NEW ALBANY, OHIO — Like many of its competitors, Bob Evans Farms, Inc. could not escape adverse impacts of severe winter weather. Except in Florida, that is.
During its third quarter, the company posted a 1.8% decline in overall same-restaurant sales, particularly in core Midwest markets, where more than 60% of the chain’s restaurants are located. Sales aside, profit in those areas was pressured by costs of food waste, labor inefficiencies, snow removal and such maintenance issues as frozen pipes and water heater replacements.
Conversely, restaurants in the Sunshine State, which were untouched by unfavorable weather, reported gains in comparable sales of 4.4%. Bob Evans said its Florida results offered key insights into new programs in place to improve the restaurant business, including a value-oriented platform. With a new restaurant marketing leadership team appointed, the chain plans to capitalize on the power of a tiered pricing model to appeal to its bifurcated customer base.
“We have opportunities to more effectively address growth opportunities for on- and off- premise with two distinct guest segments who have unique value expectations,” said Steve Davis, chairman and chief executive officer, during a March 5 earnings call with analysts. “This approach entails an integrated marketing strategy that supports strategic tiered pricing across all day parts.”
The marketing approach is two-pronged, with an external focus on new products and entry-level price points, and an in-restaurant push for upsell opportunities.
“We believe the Florida market, which generated same-store sales of 4.4% during the third quarter, shows the potential of this strategy combined with the impact of our Farm Fresh Refresh remodels when sales are not impeded by severe winter weather,” Mr. Davis said. “We view our strategy as an opportunity to build guest traffic in trial with our external messaging while leveraging that effect with compelling point-of-sale marketing featuring add-on and upsell opportunities within the four walls of our restaurants.”
As a result of the barbell strategy, Bob Evans said nearly half of its customers opted for a $2 meat add-on on a $6.99 hotcake plate at breakfast, when the option was prominently called out on the menu.
“Along with a beverage incident rate of over 90% at breakfast, this strategy has been accretive to the average breakfast check,” Mr. Davis said.
At lunch, he added, nearly 40% of customers who ordered the $7.99 Knife and Fork Sandwich platform upgraded to a three-course meal option for $2.
“The $7.99 Knife and Fork platform is yet another example of our barbell strategy at work,” Mr. Davis said. “A certain portion of guests who pass on the $2 upsells are clearly attracted to the low price point and are less likely to add a beverage as they are managing check. Alternatively, those guests who opt for the $2 three-course upsell are likely to see the value of the bundled price point and may still complement their larger meal with a beverage. We welcome and will continue to actively market the price-sensitive guests as well as guests who define value as more food for their money.”
The price-tiered approach positions Bob Evans to more effectively compete with quick-service and fast-casual restaurants for value-seeking customers as well as with its casual-dining competitors for consumers with a more discretionary income, he said.
Taking a page from the restaurant business playbook, the Bob Evans Farm Foods segment similarly is evolving its marketing strategy, with a move away from transaction-centric marketing bias to a greater emphasis on brand development and customer awareness. The segment also is reorganizing its operational leadership to establish more direct lines of responsibility for plant level performance to specific individuals at corporate level. As part of the transition, Bob Evans announced an elimination of headquarters positions, which will help offset overhead costs formerly allocated to Mimi’s Café, which the company divested last year.
Higher-than-projected sow costs, plant startup inefficiencies and sales and earnings impacts from a supplier dispute weighed on the BEF Foods business unit’s earnings during the quarter.
“We view the recent expansions of our Sulphur Springs and Lima facilities, along with the closure of our Richardson fresh sausage plant, as key enablers of continued diversification away from products impacted by increasingly volatile and elevated sow costs,” Mr. Davis said. “The Sulphur Springs and Lima expansions will reduce the likelihood of future supplier disputes as Bob Evans Farms Foods continue to vertically integrate its core product lines.”
Net income for the quarter ended Jan. 24 advanced to $5,723,000, equal to 22c per share on the common stock, which compared with a loss of $55,140,000 in the prior-year period. Net sales slid to $340,132,000 from $434,440,000 the year before.
Operating income for Bob Evans Restaurants fell to $6,578,000 from $16,988,000 in the same quarter a year ago. Net sales for the segment were $240,506,000, down from $245,494,000. The company expects a 6.7% decline in February same-store sales on continued weather impacts.
For BEF Foods, operating income decreased to $1,376,000 from $3,161,000 a year before. Net sales for the segment rose to $99,626,000 from $97,827,000 the prior-year period.
The company now projects fiscal 2014 net sales of approximately $1.3 billion, reflecting an estimated 3% decline in same-store sales during the fourth quarter and benefits from a Texas plant closing and higher sausage product pricing. Harsh winter weather notwithstanding, Bob Evans expects improved results in fiscal 2015 on the completion of plant expansion projects and the Farm Fresh Refresh restaurant remodeling program.“The expected completion of Farm Fresh Refresh 1.0 this fiscal year, increased new restaurant development to 8 to 10 new restaurants in FY15, the impending opening of the first Bob Evans Express in a mall environment and realizing that growth enabled by Bob Evans Farms Foods plant optimization program are all crucial steps for achieving returns on what has been a historically high capital investment year at Bob Evans Farms, Inc.,” Mr. Davis said. “The critical investments have been made. The strategic course has been set, and we now have the teams and processes in place to execute.”