Executives have tweaked Lenny’s menu and improved ingredient quality since Johnson bought the chain about three years ago, he says. The brand rolled out a new 5-inch sub meant to appeal as a lighter and more value-minded option. And the company has put more emphasis on its 15-inch Monster sub.
“There are people who find value in that size. It’s a quantity value,” Johnson says. “Lots of people say, ‘Hey that’s a great offer. For $10.99, my wife and I will split that thing for dinner or for lunch.’”
Johnson says he’s more interested in the company’s total experience than the bottom line when comparing Lenny’s to the competition. And with three sandwich sizes ranging from $4.45 to $11.49, Johnson says, the sandwich chain is well positioned to appeal to a variety of consumers who hold varying views on what exactly value is.
“That’s a pretty big range. Somebody has an option to pick a menu item, a size, and a price that fits them,” he says. “They find ways to get the value they need out of our offer.”
Kurt Schnaubelt, managing director at global consulting firm AlixPartners and co-head of the company’s restaurant and foodservice practice, says value is still a primary consideration among many customers. But in its surveys, AlixPartners has found that consumers don’t necessarily think about value in terms of low prices.
“Value matters to the consumer. It always has and it probably always will,” he says. “And when you say value, the No. 1 thing the customer mentions is quality.” Next to overall quality, consumers point to the quality of ingredients and portions as being key to value. Schnaubelt says quick-service operators should focus on execution and food quality first, and only squeeze their margins in other areas when necessary.
While fast-food concepts advertise heavily on price, fast-casual concepts are largely able to sidestep the price conversation, allowing their product quality to stand on its own. And lower prices in that segment might actually deflate consumers’ perception of value.
“Point one is that fast-casual players have got to be exceedingly careful to not underprice their value proposition,” Schnaubelt says. “Essentially, the fast-casual players have come out and said we’re a better quality product than you can get at some of the fast-food players. … If they drop that price down, it starts to dilute that value proposition.”
Some traditional fast-food chains may be able to replicate some of fast casual’s success by offering more premium products, Schnaubelt says, but it will have to be at more premium prices. He says that a traditional quick-serve brand could face the risk of being undercut on price by another fast-food brand.
“You have some very, very large and powerful companies in [quick service],” he says. “And if they choose to take a strategic approach on their menu to offer a huge value and higher-priced items that get them into that $8 per-person average, if that’s successful, they’re going to pose a very significant threat to fast casual. We haven’t seen that yet. We’ve seen some dabbling from the quick-service guys.”
Lately, a sort of in-between zone has sprung up between quick service and fast casual when it comes to value. Some operators have pledged to offer fast-casual quality at a more traditional quick-service setting and price point. For example, Loco’l, spearheaded by celebrity chefs Daniel Patterson and Roy Choi, opened this year in Los Angeles, serving high-quality meals with $5-and-less prices. Patterson and Choi hope to replicate the model across the country.
Meanwhile, the three-unit Bryn & Dane’s in Philadelphia offers healthy food at prices closer to a fast-casual concept, but with the convenience and speed of its drive thru, is more reminiscent of a traditional fast-food joint.
The concept, which plans to double its footprint in 2016, is centered on offering full meals—a wrap or salad, plus a side and drink—for about $11, says founder Bryn Davis. By leveraging quality with its offering of local and healthy food, Davis says, Bryn & Dane’s is able to pull off higher-than-average prices and still communicate value.
“There’s no math problem. I don’t want to be more expensive than our competitors, but naturally we are. We can get away with a $10.99 meal, but our competitors are nowhere near that,” Davis says. “I would feel uncomfortable selling anything for under $1, because I know it would be so low in quality.”
While Bryn & Dane’s can’t match McDonald’s or Burger King on price, Davis says it can compete with convenience. He says the brand competes with fast casuals for dollars and competes with fast food on convenience.
“It’s a huge convenience factor. That’s the most important thing we think about: how can we make it as easy as possible to be healthy,” he says. “It’s very convenient if you have those ideals. We’ve changed a lot of things about ourselves. I’ve always wanted to be healthy fast food, but have items that are more traditionally aligned with traditional fast food.”
Davis says customers are willing to pay more when pricing is transparent. And they like having control over how much they pay. So customers of Bryn & Davis can choose to pay slightly more for certain proteins like a vegan meat replacement or a black bean burger.
“As long as we communicate that we put the leg work in, people are OK spending slightly more money,” he says. “And if they don’t want to, especially with our proteins and such, they can choose not to put it on there. If they don’t want to spend that extra money, they don’t have to.”
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