Some companies came through the recent recession with flying colors. In the fast-food realm, McDonald's (MCD, news, msgs) was a victor. But in a time of pinched consumer spending, business has frequently been a zero-sum game.
In every sector, it seems, if there's a winner, there's got to be a loser. And in the fast-food industry, it sure looks like Arby's has been one of the losers of this recession.
Arby's was started in Ohio in the 1960s. The name is, of course, a play on roast beef, and on the names of the founding Raffel brothers. (The conceit of this ad in the early 1980s -- that Arby's stands for "America's roast beef, yes sir!" -- never really caught on.) In the 1990s, the company was acquired by Triarc, the investment vehicle of takeover artist Nelson Peltz.
And in 2005, Triarc acquired the largest Arby's franchisee. Today, there are more than 3,700 restaurants, with ownership split between 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 seemed to fall into recession before the rest of the country did. In 2007, when the economy was still expanding, sales were essentially flat, as the then-parent company's 10-K shows. Once the national slowdown took hold, sales began to fall sharply.
Most retailers and restaurants measure progress by growth in same-store sales -- how much product a store that's been open more than a year is moving today compared with the year before. For the past seven quarters, same-store sales have slumped at Arby's. In 2008, they were down 1.6% in the first quarter, 3.2% in the second quarter, 5% in the third quarter and 8.5% in the fourth quarter. Things have gotten worse this year, with same-store sales falling 8.7% and 6.9% in the first and second quarters, respectively.
Last week, the company reported third-quarter sales. In a period in which the economy was expanding, Arby's turned in its worst performance in recent memory. Same-store sales were off 9% from the year before, and operating margins at the outlets owned by the company fell sharply.
More from MSN Money and Slate.com
What gives? At some chains, a reduction in same-store sales can be chalked up to discounting. If the prices of your offerings are falling or people are spending less -- if they're just getting the french dip and forgoing the potato bites loaded with bacon (though, really, if you're going down this road, you might as well go whole hog) -- then stable traffic would still lead to sales reductions. And Arby's is clearly doing some discounting. On Saturdays and Sundays, you can get five regular roast beef sandwiches for $5.
Video: Denny's volunteers for burger wars
But Arby's hasn't done much to break away from the crowd. Clearly, it has been laboring in a difficult environment. Its operations are concentrated in economically depressed areas. The chain wasn't exactly thriving before the recession. It can't compete with the big boys (or perhaps even with Big Boy) when it comes to brand awareness, presence or advertising dollars. And now it's the junior partner in Wendy's/Arby's. But the chain doesn't seem to have taken the types of actions that other, more-successful chains have.
Not an easy assignment
While it does offer turkey sandwiches on something approximating wheat bread, Arby's doesn't seem to have made much of a nod to concerns about healthful eating and nutrition, à la the McDonald's salads. I can't recall a memorable recent Arby's ad campaign. The chain lacks the killer nonmeat app -- the french fries at McDonald's, Burger King's milkshakes -- that bolsters margins and ropes in noncarnivores.Perhaps most significantly, the meat of the business isn't particularly good. On Friday, I stopped into an Arby's for the first time this millennium. It was clean, and I noticed an array of products beyond the bare-bones menu I recall from my Midwestern youth. I may be a food snob, but I'm a nondiscriminating connoisseur of street food and greasy fare who still makes the occasional run for the border at Taco Bell. But even I had difficulty completing the reporting for this assignment. Forget about salads and vegetables.
As I scoured the menu -- the gyro, the french dip, the patty melt -- I had difficulty identifying anything that had gone through less processing than uranium. A few bites of a roast beef sandwich slathered with goopy cheddar sauce and I was done. On the food chain, the thinly sliced beef is about as far from Boar's Head deli meat as Boar's Head oven-roasted ham is from the vaunted jamón Iberico.
Rate this Article
High
