The NRN 50: More for your money

Last December, the value menu’s importance in the competition for cash-strapped customers jumped out from billboards touting Burger King’s $1 double cheeseburger as bigger than the equally priced version from quick-service leader McDonald’s.

At the same time that Burger King was running the billboards in Southern California to battle McDonald’s established legacy in the value game, its strategy was telegraphed even further when Dow Jones Newswires intercepted and published a corporate memo from Russ Klein, Burger King’s president of global marketing, strategy and innovation.

“It is our belief,” Klein wrote, “that the $1 double cheeseburger is the most powerful weapon our competitor has to continue their growth and steal disproportionate share from the category.”

With No. 3 burger chain Wendy’s recent introduction of its 99-cent Stack Attack double cheeseburger and more value engineering emerging across the segment, the meal deal clash will only intensify in quick service. Meanwhile, a battered national economy has pressured some casual-dining chains to adopt the strategy as well.

Regardless of the segment, however, the value meal remains a tricky discount proposition, forcing operators to strike a balance between growing traffic and controlling already-thin margins.

Taco Bell’s Big Bell Value Menu, for instance, offers nine items for between 99 cents and $1.29, including three hefty half-pound burritos intended to justify the menu’s “I’m full!” tagline. That value equation is central to the chain’s identity with its customers, says director of brand marketing Melissa Friebe.

“When the Big Bell Value Menu was launched in 2004, getting full from a value menu in the QSR industry was by no means a given,” Friebe says. “That is why Taco Bell decided to give our customers more for their money on the Big Bell Value Menu. … Value is part of our DNA, and we know that it is critical to offer meaningful value to consumers each and every day.”

Taco Bell’s most frequent customers tend to access the value menu most, Friebe says.

According to data from Port Washington, N.Y.-based market research firm The NPD Group, usage of dollar and value menus in quick service has grown faster than traffic as a whole for the segment.

While total quick-service traffic rose 2 percent from a year earlier for the three months ended August 2007, NPD found, traffic for dollar and value menus increased 3 percent. However, says NPD analyst Bonnie Riggs, that growth in value menu traffic faced difficult comparisons from the year earlier. For that same period in 2006, she says, growth in value menu traffic rose 17 percent, followed by traffic gains of 16 percent and 15 percent in the next two quarters, respectively. Those gains coincided with McDonald’s and Burger King implementing breakfast value menus that year, she says.

As costs have risen and margins have tightened, Riggs says, quick-service operators have adjusted their value menu pricing.

“The profitability associated with the value menu is not as great as operators would like, so they are starting to up the ante a little bit,” Riggs says. “They’re tiering value menus, maybe with a three-tiered approach so that it’s not so much a 99-cent or dollar menu, but a value menu with more variety.”

Many chains’ value menus are more varied in terms of snacks and breakfast items, Riggs says, which show the most growth compared with last year’s traffic. For the three months ended August 2007, orders of hash browns were up 44 percent over the year earlier, while hot coffee and breakfast sandwiches increased 40 percent and 38 percent, respectively. Yet orders of large cheeseburgers rose only 11 percent during that time, while regular hamburger orders grew 2 percent.

“The growth that we are seeing in value menu traffic comes from people ordering off the value menu at breakfast and snack time,” Riggs says. “It’s surprising that they didn’t drive traffic through the value at the core dayparts.

“For whatever reason, breakfast and snacks are growing even beyond the value menu [in quick service], so those two occasions are fulfilling a particular need,” she continues. “We might be getting trade-down from main meals, people controlling portions or saving money, or any number of reasons. If this trend is going to continue, then operators have to find a way to build that check. If consumers see value in an item, they’re willing to pay for it.”

That sentiment also is starting to prevail in casual dining, where more restaurants have adopted value-focused limited-time offerings and meal deals. For example, Round Table Pizza reintroduced this month its extra-large Big Vinnie pizza for $12.99, while Sizzler began testing a combination meal to be offered for around $9.99. The meal deal is modeled on Sizzler’s “Steakhouse Favorites” limited-time offer from last fall, which Sizzler president and chief executive Ken Cole told Nation’s Restaurant News accounted for 8 percent to 10 percent of sales while it was available.

Beginning early last year, T.G.I. Friday’s rolled out two value-focused menus that Richard Snead, president and chief executive of parent company Carlson Restaurants Worldwide, credits with driving traffic and offering customers more choices. The chain’s “3 Course Menu” lets guests combine an appetizer, dessert and entrée for $12.99 to $16.99, while “Right Portion, Right Price” offers smaller entrées for $6.99 to $8.99.

“We had more than 50 percent of consumers saying to us that one thing they wanted was smaller portions,” Snead says. “So we took a risk. We wondered, would we get enough uptake, because we were sure we’d get an average-check decline.”

Snead also indicated that reducing portion sizes produced an added benefit for Friday’s in terms of sourcing.

“We found that by putting 4.5 ounces, 5 ounces or 6 ounces of protein on the plate, we could still [offer] a high-quality protein and maintain casual-dining pricing,” he says. “You get an 8- or 10-ounce portion of cedar salmon at a steakhouse, it costs about $15 or $16. But a smaller portion allowed us to be in a $8.99 to $9.99 range and still offer a high-quality fish that you can’t get at other casual-dining chains.”

Friday’s profit margins were slightly lower with the value menus, Snead says, but higher guest counts balanced them out. Usage of big-ticket menu lines like the Jack Daniel’s Grill remained strong, as well.

“We have had some negative impact on food cost because we did lower the average check,” Snead says, “but there has been a good increase in guest traffic. We think we’re bringing in new guests, and our infrequent guests are coming in more frequently. Our best sellers are still our best sellers, and the Jack Daniel’s Grill is still the biggest line on our menu.”

Going forward, Snead sees that trend continuing for casual dining and for the entire industry. Customers still will want their favorite foods, he says, but will expect restaurants to engineer more choices and value.

“Value is going to be a really important focus for at least a year or so,” he says. “Quality is first, variety is second and price is third. So the value equation wraps itself around, ‘I want good food with interesting flavors, and I want it at a good price.’ That doesn’t mean it has to be $7.99. It could be $10.99 if it revolves around variety, quality and price.”