Fast-casual media spending tracks upward

Fast-casual media spending tracks upward

Restaurant brands are increasing spending on traditional media like television and radio in an effort to up consumer visits.

For years, fast-casual chains promoted their brands by focusing on efficiently run locations powered by local store marketing muscle. More recently, however, several segment leaders have ratcheted up their advertising budgets to experiment with more traditional advertising tools like television and radio.

Nevertheless, even as officials at Chipotle Mexican Grill, Noodles & Company, Panera Bread and Smashburger test mass media’s power to enhance awareness and drive traffic, they insist they are not losing sight of the ground game. They will continue to differentiate themselves and establish expectations through localized public relations and digital marketing as well as by delivering on those messages through effective operations.

Chipotle chief executive Steve Ells said merging fast casual’s legacy for new media with more traditional marketing methods is key to growing the business over the long term. In March Denver-based Chipotle launched its “Skillfully Made” campaign, which utilizes billboards and radio commercials designed to promote points of differentiation, like the chain’s effort to eliminate the use of genetically modified organisms.

“Customers aren’t directly asking for that, but when you help them understand the importance of these things, I think it develops a stronger relationship,” Ells said during Chipotle’s second-quarter earnings call. The chain’s same-store sales rose 5.5 percent during the period.

“How much of the marketing contributes to the comp, we’re not exactly sure,” he said. “But we’ve always taken a longer-term view in our marketing approach, and rather than put out campaigns that will spike up sales or contribute to a quick comp, we would rather ensure that we’re building the business consistently.”

Adding ad dollars

Chipotle’s campaign ran in 26 markets and supported 900 stores. Executives said marketing spending would rise to 1.6 percent of sales in 2013, equaling as much as $50 million. That  amount is up from 1.3 percent of sales in 2012.

Chipotle is not alone among fast-casual brands in spending more for marketing this year. Panera CEO Ron Shaich said during the St. Louis-based brand’s second-quarter conference call that the company would increase spending on direct media from 1.4 percent of sales in 2012 to between 1.6 percent and 1.7 percent of sales in 2013, with another increase as well as a national television campaign projected in 2014.

In its S-1 filed with the Securities and Exchange Commission, newly public Noodles disclosed that its marketing expenditure increased from $2.1 million in 2010 to $2.3 million in 2011 and $2.8 million in 2012.

The Broomfield, Colo.-based chain switched ad agencies in January and kicked off a branding campaign, “Your World Kitchen,” which included radio ads.

Arjun Sen, president of Centennial, Colo.-based marketing firm ZenMango, said the fast-casual category has reached an inflection point of high growth that necessitates the sector’s biggest media spenders to increase their marketing expenditures to retain top-of-mind awareness.

“Keeping marketing spending always as a percentage of sales does not work,” Sen said. “Sales is a step function at times, and when a category reaches a mature phase or a brand needs to leap to the next level, there is need for significant increases in spending.”

Will it drive sales?

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Fast-casual chains’ foray into radio and television has resulted in high-level branding campaigns like Chipotle’s “Skillfully Made,” Noodles’ “Your World Kitchen,” and Panera’s “Live Consciously, Eat Deliciously.”

But Panera, the chain furthest along in its testing of TV, also said it would use its commercials to drive near-term sales at breakfast, which have been sluggish recently. 

“Though our campaign was clearly successful in driving new customers into the cafe, we now believe it could have been even more powerful, at least in the short term, if we had mixed in some food-specific communication,” Shaich said. “In [the third quarter] you’ll see some of our advertising focused on our Breakfast Power Sandwich.”

Public companies like Panera, Chipotle and Noodles often hear calls from Wall Street to increase marketing if same-store sales start to decelerate — as Panera and Chipotle’s had done in the first quarter of 2013 relative to the fourth quarter of 2012, said John Gordon, principal of San Diego-based Pacific Management Consulting Group.

“Fast-casual brands get that same-store sales pressure all the time,” he said. “They’ve largely resisted it because if they can deliver their double-digit comps without [traditional mass marketing], the pressure’s off.”

Panera has been testing national media buys this year to see how expensive media markets like New York and California would benefit from increased advertising, Shaich said. 

Gordon noted that Chipotle and Panera probably are much closer to reaching media efficiency in many of their markets, but most fast-casual brands have the luxury of time to experiment with traditional media further.

“It’s a scale issue,” Gordon said. “But there’s nothing wrong with these fast-casual guys testingmedia just to see what happens.”

The ground game

Denver-based Smashburger tested its first radio campaign in nine markets in 2012 and debuted its first TV commercial in seven markets this year. But chain founder Tom Ryan said those traditional media represent the third punch in a strategy that begins with public relations and social media aimed at giving customers deep knowledge of what makes the brand different — namely, burger smashing.

“Social media and PR set up the content, and then we come in behind that with awareness-building techniques [like radio and TV],” Ryan said. “We’ve always done print, and radio has much more efficacy and reach for a better value. TV even takes that to another level.”

He added, however, that increased awareness does not mean much if operations do not back it up. While Smashburger is only a 6-year-old brand, it has built enough of a following in a handful of markets to justify increasing its total media expenditure, he said.

“If we had done this in year one, it would’ve been premature,” Ryan said. “This is an evolutionary approach, and we’re adding total media spending in the aggregate [rather than reallocating].”

Ells and Shaich agreed that it’s critical that the in-store guest experience deliver on marketing promises, and both said recently on earnings calls that their respective brands would focus on increasing operational throughput.

“We know we will end up in a boom-splat situation if we don’t increase the throughput and capabilities,” Shaich said. “Our constraint to sales growth isn’t the ideas or the customer demand — they’re there. It’s actually our capabilities, and fulfilling it and executing it.” 

Contact Mark Brandau at [email protected] [4].
Follow him on Twitter: @Mark_from_NRN [5].