Will Longer Hours Boost Sales?

Thousands of chain restaurants are extending their hours in hopes of getting more diners through the door

By SARAH E. NEEDLEMAN

Fast-food chains are hanging a lot of hopes on night owls and early birds.

With a lean economy squeezing their sales, thousands of restaurants are extending their hours to try to get more people through the door. But franchisees are learning that it can take a lot of work to get the most out of off-hours snackers.
The basic problem: Restaurants need to shoulder more expenses to keep the lights on longer—but the crowds usually aren't that big at odd hours, and customers don't end up spending very much. In fact, franchisees and industry experts say, some markets may not have enough all-night types to make the concept work at all.
Longer hours appeal mostly to "younger folks out and about, and they have cut back so much on restaurants," says Bonnie Riggs, restaurant-industry analyst at research firm NPD Group. "Maybe if you're in some big metropolitan or tourist areas it's worthwhile."

24-Hour Patty People

The concept of extended hours has made big inroads at some franchises. About 45% of McDonald's Corp.'s 14,100 U.S. locations are now serving customers around the clock, up from about 30% in 2005. Dunkin' Donuts has doubled its number of 24-hour restaurants over the past decade to nearly a third of its more than 7,000 U.S. outlets.

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Chains like McDonald's have been extending hours in an effort to boost sales.

It isn't just night owls they're going after. Fast-food chains are also trying to appeal to early diners. For instance, Taco Bell, a subsidiary of Yum Brands Inc., implemented a breakfast menu for the first time last year, and today 825 stores across 14 states open their doors between 7 a.m. and 9 a.m., instead of the usual 10 a.m.
For many franchisees, extending hours is an alluring idea, since it lets them bring in more revenue without boosting fixed costs like rent. It can also simplify other parts of the workday: Outlets that stay open around the clock, for instance, can eliminate procedures for opening and closing the restaurant.
But some owners and franchise experts worry that the practice simply doesn't bring big payoffs. Even though fixed costs don't rise, owners say, there are added expenses such as higher utility bills and extra pay for hourly employees working the graveyard shift. Simply finding people to work those hours can be a struggle.

"It is always difficult to get people [to work] overnight. It's just contrary to the body," says John A. Gordon, a restaurant consultant in San Diego. "When you get them, you work hard to keep them."
Meanwhile, the boost in sales can be meager. Research shows that consumers still prefer to eat at fast-food joints during traditional hours. Noon to 1 p.m. is the busiest time of day for quick-service restaurants, accounting for about 15% of customer visits last year, according to NPD Group. In contrast, the hours between 9 p.m. and midnight represented just 6% of visits, and the hours from 1 a.m. to 4 a.m. less than 1%.

Waiting Up Late

A group of franchisees aired those kinds of concerns in a 2008 lawsuit against Burger King Holdings Inc. —which, unlike most chains, mandates extended hours instead of giving restaurant owners a choice.
In 2008, the chain required franchisees to open at 6 a.m., an hour earlier than was previously required, every day but Sunday. And the chain said stores should stay open until 2 a.m., three hours later than was previously required, on Thursdays, Fridays and Saturdays.
Three franchisees sued Burger King in the 11th judicial circuit court in Miami-Dade County, Fla., to protest the move. They argued that the mandate violated their franchise agreement, and they lost money by staying open longer. They also said that the mandate exposed managers and employees to "unreasonable and unacceptable risk of crime, injury, and even death," according to court papers.
On some evenings, the franchisees sold as little as $5 worth of items between the hours of midnight and 2 a.m., according to attorney Robert Zarco of Miami, who represented the plaintiffs in the case.
"The longer the hours the franchisee is open, the more money the franchiser will make in royalties and advertising fees, regardless of whether the franchisee is losing money," he says.
Burger King argued in court papers that it could mandate extended hours of operation. The case was settled in February of last year. Now all franchisees must stay open until midnight every night. Burger King says, "The hours of operation at Burger King restaurants enable us to more effectively compete with our peers. [The company] believes its policy provides franchisees with greater flexibility, allowing them to open earlier than 6 a.m. and remain open after midnight based on the needs of their individual markets."

Making It Work

For all the risks, some franchisees argue that extended hours can work—provided owners do their homework before implementing them. "You can't take the lifestyle of a certain demographic and universally apply it to everyone," says Peter Riggs, vice president of brand promotion for Pita Pit USA Inc., based in Coeur d'Alene, Idaho.
Many of the chain's franchisees established their businesses in the early 2000s in college towns, where hungry students could order veggie pitas, gyros and smoothies until 3 a.m. But when the brand started expanding into other markets in 2005, some franchisees discovered that consumers in those areas didn't have as much of a yen for late-night eats. As a result, they scaled back their hours to better reflect local dining habits.
To find out if expanding hours makes sense in a given market, Mr. Riggs recommends patrolling the neighborhood during the period you're thinking of opening to see how busy it is and what the competition is like. He also suggests asking existing customers about their interest in coming in during hours when your restaurant is normally closed.
Leticia Bernal-Bosey did this about a year ago, before expanding the hours of a Pita Pit she owns in Albuquerque, N.M. She canvassed local bars near her restaurant and discovered they often stayed busy until closing. What's more, none of them served food. "There's a lot of night life in the area," says Ms. Bernal-Bosey, 30 years old, adding that her outlet's overall sales have increased 10% since she tacked on the extra hours.
Franchisees also advise having patience when it comes to building traction with late-night sales. Joe Hertzman, owner of 13 Checkers/Rally's Drive-In Restaurants Inc. outlets throughout Indiana and Kentucky, used to close his restaurants at midnight. Then in 2008 he expanded the hours at one of them to 2 a.m. on Fridays and Saturdays and 1 a.m. the rest of the week.
Sales between Sunday and Thursday started out bleak, with night owls spending an average of just $35 during that final hour after midnight. In comparison, "an average reasonably strong" lunch hour brings in $600 or more, he says.
Over the next few months, more customers began stopping by on those days for late-night burgers and fries, prompting Mr. Hertzman to test their appetites for even later hours. Now, with some of his Rally's units open on weeknights as late as 4 a.m., he's averaging $50 in sales for the final hour, while on weekends, when some units close at 6 a.m., the last hour brings in an average of $100. "You have to stick with it," says the 56-year-old franchisee. "It took us six months to a year to really learn the anomalies of each store."