Trends And Outlook For Sandwich Franchises Released <b></b>
Scottsdale, Arizona-The $56.1 billion sandwich segment,which began as a U.S. trend and revolutionized the way the worldeats, continues to be fiercely competitive. Chain restaurantoperators, fast-food operators in particular, have taken extensivesteps to enhance company sales and earnings. These steps includecontinued domestic and international expansion, expansion intonontraditional locations (i.e., McDonald's opening units inWal-Mart), co-branding, promotions and new product instructions.NPD ReCount states the sandwich segment increased by 2.2 percent to114,284 units in 2000, vs. 111,796 in 1999. Five out of the top 11sandwich chains (Burger King, McDonald's, Sonic, Subway,Wendy's) had increases in more than 150 units, while three inthat top 11 (Dairy Queen, Hardee's, Taco Bell) closedunits.
Foremost among ways to deal with domestic competition is toexpand internationally. The near saturation of the U.S. fast-foodmarket has led larger franchise chains to devote greater resourcesto international expansion. Over the past few years, Europe hasbeen in fast-food turmoil: The UK is experiencing an Americaninvasion and France is retaliating. However, in 2000, even moreturmoil occurred as Mad Cow disease was identified in variousEuropean countries. McDonald's leads the pack in the race tobecome the dominant overseas chain, with unit growth of 11.2percent versus 1.4 percent unit growth domestically in 2000. Plansfor next year include adding about 1,700 restaurants systemwide,with about 90 percent outside the United States. In January 2001,McDonald's bought a 33 percent stake in Britain's Pret aManger, which serves sandwiches, snacks and sushi at lunchtime.McDonald's investment will fund Pret a Manger'sinternational expansion into the United States. Meanwhile, BurgerKing and Arby's recently signed its largest internationalagreement for 102 new units in England over the next 10 years.Outside Britain, Burger King is targeting many other countries,while Dairy Queen remains large in Thailand and Canada and isdeciding whether to go into China. Sonic is expected to open itsfirst international location in Mexico in 2001. Burger Kingcompletely exited France in 1998.
Co-branding allows brands to cash in on different concepts'daypart strengths and continues to gain in popularity amongfast-food operators. Allied Domecq, parent company of Dunkin'Donuts, Baskin-Robbins and Togo's, profits on eachconcept's daypart strength by combining them all under one roofin a trombo unit. While Allied does not expect to sell sandwiches,ice cream and donuts to the same people, it does intend to exploiteach concept's daypart strength to the point of a continuous12-hour offering. The company not only wishes to attractcustomers-it also wishes to attract franchisees. Trombos allowfranchisees to increase sales and leverage real estate space,employees, management costs and other resources by creating a brandcluster that draws customer traffic throughout the day, instead ofsingle dayparts. On a smaller scale, Wall Street Deli is engagingin co-branding with Taco Bell express.
Another device used in the fast-food segment in 2000 was imagerevamping. Burger King continued its image conversion, whichincludes a new logo, a new cooking platform, renovated exteriorsand interiors, new uniforms and improved drive-thru service.However, in the second half of 2000, Burger King had double-digitsales declines, which may have encouraged other major chains torenew focus on sales growth and image upgrades. Burger King facedmany challenges, including new management, changing ad agencies,Pokemon ball recalls, trouble with Chick-fil-A and potentialboycotts.
Fazoli's introduced its new prototype, "Fazoli'sBackstreet Café," which derived its name from Italy'squaint restaurants tucked away on small streets. The renovationincludes a muted tone décor and new menu items, such ascalzones and frozen yogurt. Because Fazoli's added 26 units tototal 376 while reporting a unit-level sales decline of 3.3 percentto $1.03 million, systemwide sales increased 6.4 percent to $378.4million.
There was no shortage of new product development in the sandwichsegment in 2000. The biggest player in this segment,McDonald's, unveiled several new items, made easier since the$180 million rollout of its "Made for You" kitchens. Thecustomized system makes preparing products much faster. The questfor hot new products is part of a $400 million "brandreinvention program" kicked off by its new advertising slogan:"We love to see you smile." Besides new productsintroduced at select locations, including the Grilled McVeggiesandwich, three new chicken sandwiches, Fruit 'n YogurtParfait, McFlurry dessert, breakfast bagel sandwiches and theMcShaker Salads, about 40-odd ideas are in various testing stages.Throughout the 1990s, McDonald's had little in the way ofsuccessful new products; the last new blockbuster product wasChicken McNuggets in 1982. One product that did not fair well wasthe Big Xtra, which McDonald's planned to phase out in early2001 in favor of the Big 'N Tasty sandwich, which has beenvery successful in its test markets. In addition, McDonald's ispresently testing a new vertical grill, which permits faster cooktimes for burgers, and a fryer that cuts the time it takes to cookfrench fries in half.
In fall 2000, Burger King, the second largest burger chain,rolled out its eight-item BK Cravers line that includes mozzarellasticks, jalapeno poppers and snack size sandwiches as a permanentmenu addition. Burger King is using the new finger-food line toreposition its Great Tastes value menu launched in 1998. BurgerKing recommends that each Craver item be sold for 99 cents. Tofurther fuel its competition with McDonald's, Burger King plansto roll out yet another new french fry. After the failure of itsco-called "Perfect Fry," launched in 1998, due toinevitable mistakes in the 19-page recipe, the chain has redesignedits fries and its salt applicators.
In May 2000, Arby's launched a similar appetizer menu withits introduction of mozzarella sticks, onion petals and friedjalapeno bites. Referred to as Sidekickers, the line is promoted asthe same quality offered at casual dining chains, rather thanplaying up its value price like Burger King. In October 2000, in anattempt to entice adults, Arby's rolled out its "MarketFresh" sandwiches-upscale sandwiches featuring a choice ofroasted beef, chicken, ham or turkey on thick-cut honey-wheatbread. By focusing on the adult market, the chain is trying toposition itself above the traditional fast-food battle, wherechains fight for the same youth dollars.
Meanwhile, Subway announced the rollout of its reformulatedItalian wheat bread, promoting "the better the bread, thebetter the sandwich." In keeping with Subway's commitmentto offer a healthful alternative to fattening fast food, there hasbeen no significant change in the nutrients in the bread. In fact,the total carbohydrate content went down by one gram in thesix-inch Italian bread and by three grams in the six-inch wheatbread. The chain is promoting its health aspect, heavily relying onJared, the man who lost 235 pounds, to successfully draw customers.In 2000, Subway increased sales per unit by 17.9 percent to$314,900, thus increasing systemwide sales by 18.8 percent to $3.8billion.
Other techniques to raise earnings by fast-food operators in2000 include stock repurchases (Arby's, Wendy's) anddomestic expansion (Arby's, Burger King, Del Taco). Otheroperators used value means to entice money-strapped customers(Burger King, Jack in the Box, Taco Bell, Wendy's), and stillothers improved drive-thru times and menu-order screens to confirmorders to entice time-strapped customers (Burger King,Wendy's). Finally, Wendy's expanded its late-nightbusiness, which began in 1998, into more units with increasednational advertising. Late-night success is responsible forone-third of Wendy's same-store sales growth. -FranchiseFinance Corporation of America