As recently as a decade ago, few would have suspected the fast-food industry capable of fresh thought and innovation. For years, the sector operated on a basis of regularity and familiarity, churning out the same menu items cooked the same way to the same customer base. But competition has increased, and the clientele has become more discerning. In such an atmosphere, what's an old-time burger slinger to do?
Find clever new ways to make a buck, that's what.
Caffeine-fueled growth
In the days before people started to be more careful about what they ate, fast-food restaurants could get away with having a limited menu of bland, nutrition-deficient items. Leading the charge was McDonald's (NYSE: MCD), which, save for tentative and often short-lived experiments like the Hulaburger -- an early-1960s flop that featured a pineapple in place of a meat patty -- served up the same Big Macs and Filets-o-Fish they had for decades.
That isn't the case anymore. Since most of the major fast-food empires are publicly traded and have to do battle with determined rivals, they need to come up with ways of boosting revenue that top those of the competition.
Sometimes that results in a company that moves in what amounts to a new direction entirely. Several years ago, McDonald's, encouraged by the high margins Starbucks (Nasdaq: SBUX) enjoys, blasted into the gourmet-coffee business by launching its McCafe line. After all, espresso drinks are essentially coffee, water, and sometimes milk, all relatively low-cost inputs.
In spite of the commanding presence of Starbucks in American cities, people can't seem to get enough designer coffee, and Mickey D's has been selling plenty of it; two years after they were rolled out nationwide in mid-2009, the McCafe products were contributing more than 6% to overall company revenues.
In turn, a onetime innovator like Starbucks has been encouraged to come up with its own "new and improved!" items. This past summer it introduced its line of Refreshers beverages, odd-tasting concoctions that attempt to blend thirst-quenching, fruity drinks with the kick of caffeine. But different can be risky in chains so heavily identified with one type of product. Recent visits by this writer to various Starbucks indicate that Refreshers haven't been all that successful; customers overwhelmingly seem to prefer the chain's coffee staples.
Another company taking the designer-java route is Dunkin' Donuts, the flagship chain of Dunkin' Brands. The company's move into this area was more synergistic than for McDonald's, as much of its business was already derived from coffee; it needed only to broaden those offerings with espresso-based drinks.
Cleverly, the company also expanded beyond the doors of its 10,000-plus doughnut shops, selling its brews in "K-Cup" pods for the popular Keurig home coffee-making units from Green Mountain Coffee Roasters (Nasdaq: GMCR). Although Green Mountain isn't the investor darling it once was, it still sells plenty of Keurig machines -- 1.4 million in its most recent quarter, up from 1.1 million in the same period of 2011.
Tasty taco twist
Recent fast-food menu hits aren't based on the popular hot brown liquid. The success story of the year belongs to Yum! Brands' (NYSE: YUM) Taco Bell, which is ringing up plenty of sales with its Doritos Locos taco. This is a simple twist well executed -- a taco with a nacho cheese-flavored Doritos shell as opposed to the traditional plain corn version.
Simple but effective. More than 100 million of the funky tacos were sold in the first 10 weeks after nationwide rollout. By comparison, it took McDonald's 18 years to sell that many hamburgers.
Now seemingly everyone is trying for the next Doritos Locos. For many, that means tapping into the rising health-consciousness of the American eater. For example, privately held Subway has apparently discovered a way to keep avocados naturally fresh, and it's pushing the healthy green ingredient in such offerings as its Turkey and Bacon Avocado Sub.
Wendy's (Nasdaq: WEN), once identified almost entirely with its distinctive square-patty burgers, is also hoping for a hit with a healthy option or two. It recently introduced its Berry Almond Chicken Salad, and the twist isn't in the combination of ingredients; it's in the seasonality -- the berries are at their juiciest during summer, so the salad is available only at that time. This is a new and rather daring approach for a company that built its empire on constantly available, unwholesome fare.
Health kick
Fast food isn't what it used to be. In the old days, could anybody have imagined McDonald's offering, for example, something like its Blueberry Banana Nut Oatmeal (packed with -- gasp! -- fresh fruit)? But these days, doing something new, different, interesting, and buzzworthy is not only a way to increase customer numbers. It's also essential for any chain that wants to thrive and survive.
Survival, though, is tough in the competitive food and beverage business. Green Mountain Coffee Roasters, for instance, has seen top- and bottom-line erosion in recent quarters. Can it turn itself around? For an expertly brewed cup of analysis on the company, download our premium report. Get a full year of analysis and regular updates.
