In today’s FY1Q10 press release the company made a very significant announcement about a potential value initiative. Please see today’s post on SONC as a case study on the P&L impact when a company goes after a value initiative.
CKR’s period 5 same-store sales declined 7.1% at Carl’s Jr., accelerating the 2-year average declines at the concept to -2.3% from period 4’s -1% and fiscal 1Q10’s -0.6%. The company blamed the weak California economy and the lapping of last year’s stimulus check spending for softness in sales. Although these factors most definitely impacted numbers, Carl’s Jr.’s same-stores sales continued to underperform its QSR peers that are facing the same issues. Carl’s Jr.’s underperformance stems from the company’s adherence to its premium menu strategy. CKR’s recent press releases are loaded with comments like “not resorting to deep discounting practices designed to boost same-store sales in the short-term” and being “prepared to ‘tough-it-out’ to protect brand image.” This premium brand focus, however, has not worked and sales have suffered as a result. Like SONC said yesterday, value is the number one driver of traffic in this environment.
CKR announced last quarter that it would add some lower priced products to its menu but that it would not use media support for these lower priced items. In today’s quarterly earnings release, the company said it “intend[s] to launch initiatives that increase the awareness of the value of our premium products relative to casual dining as well as our existing value items that we have previously only promoted in the restaurants.” The key word in that sentence is "previously" as it signals that the company will begin to promote these value items outside the four walls of its restaurants. Although I am sure the company will downplay the significance of such a change in strategy as management seems proud of its having not succumb to the deep discounting tactics of its competitors, this is a definite change in strategy, and a welcomed change as Carl’s Jr. significant same-store sales declines are evidence of recent share losses. Too much focus on value could hurt margins, but not getting enough customers in the door will have the same impact. The question is will management change its strategy enough to really drive traffic?