There’s been some industry chatter lately of “getting to the other side.” Hold fort on price, as much as possible, and withstand soft traffic until consumer confidence rebounds on the downslope of inflation. It’s not an unfamiliar story. A&W has been around 105 years and navigated two pandemics, the Great Depression and Recession, and countless economic and societal twists along the way.
Yet a more recent reality (relatively speaking), CEO Kevin Bazner says, allowed it to rise above the present climate.
In 2011—13 years ago might be a long stretch for some, but it’s a blip for A&W—a core group of franchisees purchased the brand nine years after Yum! acquired it along with Long John Silver’s. Bazner, a A&W pillar from 1985–2022, was asked to return.
With that switch arrived a long-view quality positioning the company, naturally, had no clue would insulate it as fast food became a “luxury,” as some surveys have suggested, in the eyes of cash-strapped consumers. The gap between food at- and away-from-home (the latter continues to outpace the former) led to check management and guests replacing meals where they could. According to recent data from Revenue Management Solutions, U.S. quick-service traffic declined 2.1 percent, year-over-year, in August—a slight improvement from negative 2.5 percent in July. However, quick-serves are staring down more than a year of negative figures at this point; 2023 traffic dropped 1.3 percent from 2022.
Meanwhile, net sales were positive at 2 percent and quantity per transaction up 0.5 percent. August average price for quick service rose 3.8 percent (the same as July) and average check 4.1 percent, year-over-year. Per RMS’ Q2 consumer survey, a record number of respondents reported paying “much higher” restaurant prices, particularly those earning less than $50,000—30 percent noted prices higher compared to just 20 percent in Q1 2024.
So returning to A&W, same-store sales through the first half of 2024 climbed 3.7 percent, Bazner says, with 4.2 percent price. The second quarter, as was the case for many brands, was a bit softer than the first—roughly 4 percent versus 3.5 percent. Transactions recorded slightly negative, year-over-year.
The fact A&W sat above the line, though, was something Bazner says speaks to A&W’s standing in today’s value-frantic market and why the brand is poised to collect momentum into the final half of the year and beyond. And it goes back to that 2011 notch in the timeline.
Bazner and new ownership’s top point for A&W was to plug into nostalgia. That started with a quality mindset and “evolution, not revolution” directive centered on amplifying A&W’s core equities. It wanted to remind generations of its differentiators—it had some 2,400 locations back in the 1960s.
Namely, A&W moved away from streamlined changes, like root beer going bag in the box, into stores, into mix machines, and dispensed alongside other options. All units returned to making root beer by the venue, daily, from the original recipe. A&W sells root beer 3:1 against other soft drinks. There likely isn’t another restaurant chain in America that can relate.
Bazner refers to this overall vision as “quality is our long-term value proposition.” That means a $6 hamburger. Hand-breaded chicken. Food made fresh-to-order and leaning into what customers give A&W credit for.
The company really hasn’t gone after the hyper-value-focused consumer since its acquisition, at least not from a national standpoint. It has local specials and offers where appropriate, but the broader messaging remains to deliver value against expectation—what it’s worth more than what it costs. “I think that as hard as it is sometimes to stick to strategy, that strategy we feel very strongly continues to pay off for us as a brand,” Bazner says, “in that we outperform our segment of the industry.”
And another reality is A&W is not McDonald’s, or Burger King, or one of the other industry giants that can offset discounting efforts with deep media coffers that fuel transactions to balance the margin hit. There isn’t a path to becoming a low-cost provider. That’s one reason A&W found success in holding steady. Or to put it differently, the brand isn’t strongly dependent on the customer so many quick-serves are now courting.
An example: A&W launched a French Onion Double Cheeseburger over the summer that included two third-pound beef patties, layered with grilled onions and Boursin cheese. It ran for $6 and $10 for the combo. The LTO outperformed internal forecasts.
Customers came for the innovation more than the price.
But A&W hasn’t sat idle through recent years, either. The brand’s stabilizing force during COVID, unsurprisingly, was the drive-thru, as well as its “drive-ins,” of which there are 43 or so. Interestingly, the drive-ins with carhops serving guests at vehicles, did even better—a sign, Bazner says, people enjoyed experiential options during lockdowns.
Yet what the brand didn’t participate full force in along with the rest of the industry was delivery. It’s just now coming into that channel.
Bazner recalls a 2019 IFA conference where franchisees were abuzz over the costs of third-party providers. Franchisors wanted to allow operators to take higher price than they were selling in-restaurants. It sounded radical at the time. Here we are five years later, however, and that line of conversation is well behind us. Commissions have moderated some; negotiations are part of the leverage equation; but, by and large, restaurants have accepted they dive into third-party for the reach and pass along the cost to consumers.
Bazner doesn’t consider being late to the game a negative spin. A lot of the front-line learnings of the past few years were already there for A&W to mine. It’s helped it accelerate, he says.
The foundational piece was rolling out a centralized point-of-sale system. A&W had to get orders off tablets and directly into the POS. Internet bandwidth was upgraded locally in many cases, although some rural spots still don’t have aggregator access (about 15 percent of locations) simply due to where they’re located.
Additionally, on top of online ordering, the POS unification unlocked other channels of trade, like kiosks. Those are producing higher check averages as they suggestively sell with consistency and visuals, Bazner says.
Bazner reflects that some of COVID’s flashiest pivots, like ghost kitchens (serving root beer in a frosted glass from an off-site facility never fit the brand) haven’t quite endured as expected. Delivery has. And turning that on was partly to credit for A&W’s positive comps in first-half 2024. “The bad news there is we’re late to the game. The good news there is the upside that we’re getting from it is all new to us,” he says. “We’re not lapping over, ‘OK what are we going to do next?’ It’s all new business for us.”
It’s been a methodical process. A&W is just a few weeks into targeted online ordering advertising. That overall system began flowing out about a year ago. With third-party delivery, it’s seeing sales north of 7, getting to 8 percent, into the high-single digits before advertising (which, again, it just started).
And it’s been incremental, as Bazner mentioned. That was a customer A&W didn’t have.
COVID also helped train the guest on another corner of delivery: direct. They learned through inflation and parity the benefits of going white-label when possible, he says.
Bazner adds A&W has seen that percentage shift favorably, too, “which speaks to the value that the consumer is looking to save a few bucks.”
The brand is revamping digital properties with a year-end launch on deck to better support the movement.
And as these store-level upgrades continue, A&W has begun to grow again. Development came to a standstill in the spring of 2020 after three years of expansion that brought the concept back to positive net store count—an achievement that hadn’t happened in roughly a decade. Essentially, growth halted for the better part of three years. A&W also lost a number of non-traditional locations—those in malls, food courts, airports, etc.—where foot traffic was critical.
For systemwide single-brand outlets, A&W grew by two locations in 2023, year-over-year, to reach 214 restaurants. There are two company stores as well. In 2022 and 2021, it shed nine and 11 franchise locations, respectively. Co-branded units (a model A&W has worked away from since the sale) declined by 34 in 2023 after back-to-back years of declining by 16 net stores.
So A&W’s co-branded footprint has shrunk 66 units in the past three years to exit 2023 at 243.
All in, as of December 31, 2023, there were 455 franchised A&W restaurants in the system.
Reporting freestanding restaurants (56 counted) generated average net sales of $1.299.6 million. C&G restaurants (53) averaged $785,264.
Bazner says the brand’s overall financials are “significantly” more competitive than they were four or five years ago. This resulted in heightened interest from prospective operators, especially multi-unit franchisees, with a focus on the upper Midwest.
A&W has been solely focused on its single-brand business and that’s what’s going to ramp up. Bazner also expects non-traditional to get back alongside openings such as travel plazas, truck stops, second-gen properties, and food courts. Additionally, A&W opened its first Walmart location in Arizona and recently added one in South Carolina. That model is still early innings but could have runway, he says.
“Our biggest message out there today is we’re really building new restaurants, both domestically and internationally,” he adds. “We’ve got a lot of whitespace for development.”
