Nation's Restaurant News - January 5, 2009

PERIODICALS

THE NEWS LEADER OF THE FOODSERVICE INDUSTRY • WWW.NRN.COM

VOL. 43, NO. 1

A LEBHAR-FRIEDMAN^®PUBLICATION • $5.00

JANUARY 5, 2009

Chains turn to value menus to boost traffic

Sonic, KFC and Popeyes explore discount offerings to tempt tight-fisted customers

BY PAUL FRUMKIN

Prime locations, calm commodity prices may offer some relief in ’09

BY SARAH E. LOCKYER

Restaurant operators nationwide are arming themselves with value promotions, new menu offerings and continued cost cutting to fight against what is shaping up to be a challenging 2009.

The year ahead is not likely to provide the industry with its much-needed sales turn around, according to both operators and new data from the National

Restaurant Association. Some relief could be found, however, in more favorable real estate and lease trends, more stable commodity costs, and the

recalculation of more operator-friendly supplier contracts.

“This is a tough year to handicap,” said Rick Carucci, chief financial officer at Yum! Brands Inc., one of the largest companies in the industry. “You have to assume in 2009 that the consumer is still weak and you’ll need to be on your ‘A’ game.”

In current dollars, foodservice industry sales are expected to increase 2. 5 percent in 2009 to

(See NRA, page 53)

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 traf-

Sonic Corp. launched its new Everyday Value Menu nationally on Dec. 29. Executives made the decision to develop the discount offerings after monitoring competitors and seeing how consumers responded.

fic 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 explor-

ing 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-serv-ings menu for an unspecified limited time. Prices for the 10 entrées now range from $5.99 to $9.99.

(See MORE, page 50)

INSIDE:
Regional
breakdowns,
page 29

Operators scrutinize ad dollars to maximize ROI

BY MARK BRANDAU

Like all restaurateurs, Dan McDonald wants to be sure he’s not wasting his marketing budget, especially in a year that looks as challenging as 2009 is projected to be.

But tracking the return on investment for all his advertising, including for local TV and radio spots, fliers and coupons, isn’t easy, he said. So he’s scouting out new ways to get the most bang for his advertising buck.

“With radio and TV, I don’t know how you measure it,” said

McDonald, owner of a nine-unit franchise of Jersey Mike’s Subs in Nashville, Tenn. “Nobody comes in and says, ‘I’m here because I heard you on the radio.’”

Tighter budgets are forcing both chain and independent operators to more carefully scrutinize their ad spending. For some that means trying new marketing tactics to increase ROI, while others seek ways to better measure ROI or broadening their advertisings’ reach at a lower cost.

McDonald began testing a gift card program late last year to bolster his marketing spending with

initiatives he could be sure were effective. The prepaid debit card, which is called “Facecard” and managed by Nashville-based marketing firm edo Interactive, can be loaded with digital incentives called “prewards” and sent directly to the tech-savvy consumers that opt in to the program. Best of all, McDonald said, he only pays edo a fee per redemption of each preward purchase, and tracking usage is easier.

For instance, he can instruct edo to hand out 5,000 prewards worth $1 each to every registered Facecard owner aged 18 to 25 that

lives within two miles of any Jersey Mike’s unit he owns. If every recipient redeemed the preward, it would only cost him the $5,000 initial investment, plus a “not unreasonable” fee per use, he said. Redemption rates were around 17 percent during the last test, compared with low-single-digit rates for traditional coupons, and the check average for those transactions was about $11.