Arby's, Inc.

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Arby's, Inc.

FOUNDED: 1964

Contact Information:

headquarters: 1000 corporate dr.
fort lauderdale, fl 33334 phone: (954)351-5600

OVERVIEW

Arby's Inc. is the world's largest franchise restaurant system that sells primarily roast beef sandwiches, controlling approximately 73 percent of that market in 1997. Based on company figures, it was the tenth largest restaurant chain in the United States, and had worldwide sales of about $2.1 billion. After sluggish performance in the 1980s and the early 1990s, Arby's changed ownership and its performance improved considerably, helped by an expanded menu, revamping of its restaurants, and expansion of the chain.

Arby's restaurants can be found in 48 states and 10 foreign countries, although the vast majority are located in the United States and Canada. At the end of 1997, the 6 leading states were: Ohio, with 234 restaurants; Texas, with 181; California, with 161; Michigan, with 154 restaurants; and Georgia and Indiana, with 152 restaurants each. The country outside the United States with the most operating units is Canada, with 119 restaurants.

Arby's traditionally has operated chiefly as a franchise chain. Of its 3,100 restaurants in 1997, the company owned only 355, and the rest were franchises. In 1997, Arby's owner, Triarc Companies, Inc. (Triarc), sold those 355 company-owned restaurants to the chain's largest franchisee, RTM Restaurant Group, but retained control of the Arby's brand and management of franchise rights.

COMPANY FINANCES

Arby's sales, system-wide, were approximately $2.1 billion in 1997, up from approximately $1.9 billion in 1995 and $2.0 billion in 1996. Prior to the sale, revenues were principally derived from sales at company-owned restaurants. In 1997, approximately 53 percent of revenues came from sales at company-owned restaurants and approximately 47 percent were derived from royalties and franchise fees. As a result of Triarc's sale of the remaining 355 company-owned restaurants to RTM, the Triarc Restaurant Group now operates solely as a fran-chisor and derives revenues from two principal sources: royalties from franchisees and franchise fees.

Arby's restaurant revenues decreased $147.9 million (51.3 percent) to $140.4 million, principally reflecting impact of the RTM sale on May 5, 1997. Aside from the effect on sales of the RTM sale, restaurant revenues increased $6.5 million (4.8 percent). Also a result of the sale, first quarter restaurant revenues for 1998 were $18.1 million, down from $47.4 million in first quarter 1997. The decrease in restaurant sales, however, was partially offset by a $4.7-million increase in royalties and franchise fees. RTM now operates the 355 restaurants as a franchisee and pays royalties to Triarc at a rate of 4 percent of restaurant net sales.

HISTORY

The original Arby's restaurant opened in Youngstown, Ohio, in 1964, by brothers Forrest and Leroy Raffel. The chain grew modestly in its early years, focusing on its trademark roast beef sandwiches. They merged the company with Royal Crown in 1976, and retired in 1979. After several disastrous years under the ownership of corporate raider Victor Posner's DWG Corporation, Arby's was sold to Triarc Companies Inc., which worked hard to rejuvenate the chain.

Under Triarc's ownership, Arby's modernized many of its facilities, began national advertising, and expanded its menu beyond the roast beef sandwich for which it was best known. By 1998 Arby's operated 3,100 restaurants, more than 2,900 in the United States and the remaining in 10 other countries, chiefly Canada. About a quarter of the restaurants were concentrated in 5 states—Ohio, Texas, California, Michigan, and Florida. In 1997 Triarc sold its company-owned restaurants to RTM Restaurant Group of Atlanta. Arby's retained its brand identity and management of the chain, and planned to open 150 more franchises in 1998. In 1997, after the RTM sale, Triarc continued to to develop products under both the Arby's brand name and others that Triarc had acquired.

STRATEGY

During the 1980s and early 1990s, under the ownership of the ill-fated DWG Corporation, Arby's suffered noticeably from a lack of direction and innovation. When it was purchased by Triarc, its new president, Don Pierce, used his experience from the world of fast-food fried chicken (at KFC International) to slowly turn the troubled chain around. The roast beef sandwich remained the cornerstone of Arby's menu, but it was joined by an expanded menu including "home-cooked" foods and international items.

Into the late 1990s Arby's pursued a "multi-branding" strategy, in which one of its restaurants would sell several brand name food items (Arby's, ZuZu's, P.T. Noodle's, and T.J. Cinnamon's brands). Triarc added T.J. Cinnamon to the list of product offerings in 120 stores in 1997, with another 250 expected to add the brand in 1998. Both Triarc and the RTM Restaurant Group planned to continue this multi-branding approach. RTM also agreed, under terms of the sale, to build another 400 Arby's restaurants during the next 14 years. Triarc had its own plans to open new franchises, expecting to open 150 in 1998.

FAST FACTS: About Arby's, Inc.

Ownership: Arby's, Inc. is a wholly owned subsidiary of RC/Arby's Corp. RC/Arby's Corp. is a subsidiary of Triarc Companies, Inc. and CFC Holdings Corp.

Officers: Nelson Peltz, 54, Chmn. & CEO; Peter W. May, 54, Pres. & COO; Fred H. Schaefer, VP & Chief Acct. Off.; John L. Barnes, Jr., Exec. VP & CFO

Employees: 7,035

Chief Competitors: As a franchise restaurant system, Arby's chief competitors are: McDonald's; Burger King; Wendy's; Boston Market; and Subway.

The company's advertising strategy relies primarily on regional television, radio, and newspapers. Owners of local franchised restaurants contribute to the cost of local advertising, and also to the Arby's Franchise Association (AFA), which produces system-wide advertising and promotional materials for all Arby's restaurants. Key competitive factors the company tries to address in its advertising include price, product quality, and service.

INFLUENCES

In the 1980s Arby's unfortunately became swept up in a series of corporate raids typical of the decade. It came under the ownership of the Royal Crown Corporation, which itself was taken over by the DWG Corporation in 1984. DWG was one of many companies under control of the infamous corporate raider, Victor Posner. It was one of Posner's key holdings and it suffered mightily during his tenure. A shareholder suit against Posner revealed that he had flagrantly misused DWG's corporate funds. For example, in 1991 he charged $173,000 in meal expenses (about $474 per day) to DWG. During a five-year period, he received salaries and bonuses of $31 million—more than the company's $26 million in earnings for that time period. At the same time, DWG's creditors went unpaid and employees were under a salary freeze. While many of Posner's companies went bankrupt, DWG did manage to survive. Posner and his son were barred by a federal court in 1993 from ever again acting as officers or directors of any public company.

While owned by Posner, Arby's lost much of its market due to management neglect. Fortunately, in mid-1993 Triarc Companies Inc. took over Posner's DWG holdings, including Arby's and Royal Crown Cola. Arby's new president, Don Pierce (hired from PepsiCo's KFC International), moved quickly to revive the faltering chain. While retaining the "Old West" motif, the new management quickly began to remodel restaurants and introduced a new line of "home-cooked" items (such as, fresh bread and apple pie) at new Arby's Roast Town restaurants. Although sales increased from $223 million (1994) to $273 million (1995) and then $288 million (1996) under the new management, profits fell each year, and Arby's operated at a loss of $43 million in 1996.

In 1997 Triarc sold the 355 company-owned Arby's restaurants to its largest franchisee, Atlanta's RTM Restaurant Group, which already operated 670 Arby's. Triarc would continue marketing the Arby's brand as a franchisee of the other 3,000-plus Arby's restaurants. As part of the deal, RTM agreed to build 400 more Arby's by the year 2010.

CURRENT TRENDS

Under its new owner as of 1997, RTM Restaurant Group, Arby's planned to continue expanding and upgrading its menu and continued to operate as a franchise-based chain, with former owner Triarc remaining active in marketing and in chain operations. Major expansion of the chain also is anticipated through the first decade of the next century.

PRODUCTS

Arby's key product since its founding has been its roast beef sandwich. Until Triarc took over the chain in 1993, Arby's was slipping in the highly competitive fast food industry. Triarc decided to freshen the Arby's image. While retaining its Old West motif and its roast beef sandwich, Arby's began to expand its fast food menu. In 1995, it introduced a new concept, the Roast Town restaurant, at which customers could buy items such as roast beef slices and apple pies. According to Arby's president Don Pierce, customers were beginning to prefer this type of food rather than the basic fast-food hamburger, noting that, "Some people call them quick comfort foods' because they're something like what Mom used to cook at home." For those who chose to be daring and venture a bit further from home, Arby's also introduced other items such as jalapeno peppers with cream cheese, steak and red bean chili, and "bumble-berry pie."

CHRONOLOGY: Key Dates for Arby's, Inc.

1964:: Founded in Youngstown, Ohio
1976:: Merges with Royal Crown
1979:: Founders Forrest and Leroy Raffel retire
1984:: DWG takes over Royal Crown
1993:: Triarc Companies Inc. takes over DWG holdings
1995:: Introduces Roast Town restaurants
1997:: Triarc sells its company-owned restaurants to RTM Restaurant Group

Arby's also introduced the concept of "multi-branding" at some of its restaurants in the mid-1990s. After Arby's entered into several new purchase and franchise agreements, customers at many of its restaurant could choose from ZuZu's Mexican food; P.T. Noodle's Asian, Italian, and American noodle dishes; and T.J. Cinnamon's gourmet cinnamon rolls. Also, after its acquisition of Arby's restaurants from Triarc, RTM, true to its Atlanta roots, also decided to replace Triarc's Royal Crown Cola as the Arby's house beverage, in favor of the much more popular and Atlanta-based Coca-Cola.

GLOBAL PRESENCE

Of the 3,100 company-owned and franchised Arby's restaurants operating as of January 1997, all but 163 were located within the United States. Canada was the home of 111 restaurants, with 52 restaurants scattered in another 9 countries. The restaurants in these 9 countries tended to be larger than those in the United States and Canada, which usually ranged in size from 700 to 4,000 square feet.

EMPLOYMENT

At the beginning of 1997, Arby's employed 7,035 people, 6,110 of them hourly workers in its restaurants. As in most fast food settings, many of these hourly workers were part-time employees and none were represented by labor unions.