The fast feeder’s discount strategy is paying off with same store customer counts growing from the prior year.
While discounting has increased customer counts, the results haven’t helped the bottom lines of foodservice franchisees. The chart below shows how the leading fast-food restaurants increased store traffic by anywhere from 2,000 to almost 127,000 customers in the mid to later-part of 2008 — mostly due to their recently launched discounted menus.
The problem is that quick-service restaurant (QSR) profitability comes from royalties and does not equate into franchisees’ profits. For example, McDonald’s franchisees have formally fought the dollar menu because of its lack of profitability. Taco Bell is experiencing a 50 percent (yes, that is right) profit decline overall as its 79-cent, 89-cent, and 99-cent menu comprises 50-to 60 percent of the sales mix. While these price points drive sales, they may not drive profits.
Subway has discounted foot-longs to $5 from $7, while food costs have risen by 26 to 32 percent. The $5 foot longs account for about 65 percent of the chain’s sales mix. While sales have been maintained, and in some cased grown, the net profit for each store has actually dropped. Continue reading.