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January 2007
E&S Industry Growth to Ease
By: Mike Sherer

Trying to predict what lies ahead for a new year is like grabbing onto a fistful of air.

So instead of speculating what 2007 could bring—higher gas prices, spiraling materials costs, new regulatory battles, for example—equipment spec/buyers from top foodservice companies say they’ll focus on what’s in their control: everything that can make them more productive, efficient and profitable.

And they want it all: greater equipment efficiency, better service and improved partnerships with suppliers, all in an effort to handle whatever this year throws at them. As one told us, “You can’t always design for Easter Sunday, but you’d better be prepared for Easter Sunday.”

Read on for perspectives from six multiunit spec/buyers and the ways they’ll meet their operational challenges in 2007.—Ed.

McDonald’s: Remain Consistent While Innovating
Bernard Morauw, Senior Director Worldwide Operations
McDonald’s Corp., Oakbrook, Ill.
Existing Units: 31,010
2007 Activity: 350 new units 

When you’re a market leader, you have to do two things well: deliver your brand’s products and services consistently in all your stores, and continue to innovate to stay ahead of your competition. At McDonald’s Corp., conformity and reinvention go hand in hand.

“If you look at McDonald’s overall,” says Bernard Morauw, “we’re trying to stay the course in leadership and marketing, and continue to innovate around the menu. On the equipment side, we look at delivering a standard around the world.”

The company’s strategy for the past three years has been to optimize performance in existing restaurants, not just put up new ones. The chain has taken a hard look at how to increase sales in its 31,000 restaurants. At the same time, the 14,000 U.S. stores and thousands more in maturing international markets need to be upgraded and improved on an ongoing basis.

With sales growth coming from menu innovations, Morauw says the company has to find ways to gain greater production and efficiency from existing units.

“The growth of the menu and the different types of products we now serve have an effect on what kind of equipment we need,” Morauw says. “We need flexible equipment in a limited footprint that can accommodate a wider variety of menu items.

“Another challenge for us is the area of service support and reliability. We must find suppliers who have preventive maintenance and extended warranty programs, and come to us with a new model of service.”

And, Morauw says, new equipment that meets the company’s needs has to be energy efficient and meet new standards of compliance, such as the WEEE/RoHS directives that took effect in Europe last year and go into effect in Japan and China in 2008.

Surmounting challenges like these, though, is all in a day’s work at McDonald’s.—MS

Brinker: Look For The Return
Rick McCaffrey, V.P. Architecture & Design
Brinker Int’l., Dallas
Existing Units: 1,622
2007 Activity: 200-220 new units 

Rick McCaffrey isn’t asking for much in 2007. “We’re focusing on engineering, speed of service, quality of our food, labor, energy and building construction costs.”

If McCaffrey sounds like he wants it all, he does. But he boils it all down to ROI. “Where are the paybacks in terms of building systems? It used to be ‘cut costs, cut costs.’ Now we look at where the paybacks are.”

In terms of equipment, payback comes through Brinker’s own look at equipment efficiency. “We used to rely on manufacturers for information about performance. Now there are monitoring systems to evaluate equipment, HVAC and lighting systems, and we can do our own business payback models. For example, we can evaluate hot water heaters and how they perform so we can look for a system that’s not only energy efficient but also uses less water.”

This year, McCaffrey says, Brinker expects labor costs to go way up. “Speed is what consumers want, so we have to be able to deliver the same product faster. Energy costs have to be balanced with other needs, such as labor and speed.” To do it all, “we have to partner with suppliers and manufacturers. We can’t do it on our own.”

As part of the Brinker-supplier partnership, the company allows suppliers to test equipment in its stores so new technology can be fine-tuned and made available to the entire market. For example, one ventilation specialist tested on-demand ventilation in a Brinker store six years ago, pulled it out and refined it, and later introduced it to the market.

“We know that if we can develop a product so the technology is available to everyone and not proprietary, we’ll get it at a less expensive cost,” McCaffrey says. “We’ve seen some examples in the past year of manufacturers’ solutions to our areas of focus that have really ‘wowed’ us.”—MS

Culver’s: Succeed Through Partnerships
Art Cone, V.P. Supply Chain Management
Culver Franchising System Inc., Prairie du Sac, Wis.
Existing Units: 349
2007 Activity: 35-45 new units 

Culver’s, famous for its frozen custard and Butterburger, is in the enviable position of having no shortage of new and existing franchisees interested in opening restaurants. And while the chain expects to open 35 to 45 units a year for the foreseeable future, expansion itself isn’t at the top of the company’s priority list.

“We grow one restaurant at a time,” says Art Cone, “but our real emphasis is on improving profitability and growing comparable sales and transactions in existing restaurants.”

An integral part of that strategy is the way Culver’s specs and purchases equipment, and specific areas the chain will focus on this year include service and technology.

“We want the best service available for our equipment,” Cone says. “We expect to have the most highly qualified service technicians in our restaurants with a goal of attaining a first-time fix.

“And technology is the other area we want suppliers to address, how to get folks to think three to five years down the road in terms of technology,” he says. “We want suppliers to bring us ideas for maybe a totally different cooking platform, or integration of the NAFEM Data Protocol that would enable a service technician to trouble-shoot a piece of equipment.”

With prices rising on raw materials like stainless steel, the company expects higher prices on equipment. “We’re looking for continuous improvements in quality, service and technology and are willing to pay for them,” Cone says.

Even so, Culver’s has created its own lifecycle costing template to help franchisees.

“While we still analyze every piece of equipment from an ROI perspective, we also look at a number of other factors,” Cone says. “There’s no question that this is where the long term partnerships come into play. We can buy something less expensive up front, but in the long run it’s not always the best business decision.”—MS

UC-Berkeley: Plan For More Training
Chuck Davies, Associate Director/Executive Chef, Cal Dining
University of California, Berkeley, Calif.
Existing Units: 10

Coming off a recent round of new construction and renovations isn’t the biggest challenge Cal Dining faces at the University of California at Berkeley. The recent completion of a new residence hall adds a 10th foodservice facility to the campus, giving students more choices and easing the load for some of the other facilities.

And having to reinvent itself anew each year isn’t Cal Dining’s biggest challenge, either, though it does present some issues. “We get a whole new batch of customers every year,” says Chuck Davies, “so we have to stay on top of trends. We have to keep them happy as well as keep the staff happy and interested in what they’re doing.”

Labor, in fact, is the ongoing issue, Davies says. Or more specifically, trying to produce “a fresh, seasonal menu like ours with labor that doesn’t have the skill sets we need.

“We moved from a three-week cycle to a seasonal menu recently for more flexibility, and we have to cater to a large Asian population with authentic Asian food. We’ve even introduced new programs like a completely organic salad bar. Our mission is to serve food that tastes good, looks good and provides great nutrition.”

New equipment offers some efficiencies, he says, but doesn’t solve all the problems. A sushi bar was added in one recent renovation, for example, and Cal Dining considered an automated sushi-making machine. But it would have been costly, and still would have required labor.

Rather than opt for digital, programmable equipment that does the thinking, equipment purchases have been flexible workhorse, such as a bank of convection ovens and more energy-efficient steamers. To keep up with trends, new hearth-style pizza ovens were added and are as productive as conveyor ovens while providing more customer appeal.

But the focus this year will be on training. “We have to bring employee skills up to speed,” Davies says.—MS

Johnny Carino’s: Source For Quality And Service
Janine Hess, Purchasing Manager
Johnny Carino’s Italian/Fired Up Inc., Austin, Texas
Existing Units: 157
2007 Activity: 10 new units

For a relative newcomer and small but growing company like Johnny Carino’s Italian, not having the same purchasing leverage as larger chains can be frustrating, considering the run-ups in materials pricing.

“One of our biggest challenges is price fluctuations,” says Janine Hess. “Stainless keeps going up, and even if the price stabilizes, demand exceeds availability.

“Several of our good equipment manufacturers have done their best to hold pricing for the past 12 months or even longer, all the while getting bruised by volatile commodity conditions.

“So on one hand, we are seeing plastics and fuel costs go down, but we have numerous suppliers that are held hostage, so to speak, by the stainless and nickel industries. Nickel is a primary price culprit, and with only two major production sources in the world, there are few alternatives. When the nickel people pull the price trigger, there is price volatility,” she says.

Materials pricing isn’t the only issue on the radar for Johnny Carino’s this year. Lead times, equipment life and service are also top of mind.

“We’re trying to source domestically wherever possible,” Hess says. “If we can use a company in California to make a custom product, we’ll do that instead of sourcing from China. It’s a trade-off: pay $6.75 versus $8.95 or $10 to get it domestically. But in the time it takes to get a sample from China, the company in California is working on the fourth round of the prototype and they haven’t charged us anything.”

Meanwhile, as equipment in some of the chain’s units approaches the end of its useful life, Hess is evaluating replacements with long lifecycles in mind. “We’re also from the not-broke-don’t-fix-it school,” Hess says. “For example, our ice machines really last, so we won’t consider replacing them.”

Finally, Hess says she’ll be looking for excellent customer service this year, seeking suppliers who stay on top of Johnny Carino’s business.—MS

Old Spaghetti Factory: Manage Remodeling Wisely
Bob Martin, V.P. Development
Old Spaghetti Factory, Portland, Ore.
Existing Units: 37
2007 Activity: 1 new unit, several remodels

Old Spaghetti Factory has launched this year with its eyes on a mission: bringing older locations into the 21st century. Founded in 1969, the chain intends to continue its systemwide remodeling program in 2007.

“Over the years, we’ve expanded our menu to attract new customers, which required new pieces of equipment,” says Bob Martin. “We also have a lot of 30-year-old restaurants out there, and the equipment simply needs replacement.”

Equipment the chain has added includes large convection ovens for par-baking bread, microwave ovens for reheating sauces, flat-top grills for sausage and chicken items, blast chillers for 40-gal. batches of sauce made from scratch, and vertical choppers.

The remodels are major, costing hundreds of thousands of dollars and tremendous logistical planning. “Our biggest challenge is remaining open while we upgrade,” Martin says. “We need to maintain our cash flow as best we can.”

Further, more than half of Old Spaghetti Factory restaurants are in older, downtown buildings, where rents are lower. “We can’t just scrape a slab and start from scratch. In some cases, we have to recapture dining space or convert a prep area to make room for expanded cooking lines.

“We’re also trying to convert to gas wherever possible, particularly booster heaters for our dish machines, and buy more energy-efficient equipment. We’ve also had to upgrade electrical service in many buildings from 400 to 600 amps. Electrical and plumbing costs have jumped dramatically due to rising steel and copper costs.”

Site selection is another concern for the company. Given its business model, spaces in downtown locations are difficult to find. The chain does have a prototype for a freestanding store, but suburban locations are hard to come by.

“In the suburbs, guests have 16 other restaurants close by to choose from,” Martin says. “In our locations downtown, we have a lot less competition from other chains.”—MS

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