Fast-Food Restaurants Aim to Revive After-Lunch Sales

(Bloomberg Businessweek) -- Not that many years ago, Starbucks Corp. could depend on a surefire way to keep its stores busy in the afternoons: whipped cream-topped Frappuccino sugar bombs. Customers didn’t seem to care that a medium java-chip Frappuccino has 470 calories and about 16 teaspoons of sugar. But as American palates and schedules have morphed, the world’s biggest coffee chain has struggled to keep its baristas making drinks after the lunch rush dies down.

This is no small problem. The coffee chain is closing U.S. cafes and laying off corporate employees amid faltering sales, in part because of sluggishness in the afternoon daypart (an industry term). And when hedge fund manager and activist investor Bill Ackman disclosed a $900 million stake in Starbucks in October, he noted that weak afternoons and the “consumer shift away from Frappuccino and lack of food innovations” were hurting the company’s business.

That’s pressuring Starbucks management to fight the clock. “We still are seeing some pressure in the afternoon,” Chief Executive Officer Kevin Johnson said in June. “We’re putting more of our energy into that afternoon daypart and the portfolio of beverages that are offsetting some of the declines we’re seeing in Frappuccino.”

Starbucks isn’t alone in watching its business take a post-lunch siesta. Dunkin’ Brands Group Inc., Wendy’s Co., and other restaurant chains are having a hard time drawing a crowd in the afternoon. Americans are busier than ever—especially with the unemployment rate at a 48-year low of 3.7 percent in September—and eat out less frequently. When they do head to restaurants, they often expect healthier options than many chains provide.

Fast-food purveyors have already boosted a once-slack part of the day: breakfast. On the strength of menu items such as its Egg McMuffin, McDonald’s Corp. turned the early morning hours into a popular part of its business, causing competitors to follow suit. And McDonald’s three-year-old all-day breakfast push in the U.S. helped it turn around its worst sales slump in more than a decade. Yum! Brands Inc.’s Taco Bell chain has also seen success since adding egg burritos to its menu in 2014.

Now the industry is looking to crack the afternoon code. Starbucks this summer changed its format at 12 cafes in Nashville to draw more customers after lunch. First came after-lunch playlists of upbeat tunes specially chosen by the company’s entertainment team to help create a bar vibe. Afternoon patrons could order from a new handheld paper “Chill Menu” that echoes a fancy cocktail list. Among the seven new afternoon-only drinks on the bill: the “L&C”—espresso floating over lemonade and tonic, garnished with citrus mist, for $4.95.

It remains to be seen whether enough people (other than freelancers) will heed the afternoon call. Rob Branca, a big franchisee of Dunkin’ stores in New England, says people are in a rush and don’t necessarily want to linger or chill in restaurants, whatever the time of day. “People don’t want to sit around,” Branca says. “Time is the No. 1 thing. Even on vacation, you’re trying to get to an event or to the beach. It’s just the way life is now.”

Dunkin’, Starbucks’s biggest U.S. rival, has taken aim at slow afternoons with $2 snacks including doughnut fries and soft-pretzel bites, along with $1.50 beverages from 2 p.m. to 6 p.m. It’s also whipping up some new drinks, such as Oreo hot chocolate, to advertise after lunch—a period that CEO David Hoffmann has identified as a long-term priority for the company.

Afternoon restaurant visits were down 1 percent for the year ended in June, says NPD Group Inc. Customer traffic during that daypart was unchanged in the prior year and up 5 percent in 2016. But people are working and shopping at home more—last year, almost a quarter of those employed in the U.S. did some of their work at home, according to the Bureau of Labor Statistics—and may not be able to leave the office in the middle of the day. “Unless you’re in an urban center, going requires leaving your work in your car,” says Bloomberg Intelligence analyst Jennifer Bartashus. With low unemployment, fewer people are out and about looking for a coffee or cookie after lunch, she says. “It’s part of the equation.”

Dunkin’ Executive Chairman Nigel Travis also says changing patterns of work are hurting sales. Americans are going to work earlier, and Dunkin’s sales between 4 a.m. and 5 a.m. are on the rise, he said earlier this year. “People would rather go to work and get it out of the way,” he said, noting that afternoon customers still “need to have a quick pit stop and have a snack.”

The chains that tend to do well in the afternoon have something called “crave-ability,” says Dave Henkes, senior principal at restaurant industry consultant Technomic Inc. “You just want something, and that tends to be generally sweet,” he says, noting that Cinnabon LLC and Krispy Kreme Doughnut Corp. have done well in the afternoon. Both chains last year turned in bigger U.S. systemwide sales gains than Starbucks’s. Health-focused Jamba Inc. also has managed to lure customers post-lunch, Henkes says.

Starbucks’s latest drink, a plant-based protein cold brew made with almond butter, takes a page from Jamba. Although there may be growth opportunities with protein drinks and lower-calorie teas, those are less “flagrantly fun” than things such as the chain’s Unicorn Frappuccino, a color-changing pink-and-purple concoction that’s finished with whipped cream and sprinkled with pink and blue fairy powder, says Bill Chidley, partner at brand consultants ChangeUp Inc. “The Frappuccino was their point of entry in terms of product development—that certainly isn’t as powerful as it was,” he says. “Of course, they still have pumpkin spice latte.”

To contact the editor responsible for this story: James Ellis at jellis27@bloomberg.net, Eric Gelman

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