Restaurants Roll the Dice on Gambling Partnerships

In the same vein as national restaurant brands increasingly marketing to marijuana users as states continue to legalize the drug, the restaurant industry is aligning with sports betting to help boost revenue.

And with good reason.

The global sports betting market size is expected to grow at a CAGR of 10.1% and reach $140.26 billion by 2028, according to Grand View Research.

Sports Betting at the State Level

Approximately 30 states now allow some form of sports betting through retail or online sportsbooks. Specific rules still vary across states, but one area that remains unsettled is whether onsite sports betting in restaurants will become more widespread.

Even in states where sports betting is legal on your phone, most do not yet allow betting at restaurants. With that, many entities are looking to get in on the action.

The New York City Restaurant Association is one such group pushing hard for onsite betting. The association in late 2021 partnered with gaming company Elys Game Technology to develop a working model for restaurants once the practice is fully legalized. Like many other states, New York does allow sports betting, but does not have a framework in place for betting at restaurants. Also like other states, New York's restaurant industry is increasingly pressuring lawmakers to move ahead with implementing clear rules, reported Cheddar (Feb. 11). Full Story

With that, states appear to be taking a measured approach.

Last month, the Ohio Lottery Commission published five pages of proposed rules for sports-betting kiosks in Ohio bars and restaurants, including one rule that restricted establishments to two sports-betting kiosks, which drew criticism from bar owners.

Chains On Board

Buffalo Wild Wings has already teamed up with MGM Resorts to promote the use of MGM's smartphone gaming app in conjunction with brand promotions.

Additionally, interim Dave & Buster's CEO Kevin Sheehan said last year that the chain is going through a "new phase of innovation, growth, and value creation," and part of that includes sports betting.

Last week, Hooters of America announced an alliance with sports betting company Draft Kings and that it's close to completing a deal with PointsBet, another sports betting firm. Hooters guests receive special offers via a QR code or can simply visit the Draft Kings site and use a promotional code.

Appealing to the increasing number of sports bettors across the country presents "an opportunity to drive new customers into our restaurants," explained Sal Melilli, CEO of Hooters of America.

Further, Melilli expects the number of legalized-gambling states to grow, which would add sports betting to more Hooters nationwide, reported Forbes (May 3). Full Story

"The model is set. As fast as they become legal, the footprint is in place," he said. Food Institute Focus

Fried Food Demand Continues to Sizzle

Consumers are still loving all things fried.

Market research service Mintel Menu Insights found that the number of fried foods on U.S. restaurant menus rose 5% during the first three quarters of 2021. And with that figure in mind, repairs for restaurants' deep-fat fryers have doubled due to overuse, reported The Wall Street Journal (April 17). Full Story

Further, consumers are becoming more adventurous home chefs and nearly half of U.S. households now own an air fryer.

The Food Institute looked into what is driving this trend:

Comfort Food Consumption

"During the pandemic, many folks looked to comfort foods to provide comfort during an extremely stressful, and long, period," Dr. Joan Salge Blake, a nutrition professor at Boston University, told The Food Institute.

"It doesn't surprise me that some folks still want conventionally fried foods when dining out, said Blake. "It could be because it's a staple in their present lives or that it's a flashback to memories of consuming traditional fried foods pre-pandemic."

Air Fryers Popular with Health-Conscious Consumers

Health-conscious consumers are also looking to get their fried-food fix and air fryers have been their appliance of choice.

More than 40% of U.S. consumers now own air fryers, according to Mintel.

Blake noted that cooking with an air fryer allows consumers to cook up crispy, fried foods, that are healthier and quicker to prepare than traditional frying methods.

"The pandemic also caused COVID cooking fatigue," said Blake. "Any appliance that helped consumer prepare dinner more easily was a winner."

With a high percentage of consumers still working from home, many are still cooking more, but are becoming more conscious of what they are making.

"After being locked down and indulging in comfort foods, consumers are pushing to get active and moving again to support their health journey goals, but without giving up their newly discovered or rediscovered love for fried foods," Rifle Hughes, innovation and strategy business partner at JPG Resources, told The Food Institute.

"Consumers have become more savvy bringing their own creations to the table," said Hughes. "We'll continue to see this expand as more consumers explore their culinary skills." Food Institute Focus

Kroger's Restaurant Supply Business Could Disrupt Foodservice Distribution

Kroger is trying its hand at foodservice distribution.

The grocer recently launched a restaurant supply business that offers next-day delivery to businesses in the greater Dallas area.

Kroger Restaurant Supply offers an alternative to ordering in large quantities on a set schedule, according to a press release. The service offers "competitive wholesale pricing" by the case or unit for delivery seven days a week.

The news comes as supply chain bottlenecks impact nearly every restaurant and could be particularly helpful for small and independent restaurants.

The Food Institute explored what impact this development could have on the foodservice distribution industry.

How Could this Move the Market?

"The foodservice distribution industry has evolved over the decades, proving resilient to market entrances, territory expansions, consolidations, etc.," foodservice industry veteran Taylor Crown told The Food Institute.

Crown noted that, should the move offer customers different sources of value or a highly differentiated experience, it could affect the market.

"Conceptually there is something interesting about a 360 approach to food— traditional retail grocery, prepared foods, foodservice-in-retail, to foodservice distribution; but truly to be compelling it must add incremental value to B2B customers," he said.

What About Expansion?

For now, the service is limited to businesses in the Dallas area. Should it expand, it could create new distributor partners for suppliers, Crown noted, but it really depends on the approach to national brand, private label, product assortment and category management.

"Ironically, Dallas is among the most well served markets in broadline foodservice distribution," he said. "Should value-creating innovations survive there, in the crucible of such a competitive market, expansion may be forthcoming."

"Grocerant" Trend Development

The move also builds upon the "grocerant" trend that picked up during the pandemic in which restaurants acted as grocery stores and vice versa.

"Grocery and restaurants compete for the same share of stomach, particularly now that so many grocers have become ‘grocerants,' with extensive prepared food and a restaurant-style sit-down experience," Scott Moses, Head of Grocery, Pharmacy & Restaurants at Solomon Partners, told The Food Institute.

Moses compared Kroger's expansion into restaurants to the likes of Costco, BJ's, Sam's and Restaurant Depot.

"This is another manifestation of America's broad food retail landscape, which goes far beyond supermarkets, and clearly demonstrates continued convergence of grocery and restaurants," he said. Food Institute Focus

Store News:

• McDonald's plans to reward employees based on customer shoutouts. Under the company's "Thank You Crew" initiative, franchisees will provide rewards to employees who go above and beyond and provide extra special service, reported Restaurant Business (April 20). Full Story
• Meanwhile, McDonald's is set to test Volvo electric trucks for restaurant delivery in Canada. The company plans to transition its fleet to lower-emission vehicles "where feasible" to service Canadian restaurants, reported Restaurant Dive (April 14). Full Story
• Additionally, McDonald's expects the McPlant to be a part of the brand's reimagined customer dining experience, reported Fast Company (April 27). Full Story
• Chipotle Mexican Grill announced a new $50 million venture fund that will focus on restaurant tech. The "Cultivate Next" initiative will focus on tech companies in the "seed to Series B" stages, reported TechCrunch (April 19). Full Story
• Meanwhile, Chipotle is testing Garlic Guajillo Steak at 102 participating restaurants. Full Story
• Additionally, Chipotle is seeking more U.S.-made packaging, due to rising freight costs that are making it too expensive to source from overseas. The chain said it may also invest in a domestic packaging operation, reported Restaurant Business (May 4). Full Story
• Yum China launched its first KFC Green Pioneer stores in Hangzhou and Beijing. Full Story
• Jack In The Box is testing Miso Robotics' automated kitchen technology products Flippy 2 and Sippy at one of the chain's standalone restaurants in San Diego, reported Forbes (April 26). Full Story
• Chili's recently expanded the deployment of its Rita robot server to 51 restaurants, reported Forbes (April 27). Full Story
• Teriyaki Madness signed a 35-unit franchise deal. Full Story
• Ghost kitchen network Reef announced Thursday its intention to acquire a stake in pizza concept 800 Degrees Go. The move expands the concept's previously announced plan to open 500 pizza outlets through Reef in five years, reported Nation's Restaurant News (April 28). Full Story
• Grubhub is opening its first-ever virtual restaurant with MasterChef. The concept will be available as a ghost kitchen add-on revenue stream for current Grubhub customers and will feature dishes from MasterChef alumni, reported Nation's Restaurant News (April 29). Full Story
• Popeyes Louisiana Kitchen is introducing a new Buffalo Ranch Chicken Sandwich, reported Nation's Restaurant News (May 3). Full Story
• Bloomin' Brands Inc. is introducing a smaller Outback Steakhouse prototype as it anticipates U.S. growth, shaving as much as 16% off the typical unit's size, reported Nation's Restaurant News (April 29). Full Story
• The Halal Guys announced a partnership with the New York Yankees. Full Story
• DoorDash announced Monday the launch of a delivery-focused food hall-like concept in Brooklyn. It will be the first location within the DoorDash ghost kitchen network to have permanent indoor seating and will offer five national and local brands, including Pies ‘n' Thighs and Little Caesars, reported Nation's Restaurant News (May 2). Full Story
• Starbucks said it will hike wages for tenured workers and double training for new employees as the company and its CEO, Howard Schultz, seek to beat back the union push from its baristas. However, the coffee giant will not offer the enhanced benefits to workers at the roughly 50 company-owned cafes that have voted to unionize. Such changes at unionized stores would have to come through bargaining, reported CNBC (May 3). Full Story
• Panera Bread expanding upon its successful Coffee Club subscription service with the launch of the Unlimited Sip Club, which offers unlimited self-service beverages including coffee, tea, and fountain beverages, reported Forbes (May 4). Full Story
• Papa John's plans to open as many as 1,800 more stores by 2025, reported Restaurant Business (May 5). Full Story
• CKE Restaurant Holdings, the parent company of quick-service brands Carl's Jr. and Hardee's, has announced a systemwide plan to overhaul their restaurants, including extensive remodeling that will involve some $500 million in investments, reported Nation's Restaurant News (May 10). Full Story

Executives on the Move:

• McDonald's Canada has named Michele Boudria its first ever female president and CEO. She succeeds Jacques Mignault, who will lead the McDonald's business in France effective June 1, reported Meat+Poultry (April 25). Full Story
• Whataburger has named Peggy Rubenzer as its chief people officer, reported Restaurant Business (April 20). Full Story
• Taylor Bennett has joined Subway Restaurants as Vice President of Non-Traditional Development, reported Nation's Restaurant News (May 2). Full Story
• Denny's has named Kelli Valade as CEO and president, effective June 13, reported Nation's Restaurant News (May 3). Full Story
• Zaxby's appointed Michelle Morgan as first chief people officer. Full Story

Restaurants Grapple with Rising Chicken Prices

Chicken is not as cheap as it used to be.

USDA reported prices for skinned boneless chicken breasts in the Northeast region were ranging between $3.30 and $3.35 per lb. on May 4. Food Institute records showed this was up from the $2.90-$2.95 range reported as recently as April 13. Increases were also reported for chicken legs and leg quarters, with wing prices the only category tracked to exhibit a price decrease.

Because of this, some restaurants have had to raise prices on certain items.

"While the natural reaction by restaurant owners is to raise prices, that can backfire in an economy where consumers are struggling with growing inflation," Dan Rowe, CEO of Fransmart told The Food Institute.

With that said, we took a closer look at what chains are doing to cope:

Restaurants Raising Prices

"Given high prices on all types of commodities, operators have been taking prices up liberally and frequently to accommodate," said Joe Pawlak, managing principal at Technomic.

For example, Noodles & Company is adding a temporary $1 surcharge to all dishes featuring chicken to fight against the rising costs, reported Restaurant Business (April 28). Full Story

The pasta chain, where half of all customers order a dish with chicken, expects to pay 80% more for the protein during the second quarter than it did in 2021.

"We view this temporary surcharge as one-time and fairly short-lived as the market is expected to normalize reasonably soon," CFO Carl Lukach told analysts, according to a transcript.

Noodles & Co. is not the only chain raising prices. The price of a Popeyes' crispy chicken sandwich at one New York City location jumped nearly 13% to $4.49 in late March, according to a Reuters review (May 5). It had been $3.99 since its launch. Full Story

In the U.K., Peri-peri chicken chain Nando's saw ten chicken wings and two sides rise from £14.95 ($18.79) to £16 ($20.11) since November. KFC's prices have risen in the U.K. as well, with the ‘supersize' meal rising from 60p ($0.75) extra to ($1.24) extra, reported The Daily Mail (May 1). Full Story

As inflation continues to rise, consumers are starting to take notice.

"Until perhaps a couple of months ago, consumers have not reacted much at all to raising restaurant menu prices," said Pawlak. "However, consumers – now with higher gas prices and other items spiking in costs – are starting to react. We are noticing some visit frequency start to decline and loss of customers particularly in lower income groups."

Wing Prices Down

Meanwhile, fast casual chain Wingstop said it is finally starting to see "meaningful deflation in wings," reported Restaurant Business (May 4). Full Story

In 2021, wings were going for $3.22 a pound on the spot market, now the chain is paying $1.64 per pound, Wingstop CEO Michael Skipworth told analysts during the company's most recent earnings call.

"We anticipate significant deflation in our core commodity, bone-in wings," Skipworth said. "This significant deflation in wing prices has bolstered restaurant-level cash flows." Food Institute Focus

Restaurant Sales on the Upswing in Early May

Restaurant sales and traffic growth improved for the second consecutive week as of May 11, the best results since the first half of March, according to Black Box Financial Intelligence. Despite the improvements in traffic growth, the industry has experienced nine consecutive weeks of negative same-store traffic growth year over year.

Average check continues growing at a rapid pace and is a concern for guests who are contending with record-high inflation levels. The industry segments that experienced the largest year-over-year increase in average check during April were family dining, fast casual and fine dining.

The breakfast daypart had the fastest comeback in sales growth year over year during April, outpacing late-night in year-over-year sales growth for the first time since March of 2021. All regions of the country experienced positive sales growth during April. The top performing regions based on sales growth were New England, California and the Mid-Atlantic. The regions with the weakest sales growth during the month were the Southwest, Texas and the Southeast. Full Story

Selected Results:

• The Coca-Cola Co. reported quarterly earnings that topped analysts' expectations as consumers drank more of its namesake soda, Powerade and Costa coffee. Net sales rose 16% to $10.5 billion, topping Wall Street's expectations of $9.83 billion. Organic revenue, which strips out the impact of acquisitions and divestitures, climbed 18% in the quarter, reported CNBC (April 25). Full Story
• PepsiCo reported quarterly earnings and revenue that topped analyst expectations, as consumers paid more for their Doritos, Quaker Oatmeal and Gatorade. Net sales rose 9.3% to $16.2 billion, beating expectations of $15.56 billion, reported CNBC (April 26). Full Story
• Chipotle Mexican Grill's quarterly earnings and revenue topped Wall Street's estimates, fueled by consumers' willingness to pay more for their burritos and bowls. Net sales rose 16% to $2.02 billion, topping expectations of $2.01 billion, reported CNBC (April 26). Full Story
• McDonald's reported better-than-expected first-quarter earnings and revenue, fueled by price hikes in the U.S. and strong international sales growth. Net sales rose 11% to $5.67 billion, beating expectations of $5.59 billion, reported CNBC (April 28). Full Story
• Restaurant Brands International posted positive global same-store sales for its Tim Horton's (+8.4%), Burger King (+10.3%), and Firehouse Subs (+4.2%) brands, but also a loss for Popeyes Louisiana Kitchen (-3%) in first quarter 2022. Full Story
• Yum Brands reported quarterly earnings and revenue that missed analysts' expectations as lockdowns in China weighed on sales. Net sales rose 4% to $1.55 billion, falling short of expectations of $1.59 billion. Global same-store sales rose 3% in the quarter, reported CNBC (May 4). Full Story
• Comparable sales at brands owned by Brinker International increased 13.5% in the company's fiscal third quarter when compared to the prior year, with Chili's sales up 13.5% and Maggiano's Italian Grill sales up 50.5%. The company said higher traffic, price increases, and the purchase of franchisee-owned locations helped prop up growth for Chili's, while Maggiano's benefitted from higher dining room and banquet sales. Full Story
• Domino's Pizza missed Wall Street estimates for quarterly U.S. same-store sales on Thursday, as the fast-food chain struggled to bring in revenue due to a broader reopening of dine-in restaurants and labor shortages. The world's largest pizza chain said U.S. same-store sales decreased 3.6%, while analysts polled by Refinitiv on average had expected a 0.6% decline, reported Reuters (April 28). Full Story
• Cheesecake Factory staffing levels have risen above pre-pandemic numbers and same-store sales for the casual-dining brand are up 20.7% for the first quarter of 2022, reported Nation's Restaurant News (April 29). Full Story
• Sweetgreen reported widening losses for its first quarter, but sales jumped 67% to $102.6 million as workers returned to their offices and resumed their old lunchtime routines, reported CNBC (May 5). Full Story
• El Pollo Loco Holdings reported first-quarter sales that beat expectations thanks to a limited-time shredded beef birria menu item. Systemwide same-store sales were up 7.8% for the quarter, and that momentum has continued into the second quarter, offering same-store sales growth of 12.4% through April 27, reported Nation's Restaurant News (May 6). Full Story

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Source: Datassential, Dessert's Sweet Spot April 2019