Fast-food chains try new ads, games to beef up sales
With the recession pinching the pocketbooks of fast-food fanciers, restaurant chains are trying to boost sales by tinkering with their operational recipes.Skip to next paragraph
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Fast-food industry sales ''respond directly to the economy,'' says William C. Hale, a principal at Technomics Consultants, a Chicago marketing and management-consulting firm. ''If we do not have a turnaround in the economy by spring, I would expect sales to be flat or down for the year.''
''Sales will be down in the first half, up in the second, and flat .for the year,'' adds Merrill Lynch vice-president William T.Trainer.
Convenience food sales were not sizzling last year, either. According to the National Restaurant Association, sales grew about 3 percent in 1981, far below the 10-percent-or-better gains posted in the mid-1970s. ''Business turned soft in September and has continued so,'' says Robert Emerson, a food analyst with Fred Alger & Co. in New York.
Fast-food operators have adopted a variety of tactics to cope. For example:
* McDonald's Corporation changed advertising agencies and is headlining a multimillion-dollar ''Quality Game.''
* Pillsbury's Burger King unit switched from ads designed to tug the viewer's heartstrings to those focused on whetting his appetite.
* Wendy's International Inc. broadened its menu to include breakfast.
Besides reacting to the economy, fast-food operators also have to contend with an apparent shift in consumer preference from the fast-food style of operation and toward moderate-priced restaurants providing waitress service. ''What is happening is that the customer would prefer to sit and be waited on,'' Mr. Hale notes.
There are several reasons for the shift, analysts contend. First, the fast-food crowd is growing older, and its preferences are changing as a result. Also, the desire for service seems to grow as the cost of visting a fast-food haven continues to climb.
''Fast-food restaurants have raised prices so sharply they have blurred the distinction between fast-food outlets and coffee shops,'' says Michael Culp, fast-food analyst at E.F. Hutton.
Fast-food executives contend their chains still offer lower prices. In company-sponsored studies ''usually we come out 10 to 20 percent under the coffee houses,'' argues Burger King advertising vice-president Kyle Craig.
Still, there are some signs fast-food firms are beginning to react to the growing appeal of wider menus and fuller service. In its new units ''Burger King seems to be moving toward a coffee-shop-like concept in terms of menu breadth and decor,'' marketing consultant Hale says.
Burger King executive Craig responds that ''from a decor standpoint I wouldn't disagree.''
At least one McDonald's unit recently began offering a brunch that is served to customers, Mr. Hale says.
Meanwhile, at its company-operated units, McDonald's is ''doing the best we can'' to keep from raising prices, a company spokesman says.
Current efforts by fast-food outlets to broaden their menus continue to blur the line between fast-food restaurants and coffee shops. ''Their intention is not to blur the distinction,'' Mr. Culp argues, ''but to get away from red meat, they have taken on more of a look of a coffee shop.''
For example, Burger King is now offering a veal parmigiana sandwich.
At the same time McDonald's is testing chicken ''McNuggets,'' bite-size pieces of chicken, in over 3,000 stores. The company is also testing a ''McRib'' pork sandwich at 65 stores. In addition, ham-biscuit and sausage-biscuit breakfasts are being offered in 1,000 stores.
Fast-food companies are paying attention to the desire for fuller menus and more service because of the bottom line. ''Mid-priced restaurants seem to be doing better than low'' in today's economy, notes anlayst Mr. Trainer at Merrill Lynch. ''Denny's seems to be doing very well.''
Denny's Inc., which operates 837 sit-down coffee-shop restaurants, posted revenues of $472.1 million in the six months ending Dec. 25, up 14.1 percent from the same period a year earlier. And net income was $19.2 million, up 42.2 percent from the previous pervious period. By contrast, in the fourth quarter. McDonald's reported a 17 percent profit gain on a 12 percent sales hike.
''There is no question the consumer is looking for value,'' says Denny's president,. Vern O. Curtis. ''We are trying to get more lower-cost, lower-priced menu items and then promote them well.''
One example of this strategy is a rainbow-trout dinner Denny's is advertising in the Northeast for $3.49, a price competitive with a meal at McDonald's.
Still, analysts contend the fast-food operators are likely to move cautiously in offering table service to compete with companies like Denny's. ''It would be a terrible mistake to go to waitresses. It would play havoc with their costs,'' says Hutton analyst Culp.
At the moment, the cost picture for fast-food operators is appealing. Unlike last January, the start of this year did not bring a change in the minimum wage. And the commodities, like beef, which are the chains' raw materials, ''continue to be stable or down,'' says Shearson/American Express Inc. analyst Bruce P. Beardslee.