Variety is the spice of life. It also may be the most needed element to spark sales for quick-service chains.
A plethora of new menu items are set to launch starting this month, and both operators and industry observers say they are hopeful the introductions will help quick-service brands stave off recent erosions in sales. While fast feeders as a whole have held up much better than higher-priced industry segments, sales softened for some large chains in December and January, and smaller players, such as Sonic and Arby’s, have posted negative same-store sales in their most recent quarters.
(To view charts featured in this week's print pages, click here.)
Pundits point to the rising unemployment rate, which hit 8.1 percent in February, as the main culprit behind weakened sales trends. They say, however, that sales will rebound and be driven by bold product introductions at certain brands.
“Primarily, it’s variety of the menu that satisfies a customer,” said Robert Passikoff, founder and president of Brand Keys Inc., a consulting firm specializing in customer loyalty. “It doesn’t have to be value-based or a dollar menu. It’s variety.”
Among the items set to debut: Burger King will offer additional items in its Steakhouse XT line, including a three-cheese version, as well as introduce BK Fire-Grilled Ribs, BK Pizza Sticks for its kids’ meals, a chicken version of the recently introduced Burger Shots, or sliders, and a Bourbon Whopper. This month, Arby’s presented Roastburgers, or roast beef sandwiches with various burger-inspired toppings, and will expand the line with items including roasted chicken, turkey and ham. KFC will roll out its long-tested grilled chicken next month.
As more chains resort to deep discounting during this recession, Passikoff explained, the consumer becomes less concerned about price points, almost immune to the many $1 offers, and more interested in what they are receiving for that lowered price.
The reduced prices serve to even the playing field so that brands with quality, value and variety of menu prosper.
Case in point: Sonic introduced a permanent $1 menu in January, but it did not help to improve sales as much as expected, industry observers said. The company said this month that same-store sales for its February-ended quarter are expected to drop between 3 percent and 4 percent systemwide. Same-store sales at corporate drive-in restaurants are forecast to fall between 5.5 percent and 6.5 percent.
“The value menu has yet to prove the elusive ‘silver bullet’ to meaningfully bolster Sonic’s sales trends,” said Sharon Zackfia, an analyst at William Blair & Co.
At Arby’s, which is owned by Atlanta-based Wendy’s/Arby’s Group Inc., an 8.5-percent decrease in same-store sales for the fourth quarter is being met head-on with new products like the Roastburgers.
“Arby’s customers told us that they would visit more often if we offered more roast beef choices and provided better service,” Wendy’s/Arby’s president and chief executive Roland Smith said in a March call with investors. “We expect to generate improvement in sales trends as we launch this new product line.”
The sandwiches are priced at $3.59 each, well below the chain’s average check of $7.50. Later this year, Arby’s, which totals 3,756 units worldwide, will expand its menu to include roast chicken, turkey and ham items, as well as swirled shakes and additional fried snacks the chain dubs Sidekickers.
Smith said that if Arby’s is able to increase the frequency of visits among the brand’s core customer from 1.6 times per month to 1.7 times per month, same-store sales would improve by three percentage points.
At Miami-based Burger King Holdings Inc., which operates and franchises the 11,700-unit chain, menu innovation is cited as a key sales driver for 2009. Sales were up 1.9 percent in the December-ended quarter and are expected by analysts to increase at a higher rate as the year progresses. Burger King officials have said sales had remained positive in the first months of 2009.
Expected to drive traffic are new menu items like the slider-inspired Burger Shots and the new, thicker burger, the Steakhouse XT. The chain’s new batch-broiler, which allows for speedier cooking of various proteins and sizes, enabled Burger King to make thicker burgers and will allow it to produce more casual-dining-style fare in the future, the company said.
In the works: BK Fire-Grilled Ribs, which securities analysts tested last month to positive reviews. According to analyst reports, the product is scheduled for regional rollouts this summer and is priced at $4.99. Burger King is considering selling the item in five-piece or 10-piece options, analysts said.
Burger King would not comment on pending or new products.
In all, the No. 2 burger chain is testing about 45 potential new products, analysts said, including a strawberry-banana smoothie, Bourbon Whopper and a Stuffed Omelet Croissan’wich. The BK Pizza Sticks use a whole-grain crust, and Burger King management said the product has done well in early tests, analysts said. Dessert and salad offerings are two other areas in which the chain is said to be testing new items.
“Some of these chains are looking for home-run new platforms,” said David Palmer, a restaurant securities analyst at UBS Equity Research. “Some need bigger hits because they need bigger sales.”
Palmer said the quick-service segment could be the most innovative in menu offerings this year, as the majority of chains already have spent time focusing on consumer-friendly value menus and also hold enough cash to spend on research and development.
“The segment has gotten past the usage of credit cards and dollar menus,” he said, referring to sales-driving techniques, “and it is now moved to new-food-news type of growth.”