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Growth and Maturity
February 12, 2008
Three recent news articles shed light on the current state of the restaurant industry. Read together, one conclusion is that we have reached the end of a booming six-year business cycle, with three of the industry’s shining growth stars reaching a point best described as “maturity.” No longer fast-moving upstarts, they act more like the giants they originally challenged.First, Starbucks reported the return of Howard Schultz (shown) to the helm after a senior-management shakeup followed by the announcement of a new pricing and menu strategy (lead by $1 plain coffee). Second, it was reported that Panera Bread is the object of a shareholder-driven class-action suit accusing management of the company with repeatedly overestimating earnings. And third, The Cheesecake Factory reported a 34.8% decline in fourth-quarter earnings and a slowing of new-unit growth.
These three segment-leading companies can be seen as proxies for the enormous growth in industry sales from the fourth quarter of 2001 to the middle of 2007. As innovators, they helped create segmentation strategies that gave us new ways of looking at consumer choice in restaurants.
Starbucks established the “Up-Market Quick Service” category by creating an unrealized consumer attraction for branded coffee. Panera Bread dominated fast casual and almost single-handedly created demand for artisan baked goods and esoteric sandwiches. The Cheesecake Factory defined casual elegance, offering menu items at everyday price points in opulently designed dining rooms.
Now, though, the economy is in a slowdown, the nation is fixated on the ethic of “Change” and, as news stories point out, mature enterprises no longer are seen as suppliers of innovation and creativity. As so often happens with consumer products, imitators and adaptors have learned how to take share away from originators. The nimble upstarts have become the lumbering giants.
Transition is in the air. 2008 already has brought challenges, which will create opportunities. Economist Joseph Schumpeter called these periods of “creative destruction.” As we witnessed in 2002 after the 9/11 tragedy, economic and societal unease unleashes new entrepreneurial activity. Before 9-11 we had four segments—QSR, family dining, casual/theme, and fine dining. Since 9/11 we have fractured into seven segments defined in large part by the growth of Starbucks, Panera Bread and The Cheesecake Factory—QSR, up-market QSR, fast casual, family dining, casual/theme, casual elegance and fine dining.
It appears that, once again, the dynamic nature of the restaurant business offers innovators the chance to redefine the equation. --Chris Muller
Posted by Chris Muller on February 12, 2008 | Comments (0)