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When hashing out the reces-sion winners and losers inthe restaurant industry, you

can make some easy generalizations.Quick-serve restaurants and some fast-casual players did well, while casualchains and formal dining suffered.

Or, as Darren Tristano, executive vicepresident of Technomic Inc., Chicago,puts it: “Anyone with a check averageof $3 to $12 is probably doing OK.

“But when you hit that $12 mark,which is casual dining, that’s when youstart to see a drop-off.”

Of course, even within this $3 to $12check average, there are shades of suc-cess. The winner’s circle is clearly dom-inated by McDonald’s Corp. Salesgrowth in 2008, the heart of the eco-nomic morass, outpaced that of theprevious two years. Meanwhile, theQSR giant has tacked on same-store

sales growth each month this year at its13,000 U.S. locations, with a 2.5% risein the most recent quarter.

Interestingly, while the appeal of thedollar menu seems the natural linchpinof McDonald’s success, most of thecredit goes to its higher-price-pointinnovations, including the McCafé pre-mium coffee line and Angus ThirdPounders.

“While you can argue that the tim-ing may not be ideal for a $3 latte, evenif it’s a dollar cheaper than Starbucks,or a $4 premium hamburger, theseitems I think are new and differentiated,and have been received well by con-sumers,” says Tom Forte, director andsenior research analyst, restaurants, forTelsey Advisory Group, New York.

It hasn’t been an easy balancing act forrestaurants—communicating “value”while pushing innovation—but for some

operators, the recession has offered anopportunity to shine. Following is a snap-shot of three leading players—PaneraBread, Buffalo Wild Wings and Chipo-tle—and how they have managed togrow same-store sales alongside McDon-ald’s without sacrificing brand equity.

While company representativeswere not available for comment, it’sclear that they have a common com-petitive edge. “All three of those com-panies’ same-store sales are indicatorsof the health of the brand,” says DavidGeraty, president and CEO of GeratyInvestments, Eden Prairie, Minn., aninvestment advisory firm that special-izes in restaurants and specialty foodretailing. “That is a reflection of ahigher level of innovation going oninside those companies to keep brandsrelevant, approachable and to continueto meet the needs of consumers.”

R E S T A U R A N T

Panera, Buffalo Wild Wings and Chipotle shine with a focus on continuous improvement

By Samantha Ollersoller@cspnet.com

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The shtick: This fast-casual bakery-café [CSP—Aug. ’07, p. 65] pays homageto bread in a soothing, neutral-tonedenvironment. Customers come in forciabatta breakfast sandwiches and cin-namon-crunch bagels in the morning,chicken bacon Dijon panini and Frenchonion soup in the afternoon, and dark-roast coffee and free Wi-Fi in the evening.

Analysts say: “Panera is performingwell at breakfast, and it had the dualbenefit last quarter of having positivetraffic and positive same-store sales,which was a feat not many people in the

restaurant business exceeded,” saysForte of Telsey Advisory Group. “Theirsuccess is product-driven. From a prof-itability standpoint, they try to encour-age consumers to purchase the items inthe store with a better gross-profit mar-gin and that generate more gross-profitdollars, so they’ve done a great job ofadjusting their menu accordingly.”

BEST PRACTICESFocus on higher-gross-profit products.Salad sales rose 30% year over yearthanks to new chopped Cobb salad andbarbecue chicken chopped salad. Newto the menu: macaroni and cheese witha decidedly gourmet flair, with shell pastaenrobed in Vermont white cheddar.

Drive incremental sales. Individu-ally wrapped baked goods are nowplaced at each register. A new You PickFour program allows customer to pur-chase a baked good at a discounted

price with the purchase of an entrée,side and beverage.

Use quality to communicate value.Anew lettuce program trims one weekoff age of product; new cutting specifi-cations require that only the heart of ahead of romaine lettuce be served. OnePanera franchisee has been successfulat selling $16.99 lobster-salad sand-wiches. “This tells us guests are willingto spend significantly more money atPanera for a product they think is worththe money,” said CEO Ron Schaich.

Refresh, renew. Every Panera loca-tion is credited a certain sum each yearto spend toward refreshing the facility.

THE CHALLENGE“Can you keep it going?” asks Geraty.“Can you develop a process that’s partof the fabric of the organization andbrand that’s constantly upgrading theday-parts?”

Panera Bread Co.Richmond Heights, Mo.NO. OF LOCATIONS:1,362 restaurants in 40 states(60% franchised, 40% company-owned)ANNUAL REVENUE (2008):$1.3 billionSAME-STORE SALES (Q3 2009):+3.3% (company-owned);+2.5% (franchised)TRAFFIC TREND: +3.2%

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The shtick: This sports-themed barserves up chicken wings and 14 signa-ture sauces in a way that draws every-one from families of four to frat boysto white-collar warriors. “Wing Tues-days” and “Boneless Thursdays” pro-motions aim to bring customers induring the slowest days of the week.Patrons keep entertained with table-top games of Texas Hold ’Em and high-definition TVs showing all sports, allthe time. It’s a mix that has helpedBWW outperform the casual-diningcompetition.

Analysts say: “In this economy,people may be going to less sportingevents, but they still are watchingthem,” says Tristano of Technomic.“No one wants to be sitting athome—they want to be in the crowdwith the noise, atmosphere andexcitement. So [Buffalo Wild Wings]has been really able to do a very nicejob keeping the price points downand providing a very unique cus-tomer experience.”

BEST PRACTICESBroad demographic appeal. BWW hasfour day-parts, the biggest of which isdinner (5–9 p.m.), which contributesabout one-half of all sales. The remain-der is roughly split between lunch (11a.m.–2 p.m.), “chill out” (2–5 p.m.) andlate night (9 p.m.–close) periods.

From lunch through dinnertime,families visit to partake of the simplebar food and tabletop games that areBWW staples. “As the night goes on,this transitions to empty nesters andyoung professionals,” says Geraty ofGeraty Investments. “Then the late-night bar group is socializing, listeningto music and watching sports.” It’swhat the company refers to as the “You

Have to Be Here” experience.Dining in and out. Tristano cites

BWW’s three different dining options—takeout, dine-in fast-casual and full serv-ice at the bar—for part of its broadappeal. “Takeout is always such a greatincremental benefit to these restaurants,”says Tristano. “When you have a goodtakeout business and a dedicated locationfor the takeout inside the store and out-side with parking, that can add anywherefrom 10% to 20% to your top line, andyou’re just leveraging your existing costs.”

Renew, refresh.As of the third quar-ter, BWW had spent $19 million instore upgrades, which included

installing high-definition TVs andpatios in dozens of locations, with plansto spend an additional $20 million to$22 million in 2010.

Spreading its wings.Although wingprices have grown more than 40% in2009, BWW has been able to offset thiswith strong sales of higher-marginitems, such as Wild Flat Bread pizzasand the expansion of its nonalcohol-beverage menu into fruit-flavored“Lively Lemonades” and sodas.

THE CHALLENGEThe sports connection has its downfall—the fact that the NFL football seasonstarted one week later in 2009 trimmedBWW’s same-store sales in the thirdquarter by 40 basis points, according tothe company. Meanwhile, regional com-petitors are cropping up to challenge thechain’s chicken-wing crown.

Buffalo Wild Wings Inc.MinneapolisNO. OF LOCATIONS:615 restaurants in 41 states (65% franchised, 35% company-owned)ANNUAL REVENUE (2008):$422.4 millionSAME-STORE SALES (Q3 09):+0.8% (company) +1.9% (franchise) REVENUE TREND (Q3 09): +25%

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The shtick: Chipotle puts a gourmetspin on made-to-order burritos andtacos with an emphasis on naturallyraised, organic, hormone-free, sustain-able components. Restaurants have afunky industrial vibe, with exposedductwork and stainless-steel accents. Abeautifully straightforward menupromises countless customizability.

Analysts say: “They look at everyaspect—food and menu, people andfacilities—and ask themselves, ‘Howcan we do these few things better everyday, every year?’ ” says Geraty of GeratyInvestments. “That is a common themeof most of our great brands: They’refocused on continuous improvement,and are very passionate around thebrand and operations of the concepts.”

BEST PRACTICESSimple menu, unlimited options. It’s prettystraightforward: Would you like a bur-rito, burrito bol (sans tortilla) or taco?But factor in meat and bean choice, rice,vegetables, salsas, cheese, guacamole—you get the idea—and customers canenjoy 60,000 different combinations,according to the company.

This doesn’t mean Chipotle isn’t will-ing to tweak the formula. A “low-roller”menu tested single tacos, side salads,small cups of soup and combinationsthereof for customers looking to savemoney and calories; however, in its mostrecent earnings call, the company

Chipotle Mexican Grill Inc.DenverNO. OF LOCATIONS: 911 restaurants in33 states (100% company-owned) ANNUAL REVENUE (2008): $1.3 billion SAME-STORE SALES (Q3 09): +2.7% TRAFFIC TREND: –2.5%

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acknowledged that sales “are notstrong,” and it is mulling the test’s future.

Forte of Telsey Advisory Group con-siders this failure a positive sign, because“it suggests the consumer wants the incre-mental quantity for the additional price.”

Meanwhile, a new kids’ menu, in testin six markets, has found traction byoffering up small quesadillas, single tacosand a make-your-own taco.

Empower rising stars. “Their hugeimprovement this year has been onlabor,” says Geraty, a development hecredits to the chain’s restaurateur pro-gram, which awards highly engagedmanagers with greater responsibility overmultiple stores.

The program provides a career pathfor employees to move from crewmember to kitchen and service man-

ager, to apprentice, to general manager,to “restaurateur,” which serves as amentor to regional general managers.The company currently has 137 restau-rateurs mentoring 76 managers.

Get leaner and meaner. A new for-mat with a smaller footprint, reducedenergy consumption and moreergonomic workspace is still rolling out.Should this streamlined format signif-icantly cut investment costs—trim thetraditional $900,000 price tag to$500,000 or $600,000, for example—itcould open up opportunities forChipotle to expand in smaller markets,and enable it to compete with QSRsthat survive on lower volumes.

THE CHALLENGEDespite the marketing appeal of naturally

raised meat, it has been tough sourcingthe product during the recession.

Additionally, customers may con-tinue to have problems ponying upmore for premium burritos. Store traf-fic had fallen off 2.5% in the latest quar-ter, although Chipotle continues to farebetter than many of its QSR competi-tion in same-store sales growth.

“In this environment, when you finda consumer who’s willing to accept alower-quality product to take advantageof a lower price, then that’s not neces-sarily an ideal environment for Chipo-tle,” says Forte.

“Generally speaking, though, they’rea very well-run concept, and I thinkthere are still people who appreciatehigh-quality food at a reasonable pricethey can get from Chipotle.” �