I understand the motivation for not wanting to discount. It hurts margins and could put the company’s brand positioning at risk, particularly once the economic environment improves. Holding the line on value in the near-term, however, is going to continue to put pressure on Carl’s Jr’s sales performance relative to its competitors. As I have said before (please refer to my March 26 post titled “Is Market Share Shifting?” and April 24th “fighting Back”), I think that given the current casual dining discounts, the big market share shifts to QSR from casual dining are likely over. With casual dining restaurants offering more competitive value options, it will become increasingly more difficult for QSR players to win market share with premium-priced menu items.
I think this is made clear by Carl's Jr's declining traffic trends. On a two-year basis trends did improve, but the chain continues to lose market share.
The issues at Carl's Jr. have been magnified by today's more challenging environment, especially in California. Looking at the concept's same-store transaction growth trends, 2-year average trends have been negative for some time now, highlighting the fact that trying to sell higher-priced menu items in a difficult economy is not the only problem facing Carl's Jr.