Fast food giants go with the flow; retailers, food chains nab incremental sales - traffic - Cover Story

Discount Store News, Nov 6, 1995 by Richard Halverson

Having saturated th market with conventional restaurants, national fast-food chain are sniffing out new turf for their future growth: dis count department stores.

The strategy: to go where the people are, instead of waiting for them to visit a restaurant.

And increasingly, discount stores are among the places where fast-food customers are, along with sports stadiums, bus and train stations, roadside travel plazas, airport terminals and college campuses. At such non-traditional sites, the fast-food chains are finding that they can generate incremental sales without cannibalizing their regular restaurants.

For their part, discounters want their customers to eat while in the store because the smell of food keeps shoppers around longer, leading to incremental sales increases.

Putting fast food into discount stores and other non-traditional outlets has become a major trend, said Bill Chidley, vice president of design for Design Forum, Dayton, Ohio. "There is so much saturation in freestanding restaurants that QSR [Quick Service Restaurant] chains are doing a lot of aggressive development within discount stores. They need to look elsewhere for growth."

Early concern about cannibalizing sales of existing stores turned out to be groundless, Chidley said.

Buying fast food in a discount store is a different sort of occasion, he noted. Often the purchase is just a snack, not a complete meal. Purchases are usually impulsive and unplanned, the result of shoppers being vulnerable to the sounds and smells of the restaurant.

Accordingly, the combination of discount store and restaurant is good for both the QSR chain and the host store since each enjoys incremental sales, Chidley observed.

Wal-Mart, from its earliest days, followed a snack-bar strategy designed to keep shoppers in its stores longer by providing a place for them to rest and enjoy a snack. The trend toward fast-food operations, with more than 500 McDonald's operating in Wal-Marts, builds on that long-standing strategy, he said.

Kmart, with its Kresge variety store restaurant tradition, always has had generic coffee shops. But "they lacked credibility because of their undistinguished offerings. Customers resisted them," Chidley said. Now that Kmart showcases Little Caesar's Pizza, with about 600 franchised restaurants, "more people are willing to try a familiar name," Chidley said.

The Incredible Universe, the consumer electronics chain that Tandy launched in 1994, intended from the beginning to make food part of its strategy as an entertainment concept. Food goes with family and fun.

At an International Mass Retail Association conference on food service last month in Atlanta, Chidley emphasized the retail strategy of keeping shoppers in a store longer by offering food service. His talk included the concept of drive-thrus, which are popular fixtures in fast-food restaurants. But no discount store wants drive-thru windows, he noted, since that would defeat the purpose of food: to keep customers in the store longer.

"We opened [The Incredible Universe stores] with food service from the beginning because we felt it would make people stay in the show longer," said Rich Hollander, vp and gmm, noting that the company's first store, in Wilsonville, Ore., opened with a Pizza Hut. Now all 15 units will have a McDonald's as soon as the restaurant conversion of Wilsonville is complete, by Jan. 1. Going forward, all The Incredible Universe stores, including two more to open by yearend, will offer a McDonald's.

Each McDonald's Express at The Incredible Universe occupies 3,500 sq. ft. of space.

Target is but the latest to join the trend toward branded fast food. It has installed a twinned Taco Bell and Pizza Hut Express in the Super Target store food court it opened last month in Lawrence, Kan.

Lawrence was the second Super Target and the first to get a national fast-food operation. Taco Bell now has four units within Target, indicating that Target is putting them in its conventional discount stores as well.

Target also has a Pizza Hut within its corporate headquarters in Minneapolis, for a total of five sites.

In addition to Target, Wal-Mart has installed 29 Taco Bell Express units, often paired with Pizza Hut and sometimes Cinnabon. Wendy's is available in a few Wal-Mart Supercenters, too. BJ's Wholesale Club has installed five Taco Bell Express units and Bradlees eight, for a total of 46.

At Bradlees, the Taco Bell's and 17 Pizza Huts are operated by Bradlees as an addition to its other snack-bar offerings, spokesman Coleman Nee said.

Customers trust a national brand more than they do a generic product, Nee said. Accordingly, Bradlees also promotes Hebrew National and Oscar Meyer hot dogs at its snack bars.

Speaking of hot dogs, Caldor has adopted Nathan's Famous hot dogs for its fast-food operations. Caldor now operates 53 Nathan's Famous, said Wayne Norbitz, president and coo. Expansion plans are up in the air because of its Chapter 1 1 status.

But the Nathan's Famous name, appreciated in New York, was too unfamiliar in New England, so Caldor has pulled it out of about 12 New England stores. Sbarro's, a well-known name in the Boston region for fast Italian food, now has eight sites in this region.