Industry News | August 3, 2012 | QSR Exclusive Brief

After the Sale: Arby's One Year Later

It wasn’t too long ago that things were looking grim for Arby’s, a 48-year-old quick serve known for its famous roast beef sandwiches. In 2010, sales from stores open for more than a year dropped 5.8 percent from the previous year, playing a hand in the $4.3 million loss seen by parent company Wendy’s/Arby’s Group Inc.

So when the brand was put on the auction block last summer and eventually sold to Roark Capital Group—an Atlanta-based private equity firm that specializes in investing in franchised companies and brand building—for $430 million, many industry analysts felt little shock.

Luckily for Arby’s, however, this acquisition might be the best thing that’s ever happened to it. After seven consecutive quarters of same-store sales growth, it looks things are finally looking up for the brand thanks to its hard work over the last year.

The first order of business: getting the brand back on track product-wise. “I think Roark saw in the brand what I’ve always known about the brand for a long time,” says Hala Moddelmog, president of Arby’s, who returned to the brand for the third time in May 2010.

“I’ve always known this was a brand whose essence really lies in product development and new products,” she says. “People are very excited about the food.”

Unfortunately, Moddelmog says the brand had “lost its way” for a time and was failing to introduce new menu items at the rate that it once did. To remedy this, the brand launched a successful Angus product line, featuring items like the Ultimate Angus Beef sandwich and the Angus Three Cheese and Bacon sandwich.

It also brought back several tried-and-true favorites customers loved, like the Market Fresh Pecan Chicken Salad and Reuben sandwiches—limited-time offers that Moddelmog says helped to quickly drive profits.

For the future, Moddelmog—though she’s eager to keep details under wraps—says consumers can look forward to a brand new food platform that will launch in September (she does reveal, however, that it’s going to be “big and fun” and turkey-related).

Moddelmog adds that the brand is currently working on simplifying the menu to make it easier operationally, clearer the consumer, and prepped to incorporate these new products.

Another element that Arby’s is currently focused on in its effort to refresh, rebrand, and revitalize is restaurant design. Moddelmog says consumers are begging for a look that’s new, fresh, and sparkling, and Arby’s wants to give it to them.

“We’re a 48-year-old brand, which means by definition we have some facilities that need to be updated,” she says. “It’s about looking and feeling and being just a little more modern.”

Though she’s keeping tight-lipped, Moddelmog says the redesign will be revealed to franchisees at its annual conference in October, and the first few units will roll out before the end of the year for testing.

She says the redesign is sure to lend an extra boost to the brand’s—and franchisees’—bottom line. “We’re going to get significant sales increases,” Moddelmog says. “I’ve been in this business a long time, and luckily I’ve never been involved yet with a remodeling program that didn’t certainly pay out and pay for itself.”

Perhaps the biggest revitalizing effort Arby’s is putting into play is its refranchising program for the chain’s 3,500 stores, 30 percent of which are company-owned.

“Although we certainly intend to keep a healthy number of company-owned restaurants for our own purposed and for testing products and testing remodels, one of the strategies that we have is refranchising,” Moddelmog says. “That is another way to refresh the brand, to bring some new energy, some new blood.”

The brand recently signed its first refranchising agreement with Guillermo Perales, a franchising “legend” whose 390-restaurant portfolio includes quick serves like Popeyes, Burger King, and Del Taco.

Perales purchased 51 company-owned locations in the Dallas/Fort Worth market and plans to open an additional 15 new Arby’s units in the area over the next five years.

While Moddelmog says Perales is a “truly focused franchisee” who “really makes it happen in his markets,” she says it was his philanthropic bent that made him such a strong candidate.

The brand is in its second year of partnering with Share Our Strength and the No Kid Hungry Campaign, raising an estimated $2.2 million for the organization last year. For 2012, Arby’s has a goal of raising $3 million in an effort to end childhood hunger.

Moddelmog says Perales shares this mission by donating 5 million certificates for kids’ meals every year.

“It was just almost serendipitous that our brand morality around trying to make sure that no kid goes hungry in America was something the Guillermo was focused on as well,” she says. “We couldn’t be prouder of that partnership, and it’s just a great way to kick off our refranchising strategy.”

During the remainder of 2012 and 2013, the brand will continue focusing on refranchising to capitalize on underpenetrated markets that have room to build out, Moddelmog says.

Whether its fresh food, new franchisees, or an updated design, it all comes back to the idea that Arby’s is looking to refresh the brand while staying true to its roots.

“One of my fun things about getting to lead the brand these days is that I’m working with the sons of the fathers that I worked with back in 1981,” she says. “We do consider what we’re working toward to be the modern day sandwich shop and to honor our heritage.”

By Mary Avant