Wall Street Journal:
Pumpkin-spice shakes, Reuben sandwiches and other limited-time menu items are reviving sales at chain restaurants, but nailing the logistics of promotions can be tricky.
First, Subway restaurants ran out of rye bread. Then the corned beef started to dwindle.
Just three weeks into an 8-week Reuben sandwich promotion last fall, Subway’s supply chain couldn’t keep up. Coupons and advertising drew more traffic than they’d expected in some regions. And patrons were adding rye bread and other Reuben ingredients to customize other sandwiches. Some customers hankering for a Reuben had to be turned away.
Restaurant chains are adding more limited-time items to their menus as they look for ways to temporarily juice sliding sales. The 100 biggest chains added 2,654 new or limited-time items to their menus last year, up 46% from 2015, according to market research firm Technomic.
That’s raising revenue, but also straining restaurant supply chains. National chains rely on a network of suppliers set up to ship tomatoes, hamburger buns and other staples in regularly scheduled truckloads. They aren’t always equipped for a sudden surge in demand for cookie-butter milkshakes or mango shrimp rice bowls.
Predicting demand for a new menu item is tricky. Overestimate interest in a promotion, and chains can get stuck with millions of dollars-worth of excess ingredients. Underestimating demand can force restaurants to turn away customers, as Subway was forced to do at the height of its Reuben promotion.
“Did the sandwich artist or manager of the restaurant enjoy that experience? No, everybody feels bad,” said Dennis Clabby, executive vice president of Subway’s purchasing arm, Independent Purchasing Cooperative Inc. “Lost sales could easily exceed millions of dollars.”
Kristi Kingery, Tropical Smoothie’s VP of supply chain, said her team had to scramble to find new suppliers. The company only secured 85% of the avocados it needed, and they came chopped up instead of whole, which changed the formula for the smoothie. Tropical Smoothie ended up shifting its summer marketing campaign toward its other seasonal flavor, watermelon-mojito.
“We barely had enough avocado secured to get through that promotion,” Ms. Kingery said.
Still, the benefits of limited-time offers tend to outweigh the risk, analysts say.
“Restaurants like limited-time offers because it creates a sense of urgency and people want to get them before they’re gone,” said Bonnie Riggs, an industry analyst with NPD Group Inc.
Restaurant chains have struggled in recent years as meal-kit services and prepared food at grocery stores have drawn customers away. Customers spent $298 billion at the top 500 restaurant chains in 2016, but revenue growth is slowing, according to Technomic.
Ms. Riggs said restaurant chains saw a 1% uptick in customer visits from July through September this year, after six quarters of flat or declining traffic. She credits in part the abundance of special items, especially pumpkin-spice flavored items, which show up on many menus by the beginning of September.
Restaurants are tailoring their supply chains to special offers, including using software that use consumer data to improve demand forecasts. But many in the industry believed they needed to put their heads together to develop a broader solution.
Earlier this year, IFMA convened a group of representatives from dozens of restaurant brands, food and beverage manufacturers and distributors began who are now developing and testing data and communications tools to make promotions run more smoothly. Subway and Tropical Smoothie are taking part in the effort.
The surge in new menu offerings “puts huge pressure on the supply chain,” said Larry Oberkfell, president of the International Foodservice Manufacturers Association, the industry group behind the effort. “It can be extremely frustrating or extremely rewarding.”
They also ordered, packed and shipped the two meats in volumes proportionate to how they’re used on each sandwich, so they wouldn’t have too much of one type left over.
Mr. Clabby said Subway didn’t have to turn customers away for the first time in many years, and its distributors finished the promotion with virtually no wasted product.
Now they’re returning to one of their greatest challenges with fresh eyes: the Reuben, on sale once again for a limited time.