Arby’s looks to Las Vegas test to help propel growth

Tuesday, Aug. 29, 2000 | 11:24 a.m.

Why Arby's?

Arby's was founded by Forrest and Leroy Raffel in 1964. The two brothers opened a roast beef restaurant in Boardman, Ohio, and wanted to name it "Big Tex." But the brothers couldn't acquire that name from an Akron, Ohio, business person who held the name. So, they settled on the initials R.B. for "Raffel Brothers," not realizing most people would think that it stood for "roast beef."

The company that franchises the Arby's fast-food chain will use concepts tested in Las Vegas to keep the company growing after an unprecedented 14 quarters of same-store sales increases.

Triarc Restaurant Group, a subsidiary of Triarc Companies Inc., Fort Lauderdale, Fla., kicked off its 2000 Worldwide Franchisee Convention for about 1,300 Arby's restaurant owners Monday in Las Vegas.

Top company executives spelled out the company's growth strategy, then opened a trade show in a meet-greet-and-eat format. At the center of the expansion plan is the rollout of its Market Fresh line of deli sandwiches -- which have been on Las Vegas Arby's store menus since May. A new architectural look and plans to recruit more multi-franchise owners also are on the horizon for Arby's.

The plan comes on the heels of the company reporting sales up 0.5 percent from last quarter and 2 percent over six months. The restaurant group, which also operates the Pasta Connection and T.J. Cinnamons chains, reported second-quarter revenues of $21.3 million compared with $20.1 million for the same quarter in 1999.

At Monday's opening, Tony Seta, the company's vice president of menu development, gave presentations on several of the sandwiches new to most of the franchisees, then had his assistants bring out hundreds of samples for conventioneers.

The group will be in Las Vegas through Wednesday for seminars and presentations on how Arby's will compete with fast-food dominators like McDonald's, Burger King and Wendy's.

Many conventioneers also got to see Arby's architectural look of the future -- a concept the company calls the Pinnacle. The design incorporates a triangular solarium atrium on the front facade.

"We've always thought our sandwiches have been unique and a cut above the average product on the market," said Harry Sax, a Las Vegas resident for 32 years and the owner of Nevada's 24 Arby's stores.

Sax and his partner, Michael Schulson, head the Lunan Corp. It controls 37 Arby's in Chicago, two in Barstow, Calif., six in Reno and is building its 18th Las Vegas area store at Craig Road and Martin Luther King Boulevard.

"The Market Fresh concept solidifies the niche Arby's already dominates," Sax said. "It's a higher quality sandwich, but it's offered at a higher price. But our customers recognize the quality and are very loyal. Most of the repeat customers who buy the Market Fresh sandwiches almost always come back for the same sandwich."

Sax said he could not divulge statistics, but that sales enjoyed "a favorable increase" since the Market Fresh test in Las Vegas and Ashville, N.C.

Lloyd Fritzmeier, president and chief executive officer of the Arby's Franchise Association, which operates as the marketing arm for the domestic Arby's system, said Las Vegas was chosen as a test site because Sax volunteered his stores to try it -- not because of any special demographic profile or high tourist concentrations.

Fritzmeier is the executive who positioned the Arby's focus on the adult market, a position executives say will continue.

"We've always been about the food," said the company's 33-year-old chief executive officer, Jon May. "We're not about the toys."

The remark was an obvious dig at other fast-food outlets that have successfully positioned themselves with promotions that offer giveaways themed to popular movies.

The toy tie-ins have worked for McDonald's and Burger King, which hold mighty advantages in the number of outlets they have. Arby's has about 3,200 stores worldwide; market leader McDonald's has more than 25,000. That advantage allows McDonald's to offer discounted items whenever sales drop and the corresponding volume bump usually keeps shareholders happy.

The rollout of the new menu items and the upcoming architectural flourishes should produce the additional sales Arby's seeks, an expert who follows the industry says.

"You have to reinvent every five years or so in this business," said Richard Papiernik, financial editor of the Nation's Restaurant News, a trade publication that covers the industry. "It's been about five years since Arby's has tried something new, so they have been long overdue."

Papiernik said the company is positioned to serve the adult market and aging baby-boomers it believes are its best customers. For that reason, he doesn't expect Arby's to reduce prices.

"If they got into a price war, it would kill them," Papiernik said. "But as long as they have franchisees who will buy into Market Fresh and the Pinnacle design, they'll be OK."

That's one of the reasons why Arby's rival Boston Chicken and its Boston Market restaurant concept struggled. They, too, tried to offer high-quality food at higher-than-average prices, but Papiernik said franchisees were not positioned to market the take-home meals concept the company was pursuing. Last year, the company filed for Chapter 11 bankruptcy.

Arby's executives hope the architectural changes in store for the company will make the Pinnacle design as recognizable as the Golden Arches of McDonald's -- a lofty goal for the 36-year-old chain. Under the Arby's corporate structure, franchisees must pay for the remodeling improvements, said Rony Pineda, manager of design and remodeling construction for the Triarc Restaurant Group.

Pineda said the Pinnacle design costs about $120 a square foot to build. A modified Pinnacle, which incorporates a triangular Pinnacle design into a squared-off facade, costs between $90 and $100 a square foot to build. But Pineda said so far, the new look has been responsible for a 14 percent increase in sales at stores where the design has been used. Pineda also said the company is offering a financial incentive program to encourage franchisees to complete the remodeling.

About 183 have made the switch this year. Las Vegas franchisee Sax has remodeled his store at Durango Drive and Spring Mountain Road to use the design and the new store at Craig and Martin Luther King, like all new stores, will have the fresh look.