Ripple or the real thing?

Every trend starts with a single proponent and builds from there, adapter by adapter. Unfortunately, the process is no different for fads and flashes. The challenge for opportunity-spotters is distinguishing between the two. What, for instance, are we to make of these recent ripples in the market?

The Amway marketing approach: T.G.I. Friday’s broke a campaign in late July called BYOB, or Bring Your Own Buddy. Recruit a pal to join you at the granddaddy of casual dining and they’ll each get $5 off their meal. Apparently you can steal one of their fries, or just bask in the glow of having done something nice for a friend.

It would’ve been nothing more than a one-off for the industry is Arby’s hadn’t begun a campaign this month called Friends and Family Feast. If a group of five visits a unit together, they get five roast beef sandwiches for $5, and all sides for a mere $1 each. The more, the thriftier.

As Wendy’s/Arby’s CEO Roland Smith explained, the program is intended to bolster frequency, apparently through peer pressure. The chain has qualified 50% of its patrons as “medium users” who might be coaxed to add another trip here or there. Getting them to visit just one more time a year can boost a store’s comp sales by 3%, according to Smith.

So is this patron-as-guest-recruiter approach a trend or a fad? My projection: It’ll be another marketing tactic, another arrow in the quiver that’s put in play from time to time because of its novelty. So my final answer: Neither.

New product mania: Back in the spring, Quiznos CEO Rick Schaden sent a scooter to every headquarters staffer, explaining that they had to move faster in adapting to market trends. He cited product development as an area of focus, but left unaddressed the matter of how.

Yesterday, Schaden detailed the process for making that happen. Or so he attests. It’s called Flex Plan, and it aims to match new items to patrons’ financial situation. “The key is to provide the right food at the right time for the right price,” he said.

If times are tough, Schaden explained, the chain’s R&D department will churn out bargain items like the $3 Toasty Bullet or $4 Toasty Torpedo. And when better times return, he continued, the focus will shift to indulgence items, like double-meat sandwiches.

And regardless of what’s coming down the pipeline, he says, the set-up will streamline the process, yielding fast, more efficient introductions.

While that system is being adopted chainwide, Wendy’s is already reaping the benefits from an R&D overhaul, according to CEO Smith. The chain has “developed a very strong new product pipeline,” he assured investors. “By the end of the year we will have tested at least 14 new products, which is more than Wendy’s has tested in a single year in quite a long time.”

Then there’s the hyperactivity of chains like Mimi’s, Carl’s Jr./Hardee’s, Jack in the Box, McDonald’s and Burger King. New products are flying into the market like a pack of third-graders being released for recess. Is this heightened R&D activity a wave that’ll be with us for awhile? You betcha. Definitely a trend.

Commence the shopping spree: In what should have been a routine earnings release, The Steak n Shake Co. revealed yesterday that it’s restructured itself into a holding company with assets consisting of a lone restaurant chain, the Steak ‘n’ Shake retro brand. Why a holding company with one business?

“The company may pursue investments in the form of acquisitions, joint ventures, and partnerships either related or unrelated to its ongoing business activities,” explained a passage of the earnings release that was probably penned by securities lawyers.

That development followed a report in Saturday’s Atlanta Journal-Constitution about Roark Capital, the private-equity firm that owns McAlister’s Deli and a group of restaurant brands (Moe’s Southwest Grill, Schlotzsky’s, Carvel, Cinnabon) franchised by Focus Group. The story explained that Roark expects to complete as many deals in the current year as it consummated in the previous eight, with several set to close by November.

“We feel like we’re ready to start investing again,” Roark managing partner Neal Aronson told the AJC’s Joe Guy Collier.

Sandwiched between those two instances of check-book rattling was the announcement that Church’s fried-chicken chain had officially been sold, some three months after a deal was announced.

So is this the start of a buying trend? Are companies shopping for restaurant companies again?

After a virtual halt this year in restaurant deals, it certainly feels that way. But it’s all relative. For one thing, private-equity companies are usually the wheeler-dealers in such a spree. They buy, they sell.

This time around, many of them are stuck on the seller side of the table, trying to peddle the chains they amassed in better times. Foreign companies may be the new shoppers. But how active will they be?

My prediction: There’ll be a flurry of activity that feels like a cut-rate auction. But it’ll take awhile to see M&A come close to the level we saw before the Great Recession.

But what’s your assessment? I’d love to hear some discussion about which might be a fad and which might be the start of an actual trend.

Do franchisees prefer a scooter or a stool?

Quiznos tested several prices for its 13-inch-long Torpedo heros before settling on $4, the lowest by at least 7%, CEO Rick Schaden recently revealed to the Associated Press.   

Forget for a moment the stunning revelation that sales-test participants preferred the lowest price. Since introducing the baguette-style sandwich, Schaden told the A.P., sales have increased by double digits and traffic has increased by about a third. It’s been a slam-dunk, an introduction that will serve as a new model for the all-franchised chain, Schaden said in another communiqué from headquarters.   

There’s just one problem: Franchisees complain that it’s tough to make any money off the item because the food and paper costs are too high. And to make matter worse, regular customers are trading down from sandwiches that provide a better margin.  

“Without high volume this Torpedo is a bust,” someone from the Toasted Subs Franchisee Association,  an owner-operator group, told me in an e-mail. Despite Schaden’s assertions, franchisees apparently aren’t wowed by the sales pop.   

Then again, Quiznos, as the franchisor of an all-franchised chain, doesn’t make its money off profits. Its royalties are assessed on owner-operators’ top line, underscoring the inherent conflict between franchisor and franchisee.   

Lately I’ve been writing a lot in my freelance work about McDonald’s, a business model that should be taught in grade school to help youngsters understand fairness.  Fred Turner, Ray Kroc’s grill man and early company leader, described the chain as a three-legged stool, with franchisees, the home office and suppliers playing an equal role in the success of the company. For that reason, Turner preached, each had a stake, each should have a say on the chain’s direction, and each would do its part for the success of the other two legs.   

It’s an idea that sounds kind of pollyannish. Indeed, when I worked for Nation’s Restaurant News during the 1980s, one of our parent company’s executives picked up the term to describe our business. Amongst ourselves, we snidely preferred to call our business the three-legged divan, the three-legged TV stand, or the three-legged  knickknack nook.   

Yet if you ask anyone at McDonald’s today to sum up the company’s attitude toward franchisees, they’ll mention the three-legged stool. So will the franchisees. They may have criticisms, which the home office encourages and heeds, but they feel they’re a pillar of the organization. A stool leg, so to speak. 

Turner, by the way, still has an office at the home office, and still talks about the three-legged stool.   And the chain that likens itself to a bar seat just posted a 6.1% increase in U.S. same-store sales for April. 

Quiznos recently adapted its own metaphor for the chain’s new attitude and business model. Schaden sent a scooter to all employees, explaining that it symbolized how the brand intended to respond faster and with more agility to market trends. He noted how the Torpedo line exemplified that new mindset, going from notion to promoted product in a relative flash.   

The scooter was why I e-mailed the Toasted Subs franchisee group. I didn’t quite get it, and suspected there may be more to the symbolism than I was seeing. And the franchisees?   “We have no idea what is behind these scooters, it strikes us as being very odd,” the spokesperson responded.