Farms Inc. is taking some lumps as it shifts away from discounting.
The New Albany, Ohio-based family-dining operator reported Tuesday that same-store sales fell 3.6 percent in the third quarter ended Jan. 22. The number of transactions fell 6.5 percent, as customers who had been lured to the concept with the carrot of buy-one-get-one offers and other discounts didn’t eat there as frequently.
To company executives, the discounts did not translate into enough long-term business to keep them going.
“We have a core guest,” Saed Mohseni said Wednesday during his first earnings call as Bob Evans CEO. “When we do discounting, we get a lot of one-time use of the discount and it doesn’t translate to a lifetime guest.”
Bob Evans is now working to eliminate broad discounting and instead focus on narrow, targeted discounting strategies while also highlighting the “everyday” value the chain already offers.
Mohseni, who was named CEO in November, said that Bob Evans doesn’t get credit for having low prices, even though its average check of about $10 is on par with the family-dining segment.
“There’s a perception that our brand is expensive,” Mohseni said. Chains that give customers the ability to build their own meals and order add-on items such as beverages have better value perceptions, he noted.
Bob Evans is thus planning to redesign its menu to further highlight its existing value offerings and give the chain that perception without resorting to broad-based discounting strategies such as coupons.
“We’re placing a higher reliance on opening price points in each daypart, so the value perception is there and we don’t have to discount the menu down to have value perception with the customer,” Mark Hood, Bob Evans chief financial officer, said during the earnings call.
“We have value on the menu,” Mohseni said. “We have to do a better job of highlighting it.”
In addition, Mohseni said, the company will use discounts more strategically so it can drive traffic at key periods or encourage customer trial of new, innovative products.
“We will define value in our own terms to require less discounting,” he said.
Bob Evans revenue declined 3 percent in the quarter due to a reduction in the 540-unit chain’s number of restaurants, as well as the decrease in same-store sales. But the company beat Wall Street earnings expectations, with adjusted earnings per share of 62 cents, far higher than the 54 cents per share investors expected. The company also raised its earnings expectations for the year to $1.90 to $2 per share, from $1.85 to $2 per share.
The company’s stock price surged 8 percent in Wednesday morning trading on the earnings report.
Same-store sales also appear to be moderating, and have declined 0.6 percent so far this quarter, Hood said, an improvement from the previous quarter.
Mohseni said that Bob Evans breakfast sales, vital to the chain, have stabilized as part of an effort to improve the quality of its breakfast offerings.
Same-store sales during breakfast increased 0.1 percent, the only daypart to see an increase, driven largely by a significant increase of 6.5 percent in same-store sales for to-go breakfast business.
Every other daypart declined. Lunch same-store sales fell 4.1 percent, and dinner same-store sales fell 6.8 percent in the period.
Mohseni said that Bob Evans is preparing to make big changes to its menu and its service to improve sales. Therefore, it is reducing changes in the short term to make those preparations.
“We are eager to drive traffic at our restaurants,” he said. “We are slowing down significant product implementation and menu changes to enable leadership and staff to focus on training and development to [ensure] we have best-in-class hospitality and to prepare the team for product and menu changes ahead.”
The company has also made some progress in cost-cutting efforts. Bob Evans has cut $12 million in costs so far this year, Hood said, and expects total savings this year to be $18 million. The company has a three-year plan to save $35 million.
“We are significantly ahead of our one-year target,” Hood said.