Fast food chains compete for late night crowd - American Independent Business Alliance AMIBA

September 04, 2005

Fast-food chains stay up late

By Karen Robinson-Jacobs
The Dallas Morning News

DALLAS -- Waking from a brief nap shortly before 1 a.m. one recent Friday, Ryan Wright was hungry and knew what to do about it.

The fridge in his Plano, Texas, home was closer, but the late-night drive-through window at a nearby Taco Bueno restaurant was easier.

"I live down the road," said Wright, 26, still looking a bit groggy. "It's quicker to get up and come here than to make something myself."

When America gets the late-night munchies, growing numbers of fast-food restaurants are staying open later -- in some cases 24 hours.

Restaurateurs say they're burning the midnight oil to be more responsive to consumers who are increasingly using restaurants as their personal refrigerators, day and night.

Researchers question whether chains in the $160 billion fast-food industry are expanding consumers' late-night options, or if they're merely stealing customers from convenience stores and traditional all-night diners.

Still, as more chains join the ranks of the sleep-deprived, the holdouts risk looking like they're asleep at the switch.

"We've seen a push coming in the last eight to 12 months," said Tom Miner, a principal with Technomic Inc., a Chicago-based restaurant research firm. "What's driving it? They realize that their competition is making money. It's just the next frontier to make more money."

Late-night takes on varying hues depending on the chain. But in general, it involves offering service -- almost always drive-through only -- at least until midnight.

The Wendy's chain, owned by Wendy's International Inc. in Dublin, Ohio, is largely credited with piquing interest in after-hours service after it launched extended hours in 2000, backed by a national advertising campaign.

"We were one of the pioneers in this," said Wendy's spokesman Bob Bertini. "It has been a growing opportunity for us."

Initially, the movement attracted smaller regional chains and individual franchisees.

But this year, the evolution took a big turn when about half of McDonald's 13,700 U.S. stores began offering some type of extended hours. Many stay open until midnight or later, and about 25 percent of the U.S. outlets are open 24 hours.

"We continue to increase the number of restaurants that are operating on extended hours on a weekly basis," said William Whitman, a spokesman for McDonald's Corp. in Oak Brook, Ill.

Seattle-based Starbucks Corp. has fewer than 40 round-the-clock outlets nationwide.

This year, more franchisees with the Sonic drive-in chain added August to the typical June-July late-night promotional period. Now, enough have later summer hours that Oklahoma City-based franchisor Sonic Industries Inc. can promote it throughout the summer.

"It was very much part of our overall strategy to drive business in the nontraditional day parts," said Eddie Saroch, vice president of field services for Sonic Industries.

Also this year, Carrollton, Texas-based Taco Bueno Restaurants Inc. expanded its summer-only late-night program to run year-round, keeping the drive-through at 135 of its 139 stores open until 1 a.m.

"Our guests have been telling us we should stay open late," said Ramon Torres, the company's senior vice president of operations. "A lot of them work on the night shift, and that's their lunch hour."

Ryan Naugle was less than two hours into his 11 p.m.-to- 7 a.m. shift as a technician for Nortel Networks Corp. when he craved a burrito combo from Taco Bueno.

"They're trying to accommodate people that work the graveyard shift," said Naugle, who is on assignment in Plano until November. "Believe it or not, there are a lot of people that work this shift."

Most chains would not release numbers on sales in the wee hours, citing competitive reasons.

"It's been a growing and sizable part of our business," said Bertini, of Wendy's. "We've, in the last five years, really carved out another major day part for us."

At Taco Bueno, late-night sales vary by store but can account for up to 14 percent of sales, Torres said.

Whether those increased sales indicate an increasing market is still an open question.

"There is this movement to extend hours, but ... I think that is a market share battle for the late-night crowd," said Harry Balzer, vice president of the NPD Group, a consumer research organization in Port Washington, N.Y.

"Consumers have found more options to satisfy that late-night meal, but it's not causing them to eat more."

An NPD survey shows virtually no change over the last three years in the number of consumers who said they ate a meal out between 9 p.m. and midnight, Balzer said. It was 8 percent for the 12 months ended February 2003 and has been 7 percent since.

If the fast-food players are taking market share, it would have to come from the traditional late-night hosts -- convenience stores and all-night diners such as Denny's and IHOP.

Debbie Atkins, a spokeswoman for Denny's Inc. in Spartanburg, S.C., said her brand's late-night business has "held steady" even as fast-food restaurants have stepped up the competition.

"Fast food's focus on remaining open later has helped raise the awareness of late-night dining overall," she said. "We have introduced new appetizers -- nachos and miniburgers -- that appeal to late-night guests. In addition, we have developed radio advertising with late-night messages."

Dallas-based 7-Eleven Inc. has increased its focus on fresh food at its convenience stores. But spokesman Kevin Gardner said he could not disclose how those sales are doing in the wee hours.

The restaurant companies wouldn't give a figure for additional costs for late-night staffing, security, utilities, insurance and food prepared but not purchased. But most dismissed the costs as minimal.

The restaurants also declined to disclose what security measures they've taken to adjust for the later hours -- other than locking the lobby door at about 10 or 11 p.m.

"I would not say that insurance plays a major role in the decision," said Steve Spalding, president and partner with Dallas-based C.S.I. Insurance, which specializes in the hospitality industry. "There potentially are some additional costs, but compared to the cost of operations, insurance is a small piece."

Incremental costs notwithstanding, the number of brands and franchisees staying up later continues to grow.

Scott McLain, president of Sonic Industries, said the chain's entire system of drive-in restaurants (where not constrained by city ordinances) are open as late as midnight. Up to 80 percent of those units are owned by franchisees.

The company counts Dallas-Fort Worth as its largest market, with nearly 250 outlets.

"Over time, we as a company and collectively as an industry have tried to be more relevant," McLain said. "An adjunct of that is being more relevant at different times of day."

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