The hipsterfication of A&W
Pitching healthier, natural fast food has made A&W the country's second-largest burger chain. It already won the West—can it win the East as well?
Ludwig Mies Van Der Rohe probably didn't have a burger joint in mind when he laid out his minimalist ethos, but less is definitely more in the world of fast-food restaurants. It focuses your mind on what's important—or, at least, on what the restaurant wants you to believe is important.
In the case of A&W, that focus is clear as soon as you walk through the door. The fast-growing chain's new "urban concept" stores sport a spartan look that draws the visitor's eyes immediately to two things: a dramatically backlit fridge just behind the counter where about two dozen root beer mugs sit frosting; and a slick video wall on which tales of A&W's hormone-free beef or nutrient-rich vegetables unfold.
"It's not, as my son calls it, 'food porn.' It's food," says Paul Hollands, CEO of A&W Food Services of Canada Inc., with a laugh as "The Story of Our Iceberg Lettuce" video, featuring happy fieldworkers plucking verdant heads of lettuce, plays beside us. A 37-year company veteran, Hollands is sitting at a high table, flanked by A&W's president and COO, Susan Senecal, in a 1,400-square-foot downtown Vancouver store. They're here to lay out the 61-year-old firm's new marketing pitch: a naked appeal to young, urban, ingredient-conscious consumers. "Both Susan and I have millennial children. If you're getting off track, they'll explain it to you," says Hollands. "They use that word: authenticity." (It's a word that comes up often during the conversation.)
Canadians east of Winnipeg may be surprised to learn that A&W is now the second-largest hamburger chain in the country, after McDonald's, and the fifth-largest quick-service restaurant (QSR). It originated the QSR model in Canada, and now has more Canadian customers than Burger King and Wendy's combined. A western powerhouse for decades, the North Vancouver-based chain has been making a hard push east in recent years, especially into urban cores. Today, there are more than 40 such modern downtown restaurants in Vancouver, Toronto and Montreal out of a total of about 900, and the urban locations represent roughly 40% of A&W's expected 40-odd store openings in 2017.
While A&W's roots are in suburbs and small towns, population growth in cities has "dramatically outpaced" the growth in its traditional markets, says Hollands. And the people living and working downtown aren't the boomers who grew up eating Teen Burgers in the backs of their parents' AMC Ambassador station wagons but a younger, hipper crowd. To draw them in, A&W has pivoted its marketing to target millennials' preference for quality ingredients and ethical sourcing: beef raised without hormones or steroids; chicken and pork raised without the use of antibiotics; or eggs from hens raised on a vegetarian diet.
On the surface, it's quite a departure for a chain that made its name on hearty burgers, onion rings and the iconic drive-in. In reality, it's just the latest shift for a company that has deftly stayed ahead of the curve for 40 years, after a brush with bankruptcy following the collapse of its core drive-in business. But as A&W tries to appeal to the young, it also needs to hold on to their parents—the consumers who helped build it into a chain with more than $1 billion in annual revenues. And it needs to keep happy the hundreds of fiercely independent business owners—the franchisees—who have stuck with the brand through decades of changes.
That's why the Burger Family, dating back to the 1950s, is still front-and-centre on the menu; it's also why frosting root beer mugs are the first thing you see when you step up to the counter. Embrace nostalgia and old-fashioned values, but also embrace new sustainable ones. "So long as you don't deny your history," says Hollands, a youthful-looking 60-year-old with a faint trace of his Newfoundland upbringing still present in his voice, "so long as you don't deny what's made you appeal so much to the previous generation, you can enhance the brand, and [customers] will embrace it."
The A&W brand has long been more successful in Canada than in the United States, even though a key strain of its DNA is pure California. The original A&W restaurant opened in Sacramento in 1923, named after co-founders Roy Allen and Frank Wright. In 1956, the company made its first foray outside of the U.S., into Winnipeg—making A&W the first quick-service burger chain in Canada.
People might assume that Canada just adopted the American model, says Jeff Mooney, A&W's controlling shareholder and chairman emeritus—but, in fact, the opposite is true. "The guys who started A&W wanted to sell root beer—that's all they saw themselves as, a root beer company," says the Regina native, who started at A&W Canada as director of personnel in 1973. "They never really, at a bone-deep level, were a restaurant company."
The Canadian operation quickly sought independence from its masters in California, buying the trademarks in the late 1950s and focusing its outlets on burger fare. It was A&W Canada that created the Burger Family—Papa, Mama, Teen and Baby burgers—and subsequently sold the Americans on the concept. The chain, with its iconic carhops on roller skates, continued to expand rapidly on both sides of the border through the '50s and '60s, and by the early 1970s, A&W had more outlets in Canada than McDonald's.
But it almost didn't survive that decade. In 1972, A&W Canada was acquired by Unilever and went into a period of rapid decline as the drive-in culture faded away. Brian Goheen, today one of the chain's largest franchisees, became CEO of a franchise company with 16 outlets in the Edmonton area in 1988. "Our competition had modern drive-throughs throughout the city," he recalls, "and here we were with drive-ins. But the world had changed. No longer did people want to sit in cars in minus-20 degrees in Edmonton, waiting 10 minutes for their hamburgers while they get cold with their windows open."
With McDonald's, Burger King and other American burger brands rapidly moving north, Mooney, who had risen to president of the Canadian chain, began shuttering the 308 drive-ins (the last one, in Langley, B.C., closed in 2000) and shifting focus to shopping-mall food courts. That proved to be a prescient move as food courts became a growing target for QSRs, and the shift kick-started A&W's rebirth. By the early '90s, A&W was "the fastest-growing, most profitable company" in Unilever's Canadian portfolio, according to Mooney. However, in 1995 the packaged-goods company decided A&W was a "non-core" asset and Mooney, along with five other senior executives (Hollands among them), led a management buyout.
For its first 15 years as an independent company, A&W Food Services of Canada flourished, with a laser focus on baby boomers: the demographic that had grown up "cruisin' the dub." System sales rose from about $300 million in 1995 to just under $800 million by 2010. But as the boomers aged, management realized they needed to change the strategy again—especially as their growing push into urban markets began producing a different clientele.
Hollands, who joined the company as a junior marketer in 1980 after a brief stint at Shoppers Drug Mart, took over from Mooney as CEO in 2005. Shortly thereafter, his senior leadership team started to consider a new target market—the millennials. "We were not going to turn into your father's hamburger joint," he says.
The idea to focus on better ingredients was, in some ways, a no-brainer. "We saw that trend emerging [among millennials], whether it was in grocery stores or in fine dining," says president Susan Senecal, a Montreal native who's been with the company 25 years. "It was all about how the food was raised, what was in it." While the message has universal appeal, it particularly resonates with young people, says Darren Dahl, professor of marketing at the University of British Columbia, whose research interests include the moral values consumers place on food choices. "A large part of that is culture and education: When kids go through school today, they're made more aware of everything from environmental issues to aspects of sustainability to the responsibilities that we as consumers have to society."
The ingredients message has been reinforced with the ubiquitous commercials featuring "Allen," a fictional A&W store manager (played by actor Allen Lulu) conducting taste tests with young Canadians. In 2015, the campaign helped A&W snag the Marketer of the Year award from the B.C. chapter of the American Marketing Association. Sales have jumped too, topping $1 billion in 2015, up 28% in three years—a period during which McDonald's, A&W's main rival, grew sales by less than 4% in Canada. A&W's share of QSR burger dollars is now 14.4%, up from 12.7% in 2013. In a slow-growing sector like fast-food restaurants, such market-share gains are critical.
While other QSR burger operators tout price or convenience, A&W's message is that you don't have to give up quality or ethics for either. And the company has stayed focused on burgers even as its main competitors venture into coffee, pizza and other items. "A&W has never gone after the same thing that McDonald's has," says Dahl. "McDonald's is about family and kids—for years they had that weird clown. A&W went after malls, then baby boomers—and now they're doing their next phase."
Appealing to millennial consumers is half the battle. The other half is getting buy-in from hundreds of franchisees: Of the almost 900 A&W outlets in Canada, only eight are corporately owned.
Goheen, whose company today operates 30 outlets around Edmonton, says the push to target millennials with high-quality ingredients is an important differentiator from his competitors, and fully in keeping with the A&W tradition. "We've been working on better hamburgers, better-tasting hamburgers, higher-quality ingredients my whole time here. It's not new; it's just current." In his 30 years in the A&W network, Goheen has seen six or seven strategic shifts, and credits the A&W head office for involving franchisees in each incarnation.
To strengthen its relationship with franchisees and better target the millennial consumer, A&W has developed the Urban Franchise Associate program. Launched in 2016, the program offers young entrepreneurs (under 35) the opportunity to own an outlet with an initial capital investment of only $150,000, lending them the rest they need to meet the $400,000 for an A&W franchise. A&W Canada also provides on-the-job training with an experienced franchisee.
Barmil Mallhi, a 30-year-old with a young son, was the first participant in the program (there are currently six more in the pipeline for 2017 and 2018, says Senecal). After working in retail in Winnipeg, she opened her restaurant in Toronto's Junction neighbourhood in February, and says so far performance has exceeded her expectations. She'd ultimately like to own multiple locations, but for now she is content to build her franchise in this fast-growing area, full of young families like hers. "I think most millennials like the idea of that: The better you work, the harder you work, the more money you get."
The Urban Franchise Associate program is a smart strategy, says Elizabeth Johnston, a research analyst with Laurentian Bank Securities. "It says something if your management at a location is younger, because a lot of the employees are younger as well," she says. "It means they can show they know what their [franchisor] is looking for, they know what the customer is looking for—and they're able to reflect that in their management."
David Ian Gray, a Vancouver-based retail analyst and president of DIG360 Consulting, thinks that A&W's long-term success can be directly linked to keeping franchisees happy. Indeed, in April A&W won the gold award for an operation with more than 100 franchisees from the Canadian Franchise Association, based on satisfaction surveys of franchisees. "For a franchise business, the franchisee is the customer in many ways," says Gray.
Bringing on top-quality franchisees will be key to making A&W's eastern expansion a success. Of the 40 stores it plans to open in 2017, about two-thirds will be in Ontario and Quebec, where A&W has half as many restaurants per capita as it does out west. In Eastern Canada, it faces strong regional players like Harvey's, as well as deeply rooted competition from McDonald's, Wendy's and Burger King. A&W also lacks the nostalgic appeal there that it holds in the West. The spread of mini-chains like Hero Certified Burgers and Five Guys, which also tout quality (albeit at higher prices) and target hipsters, presents an additional hurdle.
Johnston thinks A&W is well positioned against the other national chains, but sees a bigger challenge beyond the beef. "If somebody is going out for lunch, you don't necessarily just think, 'I want a burger,'" she says. "It may be that you're competing Thai versus burger versus sandwich or salad. All together, it's a competitive space."
Looking out the window of the Vancouver A&W at the panoply of fast-food options presented to young office workers—a salad restaurant next door, a takeout sushi place across the road—it's easy to see Johnston's point. For decades, A&W used its deep nostalgic appeal to keep western boomers coming back. It's a pull that the management feels as well. "My earliest memories are of being in the back seat of a car at the drive-in with my parents and my three sisters, drinking root beer in baby mugs," recalls Senecal. Adds Hollands: "I don't think there's a Canadian of that era who forgets the first mug of root beer that they had."
Will notoriously fickle millennial consumers be loyal in the same way—especially as competitors increasingly jump on the healthy ingredients bandwagon? Already, McDonald's is pledging antibiotics-free chicken by 2018, while Tim Hortons and Burger King have committed to serving cage-free eggs by 2025.
Hollands acknowledges the breadth of competition, but all he'll say is that his team is constantly "tweaking and playing with and trying to improve" everything on the menu. "Our strategic objective is to accelerate growth," he says. The drive-in might be dead, but for A&W, it's pedal to the metal.
"Free" fast food: Antibiotics-free, cage-free, hormone-free—Canada's burger chains are crowding onto the "clean food" bandwagon that A&W got rolling in 2013
- McDonald’s The leading burger chain has pledged to offer antibiotics-free poultry by 2018 and eggs from cage-free chickens—which, unlike free-range chickens, don’t actually get to experience the outdoors—by 2025.
- Wendy’s Antibiotics-free chicken is supposed to come this year, and cage-free eggs by 2020. The chain, which has long boasted about “fresh, never-frozen beef,” also touts “hand-leafed lettuce” and “strawberries and blueberries right from the fields.”
- Burger King The company, along with sister chain Tim Hortons, has committed to using eggs from cage-free chickens by 2025. It’s also eliminating antibiotics from its food by 2018 (a year later than in the U.S.).
- Harvey’s Owner Cara Operations has announced a cage-free policy for eggs used by its brands, which include Swiss Chalet and Kelsey’s, starting in 2020.