2008 Restaurant Report Card

According to a new report by Technomic, the 500 largest U.S. restaurant chains registered slower growth rates of 3.4% in 2008. System-wide sales for these Top 500 rose to $230.2bn, up $7.6bn over the previous year. Sales growth the previous year had been 5.0%, and the downturn can be traced to the recession and slowed expansion by chains under pressure to cut back (1.8% expansion vs. 2.6% in 2007). The big growth areas were the limited-service Bakery Cafe, Coffee and “Other Beverage,” along with the perennial favorite, Hamburger. Panera Bread (16.2%), Starbucks (6.9%) and Burger King (6.6%) led the growth estimates. McDonald’s grew an estimated 4.4% on sales over $30bn).

Subway continued its domination of the expanding “Other Sandwich” classification with 17.1% sales growth on total sales of $9.6bn, far outstripping the 9.1% of the rest of the “Other Sandwich” chains combined, and making it the second-largest restaurant chain in the U.S. and pushing Burger King into third (followed by Starbucks and Wendy’s). Limited-service chains accounted for over 80% of all U.S. “fast food” restaurants, with the group expanding by 4.5%. The “Asian” category grew at 12% with the California-based Panda Express the leader at 14.6% growth on sales of $1.18bn. The “Fast Casual” category continued to expand, and the “Mexican” segment saw Chipotle Mexican Grill and Qdoba Mexican Grill posting robust system-wide sales growth (20.7% and 17.8% respectively). Chicken leaders were Wingstop (23.6% growth) and Zaxby’s (17.9%).

Full-service chains accounted for only 39% of all U.S. restaurants, with the group growing at an anemic 0.9% rate. Only the “Asian” sub-category of this group showed robust growth of 9.3% with the leaders Arizona-based P.F. Changs China Bistro (8.7% growth on sales of $928MM). The real shocker, though, was in the "Varied Menu" category, which fell from 5.4% growth the prior year to a paltry 1.5%. Fast casual chains took much of their market share in the “lunch” day part, along with unit closures and retailers offering dinner options. Only the Italian sub-segment showed promise (3.4%). Mexican, Steak and Seafood all were below-average with sales declines of 1.8%, 0.7% and 0.4% respectively. Family-style restaurants had modest growth of 0.5%.

It’s not surprising that the strong got stronger, with the top 10 fastest-growing chains’ sales accounting for $4.9bn (24% more than 2007) and with unit counts up 22%. Four chains with sales above $2bn had double-digit growth, including Subway (17.1%), Panera Bread (16.2%), Chick-fil-A (12.2%) and Olive Garden (10.2%). Of the four, only Olive Garden is a full-service chain. The scale of performance also was enormously varied, with Buffalo Wings & Rings showing an 89% growth, while Bennigan’s Grill and Tavern suffered a 33% sales decline following its bankruptcy and closure of many outlets. Only 56% of the Top 500 restaurant chains had at least nominal sales increases, while 213 suffered sales declines (vs. 129 the year before). International growth outstripped US levels significantly, up 13.4% overall vs. 3.4% domestically. International unit growth outpaced domestic growth 9.9% to 1.8%.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Save Us From the CEOs (Part 2)

It seems Whole Foods CEO and founder John Mackey can't leave well enough alone.

Mackey got himself into trouble in the past for bad-mouthing rival Wild Oats Market, sinking so low as to post derogatory remarks about Wild Oats pseudononymously over the Internet. The general opinion was pretty negative: "come on, John, if you have something to say, say it with your own name!" This was followed by a strange about-face: Whole Foods bought Wild Oats.

Now Mackey has written an op-ed piece criticizing the Obama health care reform plan in that bastion of conservative boilerplate, The Wall Street Journal editorial page. The political view from the Journal's opinion pieces is Hobbesian moving slowly into Rockefeller, Sr. and J.P. Morgan. The piece isn't total Robber Barron screed, but it attacks the administration's plans to insure everyone through some kind of government-monitored national health insurance. That's the kind of thing that gets most conservatives coughing up blood, and many in the business world predicting the end of civilization as we know it. No one should be surprised, then, that Mackey's hardly alone in the food industry for opposing health care reform (though interestingly Wal-Mart has come out behind the Obama initiative).

While Mackey's "Eight Points" op-ed piece isn't as far to the Right as much of the Journal's opinion pieces, it places his personal thinking above that of his customers. Food knows no political stripe, but the Whole Foods customer tends to be more liberal and progressive. Slamming efforts by a popular new president to fix the health care mess is the kind of "no win" situation that cooler heads would avoid. After all, what the hell does Mackey know about health care costs and how to fix them? There is no evidence the new health insurance system will prevent the "high deductible" health insurance Whole Foods gives its workers, but there's plenty of evidence that kind of solution won't work for many who aren't as young and healthy as his workforce is. The "elephant in the room" with health care is the sober fact that a minority of very sick Americans use up a majority of our health care dollars.

This kind of piece might be interesting coming from one of the insurance company CEOs, but not a quirky grocer. But it gets worse:

Recent scientific and medical evidence shows that a diet consisting of foods that are plant-based, nutrient dense and low-fat will help prevent and often reverse most degenerative diseases that kill us and are expensive to treat. We should be able to live largely disease-free lives until we are well into our 90s and even past 100 years of age.

While it's true that eating less meat is probably a good thing, predicting it will lead to us passing a century of life is, well, reckless. It's the kind of over-promising that got the organics movement into trouble, to the point that a majority of consumers don't believe the claims that organic foods are better for us. Recent studies, in fact, seem to show no difference in nutrition between organic and conventional foods, and very little pesticide residue.

Oops.

The results of Mackey's intemperate words have been a firestorm of protest, including calls to boycott Whole Foods. Company insiders scoff at this, telling reporters about their 70,000 fans on Facebook and 600,000 followers on Twitter being "the highest of any retailer." But the boycott's Facebook page already has 13,000 members. Yet the raw numbers are really beside the point and show the tin ear the chain has for the opinions of their customer base. Does anyone remember Chesar Chavez? Boycotts can really hurt business, and Whole Foods is frankly struggling. The Great Recession isn't the time to have a wag's nickname like "Whole Paycheck." Consumers tend to see the chain as pricey and even elitist.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Unilever Jumps into Restaurant Licensing

Unliever just inked a deal with restaurant chain P.F. Chang parent company China Bistro for prepared P.F. Chang-branded Asian frozen meals. Unilever attributes its desire to grow its licensing program to having successfully launched licensed Bertoli Frozen Italian Skillet Meals in 2005.

This is quite surprising news, since usually Unilever is very conservative about licensing, and has for the most part eschewed licensing its own brands to other categories. But it goes to show that retail extensions are here to stay with brands big and small.


Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Smaller Is Beautiful

US CPG houses in general have been shedding brands for some time, and food marketers plan on sticking with that model in the current economic downturn. Kraft Foods Inc., the largest U.S. food maker, is dropping Handi-Snacks pudding in favor of its more-profitable Jell-O brand. Heinz has vowed to drop two items for each new one it introduces, with long-term cuts between 15-20% within 3 years. These follow a 50% decline in products from 2002-2006. Sara Lee plans on cutting their product lines 8% this year.

The tactics likely will not adversely effect consumers, since grocery shelves currently are weighed down with 50% more SKUs than a decade ago, often made up of new versions, flavors and sizes of existing lines. Line extensions have been a lazy way of growing brands for a long time, but pruning existing products is not enough for some manufacturers: J.M. Smucker Co. picked up Procter & Gamble’s Folgers coffee, Jif peanut butter and Crisco shortening as part of P&G’s downsizing of its portfolio. Other slimmer companies include Lance, Inc. who added 400 items when it purchased bankrupt Archway cookies, but has trimmed its entire portfolio to 350 total. Fiscal 2008 sales were $852.5MM, up 12% as a result.

Since it’s not uncommon for 20% of any company’s products to generate 80% of profits, eliminating SKUs reduces production costs, allows concentrating marketing dollars on successful lines, and by extension, cuts slotting fees. There are occasionally reprieves, though, for brands headed to the executioner’s block. Fanatical lovers of Kellogg’s Hydrox cookies used an online campaign to win at least a temporary return of the line, though MillerCoors decision to drop “malternative” malt-based Zima was met by silence. And cuts can reduce top-lines sales, often the chief yardstick used by Wall Street for rating publicly-held CPG companies. When Kraft made these cuts, sales unit volume fell 5.2% in the following quarter, though Kraft claims only 1.5% was due to the changes, with the remainder a reaction by consumers to higher prices and reduced retailer inventory.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Private Label vs. National Brands

Private Label has peaked in our estimation.

But the media hasn't gotten the message.

Despite all the hoopla from the Private Label Manufacturers Association (whose position is, guess what? that private label is the Next Big Thing), the increase in private label purchasing has leveled off or even declined. And in some categories like personal care and children's products, it never really caught on. Seems when it comes to our appearance and our kids, we're worth the extra money for the brand name.

Another reason for the stall is that private label products are primarily about lower prices. Despite all the bull, most consumers say they buy house brands because they're cheaper. The co-packers who supply the stores with their products are under the same cost pressure as the national brands, hence a flattening-out of the price differences. The brands have also responded to the PL threat in a variety of ways, including couponing, price cuts and increasing the amount of product in packages without increasing the price (see Frito-Lay's recent move).

But a recent request from a reporter to comment on a proposed story about Private Label included these questions:

1.) How can a brand prevent this switch from happening? Brands have to offer value. Those who don't will be marginalized and even dropped (supermarkets don't carry products that under-perform). Also brands have the advantage of "deep pockets" when it comes to marketing. Some large chains like Safeway are putting significant ad dollars behind their private label products, so that's not a universal. And with Wal-Mart having recently re-launched its PL line, all bets are off!

2.) How can a brand win back these consumers once the recession ends? Offer value (see above #1).

3.) How can a store develop its own brands into a brand (for example
Safeway's organic food line to be sold in other stores)? The Safeway example is over-hyped. They've had limited successes with getting other chains to buy their O-Organic line, though they’ll tell you otherwise. Let's be realistic, folks: Kroger, for example, isn't going to buy their products, at least not in any significant numbers. The ones who do are mostly the smaller chains and indies. The "white spaces" for store brands are in innovation: the large CPG houses won't usually move into a product category or line unless there is a SIGNIFICANT payday ($100MM+ for foods). A store brand can be profitable in a smaller category if it offers innovation.

4.) How can leading consumer brands offer low priced items to retain these
consumers? Tide recently did this by offering a low price point basic
detergent. The brands need to stop being greedy. Last year, they started shrinking net weights on many packaged foods to compensate for a sharp spike in commodity prices. Stores were howling about those price increases, but the CPG houses were being squeezed by the costs of things like wheat (which was driven up by speculators), and the steep increase in fuel costs that made transportation a significant factor in P/L. Now with commodity prices having leveled off or even dropped, and fuel costs much lower, the brands are offering more net per package while keeping the price the same. I think they can go further, but many are more interested in protecting their profit margins because of investor pressure.

5.) Is there anything else that you are seeing that should be noted as it
relates to this issue? The national brands need to get their heads out of the sand. Private Label has succeeded to a large part because those brands have soaked up extra production capacity making often identical house-branded products. Private Label is a threat to their business, so stop manufacturing for a "competitor," make sure the brand has distinctive value points that will keep consumers choosing the national brand over the store brand, and as always, make proper use of food licensing! It's one of the best ways to tackle the supermarket challenge. Call me if you want to know how!

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Prepared & Refrigerated Meals Category Expands

Brits are accustomed to purchasing refrigerated "ready meals" that range from raw to fully-cooked, but the frozens category has swamped chilled prepared foods in the States.

Part of the reason has been concern about safety, but that may be changing. Grocery chains are adding more prepared meals in their deli and chilled cases, with food research giant Technomic reporting consumers claims of purchasing such meals are up 25%. One factor may be the quest to trade down in cost from eating out without having to resort to cooking it yourself from scratch. The trend even has a name: the Whole Foods Effect, inspired by that retailer's plethora of prepared meal options, including Asian, Indian, Latin, and Italian "hot bars" offering shoppers creative alternatives to the usual take-out.

Publix and Winn-Dixie have jumped on the bandwagon with their own combinations of improved deli, salad bars and slow-cooked meats and soups. Restaurants are fighting back with more take-out and licensing: TGI Friday's has a new line of licensed skillet meals reported here in previous editions of this news source.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Save Us from the CEOs!!

David Farkas of Chain Leader writes some interesting things about Starbucks founder and eminence gris Howard Schultz.

Schultz was recently profiled in Business Week-- and not very flatteringly, either. Seems that, like with a lot of CEOs, he can't or won't delegate decisions to his otherwise smart and rigorous underlings. The "case study" for it all is how Schultz was against the chain using skim milk in its lattes, despite the fact his competitors were. Nothing changed until Schultz personally witnessed a customer walk out of a Starbuck's without purchasing her morning brew because her only choice was whole milk.

Hey, I think 2% tastes better in my tea than skim milk, but far be it for me to force anyone else to drink their hot beverages my way.

Yet anyone in business has a favorite story about the quirky CEO who insisted on this, or wouldn't do that because he did/did not like it. When we were representing Good Humor-Breyers Ice Cream, the CEO would not allow a licensing deal for make-your-own Popsicle toys because:

1.) It would "denigrate the brand experience"

2.) Why would moms & kids buy Popsicles if they could make their own?

3.) The money wasn't enough to overcome the "risk."

Hey, we're talking about a toy here! A toy given during the holidays, a toy where the child likely will have lost one or more of the parts by New Year's or soon thereafter. And no consumer is going to taste a make-it-yourself Popsicle and say "yuk, I'll never buy one again," or "this is denigrating my experience of the brand."

Sometimes, as Freud would say, a cigar is just a smoke and a toy is just a toy.

Baskin-Robbins made a ton of money from the first make-your-own ice cream toy set. And we had three companies prepared to put large $$$$ up-front. But at the end of the day, the CEO wouldn't listen to the licensing people. He didn't like it. It didn't happen.

The only thing I can say in defense of the charismatic, anal-retentive CEO is: save us from the marketers with their reams of paper and studies. It's one reason large companies almost never are innovators.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Food Licensing Marketplace Gets More Crowded

Food licensing is now the "hot" segment with a rush into the category, both by licensors and licensing agents eager to establish their bona fides with some quick successes. One of the most-active licensors has been the Food Network, which currently has a line of kitchenwares through Kohl's.

Not to be outdone, fellow cable network Bravo is licensing shows like "Top Chef" to wines and cutlery, along with "Real Housewives of Orange County" to Kooba handbags (rumors of a license to Glock for "Real Housewives of New Jersey" are just that- rumors). Both cable networks have aggressively mined product placement strategies in the past with companies like Hershey and Moët & Chandon, but received no royalties from any sales generated by this high-profile exposure. Product placement is a long and lucrative method for entertainment companies to increase profits, and has become more and more active (some would say intrusive)— think of Tom Hanks in "Castaway" and the value to FedEx.

In a bit of licensing insider trivia, Food Network has been lobbying LIMA, the licensing trade association, to have its products moved from the "entertainment" category to "corporate brands" as part of LIMA's annual awards balloting. That would mean they would no longer compete against Disney and the other studios, but against corporates like Burger King (nominated for this year's "Best Corporate Brand Extension"). Food Network believes they will far better competing against Jeep, Burger King and other true corporate brands in the annual contest for licensing glory.

In other food licensing news:

• It's Miller Time for Sara Lee who is launching Hillshire Farm "Miller High Life Beer Brats." The sausages will be cooked in the beer with six-packs retailing for $3.99 at national supermarket chains.

• Regional QSR Steak 'N Shake has hired a licensing agency to leverage the brand to retail. The Indianapolis-IN firm was taken over by private equity financier, Sardar Biglari, last August after a showdown with the previous management following the company's generally dreadful stock performance. Recent financials have shown the chain emerging from those doldrums.

• In news reported to our subscribers previously, Kraft has confirmed launching flatbread pizza and microwavable flatbread melt sandwiches under both its DiGiorno and California Pizza Kitchen-licensed brands.


Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Tasty Tidbits

• In the "we all need a good laugh department," the legal sparring between Red Lobster and Captain D's Seafood Kitchen continues. After the latter received a cease & desist letter from the giant seafood chain protesting ads attacking its prices and service, the Nashville, TN-based upstart has issued its own letter demanding Red Lobster lower prices, improve service and end tipping. The only ones sure to profit from the dust-up will be lawyers.

• Not all retailers are doing well in the recession: Spartanburg, SC-based BI-LO has filed for Chapter 11 bankruptcy protection.

• Look for maple syrup prices to soar this year because of a shortage of the product in New England. That's good news for local farmers, however.

• Food equipment manufacturer Manitowoc has made Business Week’s list of "best corporate performers."

• America's love affair with chili shows no sign of abating, and QSR Qdoba Mexican Grill plans on embracing that love with a new Chili Verde entry.

• Black Angus Steakhouse has emerged from bankruptcy after it was purchased by Versa Capital Management Inc.

• Foie Gras, already banned by city ordinance in Chicago, is now headed for the same fate in San Francisco. Animal rights advocates have campaigned against the French delicacy on the grounds that it results from cruel treatment of the geese whose livers make up foie gras.

• In fruit news, Old Orchard Brands' fruit smoothies will reach national levels of distribution through a partnership with Chiquita Brands International, Inc. (who also owns fruit supplier Fresh Express).

• Wine.com is doubling its offerings of wines scoring 90 points or higher and which are priced under $20.

• Starbucks instant coffee endeavor is expanding to new Costco, Target and Barnes & Noble stores.

• Philadelphia-based Swallow is the latest restaurant to embrace the American comfort food, macaroni & cheese, this time in the form of a pizzeria-type bistro offering mac & cheese in a variety of flavors (Mexican, tuna casserole or Greek with feta cheese).

• Oats and quinoa (a South American plant) may provide a gluten-free substitute for semolina in pasta. Packaged Facts says the gluten-free market has expanded annually at 28% since 2004, growing from $580MM to $1.56bn. Estimates are gluten-free products will top $2.6bn by 2012.

• Balducci's appears to be one of the few food retailers not immune to the recession. The company will shutter 4 of its 10 locations, including both New York City stores. The company has passed through several incarnations and is currently owned by Irving Place Capital, a private equity fund.

• Restaurants are expected to add 1.8MM jobs to the US economy in the coming decade, and are increasingly the entry-level job for new workers. Foodservice is also a popular alternative for those who have lost jobs in other sectors according to MSNBC.

• Eastern Pennsylvania-based Turkey Hill Dairy's newest licensed flavor is the Phillie Phanatic Double Play. For all those who aren't baseball fans, the Phanatic is the mascot of the World Champion Philadelphia Phillies. The concoction will feature Bavarian cream-flavored light ice cream with caramel corn and caramel swirl. Previously the company had licensed the Phillies trademark for the Phillies Graham Slam. Broad Street Licensing Group's president, Carole Francesca, hails from Philadelphia, whose Broad Street gives the agency its name.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Health Notes

• The American Dietetic Association (ADA) has weighed in with a position paper (available to subscribers to our weekly news service) on the question of functional foods and those containing health additives like fiber and whole grains. The organization argues that foods are more than simply nutrition, but that claims about additives and functional qualities need to be analyzed and studied carefully to evaluate more carefully the many competing claims.

• In a sad development, a new study in the April 2009 issue of Archives of Pediatrics and Adolescent Medicine found the use of medications to treat high blood pressure, high cholesterol and diabetes among children increased 15.2%. This likely reflects the side effects of the obesity epidemic among youngsters and the failure of efforts to curb it through exercise and changes in lifestyle.

• A CDC (Centers for Disease Control) report found detectable levels perchlorate contamination in the largest brands of US powdered infant formula. The chemical has been used since the 1940s for rocket propellant, and has contaminated the water supplies and found its way into plants and animals in the food chain. Scientists warn the chemical may interfere with the body's absorption of iodine and therefore interfere with brain development. Infant formula is usually fortified with iodine, but the effects of the contamination are disputed with the formula manufacturers claiming the levels are insignificant.

• Gum disease is increasingly seen as a marker for underlying health catastrophes, including heart disease. Doctors are unsure if plaque on your teeth causes or is caused by plaque in your arteries, but the connection is now well-established. The mechanism may be that bacteria living in unhealthy gums enter the bloodstream and cause other mischief, or it may be that inflammation in the body is somehow linked to overall health. Whatever the mechanism, though, doctors now see a link between obesity and gum disease with those overweight nearly 30% more likely to have gum problems. In a related concern, the citrus acid in sports drinks may erode tooth enamel, so dentists are advising consumers to brush after drinking.

• CVS is among the retailers rushing to implement e-prescriptions. Wal-Mart is already investing heavily in computerized record keeping for doctors offices, looking both for the expansion opportunities and to encourage the use of their in-store pharmacies for fulfillment. CVS is partnering with NJ-based Horizon Blue Cross/Blue Shield to promote proprietary iScribe system. The system lets a health care provider prescribe directly from a PDA device or through a Web-based system which highlights dangerous drug interaction issues, identifies generic and cost-saving alternatives, and alerts the doctor if the patient fails to fill the prescription. A recent study by the Agency for Healthcare Research and Quality estimated cost savings electronic prescriptions at $845,000 per 100,000 patients based on a 20% utilization level of prescribers.

• David Zinczenko and Matt Goulding, the authors of Eat This, Not That, have released the poor grades of America’s worst restaurants, mostly for failing to provide nutritional information, but also because of high calorie and fat content. BSLG is pleased none of its clients made this "Hall of Shame."

D+ Baskin-Robbins
D+ Carl’s Jr.
D+ Denny’s
D+ Dairy Queen
D+ Ruby Tuesday
D Chili’s
D Uno Chicago Grill
D Chevys
D- On the Border
D- Romano’s Macaroni Grill
D- Baja Fresh
F Applebee's, IHOP, Outback, T.G.I. Friday's

• At the same time, Health magazine rated America’s healthiest fast-food chains (based on using healthy fats, sodium control, providing nutritional information and organics):

1. Panera Bread
2. Jason’s Deli
3. Au Bon Pain
4. Noodles & Company
5. Corner Bakery Café
6. Chipotle
7. Atlanta Bread
8. McDonald’s
9. Einstein Bros. Bagels
10. Taco Del Mar

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

World Food Retailing Updates

• While the grocery business in the United States and Britain seems recession-proof, the Czech Republic division of Dutch grocery retail giant Ahold is predicting a bad year for 2009 as prognosticators see the country’s GDP declining by 2.1% The company has lost money in six of the last nine years during good times, due mainly to an aggressive acquisition spree buying up other super- and hypermarkets that has piled up a heavy debt burden which the company will be forced to pay down now. While experts think that policy will pay long-term, it will bind the company’s maneuvers this year as consumers shift their buying habits away from these large stores. Still, the prognosis for growth in the supermarket and hypermarket segment through 2013 is for over 90% growth, reaching $15.9bn and capturing over half of the country’s grocery business. The growth is expected outside the Czech Republic’s cities as incomes rise in the suburban and rural sectors. Ahold shares the marketplace with fellow multinationals Tesco, Lidl and Rewe (both headquartered in Germany).

• The Czech Republic is doing well in comparison to Hungary, where the government and banks borrowed heavily in foreign currency-denominated loans, only to have its own currency collapse, making repayment difficult or even impossible in some cases. Estimates show the economy shrinking by as much as 6% this year. The country’s ability to fight the global recession has been compromised by the resignation of its premier, Ferenc Gyurcsany, March 23rd. As recently as last year, pundits were touting the former Soviet Bloc in eastern Europe as the "next hot area for expansion." Ouch!

• Snacks in India continue to grow in importance. Mauritius-based Leila Lands Ltd., a subsidiary of the Wadia Group, whom I got to know on my last trip to Europe, has agreed to acquire Groupe Danone S.A.’s 25.48% stake in Britannia Industries Ltd., raising its share to a controlling 50.96%. Britannia owns the "Britannia" and "Tiger" brands of cookies (biscuits to the British reading this) with a 38% total share of the Indian market. Other Britannia products rusk (a form of hard biscuit dunked in coffee), bread, cakes and dairy.

• While most of the world struggles to cope with the current downturn, Argentina has been recovering from a collapse of its currency from 2000-2002, giving its citizens a leg up in coping (or so they themselves believe). More likely is the current exchange rate; after an arbitrary 1:1 rate maintained for years by Argentina’s government, the peso now floats against other currencies, and its 1:3 rate makes it attractive to tourists and business travelers. The country’s legendary beef supply continues to drive exports, though purists worry about the rise in industrial farming and feedlots used to fatten the cattle for processing. This processing has changed the character of the country's range beef, and has limited expansion of its organic farming success (the country is the world's #2 supplier of organic products after the US). Argentina banned the use of antibiotics and growth hormones in cattle in 2004, but pressure from world demand may alter its practices.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Do You Mind If I Rip You Off?

At a cocktail party many years ago, someone asked me what I did. When I answered "consultant," they then asked, half-seriously, "oh, does that mean you're out-of-work?"

In the current economy, a lot of people have been let go. Some of them are hanging out a shingle claiming to be "consultants." I appreciate the need to appear busy while you're looking for that next position, but it's breeding an ugly form of dishonesty. Take the call I got last week.

The gentleman claimed to be a former exec at a major food company who had licensed a famous restaurant brand for retail products in the supermarket. He claimed he wanted to know what my company does because he had been retained by a restaurant brand that was exploring licensing. But in the course of the conversation, it was clear he was trying to pump me for proprietary information about how we do business. He wanted to know:

What is a licensing feasibility study?
Can you send me one?
How much does one cost?
What is included?
What's your share of the royalties from a licensing deal?

While perhaps the one with the biggest brass balls, he's not alone. At least once per week I get calls from companies and consultants claiming they want to know this or that about the food licensing business. It only takes a few minutes before it's clear they're trying to get something for nothing. If it's the consultants, they want to know our business model. If it's a company, they're trying to find out:

Can we do this ourselves?
What is THE royalty rate for food deals?
How do you reach out to licensees?
Can you send me a sample contract?

It's not even enough to expect fair treatment from every company we deal with as a client. When we brought a very promising, innovative and potentially enriching deal to one firm last year, they immediately tried to limit our compensation to a very narrow interpretation of our representation agreement. This after telling us when we signed on with them "we're a very ethical company."

While it's always nice to get something for nothing, the sheer unethical gall that has surfaced from all this frankly takes my breath away. While I sympathize with those who are out-of-work and their often desperate attempts to reinvent themselves, please don't sink to the level of the common thief. By asking me for proprietary information, you're stealing. By asking me to help you launch your new career, you're taking money out of my pocket. Don't lie and say "if this works out, perhaps we can do business later on." That's a lie and we both know it.

I hope the gentleman who called isn't a common thief, and will phone me any day with an offer to work together on a topic he really doesn't know very much about. Yes, he handled the licensing-in of that restaurant brand. But licensing isn't about a one-shot deal. It has a variety of components that rely on skill, vision and expertise. There is NO ONE ROYALTY RATE, so stop asking, folks.

And if you want my help, then do the right thing. Maybe you can sleep at night stealing from others, but don't think we don't notice.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Tough Crowd: Consumers Reports Surveys Grocers

In a survery of over 32,000 respondents about supermarkets that covered nearly 49,000 store visits, Consumer Reports ranked Wegmans and Trader Joe’s the highest.

Wal-Mart Stores Inc., the largest U.S. grocery retailer, came in near dead last.

In spite of having the largest number of responses in the survey, the Bentonville Behemoth got low scores for service and perishables.

Other top scorers were Publix Super Markets Inc., Raley’s, Ruddick Corp’s Harris Teeter, Fareway, Costco Wholesale Corp, Whole Foods Market, Market Basket, WinCo Foods, and Stater Bros. In a sign of how competition from Wal-Mart forced the grocery sector to try harder, overall consumer satisfaction improved from the magazine’s last supermarket review four years ago: service, checkout speed , the quality of store brands, baked goods, and produce all scored above the survey done in 2005.

In an odd mirror image, stores with the best numbers for cleanliness, meat and produce got lowest marks for prices. Consumers seem to think they can have it all, since Trader Joe’s, Costco, Market Basket, WinCo, Aldi Inc., and Supervalu Inc.’s Save-A-Lot were rated well for price, but “so-so” for produce and service. Wegmans and Whole Foods scored highest for meats and perishables, while Wegmans, Trader Joe’s and Raley’s performed well in the service category.

Discounter Target Corp. had better scores than its rival, Wal-Mart, but has only 200 stores with full grocery sections.

The #1 complaint? Lack of open checkout lanes, a chronic problem for anyone who has shopped at Wal-Mart, but an issue with many grocery retailers. too. One third of those surveyed claimed they had switched stores in the search for better prices.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Chicken Little & the Restaurant World

The Wall Street Journal giveth and the Wall Street Journal taketh away....

The Journal was kind enough to feature Broad Street Licensing Group in an article about leveraging restaurant brands to supermarkets that has had the phone ringing off the hook. But now it has published an article about dumb brand extensions that is likely to scare off restaurant CEOs who think licensing will mean fewer visits or lower profits. No one outside the restaurant business thinks there's a shred of reality to that, but who am I to tell the CEO of a major chain he's full of ####.

And I would be the first to admit there have been stupid licensing ideas. Snuggle Fabric Softener once asked us to license the brand and its cute bear to ice cream bars because their in-bred ideation sessions had convinced middle management Snuggle meant "comfort" and not "nice-smelling clothes." It turned out that at the time, one of our clients was Good Humor-Breyers, the ice cream megalith. Their reaction to a Snuggle ice cream bar?

YUUUUUUUUUUUUCCCCCCCCCCCKKKKKKKKKKKKKK!!!!!!

Fabric softener doesn't bring to mind good-tasting treats. Yet interestingly, the Snuggle people said we weren't good "team players" because we tried to tell them their idea wouldn't work.

Sometimes it's better to tell a client a lie than the truth. I never do, but then, that's me.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Shaking Things Up in the Ad World

This article in Ad Age about Coke and other companies demanding "results" before paying their ad agencies more than expenses got me to thinking.

When we pitch a new client, we usually say "unlike your ad agency, your p.r. firm or your graphics house, we'll both build your brand and pay you royalties from the work we do." Ad agencies have a very cosy business model in comparison to licensing agencies: they bill for services and don't have to worry about cash flow unless the ad campaign is a flop. But even then, the client may simply ask for a new campaign before risking the hassle of starting over with a new agency.

In licensing, we market your brand, negotiate the deal, and monitor the account. The licensee is required to pay royalties every quarter, so our clients have a steady income stream. Licensing rarely can rival core sales, but can reach significant dollar amounts.

Ad agencies like to talk about brand impressions. Our philosophy at Broad Street Licensing Group is that without sales of licensed products, there are no brand impressions. And our track record shows we know what we're doing.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Is Genetically-Modified Food Safe?

Image courtesy of St. Columbian's Mission)

Just when you think we don't have to worry about GM, the car company, along comes GM, the food. As in "genetically-modified." To date, the goal is producing plants that are naturally more disease- and pest-resistant, often by switching genes from one species to the next. But the problem with GM food is there's no certainty it's safe, and no way to prevent it from entering the gene pool of other plants or animals, potentially changing the way we live permanently, and perhaps in ways we might regret.

Consumer unease with the American food safety regulators is being fanned not just by peanut and pistachio recalls, but by the growing awareness that genetically-modified produce is now entering the retail food system. GM plants were the first battleground, with some EU countries attempting to ban their importation. Now the question is about milk from cloned cows. Unilever’s Ben & Jerry’s Ice Cream got the discussion going with an April Fools prank website asserting they were now using perfect milk from cloned cows. Experts point out that it is currently virtually impossible to trace GM produce once it enters the commercial marketplace, so consumers will have to lobby for prevention rather than testing or tracking.

The FDA (Food & Drug Administration) has concluded that milk and meat from cloned animals is safe, despite the absence of any long-term studies and the objections of some critics that slight differences in the meat and milk of cloned cows means there is at least the potential for an impact on human health.

Europeans have fought against the introduction of GM plants and plant produce into the EU, while American farmers and food processors have generally embraced GM crops, especially those with inbred resistance to pests and disease. Monsanto has received the go-ahead from both the US and Canada to plant the first GM corn next Spring. Corn is used for much more than a foodstuff, forming the basis for starches, oils, sweeteners and, of course, snack foods (chips). USDA figures list the total corn acreage in the US as averaging around 85MM acres for the past 5 years, with 85% of it now genetically modified (compared to 47% five years ago).

But concerns persist that GM plants cannot be isolated from native species, and that the gene pool for non-GM corn and other crops will inevitably be contaminated by GM pollens. Farmers were once required to set aside 20% of their planting for non-GM modified crops in what's called the "refuge." The theory is that if diseases or insects developed a resistance to the GM traits, the entire corn crop wouldn't be compromised. But the USDA is now saying that the combination of disease- and pest-resistant qualities make that scenario unlikely, so farmers can now plant all but 5% of their land with GM corn.

European critics of GM foods have also pointed to the conflict of interest in the US, where food regulations and enforcement are handled under one roof, unlike in the EU. The recent food contamination scandals have elicited calls for stricter regulation and enforcement, as well as for splitting the FDA in two. Monsanto is currently suing the German government over the latter's ban on its GM wheat.

A recent survey by NPD Group shows that US consumer confidence in the safety of the food supply chain has slipped over the past five years, though that concern has centered on food preparation and handling, not in the food supply. According to the survey, consumer confidence in supermarket foods has declined from 68% to 63%, a remarkable five point drop. Consumer confidence in the safety of restaurant food has hovered around 50% for the past few years and showed no change over last year. The #1 worry among consumers is salmonella and E. coli contamination (80% of respondents showing at least some concern). These two problems have maintained a steady level of concern over the past five years of the survey, with trans fats coming in at 79%. Other concerns were mercury in seafood (68%), mad cow disease (65%), HFCS (high fructose corn syrup, 58%), bovine growth hormones in milk (64%), genetically-modified food (51%), hoof & mouth disease (48%), and meat/milk from cloned animals (42%).

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

More Tasty Tidbits

• News reports show that Nestlé relied on its own auditors to evaluate (negatively) the health and safety of peanut products from PCA (Peanut Corporation of America), the firm tied to the recent fatal salmonella outbreak. Other companies relied on auditors under contract to PCA who missed the most egregious problems. An investigation has unearthed internal emails at the troubled peanut processor indicating tainted shipments went out with the full knowledge of the company’s president.

• With conventional auctions tanking in this economy, auctioneers are making sales with groceries, usually leftovers and damaged goods. The FDA does not specifically prohibit the sale of out-of-date or expired foods, which are generally considered safe, if less tasty. Consumers, especially in rural communities or those hard-hit by unemployment, like the low prices, though like with any auction, egos sometimes send bids above store costs.

• BI-LO supermarkets and its private equity owner, Lone Star Funds, have filed for Chapter 11 bankruptcy protection. Their 215 supermarkets in South Carolina, North Carolina, Georgia and Tennessee employing over 15,000 people will remain open as the company reorganizes.

• Panera Bread is in talks with undisclosed retailers to put a small-footprint version of its cafes in-store.

• In a rare bit of good news in the casual dining sector, Darden Restaurants (owners of the Olive Garden and Red Lobster chains among its 1,700 restaurants) has reported strong sales & earnings with only a 6% decline over last year. Analysts who have watched casual dining chains like Outback Steakhouse implode had expected far worse results, but apparently diners are trading down to Darden properties from more expensive eateries.

• Carrying coals to Newcastle? Campbell’s Soup is targeting Russia and China because 50% of the world’s soup is consumed in those two markets, though all of it is homemade….

• A Bloom store in South Carolina has introduced cart-mounted technology that helps customers find products and see what's on sale. The touch-screen device from Springboard Retail Networks includes a Global Positioning System that alerts shoppers to nearby discounts. Bloom is a subsidiary of Food Lion.

• After years of aggressive expansion, hotels are cutting back their food offerings, including reducing the hours in lobby eateries, shuttering unprofitable properties, shrinking menus (especially breakfast buffets) and even dropping small amenities like free coffee.

• The Suntava company is growing a non-genetically modified (GMO) purple corn hybrid that produces natural red and yellow dyes, possibly replacing Red #40. Studies in the US and the UK have linked food coloring to hyperactivity in children.

• Celebrity wine & food continues with Sting’s own brand of Tuscan wine to go on sale in the US and the UK.

• PETA, the most militant of the animal rights groups, is targeting British chef Jaime Oliver for his efforts to promote consumers buying local pork products over cheaper imported ones. Despite Oliver’s claims that British pigs are treated better than their imported cousins, PETA feels the best solution is to “go vegetarian.”

• In the UK complaints are at record levels about alcohol beverage manufacturers marketing their products to under-age drinkers in spite of the industry self-regulatory body (the Portman Group) promising to limit advertising to those under 18.

• Retailer Big Y will follow Wal-Mart’s lead and offer 300 inexpensive generic drugs to consumers who sign up for its own pharmacy program.

• In a trend sure to disturb QSRs, the government has announced it is looking into regulating food advertising to teens. Currently advertising is restricted to children under 12 but the age level would be raised to at least 18.

• Brits love their gum: a new report blames discarded chewing gum for ¾ of the litter on UK streets, and the government is demanding confectioners come up with some solution.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Health News

• As if there isn’t enough evidence the current epidemic of Type 2 diabetes is likely to provoke governmental action to reduce it, a new study shows a link between the disease and Alzheimer’s. Doctors have suspected the destruction of the blood vessels that accompanies the onset of diabetes could be a precursor to “vascular dementia” and even Alzheimer’s itself, but new research shows the rise in blood sugar mirrors a drop-off in brain function. The link has enormous social implications since more than 5MM Americans have Alzheimer’s, and cases already are projected to skyrocket in the next two decades as the population ages. Scientists must sort out whether the simultaneous flood diabetes resulting from the increase in obesity will aggravate the problem. While it might sound grizzly to say so, many diabetics will not live to the age when they would develop Alzheimer’s (typically in their 70s) because they are at even greater risk for heart disease, kidney failure and other deadly conditions.

• One medical mystery is why breast cancer rates rise when Asian families immigrate to the West. A new study says that consuming large amounts of soy during childhood (soy contains natural estrogens) may be the reason why Asian women who come to the West as adults have a lower breast cancer rate than those born here, and why the cancer rate rises with succeeding generations. Diet differences have long been suspected as the cause for the greater rates of breast cancer among Asian-Americans than their foreign-born cousins.

• One of the hot new teas with health benefits is yerba mate, originating in South America (where traditionally it is drunk in a gourd). But researchers are concerned its touted anti-oxidant benefits and caffeine “buzz” come with a stiff price: an increased risk of cancer.

• Recent claims that US production facilities of HFCS (high fructose corn syrup) are contaminating the product with traces of mercury have been discounted by independent tests ordered by the Corn Refiners Association. Allegations that caustic soda containing traces of mercury used to separate the corn starch from its kernel could pass on the deadly contaminant appear to be groundless at this time. HFCS is under fire for possible links to diabetes and obesity

• Nanotechnology (the use of microscopic containers called ENMs or engineered nano materials) in food packaging and delivery systems has regulators in the EU concerned, especially in light of the huge potential for the industry (various estimates range from €750bn to €2,000bn by 2015). Fears are that ENMs can be inhaled or otherwise interact adversely in humans, though there is also excitement these wafer-thin aluminium containers could deliver targeted nutrients and pharmaceuticals.

• In the rush to switch from ordinary salt to substitutes, dieticians are warning that potassium chloride products may pose a health threat to kidney dialysis patients.

• Booze in the news again: moderate drinking of wine or beer may promote bone density, while drinking hard liquor may have the opposite effect. Stay tuned for new week’s conflicting scientific guidance…

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

1 Billion Armpit Theory Marches On

China traders used to refer to the “one billion armpit theory” as the belief by western companies that if they could just sell deodorant to the Chinese, their sheer numbers would insure success.

Nearly 30 years after my first trip to China, the successes and spectacular failures of western companies in the Middle Kingdom are the subject of B-school models and dissertations. However, QSRs have been one of the success stories, with Yum! Brands and their KFC outlets an early pioneer. Now the company’s China division is flexing its muscles by acquiring properties with local appeal and strength, highlighted by their 20% stake in Little Sheep Group Limited, headquartered in Inner Mongolia (sale price $63MM).

The 375-restaurant chain sells "Hot Pot," a complete meal of dumplings, noodles, lamb and vegetables originating in northern China, but now popular across the country, as well as in Hong Kong, Japan, Canada, and even parts of the U.S. Sam Su, President, Yum! Restaurants China and Vice Chairman, Yum! Brands, Inc. insists China is the “biggest growth opportunity in the restaurant industry in the 21st Century.” Yum! also is pushing its East Dawning and Pizza Hut Home Service brands, and currently has 3,000 restaurants with a new one opening every day. The company claims a compounded annual growth rate of 29% and a 31% operating profit. Yum! China Division is the highest margin and highest return division in the company’s global operation.

In the past, the overseas branches of most US companies were afterthoughts. Could we be looking at Yum!'s next CEO?

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

More Retaurant Licensing News

In a move first reported in our weekly subscription service some months ago, HJ Heinz is rolling out a new line of frozens licensed from T.G.I. Friday’s.

Five complete Skillet Meals inspired by the restaurant’s famous sauces such as “Firecracker Sesame Chicken” and "Cajun-style Alfredo Chicken and Shrimp" will feature an innovative delivery platform where the main ingredients are individually packaged. Keeping the components separate will allow the meats to brown without the vegetables getting soggy or the pasta going limp. In addition, toppers like sesame seeds and bacon bits will make the results a cut above the usual frozen entrée. The offerings will serve two, and include Sizzling Steak Fajitas, Chicken Fajitas, Chicken Pasta Carbonara, Firecracker Sesame Chicken and Cajun-Style Alfredo Chicken & Shrimp. Prices range from $6.99-$7.99.

Friday's has been licensing its brand for some years, and has deftly moved from the frozen appetizer to complete meals/entrees. It's the goal that any good licensor should be looking at, since frozen entrees can rack up sales of as much as $100MM+ annually.

But you can't reach the stratosphere in licensing without supporting your licensees, and Starbucks is expanding it licensed retail product line with four new super-premium ice cream flavors (manufactured under license by Unilever) with a bold move. Based on four Starbucks coffees, the products claim to be all natural and made with milk from farmers who pledge not to use cows treated with bovine growth hormone (rBGH). Flavors announced are Caramel Macchiato, Mocha Frappuccino, Java Chip Frappuccino and just plain Coffee. Sold in pint containers, the suggested retail price (SRP) is $3.99. Java Chip Frappuccino will also be offered in a 3.6 fl. oz. single-serve cup for $1.29 (SRP). Starbucks is supporting the products with coupons to drive sales of the retail product, coupons they are giving away in their cafes.

For years, this was restaurant heresy: driving consumers away from your business to the grocery store. But gradually restaurant executives are getting their heads out of their ***es and understanding that consumers see eating at-home and eating-out as TOTALLY SEPARATE MEAL OCCASIONS. So they aren't driving traffic away from the cafes so much as reinforcing their brand with consumers who will be going to the store anyway. Never have met a shopper who went to the store just to get a few cents off a product they wouldn't buy otherwise....

Unilever also manufactures, markets, and distributes the Ben & Jerry's, Breyers, Good Humor, Popsicle ice cream and frozen novelty brands among others. Broad Street Licensing Group represented both Good Humor and Popsicle for many years until their licensing programs became mature. Starbucks already has a successful line of licensed coffees at retail through a deal with PepsiCo.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)