Forecasting: Brand expansion strategies

Forecasting: Brand expansion strategies
Tags: Food & Beverage, Mexican, Operations Management, Sandwich, Trends / Statistics
March 10, 2010

*Stuart Morris owns and operates QSR Consulting Group Inc.

Like two ships passing in the night, Arby's is introducing a value menu strategy (Taco Bell's core competency) while Taco Bell is introducing a strategy that will focus on high quality, premium priced menu items (arguably, Arby's core competency). The successful implementation of these strategies — particularly for one brand — will be extremely challenging. Consumers demand value, and operators require profitability, delicate equilibrium (referred to as menu value) that is often contradictory and elusive. So which one will be a hit?

Let's look at Arby's value strategy first, followed by a dive into Taco Bell's move toward premium tomorrow.

Arby's Value Menu

Arby's is currently rolling out a nationwide Value Menu with seven items priced at $1 each. In Southern California, where the Value Menu has not yet been introduced, there is no 'center of plate' menu item priced below $2.99. Wow!

Does Arby's need a Value Menu? Absolutely. Can Arby's successfully introduce a Value Menu at $1? Maybe ... but it won't be easy.

Successful value menus require company and franchisee acceptance of higher food costs and, more painfully, the realization that a healthy percentage of current guests will trade down from high profit transactions (e.g. combos) to transactions filled with lower profit value menu selections.

Arby's also is at a competitive disadvantage. Nearly every other major QSR brand that has a value menu also has significantly higher annual unit volumes than Arby's. These competitors have the ability to subsidize the higher food costs of their value menus with tremendous sales volumes from other higher profit menu categories (e.g. breakfast, beverages).

Additionally, the 'bar' for QSR value menus has been set very high by the quality and amount of food available for a dollar at Burger King, McDonald's, Taco Bell and others.

Guests who frequent QSR value menus have extremely high expectations, particularly at the dollar price point.

Because it is nearly the last major QSR brand to introduce (or re-introduce) a value menu, Arby's must work smarter and harder to attract and convince value-oriented guests that its value menu is competitively compelling and truly offers real menu value, not just low price points.

There are two near certainties with the introduction of Arby's Value Menu.

1. Arby's Value Menu will increase transactions. This is good. 2. Arby's Value Menu will lower guest check averages. This is bad.

Will the good outweigh the bad?

Early reviews (not mine; Arby's Value Menu has not been introduced in my neighborhood) suggest 'underwhelming' kid-sized portions are being delivered as value fare.

Engineering menu items to a fixed menu price (e.g. $1) with tight food cost variance might deliver profitability, but it can also deliver damaging menu and brand value, particularly when the dollar menu under-delivers on guests' expectations.

If Arby's Value Menu does not live up to management's or the guest's expectations, a revamped value menu that offers a wide range of price points might unlock the 'handcuffs' a singularly focused dollar strategy can create.

In the future, Arby's might consider introducing a $0.79 slider style roast beef menu item that elevates its value menu onto consumers' radar screen. Undoubtedly, high food costs might quickly derail this idea, but the overall upside of this strategy might dwarf the financial inconvenience of one menu item that delivers poor penny profit.

The guest expectations on a $0.79 menu offering are significantly less and certainly more forgiving than one at the dollar price point. Additionally, a $0.79 roast beef menu item is likely not sufficiently large enough to be a meal replacement, thus requiring significant additional add-on purchases.

More importantly, the $0.79 price point can become the anchor that tethers an elevated perception of Arby's — for both its value menu and its brand value. This anchored price is powerful, competitively compelling and provides a value halo that permits Arby's to engineer higher priced (e.g. $1.19, $1.29, etc.) value menu items that can better deliver great menu value.

You'll be remembered and credited for a transaction driving $0.79 price point, but value-oriented guests will be filling up on an array of higher priced menu options. I'm just an armchair quarterback, but that's a line-up I'd be cheering for.

Whether the current version of Arby's Value Menu succeeds or not, Arby's decision to re-enter the value menu category is correct and long overdue.

Arby's Value Menu forecast: Strategy is a HIT. The Execution is TBD.

Stuart Morris owns and operates QSR Consulting Group Inc., which assists brands by creating profit driven strategies that leverage core competencies. You can reach him at smorris@qsrconsultinggroup.com.