?Emil Brolick, chief executive of The Wendy’s Co., knows that the middle is a dangerous place to be.?
Brolick said as much during an investor call in January, noting that his 6,500-unit quick-service brand was working steadily to fend off the growing squeeze from higher-priced fast-casual chains and lower-priced convenience stores.?
“The last thing you want to do is to find yourself in a position where you’re caught in the middle,” Brolick said during the call. “You want to be Costco or Walmart, or you want to be Nordstrom or Saks and Tiffany. … Why is McDonald’s making the changes it’s making? So it doesn’t get caught in the middle.”?
While many quick-service players benefited from the trading down that occurred during the recession, the drawn-out recovery? is keeping them from resting on their laurels. Not only are QSR brands trying to distance themselves from the middle of the pack, but many are aiming to rise above the quick-service scrum by elevating their brand’s food, decor and service levels. In addition, they are entering new dayparts, maximizing efficiencies and making sure franchisees come along for the ride. ?
During Wendy’s call with analysts, Brolick cited an NPD Group survey that found fast-casual chains grew their traffic from 2006 to 2011 at a 6.7-percent compound annual growth rate. During the same five-year period, retail foodservice traffic at convenience stores increased 1.1 percent, while quick-service traffic dropped slightly, with a dip of 0.4 percent.?
And while traditional quick-service brands outperformed fast-casual chains in NPD’s consumer survey on the questions of convenient locations and prices, they lagged behind the fast-casual Chipotle Mexican Grills and Smashburgers on ratings for food quality and variety, atmosphere, and healthfulness.?
“Clearly, we are being told that consumers want more from their QSR experience,” Brolick said.?
Here are some ways brands are trying to give them more:?
Keeping up appearances?
To compete with fast casual’s perceptions of higher food quality, quick-service brands are developing more menu items with an upscale or healthful bent, and more forcefully pushing a message of quality in their marketing.?
For instance, the big-three burger brands are trying to keep better-burger competitors such as Five Guys Burgers and Fries at bay by upgrading their core menu offerings with the likes of the Angus Third Pounder at McDonald’s, the BK Chef’s Choice at Burger King and Dave’s Hot ‘N Juicy at Wendy’s.?
Meanwhile, Taco Bell is beginning to roll out its “Cantina” menu, featuring more premium pico de gallo, beans and guacamole, to better take on Chipotle and Qdoba Mexican Grill. And Domino’s Pizza continues to play off the pizza it reformulated in 2010 to improve the quality of its core product.?
Other chains are developing more healthful products, such as Auntie Anne’s Honey Whole Wheat Pretzels and Apple Caramel Pretzel Stix, which are made from whole grains.?
Such products and longstanding campaigns like that of Subway’s athlete-endorsed “Fresh Fit” meals are helping to create a health halo over the entire segment, said David Stidham, vice president of marketing for Culver Franchising System Inc.?
In a move reminiscent of Chipotle’s “Food With Integrity” campaign, the Culver’s brand of 445 franchised locations began marketing its new antibiotic-free chicken breasts and tenders last September. The upgraded chicken ties into Culver’s “Welcome to Delicious” marketing campaign, in which founder Craig Culver stars in commercials with the chain’s Midwestern beef and dairy suppliers. Both moves speak to internal consumer trends research that found quick-service customers care more than ever about what’s in their food and what motivates the chains they visit, Stidham said.?
“‘Welcome to Delicious’ is more than a campaign slogan for us,” he said. “It’s about transparency and being authentic, and we feel that’s the story we should always be telling.”?
Culver’s advertised its new chicken solely through social media, in-store signage and public relations for eight weeks, Stidham said. And even with a menu price increase, sales of crispy-chicken sandwiches rose 64 percent, and grilled-chicken sales rose 98 percent over a year earlier during the same period.?
Going forward, as the brand rolls out antibiotic-free chicken to its tenders and fried-chicken items, Culver’s will also promote its chicken on TV in “Welcome to Delicious” commercials, Stidham said.?
The Prairie du Sac, Wis.-based chain is not the first to have its chief executive talk up brand ingredients on camera. Domino’s made a splash doing that two years ago, and Wendy’s and Papa John’s did long before that. But now, more QSR brands — think McDonald’s — are creating supplier-?focused commercials. According to Stidham, that’s a good thing.?
“We’re believable because we’ve always had fresh Midwestern beef and Wisconsin dairy,” he said. “The fact that others bring more attention to that is good. It’s all about believability, and we think we could be the chief architects of this trend. Bring it on.”?
Pumping up pricing?
During the past few years, when consumers simultaneously demonstrated an appetite for items on dollar or value menus and a willingness to trade down from casual dining or fast casual, the barbell menu strategy got a vigorous workout in quick service. The triumvirate of value menus, mid-priced core items, and premium menu sections or limited-time offers has grown in popularity.?
But recent offerings and test market runs, as well as some speculation from executives at big chains, may usher in the era of the barbell menu pumped up on steroids, with a “super premium” fourth tier.?
During Wendy’s investor call, for example, Brolick hinted that Wendy’s sales mix was weighted too much toward the “My 99¢ Everyday Value Menu,” rather than regular-priced Dave’s Hot ‘N Juicy burgers or the recently launched mid-priced “W” cheeseburger.?
“Virtually every chain is pursuing a barbell strategy, and I think ours is a little out of kilter, with a little too much on the low end and not enough on the high end,” he said.?
Wendy’s executives talked briefly about Black Label cheeseburgers — which come in Spicy Santa Fe and Bacon Portabella varieties — being tested in the $4.49 to $4.69 price range. Though executives did not disclose the test market, restaurant blog GrubGrade reported a test in the Wichita, Kan., area for as much as $4.89.?
Menu consultant Mark Laux, chief executive of HotOperator Inc., said he is not sure Wendy’s could sustain sales of such an expensive sandwich past a honeymoon period, but said the Black Label items’ presence could benefit other parts of the menu. The super-premium price point gives customers a “mental anchor” from which to trade down.?
“When Wendy’s introduces something for $4.69 … Dave’s Hot ‘N Juicy will sell better,” Laux said. “The Black Label will sell some, but it has to be significantly better. Brands get a spike in sales in the top tier like this, but it depends on how well the sandwich is executed, and it helps the middle tier.” ?
The closer a menu item gets its function to its price, the more likely it is to sell, Laux said.?
“If I ask you for $1 for a burger, you don’t expect much,” he said. “But if I can support that fourth tier for $4.49, or whatever, and do it with a good quality burger, that [positioning] is very available.”?
Brolick said he expected Dave’s Hot ‘N Juicy customers would be more likely to flirt with Black Label burgers than value-menu customers would be to trade up to the “W.”?
“The Black Label is a much different idea than the ‘W’ was,” he said. “The ‘W’s pricing thought was to create a mid-tier price between Dave’s Hot ‘N Juicy and the value menu, from which people could trade up. Those people are 99-cent customers and are dedicated to that menu. We won’t take that approach again. The two Black Label burgers are priced around $4.49 and $4.69, so it’s a premium-pricing strategy. Even if you traded out of something [for a Black Label], it’s a very nice trade up to our average check.”?
Similarly, during McDonald’s fourth-quarter earnings call, chief operating officer Don Thompson hinted that he and fellow brand leaders would like to see more big-ticket sandwiches in the United States as check-building limited-time offers.?
“Premium sandwiches from Europe are still products that we have opportunities with in the U.S.,” Thompson said. “I know the team is looking at that.”?
McDonald’s candidates for importing to the domestic fourth tier include the 1955 Burger, the English Pub Burger, and the Chicken, Bacon, Onion sandwich.?
Also, Carl’s Jr., the chain that for years has codified mental anchoring with its line of Six Dollar Burgers, took the same approach last year with a different protein and launched Charbroiled Turkey Burgers. In December it announced a line extension with the Santa Fe Turkey Burger, adding to the Original, Teriyaki and Guacamole varieties.?
Getting franchisee buy-in?
All of these moves, from remodeling stores to developing more premium menu items and aggressively marketing them, require the support of franchisees to make them work. As a result, franchisors are working to win that support, often by putting significant upfront investments into new initiatives.?
McDonald’s is offering to pay around 40 percent to 45 percent of costs needed to reimage about 800 U.S. restaurants in 2012. And Wendy’s is taking the lead in its company-owned stores to test breakfast in order to prove the model to franchisees, while still offering financial incentives for operators who want to be early adopters.?
Still, both chains have experienced some pushback.?
Wendy’s settled last September a lawsuit it brought against its largest franchisee, 329-unit WendPartners, over that operator’s initial refusal to buy the equipment required to make Dave’s Hot ‘N Juicy cheeseburger. A small number of McDonald’s franchisees, 30 out of more than 2,500 owner-operators in the United States, expressed some level of frustration to Janney Capital Markets analyst Mark Kalinowski in his quarterly McDonald’s operators survey. The franchisees cited concerns over the franchisor’s pricing guidelines amidst high commodity inflation.?
That franchisor-franchisee back-and-forth reflects the industrywide issue that brands may want to accelerate capital expenditures at a time when franchisees don’t feel fully recovered from the recession, said Dennis Lombardi, executive vice president of WD Partners.?
“We’re kind of in that strange period of time where franchisors have said, ‘We’ve been lenient long enough,’ and franchisees are saying, ‘Look, the worst is over, but we’re not there yet,’” Lombardi said.?
Meanwhile, other brands have worked with franchisees to increase contributions to national marketing funds, including KFC, Domino’s and Papa John’s.?
As for encouraging new-equipment purchases and remodels, Lombardi recommends offering an incremental, “kit of parts” approach to franchisees so that they can make capital expenditures at a price that makes sense for their average unit volumes.?
“In the long run, the relationship between franchisees and the franchisor can only be a win-win or a lose-lose,” he said. “When either side thinks it can win without the other, invariably, the brand weakens over time. Find the right compromise, not just a compromise.”
Contact Mark Brandau at mark.brandau@penton.com?.
Follow him on Twitter: @Mark_from_NRN.
