Salad sales in burger segment should leave pizza ops green with envy

June 13, 2004

If your company is an independent pizza operation or a small chain, news of Pizza Hut's continued same-store sales gains this year may have you down.

But take heart, small fries. Over the past couple years, you've actually gained not only on the industry leader, but its nearest competitors.

According to a recent report released by Technomic Inc., a restaurant industry research firm based in Chicago, small chains and independents increased their overall pizza market share by 2 percent collectively. That gain led Citigroup Smith-Barney restaurant stock analyst Mark Kalinowski to write in recent investor newsletter, "Small chains and independents are gaining meaningful ground in few other segments in the restaurant industry." And when you understand that smaller pizza companies lost market share in 2002, that highlights, he added, just how "competitive the pizza sector can be."

But that's about where the good news stops. Technomic's researchers believe that, as a whole, the pizza industry will lose 1 percent of the total foodservice industry market share to other restaurant segments over the next five years. Some of this growth, in Kalinowski's opinion, will

Steve Coomes, Senior Editor

come from other concepts' ability to sell premium items such as salads.

If you've not been watching other restaurant sectors, take note: salads are hot, especially at McDonald's. The lean, green offerings are putting wads of green in Ronald's registers and leaving competitors green with envy.

You might want to do them, too, if you're not already—especially if the rumblings about the low-carb trend waning are real. Now that people appear to be backing off the "unbalanced diet" binge, it appears veggies, particularly in the form of salads, are getting more attention.

Pizza Hut already delivers bagged salads—smart, smart move—and Domino's Pizza is testing premium salads in some of its West Coast stores. Lots of independents and small chains are doing them, too, but I hear mixed results about their sales. To me that begs several questions:

1. Are your salads any good?

I've had both ethereal and abysmal salad experiences at two hamburger chains lately. The product was either really fresh, or really old and full of lettuce cores and other undesirable "fixings."

There's no reason for this, because assembling a salad to order is no more difficult than preparing a pizza or a hamburger (if all the ingredients are prepped ahead of time). Yet I see them prepackaged in most quick-service restaurants.

If you believe that having them packaged and visible to customers generates impulse purchases, then put a few out for show and then surprise the customer by saying, "Let me make a fresh one for you!" You'll make a memorable quality statement.

2. Are you marketing them effectively?

Not only is McDonald's advertising its salads, the detail devoted to their packaging and positioning is slick, eye-catching and relevant. Its "Go Active" meals include a salad, dressing, a pedometer and a walking tip booklet from fitness guru Bob Greene.

Such a treatment is likely too expensive for most pizza shops, but everyone should at least consider how they might, well, borrow some of those components.

3. Are they priced right?

The price range for premium salads at quick-service sandwich joints is $3.99 to $5.99. Any person paying those prices expects a meal-size salad, not a side salad.

If pizza operators were to consider serving such large salads, that could shift some customer purchases from pizza to salads, and every operator has to consider whether that's a good idea.

You also could position your salads as dinnertime add-ons, as does Pizza Hut, and generate incremental sales.

Methinks you can have it both ways: Emphasize meal-size salad sales at lunch, when pizza sales aren't that strong anyway, and push side salads at night, when pizza sales dominate.

Cheese prices to remain steady and above average

The cheese market continues to throw curves even experienced analysts are ducking. Compared to years when the sale of a single train carload (40,000 pounds) of cheddar blocks on the Chicago Mercantile Exchange sent prices soaring or plummeting, we have the spring of 2004 when just the opposite has solidified prices.

Throughout the past two trading weeks, movement of even a few dozen carloads in a single day hasn't budged prices. In fact, a record 107 carloads (nearly 4.3 million pounds) were traded in the shortened week following the Memorial Day holiday—but the price held firmly at $1.80, where it remains.

Normally that much cheese coming to market would crush prices, but it hasn't because buyers are taking all they can get. According to reports I've read, they see plenty of end-users who need it, so the buying spree goes on.

Why such cheese trading volume at the CME? A couple of factors could be at work.

1. Since cheese prices are so high, end-users don't want a lot of cheese on hand if prices crash. So cheese users appear to be keeping their inventories as lean as possible and ordering only when necessary.

2. Demand is clearly stronger this year than last, and even though cheese users are putting in smaller orders, cheese makers are betting they'll need it and keeping production high. And since demand remains high, prices remain high.

For now, anyway. The USDA's most recent Cold Storage Report, released June 9, said the nation's cheese stocks rose 6.4 percent (which represents tens of millions of pounds of cheese) over a year ago—their highest since October of 2000. The news didn't move CME prices at all on June 10, but the report likely has dairy-watchers' attention.

Where do cheese prices go from here? Most sources I talk to believe they'll remain firm for the near term but dip slightly as demand softens this summer. The standard fall price run-up should follow, however, when kids return to school and milk is shifted to cover their lunches.

That could spell trouble for cheese users, as some speculators believe another trip into the $2 zone is entirely possible. As of now, September milk futures are indicating a block price of at least $1.70.

Somewhere in the middle is the likely price.

Words to the wise: Use good portion controls and consider a price hike if you haven't already.

Topics: Commentary , Marketing

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