Arby's Restaurants has expanded its test of the dollar value menu to 2,500 U.S. stores, including the Louisville, Ky., market. The chain is switching to a value focus in hopes it will help slumping same-store sales, Wendy's/Arby's Group Inc. president/CEO Roland Smith told investors at last week's Cowan & Co. Consumer Conference.
Comps were down 10.2 percent for franchised-stores in North America for the third quarter and down 6.5 percent at company-owned stores, which discounted more aggressively. Smith credited that in part to competitors' — including Burger King's — aggressive couponing, a tactic Arby's has used successfully for years to boost incremental traffic.
The chain's $5.01 combo meal has helped some, but even though the meals are at 20 percent of the sales mix, the strategy hasn't boosted traffic like the chain hoped, Smith said. The company hopes the answer is in a dollar menu.
But the value menu in its current form — value-size fries, a drink or shake and three junior-size sandwiches and a turnover — might not achieve that goal. Franchisees might be happy about not having a menu packed with loss leaders, but consumers may balk at returning for items much smaller than regular menu items. Chains such as McDonald's and Burger King are offering full-sized items at the same price.
Instead, consumers may think they are at the other end of Arby's sister chain Wendy's $2.99 Deluxe Value Combo Meal ad, which features a man enjoying a full-size meal while the guy next to him nibbles on a tiny order of fries for the same price.
For example, the junior chicken sandwich is slightly larger than a White Castle slider, with a thin fried-chicken patty, shredded lettuce and a dab of mayonnaise. In comparison, McDonald's offers a full-size fried chicken sandwich for $1, also with shredded lettuce and mayo. Arby's value-sized Curly Fries comes in a kids-sized fries container and is about half the size of a regular order of Curly Fries, which are priced at $1.49. The value-sized shake is a 10-ounce cup, compared to a 20-ounce shake priced at $2.49.
Smith said during the conference that the chain developed new items specifically for the dollar menu, and the chicken sandwich and Junior Ham & Cheese sandwich certainly are new. The drinks and fries are simply packaged in kids' meal containers.
The chain appears to be at a crossroads. Its focus on premium offerings is not resonating with cash-strapped consumers. So, they are courting low spenders by switching to a value positioning — at a time when other chains such as Sonic are abandoning lower-price and returning to a focus on customer experience.
The solution for Arby's lies somewhere in between. Arby's already recognizes its roast beef sandwich is a differentiator but has not found the right branding to keep customers coming back. Rebranding may help, as may the other components of its 2010 strategy announced at the conference: revitalize its product innovation and launch a three-year remodeling program.
Smith told investors that the chain's Pinnacle restaurant model outperforms older stores, so the chain is investing heavily to further expand those models. About 56 percent of the chain consists of the Pinnacle design, and Smith told investors the company hopes to get its largest markets to 100 percent of the new models. To achieve that, the company is investing $75 million to $100 million on the three-year reimage program.
The product innovation includes extensions of its Roastburger line — which has done well since its introduction in 2009 and is the only innovation tied to the brand's signature roast beef — and its Market Fresh line of sandwiches and salads. The chain also will re-launch its premium chicken tenders and sandwiches.
The key is finding the right price and right messaging to get consumers to appreciate the value of the Arby's experience again.
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