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Ideas That Will Shape Restaurant Performance in 2011 (Part Two): Expansion, Investments & Operations

January 25th, 2011 | Posted by retailblogadmin in Capital Expenditures | Labor & Operations

This post is the second in a three part series on ideas that will shape restaurant performance in 2011. Part three will follow next week.

Part Two: Expansion, Investments & Operations

Focus on Smart International Expansion

Going global no longer simply refers to McDonalds and YUM! battling for market share in China. Burger King’s new owners are making a big bet on growth in Latin America and Papa John’s is planning on adding more than 200 outlets in India. KFC is looking to invest more than half a billion dollars in Africa over the next three years to double their store count across the continent, from South Africa to Ghana. Several casual dining concepts are battling it out in the Middle East, including Darden’s entry and T.G.I. Friday’s continued push. Through this breakneck pace of expansion, chains are showing their agility in adapting to new markets, from tailoring menus to meet local tastes to developing new crops to source food locally. Look for testing to play a key role in ongoing innovation, with some of the most sophisticated chains looking to trial winning ideas from international markets back home in the United States.

Reviving Remodel Plans

Chains ranging from Hardee’s to Red Lobster have announced plans to substantially increase investments in remodels and refreshes. The National Restaurant Association recently announced that “41% percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months.” As restaurant traffic comes back, and given the lack of widespread interest in store count growth, expect this capital to increase. 2010 saw some of the lowest levels of growth in CapEx in recent memory, not only for restaurants, but across retail more broadly. Executing a ROI-positive remodel can be one of the biggest challenges confronting chains today – from minimizing disruption to customers and revenue to determining which elements of a restaurant merit improvement, expect a number of chains to continue testing remodel variants to drive the greatest bang for remodel bucks.

Ensure Operational Changes Don’t Harm Sales

While new products and advertising campaigns tend to get press coverage, most restaurateurs agree that efficient operations are the key to profitability.  Starbucks made waves in 2010 with a commitment to keep baristas focused on the customer by asking them to make only two drinks at a time.  Burger King focused on technology by rolling out new broilers that allow them to create products like the Steakhouse XT and the well-received BK Ribs.  Both changes are expensive (in time and money) gambles, and restaurants hope consumers will respond by opening their wallets.  But will customers respond?  As restaurants increase their focus on operations, we expect that more will turn to testing to ensure that investment both pay back and don’t have any unintended adverse effects on sales. Enhancements to drive-thru layouts, processes, and technologies are forecast in 2011 and lie at the sweet spot of a capital and operational investment that can drive big wins if correctly rolled out. Yet failure to correctly measure impact of drive thru changes can have significantly negative unintended consequences, as some have learned the hard way.

Continue to Part Three: Marketing

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