Published on Quick Serve Leader (http://quickserveleader.com)
An Arby’s Comeback: Insight Points to the Awakening of a Giant [Analysis]
The recent acquisition of Arby’s by Atlanta-based Roark Capital has a flurry of pundits chomping at the bit. What does it mean to the QSR landscape? What are its next moves in its brand positioning?
Having spent the past couple of decades refreshing its look and revising its messaging, Arby’s, with more than 3,600 stores globally, appears poised to be the comeback kid. Same store sales posted a moderately strong increase of 4.4 percent in its most recent quarter, but the two-year blended results showed an approximate 3.5 percent decrease.
In the fast food category, the Wall Street darling has been McDonald’s, with its focus on beverages and the McCafé experience. Its results have been impressive. In its most recent quarter, the quick serve giant posted a surge in sales of 5.6 percent, on top of a 4.8 percent spurt last year, and EPS growth of 11 percent.
Competitors like Hardee’s and Carl’s Jr. have been on a tear and posting strong results. Same store sales at Hardee’s, a large sandwich competitor also offering roast beef, burgers and sandwiches, surged 9.6 percent for the most recent quarter. (The two-year quarter-over-quarter blended rate was approximately 4 percent.)
Hardee’s, with about half as many QSR units and once known for its own roast beef offering, has focused on premium burger experiences and a menu revamp of its own, as of late: A wider array of healthy options, including tirmmer and low-carb wraps, revamped design, and elements of its sister brand (Carl’s Jr.) in the lucky star.
Other competitors are in the national roast beef category, including Roy Rogers, Buona Beef, and Al’s Beef, to mention a few. Additionally, sandwich chains, such as Quiznos, Jimmy Johns and even Subway, also compete in the space, according to data from Technomic, a Chicago-based research and consulting firm .
Roark Capital Provides Opportunity, but Challenges Prevail
Roark Capital’s expertise in franchising will breed new life into Arby’s. The deleveraging of its related debt along with a contingent commitment from Roark for an additional $50 million in operating capital, according to the terms of its 81.5 percent purchase, will help Arby’s cash flow.
Along with Focus brand portfolio companies like Schlotzky’s and Cinnabon’s, Roark owns the McAlister Deli, Il Fornaio, and fast casual Corner Bakery concepts .
“Last year Arby’s renovated 100 restaurants,” says Arby’s Restaurant Group President Hala Moddelmog. “We’ll determine how to move forward with integrating ‘Arby’s It’s Good Mood Food™’ elements into the buildings,” she says.
According to an Arby’s representative, over half of the stores have been remodeled in the revised Pinnacle design. However, challenges loom for the brand when compared to Hardee’s and Carl’s Jr., both undergoing An Arby’s Comeback: Insight Points to the Awakening of a Giant [Analysis] http://quickserveleader.com/print/article/arbys-comeback-insight-points-… 1 of 4 1/19/2012 9:37 PM an integrated messaging and design overhaul. Burger King, another fast food competitor entrenched in its own redesign and experimentation with its hip ‘Whopper Bar,’ has combined elements of the messaging into its exterior. The burger chain, most known for its iconic Whopper, and recent ad campaigns spotlighting its ‘King’ and ‘Subservient Chicken,’ retained Interbrand Design Forum, a retail brand consultancy  based in Dayton, Ohio.
Interbrand’s clients include Au Bon Pain , Pollo Campero, Panda Express, and Papa John’s.
“The program related to the ‘Have it Your Way’ brand promise, which was focused on the product and the irreverent ad campaign that created an emotional connection with the brand’s target audience,” says Justin Wartell, Director, Brand Strategy, Interbrand Design Forum.
Wartell notes that remodel efforts need to be paired with broader updates to the complete brand experience. When all of the expressions of the brand communicate the same powerful message, a redesigned restaurant can serve as the “crescendo” of the brand experience when current or new visitors walk through the door.
He offers up lessons from the Burger King experience, saying there needs to be a willingness to be bold “not just in terms of what you do and say, but in how you rethink the history and heritage of your brand.”
“A big lesson is a willingness to be bold ─ not just in terms of what you do and say, but in how you rethink the history and heritage of your brand.” Justin Wartell, Interbrand Design Forum.
Aside from growth opportunities, expertise in engaging the franchising community for an accelerated pace in its refresh program may come sooner rather than later. Franchising is what Roark Capital does best, along with bringing administrative efficiencies and cost savings to bear.
“Roark is well known for their expertise in franchising, restaurants, and brand building,” says Moddelmog. “We look forward to benefiting from their strategic view of our brand.”
But grow Arby’s will. Moddelmog notes that domestically, the concept will add 30 units before the year is out, and she’s pursuing the military trade channel aggressively. She points to Arby’s relationship with the Army and Air Force Exchange Services. “Through AAFES, we’re now reaching a strong consumer group—that of the military and their families,” says Moddelmog.
Internationally, a deal in Turkey with Tab Gida will see the opening of 100 stores, with 20 already open. After an integrated redesign and remodel effort, the sky is the limit.
Additional data from Technomic shows a dearth of stores in New England with only five in Massachusetts, and a lack of presence in the states further north.
For many foodservice franchisors, there has never been a better time to sell franchises,” says Mark Siebert, CEO of IFranchise Group , based in Illinois. He adds that the real estate landscape is much improved and has seen an increase in more open and flexible landlords.
In a recent interview with Quick Serve Leader, Jim Vinz, President of Corner Bakery, another portfolio company , noted that Roark has a way of ramping up growth for its restaurant companies and doing it with dignity. Most would bet on Roark.
Most franchisees want to see what is on the horizon and they felt that the direction previously did not demonstrate that Arby’s was up to the task,” says John A. Gordon, Principal at Pacific Management Group, a consultancy firm based in San Diego  that specializes in earnings, economic, and financial advisory services.
“Distressed franchisees must be coached upon and shown a viable exit plan. Smaller viable franchisees need to get bigger. Some underperforming markets should be closed,” he says. Gordon suggests that cash be invested in incremental advertising that is broad in reach, site review/selection, and the assessment of franchisee presence in select underperforming markets.
“A Roark-backed CAPEX (capital expenditures) and recapitalization funding pool seems necessary,” says Gordon.
Arby’s in a Good Mood
Brands should focus on understanding customers and what they desire, identifying key touch points and how they should be deployed, and using resources to help deliver against organizational business goals.
The current campaign of ‘Good Mood Food™’ for Arby’s may be the dealmaker. How the brand integrates its messaging into its design and roots through a commitment from top leadership will make all the difference with consumers.
“Burger King is a great example of moving in that direction,” says Interbrand’s Wartell. He says, “Restaurants, uniforms, packaging, web, mobile—they all delivered a new aesthetic that tied back to the heritage elements of the brand.”
Beyond the messaging, all bets are on the new design and how much Moddelmog can revitalize the brand with Roark’s perspectives and insight.
“You can spend a lot of money. Clearly, you don’t have to,” says Tom Kowalski, VP of Design for Interbrand Design Forum.
The exterior pinnacle design sends overwhelming fast food cues that are a turnoff to customers looking for a more up-scale fast-casual environment. Red window mullions, red canopies, and red plastic signs tell customers this is more of the same old slick plastic fast food experience, notes Kowalski.
The interior is actually more in line with what consumers are looking for. The palette is reminiscent of Panera, but lacks any distinctive personality. There is not much that expresses the unique qualities or brand attitude of Arby’s inside or outside the space. This is not another burger chain. Arby’s has a somewhat differentiated offer, but the experience is not cohesive or aligned with who they are.
But Arby’s strides are significant thus far under Moddelmog, and few QSRs have been this well positioned to succeed. The average check is higher than most because the brand doesn’t reflect a national all-day part strategy.
Hardee’s positioning with a late night menu, drive-thrus that are often 24 hours, and a cohesive breakfast strategy may be fine points to mimic as Arby’s comes out of its 1980’s cocoon and continues feeding off the momentum from its president’s initiatives.
Several of the initiatives contributing to positive sales and transactions include Arby’s new advertising campaign, ‘Arby’s. It’s Good Mood Food.™’, says Moddelmog. The Angus line of sandwiches and the value meal are additional boosters, she adds.
Copyright: Kandessa Media . All rights reserved. Franchise & Licensing Copyright Kandessa Media. ©2012. All works published here except for shared media, licensed material or advertisements, are protected intellectual property of the publisher. All rights reserved. Kandessa Media, founded in 2009, is based in Boston. Source URL: http://quickserveleader.com/article/arbys-comeback-insight-points-awakening-giant-analysis Links:  http://quickserveleader.com/sites/default/files/arbys_pinnacle_2_-_kandessa_media_0.jpg  http://quickserveleader.com/technomic  http://quickserveleader.com/article/corner-bakery-cafes-double-heels-roark-acquisition-chaineyes-northeast  http://www.interbranddesignforum.com/portfolio/burger-king/  http://quickserveleader.com/article/au-bon-pain-expands-cafe-remodel-program-strategizes-nationalmakeover  http://www.ifranchisegroup.com/  http://quickserveleader.com/article/qa-corner-bakerys-president-vinz-brand-building-and-deliveringconsistency  http://www.pacificmanagementconsultinggroup.com/aboutus.html  http://quickserveleader.com/kandessa An Arby’s Comeback: Insight Points to the Awakening of a Giant [Analysis] http://quickserveleader.com/print/article/arbys-comeback-insight-points-… 4 of 4 1/19/2012 9:37 PM