1. THEBLINDSPOT
lty
the New Loya
Location and
os
or Health Hal
Sticker Shock
t Addiction
The Discoun
Generation Z
The Guys of
HEART VS. GUT
BUILDING BRAND LOVE
IN THE RESTAURANT BUSINESS

2. HEART VS. GUT
BUILDING BRAND LOVE
IN THE RESTAURANT BUSINESS
The Discount Addiction 02 Sticker Shock or Health Halos 06
Filling the Psychological Gaps of Strategies to Satisfy Conflicted
the Good Deal Consumers and New Nutrition Mandates
THEBLINDSPOT Location and the New Loyalty 04 The Guys of Generation Z 08
Restaurant executives receive plenty of opinion polls, but finding actionable insights Ditching Cards in Favor of Check-Ins Digital Content and Dude Food
on what truly motivates consumers and influences their dining decisions is another and Social Brand Advocacy
matter. There are blind spots in industry data that require fresh perspectives and Heart vs. Gut 10
new angles of inquiry. This report offers a high-level perspective on the most critical The Identity Crisis of Fast–Casual Pretenders
issues impacting restaurant brands. Please contact us for a full presentation of our
research findings and our strategic approach to growing restaurant brands.
engauge.com

3. 03
THE DISCOUNT ADDICTION: THERESEARCHQUESTION
The Coupon Deprivation Study: How deep is the psychological
FILLING THE PSYCHOLOGICAL GAPS need for savings – and how can it be filled? We will challenge the
couponing culture of Gen-X moms. A sample group will undergo
OF THE GOOD DEAL
a two-week diet from discounts, eliminating coupons and dining
specials entirely from restaurant outings. This intervention will
reveal which connections and experiences survive – and which
brands will win – during the dreaded coupon withdrawal.
Frugality and thrift are a source of
identity and consumer pride.
Among Gen-X moms, the expectation
of a good deal has exploded.
Discounts were meant to be widely accepted social norm, promo codes, checking menu The menu for deal-seeking moms And the time is now. Commodity
a temporary fix – a pragmatic amplified by the shareability prices on smartphones and signing should include search, social, prices are on the rise and cost
recalibration, not a permanent of social networks, where up for digital deals before heading location-based services, online pressures are forcing many brands
shift in strategy. Now they are a online coupons and money- out. There’s no escaping the daily deals, thematic content, to consider increasing menu
crutch for many brands, particularly saving tips light up Facebook impact of these shifting consumer relationship marketing, reward prices. Pricing power is attainable,
THEBLINDSPOT among those fearful of botching
a carefully constructed value
and Twitter conversations. And
the mainstream push of digital
behaviors. Marketers simply can’t
continue to serve coupons and
programs and mobile apps.
Together, these platforms can
but it won’t be distributed evenly
across the industry – and it
proposition with reduced portions deals from sites like Groupon, discounts a la carte, nor can they counterbalance margin-reducing certainly won’t come without
Conspicuous Couponing: It’s worse than you think. Deals and discounts, or tiered-pricing. LivingSocial and Tippr means do away with discounts without discounts by boosting new some hard work by brands. The
intended as a temporary recessionary fix, have changed consumer behavior. using coupons at even high- finding ways to fill the psychological traffic and return visits. There most successful chains may have
Among Gen-X moms – a key end establishments no longer gap that’s left behind. Promotional are opportunities for innovative enough muscle to push prices by
And you can’t just take them away. Now that frugality and thrift are a source target for restaurant brands – engenders embarrassment. It’s a offers and discounts must be a brands to surge forward, leaping a couple percentage points, but
of identity and consumer pride, your sales are at stake if discount withdrawal the expectation for a good deal badge of honor. point of departure, a gateway to over the economic slump if even they can’t expect to instantly
has exploded, spurred by a deeper engagement – tied to an they can deliver campaigns that wean moms off their steady
ensues. How can brands fill the psychological savings gap? powerful combination of cultural, In this new era of thrift, Gen-X experience that beneficially defines add some zing to the zeitgeist diet of discounts and deals – not
technological and economic moms work harder, scouring or broadens a brand’s positioning in while coordinating tactics across without giving them something
trends. Frugality is now a online sources for coupons and the minds of consumers. marketing channels. else in return.
02

4. 05
THERESEARCHQUESTION
You Are Where You Eat: Can location-based marketing
LOCATION AND THE NEW LOYALTY: Location-based services and
“check-ins” offer an attractive
alternative to traditional
achieve what loyalty cards never could? Loyalty today is
no longer just about brand preference; it’s a projection of
self-identity. Now that location-based apps and reward
DITCHING CARDS IN FAVOR OF CHECK-INS
loyalty programs.
programs broadcast consumer “check-ins” on Facebook
and other social networks, what was once a one-to-one
AND SOCIAL BRAND ADVOCACY relationship between brand and consumer has shifted to
the new one-to-one-to-many model.
For years, loyalty cards added cards. Location-based services be used to build preference sets cards, top restaurant chains 20 percent of all transactions at Facebook, Twitter and other social salad. On the other hand, With increasing sophistication,
a familiar bulge to consumer and “check-ins” offer an attractive and drive incremental sales. have become highly tactical in Starbucks stores in the U.S. sites, creating a shared, semi- teenage guys proudly plowing segmentation and customization,
billfolds and extra clatter to alternative to traditional loyalty identifying incentives that keep public history of check-ins that through Double Downs at KFC the emerging class of digital
keychains. More than 80 percent programs. New technology enables brands people engaged, as well as More than a tactic to increase can be tracked by consumers’ might be perfectly happy to keep loyalty programs will create
of U.S. consumers carry a club to design location-based loyalty their optimal rate, randomness, sales, loyalty programs present friends and followers. their online peers in the loop. opportunities for restaurants to
card for at least one supermarket, Several chains – including programs and run segmented value and intensity. The “My a customer service opportunity tailor incentives across a broad
yet the restaurant industry never McDonald’s, Starbucks and campaigns simultaneously from a Starbucks Rewards” prepaid to enhance interaction and This “social broadcast” Apps and location-based service range of demographics. The
fully embraced loyalty programs. Chipotle – were among the first single dashboard across multiple card program, for example, engagement. Coupons might get effectively transforms the one-to- programs also provide the merger of location and social
THEBLINDSPOT Early efforts at some chains
were scrapped after executives
brands to participate in the debut
of Facebook Deals in November,
platforms, such as Gowalla,
Foursquare and Facebook Deals.
offers multiple tiers of loyalty
with rewards that increase
somebody in the door, but an
enjoyable experience and effective
one relationship between brand
and customer into a one-to-
ability to alter brand messages
to individuals based on their
media presents a compelling new
approach for restaurants looking
decided they were too difficult to a reward application linked to the These tools can coordinate progressively: first, a free drink frequency programs keep them one-to-many model, which has day-part identities. For example, to redraw the line on loyalty.
Disloyal Diners: Loyalty cards manage and maintain. Customers location-based service Facebook and deliver relevant messaging on your birthday, then free refills coming back. The value of strong important ramifications for how men aged 18-25 display huge
at other restaurants frequently Places. Customers who used (e.g., texts and tweets) to and trial offers, and, finally, customer relationships doesn’t restaurants approach their loyalty differences in behavior when you
never managed to drive retention lost cards and – just as often – their mobile phones to check in at customers at the right time and exclusive invitations to concerts end at retention. Brands must programs. Dieting boomers, for compare their lunchtime identity
for restaurant brands. lost interest. participating Chipotle restaurants place: targeting the breakfast and film screenings. Because transform loyal customers into example, might not want their with their late-night self. In the
received a buy one get one free commuters while they’re still in these are prepaid cards that advocates who recommend the spouses, colleagues or friends latter, they’re about indulgent,
Frequency programs are evolving entrée offer. But the check-in is their cars, or reaching out to the carry a cash balance, consumers experience on social networks to know they’re indulging in hedonistic dining, whereas in the
and now include card-free just a starting point. There’s a lunch crowd at noon. are less likely to carelessly lose and via word of mouth. mid-afternoon munchies at former, they’re conscious cost-
options, such as mobile apps and great deal restaurants can learn them – and Starbucks earns all McDonald’s but perhaps they savers essentially avoiding what
automatic systems that identify about their customers through Moving beyond the boring and the revenue up front. The cards Location-based apps are often would want to earn some social their late-night self craves.
customers based on payment these programs – data that can predictable calculus of punch now reportedly account for nearly automatically integrated within cred from ordering a low-cal
04

5. 07
THERESEARCHQUESTION
STICKER SHOCK OR HEALTH HALOS:
Redefining Indulgence: Will government requirements on nutritional
data send consumers scrambling to find healthier alternatives? Will
they begin seeking the truth about what they’re eating and make more
prudent choices? Consider the halo of “fresh-cut fries” or “all-white
STRATEGIES TO SATISFY CONFLICTED meat.” Many consumers need only one good reason or well-chosen
word to allow themselves to dig in. But what happens when they realize
CONSUMERS AND NEW NUTRITION MANDATES their favorite “all-natural” sandwich on “artisanal” bread packs almost
1,000 calories? How do restaurants win the numbers game?
The list of the fastest-growing vehicle for fast food chains, as KFC’s infamous Double years ago. Consumers claim they inform their behaviors.
restaurant brands is a telling believed that a 1,000-calorie Down. Yet Panera still enjoys a want more information about the Our ongoing dialogue with
barometer of consumer sandwich had only 500 calories, reputation as a healthful dining ingredients in their food, including consumers reveals that healthful
sentiment toward healthy according to findings from the destination. The presentation of sources (e.g., “local”) and nutritional eating isn’t necessarily a clear-cut
food, featuring fried chicken, Cornell Food and Brand Lab. lower-calorie alternatives – and content. At the same time, however, numbers game. Beyond calorie and
hot wings, Mexican food and added transparency on nutritional around 40 percent of consumers fat counts, a number of cultural
buffets – cuisine that is not Common sense suggests that data – appears to have boosted complain that nutritious food simply and experiential factors influence
particularly known for being kind the “health halo” would diminish the chain’s overall business. doesn’t taste good, according to how individual consumers assess
to waistlines. And a number of – if not disappear altogether – Good health may be priceless, data from the Food Marketing the health quotient of foods.
other chains have been innovating when consumers are confronted but, apparently, the perception of Institute. Many others are put off Restaurants can offset hard
in indulgence with new gut- by actual nutritional data. good health is enough to boost by the perception that healthy food numbers with contextual cues that
busting entrées, such as Denny’s However, that doesn’t appear profits. generally has higher prices. aid the rationalization process that
THEBLINDSPOT Fried Cheese Melt and Friendly’s
Grilled Cheese BurgerMelt.
to be the experience at Panera
Bread, which began posting With new federal and state This suggests that reconfiguring
begins the moment consumers
are told that what they want isn’t
calorie counts on its menu mandates requiring restaurants food choices to accommodate the good for them. Cues to freshness,
Calorie Rationalization: Many restaurant Last year, University of Chicago boards in March 2010. This move to post nutritional data on health conscious isn’t guaranteed authenticity, whole grains and
researchers found that food certainly hasn’t crimped sales; menus, there’s never been a to be good for business. So how real ingredients can help put
chains – not just QSRs – fear that labeled as “healthy” (as opposed Panera reported increased returns more important moment for the can restaurants provide relevant the fat facts in the back of their
revealing health-related information to “tasty”) actually made people of 9.9 percent in the second industry to confront the facts health-related information to people mind, diminishing the negative
impact this information might have
will scare away patrons and skew their hungrier and more likely to eat quarter of 2010, followed by on healthful eating. However, who want it most – and comply with
otherwise had on their decision-
more. Paradoxically, the more upticks of 6.9 percent in the third there are huge discrepancies new federal and state mandates on
menus. Federally mandated calorie consumers pay attention to what and 5.8 percent in the fourth. Not between what consumers say nutritional data – without scaring making.
counts will redefine indulgence, requiring they eat, the more overweight every meal at Panera qualifies in surveys and how they actually away patrons who might think twice
we have become as a country. as diet-friendly, far from it. Both behave at mealtime with menus after seeing the calorie counts? Restaurants will benefit from
consumers to make a more conscious the Sierra Turkey Sandwich and in their hands. For marketers, the greater clarity and context on
decision to do something bad. Studies have shown that the the Italian Combo Sandwich takeaways from industry data on For brands, the best way to really these issues. They need a fully
halo effect of health claims can have over 50 grams of fat and this subject are often conflicting, learn about healthful eating isn’t baked strategy, not more raw
improve consumer perception over 900 calories. Even some of confusing and counterproductive. by sending out surveys. It’s by numbers.
of the food they’re eating. their soups contain nearly 1,000 starting genuine conversations with
Customers at Subway, which calories, once you scarf down More than 70 percent of adults consumers in their natural habitats Studies have shown that the halo
pioneered the strategy of the sourdough bread bowl. That’s say they try to eat healthier now and making careful observations effect of health claims can improve
healthfulness as a marketing nearly twice as many calories at restaurants than they did two about how their beliefs actually consumer perception of the food
they’re eating.
06

6. 09
THEBLINDSPOT
Eating out is a ritual in the lives To activate this emerging Across all age respondents in the
The Future of the Restaurant Business: Teenage guys of young men. Chain restaurants demographic requires an study, 49 percent desired mobile
are a convenient and familiar understanding of their unique information on sit-down casual
of Generation Z – with their peer influences and pack meeting place that serve an social dynamics. They often restaurants, 30 percent wanted
feeding, social networks and mobile media – represent important social function – the eat in groups, making brand fast food and only 23 percent
age-appropriate equivalent of the preferences heavily influenced by were looking for fine dining.
the future of the restaurant business. This is a highly neighborhood bar. social networks.
social, digital-driven segment, and though they can be Drilling down into the specifics
For quick-service and fast-casual The digital natives of Gen Z – of Generation Z, it is essential to
awkward to pursue, brands fundamentally need to start restaurants, it will be important along with Gen Y and the very determine what truly attracts their
building relationships now.
THERESEARCHQUESTION
to engage the up-and-coming youngest of Gen X – are also attention and drives their decision
teenagers of Generation Z, the more likely to seek restaurant making. Do they feel pandered
oldest of whom will soon turn 18. and dining information on mobile to by “young hungry guys”
Still in high school, these young devices. Only about 10 percent of campaigns from Carl’s Jr. and
men remain insulated from the all Americans regularly seek such Hardee’s? Are they digging the Growing With Generation Z:
miserable job market and their information on their mobiles, “dude food” category spawned What do teenage guys want when they
discretionary income levels should but 50 percent of that group by popular indulgences like KFC’s
eat out? What attitudes and actions drive
THE GUYS OF GENERATION Z:
be relatively consistent with is between the ages of 13 and Double Down? Fast food has
past generations. But beyond 34, according to The Mobile traditionally served as a rite of this generation? Through an ethnographic
their immediate spending, it’s Shopping Framework Study passage for teenagers, and there
important to consider how their from Nielson and Yahoo!. Though is value in knowing where they’re immersion into teen tribes, Engauge will
cultural identities, habits and the earliest adopters tended going now and where they’re explore the social significance of dining out
DIGITAL CONTENT AND DUDE FOOD desires should inform strategies
to keep them engaged as
they mature.
to be mobile foodies seeking
fine dining and niche meals, the
numbers now favor mass chains.
planning to go as they grow.
in the lives of Generation Z, where fast food
serves as a ritual and rite of passage.
Fast food has traditionally served as a
rite of passage for teenagers.
Eating out is a ritual in the lives
of young men.
08

7. 11
HEART VS. GUT:
THE IDENTITY CRISIS OF FAST CASUAL PRETENDERS
Fast casual chains have posted Double-digit growth throughout a for this group, and their spending phrase. We define fast casual as and its Fire-Grilled Ribs, priced playbook. Fast-growing fast-
some of the most impressive vicious industry-wide downturn; accounts for a significant share of averaging around $7.50 per ticket, $8.99 in major markets, are nine casual chains are distinguished
numbers in the industry by relevance with a younger and restaurant revenues. even though Technomics pegs times more expensive than the $1 by their faithfulness to a clear
creating popular concepts with more affluent customer base; the check price slightly higher, entrées on the BK Value Menu. and compelling concept. Their
plentiful options. Meanwhile, and the siphoning of traffic from These male Millennials have around $8 or $9 on average. (That’s like Applebee’s introducing value proposition is recognizable
THEBLINDSPOT palate and price creep are
confusing the value proposition
both quick-service and casual
chains.
entered their prime restaurant-
going years during a surge in
Check price is the easiest criteria
to parse – and it appears to be
a $100 steak.) Conversely,
full-service chains such as
and cogent. By comparison,
restaurants that attempt to
at QSRs, and casual dining fast casual. Engauge research the one qualification that the Denny’s and Gordon Biersch are satisfy all taste preferences while
Trying to Be Everything to Everybody: QSRs (trading up) and restaurants are trying every trick Young adult men have suggests their love affair with current wave of copycats from descending into the fast-casual accommodating every possible
casual chains (trending down) have tried to copy the tactics in the book to break the cycle of traditionally been the most fast food may be imperiled by a the quick-service and casual category with new concepts in price point are at the risk of
trading down. frequent restaurant-goers, deep and growing attraction to segments believe is the secret urban markets. But honestly, confusing (and losing) customers.
of successful fast-casual brands, leading to category creep particularly for QSRs. Male the likes of Chipotle. sauce of fast-casual success. what’s the concept? Cheap casual
and price confusion. Yet price is never the sole selling point. Every restaurant chain today Millennials – the college kids and That’s a mistake, because price is and costly fast food. It’s a pure Given the track record of the top-
wants to capture the magic young professionals aged 18 to Three years ago, the industry not the point. play for price positioning. performing chains, it’s evident
Even in today’s value-conscious culture, there are better of fast casual, even though 30, also known as Generation Y – forecast from The National that specialized restaurants that
ways to build brand love. If brands try to be everything to nobody can quite agree on what have been hit the hardest by high Restaurant Association didn’t From above and below, Clearly, executives at these chains have scaled back their menus
fast casual really means. What unemployment levels. Yet eating competitors are racing to meet in have taken note of the breakout to focus on only a handful of
everybody, they’ll end up meaning nothing at all to anyone. isn’t disputable is the success: out remains an essential practice
even mention fast casual,
the middle. Burger King launched successes in fast casual, but their products have become more
and today only 5 percent of
consumers are familiar with the new premium entrées last year tactics suggest they misread the appealing to customers.
Young adult men have traditionally been
the most frequent restaurant-goers.
10

8. THERESEARCHQUESTION
Heart v. Gut : Explicit gut-level advertising can be popular, particularly with
male Millennials (aged 18-30), but does the overall experience leave them feeling
full yet unfulfilled? Sated but unsatisfied? Is there something bigger out there
– separate from calorie content and price – that drives brand relevance and
consumption? How are fast-casual brands building the foundation for a lasting
relationship, while so many QSRs settle for a one-night stand?
At Five Guys Burgers and they’ve also grown without by providing indoor playgrounds, to 3.7 million Facebook fans –
ABOUT THE AUTHORS
Fries, the menu is so short it’s resorting to discounts. healthful entrée options and four times bigger than Burger
practically eponymous. But Five superior customer service with King, even though Burger King
David Grzelak, Executive Director of Brand Planning
Guys lets customers choose from This is the paradox of pricing. flexibility on issues ranging from has nearly ten times as many
As a cultural anthropologist and researcher, David has
nearly 20 free toppings, which In today’s economy, restaurant coupons to the contents of kids locations. That’s not an upstart,
dedicated his career to combining cultural and theoretical
means there are 250,000 ways to executives are finding it meals. They’ve also attracted a that’s a new incumbent. And they
thinking with sound marketing strategies in order to
order a burger. Similarly, Chipotle increasingly difficult to resist the cult following of male Millennials got there without discounts or a
influence consumer behavior in the marketplace. It’s his
offers five total entrées with a impulse to create tiered value and college students. The droves value menu.
goal to truly understand consumer beliefs; that’s why he
succinct tagline: “Our menu isn’t menus and offer discounts. And of road-tripping young men who
spends his time visiting consumers in their natural habitat,
long, but it’s long on options.” the prospect of actually raising regularly flock to grand openings Today, what consumers want and
where opinions are formed and decisions are made. He
Chipotle recently reported 21 prices appears almost suicidal. of new stores aren’t there just get from their overall experience
then uses this firsthand knowledge to guide strategic
percent revenue growth in FY Yet several of the top-performing for the free refills. The chain has often matters more than what
thinking for clients and brands. His brand experience
2010, and Five Guys posted 69 restaurant chains have held the managed to enhance activation they pay, particularly when it
includes Perkins, Sonny’s Bar-B-Q, Chick-fil-A, Donatos,
percent growth in 2009. line on menu prices, proving that and affinity across these comes to creating long-term
Food Lion, Nationwide, Kraft, Brown-Forman, Abbott
consumers recognize true value divergent demographic groups brand affinity. That’s true across
Nutrition, Georgia Tourism and Hershey’s.
A number of the largest is about much more than saving without losing sight of its core all categories and price points,
restaurant chains with the a few pennies or getting a free identity. Chicken sandwiches from quick service to casual.
greatest top-line growth drink. remain its bread-and-butter There’s a spectrum, for sure; no Mya Frazier, VP Marketing and Strategic Development
share these twin strategies business. mass brands can expect to stay Mya’s work is focused on identifying cultural shifts that
of menu specialization and Chick-fil-A, for instance, is a in business if they don’t satisfy represent growth opportunities for client brands. She leads
mass customization. But limited service chain with no Of course, high-paced growth hungry stomachs at a reasonable the agency’s thought leadership and marketing initiatives.
there’s a difference between pretensions of fast casualness, is not the only measure of price. But brands need to be She joined Engauge in 2010 after working for more than
customization (which consumers which ranked fourth among Top success. In fact, the law of much more than just good to the 15 years in both advertising and media. Her writings on
love) and palate creep and barbell 100 Growth Chains in the most big numbers suggests that gut and easy on the wallet if they business and culture have appeared in Advertising Age,
pricing (potential sources of recent annual tally by Nation’s the largest incumbents, which want to build customer advocacy American Demographics, The Economist, PBS.org, The
confusion). Despite the emphasis Restaurant News. Chick-fil-A have already saturated the and stoke long-term growth. New York Times and Sky Delta. She writes the blog Norms
on options, the breakout brands has carefully cultivated its market, will naturally tend to and Mores for Forbes.com, chronicling shifts in consumer
have carefully cultivated their singular brand identity through grow slower than innovative behavior and social norms.
identity through marketing marketing messages that remain upstarts. But in terms of brand
messages that remain clear clear and coherent across all affinity, too, several breakout Follow her on Twitter @myafrazier
and coherent across all target target demographics. The chain chains are pulling ahead. Chick-
demographics. In many cases, appeals to parents and children fil-A’s fan base has now grown
12

9. ABOUTENGAUGE
One of the nation’s largest independent advertising
agencies, Engauge leverages creativity and technology
to connect brands and people. The agency’s client roster
includes Nationwide Insurance, Perkins Restaurant &
Bakery, Ainsworth Pet Nutrition, Coca-Cola, Best Buy
For Business, Chick-fil-A, Brown-Forman, Food Lion, The
State of Georgia, Donatos, NGK Spark Plugs and more.
Engauge, which has offices in Atlanta, Austin, Columbus,
Orlando and Pittsburgh, is a portfolio company of
Halyard Capital.
New Business Inquiries:
Mya Frazier
VP, Marketing and Strategic Development
email: mfrazier@engauge.com
office: 614.573.1407
mobile: 614.485.8607