Adding Sizzle but No Steak?
With sales growth in the fast-food industry wilting like a soggy hamburger, major chains such as McDonald’s Corp., Burger King and Carl’s Jr. are trying to generate some excitement by unleashing a tidal wave of new menu items.
But, to paraphrase an adage, there is very little new under the heat lamps.
Quick-service giants, in their quest to boost profits and sales, have largely forsaken innovation and originality in favor of knockoffs of competitors’ greatest hits. When not outright copying rivals, they are introducing menu items heavily influenced by them.
Analysts say that adding new products is only a short-term fix for fast food’s challenge of sparking long-term growth. Chains could be better off improving food quality and cleanliness of stores, for example. Even so, some appear to be benefiting from serving up dishes first popularized by others.
Carl’s Jr.’s and Hardee’s premium Six-Dollar Burger, a less-expensive near copycat of a T.G.I. Friday’s burger, has breathed life into the formerly struggling chains, both of which are owned by CKE Restaurants Inc.
Meanwhile, Subway’s upscale honey oat and roasted garlic rolls, apparently inspired by the more chi-chi Panera Bread Co., have helped burnish the chain’s image.
In the last six months, Burger King has unveiled 13 new products, including the BK 1/4 Lb. Burger, its version of a Quarter Pounder, and the King Supreme, a knockoff Big Mac. Same-store sales, fueled partly by the new additions, have increased after stagnating for years.
“Hey, if [our competitors] are selling it, we can learn from them,” Burger King spokesman Rob Doughty said.
Me-tooism has long pervaded the restaurant industry. McDonald’s begat Wendy’s which begat Checkers. And chains are always coming out with new menu items.
But with fast food growing only at an inflation-adjusted 1.3%, versus 2.5% in 1999, sandwich and pizza companies are adding products at an unprecedented pace--and ripping each other off as never before, said Christopher Muller, professor of restaurant management at the University of Central Florida in Orlando.
“Many of these restaurants are starting to look alike,” he said. “When everybody has a new menu, nobody has a new menu.”
Menu variety, however, might not be as important to consumers as restaurant executives think, said Robert L. Sandelman, a Villa Park restaurant consultant. In a recent national survey, he found that fast-food customers ranked taste, food temperature and speed of service ahead of choice, which placed 10th in 12 categories, he said. Only the availability of nutritious food and a restaurant’s appeal to children placed behind variety.
Rather than roll out a bunch of similar products, chains would do better to improve service, clean up their restaurants and serve food hot, said Hal Sieling, a Carlsbad, Calif., restaurant consultant. Until they master the basics, many fast-food companies will continue to lose customers to “fast-casual” outlets, which offer fresher and often tastier food at a slightly higher price.
As McDonald’s has recently learned, adding lots of new stuff doesn’t always translate into roaring sales, experts said. The chain’s much-hyped New Tastes Menu, which rotates such “new” offerings as chili burgers and McRib sandwiches year-round, has failed to strike a chord with consumers, said Randall Hiatt of Fessel International, a Costa Mesa restaurant consulting firm.
“I don’t think it’s moved the needle at all,” he said. “People go to McDonald’s for Big Macs and fries and not for chicken parmigiana sandwiches.”
The burger giant has posted six consecutive quarters of declining profit.
Neil Golden, McDonald’s vice president of U.S. marketing, said consumers have liked many of the new items and that the 1 1/2-year program has succeeded financially. He declined to elaborate.
However, the right food item, especially a high-quality but lower-priced knockoff, can succeed, said Richard Martin, managing editor of Nation’s Restaurant News.
Such is the case with the Six-Dollar Burger, a heavily promoted sandwich that actually sells for $3.95. When first introduced at its Carl’s Jr. chain last July, CKE Restaurants ran television ads touting the sandwich as “like the burger I just paid about $6.25 for at Friday’s.” The Six-Dollar Burger debuted at Hardee’s four months later.
The sandwich, along with improved operations and the divestiture of under-performing units, has helped engineer a turnaround at Santa Barbara-based CKE, said Mary Gilbert, a senior analyst with Imperial Capital in Beverly Hills.
In its quarter ended Jan. 28, Carl’s Jr. registered a 4.3% increase in sales at outlets open at least one year. Same-store sales jumped 6.4% at Hardee’s, the biggest increase in more than five years. CKE shares have appreciated by more than 250% in the last year.
The company appears to have paid a price for its imitation. T.G.I. Friday’s sued Carl’s Jr. last year for false, misleading advertisements and unfair competition. The two companies recently reached a confidential settlement.
Undeterred, Carl’s Jr. has rolled out its newest premium product: chicken-breast strips similar to those sold at KFC and, most recently, McDonald’s.
At least one burger chain has no intention of rejiggering its menu. Closely held In-N-Out Burger, based in Irvine, has been serving up burgers, fries and drinks the same way since its inception in 1948. Everything is made fresh to order. Restaurants have no freezers or microwave ovens.
In-N-Out’s focus on and commitment to quality has created a cult-like following, said Janet Lowder, a Rancho Palos Verdes restaurant consultant. Analysts estimate that annual sales at the 164-store chain approach $263 million, or about $1.6 million per unit, among the highest in the burger sector.
“Our customers aren’t looking for variety from us,” said Carl Van Fleet, a company vice president and general manager. “They’re coming for a Double Double and fries, and that’s what we’re giving them.”
