farm is under construction and anticipcates opening its $2.7 million, 12 acre, 12,000 square foot facility with retail shopping space in August 2010. The ownership anticipates employeeing 10 15 people full time at the farm.
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SELECTED INDUSTRIES
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SELECTED INDUSTRIES
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SELECTED INDUSTRIES
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L O D G I N G A N D F O O D FA C I L I T I E S
Wajabas Too Caf 73 South Campbell Street (859) 792-6543 Antonio Pizza & Spaghetti House 110 Lexington Street (859) 792-1340 Smiths Restaurant 55 Public Square (859) 792-6255 Godfathers Pizza 233 Lexington Street (859) 792-1300 Subway 1 Public Square (859) 792-8200 McDonalds 249 Lexington Street (859) 792-9493 Lees Famous Recipe Chicken 830 Stanford Street (859) 792-2240 Country Diner 881 Stanford Street (859) 792-3723 Mariachis 515 Stanford Street (859) 792-1215 China Gourmet 124 Pleasant Retreat Drive (859) 792-6600 Burger House 2152 Stanford Street (859) 792-2360 Lancaster Cafe 75 Public Square (859) 792-9133 Spells Cafe 100 Watts Way (859) 548-4105 Hamilton Avenue Pizza 112 Hamilton Avenue (859) 792-1332 Sunset Marina Restaurant 318 Sunset Lodge Road (859) 548-3591 Hammonds Hall B&B 216 W Maple Ave (859) 792-6632 The Sowder House 1251 White Lick Road (859) 925-4241 The Ashley Inn 9863 Lexington Road (859) 548-4922 Peninsula Golf Villas 200 Clubhouse Drive (859) 548-5055 Canoe Creek Ranch B&B 260 Galilee (859) 548-8334
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SELECTED COMPETITORS
SUPER 8 MOTEL 3663 HWY150/127 BYPASS Danville, Kentucky 40422 Telephone: (859) 236-8881 Fax: (859) 236-8881 49 standard rooms, 2 stories, interior corridors, complimentary continental breakfast Rates: $54.99 - $59.99
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HAMPTON INN 100 Montgomery Way Danville, Kentucky 40422 Telephone: (859) 236-6200 Fax: (859) 936-0271 73 standard rooms, some with whirlpools, 3 stories, interior corridors, indoor pool, complimentary continental breakfast Rates: $79.00 - $119.00
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HOLIDAY INN EXPRESS 96 Daniel Drive Danville, Kentucky 40422 Telephone: (859) 236-8600 Fax: (859) 236-4299 63 standard rooms, some with whirlpools, 2 stories, interior corridors, outdoor pool, complimentary continental breakfast Rates: $74.99 $89.99
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BEST WESTERN 210 Brenda Avenue Danville, Kentucky 40422 Telephone: (859) 236-5525 Fax: (859) 236-6825 50 standard rooms, 2 stories, interior corridors, outdoor pool, complimentary continental breakfast Rates: $63.00 - $70.00
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COUNTRY HEARTH INN 127 By-Pass Danville, Kentucky 40422 Telephone: (859) 236-8601 Fax: (859) 236-0314 81 standard rooms, 2 stories, exterior corridors, complimentary continental breakfast Rates: $60.00 - $72.00
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P R O P O S E D H O T E L L O C AT I O N SITES
Two potential sites are located in Lancaster, Kentucky for the proposed hotel. The first proposed site is located at the north end of Lancaster, Kentucky on the east side of US 27 (Lexington Street) located near Bethany Trace, Garrard County, Kentucky. The proposed site is approximately 2.12 acres in size with a rectangular shape, and is further described and highlighted on subsequent pages in this section. It is bordered to the north by residential housing, to the east by residential and land, to the south by a daycare and residential and to the west by local businesses. The site will have easy access and excellent visibility from the US 27. Its proximity to the local businesses, the Grand Theater, Administrative Office of the Court, Garrard County Courthouse and area businesses is advantages. The second potential site for the proposed hotel is hotel south of the Public Square of Downtown Lancaster, Kentucky. The proposed site in located on US 27 (Stanford Street) on a site known as the Old Stockyards consisting of approximately 3.5 acres near Crab Orchard Road. The property is located in between numerous local businesses with the Administrative Office of the Courts, Garrard County Courthouse and the Grand Theater in close proximity. The exact soil and subsoil composition are unknown for the two sites as soil tests were not made, nor were any furnished. By observation, there are apparently no adverse soil conditions at the sites that would cause atypical construction problems. Public utilities available and/or connected to the sites, includes electricity, gas, water, sewer, and telephone. The supply of these services is reportedly more than adequate to meet the needs of present utilization and/or most any normal land user. According to the Kentucky Department of Transportation the 2009 daily traffic count on north side of Lancaster, Kentucky on US 27 (Lexington Street) was estimated to be 9,053. The 2010 daily traffic count on south side of downtown Lancaster, Kentucky was estimated to be 11,944. At the present time, the Commonwealth of Kentucky has started the reconstruction of the 4.5 mile section of KY 52 from KY 954 in Garrard County to Wallace Mill Road in Madison County with an estimated project cost of $26,950,000. The 4.5 mile construction project is estimated to be completed in 2013 2014. The 2026 design year projected traffic count is 2,500 at the intersection of KY 52 and KY 954 and the 2026 design year projected traffic count is 3,100 at the intersection of KY 52 and White Lick Road. The proposed 14 mile expansion of US 27 from KY 34 through Garrard County and Lincoln County to US 150 bypass at an estimated cost of $171,200,000 has not received state authorized funding. The Division of Planning for the Commonwealth of Kentucky has projected the 2028 design year traffic count to be 35,600 north of KY 34 on US 27 and the 2028 design year projected traffic count to be 18,400 south of the KY 34 on US 27. The annual growth factor for the traffic count was
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projected at 3.15% for the KY 34 and US 27 intersection. The bridge replacement at KY 152 at Mercer County and Garrard County at Herrington Lake is a federal project with proposed funding of $1,000,000 for design / architectural in 2012. Overall, we believe that both sites are well suited for the development of the proposed hotel. With proper directional signage on the US 27 and KY Highway 52, both sites should be well positioned in the market.
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PICTURES OF SITES
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PICTURES OF SITES
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MAPS
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MAPS
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MAPS
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Area Demand Analysis Existing lodging demand is typically divided into the following four segments: Commercial Demand: Commercial demand consists of overnight stay generated by business, industries, hospital, and education facilities located in the immediate area. This segment includes salespeople, vendors, service representatives, company executives, government employees, and other visitors to area businesses and industries. Commercial contract demand is also included in this classification. This segment typically generates room night demand on Monday through Thursday nights. Commercial demand captured by the properties within the competitive supply is generated by local business, hospitals, industry, education facilities, and the markets location relative to commercial traffic supported by US 27 and KY Highway 52. Group/Meeting Demand: The group market segment consists of corporate sales, training, and management conferences; small associations and social functions; exhibitors, delegates and attendees of local trade and consumer shows, organized group or charter tours and special functions associated with area higher education facilities. This segment is generally more price-sensitive than commercial business. Given the current supply, group demand for this area market is considered modest. Tourist/Leisure Transient Demand/Other: This segment of the market consist primarily of individuals and families coming to the area to visit the local attractions, the educational facilities, and recreational opportunities in the area. The majority of this demand is expected to have a short length of stay, averaging between one and two nights. This demand occurs primarily on weekends, during vacation seasons, and during special events. Some local special events will virtually assure capacity occupancy. Extended-Stay Demand: The extended-stay segment of a market consists of individuals who are relocating to or within the immediate area, corporate training sessions and consulting groups who require lodging accommodations for more than five nights. There was little identification of true extended stay demand being captured by the competitive supply (property size, location and amenities).
Our market research indicated that the existing lodging demand can be divided into three segments - Commercial, Group, and Tourist/Leisure/Transient/Other, with the most significant segment of the demand being Commercial and Transient/Tourist related leisure. The commercial demand is generated by local industry and businesses and is dominated by demand from sales persons, auditors, consultants, and representative of parent companies. Historically, this segment accounted for approximately 65% of the total demand. Many of the firms mentioned in the Selected Industries section have executives, salespeople and training session visits on a regular basis. Based on information obtained
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during our fieldwork, we estimated that this market segment will experience a modest growth rate over the period 2010-2015. Tourist Leisure Transient Demand/Other is mainly comprised of motorcoach tours, sporting tournaments, graduations, festivals, visitors to local attractions, parks, and transient traffic on US 27 / KY Highway 52. We have currently estimated moderate growth in this market segment. Estimates of Future Demand Future lodging demand was estimated by segments which were based upon an analysis of key economic and demographic indicators, annual historical growth by demand segments for the competitive market, the anticipated affect of any new demand generators, and changes in the economy. Growth in commercial demand in the area is expected to remain relatively modest. The industrial base continues to expand and the prospects for continued expansion are fair. Total new demand emanating from the commercial segment has been estimated at an average of 2.0 percent for the last several years, with larger increases in years when new industrial enterprises began operations and coinciding with periods of new plant and highway construction. Leisure transient demand captured within the market should increase modestly. The pattern of turnaway demand in this segment is stronger than that of the commercial segment. In the peak tourist season, demand may exceed supply on weekends and during peak vacation periods. Leisure transient demand is expected to grow at a rate that exceeds comparable recent market history. Given the nature of the competitive properties and the historical composition of demand, we have not estimated any future demand in the extended stay market segment that would be captured by this facility (size, location, and amenities). Continued population growth in Garrard County could modestly contribution to future lodging demand. According the US Census, Garrard County was the 12th fastest growing county in Kentucky and experienced population growth from 2000 to 2009 as the county population increased 15.5 percent or 2,293 people over the time period to 17,085 people This analysis also includes induced demand. In the truest sense, induced demand is demand, which is attracted to a market because of a specific product. In the broader sense, it also includes the capturing of latent or unsatisfied demand that is already present in the market but not accommodated due to lack of product or lack of the appropriate type, or quality, of product. In this analysis we have defined induced demand in the broader sense. Introduction of a lodging property with the quality and characteristics of the subject adds a new dimension to the hotel market, rather than duplicating an existing product-type simply to accommodate unsatisfied demand or to compete with current product. The proposed Hotel concept not only addresses traditional commercial, group, and leisure demand existing in the market, but also addresses unsatisfied demand. The
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setting's proximity to the Grand Theater upon completion of its $1.7 million first phase renovations and $1.5 million for the improvement of the public square in the city of Lancaster and the Grand Theater, Court Houses and Governor William Owsley House, local industry, education facilities, and area businesses, should enhance the opportunities to induce such demand into the market. The potential for induced demand, the ability of the total market to capture a component of the commercial and leisure turnaway demand, and the ability to compete more effectively with other markets for group demand have contributed to our estimate of induced demand. We have estimated this demand to be approximately 4,000 total room nights in the first full year of operations. Induced demand is typically realized with the initial year of operations and then continued as a component of the traditional market segments in future years. Given the dynamics of the local market we anticipate this pattern to hold true. After the initial year of operations, we have decreased the increases in demand annually and stabilized the market in the fifth analysis year. In real terms, demand is expected to increase to some degree in each of the subsequent years. However, the product within the market will not be able to absorb additional demand since the increases are expected to be in the peak seasons as opposed to the shoulder seasons. Prospective Levels of Utilization and Average Daily Rate Level of Utilization: In order to estimate the future occupancy levels for the subject, several factors were analyzed which affect the ability of the property to penetrate market demand. Based on these factors, quantitative conclusions of market penetration were developed and used to estimate future occupancy levels for the subject hotel. The utilization and market penetration (share of total room demand) that the subject hotel is expected to achieve in the competitive lodging market is calculated based on a fairshare relationship. The subject property's fair share in each market segment was determined by analyzing the number of rooms in the subject property relative to the number of rooms in the competitive lodging market during each year of the analysis. No other additions to supply are anticipated over the analysis period. Thus, the rooms available on a daily basis should remain at a constant level throughout the analysis period. As a result, the subject property's fair share of the market should be constant in each of the years. Realistically, variations in property quality, amenities, price structure, marketing effectiveness, and other factors effect each hotel's ability to capture its fair share of the market with individual properties realizing more or less than their fair share of the demand by segment.
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In a given hotel market, a property can only achieve more than its fair share of demand at the expense of other competitive properties. We have estimated that the subject Hotel should be able to penetrate the market at a level greater than its fair share in all market segments. This hotel's location, size, amenities, rate structure, national franchise affiliation, and the fact that it is a new facility competing with older hotels, should allow it to penetrate the market at a level that exceeds others in the area. A stabilized level of market penetration is projected for the fifth full year of operation. The segmentation of demand estimated in the stabilized year is as follows: Commercial Group Tourist/Leisure Total 65% 5% 30% 100%
The estimation of the Average Daily Rate is based upon the ADR experienced by the properties currently operating within the market and expected rate relationship between these properties and the proposed hotel. We have projected a first year average room rate of $55.00 in 2010 dollars for the proposed Hotel. We believe that this ADR places the hotel in the competitive posture to capture the induced demand previously discussed. This assumes a published rate of $55.00-$65.00, a 10% discounted rate for AAA/AARP, a commercial rate of $55.00, and a preferred/direct bill rate of $52.00. We have estimated that, given the property's location, it will achieve greater than market increases in future years. The subject ADR was inflated by approximately 1.80 percent annually through the fifth analysis year allowing for both real and inflationary growth in the rate at this location. No initial year discounting was included in this estimate because the proposed Hotel is a brand new product in the market and promotes a strong price/value relationship. Prospective Financial Analysis In the analysis which follows, an estimate of the prospective net annual income (cash flow from operations before incentive management fee, debt service, depreciation, and taxes on income) for the property was developed for an analysis period representing the first five (5) full years of operations of the property. The revenue and expense estimates for the initial year are stated in terms of 2010 dollars inflated as described in the following analysis. A final adjustment to the cash flow to reflect inflationary forces between the date of the report and the actual opening of the subject property should be considered when applying the conclusions of the analysis to the prospective operations of the property. In developing the cash flow estimates, we reviewed actual operating data for several comparable hotels. We also considered nationally published industry data for similar lodging facilities and other comparable properties.
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In considering any application of industry averages, or averages achieved by selected comparable hotels, it is essential to recognize that the data represents the average performance of a broad cross section of hotel properties, offering no more than a benchmark for estimating or analyzing hotel operations, and may require subjective adjustments to reflect differences in such factors as average occupancy, multipleoccupancy mix, unique property characteristics, age, market dynamics, etc.
The following factors were also considered in the estimation of future operations: The property will operate as a national franchised hotel and be professionally managed by a representative of the owner throughout the defined analysis period; The property will be constructed and equipped as described; The property and the market will reach stabilization during the fifth full year of operation; The prospective ADR's and occupancy levels will be as previously presented; and,
There will be no change in the defined competitive supply. All estimated amounts have been rounded to the nearest $100. All percentages, amountsper-available-room, or amounts-per-occupied-room relationships presented in the following pages were computed on the basis of the revenues and expenses expressed in stated year dollars. All dollar amounts are expressed in stated-year dollars unless otherwise noted. The resulting prospective financial analysis expressed in dollars adjusted for the assumed effects of inflation, are presented on subsequent pages. Revenues and expenses are inflated at variable rates with the rooms revenue increase having been presented in the market analysis section. Expenses have been segregated into a salary and non-salary component where appropriate. Since the subject occupancy is estimated to fluctuate until the market stabilizes, quantifiable operating efficiencies resulting from changing occupancy levels have been estimated where possible. The prospective financial analysis has been based upon current year dollars. Revenue Analysis Revenue at the subject lodging facility would be generated from three sources: guest room sales; telephone usage; and rental and other income. Revenue projections for items other than room revenue were based on analysis of available industry data, analysis of actual operating data from comparable hotels, and inflationary factors.
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Guest Rooms: Guest room revenues are based on prospective levels of occupancy and average room rates as discussed in the market analysis section. Over the analysis period rooms revenue represents approximately 98 percent of total revenues. Telephone: Telephone revenues have been estimated at 1.5 percent of total room revenues in the first analysis year. This is consistent with the averages of the industry data and the comparable properties. This category includes all revenues from charges for local and long distance phone service and related surcharges and assumes that a modern tracking system will be part of the phone system. These revenues have been inflated at 2.5 percent annually throughout the analysis period which is consistent with recent industry experience. Miscellaneous/Other Income : Other income typically includes income from the rental of equipment, charges for FAX services, guaranteed no-show income, laundry services, gift shop rental, pay-per-view television income, trade discounts, and other miscellaneous items. Other income has been estimated at a level below industry averages due to the size of the property and the limited revenue generating amenities. The plans do not specify a gift shop and there are no charges anticipated for the use of a health club. Industry surveys indicate that revenue from this source are typically in the range of $0.20 to $0.40 per occupied room for smaller hotels in a market with an average length of stay of less than two days, which typified the subject market. Base revenues have been estimated at $0.30 per occupied room and inflated at 2.5 percent per year. Expense Analysis The following estimates relate to expenses necessary to maintain the production of revenue from operating the subject property. The estimated operating expenses are based upon industry statistics and data from other comparable hotel properties with adjustment in expense relationships to reflect variances in occupancy. Industry data used are actual data from comparable properties and other miscellaneous sources. In estimating future expenses, the salary and the non-salary component of the expenses are inflated annually unless otherwise stated. Variations in inflation of expenses occurs in departments that are more labor intensive, or in departments, industry or comparable property data indicate, that a different inflationary level is warranted. Departmental and undistributed expense estimates, with the exception of administration and general, and utility expenses, have been calculated on a cost per occupied room basis, whereby the cost per occupied room from the previous (or base year) is inflated, rather than inflating the total costs from the previous year. This allows the expenses to vary directly with occupancy levels where appropriate. Administrative and utility expenses have been inflated on a per available room basis. Inflating the total line item expenses from the previous year will not necessarily confirm the expenses estimated on a per occupied room basis since expenses are sensitized to fluctuations in the number of room nights captured in each year. Fixed costs have been estimated by inflating the total costs from the previous year, and
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franchise fees are estimated on a fixed percentage basis as defined by typical franchise agreements. Departmental Expenses: The room, telephone, rental and other departments comprise the operating departments within the subject property. Rooms Department: Rooms department expenses include payroll, housekeeping supplies and related rooms expenses. Reservation system charges are also included in rooms department expenses. In the initial year of operations, rooms department expenses have been estimated at 22.0 percent of department revenues which is near the average of the industry data and the comparable properties. As the occupancy increases prior to stabilization certain efficiencies relating to fixed costs are achieved and the departmental costs on a percentage of revenue bases typically decrease. In addition the property achieves certain efficiencies from its size and operational experiences. The cost estimates assume that maids will be able to service an average of 13 rooms per day and the property would employ one rooms and laundry supervisor. The costs also reflect an average room amenities package consisting of bath and facial soap, shampoo, bath lotion; and high quality linens and towels. Telephone: Telephone expenses reflect the cost of sales, including local and long distance calls, phone service and repair charges, rental/lease agreements and maintenance contracts. These expenses have been stabilized at approximately 99.0 percent of department revenues. Miscellaneous / Other Expenses : Miscellaneous / other expenses were estimated at 80 percent of department revenues. This represents a cost relationship slightly higher than the range indicated by national averages. However, it is near the average of the comparable property data. Given the minimum sources of other income when compared to those typical of the larger properties included in the national averages expense relationships were expected to vary from the published data. Undistributed Operating Expenses: This expense classification relates to operating expenses that are not directly chargeable to a particular operating department. Expense ratios are expressed as a percentage of total gross revenues. Detailed explanation of the line item amounts follows. Administrative and General (A&G): This expense typically includes the payroll costs of management, administrative staff and accounting personnel. Additional expenses include accounting and legal fees, credit card commissions, general insurance, printing, stationary, postage, travel, provision for bad debts, and other expenses associated with the administration of the hotel. Industry averages indicate A&G expenses ranging from 8.6 to 11.8 percent of total revenues. Analysis of the comparable properties indicated an average of 11.5 percent and therefore it was used for this analysis. Marketing: This expense includes the payroll-related expenses of the sales and marketing staff and the cost of advertising and promotion in various media, such as
45
newspapers, magazines, and directories, as well as direct mail campaigns and miscellaneous sales and marketing expenses. It is assumed that the manager will be a part-time marketing person to promote and market the rooms. Our estimate includes promotional fees, payroll and related costs, franchise and local advertising expenses, entertainment and travel costs, and other related expenses. Industry averages indicated marketing costs ranging from 2.4 to 4.1 percent of total revenues with an average of 3.25 percent. Utility Costs: Utility costs represent expenditures for electricity, gas, water, waste removal, and related miscellaneous operating supplies. Utility utilization levels and related expenses are primarily fixed; public areas must be lighted and heated (or cooled), regardless of the facility occupancy. These expenses equate to approximately 5.9 percent of total revenues throughout the analysis period. Utility costs can vary widely by location, structural composition, and age of the property. Therefore, national averages are less of an indication of typical expenses. However, national averages indicate that utility expenses range from 4.7 to 5.9 percent of total revenues, a range that encompasses our estimate of costs. Repairs and Maintenance: These expenses include both payroll and related costs associated with maintenance personnel as well as the supplies and other costs of maintenance necessary to maintain the hotel. As a property ages, repair and maintenance costs typically increase. Conversely, when a property is new the costs are typically lower than national averages. Industry averages for repair and maintenance costs range from 5.6 to 6.4 percent of total revenues; the comparable property data indicated a range of 4.2 to 5.8 percent with an average of 5.0 percent. The initial year costs have been estimated at approximately $15,000, reflecting the costs for a part-time maintenance person and moderate costs for materials and supplies. These costs have been inflated at 3.8 percent per year reflecting a 3.5 percent annual increase in wages and a 4.0 percent increase in non-wage costs. These costs are below national averages but within the range defined by the competitive properties and are representative of the initial proposed quality of the property. These costs are separate and distinct from any capital improvement costs that may be required to maintain the property's anticipated, competitive market position. This line item does not include major capital replacement costs typically funded by a replacement or depreciation reserve. Franchise/Membership/Reservation Fees: Franchise fees, or royalties and reservation fees paid for the use of a brand name and related benefits, are fixed by contractual agreement. It is anticipated that the property will be Nationally franchised. The expected franchise / royalty fees are estimated at 4.0% of gross rooms revenues.
46
Fixed Charges: This category is related to those expense items that are relatively fixed and have no direct bearing on the operating levels of the facility. Property Taxes: The property tax classification encompasses both real and personal property taxes and are based on discussions with County assessment officials. Based on the estimated costs of the project and the current applicable tax rates, the property taxes have been estimated at $22,900 in the initial analysis year and inflated at 3.0 percent per year throughout the analysis period. This estimate does not include any potential tax abatement from the city or county, nor the impact of any potential Tax Increment Financing (TIF) opportunities that may be extended to facilitate development of the hotel. Insurance: Insurance represents the annual premium for fire and extended coverage insurance, general liability, umbrella and any fleet insurance. The estimate of insurance costs are estimated based on this analyst's industry experience. First year costs are estimated at $15,000, and have been inflated at 2.5 percent annually in accordance with recent industry experience. Since insurance expenses vary widely based upon location relative to fire protection services, community insurance ratings, location relative to a flood hazard area, type and quality of construction, current physical condition, presence of sprinkler systems, etc., and the estimated expenses are not typically compared to industry averages.
47
Projected Year-End Year 1 Rooms Available 40/365 D/Y Occupancy Rate (projected) Rooms Occupied A.D.R. (projected) GROSS INCOME (Rooms) Other Revenue: Telephone Misc./Other Income TOTAL REVENUE LESS EXPENSES: Direct: (Operating) Administrative and General Rooms Utilities Telephone Marketing Repairs & Maintenance Franchise / Membership Fee Miscellaneous/Other Expenses Fixed Expenses: Real Estate/Property Taxes Insurance (Bldg./Contents/Liab) TOTAL EXPENSES NET OPERATING INCOME BEFORE DEBT SERVICE AND DEPRECIATION
Projected Year-End Year 5 14,600 56.00% 8,176 $59.00 $482,400 7,200 1,900 $491,500
14,600 14,600 14,600 14,600 44.00% 47.00% 50.00% 53.00% 6,424 6,862 7,300 7,738 $55.00 $56.00 $57.00 $58.00 $353,300 $384,300 $416,100 $448,800 5,300 5,800 6,200 6,700 1,900 1,900 1,900 1,900 $360,500 $392,000 $424,200 $457,400
56,500 106,100 29,000 7,100 16,000 17,400 19,300 1,500 25,800 16,600 $295,300
22,900 23,600 24,300 25,000 15,000 15,400 15,800 16,200 $225,900 $242,600 $259,600 $277,300
$196,200
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P R O P O S E D G R O C E RY L A N C A S T E R , G A R R A R D C O U N T Y, KENTUCKY
Our research for potential super markets (grocery stores) to be located in Garrard County revealed the following. According to the data complied by CLARITAS, Inc. Site Reports, the ten mile radius surrounding Lancaster, Kentucky has an estimated 2009 population of 31,927 with a 2009 estimated average household income of $54,686 while the area has as 2009 estimated median household income of $43,170. The consumer spending trends compiled by CoStar Group, Inc. indicated that consumer spending within a 5 mile radius of Lancaster, Kentucky revealed that households spent in 2009 an estimated $8,517,000 on grocery type products defined as cereal products, bread and bakery products, seafood, meat/poultry/fish/eggs, dairy products, fruits and vegetables. According the US Census, Garrard County was the 12th fastest growing county in Kentucky and experienced population growth from 2000 to 2009 as the county population increased 15.5 percent or 2,293 people over the time period to 17,085 people The Lancaster market has potential sites available for a super market (grocery store). The City of Lancaster voted in August 2008 to allow alcohol sales within its city limits which could provide a super market (grocery store) with the option to sell package alcohol in its super market (grocery store). One potential site would be the 19,000 square feet available at the Pleasant Retreat Shopping Center with Rite Aid as a tenant. The two additional sites that were identified could be suitable for new construction of a 17,000 30,000 free standing grocery store. These potential sites have been described in detail in the proposed hotel site selection section of this document. The potential super markets (grocery stores) and site selections were based on population, density of population, average and median household income levels, traffic counts, availability of suitable existing leasable commercial space, package alcohol sales permitted, site location proximity to other national retailers, restaurants, and businesses and direct communication with franchisors, territory franchisees or companies. The super markets (grocery stores) identified as potential candidates for the market are all subject to the approval of ownership group and/or franchisor/licensor of the respective entity. The decision to approve the proposed super market (grocery store) maybe subject to and not limited to the following decision factors from the ownership group and/or franchisor/licensor: site selection, competition, franchisor/licensor territory rights, existing franchisee/licensee development rights, background and financial strength of proposed franchisee/licensee.
49
PICTURES OF SITES
50
PICTURES OF SITES
51
The following super market (grocery stores) site criteria are favorable within the proposed market of Lancaster, Kentucky.
Save-A-Lot food stores are operated under a license agreement. The minimum financial requirements for a potential licensee are a net worth of approximately $1,000,000, available capital of $300,000 and the ability to obtain financing of approximately $750,000. The typical start up costs for a Save-A-Lot food store can range for $525,000 to $1,200,000 excluding real estate or lease expenses.
52
IGA hometown proud supermarkets retailers are independent operated grocers operating under the IGA Alliance, a unique partnership including leading grocery wholesalers that are licensed to distribute IGA Brand products and national brand products.
E.W. James & Sons is a private grocery company based in Union City, Tennessee operating its stores in Tennessee, Arkansas, Mississippi and Kentucky. Their locations include small towns and larger cities. For a small town location being located in the county seat is desirable.
53
P R O P O S E D R E S TA U R A N T S L A N C A S T E R , G A R R A R D C O U N T Y, KENTUCKY
Our research for potential restaurants to be located in Garrard County revealed the following. According to the data complied by CLARITAS, Inc. Site Reports, the ten mile radius surrounding Lancaster, Kentucky has an estimated 2009 population of 31,927 with a 2009 estimated average household income of $54,686 while the area has as 2009 estimated median household income of $43,170. The consumer spending trends compiled by CoStar Group, Inc. indicated that consumer spending within a 5 mile radius of Lancaster, Kentucky revealed that households spent in 2009 an estimated $8,367,000 on restaurant food away from home classified into the following categories: breakfast and brunch, lunch, dinner, snacks and catering. The Lancaster market has potential sites available for restaurants. The City of Lancaster voted in August 2008 to allow alcohol sales within its city limits which broaden the pool of potential restaurants which may consider the Lancaster market. One potential site would be the 5,000 square feet available at the Pleasant Retreat Shopping Center with Rite Aid as a tenant. The two additional sites that were identified could be suitable for new construction of a free standing restaurant. These potential sites have been described in detail in the proposed hotel site selection section of this document. According the US Census, Garrard County was the 12th fastest growing county in Kentucky and experienced population growth from 2000 to 2009 as the county population increased 15.5 percent or 2,293 people over the time period to 17,085 people Our selection of potential restaurants was based on the QSR Top 50 August 2009, the July 2009 Restaurants & Institutions Top 400 Restaurant Chains, and our local market research of potential restaurants. The QSR and Restaurants & Institutions information is provided in Appendix B. The potential restaurants and site selections were based on population, density of population, average and median household income levels, traffic counts, availability of suitable existing leasable commercial space, restaurant alcohol sales permitted, site location proximity to other national retailers, restaurants, and businesses and direct communication with franchisors, territory franchisees or companies. The restaurants identified as potential candidates for the market are all subject to the approval of ownership group and/or franchisor/licensor of the respective entity. The decision to approve the proposed restaurants maybe subject to and not limited to the following decision factors from the ownership group and/or franchisor/licensor: site selection, competition, franchisor/licensor territory rights, existing franchisee/licensee development rights, background and financial strength of proposed franchisee/licensee.
54
PICTURES OF SITES
55
PICTURES OF SITES
56
The following restaurants site criteria are favorable within the proposed market of Lancaster, Kentucky.
Gondolier Pizza
Population Median Household Income Building Size Type of Building Building Franchise Fee Typical Development Costs 20,000 or greater $40,000 - $50,000 2,800 square feet Freestanding or In-Line Retrofit/New Construction $20,000 - $30,000 $160,000 - $450,000
57
Renos Roadhouse
Building Size Type of Building Building Franchise Fee Franchise Term Royalty Fee 5,500 7,500 square feet Freestanding or In-Line Retrofit $40,000 5 Years with two 5 year options 3% of gross sales
Beef O Bradys
Type of Building Building Franchise Fee Royalty Fee Advertising Fund Liquid Assets Net Worth Freestanding/ In-Line/End Cap Retrofit/New Construction $35,000 4% of gross sales 1.5% of gross sales $125,000 $250,000 Minimum
The franchisor reviews each proposed site location, building type, traffic count and location demographics for its franchisee on an individual basis. Liquidity and net worth requirements vary depending on the size of the proposed store.
58
Culvers
Building Size Lot Size Type of Building Building Frontage Traffic Count Median Household Income Franchise Fee Franchise Term Royalty Fee Advertising / Marketing Fund 3,857 4,207 square feet 35,000 45,000 usage square footage Freestanding/End Cap with Drive Thru Retrofit/New Construction 150 175 feet 15,000 30,000 $40,000 - $55,000 $55,000 15 Years with one 10 year option 4% of Gross Sales 1% of Gross Sales Quarterly 2% of Annual Gross Sales $400,000 - $750,000 $2,500,000 - $2,700,000
Pizza Hut
Population Building Size Type of Building Building Visibility Liquid Assets Net Worth 10,000 or greater 1,000 3,500 (Delivery / Dine In) In-Line / End Cap Retrofit/New Construction High Visibility, Easy Ingress, Egress $125,000 $250,000
59
Huddle House
Building Size Lot Size Type of Building Building Traffic Count Population Median Household Income Franchise Fee Franchise Term Royalty Fee Advertising Typical Development Costs 1,840 2,050 square feet 0.6 acre Freestanding Retrofit/New Construction 8,000 7,000 $28,000 - $70,000 $25,000 15 Years with three 5 year renewals 4.75% of Gross Sales 1% of Gross Sales Quarterly $700,000 - $1,300,000
60
DISCLOSURE
The recommendations for this market study were based on information from the US Census Bureau, Kentucky Cabinet for Economic Development, Kentucky Department of Revenue, Kentucky Department of Transportation, CLARITAS, Inc, CoStar Group, Best Western International, Smith Travel Research, QSR Top 50 August 2009, the July 2009 Restaurants & Institutions Top 400 Restaurant Chains guide, direct contact with potential super markets (grocery stores) and restaurants ownership groups, franchisors, franchisees, and local market research conducted by our firm. We believe the information contained herein is deemed reliable, however no guarantee is made to its accuracy. We are not experts in the area of taxation at the federal, state, local or community tax level. As such, we provide very general information on potential taxes that may impact an individual or business entity. Individuals or business entities should consult their tax advisor regarding the impact of taxes levied by the respective taxing authorities.
61
Q U A L I F I C AT I O N S
LLOYD ABDOO
62
APPENDIX A
66
Walter W. Dyminski Millennium Capital Associates, LLC 2333 Alexandria Drive Lexington, Kentucky 40504 RE: Open Records Request dated February 22, 2010 Dear Mr. Dyminski: The Department of Revenue has reviewed and researched your open records application of February 22, 2010, wherein you requested: Retail sales tax collected in Garrard County and Lancaster, KY to determine economic activity in the area for a study for the EDC of the county. The Department of Revenue was able to fulfill your request for the year 2008. The response is below. GARRARD COUNTY 2008 $1,875,753
The Department does not maintain monthly totals by county, so the annual figure is the only one available. Please note that this information contains raw data from sales and use tax returns that has not been cleansed, amended, or corrected. Also, note this is a very rough estimate where sales tax reported by vendors has been sourced to counties based on the locations at the time of registration. Note that one or two small counties may reflect huge amounts which are likely due to erroneous sourcing of all sales of a certain retailer(s) to that county. This is the best data available from an aged sales tax system and may not be relied upon for accurate measurements of the sales tax. Please contact me if you have any further questions. Sincerely,
Sarah E. Pence
Sarah E. Pence Open Records Coordinator Kentucky Department of Revenue 501 High Street, Mail Station 1 Frankfort, KY 40601 Phone: (502) 564-2548 Fax: (502) 564-9565 [email protected]
KentuckyUnbridledSpirit.com
www.revenue.ky.gov
March 30, 2010
Walter W. Dyminski Millennium Capital Associates, LLC 2333 Alexandria Drive Lexington, Kentucky 40504
RE: Open Records Request dated March 30, 2010 Dear Mr. Dyminski: The Department of Revenue has reviewed and researched your open records application of March 30, 2010, wherein you requested: Retail sales tax collected for 2008 in the following counties: Boyle, Lincoln, Rockcastle, Mercer, Jessamine for the Economic Development Director of Garrard County Business/Economic Study. The Department of Revenue was able to fulfill your request for the year 2008. The response is below. BOYLE JESSAMINE LINCOLN MERCER ROCKCASTLE $11,023,706 $14,719,134 $2,649,918 $4,625,002 $2,421,511
Please note that this information contains raw data from sales and use tax returns that has not been cleansed, amended, or corrected. Also, note this is a very rough estimate when sales tax reported by vendors has been sourced to counties based on the locations at the time of registration. Note that one or two small counties may reflect huge amounts which are likely due to erroneous sourcing of all sales of a certain retailer(s) to that county. This is the best data available from an aged sales tax system and may not be relied upon for accurate measurements of the sales tax. Please contact me if you have any further questions. Sincerely,
Sarah E. Pence
Sarah E. Pence Open Records Coordinator Kentucky Department of Revenue 501 High Street, Mail Station 1 Frankfort, KY 40601 Phone: (502) 564-2548 Fax: (502) 564-9565 [email protected]
KentuckyUnbridledSpirit.com
APPENDIX B
67
FRESH IDEAS:
SEAFOOD
AUGUSTS
THE QSR 50
82
ISTOCKPHOTO.COM
THE QSR 50
Last year was supposed to be a down time for the restaurant industry, but the nations largest quick-service chains decided not to go along. BY PETER ROMEO
Shifting their test kitchens into wartime production while scoping out new sales turf, the countrys leading quick-service chains yanked enough spending from the weak and wobbly to stamp 2008 as more boom than bust. Indeed, foodservices top 10 chains overall enjoyed their greatest collective sales gain since 1987, propelled by the nine quick-serves in the group, says David Henkes, vice president of the research firm Technomic Inc. (Applebees was the lone full-service player to make the cut.) Not all quick-service brands came out of last year with happy memories, to be sure. Wendys fell for the second year in a row, this time being beat out by Starbucks for the No. 4 spot. The once top-three brand sits at No. 5 in the ranking. Several other brands also took in fewer dollars during 08, from KFC (still No. 9), to Dominos (No. 13), Quiznos (No. 19), and Cold Stone Creamery (No. 46). Yet the QSR 50, as the dominant group of quickservice players, seemed to be the biggest beneficiaries of the segments updraft. While the overall chain market was relatively soft, it was very strong for fast-food chains, Henkes says. Theres clearly a trading-down effect going on. Theyre ubiquitous, and they have a compelling value proposition. Pricing wasnt the only factor that worked in their favor. To accompany this years annual sales ranking for the sector, QSR analyzed and profiled all 50 of the top finishers. Among the trends that clearly emerged: Menu innovation was a preoccupation. McDonalds pushed super-premium coffee. Starbucks pushed everything but super-premium coffee, and most of the other top finishers seemed to have their R&D teams working double-time. The prime example might be Yum! Brands and its four QSR 50 finishers, with milestone introductions by Pizza Hut (pasta), KFC (grilled chicken), Taco Bell (fruit smoothies), and Long John Silvers (grilled fish). If there was a common strategy, it had to be, Hold the turf you own and push out the edges. As Henkes puts it, The big guys have clearly demonstrated that its a matter of building off their core competencies without going too far afield. So Taco Bell, a clear leader in value, adds another tier of deals while introducing options for the health-minded, hardly its usual clientele. Subway, the king of lunch, tries breakfast. Popeyes vies for more lunch traffic with a new menu. Burger King, Dominos, and McDonalds, among others, extend their sales days by expanding hours. Despite the blistering business conditions, the CEO post wasnt the usual hot seat. Only about six of the QSR 50 had an executive change that merited a left to pursue other opportunities whitewash. There was a sense of, Were all in this same mess together, which might explain why fewer heads rolled than in other downturns, Henkes says. This years ranking didnt exactly abound in upsets. The 10 chains topping the QSR 50 for 09 were the same top 10 last year, though their positions varied slightly. Nor were there many newcomers. And there was only one addition (Tim Hortons, No. 50) and one deletion (Fuddruckers, last years bottom-rung-holder).
83
THE QSR 50
84
U.S. AVERAGE ANNUAL SALES PER UNIT 08: FRANCHISED/LICENSED UNITS 08: COMPANY-OWNED UNITS 08: TOTAL UNITS 08:
RANK
LAST YEAR
CHAIN
1
$30,025.0 $9,600.0
& CANADIAN)
McDonalds*
$2,293.0 $445.0 $1,260.0 $985.0 $1,450.0 $1,241.0 $854.0 $865.0 $967.0 $1,125.0 $1,436.0 $1,439.0 $595.0 $2,034.0 $2,002.0 $530.0 $751.0 $956.0 $375.0 $1,007.0 $1,385.0 $1,330.0 $1,195.0 $1,173.0 $1,760.0 $1,090.0 $1,645.0 4,297 2,791 2,580 812 4,558 1,423 761 4,514 2,200 1,175 4,378 1,527 648 0 21 171 6,395 6,535 4,259 5,224 4,329 7,238 1,406 1,329 1,029 0 956 684 1,176 1,346 489 0 562 70 592 583 3 55 408 837 1,174 542 6,528 984 21,881 0 11,968 1,990
13,958 21,881 7,512 11,567 6,630 5,588 7,564 6,395 5,253 3,475 3,756 2,158 5,047 1,423 1,323 4,584 2,792 1,758 4,381 1,582 1,056 837 1,195 713
2
$9,348.0 $8,750.0 $8,013.4 $6,700.0 $5,500.0 $5,500.0 $5,200.0 $3,811.2 $3,371.8 $3,080.0 $3,054.6 $2,962.3 $2,648.0 $2,519.0 $2,034.0 $1,680.0 $1,660.0 $1,593.0 $1,405.0
Subway*
Burger King ( U S
Starbucks Coffee*
Wendys
Taco Bell
Pizza Hut ( T I E )
Dunkin Donuts* ( T I E )
KFC
10
10
Sonic
11
11
Arbys
12
13
13
12
Dominos*
14
14
Chick-fil-A*
15
16
Panera Bread
16
15
Dairy Queen*
17
17
Papa Johns
18
19
Hardees*
19
18
Quiznos Subs
20
20
Popeyes*
21
21
Carls Jr.*
22
24
Chipotle
23
23
Panda Express
24
22
Whataburger
25
$1,150.0 $1,055.0 $800.0 $700.0 $664.0 $658.0 $648.3 $643.5 $626.9 $607.9 $585.0 $579.9 $567.9 $563.2 $560.0 $500.0 $496.6 $476.4 $467.1 $447.5 $443.7 $430.6 $428.8 $420.0 $392.8 $345.4
+ U.S. AVERAGE ANNUAL SALES PER UNIT GIVEN FOR STORES OPEN A FULL 2 YEAR
26
Churchs Chicken
$712.0 $455.0 $670.0 $1,390.0 $1,557.0 $793.0 $1,142.0 $1,681.0 $1,672.0 $1,590.2 $554.8 $949.0 $1,378.0 $1,100.0 $213.0 $638.0 $698.0 $871.0 $2,290.0 $1,034.0 $678.4 $336.0 $1,120.0 $1,940.0 $919.0 $930.0 618 0 228 2,692 290 788 259 90 343 218 1,255 151 0 149 501 1,056 275 247 385 0 541 9 166 154 63 20 415 285 0 485 20 289 114 111 511 27 232 230 347 19 576 251 378 83 75 415 490 461 827 541 394 413 429 1,119 638 415 513 2,692 775 808 548 204 454 729 1,282 383 230 496 520 1,022 0 1,022 1,950 550 2,500 1,393 232 1,625
26
25
Little Caesars*
27
27
28
28
Steak n Shake*
29
35
Zaxbys
30
30
Checkers/Rallys
31
29
Boston Market
32
31
Culvers
33
38
El Pollo Loco
34
34
Bojangles
35
40
Papa Murphys
36
33
CiCis Pizza
37
37
White Castle*
38
36
Del Taco
39
32
Baskin Robbins*
40
39
Sbarro*
41
45
Jimmy Johns*
42
42
Captain Ds
43
46
Jasons Deli
44
49
Qdoba*
45
43
Jamba Juice+
46
41
47
44
Krystal
48
48
In-N-Out Burger*
THE QSR 50
49
47
Einstein/Noahs Bagels*
85
50
54
Tim Hortons
THE QSR 50
/ NO. 1
The occupant of the Oval Office has changed three times. Eight teams have won the World Series, and the same tally have carted home a Super Bowl trophy. There have been two James Bonds. Yet in the 11 years of the QSR 50, only one company has topped the sales ranking. And thats through four CEOs, a diversification into six other quick-serve brands, second-guessing by activist investors, the divestiture of six secondary brands, and a recession of historic proportions. Despite all that changed on the surface, McDonalds remains remarkably similar to the company Ray Kroc set up in the 1950s, and therein lies a key to its persistent dominance, says Paul Facella, author of the new book, Everything I Know About Business I Learned at McDonalds. Facella, a one-time regional vice president of the chain, describes the company as a meritocracy where performance matters most. The culture fosters achievement through openness to ideas from all stakeholders, an acceptance of healthy debate, a close connection between operator and customer, and promoting leadership from within. He points out that CEO Jim Skinner can still solicit input from Krocs grill man, Fred Turner, who maintains an office at headquarters. Skinner agreed to answer QSRs questions about how hes stewarding the brand through times that have hamstrung so many competitors. His replies hint at the roadmap for keeping McDonalds atop the QSR 50 for the next 11 years.
McDonalds is hailed as one of the few big-business success stories of these difficult economic times. Why has it prospered when so many big consumer brands have faltered or failed? It is important to remember that McDonalds was in the midst of record-setting results well before the recession began, already serving more customers than we ever had in our history. So, our business was on a very solid foundation. The economic crisis helped highlight the solutions we were providing customers, especially in tough times.
86 AUGUST 2009 | QSR | www.qsrmagazine.com
Above all we were offering everyday affordabilityquality food for hard-earned dollars. While conventional wisdom may tie our success to our Dollar Menu, nothing could be further from the truth. Our everyday affordability across every tier of our menu resonated strongly with consumers. While the Dollar Menu represents about 10 percent of our sales in the U.S., our full menu of premium salads, new chicken sandwiches and wraps, hamburgers, fries, and breakfast favorites are responsible for the vast majority of restaurant sales. What are the two biggest challenges to maintaining that momentum? And how is McDonalds addressing them? Im confident we will maintain and even accelerate McDonalds business momentum by remaining focused on our Plan to Win. However, I am quick to remind our global system not to become complacent because that kind of misplaced confidence can be a by-product of success. The way I see it, we are only as good as our next customer. There are also some challenges we cant fully control: commodities and currency. Regarding commodities, McDonalds size and global scope give us a unique strategic advantage when it comes to costs and pricing.
Along with our franchisees, we work hard to maintain value for our customers by managing cost fluctuations. Right now, most food costs are trending in our favor, except for beef. Regarding currency, there is unprecedented volatility in the marketplace right now. We are a U.S. company, so we report in U.S. dollars. But, wherever possible and when practical, we transact as much activity as we can in local currency. That means food, materials, construction costs, etc. That helps mitigate the economic impact of fluctuating currency. How important is the beverage initiative to that continuing climb? And why is McDonalds in a better position in beverages relative to specialists like Starbucks and Dunkin Donuts? McDonalds wants to be customers trusted and favorite choice to eat and to drink. We are ramping up our beverage offerings for our customers, and thats what the McCaf initiative is all about. Its about connecting to customer trends, and to what they see as relevant, contemporary products. Coffee is a major beverage around the world, and McDonalds is adapting to local tastes and preferences so we can satisfy our customers. Here in the U.S., beverages represent a $56 billion category. Our customers are telling us that they love
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our coffee. We sell about 2.7 million cups each day in the U.S.that includes our premium blend, which we introduced three years ago along with the new McCaf lattes, mochas, and espresso. But its more than coffee. Customers can count on us for more choice in bottled beverages, sweet tea, and coming soon, smoothies and frappes, all at McDonalds speed of convenience and unbeatable affordability. Our convenient drive-thrus are also a key component of our ability to deliver all of these new beverages at the speed of McDonalds. McDonalds has topped the QSR 50 sales ranking since its inception, despite some considerable challenges for the brand. Wall Street and franchisees have cited some of those difficulties. What do you view as the most difficult periods for McDonalds during the last 10 years, and, in general terms, how were those issues overcome? Weve worked extremely hard to regain and build on the momentum that was lost in the early part of this decade. At that time, we were focused more on getting bigger than getting better. Like many other companies, we viewed rapid expansion as the prerequisite to success. So we sought growth in new restaurants, new brands, and new lines of business, such as Chipotle and Boston Market.
We often say we took our eyes off our fries. It became clear that we needed to focus solely on Brand McDonalds and listen to what our customers wanted rather than tell them what they needed. This defined our new growth strategy, which wasand still isto be better, not just bigger. Thats when we developed our Plan To Win, which put the focus of our business back on our customers. We moved away from those effortsas worthy as they might have beenthat did not focus on the McDonalds brand. This strategic direction has allowed us to turn our attention to the things that matter most to McDonalds customers: more menu variety and choice, better service, greater convenience, dependable value, and more modern and relevant restaurants. Now, were working on being better at being better. What are the consumer brands you admire other than McDonalds? Coca-Cola is a global brand icon, of course, but even better, a longtime loyal and trusted partner to McDonalds. Its been a rewarding 55-year relationship. The team at Coke is dedicated to evolving with changing consumer tastes and needs. Also, Coke is a leader in creative and innovative marketing all around the world, and takes seriously its role as an industry leader. The team at Google elevates the innovation standard by continually offering new products and services that we as consumers never even dreamt possible. The leaderships commitment to think outside of the box in unveiling new technologies, even in an uncertain economy, is admirable. Apple is one step ahead of everyone else, always focused on the future and the ability to act with a sense of urgency. The Apple team consistently anticipates and meets the needs of its customers.
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The sub specialist is experimenting with such far-ranging choices as omelet sandwiches on flatbread and the signature of another restaurant franchisor, Seattles Best Coffee. Both are part of the breakfast menu thats offered at upwards of 850 stores in what the franchisor terms a test. Nearly 2,000 were reported to be participating in the Seattles Best experiment. Lunch and dinner options have also increased, most recently with the rollout last year of flatbread as an option for all sandwiches. Its also experimenting with new service methods, including delivery in New York and Boston. A franchisee in the Washington, D.C., area is even trying a full-service variation, the Subway Caf, that features paninis and gelato. Meanwhile, rivals are challenging the sultan of subs on both quality and value. Dominos Pizza ran commercials that favorably compared its new Oven Toasted Subs with Subways sandwiches. Not coincidentally, Dominos entrants are priced at $5, the same head-turning charge that Subway adopted for its subs when the market softened last year. That bargain price was matched by the arch-rival Quiznos chain, which has since introduced a line of $4 baguette-type sandwiches, called Torpedos.
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The No. 2 burger chain has been redefining itself in more of a shuffle-play mode. Its initiatives ranged from the strange (the introduction of a body fragrance) to the extreme (the unveiling of an alternative concept called The Whopper Bar and an overhaul of the brands proprietary cooking process). Mixed in were a number of decidedly different riffs on what everyone else was adding, like better coffee (the unpretentious BK Joe) or snack wraps (with an emphasis on heft rather than price). Most of those efforts were pushed in equally offbeat marketing programs, including a comparative taste test involving Whopper virgins from Greenland and other quick-serve blackout zones.
In the sectors bid for the kooky young men known as super-heavy users, BK might well have been the kookiest. And, perhaps, one of the more far-reaching. The chain came out of 2008 with a new multitrack, conveyor-type broiler installed in about two-thirds of North American stores. The device replaces the chain broiler that had been the brands foundation from its beginning. The new batch broilers move different products through the flame-broiling process on separate tracks that move at varying speeds. Executives say the new equipment will enable BK to diversify into slowercooking products like ribs and oversized burgers priced at the high end of the quick-service spectrum but at a bargain level compared with what full-service places charge. Also scheduled for an upcoming rollout: Burger Kingbranded pajamas and lounge wear, the result of a new licensing agreement.
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If there was a Wendys museum, 2008 could get its own wing. Just think of the artifacts: a red wig from the ad campaign that was pulled in January, a Buttermilk Frescuit sandwich from the now-scrapped breakfast menu, the business card of Kerrii Anderson, the former CEO who was dumped along with her whole team after Arbys parent bought the franchisor in September for $2.34 billion. The only artifact that couldnt be there is the under new management sign, since that message is still being delivered to customers, franchisees, investors, and even competitors. Since the No. 3 burger chain was acquired by Nelson Peltzs Triarc Group, its hardly been business as usual for Wendys. Management was completely rejiggered, with Arbys vet Roland Smith taking the helm both of the burger chain and its new parent, Wendys/Arbys Group. Breakfast was scrapped after being tested in some 850 stores to clear the way for a completely new pro-
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The miracle concept of the 1990s clearly took it in the beans during the third quarter of this decade, prompting the sort of corporate action that contradicts the brands New Age image. The CEO was axed, about 900 U.S. units were tagged for closure, 7,700 job cuts were announced, the whole chain was shut for a half-day of remedial training, and the home office decided that a new line of breakfast sandwiches stunkafter spending millions to roll out the flash-cook ovens in which they were made. Were getting back to the basics of serving coffee in an artful way, conceptconscious Howard Schultz declared after showing Jim Donald the door and adding the CEOs duties to his responsibilities as chairman. With that shot from the starter pistol, the chain bolted into actionadding healthoriented smoothies, a regionally available frozen drink, a health-focused breakfast menu, a new workhorse blend of coffee, and a revised selection of sandwiches. It also introduced instant coffee for consumers craving convenience, and several bundled meals priced less than $4, for patrons looking more for value than the best of the bean. And that rededication to the mystique of coffee? The company will be adding a whole new ultra-premium class of brew made by a piece of equipment called the Clover. The small-batch brewing system was rolled, as of this writing, into just 54 stores in four marketsSeattle, Boston, Miami, and the San Francisco Bay Area. Looking ahead, our task is clear, Schultz told investors earlier this year. We must continue to work to retain and to strengthen our connection with our core customers and well use all of the tools at our disposal.
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gram, under development in three markets and targeted for a 2011 rollout. The 99-cent Super Value Menu was remixed to put a spotlight on three premium sandwiches, and development began on what headquarters describes as better french fries, improved sandwich buns, and a flagship burger, vis--vis McDonalds Big Mac or Burger Kings Whopper. Smith is emphatic that Wendys reputation as the segments premium brand will be restored. He also pledges to correct the concepts neglect of growth opportunities that were readily exploited by other quick-service giantsnot just breakfast and beverages, but also international development and co-branding. The heightened attention is already paying dividends. For its first full quarter under new ownership, Wendys posted a same-store sales increase of 3.7 percent, after struggling for months to post positive comps.
Fresh and healthful at Taco Bell? Yep. Theres Fruitista Freeze, a smoothietype drink topped with real strawberries, and the Fresco Menu, a nine-item roster of products made with salsa instead of cheese, all containing fewer than nine grams of fat. Salt is coming out of other items, and calorie counts are going up on the menuboard, by the companys choice rather than the dictates of new legislation. Similarly, the chain is striving to shake its image as the place where a skateboarder with a buck can eat himself silly on cheap food. Among Taco Bells limited-time offers was the Triple Steak Burrito, a tortilla wrapped around carne asada steak and priced at $3.99. It also featured a $4.99 Fiesta Platter, a premium, sit-down restaurant meal, in the words of chief marketing officer David Ovens. But thats not to say the workhorse of Yum! Brands quick-service stable is forsaking its historic strengths. Taco Bell, already a bargain hunters delight, added three new tiers of everyday deals with the addition of a Why Pay More Menu. The items are priced at 79, 89 or 99 cents. It also played up heft with the Big Bell Boxthree bigsized entre-type items, coupled with a dessert of Cinnamon Twists. That two-thrust strategyplugging perceived gaps in the brand while bolstering its historic strength as el jefe of valueput some noticeable heat in sales. Taco Bell posted a 9 percent rise in same-store sales for the fourth quarter of 2008.
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When Pizza Hut broadened its delivery and takeout menu last year, it jokingly altered the sign on its Dallas headquarters to temporarily read Pasta Hut. But competitors have yet to laugh. The line of low-priced Tuscani Pastas was a phenomenal hit, according to executives of the pizza specialists parent, Yum! Brands. It has already become a $500 million brand and is on its way to $1 billion, Yum CEO David Novak said in February. The goal, he added, is to make the pasta business as big as the pizza business. Pizza Hut has been inching toward that
goal by steadily raising the prices of its home-delivered pastas. From an $11 introductory price, the charge for the threepound casseroles has risen to $12, a new lasagna fetches $13, and the pairing of two half-portions of pasta is priced at $13.99. The chain advertises that the meal can feed a family of four. But the pizza-segment leader isnt forsaking the productnor the delivery bargain huntersthat brought it here. The new Tuscani line might have been Pizza Huts biggest initiative, but officials say the brand also scored handily with Pizza Mia, a bargain-priced pie thats now outselling its signature pan pizzas.
It also spent much of the year refining a bid for fans of healthier, less-processed fare. It finally rolled the resulting product, a pizza called The Natural, earlier this year, hailing it as the first step toward ridding all its pies of artificial ingredients and added sugar. But sales for the chain have remained sluggish, despite the pop from pasta. Comps slipped by 1 percent for the fourth quarter, prompting executives to stress the brands embrace of a concept-within-a-concept, Wing Street. Set up as a station within a Pizza Hut, Wing Street was growing at the rate of 150 retrofits per quarter. The addition, pegged by officials at a cost of $40,000 to $70,000 each, adds chicken wings to the host locations delivery options.
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Someday in the future, tykes will snuggle into grandparents laps to hear about that longago time when phones had wires and music came on disks. You can almost hear their bird-like little voices: Tell us about the days when people only went to Dunkin Donuts for doughnuts, Grandpa. And the old-timers will think back to the time around 2008 and 09, when the process had really picked up momentum. Those days had brought the addition of a health menu, of all thingsa roster of sandwiches and drinks packing 25 percent less sugar, fat, calories, or salt than a comparable choice elsewhere. The heart of the DDSmart lineup consisted of flatbread sandwiches made with egg whites, a foundation that could support any other variations or special ingredients, far beyond the turkey sausage or vegetables featured in the first two iterations. The egg-white selections, in turn, were part of a bigger
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push into sandwiches in general. Their introduction was, um, sandwiched between the rollout of oven-toasted flatbread versions of such classics as Ham & Swiss and Turkey and the introduction of the Waffle Breakfast Sandwich, a premiumpriced ($2.99) limited-time offer. Complementing the chains continuing emphasis on hot and cold beverages, the new finger-foods helped to turn the sales-mix dial further away from Boston Creams and Old Fashioneds. Dunkin officials indicate that only about 12 percent of sales now comes from doughnuts.
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KFCs sales were a disappointment last summer, and sales through the remainder of 2008 left no doubt that the brand still had a lot of wood yet to chop, as Yum! Brands CEO David Novak put it. And into January 2009, sales were extremely poor, Novak told investors, while promising that if they were patient theyd see a dramatic turnaround. Now the waiting is over, and the seeing should be underway. The chicken chains not-so-secret weapon, Kentucky Grilled Chicken, rolled out with considerable hoopla in mid-April, after the adoption of KFCs first value menu in March. The Grilled Chicken, several years in the making, is intended to address the health concerns of consumers. But KFC has yet to quantify the products effect on the well-being of the brand, even after an extended test that stretched to about 500 stores. Officials have been very clear, however, about their expectations. The Grilled Chicken is intended to help the chains flagging chickenon-the-bone sales. Specifically, the product should give a boost to bucket sales, which KFC was attempting to push earlier with a $9-dinner deal. KFC initially discounted the price of Grilled Chicken to draw experimenters and skeptics, but executives are confident the option will be embraced. That major innovation, coupled with what we are doing on value, will give us some business momentum as we move into the year, Novak says.
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Sonic Drive-In, a concept that owes more than a nod to nostalgia, probably wouldnt mind turning back the clock. Traffic and check averages both fell for the 1960s-style drive-in chain after the economy took a header, hammering down sales. Management decided to break the two factors apart, focusing first on guest counts. The upshot was what CEO Cliff Hudson calls a shift in historical strategy for the chain, the rollout of an Everyday Value Menu of nine items priced at 99 cents. Sonic periodically offered head-turning deals as limited-time offers, he explained to investors, but the new array marks the concepts first stab at systemized discounting. And, Hudson told investors in a conference call earlier this year, the strategy worked. For the quarter ended February 28, we actually saw a traffic increase, he said. But with patrons being led toward the bargain array, Sonics average check slipped 3.4 percent. Officials hope to build that mean by focusing on premium-priced LTOs and suggesting the Everyday Value choices as affordable add-ons for patrons who come into stores for a drink. They may be coming in the afternoon for a drink, but now they are including items off the Everyday Value Menu, Hudson said. So weve seen the afternoon grow disproportionate to most of the other dayparts. An emphasis on premium-priced LTOs is a big part of the check-building strategy. Said Hudson: Over the next few months we will be shifting some of our marketing dollars to promote premium-quality products at a higher price our expectation is that we will be able to achieve positive sales through this balancing of the value and more premium products. But in the meantime, he acknowledged in the March conference call, marketing dollars are being spent primarily to popularize the value menu.
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As the self-avowed premium choice in the sandwich sector, Arbys has no problem with prices pegged at the high end of the spectrum. Too bad customers dont feel the same way. The chain acknowledges that patrons have been trading down to the $5 subs of direct competitors and the $1 menus of the quick-service giants. In response, its tested such bargain possibilities as a listing of items priced less than $1, a pick-four bundled meal for $5, and roast beef patty melts for $1.99. But the main thrust of its counterattack is reaching out to patrons who dont balk at an average tab of $7.50. Those core customers generate 50 percent of the chains sales in the 1.5 times a month they visit a restaurant, according to Roland Smith, CEO of parent company Wendys/ Arbys Group. If Arbys could nudge that frequency to 1.6 or 1.7 visits a month, he told investors, stores would see about a 3 percent rise in sales. Research indicated the targeted customers would buy from Arbys more often if they were given additional roast-meat sandwich options and better service. Arbys intends to oblige them with the 2009 rollout of sandwiches featuring roast chicken, turkey, and ham. Smith suggested the choices would carry a premium price that nonetheless compares favorably with items of similar quality. The items are a close cousin of the $3.59 Roast Burger sandwiches that were added earlier in the year as a premium alternative to Arbys go-to sliced beef option.
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Plenty of chain executives probably felt as if they were hit by a bus during the past year. Jack in the Box was the only one that staged it to happen. Jacks near-death experience, from which he emerged recharged and determined to lead the brand forward, couldve been a signal the chain intends to start life anew. Indeed, theres been a reinvention of sorts, extending to how the chain presents its name to the public. A new logo screams the word Jack in big type, with in
the Box written underneath in a much smaller font. Another version reportedly tested in southern California eliminated the name altogether, using a silhouette of Jack Box as the only designation on a units main exterior sign. Jack in the Box is also using a new prototype that incorporates such appointments as a fireplace, along with a kitchen described by management as being more efficient. Self-service kiosks are part of the updated format. The menu was similarly rejuvenated. A roster consisting largely of finger foods has been jazzed up with knife-and-spork-style fare, including Breakfast Bowls and Teriyaki Bowls. Pita bread is used as the foundation for a new snack line, and sirloin is used for a new line of mini-burgers, a.k.a. sliders.
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Officials of Dominos Pizza say 2008 can best be described as a year of rebuilding, a process that revealed more hours were needed in the day. In the delivery chains case, execs took the lament literally. Franchisees who had given up on lunch were pressed to start serving at midday instead of limiting their sales day to dinner. Now, according to CEO David Brandon, every U.S. unit is competing on a two-meal front. The prod was a new line of toasted subs that Dominos offered to deliver for a mere $4.99 each, provided the order hit at least $20. Sandwiches have put us in the lunch business in a material way and thats been great, Brandon told financial analysts. He hailed the additions as a major new draw for the chain, appealing not only to lunchtime patrons but also
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Sandwiches have put us in the lunch business in a material way, and thats been great.
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to families and consumers who want delivery of something other than pizza. Were seeing a number of people who are ordering pizza and sandwiches together, which tells us that our menu is appealing to more family members, appealing to more people who are looking for more diversity in our menu, Brandon said. After literally two years of declining traffic, the crux of the concepts sales difficulties, sandwiches [have] delivered a significant improvement in our traffic trends, he said. At the same time, the chain pushed for late-night business and bargain hunters, using such customer lures as a 444 deal (three 10-inch pizzas, each priced at $4). Those and other value-oriented draws were backed with new in-your-face marketing that included digs at rivals like Pizza Hut (with its $5 pizza deal) and Subway (which Dominos taunted first with comparative ads then in spots refusing to heed a cease-and-desist letter demanding the comparisons stop). Management cites longer-term sales-improvement efforts like dealing with 250 franchisees who failed to meet the franchisors quality standards. More than 125 of those F recipients have either been defrocked or put through remedial tutoring to raise their performance, according to Brandon.
The most aggressive product rollout year in its history brought the Chick-fil-A chain to within a cows whisker of the $3 billionsales mark in 2008, management announced earlier this year. So what does it do as an encore? More of the same, promises president and COO Dan Cathy. The chain has yet to divulge how its menu might change, though it has been focusing on beverages, with mixers blending a new peach milkshake in June after coffee-caramel and peppermint chocolate chip versions rolled out last year. Considerable attention was also given to updating long-standing products. Last year, for instance, the R&D department revamped Chick-fil-As chicken strips, a breakthrough product in its time but now far from unique in the quick-serve sector. The new Chick-n-Strips contain 50 percent more meat than their former selves. Similarly, the Chick-fil-A Chicken Salad Sandwich, a cult favorite, was re-engineered because of renewed interest in chicken salad deli sandwiches. Sales of the menu staple tripled after the revamp, according to headquarters. One thing thats not likely to show up on the menu: pizza. Truett Cathy, the octogenarian who founded Chick-fil-A in 1967, opened a pizzeria in May 2008 called Upscale Pizza. He and Chick-fil-A stressed at the time that the two concepts would not overlap.
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The overriding objective in a recession, according to Panera Bread Co. CEO Ron Shaich, is to differentiate your concept from the wheezing hordes. But its not as if the bakery-caf chain is ignoring the growth areas that everyones chasing. Breakfast, for instance, is a focus of the chains ongoing new product blitz. Included in the array is steel-cut oatmeal, a new addition as well for Starbucks and Jamba Juice. Panera is also experimenting with what Shaich describes as a healthy power breakfast sandwich. Last fall, Starbucks introduced a Power Protein Plate, one of several better-foryou morning choices. Paneras other R&D efforts include the rollout last year of a betterquality coffee, a boast that nearly every chain can now make, and three premium breakfast sandwiches. Nor is the chain ignoring the scramble to deliver head-turning values. Panera has been testing a variation on its popular You Pick Two promotion. Patrons are invited to build a complete meal by choosing four elementsa soup or salad, a sandwich, a drink, and a baked item like a piece of cakefor an attractive combo price. But Panera has voiced a willingness to go farther afield than mainstream quick-serves. Already in sales trials, for instance, is a spicy breakfast sandwich. Its also testing oven-baked macaroni and cheese and an open-faced brisket sandwich. A new process for making Paninis is under development, as well, officials say. In addition, a big push will be given to baked goods sold in bulk, such as muffins and scones, Shaich told investors, as well as to treats that can be given as a gift, like Panettone, Irish soda bread, and hot cross buns. It is our intent to follow a different path, Shaich commented in his conversation with analysts.
The Mooty family ended some 30 years of active involvement with Dairy Queen (DQ) when Chuck Mooty stepped down last July as CEO, then surrendered his duties as chairman on December 31. He was 47 when the succession was announced. Replacing him at the helm of the Warren Buffetcontrolled franchisor is John Gainor, one of the few quick-service honchos to begin his climb in supply-chain management. But DQs procurement history hasnt been without its issues, including sour relations with franchisees. Those strains are still evident. Last year, several state-based Dairy Queen franchisee groups sued International Dairy Queen and American Dairy Queen, raising the tally of legal actions nationwide to 10. All of the lawsuits deal with advertising fees levied on promoted products. Each complaint also asks the court to prevent the home office from requiring franchisees to recast their units as either a DQ Grill & Chill, a fast-casual update of the brand, or a Dairy Queen/Orange Julius Treat Center combo store. The plaintiffs contend that the conversions are too expensive and will not generate a sufficient return. But the changeovers are continuing under Gainor. So, too, is a menu overhaul that brought the addition in 2008 of panini-like Iron Grilled Sandwiches and the McDonalds Snack Wraplike Chicken Wraps. More recently the chain added a new Sweet Deals value menu. Patrons can choose any two of the nine selections for $3, three for $4, or four for $5. The items include a cheeseburger, a hot dog, the Chicken Wrap, french fries, and a sundae or cone. Gainor and his team are also trying to put more pizzazz into the brand by selling a video game, DQ Tycoon, that supposedly duplicates what its like to run a DQ unit.
PANERA bREAD
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9 PROMO CaLENDaR
MaRCH 2009 Company offers two tickets to Final Four games. aPRIL 2009 In recognition of Tax Day (April 15), consumers are offered a large three-toppin g pie for $10.40. MaY 2009 Founder Papa John Schnatter delivers pizzas himself.
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Being a regional burger chain can be a blissful situation when your turf stops considerably east of the California border. Hardees big-is-better strategy is a Xerox of the playbook used by sister concept Carls Jr. Yet Carls, with most of its units in California, is discovering that premium-priced mini-meatloaves dont sell as well when their fans home state is wheezing economically. Its a different situation for Hardees, a concept whose answer to sliders is a mini-burger of a quarter-pound. Its unabashed reliance on hefty burgers and breakfast items continues to provide a sales-driving point of differentiation. For the four weeks ended in March, for instance, it posted a same-store sales jump of 3.1 percentcompared with a 7 percent decline for Carls. While spotlighting Paul Bunyanscale burgers, Hardees continues to tout another point of difference, its Made from Scratch line of biscuits. The Southern-style breads are sold in seasonal variations, like last years Strawberry Biscuit, or as the basis for breakfast sandwiches like the Pork Chop n Gravy Biscuit. Hardees, based in St. Louis, is concentrated in the South and Midwest.
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Papa Johns marketing department might have to be tested for steroids. The pizza chain averaged 2.5 promotional events per month during 2008, ranging from the addition of six specialty pizzas (in one month) to a field goalkicking contest. The nonstop marketing and menu-development efforts helped Papa Johns finish 2008 with positive domestic same-store sales (0.9 percent), and hopes of at least matching those per-store figures for 2009. Meanwhile, the promos continue.
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Two months into his second go-round as Quiznos CEO, Rick Shaden sent scooters and a message to the franchisors employees, though franchisees might have been the intended recipients. The home office explained that the sandwich chain was adopting a new corporate slogan, Move Swiftly With a Clear PurposeDo It Today. The move came a few weeks after Quiznos had found itself in a left-hand/right-hand disconnect, with headquarters promising one million free sandwiches to patrons who downloaded a coupon, and some franchisees refusing to honor the gimme print-outs. Others reportedly told patrons that free actually meant 20 percent off. A common purpose didnt seem clear at that point. But a misalignment between the home office and franchisees is hardly new for the chain. For years, franchisees have been squabbling with the franchisor over strategic direction and expansion policies, often through their lawyers. Now Shaden, the concepts founder and one-time owner, has stepped back in for a try as peacemaker. Still a major stakeholder in the brand, hes promising to respond more quickly to market conditions, with clear, strategic ideas, including better product innovation. The model, according to the company, is the new Torpedo line of $4 baguettestyle sandwiches, which are positioned between the $2 Sammies flatbread sandwiches introduced last year and conventional subs, whose price was dropped in 2008 to $5. Quiznos said in a statement that the sandwich went from innovative thought to marketplace in an abbreviated timeline, appearing in stores less than a month after Shaden moved back into headquarters. During the first month of availability, the Torpedos generated double-digit same-store sales increases.
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Lets recap what the last year brought for the quick-service chain formerly known as Popeyes Chicken & Biscuits. For one thing, its now Popeyes Louisiana Kitchen, a new identity chosen by franchisor AFC Enterprises to tie the fried-chicken specialist more directly to its New Orleans roots. Indeed, its new slogan is Louisiana Fast. But thats just the beginning of the changes. Popeyes menu, once built around its highly spiced chicken-on-the-bone and Louisiana-style side dishes, was restructured into four major components. The chicken, renamed Bonafide Chicken, is still there. But now its sharing the menuboard with three new lines. Big Deals consist of items for the bargain hunteran array of small finger-foods priced at $1.49, like a wrap or a biscuit sandwich of boneless chicken. The Louisiana Travelers line features boneless chicken that customers can munch as they walk or drive, like tenders and nuggets. And then theres the Big Easy Lunch section, featuring a rice-bowl entre and a chicken sandwich on diamond-shaped bread. The three new menu sections should boost lunch and drive-thru sales, while Bonafide remains the concepts big dinner draw, AFC executives said. That effort to present a younger face to the public also extends to Popeyes expansion plans. The company acknowledged that it will likely retire 140 to 160 restaurants in 2009, while opening fewer than 111 worldwide. Meanwhile, it continues to experiment with new value possibilities, including a $3 lunch option and
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Andrew Puzder, CEO of brand parent CKE Restaurants, acknowledges that Carls contrarian strategy has been a strain, especially in the chains home base of California. Same-store sales dropped 7 percent for the four weeks ending March 23. Puzder says competitors are drawing blood with their deep discounts but refuses to counter with similar deals. Meanwhile, CKE continues to graft units of its Mexican concept, Green Burrito, onto Carls stores, giving patrons a new tier of options. For instance, Green Burrito recently featured a three-pack of deep-fried burritos for $2.89, or about 96 cents each.
rs tre lf-pound nd by slapping a burger a nd pricin piece of prime rib g it arou nd $5.69 Create a . b as sausa reakfast sandwic ge into a h two type stack tha packing bacon s a t with the of cheese and c includes two eg s well all it The Big Coun gs and tr M country b reakfast y Breakfast Burr onster. Follow ito, an e rolled in ntire to a torti lla. Employ o ld beautiful -school marketi ng women to sell prod ploys like using uct. 4. R efuse to dogs. Se value price anyth ll those tw in o for $3. gexcept for ch ili 5. Thumb nos Kentucky e at health advo c 970 calo Bourbon Six Doll ates by rolling o ries and ar Burge ut the r 4 Fries, a side with 9 grams of fat, a , which delivers nd Chili 990 calo Cheese ries. 6. Ignore th e one coffe brewing coffee b e drink y ou have. attles. Stick with the atop a ha
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Chipotle professes to be a new type of restaurant, far more attuned to sensibilities like food integrity and sustainability. But many of its challenges seem to be the same problems afflicting every other brand. What remains to be seen is how differently it might respond. The burrito concepts long-time formula remained in place during 2008, with few visible accommodations to the economic climate. No major menu changes, no new marketing tack, no price or portion accommodations for consumers who saw their disposable incomes withering. The action was happening behind the scenes, executives say.
We are looking at the current situation as an opportunity to look at everything we do, co-CEO Monty Moran recently said to analysts. The results of that self-scrutiny include the hiring of Chipotles first-ever chief marketing officer, Mark Crumpacker, who subsequently chose a new ad agency. Its first effort is a campaign that stresses variety and customization over Food with Integrity, a slogan used by the chain to tout its organic and additive-free ingredients. Meanwhile, the chain has been experimenting with one of the industrys most stable menus. Denver units were outfitted with a new bill of fare that included a section of Low Roller options, or smaller choices with prices as low as $2.25. Some might call it a value menu. Also featured was a kids menu and a featured items section with four premium-priced choices. Next up for consideration, executives have said, is the concepts signature design. For instance, some stores are experimenting with white-tile interiors, which can reportedly be recycled more readily than the chains signature stainless-steel appointments.
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At age 25, Panda Express is ready for a rejuvenation. The family-run Asian chain raised the stage lights on a new prototype that sports such flourishes as digital menuboards, cook-line staffers dressed in chefs outfits, woks instead of cafeteria-style display pans, and Chinese background music. Earlier, Panda launched its first TV ad campaign, featuring two sarcastic pandas who arent happy about eating bamboo shoots instead of the chains new sizzling Beijing-style beef entre. It also added online ordering for 60 stores in Nevada, Arizona, and Utah, and is reportedly considering a test of kiosks that dispense nutritional information. One thing that hasnt changed for the brand: A willingness to put an outlet in any location that makes sense, be it freestanding, in-line, a strip-mall end cap, or any number of nontraditional venues, from airports to colleges.
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Almost 60 years after its founding in Corpus Christi, Texas, the regional powerhouse updated its iconic A-frame exterior design, extended its menu by adding a comfort-food classic (a patty melt), bought one of its largest and most established franchisees, opened its first hometown store in eight years, and announced it would leave its headquarters city after six decades to resettle in San Antonio.
Families are prone to check Gramps into Shady Acres Rest Home for fewer eyebrow-raisers than that. Whataburger crossed the $1 billion-in-annual-sales threshold for the first time in 2007 and the 58-year-old company expects the same steady, yet sustainable, growth pattern to continue over the next 10 years, the franchisor said in announcing the relocation.
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Harsha Agadi, the CEO of Churchs Chicken, sums up the chains focus as more stores and better stores. He suggests the two thrusts coincide in, of all things, the brands emphasis on diversity. He attributes the concepts six years of positive same-store sales in part to drawing a tight bead on Hispanics and African-Americans
one or the other, in each and every store. The groups collective spending in the U.S. topped the $1 billion mark, or the buying power of India, Agadi says. Part of the appeal is a value orientation thats in the very marrow of the concept, he stresses. Churchs always has the best deals, Agadi says. Some of the promotions we have now were the same 30 or 40 years ago. He contends that the brand has a pronounced understanding of minority consumers because the chain itself is so diverse. Eightysix percent of our employees are minorities [or] female, Agadi says. Over 80 percent of
our franchisees are minority members. Those franchisees are often able to tap financing from beyond the U.S. mainstream, Agadi says, so we are growing at a furious rate. The chain has deals signed for 700 stores to open during the next seven years. To facilitate that process, Churchs introduced a new modular building thats delivered in two parts to a new site. In less than 10 days, we can be fully operational, Agadi says. Churchs is also looking at kiosks for nontraditional locations. The efforts come amid media reports that the franchisors owner, Arcapita, may be looking for a buyer of the brand.
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Despite the credit deep-freeze that started in mid-2008, Little Caesars is emphasizing expansion, in part by reaching out to new pools of prospective franchisees. Included in that group are former employees of the franchisors own headquarters office. The takeaway chain said earlier this year that more than 50 former staffers transitioned to a second career as franchisees. Meanwhile, the Michigan-based chain reportedly found ample candidates among displaced automotive
industry executives. It also continued to focus on military veterans, fielding some 2,400 inquiries from service men and women. Little Caesars development efforts were a departure from the menu-development emphasis of the other pizza titans. Already armed with bargains like Hot-N-Ready, a freshly made pizza priced at $5, the segments traditional value specialist didnt follow Pizza Hut and Dominos into the pasta business. Its menu continues to spotlight pizzas, in all sizes and preparations, and wings.
LITTLE CAEsARs
Executives of Yum! Brands have more to say about their new Chinese hot-pot concept, Little Sheep, than they do about their venerable U.S. seafood chain, Long John Silvers. But its not as if the old beard has been drifting at sea. Like fellow salts specializing in seafood, the concept was revising its menu and marketing message to stress that theres more to be had than fried fish. Long John tried to underscore that message with the rollout in late 2008 of the Freshside Grille, a roster of choices containing 10 or fewer grams of fat. Included were items that sounded as if they came off a casual restaurants specials board: Grilled Pacific Salmon, Shrimp Scampi, and Grilled Tilapia. Yet each is priced at $4.99. The 1,500-plus-unit chain also started to post calorie counts on its menuboards for all the items regularly listed, part of a Yum-wide initiative to disclose nutrition information across its U.S. brands by 2010.
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Sardar Biglari, the thirtysomething investor who took control of Steak n Shake last year, has promised to tighten the focus of the retro burger chain and revive its sales and profits. Heres how his plans compare with the tactics of the team he ousted.
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OLD REGIME
NEW REGIME
Chicken fingers, wings, and sandwiches arent exactly a novelty in fast food. But Zaxbys advertises that its versions are freshly prepared for each order.
Discounts on premium burgers, such as a $2.40 limited-time price for a Double Steakburger; a $2.99 Double-and-fries combo; or a $2.99 Double Steakburger with bacon and cheese.
sTEAK N sHAKE
ADVERTISING
VaLUE FOCUS
Four meals selling for $4 each, including the Bacon and Cheese Steakburger with fries. Envisions three pricing tiers.
ZAXbYs (2)
Wraps, a triple Steakburger relaunched as the 1934 Burger. New breakfast menu, featuring handheld sandwiches, milkshake-based morning smoothie, and Seattles Best Coffee.
A promised focus on burgers, shakes, fries, and chili. New products include sliders, an A-1 Peppercorn Steakburger, a milkshake with Butterfinger mix-ins, and freshly baked chocolate-chip cookies.
sTEAK N sHAKE
APPEaRaNCE OF UNITS
Started painting white walls red. A new coat of paint is not expensive, Biglari said.
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BUILDING DESIGN
Showbiz stars have been used in quick-serve advertising since brontosaurus burgers were a typical LTO. Zaxbys commercials feature such celebrities as Kerri Strug, Cindy Williams, and Penny Marshall (a one-time Olympian and the star of 1976s Laverne & Shirley, in case you missed this months People). Being a little different seems to be part of Zaxbys strategy for success. And the chicken specialist can muster a strong argument that the approach is working. Samestore sales grew 5.6 percent in 2008, and more than 50 units were opened, including first-ever outlets in Texas and Ohio, according to the Athens, Georgiabased nonconformist.
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Born as a double-drive-thru burger concept, Checkers Drive-In decided to branch out a bit. The chain and its fraternal twin, one-time competitor Rallys, are trying to expand their development opportunities by offering franchisees new strip-mall prototypes. The in-line and endcap stores should put the brands in markets that once seemed impenetrable, the home office said in announcing the diversification.
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It stressed that double drive-thrus will remain the chains main development vehicle, but described the new prototypes as a means of getting into urban areas where a drive-thru format doesnt make sense. Checkers/Rallys is also pushing bargain alternatives to the quarter-pound burgers that propelled both brands to prominence in the 1990s. It now offers 10 items priced at $1, or a penny more than the big burgers fetched during the early years. In addition, patrons are able to combine items into discount-priced meals.
The concept once known as Boston Chicken seems hell-bent on demonstrating why the switch to Boston Market was a really, really good idea. Although officials still describe the chain as a rotisserie-chicken specialist, its menu has been stretched to include such farafield options as Chipotle Meatloaf, Baked Whitefish, Four-Cheese Cavatappi, and gourmet cupcakes. Even the chicken received a few tweaks. A newer menu addition is the Crispy Country Chicken, a baked, breaded chicken breast thats marketed similarly to the way a fried piece of chicken might be. Except, of course, it sounds more healthy. Other appeals to the health-conscious veered markedly from the sectors usual wellness tack. Among the products Boston Market positioned as being better for guests was a Cherry Cobbler. After all, promotional materials noted, cherries are regarded by some experts as a superfood. It aired the same boast for the Baked Whitefish. A concession to bargain-hunters came with the grouping of 11 rotisserie chicken based items into a $5 menu, available at lunch or dinner.
Five years ago, Culvers was known for its ButterBurgers and frozen custard. Last year, its big draws were ButterBurgers and frozen custard. Its a safe bet the main customer lures two years from now will be ButterBurgers and frozen custard. But with competitors changing their menus the way most people change their socks, the Wisconsin-based regional chain has been giving its bill of fare a few tweaks. Among the most recent was the addition of new chicken sandwiches, including a flameroasted version. The nonfried poultry is also used in a new Chicken Cashew Salad. The chicken promotion dovetails with the chains airing of a 60-second commercial during TV previews of the Academy Awards, or what executives characterize as the Super Bowl for women. The spot was part of Culvers firstever national ad campaign. The chain is also rapidly pushing out from its concentration in the middle of the country. Part of the challenge: Introducing frozen custard and a product called the ButterBurger (for the uninitiated its a burger served on a bun with a buttered crown).
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In its second year under new ownership, the Bojangles fried-chicken chain is taking a back-to-the-future approach. A management team led by CEO Randy Kibler, a longtime Hardees operator, is focusing on four fundamentals: chicken, biscuits, iced tea, and service. The chain, now owned by an investment group that includes onetime Hardees kingpin Jerry Richardson, is already growing the system as it brushes up on the basics. It added 44 restaurants last year, for an 11 percent expansion spurt. Meanwhile, Bojangles is experimenting with new means of exposure. Theres now even a Bojangles Coliseum, the arena formerly known as Charlotte Coliseum. And the Charlotte airport features a luggage-claim carousel whose conveyor belt carries images of Bojangles
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signature biscuits. The wall from which the belt emerges is painted to look like the front of a Bojangles oven. A Bojangles outlet is less than five minutes from the claim area, according to a spokesman.
BOJANGLES
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With KFC crowing about its new grilled option, El Pollo Loco is fighting back with an in-your-face campaign that claims its the real grill specialist. For one thing, the ads stress, EPL actually uses grillsones with real fire. (KFC roasts Kentucky Grilled Chicken, using a special plate that sears grill marks into the meat, a point neither chain expressly says in their peck fest.) Its a war that may have to be waged on a number of fronts as the Mexican-born chain pushes out of the Southwest into a host of new markets. Last year, for instance, brought EPLs entry into Utah, Virginia, Oregon, and New Jersey and a widening of its beachhead in the hometown of at least three major competitors, the greater Atlanta area. To push the brand in markets old and new, headquarters maintained its strategy of saying different things in different ways to different audiences. Last year, it simultaneously waged Hispanic- and English-language ad programs. It also reached out to the eco-conscious of Los Angeles by rolling out a threewheeled electric vehicle as part of its introduction of delivery service at a store in Beverly Hills/Century City area. The menu has similarly addressed several markets. A Grilled Chicken Tortilla Roll, reminiscent of McDonalds Snack Wrap, was added as a budgetpriced snack. Also added was the Queso Crunch Burrito, described in promotional materials as the biggest burrito ever to hit EPLs menu.
These special reports in the pages of QSR help busy restaurant operators understand current trends and sources in a variety of areas vital to your business. Dont miss these upcoming topics! September Online/Remote Ordering October Signage November Kiosk Technology
FOR ADVERTISING OPPORTUNITIES,
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was held by the chain in March for any entrepreneursincluding operators from other chainswho wanted to sharpen their business acumen. We need to work together to strengthen our industry, says CiCis CEO Craig Moore. Free restaurantUnit manager Phil Santucci was given ownership of his own store, a new outpost in Florida, as a reward for the service he provided as someone elses employee. The new outlet is a partnership with the franchisor. Fee-less franchisesExisting franchisees who buy and re-open shuttered stores within the system are excused until the end of 2009 from paying the usual franchisee fees. Free food, all winnersThe franchisor said it was dropping one million pennies in the streets around the chains 650 stores. Each coin provides the finder a prize, including a free meal and a free pizza when another is purchased.
Giveaways and other perks have become a routine way of wooing customers and franchisees in these tough times. But CiCis Pizza is taking it to another level. Heres a sampling:
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On one flank are the relative bargains of freezer-case pizzas. On the other are the hot pies of take-out or delivery places. Both of those choices are backed with considerable marketing might and advertising dollars. Yet Papa Murphys Pizza found the middle ground to be a good niche to occupy while a recession is in full rage. Our brand has found its sweet spot in this economy, says president and chief operating officer Clarice Turner. Papa Murphys is a high-value, qualityoriented solution for families who are re-evaluating their out-of-home dining purchases. The take-and-bake pizza specialist took giant leaps last year in its sales and expansion efforts, propelled by that third-choice market position. Traditionally, consumers viewed its pizzas as attractively priced alternatives to the premium pies of Dominos, Pizza Hut, or local pizzerias. Because Murphys pies are freshly assembled to order, the chains pizza is seen by others as a trade-up in quality from the heat-and-eat frozen choices in supermarket freezers. Those impressions, Turner says, are not bad ones to convey when consumers are hunting for steals and cooking more dinners at home. The franchisor said its 2008 rating from consumers was the highest in six years, and that it opened 102 stores last year, a 10 percent expansion. It has already signed deals to expand into three more states and to push south from its Pacific Northwest roots into southern California.
Major menu change in the last year (the addition of a pulled-pork sandwich).
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$20m
15
Years White Castle worked with JWT and Mindshare ad agencies before switching this year to Zimmerman & Associates. Size of that ad budget. Marketing efforts pivot otherwise on word of mouth, events.
White Castle has one of the most devoted cult followings in the business. Heres an update of the 88-year-old company by the numbers.
26,290
Customers accepted into the Cravers Hall of Fame, a virtual place of honor for patrons who can prove their extreme fanaticism with a story demonstrating White Castle loyalty. Registered fans on White Castles main Facebook page.
1,457
Views of White Castles channel on YouTube. Hours a White Castle is closed each year (stores shut for Christmas).
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February. Among the brands priorities While most chains were focusing on are new investment in new product menus (read: topline recovery) and operations (translation: squeezing costs development, being more thoughtful to help the bottom line), We try not to in its research, and a real Del Taco concentrated look at what operational focus. on its management team. everyone else But dont expect any sharp turns, Murphy says. In about a 15-month is doing. Im very pleased with stretch, new business how were doing. The trends are cards were printed up for the multivery favorable. Del Taco does well in regional chains CEO, marketing chief, todays market because it plays on senior director of R&D, treasurer, vice value and flavor, and that plays well president of business insights, and with consumers. director of consumer insights. The 500-plus-unit chains menu Not that the menu didnt get a limdevelopment will be directed at adding ited work-over. A new hot sauce, Del flavors, not cheapo products aimed at Inferno, was added as an alternative to the chains default sizzler for the last 15 bargain-hunters, he says. Included will be some updated years, Del Scorcho. A $2.99 breakfast breakfast choices. But Del Taco is not bowl was rolled out in January, after going to follow the pack by adding new the chains signature Classic Taco was beverage choices like lattes or energy down-priced to 99 cents. drinks, which he views as an aspirin The scrutiny could intensify going for declining fountain sales. We try forward, says Paul Murphy, the not to look at what everyone else is Einstein Bros. and Boston Market doing, Murphy says. veteran who became Del Tacos CEO in
Last summer Baskin-Robbins opened Caf 31, a quick-casual take-off that featured a resident pastry chef, a chocolate fountain similar to the ones used for champagne, a six-foot-long serveyourself sundae bar, and plush seating. The prototype, not far from Baskins home office in the Boston suburbs, measures about 2,000 square ft, or roughly double the footprint of the chains traditional dipping stores. Expansion plans for the format, a variation similar to the Baskin-Robbins cafs in Korea, have yet to be announced by the franchisor. At the same time, the chain is going small. New kiosk-type outlets will be its expansion vehicle into nontraditional venues like airports and sports arenas. Even standard-sized stores are venturing far from the concepts traditional ground of featuring 31 ice cream indulgences on any given day. The new Bright Choices menu features better for you frozen options, including ice cream with no added sugar, frozen yogurt, a sorbet made from strawberries and berry puree, and ice cream packing 50 percent less fat and 20 percent fewer calories than the full-octane Baskin flavors. The chain also added soft-serve ice cream in select locations.
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When shopping-mall construction slowed earlier in the decade, Sbarro channeled more of its development efforts into what the foodcourt specialist calls high-pedestrian-traffic venues, specifically downtown areas, airports, casinos, universities, and travel plazas. In short, some of the recessions most noticeable victims. Not that the pizza chain has forsaken its retail roots. At least 427 of the 775 U.S. stores open at the end of last year were located in retail foodcourts, a less-than-desirable setting when retail takes an historic nosedive. The downturn in its feeder markets has landed Sbarro Inc. on several notorious lists, including Moodys first-quarter edition of The Bottom Rung, a listing of the debt holders viewed by the ratings agency as the most likely to default. Sales and debt issues also led to the franchisors inclusion in 15 Companies That Might Not Survive 2009, a compilation by several business journalists that was posted on the news site USnews.com. The issue is location, not operations, Rick Newman, chief business correspondent, wrote. Indeed, another posting on SeekingAlpha cites research showing that spending within Sbarro pizzerias increased by more than 8 percent between November of last year and February 2009. And the home office did renegotiate an agreement to ease its debt. Nonetheless, Sbarro is emphasizing international expansion, with commitments already in hand for 2,300 new overseas restaurantsnearly a tenfold increase over the December nosecount.
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After a two-year makeover, Captain Ds knows exactly what face it intends consumers to see. CEO David Head, a veteran of the full-service market, explains how the chain intends to snag his former clientele.
What are some of the highlights of the last year for Captain Ds? The big development for us has been the freshening of the brand, which is something weve been doing for the last two, two-anda-half years. Theres the physical-plant part, a re-imaging of our facilities, coupled with
our new advertising, with the challenge campaign. A lot of franchisees in smalltown areas said theyre kind of the local Red Lobster. So we started a campaign that compares us to them. And whats that done for you? It fits our message that we offer sit-downquality food at fast-food prices. Its a real good rallying cry and a real good niche. Even with five-, six-, seven-dollar price points, its given us a good value position. How is that strategy evolving? Theres the whole idea that were a credible alternative to casual dining for certain experiences. Lunch is a good example. Red Lobster has a $6.99 lunch. But you get an iced tea on top of that, you leave a tip, youre still in for about 11 bucks. Were less than that. It allows us to provide greater value, and you can get in and out quicker. What are your big challenges for the near future? Our challenges are in two areas. First, theres continuing development in R&D coming up with new seafood choices and
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Jimmy Johns isnt oblivious to the moves of other players into the delivery game, a signature of the chain since its founding in 1983. In late October, for instance, it added its first new sandwich in four years, the No. 17 Ultimate Porker Club. The new option is priced at about $5.50, or slightly more than the $5 charged by Quiznos, Subway, Arbys, and Boston Market for their everyday sandwich deals. Jimmy Johns also adjusted the deal it traditionally offers when a new store opens. Instead of selling sandwiches during a four-hour stretch for
$1.50, its dropped the price to $1. But thats as far as the brand is going. Its focused instead on the development tear that made it the industrys second-fastest-expanding chain during 2008, according to a ranking by Technomic Inc. We dont rely on gimmicks, promotions, and new menu additions to fool people into coming in and buying our sandwiches, founder Jimmy John Liautaud said at the time of the Ultimate Porker introduction. We rely on the simplicity and quality of our food and the speed of delivery to keep our customers coming back for more.
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The home office of Jasons Deli doesnt like to crow about the chains points of difference, so heres what other parties are saying about the fast-casual contender:
Its creative salads make you actually want to order the greens.
Health magazine
jIMMY jOHNs
flavor profiles to remind the guests were not just fried fish. Theres always some opportunity there. Our other challenge is in speed of service. If you compare us with fast-casual or casual, were lightning fast. But when you compare us to Chick-fil-A, which is wired for speed
How about growing sales through beverages and breakfast, the way a lot of quick-serves have? The beverage piece of it comes way down our scale of guest priorities. Beverages are not as big a deal to us as coming up with new seafood flavor profiles. In the future, we think well be able to sell breakfast. But not right now.
For seven years, the plucky Texan [Rusty Coco, Jasons co-founder] has been on a crusade to eliminate such contaminants [as high-fructose corn syrup] from the menu.
The Washington Post
Jasons Deli becomes first U.S. restaurant chain to ban HFCS from its menu.
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