Competition | February 2010 | By Sam Oches

The Value Equation

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Cardwell’s chain is also a player in the value-menu market, but at a price point that Subway and others are finding is a magic number in the recession: $5. Boston Market has 11 menu items on its $5 value menu.

Werner says that especially in the wake of the $5 footlong deal from Subway, brands have been flocking to the $5 price point. Domino’s released its $4.99 Oven Roasted Subs, Arby’s added $5.01 Combos for five of its sandwiches, and KFC rolled out $5 Fill-Up and Madden NFL box LTO options. Quiznos even challenged the $5 price point with its own $4 Torpedo sandwiches.

But the $5 price point, says Subway’s Pace, is nothing without chains putting their money where their mouth is.

“One of the keys to our success is that everybody else, after we launched $5 footlongs, basically said, ‘We have stuff for $5, too,’” he says. “And I don’t think consumers reacted all that well to that, because it wasn’t presented in a way where they talked about how their stuff was high quality.”

Though chains have pushed prices lower and added new options to their value menus, quality remains a key factor in perception of value. Nobody is going to buy a 99-cent burger that doesn’t taste like a burger.

“Value is function divided by price or cost,” Werner says. “Function for us is basically food quality. And the higher the value score, the better the food quality is at that given price point.”

A balance of quality and price has led some companies, like CKE, to offer premium options for lower prices, but to avoid calling it a “value menu” or charging only $1.

“Our positioning has been built around premium quality,” says CKE’s Haley. “Because we’ve spent a lot of time and effort building that positioning, our concern is that if we were to suddenly revert to offering low-quality, 99-cent fare, then we would undo a lot of the work that we’ve done, and would potentially confuse our positioning in some people’s minds.”

Some chains have avoided lower prices altogether and have let the quality of their concept do the talking throughout the recession.

“Value is function divided by price or cost. Function for us is basically food quality”

“Our focus on value is much more focused on providing a quality experience, quality product, and great service, and continuing to do that at a price point that people say … the combination of the experience and the food and the service all for that price point is a really good value,” says Rick Vanzura, chief operating officer of Panera Bread. “The customer is looking for a different value equation from us.”

Mohammed says that not only are customers interested in eating better food, but that today, in the latter half of the recession, they may be willing to pay more for it. He says many are suffering from “frugal fatigue.”

“Consumers will come and pay you more than that low price if you have a package of components that they feel tastes good,” he says. “As we’re emerging from this recession, you still have to have a recession option, but my point is to realize that customers may be willing to open up their wallets more, and if you want to make more profit, you have to find ways to serve these customers.”

Quantity

The notion that more food equals more value certainly comes into play at more than one chain. KFC, for example, directly challenged Subway’s $5 footlong deal with its $5 boxed meals that include an entrée, a side, and a drink.

“A $5 price point is one that consumers gravitate toward, and whenever they see an offer at KFC where they can get a full meal for that price versus just a sandwich is a pretty compelling offer,” says KFC spokesman Rick Maynard.

Wendy’s opted for a bigger package of value as well when it announced its Deluxe Value Meals LTO in November. For $2.99, customers could get the Crispy Chicken sandwich or Double Jr. Cheeseburger along with a small drink and small fries.

Boston Market’s Cardwell agrees that a low price isn’t necessarily going to bring customers charging through the doors.

“We’re finding that simply having $5 deals isn’t enough to turn people’s heads,” Cardwell says. “The ones that are popular have side dishes bundled in, drinks bundles in.”

But Werner says that quantity as value involves only more components, not more food. For the portion sizes that quick serves offer, he says the segment is playing a different quantity ballgame than casual-dining chains.

“There’s not a perception that you’re going to take something home after you’ve already eaten at the store,” Werner says. “Probably a rare exception do people come back and say, ‘Wow, that super-size fry is just a little too small for my liking.’”

Flexibility

The last aspect of value that consumers are increasingly wanting is the ability to be flexible with menu options. In other words, offering each of the components of combo deals at low prices and letting the customer decide what he thinks is a good deal.

“Guests for us at least have loud and clear told us what is not value,” Cardwell says. “It’s not always price. A lot of times it’s the ability to pick and choose the right quantity of food for the occasion.”

In December, Boston Market unpackaged its individual meals, which originally included a protein with two side dishes for $7–$8. Now it’s offering a protein for $5 and the ability to add up to three side dishes for $1 each.

“With a lot of research behind us we’ve found that for some people it’s too much food, and for some people it’s not enough,” Cardwell says. “But the guest feeds back to us that the value is much greater because they’re in much greater control over whether to get a little bit of food or a lot of food.”

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