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Restaurants Bulk Up Sales with 'Barbell' Pricing

Discount and premium items appeal to both ends of consumer spectrum

McDonald's credits its Dollar Menu with helping the chain produce a string of same-store sales increases. But while McDouble burgers and McChicken sandwiches attract some customers, Dollar Menu sales comprise only 14 percent of the chain's sales, says Danya Proud, spokesperson for the Oak Brook, Ill.-based chain.

Premium products purchased by other patrons produce that share and more of its total revenue, she adds.

The Dollar Menu "is a big deal, but it would be a mistake to think that's the only thing driving the business," Proud says. "It's important to look at it holistically, not just at the Dollar Menu. There's balance there, and value is seeded throughout our menu."

Finding that balance isn't easy, operators say. Properly priced quick-service menus tend to offer equal amounts of bargain and premium offers -- known throughout the industry as a "barbell" menu strategy. If disproportionate weight is given to one, you risk alienating some customers, says Lynn Liddle, executive vice president of communication and investor relations at Ann Arbor, Mich.-based Domino's Pizza.

"You have to have something along the continuum for each customer type," Liddle says. "You can't be a one-trick pony and just do bargains. There have to be more things going on."

Liddle admits Domino's hasn't nailed the perfect pricing formula, so the 8,000-unit chain supplies a broad range of choices and price options. She says profits are made when Domino's hooks customers with affordable specials and steers them to buy add-ons.

"They'll start with three medium pizzas for $5," she says, "but then we can upsell them. Somebody orders two or three extra toppings, an order of Cinnastix and a [soda], and it goes up from there."

When Au Bon Pain in Boston introduced its Portions line last March, prices ranged from $2.99 to $3.49 -- $2 to $4 less than most of its other items -- and that initially made some executives fearful ticket averages would drop. But marketing vice president Ed Frechette says the opposite occurred. Customers bought multiple Portions for a meal, or one or two as add-ons to larger items.

"Our ticket average has held, even in this economy," Frechette says. "People are not trading down because of Portions; they're not substituting them for more expensive items."

ABP's check average is about $8.50, Frechette says.

Still, he insists, Portions' low prices provide a great entry point for those consumers trying the brand for the first time and for variety seekers.

"It gives them choices, which is exactly what we intended to do," he says.

Rob Poetsch, spokesman for Irvine, Calif.-based Taco Bell, says the chain's Why Pay More menu -- items are priced from 79 cents to 99 cents -- does draw hard-core bargain hunters. But a larger number of customers treat the menu's items much like side items.

"The bulk of our orders have more than four items on them…and more than two-thirds of our customers buy menu items off the Why Pay More menu," Poetsch says.

The fact that Taco Bell sells 2 billion Crunchy Beef Tacos annually prompted it to add the item to the Why Pay More slate for 89 cents.

"By moving that onto the Why Pay More menu, the majority of our orders now [include] a Crunchy Beef Taco," Poetsch says.

Not all chains have adopted a barbell menu strategy, however. Brad Haley, executive vice president of marketing for Hardee's and Carl's Jr., the two quick-service brands owned by Carpinteria, Calif.-based CKE Restaurants Inc., insists those chains won't play the deep-discount game, despite their competitors' success.

"We can't position ourselves as serving high-quality food and sell it for 99 cents," he says.

Both brands' Six Dollar Burger lines appeal to customers who believe they're getting a value for the money, he adds.

Haley says both chains offer occasional bargains, such as two burgers for $3, but they rarely promote them beyond window posters in hopes customers will forget about them once they're inside.

"Those items aren't even promoted on the menu board because we want them to see our premium items," Haley says. "We don't have a lot of things you can get for a buck, but we do have some good items at two for $3. Other than that, we stick to what's worked."

(Source: Nation's Restaurant News, 01/26/09)

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