Danger signals: rapid expansion, soft sales – food service sales – column
Danger signals: rapid expansion, soft sales
Not so long ago we discussed the winter’s soft food-service sales in this space and asserted that blaming the weather was a lame excuse. But the jury was still out on the root causes pending the advent of spring and presumably better weather.
Now we have gone through a few months of basically delightful spring weather in most areas around the country. Yet sales are softer than ever before–perhaps proving that the winter slump was related to other factors in addition to the admittedly wretched weather in key geographic areas.
What are those factors plaguing the industry and threatening to turn 1985 into a disappointing year? Nobody has the absolute answers or can precisely forecast the future, but here are some suggestions.
As interest rates drop, chains and franchisees alike are loosening up on expansion and in many cases are opening more units than they can properly control or manage. The most dramatic manifestation is the idea that a new chain or concept must saturate one market after another as quickly as possible to block competitors from making headway. That umbrella coverage has given chains better advertising penetration at lower cost, but the penalty of uncontrolled unit growth is not worth the price.
The consumer’s reaction to a weakening of management in the field and to resultant service and quality declines in all segments is simply not to eat out as much–or at least not to eat out as much in particular places.
Besides the thinning of manager ranks, caused by overexpansion, many of those same chains do not have the executive management depth and capabilities at headquarters to handle the breakneck launching of new units.
Certainly those chains would be well-advised to concentrate more on boosting individual unit controls and volumes while they expand at a far more moderate pace.
Another critical factor is the customer perception of price-value–or the lack thereof. While food-service chains continue to raise menu prices by at least 3% to 5% annually, supermarkets are holding the line or even dropping prices. The result is a relative surge in supermarket traffic over the past several months while food-service traffic is flat. Customers may not consciously know which prices are going up or down or by how much, but enough of them can sense the trend to make a difference.
It is true that consumer spending has been down this year. But when we see overall food spending rising and supermarkets slightly widening their market share over food-service operators’ 37% estimated share of food dollars, that is a severe warning signal.
In simple terms, there are too many food-service concepts and too many new restaurants opening all the time, leaving the customer with endless choices among convenience stores, supermarkets and more food-service concepts than anyone can track. It makes sense to pull back and re-evaluate the endless expansion that could be the road to oblivion for some chains.
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