Arby’s sees gains under new owners

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Arby’s sees gains under new owners

Earlier this month, Arby’s gave away almost a million hot turkey sandwiches in two hours in a national promotion introducing the addition to its menu.

But for the 48-year-old Atlanta-based company, known for its roast beef, the gambit reflected a desire to re-establish its brand with consumers as much as make them aware of a new option on the menu.

Fourteen months after becoming a standalone, privately-heldchain, Arby’s is fighting to regain some of the momentum company leaders say it lost when it was part of the Wendy’s/Arby’s Group.

It’s first mission: reverse a sales decline. Same-store sales rose 4.9 percent in 2011 over the year before, said Hala Moddelmog, president of Arby’s Restaurant Group. That’s a switch from 2010, when same-store sales fell 5.9 percent and the company was seen as a drag on Wendy’s/Arby’s.

Moddelmog expects Arby’s same-store sales to increase for 2012 as well.

That’s important because, although as a private company it no longer has to meet Wall Street’s quarterly expectations, new owner Roark Capital Group still expects it to be profitable, said Tim Calkins, a clinical professor of marketing at the Kellogg School of Management at Northwestern University.

While having public stockholders can boost pressure for short-term improvement, “being private isn’t necessarily a solution,” Calkins said. “Some private owners push for quick results just like the public markets.”

Roark, an Atlanta-based private-equity firm, took the company private after buying 81.5 percent of Arby’s on July 4, 2011 for about $130 million in cash and assuming $190 million in Arby’s-related debt. Wendy’s retains 18.5 percent of the company. The two chains had merged in late 2008.

“We say around here that July 4 is our Independence Day as well as the country’s,” Moddelmog said.

To turn the brand around, the company also needed to be more innovative. Before severing ties with Wendy’s, Arby’s did less menu and pricing tinkering than Wendy’s, which was 70 percent of the combined businesses, Arby’s leaders said. For instance, Arby’s did not develop a $1 menu to meet the growing distress of consumers until late in 2010, two years after the U.S. economy tanked.

“We frankly did not have a value menu during the greatest downturn in QSR (quick-service restaurant) history, which we have now fixed,”Moddelmog said. “And our brand was not as defined, even if we’ve been around for a long time.”

The company has since focused on remaking its menu with new items such as the hot turkey sandwiches, closing underperforming stores and aggressively signing new franchise agreements, including a July deal in which Dallas-based Sun Holdings Inc., bought more than 50 company-owned Texas stores and agreed to open 15 more in the state over the next five years.

Arby’s also brought back popular items such as the Reuben and seasonal Market Fresh Pecan Chicken Salad sandwiches and launched a new advertising campaign. It plans to redesign stores nationwide.

The ability to focus on issues without the pressure of public shareholders will be critical to the company regaining its footing, said Harold Shumacher, owner of the restaurant real estate firm The Shumacher Group.

“When restaurant companies become public companies, there is a change in mentality,” he said. “It switches from the longer-term, ‘Let’s build results mentality’ to ‘Let’s meet expectations.’ ”

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