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menu -- offsetting gains at sister brand Wendy's.
Arby's performance
"We are not fully convinced that Arby's challenges
'amongst the worst in are purely cyclical," Bernstein Research analyst Sara
Senatore said, adding that other restaurant chains
modern restaurant recently got a lift from improving consumer
sentiment and spending.
history:' analyst When it comes to reviving a struggling brand, "it's
not easy and not particularly cheap," Senatore told
Reuters
Reuters.
In addition to fierce competition and rampant
Monday, May 17th 2010, 12:45 PM discounting, Arby's is also up against an
emboldened McDonald's, which is stealing industry
Roast beef sandwich chain Arby's has made a new market share.
$1 menu a cornerstone of its turnaround plan, but it
may not fix what ails the deeply troubled brand. The world's biggest hamburger chain has all-day
value menus, lots of money for advertising, fancy
Executives at parent Wendy's/Arby's Group Inc coffee and 14,000 well-run and maintained
(WEN.N) have blamed Arby's deteriorating sales on restaurants in some of the country's best locations.
menu prices that were higher than the typical fast-
food chain. But early results from the launch of LOSING ON LOYALTY
Arby's $1 menu showed that the benefit of more
traffic has not outweighed the risk to profitability. The economy is partly to blame for some of the
sales declines at Arby's, but experts said it already
Value menus have helped fast-food companies was suffering from neglect when it merged with
ranging from McDonald's Corp (MCD.N) to sandwich Wendy's in September 2008 in a deal orchestrated
chain Subway weather the weak economy. But the $1 by Nelson Peltz's Triarc.
menu from Arby's came late to an already-crowded
market with things like curly fries and down-sized "They were on the decline before the economy went
roast beef and ham and cheese sandwiches. south," said Brand Keys President Robert Passikoff,
who added that when it comes to customer loyalty,
"Arby's performance is amongst the worst in modern Arby's comes in last even though it has carved out
restaurant history," J.P. Morgan analyst John Ivankoe its own niche.
said in a note. Systemwide sales at established
company-owned Arby's units fell 5.8 percent in "Their engagement loyalty bond is so weak that their
2008 and 8.2 percent in 2009. During the first own customers are rating them low," Passikoff said,
quarter of 2010, they tumbled 11.6 percent, he said. adding that they do have room to capitalize on their
core business. "They're the only national chain that
Beyond that, Oppenheimer analyst Matt DiFrisco offers roast beef. If you want roast beef, they're the
said Arby's reported its lowest margins yet during only game in town."
the first quarter -- when it began rolling out its $1
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While turnarounds are difficult, Technomic's Bob while traffic was up 4 percent.
Goldin said troubled companies can focus on their
strengths to reconnect with customers. For example, Value menus are designed to spur visits so that
coffee chain Dunkin' Donuts got its mojo back after operators can talk diners into buying high-profit
it embraced its blue-collar clientele, positioned add-ons like drinks. But this was not yet happening
itself as the "anti-Starbucks" (SBUX.O) and got its at Arby's, where the average spend per diner fell 12
operational house in order. percent in April.
MID-TURNAROUND Arby's will introduce a toasted steakhouse sub and a
"prime cut" chicken sandwich this quarter. Those
Wendy's/Arby's is controlled by billionaire Peltz, "premium" priced products could help boost diners'
who serves as chairman, and Vice Chairman Peter average spend, analysts said.
May. Triarc, their investment company, owned
Arby's. Meanwhile, the brand is weighing on overall results
at Wendy's/Arby's, which is lagging rivals.
The two men also were investors in Wendy's.
Wendy's/Arby's Chief Executive Roland Smith ran So far this year, its shares are up just 2 percent
Arby's at various times during his career. compared with the nearly 12 percent gain in
McDonald's shares and the more than 14 percent
The parent company is in the second year of a rise in the Dow Jones U.S. Restaurant and Bars index .
three-year turnaround. Analysts say Wendy's DJUSRU.
business appears healthier and on track for future
growth, helped by advertising focusing on fresh Arby's "path to recovery looks longer and shallower
ingredients, new food and value menus. than we expected," said Bernstein's Senatore.
Wendy's floundered after the death of its founder (Reporting by Lisa Baertlein; Editing by Michele
Dave Thomas in 2002, but the chain that operates Gershberg and Matthew Lewis)
6,000 units had not deteriorated as much as Arby's
ahead of the merger.
Wendy's/Arby's has started long-overdue
renovations at Arby's 3,500 units and plans to make
significant improvements at 75 percent of them over
three years.
It named a new president for Arby's last week and is
working with the roughly 10 percent of its
franchisees that are struggling with debt.
During April, the first month of national advertising
for the $1 menu, Arby's same-store sales at
company-operated restaurants fell a "dismal" 8.4
percent, in the words of J.P. Morgan analyst Ivankoe,
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