Too much of a good thing can be bad, especially for restaurants trying to walk that fine line between driving traffic with lower prices and maintaining a profitable average check.
Recently, a handful of restaurant chains — Wendy’s, Red Robin Gourmet Burgers and McDonald’s among them — are re-examining seemingly successful menu and marketing efforts after promotions aimed at driving incremental traffic caused customers to simply trade down.
While successful price-point promotions usually depend upon some sacrificing of an average check to spur incremental guest counts, the balancing act can be a tough one to execute.
Take a look at what executives said they learned from these chains' recent missteps.
Wendy’s: W cheeseburger backfires
Wendy’s chief executive, Emil Brolick, conceded during the chain’s first-quarter earnings call that disappointing same-store sales growth of 0.8 percent at corporate restaurants and 0.7 percent at franchised locations resulted from an incorrect positioning of the W cheeseburger.
Meant to encourage customers to trade up from a 99-cent sandwich to the $2.99 W, the new menu item backfired and instead stole transactions from Dave’s Hot ‘N Juicy Cheeseburger, which carries a $3.69 suggested price for a single. The average check for a transaction involving the W was $1.19 less than the average check for a sale involving a Dave’s Hot ‘N Juicy, Brolick said at the recent Morgan Stanley Retail and Restaurant Conference.
“Quite honestly, the thought process about this was not what it needed to be,” Brolick said. “The individual using a 99-cent value menu — not just ours, but across [the quick-service segment] — has a tendency to be younger, male and lower-income.
“Moving up from a 99-cent item to $2.99 is a dramatic step up in price for them,” Brolick said. “If you raise the price on a 99-cent item, often those people will migrate to another 99-cent item on the menu, because price is very important to them.”
The best way to deliver value, Brolick asserted, is to “give people a clearly superior product and charge them a competitive price.”
The W will become an optional menu item later this year, Brolick said, and Wendy’s expects the majority of franchise markets to discontinue the product when the brand transitions to advertising another limited-time offer.
READ MORE: Wendy's cuts forecast after 'disappointing' 1Q results
Red Robin: Big Melt Bacon Burger doesn't drive new traffic
Red Robin Gourmet Burgers attributed its weak same-store sales growth of 0.5 percent — comprising an average-check gain of 4.1 percent and a guest count decline of 3.6 percent — to the strategy around its Big Melt Bacon Burger limited-time offer.
Steve Carley, chief executive at Red Robin, said the advertising for the Big Melt Bacon Burger “struggled to break through the clutter” and did not produce the incremental traffic the chain sought with the aggressive $6.99 price point.
“The Big Melt Bacon Burger mixed really well in our restaurants, and a lot of our guests were satisfied,” the chain’s chief marketing officer, Denny Marie Post, added. “It was a marketing issue that we didn’t drive [customers] in. … What we ended up with was trade-down from the existing guest.”
Carley said that customers did add more appetizers and sides to their orders in the first quarter but added, “We absolutely need to sell more burgers and entrees.” The chain’s newest burger, the Tavern Double, also has debuted at $6.99, but the menu item includes the option to trade up to one of three Tavern styles for $1, which is intended to protect the average check, he said.
New commercials have already begun airing for the Tavern Double.
Watch the triplets commercial; story continues below
“It allows us to have a $6.99 starting price point every day,” Post said of the Tavern Double offer. “Guests can choose to trade up from there, via the three styles, or perhaps they discover another signature burger.”
READ MORE: Red Robin retools marketing
McDonald’s: Loose Change menu erodes average check in Australia
Securities analysts recently visited the McDonald’s Corp. Innovation Center, where the company shares best practices from around the world. There, McDonald's executives told a cautionary tale about value menus from its Australian market, a major profit contributor to the company’s Asia-Pacific, Middle East and Africa, or APMEA, division.
According to research notes from Jeffrey Bernstein of Barclays Capital and David Tarantino of R.W. Baird, Australia’s “Loose Change” value menu drove large gains in guest counts but caused more erosion to the average check than anticipated.
McDonald’s officials told analysts that while the result is a short-term trade of average check for traffic gains, the improvements in guest counts would positively benefit the Australian market over the long term.
“This phenomenon could continue, but the traffic gains are seen as positive for longer-term business trends,” commented Tarantino after meeting with McDonald’s executives, including chief financial officer Pete Bensen, at the Innovation Center.
McDonald’s same-store sales in APMEA grew 1.1 percent in April, which the company attributed mainly to results in Japan offsetting strong performance in other countries.
Same-store sales in the United States grew 3.3 percent for the month, which McDonald’s said resulted not only from seasonal beverages but value pricing. The company’s major value move came toward the end of March when it introduced the Extra Value Menu, a collection of the existing menu items with prices falling between the Dollar Menu and Extra Value Meals.
McDonald’s promoted the 20-piece Chicken McNuggets heavily on television, as well as spring and summer beverages like Frozen Strawberry Lemonade and the Cherry Berry Chiller.
Watch a commercial for the Cherry Berry Chiller; story continues below
READ MORE:
• Analysts: McDonald's to battle pitfalls with innovation
• McDonald’s: Special offers drove April same-store sales growth
Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN
