NATIONAL REPORT As casual-dining chains try to maintain traffic with check-cutting bargains, the major quick-service brands are shifting their emphasis in the opposite direction, striving to boost margins. The Big Three burger chains have all aired intentions in recent weeks to bolster profits through operational enhancements and the addition of more premium menu choices.
McDonald's, for instance, is undertaking several initiatives aimed at extending checks and margins. In addition to expanding a test of $3.99 Angus burgers to 600 stores in southern California, the behemoth extended a sales trial of its specialty coffee drinks to all 531 outlets in Michigan. McDonald's Corp. told investors last week that the drinks should provide a nice profit pop. "You can't get much better profit than adding water to beans; it's a great margin business," Don Thompson, president of the franchisor's U.S. division, told attendees of an investment conference in Las Vegas.
The lattes, mochas and iced coffees are priced 50 cents below the charge for comparable products at Starbucks, but still premium-priced within McDonald's menu.
Thompson also indicated that the Number One quick-service chain is experimenting with a larger-sized breakfast burrito, but did not provide pricing details.
Beverages also figure into Wendy's marketing plans for 2007. Officials said the chain would introduce several drinks that aren't available at competing brands. In the meantime, Wendy's International chief executive Kerrii Anderson told investors last week, "we expect Wendy's first-quarter results to reflect a significant increase in store margin performance."
The chain has been emphasizing cost controls and sales growth through premium products such as the spicy 4 Alarm Chicken Sandwich. It has also expanded a breakfast menu to at least 240 stores, from the 120 test outlets of last fall. Wendy's indicated last year that it was rolling out more efficient kitchen equipment as well.
Operational enhancements and equipment changes also figure into Burger King's near term plans, executives told financial analysts two weeks ago. A new energy-efficient broiler that cooks several types of menu items simultaneously was projected to save units $600 each annually. The officials said all 850 company stores in North America will have the flexible batch broilers in place by July 1, but franchisees may have to wait for more of the apparatus to be manufactured.
BK is also rolling out a labor-scheduling technology that should also pare costs, the executives said.
Earlier, the Number Two burger chain had revealed plans to add new menu items like a wraps line called BK Hold 'Ems. Different versions will be available all day, according to analysts who visited the chain's Miami headquarters.
Despite the efforts to bolster checks and profits, the big burger chains aren't neglecting bargain-hunters, either, who were estimated by a McDonald's official several years ago to account for 40 percent of all transactions. Both McDonald's and Burger King are testing breakfast versions of their lunch and dinner value menus, which feature arrays of items for $1.
In recent weeks, financial analysts have expressed concerns about the recent introduction of bargain-priced specials by a number of casual-dining chains. Those higher-ticket operations say they feel the pinch from quick-service chains touting premium products.
