By Tyler Baks
The Canadian commercial foodservice industry has experienced many changes over the past 10 years. Today’s successful restaurant chains have had to adapt to changing consumer behaviour, enhanced menu offerings, technology influences and shifting preference on the time of day consumers are visiting restaurants.
Most consumers consider restaurants as a dinner destination as well as for lunch. But the share of consumers visiting restaurants at these core dayparts has eroded dramatically during the past decade. Today’s consumer is looking for restaurants to provide menu offerings that span all dayparts: breakfast, morning snack, lunch, afternoon snack, dinner and evening snack. The increased consumer demand to visit restaurants beyond the core lunch and dinner dayparts has presented many opportunities for restaurants willing to capitalize on the changing behaviours and adapt to these consumer demands and needs.
Think for a moment of Starbucks and their new offerings of wine and beer during the evening, Milestones expanding into daily breakfast/brunch, or Subway’s launch in to breakfast. In fact, the growth of breakfast has been the fastest growing daypart in the Canadian restaurant industry since 2008.
Ruling the dayparts
Today’s successful restaurants have identified the opportunities associated with dominating specific dayparts. Tim Hortons rules breakfast, capturing the Number One spot in market share. Challenging Tim Hortons dominance at breakfast, other contenders such as McDonald’s and Starbucks are also capitalizing on the growth at this daypart by expanding their menu innovation, marketing and customer engagement in an effort to capitalize on the growth at breakfast.
Similar to Tim Hortons’ dominance at breakfast, McDonald’s has focused efforts to lead as the top operator for customer traffic at dinner and currently captures the Number One market share. But, unlike breakfast, consumers are not going out to quick-service restaurants as often for dinner. And, like many operators, McDonalds is experiencing declines at this core daypart. Only one operator is actually experiencing growth at dinner. During 2016, Tim Hortons expanded its dinner strategy with focused marketing and an expanded menu innovation platform geared towards this core daypart. This effort by Tim Hortons has paid off, resulting in strong double-digit customer traffic growth at dinner during 2016.
Now what about lunch? Today, the lunch daypart represents the largest share of consumer visits to restaurants at 27 per cent of total consumer visits. By comparison, the dinner daypart represents 23 per cent of all consumer visits to restaurants while breakfast captures 21 per cent. Although all of the growth since 2008 has been at breakfast, during 2016 consumers increased visits to restaurants at lunch by four per cent over 2015. During the same period, consumers visiting restaurants at lunch opened up their wallets and increased spending, resulting in dollars growing five per cent over 2015. As a result, the lunch daypart now generates sales of $15.6 billion annually.
What has been behind the growth of the lunch daypart over the past year and what are the opportunities for restaurants to capitalize on in the lunch daypart going forward? Foodservice lunch growth over the past year can be attributed to operators such as Tim Hortons, McDonald’s, Wendy’s and A&W. Restaurants such as Subway continue to struggle at lunch while brands such as Starbucks are emerging as true lunch contenders. During 2016, Starbucks experienced 15 per cent growth in consumer traffic at lunch, making them the fastest growing lunch destination in 2016.
Learning from the market leaders
To drive growth and compete against market leaders such as Tim Hortons and McDonald’s, Starbucks has focused on lunch as a growth opportunity. During 2015, the coffee chain developed strategies aimed to grow its lunch business by incorporating and innovating with new menu items – all specific to lunch. The Seattle-based company’s strategy was simple: Move beyond their core beverage roots and boost their food business. With the development and rollout of “La Boulange” bakery items in Canada, the shift into lunch meal offerings was a seamless transition. As a result, Starbucks has been able to entice lunchtime crowds with their expanded portfolio; their new menu features permanent lunch items such as the turkey pesto panini, the chicken Santa Fe on ancient grain flatbread, and the PB&J sandwich on wheat served in a convenient bistro box. The innovation and creativity behind Starbucks’ lunch offerings provides consumers with a mix of flavours that are familiar, but have a unique twist.
However, lunch is a key battleground and Starbucks’ success at lunch is not going unnoticed. In an overall flat restaurant industry, growth can most often come by stealing share from competitors. Tim Hortons has developed a long-term strategy focused on increasing consumer traffic at lunch over the past five years with a focus on menu innovation. The introduction of new menu items geared towards lunch and innovation for key items like chicken sandwiches and wraps has resulted in Tim Hortons capturing the Number One spot for market share at lunch (ousting Subway) by growing consumer traffic by an impressive eight per cent on average year-over-year since 2011.
Increasing average eater cheque at lunch
Besides focusing on increasing consumer traffic at the lunch daypart, many restaurants have focused on strategies to increase the amount of money people spend. Tim Hortons, along with many operators, focused on introducing more high-priced lunch items as well as more combo options. For Tim Hortons, this strategy is working. During 2016, combo meals at Tim Hortons experienced double-digit growth. A component of the lunch combo success for the operator has been the inclusion of their expanded beverage portfolio. Today, Tim Hortons’ lunch consumers can choose from a combo opportunity of a sandwich, a soup, and multiple choices of beverages beyond just carbonated soft drinks, such as their signature iced and hot coffees. Building on the strategy of innovative combo offerings, Tim Hortons has also launched new combo side items such as salads and savoury potato wedges.
At McDonald’s, a core focus launched this year that has benefited consumer traffic at lunch has been the new “Create Your Taste” initiative. This concept allows consumers to build their own burger using in-store digital touchscreen kiosks. McDonald’s consumers have the opportunity to customize their meal to their preference, working well with overall increased consumer demand for premium, customized meal offerings. The “Create Your Taste” initiative is an example of the innovation needed in today’s foodservice marketplace and showcases what the future of the brand will look like as well as demonstrating how their efforts on enhancing their relationship with customers and their experience with the brand is an area that will set them apart from competitors.
Lunchtime is a battle ground
While “Create Your Taste” may seem innovative for the McDonald’s brand, and while McDonald’s may seem like they are reinventing themselves, much of this positioning is in response to a notable threat to their lunchtime business. One of the fastest growing segments in the Canadian restaurant marketplace is the emergence of Fast Casual restaurants. Restaurant brands such as Chipotle, Panera Bread, South Street Burger Co., and Mucho Burrito are changing the rules of the restaurant industry by offering highly customized, freshly prepared, innovative menu offerings that consumers order at a walk-up counter and then seat themselves and wait to have their meals brought to their table.
As more and more Canadians discover Fast Casual restaurants, they are also discovering that they like them. Consumer traffic to Fast Casual restaurants has experienced strong and steady growth, year after year, since 2008. For Fast Casual restaurants, lunch is their largest daypart. Much of the success of Fast Casual is a result of the experience consumers are getting from these restaurants. Many of the market leaders are learning from the emergence of Fast Casual concepts and incorporating these strategies that make Fast Casual a growing lunchtime destination.
Again, McDonald’s seems to be leading the adoption of Fast Casual strategies, evident by unique changes like new customer service representatives, called “Guest Experience Leaders” – which are changing the way consumers interact with the brand. Choosing to focus on the consumer’s experience, from every touch point, is the brand’s way of moving from mass messaging in to a more personalized, one-on-one communication style. All of which resonates well with today’s lunch consumer.
Technology plays a larger role
According to NPD’s recent in-depth report on the lunch consumer, titled “The Habitual Lunch Consumer,” time is of the essence at lunch compared to dinner when deciding to get lunch from a restaurant. In an effort to provide greater convenience to the lunch consumer, many restaurants are looking at the role of consumer technology. Today’s restaurant consumers are becoming more “phygital,” meaning consumers are combining actions digitally and physically when interacting with restaurants. According to NPD’s CREST research, the phygital consumer is using mobile apps, iPads, self-serve kiosks and websites for ordering. This technological advancement in the foodservice industry now represents $1.2 billion annually in sales at restaurants in Canada.
It is through this “Digital Door” that phygital consumers are being enticed at lunch. As part of their “Create Your Taste” initiative, McDonald’s outfitted their stores with new self-order kiosks with large touch-screen menus that allow patrons to create, customize, and personalize their own lunch orders, without having to be served by a cashier; payment can be made through these in-store kiosks. Similarly, A&W launched self-serve kiosks as a test in 2014 and have since expanded the program. The successful launch of the Starbucks mobile app has also helped to increase their lunch traffic as a result of the order-ahead function.
This emerging technological access mode enhances convenience as customers are looking for easier, faster means of communicating with and accessing their preferred restaurant and the restaurants who offer a “Digital Door” are benefitting. Consumers who are using “Digital Door” technology as a means to access a restaurant (through various mobile, internet or digital means) has increased by five per cent in 2016. These consumers are also spending more money and ordering more items, especially at lunch.
Launch in to lunch
Even though Canadians are visiting restaurants less frequently, lunch is a growing opportunity. Restaurants that are focusing on innovation, customization, technology, growing average eater cheques and providing enhanced consumer experiences – as witnessed by the rapid rate of change for market leaders, such as McDonald’s, Tim Hortons, A&W, and Starbucks – are the new industry standard and required trends to drive success at the increasingly important lunch daypart.
About the author:
Tyler Baks is Account Manager, Foodservice Canada for the NPD Group. The NPD Group has more than 25 years of experience providing reliable and comprehensive consumer-based market information and insights to leaders in the foodservice industry. For more information, visit www.npd.com or contact Tyler at [email protected].