Sandwich leaders face off with affordable luxuries

Sandwich leaders face off with affordable luxuries

The industry’s leading sandwich chains may also lead the most recession-resistant restaurant segment during economic downturns, but most are competing for cash-strapped customers by juggling value-priced offerings and premium items pitched as affordable luxuries.

The sector’s dominant brands “have an advantage as value becomes increasingly important today, yet value menus can peacefully co-exist with premium items” notes Bob Sandelman, whose Sandelman & Associates foodservice consulting firm specializes in tracking guest traffic trends.

Segment leader McDonald’s [3] sets a premier example by featuring value and premium items, but it has been touting the bargain equation more frequently as consumers have grown increasingly concerned about making ends meet. The burger giant has stuck with that strategy despite record-high commodity and operating costs, reasoning that sales increases and its vast supply chain help to control costs.

SANDWICH CHAINS RANKED BY U.S. SYSTEMWIDE SALESU.S. SYSTEMWIDE FOODSERVICE SALES* (BY FISCAL YEAR, IN MILLIONS)*Actual results, estimates or projectionsSource: NRN research

 
LATEST-YEAR RANK PREC.-YEAR RANK RANK FISCAL YEAR-END
        LATEST PRECEDING PRIOR
1 1 McDonald’s Dec. ’07 $28,576.1 $27,144.2 $25,642.9
2 2 Burger King June ’08 8,916.0 8,555.0 8,448.0
3 4 Subway Dec. ’07 8,225.0 7,710.0 7,170.0
4 3 Wendy’s Dec. ’07 7,924.0 7,805.0 7,780.0
5 5 Taco Bell Dec. ’07 6,100.0 6,300.0 6,200.0
6 6 Sonic Drive-In Aug. ’07 3,607.0 3,318.0 2,995.3
7 7 Arby’s Dec. ’07 3,160.0 3,090.2 2,929.9
8 8 Jack in the Box Oct. ’07 3,020.0 2,810.0 2,700.0
9 9 Dairy Queen Dec. ’07 2,500.0 2,405.0 2,400.0
10 10 Quiznos Sub Dec. ’07 1,800.0 1,780.0 1,529.6
11 11 ">Hardee’s Jan. ’08 1,696.0 1,695.0 1,660.0
12 12 Carl’s Jr. Jan. ’08 1,372.0 1,320.0 1,197.0
13 13 Whataburger Sept. ’07 1,100.6 989.5 885.5
14 14 Chipotle Mexican Grill/Chipotle Dec. ’07 1,089.0 832.0 636.0
15 17 Culver’s Frozen Custard Dec. ’07 589.9 531.9 480.9
16 16 Del Taco Dec. ’07 549.7 534.2 523.0
17 15 White Castle Dec. ’07 539.9 539.4 537.0
18 18 In-N-Out Burger Dec. ’07 475.0 455.0 425.0
    TOTALS:   $81,240.2 $77,814.4 $74,140.1

“We are committed to value. This is not the time to be moving off of it. We are committed to everyday affordability and have to stick with it,” Jim Skinner, McDonald’s chief executive, said recently.

Even though the chain’s most-popular value item, the double cheeseburger, has higher food costs than other Dollar Menu choices, some units promote it with over-sized window posters. This summer, most units also are selling large soft drinks for $1, representing about one-third of the regular price.

On the higher-priced side of its menu, McDonald’s offers four entrée salads for $4.75 and several combo meals, with the priciest being about $6.49 for a nine-piece Chicken Selects.

Burger King also is striving to balance value with premium products, such as its 100-percent-Angus beef hamburgers with what it terms “steakhouse-quality” toppings. Burger King’s Steakhouse Burger and Loaded Steakhouse Burger, priced at about $3.79 and $4.19, respectively, “offer the indulgence of an entire steak dinner at a fraction of the cost,” according to spokesman Russ Klein.

SANDWICH CHAINS RANKED BY GROWTH IN U.S. SYSTEMWIDE SALES (Year-to-year percentage change)*Actual results, estimates or projectionsSource: NRN research

 
LATEST-YEAR RANK PREC.-YEAR RANK CHAIN FISCAL YEAR-END LATEST* VS. PRECEDING PRECEDING* VS. PRIOR
1 1 Chipotle Mexican Grill/Chipotle Dec. ’07 30.89 30.82
2 3 Whataburger Sept. ’07 11.23 11.74
3 5 Culver’s Frozen Custard Dec. ’07 10.90 10.61
4 4 Sonic Drive-In Aug. ’07 8.71 10.77
5 11 Jack in the Box Oct. ’07 7.47 4.07
6 7 Subway Dec. ’07 6.68 7.53
7 9 McDonald’s Dec. ’07 5.28 5.85
8 8 In-N-Out Burger Dec. ’07 4.40 7.06
9 15 Burger King June ’08 4.22 1.27
10 18 Dairy Queen Dec. ’07 3.95 0.21
11 6 Carl’s Jr. Jan. ’08 3.94 10.28
12 12 Del Taco Dec. ’07 2.90 2.14
13 10 Arby’s Dec. ’07 2.26 5.47
14 17 Wendy’s Dec. ’07 1.52 0.32
15 2 Quiznos Sub Dec. ’07 1.12 16.37
16 16 White Castle Dec. ’07 0.09 0.45
17 13 Hardee’s Jan. ’08 0.06 2.11
18 14 Taco Bell Dec. ’07 -3.17 1.61
    AVERAGE:   5.69 7.15

On the value side, Burger King has focused on its Value Meal and its breakfast value menu, launched last year. By featuring both value and premium items, the second-largest burger chain is targeting its core customer, whom it calls its “super-fan.”

Wendy’s had a difficult year in dealing with the distraction of a hostile takeover bid from billionaire investor Nelson Peltz, who eventually succeeded in acquiring it through his Triarc Cos. [4], parent of Arby’s. The new owner says it intends to turn around Wendy’s lagging sales by strengthening breakfast, snack and late-night business, expanding internationally and marketing to an older customer base.

Like its major competitors, Wendy’s launched a tortilla-wrapped chicken snack last spring, called Chicken Go Wraps, in three variations at $1.49 each. Most burger chains have expanded their snack or small-portion offerings, both to beef up sales during slower times of the day and to promote their value images.

Previously known for its salad innovations, Wendy’s brought back its Southwest Chicken Caesar Salad as a limited time offer at about $3.99, first introduced five years ago. Wendy’s also has been featuring regionally popular sandwiches as LTOs.

SANDWICH CHAINS RANKED BY NUMBER OF U.S. UNITS*Actual results, estimates or projectionsSource: NRN research

 
LATEST-YEAR RANK PREC.-YEAR RANK CHAIN FISCAL YEAR-END YEAR-END NUMBER OF UNITS*
        LATEST PRECEDING PRIOR
1 1 Subway Dec. ’07 21,195 20,755 19,620
2 2 McDonald’s Dec. ’07 13,862 13,774 13,727
3 3 Burger King June ’08 7,210 7,171 7,207
4 4 Wendy’s Dec. ’07 5,936 5,948 6,018
5 5 Taco Bell Dec. ’07 5,580 5,608 5,845
6 6 Dairy Queen Dec. ’07 4,660 4,728 4,752
7 7 Quiznos Sub Dec. ’07 4,636 4,576 4,200
8 8 Arby’s Dec. ’07 3,564 3,458 3,376
9 9 Sonic Drive-In Aug. ’07 3,342 3,186 3,031
10 10 Jack in the Box Oct. ’07 2,132 2,079 2,049
11 11 Hardee’s Jan. ’08 1,747 1,752 1,847
12 12 Carl’s Jr. Jan. ’08 1,038 1,005 1,049
13 13 Whataburger Sept. ’07 706 683 659
14 14 Chipotle Mexican Grill/Chipotle Dec. ’07 704 581 489
15 15 Del Taco Dec. ’07 506 490 460
16 16 White Castle Dec. ’07 406 402 395
17 17 Culver’s Frozen Custard Dec. ’07 372 351 312
18 18 In-N-Out Burger Dec. ’07 213 209 202
    TOTALS:   77,809 76,756 75,238

Hardee’s and Carl’s Jr., both under the umbrella of CKE [5] Restaurants Inc., relish being known for offering large portions of quality meats to the “hungry young man” demographic. In keeping with that image, Hardee’s $4.49 Prime Rib [6] Thickburger—a meat-as-a-condiment trend mover that’s $6.49 as part of a combo meal—is its most expensive sandwich to date, says marketing chief Brad Haley.

“It’s an affordable splurge. People want quality for a fair price,” he says.

SANDWICH CHAINS RANKED BY GROWTH IN NUMBER OF U.S. UNITS (Year-to-year percentage change)*Actual results, estimates or projectionsSource: NRN research

 
LATEST-YEAR RANK PREC.-YEAR RANK CHAIN FISCAL YEAR-END LATEST* VS. PRECEDING PRECEDING* VS. PRIOR
1 1 Chipotle Mexican Grill/Chipotle Dec. ’07 21.17 18.81
2 2 Culver’s Frozen Custard Dec. ’07 5.98 12.50
3 6 Sonic Drive-In Aug. ’07 4.90 5.11
4 7 Whataburger Sept. ’07 3.37 3.64
5 17 Carl’s Jr. Jan. ’08 3.28 -4.19
6 4 Del Taco Dec. ’07 3.27 6.52
7 9 Arby’s Dec. ’07 3.07 2.43
8 11 Jack in the Box Oct. ’07 2.55 1.46
9 5 Subway Dec. ’07 2.12 5.78
10 8 In-N-Out Burger Dec. ’07 1.91 3.47
11 3 Quiznos Sub Dec. ’07 1.31 8.95
12 10 White Castle Dec. ’07 1.00 1.77
13 12 McDonald’s Dec. ’07 0.64 0.34
14 13 Burger King June ’08 0.54 -0.50
15 15 Wendy’s Dec. ’07 -0.20 -1.16
16 18 Hardee’s Jan. ’08 -0.29 -5.14
17 16 Taco Bell Dec. ’07 -0.50 -4.05
18 14 Dairy Queen Dec. ’07 -1.44 -0.51
    AVERAGE:   2.93 3.07

“Our positioning is about sit-down quality food—bigger sandwiches with higher-quality ingredients,” Haley says. “The value component is unprofitable. It’s very difficult to make money in today’s environment with rising commodity costs with sandwiches that cost $1.”

Both chains limited value promotions to the most price-sensitive times of the year, such as January. Otherwise, each brand offers just one or two value items at each daypart on a regular basis.

Jack in the Box also promotes a quality image, balanced with value. Its latest premium product is a BBQ Bacon Sirloin Burger, a line extension of other sandwiches and burritos containing 100-percent-sirloin beef that spokeswoman Tammy Bailey says has been highly successful.

In addition to such premium menu additions, Jack in the Box is looking at more new products it can offer at low price points, as well as additional bundling combinations. Any introductions will not be confined to set price points, though, Bailey says.

“We pride ourselves on our menu innovation efforts so that consumers will choose us,” she says. “Consumers equate low prices with low quality. We will continue to find the right balance.”

Real-fruit smoothies, launched last April, are an answer to growing demands for snacks and breakfast-on-the-go items, Bailey says. Spicy Chicken Bites are another snack item the chain recently began promoting.

A similar strategy of balancing both value items and full-price new products is being employed by Dairy Queen. Like Jack in the Box, it is building in margin protection in its new value items and combo meals.

SANDWICH CHAINS RANKED BY ESTIMATED SALES PERUNIT*Estimated average, based on mathematical equation of annual systemwide sales growth and change in number of operating units.Source: NRN research

 
LATEST-YEAR RANK PREC.-YEAR RANK CHAIN FISCAL YEAR-END SALES PER UNIT* (BY FISCAL YEAR, IN THOUSANDS)
        LATEST PRECEDING PRIOR
1 1 In-N-Out Burger Dec. ’07 $2,251.2 $2,214.1 $2,173.9
2 2 McDonald’s Dec. ’07 2,068.0 1,974.1 1,871.7
3 4 Chipotle Mexican Grill/Chipotle Dec. ’07 1,694.9 1,555.1 1,416.5
4 3 Culver’s Frozen Custard Dec. ’07 1,631.8 1,604.5 1,646.8
5 5 Whataburger Sept. ’07 1,584.7 1,474.7 1,371.8
6 6 Jack in the Box Oct. ’07 1,434.3 1,361.4 1,331.7
7 9 Carl’s Jr. Jan. ’08 1,343.1 1,285.3 1,160.4
8 7 White Castle Dec. ’07 1,336.4 1,353.6 1,359.5
9 8 Wendy’s Dec. ’07 1,333.6 1,304.5 1,301.8
10 10 Burger King June ’08 1,240.0 1,190.0 1,149.5
11 13 Sonic Drive-In Aug. ’07 1,105.1 1,067.4 1,013.6
12 11 Del Taco Dec. ’07 1,103.8 1,124.6 1,171.3
13 12 Taco Bell Dec. ’07 1,090.5 1,100.1 1,055.8
14 14 Hardee’s Jan. ’08 969.4 941.9 886.8
15 15 Arby’s Dec. ’07 900.0 904.4 874.2
16 16 Dairy Queen Dec. ’07 532.6 507.4 503.6
17 18 Subway Dec. ’07 392.1 381.9 382.1
18 17 Quiznos Sub Dec. ’07 390.8 405.7 405.8
    AVERAGE:   $1,244.6 $1,208.4 $1,170.9

Dairy Queen spokesman Michael Keller says margin protection differs from the set-price value menus at some burger chain competitors. The current test of a Sweet Deals value menu that lets customers mix and match items for $3, $4 or $5 could become a permanent menu component, beginning next year, he notes.

Some newer full-price products are aimed at the female head of household, a demographic Keller called Dairy Queen’s primary target customer. Those products include the new Iron Grilled Sandwiches, warm deli meats and cheeses on panini, to be rolled out by late summer, and this summer’s repeat promotion of the Waffle Bowl Sundae.

Culver’s Frozen Custard continues to expand menu choices beyond its signature ButterBurgers and frozen custard as it nears the 400-unit mark. Its new BBQ Brisket Sandwich is its latest non-burger sandwich offering.

Frozen custard set Culver’s apart from the pack at its inception as a destination for a snacking occasion, which it has enhanced with its “snack packs” of a small burger, small fries and small drink for a recommended price of $2.99. Additionally, local stores may opt to promote Culver’s Happy Hour in mid-afternoon when dessert products, such as Concrete Mixers and blended, fruit-flavored coolers, are offered as a two-for-one special.

Among non-burger sandwich chains, toasted sandwiches are an emerging trend designed to extend a traditional lunch appeal into dinner hours. Toaster-oven technology at Subway, for instance, offers consumers a choice of a hot or cold sub sandwich.

Subway, the nation’s largest sandwich chain on a location basis, is confronting potential saturation in many markets, but the chain continues to grow in nontraditional locations, with more than 3,000 units now in convenience stores. Another 1,400 Subways are in Wal-Mart stores, and there are growing numbers in airports, hospitals and college foodservice venues. “We even have one in a church,” spokesman Les Winograd says.

Subway continues to offer a breakfast daypart to franchisees, and more are adding it to their line-up. “It’s still a very small part of the business, but it’s growing,” he adds.

At Arby’s, toasted sandwiches have become a growing part of the menu since they were launched last October, says spokesman Ed Gleich. Calling that line “very successful,” he says initial sales surpassed those of the popular cold deli sandwiches that Arby’s introduced a few years ago.

Gleich described the toasted sub sandwiches as “a natural evolution” of Arby’s core product line of roast-beef sandwiches.

On the beverage side, Arby’s is expanding its line of shakes with limited-time offers of new flavors every 60 to 90 days.

Two Mexican quick-service chains fall into opposite ends of the sandwich segment, with Taco Bell tempting the bargain-conscious diner even more than ever, and Chipotle Mexican Grill continuing to capture the more affluent, quality-driven consumer.

Taco Bell’s latest value strategy, the “79-89-99 Why Pay More” campaign, offers 10 items for 79, 89 or 99 cents, underpricing leading competitors. Customers with a little more change in their pockets might opt for the chain’s Fiesta platter.

Toward the end of 2007, Taco Bell’s sales finally appeared to recover from the bad publicity of the 2006 rat infestation in a New York unit and an E. coli outbreak in the Northeast.

SANDWICH CHAINS RANKED BY TOP 100 MARKET SHARE (Percentage of aggregate sales of sandwich chains in Top 100)*Actual results, estimates or projectionsSource: NRN research

 
LATEST-YEAR RANK PREC.-YEAR RANK CHAIN FISCAL YEAR-END ANNUAL MARKET SHARE*
        LATEST PRECEDING PRIOR
1 1 McDonald’s Dec. ’07 35.17 34.88 34.59
2 2 Burger King June ’08 10.97 10.99 11.39
3 4 Subway Dec. ’07 10.12 9.91 9.67
4 3 Wendy’s Dec. ’07 9.75 10.03 10.49
5 5 Taco Bell Dec. ’07 7.51 8.10 8.36
6 6 Sonic Drive-In Aug. ’07 4.44 4.26 4.04
7 7 Arby’s Dec. ’07 3.89 3.97 3.95
8 8 Jack in the Box Oct. ’07 3.72 3.61 3.64
9 9 Dairy Queen Dec. ’07 3.08 3.09 3.24
10 10 Quiznos Sub Dec. ’07 2.22 2.29 2.06
11 11 Hardee’s Jan. ’08 2.09 2.18 2.24
12 12 Carl’s Jr. Jan. ’08 1.69 1.70 1.61
13 13 Whataburger Sept. ’07 1.35 1.27 1.19
14 14 Chipotle Mexican Grill/Chipotle Dec. ’07 1.34 1.07 0.86
15 17 Culver’s Frozen Custard Dec. ’07 0.73 0.68 0.65
16 15 Del Taco Dec. ’07 0.68 0.69 0.71
17 15 White Castle Dec. ’07 0.66 0.69 0.72
18 18 In-N-Out Burger Dec. ’07 0.58 0.58 0.57
    TOTALS:   100.00 100.00 100.00

Chipotle, with a $9 check average, continued its long-term strategy of being in its own league. “Our approach to food and menu is very different from traditional fast food,” says spokesman Chris Arnold. “We have many attributes of fine dining with the convenience of fast food.”

Rather than add a lot of new items, Chipotle has focused on increasing its organically produced ingredients. Unlike Taco Bell, it has no plans to add a breakfast day-part, Arnold says.

On the environmental and health fronts, McDonald’s has eliminated almost all trans fats from menu items, except for cookies and pies. Several chains, including McDonald’s, Subway and Chipotle, expect to open their first restaurants within the next year that will qualify for “green” certification.

Top 100: Part one of a two-part report [7]