Foodservice Operator Optimal Rent Percentage for Profitability

 

Steven Johnson the Grocerant Guru® at Tacoma, WA based Foodservice Solutions®, has seen the foodservice landscape evolve over decades, and one constant remains: the delicate balance between rent costs and profitability. There is one fact no one can deny, if your rent is to high you won’t make any money!

For restaurants and convenience stores, understanding and maintaining the optimal rent percentage is crucial for long-term success. Let’s delve into the historical data to examine what this percentage looks like and explore three examples that highlight its impact on profitability.

The Golden Rule: Rent as a Percentage of Sales

Historically, the industry has set a general benchmark where rent should account for 6-10% of gross sales for restaurants and convenience stores to remain profitable. This range provides a buffer for operators to manage other operational costs, such as labor, food costs, and utilities, while still achieving a healthy profit margin. Deviating too far from this range can place undue stress on the business, leading to reduced profitability or, worse, closure.

1. Restaurant Example: Darden Restaurants

Darden Restaurants, the parent company of Olive Garden and Longhorn Steakhouse, has long been an industry leader in managing operational costs, including rent. Historically, Darden has maintained its rent expenses at around 6-7% of its gross sales. During the 2008 financial crisis, when many restaurants struggled, Darden's adherence to this optimal rent percentage allowed it to weather the storm. Their disciplined approach to site selection and rent negotiations ensured that even during downturns, the company could remain profitable, while competitors with higher rent percentages were forced to close underperforming locations.

2. Convenience Store Example: 7-Eleven

7-Eleven, a global retail juggernaut, is another prime example of the importance of maintaining an optimal rent percentage. Historically, 7-Eleven has kept its rent at around 5-6% of gross sales. This strategy has been instrumental in the company’s ability to expand aggressively, particularly in urban areas where rent costs are typically higher. By sticking to this percentage, 7-Eleven has been able to control costs and maintain profitability even as it continues to grow its footprint. Their focus on high-traffic locations with strong sales potential ensures that rent costs remain within the optimal range, safeguarding their bottom line.

3. Restaurant Example: Starbucks

Starbucks provides an interesting case study in the impact of rent on profitability. During its rapid expansion phase in the early 2000s, Starbucks aimed to secure prime locations, often paying premium rents that exceeded the industry norm of 6-10%. At its peak, some Starbucks locations were paying up to 12-14% of gross sales in rent. While this initially fueled growth, it also led to profitability challenges, particularly in less profitable or oversaturated markets. The company had to close hundreds of underperforming stores in 2008-2009, a move largely attributed to unsustainable rent costs. This experience underscored the importance of keeping rent within the optimal range to ensure long-term profitability.

The Takeaway: Rent Discipline Equals Profit Stability

For both restaurants and convenience stores, the historical evidence is clear: maintaining rent expenses within 6-10% of gross sales is critical for sustaining profitability. This percentage range allows operators to absorb fluctuations in other operational costs without jeopardizing their financial health. While there are always exceptions to the rule, such as strategic locations where higher rent may be justified by exceptional sales potential, the general guideline remains a vital tool for ensuring long-term success.

As the foodservice industry continues to evolve, particularly in the face of rising real estate costs and changing consumer behaviors, operators must remain vigilant in managing their rent expenses. Those who do, like Darden Restaurants and 7-Eleven, will continue to thrive, while those who don’t risk the fate of early Starbucks—a cautionary tale of expansion at the expense of profitability.

In today’s competitive market, understanding and adhering to the optimal rent percentage isn’t just a best practice; it’s a necessity for any foodservice operator aiming for sustained success.

Looking for success clues of your own? Foodservice Solutions® specializes in outsourced food marketing and business development ideations. We can help you identify, quantify and qualify additional food retail segment opportunities, technology, or a new menu product segment.  Foodservice Solutions® of Tacoma WA is the global leader in the Grocerant niche visit us on our social media sites by clicking one of the following links: Facebook,  LinkedIn, or Twitter

Grocery Shoppers Want Meals, Not Menus

 

At the intersection of the question of "What's for dinner?"  and where do I get it, has become a daily challenge for millions of consumers. Steven Johnson Grocerant Guru® at Tacoma, WA based Foodservice Solutions® wants to share some new insights from a recent Deloitte report, as this question is a significant pain point for 53% of consumers, reflecting a broader shift in grocery shopping habits.

Shoppers no longer seek just ingredients or a vast menu of options—they want complete, convenient, and fresh meals ready to go. The grocery industry is at a critical juncture, and those who can successfully pivot to meet these evolving needs will find themselves on the path to growth.

The Convenience Factor: A Shift in Consumer Priorities

The Deloitte report, titled "A Fresh (Food) Take on Grocery Convenience," highlights that 52% of consumers value convenience more now than ever before. This shift is particularly pronounced among younger generations, with 61% of Gen Z and 57% of Millennials emphasizing the importance of convenience in their shopping decisions. This trend is reshaping the grocery landscape, where traditional grocers face competition not just from online grocery stores and third-party apps, but also from restaurants and dollar stores.

The key takeaway here is clear: consumers are prioritizing convenience, often over the quality or freshness of food. A staggering 82% of shoppers said that convenience guides their fresh food purchases. This preference is driving the need for grocers to rethink their strategies, particularly as 67% of consumers admit to choosing convenience over health or freshness on busy days.

Fresh Food: The Cornerstone of Grocery Growth

While convenience is paramount, fresh food remains a critical factor in consumer decision-making. Deloitte’s findings reveal that 90% of U.S. consumers believe fresh food contributes to their happiness, and two-thirds are willing to pay a premium—22% more on average—for fresh options over canned, frozen, or other alternatives. This presents a significant opportunity for grocers to differentiate themselves by offering high-quality, fresh food in convenient formats.

Grocers are aware of this opportunity, with 52% of grocery executives identifying fresh food as their most strategically important department over the next one to three years. The produce, deli, and meat departments are expected to lead this charge, providing the fresh options that consumers crave.

The New Wave of Grocery Competition

Despite the emphasis on fresh food, grocers are facing an increasingly complex competitive landscape. Traditional grocers must now contend with not just online players but also restaurants and dollar stores, which are rapidly encroaching on their territory by offering convenient, fresh food options. The Deloitte report underscores that 56% of grocers are concerned about competition from online grocery stores, while 53% are wary of third-party shopping apps. However, the real competition may come from other traditional grocers, restaurants, and dollar stores, which are often underestimated.

Grocers must also navigate emerging consumer preferences and economic pressures. As consumers’ wallets tighten, the demand for both value and convenience intensify. This trend is particularly challenging for grocers, who must balance the need to offer affordable, convenient options without compromising on the quality of fresh food that consumers are willing to pay more for.

The Role of Generative AI in Meal Planning

One of the most promising avenues for grocers to enhance convenience and boost sales is through meal planning. The Deloitte report indicates that 44% of consumers would regularly buy from a grocery store that could help them with meal planning. This is especially true for younger consumers, with 66% of Gen Z and 60% of Millennials citing meal planning as a primary pain point.

Enter Generative AI (GenAI), which is poised to revolutionize the grocery shopping experience. Eighty percent of grocery executives are optimistic about GenAI’s potential to transform their operations, with many seeing its application as a consumer assistant for meal planning as a "killer app." By leveraging GenAI, grocers can offer personalized meal planning services that not only simplify the shopping experience but also drive customer loyalty and repeat purchases.

Strategic Investments in Convenience

To stay competitive, grocers are increasingly investing in technologies and strategies that enhance convenience. According to the Deloitte report, 85% of grocers are making significant investments to increase convenience, with a focus on the pivotal moments throughout the shopping process. The biggest opportunity for boosting in-store convenience lies at the point of sale, where 73% of consumers prioritize faster checkouts, followed by more convenient store layouts and easier returns.

However, convenience isn't just about speed; it's about making the entire shopping experience seamless. Grocers that can integrate fresh food with convenience—whether through meal kits, ready-to-eat options, or efficient in-store experiences—will be best positioned to capture consumer loyalty.

Conclusion: A New Era for Grocery Shopping

The grocery industry is undergoing a profound transformation as consumers demand more convenience and fresh options. The days of overwhelming shoppers with endless menus and ingredient lists are fading. Instead, the future belongs to those grocers who can deliver complete, ready-to-eat meals that cater to time-starved consumers without compromising on quality.

As the Grocerant Guru®, I see a bright future for those grocers who embrace this shift. By focusing on "fresh convenience," leveraging technologies like GenAI for meal planning, and making strategic investments in the shopping experience, grocers can not only survive but thrive in this new era. The question isn’t just "What's for dinner?" anymore—it's "Who will provide it?" And for the grocers who get it right, the answer will lead to growth and success.

Invite Foodservice Solutions® to complete a Grocerant ScoreCard, or for product positioning or placement assistance, or call our Grocerant Guru®.  Since 1991 Foodservice Solutions® of Tacoma, WA has been the global leader in the Grocerant niche. Contact: Steve@FoodserviceSolutions.us or 253-759-7869

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McDonald’s Food Industry Leadership: A Historical Perspective on Customer-Focused Marketing and Interactive Participation

 

McDonald's has long been a trailblazer in the food industry, setting benchmarks for customer engagement through innovative marketing strategies according to Steven Johnson Grocerant Guru® at Tacoma, WA based Foodservice Solutions®. The brand’s success is not merely a result of its iconic Golden Arches or its globally recognized menu but rather its ability to evolve with consumer trends, consistently placing primary focus on customer engagement and participation. This approach is once again exemplified in its latest collaboration with the popular video game Genshin Impact, a promotion that underscores McDonald's leadership in marrying interactive marketing with customer loyalty.

The Evolution of Customer-Focused Marketing at McDonald’s

McDonald's has a rich history of integrating popular culture into its marketing efforts, ensuring that its brand remains relevant across generations. This strategy dates back to the introduction of the Happy Meal in 1979, which revolutionized the way fast food was marketed to children. The Happy Meal, with its combination of food and a toy, wasn't just a meal; it was an experience that engaged young customers and fostered brand loyalty from an early age. This idea of creating an experience rather than just selling food has been a cornerstone of McDonald’s marketing strategy ever since.

As consumer preferences evolved, so did McDonald’s marketing tactics. In the 1980s and 1990s, the brand began to focus on interactive marketing through collectible items like the Batman Forever mugs or the Ty Beanie Babies promotion. These campaigns encouraged repeat visits and leveraged the excitement of collecting, further enhancing customer participation and brand loyalty. The ability to tap into the cultural zeitgeist, whether through movies, TV shows, or games, has allowed McDonald’s to maintain its position as a leader in the food industry.

The Genshin Impact Collaboration: A New Era of Interactivity

Fast forward to today, McDonald's continues to innovate by partnering with Genshin Impact, a wildly popular anime-inspired video game. This collaboration is a perfect example of McDonald’s strategy of leveraging interactive participation to deepen customer engagement. Starting on September 17, McDonald’s app users can purchase a Genshin Impact Apple Pie, which comes in limited-edition packaging featuring characters from the game, or the Genshin Impact Deluxe McCrispy Meal. These purchases unlock exclusive in-game rewards, such as Primogems, special items, and cosmetic upgrades that enhance the gaming experience.

This campaign is not just about offering a meal; it’s about creating an integrated experience that blurs the lines between the digital and physical worlds. By tying menu items to in-game rewards, McDonald’s is effectively engaging with a younger, tech-savvy audience that value’s both the tangible and the virtual. This strategy reflects a deep understanding of the current consumer landscape, where brand loyalty is increasingly driven by experiences rather than just products.

Historical Context: The Power of Interactive Participation

McDonald’s partnership with Genshin Impact is not an isolated event but part of a broader trend in the company’s history of using interactive participation to drive customer loyalty. For example, in the early 2000s, McDonald’s launched the Monopoly game promotion, which became one of the most successful interactive marketing campaigns in the brand’s history. Customers would collect game pieces attached to food packaging, with the chance to win prizes ranging from free food to cash. This campaign was so successful that it became an annual event, drawing millions of customers to McDonald’s restaurants each year.

Another notable example is the My McDonald’s loyalty program, which was rolled out in recent years to further personalize the customer experience. By tracking customer preferences and offering personalized deals, McDonald’s has been able to create a more tailored dining experience, enhancing customer satisfaction and encouraging repeat visits.

Current Strategy: Aiming for 250 Million Loyalty Members

McDonald’s current collaboration with Genshin Impact is not just about marketing; it’s part of a strategic push to grow its loyalty program. With a goal of reaching 250 million 90-day active loyalty members by 2027, up from 150 million currently, McDonald’s is leveraging mobile-only incentives to drive app downloads and usage. By offering exclusive rewards through the McDonald’s app, the brand is effectively creating a new digital touchpoint for customer interaction, further solidifying its position as a leader in customer-focused marketing.

The recent Genshin Impact promotion follows a series of successful collaborations, including one with the anime series Jujutsu Kaisen, which featured special sauces and packaging. These campaigns demonstrate McDonald’s ability to stay ahead of the curve by continuously adapting its marketing strategies to resonate with current consumer interests.

The Future of McDonald’s Customer Engagement

As McDonald’s continues to innovate in the realm of customer engagement, the focus on interactive marketing and customer participation will likely remain central to its strategy. The brand’s ability to seamlessly integrate physical and digital experiences, as seen in the Genshin Impact collaboration, positions it well for continued success in an increasingly digital world.

Think about this, McDonald’s has consistently demonstrated leadership in the food industry by placing a primary focus on customer engagement and participation. From the early days of the Happy Meal to today’s mobile app promotions, the brand has evolved with the times, ensuring that it remains relevant to each new generation of customers. As the Grocerant Guru®, it’s clear that McDonald’s will continue to set the standard for customer-focused marketing in the food industry for years to come.

Success does leave clues. One clue that time and time again continues to resurface is “the consumer is dynamic not static”.  Regular readers of this blog know that is the common refrain of Steven Johnson, Grocerant Guru® at Tacoma, WA based Foodservice Solutions®.  Our Grocerant Guru® can help your company edify your brand with relevance.  Call 253-759-7869 for more information. 

Five Years Five Grocerant Guru® Predictions Proven Correct

 

Over the past five years, Steven Johnson the Grocerant Guru® at Tacoma, WA based Foodservice Solutions® has consistently identified key trends shaping the foodservice industry. As the market continues to evolve, recent data and projections, such as those from the International Foodservice Manufacturers Association (IFMA), have reaffirmed the accuracy of these predictions. Here are five positions that the Grocerant Guru took, now proven correct by industry facts and trends.

1. Fast Casual’s Resilience and Growth

The Grocerant Guru® predicted the resilience and growth of the fast casual segment, emphasizing its ability to adapt to changing consumer behaviors. This prediction has been reaffirmed by IFMA’s 2024 projection, which shows that fast casual restaurants are expected to grow by 1.3%, an upward revision from earlier estimates. The sector's pivot to suburban locations and increased focus on dinner occasions have played a crucial role in its recovery post-pandemic, highlighting the accuracy of the Guru's foresight.

Supporting Fact: Fast casual operators have leveraged technology to improve digital ordering and loyalty programs, which has driven repeat business and customer retention. The segment’s growth is further supported by its perceived better workplace environment, allowing it to compete effectively in a tight labor market.

2. QSR’s Value Proposition Remains Unchallenged

The Grocerant Guru® consistently emphasized the enduring strength of Quick Service Restaurants (QSRs), particularly their value proposition. This insight is supported by IFMA’s forecast, which projects a 0.7% growth for QSRs in 2024. Despite economic challenges, QSRs have maintained their position as the most affordable dining option, reinforcing the Guru's stance that their value-driven model would continue to attract cost-conscious consumers.

Supporting Fact: Even with rising costs, QSRs remain the lowest price point among restaurant segments, proving their resilience and ability to attract a broad customer base despite economic pressures.

3. Casual Dining’s Adaptation and Endurance

The Grocerant Guru® predicted that casual dining would continue to be a staple for consumers seeking social experiences and celebrations. This has been proven true as IFMA reports that the casual dining segment, though not growing significantly, is maintaining its relevance with a 0.0% growth projection for 2024 and a slight increase to 0.3% in 2025.

Supporting Fact: Casual dining venues have successfully adapted to the post-pandemic landscape by increasing off-premise revenue streams, including curbside pickup, delivery, and family meal options. This flexibility has helped the segment remain a favored choice for life events and social gatherings.

4. Midscale’s Decline Due to Changing Consumer Habits

The Grocerant Guru® warned that midscale restaurants would struggle due to shifting consumer habits, particularly as more people learned to cook at home during the pandemic. IFMA’s projection of a -0.7% decline in 2024 for midscale restaurants confirms this prediction, underscoring the segment’s ongoing challenges.

Supporting Fact: The midscale segment’s appeal has diminished as consumers have become more comfortable preparing familiar comfort foods at home. The lower price point, once a strong draw, is now less effective in enticing diners who have grown accustomed to home-cooked meals.

5. Fine Dining’s Slow but Steady Comeback

Finally, the Grocerant Guru® predicted that fine dining would experience a gradual comeback as consumers with disposable income returned to dining out for unique experiences. IFMA’s projection of a 0.2% growth for 2024 and 0.5% for 2025 aligns with this prediction, reflecting the segment’s ability to attract higher-income patrons despite broader economic challenges.

Supporting Fact: Fine dining has been less impacted by labor shortages compared to other full-service segments, allowing it to cater to a niche market eager for premium dining experiences. This supports the Guru's view that fine dining, though slower to recover, would eventually regain its footing.

Think About This

The Grocerant Guru’s insights have once again been validated by industry trends and data. From the resilience of fast casual and QSRs to the challenges facing midscale restaurants, these predictions have proven to be accurate reflections of the evolving foodservice landscape. As we look to the future, the Grocerant Guru’s expertise will continue to guide industry players in navigating the complex dynamics of the foodservice market.

Don’t over reach. Are you ready for some fresh ideations? Do your food marketing ideations look more like yesterday than tomorrow? Interested in learning how Foodservice Solutions® can edify your retail food brand while creating a platform for consumer convenient meal participation, differentiation and individualization?  Email us at: Steve@FoodserviceSolutions.us or visit us on our social media sites by clicking the following links: Facebook,  LinkedIn, or Twitter

What Do Chili's, Panera Bread, McDonald's, and Wawa All Have in Common?

 

The grocerant niche continues to drive the evolving landscape of foodservice, the once-clear lines between grocery stores, convenience stores, and restaurants have blurred. The new battleground for the age-old question, "What's for dinner?" is no longer confined to the grocery aisle but has expanded to the drive-thru lanes and delivery apps. Leading the charge are brands like Chili's, Panera Bread, McDonald's, and Wawa, which are collectively reshaping consumer behavior and posing an increasing threat to the foundation of the legacy grocery business.

The Rise of Convenience-Driven Dining

The modern consumer's lifestyle is defined by speed, convenience, and the desire for minimal cleanup after meals according to Steven Johnson grocerant guru® at Tacoma, WA based Foodservice Solutions®. The fast-paced nature of today’s world leaves little time for meal planning, grocery shopping, and home cooking. Enter Chili's, Panera Bread, McDonald's, and Wawa—brands that have become the go-to solutions for dinner. These companies have capitalized on the growing demand for ready-to-eat meals that can be picked up or delivered with minimal effort.

·         Chili's has leveraged its "Chili's To Go" platform, enabling customers to order online and pick up their meals without ever leaving their cars. Their streamlined curbside pickup service has become a key component of their business model, contributing to an 18% increase in off-premise sales in 2023.

·         Panera Bread has embraced delivery and rapid pickup options, appealing to health-conscious diners with their diverse menu of fresh salads, soups, and sandwiches. With over 50% of their sales now coming from off-premise channels, Panera is no longer just a café but a serious contender in the dinner market.

·         McDonald's has perfected the art of the drive-thru, with innovations like digital menu boards and app-based ordering that have slashed service times. Their drive-thru sales account for nearly 70% of their total revenue, making them a dominant force in the quick-service industry.

·         Wawa, traditionally known as a convenience store, has transformed into a foodservice powerhouse with its made-to-order hoagies, freshly brewed coffee, and warm meals. Wawa’s ability to deliver customized, fresh food quickly has made it a favorite among consumers looking for a fast and satisfying dinner solution.

The Shift Away from Legacy Grocery Stores

What do all these brands have in common? They offer consumers an alternative to the traditional grocery shopping and cooking experience. The convenience of ready-to-eat meals, combined with the ease of delivery and drive-thru options, has made them a preferred choice for time-starved families and individuals.

According to the Food Marketing Institute (FMI), the share of food dollars spent on restaurants has increased from 46.1% in 2010 to 54.4% in 2022. This shift reflects a broader trend of consumers opting for meal solutions that require less time, effort, and cleanup. Legacy grocery stores, once the dominant player in the dinner market, are now facing stiff competition from these fast-casual and quick-service brands.

Delivery: The Game-Changer

The explosion of third-party delivery services like DoorDash, Uber Eats, and Grubhub has further accelerated this trend. Consumers can now have a hot meal from their favorite restaurant delivered to their door in under 30 minutes—often faster than it takes to drive to the grocery store, shop for ingredients, and cook at home.

Chili's, Panera Bread, McDonald's, and Wawa have all invested heavily in delivery infrastructure. For instance, Chili's partnership with DoorDash has allowed them to expand their reach beyond their physical locations, contributing to a 20% increase in delivery sales in 2023. Panera Bread’s loyalty program, integrated with their app-based delivery service, has grown to over 50 million members, driving repeat business and customer retention.

No Cleanup Required

One of the most compelling advantages these brands offer over grocery stores is the promise of no cleanup. After a long day, the last thing most consumers want to do is cook a meal from scratch and clean up the kitchen afterward. With the convenience of picking up a meal from McDonald's or having Panera delivered, consumers can enjoy a delicious dinner without dirtying a single dish. This no-fuss approach is particularly appealing to younger consumers, including Millennials and Gen Z, who prioritize experiences and convenience over traditional cooking.

The Threat to Legacy Grocers

The impact of these trends on legacy grocery stores cannot be overstated. As more consumers turn to restaurant-prepared meals for dinner, grocery stores are losing their grip on the evening meal occasion. While some grocery chains have tried to adapt by offering more prepared foods and meal kits, they struggle to compete with the convenience and speed offered by drive-thru and delivery options.

In 2023, grocery store sales growth slowed to just 1.2%, while sales in the foodservice sector grew by 7.6%, according to the U.S. Census Bureau. This divergence underscores the growing threat that brands like Chili's, Panera Bread, McDonald's, and Wawa pose to the traditional grocery business.

Think About This: The Future of Dinner

The future of dinner is increasingly being shaped by the convenience and speed offered by restaurants with robust drive-thru and delivery options. As Chili's, Panera Bread, McDonald's, and Wawa continue to expand their off-premise capabilities, legacy grocery stores must innovate or risk becoming obsolete in the dinner market.

Consumers have spoken, and their preference is clear: they want meals that are fast, convenient, and require no cleanup. The question for the grocery industry is whether it can evolve quickly enough to meet this demand, or if it will continue to cede ground to the likes of Chili's, Panera Bread, McDonald's, and Wawa.

The dinner table is set, and the competition is fierce. Will legacy grocers find a way to reclaim their place, or is this the new normal where fast food and quick-service restaurants reign supreme? Only time will tell, but one thing is certain: the battle for "What's for dinner?" is just beginning.

Invite Foodservice Solutions® to complete a Grocerant ScoreCard, or for daypart and product positioning growth assistance, or call our Grocerant Guru®.  Since 1991 Foodservice Solutions® of Tacoma, WA has been the global leader in the Grocerant niche. Contact: Steve@FoodserviceSolutions.us or 253-759-7869

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