A&W chain bets on boomer nostalgia

Market observers have long lamented that the burger market is oversaturated, but A&W's Mooney said the fast-food market continues to grow and the burger segment is still gaining a larger percentage of that business. "It's self-regulating," Talbot warned. "If you put too many in, they die."

The Toronto Star
February 18, 2002

A&W chain bets on boomer nostalgia
Canadian Press

The price of A&W's new royalty units edged higher Monday as the restaurant chain set out its plans to expand by luring baby boomers to root beer and burgers with a garnish of nostalgia.

A&W says its ties to the boomers give it an edge in the highly competitive fast-food hamburger market.

"We don't think any of our competitors — in fact we know from research — have the links to the baby boom generation that we do," said Jefferson Mooney, chairman and chief executive of A&W Food Services of Canada Inc.

"So there's a huge market here in Ontario of those boomers who are ready for us to serve them," he said in an interview.

A&W, which began in 1919 in California and opened its first Canadian restaurant in 1956 in Winnipeg, has a connection with boomers who patronized its drive-in restaurants when they were children and teenagers, Mooney said.

However, the hamburger market "is tough overall," said Richard Talbot of Talbot Consultants, and A&W isn't the only outlet targeting the boomer bulge.

A&W (TSE: AW.UN) revenues royalty income fund units, which began trading at $10.65 on the Toronto stock market on Friday, rose eight cents to close at $10.98 on Monday as more than 300,000 units traded hands.

The issue raised $83.4 million for the company, which went to pay debt taken on when its management bought the company from Dutch consumer products giant Unilever in 1995, and then bought out four institutional investors in 2000.

Investors in the units will be paid a royalty of three per cent of A&W's total sales, which were $433 million in 2001 — $1.56 for each of the 8.3 million units.

The royalty income fund is part of A&W's plan to expand its current 600-outlet chain of bright orange retro-style restaurants, run by franchisees.

In the '70s, A&W had more than 300 restaurants across Canada with drive-in service. But that style fell by the wayside and A&W opened outlets in mall food courts.

Now the expansion is focused on stand-alone restaurants with drive-through service.

The Vancouver-based company, which employs 17,000 people and a big bear mascot, wants to open 45 locations annually for the next five years.

Half will be in Ontario and Quebec, a quarter in the West and a quarter in Atlantic Canada.

"Yeah, it's a competitive market but the bottom line is we believe the consumer wants what we do, and so far it's been proven in the results," A&W chief operating officer Paul Hollands said in an interview.

The chain has six stand-alone restaurants in Ontario, Hollands said, and all have surpassed their sales targets.

In the West, where it has its strongest presence, A&W has given McDonald's and Burger King "a run for their money," said retail analyst Talbot.

However, "the whole hamburger market is a tough one at the moment, mainly with the aging baby boomer" push toward healthier eating, he said.

A&W isn't alone in focusing on bringing in the bulging boomer generation, Talbot said.

Burger King, McDonald's, Harvey's and Wendy's are all trying to expand their products to attract a wider demographic including the baby boomers.

A&W has more of a family image, Talbot said, "so there is an opportunity for them to do that." But the chain still has to deal with tough competition, not only for customers but for real estate on which to build restaurants.

Market observers have long lamented that the burger market is oversaturated, but A&W's Mooney said the fast-food market continues to grow and the burger segment is still gaining a larger percentage of that business.

"It's self-regulating," Talbot warned. "If you put too many in, they die."


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