Operators who once watched the value wars from afar are finding themselves pulled into battle as the recession settles in.
As layoffs and economic uncertainty force more Americans to tighten their belts, quick-service brands that formerly steered away from value deals, like Sonic Corp., KFC and Popeyes Louisiana Kitchen, are either in the process of rolling out new menus or are testing them in outlets around the country. And more casual-dining chains are lobbing their own value grenades as they work to attract spending-shy consumers.
“Operators don’t have much choice in this environment,” said Ron Paul, president of Technomic Inc., a Chicago-based foodservice consulting firm. “[Value menus] work, and if a chain isn’t doing one, it’s probably losing sales to competitors. It can be an important traffic stabilizer, if not traffic builder.”
While quick-service chains like McDonald’s, Burger King, Wendy’s and Taco Bell long have relied on value-centric menus pushing items priced between 99 cents and $1.99, brands from other industry segments also have begun exploring similar value-based strategies.
In October Applebee’s Neighborhood Grill and Bar launched the “2 for $20” program, which features one appetizer and two entrées for $20. The chain is expected to unveil new menu items this month.
Carrollton, Texas-based T.G.I. Friday’s has knocked $1 off the prices on its popular “Right Portion, Right Price” smaller-servings menu for an unspecified limited time. Prices for the 10 entrées now range from $5.99 to $9.99.
And Denny’s Corp., the Spartanburg, S.C.-based family-dining chain, just launched a lower-priced, $4 variation of its signature Grand Slam breakfast. Denny’s Weekday Express Slam is available Monday through Friday from 5 a.m. to 4 p.m.
The NPD Group, a market research firm based in Port Washington, N.Y., reported that for the 12 months ended in September 2008, deal traffic rose 4 percent in the foodservice industry, compared with a decline of 1 percent in the previous year. Bonnie Riggs, an NPD analyst, observed that the industry had not seen “any increase in deals in a number of years. That’s what operators have to do to survive at this time.”
Experts say declining food and gas costs also are helping to convince foodservice operators to pass along some of the savings in the form of specially priced menu items.
However, not all industry observers see value menus as a magic bullet for restaurateurs looking to drive traffic. Tom Kelley, managing partner of Concept Branding Group USA, a strategic brand and operational consulting company based in Washington, D.C., warns that even selective discounting is not for everyone.
“When you’re talking about big quick-service chains like KFC or Sonic, their customers are very price sensitive and [the chains] tend to operate in a much more competitive environment,” he said. “They have more flexibility. And in some cases they need to fill a void and grab some of that price-sensitive traffic.”
But for smaller chains and independent operators, Kelley continued, “[Discounting] really just drives more people away when they see ‘20-percent off.’ It shows the brand is hurting. And while people might take advantage of it once or twice, [bargain hunters] tend to be the least-loyal customers.”
Nancy Kruse, president of The Kruse Co., a menu trends analyst based in Atlanta, called the value-menu stampede “a sign of the times,” but she added, “This time chains are doing it right.”
In previous economic downturns, she said, “The answer was simply to cut prices with abandon, with no concern about the impact on the margins—they were meant to be a short-term fix. Do whatever you have to do to get the traffic in.
“Now, with the sense that this will be a deeper and longer downturn, the emphasis is on a longer-term strategy. [Value menus] have to be developed with margin protection in mind. They also have to protect the company’s franchisees and its stakeholders.”
Kruse pointed to McDonald’s value menu as the gold standard, and cited the Oak Brook, Ill.-based chain’s recent strategic decision to remove the Double Cheeseburger from the value menu and replace it with the new McDouble, which contains one slice of cheese instead of two. It is estimated the move will save 6 cents per sandwich, boosting cash flow by $15,000 per restaurant per year.
Paul Macaluso, vice president of marketing for the Oklahoma City-based Sonic Corp., said executives of the 3,500-unit quick-service brand made the decision to develop a value menu after monitoring competitors and seeing how consumers responded. “Value menus have been driving the industry over the last several months,” he said.
Sonic also had positive results with its Happy Hour promotion, which offers half-priced drinks and slushes for a two-hour window during the day.
Sonic’s new Everyday Value Menu launched nationally Dec. 29 and contains 11 items—four entrées, three side items and four snacks and beverages, all priced at $1 each. All items are available all day.
Entrée selections are a Chicken Strip Sandwich; Junior Deluxe Burger with lettuce, tomato and mayonnaise; Junior Fritos Chili Cheese Wrap; and a Junior Breakfast Burrito.
Sides include smaller size offerings of Tots and fries and a fresh banana. The snacks and beverages are a small soft drink, a selection of small slushes, a small vanilla cone, and a Junior Candy Sundae with a choice of candy offerings.
Macaluso said the value menu will be permanent.
Atlanta-based Popeyes Louisiana Kitchen also has value meals in test in Kansas City, Arkansas and other areas, according to published reports. Called Popeyes $4You, the menu offers three selections for $4, including a Loaded Chicken Wrap, Louisiana Nuggets, a Chicken Biscuit, a Bonafide Leg or Thigh, a choice of side dishes and beverages, and Cinnamon Apple Pie.
The chain also is testing the Variety Dinner $4You, which feeds a family of four for $4 per person.
KFC, a division of Louisville, Ky.-based Yum! Brands Inc., said it plans to launch a value menu this year. The menu will feature nine items priced between 99 cents and $1.99 each. The menu will include 99-cent KFC Snackers, a toasted wrap for $1.49, and snack boxes of popcorn chicken or three hot wings for $1.99.
