Fast Times
Value speeds demand of fast food as chains focus on an old standby-the hamburger
A cruise through almost any urban locale will reveal an array of fast-food restaurants sprinkling the area like sesame seeds dot a hamburger bun.
There's a reason for this. Despite consumer claims of cutting back on fat and cholesterol, fast-food sales continue to climb, anchored by the top corporate ham-
by Larry Aylward, Managing Editor
burger chains: McDonald's Corp., Burger King Corp. and Wendy's International.
Oak Brook, Ill.-based McDonald's had U.S. sales of $14.94 billion in 1994, a 5.3 percent increase from 1993, according to Technomic Inc., a Chicago-based food industry consulting firm. McDonald's increased its number of units by 5 percent in 1994 when compared to 1993 and totaled 9,744 units at 1994's end.
Miami-based Burger King's sales increased 9.3 percent, according to Technomic. Columbus, Ohio-based Wendy's reported systemwide sales had increased 8 percent when compared to 1993.
The old standby-the hamburger-is at the base of increased sales. Pizza, Mexican entrees, chicken sandwiches and hero subs are fast-growing menu items, but the hamburger remains the most popular menu item, according to Chicago-based NPD Group.
"The hamburger remains America's No. 1 choice," adds Jeff Prince, senior director of the National Restaurant Association. "Although fast-food restaurants have diversified their offerings, the hamburger still leads the way."
That's no surprise to Mark Klein, spokesman of Minneapolis-based Cargill Meat Sector, which supplies lean meat and trimmings to fast-food hamburger manufacturers. Business has been efficient at the supply end, Klein points out.
Quick-service restaurant sales totaled more than $91.3 billion in 1994 sales, according to Technomic. The top 100 hamburger chains accounted for almost $33 billion in sales, an increase of 5.6 percent from the previous year. Pizza chains accounted for about $10.8 billion, a 1 percent increase from 1993 sales.
"The hamburger is our flagship," says McDonald's spokeswoman Malesia Webb-Dunn.
Much of the hamburger's success can be attributed to price promotion-utilization of the value menu and combo-meal strategies. A record supply of beef has plenty to do with low prices, Klein points out.
A drive up fast-food boulevard reveals: McDonald's offering its super-sized meals at bargain prices; Wendy's store windows plastered with signs promoting its 99-cent menu; Arby's publicizing its five roast beef sandwiches for $5; and Taco Bell touting its value menu.
New products have not influxed the marketplace in the past few years. Fast-food operators are too busy wheeling and dealing. "The value menu gave a burst of life to fast food," Prince says. "The attempts to offer value to the consumer in one form or another have been a very important part of the strategy of fast food for the past few years."
Burger King has found effectiveness in its back-to-basics promotions, focusing on hamburgers, french fries and soft drinks. Its value menu helped increase U.S. store sales by 6.1 percent, the highest growth since 1986. "We are operating from a position of strength," claims Kim Miller, Burger King's manager of media relations.
James Near, Wendy's chairman of the board, says the company's "consistent value approach," the marketing of its value menu and combo meal deals, helped to improve its operating margins by 9 percent in 1994.
Rocky Mountain, N.C.-based Hardee's Food Systems is promoting value with the adage: "Big Taste. Little Money."
The big burger is back, too, and many fast-food restaurants are emphasizing it. For instance, Burger King reintroduced its Whopper line in the spring of 1994.
San Diego-based Jack In the Box debuted the Outlaw Burger in February. The quarter-pounder comes stacked with four pieces of Oscar Mayer bacon, two slices of cheese and is topped with barbecue sauce. Louisville, Ky.-based Rally's is offering its Big Buford Combo, featuring a one-third pound double cheeseburger.
But all is not well for some fast-food operators, even if they feature big burgers. Some industry analysts are predicting the demise of the double drive-thru-only operator.
Rally's has reportedly been burned by the price-war strategy staged by the top deep-pocket hamburger chains. Rally's reportedly lost $19.3 million in fiscal year 1994 and $10.1 million in fiscal year 1993.
Clearwater, Fla.-based Checkers Drive-In Restaurants reportedly lost $6.8 million in fiscal 1994.
Questions surround the price war scene: Are the top chains trying to purge the market of double drive-thrus by pushing combo meals and value strategies? Will price wars end when beef prices escalate?
Drive-thru only operators "are in serious trouble in terms of proving that they have a sustainable competitive advantage," says Ron Paul, president of Technomic Inc. "They are in a very difficult strategic position."
Rally's vice president of marketing, Dan Dahlen, referred calls to president Wayne Albritton, who did not return calls to Meat Marketing & Technology.
What's cooking?
Neil Cohen, vice president of corporate communications for Fort Lauderdale, Fla.-based Arby's, sees a trend emerging from the value-menu strategy.
"There will always be the customer who goes for the 49 cent taco," Cohen says. "But there are a lot of customers in the 29-year-old-and-over crowd who don't want to just put a lot of food in their stomachs for not a lot of money, and say they had a good eating experience."
Cohen says fast-food operators will begin offering quality and quantity at a value price. He predicts a continued emphasis on combo meals.
"People need to know that you're affordable on an everyday basis," Cohen says. "That will be critical. It doesn't mean that low price points will go away."
New product introductions have been slow. For instance, McDonald's last full-scale product introduction was the McLean Deluxe in 1991. But more new products may be on the way, as well as more tie-ins with Hollywood films, such as McDonald's promotional endeavors with "Batman Forever."
"The value meal issue will stay, but we do expect to see an increase in new product development later this year," Paul says. "In the interim, we expect more of an emphasis on promotion, away from pure price promotion. The consumer has heard that everyone is shouting 99 cents."
Wendy's Near adds that price discounting reached irrational levels during 1994.
Cohen says the chain will aggressively market more products through the remainder of 1995, either as permanent menu items or limited time offers. In May, Arby's introduced its Western Bacon Clubs and Western Barbecue Melts. Arby's president Donald Pierce wants the company to get back to a focus on its Western roots.
Jack In the Box introduced its Bacon & Cheddar Potato Wedges in May in five major cities.
McDonald's reportedly is developing a new signature sandwich, although a spokeswoman would not confirm it. The chain also recently began testing hot dogs at selected outlets. McDonald's is also instituting a non-toasted bun, which it claims is better tasting.
A June report in the Wall Street Journal said McDonald's had been testing pre-cooked hamburger patties. But the spokeswoman for McDonald's said it was an erroneous report and the company had no plans to make a switch from using raw, frozen hamburger patties.
Creating a better-tasting, low-fat meat product has been the monkey on the meat industry's back, especially in the fast-food arena. But that's changing.
Taco Bell made a major breakthrough with its February rollout of Border Light tacos and burritos, which are good tasting and contain at least half the fat of the menu's regular products. In a blind taste test conducted by the Center for Science in the Public Interest, consumers could not tell the difference between Border Lights and Taco Bell's regular fare.
But the fat grams packed in Burger King's Whopper (39 grams), Wendy's Big Bacon Classic (36 grams) and McDonald's Big Mac (27 grams), don't seem to faze many consumers.
Even private, one-store hamburger outlets are finding that success in the fast-food business is shouldered by the big burger. Steve Large, proprietor of Fairlawn, Ohio-based Sky-Way Drive-In, an institution in northeast Ohio for more than 40 years, says his restaurant continues to sell its savored double cheesburgers at a rapid-fire pace.
"People come here to eat a big, fat, juicy cheeseburger," Large says. "That is why we are here."
Expansion overseas; dual branding at home
Fast-food restaurants are expanding rapidly overseas. "International expansion is an enormous part of what's happening today in fast food," says Jeff Prince, senior director of the National Restaurant Association. "In a period when American industry is having a hard time competing against the rest of the world, we are exporting the fast-food industry all over the world and expansion is tremendous."
Oak Brook, Ill.-based McDonald's Corp. has been active internationally, where it has about 6,000 outlets. Foreign sales were up 17 percent in 1994 when compared to 1993. Total international sales were $11 billion, accounting for nearly 42 percent of McDonald's total sales.
McDonald's offers a variety of products worldwide, including: McLaks, a grilled salmon sandwich, in Norway; the Samurai Pork Burger in Thailand; McHuevo, a hamburger with a poached egg, in Uruquay; and the Groenteburger, a vegetable burger, in the Netherlands. McDonald's will open restaurants in Delhi and Bombay, India, in 1996. However, burgers won't be a part of the menu because Indians don't eat red meat.
Burger King opened 235 new restaurants abroad in 1994. Wendy's plans to open 100 new stores internationally by year's end.
International growth is one of several business developments in the industry. Back home, dual branding is gaining popularity among chains.
Dual branding is two fast-food operators sharing space in the same building. Wendy's is testing restaurants in several Wal-Mart outlets. It also is dual branding with Tim Hortons, a Canadian chain of bakery/coffee shops.
"We will follow that path," says Neil Cohen, vice president of corporate communications for Fort Lauderdale, Fla.-based Arby's. "It's the correct strategy for increasing the average unit volume, leveraging existing real estate and providing a customer benefit."
In another twist, New Milford, Conn.-based Subway International found added success by using Grey Poupon Dijon Mustard and A.I. Steak Sauce in sandwich promotions. Subway received pricing advantages on volume, and the two brands received exposure. Subway, which dominates the nearly $5 billion sandwich category, was recently voted the top sandwich chain in a Restaurants and Institutions magazine poll.
The quick-comfort segment of dining, pioneered by Boston Market, is another trend that may be here to stay. Golden, Colo.-based Boston Market is the fastest-growing restaurant chain in America. Its marketing approach, which focuses on convenient, homestyle meals such as rotisserie chicken and meatloaf, has created another foodservice category: the quick-comfort segment.
McDonald's entered the quick-comfort segment last September with Hearth Express, but has already decided to shut its doors. McDonald's opened its only Hearth Express in Darien, Ill., offering meatloaf, rotisserie chicken and baked ham. But McDonald's stated that Hearth Express was "not a variable and significant long-term growth opportunity at this time."
Arby's, however, continues to test Roast Town in Plantation, Fla. Roast Town, which opened in February, features pot roast and roast chicken. Arby's will soon open two additional Roast Towns in Ontario.
Cohen claims the quick-comfort segment ties into the value concept of marketing. The food offered is not inexpensive, but is a quality product at a reasonable price. Supermarkets and family markets have become heavily involved in the category.
The quick-comfort segment will grow, predicts Ron Paul, president of Technomic Inc., a Chicago-based food industry consulting firm. "[Those types of restaurants] are all too new to have any impact, even in 1996," he notes. "But in the longer term, it will be a growth category."
HACCP instructions: Keep it simple
Nobody has to tell fast-food establishment managers that detailed and forthright Hazard Analysis and Critical Control Point programs are crucial to safe operations.
But somebody has to tell the young employees behind the counters and grills of the restaurants how to follow HACCP instructions.
And because of a high turnover rate, the instruction isn't easy.
"It's a never-ending battle," says Jack Mason, director of quality assurance and regulatory affairs for Fort Lauderdale, Fla.-based Arby's Corp.
San Diego-based Jack In the Box fast-food restaurants employ more than 30,000 people. Dave Theno, vice president of quality assurance for Jack In the Box, admits that turnover is high. "What that means is the training component is more important than ever," he adds.
Theno says he doesn't expect young employees to be microbiologists so it's important that HACCP instructions be detailed and easy to follow. "The easier the instructions are to follow, the higher the compliance and conformance to what we want to have happen," he adds.
Theno joined Jack In the Box in 1993 in the aftermath of the food poisoning tragedy that left four children dead after they ate hamburgers sold in Jack In the Box outlets on the West Coast. He has since implemented a HACCP system regarded by the fast-food industry as a model program.
Daily operations at a Jack in the Box restaurant include proper temperature checks for grills, fryers and refrigerators; and cleaning and sanitizing of equipment and tools. Weekly checks are performed on equipment to make sure it's clean and working properly.
Grill employees, who receive certification training and are recertified annually, are instructed to make cuts in hamburger patties and visually inspect them to make sure the meat is thoroughly cooked. "That's probably one of the best examples where easier is better," Theno says. "First and foremost, it is a good visual check and an indicator that the burger was cooked properly. Second, it engages the employee as the last essential check, and reaffirms the employee's role in assuring safe food."
Mason instilled a basic HACCP program for beef and chicken products two years ago at Arby's store level. The program utilizes simple guides with photos detailing critical control points. For instance, a guide shows employees the visual differences between undercooked, overcooked and properly cooked roast beef.
A chart detailing Arby's HACCP procedure for product receiving and storage is easy to understand. It identifies critical control points, monitoring procedures and corrective actions.
For example, there is critical control point No. 4-tempering. It says: "Frozen products which require tempering are placed in a 34 degree to 40 degree F cooler. No product is tempered at room temperature with the exception of frozen buns."
The monitoring procedure says: "The cooler temperature is checked regularly throughout the day. A thermometer is situated in the cooler."
The corrective action says: "Service equipment. Re-train employees on tempering procedures."
Arby's also requested its suppliers implement HACCP programs. Jack In the Box has a straightforward approach with its suppliers: If a supplier's ground beef tests positive more than once for E. coli 0157:H7, the supplier is dropped.