Chapter 3: What Are the Opportunities and Threats for Famoso? An Environmental Scanning

Industry and Competitive Analysis

The industry group that Famoso Inc. belongs to is North American Industry Classification 72251full-service restaurants and limited-service eating places. Full-service restaurants (NAICS 722511) are "establishments primarily engaged in providing food services to patrons who order and are served while seated and pay after eating. These establishments may sell alcoholic beverages, provide take-out services, operate a bar or present live entertainment, in addition to serving food and beverages. This Canadian industry includes drinking places that primarily serve food." Limited-service eating places (NAICS 722512) are "establishments primarily engaged in providing food services to patrons who order or select items at a counter, food bar or cafeteria line (or order by telephone) and pay before eating. Food and drink are picked up for consumption on the premises or for take-out, or delivered to the customer's location. These establishments may offer a variety of food items or they may offer specialty snacks or non-alcoholic beverages."[1] Famoso Neapolitan Pizzeria transitioned to a full-service model in 2015 and now falls into the casual dining or premium casual segment. The company also transitioned to tablet-based ordering system from the traditional pad and pen service.

Euromonitor International provides some of the key trends and developments in the consumer food service in Canada (NAICS 72251) as follows[2]:

Foodservice consumer spending continues to increase. "Consumerfoodservice inCanada registered positive value growth in 2014. While the category developed overall, improving on 2013's growth, thefoodservice types did not perform equally. For instance, chained Asian fast food was one of the top performers, whilst independent convenience stores fast food posted a decline in value sales. The industry continued to reflect a number of prevailingconsumer trends inCanada, such as the rise of ethnic cuisines due to increasing immigration and travel, health and wellness tendencies and a preference for higher-quality "gourmet" food and customization."

Eating culture. "The industry continued to face challenges due to persistentconsumer concerns over spending onfoodserviceas well as a highly saturated marketplace. Many price-conscious Canadians prefer to prepare meals at home more frequently. Despite the gradual rebound of the Canadian economy, consumers continued to dine at home. Following the wellness trend, many Canadians pay attention to the food they are eating. Canadians tend to prepare their own meals at home, benefiting from the lower cost and healthier food."

Canadians are looking for new flavours.In 2014, Canadians were turning to ethnic cuisine and more exotic flavour profiles more frequently than before. Consumers who had previously preferred European or North American cuisine are now choosing Chinese, Thai, Indian and Korean. Ethnic cuisines continue to sustain interest and value sales growth in full-service restaurants. Asian full-service restaurants and Asian fast food restaurants saw the fastest growth of 5% and 7% infoodservice value sales respectively. Demographic trends reinforce the increasing preference for ethnic cuisine in fast food. However, immigration alone no longer determines the growth potential of ethnic food. Ethnic food appeals to consumers who seek diversity in food. Many consumers, particularly millennials, are looking for spicy, bold flavours, a trend characterized by the increasing popularity of sriracha sauce. The sauce has seen a rapid rise in popularity and distribution in the past few years and is now a common feature on restaurant menus. As a part of this trend, fast food restaurants are launching new, ethnic, spicy items on their menus. For example, Subway launched its sriracha steak or chicken melt at the end of 2013, and it was the first major fast food chain to have sriracha on its menu. Another fast food outlet, Wendy's, is offering chicken strips with creamy sriracha sauce. Full-service restaurant Boston Pizza in 2014 launched new menu items including Sriracha chicken pizza topped with sriracha sauce, mozzarella, sriracha chicken and sesame seeds, green onions, cilantro and a sriracha mayo drizzle.

The rise of fast casual dining in Canada.Increasing demand for gourmet food and healthier options pushed the development of "fast casual" restaurants inCanada. Fast casual is an emerging and growing concept, which straddles both the fast food and casual dining categories. In short, it takes the "fast" from fast food, the quality and ambience of casual dining, and adds a focus on health and freshness in addition to modern, stylish dcor. Fast casual restaurants - the healthier, more affordable middle ground between quick-service and full-service establishments - are still relatively underdeveloped inCanada. Fast casual dining concepts target a positioning that is based on the idea of offering "better fast food," and a higher-quality dining experience with the convenience and value of a traditional fast food purchase, making it very attractive. Fast casual dining concepts mean that customers generally order their meals from a main counter, wait for the food to be prepared and then have it served at their tables by staff. Usually menu items are priced at a premium to fast food, but are perceived to be of a higher quality. Fast casual restaurants are targeting millennials and young professionals but are also loved by older people. Fast casual restaurants are represented by Chipotle Mexican Grill; the burger chains Hero Certified Burger and Five Guys Burgers & Fries, and bakery products fast food Panera Bread and Freshii.

Informed dining.Educated consumers are the main reason why restaurants are changing marketing strategies as they are responsible for trends in thefoodservice industry. As a good example, gluten-free, which was discovered by a consumer several years ago and consequently affected the whole industry. Educated consumers are forcing today's restaurateurs to provide greater transparency on menu ingredients, create healthy menu items as well as offer insight into the origins of the food included on their menus. Consumers want to know and understand more about the food they're eating. In 2013, a national program, Informed Dining, was launched in British Columbia. The program is supposed to provide a more transparent picture of restaurant food and is being slowly adopted by restaurants in other provinces like Manitoba and Ontario. According tofoodservice industry representative organization RestaurantsCanada, 92% of Canadians feel it is important to know the nutrition breakdown of the foods they eat. Calories are number four on the list of the most important nutrition information Canadians want from restaurants - behind total fat, sodium and trans fat. Sugar content rounds out the top five. Better informed about healthier food choices, consumers tend to shift away from traditional fast food restaurants. In order to increase the traffic and bring consumers back, fast food restaurants are launching information campaigns about the ingredients used to prepare food. As an example, McDonald's has launched an information campaign called "Our Food. Your Questions" inCanada, which is about how its food is made. The company is working to get rid of its "junk food" image and is working very actively on improving the overall quality of its menu.

Street food kiosks continue to gain market share.After years of legal hurdles and bans and protracted health inspections, Canadian street stalls/kiosks are finally taking off across many major cities. In 2014, street stalls/kiosks posted increases of 5% in current value sales, and 2% in both transactions and outlets, which is an improvement compared with the review period, supported by the changed regulations in the main Canadian cities that increasingly allow street food vendors. Growth continued to come from independents as established chains experienced strong competitive pressure from newly-rising independents. Infoodservice value terms, independent street stalls/kiosks registered healthy growth, while chained street stalls/kiosks saw only a slight increase of 1% and are experiencing a 1% decline in transactions and outlet numbers. New cities are joining the food truck culture by changing bylaws surrounding food trucks. Street food festivals, which become more common inCanada, help to develop the industry by bringing more vendors and raisingconsumer awareness. StrEAT Food Truck Fest in Vancouver is the biggest festival inCanada. Street food legislation differs from city to city. Whilst in Charlottetown P.E.I, street vendors are allowed to operate in certain parts of the downtown 24/7, food trucks in Toronto are allowed to park for five hours in every 24-hour period, and Ottawa's street food vending program established street spots for vendors to sell meals between 11.00hrs and 17.30hrs. The growing street stalls/kiosks category and demand for street food supports the development of technologies. Numerous sites and applications have appeared to provide consumers with information about street food vendors in the area. For example, www.torontofoodtrucks.ca, www.streetfoodapp.com provides the list of street food vendors, their current locations, schedules, operation times, menus, reviews and pictures. With the popularity of food trucks, new concepts of food carts are also beginning to appear. Food bikes or scooters appeared in Montral in 2014.

Third-party online ordering/delivery services are growing in Canada.With the development of technology, third-party online ordering/delivery services are becoming more popular among Canadian consumers, especially the young population. Online sites, such as Orderit.ca, Tasteaway.com, Just-eat.ca and skipthedishes.com, are making it easy to order food online. Websites are also offering mobile applications. Consumers prefer third-party services as they allow them to search for restaurants in the area by cuisine type, see and compare menus and prices, read reviews and find coupons and other special offers.

Tables 1, 2 and 3, below, provide statistical information about the size of the industry in Canada. Table 1 shows distribution of outlets in Canada according to the type of ownership. There were 3,089 and 3,576 independent and chained pizza outlets in 2014 in Canada. The number of full-service pizza restaurants was 2,517 stores in 2014; of those, 796 outlets were chained full-service pizza restaurants and 1,721 independent full-service pizza restaurants. In 2014, total sales of full-service pizza restaurants was C$2,606.7 million; of that, C$1,536.8 million was sales from chained pizza restaurants and C$1,069.9 million from independent owned stores. Additionally, there were a total of 1,601 stores of fast food pizza restaurants in 2014; of those, 561 were chain-owned stores and 1,040 independently owned stores. Total sales of fast food pizza restaurants was C$1,074.4 million; of that, C$430.5million was sales of chained fast food pizza restaurants and C$643.8 million of independent stores.

Table 1. Consumer Foodservice by Independent vs Chained: Units/Outlets 2014

Outlet	Independent	Chained	Total Number of Stores
100% Home Delivery/Takeaway	943	2,482	3,425
Cafes/Bars	5,817	2,951	8,768
Full-Service Restaurants	19,745	4,988	24,733
Fast Food	11,244	24,065	35,309
Self-Service Cafeterias	254	445	699
Street Stalls/Kiosks	2,858	490	3,348
Total Consumer Food Service	40,861	35,421	76,282

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews,trade sources

Table 2a. Forecast Full-Service Restaurants by Casual vs Non-Casual: Units/Outlets 2016-2019

Outlet	2016	2017	2018	2019
Casual Dining Full-Service	15,388	15,196	15,014	14,748
Independent	3,080	3,044	3,011	2,992
Chained	12,308	12,152	12,003	11,756
Non-Casual Dining Full Service	8,932	8,892	8,835	8,914
Independent	1,856	1,865	1,871	1,866
Chained	7,076	7,027	6,964	7,048
Total	24,320	24,088	23,849	23,662

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 2b. Forecast Sales in Full-Service Restaurants by Casual vs Non-Casual: Foodservice Value 2016-2019 (CAD million)

Outlet	2016	2017	2018	2019
Casual Dining Full-Service	14,426	14,336	14,273	14,210
Independent	5,890	5,858	5,834	5,826
Chained	8,537	8,479	8,438	8,384
Non-Casual Dining Full Service	8,332	8,466	8,589	8,729
Independent	3,843	3,951	4,041	4,109
Chained	4,489	4,515	4,548	4,619
Total	22,758	22,802	22,862	22,939

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 3a. Forecast Fast Food by Casual vs Non-Casual: Units/Outlets 2016-2019

Outlet	2016	2017	2018	2019
Fast Casual Dining	746	755	765	775
Non-Casual Dining	34,125	33,836	33,505	33,125
Total	34,871	34,591	34,270	33,900

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 3b. Forecast Sales in Fast Food by Casual vs Non-Casual: Foodservice Value 2016-2019 (CAD million)

Outlet	2016	2017	2018	2019
Fast Casual Dining	386	386	386	386
Non-Casual Dining	23,865	24,007	24,165	24,269
Total	24,251	24,392	24,551	24,655

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 4. Brand Shares in Chained Consumer Foodservice: % Foodservice Value 2011-2014

Brand	Global Brand Owner	2011	2012	2013	2014
Tim Hortons	Restaurant Brands International Inc.	-	-	-	18.9
McDonald's	McDonald's Corp	10.8	10.7	10.7	10.4
Subway	Doctor's Associates Inc.	4.5	4.6	4.7	4.8
Boston Pizza	Boston Pizza International Inc.	2.9	2.9	3	2.9
Starbucks	Starbucks Corp	2.3	2.4	2.8	2.9
A&W	A&W Food Services of Canada Inc.	2.7	2.8	2.8	2.8
Swiss Chalet	Cara Operations Ltd	2	2	2.1	2
KFC	Yum! Brands Inc.	2	2	1.9	1.9
St Hubert	St Hubert BBQ Ltd	1.7	1.8	1.8	1.7
Wendy's	Wendy's Co, The	1.8	1.8	1.7	1.7
Dairy Queen	International Dairy Queen Inc.	1.4	1.3	1.3	1.3
Pizza Hut	Yum! Brands Inc.	1.4	1.4	1.3	1.2
Pizza Pizza	Pizza Pizza Ltd	1.1	1.1	1.1	1.1
Burger King	Restaurant Brands International Inc.	-	-	-	1
Domino's Pizza	Domino's Pizza Inc.	0.7	0.7	0.8	0.8

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Questions

1. Classify key trends and developments provided in the case using the CDSTEP framework.