Friday, March 10, 2017

To survive, mall food brands are changing strategies

In the past, mall food brands (like Sbarro, Cinnabon, Jamba Juice, and Panda Express) were successful as impulse purchases:
"You eat Sbarro not because you want Sbarro, but because it is the food that is available at the moment you want some food," Neil Irwin wrote at the time in The New York Times. "Other fast-food chains may offer mediocre food, but their real estate strategies are less exposed to the epic decline in foot traffic in the nation's malls." 
Cinnabon's president, Joe Guith, said Cinnabon wasn't necessarily a place you'd get in the car to go to, but more of a place you'd stop at when you're walking by. 
"We're an impulse brand," Guith told Business Insider. "We work where the people are."

To survive most of these brands are re-locating to areas of high foot traffic:
While many East Coast customers may associate Panda Express with samples of orange chicken handed out in the mall food court, for the past two decades, the chain has focused on opening more stand-alone locations — today just 2% of its locations are in malls. 
In 2015, Sbarro announced it would debut a trendy fast-casual concept with made-to-order pizzas, pasta, and salads. Cinnabon and Jamba Juice are both investing in smaller, kiosk-like locations in high-traffic areas such as college campuses, amusement parks, and airports. 
"Having a flexible store format that can translate to different geographies and store formats will somewhat help mitigate" declining mall traffic, Colin Radke, an analyst at Wedbush, told Business Insider. "But those that are heavily exposed to malls, there's not much they can do."

Due to competition, the outlook is not good:
 Even in high-traffic places like college campuses, people have more options than they would if they were within a mall. And with concerns that there are simply too many restaurants open in the US, food-court chains can't depend on customers stumbling upon locations.  
 There's also the issue of food quality. Opening new locations won't help brands that people associate with rewarmed pretzels or oversized tubs of fried mystery meat.

5 comments:

  1. This comment has been removed by the author.

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  2. “In the past, mall food brands (like Sbarro, Cinnabon, Jamba Juice, and Panda Express) were successful as impulse purchases” (Froeb, 2017). The once high demand overcrowded food courts in US malls are now experiencing a profit crunching crisis of epic proportion. With very expensive leases (a sunk cost), and marginal revenue way below marginal cost, due to declining demand, many food brands are retrenching. The reason for the decline can be attributed to the declining foot traffic in US malls. The demand for food court products is very elastic and is very dependent on the demand and supply of the complementary good ‘Mall Retailers’. A complementary good is a good whose use is related to the use of an associated or paired good. Two goods (A and B) are complementary if using more of good A requires the use of more of good B (Froeb, McCann, Shor, & Ward, 2016). For example, when you go to the mall retailers, like Sears or JC Penney to buy goods, what usually happens? You get hungry and end up buying food in the conveniently located food court.

    According to one source “shopping malls are slowly turning into ghost towns, and that's taking a toll on the stores and restaurants inside of them. Several fast-food chains that were once a primary source of sustenance for bored teens are crumbling, unable to stay in business as shoppers spend their money elsewhere’ (Peterson, 2014). This is due in part to the closure of some retails stores unable to bounce back from the recession. Real estate analyst forecast that some 15 percent of U.S. malls will fail or convert to non-retail space over the next ten years. The world has changed. Indeed, it has. One evidence of this metamorphosis is the continued growth in digital shopping which has further erode retail profit margin. “E-commerce is really another nail in the coffin of many malls” (Soergel, 2015). While the growth and widespread use of social media is responsible for the decline in socializing teen traffic.

    Digital shopping (and the popularity of social media’s) slow erosion into mall traffic is nothing new. It has been steadily declining since its initial tracking in 1999. This was a subtle signal to mall food brands to use their resource based view (RBV) to create a sustainable competitive advantage. This include relocating to areas with high traffic such as hospitals and college campuses and using all available resources to stay ahead of the competition. A ferocious pricing strategy, including direct and indirect price discrimination as well as advertising and promotional pricing would go a long way to make demand more elastic. While improving, and maintaining the quality of products and services (such as free delivery to hospital unit and dorm room) would help to facilitate product differentiation (Froeb et al., 2016).

    References:

    Froeb, L. M., McCann, B. T., Shor, M. & Ward, M. R. (2016). Managerial Economics: A Problem-Solving Approach. Fourth Edition. Cengage Learning, Boston. Print.

    Froeb, L. (2017). To survive, mall food brands are changing strategies. Managerial Econ
    Economic Analysis of Business Practice. March 10, 2017. Retrieved from https://managerialecon.blogspot.com/search/label/10.%20Strategy-the%20quest%20to%20slow%20profit%20erosion Accessed March 14, 2017.

    Peterson, K. (2014). Plunging mall traffic is killing some restaurants and stores. Money Watch CBS News March 6, 2014. Retrieved from http://www.cbsnews.com/news/plunging-mall-traffic-is-killing-some-restaurants-and-stores/ Accessed March 14, 2017.

    Soergel, A. (2017). The End of the Aspirational, Middle-Class Mall Shopper? US News March 10, 2015. Retrieved from https://www.usnews.com/news/articles/2015/03/10/shopping-malls-middle-class-face-a-bleak-future Accessed March 14, 2017.

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  3. The landscape and demand for retail shopping has seen a tremendous shift in recent years. The original brick and mortar stores are facing challenges with competing firms that offer online, e-commerce shopping. Many stores have responded to this change of demand simply be offering its own products for purchase online. What has this done to traditional shopping centers for Americans? It had begun to erode the establishment, with more and more stores closing, as they are finding their operating costs to keep a physical location open are far exceeding revenues from sales. By offering its products online, the company saves money on lease, utility and labor expenses, AND responds to the demand-where today, nearly 8 out of 10 Americans are online shopping. (PEW Research Center) Taken a step further, what does this mean for those fast-food outlets within these malls and shopping facilities and how does it affect their sustainable competitive advantage?
    Consumers are not visiting a mall to go to the food court to eat. Instead, the food court serves as a complementary product to the retail stores. Customers shop, get thirsty/hungry and want something right away and convenient as they do not want to leave the mall and come back. However, within the mall, the choices are well known, and places like Sbarro, become known as a “mall-only treat, intrinsically linking the brand with that specific shopping experience.” (eater.com) Today’s consumers value efficiency and time. While online shopping has been a hit for its offering of lower prices than typical brick and mortar stores, again, the other component is ease. It is with that demand, that we’ve seen a shift in the demand curve rightward for fast food establishments and the supply curves shifting as well. Today’s American consumer is on the go and in a hurry. Time is valuable for many people- college kids off to their next class, a mom running to pick up her son after work, the man who just got off working the night shift and is tired and hungry… All of these scenarios give way to what these food retailers such as Sbarro, Jamba Juice, Auntie Annes, Cinnabon, Panda Express, etc. need to consider in adopting a NEW business and growth strategy if they want to remain in the competitive marketplace.
    A new strategy may be to close all or most of the mall locations, especially those with the most significant loss of marginal profit and pilot the opening of off-mall site locations. The idea would be to keep the market’s demand in mind and to still be able to offer the same type of product, but also with improvement and re-branding efforts as well. These national brands are already known for their speedy service of cooked food and beverages. This means that these firms simply need to compete in a new market/industry- the fast food industry. Setting up small restaurants with drive-thru service is key. For Sbarro, being able to offer a cooked, hot, ready-to-consume whole pizza and sides is an incredibly appealing offer to a mom who left work late and has errands to run and kids to pick up from school. But, Sbaro’s aged business plan, involves consumers thinking of prepared food that has been sitting around. There has been a major cultural shift in demand for food made-to-order with freshness. This is something Sbarro must incorporate into its operations.

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  4. Additionally, Sbarro generates competitive advantage over typical pizza establishments as they do not offer drive thru service, but rather a delivery service that would charge a fee and expect a tip. Sbarro can offer a lower price for additional competitive advantage. Additionally, since mobile shopping is up and coming (51% of US Adults use), it would be intelligent of Sbarro to offer a Mobile App or website for online ordering of a consumer’s particular order. Similar to that of Chipoltle, who offers an App where you can personally check every single ingredient you want in your burrito- from white or brown rice, to hot or mild salsa- even down to the fountain drink you desire.
    The next step for these food retailers such as Sbarro, is advertising and promotion of their new offerings. It will be important for their new marketing campaign to express the ease of ordering, fast service and a lower price than traditional pizza places. Offering a lower price for a pizza, increases the elasticity of demand for the product, and may encourage more consumers to switch to the product and to retain customers. “When you make demand more elastic, you want to reduce the price to attract more customers”. (Froeb et. al., 2016 p. 157)The emphasis on speed and ease will appeal to the many Americans seeking this out on a daily basis.
    Dawson, G. “Is there life after the mall for Sbarro?” Retrieved from: http://www.eater.com/2016/5/6/11593764/sbarro-food-court-pizza on 3/18/17
    Froeb, et. al., (2016) Managerial Economics. Cengage Learning. Boston MA
    Soergel, A. “As Online Sales Boom, Is Brick-and-Mortar on the way out?” US News and World Report. retrieved from: https://www.usnews.com/news/articles/2016-12-20/with-online-sales-booming-is-brick-and-mortar-on-the-way-out on 3/18/17

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  5. Mall traffic is beginning to decline as more and more consumers are turning to online shopping. Not only do the retail stores suffer but the food courts do as well. Consumption of mall food is a by-product of mall shopping. According to Ashley Lutz from the Business Insider there was a 50% decline in mall traffic between 2010 and 2013 and it is not expected to improve and 15% of malls will disappear in the next decade (2016). Anchor stores are showing declines with Macy’s reported closing 100 stores and JcPenney’s has reported struggles as well. As large anchor stores and shopping malls close, so will the food chains that are always present at the local mall.
    It has been reported that the US simply has too many malls to survive and the market is over saturated. Chris Gudgeon, on of New Zealand’s biggest mall owners suggests that the US had too many malls to begin with and in 2016 it was reported the US has over 20 malls that are “ghost malls” (Harris, 2016). Could it be a combination or both and increase in online shopping, which does not look like it will decline anytime soon or the life-span of the local mall.
    Popular food chains will have to re-brand or re-position themselves to stay afloat. They simply cannot exist without to foot traffic that brings consumers to their restaurants. They may have to be creative in where to open stores that are not in malls where the revenue is too low to cover the rent. There are too many uncontrollable factors to not take quick action such as new restaurant trends, change in teenagers hang outs and the change in consumers’ desires for an eating experience. Many people want more of a fine dining experience versus a quick slice of pizza or a cinnamon bun.
    http://www.stuff.co.nz/business/property/85537271/are-shoppers-abandoning-malls-for-the-main-street

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