Big Gamble: Applebee’s Bets on Menu Reboot

The announcement by Applebee’s fast casual restaurant chain this week regarding the major menu rebooting and shift in food preparation focus really took me by surprise. The menu changes are significant and the program, introduced by their CEO, details the ambitious $75 million bet that the company is making which is by far their biggest marketing expenditure in the history of the brand.

The centerpiece of the revitalized menu is a major equipment and preparation alteration. Applebee’s paid a significant amount of money to change over from natural gas grills to wood fired grills in all 2,000 locations. The restaurant chain will now prepare all their meats and proteins over a wood grill utilizing American oak wood to smoke that flavor into all their steaks, chicken, and seafood.

This is a big gamble on a few different fronts which could go disastrously for “America’s Neighborhood Family Bar & Grill”. The reliance upon wood smoked flavor could be unfavorable to certain demographics, particularly children, young adults, and senior citizens. The fact that the majority of their products will involve some component or ingredient that is wood smoked does not provide the customer with another option.

Outback Steakhouse, prepares steak over a wood flame and also has more traditional options for meat preparation, they provide the customer with choices which appeals to a much wider demographic. It also makes the experience highly customized for the guest, which is a proponent that scores well in consumer surveys of Outback, which is a competitor to Applebee’s.

Wood It Work?

In addition, Applebee’s is now reliant upon a continuous supply of American oak to provide the signature flavor to their new menu items. That particular wood is a commodity that is subject to price fluctuations based on external factors impacting supply and demand. The translation being that if the supply chain for American oak becomes subject to a shortage or a demand spike and the cost of the product increases that is going to put Applebee’s in a bind. It will be difficult to change to another source of wood because that will impact the flavor in their menu offerings in the future and cause customer confusion and dissatisfaction.

The chain would be forced to either raise the prices of their menu offerings or take a hit on their profit margins; both alternatives have negative consequences to sales volume and revenue. Furthermore, the chain has made a full scale change to their grills and at a steep up front cost which there is no easy way to reverse should this new menu reboot be met with resistance from the customer base.

Applebee’s also announced that it will be revamping the steak menu choices by offering USDA Choice meat, according to reports the current and most recent steak offered by the restaurant chain had no rating through the USDA. The perspective I took out of that bit of news is that it sounds good at face value, but they were serving an inferior product for a period of time before making the change which made me question their commitment to quality. Moreover, the change to USDA Choice steaks means another change to their menu which costs money and the method which Applebee’s chose to do so is even more costly.

I will qualify that previous statement by explaining that Applebee’s plans to have each steak hand cut in their restaurants which is going to require even more extensive training for their staff members. The company estimates tens of thousands of additional training hours (which costs money) to adequately prepare their employees from kitchen staff to food prep to wait staff/ front of the house personnel with the knowledge needed to cook and to sell the new products effectively.

Across The Board

In a time where the economic outlook is getting bleak again for the entire U.S. economy, when pundits are predicting the next recession, and when recent job reports show a contraction in the work force; Applebee’s chose to reinvent the way they fundamentally make their product offerings across the entire menu. They are spending aggressively to market and promote this new menu and wood grill focus across print, television, and internet streaming ads to YouTube and other outlets to appeal to the millennials and other important demographics that have disposable income.

The new advertising campaign represents yet more money the company is front loading into this effort to rebrand themselves. I think it is a big gamble and that it is the wrong focus for the company. I make that statement because of my experience involved in the food and consumer goods industries.

One of the comments I latched onto from the Applebee’s media event earlier this week was a comment made by the Senior VP of Marketing for the company. He was explaining the sentiment that Applebee’s (and other fast casual chains) are losing share to competitors such as Chipotle and Panera Bread because of the perception that the food offered at Applebee’s was mass produced. The consumer perception of Chipotle and Panera Bread are that the menu offerings are healthier and made with fresh ingredients.

Fresh Perspective

He continued by asserting a counterpoint to that perception that, in fact, Applebee’s makes several of their menu products in-house at each individual location. This is where I think the company missed the mark, instead of overhauling the grills and the entire menu they could have rolled out an entire new advertising campaign based on the fresh prepared focus of their current offerings.

It worked for their competition, Chili’s, a unit of Brinker International, which presented an entire advertising campaign on their fresh focus with house made products. Chili’s also introduced a few new menu offerings that enhanced the value to the consumer with a variety of enhancements or product additions made to their existing staple menu items such as enchiladas or burritos. They also reinvigorated their signature hamburgers with some small preparation changes to enhance the overall flavor profile. The campaign was a success for the sales for that chain and has been very popular with the customer online reviews which has improved the perception of the brand overall.

The focus on “cleaner” eating, healthier, fresh, organic, and locally sourced product is a hot button trend for the American consumer right now and that same consumer base enjoys going out to eat. Applebee’s could have spent a significantly less amount of money and focused their advertising differently with an addition of a few new menu items or a seasonal menu, but they felt they had to bet big to differentiate themselves from their competition.

The only problem with that type of risk is that if they miscalculated the consumer interest in a wood smoked menu with limited other options that could spell disaster for the chain, which is already struggling and lagging behind their competition. Applebee’s has the same parent company as IHOP restaurants, and the IHOP chain (thanks to the American seemingly insatiable appetite for breakfast food) has outperformed Applebee’s over the last several quarters. In my own view, I just do not think that children and senior citizens are going to be receptive to wood smoked entrees at the level that Applebee’s envisions.

This menu and food preparation reboot is a major risk in a downward trending economy. Applebee’s better hope that they are on the right side of this bet or else their business is going to go up in smoke.

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