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January 2010
SPECIAL REPORT

Perspectives 2010

Expanding menus, maintaining razor-sharp focus on customer needs, driving out inefficiencies and pouncing on real estate opportunities will be the keys to success in 2010.

By Mike Sherer

We're working our way out of the Great Recession, and in times like these, keeping a foodservice business on track and profitable presents challenges that are best tackled with good advice.

So we called on some of our industry's top equipment spec/buyers for tips on how to excel this year, and we learned that combining tried-and-true approaches with smart adjustments for today's climate will be the key. Stay focused on what you can control, we heard, and seize fresh opportunities as the recovering economy presents them.

More specifically, suggested our six interviewees, success this year will lie in your ability to zero in ever more keenly on your customers' needs, standardizing your operations wherever possible, and striking out with new menu items and new builds.

Read on for approaches your peers plan to implement as they face the operational challenges—and the anticipated upturn—of 2010.

KFC: Reinvent Your Business
Mike Harlamert, Director of Advanced Engineering
KFC Corp., Louisville, Ky.
Existing Units: 15,000+
2010 Activity: N/A

"Anything we can do to simplify will improve the quality of life in the back of the house."

What do you do when you're getting hammered by the economy, competition and changing consumers tastes? At KFC, you reinvent what you do best—chicken. In May 2009, the Yum! Brands chain introduced Kentucky Grilled Chicken, adding a new, more healthful product to appeal to a broader consumer base. The menu addition gave the chain a huge lift with pretty significant numbers in the face of tough economic times.

Now, with capital investment less likely, KFC is focusing on its menu and operational systems instead of new units domestically. "We just made a significant investment in a new cooking platform for Kentucky Grilled Chicken," says Mike Harlamert, director of advanced engineering, "so new products will use that as well as our existing cooking platforms.

"There are not a lot of units in the pipeline here domestically," he adds, "but we're opening one new unit per day in China and we're growing almost as fast elsewhere internationally. Here at home, we have a lot of assets we'd like to upgrade."

KFC's reinvention includes several new product tests starting this month, according to Harlamert, and a concerted effort to develop new service systems that simplify operations. "Our operation is one of the most complex in the industry," he says. "Anything we can do to simplify will go a long way toward improving the quality of life in the back of the restaurant as well as our bottom line."

The engineering team is focused on what Harlamert calls the three Ds—dirty, difficult and dangerous. KFC operations involve working with raw chicken and hand-breading it differently for different products, which is labor-intensive and dirty. Pressure and atmospheric fryers pose dangers, and employee turnover makes training a challenge.

Areas the chain is already addressing in tests of new equipment include automatic oil filtration for fryers and new holding and assembly equipment behind the front counter to make customer service more efficient. The company's first LEED-certified unit, built last year, also is providing a wealth of information on ways to save energy.

Chipotle: Focus On Your Niche
Brandon Melton, Development Purchasing Manager
Chipotle Mexican Grill, Denver, Colo.
Existing Units: 900
2010 Activity: 120 to 130 units

"Our strategic focus remains the same: working to change the way people think about and eat fast food."

When Steve Ells founded the first Chipotle Mexican Grill in 1993, the CIA-trained chef just wanted to open a place with great-tasting food. As he read and learned more about the ingredients he purchased, he realized that the best-tasting foods were ones that were grown and produced as naturally as possible. Ells formed a basic philosophy for his business he called "food with integrity."

Some 900 stores later, that focus on sustainability is what drives Chipotle's business. The chain has grown at a rate of about 120 stores per years for the past two years and expects that trend to continue. And same-store sales continue to show positive growth despite the state of the economy.

"The economy will probably continue to be sluggish this year," says Brandon Melton, development purchasing manager, "but we will remain focused on things we can control—making great food, providing excellent customer service, and building new restaurants as quickly as we can find great sites and great managers to run them."

Chipotle's great food comes from its efforts to source sustainable ingredients. About 25% of the pinto and black beans used chain-wide are organic; wherever possible, the chicken, beef and pork that the chain sources come from animals raised naturally; and the California Avocado Commission endorsed the company's sustainable avocado program a few years ago. The company's efforts to be more sustainable don't just begin and end with food, however. A growing number of stores have recycling programs, and new restaurants are designed with the environment in mind.

"We're always evaluating the design of our restaurants, looking for new efficiencies in the way we lay out kitchens, and in terms of the materials and systems we use," Melton says. "In 2009, for example, we were the first restaurant company to receive a Platinum-level LEED certification for our restaurant in Gurnee, Ill."

Chipotle also has LEED restaurants in Long Island, N.Y., and Minneapolis. In 2010, the chain plans to reduce in-store energy demand through more efficient HVAC, cooking equipment and lighting. The company even plans to have solar power panels installed on 75 stores this year.

Aramark: Standardize Your Concepts
Duane Clark, Senior Director of Business Resources for Strategic Assets
Aramark Higher Education, Philadelphia, Pa.
Existing Units: 501 (includes 15 college/university sports stadiums)
2010 Activity: N/A

"We have to let our teams know how we can provide market leading innovation, problem-solving know-how and scalable solutions."

Aramark Corp.'s goal for 2010 is to "share our experience and knowledge to leverage best practices across the enterprise," says Duane Clark, senior director of business resources for the Strategic Assets group. "Our strategic focus is on making things easier for the frontline manager, mitigating risk and driving growth."

Aramark operates a number of branded concepts within its different business units. The new focus, according to Clark, will be on how to replicate the development process of these concepts across the entire enterprise. The company is refreshing its Bčne Pizzeria, a proprietary pizza concept in the Higher Education division, for example, to create the new Topio's Pizza concept, the first of which opens in January. Meanwhile, the new Burger Studio concept opened last fall and will continue expansion on various college and university campuses early this year.

Last year the company also piloted a new fresh food c-store concept called Provisions On Demand (P.O.D.) Market at three universities. It has already opened 15 P.O.D. units in a multiunit Business Services account, is in conversations with another client about opening one in a convention center, and plans to roll out the concept to more schools.

"What we're looking at is standardizing procedures and recipes as well as equipment, so that from a process standpoint we can take a concept into other areas of the business, though it might not have the same name," Clark says.

The challenge is replicating concepts in spaces Aramark inherits from clients rather than those the company designs and builds from scratch like typical chain operators.

"We don't get a vanilla box that's 105 feet by 120 feet," Clark says. We have to develop concepts that are modular in nature to fit into the spaces we're given by our clients. The team here has spent the last nine months developing specs, learning what kind of space we need to devote to production, storage, serving area and so forth, and looking at different spaces from square footage parameters as well as throughput. Equipment needs will be different in a 2,300 sq. ft. space if you have 500 customers a day versus 1,500."

The team also set up brand standards for each market segment it serves so it can replicate concepts across its client list. "The documentation is in place so when projects come in we can put that knowledge to use," Clark says, "and we're refining it to meet the needs of each segment. For example, specifying a different equipment package for corrections versus some other segment."

The specs even include how many FTEs—full-time equivalents—a unit should have based on facility size and customer count. Ultimately, Aramark hopes that kind of consistency will help drive more throughput from ever-shrinking spaces and contribute more to the bottom line.

Taco Bell: Pursue New Dayparts
Rick Winfree, Senior Director of Engineering
Taco Bell Corp., Irvine, Calif.
Existing Units: 6,400 (1,300 corporate, 4,400 franchise, 700 license)
2010 Activity: 50

"We're trying to understand how to bring in more customers without giving away food."

We're very customer-transaction oriented," says Rick Winfree, senior director of engineering at Taco Bell, part of the Yum! Brands stable. "Our business has been pretty healthy the last few years, but everyone is into value right now and every aspect of value, so we're trying to understand how to bring in more customers without giving away food."

As part of the strategy to draw new and returning customers, Taco Bell has focused on menu development and the equipment needed for it. In 2009, the company completed its chain-wide conversion to the new Grill To Order (GTO) assembly line, a process begun in '06. The new equipment eliminates water and equipment such as steam tables on the assembly, saving not only on the equipment package itself, but also saving stores 2,500 gals. of hot water and 100 kW per day, Winfree says. "The timing to take these costs out of the system and improve our bottom line couldn't have been better."

Now the chain is aggressively looking to expand into additional dayparts. "It's no secret we're testing breakfast," says Winfree, "but we're also looking at afternoon and late night, where we've already had a lot of success. The challenge is expanding dayparts without spending a lot of capital."

That expansion, to be built on the GTO conversion, will happen in the next three or four years. "The utility savings were nice, but now we can expand the menu. The [GTO implementation] allowed us to do things like change our flour tortilla recipe to make it more authentic (and actually lower in cost) and bring in corn tortillas, which we've never had in our restaurants before."

And the company hasn't halted capital investment. "We're not averse to spending money if we can get it," Winfree says. "This year we're starting to aggressively upgrade our assets, something I think you'll hear from a lot of our competitors, too. We're making a lot of enhancements to both the outside and inside in terms of the look of the restaurants."

Between new menu development and an updated look for its stores, Taco Bell isn't sitting still in the battle for more customers.

Subway: Take Advantage of Conditions
Don Fertman, Director of Development
Doctor's Associates, Milford, Conn.
Existing Units: 32,000-plus
2010 Activity: 2,000 (1,000 U.S.; 1,000 int'l.)

"We're bullish on growth; we're fortunate to be in that position because of our primary values."

The QSR segment, normally recession-resistant, has been hit hard by this downturn, with segment sales down last year by about 5.5%. With unemployment rising into double digits toward the end of 2009, "the outlook is bleak in the near term," says Don Fertman, director of development for
Subway.

But you wouldn't know it by looking at the chain's sandwich shops. Operated by Doctor's Associates, Subway posted about a 13% gain in '09 new-store development and ended the year with same-store sales flat or even a little up compared to the prior year.

"We had a good year compared to many in the industry," Fertman says. "And there's been more good news in commercial real estate; there are more opportunities available to us that weren't available previously."

The pain experienced by the commercial real estate market has made it possible for the chain to renegotiate leases on better terms and for franchisees to find better space at lower lease costs than they could previously. Fertman says one franchisee told him he was going into a space for 80% less than the landlord wanted two years ago.

"We're trying to position ourselves so we can move stores into higher-impact locations," Fertman says, "like end caps and free-standing buildings." Chains with high brand awareness and a reputation for quality and service will retain customers who tend to hang onto their wallets in times like these, according to Fertman.

The other key in this economy has been value, he says, and Subway's $5 foot-long subs have helped the chain generate some $3.8 billion in sales by some estimates. "[Keeping] our customers happy is where we'll focus our strategy," Fertman says, which basically entails doing what they do best even better. The chain will look at possible menu additions where they make sense, but put even more effort into restructuring the existing menu to make it clearer.

Using the advantage of no cooking equipment, development will continue to focus on high-visibility and nontraditional locations such as airports, colleges and universities, and hospitals. Keeping an eye on the basics—quality, service and value—should help franchisees continue to remain profitable and keep customers happy.

That formula has helped the chain weather economic downturns before, which may be why Fertman has the confidence to conclude, "We're bullish on growth."
Swedish Medical Center: Offer Customers Value
Kris Schroeder, Administrative Director of Support Services
Swedish Medical Center, Seattle, Wash.
Existing Units: 7
2010 Activity: 0

"Hospital retail foodservice has long been viewed as a value proposition even by the public."

The economic downturn has been good news and bad news for the healthcare industry. On the plus side, even in a tough economy people need healthcare. The downside is that with money tight "capital funding has been minimal this year," said Kris Schroeder, administrative director of support services for Swedish Medical Center, Seattle, when we spoke with her in December.

The healthcare provider, which operates three hospitals in Seattle and numerous area clinics, recently broke ground on a fourth hospital in Issaquah on the east side of Lake Washington. The new 170-bed facility expects to open with about 80 beds and a medical office building in March 2012. Since most capital is tied up in the project, Schroeder is focused on improving and expanding the business she has.

"With the restaurant industry struggling, healthcare is a more stable bet in terms of foodservice," she says. "We're looking at holding our own with retail sales and patient feeding." Swedish is taking advantage of the current economic climate by listening to its customers. "Customers are looking for speed in our world, so grab-and-go is important to our staff," she says, "and also value and appropriate portion size. We've really heard how important value is to people."

Executive chef Eric Eisenberg has responded to menu trends by adding new stations in foodservice facilities, like a burrito station. To provide value, he and his staff are responding to customer requests by offering "bowls" with no tortilla, and smaller versions that serve as snacks or value meals. Similar adjustments are being made to other concepts.

"Hospital retail foodservice has long been viewed as a value proposition even by the public," Schroeder says, "so another way we're offering value is by expanding out to the community. Now a lot of people come for lunch from outside."

A pioneer of the room service concept in healthcare, Schroeder says a big challenge has been how to continue to offer choice along with value. "We've seen quick service offering premium items at the same time they're promoting a value menu, like [one chain's Angus burger]. We're trying to be more sustainable by buying more locally produced foods, so we're looking at how we can offer premium alternatives to value menus, like local grass-fed beef."

Making much of this possible, Schroeder says, has been a concerted effort to reduce waste. The room service program reduced waste right off the bat, but that experience led her and the staff to track food waste in all areas, showing them how to manage production more efficiently. That let them offer value and choice.

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