Food Stocks Jockey for Facebook Position

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When privately owned Wegmans Food Markets' Northborough, Massachusetts location decided to close its Facebook (NASDAQ: FB) account, it may not have been prepared for the backlash that was in store from its near 7,500 fans. On its Facebook homepage, the company's latest status greets friends with the following message:

"We have enjoyed a tremendous year with you at our Northborough Facebook page. Thank you to our 7,490 fans for being a part of it. We will be taking this page down on December 9th because our Northborough store is now up and running."

Instead, Wegmans politely encourages its customers to express any concerns, questions or accolades to its employees directly in person at the store. In response, Wegmans was inundated with replies from fans voicing their discontent. Some offered their social media services to keep the page running while others compared Wegmans to Whole Foods, envious of the way that the health food retailer interacts with its customers online.

The disappointment that the Facebook account closure is causing is not all that surprising when you consider the impact that the social media network has had on restaurants and supermarkets. According to a recent study performed by Expion and cited in Nation's Restaurant News (NRN,) fan activity surrounding some of the more popular restaurants with Facebook pages soared nearly 150% in the 3Q compared with the 2Q. That translates into more than 27 million status responses, ranging from a simple like to an actual comment or shared status.

The key for successful social media campaigns is not simply to create a Facebook page or perform frequent status updates. Instead, it is linked directly to keeping page fans engaged, according to the study. Expion created an index based on fan activity per restaurant post from a base of the average number of responses per post, which is more than 3,200.

Specialty coffee maker Starbucks (NASDAQ: SBUX) had the highest rating, having earned an index rating of 13.3. The closest competitor was Chick-fil-A, which earned a 10.5 rating.

Facebook Rating*

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>Index Rating</strong></td> </tr> <tr> <td>Starbucks</td> <td>13.3</td> </tr> <tr> <td>Chick-fil-A</td> <td>10.5</td> </tr> <tr> <td>Taco Bell (Yum! Brands)</td> <td>7.7</td> </tr> <tr> <td>Cheesecake Factory</td> <td>5.7</td> </tr> <tr> <td>McDonald's</td> <td>4.5</td> </tr> <tr> <td>Texas Roadhouse</td> <td>3.4 (tie)</td> </tr> <tr> <td>Krispy Kreme</td> <td>3.4 (tie)</td> </tr> </tbody> </table>

*Source:  Expion data cited in Restaurant News

Game Changer

Clearly, social media has added another layer to the way that both big and small businesses manage their operations, and it is no surprise that Facebook -- despite its setbacks as a  publicly traded company -- is leading that charge.

Facebook has approached several milestones recently, which provided a pleasant and surprising boost to the stock. First, the lock-up period for some 800 million shares ended in November, which could have flooded the market with supply. Nonetheless, there appears to be sustained demand for shares, as the stock is inching closer to its debut price of $38 per share. Since the lock-up period ended in mid-November, Facebook shares have advanced 40%.

In its 3Q, Facebook satisfied investors by revealing it was growing its mobile ad revenues, which was an area of concern. Some 14% of Facebook's ad revenues were driven by mobile ads in the last quarter, and upbeat peformance is expected to spill over into the 4Q. Facebook's Internet-driven mobile messaging application, which is free to users, is only adding to its mobile appeal. 

Status Updates

Yum! Brands (NYSE: YUM) is successfully managing its Facebook campaign but has been struggling in other areas of its business. In China, the owner of such brands as Taco Bell and Kentucky Fried Chicken, is floundering. Yum! Brands is bracing for a 4% drop in 4Q same-store sales in the region, which taken by itself can seemingly be justified by China's slowing economic growth. But last quarter, Yum! sales advanced 6%, and the abrupt reversal could just about cause investor's whiplash. In last year's 4Q, growth in Yum!'s China same store sales was in the double digits.

Yum! Brands has been facing increased competition from U.S. businesses establishing a presence in China, companies such as Starbucks and McDonald's, both of which had high rankings in the Facebook survey.

Starbucks has taken a particularly aggressive position on China, and says the region will represent its second largest market -- exceeded only by the U.S. - by 2014. Indeed, over the next 3 years Starbucks plans to have 1,500 store locations spread across 70 cities. Starbucks is also bolstering its presence in India.

Dessert Update

Cheesecake Factory (Nasdaq: CAKE) and Krispy Kreme Doughnuts (NYSE: KKD) successfully leverage pictures of their appealing desserts on their status updates to attract fans. Both companies use the Facebook platform to advertise company-wide promotions and elicit fan reaction. Cheesecake Factory decided to cross-promote by tagging the brands of other candy-makers used in its products, such as Hershey and Nabisco, which bolstered its exposure.

Krispy Kreme's strategy is to let the donuts speak for themselves. Similar to the California Processor Board's "Got Milk" campaign, Krispy Kreme relied on the simple "Hungry?" caption. The approach works, as that particular status update generated more than 45,000 responses, based on NRN data. 

The Facebook index may seem like a whimsical way of gaining a glimpse into the way big corporations manage their social media efforts. Considering the uproar that Wegman's Massachusetts location caused by shutting down its page, however, it is apparent that fans have begun to expect an online dialog with the businesses they frequent.

GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Starbucks and has the following options: long JAN 2014 $20.00 calls on Facebook and short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Facebook and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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