Article
LTOs leave permanent impression
Well-researched limited-time offers can pay off in the form of higher revenue, increased traffic and core menu additions.
August 15, 2007
When Atlanta-based Arby's Restaurant Group Inc. plans its quarterly four-week-long limited-time offers, it heads to the drawing board up to a year in advance. That means for every day the LTO is on the market, as many as 12 or 13 were spent planning, developing and testing the product.
While such an extensive planning period may sound like a lengthy undertaking, quick-serve operators across the industry stand to gain quite a bit from doing their homework: higher revenue, increased traffic and permanent menu additions.
"For existing customers, the benefit is they get something with a little change of pace that they may enjoy or, in some cases, a new favorite, like a Reuben sandwich," said Ed Gleich, senior vice president of concept development for Arby's. "For lapsed and non-users, it brings them into our restaurants and hopefully we develop a relationship with them from there on out."
Peering into the minds of both customers and non-customers is a key initiator of the process, Gleich said. The company aims to discover what could increase current customer frequency as well as get non-customers through the door.
After delving into that research and examining trend data, Arby's moves into an ideation and development phase.
"There, our chefs really get to work on creating prototypes of these ideas and we do a fair amount of consumer testing to make sure we're delivering on their expectations," Gleich said.
The final phase is in-market testing, during which the company evaluates its ability to replicate the product in different units and deliver it as intended. Only after looking at sales information and profitability is the product ready to roll out.
Bob Moreno, vice president of DeSoto, Kan.-based Mr. Goodcents, said the sub-and-pasta company has a similar process for launching its four 90-day LTOs each year.
It begins by sitting down with strategic partners, suppliers and competitors' menus to look at trends, popular flavors and the restaurant's own core menu to find products with the highest appeal, he said. An item then is modified, coupled with a different seasoning or bread, sent through the research-and-development kitchen and beta-tested for 30 to 60 days. Heavy promotion through radio and television follows.
Though the process is extensive, Moreno said it can be justified by the response.
"We've had huge success with it," he said. "It seems to be consistent in this arena; everyone is looking for the new, the most innovative, the best flavor and quality."
Positive payoff
While a successful LTO increases frequency and trial of new products, Moreno said, it also can drive up profitability.
"LTO programs are really developed and designed to spike sales throughout the marketing calendar," he said.
When the LTO is executed correctly, Mr. Goodcents can see a 5- to 10-percent increase in sales simply from the LTO, which is a premium product with a higher price point. He said the restaurant also may see an additional lift in add-on items, combos, side items and larger drinks.
Gleich said the resulting boost in revenue can be "significant," giving the company a competitive advantage while driving traffic into the restaurant. He attributed this to an LTO's ability to accomplish Arby's business objectives: increase frequency and bring in new traffic.
Arby's also monitors where the boost in revenue originates. Is it coming from a new customer? Is the LTO cannibalizing any existing menu items? These questions help evaluate a product as it is tested.
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"If we don't see a lot of incremental traffic, just a lot of trade-off from current menu items, it's not likely to launch for us," Gleich said. "We'd move on to another item."
Both Moreno and Gleich added that LTOs never should hurt sales, assuming it is researched, designed and marketed properly.
Limiting leftovers
When designing an LTO, the Mr. Goodcents' philosophy is to start with core menu items — meats, breads and dressing items — then add a different seasoning or topping. Moreno said if the company decided to use a different ingredient — avocado, for instance — it would go through its distribution center to maintain a precise level of inventory.
Gleich said Arby's also tries to maximize current ingredients, but "judiciously" uses new ones in LTOs when the purpose is consumer driven.
"For example, we have a banana pepper — it's not an existing menu item — on our Classic Italian Toasted Sub," he said. "It's integral to the quality and taste of the sandwich, so we'll bring that in to execute this."
The issue of left-over inventory is skirted by Arby's testing process.
"We've done it enough that we've certainly perfected our forecasting," Gleich said. "The test markets serve as a good predictor of success when we launch nationally."
Product shortages could be just as dangerous — if not more than — overstocks, said Carolyn Littlefield, senior product marketing manager at Instill, a supply chain management software company.
"When you have understocks, you've brought new clientele to your restaurant, but you actually don't have the product to provide them; it really leaves a bad taste in their mouths," Littlefield said. "It's a bad brand association to have."
One of Instill's clients, International Dairy Queen Inc., experienced both over- and understocks during an LTO as a result of not knowing what was in its distributor's inventory. Compounding the problem, the company began a national television advertising campaign, setting the stage for things to go from bad to worse.
However, Instill's solution provided Dairy Queen with daily visibility into its distributor's inventory levels. The company was able to see where product was in distribution throughout its supply chain, to make sure restaurants had what they needed at the right time and weren't left with overstocks.
Dairy Queen transitioned from having hundreds of thousands of dollars in overstocks, shortages and freight-expediting costs to no shortages, no overstocks and an increased number of annual promotions, Littlefield said.
"They can be more proactive and more on top of it," she said, "as opposed to hoping for the best and thinking, 'I'm hoping it's all going to work out, but I really don't know.'"
Permanent placement
Based on an item's popularity, its status could be upgraded from limited-time to returning, even to permanent.
Arby's Loaded Potato Bites and Market Fresh Reuben did so well in their short stays that they were promoted a second time, ultimately landing permanent places in the restaurant's core menu.
And in the fourth quarter of 2005, Mr. Goodcents launched Hot Ones, an array of hot sandwiches on Goodcents Gold nutritional bread. Because of sales and popularity with consumers, Hot Ones are back — for good.
Mr. Goodcents now is introducing new flavors of bread, hoping to find another trend that will resonate with customers.
"We're always looking for that silver bullet," Moreno said.
