When you think of fast food restaurants, what is the first idea or image that comes to mind? McDonald’s has its Big Mac, Golden Arches and “billions and billions served.” Burger King has its memorable (if questionably effective) “King mask” TV ads. Subway has its long-time spokesman, Jared, who successfully slimmed down to a healthy weight while eating Subway sandwiches. Chipotle offers fresh, natural ingredients in its foil-wrapped burritos, along with a distinctive ambience – a sophisticated spin on quick-service Mexican food.

So what about Arby’s? How does that restaurant chain stand out in the crowded fast food market?

The problem for Arby’s, and its owner Wendy’s/Arby’s, is that recently Arby’s hasn’t been known for anything in particular.  I personally always think of Arby’s as the “roast beef sandwich” of which I am not a fan.  Today they offer so much more.  Yet the Arby’s brand has gotten lost in the clutter of a highly competitive, price-sensitive market, and as a result, Arby’s and its owner have been losing money.

Now Wendy’s is looking to sell Arby’s to new ownership, and part of the process of finding a buyer for the company involves taking a fresh look at what Arby’s really means to customers. What are the key competitive advantages for Arby’s, how can they navigate the challenging environment that they’re in, and what are the lessons for the rest of us? Are they relevant to today’s trends?

Focus on what you do best: find your competitive advantage

Arby’s was founded in 1964 by two brothers, Forrest and Leroy Raffel, and their first restaurant sold only roast beef sandwiches, potato chips and soft drinks. (Many people think that the name “Arby’s” is based on the initials R.B. for “roast beef,” but the name was actually chosen to represent “Raffel Brothers.”) The owners had a vision that their restaurant could compete without being based on hamburgers.

Like me, most people think of Arby’s for its roast beef sandwiches. It’s a long-time part of the company identity. Over the years, Arby’s has expanded its menu into several other directions. Today, the menu includes everything from milkshakes to salads to deli sandwiches and chicken filet sandwiches.

Is it possible that Arby’s has overextended its offerings? One of the classic mistakes in the restaurant business is offering too big of a menu – after all, if a restaurant offers dozens and dozens of menu items, odds are that not everything on the menu is going to be good. It costs money to maintain every menu item – stocking the ingredients, training staff to prepare it, marketing the menu items to customers.

Perhaps Arby’s should go back to basics and focus on the roast beef sandwiches that originally made it popular with customers. After all, Arby’s cannot be “all things to all people.” When customers want a deli sandwich, is Arby’s going to be top of mind, or will they go to Subway? Can Arby’s compete with Chik-Fil-A in the chicken sandwich category? Sometimes it’s important to decide what your business is not going to offer. You can’t compete in every product category and niche market. Find the places where you have a big competitive advantage, and dedicate your resources accordingly.

Know your customers

Arby’s recently introduced a new marketing campaign called “Good Mood Food,” emphasizing the restaurant’s selection of wholesome ingredients, and promoting a new premium Angus beef sandwich (to compete with Hardee’s and McDonald’s Angus burgers).

According to QSR Magazine, Arby’s is focusing this new “Good Mood Food” campaign on a key customer segment identified in its customer research, which they are calling “Balance Seekers.” These customers do not eat fast food every day, but they need the convenience to help with their busy lifestyles. Arby’s wants to offer these customers an experience that gives them filling, tasty food and healthy ingredients that they don’t have to feel guilty about eating.

This is a good start for Arby’s – by doing their customer research, they are able to craft an offer that is relevant to their customers. Arby’s is trying to fulfill a specific need that they have identified through market research. This is a promising step, especially in an era when so many companies seem to invest in marketing campaigns without talking to their customers first.

Raise your prices – be a “premium offering”

One of the biggest challenges facing the fast food industry is rising food prices. Wendy’s/Arby’s is expecting its food costs to rise 5-6% during 2011, making it hard to maintain profit margins in a competitive industry like fast food.

Arby’s plans to ride out the storm by enacting “strategic price increases” on certain menu items, and they expect that their customers will be willing to pay more since Arby’s is now offering higher quality, fresher ingredients. Whether this strategy will succeed remains to be seen, but it’s a better plan than simply trying to compete on price. Only the biggest companies can win at that game, and in the long-run, selling on price is not the best answer, even for the Wal-Mart’s of the world.

What can your business do to position yourself as being worthy of a higher price? How much flexibility do you have to raise prices without driving your customers away? By answering these questions, your company (and Arby’s) will be better positioned to attract more profitable customers – or a more profitable selling price for your business. Most companies are not clear on what competitive advantages they have and which ones, if any, are relevant to their buyers.  Organizations who are clear on this are the ones who sustain profits for the long run.

Finding your competitive advantages and discovering relevance:    www.SmartAdvantage.com

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