Can Fancy Remodels Save The Fast Food Industry?

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Communal tables. Self-serve ordering kiosks. Rustic brick walls. Bar counters with outlets for plugged-in millennials.

The snazzy decor is popping up at redesigned restaurants across Southern California. But if you think the posh amenities belong to fast-casual players like Panera Bread or Mendocino Farms, think again. The comfy environment is playing out at some of the region’s oldest fast-food brands.

McDonald’s, El Pollo Loco and Taco Bell are modernizing restaurants to cater to a new generation of diners seeking sophistication, as well as speed and value when gobbling a Big Mac or chalupa.

Fast food chains are striking while the iron is hot. For the first time in years, fast-casual sales are slowing — opening the door for aging quick-service chains to win back straying customers with makeovers that go beyond a fresh coat of paint.

In December, El Pollo Loco launched its first “Vision” design. The new look includes Edison-style spider lights, a battleship gray exterior, wood trusses, brick walls and large picnic-style seating.

“This is a very big departure,” Chief Development Officer John Dawson said.

Last year, Taco Bell unveiled four distinct designs for its next generation of fast-food stores. Features include reclaimed wood tabletops, exhibition kitchens and midcentury modern lounge chairs. The chain also is developing Cantina restaurants, a flashy brand that serves alcohol-infused slushie drinks in an urban environment.

One of the largest efforts to revamp a cookie-cutter look is happening at McDonald’s.

About 70 percent of the chain’s 600 restaurants in Orange and Los Angeles counties and Inland Empire, have been modernized.

McDonald’s Chief Executive Steve Easterbrook said building a better and more “personalized” McDonald’s is vital to the chain’s turnaround.

“There’s a sense of urgency across the business as we take actions to retain existing customers, regain lapsed customers and convert casual customers to committed customers,” he said in a first-quarter earnings statement.

A CHANGING FAST FOOD CULTURE
The aesthetic about-face by fast-food chains represents a huge departure in culture and thinking for an industry born out of moving customers quickly through lines and drive-through lanes.

In the case of McDonald’s, the changes are so dramatic many of the old-style red-roofed restaurants have been razed and rebuilt from the ground up.

Spruced-up local restaurants now offer table service, upscale burgers, modern furniture and fixtures, and delivery through UberEats. More than 150 McDonald’s locations also have installed touch-screen kiosks for self-serve ordering.

The kiosks are not a test — the intention is to equip every restaurant with self-serve stations, McDonald’s said.

Todd Horner, whose family operates more than 30 McDonald’s restaurants in Southern California, said the changes are necessary to remain relevant. He has remodeled more than half of his stores.

“If we don’t try it, we’ll never know,” Horner said.

McDonald’s declined to say how much operators are spending on the modernization effort. Restaurant industry expert Darren Tristano said a typical McDonald’s remodel, especially a teardown, might cost anywhere from $1.5 million to $2 million. The capital investment is essential, he said, to keep up with rival fast-casual chains that have enticed fast food customers with their higher-quality dining experience. “With consumer expectations of atmosphere and restaurant experience evolving quickly through fast casual, fast food needs to stay contemporary by upgrading amenities, decor and technology factors,” said Tristano, a food service analyst based in Chicago.

A NEW VISION AT EL POLLO LOCO
Of the more than 470 El Pollo Loco restaurants, 30 locations sport the new Vision look including seven in Southern California.

Most are new, ground-up locations while a small percentage of stores are remodeled stores in the greater Los Angeles area. The Vision look scraps the bright yellow and red colors typical of most fast-food chains.

Rustic hues of gray, white and red are a stark contrast to the classic palette of primary colors. The dining room includes red barstools, cushioned booth seating, 24-inch slate floor tiles and aqua colored bistro chairs.

By the end of 2017, Dawson said El Pollo Loco should have about 50 remodeled restaurants across the system. Most will be new growth, while a handful will be conversions.

Encouraged by consumer response, so far, Dawson said the chain is planning to increase remodels at corporate-owned locations. For franchisees, the new look is suggested.

“We are looking to accelerate corporate conversions with the thinking it’ll be a big game changer for us,” Dawson said.

A turnaround was needed.

The chicken chain fumbled in 2010 when it introduced steak — a move that kept its signature product, chicken, out of the spotlight.

For the 12 months ended March 2011, El Pollo Loco reported a $38.6 million net loss.

Since then, the chain has had a razor sharp focus on promoting its fire-grilled chicken and affordable family meals. Sagging sales have since reversed but are still unsteady. In 2016, the company reported a profit of $18.3 million, down from $24.1 million in 2015.

The Vision look is a crucial piece to boost sales, especially at dinner, Dawson said.

Dinner, which represents 50 percent of El Pollo Loco sales, has the potential to grow with a more inviting look, Dawson said. Pointing to dome light fixtures, cushioned booth seating and metal and wood bistro chairs, he said, “This is much more of a place you’ll want to hang around.”

MORE CONVENIENT THAN EVER
Though McDonald’s, Taco Bell and El Pollo Loco are creating leisurely experiences, make no mistake: fast food consumers demand speed, value and convenience.

To satisfy the on-demand audience, El Pollo Loco and McDonald’s recently launched delivery — one of the fastest growing trends in the industry.

Consumers make 1.7 billion delivery orders annually. Young adults are the heaviest users, representing 56 percent of foodservice delivery orders, according to market research firm The NPD Group.

In mid-June, El Pollo Loco rolled out delivery at 98 restaurants in Southern California. Diners at participating restaurants can choose delivery through the chain’s revamped app, which also offers online ordering for in-store pickup.

In May, McDonald’s restaurants in Southern California were among 1,000 across the nation launching doorstep delivery through UberEats. On the national level, McDonald’s has mobile order and pay in more than 1,000 restaurants, and it will be in 20,000 restaurants by the end of this year.

Remodels are reflecting those changes. At the new McDonald’s in La Palma, there’s a special counter for Uber pick up. “Expect to see remodels more frequently and design to facilitate more off-premise dining including takeout and delivery,” Tristano said.

CHALLENGING TIMES
The fast-food industry modernization effort comes as the restaurant sector faces challenging times with foot traffic and sales flatlining over past few years.

Even more grim: The industry, as a whole, has not reported a month of positive sales since February 2016, according to data by restaurant market research firm TDn2K. Nearly every segment is experiencing a dip in sales, even fast-casual chains, which have been on a hot streak for years.

Dawson said, “you have to stand out to survive.”

That’s why El Pollo Loco is willing to tweak its decor, but will never mess with its core grilled chicken menu. “We think our food separates us from the rest of the players.”

That’s good news for Leonel Barragan, 66.

He’s been a loyal crazy chicken customer since the first American restaurant opened in Los Angeles in 1980. He comes to El Pollo Loco every Thursday with his mother to eat his favorite meal: a breast and wing meal.

He described the remodel as “cozy and comfy” but not critical to his visit.

“That food is the whole reason we come to the store,” he said.

By Nancy Luna
July 15, 2017
Source: The Orange County Register