The Market

last updated 23/07/2009

Healthy Eating Franchises Offer Fresh Options

last updated 23/07/2009

People are thinking more about what they're eating - and food franchises are rising to meet the challenge. Simon Lord investigates how fast food is becoming healthy food.

Healthy eating has become an obsession - for the media at least. With reality TV programmes like Honey, We're Killing The Kids providing prime-time entertainment, politicians providing daily sound-bites on ‘the obesity epidemic' and the rise in Type 2 diabetes, and Super Size Me (the documentary diary of a man who chooses to eat only at McDonald's for a month) having proved a surprise hit in cinemas throughout much of the western world, food has become a hot topic. In New Zealand, Parliament appointed a Health Select Committee on Obesity, with ideas being considered ranging from ‘traffic light' food labelling and banning dairies near schools to doing away with school drop-off zones to encourage children to walk further.

At the top of everyone's hit list are the old favourites - burgers, chips, fizzy drinks, pizza and chocolate. For many companies, these are staple products at the heart of their business and are major contributors to their profit margins. So how are the food franchises responding to the challenge of changing tastes?

Take A Closer Look

McDonald's may not have created fast food and franchising, but it's been the global leader in both fields for many years now. Along the way, it's become the company that many people love to hate - and that means when healthy eating is being discussed, McDonald's finds itself in the front line. Over the past few years, however, McDonald's has changed its menu offering considerably, and that's reflected in its advertising: when was the last time you saw a McDonald's advert promoting a Big Mac and fries?

‘Times change and tastes change,' points out Jo Redfern-Hardisty, communications manager for McDonald's in NZ. ‘We've always been driven by consumer demand, but you have to get the timing right. We introduced a range of salads into our restaurants some eight years ago, but it didn't go well. Back then, New Zealanders weren't ready for takeaway salads, but as lives have got busier and awareness of diet has grown, the time has come.' Jo says it's also a matter of finding new ways of presenting and offering alternative products that will appeal. ‘We also tried a small salad for kids a while back but not a lot went for it. Selling whole apples doesn't work, either, but our apple bags have proved really popular. They're already cut up, easy to eat, presented in a colourful fun bag and they're a realistic alternative to chips.  The challenge is to find child-friendly ways of presenting healthier products.'

McDonald's point to a number of changes that they have made over recent years to meet changing demands. In 2003, they offered milk, water and fruit drinks as alternatives in Happy Meals and added cereals to the breakfast menu. In 2004, they launched salads, changed to vegetable oil for frying and introduced the fruit bags. The following year, the DeliChoices menu offered freshly-toasted and filled rolls, while earlier this year sugar levels in all buns were reduced by approximately 40%. ‘These are all significant initiatives but there's still a lot of misinformation about our products out there,' says Jo. ‘People love our brand but don't know about our food. That's why we've launched the "Taking a closer look" campaign, which is backed up by a website which features nutritional and allergen information on all our products. Over the next few months, we'll be introducing nutrition labelling on the majority of our packaging too. It's all about helping customers to make informed choices.'

Government Pressure & Customer Demand

Cynthia Daly, editor of Food 2 Go magazine, says that McDonald's move towards healthier themes is driven by government as well as customer demands. ‘McDonald's will always be under the spotlight as our biggest fast food chain, so it's better for them to be seen to be taking a leading role rather than resisting change. Using their marketing budget to promote that is quite smart. The question is, how far will they go? Will they do away with the shoestring fries and have bigger ones which retain less fat, or will they do away with chips altogether? If they do, what will they find to replace such a high-margin item?'
Cynthia believes that these are the types of questions that all food businesses will be facing over the next few years. ‘At the moment, it's the 30-plus urban dwellers who are driving the healthy eating trend. Out in the country and in the lower socio-economic areas, there is little incentive to change to healthier products if they are more expensive to buy or produce, or offer lower margins. Customers aren't ready for that yet, but it will happen - through changing tastes, education and possibly legislation too. Franchises will be in the vanguard of those changes because they focus mainly on the higher population centres then have to offer the same menus elsewhere, too.'

Meeting The Challenge Of Margins

One franchise that is already meeting the challenge posed by the healthy eating trend is Reload Juice & Salad Bars. The company was created when owners Conrad van de Klundert and his wife Mel bought a small coffee bar in Dunedin three years ago. At the time, it sold the usual mix of sandwiches, cakes and coffee, but Conrad wanted to create something a bit different. ‘I could see a growing trend for people wanting a healthier option at lunchtimes rather than some fried rubbish that would leave them full but without any energy for the afternoon's work. Reload was the answer.'

Conrad sees Reload as part of a global trend. ‘There are a number of companies offering juices now, but Reload has salad and other drinks offerings that make us poles apart. You've got to have something that will appeal to everyone - to health-conscious women and their partners too. A lot of men won't go for "just a salad", but offer them a tasty meat sandwich with some healthy salad in it too and they'll love it. That's one reason why we're getting such high levels of repeat business. We've just opened our fifth store and we're seeing customers coming back every couple of days because what we offer is just so good.' And Reload seems to have solved the problem of margins on healthy products, too. ‘Part of it is about control - we use specially-designed scoops, weights and measures so that we can ensure both consistent standards and consistent costs. You can't sell a franchise without good systems - or without good margins, either. Our salads range from $5.90 up to $9.50 for a smoked salmon and feta salad, and we are achieving 65-70% GP. Because we use good, fresh ingredients, people are prepared to pay a fair price. If you go to McDonald's, it's easy to spend $10-12. Well, we can do a large salad and a juice for not much more than that and it's a healthy option for the day.'

Conrad believes the media reports and TV shows have done Reload a lot of good. ‘I don't like reality TV shows - those programmes exaggerate everything so people will watch, but there's no doubt they make their point and help educate people. Few people take their own lunch to work any more, so having them thinking healthy when it comes to making a choice of takeaway is very helpful.' And he says that Reload's market is broader than the 30-plus age group that Cynthia Daley identified. ‘We have a lot of customers from 20 to about 45. They don't want Coke all the time so they are attracted by the healthy juices, but when they see our salads they stay to eat, too.'

Like McDonald's, Reload will also be introducing nutritional information on its packaging in the near future, but it has something else in common with its bigger franchise brother, too - global ambitions. The five-outlet South Island company has just signed master franchise agreements for Singapore and China, suggesting that healthy eating is going to be a big trend in Asia too.

Sensible Decisions

If there's one message that the food sector has been keen to promote over the years, it is that it is the overall balance of your diet that is important rather than the make-up of any one component. ‘A cup of coffee and a slice of something delicious is one of the cheapest forms of relaxation you can buy,' says Keith Routledge of the Sierra Coffee franchise. ‘It's stress release for less than the cost of parking a car.' He says that cafés are not seen as unhealthy places to go. ‘Most would have some sort of fruit option available for breakfast, but the market isn't demanding low-cal products or anything. It's more important for us to have, for example, gluten-free options. It's different for the likes of McDonald's - they have to be seen to be doing something different because their stores are so child-oriented, but cafés are aimed at adults who are capable of making sensible decisions for themselves. They might say "I shouldn't really have that piece of cake," but they'll have it anyway and then maybe they'll cut down on something else later. That's an education issue.'

Cynthia Daly of Food 2 Go agrees. ‘There's much more education about food and nutrition in schools these days, but teachers are still handing out Crunchie bars to kids as a reward in the classroom. There's nothing wrong with the occasional treat, but you have to set good examples.' She thinks the message is slowly getting through, though. ‘My 16 year old son picked up one of the McDonald's nutrition booklets the other day and said, "hey, there's hundreds of calories in this burger but I know it's not going to keep me going all day so why eat it?"'

Sell What We Tell You

While education is one of the tools being used to encourage healthy eating, compulsion is another that is increasingly being considered. One franchisor which is well aware of this is Provender, the largest food & beverage vending franchise in the country. ‘Some organisations, particularly the Ministry of Health and various District Health Boards, have developed some quite strict criteria about what products are and aren't allowed in vending machines located on their premises,' says Philip Horrocks of Provender. He produces some contract specification sheets to prove it. One of these states that ‘The more healthful options will be promoted more than those that are less healthful; eg. fruit juice should be at eye level whereas cordials will be placed lower down in the vending machine... At least 70% of the options available within each machine will meet the criteria of a "healthful option" below.' Another specification sheet states ‘Full-strength sugar sweetened drinks, sweets and chocolates, chips and crisps are unacceptable,' and goes on to list specific unacceptable items by name such as Mars Bars, Peanut Slabs and Coke. Similar contracts are now being drawn up by some schools and even large companies.

‘Such edicts make a significant difference to our business because, quite frankly, healthy options don't sell at the same rate as chocolate and chippies,' says Philip. ‘But we took on the challenge because we believed that if we could offer something in this area it would give us a significant advantage.' As a result, Provender launched its Lifestyle-Balance® range three years ago. With items such as Energy Booster, a scroggin mix, dried apricots, roast almonds and rice crackers, each item in the range has been selected to meet one or more of five key criteria: reduced fat content; higher fibre; lower sugar; portion control; or gluten-free. ‘Developing and promoting the new range has been a strategy that has occupied a lot of time and resources,' admits Philip. ‘We don't expect to see payback on that for some time yet, but a few of the products have started to go out on the general market now and are selling really well.' Although Philip is happy to see the trend gathering momentum, he has his doubts about the effectiveness of legislation banning less healthy snacks. ‘You can take out the chippies and the fizzy drinks but all that does is move the problem. I know of one office where an enterprising staff member bought a whole carton of Crunchie bars which he then proceeded to sell from his desk...'

Old Favourite, New Approach

With new franchises such as Reload, Burger Fuel and Jesters popping up with products specifically aimed at the new healthy eating market, where does that leave New Zealand's old traditional favourite - fish and chips? Cynthia Daley sighs. ‘I live in a rural town which seems to have more fast food outlets than anything else. There are two fish and chip shops. One recently tried to stand out, offering wet fish, a grilled option and salad pots - the other just serves the standards and re-heats fish to order. Guess which does the better business? At the moment, the rural scene isn't ready for fish and salad, even though it's a much healthier option.'

Is it so different in the cities? We asked Philip Officer, CEO of LJS Seafood Restaurants, which has 15 franchised outlets in malls around the country. ‘LJS was offering salads long before anybody else, way back in 1994,' he says. ‘It was a struggle at first, but now they are reasonably popular. In the same way, we offer grilled fish as well as the battered and crumbed versions. To be honest, they aren't really profitable items as yet but the market is growing all the time and as the focus on nutrition, healthy eating and obesity continues to occupy the headlines, so things will change. After all, you can't get much healthier than grilled fish and salad.'

But things are changing in the deep fat fryers, too. The Heart Foundation has been pushing rice bran oil, which apparently drains better and has fewer carcinogenic qualities than traditional frying oils. ‘We moved to rice bran oil three months ago and it's even better than the canola we previously used,' says Philip. ‘Yes, it's more expensive but it has a better life in the fryers so it all balances out and the customers get a better product. That's the sort of change it's easy to make. Where it becomes harder for franchisors is judging the balance between preserving margins and attracting more customers. In general, your fixed overheads in a mall are so high that you need to protect your margins, yet foot traffic is remaining constant so you need to attract more customers. Offering more healthy options is part of that approach.'

Striking A Balance

The food business has always been a popular option for new franchisees - after all, people are always going to need to eat, relax and socialise. While opinions are divided on whether the trend towards more healthy eating is being driven by government and the media or led by consumers, there is no doubt that it exists. It will therefore pay those looking at buying a food franchise to look at what strategies their chosen business has in place for capitalising on this trend. Where the franchise is a new one specifically aimed at the healthy eating market, check that it has broad enough appeal to thrive in the small New Zealand market.

Finally, unless dramatic change is legislated for, expect the trend to be a gradual one. Consumer tastes are changing, education is happening and people are thinking more about what they eat. That won't stop them enjoying their cheesecake and won't stop them buying chips. A wise franchise, however, will increasingly be offering options that can be part of a regular diet rather than an occasional treat.

This article was first published in Franchise New Zealand magazine Volume 15 Issue 3


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