Hunger Games: Strategies for Growing in the Hourglass Economy

Hourglass Economy Discussion
Hunger Games
Strategies for Growing
Jon Weber, L.E.K. Consulting
in the Hourglass Economy

Jon Weber
Vice President

© 2013 L.E.K. Consulting LLC. All rights reserved. 1

Purchasing power shifting to the top and bottom is
creating an hourglass economy, which will persist
Change in percent of households in income brackets (2007-2011)
PPT change Key drivers of the hourglass
1.5
1.2
economy
1.0 • Globalization
0.6
0.5 • Middle-class job opportunities
declining
0.0
• Technological change requiring
-0.5 specialized, high paying skills

-1.0

-1.5
Successfully adapting
-1.7
-2.0 to this long-term
<$30,000 $30,000-$69,000 ≥$70,000 phenomenon can help
deliver growth

Note: *Real median U.S. household income is in 2009 dollars
Source: U.S. Census, Bureau of Labor Statistics, L.E.K. research and analysis

Effects of the hourglass can be seen all around us …
“Deal” Channels
Daily deal site revenue has
grown 304% from ‟07-‟12,
Factory Outlet Growth reaching ~$1.7B in the U.S. Premium / discount grocery revenue growth
U.S.-based outlet stores In 2012**, Whole Foods and Dollar General
generated sales of $24.3B in experienced comp store sales growth of 8.7%
2012*, up from $16.5B in 2007 and 5.3%, respectively, while Safeway
experienced growth of 1.3%

Significant
evidence of
consumers
spending more Premium Price Increases
Promotion Proliferation
for premium and Price of Starbucks‟ premium “Clover”
84% of shoppers indicate they value coffee raised by 23% from $1.75 to
“usually” or “only” buy $2.15 in 2012
clothing on sale

Department Store Squeeze Luxury Retailer Comp Store Increases
Lululemon and Neiman Marcus reported
Apparel sales in department stores fell 1.5%
comp store sales growth of 18% and
from 2006-2011
5.4%, respectively, from 2011 to 2012^
Note: * Calculated September 2012 and forecast through rest of year; ** Sales as of the end of FY2012 for Whole Foods and as of 3Q:2012
for Dollar General and Safeway; ^ As of Q3:2012
Source: IBISWorld, Responsys, BIGinsight, Nielsen, Euromonitor International, Value Retail News, Boston Business Journal, Dallas News,
Company websites and annual reports

… and the food industry is no exception
Aggregate food at-home spend by Aggregate food away-from-home spend
household income (2007-2011) CAGR by household income (2007-2011) CAGR

3.0% Top 20% 0.3%

2.2% Middle Class -1.4%

4.1% Bottom 40% 1.9%

Source: U.S. Bureau of Labor Statistics

As a consequence, restaurants at the top and bottom
are outperforming those in the middle
Comp store sales growth by restaurant type (2010-Q1:2012)
Percent
6 6 6
6
5
4 4
4 3
3 3 3
2
1 1 1
0

-2 -1
-2
-4
2010 2011 Q1:2012
Chains across
the spectrum
can benefit QSR Fast Casual Family Casual Fine
from strategies
Low-end High-end
that embrace
the hourglass

Source: GE Capital Franchise Finance, QSR Magazine, Nation‟s Restaurant News, L.E.K. analysis

A number of strategies can help you drive growth in
this environment
•
1 Add items that appeal to the top & bottom of the hourglass

2 Be the best at what you do - Get more “signature items”
•
Product
appeal
•
3 Co-brand to elevate products to star status

4 Everyone is snacking; “grab-and-go” get this business
•

Environment •
5 Adapt to the evolving consumer

Geography 6 Grow internationally – wealth is growing faster outside the
•
U.S. than in it

1 Items that appeal to consumers’ value and premium
needs are critical to winning in the hourglass economy
McDonald’s Panera Bread
McChicken Angus Deluxe Smoked Turkey Breast Roasted Turkey Artichoke
Price
Points
$1.00 $3.99 $5.99 $8.59
Enable
consumers to
trade-up /
down and add-
on / take-off

Menu
Breadth

Source: Company websites, Grub Grade

1 Doing this will help drive traffic, and avoid the “veto
vote” (of which there are many)
Last dining experience at restaurant Last dining experience at Frequency of eating lunch or
included children under 10 restaurant was with a group* dinner at a restaurant**
% of respondents % of respondents % of respondents
100 100 100
100 100 100

80 80 80

60 60 60
47 47

40 40 40
20
20 20 20
11

0 0 0
18-34 35-54 55+
Low income High income Alone
(<$25K annually) (>$75K annually) With children
With peers
Note: *Includes peers / friends / family >10 years old
Source: L.E.K. Restaurant Consumer Survey

1 Among affluent consumers specifically, innovation
with new and different flavors are important traffic
drivers Continuous innovation is critical
All affluent These
consumers • New and different flavors that are on-trend items
often
• Menu items that signal quality
43% of affluent garner a
consumers prefer • Ongoing “renewal” that drives interest / traffic premium
price
restaurants that
offer innovative
flavors and Examples
ingredients vs.
27% of working Fresh avocado Korean BBQ Tacos „Shroom Burger
class consumers

Source: Technomics

2 Signature items (those that are truly different and
craved by consumers) are a key driver of traffic
Importance of a Signature Menu Item in Driving Traffic
% of respondents that cited signature item as a top three reason for visiting a restaurant

35 32 31 31
30 27 26 26 25
25

20

15

10

5

0


2 Signature items are needed across the menu
Appetizers Entrees Desserts

   Do you
really
have
enough
signature
Salads Sandwiches Beverages items on
your

  
menu?

Consumers are very discerning, with 63% of low income and 49% of
affluent diners viewing eating out as a special treat, which makes
signature items more important than ever
Source: L.E.K. analysis, Technomics 11
© 2013 L.E.K. Consulting LLC. All rights reserved.

3 Use others’ brand power to create star products that
stand out to each end of the hourglass
Co-Branding

Taco Bell & Doritos
Dunkin Donuts & Oreo

Applebee’s & Weight
McDonald’s & Newman’s Watchers
Own Coffee

On average, these items are priced at a ~35% premium
Source: Company websites, Nation‟s Restaurant News, Loudon County KFC, The Impulsive Buy, L.E.K. analysis

4 U.S. consumers are snacking a lot …

U.S. daily snacking frequency, 2009 vs. 2012 Of the time spent eating, the percent which is spent
Percentage of consumers eating and performing other tasks
Percentage
~2 snacks per day ~3 snacks per day 100
100 3% 0% 2% 100
6% 7+
90
24% 5-6
80 80
3-4 Time eating only
70 43%
1-2
60 None 60
50
40 69% 40
Time eating
30
49% and performing
20 20 other tasks
10
0 3% 0% 0
2009 2012

Source: Symphony U.S. Consumer Snacking Survey

4 … across demographics and throughout the day

Estimated Caloric Intake from Snacking* U.S. snacking habits by time of day, 2009 vs. 2012
Percentage of consumers
Percentage 40 39%
100 34%
35

30 2009
80 26%
2012
25 22%
60 21% 21%
20
16%
40 15
11%
26 24 23 10 7%
20 4%
5
0 0
<$25,000 $25,000- ≥$75,000 Early Morning Afternoon Evening Late
Morning Evening
$74,999

Ways to attract snacking consumers: offer compelling snack items; extended hours; portable
packaging; fast in-and-out service
Note: * Calories from snacking includes food consumed outside of traditional meal times of breakfast, lunch and dinner as indicated by
respondents
Source: Bureau of Labor Statistics, U.S. Department of Agriculture, Just-Food.com, All One, L.E.K. Analysis

5 Taste, convenience, and value are most important to
consumers, regardless of income …
Top three reasons cited for visiting a restaurant
% of respondents
High income ($75K+)
50 46 Low income (<$25K)
45
41 40
40 38
35
35
30 27
25
20
15
10
5
0
Great Conveniently Low prices /
tasting food located good value


5 …but high income consumers have a longer tail of
other factors affecting their preferences
Importance of criteria when selecting High income: other factors
a restaurant*
Low income 41 • Signature item they love
Taste,
quality, • Healthy options
and price
High income 34 • Clean and comfortable
environment
Low income 59 • Menu is large enough for a
group
All other
factors
High income 66
Continuously innovate…It is imperative
to stay current in all that you do – taste
0 10 20 30 40 50 60 70 trends, menu innovation, customer
experience and values, etc.
% of respondents
Note: *Respondents asked to pick top three important factors out of a total 21 factors when choosing a restaurant

6 Increasing wealth around the world is creating
significant opportunities for international growth
Size of worldwide middle class and above* EXTRA! EXTRA!
population (2009-30F)
Millions CAGR% Yum! Brands is the world’s largest restaurant
4,884 (2009-30F) company, with nearly 38,000 restaurants in over
5,000 120 countries
Central & S. America 31.5
4,500
McDonald’s currently operates over 33,000
4,000 restaurants in more than 119 countries
3,500 3,249
Applebee’s is the largest casual dining chain in
3,000 Asia Pacific 148.0 the world, with almost 2,000 restaurants in 15
countries
2,500
2,000 1,845 In 2012, Starbucks announced plans to open ~500
Sub-Saharan Africa 82.9 new stores in Asia in the next fiscal year, among
1,500 other international store openings
Middle East & N. Africa 49.3
1,000
Europe 1.2 In April of 2012, Johnny Rockets opened their
500 second restaurant in South America
North America (2.4)
0
Europe & North America‟s combined In 2011, Smashburger announced its first
2009 20F 30F international expansion, with locations to open in
share falls from 54% to 20% of the total
middle class and above population Kuwait, Bahrain and Saudi Arabia

Note: Latest presentation of data given in 2011; * Defined by Brookings Institution as households with daily expenditures between US$10-
US$100 / person in purchasing power parity terms; North America includes U.S. and Canada only; Europe includes the EU5, Russia,
Scandinavian countries as well as Eastern European countries; Asia Pacific includes China, India, other Asian countries as well as Oceania
Source: Brookings Institution, Company websites, The Seattle Times, World Bank

So …

• Embrace the hourglass … it is real and will persist

• Challenge yourself – are you really doing enough?

• Continually innovate

• Don‟t get caught in the middle


Hunger Games: Strategies for Growing in the Hourglass Economy

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (8)

En vedette

En vedette (19)

Similaire à Hunger Games: Strategies for Growing in the Hourglass Economy

Similaire à Hunger Games: Strategies for Growing in the Hourglass Economy (20)

Plus de L.E.K. Consulting

Plus de L.E.K. Consulting (11)

Hunger Games: Strategies for Growing in the Hourglass Economy