Web Exclusive | June 2017 | By Danny Klein

A&W Hits the Comeback Trail

The iconic American chain is getting back to its roots, and the results are showing.
A&W root beer served in a frosted glass. It's what customers have come to expect—and demand—of the 98-year-old brand. A&W Restaurants
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There is one instance where Kevin Bazner enjoys living in the past. Five years ago, The Atlantic published an article on 10 companies it believed would suffer the same fate as the floppy disk. And No. 9 in the scorecard? None other than one of the nation’s oldest restaurant chains, A&W.

But Bazner, the brand’s former president who returned as CEO in 2011—right when the cauldron was hottest—doesn’t scoff at the story or wave it around as fake news. Truth be told, The Atlantic was right.

“Why did they say that? Because it was very true,” Bazner says. “The restaurant was too small to be viable—300-plus domestic locations, plus 317 overseas versus KFC with 5,000 stores. By that metric, they’re right.”

“But by our metric, they were wrong,” he adds of 98-year-old A&W. “It’s just the difference in how we looked at the business versus how Yum! looked at the business.”

That last part was something even the highest-powered calculator couldn’t crunch. A&W, to be frank, was drowning in Yum! Brand’s portfolio, which currently includes fast food stalwarts KFC, Pizza Hut, and Taco Bell. The company was purchased by Yum! in 2002 along with Long John Silver’s. What followed was a co-branding initiative that diluted the iconic chain in the minds of diners across America. At its peak, in the late 1960s, A&W had 2,400 locations and was as synonymous with summer roadtrips as RVs and Route 66.

A core group of franchisees purchased the brand in 2011 and asked Bazner, who worked with A&W from 1985—2002, to return. Naturally, store counts retracted and bruises were absorbed. But then, the wheel began spinning again. In February, A&W announced that it was growing for the first time in a decade. Systemwide revenue and locations were on the rise. Fifteen U.S. and 21 international restaurants opened in 2016 and 20 and 25 stores, respectively, were scheduled to debut this year. Sales at stand-alone stores rose more than 28 percent in the last five years. Even co-branded locations grew 20 percent.

One of the key factors can be credited to a decision made in those early days following the Yum! split. A&W struck a deal to remain a member of the purchasing co-op deployed by the fast foot giant—a platform essentially controlled by the franchisees of each brand.

“So we have the purchasing power of Yum!, yet we have 900 locations,” he says.

A&W has 632 U.S. locations and 335 international stores. Four are company operated. That tally excludes Canada units, which are owned by a separate company. If all goes accordingly, the brand will open more stores in 2017 than it closed—something it hasn’t done in more than 10 years. U.S. sales were $220 million in 2016. This was the first system store count increase in 11 years and first system revenue increase in 10.

When Yum! originally began shopping A&W, the deal appeared splintered. One ticket for the international stores and another for domestic. Bazner’s connections with the international side of things—a division he used to head up—however, helped turn the brand into a synchronized collection of 100 percent franchise-partner owned stores. The purchase was made between A&W’s U.S. franchise association and its largest international franchisee, from Indonesia. There are no equity groups (no “exit” strategy) and all decisions are made with the Franchise Association Board.

“The reason for that was to protect their interest as franchisees,” Bazner says. In other terms, A&W was going to be much better off run by A&W lifers and operators with only one thoroughbred in the race. “It wasn’t necessarily bad, it was just you have this small brand owned by Yum! Brands that they had made this decision to divest of,” Bazner says. “And frankly, it probably made that decision two to three years before it actually took action. And no one in that organization really wanted to be part of a brand they were exiting.”

“There were a lot of great people at Yum! at the time,” Bazner continues. “We sold them the business, we bought it back from them. Very smart, very talented people. But a very different scale of business. Just a very, very different scale of business.”

These days, A&W’s leadership is comprised of individuals who not only have 200 combined years of foodservice and franchise leadership experience between them, but roughly 140 years of that belongs to A&W.

Right away, Bazner says a room full of A&W purists pinpointed some glaring issues. Chief among them: It was time to fix the root beer. An A&W serving mediocre or even sub-part root beer is really no A&W at all. The company sells root beer 3:1 against other soft drinks, Bazner says.

Given that fact, the reality A&W was straying from its core was a major area of concern. Under Yum!, the root beer was going to bag in the box, brought into the stores, put into the mix machines, and dispensed just like everything else, alongside everything else. Seventy percent of the system was doing so, Bazner says.

But as of today, A&W is 100 percent back to making its root beer in-store, daily, from the original 1919 recipe. No preservatives or shortcuts allowed.

“The whole business that we’re in, the beverage business in quick service, is going to handcrafted,” Bazner says. “Well, we own the handcrafted beverage. The previous ownership was taking that away. So we started there.” This includes, in some cases, the continued rollout of a root beer draft arm in new stores.

In 2013, A&W introduced hand-breaded chicken tenders. Gone was the freezer-fryer product. Bazner says the company has grown that business more than 60 percent over the last three years on a per-store basis. The hot dogs are 100 percent all-beef. Burgers are 100 percent beef as well. “We’ve been going through our menu and getting back to made fresh, and then getting closer and closer to cooked to order,” Bazner says. In fact, the brand’s 2.0 concepts, located in Lexington, Kentucky, serve fresh meat, cooked to order.

Bazner says franchisees have expressed interest in developing the next-generation model but that A&W isn’t comfortable handing it off just yet.

There’s no denying the sales figures are backing Bazner’s initiatives. Compounded same-store sales grew 20.4 percent in the system from 2012—2016. Average unit volumes increased 34.6 percent in that time, which, simply stated, is the reason A&W is trending upward, Bazner says. “How do you grow?” he says. “You have your franchisees make more money.”

Forging ahead, A&W is targeting gas and convenience locations, as well as free-standing and in-line units. A system remodel program is also underway. There are some 30 active projects in the pipeline across all formats. Bazner says 107 co-branded KFC and A&W stores alone are scheduled for a facelift in 2017.

He points out an example in Junction City, Kansas, where a remodeled store, complete with brighter décor and a more substantial, more recognizable branding push, appreciated a 29 percent boost in sales following the change. One in Hermiston, Oregon, reported 12 percent gains. Wausau, Wisconsin: 19 percent.

Another vital Bazner checks on is social media, a channel where A&W is buzzing. The company tapped 13 brand ambassadors with a collective following of 2.7 million to spread the word. A cost of $1,200 has produced estimated value of $450,000, Bazner says.

“The brand had been neglected, so we set out to spread some A&W love,” Bazner says.

In Bazner’s comments at his first convention this go-around with A&W, he told the company’s franchisees that their days as a red-headed stepchild were over. “I said there’s noone here passing through to another brand,” Bazner says.

Five years later, all but one of those leaders is still with A&W. The outlier was a temporary employee.

“That has been our promise to everyone,” he says. “We’re going to keep showing our commitment to A&W and this brand. And, we believe, that’s going to be apparent to customers as well as our franchisees. This company will continue moving forward.”