Whataburger condiments

Operators move into online retail

Fast-casual concepts like Whataburger, Panera Bread and Umami Burger, among others, are making inroads into the online retail space. 

Whataburger recently began selling its Original Mustard, Spicy Ketchup and Fancy Ketchup online.

As consumers venture further into online shopping, an increasing number of restaurant companies are stocking the Internet shelves with their branded retail products.

While figures for online sales by restaurants haven’t grown large enough to merit research firm coverage, total online U.S. retail sales are growing. Sales reached $231 billion in 2012 and are expected to increase 13 percent to $262 billion this year, according to forecasts by Forrester Research Inc. of Cambridge, Mass.

And growth in e-commerce, which now accounts for about 8 percent of total U.S. retail sales, is outpacing brick-and-mortar sales growth, Forrester said in March. By 2017 e-commerce is expected to reach $370 billion, or 10 percent of all U.S. retail sales, fueled by a growing number of smartphone and tablet-computer shoppers.

Steakhouses and barbecue restaurants have long offered their sauces through online portals, but bigger restaurant players like Whataburger and Panera Bread are joining the online food supermarket.

Earlier in July, 750-unit San Antonio-based Whataburger began selling its Fancy Ketchup, Spicy Ketchup and Original Mustard online after debuting them in the H-E-B grocery chain in May.

“We’ve had customer requests for our ketchups for a long while,” said Dino Del Nano, senior vice president of Whataburger’s retail segment.

The ketchups and mustard are available in a three-pack for $19.99 or a six-pack for $26.99, which includes free ground shipping in the continental United States. Customers can buy either multiple bottles of one product or a variety pack of all three.

Whataburger handles its own order fulfillment, Del Nano said, built upon existing systems for retail merchandise it had already been selling. But the perishable nature of food products, even those with longer shelf lives like bottled condiments, poses a challenge for any restaurant brand looking to become a retailer, Del Nano said.

“The supply chain is very important, especially for food products,” he said. “Bottled condiments have a relatively long shelf life. But you have to have a decent base of business to have long production runs, for quality and cost.”

The volume of product Whataburger was able to produce for retail sale through its relationship with H-E-B offered a bridge for online sales.

“The H-E-B relationship provided a supply chain for us,” Del Nano said. “We have our own fulfillment because internally we are distributing uniforms for ourselves and other items we consume internally for the Whataburger system. We had the people, the facility, the technology and the order process already built. After we had the supply chain built for H-E-B, it was pretty easy to put it online.”

Some brands have chosen to use third-party fulfillment centers, but that thins the profit margins, said Aftan Romanczak, president at Renaissance Consulting LLC.

In addition, Romanczak said, “Getting a private label is not difficult if you use an existing product formula. If you want to go proprietary, it gets way more complicated and the production levels go way up.”

Restaurant brands that franchise have additional considerations, he added.

“If you are a franchise system, it can be more difficult,” he said. “How are you going to cut the franchisees in?” It also becomes a territory issue in writing or amending a franchise offering circular, he said.

Third-party options

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Brands like 1,700-unit Panera Bread Co. of St. Louis have retail products for sale online through third-party retailers like Target.

Stephanie Crimmins, Panera’s vice president of business development, who oversees consumer products, said Panera has been offering products through the supermarket and club-store markets for several years.

Panera Bread retails several products online, including its Asian Sesame salad dressing.

“We began testing soups back in 2008,” Crimmins said. “We graduated from soups into salad dressings, which were introduced in late 2009. This year, we began offering a ground-coffee product as well as our mac and cheese in groceries and Target.”

The retail offerings — not just online sales — have become a sizable profit center for Panera, she said.

“Our soups will be generating about $50 million in retail sales by the end of this year and will be in over 5,500 stores by year’s end,” Crimmins said. “Our salad dressings and coffee will be in the $6 [million] to $7 million range in retail sales by year’s end in each of those categories. It’s a fairly sizable business.”

Panera now retails a dozen soups, eight salad dressing SKUs and six coffee flavors.

The company had been concerned initially that retail sales might cannibalize store sales, Crimmins said, “but what we found is that it really serves to drive folks into the bakery-cafes.

“When consumers see the brand on the shelves or if they take it home and it’s in their refrigerator, it reminds them of the great experience of going to the Panera bakery-cafe,” she added. “We really believe it helps drive business back to the bakery-cafes.”

Brand strength is a key to success, Crimmins added.

“This business is not an easy business to get into if you don’t have strong brand recognition,” she said.

According to Whataburger executives, social media is now contributing to the strength of retail brands. In fact, Whataburger’s decision to offer condiments outside of H-E-B’s Texas and Mexico service area was motivated in part by requests made through Whataburger social channels.

Other brands are capitalizing on the social channels, as well. Each item on Los Angeles-based Umami Restaurant Group’s website, which offers a variety of items from Umami Spray to 28-ounce cans of tomatoes, includes buttons for one-click sharing on such social media sites as Facebook and Twitter.

Altering websites to accommodate online sales leads to additional costs, said Del Nano of Whataburger.

“The website development, I found, can be pretty expensive,” he said. “But we had to do that piece.”

Pricing is also a consideration, he said.

“If you buy one bottle of ketchup online, you are going to spend three times that amount shipping it. That’s why we decided to go with three-packs and six-packs,” Del Nano said. “This way, your freight is less a percentage of the price.”

In addition to providing a service to the Whataburger fan base, Del Nano said online retail sales support the stores.

“It’s definitely helping our core business,” he said. “Part of our strategy to do retail products is to support the restaurant business and not detract from it. We’ll make sure going forward that nothing we do takes away from the restaurants. It’s an accessory and component of the marketing strategy.”

Del Nano warned, however, that online sales are a different discipline than typical restaurant operations.

“You have to be willing to bring the people on with the skill sets and the technology to do it right,” he said. “If you do it right, it really does become additive to your restaurant brand and experience. You have to go into it with your eyes wide open and looking at it as a freestanding business that has to stand on its own. Otherwise, it becomes a marketing expense.”

Contact Ron Ruggless at [email protected] [5].
Follow him on Twitter: @RonRuggless [6].