Amid allegations by franchisees of McDonald’s, Wendy’s and Baja Fresh Mexican Grill that some new products haven’t been tested properly before launch or were rolled out too quickly, Taco Bell has begun speeding up new-product test marketing, aiming to double its rate of product launches.
The rollout-related disputes and introductory accelerations come as reminders that new-product introductions are vital to restaurant marketing because chains must make “news” to retain customers and entice new ones to eat at their restaurants.
The new emphasis on rollout speed also suggests that national brands are feeling increased pressure to match the typically more-nimble abilities of smaller, regional chains to bring novel products to market more quickly.
A 90-day period of trial in key test markets is considered the industry norm, but some chains have been taking products from test phase to systemwide launch sooner recently because of heightened competitive pressures to give diners something different or better or bigger or of greater value.
Yum! Brands Inc.’s Mexican quick-service chain is taking its steps toward expeditious introductions as part of a plan to revitalize the brand “in the current more competitive QSR segment, where Taco Bell has clearly lost market share,” foodservice securities analyst Jeffrey A. Bernstein of Lehman Brothers wrote in a report to investors after meeting recently with Yum executives.
Although those officials did not disclose the number of products that historically have been in Taco Bell’s R&D pipeline, they said the chain would double the number, both with products tested through a traditional evaluation cycle and under a new and speedier “explore in-store” process, Bernstein wrote.
That method would involve testing a rollout candidate in a handful of Taco Bell branches in a selected market and supporting the test with only point-of-purchase materials.
If initial sales are high in such a scenario, Bernstein wrote, then “management believes the product has strong potential and can be accelerated to the rollout phase more quickly than [with] their more traditional process.”
The explore-in-store program began a few months ago and has “pushed through a dozen test products” to initial evaluations, said Rob Poetsch, a spokesman for the 6,000-unit chain, based in Irvine, Calif. He declined to say what the products were or where they’d been tested.
“When we test a product we don’t make an announcement,” he said. “We don’t want to drive people to [the chain’s restaurants] if it’s not available.”
But Taco Bell is very pleased with consumer reaction to the products so far, Poetsch said.
Bernstein’s report noted that Taco Bell is testing a frozen beverage, which would roll out systemwide in 2008, and plans to develop “better-for-you” products to meet consumer demand for more healthful menu items.
Taco Bell franchisees contacted for this story either did not return phone calls or said they did not know enough about the new product-testing program to comment on it.
Franchisees of McDonald’s and Wendy’s, however, were critical about recent new-product testing and rollouts.
Several McDonald’s franchisees took aim at the chain’s pending rollout of espresso-based drinks and other new specialty beverages, known as the Combined Beverage Initiative, or CBI. The operators’ anonymous comments in an October survey of franchisees, compiled by securities-analyst-turned-restaurant-investor Mark Kalinowski, criticized the chain for what they perceived as a too-quick rollout plan that doesn’t take into account necessary equipment costs and profitability thresholds.
“We need to say NO! to a fast rollout of CBI,” a franchisee said.
“CBI should be considered a test, but it’s not,” said another.
A third franchisee said McDonald’s headquarters was “expanding test products nationwide (CBI/Angus) before they have been proven viable, at the expense of operators’ equity.”
McDonald’s responded to those critiques in a written statement, saying that as part of the beverage test “we evaluate results and key learnings and make necessary enhancements to improve restaurant operations and customer satisfaction.”
In late summer, 16 Wendy’s franchisees who own more than 1,100 branches, about 24 percent of the chain’s domestic franchised units, accused Wendy’s board of directors and senior executives of being responsible for inadequate testing of new products or operational changes.
Wendy’s executives refuted those claims, but the two sides’ contentious exchange of letters and memos was leaked to the public—presumably putting other chains on their guard regarding the potential for similar squabbles with franchisees.
Taco Bell executives, for their part, did not say how much time its explore-in-store testing was expected to shave off the chain’s traditional time frame for field testing new products. Nor did they say whether its speedier approach to putting new menu items into the mass market had yet been proven to work on a wide scale.
However, marketing experts tend to agree that a conventional 90-day period of testing may best determine whether a product will succeed in a systemwide rollout, either as a limited-time offering or a permanent menu addition.
“Certainly with respect to food items in a restaurant, you know what’s going on in three months,” said Kevin J. Clancy, chairman and chief executive of Copernicus Marketing Consulting, based in Waltham, Mass.
Although Taco Bell did not say where it has tested new products with the speedier process, Clancy said marketers generally pick regional markets that parallel the national demographic and behavioral profile of typical customers to ensure accurate results.
Taco Bell’s decision to limit marketing support to in-store material means it can save money on the TV buys that generally support test marketing, said Peter Geisheker, chief executive of the Geisheker Group Inc. of Green Bay, Wis.
Advertising a test product, even regionally, can be expensive and at times a risky proposition for the company, he said.
“The dangers are that they’re going to spend a lot of money on an ad campaign, and [the product] is going to bomb, which can be extremely expensive to a company,” he said. “When you’re doing a test, you want to keep expenses down.”
Taco Bell’s explore-in-store program fits Clancy’s criteria for an in-market test “where you drop your product in and that’s it, and you’re simply looking to evaluate consumer reaction to it,” he said.
True test marketing involves a number of steps, including lab testing, consumer tasting programs and then the actual in-store test marketing “in which you advertise the product and promote the product and put it in your restaurants.”
The 291-unit Baja Fresh fast-casual chain, based in Thousand Oaks, Calif., continues to follow such a multistep process, said two of its executives who disputed claims by a franchisee that the chain has been rushing new products onto its menu since its ownership changed last year after a divestment by Wendy’s International Inc.
Recently, the new franchisor “had some good ideas that were not tested properly for us from a cost standpoint,” said the Baja Fresh franchisee, who asked not to be identified in this story.
But Jon Rogan, the chain’s director of research and development, said Baja Fresh has a “pretty extensive process” of testing new products.
After screening product ideas with consumers and developing the products, prospective new menu items are tested in two restaurants “with a little marketing support” and evaluated regarding sales, pricing and “pretty much every attribute that we need to learn about,” Rogan said.
Products that meet sales benchmarks then are tested in five units before a decision is made to expand a test regionally, he said.
Baja Fresh director of marketing Jerry DeLucia said franchisees are informed of test results along the way, whether good or bad.
“We have a product testing in a Nevada market,” he said while conceding that “it’s in the fifth week, and it’s not making the grade.”
A new product must meet a designated sales benchmark before the chain would decide to try it as a limited-time offer or a menu item, DeLucia said.