Salad, prime sandwiches stem fast-food woes

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Restaurants, especially fast-food operations, increased traffic and even freed themselves from their discounting addiction in 2003 by responding to consumer demands for healthier, fresher and better quality foods.

"It's the year the restaurant industry woke up to the need of real menu innovation and menu response," says Bob Goldin, exec VP of restaurant consultant Technomic. "There's nothing like some hard times to see innovation rule," adds Harry Balzer, VP of NPD Group, referring to 2002, the industry's worst year in decades.

Mr. Balzer credits entree salads-launched first by Wendy's-with driving consumers back to the burger barons, and fueling McDonald's turnaround.

SALADS STAR

"They changed where you get a main dish salad from," he says, noting the same trend happened in the 1980s when new salad fare at Wendy's and Burger King gave consumers permission to visit traditional fast-food restaurants again.

Salads get most of the credit, but premium sandwich items have been gaining steam since 2001. Premium sandwiches took off in 2003 as fast-feeders widely adopted a three-tier menu strategy that includes core menu items, premium-priced new products and everyday value items.

The menu change boosted traffic 0.8% at fast-food chains during the year ended April 2004, according to NPD Group, and 1% at casual-dining restaurants. The average check for the same period grew 1.5% for fast-food and 2.8% for casual dining. However, Mr. Balzer says consumers will only tolerate higher prices as long as prices don't exceed their own percentage growth in income.

Allan Hickok, managing director of Hickok McMillan Strategic Advisors, believes higher prices will hold. "It's a secular trend," he says, citing Taco Bell's total menu overhaul three years ago as opening the door for selling higher-priced items after years of selling 39-cent tacos.

In addition to their own salad offerings, nearly every chain has launched its own version of premium sandwiches-inspired by upscale fast-casual chains. Fast-food chains are having success with these higher-tier sandwiches after seeing the hot sales of the Six Dollar Burger launched in July 2001 by CKE Restaurants' Carl's Jr.

Its success spawned the 2003 launch of the $4.89 Angus beef Thickburger from sibling Hardee's Food Systems, and Burger King Corp.'s Angus version that launched last month. Similarly, Triarc Corp.'s Arby's began its renaissance with its 2002 Market Fresh line of deli sandwiches that has paved the way for the $4.39 Pannido deli baguettes at Jack in the Box and a deli line test at McDonald's Corp.

Those higher prices appear to be driving many of the same-store sales gains seen by the industry, according to the most recent survey of restaurant executives by CitiGroup Smith Barney. In the last three months, respondents said they increased menu prices by 3.9%, well above the typical annual increase of 1% to 2%. Of those who boosted prices, 83% said they have noticed "no discernable impact on customer traffic."

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