The 'Smart Slice' Is Coming: 5 Fast-Food Trends for 2015 From Taco Bell to Dunkin Donuts, fast-food giants are innovating heavily as they look to take a bigger bite of the market.
By Brian Sozzi
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This story originally appeared on CNBC
Apple and Google aren't the only two giant companies trying to destroy each other through new innovations. Sellers of caloric breakfast and dinner bombs in the fast-food industry are also channeling their inner Steve Jobs and …innovating.
All of this will likely make for an exciting time for the industry in 2015.
Just look how 2014 has been unwrapped. Taco Bell, owned by Yum Brands, launched its waffle taco in March. The late-night stop for quasi-Mexican food after a few beers is now testing sriracha-doused products, with a nationwide rollout likely for 2015. Dunkin Donuts recently introduced its new steak platform targeted for evening munchers. Papa John's founder & CEO John Schnatter shared in an interview with me this week the company is looking at adding extra-virgin olive oil to its pizza, probably to up the perception of the pie's healthy properties. As for Domino's Pizza, its CEO J. Patrick Doyle hinted to me in August the company could bring its "smart slice" to market in a bigger way next year.
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Menu innovation is vital for fast-food companies. It keeps people intrigued in the brand (and makes for great social media marketing) and helps to offset inflationary pressures. On the other hand, there is also a good bit of innovation underway in how these fatty foods ripped from clear bags are consumed.
Here are five fast-food trends on tap for 2015 — and the big question: Are they working?
New fountain drinks
One constant in fast-food joints for years has been boring, fizzy soda or sugary iced tea. Change is coming — and soon. PepsiCo teased new, low-calorie fountain drinks at fast-food players at an analyst event last month. Consumers should envision seeing, at least from PepsiCo, sparkling iced-tea and zero-calorie SoBe Lifewater available in fast-food fountains next year. It's already being delivered through the fountains at upstart, low-calorie pizza chain Skinny Pizza.
Will it work? Yes. Product innovation in the fountain machines of fast-food restaurants will pique the interest of thirsty patrons. Where there is new interest, there is opportunity for a franchisee to charge an extra 25 cents for a large cup of pre-mixed liquid shooting through a nozzle.
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What millennials want
Yum Brands hinted on its Oct. 8 earnings call that it was about to embark on a marketing and new product blitz at Pizza Hut tied to millennials. If Taco Bell's waffle taco is any clue, expect some form of portable pizza option at Pizza Hut that caters to hurried, distracted millennials. As it stands, there are numerous holes to improve a Pizza Hut menu that only sells pizza, wings, and a couple of pasta dishes.
Will it work? Mixed emotions. On the one hand, what drunken 27-year old won't pay full-price for two portable pizza pockets from Domino's at 11:00pm? But that same 27-year old is likely still favoring the healthier fare found at Chipotle or farm-to-table restaurants in their usual less inebriated state.
The fast-food...portfolio?
Fast-food players are quickly turning into portfolio managers. Oh yes, it's true. (Eat your heart out David Tepper!) Not only is Chipotle incubating offshoot brands such as Asian-themed Shophouse and Pizzeria Locale, but Buffalo Wild Wings is getting in on the portfolio-manager position. "We have an emerging-brands strategy, where we are going to take, make investments in small emerging brands, maybe from three to 10 units, maybe a little bit more, that we believe have the opportunity to grow and become a national chain," Buffalo Wild Wings CEO Sally J. Smith said to me in an Aug. 7 interview.
With its balance sheet being in better shape, DineEquity, the owner of Applebee's and iHOP, sees acquisition opportunity. Said DineEquity CEO to me in an Aug. 22 interview on the topic of acquisitions, "There could certainly be an opportunity for a third brand." The CEO of DineEquity also shared with me that they are open to acquisitions.
Will it work? Yes. Investors should view favorably those restaurants preparing for the food pallets of the future by investing in chains with nationwide, if not global, potential.
The loser in all of this is none other than black-bun-burger seller McDonald's, which years ago divested Donato's Pizza, Boston Market, and yes, Chipotle. Unless there is a management change, McDonald's has not signaled it's intending to return to its former acquisitive ways to juice growth.
Loyalty programs
Papa John's has had success with its rewards program, and Domino's Pizza has noticed. "Our impression at least from comments that have been made at Papa John's that has worked for them, so it is certainly something that we keep an eye on," said Doyle on the Oct. 14 earnings call on the topic of a loyalty program launch. If Domino's Pizza were to unveil a program intended to increase restaurant visits, it would join Starbucksand Dunkin Donuts with rewards programs. Dunkin Donuts' "DD Perks" now has a total of 1.5 million members compared to 1.3 million at the end of the second quarter.
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McDonald's, Burger King and Wendy's do not have rewards programs. All declined to comment on the subject.
Will it work? Yes, but for a certain period of time. As more loyalty programs are rolled out, the consumer will have to make a choice as to which brand to remain loyal to throughout a week. Those early adopters like Starbucks and Papa John's are winning at the moment, but obviously the barriers to entry for a loyalty program are low. All you need is a plastic card, a spot on a mobile app, and some TV marketing.
Voice ordering ... on mobile devices
Domino's Pizza has been marketing on television "Dom," a virtual voice-ordering assistant for its mobile app.
What is coming down the pike for those leading in mobile ordering: voice-activated ordering via the Apple Watch.
Will it work? Yes. Although looking like a gimmick currently, voice ordering is where the industry is headed. Companies, from restaurants to retailers, continue to try and remove barriers to buying their goods and services. Who wants to tap five times on an app to order a pizza, right?
Food for thought.
Commentary by Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors. Follow him on Twitter @BrianSozzi.
Disclosure: Neither Brian Sozzi nor Belus Capital Advisors own shares of any of the stocks mentioned here.
