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Small is the New Big

[ 0 ] Jul. 11, 2011 | SBO Editor

Berkshire Hathaway Inc.’s Dairy Queen promoted the baby Blizzards last month, giving diners about half the calories of the small 12-ounce size. In March, Starbucks Corp. unveiled the “petite” line of mini cupcakes, whoopie pies and lemon squares for $1.50 each; the junior lemon square has 120 calories, compared with 490 for Starbucks’s lemon pound cake.

Downsized desserts make diners feel better about tacking a treat onto a full meal, and restaurants can make more money off them by charging higher prices, said Michael Keller, chief brand officer at Minneapolis-based Dairy Queen.

“Consumers are willing to pay a little bit of a premium for the mini Blizzard,” Keller said. “That has helped our operators protect their margins.”

Surging ingredient costs are putting restaurant margins under increasing pressure. World food prices rose to almost a record in April as grain costs advanced, leading to price hikes for basics like eggs, meat and sugar. Dairy Queen, which also debuted a smaller milkshake this month, expects its ice cream costs to jump more than 10 percent this year.

Shrinking the snacks lets restaurateurs sell for less without sacrificing profitability, said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago.

“At the end of the day, they’re unable to pass on the increases to consumers as higher prices, so they’re downsizing meals,” she said.

Restaurants are following the lead of foodmakers, who debuted the concept about seven years ago at supermarkets, selling 100-calorie snack packs of Oreos and Chips Ahoy cookies, says Todd Hooper, a restaurant strategist at Kurt Salmon in New York. A few years later, PepsiCo Inc. copied with 100-calorie Cheetos and Doritos.

Snacks of that size may help put fat-wary customers at ease as they scan menus for an afternoon bite, especially now that more chains are revealing calorie counts on display cases in an effort to be more transparent. Many restaurants serve entrees that clock in at 2,000 calories — or about an entire day’s recommended intake — so mini-foods can help balance out the bill of fare, said Dennis Lombardi, executive vice president at restaurant consultant WD Partners in Dublin, Ohio.

McDonald’s Corp., which hawks several 700-calorie burgers, is also experimenting with how to scale back. The world’s biggest restaurant chain is testing $1.99 chicken bites at some sites in Detroit and has promoted Angus snack wraps, about half the size of the deluxe burger of the same name, to lure diners during mid-afternoon downtimes.

Serving less-hearty helpings may turn off customers who still want big meals. More than 70 million Americans weigh in as obese, according to data from the Centers for Disease Control and Prevention.

“Especially in the U.S., unlike other countries, consumers have gotten used to super-size me,” Mesirow’s Swonk says. There’s also the risk snack-sated diners will spend less as they trade down to cheaper mini-sizes.

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Category: Features