Some companies weathered the recently ended recession with flying colors. In the fast food business, we argued, McDonald’s was a winner. But in an age of shrinking consumer spending, business has often been a zero-sum game. In every sector, it seems that if there is a winner, there must be a loser. And in the fast food industry it looks good from Arby was one of the losers in this recession.
from Arby started in Ohio in the 1960s. The name is of course a set of roast beef and the names of the founding brothers Raffel. (The vanity of this advert in the early 1980s, Arby’s means âAmerica’s Roast Beef, Yes Sir! Never really caught.) In the 1990s, the company was bought out by Triarc, the investment vehicle of Nelson Peltz redemption artist. And in 2005, Triarc acquired Arby’s largest franchisee. Today, there are over 3,700 stores, owned by the company (1,165) and franchisees (2,574). Arby’s is heavily concentrated in the Midwest. In 2007, its three largest states by number of restaurants were Ohio (291), Michigan (196) and Indiana (181).
Like the Midwest, Arby’s appeared to enter a recession before the rest of the country. In 2007, while the economy was still expanding, sales were essentially flat as the then parent company 10-K shows. Once the national slowdown took hold, however, sales began to drop sharply. Most retailers and restaurants measure progress based on same-store sales growth – that is, the amount of product that a store that has been open for more than a year is moving today compared to the previous year. Comparable store sales fell at Arby’s in the past seven quarters: down 1.6% in the first quarter of 2008, 3.2 percent in the second trimester, 5 percent in the 2008 third quarter, and 8.5 percent in the 2008 fourth quarter. Things got worse this year, dropping 8.7% and 6.9% in the first and second quarters, respectively. Last week the company announced third quarter sales. And at a time when the economy was booming, Arby’s had its worst performance in recent memory. Comparable store sales were down 9% from a year ago and the operating margins of the outlets owned by the company fell sharply. To some extent, Arby’s poor performance was masked by Triarc’s clever decision in 2008 engineer a fusion with Wendy’s, which has a better brand image and achieved better results. At Wendy’s, which is twice the size of Arby’s, same-store sales at franchise-owned restaurants actually increased in the third quarter. (Here is a graphic shares of Wendy’s / Arby’s versus McDonald’s and the S&P 500 over the past two years).
Which give? In some chains, a reduction in same-store sales can be attributed to discounts. If the prices of your deals drop or people spend less, if they settle for a French dip and forgo the bacon-laden potato bites (although, really, if you go that route you might as well okay all pork) – then stable traffic would still lead to reductions in sales. And Arby’s is clearly making discounts. On Saturdays and Sundays, you can get five regular roast beef sandwiches for $ 5.
But Arby’s didn’t do much to stand out from the crowd. Obviously he worked in a tough environment. Its operations are concentrated in economically disadvantaged areas. The chain was not really flourishing before the recession. He can’t compete with the big guys (or maybe even with Big boy) when it comes to brand awareness, presence or advertising budget. And now he’s Wendy’s / Arby’s junior partner. But the channel doesn’t seem to have taken the kinds of actions that other channels are more successful with. Although it offers turkey sandwiches on something that looks like wheat bread, Arby’s doesn’t seem to have paid much attention to concerns about healthy eating and nutrition, like McDonald’s salads. I don’t remember a recent memorable Arby ad campaign. The chain doesn’t have the meatless killer app – McDonald’s fries, Burger King milkshakes – which boosts margins and strings in non-carnivores.
Perhaps more importantly, the company’s meat isn’t particularly good. On Friday, I stopped at an Arby’s for the first time in this millennium. It was clean and I noticed a range of items beyond the simple menu that I remember from my youth in the Midwest. Piggy Bank might be a food snob, but it’s an indiscriminate connoisseur of street food and greasy fare that still makes the occasional border run at Taco Bell. (Don’t tell Mrs. Moneybox.) But even I struggled to complete the report for this assignment. Forget about salads and vegetables. As I browsed through the menu – the gyroscope, the French dip, the melted galette – I struggled to identify anything that had undergone less processing than uranium. A few bites of a roast beef sandwich topped with sticky cheddar sauce, and I was done. In the food chain, thinly sliced ââbeef is about as far apart Wild boar’s head charcuterie like Boar’s Head oven-roasted ham comes from the famous Iberian ham.