Sunday, January 24, 2010

Mind the recent signs of improvement

Be careful where you drop your gloom because you don’t want to crush any of the green shoots that sprouted in the restaurant industry last week.

Let’s recap:

McDonald’s, a chain that looked as if it’d finally been tripped up by the economy, explained to investors that it’s paying attention in 2010 to building check averages, a surprising admission given the discounting that’s still rampant in fast-food. The segment’s leader isn’t abandoning its quest for bargain hunters. To the contrary, it’s rolling out a Dollar Menu for breakfast and the Mac Snack Wrap, an item so low priced that execs term it a “fourth-tier” item, below your run-of-the-mill bargain.

Still, officials are pushing items like the Angus burger and continuing the rollout of frappes and smoothies because of the boosts they’ll deliver to tabs and profits. Even the Mac Snack, essentially a Big Mac served in a tortilla wrap, fits the strategy. The chain believes the item’s low price will convince customers to buy it as an add-on to what they normally get, putting more money in the till.

McDonald’s wouldn’t be devoting attention to that end of the pricing barbell if it didn’t feel the opportunity is there.

Panera Bread, meanwhile, said the restaurants it manages took in 9.4% more year-to-date in January than they did during the same period of 2009, after rising 9.6% in December. The January figure is particularly encouraging because McDonald’s mentioned to investors that bad weather probably depressed sales for the first half of the month by 3% a day.

Starbucks’ comp sales increase for late 2009 wasn’t quite as robust, with “just” a 4% gain. But a full percentage point came from increased traffic, a term that wasn’t been heard much last year, unless you were talking about the situation at unemployment offices.

In the full-service sector, Chili’s lifted the dome off a new menu that’s as radical—and sensible—as anything the chain’s ever done. What makes it so bold is the surrender to simplicity. For one thing, the bill of fare runs to only eight pages, a 50% cut from the tome it replaces.

But what’s really significant is the Doh! that must have precede it. The chain is basically a grill, like a neighborhood bar, with good burgers, ribs and other relatively simple preparations. The items left on the menu aren’t cutesy-named knock-offs of the trendy stuff someone dressed in black might hunt in the casual hotspots of New York or Chicago. Chili’s recognized what it was, and what it should become again, and shifted back there.

A smaller, simpler menu means better execution and a shot at better food. The side benefit is presumably quicker service, since the kitchen staff can prepare more of a relatively few items, which become that much more familiar.

Quicker kitchen output gives customers an option of getting in and out of the restaurant quickly, if that’s what the occasion warrants, or hanging back with a few more margaritas, if that’s the preference that night. Executives of the chain’s parent company, Brinker International, have been talking for some time about the need to let patrons decide the pace and extent of a visit. Presumably that objective was brought to light by research. In any case, it appears the chain has taken a big step toward complying with the desire.

Chili’s traffic and sales are still declining, executives acknowledged, but the downdraft has moderated appreciably. And they cited the new menu as a foundation for the chain’s identity going forward. The brand appears to have found itself.

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