July 31st, 2014
The meat scandal in China that had Illinois-based OSI Group‘s China operations accused of selling adulterated meat, and which has dragged down McDonald’s, KFC and others, has led to sweeping changes.
OSI’s Shanghai plant has been accused by the Chinese government of mixing meat with expired dates with fresh meat to stretch profits. The plant has also been accused of falsifying records to cover up the practice. OSI’s president and COO, David McDonald, has announced the plant will become a direct component of the company’s corporate structure and no longer operate as a separate entity. A group of non-Chinese, outside managers has been dispatched to clean up the mess, including a thorough investigation of the plant’s operations and its compliance with industry practices in China.
McDonald has denied that he changed his last name because McDonald’s is OSI largest customer.
July 30th, 2014
Infographic Courtesy of Food Business News
Sports nutrition in the past was often a joke: energy bars, body-building supplements (sometimes with questionable safety) and energy drinks (also marred with some unfortunate safety lapses). At best it was a niche market for specialty companies like vitamin powerhouse General Nutrition.
But a series of acquisitions shows that segment is now on the radar of mainstream food & beverage companies. Post Holdings added the PowerBar brand to its stable, and now Hormel Foods is buying Muscle Milk. These products are mostly intended to enhance athletic performance or help bodybuilders gain muscle, but can their appearance (and extension) into more conventional products & outlets be far behind?
This article in Food Business News mentions how a recent survey from Innova says 40% of American consumers would pay more for nutritional products targeted to a specific benefit or activity, while 88% want products that increase energy, 84% want ones that burn fat, and half are looking for products that help them recover faster from a strenuous workout.
While vegan products are a novelty, interest in plant-based foods is rising among the affluent because of a belief they are high in anti-oxidants (the scientific jury is still out on whether anti-oxidants have any meaningful health advantage). Gluten-free and allergen-friendly claims are growing globally at nearly 25% of the new product introductions. Portability is key, with formats like gels, chews, bites, and shots. Some of the new items include the ultra-specialized (hydration tablets and shots of electrolytes & flavor to add to water). And segmentation is showing a growing group of nutrition products aimed at women.
Finally a clean label with minimal processing is gaining in the sports nutrition segment.
July 29th, 2014
The so-called “dollar store” market just changed dramatically: Dollar Tree will acquire Family Dollar Stores for $8.5bn.
Dollar Tree’s CEO, Bob Sasser, said that the Family Dollar banner will be retained (we’ll see how long that last), and that the new entity will have over 13,000 stores in 48 states and five Canadian Provinces. With sales of $18bn, the chain will fall far behind Walmart‘s $328bn in annual sales, but will position the company to have more leverage in the future. Additionally, the new company is looking for $300MM in annual cost & procurement “efficiencies” (usually a euphemism for layoffs of employees and hard bargaining with suppliers).
The two companies operate under significantly different models with Dollar Tree selling everything for $1 or less, and is located mostly in suburban areas. Family Dollar has multiple price points, and competes in low- and low-mid-income urban and rural locations.
According to this story, the terms are $60 in stock and $15 in cash totaling $74.50/share, a 22.8% premium over its selling price as of July 25, 2014.
July 28th, 2014
Last week, the CEO of Real Mex Restaurants, the parent company of Mexican chain Chevy’s, stepped down after 18 months on the firing line after the company exited bankruptcy protection and the acquisition by two private equity firms, Z Capital Partners LLC and Tennenbaum Capital Partners LLC.
Real Mex operates 117 company-owned stores (an anomaly in today’s world of franchised chain restaurants).
Normally we don’t follow the comings & goings of chain restaurant management unless they company is struggling.
Misery loves company?
No, it’s because these changes are usually part of a “merry-go-round” that has the usual suspects swapping one chain for another. Rarely is there any substantive change or outside perspective. No reason was given for long-time industry exec Charly Robinson’s departure.
Real Mex’s other banners include El Torito, Acapulco, El Paso Cantina, Sinigual, theMexican gastro-pub Who Song & Larry’s and the Las Brisas restaurant in Laguna Beach, CA.
July 24th, 2014
The takeover buying spree continues: Swiss chocolate giant Lindt & Sprüngli has entered into an agreement to acquire American candy maker Russell Stover Candies, Inc. (terms of the agreement were not announced).
The acquisition will catapult Lindt & Sprüngli to the #3 American chocolate maker (following Mars and Hershey), and extend its stable to include the Lindt, Ghiradelli, Russell Stover and Whitman’s brands.
The US is the world’s largest chocolate market. Russel Stover sales total approximately $500MM annually.
July 23rd, 2014
As reported here yesterday, McDonald’s is suffering an identity crisis among its franchisees.
Normally a US chain restaurant can take some comfort during times of stress in its overseas operations. But the BBC and other sources have reported that the Golden Arches have landed in the middle of an enormous foot safety scandal in China.
KFC‘s China operations are also involved.
Meat supplier Shanghai HUSI Food Co. has been accused by the Shanghai Municipal Food and Drug Administration of selling re-processed expired meat (see details in Chinese here). HUSI is no local company, but the China division of US-based food supplier OSI Group LLC, and has been supplying McDonald’s’ China ops since 1992, and Yum China (parent company of KFC and Pizza Hut‘s China divisions) since 2008. Together the three chains are China’s #1 and #2 fast food chains there.
This is not the first food safety crisis for Yum’s China units: in 2012 they were accused of selling chicken products with high levels of antibiotics.
Food safety has been problematic for China, but has become an international issue as more and more food & processed foods have been exported to the US. The two worst incidents were pet food contaminated with either wheat gluten or plastic (melamine) in 2007, and plastic (melamine) in milk products and infant formula in 2008 that sickened over 300,000 consumers in China, and led to the death of 6 babies from renal failure. Melamine in milk fools tests for protein content, allowing suppliers to water down their products and thereby increase profits. While the scandals have led to greater Chinese oversight, mistrust of Chinese food products has grown as the US and other countries have started importing more of them (even shipping over US-raised bulk chicken carcasses for reprocessing and export back to the US).
As the scandal has spread, other fast food chains are bailing on HUSI, including Burger King, Starbucks and Papa John’s.
July 22nd, 2014
This article in Burger Business raises the serious question whether McDonald’s is a brand in crisis, at least internally.
The pointed comments from a survey by Janney Montgomery Scott of 27 operators (with 231 restaurants) are shocking in their bluntness:
“It was time for this brand to reinvent itself a couple of years ago.”
“We serve the most customers because we’re considered cheap, rather than the best quality.”
“Our best years are behind us.”
It’s true that we have never met a satisfied chain restaurant franchisee, with most believing they pay too much back to the franchisor, get too little in support and aren’t making enough money. But Consumer Reports recently put McDonald’s at the bottom of chain restaurants (it has been there before). And recent declines in sales have led some to wonder whether the best years are, in fact, behind this iconic brand.
But now the company’s troubles are finding the light of day with shares falling 2% in the most recent day of trading according to The Wall Street Journal. Profits have declined to $1.39bn from $1.40bn a year ago. Despite flat sales at restaurants open at least a year, revenue was up 1% to $7.18bn globally. Same store sales in the US declined more than expected by 1.5%. In Europe the decline was 1% (vs. growth anticipated at 0.7%) due to continuing weakness in Germany, and despite good results in the UK and Germany. In the Asia/Pacific, Middle East and Africa regions, same-store sales increased 1.1%, closed to an expected increase of 1.5%.
July 21st, 2014
The cupcake sensation Crumbs abruptly closed July 9th announcing it had filed for Chapter Seven (total liquidation) after a $4MM annual loss.
The company had already lost $2MM in 2013. Employees from as many as 65 stores in 10-12 states and the District of Columbia were let go (exact numbers were uncertain). Sources showed 165 full-time employees and 650 part-timers. NASDAQ had de-listed Crumb’s shares last week.
Normally we would not take notice of something this small except that the chain has licensed make-your-own cupcake mixes to Pelican Bay. The products were shown at last week’s Fancy Food Show in NYC that Broad Street Licensing Group attended. The products were originally launched at Atlanta’s Gift Show in January, and are scheduled to be in Target even as this is written.
What will the company’s demise mean for the future of its licensing? Recovering from bankruptcy is extremely difficult for any brand’s licensing value, though casual dining chain Bennigan’s was able to continue sales in the vending category after it shuttered most of its locations following a similar Chapter Seven filing in 2008. The chain shrank afterward from 288 locations to today’s 31.
Normally bankruptcy is a material breach in any licensing contract, and allows the other party to void the deal.
July 17th, 2014
We’ve already seen (and blogged about last year) licensed “Game of Thrones” beer (see image below). Now comes news from our friends at The Drinks Business Australia about a licensed “Game of Thrones” wine.
These sorts of promotional deals are a staple of much F&B licensing. The presumption is that consumers will be attracted to their favorite entertainment property and will decide the stuff inside isn’t half bad. The project isn’t great licensing because it comes from Common Ventures, a Sydney-based ad agency. No offense to you ad people, but I’ve never met anyone in advertising who has a clue about how licensing works. The cost per bottle is about $20, which makes it on the pricy side when it comes to novelty wines.
July 16th, 2014
If you aren’t adapting your marketing to smart phones, then you’re headed for Chapter 11.
That’s the take-away from a new study by the marketing firm Knotice 43.2% of all retail marketing e-mails were opened on mobile devices in Q3/Q4 2013 (up 13.9% over the same period last year). The company estimates that figure will rise to over 48% in the second half of this year.
It should be no surprise given the heavy marketing and sales of smart phones and tablets. Email opens on smart phones continue to outpace tablets, but the margin is closing (currently 2-1). Phones make up 30.88% of all emails opened, with tablets at 17%. But tablet growth in email opens showed a 40.5% gain in the past 12 months.
A detailed overview of the study is available here.